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Horizon Bancorp, Inc. Reports Third Quarter 2022 EPS of $0.55; Strong Loan Growth Continues to Offset Non–interest Income and Expense Headwinds

Horizon Bancorp, Inc.
Horizon Bancorp, Inc.

MICHIGAN CITY, Ind., Oct. 26, 2022 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) – Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three– and nine–months ending September 30, 2022.

“We are proud of the performance achieved by our business banking and consumer lending teams who delivered annualized loan growth of 7.8% in the third quarter, excluding PPP loans and sold commercial participation loans,” Chairman and CEO Craig M. Dwight said. “This continued strong loan growth led to the increase in net interest income and substantially offset headwinds from lower residential mortgage lending activity and lower wealth management fees, as well as the increase in cost of funds related to rapidly rising interest rates. While the current economic environment remains challenged by rising inflation and supply chain disruption, we remain focused on positioning ourselves to continue to meet the evolving needs of our customers. We believe our investments in talent to enhance our capabilities and prepare for the future support our disciplined growth trajectory, and with the benefit of our balance sheet strength and solid asset quality metrics, will continue to elevate our performance through the end of 2022 and into 2023.”

Third Quarter 2022 Highlights

  • Return on average assets (“ROAA”) was 1.29% year–to–date and 1.24% for the third quarter.

  • Return on average tangible equity was 18.73% year–to–date and 18.71% for the third quarter.

  • Total loans, excluding Federal Paycheck Protection Program (“PPP”) loans and sold commercial participation loans, grew by an annualized rate of 14.5% year–to–date and an annualized rate of 7.8% quarter over quarter.

  • Commercial loans, excluding PPP loans and sold commercial participation loans, grew by an annualized rate of 13.8% year–to–date and an annualized rate of 7.2% quarter over quarter to a record $2.35 billion.

  • Consumer loans grew by an annualized rate of 31.7% year–to–date and an annualized rate of 23.9% quarter over quarter to a record $899.9 million at period end.

  • Asset quality remains solid with total loan delinquency at 0.12% of total loans, net charge–offs to average loans of 0.00% and a reversal of credit loss expense during the quarter.

  • Net interest income increased by $387,000 to $53.4 million during the third quarter compared to $53.0 million for the previous quarter.

  • Reported net interest margin (“NIM”) was 3.13% and adjusted NIM was 3.08%, with reported NIM decreasing by six basis points and adjusted NIM decreasing by four basis points from the second quarter of 2022. (See the “Non–GAAP Reconciliation of Net Interest Margin” table below for the definition of this non–GAAP calculation of adjusted NIM.)

  • Non–interest income is down $2.2 million for the quarter due to lower residential mortgage loan volume, resulting in lower gain on sale income and from lower wealth management fees related to year–to–date declines in equity and bond markets.

  • Non-interest expense was $38.4 million in the quarter, or 1.99% of average assets on an annualized basis, compared to $36.4 million, or 1.95%, in the second quarter of 2022. Year–to–date non–interest expense continues to be well managed at $111.3 million, or 1.99% of average assets on an annualized basis which is below our target of 2.00% of average assets.

  • The effective tax rate for the third quarter dropped to 7.8% due to the recognition of solar tax credits as projects were put into service during the quarter.

  • Net income totaled $23.8 million, down 4.2% from the linked quarter and up 3.3% from the prior year period. Diluted earnings per share (“EPS”) of $0.55 was down from $0.57 for the second quarter of 2022 and up from $0.52 for the third quarter of 2021.

  • Asset sensitivity decreased in the quarter compared to the previous quarter end, as deposit betas increased with rising rates. Deposit beta is defined as the change in deposit costs as a percentage of the change in Fed Funds over a particular period. Current estimates for parallel rate shocks to the balance sheet, at 100 basis points and 200 basis points, decrease net interest income by approximately $3.3 million and $6.7 million, respectively.

  • Deposit betas increased to 23% on total interest bearing deposits in the third quarter compared to a 3% beta during the previous quarter.

  • During the third quarter of 2022, the continued steepening of the yield curve resulted in unrealized losses on available for sale investments of $161.8 million compared to unrealized losses of $122.0 million at June 30, 2022. The impact to the tangible capital ratio was a decrease of 3.55% from 6.48% at June 30, 2022 to 6.25% at September 30, 2022.

  • The Bank’s capital position is still robust with leverage and risk based capital ratios of 8.84% and 13.65%, respectively. The annualized dividend yield was 3.56% as of September 30, 2022.

