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Horizon Bancorp Reports Operating Results (10-Q)

November 12, 2010 | About:
10qk

10qk

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Horizon Bancorp (HBNC) filed Quarterly Report for the period ended 2010-09-30.

Horizon Bancorp has a market cap of $82.5 million; its shares were traded at around $25 with a P/E ratio of 10 and P/S ratio of 0.9. The dividend yield of Horizon Bancorp stocks is 2.7%. Horizon Bancorp had an annual average earning growth of 8.4% over the past 10 years. GuruFocus rated Horizon Bancorp the business predictability rank of 3-star.

Highlight of Business Operations:

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. FASB ASC 350-10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At September 30, 2010, Horizon had core deposit intangibles of $2.9 million subject to amortization and $5.9 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Horizons goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely affect earnings in future periods. FASB ASC 350-10 requires an annual evaluation of goodwill for impairment. The evaluation of goodwill for impairment requires the use of estimates and assumptions. Market price at the close of business on September 30, 2010 was $22.25 per share compared to a book value of $29.18 per common share. Horizon reported record earnings for the tenth consecutive year in 2009 and believes the decline in market price relates to an overall decline in the financial industry sector and is not specific to Horizon. Horizon engaged a third party to perform an impairment test of its goodwill in 2009. The evaluation included three approaches: an income approach using a discounted cash flow based on earnings capacity as a long term investment; price to earnings multiples; and price to book value ratios. The impairment test was performed as of November 30, 2009 and provided support that no impairment to the Companys goodwill was required based on its results.

The Companys borrowings increased $34.5 million since December 31, 2009. At September 30, 2010, $87.0 million of the Companys borrowings were short-term federal funds, compared to $0 at December 31, 2009. Short-term borrowings are used primarily when mortgage warehouse lending increases as it has during 2010. Since December 31, 2009, $54.1 million of Federal Home Loan Bank (FHLB) advances have matured, and the Company has decided not to take additional advances and has used long-term brokered certificates of deposit to replace any required long-term debt. This generates additional liquidity by not using available collateral to secure the borrowings.

Stockholders equity totaled $120.1 million at September 30, 2010 compared to $114.6 million at December 31, 2009. The increase in stockholders equity during the period was the result of generating net income reduced by dividends declared. For the nine-months ended September 30, 2010, the ratio of average stockholders equity to average assets was 8.32% compared to 8.61% for the quarter ending December 31, 2009. Book value per common share at September 30, 2010 increased to $29.18 compared to $27.67 at December 31, 2009.

Consolidated net income for the three-month period ended September 30, 2010 was $3.3 million, an increase of 39.1% from the $2.4 million for the same period in 2009. Earnings per common share for the three months ended September 30, 2010 increased to $0.89 basic and $0.88 diluted, compared to $0.62 basic and $0.61 diluted for the same three-month period in 2009. Diluted earnings per share for both periods were reduced by $0.11 per share due to the preferred stock dividends and the accretion of the discount on preferred stock, which was issued in the fourth quarter of 2008.

Consolidated net income for the nine-month period ended September 30, 2010 was $7.6 million, an increase of 7.5% compared to $7.1 million for the same period in 2009. Earnings per common share for the nine months ended September 30, 2010 increased to $1.99 basic and $1.96 diluted, compared to $1.86 basic and $1.84 diluted for the same nine-month period in 2009. Basic and diluted earnings per share were reduced by $0.33 per share due to the preferred stock dividends and the accretion of the discount on preferred stock, which was issued in the fourth quarter of 2008. The results from the first nine months of 2010 were impacted by the transaction costs expensed during the first half of 2010 from the purchase and assumption of American Trust & Savings Bank, those costs totaled $664,000 for the nine months.

Net interest income during the three months ended September 30, 2010 was $12.6 million, an increase of $1.9 million or 17.7% over the $10.7 million earned during the same period in 2009. Yields on the Companys interest-earning assets decreased by 44 basis points to 5.39% for the three months ended September 30, 2010, from 5.83% for the same period in 2009. Interest income increased $391,000 from $17.5 million for the three months ended September 30, 2009 to $17.9 million for the same period in 2010. This increase was primarily due to higher interest earning assets from the purchase and assumption of assets from American Trust & Savings Bank and an increase in balance of mortgage warehouse lending partially offset by a decrease in the yield on new and repriced earning assets. However, the asset yields on loans receivable has not declined at the same pace as some market indices partially due to interest rate floors that are in place on approximately $376.8 million of the Companys $506.1 million of adjustable rate loans.

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