Horizon Bancorp, Inc. Announces Record Fourth Quarter 2020 Financial Results

Michigan City, Indiana, UNITED STATES


MICHIGAN CITY, Ind., Jan. 27, 2021 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) -- Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and twelve months ending December 31, 2020.

“Horizon closed 2020 with record quarterly top– and bottom–line results, supported by continued strength in mortgage lending and other fee–generating businesses, the benefits of our work to deleverage and optimize returns on total earning assets, and favorable deferral trends and credit quality metrics,” Chairman and CEO Craig M. Dwight said. “Entering the new year with strong liquidity, capital, and reserves, we see clear opportunities to enhance the bank’s operating efficiency, deepen in–market retail and commercial customer relationships, and help to strengthen our resilient Indiana and Michigan communities in 2021.”

Fourth Quarter 2020 Highlights

  • Earned record net income of $21.9 million, or $0.50 diluted earnings per share, compared to $20.3 million, or $0.46 diluted earnings per share, for the third quarter of 2020 and $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019.
     
  • Grew pre–tax, pre–provision net income to a record $26.9 million for the quarter, compared to $26.7 million for the third quarter of 2020 and $22.8 million for the fourth 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. (See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income” table below.)
     
  • Grew net interest income to a record $43.6 million for the quarter, compared to $43.4 million for the third quarter of 2020 and $41.5 million for the fourth quarter of 2019. Adjusted net interest income for the quarter was $45.0 million compared to $41.9 million for the third quarter of 2020. (See the “Non–GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” tables below.)
     
  • Reported return on average assets (“ROAA”) of 1.49% and return on average common equity (“ROACE”) of 12.79% in the quarter, as well as adjusted ROAA of 1.56% and adjusted ROACE of 13.33%, excluding the impact of gains on sale of investment securities and prepayment penalties on borrowings, net of tax. (See the “Non–GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” tables below.)
     
  • Grew mortgage–related non–interest income by 8.5% from the linked quarter and 138.6% from the prior year period, with gain on mortgage loan sales of $7.8 million and net mortgage servicing income of $327,000. The bank originated $186.1 million in mortgage loans during the quarter, down 10.1% from the third quarter of 2020 and up 63.3% from the fourth quarter of 2019.
     
  • Total non–interest income, excluding securities gains, grew to a record $17.1 million, up 9.6% from the linked quarter and 43.5% from the prior year period, supported by increases in mortgage–related gains and servicing income, banking and fiduciary fees.
     
  • Reported net interest margin (“NIM”) of 3.34% and adjusted NIM of 3.44%, with reported NIM declining by 5 basis points and adjusted NIM increasing by 17 basis points from the third quarter of 2020. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation). An estimated 18 basis points attributed to PPP lending improved the margin, offset by an estimated 10 and 7 basis point compression, respectively, attributed to the subordinated notes and excess liquidity held during the quarter, for both NIM and adjusted NIM.
     
  • Increased the allowance for credit losses (“ACL”) by 1.3% during the quarter and 222.8% year–to–date to $57.0 million at period end, representing 1.47% of total loans, reflecting January 2020 implementation of the Current Expected Credit Losses (“CECL”) accounting method and prudent increases in the allocation for the Company’s identified stressed portfolios. ACL at period end also represented 1.55% of loans excluding $208.9 million in Federal Paycheck Protection Program (“PPP”) loans, and 212.7% of non–performing loans.
     
  • COVID–19 deferral levels improved to 3.5% of total loans at period end, compared to 4.1% on September 30, 2020 and 14.3% on June 30, 2020 and the bank experienced no material specific loan losses attributed to COVID–19 closures in 2020.
     
  • Maintained solid asset quality metrics, including non–performing and delinquent loans representing 0.69% and 0.19% of total loans, respectively, at December 31, 2020, while net charge–offs were 0.01% of average loans for the period.
     
  • The efficiency ratio for the period was 57.54% compared to 55.59% for the third quarter of 2020. The adjusted efficiency ratio was 56.48% compared to 56.64% for the third quarter of 2020. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” tables below.)
     
  • Horizon’s tangible book value per share increased from $10.63 at December 31, 2019 to $11.78 at December 31, 2020, which includes the accounting adjustment for CECL as of January 1, 2020. This represents the highest tangible book value per share in the Company’s history. (See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” tables below.)
     
  • Maintained strong liquidity position including approximately $1.6 billion in cash and investment securities, which is approximately 26.3% of total assets, and approximately $1.0 billion in unused availability on lines of credit, at December 31, 2020.
     
  • Horizon has reported over thirty years of uninterrupted dividends and as of year–end had in excess of $127 million in cash at the holding company, which provides us with considerable future optionality to build shareholder value.

Summary

  For the Three Months Ended
  December 31, September 30, December 31,
Net Interest Income and Net Interest Margin 2020 2020 2019
Net interest income $43,622  $43,397  $41,519 
Net interest margin 3.34% 3.39% 3.58%
Adjusted net interest margin 3.44% 3.27% 3.49%


  For the Three Months Ended
  December 31, September 30, December 31,
Asset Yields and Funding Costs 2020 2020 2019
Interest earning assets 4.05% 3.90% 4.57%
Interest bearing liabilities 0.94% 0.67% 1.24%
          

The yield on interest earning assets for the fourth quarter of 2020 was impacted by PPP loans and higher liquidity levels. Horizon estimates PPP loans increased the yield by 15 basis points and higher liquidity levels compressed the yield by 8 basis points. Horizon estimates PPP loans decreased the yield on interest earning assets by 6 basis point for the third quarter of 2020. The funding costs on interest bearing liabilities increased by an estimated 37 basis points for the fourth quarter of 2020 as a result of prepayment penalties on borrowings.