Summary

 

 

For the Three Months Ended

 

 

September 30,

 

June 30,

 

September 30,

Net Interest Income and Net Interest Margin

 

 

2022

 

 

 

2022

 

 

 

2021

 

Net interest income

 

$

53,395

 

 

$

53,008

 

 

$

46,544

 

Net interest margin

 

 

3.13

%

 

 

3.19

%

 

 

3.17

%

Adjusted net interest margin

 

 

3.08

%

 

 

3.12

%

 

 

3.12

%

Mr. Dwight continued, “Net interest income increased by $387,000 for the quarter as a result of Horizon’s solid loan growth. To support this level of growth, we were required to increase borrowings and that impacted the adjusted net interest margin by four basis points during the quarter. Overall cost of funds was contained at 0.69% providing a strong spread for new loans coming on the books. Competitive pressure on deposit pricing is starting to accelerate as we see several smaller banks and credit unions aggressively seeking lower cost deposit funding. Horizon’s deposit betas were 23% for the third quarter and in line with our expectations of approximately 35%; however additional pressure is expected as the Board of Governors of the Federal Reserve System will likely continue to rapidly increase rates over the next several months.”

 

 

For the Three Months Ended

 

 

September 30,

 

June 30,

 

September 30,

Asset Yields and Funding Costs

 

2022

 

2022

 

2021

Interest earning assets

 

3.68

%

 

3.46

%

 

3.46

%

Interest bearing liabilities

 

0.69

%

 

0.34

%

 

0.38

%


 

 

For the Three Months Ended

Non-interest Income and

 

September 30,

 

June 30,

 

September 30,

Mortgage Banking Income

 

2022

 

2022

 

2021

Total non–interest income

 

$

10,188

 

$

12,434

 

$

16,044

Gain on sale of mortgage loans

 

 

1,441

 

 

2,501

 

 

4,088

Mortgage servicing income net of impairment

 

 

355

 

 

319

 

 

336


 

 

For the Three Months Ended

 

 

September 30,

 

June 30,

 

September 30,

Non-interest Expense

 

 

2022

 

 

 

2022

 

 

 

2021

 

Total non–interest expense

 

$

38,350

 

 

$

36,368

 

 

$

34,349

 

Annualized non–interest expense to average assets

 

 

1.99

%

 

 

1.95

%

 

 

2.09

%


 

 

For the Three Months Ended

 

 

September 30,

 

June 30,

 

September 30,

Credit Quality

 

2022

 

2022

 

2021

Allowance for credit losses to total loans

 

1.28

%

 

1.33

%

 

1.55

%

Non–performing loans to total loans

 

0.48

%

 

0.51

%

 

0.80

%

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

 

0.00

%

 

0.01

%

 

0.00

%


 

 

September 30,

 

Net Reserve

 

December 31,

Allowance for Credit Losses

 

 

2022

 

 

3Q22

 

2Q22

 

1Q22

 

 

2021

 

Commercial

 

$

33,806

 

 

$

(996

)

 

$

(2,987

)

 

$

(2,986

)

 

$

40,775

 

Retail Mortgage

 

 

5,137

 

 

 

715

 

 

 

71

 

 

 

495

 

 

 

3,856

 

Warehouse

 

 

1,024

 

 

 

(43

)

 

 

12

 

 

 

(4

)

 

 

1,059

 

Consumer

 

 

11,402

 

 

 

(657

)

 

 

2,746

 

 

 

717

 

 

 

8,596

 

Allowance for Credit Losses (“ACL”)

 

$

51,369

 

 

$

(981

)

 

$

(158

)

 

$

(1,778

)

 

$

54,286

 

ACL / Total Loans

 

 

1.28

%

 

 

 

 

 

 

 

 

1.51

%

Acquired Loan Discount (“ALD”)

 

$

6,587

 

 

$

(619

)

 

$

(1,122

)

 

$

(769

)

 

$

9,097

 

“Our results this quarter were positively impacted by the significant progress towards achieving our goal of an annualized non–interest expense to average assets ratio of less than 2.00%, at 1.99% for the period ended September 30, 2022," Mr. Dwight continued. “We remain disciplined and focused on expense management, a critical component of our strategy given the economic uncertainty and rise in inflation. However, we are confident in our ability to continue to reduce our annualized target to be less than 2.00%. We expect the higher expense run rate we incurred during the third quarter to be greatly reduced starting in Q1 2023. In addition, in 2023 we expect to see the benefit from a full year of seven additional branch closings and their related cost savings.”

Income Statement Highlights

Net income for the third quarter of 2022 was $23.8 million, or $0.55 diluted earnings per share, compared to $24.9 million, or $0.57, for the linked quarter and $23.1 million, or $0.52, for the prior year period.

