Horizon Bancorp, Inc. Announces First Quarter 2020 Financial Results and Adopts New Accounting Standard for Current Expected Credit Losses

Michigan City, Indiana, UNITED STATES


MICHIGAN CITY, Ind., April 29, 2020 (GLOBE NEWSWIRE) -- (NASDAQ GS:  HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three-months ending March 31, 2020.

Craig M. Dwight, Chairman and CEO of Horizon, commented, “We are pleased with the solid first quarter results achieved in the face of unprecedented changes to the way we, our customers and the entire country lives and works as a result of the COVID–19 pandemic. But more importantly, I've truly never been prouder of our entire team, as it has risen to the challenge in every way imaginable. Our ability to prioritize customer and employee health and safety, while providing uninterrupted services and access to our accountholders, is the result of our ongoing focus on deliberate, thoughtful evaluation of our business and effort to constantly improve in all areas.”

Mr. Dwight continued, “In February we tested our pandemic plan as we monitored the spread of the novel coronavirus abroad and in the U.S. As a result, we made specific improvements to the way we conduct business which allowed for an expedient switch to a remote workforce for as many employees as possible, early implementation of social distancing measures, expansion of customer service resources, and enhancements to our loan approval process to ensure our continued ability to support customers. All of the changes were put in effect during early and mid–March, allowing us to focus our energy on supporting our customers, local businesses and communities, including through participation in the CARES Act lending programs, as well as financial and volunteer support to local non–profit organizations.”

First Quarter 2020 Keys

  • Horizon's focus on the safety and well-being of our employees, customers and community is always paramount in our decision making.
     
  • We believe that Horizon's balance sheet was well-positioned leading up to the COVID–19 National Health Emergency.
     
  • Horizon Bank's strong liquidity position includes approximately $1.1 billion in cash and investment securities, which is approximately 20.5% of total assets, and approximately $435.4 million in unused availability on lines of credit, at March 31, 2020.
     
  • Horizon began preparing staff and systems to enable customers to access funding provided by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed at the end of the first quarter, including the Paycheck Protection Program (“PPP”), for which Horizon Bank received SBA approval for 1,700 loans totaling approximately $280.0 million as of April 24, 2020. During round one of the PPP program, 95.5% of Horizon's applicants were approved for funding.
     
  • Horizon maintained stable asset quality metrics during the first quarter of 2020, including non-performing loans and delinquencies representing 0.65% and 0.33% of total loans, respectively, at March 31, 2020, while net charge-offs were 0.01% of average loans for the quarter. At March 31, 2020, Horizon's outstanding balance of other real estate owned and repossessed assets remained low totaling $2.8 million.

  • Credit loss expense of $8.6 million, $2.8 million of acquired loan discounts on Purchased Credit Impaired transferred to Purchase Credit Deteriorated and a $19.8 million increase in the Allowance for Credit Losses (“ACL”) reflected the implementation of the Current Expected Credit Losses (“CECL”) accounting method. ACL represented 1.30% of total loans and 201.8% of non-performing loans at March 31, 2020. ACL plus acquired loan discount to total loans was 1.74%.
     
  • Horizon has experienced an increase in mortgage loan originations during the first quarter of 2020, with 53% refinances and 47% new purchases.
     
  • Horizon's pre-tax, pre-provision net income totaled $21.8 million for the first quarter of 2020, compared to $22.8 million for the fourth quarter of 2019 and $13.3 million for the first quarter of 2019. 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, acquisition-related expenses, gains and losses on sale of investment securities and death benefit on bank owned life insurance. (See the "Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income" table below.)
     
  • Horizon's net interest margin remained relatively stable for the first quarter of 2020 at 3.56% and core net interest margin was 3.44%. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this Non–GAAP calculation.)
     
  • Comparisons to first quarter 2019 results reflect Horizon's acquisition of Salin Bancshares, Inc. on March 26, 2019.

Summary

  At or for the Three Months Ended
Credit Quality
Preceding National Emergency
 March 31, December 31, March 31,
 2020 2019 2019
Allowance for credit losses to total loans 1.30% 0.49% 0.49%
Allowance for credit losses + acquired loan discount to total loans 1.74% 1.04% 1.10%
Non-performing loans to total loans 0.65% 0.58% 0.54%
Percent of net charge-offs to average loans outstanding for the period 0.01% 0.02% 0.01%