  For the Three Months Ended
Non–interest Income and  December 31, September 30, December 31,
Mortgage Banking Income 2020 2020 2019
Total non–interest income $19,733  $16,700  $11,934 
Gain on sale of mortgage loans 7,815  8,813  3,119 
Mortgage servicing income net of impairment 327  (1,308) 294 


  For the Three Months Ended
  December 31, September 30, December 31,
Non–interest Expense 2020 2020 2019
Total non–interest expense $36,453  $33,407  $30,432 
Annualized non–interest expense to average assets 2.47% 2.30% 2.32%


  For the Three Months Ended
  December 31, September 30, December 31,
Credit Quality 2020 2020 2019
Allowance for credit losses to total loans 1.47% 1.39% 0.49%
Non–performing loans to total loans 0.69  0.72  0.58 
Percent of net charge–offs to average loans outstanding for the period 0.01  0.02  0.02 


    CECL Adoption
Allowance for December 31,   January 1, Net Reserve Build December 31,
Credit Losses 2019 Impact 2020 1Q20 2Q20 3Q20 4Q20 2020
Commercial $11,996  $13,618  $25,614  $6,936  $6,597  $648  $2,415  $42,210 
Retail Mortgage 923  4,048  4,971  683  178  (368) (844) 4,620 
Warehouse 1,077    1,077  (22) 135  60  17  1,267 
Consumer 3,671  4,911  8,582  599  (260) 889  (880) 8,930 
Allowance for Credit Losses (“ACL”) $17,667  $22,577  $40,244  $8,196  $6,650  $1,229  $708  $57,027 
ACL / Total Loans 0.49%   1.10%         1.47%
Acquired Loan Discount (“ALD”) $20,228  $(2,786) $17,442  $(1,436) $(1,532) $(1,541) $(1,439) $11,494 
                                 

Horizon’s asset quality metrics continued to remain favorable through the fourth quarter, with low levels of delinquency and other real estate owned and a decrease in non–performing loans. Horizon’s reserve build reflects adoption of CECL on January 1, 2020 and the increase in the Company’s quarterly allocations to cover potential future loan losses related to economic factors and the nature and characteristics of its loan portfolios, primarily related to the impact on non–essential businesses caused by COVID–19 closures and the slow pace of reopening and economic recovery. Through December 31, 2020, Horizon has not recorded any material specific loan losses attributed to COVID–19 closures. Lower losses are attributable to Horizon working with its customers to provide payment modifications to help assist our customers as they manage through the economic slowdown due to the pandemic and the location of a high percentage of our retail and restaurant loans have benefited from the influx of Chicago residents into our markets. In addition, during the quarter Horizon made good progress on lowering its non–performing assets as a result of payoffs received on two non–performing credits.

During the fourth quarter, $2.0 million of the ACL related to the January 1, 2020, transfer of acquired loan discounts to the ACL was used in the payoff on two non–performing credits and a portion included with the $2.5 million of acquisition related income recognized during the quarter.

Income Statement Highlights

Net income for the fourth quarter of 2020 was $21.9 million, or $0.50 diluted earnings per share, compared to $20.3 million, or $0.46, for the linked quarter and $18.5 million, or $0.41, for the prior year period.

Adjusted net income for the fourth quarter of 2020 was $22.8 million, or $0.52 diluted earnings per share, compared to $19.4 million, or $0.45, for the linked quarter and $18.5 million, or $0.41, 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 increase in net income for the fourth quarter of 2020 when compared to the third quarter of 2020 reflects an increase in non–interest income of $3.0 million, an increase of $225,000 in net interest income and a decrease in income tax expense of $2.4 million, offset by an increase in non–interest expense of $3.0 million and an increase in credit loss expense of $990,000.

Interest income includes the recognition of PPP loan processing fees totaling $4.6 million in the fourth quarter of 2020, compared to $2.2 million in the linked quarter. On December 31, 2020, the Company had $4.0 million in deferred PPP loan processing fees outstanding and $208.9 million in PPP loans outstanding. PPP deferred fees and loans outstanding at September 30, 2020 were $8.0 million and $310.8 million, respectively. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness.

Fourth quarter 2020 income from the gain on sale of mortgage loans, totaled $7.8 million in the fourth quarter of 2020, down from $8.8 million in the linked quarter and up from $3.1 million in the prior year period.

Non–interest expense of $36.5 million in the fourth quarter of 2020 reflected a $1.2 million increase in salaries and employee benefits expense from the linked quarter. The increase in salaries and employee benefits expense 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 other losses included mostly one–time items including losses on liquidation of bank owned real estate held from previous branch closings.

The increase in net income for the fourth quarter of 2020 when compared to the prior year period reflects an increase in net interest income of $2.1 million, an increase in non–interest income of $7.8 million and a decrease in income tax expense of $2.0 million, offset by an increase in non–interest expense of $5.8 million and an increase in credit loss expense of $2.7 million.