Adjusted net income for the third quarter of 2022 was $23.8 million, or $0.55 diluted earnings per share, compared to $24.2 million, or $0.56, for the linked quarter and $23.0 million, or $0.52, 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. (See the “Non–GAAP Reconciliation of Net Income” table below.)

The improvement in net income for the third quarter of 2022 compared to the same prior year period reflects an increase in net interest income of $6.9 million, a decrease in credit loss expense of $1.7 million and a decrease in income tax expense of $2.0 million. These results are offset by a decrease in non–interest income of $5.9 million and an increase in non–interest expense of $4.0 million.
Net income for the third quarter of 2022 compared to the second quarter of 2022 reflects expansion of net interest income of $387,000, improvement in credit loss expense of $841,000 and a decrease of income tax expense of $2.0 million. These items were offset by lower non–interest income of $2.2 million and an increase in non–interest expense of $2.0 million.

Third quarter 2022 income from the gain on sale of mortgage loans totaled $1.4 million, down from $2.5 million in the linked quarter and down from $4.1 million in the prior year period.

Certain revenue streams that generated higher income in the prior year quarter were replaced in the most recent quarter with earning assets that have higher margins. Income from PPP lending, gain on sale of mortgage loans and mortgage servicing income net of impairment totaled $7.9 million during the prior year quarter. For the quarter ending September 30, 2022, the income from those same revenue streams totaled $1.8 million. The ability to replace this income and increase overall gross income in the third quarter was attributed to the strategies management implemented to focus on higher earning assets.

Non–interest expense of $38.4 million in the third quarter of 2022 reflected a $656,000 increase in salaries and employee benefits, a $429,000 increase in loan expense, a $370,000 increase in outside services and consultants, a $292,000 increase in other expense and a $269,000 increase in professional fees from the linked quarter.

Pre–tax, pre–provision net income totaled $25.2 million, down 13.2% from the linked quarter and 10.6% from the prior year period. This non–GAAP financial measure is utilized by many banks to provide a greater understanding of pre–tax profitability before the impact of credit loss expense. (See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income” table below.) Horizon recorded a provision release of $601,000 in the quarter, a provision expense of $240,000 in the linked quarter, and a provision expense of $1.1 million in the prior year period.

Net Interest Margin

Horizon’s net interest margin decreased to 3.13% for the third quarter of 2022 compared to 3.19% for the second quarter of 2022. The decrease in net interest margin reflects the impact of the increase in the cost of interest bearing liabilities of 35 basis points which was partially offset by the increase in the yield on interest earning assets of 22 basis points. Interest income from acquisition–related purchase accounting adjustments was $317,000 lower during the third quarter of 2022 when compared to the second quarter of 2022.

Net interest margin decreased to 3.13% for the third quarter of 2022 compared to 3.17% for the third quarter of 2021. The decrease in net interest margin reflects the impact of the increased cost of interest bearing liabilities of 31 basis points which was partially offset by the increase in the yield on interest earning assets of 22 basis points.

Adjusted net interest margin, which excludes acquisition–related purchase accounting adjustments, was 3.08% for the third quarter of 2021, compared to 3.12% for the linked quarter and 3.12% for the third quarter of 2021. Interest income from acquisition–related purchase accounting adjustments was $906,000, $1.2 million and $875,000 for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

Lending Activity

Total loan balances increased to $4.01 billion, or $3.96 billion excluding PPP loans and sold commercial participation loans, on September 30, 2022 when compared to $3.94 billion, or $3.89 billion excluding PPP loans and sold commercial participation loans, on June 30, 2022. During the three months ended September 30, 2022, commercial loans, excluding PPP loans and sold commercial participation loans, increased $41.8 million, consumer loans increased $51.1 million, and residential mortgage loans increased $26.3 million, offset by decreases in mortgage warehouse loans of $42.8 million, PPP loans of $2.0 million and loans held for sale of $1.1 million. PPP loan income was $26,000, $198,000 and $3.5 million for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

Loan Growth by Type, Excluding Acquired Loans

(Dollars in Thousands, Unaudited)

 

 

September 30,

 

June 30,

 

QTD

 

QTD

 

Annualized

 

 

2022

 

2022

 

$ Change

 

% Change

 

% Change

Commercial, excluding PPP loans and
sold commercial participation loans

 

$

2,352,446

 

$

2,310,605

 

$

41,841

 

 

1.8

%

 

7.2

%

PPP loans

 

 

315

 

 

2,343

 

 