    CECL Adoption
  December 31,   January 1, (Net Charge-Offs)/ Reserve March 31,
Allowance for Credit Losses 2019 Impact 2020 Recoveries Build 2020
Commercial $11,996  $13,618   $25,614  $20  $6,916  $32,550 
Retail Mortgage 923  4,048   4,971  (17) 700  5,654 
Warehouse 1,077     1,077    (22) 1,055 
Consumer 3,671  4,911   8,582  (407) 1,006  9,181 
Allowance for Credit Losses ("ACL") $17,667  $22,577   $40,244  $(404) $8,600  $48,440 
ACL/Total Loans 0.49%   1.10%     1.30%
             
Acquired Loan Discount ("ALD") $20,228  $(2,786)  $17,442  $  $  $16,006 
ACL + ALD $37,895  $19,791   $57,686  $(404) $8,600  $64,446 
ACL + ALD/Total Loans 1.04%   1.58%     1.74%

Mr. Dwight stated, “Horizon's asset quality metrics were strong on March 31, 2020 and our reserve increase related to the adoption of CECL on January 1, 2020 and the second quarter credit loss expense caused an increase in our quarterly allocation to cover anticipated loan losses. At the current time, we are not aware of material specific loan losses related to the reserve increase, however losses are anticipated given the closure of our economy and non–essential businesses. In addition, the shelter in place rules has increased unemployment applications and is limiting consumer spending. As time passes, we anticipate that we will better understand the impact of this health and economic emergency to Horizon's financial statements.”

  For the Three Months Ended
  March 31, December 31, March 31,
Net Interest Income and Net Interest Margin 2020 2019 2019
Net interest income $40,925  $41,519  $34,280 
Net interest margin 3.56% 3.58% 3.62%
Core net interest margin 3.44% 3.49% 3.46%

Mr. Dwight commented, “Horizon's funding team has done an excellent job of lowering the Bank’s cost of funds related to the Federal Reserve Bank’s 150–basis–point reduction in its benchmark interest rate and the market’s corresponding reaction in March 2020. As a result, Horizon’s net interest margin has remained fairly stable for the quarter; however, future headwinds are expected given that we are now close to the floors on our funding costs and assets will continue to reprice throughout the year.”

  For the Three Months Ended
  March 31, December 31, March 31,
Asset Yields and Funding Costs 2020 2019 2019
Interest earning assets 4.47% 4.57% 4.76%
Interest bearing liabilities 1.13% 1.24% 1.44%


  For the Three Months Ended
Non-interest Income and
Mortgage Banking Income
 March 31, December 31, March 31,
 2020 2019 2019
Total non-interest income $12,063 $11,934 $8,712
Gain on sale of mortgage loans 3,473 3,119 1,309
Mortgage servicing income net of impairment 25 294 606


  For the Three Months Ended
  March 31, December 31, March 31,
Non-interest Expense 2020 2019 2019
Total non-interest expense $31,149   $30,650   $29,738  
Annualized non-interest expense to average assets 2.38 % 2.32 % 2.80 %

Net income for the first quarter of 2020 was $11.7 million, or $0.26 diluted earnings per share, compared to $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019 and $10.8 million, or $0.28 diluted earnings per share, for the first quarter of 2019. Excluding acquisition-related expenses, gains and losses on sale of investment securities and death benefit on bank owned life insurance‚ core net income was $11.2 million, or $0.24 diluted earnings per share for the first quarter of 2020, compared to $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019 and $14.2 million, or $0.37 diluted earnings per share, for the first quarter of 2019. Core 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. Horizon’s earnings in the first quarter of 2020 reflect Horizon’s adoption of the CECL accounting method on January 1, 2020.

Capital

The capital resources of Horizon and Horizon Bank (the "Bank") exceeded regulatory capital ratios for "well capitalized" banks at March 31, 2020. Stockholders' equity totaled $630.8 million at March 31, 2020 and the ratio of average stockholders' equity to average assets was 12.70% for the three months ended March 31, 2020. The following table presents the actual regulatory capital dollar amounts and ratios of Horizon Bancorp, Inc. and Horizon Bank as of March 31, 2020.

March 31, 2020 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 $548,429  13.59% $322,843 8.00% $423,731 10.50%  N/A N/A
Bank 510,462  12.67% 322,312 8.00% 423,035 10.50% $402,890 10.00%
Tier 1 capital (to risk-weighted assets)                
Consolidated 514,493  12.75% 242,114 6.00% 342,995 8.50%  N/A N/A
Bank 476,526  11.83% 241,687 6.00% 342,390 8.50% 322,249 8.00%
Common equity tier 1 capital (to risk-weighted assets)                
Consolidated 457,000  11.33% 181,509 4.50% 282,348 7.00%  N/A N/A
Bank 476,526  11.83% 181,265 4.50% 281,968 7.00% 261,827 6.50%
Tier 1 capital (to average assets)                
Consolidated 514,493  10.14% 202,956 4.00% 202,956 4.00%  N/A N/A
Bank 476,526  9.43% 202,132 4.00% 202,132 4.00% 252,665 5.00%

“Horizon's capital and liquidity positions are well-managed which is a testament to the quality of our finance team's on–going monitoring, stress testing and oversight. As mentioned earlier, Horizon was well-positioned going into this economic challenge and we will continue to be dynamic in our monitoring and approach to managing the balance sheet,” said Craig M. Dwight.