Net income for the year ended December 31, 2020 was $68.5 million, or $1.55 diluted earnings per share, compared to $66.5 million, or $1.53 diluted earnings per share, for the year ended December 31, 2019. Adjusted net income for the year ended December 31, 2020 was $67.8 million, or $1.53 diluted earnings per share, compared to $70.7 million, or $1.63 diluted earnings per share for the year ended December 31, 2019. The increase in net income for the year ended December 31, 2020 when compared to the prior year reflects an increase in net interest income of $10.1 million, an increase in non–interest income of $16.6 million and a decrease in income tax expense of $3.4 million, offset by an increase in the provision for credit loss expense of $18.8 million and an increase in non–interest expense of $9.4 million.

 
Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2020 2020 2020 2020 2019 2020 2019
Net income as reported $21,893  $20,312  $14,639  $11,655  $18,543  $68,499  $66,538 
Merger expenses             5,650 
Tax effect             (987)
Net income excluding merger expenses 21,893  20,312  14,639  11,655  18,543  68,499  71,201 
(Gain) / loss on sale of investment securities (2,622) (1,088) (248) (339) (10) (4,297) 75 
Tax effect 551  228  52  71  2  902  (16)
Net income excluding (gain) / loss on sale of investment securities 19,822  19,452  14,443  11,387  18,535  65,104  71,260 
Death benefit on bank owned life insurance (“BOLI”)   (31)   (233)   (264) (580)
Net income excluding death benefit on BOLI 19,822  19,421  14,443  11,154  18,535  64,840  70,680 
Prepayment penalties on borrowings 3,804          3,804   
Tax effect (799)         (799)  
Net income excluding prepayment penalties on borrowings 22,827  19,421  14,443  11,154  18,535  67,845  70,680 
Adjusted net income $22,827  $19,421  $14,443  $11,154  $18,535  $67,845  $70,680 
                             


Non–GAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2020 2020 2020 2020 2019 2020 2019
Diluted earnings per share (“EPS”) as reported $0.50  $0.46  $0.33  $0.26  $0.41  $1.55  $1.53 
Merger expenses             0.13 
Tax effect             (0.02)
Diluted EPS excluding merger expenses 0.50  0.46  0.33  0.26  0.41  1.55  1.64 
(Gain) / loss on sale of investment securities (0.06) (0.02) (0.01) (0.01)   (0.10)  
Tax effect 0.01  0.01        0.02   
Diluted EPS excluding (gain) / loss on sale of investment securities 0.45  0.45  0.32  0.25  0.41  1.47  1.64 
Death benefit on bank owned life insurance (“BOLI”)       (0.01)   (0.01) (0.01)
Diluted EPS excluding death benefit on BOLI 0.45  0.45  0.32  0.24  0.41  1.46  1.63 
Prepayment penalties on borrowings 0.09          0.09   
Tax effect (0.02)         (0.02)  
Diluted EPS excluding prepayment penalties on borrowings 0.52  0.45  0.32  0.24  0.41  1.53  1.63 
Adjusted diluted EPS $0.52  $0.45  $0.32  $0.24  $0.41  $1.53  $1.63 
                             


Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2020 2020 2020 2020 2019 2020 2019
Pre–tax income $23,860  $24,638  $16,632  $13,239  $22,463  $78,369  $79,841 
Credit loss expense 3,042  2,052  7,057  8,600  340  20,751  1,976 
Pre–tax, pre–provision income $26,902  $26,690  $23,689  $21,839  $22,803  $99,120  $81,817 
               
Pre–tax, pre–provision income $26,902  $26,690  $23,689  $21,839  $22,803  $99,120  $81,817 
Merger expenses             5,650 
(Gain) / loss on sale of investment securities (2,622) (1,088) (248) (339) (10) (4,297) 75 
Death benefit on BOLI   (31)   (233)   (264) (580)
Prepayment penalties on borrowings 3,804          3,804   
Adjusted pre–tax, pre–provision income $28,084  $25,571  $23,441  $21,267  $22,793  $98,363  $86,962 
                             

Horizon’s net interest margin decreased to 3.34% for the fourth quarter of 2020 compared to 3.39% for the third quarter of 2020. The decrease in net interest margin reflects an increase in the cost of interest bearing liabilities of 27 basis points, offset by an increase in the yield of interest earning assets of 15 basis points. Interest income from acquisition–related purchase accounting adjustments was $973,000 higher during the fourth quarter of 2020 when compared to the third quarter of 2020.

Horizon’s net interest margin decreased to 3.34% for the fourth 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 on interest earning assets of 52 basis points offset by a decrease in the cost of interest bearing liabilities of 30 basis points.

Horizon’s net interest margin decreased to 3.44% for the year ended December 31, 2020 compared to 3.69% for the prior year. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 64 basis points offset by a decrease in the cost of interest bearing liabilities of 48 basis points.

The net interest margin was impacted during the third and fourth quarters of 2020 due to the PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by 18 basis points in the fourth quarter and compressed the margin 4 basis points for the third quarter. 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 increase to the net interest margin for the twelve months of 2020 using the same assumptions was estimated to be 3 basis points.