(2,028

)

 

(86.6

)%

 

(343.4

)%

Sold commercial participation loans

 

 

50,982

 

 

51,043

 

 

(61

)

 

(0.1

)%

 

(0.5

)%

Residential mortgage

 

 

634,901

 

 

608,582

 

 

26,319

 

 

4.3

%

 

17.2

%

Consumer

 

 

899,881

 

 

848,749

 

 

51,132

 

 

6.0

%

 

23.9

%

Subtotal

 

 

3,938,525

 

 

3,821,322

 

 

117,203

 

 

3.1

%

 

12.2

%

Loans held for sale

 

 

1,852

 

 

2,943

 

 

(1,091

)

 

(37.1

)%

 

(147.1

)%

Mortgage warehouse

 

 

73,690

 

 

116,488

 

 

(42,798

)

 

(36.7

)%

 

(145.8

)%

Total loans

 

$

4,014,067

 

$

3,940,753

 

$

73,314

 

 

1.9

%

 

7.4

%

 

 

 

 

 

 

 

 

 

 

 

Total loans, excluding PPP loans and
sold commercial participation loans

 

$

3,962,770

 

$

3,887,367

 

$

75,403

 

 

1.9

%

 

7.7

%


Loan Growth by Type, Excluding Acquired Loans

(Dollars in Thousands, Unaudited)

 

 

September 30,

 

December 31,

 

YTD

 

YTD

 

Annualized

 

 

2022

 

2021

 

$ Change

 

% Change

 

% Change

Commercial, excluding PPP loans and
sold commercial participation loans

 

$

2,352,446

 

$

2,131,644

 

$

220,802

 

 

10.4

%

 

13.8

%

PPP loans

 

 

315

 

 

25,844

 

 

(25,529

)

 

(98.8

)%

 

(132.1

)%

Sold commercial participation loans

 

 

50,982

 

 

56,457

 

 

(5,475

)

 

(9.7

)%

 

(13.0

)%

Residential mortgage

 

 

634,901

 

 

594,382

 

 

40,519

 

 

6.8

%

 

9.1

%

Consumer

 

 

899,881

 

 

727,259

 

 

172,622

 

 

23.7

%

 

31.7

%

Subtotal

 

 

3,938,525

 

 

3,535,586

 

 

402,939

 

 

11.4

%

 

15.2

%

Loans held for sale

 

 

1,852

 

 

12,579

 

 

(10,727

)

 

(85.3

)%

 

(114.0

)%

Mortgage warehouse

 

 

73,690

 

 

109,031

 

 

(35,341

)

 

(32.4

)%

 

(43.3

)%

Total loans

 

$

4,014,067

 

$

3,657,196

 

$

356,871

 

 

9.8

%

 

13.0

%

 

 

 

 

 

 

 

 

 

 

 

Total loans, excluding PPP loans and
sold commercial participation loans

 

$

3,962,770

 

$

3,574,895

 

$

387,875

 

 

10.8

%

 

14.5

%

Residential mortgage lending activity for the three months ended September 30, 2022 generated $1.4 million in income from the gain on sale of mortgage loans, decreasing $1.1 million from the second quarter of 2022 and $2.6 million from the third quarter of 2021. Total mortgage origination volume for the third quarter of 2022, including loans placed into the portfolio, totaled $110.9 million, representing a decrease of 3.7% from second quarter 2022 levels, and a decrease of 23.2% from the third quarter of 2021. As a percentage of total mortgage loan originations, 6% of the volume was from refinancings and 94% was from loans for new home purchases during the third quarter of 2022. Total origination volume of mortgage loans sold to the secondary market totaled $50.2 million, representing a decrease of 25.4% from the second quarter of 2022 and a decrease of 51.3% from the third quarter of 2021.

Gain on sale of mortgage loans and mortgage warehousing income was 3.8% of total revenue for the three months ended September 30, 2022, compared to 5.6% for the linked quarter and 9.0% for the three months ended September 30, 2021.

Deposit Activity

Total deposit balances of $5.83 billion on September 30, 2022 declined 0.25% compared to $5.85 billion on June 30, 2022.