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, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $435.4 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Bank Discount Window. The Bank had approximately $743.5 million of unpledged investment securities at March 31, 2020.

Income Statement Highlights

Net income for the first quarter of 2020 was $11.7 million, or $0.26 diluted earnings per share, compared to $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019. Core net income for the first quarter of 2020 was $11.2 million, or $0.24 diluted earnings per share, compared to $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019. The decrease in net income for the first quarter of 2020 when compared to the fourth quarter of 2019 reflects an increase in credit loss expense of $8.3 million, an increase in non-interest expense of $499,000 and a decrease in net interest income of $594,000, offset by a decrease in tax expense of $2.3 million and an increase in non-interest income of $129,000. 

Net income for the first quarter of 2020 was $11.7 million, or $0.26 diluted earnings per share, compared to $10.8 million, or $0.28 diluted earnings per share for the first quarter of 2019. Core net income for the first quarter of 2020 was $11.2 million , or $0.24 diluted earnings per share, compared to $14.2 million, or $0.37 diluted earnings per share for the first quarter of 2019. The increase in net income for the first quarter of 2020 when compared to the same prior year period reflects an increase in net interest income of $6.6 million, an increase in non-interest income of $3.4 million and a decrease in tax expense of $490,000, offset by an increase in credit loss expense of $8.2 million and an increase in non-interest expense of $1.4 million.

Non-GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
           
Net income as reported $11,655  $18,543  $20,537  $16,642  $10,816 
Merger expenses       1,532  4,118 
Tax effect       (295) (692)
Net income excluding merger expenses 11,655  18,543  20,537  17,879  14,242 
           
(Gain)/loss on sale of investment
securities
 (339) (10)   100  (15)
Tax effect 71  2    (21) 3 
Net income excluding (gain)/loss on sale of investment securities 11,387  18,535  20,537  17,958  14,230 
           
Death benefit on bank owned life insurance (“BOLI”) (233)   (213) (367)  
Net income excluding death benefit on BOLI 11,154  18,535  20,324  17,591  14,230 
           
Core net income $11,154  $18,535  $20,324  $17,591  $14,230 


Non-GAAP Reconciliation of Diluted Earnings per Share
(Unaudited)
  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
           
Diluted earnings per share (“EPS”) as reported $0.26  $0.41  $0.46  $0.37  $0.28 
Merger expenses       0.03  0.11 
Tax effect         (0.02)
Diluted EPS excluding merger expenses 0.26  0.41  0.46  0.40  0.37 
           
(Gain)/loss on sale of investment securities (0.01)        
Tax effect          
Diluted EPS excluding (gain)/loss on investment securities 0.25  0.41  0.46  0.40  0.37 
           
Death benefit on BOLI (0.01)   (0.01) (0.01)  
Diluted EPS excluding death benefit on BOLI 0.24  0.41  0.45  0.39  0.37 
           
Core Diluted EPS $0.24  $0.41  $0.45  $0.39  $0.37 


Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income
(Dollars in Thousands, Unaudited)
  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
           
Pre-tax income $13,239  $22,463  $24,541  $19,947  $12,890 
Credit loss expense 8,600  340  376  896  364 
Pre-tax, pre-provision net income $21,839  $22,803  $24,917  $20,843  $13,254 
           
Pre-tax, pre-provision net income $21,839  $22,803  $24,917  $20,843  $13,254 
Merger expenses       1,532  4,118 
(Gain)/loss on sale of investment securities (339) (10)   100  (15)
Death benefit on bank owned life insurance (233)   (213) (367)  
Adjusted pre-tax, pre-provision net income $21,267  $22,793  $24,704  $22,108  $17,357 

Horizon's net interest margin decreased to 3.56% for the first quarter of 2020 when compared to 3.58% for the fourth quarter of 2019. The decrease in net interest margin reflects a decrease in the yield of interest earning assets of 10 basis points, offset by a decrease in the cost of interest bearing liabilities of 11 basis points. Interest income from acquisition-related purchase accounting adjustments was $392,000 higher during the first quarter of 2020 when compared to the fourth quarter of 2019.   