The net interest margin was impacted during the third and fourth quarters of 2020 due to higher liquidity levels impacting the mix of interest earning assets. Horizon estimates the higher liquidity levels compressed the net interest margin by 7 basis points for the fourth quarter and 3 basis points for the third quarter. This assumes the higher liquidity level was not included in average interest earning assets or interest income. The compression to the net interest margin for the twelve months of 2020 using the same assumptions was estimated to be 4 basis points.

The net interest margin was also impacted during the third and fourth quarters of 2020 due to the issuance of $60.0 million in subordinated notes in June 2020. Horizon estimates that the subordinated notes compressed the net interest margin by 10 basis points for both the third and fourth quarters. This assumes the subordinated notes were not included in average interest bearing liabilities or interest expense and were primarily offset by a reduction in cash. The compression to the net interest margin for the twelve months of 2020 using the same assumptions was estimated to be 6 basis points.

 
Non–GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2020 2020 2020 2020 2019 2020 2019
Net interest income as reported $43,622  $43,397  $42,996  $40,925  $41,519  $170,940  $160,791 
Average interest earning assets 5,365,888  5,251,611  5,112,636  4,746,202  4,748,217  5,120,106  4,470,450 
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”) 3.34% 3.39% 3.47% 3.56% 3.58% 3.44% 3.69%
               
Net interest income as reported $43,622  $43,397  $42,996  $40,925  $41,519  $170,940  $160,791 
Acquisition–related purchase accounting adjustments (“PAUs”) (2,461) (1,488) (1,553) (1,434) (1,042) (6,936) (5,590)
Prepayment penalties on borrowings 3,804          3,804   
Adjusted net interest income $44,965  $41,909  $41,443  $39,491  $40,477  $167,808  $155,201 
Adjusted net interest margin 3.44% 3.27% 3.35% 3.44% 3.49% 3.38% 3.57%
                      

Net interest margin, excluding acquisition–related purchase accounting adjustments and prepayment penalties on borrowings (“adjusted net interest margin”), was 3.44% for the fourth quarter of 2020 compared to 3.27% for the prior quarter and 3.49% for the fourth quarter of 2019. Interest income from acquisition–related purchase accounting adjustments was $2.5 million, $1.5 million and $1.0 million for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Adjusted net interest margin was 3.38% for the year ended December 31, 2020 compared to 3.57% for the prior year. Interest income from acquisition–related purchase accounting adjustments was $6.9 million and $5.6 million for the years ended December 31, 2020 and 2019.

Lending Activity

Total loans were $3.88 billion, or $3.67 billion excluding PPP lending, on December 31, 2020. Total loans were $4.04 billion, or $3.73 billion excluding PPP lending, on September 30, 2020 and $3.64 billion on December 31, 2019. During the year ended December 31, 2020, commercial loans increased $145.6 million, mortgage warehouse loans increased $245.3 million, and loans held for sale increased $9.4 million, offset by a decrease in residential mortgage loans of $146.4 million and a decrease in consumer loans of $14.0 million.

 
Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
  December 31, December 31, Amount Percent
  2020 2019 Change Change
Commercial $2,192,271   $2,046,651   $145,620   7.1%
Residential mortgage 624,286   770,717   (146,431) (19.0)%
Consumer 655,200   669,180   (13,980) (2.1)%
Subtotal 3,471,757   3,486,548   (14,791) (0.4)%
Loans held for sale 13,538   4,088   9,450   231.2%
Mortgage warehouse 395,626   150,293   245,333   163.2%
Total loans $3,880,921   $3,640,929   $239,992   6.6%
               

Residential mortgage lending activity for the three months ended December 31, 2020 generated $7.8 million in income from the gain on sale of mortgage loans, a decrease of $1.0 million from the third quarter of 2020's record level and an increase of $4.7 million from the fourth quarter of 2019. Total origination volume for the fourth quarter of 2020, including loans placed into the portfolio, totaled $186.1 million, representing a decrease of 10.1% from third quarter 2020 levels, and an increase of 63.3% from the fourth quarter of 2019. As a percentage of total originations, 58% of fourth quarter 2020 volume was related to refinances and 42% was for new purchases. Total origination volume of loans sold to the secondary market totaled $157.7 million, representing a decrease of 5.2% from the third quarter of 2020 and an increase of 88.8% from the fourth quarter of 2019.

Expense Management

  Three Months Ended
  December 31,September 30, Amount Percent
Non–interest Expense 20202020 Change Change
Salaries and employee benefits $20,030   $18,832   $1,198   6.4%
Net occupancy expenses 3,262   3,107   155   5.0%
Data processing 2,126   2,237   (111) (5.0)%
Professional fees 691   688     0.4%
Outside services and consultants 2,083   1,561   522   33.4%
Loan expense 2,961   2,876   85   3.0%
FDIC insurance expense 900   570   330   57.9%
Other losses 735   114   621   544.7%
Other expense 3,665   3,422   243   7.1%
Total non–interest expense $36,453   $33,407   $3,046   9.1%
Annualized non–interest expense to average assets 2.47 % 2.30 %    
           

Total non–interest expense was $3.0 million higher in the fourth quarter of 2020 when compared to the third quarter of 2020. Increased salaries and employee benefits reflected higher performance–based compensation accruals following improved financial performance in the second half of this year. Higher FDIC insurance expense reflected significant growth in deposits through the end of the fourth quarter of 2020. Outside services and consultants, other losses and other expenses were partially offset by a decrease in data processing.

