Horizon Bancorp, Inc. Announces First Quarter 2021 Financial Results

·26 min read

MICHIGAN CITY, Ind., April 28, 2021 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three months ending March 31, 2021.

“Horizon completed the first quarter with over $6 billion in assets, strong profitability, modest provision expense, further reductions in deposit costs, and continued improvement in key asset quality metrics,“ Chairman and CEO Craig M. Dwight said. “Coming off a record year of residential lending, we were very pleased with mortgage activity and fee income in what has historically been our seasonally lightest volume quarter. In addition, our commercial pipeline of approved and unfunded loans and lines of credit, coupled with the current outlook of the businesses and communities we serve in growing Indiana and Michigan markets, leads us to anticipate improving demand from customer investments in plant and equipment, logistics and distribution, infrastructure, and other financing needs in a recovery economy. Given our balance sheet, highly efficient operations and talented workforce, we believe Horizon is very well positioned to capitalize on significant organic and strategic growth opportunities within our attractive Midwestern markets.”

First Quarter 2021 Highlights

  • Earned net income of $20.4 million, or $0.46 diluted earnings per share, compared to $21.9 million, or $0.50 diluted earnings per share, for the fourth quarter of 2020 and $11.7 million, or $0.26 diluted earnings per share, for the first quarter of 2020.

  • Pre–tax, pre–provision net income totaled a first–quarter record $24.2 million, compared to $26.9 million for the fourth quarter of 2020 and $21.8 million for the first three months of 2020. This non–GAAP financial measure is utilized by banks to provide a greater understanding of pre–tax profitability before giving effect to credit loss expense. (See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income” table below.)

  • Non–interest expense was $32.2 million in the quarter, or 2.20% of average assets on an annualized basis, compared to $36.5 million, or 2.47%, in the fourth quarter of 2020 and $31.1 million, or 2.38%, in the first quarter of 2020.

  • The efficiency ratio for the period was 57.03% compared to 57.54% for the fourth quarter of 2020 and 58.79% for the first quarter of 2020. The adjusted efficiency ratio was 57.97% compared to 56.48% for the fourth quarter of 2020 and 59.43% for the first quarter of 2020. (See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)

  • Generated return on average assets (“ROAA”) of 1.40% and return on average common equity (“ROACE”) of 11.88% in the quarter, as well as adjusted ROAA of 1.35% and adjusted ROACE of 11.46%, excluding the impact of gains on sale of investment securities, net of tax. (See the “Non–GAAP Reconciliation of Return on Average Assets” and the “Non–GAAP Reconciliation of Return on Average Common Equity” tables below.)

  • Following record residential lending last year and during what has historically been its seasonally lightest volume quarter, mortgage–related non–interest income remained strong in the first three months of 2021, with gain on mortgage loan sales of $5.3 million and net mortgage servicing income of $213,000. The bank originated $155.6 million in mortgage loans during the quarter, with 65% of volume from refinances, as Horizon continued to focus residential lending on prime borrowers in Indiana and Michigan markets.

  • Net interest income was $42.5 million for the quarter, compared to $43.6 million for the fourth quarter of 2020 and $40.9 million for the first quarter of 2020. First quarter 2021 net interest income remained relatively stable in the current environment, given previously disclosed initiatives to optimize returns on earning assets, including increasing investment securities to 23.5% of assets from 22.1% in the fourth quarter of 2020 and 20.6% in the first quarter of 2020.

  • Reported net interest margin (“NIM”) of 3.29% and adjusted NIM of 3.17%, with reported NIM declining by 5 basis points and adjusted NIM decreasing by 27 basis points from the fourth quarter of 2020. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation.) An estimated 10 basis points attributed to Federal Paycheck Protection Program (“PPP”) lending improved the margin, offset by an estimated 16 basis point compression attributed to excess liquidity held during the quarter, for both NIM and adjusted NIM.

  • Horizon’s in–market consumer and commercial deposit relationships, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.50% in the quarter, compared to 0.94% in the fourth quarter of 2020 and 1.13% in the first quarter of 2020.

  • Increased the allowance for credit losses (“ACL”) 0.3% year–to–date to $57.2 million at period end, representing 1.56% of total loans, reflecting implementation of the Current Expected Credit Losses (“CECL”) accounting method and prudent increases in the Company’s general reserves. ACL at period end represented 1.67% of loans excluding $252.3 million in PPP loans, and 228.1% of non–performing loans.

  • COVID–19 deferral levels improved to 2.7% of total loans at period end, compared to 3.3% on December 31, 2020, and the bank experienced no material specific loan losses attributable to COVID–19 closures.

  • Maintained solid asset quality metrics at period end, including non–performing loans declining 6.5% during the quarter to $25.1 million, or 0.68% of total loans, and substandard loans declining 12.5% to $86.5 million, or 2.4% of total loans, while net charge–offs remained unchanged at 0.01% of average loans for the period.

  • Loans excluding PPP lending totaled $3.42 billion on March 31, 2021, reflecting Horizon’s successful efforts to secure payoffs of loans previously classified as substandard, as well as cash reserves maintained by many current and prospective commercial borrowers and retail households through the quarter. Loans excluding PPP lending totaled $3.67 billion on December 31, 2020 and $3.71 billion on March 31, 2020.

