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Value

Shares of Horizon Bancorp (HBNC - Snapshot Report) have gained momentum following its strong third quarter results, which included better-than-expected earnings per share. This regional bank has recorded positive earnings surprises in eight of the last ten quarters with an average beat of 17.6%.

Strong estimate revisions helped Horizon Bancorp become a Zacks #1 Rank (Strong Buy) on October 20. In addition, a P/B multiple of just 1.2 makes this stock an attractive pick for value investors.

Robust 3Q Results

On October 17, Horizon Bancorp reported third quarter earnings of 54 cents per share, topping the Zacks Consensus Estimate of 53 cents by 1.9% and substantially beating the year-ago earnings of 36 cents by 50.0%. Results benefited from an improved top line, partly offset by higher expenses. During the quarter, the company completed the acquisition of Heartland Bancshares, Inc.

The company's non-interest income surged 25.1% year over year to $15.0 million. Furthermore, net interest margin (NIM) expanded 3 basis points (bps) to 3.79%. The rise in NIM was driven by the reduction in the rate paid on interest bearing liabilities, partially offset by a dip in the yield on interest earning assets. Moreover, other income came in at $7.7 million, jumping 17.9% year over year. However, other expenses soared 20.5% to $14.8 million, mainly due to higher salary and compensation costs.

Credit quality continued to improve at Horizon Bancorp. Provision for loan losses plummeted 33.4% from the prior-year quarter to $1.0 million. Similarly, nonperforming loans were 2.08% of total loans, down 44 bps from last year.

Stock Spilt Announcement

On October 16, Horizon Bancorp announced a 3-for-2 stock split in the form of a stock dividend on the company’s outstanding shares of common stock. Shareholders of record as of the close of business on October 29 are entitled to receive an additional half share for each share held.

The additional shares issued in the stock split are expected to be distributed on November 9. The stock split will increase Horizon Bancorp’s outstanding shares from nearly 5.8 million to about 8.7 million.

Earnings Momentum on an Upswing

Over the past 30 days, the Zacks Consensus Estimate for 2012 increased 3.6% to $3.50 per share as all four estimates moved higher. This implies year-over-year growth of 54.2%. For 2013, the Zacks Consensus Estimate jumped 8.2% to $3.42 over the same time frame with all four estimates again moving north.

Reasonable Valuation

Along with a P/B multiple of 1.2, Horizon Bancorp has a forward P/E ratio as low as 8.3 (a P/E ratio under 15.0 and a P/B ratio below 3.0 generally indicate value). Moreover, the company has a trailing 12-month ROE of 15.7%, compared with the peer group average of 11.1%. This implies that the company reinvests its earnings more efficiently than its industry peers.

Based in Michigan City, Indiana, Horizon Bancorp is a holding company for Horizon Bank, N.A. The company, founded in 1873, offers banking, investment and trust services in Northern Indiana and Southwest Michigan. With a market capital of about $168.5 million, Horizon Bancorp competes with Bank of Kentucky Financial Corporation (BKYF) and German American Bancorp, Inc. (GABC), among others.


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