Deposit Growth by Type, Excluding Acquired Deposits

(Dollars in Thousands, Unaudited)

 

September 30,

 

June 30,

 

QTD

 

QTD

 

Annualized

 

2022

 

2022

 

$ Change

 

% Change

 

% Change

Non–interest bearing

$

1,315,155

 

$

1,328,213

 

$

(13,058

)

 

(1.0

)%

 

(4.0

)%

Interest bearing

 

3,736,798

 

 

3,760,890

 

 

(24,092

)

 

(0.6

)%

 

(2.6

)%

Time deposits

 

778,885

 

 

756,482

 

 

22,403

 

 

3.0

%

 

12.0

%

Total deposits

$

5,830,838

 

$

5,845,585

 

$

(14,747

)

 

(0.3

)%

 

(1.0

)%

Expense Management

 

 

Three Months Ended

 

 

September 30,

June 30,

 

QTD

 

QTD

 

 

2022

 

 

2022

 

 

$ Change

 

% Change

Non–interest Expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

$

20,613

 

 

$

19,957

 

 

$

656

 

 

3.3%

Net occupancy expenses

 

 

3,293

 

 

 

3,190

 

 

 

103

 

 

3.2%

Data processing

 

 

2,539

 

 

 

2,607

 

 

 

(68

)

 

(2.6)%

Professional fees

 

 

552

 

 

 

283

 

 

 

269

 

 

95.1%

Outside services and consultants

 

 

2,855

 

 

 

2,485

 

 

 

370

 

 

14.9%

Loan expense

 

 

2,926

 

 

 

2,497

 

 

 

429

 

 

17.2%

FDIC insurance expense

 

 

670

 

 

 

775

 

 

 

(105

)

 

(13.5)%

Other losses

 

 

398

 

 

 

362

 

 

 

36

 

 

9.9%

Other expense

 

 

4,504

 

 

 

4,212

 

 

 

292

 

 

6.9%

Total non–interest expense

 

$

38,350

 

 

$

36,368

 

 

$

1,982

 

 

5.4%

Annualized non–interest expense to average assets

 

 

1.99

%

 

 

1.95

%

 

 

 

 

Total non–interest expense was $2.0 million higher in the third quarter of 2022 when compared to the second quarter of 2022. The increase was primarily due to an increase in salaries and employee benefits of $656,000 from increased health care costs, an increase in loan expense of $429,000 due to amortization of the dealer reserve asset, an increase in outside services and consultants of $370,000, an increase in professional fees of $269,000 and an increase in other expenses of $292,000 due to the amortization of the intangible assets from the solar tax credits.

 

 

Three Months Ended

 

 

September 30,

 

September 30,

 

 

 

 

 

 

 

2022

 

 

 

2021

 

 

Adjusted

Non–interest Expense

 

Actual

 

Acquisition
Expenses

 

Adjusted

 

Actual

 

Acquisition
Expenses

 

Adjusted

 

$ Change

 

% Change

Salaries and employee benefits

 

$

20,613

 

 

$

 

$

20,613

 

 

$

18,901

 

 

$

(25

)

 

$

18,876

 

 

$

1,737

 

9.2%

Net occupancy expenses

 

 

3,293

 

 

 

 

 

3,293

 

 

 

2,935

 

 

 

(13

)

 

 

2,922

 

 

 

371

 

12.7%

Data processing

 

 

2,539

 

 

 

 

 

2,539

 

 

 

2,526

 

 

 

(7

)

 

 

2,519

 

 

 

20

 

0.8%

Professional fees

 

 

552

 

 

 

 

 

552

 

 

 

522

 

 

 

(53

)

 

 

469

 

 

 

83

 

17.7%

Outside services and consultants

 

 

2,855

 

 

 

 

 

2,855

 

 

 

2,330

 

 

 

(401

)

 

 

1,929

 

 

 

926

 

48.0%

Loan expense

 

 

2,926

 

 

 

 

 

2,926

 

 

 

2,645

 

 

 

 

 

 

2,645

 

 

 

281

 

10.6%

FDIC insurance expense

 

 

670

 

 

 

 

 

670

 

 

 

279

 

 

 

 

 

 

279

 

 

 

391

 

140.1%

Other losses

 

 

398

 

 

 

 

 

398

 

 

 

69

 

 

 

(1

)

 

 

68

 

 

 

330

 

485.3%

Other expense

 

 

4,504

 

 

 

 

 

4,504

 

 

 

4,142

 

 

 

(289

)

 

 

3,853

 

 

 

651

 

16.9%

Total non–interest expense

 

$

38,350

 

 

$

 

$

38,350

 

 

$

34,349

 

 

$

(789

)

 

$

33,560

 

 

$

4,790

 

14.3%

Annualized non–interest expense to average assets

 

 

1.99

%

 

 

 

 

1.99

%

 

 

2.09

%

 

 

 

 

2.05

%

 

 

 

 

Total non–interest expense was $4.0 million higher in the third quarter of 2022 when compared to the third quarter of 2021 primarily due to an increase in salaries and employee benefits of $1.7 million and an increase in outside services and consultants expense of $525,000, as well as increases in net occupancy expenses due to additional employees hired and branch locations acquired as a result of the 2021 branch acquisition, FDIC insurance expense, other expense due to the amortization of the intangible assets from the solar tax credits and other losses.