  • Horizon announced an 8.3% increase in its quarterly cash dividend in March to $0.13 per share, paying uninterrupted dividends for over 30 years. As of March 31, 2021, in excess of $127 million in cash was maintained at the holding company, providing considerable future optionality to build shareholder value.

  • Horizon opened a new full–service branch on March 31, 2021 in Gary to improve access to financial services in this Northwest Indiana community.

Summary

For the Three Months Ended

March 31,

December 31,

March 31,

Net Interest Income and Net Interest Margin

2021

2020

2020

Net interest income

$

42,538

$

43,622

$

40,925

Net interest margin

3.29

%

3.34

%

3.56

%

Adjusted net interest margin

3.17

%

3.44

%

3.44

%

“As we indicated in January, net interest margin headwinds were expected in the near term,” Mr. Dwight commented. “While we saw asset repricing as anticipated in the first quarter, we further reduced funding costs through time deposit runoff and strategic deposit pricing. This approach was balanced with our commitment to stand by Indiana and Michigan businesses, municipalities, and communities for the long haul, even if it requires some excess liquidity in the short term while we position the bank for loan growth in the quarters ahead and redeploy excess cash into investments to improve net interest income.”

For the Three Months Ended

March 31,

December 31,

March 31,

Asset Yields and Funding Costs

2021

2020

2020

Interest earning assets

3.66

%

4.05

%

4.47

%

Interest bearing liabilities

0.50

%

0.94

%

1.13

%


For the Three Months Ended

Non–interest Income and

March 31,

December 31,

March 31,

Mortgage Banking Income

2021

2020

2020

Total non–interest income

$

13,873

$

19,733

$

12,063

Gain on sale of mortgage loans

5,296

7,815

3,473

Mortgage servicing income net of impairment

213

327

25


For the Three Months Ended

March 31,

December 31,

March 31,

Non–interest Expense

2021

2020

2020

Total non–interest expense

$

32,172

$

36,453

$

31,149

Annualized non–interest expense to average assets

2.20

%

2.47

%

2.38

%


For the Three Months Ended

March 31,

December 31,

March 31,

Credit Quality

2021

2020

2020

Allowance for credit losses to total loans

1.56

%

1.47

%

1.30

%

Non–performing loans to total loans

0.68

%

0.69

%

0.65

%

Percent of net charge–offs to average loans outstanding for the period

0.01

%

0.01

%

0.01

%


Allowance for

December 31,

Net Reserve Build

March 31,

Credit Losses

2020

1Q20

2021

Commercial

$

42,210

$

770

$

42,980

Retail Mortgage

4,620

(391

)

4,229

Warehouse

1,267

(104

)

1,163

Consumer

8,930

(116

)

8,814

Allowance for Credit Losses (“ACL”)

$

57,027

$

159

$

57,186

ACL / Total Loans

1.47

%

1.56

%

Acquired Loan Discount (“ALD”)

$

11,494

$

(221

)

$

11,273

“We are very pleased with the continued improvement in our asset quality metrics, including reductions in non–performing and non–accrual loans, as well as meaningfully lower levels of substandard loans resulting from our team’s concerted workout efforts and the continued, steady reduction in COVID–19 deferral levels,” Mr. Dwight said.

“Horizon’s strong core operating fundamentals, consistent retained earnings generation and well–capitalized position, as defined by regulators, underscore the overall strength of our business,” said Mr. Dwight. “Horizon has paid uninterrupted quarterly cash dividends for over 30 years, and we were pleased to recently announce an 8.3% increase in this payout to shareholders to $0.13 per quarter.”

Income Statement Highlights

Net income for the first quarter of 2021 was $20.4 million, or $0.46 diluted earnings per share, compared to $21.9 million, or $0.50, for the linked quarter and $11.7 million, or $0.26, for the prior year period.

Adjusted net income for the first quarter of 2021 was $19.7 million, or $0.44 diluted earnings per share, compared to $22.8 million, or $0.52, for the linked quarter and $11.2 million, or $0.24, for the prior year period. Adjusted net income, which is not calculated according to generally accepted accounting principles (“GAAP”), is a measure that Horizon uses to provide a greater understanding of operating profitability.

The decrease in net income for the first quarter of 2021 when compared to the fourth quarter of 2020 reflects a decrease in non–interest income of $5.9 million, a decrease of $1.1 million in net interest income and an increase of $1.5 million in income tax expense, offset by a decrease in non–interest expense of $4.3 million and a decrease in credit loss expense of $2.7 million.

Interest income includes the recognition of PPP net loan processing fees totaling $3.2 million in the first quarter of 2021, compared to $4.6 million in the linked quarter. On March 31, 2021, the Company had $7.3 million in deferred PPP loan processing fees outstanding and $252.3 million in PPP loans outstanding. PPP deferred fees and loans outstanding at December 31, 2020 were $4.0 million and $208.9 million, respectively. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness.

First quarter 2021 income from the gain on sale of mortgage loans totaled $5.3 million, down from $7.8 million in the linked quarter and up from $3.5 million in the prior year period.