Horizon's net interest margin decreased to 3.56% for the first quarter of 2020 when compared to 3.62% for the first quarter of 2019. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 29 basis points offset by a decrease in the cost of interest bearing liabilities of 31 basis points.

Non-GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
Net interest income as reported $40,925   $41,519   $43,463   $41,529   $34,280  
           
Average interest earning assets 4,723,755   4,748,217   4,623,985   4,566,674   3,929,296  
           
Net interest income as a percentage of average interest earning assets
(“Net Interest Margin”)
 3.56 % 3.58 % 3.82 % 3.73 % 3.62 %
           
Net interest income as reported $40,925   $41,519   $43,463   $41,529   $34,280  
           
Acquisition-related purchase accounting adjustments
(“PAUs”)
 (1,434)  (1,042)  (1,739)  (1,299)  (1,510) 
           
Core net interest income $39,491   $40,477   $41,724   $40,230   $32,770  
           
Core net interest margin 3.44 % 3.49 % 3.67 % 3.61 % 3.46 %

Net interest margin, excluding acquisition-related purchase accounting adjustments ("core net interest margin"), was 3.44% for the first quarter of 2020 compared to 3.49% for the prior quarter and 3.46% for the first quarter of 2019. Interest income from acquisition-related purchase accounting adjustments was $1.4 million, $1.0 million and $1.5 million for the three months ended March 31, 2020, December 31, 2109 and March 31, 2019, respectively.

Lending Activity

Total loans increased $72.6 million from $3.6 billion as of December 31, 2019 to $3.7 billion as of March 31, 2020. During the three months ended March 31, 2020, mortgage warehouse loans increased $73.2 million, consumer loans increased $6.7 million, commercial loans increased $3.8 million and loans held for sale increased $2.2 million, offset by a decrease in residential mortgage loans of $13.2 million.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
         
  March 31, December 31, Amount Percent
  2020 2019 Change Change
Commercial $2,050,402 $2,046,651 $3,751  0.2%
Residential mortgage 757,529 770,717 (13,188) (1.7)%
Consumer 675,849 669,180 6,669  1.0%
Subtotal 3,483,780 3,486,548 (2,768) (0.1)%
Loans held for sale 6,245 4,088 2,157  52.8%
Mortgage warehouse 223,519 150,293 73,226  48.7%
Total loans $3,713,544 $3,640,929 $72,615  2.0%

Residential mortgage lending activity for the three months ended March 31, 2020 generated $3.5 million in income from the gain on sale of mortgage loans, an increase of $354,000 from the fourth quarter of 2019 and $2.2 million from the first quarter of 2019. Total origination volume for the first quarter of 2020, including loans placed into portfolio, totaled $110.8 million, representing a decrease of 2.7% from the fourth quarter of 2019 and an increase of 77.3% from the first quarter of 2019. Total origination volume of loans sold to the secondary market totaled $67.6 million, representing a decrease of 19.1% from the fourth quarter of 2019 and an increase of 122.1% from the first quarter of 2019.

Revenue derived from Horizon’s residential mortgage and mortgage warehouse lending activities was 8.0% of Horizon’s total revenue for the three months ended March 31, 2020.

Expense Management

 Three Months Ended    
 March 31, December 31,    
 2020 2019 Adjusted
Non-interest ExpenseActual Merger
Expenses
 Adjusted Actual Merger
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits$16,591  $ $16,591  $16,841  $ $16,841  $(250) (1.5)%
Net occupancy expenses3,252   3,252  3,106   3,106  146  4.7%
Data processing2,405   2,405  2,235   2,235  170  7.6%
Professional fees536   536  520   520  16  3.1%
Outside services and consultants1,915   1,915  1,415   1,415  500  35.3%
Loan expense2,099   2,099  2,438   2,438  (339) (13.9)%
FDIC insurance expense150   150       150  —%
Other losses120   120  377   377  (257) (68.2)%
Other expense4,081   4,081  3,718   3,718  363  9.8%
Total non-interest expense$31,149  $ $31,149  $30,650  $ $30,650  $499  1.6%
Annualized non-interest expense to average assets2.38%   2.38% 2.32%   2.32%    

Total non-interest expense was $499,000 higher in the first quarter of 2020 when compared to the fourth quarter of 2019. Increases in outside services and consultants, other expense, data processing, FDIC insurance expense and net occupancy expenses were partially offset by decreases in loan expense, other losses and salaries and employee benefits. 

