Horizon Bancorp, Inc. Announces Record Earnings for 2019

MICHIGAN CITY, Ind., Jan. 29, 2020 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) – Horizon Bancorp, Inc. (“Horizon” or the “Company”) today announced its unaudited financial results for the three-month and twelve-month periods ended December 31, 2019. All share data has been adjusted to reflect Horizon’s three-for-two stock split effective June 15, 2018. 

SUMMARY:

• Net income for the year ended December 31, 2019 was $66.5 million, or $1.53 diluted earnings per share, compared to $53.1 million, or $1.38 diluted earnings per share, for the year ended December 31, 2018. This represents the highest annual net income and diluted earnings per share in the Company’s history.
  
  
• Core net income for the year 2019 increased 31.6% to $70.7 million, or $1.63 diluted earnings per share, compared to $53.7 million, or $1.40 diluted earnings per share, for the year 2018. (See the “Non-GAAP Reconciliation of Net Income and Diluted Earnings per Share” table on page 4 for the definition of core net income.)
  
  
• Net income for the fourth quarter of 2019 was $18.5 million, or $0.41 diluted earnings per share, compared to $13.1 million, or $0.34 diluted earnings per share, for the fourth quarter of 2018.
  
  
• Core net income for the fourth quarter of 2019 was $18.5 million, or $0.41 diluted earnings per share, compared to $13.8 million, or $0.36 diluted earnings per share, for the fourth quarter of 2018.
  
  
• Return on average assets was 1.35% for the year ended December 31, 2019 compared to 1.31% for the year ended December 31, 2018.
  
  
• Core return on average assets for the year ended December 31, 2019 was 1.43% compared to 1.33% for the year ended December 31, 2018. (See the “Non-GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” table on page 11 for the definition of core return on average assets.)
  
  
• Consumer loans increased at a rate of 21.8%, or $119.7 million, during the year ended December 31, 2019. Excluding acquired loans, consumer loans increased at a rate of 6.3%, or $34.6 million during the year ended December 31, 2019.
  
  
• Net interest income increased $7.7 million, or 22.7%, to $41.5 million for the fourth quarter of 2019 compared to $33.8 million for the fourth quarter of 2018. Net interest income increased $26.2 million, or 19.5%, to $160.8 million for the year ended December 31, 2019 compared to $134.6 million, for the year ended December 31, 2018.
  
  
• Net interest margin was 3.58% for the fourth quarter of 2019 compared to 3.60% for the fourth quarter of 2018. Net interest margin was 3.69% for the year ended December 31, 2019 compared to 3.71% for the year ended December 31, 2018.
  
  
• Core net interest margin was 3.49% for the fourth quarter of 2019 compared to 3.43% for the fourth quarter of 2018. For the year ended December 31, 2019, core net interest margin was 3.57% compared to 3.54% for the year ended December 31, 2018. (See the “Non-GAAP Reconciliation of Net Interest Margin” table on page 5 for the definition of core net interest margin.)
  
  
• Return on average equity was 11.26% for the fourth quarter of 2019 compared to 10.73% for the fourth quarter of 2018. Return on average equity was 10.98% for the year ended December 31, 2019 compared to 11.22% for the year ended December 31, 2018.
  
  
• Core return on average equity for the fourth quarter of 2019 was 11.25% compared to 11.26% for the fourth quarter of 2018. Core return on average equity was 11.66% for the year ended December 31, 2019 compared to 11.34% for the year ended December 31, 2018. (See the “Non-GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” table on page 11 for the description of core return on average assets.)
  
  
• Horizon’s tangible book value per share increased to $10.63 at December 31, 2019 compared to $10.31 and $9.43 at September 30, 2019 and December 31, 2018, respectively. This represents the highest tangible book value per share in the Company’s history. (See the “Non-GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table on page 10 for a reconciliation of tangible book value to its most comparable GAAP measure.)
  
  
• On July 16, 2019, Horizon’s Board of Directors authorized a stock repurchase program for up to 2,250,000 shares of Horizon’s issued and outstanding common stock, no par value. As of December 31, 2019, Horizon had repurchased a total of 99,407 shares at an average price per share of $16.04.

Craig Dwight, Chairman and CEO of Horizon, commented: “I am pleased to announce another record year of earnings for Horizon. The 2019 results are attributed to the hard work and dedication of our entire team and their focus on the customer and executing a smooth integration of Salin Bancshares, Inc. and its wholly owned subsidiary Salin Bank and Trust Company ('Salin Bank'). As a result of this acquisition and organic growth, Horizon’s operational leverage and efficiency ratio continued to exhibit improvement, which is evidence that our mass and scale strategy is working.”