Non–interest expense of $32.2 million in the first quarter of 2021 reflected a $3.2 million decrease in salaries and employee benefits expense from the linked quarter. The level of salaries and employee benefits expense during the fourth quarter of 2020 reflected higher performance–based compensation accruals due to the record 2020 net interest income, non–interest income revenues and other key performance metrics.

The increase in net income for the first quarter of 2021 when compared to the same prior year period reflects an increase in non–interest income of $1.8 million, an increase in net interest income of $1.6 million and a decrease in credit loss expense of $8.2 million, offset by an increase in income tax expense of $1.9 million and an increase in non–interest expense of $1.0 million.

Non–GAAP Reconciliation of Net Income

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Net income as reported

$

20,422

$

21,893

$

20,312

$

14,639

$

11,655

(Gain) / loss on sale of investment securities

(914

)

(2,622

)

(1,088

)

(248

)

(339

)

Tax effect

192

551

228

52

71

Net income excluding (gain) / loss on sale of investment securities

19,700

19,822

19,452

14,443

11,387

Death benefit on bank owned life insurance (“BOLI”)

(31

)

(233

)

Net income excluding death benefit on BOLI

19,700

19,822

19,421

14,443

11,154

Prepayment penalties on borrowings

3,804

Tax effect

(799

)

Net income excluding prepayment penalties on borrowings

19,700

22,827

19,421

14,443

11,154

Adjusted net income

$

19,700

$

22,827

$

19,421

$

14,443

$

11,154


Non–GAAP Reconciliation of Diluted Earnings per Share

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Diluted earnings per share (“EPS”) as reported

$

0.46

$

0.50

$

0.46

$

0.33

$

0.26

(Gain) / loss on sale of investment securities

(0.02

)

(0.06

)

(0.02

)

(0.01

)

(0.01

)

Tax effect

0.01

0.01

Diluted EPS excluding (gain) / loss on sale of investment securities

0.44

0.45

0.45

0.32

0.25

Death benefit on bank owned life insurance (“BOLI”)

(0.01

)

Diluted EPS excluding death benefit on BOLI

0.44

0.45

0.45

0.32

0.24

Prepayment penalties on borrowings

0.09

Tax effect

(0.02

)

Diluted EPS excluding prepayment penalties on borrowings

0.44

0.52

0.45

0.32

0.24

Adjusted diluted EPS

$

0.44

$

0.52

$

0.45

$

0.32

$

0.24


Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Pre–tax income

$

23,872

$

23,860

$

24,638

$

16,632

$

13,239

Credit loss expense

367

3,042

2,052

7,057

8,600

Pre–tax, pre–provision income

$

24,239

$

26,902

$

26,690

$

23,689

$

21,839

Pre–tax, pre–provision income

$

24,239

$

26,902

$

26,690

$

23,689

$

21,839

(Gain) / loss on sale of investment securities

(914

)

(2,622

)

(1,088

)

(248

)

(339

)

Death benefit on BOLI

(31

)

(233

)

Prepayment penalties on borrowings

3,804

Adjusted pre–tax, pre–provision income

$

23,325

$

28,084

$

25,571

$

23,441

$

21,267

Horizon’s net interest margin decreased to 3.29% for the first quarter of 2021 compared to 3.34% for the fourth quarter of 2020. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 39 basis points, offset by a decrease in the cost of interest bearing liabilities of 44 basis points. Interest income from acquisition–related purchase accounting adjustments was $882,000 lower during the first quarter of 2021 when compared to the fourth quarter of 2020.

Horizon’s net interest margin decreased to 3.29% for the first quarter of 2021 when compared to 3.56% for the first quarter of 2020. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 81 basis points offset by a decrease in the cost of interest bearing liabilities of 63 basis points.

The net interest margin was impacted during the first quarter of 2021 and fourth quarter of 2020 due to the PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by 10 and 18 basis points for the first quarter of 2021 and the fourth quarter of 2020, respectively. This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in non–interest bearing deposits.

The net interest margin was also impacted during the first quarter of 2021 and fourth quarter of 2020 due to the excess liquidity carried on the balance sheet with the increase in deposits. Horizon estimates that the excess liquidity compressed the net interest margin by 16 and 7 basis points for the first quarter of 2021 and the fourth quarter of 2020, respectively. This assumes that the excess liquidity was not included in average interest earning assets or interest income and was excluded from non–interest bearing deposits.

Non–GAAP Reconciliation of Net Interest Margin

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Net interest income as reported

$

42,538

$

43,622

$

43,397

$

42,996

$

40,925

Average interest earning assets

5,439,634

5,365,888

5,251,611

5,112,636

4,746,202

Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)

3.29

%

3.34

%

3.39

%

3.47

%

3.56

%

Net interest income as reported

$

42,538

$

43,622

$

43,397

$

42,996

$

40,925

Acquisition–related purchase accounting adjustments (“PAUs”)

(1,579

)

(2,461

)

(1,488

)

(1,553

)

(1,434

)

Prepayment penalties on borrowings

3,804

Adjusted net interest income

$

40,959

$

44,965

$

41,909

$

41,443

$

39,491

Adjusted net interest margin

3.17

%

3.44

%

3.27

%

3.35

%

3.44

%

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 3.17% for the first quarter of 2021 compared to 3.44% for the prior quarter and 3.44% for the first quarter of 2020. Interest income from acquisition–related purchase accounting adjustments was $1.6 million, $2.5 million and $1.4 million for the three months ended March 31, 2021, December 31, 2020 and March 31, 2020, respectively.

