BELLINGHAM, Wash., July 22, 2008 (PRIME NEWSWIRE) -- Horizon Financial Corp. (Nasdaq:HRZB) today reported a profitable first quarter of fiscal 2009 despite recording a $3 million provision for loan losses. Horizon reported earnings of $2.0 million or $0.17 per diluted share, for the quarter ended June 30, 2008, compared to earnings of $5.0 million, or $0.41 per diluted share for the comparable quarter in 2007 and earnings of $3.8 million, or $0.31 per diluted share for the immediate prior quarter of March 31, 2008.
"We are clearly seeing softening in the regional real estate market, particularly in Snohomish and Pierce Counties," said Rich Jacobson, Horizon's CEO. "Employment growth is continuing to slow from last year's robust pace. Unemployment in Washington State remained low at 5.5% in June 2008 but higher than 4.2% a year ago. Bellingham's unemployment was 5.6% up from 4.2% last year, Tacoma area unemployment was 6.5%, Mt. Vernon-Anacortes was 6.3% and Snohomish County was 4.5% in June."
"While the overall trends in our markets have been down, home sales around Western Washington last month reached the highest level since August 2007 as market conditions continue to favor buyers, according to a new report from Northwest Multiple Listing Service," Jacobson continued. "The NWMLS also indicated that prices in most counties were down compared to a year ago, but up slightly compared to May, and inventory showed signs of returning to a more balanced market in portions of the greater Puget Sound market."
Dick Conway and Doug Pedersen, economists who follow the Puget Sound economy closely, are forecasting slowing growth in 2008. Conway forecasted the Puget Sound economy "will escape a recession, though not by much, according to our June forecast. The economy is likely to be tested later this year. The recessionary U.S. economy, rising food and energy prices, tight credit, and the housing downturn constitute a formidable force, one that could flatten job growth in the last two quarters of 2008." The report continued: "While the leading indicator now stands at 1.13 (1987=1.00), 2.6 percent below the level of a year ago, the overall drop still falls well short of a recession signal."
Conference Call Information
Management will host a conference call tomorrow, July 23, 2008, at 9:00 am PDT (12:00 pm EDT) to discuss the quarterly results. The live call can be accessed by dialing (303) 262-2137 or on the web at www.horizonbank.com. The replay, which will be available for a month beginning shortly after the call concludes, can be heard at (303) 590-3000 using access code 11116240# or on the web at www.horizonbank.com.
Balance Sheet Review
Total assets grew 11% to $1.45 billion at June 30, 2008, from $1.30 billion at June 30, 2007. Net loans increased 15% to $1.25 billion at the end of June 2008 compared to $1.08 billion a year earlier. The loan mix continues to reflect the business banking focus of the lending team, with commercial real estate loans representing 67% of net loans, commercial loans representing 16%, residential representing 12%, and consumer representing 5% of net loans, respectively. "Our goal over the next year is to shift our loan mix to increase commercial and industrial loans and reduce the concentration of commercial real estate loans. As our land development and construction portfolio matures, we will reduce our exposure in this sector. In the short-term, however, the construction and land development portfolio will likely continue to increase as we complete funding for most of these projects," said Dennis Joines, President of Horizon Bank.
Nonperforming loans grew to $35.8 million, or 2.88% of net loans at June 30, 2008, from $11.6 million, or 0.97% of net loans at March 31, 2008, and $157,000, or 0.01% of net loans at June 30, 2007. The increase in nonperforming loans is due to a small number of residential construction projects in suburban markets to the north and south of Seattle. Other real estate owned increased to $2.8 million at June 30, 2008, compared to $655,000 at March 31, 2008 and $725,000 at June 30, 2007. These properties consist of three projects, including a commercial parcel of land in east Snohomish County, three completed homes in Snohomish County and a single family home in east Skagit County. Total nonperforming assets were $38.6 million, or 2.67% of total assets at June 30, 2008, up from $12.3 million, or 0.88% of total assets at March 31, 2008, and $882,000, or 0.07% of total assets at June 30, 2007.