 Three Months Ended    
 March 31, March 31,    
 2020 2019 Adjusted
Non-interest ExpenseActual Merger
Expenses
 Adjusted Actual Merger
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits$16,591  $ $16,591  $14,466  $(2) $14,464  $2,127  14.7%
Net occupancy expenses3,252   3,252  2,772    2,772  480  17.3%
Data processing2,405   2,405  1,966  (292) 1,674  731  43.7%
Professional fees536   536  493  (239) 254  282  111.0%
Outside services and consultants1,915   1,915  3,530  (2,290) 1,240  675  54.4%
Loan expense2,099   2,099  1,949    1,949  150  7.7%
FDIC insurance expense150   150  160    160  (10) (6.3)%
Other losses120   120  104  (2) 102  18  17.6%
Other expense4,081   4,081  4,298  (1,293) 3,005  1,076  35.8%
Total non-interest expense$31,149  $ $31,149  $29,738  $(4,118) $25,620  $5,529  21.6%
Annualized non-interest expense to average assets2.38%   2.38% 2.80%   2.41%    

Total non-interest expense was $1.4 million higher in the first quarter of 2020 when compared to the first quarter of 2019. Increases in salaries and employee benefits, net occupancy expenses, data processing and loans expense were offset in part by decreases in outside services and consultants and other expenses. Excluding merger expenses, total non-interest expense increased by $5.5 million in the first quarter of 2020 when compared to the first quarter of 2019. This increase was primarily related to the closing of the Salin Bancshares, Inc. merger on March 26, 2019 and the related increase in costs.

Annualized non-interest expense as a percent of average assets were 2.38%, 2.32% and 2.80% for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively. Annualized non-interest expense, excluding merger expenses, as a percent of average assets were 2.38%, 2.32% and 2.41% for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

Income tax expense totaled $1.6 million for the first quarter of 2020 a decrease of $2.3 million and $490,000 when compared to the fourth quarter of 2019 and the first quarter of 2019, respectively. The decrease in income tax expense in the first quarter of 2020 compared to the fourth quarter of 2019 was primarily due to a decrease in income before taxes of $9.2 million. The decrease in income tax expense in the first quarter of 2020 compared to the first quarter of 2019 was primarily due to an increase in tax-exempt municipal interest income.

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 loan and lease 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 net income. In each case, we have identified special circumstances that we consider to be 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–core 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 Except per Share Data, Unaudited)
           
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
Total stockholders' equity $630,842 $656,023 $642,711 $626,461 $609,468
Less: Intangible assets 176,961 177,917 178,896 179,776 176,864
Total tangible stockholders' equity $453,881 $478,106 $463,815 $446,685 $432,604
           
Common shares outstanding 43,763,623 44,975,771 44,969,021 45,061,372 45,052,747
           
Tangible book value per common
share
 $10.37 $10.63 $10.31 $9.91 $9.60


Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Core Efficiency Ratio
(Dollars in Thousands, Unaudited)
           
  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
Non-GAAP Calculation of Efficiency Ratio          
Non-interest expense as reported $31,149   $30,650   $30,060   $31,584   $29,738  
           
Net interest income as reported 40,925   41,519   43,463   41,529   34,280  
           
Non-interest income as reported $12,063   $11,934   $11,514   $10,898   $8,712  
           
Non-interest expense/(Net interest income + Non-interest income)
  ("Efficiency Ratio")
 58.79 % 57.34 % 54.68 % 60.24 % 69.17 %
           
Non-GAAP Reconciliation of Core Efficiency Ratio          
Non-interest expense as reported $31,149   $30,650   $30,060   $31,584   $29,738  
Merger expenses          (1,532)  (4,118) 
Non-interest expense excluding merger expenses 31,149   30,650   30,060   30,052   25,620  
           
Net interest income as reported 40,925   41,519   43,463   41,529   34,280  
           
Non-interest income as reported 12,063   11,934   11,514   10,898   8,712  
(Gain)/loss on sale of investment securities (339)  (10)     100   (15) 
Death benefit on bank owned life insurance ("BOLI") (233)     (213)  (367)    
Non-interest income excluding (gain)/loss on sale of investment securities and death benefit on BOLI $11,491   $11,924   $11,301   $10,631   $8,697  
           