Lending Activity

Total loans were $3.67 billion, or $3.42 billion excluding PPP loans, on March 31, 2021. Total loans were $3.88 billion, or $3.67 billion excluding PPP loans, on December 31, 2020. During the three months ended March 31, 2021, mortgage warehouse loans decreased $129.4 million, residential mortgage loans decreased $42.4 million, consumer loans decreased $16.8 million, commercial loans decreased $14.4 million and loans held for sale decreased $5.7 million.

Loan Growth by Type, Excluding Acquired Loans

(Dollars in Thousands, Unaudited)

March 31,

December 31,

Amount

Percent

2021

2020

Change

Change

Commercial

$

2,177,858

$

2,192,271

$

(14,413

)

(0.7)%

Residential mortgage

581,929

624,286

(42,357

)

(6.8)%

Consumer

638,403

655,200

(16,797

)

(2.6)%

Subtotal

3,398,190

3,471,757

(73,567

)

(2.1)%

Loans held for sale

7,798

13,538

(5,740

)

(42.4)%

Mortgage warehouse

266,246

395,626

(129,380

)

(32.7)%

Total loans

$

3,672,234

$

3,880,921

$

(208,687

)

(5.4)%

Residential mortgage lending activity for the three months ended March 31, 2021 generated a first–quarter record $5.3 million in income from the gain on sale of mortgage loans, decreasing $2.5 million from the fourth quarter of 2020 and increasing $1.8 million from the first quarter of 2020. Total origination volume for the first quarter of 2021, including loans placed into the portfolio, totaled $155.6 million, representing a decrease of 16.4% from fourth quarter 2020 levels, and an increase of 40.3% from the first quarter of 2020. As a percentage of total originations, 65% of the volume was for refinances and 35% was for new purchases during the first quarter of 2021. Total origination volume of loans sold to the secondary market totaled $126.0 million, representing a decrease of 20.1% from the fourth quarter of 2020 and an increase of 86.5% from the first quarter of 2020.

Expense Management

Three Months Ended

March 31,

December 31,

Amount

Percent

Non–interest Expense

2021

2020

Change

Change

Salaries and employee benefits

$

16,871

$

20,030

$

(3,159

)

(15.8)%

Net occupancy expenses

3,318

3,262

56

1.7%

Data processing

2,376

2,126

250

11.8%

Professional fees

544

691

(147

)

(21.3)%

Outside services and consultants

1,702

2,083

(381

)

(18.3)%

Loan expense

2,822

2,961

(139

)

(4.7)%

FDIC insurance expense

800

900

(100

)

(11.1)%

Other losses

283

735

(452

)

(61.5)%

Other expense

3,456

3,665

(209

)

(5.7)%

Total non–interest expense

$

32,172

$

36,453

$

(4,281

)

(11.7)%

Annualized non–interest expense to average assets

2.20

%

2.47

%

Total non–interest expense was $4.3 million lower in the first quarter of 2021 when compared to the fourth quarter of 2020. The decrease in expenses was primarily due to the reduction in salary and employee benefits due to lower bonus accruals compared to the fourth quarter of 2020 and recording $678,000 of deferred PPP origination costs that reduced salary expense in the first quarter of 2021.

Three Months Ended

March 31,

March 31,

Amount

Percent

Non–interest Expense

2021

2020

Change

Change

Salaries and employee benefits

$

16,871

$

16,591

$

280

1.7%

Net occupancy expenses

3,318

3,252

66

2.0%

Data processing

2,376

2,405

(29

)

(1.2)%

Professional fees

544

536

8

1.5%

Outside services and consultants

1,702

1,915

(213

)

(11.1)%

Loan expense

2,822

2,099

723

34.4%

FDIC insurance expense

800

150

650

433.3%

Other losses

283

120

163

135.8%

Other expense

3,456

4,081

(625

)

(15.3)%

Total non–interest expense

$

32,172

$

31,149

$

1,023

3.3%

Annualized non–interest expense to average assets

2.20

%

2.38

%

Total non–interest expense was $1.0 million higher in the first quarter of 2021 when compared to the first quarter of 2020. Increases in loan expense, FDIC insurance expense and salaries and employee benefits were offset in part by a decrease in other expense and outside services and consultants expense.

Annualized non–interest expense as a percent of average assets were 2.20%, 2.47% and 2.38% for the three months ended March 31, 2021, December 31, 2020 and March 31, 2020, respectively.

Income tax expense totaled $3.5 million for the first quarter of 2021, an increase of $1.5 million when compared to the fourth quarter of 2020 and an increase of $1.9 million when compared to the first quarter of 2020. The increase in income tax expense in the first quarter of 2021 compared to the fourth quarter of 2020 and the first quarter of 2020 was primarily due to the fourth quarter of 2020 benefiting from the recognition of solar tax credits.