Dwight added, “At December 31, 2019, Horizon’s total assets were $5.2 billion, which is an increase of $997.7 million when compared to year-end 2018. In addition to the loans acquired from Salin Bank during the first quarter of 2019, which totaled approximately $568.9 million, Horizon continued to experience loan growth of $153.3 million from our key growth markets in Indiana and Michigan.”

Dwight concluded, “The improvement in Horizon’s core efficiency ratio demonstrates our ability to gain operational leverage through an increase in mass and scale. Horizon’s adjusted efficiency ratio, excluding merger expenses, gain/loss on sale of investment securities and death benefit on bank owned life insurance, decreased to 57.23% for the year ended December 31, 2019 from 60.28% for the same prior year period. Along with an improved adjusted efficiency ratio, Horizon has also experienced a decrease in non-interest expense, excluding merger expenses, as a percentage of average assets from 2.51% for the year ended December 31, 2018 to 2.36% for the year ended December 31, 2019, a 15 basis point improvement. Horizon improved branch efficiencies during 2019 by closing four full-service branches and one loan production office, and consolidating five full-service branches acquired from Salin.”

Income Statement Highlights

Net income for the fourth quarter of 2019 was $18.5 million, or $0.41 diluted earnings per share, compared to $20.5 million, or $0.46 diluted earnings per share, for the third quarter of 2019 and $13.1 million, or $0.34 diluted earnings per share, for the fourth quarter of 2018. Excluding acquisition-related expenses, gain (loss) on sale of investment securities and death benefit on bank owned life insurance (“core net income”), core net income for the fourth quarter of 2019 was $18.5 million, or $0.41 diluted earnings per share, compared to $20.3 million, or $0.45 diluted earnings per share, for the third quarter of 2019 and $13.8 million, or $0.36 diluted earnings per share, for the fourth quarter of 2018.

The decrease in net income and diluted earnings per share from the third quarter of 2019 to the fourth quarter of 2019 reflects a decrease in net interest income of $1.9 million primarily due to $697,000 less in acquisition-related purchase accounting adjustments, $783,000 lower commercial loan fees and the reduction in the net interest margin. Non-interest expense increased $590,000 during the fourth quarter of 2019 as a result of the reversal of previously recorded FDIC insurance expense during the third quarter of $273,000 and an increase in other losses due to write-downs of other real estate owned properties on closed offices or vacant land acquired for future expansion during the fourth quarter totaling $222,000. Offsetting these decreases was an increase in non-interest income of $420,000, in addition to decreases in provision for loan losses of $36,000 and income tax expense of $84,000.

The increase in net income from the fourth quarter of 2018 when compared to the same period of 2019 reflects increases in net interest income of $7.7 million and non-interest income of $3.5 million, in addition to a decrease in provision for loan losses of $188,000, offset by increases in non-interest expense of $4.5 million and income tax expense of $1.4 million due to overall company growth and the Salin acquisition.

Net income for the year ended December 31, 2019 was $66.5 million, or $1.53 diluted earnings per share, compared to $53.1 million, or $1.38 diluted earnings per share, for the year ended December 31, 2018. Core net income for the year ended December 31, 2019 was $70.7 million, or $1.63 diluted earnings per share, compared to $53.7 million, or $1.40 diluted earnings per share, for the year ended December 31, 2018. This represents a 16.4% increase in core diluted earnings per share for the year ended December 31, 2019 compared to the same period in 2018 due to overall company growth, gained efficiencies and the Salin acquisition.

The increase in net income when comparing the year ended December 31, 2019 to the prior year period reflects increases in net interest income of $26.2 million and non-interest income of $8.6 million, in addition to a decrease in provision for loan losses of $930,000, offset by increases in non-interest expense of $19.5 million and income tax expense of $2.9 million.

Horizon’s net interest margin decreased to 3.58% for the fourth quarter of 2019 when compared to 3.82% for the third quarter of 2019. The decrease in net interest margin reflects a decrease in commercial loan fees of $783,000 and a decrease of $697,000 in acquisition-related purchase accounting adjustments when compared to the third quarter of 2019. The cost of interest-bearing liabilities decreased by 11 basis points as the cost of deposits, borrowings and subordinated debentures all decreased when compared to the third quarter of 2019. Deposit pricing continues to reduce within the markets we serve in alignment with the recent decline in general market short-term interest rates.