Delinquencies, loans that are 30 to 89 days past due and still considered performing assets, declined in the first quarter of fiscal 2009 to $13.4 million from $30.6 million at March 31, 2008 and increased from $5.3 million at June 30, 2007.
The following table breaks out the loan portfolio and nonperforming assets by category.
% of
Nonperforming Assets by Category Nonperforming Nonperforming
(dollars in 000s) Assets Assets
------- -------
1-4 Family residential $1,829 5%
1-4 Family construction 373 1%
------- -------
Subtotal 2,202 6%
Commercial land development 11,031 29%
Commercial construction (1) 25,163 65%
Multi family residential -- 0%
Commercial real estate -- 0%
Commercial loans 82 0%
Home equity secured 100 0%
Other consumer loans 5 0%
------- -------
Subtotal 36,381 94%
------- -------
Total nonperforming assets $38,583 100%
======= =======
(1) The commercial construction totals shown in the table above include $7.8 million in a condo construction project, with the majority of the remaining balance consisting of various 1-4 family speculative construction projects.
"The majority of our nonperforming assets are for construction projects in Snohomish and Pierce counties, two markets which appear to be overbuilt at this time," Jacobson noted. "Our loan portfolio in the greater Bellingham area (Whatcom County) and greater Mt. Vernon area (Skagit County) continue to perform relatively well."
% of
Nonperforming Assets by Market Nonperforming Nonperforming
(dollars in 000s) Assets Assets
------- -------
Whatcom County $ 9,022 23%
Skagit County 660 2%
Snohomish County 20,717 54%
Pierce County 8,184 21%
------- -------
Total nonperforming assets $38,583 100%
======= =======
The provision for loan losses was $3.0 million in the first quarter of fiscal 2009, $2.0 million in the immediate prior quarter ended March 31, 2008, and $400,000 in the first quarter of fiscal 2008. Horizon recorded net charge offs of $3.0 million for the quarter ended June 30, 2008, compared to $777,000 in the immediate prior quarter and $27,000 in the first quarter of fiscal 2008. The reserve for loan losses totaled $19.1 million at June 30, 2008, representing 1.54% of net loans receivable compared to $19.1 million, or 1.60% of net loans receivable at March 31, 2008 and $16.3 million, or 1.50% of net loans receivable at June 30, 2007.
Horizon elected to take profits from its investment securities portfolio in the first quarter, generating a net gain of $579,000, primarily from the sale of equity holdings, including shares of Freddie Mac common stock (NYSE:FRE) . "We continue to hold approximately 19,800 common shares of Freddie Mac, and we do not hold any preferred shares of either Freddie Mac or Fannie Mae," said Jacobson.
Total deposits increased 11% to $1.10 billion during the quarter ended June 30, 2008, compared to $988.0 million for the comparable period in 2007. Transaction accounts totaled $353.0 million and accounted for 32% of total deposits at June 30, 2008, compared to $389.0 million, or 39% of total deposits a year ago. Time deposits increased to $744.0 million during the current quarter compared to $599.0 million at June 30, 2007. Brokered certificates of deposit were $153.8 million, or 14% of total deposits at June 30, 2008. This continues to be a challenging environment for attracting core deposits. Our shift in focus to commercial and industrial lending and away from construction and development lending should assist us in attracting core deposits going forward.
At June 30, 2008, Horizon's book value was $10.69 per share, compared to $10.31 per share a year earlier, and its tangible book value was $10.63 per share, up from $10.24 per share a year ago. Horizon remains well capitalized with a Tier 1 capital to average assets leverage ratio of 8.8%, which remains solidly above the regulatory threshold of 5% for a well capitalized rating, and well above the 4% threshold for adequately capitalized institutions. Horizon declared a cash dividend on June 26, 2008 of $0.135 per share which is payable on August 1, 2008 to shareholders of record on July 11, 2008. "Our dividend payments for the quarter totaled approximately $1.6 million on an equity base of $127.0 million," noted Chairman V. Lawrence Evans. "While we are diligent in reviewing our dividend policy each quarter, we recognize that cash dividends are important to our shareholders. We do not, however, anticipate making further share repurchases in the near term, which will support our efforts to preserve our capital base."
