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Horizon Bancorp Reports Operating Results (10-Q)

May 13, 2010 | About:
10qk

10qk

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Horizon Bancorp (HBNC) filed Quarterly Report for the period ended 2010-03-31.

Horizon Bancorp has a market cap of $73.3 million; its shares were traded at around $22.305 with a P/E ratio of 10.6 and P/S ratio of 0.8. The dividend yield of Horizon Bancorp stocks is 3%. 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 March 31, 2010, Horizon had core deposit intangibles of $1.4 million subject to amortization and $5.8 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 March 31, 2010 was $19.30 per share compared to a book value of $27.88 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 an income approach using a discounted cash flow based on earnings capacity as a long term investment. 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.

On March 31, 2010, Horizons total assets were $1.3 billion, a decrease of $85.4 million from December 31, 2009. Total assets decreased as cash and cash equivalents and mortgage warehouse lending decreased but partially offset by an increase in investment securities and a decrease in deposits.

Stockholders equity totaled $115.7 million at March 31, 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 and reduced by dividends declared. At March 31, 2010, the ratio of average stockholders equity to average assets was 8.73% compared to 8.64% at December 31, 2009. Book value per common share at March 31, 2010 increased to $27.88 compared to $27.67 at December 31, 2009.

Consolidated net income for the three-month period ended March 31, 2010 was $1.8 million, a decrease of 32.0% from the $2.6 million for the same period in 2009. Earnings per common share for the three months ended March 31, 2010 decreased to $0.44 basic and $0.44 diluted, compared to $0.71 basic and $0.70 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.

Net interest income during the three months ended March 31, 2010 was $10.6 million, a decrease of $863,000 million or 7.6% over the $11.4 million earned during the same period in 2009. Yields on the Companys interest-earning assets decreased by 75 basis points to 5.36% for the three months ended March 31, 2010, from 6.11% for the same period in 2009. Interest income decreased $2.6 million from $18.7 million for the three months ended March 31, 2009 to $16.1 million for the same period in 2010. This decrease was due to the lower earning assets, the reduction in the balance of mortgage warehouse lending, excess cash and cash equivalents carried at low yields, and the decrease in the yield on some 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 $306.4 million out of the $404.6 million of the Companys adjustable rate loans.

Rates paid on interest-bearing liabilities decreased by 55 basis points during the same period due to the lower interest rate environment. Interest expense decreased $1.7 million from $7.3 million for the three-months ended March 31, 2009 to $5.6 million for the same period in 2010. This decrease was due to the lower rates being paid on the Companys interest bearing liabilities offset by additional interest costs as the Company has extended certain liabilities as a strategic move in this historically low interest rate environment. Due to a more significant decrease in the yields on the Companys interest-earning assets compared to the decrease in the rates paid on the Companys interest-bearing liabilities, the decrease in the Companys earning assets, and the excess cash and cash equivalents carried at very low yields, the net interest margin decreased 23 basis points from 3.78% for the three months ended March 31, 2009 to 3.55% for the same period in 2010.

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10qk
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