   
  Three Months Ended
  December 31,December 31, Amount Percent
Non–interest Expense 20202019 Change Change
Salaries and employee benefits $20,030  $16,841  $3,189  18.9%
Net occupancy expenses 3,262  3,106  156  5.0%
Data processing 2,126  2,235  (109) (4.9)%
Professional fees 691  520  171  32.9%
Outside services and consultants 2,083  1,415  668  47.2%
Loan expense 2,961  2,438  523  21.5%
FDIC insurance expense 900    900  —%
Other losses 735  377  358  95.0%
Other expense 3,665  3,718  (53) (1.4)%
Total non–interest expense $36,453  $30,650  $5,803  18.9%
Annualized non–interest expense to average assets 2.47% 2.32%    
           

Total non–interest expense was $5.8 million higher in the fourth quarter of 2020 when compared to the fourth quarter of 2019. Increases in salaries and employee benefits, FDIC insurance expense, outside services and consultants, loan expense and other losses were offset in part by decreases in data processing and other expense.

   
  Twelve Months Ended
  December 31, December 31,    
  2020 2019 Adjusted
Non–interest Expense Actual Merger
Expenses
 Adjusted Actual Merger
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits $71,082  $  $71,082  $65,206  $(484) $64,722  $6,360  9.8%
Net occupancy expenses 12,811    12,811  12,157  (75) 12,082  729  6.0%
Data processing 9,200    9,200  8,480  (360) 8,120  1,080  13.3%
Professional fees 2,433    2,433  1,946  (392) 1,554  879  56.6%
Outside services and consultants 7,318    7,318  8,152  (2,466) 5,686  1,632  28.7%
Loan expense 10,628    10,628  8,633  (2) 8,631  1,997  23.1%
FDIC insurance expense 1,855    1,855  252    252  1,603  636.1%
Other losses 1,162    1,162  740  (71) 669  493  73.7%
Other expense 14,952    14,952  16,466  (1,800) 14,666  286  2.0%
Total non–interest expense $131,441  $  $131,441  $122,032  $(5,650) $116,382  $15,059  12.9%
Annualized non–interest expense to average assets 2.34%   2.34% 2.47%   2.36%    
                     

Total non–interest expense was $9.4 million higher for the year ended December 31, 2020 when compared to the prior year. Increases in salaries and employee benefits, loan expenses, data processing, FDIC insurance expense and net occupancy expenses were offset in part by decreases in outside services and consultants expense and other expense.

Annualized non–interest expense as a percent of average assets were 2.47%, 2.30% and 2.32% for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Annualized non–interest expense as a percent of average assets were 2.34% and 2.47% for the years ended December 31, 2020 and 2019, respectively. Annualized non–interest expense, excluding merger expenses, as a percent of average assets were 2.34% and 2.36% for the years ended December 31, 2020 and 2019, respectively.

Income tax expense totaled $2.0 million for the fourth quarter of 2020, a decrease of $2.4 million when compared to the third quarter of 2020 and a decrease of $2.0 million when compared to the fourth quarter of 2019. The decrease in income tax expense in the fourth quarter of 2020 compared to the third quarter of 2020 and the fourth quarter of 2019 was primarily due to the ability to recognize solar tax credits from completed projects the Company has invested in along with an increase in tax exempt municipal investments.

Income tax expense totaled $9.9 million for the year ended December 31, 2020, a decrease of $3.4 million when compared to the same prior year period. The decrease in income tax expense was primarily due to the solar tax credits, an increase in tax exempt municipal investments and lower taxable income.

Capital

The capital resources of the Company and Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at December 31, 2020. Stockholders’ equity totaled $692.2 million at December 31, 2020 and the ratio of average stockholders’ equity to average assets was 11.82% for the year ended December 31, 2020.

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 December 31, 2020 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 December 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 $650,206  14.92% $348,617  8.00% $457,560  10.50% N/A  N/A 
Bank 532,315  12.21% 348,810  8.00% 457,813  10.50% $436,013  10.00%
Tier 1 capital (to risk–weighted assets)                
Consolidated 606,395  13.92% 261,462  6.00% 370,404  8.50% N/A  N/A 
Bank 492,221  11.29% 261,606  6.00% 370,609  8.50% 348,808  8.00%
Common equity tier 1 capital (to risk–weighted assets)                
Consolidated 491,281  11.27% 196,096  4.50% 305,038  7.00% N/A  N/A 
Bank 492,221  11.29% 196,205  4.50% 305,207  7.00% 283,407  6.50%
Tier 1 capital (to average assets)                
Consolidated 606,395  10.66% 227,453  4.00% 227,453  4.00% N/A  N/A 
Bank 492,221  8.71% 226,158  4.00% 226,158  4.00% 282,697  5.00%
                         

“The strength and resilience of Horizon’s business is demonstrated by the Company’s strong operating fundamentals, ability to consistently generate retained earnings and growth in tangible book value per share and the Company’s healthy capital position overall,” said Mr. Dwight. “Accordingly, we will continue to be opportunistic with share repurchases under our current buyback authorization, and we remain committed to maintaining our current quarterly cash dividend.”

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 December 31, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.04 billion in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $632.4 million of unpledged investment securities at December 31, 2020.