Capital

The capital resources of the Company and Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at March 31, 2021. Stockholders’ equity totaled $689.4 million at March 31, 2021 and the ratio of average stockholders’ equity to average assets was 11.75% for the three months ended March 31, 2021.

Capital levels benefited from the Company’s previously disclosed public offering of subordinated notes raising $60.0 million in June 2020. Horizon’s fortress balance sheet at March 31, 2021 maintained adequate regulatory capital ratios when stress testing for highly adverse scenarios.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of March 31, 2021.

Actual

Required for Capital Adequacy Purposes

Required for Capital Adequacy Purposes with Capital Buffer

Well Capitalized
Under Prompt Corrective Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total capital (to risk–weighted assets)

Consolidated

$

669,098

16.94

%

$

315,985

8.00

%

$

414,730

10.50

%

N/A

N/A

Bank

548,682

13.86

%

316,700

8.00

%

415,668

10.50

%

$

395,874

10.00

%

Tier 1 capital (to risk–weighted assets)

Consolidated

622,085

15.75

%

236,985

6.00

%

335,728

8.50

%

N/A

N/A

Bank

503,222

12.71

%

237,556

6.00

%

336,537

8.50

%

316,741

8.00

%

Common equity tier 1 capital (to risk–weighted assets)

Consolidated

506,877

12.84

%

177,644

4.50

%

276,335

7.00

%

N/A

N/A

Bank

503,222

12.71

%

178,167

4.50

%

277,148

7.00

%

257,352

6.50

%

Tier 1 capital (to average assets)

Consolidated

622,085

10.82

%

229,976

4.00

%

229,976

4.00

%

N/A

N/A

Bank

503,222

8.81

%

228,478

4.00

%

228,478

4.00

%

285,597

5.00

%

Liquidity

The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the “FHLB”). At March 31, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $946.1 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $772.8 million of unpledged investment securities at March 31, 2021.

Branch Network and Customer Experience

Horizon continues to implement its disciplined approach to enhancing the efficiency of its branch network on an ongoing basis, while leveraging technology to enhance the customer experience. At the same time, the Bank continues to invest in its Midwest footprint. On March 31, 2021, the Bank opened a new full–service branch in Gary to improve access to financial services to this Northwest Indiana city's population.

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 credit losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision income. 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 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–recurring 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.

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share

(Dollars in Thousands, Unaudited)

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Total stockholders’ equity

$

689,379

$

692,216

$

670,293

$

652,206

$

630,842

Less: Intangible assets

173,296

174,193

175,107

176,020

176,961

Total tangible stockholders’ equity

$

516,083

$

518,023

$

495,186

$

476,186

$

453,881

Common shares outstanding

43,949,189

43,880,562

43,874,353

43,821,878

43,763,623

Book value per common share

$

15.69

$

15.78

$

15.28

$

14.88

$

14.41

Tangible book value per common share

$

11.74

$

11.81

$

11.29

$

10.87

$

10.37


Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Non–interest expense as reported

$

32,172

$

36,453

$

33,407

$

30,432

$

31,149

Net interest income as reported

42,538

43,622

43,397

42,996

40,925

Non–interest income as reported

$

13,873

$

19,733

$

16,700

$

11,125

$

12,063

Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”)

57.03

%

57.54

%

55.59

%

56.23

%

58.79

%

Non–interest expense as reported

$

32,172

$

36,453

$

33,407

$

30,432

$

31,149

Net interest income as reported

42,538

43,622

43,397

42,996

40,925

Prepayment penalties on borrowings

3,804

Net interest income excluding prepayment penalties on borrowings

42,538

47,426

43,397

42,996

40,925

Non–interest income as reported

13,873

19,733

16,700

11,125

12,063

(Gain) / loss on sale of investment securities

(914

)

(2,622

)

(1,088

)

(248

)

(339

)

Death benefit on BOLI

(31

)

(233

)

Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI

$

12,959

$

17,111

$

15,581

$

10,877

$

11,491

Adjusted efficiency ratio

57.97

%

56.48

%

56.64

%

56.49

%

59.43

%


Non–GAAP Reconciliation of Return on Average Assets

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Average assets

$

5,936,149

$

5,864,086

$

5,768,691

$

5,620,695

$

5,257,332

Return on average assets (“ROAA”) as reported

1.40

%

1.49

%

1.40

%

1.05

%

0.89

%

(Gain) / loss on sale of investment securities

(0.06

)

(0.18

)

(0.08

)

(0.02

)

(0.03

)

Tax effect

0.01

0.04

0.02

0.01

ROAA excluding (gain) / loss on sale of investment securities

1.35

1.35

1.34

1.03

0.87

Death benefit on BOLI

(0.02

)

ROAA excluding death benefit on BOLI

1.35

1.35

1.34

1.03

0.85

Prepayment penalties on borrowings

0.26

Tax effect

(0.05

)