Review of Operations
For the first quarter of fiscal 2009, net revenues were $13.5 million, compared to $15.1 million for the comparable quarter in fiscal 2008. Interest income declined 14% to $21.4 million in the current quarter compared to $24.9 million for the three months ended June 30, 2007. Contributing to this decline was $750,000 in interest reversals related to the increase in non-accrual loans during the quarter ended June 30, 2008. Interest expense declined 11% in the current quarter to $10.2 million, from $11.5 million for the three months ended June 30, 2007.
Non-interest income increased 33% to $2.3 million in the first quarter of fiscal 2009, compared to $1.7 million in the first quarter of fiscal 2008. The increase is primarily a result of growth in service fee revenue and gains on sales of investment securities.
Non-interest expense increased 5% to $7.6 million in the first quarter of fiscal 2009, from $7.3 million in the first quarter of fiscal 2008. The increase reflects the overall growth of the Bank, including our new Puyallup retail office and home loan center, which opened last summer.
The net interest margin was 3.40% in the first quarter of fiscal 2009, a decrease of 44 basis points from 3.88% in the immediate prior quarter and down 121 basis points from 4.61% in the same period a year ago. The reversal of interest for non-accrual loans accounted for 23 basis points of the decline in the first quarter of fiscal 2009.
The yield on earning assets was 6.48% in the first quarter of fiscal 2009, a decrease from 7.36% in the preceding quarter and 8.53% in the first quarter of fiscal 2008. In the first quarter of fiscal 2009, the cost of interest-bearing liabilities was 3.18%, compared to 3.60% in the preceding quarter and 4.05% for first quarter of fiscal 2008.
The return on average equity was 6.32% in the first quarter of fiscal 2009, compared to 11.77% in the immediate prior quarter and 16.08% in first quarter of fiscal 2008. Return on average assets was 0.57% in the first quarter of fiscal 2009 compared to 1.08% for the preceding quarter and 1.56% in the first quarter of fiscal 2008.
Horizon Financial Corp. is a $1.45 billion, state-chartered bank holding company headquartered in Bellingham, Washington. Its primary subsidiary, Horizon Bank, is a state-chartered commercial bank that operates 19 full-service offices, four commercial loan centers and four real estate loan centers throughout Whatcom, Skagit, Snohomish and Pierce counties, Washington.
Safe Harbor Statement: Except for the historical information in this news release, the matters described herein are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs, results of examinations by our banking regulators, our ability to manage loan delinquency rates, the ability to successfully expand existing relationships, deposit pricing and the ability to gather low-cost deposits, success in new markets and expansion plans, expense management and the efficiency ratio, expanding or maintaining the net interest margin, interest rate risk, the local and national economic environment, and other risks and uncertainties discussed from time to time in Horizon Financial's filings with the Securities and Exchange Commission ("SEC"). Accordingly, undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this release. Horizon undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Investors are encouraged to read the SEC report of Horizon, particularly its Form 10-K for the fiscal year ended March 31, 2008, for meaningful cautionary language discussion why actual results may vary from those anticipated by management.