Annualized non–interest expense as a percent of average assets was 1.99%, 1.95% and 2.09% for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 1.99%, 1.95% and 2.05% for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below for these non–GAAP calculations.)

 

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

 

 

 

 

 

2022

 

 

 

2021

 

 

Adjusted

Non–interest Expense

 

Actual

 

Acquisition
Expenses

 

Adjusted

 

Actual

 

Acquisition
Expenses

 

Adjusted

 

$ Change

 

% Change

Salaries and employee benefits

 

$

60,305

 

 

$

 

$

60,305

 

 

$

53,502

 

 

$

(25

)

 

$

53,477

 

 

$

6,828

 

 

12.8%

Net occupancy expenses

 

 

10,044

 

 

 

 

 

10,044

 

 

 

9,337

 

 

 

(13

)

 

 

9,324

 

 

 

720

 

 

7.7%

Data processing

 

 

7,683

 

 

 

 

 

7,683

 

 

 

7,290

 

 

 

(17

)

 

 

7,273

 

 

 

410

 

 

5.6%

Professional fees

 

 

1,149

 

 

 

 

 

1,149

 

 

 

1,654

 

 

 

(104

)

 

 

1,550

 

 

 

(401

)

 

(25.9)%

Outside services and consultants

 

 

7,865

 

 

 

 

 

7,865

 

 

 

6,252

 

 

 

(588

)

 

 

5,664

 

 

 

2,201

 

 

38.9%

Loan expense

 

 

7,968

 

 

 

 

 

7,968

 

 

 

8,574

 

 

 

 

 

 

8,574

 

 

 

(606

)

 

(7.1)%

FDIC insurance expense

 

 

2,170

 

 

 

 

 

2,170

 

 

 

1,579

 

 

 

 

 

 

1,579

 

 

 

591

 

 

37.4%

Other losses

 

 

928

 

 

 

 

 

928

 

 

 

358

 

 

 

(1

)

 

 

357

 

 

 

571

 

 

159.9%

Other expense

 

 

13,216

 

 

 

 

 

13,216

 

 

 

11,363

 

 

 

(293

)

 

 

11,070

 

 

 

2,146

 

 

19.4%

Total non–interest expense

 

$

111,328

 

 

$

 

$

111,328

 

 

$

99,909

 

 

$

(1,041

)

 

$

98,868

 

 

$

12,460

 

 

12.6%

Annualized non–interest expense to average assets

 

 

1.99

%

 

 

 

 

1.99

%

 

 

2.16

%

 

 

 

 

2.14

%

 

 

 

 

Total non–interest expense was $11.4 million higher in the first nine months of 2022 when compared to the first nine months of 2021. The increase was primarily due to higher salaries and employee benefits of $6.8 million due to additional employees hired as a result of the 2021 branch acquisition, higher other expense of $1.9 million, higher outside services and consultants expense of $1.6 million, and was partially offset by a decrease of $606,000 in loan expense and a decrease of $505,000 in professional fees.

Annualized non–interest expense as a percent of average assets was 1.99% for the first nine months of 2022 compared to 2.16% for the first nine months of 2021. Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 1.99% and 2.14% for the nine months ended September 30, 2022 and September 30, 2021, respectively. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below for these non–GAAP calculations.)

Income tax expense totaled $2.0 million for the third quarter of 2022, a decrease of $2.0 million when compared to the second quarter of 2022 and a decrease of $2.0 million when compared to the third quarter of 2021 due to the recognition of solar tax credits as projects were put into service during the quarter, which reduced the effective tax rate to 7.8%.

Income tax expense totaled $9.5 million for the nine months ended September 30, 2022, a decrease of $1.7 million when compared to the nine months ended September 30, 2021.

Capital

The capital resources of the Company and the Bank exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2022. Stockholders’ equity totaled $645.0 million at September 30, 2022 and the ratio of average stockholders’ equity to average assets was 9.25% for the nine months ended September 30, 2022.

Tangible book value per common share (“TBVPS”) declined $1.76 during the nine months ended September 30, 2022 to $10.82, as unrealized net losses on securities available for sale (“AFS”) of $3.10 per common share, reduced accumulated other comprehensive income (“AOCI”) by $135.0 million in the first nine months of this year.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of September 30, 2022.