Core efficiency ratio 59.43 % 57.35 % 54.89 % 57.62 % 59.61 %


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,
  2020
 2019
 2019
 2019
 2019
Non-GAAP Reconciliation of Return on Average Assets                         
Average assets $5,257,332   $5,250,574   $5,107,259   $5,047,365   $4,307,189  
Return on average assets ("ROAA") as reported  0.89 %  1.40 %  1.60 %  1.32 %  1.02 %
Merger expenses              0.12    0.39  
Tax effect              (0.02)   (0.07) 
ROAA excluding merger expenses  0.89    1.40    1.60    1.42    1.34  
(Gain)/loss on sale of investment securities  (0.03)           0.01      
Tax effect  0.01                  
ROAA excluding (gain)/loss on sale of investment securities  0.87    1.40    1.60    1.43    1.34  
Death benefit on bank owned life insurance ("BOLI")  (0.02)       (0.02)   (0.03)     
ROAA excluding death benefit on BOLI  0.85    1.40    1.58    1.40    1.34  
Core ROAA  0.85 %  1.40 %  1.58 %  1.40 %  1.34 %
                          
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, 
  2020
 2019
  2019   2019   2019 
Non-GAAP Reconciliation of Return on Average Common Equity                         
Average common equity $667,588   $653,071    $640,770   $622,028   $506,449  
Return on average common equity ("ROACE") as reported  7.02    11.26 %  12.72    10.73 %  8.66 %
Merger expenses           %  0.99    3.30  
Tax effect              (0.19)   (0.55) 
ROACE excluding merger expenses  7.02    11.26    12.72    11.53    11.41  
                          
(Gain)/loss on sale of investment securities  (0.20)   (0.01)       0.06    (0.01) 
Tax effect  0.04            (0.01)     
ROACE excluding (gain)/loss on sale of investment securities  6.86    11.25    12.72    11.58    11.40  
                          
Death benefit on bank owned life insurance ("BOLI")  (0.14)       (0.13)   (0.24)     
ROACE excluding death benefit on BOLI  6.72    11.25    12.59    11.34    11.40  
                          
Core ROACE  6.72 %  11.25 %  12.59 %  11.34 %  11.40 %

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 30, 2020 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 7, 2020. 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 10142971.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. is an independent, commercial bank holding company serving northern and central Indiana, and southern and central Michigan through its commercial banking subsidiary, Horizon Bank. Horizon may be reached online at www.horizonbank.com. Its common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.

Forward Looking Statements

This presentation 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 the presentation materials 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. 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 except share and per share data and ratios, Unaudited)
          
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
Balance sheet:         
Total assets$5,351,325 $5,246,829 $5,186,714 $5,098,682 $5,051,639
Investment securities1,099,943 1,042,675 977,536 887,187 893,469
Commercial loans2,050,402 2,046,651 2,046,165 2,062,623 2,089,579
Mortgage warehouse loans223,519 150,293 155,631 133,428 71,944
Residential mortgage loans757,529 770,717 796,497 814,065 819,824
Consumer loans675,849 669,180 668,332 654,552 639,710
Earning assets4,835,934 4,706,051 4,667,668 4,577,487 4,538,952
Non-interest bearing deposit accounts709,978 709,760 756,707 810,350 811,768
Interest bearing transaction accounts2,264,576 2,245,631 2,173,100 2,153,189 2,115,847
Time deposits907,717 975,611 986,150 967,236 960,408
Borrowings704,613 549,741 516,591 436,233 457,788
Subordinated debentures56,374 56,311 56,250 56,194 55,310
Total stockholders' equity630,842 656,023 642,711 626,461 609,468


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,
 2020 2019 2019 2019 2019
Income statement:         
Net interest income$40,925  $41,519  $43,463  $41,529  $34,280 
Credit loss expense8,600  340  376  896  364 
Non-interest income12,063  11,934  11,514  10,898  8,712 
Non-interest expense31,149  30,650  30,060  31,584  29,738 
Income tax expense1,584  3,920  4,004  3,305  2,074 
Net income$11,655  $18,543  $20,537  $16,642  $10,816 
          
Per share data:         
Basic earnings per share$0.26  $0.41  $0.46  $0.37  $0.28 
Diluted earnings per share0.26  0.41  0.46  0.37  0.28 
Cash dividends declared per common share0.12  0.12  0.12  0.12  0.10 
Book value per common share14.41  14.59  14.29  13.90  13.53 
Tangible book value per common share10.37  10.63  10.31  9.91  9.60 
Market value - high18.79  19.42  17.77  17.13  17.82 
Market value - low$7.97  $16.60  $15.93  $15.51  $15.50 
Weighted average shares outstanding - Basic44,658,512  44,971,676  45,038,021  45,055,117  38,822,543 
Weighted average shares outstanding - Diluted44,756,716  45,103,065  45,113,730  45,130,408  38,906,172 
          