Net interest margin decreased to 3.58% for the fourth quarter of 2019 when compared to 3.60% for the fourth quarter of 2018. The decrease in net interest margin was due to a decrease in yield on interest-earning assets, offset by a decrease in the cost of interest-bearing liabilities. Interest income from acquisition-related purchase accounting adjustments was $587,000 lower for the fourth quarter of 2019 when compared to the same prior year period. The rate on interest-bearing liabilities decreased due to lower rates on borrowings and subordinated debentures, partially offset by higher rates on interest-bearing deposits.

Net interest margin decreased to 3.69% for the year ended December 31, 2019 when compared to 3.71% for the year ended December 31, 2018. The lower net interest margin for 2019 reflects an increase in the cost of interest-bearing liabilities of 28 basis points due to an increase in the cost of interest-bearing deposits and borrowings. The increase in the cost of interest-bearing liabilities was offset by an increase in the yield of interest-earning assets.

Net interest margin, excluding acquisition-related purchase accounting adjustments (“core net interest margin”), was 3.49% for the fourth quarter of 2019 compared to 3.67% for the prior quarter and 3.43% for the fourth quarter of 2018. Interest income from acquisition-related purchase accounting adjustments was $1.0 million, $1.7 million and $1.6 million for the three months ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

Lending Activity

Total loans increased $626.6 million from $3.014 billion as of December 31, 2018 to $3.641 billion as of December 31, 2019. Excluding acquired loans, total loans increased $57.6 million during 2019 as consumer loans increased by $34.6 million and mortgage warehouse loans increased by $76.2 million, offset by a decrease in commercial loans of $27.7 million and residential mortgage loans of $28.4 million.

During 2019, Horizon Bank (the “Bank”) originated approximately $380.0 million of commercial loans, which is an 11% increase compared to the same period in 2018; however, only 57.9%, or $220.1 million, of these loan originations had been funded as of December 31, 2019. These originations were offset by commercial loan payoffs totaling approximately $315.5 million during 2019, which is a 73.6% increase in payoffs compared to the same period in 2018, as there was an increase in clients moving projects that had reached stabilization into the long-term, fixed rate conduit financing market and properties being sold. During 2018, the Bank originated approximately $337.0 million of commercial loans; however, only 58.2%, or $196.0 million, of these loan originations had been funded as of December 31, 2018. These originations were offset by commercial loan payoffs totaling approximately $181.7 million during 2018.

Residential mortgage lending activity for the three months ended December 31, 2019 generated $3.1 million in income from the gain on sale of mortgage loans, an increase of $417,000 from the third quarter of 2019 and $1.7 million from the fourth quarter of 2018. Total origination volume for the fourth quarter of 2019, including loans placed into portfolio, totaled $114.0 million, representing a decrease of 5.9% from the third quarter of 2019 and an increase of 35.8% from the fourth quarter of 2018. Total origination volume for the fourth quarter of 2019 of loans sold to the secondary market totaled $83.6 million, representing a decrease of 12.1% from the third quarter of 2019 and an increase of 95.5% from the fourth quarter of 2018.

Revenue derived from Horizon’s residential mortgage and warehouse lending activities was 6.4% of Horizon’s total revenue for the year ended December 31, 2019, which is comparable to the same prior year period.

The provision for loan losses totaled $340,000 for the fourth quarter of 2019 compared to $376,000 for the third quarter of 2019 and $528,000 for the fourth quarter of 2018.

The provision for loan losses totaled $2.0 million for the year ended December 31, 2019 compared to $2.9 million for the same period in 2018.

The ratio of the allowance for loan losses to total loans decreased to 0.49% as of December 31, 2019 from 0.59% at December 31, 2018. The decrease in the ratio of the allowance for loan losses to total loans is primarily due to increased loan balances from the Salin acquisition. The ratio of the allowance for loan losses to total loans, excluding loans with credit-related purchase accounting adjustments, was 0.61% as of December 31, 2019 compared to 0.72% as of December 31, 2018. Loan loss reserves plus credit-related loan discounts on acquired loans as a percentage of total loans was 1.04% as of December 31, 2019 compared to 0.98% as of December 31, 2018.

As of December 31, 2019, non-performing loans totaled $21.2 million, which reflects a three basis point increase in non-performing loans to total loans, or a $6.0 million increase from $15.2 million in non-performing loans as of December 31, 2018. Compared to December 31, 2018, non-performing commercial loans increased by $444,000, non-performing real estate loans increased by $4.9 million and non-performing consumer loans increased by $689,000. Other real estate owned and repossessed assets totaled $3.7 million as of December 31, 2019, which is an increase of $1.7 million from December 31, 2018. The majority of this increase was due to other real estate owned properties acquired in the Salin transaction, including the closed branches, totaling $1.7 million.