Sources: The Puget Sound Economic Forecaster June 2008 www.economicforecaster.com; http://www.nwrealestate.com/nwrpub/common/news.cfm;http://www.workforceexplorer.com/admin/uploadedPublications/1885_laus_current.xls
CONSOLIDATED
STATEMENTS
OF INCOME
(unaudited) Quarter Quarter Quarter
(in 000s, Ended Three Ended Ended
except share June 30, Month Mar 31, One Year June 30,
data) 2008 Change 2008 Change 2007
----------------------------------------------------------------------
Interest
income:
Interest on
loans $ 20,446 -10% $ 22,637 -14% $ 23,884
Interest
and
dividends
on
securities 961 6% 906 -5% 1,014
---------- ---------- ----------
Total
interest
income 21,407 -9% 23,543 -14% 24,898
Interest
expense:
Interest on
deposits 8,587 -7% 9,215 -9% 9,466
Interest on
borrowings 1,593 -17% 1,914 -20% 1,991
---------- ---------- ----------
Total
interest
expense 10,180 -9% 11,129 -11% 11,457
---------- ---------- ----------
Net interest
income 11,227 -10% 12,414 -16% 13,441
Provision
for loan
losses 3,000 50% 2,000 650% 400
---------- ---------- ----------
Net interest
income after
provision
for loan
losses 8,227 -21% 10,414 -37% 13,041
Non-interest
income:
Service
fees 960 6% 909 9% 881
Net gain on
sales of
loans -
servicing
released 204 7% 191 -35% 314
Net gain on
sales of
loans -
servicing
retained -- -100% 158 -100% 13
Net gain on
sales of
investment
securities 579 21% 480 N/A --
Other 516 9% 475 4% 495
---------- ---------- ----------
Total
non-interest
income 2,259 2% 2,213 33% 1,703
Non-interest
expense:
Compensation
and employee
benefits 4,503 14% 3,962 9% 4,132
Building
occupancy 1,126 -7% 1,205 4% 1,084
Other
expenses 1,493 4% 1,440 -6% 1,593
Data
processing 244 0% 244 1% 241
Advertising 219 10% 200 7% 205
---------- ---------- ----------
Total
non-interest
expense 7,585 8% 7,051 5% 7,255
Income before
provision
for income
taxes 2,901 -48% 5,576 -61% 7,489
Provision
for income
taxes 881 -51% 1,804 -64% 2,473
---------- ---------- ----------
Net Income $ 2,020 -46% $ 3,772 -60% $ 5,016
========== ========== ==========
Earnings
per
share:
Basic
earnings
per share $ 0.17 -47% $ 0.32 -59% $ 0.41
Diluted
earnings
per share $ 0.17 -45% $ 0.31 -59% $ 0.41
Weighted
average
shares
out-
standing:
Basic 11,893,813 0% 11,943,021 -3% 12,227,372
Common
stock
equiv-
alents 71,965 -12% 81,437 -36% 112,480
---------- ---------- ----------
Diluted 11,965,778 0% 12,024,458 -3% 12,339,852
========== ========== ==========
CONSOLIDATED
STATEMENTS
OF FINANCIAL
CONDITION
(unaudited)
(in 000s, Three
except share June 30, Month March 31, One Year June 30,
data) 2008 Change 2008 Change 2007
---------------------------------------------------------------------
Assets:
Cash and
due from
banks $ 24,095 8% $ 22,412 -31% $ 35,000
Interest-
bearing
deposits 2,831 -3% 2,912 -67% 8,665
Investment
securities
- available
for sale 39,050 -5% 41,241 -28% 54,041
Investment
securities
- held to
maturity -- N/A -- -100% 370
Mortgage-
backed
securities
- available
for sale 38,116 -3% 39,100 25% 30,374
Mortgage-
backed
securities
- held to
maturity 15 -50% 30 -87% 118
Federal Home
Loan Bank
stock 10,015 13% 8,867 38% 7,247
Loans held
for sale 2,314 -12% 2,644 -29% 3,240
Gross loans
receivable 1,264,740 4% 1,210,592 15% 1,100,810
Reserve for
loan
losses (19,149) 0% (19,114) 18% (16,262)
---------- ---------- ----------
Net loans
receivable 1,245,591 5% 1,191,478 15% 1,084,548
Investment
in real
estate in
a joint
venture 17,704 1% 17,567 2% 17,302