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)
   
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Total stockholders’ equity $692,216  $670,293  $652,206  $630,842  $656,023 
Less: Intangible assets 175,140  175,107  176,020  176,961  177,917 
Total tangible stockholders’ equity $517,076  $495,186  $476,186  $453,881  $478,106 
Common shares outstanding 43,880,562  43,874,353  43,821,878  43,763,623  44,975,771 
Book value per common share $15.78  $15.28  $14.88  $14.41  $14.59 
Tangible book value per common share $11.78  $11.29  $10.87  $10.37  $10.63 
                     


Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2020 2020 2020 2020 2019 2020 2019
Non–interest expense as reported $36,453  $33,407  $30,432  $31,149  $30,650  $131,441  $122,032 
Net interest income as reported 43,622  43,397  42,996  40,925  41,519  170,940  160,791 
Non–interest income as reported $19,733  $16,700  $11,125  $12,063  $11,934  $59,621  $43,058 
Non–interest expense / (Net interest income + Non–interest income) (“Efficiency Ratio”) 57.54% 55.59% 56.23% 58.79% 57.34% 57.01% 59.86%
               
Non–interest expense as reported $36,453  $33,407  $30,432  $31,149  $30,650  $131,441  $122,032 
Merger expenses             (5,650)
Non–interest expense excluding merger expenses 36,453  33,407  30,432  31,149  30,650  131,441  116,382 
Net interest income as reported 43,622  43,397  42,996  40,925  41,519  170,940  160,791 
Prepayment penalties on borrowings 3,804          3,804   
Net interest income excluding prepayment penalties on borrowings 47,426  43,397  42,996  40,925  41,519  174,744  160,791 
Non–interest income as reported 19,733  16,700  11,125  12,063  11,934  59,621  43,058 
(Gain) / loss on sale of investment securities (2,622) (1,088) (248) (339) (10) (4,297) 75 
Death benefit on BOLI   (31)   (233)   (264) (580)
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI $17,111  $15,581  $10,877  $11,491  $11,924  $55,060  $42,553 
Adjusted efficiency ratio 56.48% 56.64% 56.49% 59.43% 57.35% 57.20% 57.23%
                      


Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2020 2020 2020 2020 2019 2020 2019
Average assets $5,864,086  $5,768,691  $5,620,695  $5,257,332  $5,250,574  $5,628,783  $4,933,058 
Return on average assets (“ROAA”) as reported 1.49% 1.40% 1.05% 0.89% 1.40% 1.22% 1.35%
Merger expenses             0.11 
Tax effect             (0.02)
ROAA excluding merger expenses 1.49  1.40  1.05  0.89  1.40  1.22  1.44 
(Gain) / loss on sale of investment securities (0.18) (0.08) (0.02) (0.03)   (0.08)  
Tax effect 0.04  0.02    0.01    0.02   
ROAA excluding (gain) / loss on sale of investment securities 1.35  1.34  1.03  0.87  1.40  1.16  1.44 
Death benefit on BOLI       (0.02)     (0.01)
ROAA excluding death benefit on BOLI 1.35  1.34  1.03  0.85  1.40  1.16  1.43 
Prepayment penalties on borrowings 0.26          0.07   
Tax effect (0.05)         (0.01)  
ROAA excluding prepayment penalties on borrowings 1.56% 1.34% 1.03% 0.85% 1.40% 1.22% 1.43%
Adjusted ROAA 1.56% 1.34% 1.03% 0.85% 1.40% 1.22% 1.43%
                      


Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2020 2020 2020 2020 2019 2020 2019
Average common equity $680,857  $668,797  $649,490  $667,588  $653,071  $665,466  $605,719 
Return on average common equity (“ROACE”) as reported 12.79% 12.08% 9.07% 7.02% 11.26% 10.29% 10.98%
Merger expenses             0.93 
Tax effect             (0.16)
ROACE excluding merger expenses 12.79  12.08  9.07  7.02  11.26  10.29  11.75 
(Gain) / loss on sale of investment securities (1.53) (0.65) (0.15) (0.20) (0.01) (0.65) 0.01 
Tax effect 0.32  0.14  0.03  0.04    0.14   
ROACE excluding (gain) / loss on sale of investment securities 11.58  11.57  8.95  6.86  11.25  9.78  11.76 
Death benefit on BOLI   (0.02)   (0.14)   (0.04) (0.10)
ROACE excluding death benefit on BOLI 11.58  11.55  8.95  6.72  11.25  9.74  11.66 
Prepayment penalties on borrowings 2.22          0.57   
Tax effect (0.47)         (0.12)  
ROACE excluding prepayment penalties on borrowings 13.33% 11.55% 8.95% 6.72% 11.25% 10.19% 11.66%
Adjusted ROACE 13.33% 11.55% 8.95% 6.72% 11.25% 10.19% 11.66%
                      

Conference Call

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

Participants may access the live conference call on January 28, 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 February 4, 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 10150632.