Expense Management

Total non-interest expense was $590,000 higher in the fourth quarter of 2019 when compared to the third quarter of 2019. Other losses increased $287,000 primarily due to write-downs of other real estate owned properties during the fourth quarter totaling $222,000. Loan expense and professional fees increased $240,000 and $185,000, respectively, during the fourth quarter of 2019. In addition, the reversal of previously recorded FDIC insurance expense during the third quarter resulted in an increase to total non-interest expense of $273,000 during the fourth quarter. The Bank received assessment credits during the third quarter of 2019 as the FDIC reserve is currently overfunded. Offsetting these increases were decreases in other expense of $221,000 and in other services and consultants of $137,000.

Total non-interest expense was $4.5 million higher during the fourth quarter of 2019 compared to the same period of 2018. Salaries and employee benefits, net occupancy expense, loan expense, data processing, other expense and other losses increased $2.7 million, $605,000, $601,000, $481,000, $421,000 and $288,000, respectively. These increases were offset by a decrease of $393,000 in FDIC insurance and $121,000 in outside services and consultants. FDIC insurance decreased due to assessment credits the Bank received during the third quarter of 2019 as the FDIC reserve is currently overfunded. Excluding merger expenses, total non-interest expense increased $5.0 million during the fourth quarter of 2019 when compared to the same period of 2018.

Total non-interest expense was $19.5 million higher during the year ended December 31, 2019 when compared to the same period of 2018. Salaries and employee benefits, other expense, outside services and consultants, loan expense, net occupancy and data processing increased $8.6 million, $3.5 million, $2.9 million, $2.3 million, $1.7 million and $1.7 million, respectively. Offsetting these increases was a decrease in FDIC insurance of $1.2 million. FDIC insurance decreased due to the assessment credits the Bank received during the third quarter of 2019 as the FDIC reserve is currently overfunded. Excluding merger expenses, total non-interest expense increased $14.4 million during the year ended December 31, 2019 when compared to the same period of 2018.

Annualized non-interest expense as a percent of average assets were 2.32%, 2.34% and 2.48% for the three months ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively. Annualized non-interest expense, excluding merger expenses, as a percent of average assets continue to decline and were 2.32%, 2.34% and 2.43% for the three months ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

Annualized non-interest expense as a percent of average assets were 2.47% and 2.52% for the years ended December 31, 2019 and 2018, respectively. Annualized non-interest expense, excluding merger expenses, as a percent of average assets were 2.36% and 2.51% for the years ended December 31, 2019 and 2018, respectively. Management believes that Horizon’s strategy to build mass and scale continues to prove effective for expense management.

Income tax expense totaled $3.9 million for the fourth quarter of 2019, a decrease of $84,000 when compared to the third quarter of 2019 and an increase of $1.4 million when compared to the fourth quarter of 2018. The decrease in income tax expense from the third quarter of 2019 was primarily due to a decrease in income before income taxes of $2.1 million when compared to the fourth quarter of 2019. The increase in income tax expense from the fourth quarter of 2018 was primarily due to an increase in income before income taxes of $6.8 million fourth quarter of 2019.

Income tax expense totaled $13.3 million for the year ended December 31, 2019, an increase of $2.9 million when compared to the same period of 2018. The increase in income tax expense from the year ended December 31, 2018 was primarily due to an increase in income before income taxes of $16.3 million when compared to the same period of 2019.

Use of Non-GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non-GAAP financial measures relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for loan and lease losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets and the return on average equity. In each case, we have identified special circumstances that we consider to be non-recurring and have excluded them. We believe that this shows the impact of such events as acquisition-related purchase accounting adjustments, among others we have identified in our reconciliations. Horizon believes that these non-GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and one-time costs of acquisitions and non-core items. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this press release for reconciliations of the non-GAAP figures identified herein and their most comparable GAAP measures.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. is an independent, commercial bank holding company serving northern and central Indiana, and southern and central Michigan through its commercial banking subsidiary, Horizon Bank. Horizon may be reached online at www.horizonbank.com. Its common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.

Forward Looking Statements

This press release may contain forward-looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon. For these statements, Horizon claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. 

Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Horizon’s reports filed with the Securities and Exchange Commission, including those described in its Form 10-K. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

Contact:

Horizon Bancorp, Inc.
Mark E. Secor
Chief Financial Officer
(219) 873-2611
Fax: (219) 874-9280