Accrued
interest
and
dividends
receivable 7,179 -9% 7,916 1% 7,134
Property
and
equipment,
net 27,351 -2% 27,778 -5% 28,673
Net
deferred
income tax
assets 7,012 12% 6,253 88% 3,736
Other real
estate
owned 2,764 322% 655 281% 725
Other
assets 23,614 1% 23,325 6% 22,368
---------- ---------- ----------
Total
assets $1,447,651 4% $1,392,178 11% $1,303,541
========== ========== ==========
Liabilities:
Deposits $1,096,754 6% $1,038,792 11% $ 987,704
Other
borrowed
funds 192,987 0% 192,343 23% 157,100
Borrowing
related to
investment
in real
estate in
a joint
venture 22,983 2% 22,448 11% 20,689
Accounts
payable
and other
liabilities 5,020 -13% 5,746 -34% 7,588
Advances by
borrowers
for taxes
and
insurance 186 -55% 414 -5% 196
Deferred
compensation 1,917 -1% 1,944 -4% 2,001
Income tax
payable 374 -83% 2,174 -86% 2,628
---------- ---------- ----------
Total
liabil-
ities $1,320,221 4% $1,263,861 12% $1,177,906
Stockholders'
equity:
Serial
preferred
stock,
$1.00 par
value;
10,000,000
shares
authorized;
none
issued or
outstanding -- -- --
Common stock,
$1.00 par
value;
30,000,000
shares
authorized;
11,917,113,
11,892,208,
and
12,186,224
shares
outstand-
ing $ 11,917 0% $ 11,892 -2% $ 12,186
Additional
paid-in
capital 50,706 0% 50,597 -1% 51,283
Retained
earnings 64,318 1% 63,906 9% 58,850
Accumulated
other
compre-
hensive
income 489 -75% 1,922 -85% 3,316
---------- ---------- ----------
Total
stock-
holders'
equity 127,430 -1% 128,317 1% 125,635
---------- ---------- ----------
Total
liabil-
ities and
stock-
holders'
equity $1,447,651 4% $1,392,178 11% $1,303,541
========== ========== ==========
Intangible
assets:
Goodwill $ 545 0% $ 545 0% $ 545
Mortgage
servicing
asset 240 -6% 254 -1% 242
---------- ---------- ----------
Total
intangible
assets $ 785 -2% $ 799 0% $ 787
========== ========== ==========
LOANS (unaudited) June 30, March 31, June 30,
(in 000s) 2008 2008 2007
---------------------------------------------------------------------
1-4 Mortgage
1-4 Family
residential $ 167,788 $ 165,824 $ 148,692
1-4 Family
construction 37,719 35,303 27,963
Participations sold (51,330) (54,269) (52,686)
---------- ---------- ----------
Subtotal 154,177 146,858 123,969
Commercial land
development 171,316 178,726 154,307
Commercial
construction 334,380 307,809 268,327
Multi family
residential 44,890 45,049 48,148
Commercial real
estate 296,682 300,109 291,705
Commercial loans 201,381 177,685 164,405
Home equity secured 53,110 47,351 43,144
Other consumer loans 8,804 7,005 6,805
---------- ---------- ----------
Subtotal 1,110,563 1,063,734 976,841
---------- ---------- ----------
Subtotal 1,264,740 1,210,592 1,100,810
Less:
Reserve for
loan losses (19,149) (19,114) (16,262)
---------- ---------- ----------
Net loans
receivable $1,245,591 $1,191,478 $1,084,548
========== ========== ==========
Net residential
loans $ 152,880 12% $ 145,565 12% $122,950 11%
Net commercial
loans 197,676 16% 174,263 15% 161,452 15%
Net commercial
real estate loans 834,142 67% 818,215 69% 750,995 69%
Net consumer loans 60,893 5% 53,435 4% 49,151 5%
--------------- --------------- ---------------
$1,245,591 100% $1,191,478 100% $1,084,548 100%
=============== =============== ===============
DEPOSITS (unaudited) June 30, March 31, June 30,
(in 000s) 2008 2008 2007
---------------------------------------------------------------------
Demand Deposits
Savings $ 17,660 2% $ 17,933 2% $ 19,665 2%
Checking 71,382 6% 72,434 7% 80,358 8%