ROAA excluding prepayment penalties on borrowings

1.35

1.56

1.34

1.03

0.85

Adjusted ROAA

1.35

%

1.56

%

1.34

%

1.03

%

0.85

%


Non–GAAP Reconciliation of Return on Average Common Equity

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Average common equity

$

697,401

$

680,857

$

668,797

$

649,490

$

667,588

Return on average common equity (“ROACE”) as reported

11.88

%

12.79

%

12.08

%

9.07

%

7.02

(Gain) / loss on sale of investment securities

(0.53

)

(1.53

)

(0.65

)

(0.15

)

(0.20

)

Tax effect

0.11

0.32

0.14

0.03

0.04

ROACE excluding (gain) / loss on sale of investment securities

11.46

11.58

11.57

8.95

6.86

Death benefit on BOLI

(0.02

)

(0.14

)

ROACE excluding death benefit on BOLI

11.46

11.58

11.55

8.95

6.72

Prepayment penalties on borrowings

2.22

Tax effect

(0.47

)

ROACE excluding prepayment penalties on borrowings

11.46

%

13.33

%

11.55

%

8.95

%

6.72

%

Adjusted ROACE

11.46

%

13.33

%

11.55

%

8.95

%

6.72

%

Conference Call

As previously announced, Horizon will host a conference call to review its first quarter financial results and operating performance.

Participants may access the live conference call on April 29, 2021 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 877–317–6789 from the United States, 866–450–4696 from Canada or 412–317–6789 from international locations and requesting the “Horizon Bancorp Call.” Participants are asked to dial in approximately 10 minutes prior to the call.

A telephone replay of the call will be available approximately one hour after the end of the conference through May 6, 2021. The replay may be accessed by dialing 877–344–7529 from the United States, 855–669–9658 from Canada or 412–317–0088 from other international locations, and entering the access code 10153464.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. (NASDAQ GS: HBNC) is the $6.1 billion–asset bank holding company for Horizon Bank, which serves customers across diverse and economically attractive Midwestern markets through convenient digital and virtual tools, as well as its Indiana and Michigan branches. Horizon's retail offerings include prime residential, indirect auto, and other secured consumer lending to in–market customers, as well as a range of personal banking and wealth management solutions. Horizon also provides a comprehensive array of in–market business banking and treasury management services, with commercial lending representing over half of total loans. More information on Horizon, headquartered in Northwest Indiana's Michigan City, is available at horizonbank.com and investor.horizonbank.com.

Forward Looking Statements

This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection 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 Horizon’s Annual Report on Form 10–K and its quarterly reports on Form 10–Q. Further, statements about the effects of the COVID–19 pandemic on our business, operations, financial performance, and prospects may constitute forward–looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward–looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties, and us. 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.

Financial Highlights

(Dollars in Thousands, Unaudited)

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Balance sheet:

Total assets

$

6,055,528

$

5,886,614

$

5,790,143

$

5,739,262

$

5,351,325

Interest earning deposits & federal funds sold

444,239

158,979

15,707

82,328

7,191

Interest earning time deposits

7,983

8,965

9,213

9,247

9,239

Investment securities

1,423,825

1,302,701

1,195,613

1,126,075

1,099,943

Commercial loans

2,177,858

2,192,271

2,321,608

2,312,715

2,050,402

Mortgage warehouse loans

266,246

395,626

374,653

300,386

223,519

Residential mortgage loans

581,929

624,286

675,220

704,410

757,529

Consumer loans

638,403

655,200

658,884

660,871

675,849

Earning assets

5,571,304

5,374,589

5,286,974

5,235,553

4,852,364

Non–interest bearing deposit accounts

1,133,412

1,053,242

1,016,646

981,868

709,978

Interest bearing transaction accounts

2,947,438

2,802,673

2,600,691

2,510,854

1,923,260

Time deposits

640,966

675,218

718,952

814,877

1,249,033

Borrowings

481,488

475,000

587,473

583,073

704,613

Subordinated notes

58,640

58,603

58,566

58,824

Junior subordinated debentures issued to capital trusts

56,604

56,548

56,491

56,437

56,374

Total stockholders’ equity

689,379

692,216

670,293

652,206

630,842


Financial Highlights

(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Income statement:

Net interest income

$

42,538

$

43,622

$

43,397

$

42,996

$

40,925

Credit loss expense

367

3,042

2,052

7,057

8,600

Non–interest income

13,873

19,733

16,700

11,125

12,063

Non–interest expense

32,172

36,453

33,407

30,432

31,149

Income tax expense

3,450

1,967

4,326

1,993

1,584

Net income

$

20,422

$

21,893

$

20,312

$

14,639

$

11,655

Per share data:

Basic earnings per share

$

0.46

$

0.50

$

0.46

$

0.33

$

0.26

Diluted earnings per share

0.46

0.50

0.46

0.33

0.26

Cash dividends declared per common share

0.12

0.12

0.12

0.12

0.12

Book value per common share

15.69

15.78

15.28

14.88

14.41

Tangible book value per common share

11.74

11.81

11.29

10.87

10.37

Market value – high

19.94

15.86

11.48

12.44

18.79

Market value – low

$

15.43

$

10.16

$

9.05

$

8.40

$

7.97

Weighted average shares outstanding – Basis

43,919,549

43,862,435

43,862,435

43,781,249

44,658,512

Weighted average shares outstanding – Diluted

44,072,581

43,903,881

43,903,881

43,802,794

44,756,716

Key ratios:

Return on average assets

1.40

%

1.49

%

1.40

%

1.05

%

0.89

%

Return on average common stockholders’ equity

11.88

12.79

12.08

9.07

7.02

Net interest margin

3.29

3.34

3.39

3.47

3.56

Allowance for credit losses to total loans

1.56

1.47

1.39

1.38

1.30

Average equity to average assets

11.75

11.61

11.59

11.56

12.70

Bank only capital ratios:

Tier 1 capital to average assets

8.81

8.71

8.57

8.48

9.43

Tier 1 capital to risk weighted assets

12.71

11.29

10.67

10.49

11.83

Total capital to risk weighted assets

13.86

12.21

11.56

11.74

12.67


Financial Highlights

(Dollars in Thousands Except Ratios, Unaudited)

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Loan data:

Substandard loans

$

86,472

$

98,874

$

88,286

$

61,385

$

61,322

30 to 89 days delinquent

5,099

6,938

5,513

3,853

12,017

Non–performing loans:

90 days and greater delinquent – accruing interest

267

262

331

123

246

Trouble debt restructures – accruing interest

1,828

1,793

1,825

2,039

2,115

Trouble debt restructures – non–accrual

2,271

2,610

2,704

3,443

3,360

Non–accrual loans

20,700

22,142

24,454

22,451

18,281

Total non–performing loans

$

25,066

$

26,807

$

29,314

$

28,056

$

24,002

Non–performing loans to total loans

0.68

%

0.69

%

0.72

%

0.70

%

0.65

%


Allocation of the Allowance for Credit Losses

(Dollars in Thousands, Unaudited)

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Commercial

$

42,980

$

42,210

$

39,795

$

39,147

$

32,550

Residential mortgage

4,229

4,620

5,464

5,832

5,654

Mortgage warehouse

1,163

1,267

1,250

1,190

1,055

Consumer

8,814

8,930

9,810

8,921

9,181

Total

$

57,186

$

57,027

$

56,319

$

55,090

$

48,440


Net Charge–offs (Recoveries)

(Dollars in Thousands Except Ratios, Unaudited)

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Commercial

$

158

$

23

$

488

$

6

$

(20

)

Residential mortgage

(65

)

(10

)

136

24

17

Mortgage warehouse

Consumer

115

216

199

377

407

Total

$

208

$

229

$

823

$

407

$

404

Percent of net charge–offs (recoveries) to average loans outstanding for the period

0.01

%

0.01

%

0.02

%

0.01

%

0.01

%


Total Non–performing Loans

(Dollars in Thousands Except Ratios, Unaudited)

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Commercial

$

12,802

$

14,348

$

16,169

$

14,238

$

9,579

Residential mortgage

7,916

7,994

9,209

9,945

10,411

Mortgage warehouse

Consumer

4,348

4,465

3,936

3,873

4,012

Total

$

25,066

$

26,807

$

29,314

$

28,056

$

24,002

Non–performing loans to total loans

0.68

%

0.69

%

0.72

%

0.70

%

0.65

%


Other Real Estate Owned and Repossessed Assets

(Dollars in Thousands, Unaudited)

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Commercial

$

1,696

$

1,908

$

2,191

$

2,374

$

2,464

Residential mortgage

37

70

249

336

Mortgage warehouse

Consumer

80

20

13

Total

$

1,733

$

1,908

$

2,341

$

2,643

$

2,813


Average Balance Sheets

(Dollars in Thousands, Unaudited)

Three Months Ended

Three Months Ended

March 31, 2021

March 31, 2020

Average
Balance

Interest

Average
Rate

Average
Balance

Interest

Average
Rate

Assets

Interest earning assets

Federal funds sold

$

267,241

$

66

0.10

%

$

24,974

$

96

1.55

%

Interest earning deposits

25,527

31

0.49

%

26,491

101

1.53

%

Investment securities – taxable

410,063

1,451

1.44

%

501,144

2,701

2.27

%

Investment securities – non–taxable (1)

956,464

5,223

2.80

%

588,784

3,798

3.18

%

Loans receivable (2) (3)

3,780,339

40,818

4.39

%

3,604,809

44,958

5.03

%

Total interest earning assets

5,439,634

47,589

3.66

%

4,746,202

51,654

4.47

%

Non–interest earning assets

Cash and due from banks

85,269

78,108

Allowance for credit losses

(57,779

)

(24,468

)

Other assets

469,025

457,490

Total average assets

$

5,936,149

$

5,257,332

Liabilities and Stockholders’ Equity

Interest bearing liabilities

Interest bearing deposits

$

3,524,103

$

2,343

0.27

%

$

3,225,323

$

7,716

0.96

%

Borrowings

477,278

1,269

1.08

%

533,129

2,238

1.69

%

Subordinated notes

58,616

880

6.09

%

%

Junior subordinated debentures issued to capital trusts

56,571

559

4.01

%

56,333

775

5.53

%

Total interest bearing liabilities

4,116,568

5,051

0.50

%

3,814,785

10,729

1.13

%

Non–interest bearing liabilities

Demand deposits

1,063,268

717,257

Accrued interest payable and other liabilities

58,912

57,702

Stockholders’ equity

697,401

667,588

Total average liabilities and stockholders’ equity

$

5,936,149

$

5,257,332

Net interest income / spread

$

42,538

3.16

%

$

40,925

3.34

%

Net interest income as a percent of average interest earning assets (1)

3.29

%

3.56

%

(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.