 

 

Actual

 

Required for Capital
Adequacy Purposes

 

Required for Capital
Adequacy Purposes
with Capital Buffer

 

Well Capitalized
Under Prompt
Corrective Action
Provisions

 

 

$

 

Ratio

 

$

 

Ratio

 

$

 

Ratio

 

$

 

Ratio

Total capital (to risk–weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

760,624

 

14.46

%

 

$

420,934

 

8.00

%

 

$

552,476

 

10.50

%

 

N/A

 

N/A

Bank

 

 

711,478

 

13.65

%

 

 

416,859

 

8.00

%

 

 

547,127

 

10.50

%

 

$

521,073

 

10.00

%

Tier 1 capital (to risk–weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

713,301

 

13.56

%

 

 

315,701

 

6.00

%

 

 

447,242

 

8.50

%

 

N/A

 

N/A

Bank

 

 

664,018

 

12.74

%

 

 

312,644

 

6.00

%

 

 

442,912

 

8.50

%

 

 

416,859

 

8.00

%

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

590,933

 

11.23

%

 

 

236,775

 

4.50

%

 

 

368,317

 

7.00

%

 

N/A

 

N/A

Bank

 

 

664,018

 

12.74

%

 

 

234,483

 

4.50

%

 

 

364,751

 

7.00

%

 

 

338,698

 

6.50

%

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

713,301

 

9.55

%

 

 

298,740

 

4.00

%

 

 

298,740

 

4.00

%

 

N/A

 

N/A

Bank

 

 

664,018

 

8.84

%

 

 

300,512

 

4.00

%

 

 

300,512

 

4.00

%

 

 

375,641

 

5.00

%

Liquidity

The Bank maintains a stable base of core deposits provided by long–standing and new 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 cash flows, 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”). On September 30, 2022, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $639.7 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $2.1 billion of unpledged investment securities on September 30, 2022.

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 (the “SEC”). 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: changes in the level and volatility of interest rates, changes in spreads on earning assets and changes in interest bearing liabilities; increased interest rate sensitivity; continuing increases in inflation; loss of key Horizon personnel; increases in disintermediation; potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms take a greater market share of the payment systems; estimates of fair value of certain of Horizon’s assets and liabilities; changes in prepayment speeds, loan originations, credit losses, market values, collateral securing loans and other assets; changes in sources of liquidity; continuing risks and uncertainties relating to the COVID–19 pandemic and government responses thereto; legislative and regulatory actions and reforms; changes in accounting policies or procedures as may be adopted and required by regulatory agencies; litigation, regulatory enforcement, and legal compliance risk and costs; rapid technological developments and changes; cyber terrorism and data security breaches; the rising costs of cybersecurity; the ability of the U.S. federal government to manage federal debt limits; climate change and social justice initiatives; material changes outside the U.S. or in overseas relations, including changes in U.S. trade relations related to imposition of tariffs, Brexit, and the phase out of the London Interbank Offered Rate (“LIBOR”); the inability to realize cost savings or revenues or to effectively implement integration plans and other consequences associated with mergers, acquisitions, and divestitures; acts of terrorism, war and global conflicts, such as the Russia and Ukraine conflict; and supply chain disruptions and delays. These and additional factors that could cause actual results to differ materially from those expressed in the forward–looking statements are discussed in Horizon’s reports (such as the Annual Report on Form 10–K, Quarterly Reports on Form 10–Q, and Current Reports on Form 8–K) filed with the SEC and available at the SEC’s Internet website (www.sec.gov). 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)

 

 

 

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

 

2022

 

2022

 

2022

 

2021

 

2021

Balance sheet:

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,718,695

 

$

7,640,936

 

$

7,420,328

 

$

7,374,903

 

$

7,534,240

Interest earning deposits & federal funds sold

 

 

7,302

 

 

5,646

 

 

20,827

 

 

502,364

 

 

872,540

Interest earning time deposits

 

 

2,814

 

 

3,799

 

 

4,046

 

 

4,782

 

 

5,767

Investment securities

 

 

3,017,191

 

 

3,093,792

 

 

3,118,641

 

 

2,713,255

 

 

2,438,874

Commercial loans

 

 

2,403,743

 

 

2,363,991

 

 

2,259,327

 

 

2,213,945

 

 

2,173,200

Mortgage warehouse loans

 

 

73,690

 

 

116,488

 

 

105,118

 

 

109,031

 

 

169,909

Residential mortgage loans

 

 

634,901

 

 

608,582

 

 

593,372

 

 

594,382

 

 

603,540

Consumer loans

 