Checking - non
interest bearing 78,981 7% 70,438 7% 89,145 9%
Money market 184,925 17% 183,063 17% 199,656 20%
--------------- --------------- ---------------
Subtotal 352,948 32% 343,868 33% 388,824 39%
Certificates
of Deposit
Under $100,000 289,183 26% 286,657 27% 282,726 29%
$100,000 and above 300,801 28% 287,281 28% 247,888 25%
Brokered Certificates
of Deposit 153,822 14% 120,986 12% 68,266 7%
--------------- --------------- ---------------
Total Certificates
of Deposit 743,806 68% 694,924 67% 598,880 61%
--------------- --------------- ---------------
Total $1,096,754 100% $1,038,792 100% $ 987,704 100%
=============== =============== ===============
Quarter Quarter Quarter
Ended Ended Ended
WEIGHTED AVERAGE INTEREST RATES: June 30, March 31, June 30,
(unaudited) 2008 2008 2007
---------------------------------------------------------------------
Yield on loans 6.64% 7.60% 8.88%
Yield on investments 4.32% 4.16% 4.46%
-------- -------- --------
Yield on interest-earning assets 6.48% 7.36% 8.53%
Cost of deposits 3.25% 3.61% 3.90%
Cost of borrowings 2.86% 3.56% 4.95%
-------- -------- --------
Cost of interest-bearing liabilities 3.18% 3.60% 4.05%
Quarter Quarter Quarter
Ended Ended Ended
AVERAGE BALANCES June 30, March 31, June 30,
(unaudited) (in 000s) 2008 2008 2007
---------------------------------------------------------------------
Loans $1,231,792 $1,192,023 $1,076,239
Investments 89,019 87,138 91,004
---------- ---------- ----------
Total interest-earning assets 1,320,811 1,279,161 1,167,243
Deposits 1,056,157 1,020,979 970,704
Borrowings 222,470 214,973 160,819
---------- ---------- ----------
Total interest-bearing
liabilities $1,278,627 $1,235,952 $1,131,523
Average assets $1,419,914 $1,391,746 $1,286,934
Average stockholders' equity $ 127,873 $ 128,128 $ 124,744
Quarter Quarter Quarter
Ended Ended Ended
CONSOLIDATED FINANCIAL RATIOS June 30, March 31, June 30,
(unaudited) 2008 2008 2007
---------------------------------------------------------------------
Return on average assets 0.57% 1.08% 1.56%
Return on average equity 6.32% 11.77% 16.08%
Efficiency ratio 56.25% 48.21% 47.91%
Net interest spread 3.30% 3.76% 4.48%
Net interest margin 3.40% 3.88% 4.61%
Equity-to-assets ratio 8.80% 9.22% 9.64%
Equity-to-deposits ratio 11.62% 12.35% 12.72%
Book value per share $10.69 $10.79 $10.31
Tangible book value per share $10.63 $10.72 $10.24
Quarter Quarter Quarter
Ended Ended Ended
RESERVE FOR LOAN LOSSES June 30, March 31, June 30,
(unaudited) (dollars in 000s) 2008 2008 2007
---------------------------------------------------------------------
Balance at beginning of period $ 19,114 $ 17,891 $ 15,889
Provision for loan losses 3,000 2,000 400
Charge offs - net of recoveries (2,965) (777) (27)
-------- --------- ---------
Balance at end of period $ 19,149 $ 19,114 $ 16,262
Reserves/Net Loans Receivable 1.54% 1.60% 1.50%
NON-PERFORMING ASSETS June 30, March 31, June 30,
(unaudited) (dollars in 000s) 2008 2008 2007
--------------------------------------------------------------------
Accruing loans - 90 days past due $ -- $ -- $ --
Non-accrual loans 35,819 11,608 157
Restructured loans -- -- --
-------- -------- -------
Total non-performing loans $ 35,819 $ 11,608 $ 157
Total non-performing loans/net loans 2.88% 0.97% 0.01%
Real estate owned $ 2,764 $ 655 $ 725
-------- -------- -------
Total non-performing assets $ 38,583 $ 12,263 $ 882
Total non-performing assets/total assets 2.67% 0.88% 0.07%