Key ratios:         
Return on average assets0.89% 1.40% 1.60% 1.32% 1.02%
Return on average common stockholders' equity7.02  11.26  12.72  10.73  8.66 
Net interest margin3.56  3.58  3.82  3.73  3.62 
Allowance for credit losses to total loans1.30  0.49  0.49  0.50  0.49 
Average equity to average assets12.70  12.44  12.55  12.32  11.76 
Bank only capital ratios:         
Tier 1 capital to average assets9.43  9.49  9.35  9.52  10.99 
Tier 1 capital to risk weighted assets11.83  12.20  11.62  11.76  11.84 
Total capital to risk weighted assets12.67  12.65  12.08  12.23  12.30 


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,
 2020 2019 2019 2019 2019
Loan data:         
Substandard loans$61,322  $58,670  $62,130  $47,764  $41,728 
30 to 89 days delinquent12,017  7,729  10,204  9,633  9,980 
          
90 days and greater delinquent - accruing interest246  146  34  391  192 
Trouble debt restructures - accruing interest2,115  3,354  3,491  2,198  2,532 
Trouble debt restructures - non-accrual3,360  2,006  1,807  1,576  1,349 
Non-accrual loans18,281  15,679  13,823  14,764  15,313 
Total non-performing loans$24,002  $21,185  $19,155  $18,929  $19,386 
Non-performing loans to total loans0.65% 0.58% 0.52% 0.52% 0.54%


Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
          
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
Commercial$32,550  $11,996  $12,082  $11,881  $11,556 
Real estate5,654  923  1,449  1,732  1,588 
Mortgage warehouse1,055  1,077  1,041  1,040  1,014 
Consumer9,181  3,671  3,384  3,652  3,663 
Total$48,440  $17,667  $17,956  $18,305  $17,821 


Net Charge-offs (Recoveries)
(Dollars in Thousands, Unaudited)
          
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
Commercial$(20)  $146   $192   $265   $61  
Real estate17   40   (7)  41   (27) 
Mortgage warehouse              
Consumer407   443   540   106   329  
Total$404   $629   $725   $412   $363  
Percent of net charge-offs to average loans outstanding for the period0.01%  0.02 % 0.02 % 0.01 % 0.01 %


Total Non-performing Loans
(Dollars in Thousands, Unaudited)
          
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
Commercial$9,579  $7,347  $8,193  $8,697  $9,750 
Real estate10,411  9,884  7,212  6,444  5,995 
Mortgage warehouse         
Consumer4,012  3,954  3,750  3,788  3,641 
Total$24,002  $21,185  $19,155  $18,929  $19,386 
Non-performing loans to total loans0.65% 0.58% 0.52% 0.52% 0.54%


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
          
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
Commercial$2,464  $3,698  $3,972  $3,694  $3,496 
Real estate336  28  48  113  126 
Mortgage warehouse         
Consumer13    24  48  30 
Total$2,813  $3,726  $4,044  $3,855  $3,652 


 Average Balance Sheets
 (Dollar Amount in Thousands, Unaudited)
             
  Three Months Ended Three Months Ended
  March 31, 2020 March 31, 2019
  Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
 Assets           
 Interest earning assets           
 Federal funds sold$24,974  $96  1.55% $7,843  $57  2.95%
 Interest earning deposits26,491  101  1.53% 26,355  155  2.39%
 Investment securities - taxable478,697  2,701  2.27% 448,840  2,910  2.63%
 Investment securities - non-taxable (1)588,784  3,798  3.18% 393,720  2,628  3.40%
 Loans receivable (2) (3)3,604,809  44,958  5.03% 3,052,538  39,623  5.27%
 Total interest earning assets4,723,755  51,654  4.47% 3,929,296  45,373  4.76%
             
 Non-interest earning assets           
 Cash and due from banks78,108      44,527     
 Allowance for credit losses(24,468)     (17,836)    
 Other assets479,937      351,202     
             
 Total average assets$5,257,332      $4,307,189     
             
 Liabilities and Stockholders' Equity           
 Interest bearing liabilities           
 Interest bearing deposits$3,225,323  $7,716  0.96% $2,514,841  $6,876  1.11%
 Borrowings533,129  2,238  1.69% 577,199  3,621  2.54%
 Subordinated debentures56,333  775  5.53% 39,236  596  6.16%
 Total interest bearing liabilities3,814,785  10,729  1.13% 3,131,276  11,093  1.44%
             
 Non-interest bearing liabilities           
 Demand deposits717,257      643,601     
 Accrued interest payable and other liabilities57,702      25,863     
 Stockholders' equity667,588      506,449     
             
 Total average liabilities and stockholders' equity$5,257,332      $4,307,189     
             
 Net interest income/spread  $40,925  3.34%   $34,280  3.32%
 Net interest income as a percent of average interest earning assets (1)    3.56%     3.62%
             