(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.

(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.


Condensed Consolidated Balance Sheets

(Dollars in Thousands)

March 31,
2021

December 31,
2020

(Unaudited)

Assets

Cash and due from banks

$

529,336

$

249,711

Interest earning time deposits

7,983

8,965

Investment securities, available for sale

1,262,175

1,134,025

Investment securities, held to maturity (fair value $170,949 and $179,990)

161,650

168,676

Loans held for sale

7,798

13,538

Loans, net of allowance for credit losses of $57,186 and $57,027

3,607,250

3,810,356

Premises and equipment, net

92,109

92,416

Federal Home Loan Bank stock

23,023

23,023

Goodwill

151,238

151,238

Other intangible assets

22,058

22,955

Interest receivable

20,951

21,396

Cash value of life insurance

97,262

96,751

Other assets

72,695

93,564

Total assets

$

6,055,528

$

5,886,614

Liabilities

Deposits

Non–interest bearing

$

1,133,412

$

1,053,242

Interest bearing

3,588,404

3,477,891

Total deposits

4,721,816

4,531,133

Borrowings

481,488

475,000

Subordinated notes

58,640

58,603

Junior subordinated debentures issued to capital trusts

56,604

56,548

Interest payable

1,772

2,712

Other liabilities

45,829

70,402

Total liabilities

5,366,149

5,194,398

Commitments and contingent liabilities

Stockholders’ equity

Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares

Common stock, no par value, Authorized 99,000,000 shares
Issued 43,974,258 and 43,905,631 shares,
Outstanding 43,949,189 and 43,880,562 shares

Additional paid–in capital

362,613

362,945

Retained earnings

316,080

301,419

Accumulated other comprehensive income

10,686

27,852

Total stockholders’ equity

689,379

692,216

Total liabilities and stockholders’ equity

$

6,055,528

$

5,886,614


Condensed Consolidated Statements of Income

(Dollars in Thousands Except Per Share Data, Unaudited)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Interest income

Loans receivable

$

40,818

$

46,745

$

44,051

$

43,918

$

44,958

Investment securities – taxable

1,548

1,570

1,704

2,321

2,898

Investment securities – non–taxable

5,223

4,919

4,391

4,105

3,798

Total interest income

47,589

53,234

50,146

50,344

51,654

Interest expense

Deposits

2,343

2,718

3,616

4,506

7,716

Borrowed funds

1,269

5,456

1,662

2,074

2,238

Subordinated notes

880

871

895

58

Junior subordinated debentures issued to capital trusts

559

567

576

710

775

Total interest expense

5,051

9,612

6,749

7,348

10,729

Net interest income

42,538

43,622

43,397

42,996

40,925

Credit loss expense

367

3,042

2,052

7,057

8,600

Net interest income after credit loss expense

42,171

40,580

41,345

35,939

32,325

Non–interest Income

Service charges on deposit accounts

2,234

2,360

2,154

1,888

2,446

Wire transfer fees

255

301

298

230

171

Interchange fees

2,340

2,645

2,438

2,327

1,896

Fiduciary activities

1,743

2,747

2,105

1,765

2,528

Gains / (losses) on sale of investment securities

914

2,622

1,088

248

339

Gain on sale of mortgage loans

5,296

7,815

8,813

6,620

3,473

Mortgage servicing income net of impairment

213

327

(1,308

)

(2,760

)

25

Increase in cash value of bank owned life insurance

511

566

566

557

554

Death benefit on bank owned life insurance

31

233

Other income

367

350

515

250

398

Total non–interest income

13,873

19,733

16,700

11,125

12,063

Non–interest expense

Salaries and employee benefits

16,871

20,030

18,832

15,629

16,591

Net occupancy expenses

3,318

3,262

3,107

3,190

3,252

Data processing

2,376

2,126

2,237

2,432

2,405

Professional fees

544

691

688

518

536

Outside services and consultants

1,702

2,083

1,561

1,759

1,915

Loan expense

2,822

2,961

2,876

2,692

2,099

FDIC insurance expense

800

900

570

235

150

Other losses

283

735

114

193

120

Other expenses

3,456

3,665

3,422

3,784

4,081

Total non–interest expense

32,172

36,453

33,407

30,432

31,149

Income before income taxes

23,872

23,860

24,638

16,632

13,239

Income tax expense

3,450

1,967

4,326

1,993

1,584

Net income

$

20,422

$

21,893

$

20,312

$

14,639

$

11,655

Basic earnings per share

$

0.46

$

0.50

$

0.46

$

0.33

$