 

899,881

 

 

848,749

 

 

753,900

 

 

727,259

 

 

713,432

Total loans

 

 

4,012,215

 

 

3,937,810

 

 

3,711,717

 

 

3,644,617

 

 

3,660,081

Earning assets

 

 

7,068,051

 

 

7,070,667

 

 

6,883,254

 

 

6,865,051

 

 

7,006,513

Non–interest bearing deposit accounts

 

 

1,315,155

 

 

1,328,213

 

 

1,325,570

 

 

1,360,338

 

 

1,324,757

Interest bearing transaction accounts

 

 

3,736,798

 

 

3,760,890

 

 

3,782,644

 

 

3,711,767

 

 

3,875,882

Time deposits

 

 

778,885

 

 

756,482

 

 

743,283

 

 

730,886

 

 

779,260

Total deposits

 

 

5,830,838

 

 

5,845,585

 

 

5,851,497

 

 

5,802,991

 

 

5,979,899

Borrowings

 

 

1,048,091

 

 

959,222

 

 

728,664

 

 

712,739

 

 

670,753

Subordinated notes

 

 

58,860

 

 

58,823

 

 

58,786

 

 

58,750

 

 

58,713

Junior subordinated debentures issued to capital trusts

 

 

56,966

 

 

56,907

 

 

56,850

 

 

56,785

 

 

56,722

Total stockholders’ equity

 

 

644,993

 

 

657,865

 

 

677,450

 

 

723,209

 

 

708,542


Financial Highlights

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

 

 

Three Months Ended

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

 

 

2022

 

 

 

2022

 

 

 

2022

 

 

 

2021

 

 

 

2021

 

Income statement:

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

53,395

 

 

$

53,008

 

 

$

48,171

 

 

$

49,976

 

 

$

46,544

 

Credit loss expense (recovery)

 

 

(601

)

 

 

240

 

 

 

(1,386

)

 

 

(2,071

)

 

 

1,112

 

Non–interest income

 

 

10,188

 

 

 

12,434

 

 

 

14,155

 

 

 

12,828

 

 

 

16,044

 

Non–interest expense

 

 

38,350

 

 

 

36,368

 

 

 

36,610

 

 

 

39,370

 

 

 

34,349

 

Income tax expense

 

 

2,013

 

 

 

3,975

 

 

 

3,539

 

 

 

4,080

 

 

 

4,056

 

Net income

 

$

23,821

 

 

$

24,859

 

 

$

23,563

 

 

$

21,425

 

 

$

23,071

 

 

 

 

 

 

 

 

 

 

 

 

Per share data:

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.55

 

 

$

0.57

 

 

$

0.54

 

 

$

0.49

 

 

$

0.53

 

Diluted earnings per share

 

 

0.55

 

 

 

0.57

 

 

 

0.54

 

 

 

0.49

 

 

 

0.52

 

Cash dividends declared per common share

 

 

0.16

 

 

 

0.16

 

 

 

0.15

 

 

 

0.15

 

 

 

0.15

 

Book value per common share

 

 

14.80

 

 

 

15.10

 

 

 

15.55

 

 

 

16.61

 

 

 

16.28

 

Tangible book value per common share

 

 

10.82

 

 

 

11.11

 

 

 

11.54

 

 

 

12.58

 

 

 

12.05

 

Market value – high

 

 

20.59

 

 

 

19.21

 

 

 

23.45

 

 

 

21.14

 

 

 

18.47

 

Market value – low

 

$

16.74

 

 

$

16.72

 

 

$

18.67

 

 

$

18.01

 

 

$

15.83

 

Weighted average shares outstanding – Basis

 

 

43,573,370

 

 

 

43,572,796

 

 

 

43,554,713

 

 

 

43,534,298

 

 

 

43,810,729

 

Weighted average shares outstanding – Diluted

 

 

43,703,793

 

 

 

43,684,691

 

 

 

43,734,556

 

 

 

43,733,416

 

 

 

43,958,870

 

 

 

 

 

 

 

 

 

 

 

 

Key ratios:

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

1.24

%

 

 

1.33

%

 

 

1.31

%

 

 

1.14

%

 

 

1.41

%

Return on average common stockholders’ equity

 

 

13.89

 

 

 

14.72

 

 

 

13.34

 

 

 

11.81

 

 

 

12.64

 

Net interest margin

 

 

3.13

 

 

 

3.19

 

 

 

2.99

 

 

 

2.97

 

 

 

3.17

 

Allowance for credit losses to total loans

 

 

1.28

 

 

 

1.33

 

 

 

1.41