(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
(Dollar Amounts in Thousands)
     
  March 31,
2020
 December 31,
2019
  (Unaudited)  
Assets    
Cash and due from banks $86,458  $98,831 
Interest earning time deposits 9,239  8,455 
Investment securities, available for sale 900,476  834,776 
Investment securities, held to maturity (fair value of $207,323 and $215,147) 199,467  207,899 
Loans held for sale 6,245  4,088 
Loans, net of allowance for credit losses of $48,440 and $17,667 3,658,859  3,619,174 
Premises and equipment, net 92,785  92,209 
Federal Home Loan Bank stock 22,447  22,447 
Goodwill 151,238  151,238 
Other intangible assets 25,723  26,679 
Interest receivable 17,774  18,828 
Cash value of life insurance 95,153  95,577 
Other assets 85,461  66,628 
Total assets $5,351,325  $5,246,829 
     
Liabilities    
Deposits    
Non-interest bearing $709,978  $709,760 
Interest bearing 3,172,293  3,221,242 
Total deposits 3,882,271  3,931,002 
Borrowings 704,613  549,741 
Subordinated debentures 56,374  56,311 
Interest payable 2,772  3,062 
Other liabilities 74,453  50,690 
Total liabilities 4,720,483  4,590,806 
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 43,788,692 and 45,000,840 shares, Outstanding 43,763,623 and 44,975,771 shares
 —   
Additional paid-in capital 361,019  379,853 
Retained earnings 260,501  269,738 
Accumulated other comprehensive income 9,322  6,432 
Total stockholders' equity 630,842  656,023 
Total liabilities and stockholders' equity $5,351,325  $5,246,829 


Condensed Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data, Unaudited)
  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
Interest Income          
Loans receivable $44,958   $46,769  $49,455   $47,784  $39,623 
Investment securities - taxable 2,898   3,054  3,157   3,273  3,122 
Investment securities - non-taxable 3,798   3,575  3,099   2,793  2,628 
Total interest income 51,654   53,398  55,711   53,850  45,373 
Interest Expense          
Deposits 7,716   8,767  9,109   8,938  6,876 
Borrowed funds 2,238   2,281  2,275   2,495  3,621 
Subordinated debentures 775   831  864   888  596 
Total interest expense 10,729   11,879  12,248   12,321  11,093 
Net Interest Income 40,925   41,519  43,463   41,529  34,280 
Credit loss expense 8,600   340  376   896  364 
Net Interest Income after Credit Loss Expense 32,325   41,179  43,087   40,633  33,916 
Non-interest Income          
Service charges on deposit accounts 2,446   2,766  2,836   2,480  1,877 
Wire transfer fees 171   179  189   167  118 
Interchange fees 1,896   1,996  2,138   2,160  1,361 
Fiduciary activities 2,528   2,594  1,834   2,063  2,089 
Gains/(losses) on sale of investment securities 339   10     (100) 15 
Gain on sale of mortgage loans 3,473   3,119  2,702   2,078  1,309 
Mortgage servicing income net of impairment 25   294  444   570  606 
Increase in cash value of bank owned life insurance 554   566  556   555  513 
Death benefit on bank owned life insurance 233     213   367   
Other income 398   410  602   558  824 
Total non-interest income 12,063   11,934  11,514   10,898  8,712 
Non-interest Expense          
Salaries and employee benefits 16,591   16,841  16,948   16,951  14,466 
Net occupancy expenses 3,252   3,106  3,131   3,148  2,772 
Data processing 2,405   2,235  2,140   2,139  1,966 
Professional fees 536   520  335   598  493 
Outside services and consultants 1,915   1,415  1,552   1,655  3,530 
Loan expense 2,099   2,438  2,198   2,048  1,949 
FDIC insurance expense 150     (273)  365  160 
Other losses 120   377  90   169  104 
Other expense 4,081   3,718  3,939   4,511  4,298 
Total non-interest expense 31,149   30,650  30,060   31,584  29,738 
Income Before Income Taxes 13,239   22,463  24,541   19,947  12,890 
Income tax expense 1,584   3,920  4,004   3,305  2,074 
Net Income $11,655   $18,543  $20,537   $16,642  $10,816 
Basic Earnings Per Share $0.26   $0.41  $0.46   $0.37  $0.28 
Diluted Earnings Per Share 0.26   0.41  0.46   0.37  0.28 


Contact:Mark E. Secor
 Chief Financial Officer
Phone:(219) 873-2611
Fax:(219) 874-9280