Horizon Bancorp, Inc. Announces First Quarter 2021 Financial Results
04/28/2021 - 04:35 PM
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. T he 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) 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 — — 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 $ 0.26 Diluted earnings per share 0.46 0.50 0.46 0.33 0.26
Contract: Mark E. Secor Chief Financial Officer Phone: (219) 873-2611 Fax: (219) 874-9280 Date: April 28, 2021