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 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)
   
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Balance sheet:          
Total assets $5,886,614  $5,790,143  $5,739,262  $5,351,325  $5,246,829 
Investment securities 1,302,701  1,195,613  1,126,075  1,099,943  1,042,675 
Commercial loans 2,192,271  2,321,608  2,312,715  2,050,402  2,046,651 
Mortgage warehouse loans 395,626  374,653  300,386  223,519  150,293 
Residential mortgage loans 624,286  675,220  704,410  757,529  770,717 
Consumer loans 655,200  658,884  660,871  675,849  669,180 
Earning assets 5,206,645  5,262,054  5,143,978  4,835,934  4,706,051 
Non–interest bearing deposit accounts 1,053,242  1,016,646  981,868  709,978  709,760 
Interest bearing transaction accounts 2,802,673  2,600,691  2,510,854  2,264,576  2,245,631 
Time deposits 675,218  718,952  814,877  907,717  975,611 
Borrowings 475,000  587,473  583,073  704,613  549,741 
Subordinated notes 58,603  58,566  58,824     
Junior subordinated debentures issued to capital trusts 56,548  56,491  56,437  56,374  56,311 
Total stockholders’ equity 692,216  670,293  652,206  630,842  656,023 
                


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
  Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Income statement:          
Net interest income $43,622  $43,397  $42,996  $40,925  $41,519 
Credit loss expense 3,042  2,052  7,057  8,600  340 
Non–interest income 19,733  16,700  11,125  12,063  11,934 
Non–interest expense 36,453  33,407  30,432  31,149  30,650 
Income tax expense 1,967  4,326  1,993  1,584  3,920 
Net income $21,893  $20,312  $14,639  $11,655  $18,543 
           
Per share data:          
Basic earnings per share $0.50  $0.46  $0.33  $0.26  $0.41 
Diluted earnings per share 0.50  0.46  0.33  0.26  0.41 
Cash dividends declared per common share 0.12  0.12  0.12  0.12  0.12 
Book value per common share 15.78  15.28  14.88  14.41  14.59 
Tangible book value per common share 11.78  11.29  10.87  10.37  10.63 
Market value – high 15.86  11.48  12.44  18.79  19.42 
Market value – low $10.16  $9.05  $8.40  $7.97  $16.60 
Weighted average shares outstanding – Basis 43,862,435  43,862,435  43,781,249  44,658,512  44,971,676 
Weighted average shares outstanding – Diluted 43,903,881  43,903,881  43,802,794  44,756,716  45,103,065 
           
Key ratios:          
Return on average assets 1.49% 1.40% 1.05% 0.89% 1.40%
Return on average common stockholders’ equity 12.79  12.08  9.07  7.02  11.26 
Net interest margin 3.34  3.39  3.47  3.56  3.58 
Allowance for credit losses to total loans 1.47  1.39  1.38  1.30  0.49 
Average equity to average assets 11.61  11.59  11.56  12.70  12.44 
Bank only capital ratios:          
Tier 1 capital to average assets 8.71  8.57  8.48  9.43  9.49 
Tier 1 capital to risk weighted assets 11.29  10.67  10.49  11.83  12.20 
Total capital to risk weighted assets 12.21  11.56  11.74  12.67  12.65 
                


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
  Twelve Months Ended
  December 31, December 31,
  2020 2019
Income statement:    
Net interest income $170,940  $160,791 
Credit loss expense 20,751  1,976 
Non–interest income 59,621  43,058 
Non–interest expense 131,441  122,032 
Income tax expense 9,870  13,303 
Net income $68,499  $66,538 
     
Per share data:    
Basic earnings per share $1.56  $1.53 
Diluted earnings per share 1.55  1.53 
Cash dividends declared per common share 0.48  0.46 
Book value per common share 15.78  14.59 
Tangible book value per common share 11.78  10.63 
Market value – high 18.79  19.42 
Market value – low $7.97  $15.50 
Weighted average shares outstanding – Basis 44,044,737  43,493,316 
Weighted average shares outstanding – Diluted 44,123,208  43,598,373 
     
Key ratios:    
Return on average assets 1.22% 1.35%
Return on average common stockholders’ equity 10.29  10.98 
Net interest margin 3.44  3.69 
Allowance for credit losses to total loans 1.47  0.49 
Average equity to average assets 11.82  12.28 
Bank only capital ratios:    
Tier 1 capital to average assets 8.71  9.49 
Tier 1 capital to risk weighted assets 11.29  12.20 
Total capital to risk weighted assets 12.21  12.65 
       


Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Loan data:          
Substandard loans $98,874  $88,286  $61,385  $61,322  $58,670 
30 to 89 days delinquent 6,938  5,513  4,029  12,017  7,729 
           
Non–performing loans:          
90 days and greater delinquent – accruing interest 262  331  123  246  146 
Trouble debt restructures – accruing interest 1,793  1,825  2,039  2,115  3,354 
Trouble debt restructures – non–accrual 2,610  2,704  3,443  3,360  2,006 
Non–accrual loans 22,142  24,454  22,451  18,281  15,679 
Total non–performing loans $26,807  $29,314  $28,056  $24,002  $21,185 
Non–performing loans to total loans 0.69% 0.72% 0.70% 0.65% 0.58%
                


Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Commercial $42,210  $39,795  $39,147  $32,550  $11,996 
Residential mortgage 4,620  5,464  5,832  5,654  923 
Mortgage warehouse 1,267  1,250  1,190  1,055  1,077 
Consumer 8,930  9,810  8,921  9,181  3,671 
Total $57,027  $56,319  $55,090  $48,440  $17,667 
                     


Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Commercial $23  $488  $6  $(20) $146 
Residential mortgage (10) 136  24  17  40 
Mortgage warehouse          
Consumer 216  199  377  407  443 
Total $229  $823  $407  $404  $629 
Percent of net charge–offs (recoveries) to average loans outstanding for the period 0.01% 0.02% 0.01% 0.01% 0.02%
                


Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Commercial $14,348   $16,169   $14,238   $9,579   $7,347  
Residential mortgage 7,994   9,209   9,945   10,411   9,884  
Mortgage warehouse —   —   —   —   —  
Consumer 4,465   3,936   3,873   4,012   3,954  
Total $26,807   $29,314   $28,056   $24,002   $21,185  
Non–performing loans to total loans 0.69 % 0.72 % 0.70 % 0.65 % 0.58 %
                


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Commercial $1,908  $2,191  $2,374  $2,464  $3,698 
Residential mortgage   70  249  336  28 
Mortgage warehouse          
Consumer   80  20  13   
Total $1,908  $2,341  $2,643  $2,813  $3,726 
                     


Average Balance Sheets
(Dollars in Thousands, Unaudited)
  Three Months Ended Three Months Ended
  December 31, 2020 December 31, 2019
  Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets            
Interest earning assets            
Federal funds sold $112,139  $29  0.10% $40,657  $172  1.68%
Interest earning deposits 28,507  52  0.73% 12,665  58  1.82%
Investment securities – taxable 408,412  1,489  1.45% 491,160  2,824  2.28%
Investment securities – non–taxable (1) 866,182  4,919  2.86% 545,832  3,575  3.26%
Loans receivable (2) (3) 3,950,648  46,745  4.72% 3,657,903  46,769  5.10%
Total interest earning assets 5,365,888  53,234  4.05% 4,748,217  53,398  4.57%
Non–interest earning assets            
Cash and due from banks 79,753      75,248     
Allowance for credit losses (56,657)     (17,916)    
Other assets 475,102      445,025     
Total average assets $5,864,086      $5,250,574     
             
Liabilities and Stockholders’ Equity            
Interest bearing liabilities            
Interest bearing deposits $3,450,824  $2,718  0.31% $3,255,725  $8,767  1.07%
Borrowings 511,306  5,456  4.25% 484,729  2,281  1.87%
Subordinated notes 58,581  871  5.91%     %
Junior subordinated debentures issued to capital trusts 56,512  567  3.99% 54,489  831  6.05%
Total interest bearing liabilities 4,077,223  9,612  0.94% 3,794,943  11,879  1.24%
Non–interest bearing liabilities            
Demand deposits 1,037,232      747,513     
Accrued interest payable and other liabilities 68,774      55,047     
Stockholders’ equity 680,857      653,071     
Total average liabilities and stockholders’ equity $5,864,086      $5,250,574     
             
Net interest income / spread   $43,622  3.11%   $41,519  3.33%
Net interest income as a percent of average interest earning assets (1)     3.34%     3.58%
             
(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.
 


Average Balance Sheets
(Dollars in Thousands, Unaudited)
  Twelve Months Ended Twelve Months Ended
  December 31, 2020 December 31, 2019
  Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets            
Interest earning assets            
Federal funds sold $61,408  $154  0.25% $21,301  $511  2.40%
Interest earning deposits 25,943  268  1.03% 19,601  342  1.74%
Investment securities – taxable 459,551  8,071  1.76% 474,833  11,753  2.48%
Investment securities – non–taxable (1) 706,092  17,213  3.09% 454,066  12,095  3.34%
Loans receivable (2) (3) 3,867,112  179,672  4.66% 3,500,649  183,631  5.27%
Total interest earning assets 5,120,106  205,378  4.11% 4,470,450  208,332  4.75%
Non–interest earning assets            
Cash and due from banks 84,065      62,920     
Allowance for credit losses (46,329)     (18,019)    
Other assets 470,941      417,707     
Total average assets $5,628,783      $4,933,058     
             
Liabilities and Stockholders’ Equity            
Interest bearing liabilities            
Interest bearing deposits $3,327,917  $18,556  0.56% $3,007,937  $33,690  1.12%
Borrowings 559,953  11,430  2.04% 468,159  10,672  2.28%
Subordinated notes 30,610  1,824  5.96%     %
Junior subordinated debentures issued to capital trusts 56,427  2,628  4.66% 50,134  3,179  6.34%
Total interest bearing liabilities 3,974,907  34,438  0.87% 3,526,230  47,541  1.35%
Non–interest bearing liabilities            
Demand deposits 919,449      757,389     
Accrued interest payable and other liabilities 68,961      43,720     
Stockholders’ equity 665,466      605,719     
Total average liabilities and stockholders’ equity $5,628,783      $4,933,058     
             
Net interest income / spread   $170,940  3.24%   $160,791  3.40%
Net interest income as a percent of average interest earning assets (1)     3.44%     3.69%
             
(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)
     
  December 31,
2020
 December 31,
2019
  (Unaudited)  
Assets    
Cash and due from banks $249,711   $98,831  
Interest earning time deposits 8,965   8,455  
Investment securities, available for sale 1,134,025   834,776  
Investment securities, held to maturity (fair value $179,990 and $215,147) 168,676   207,899  
Loans held for sale 13,538   4,088  
Loans, net of allowance for credit losses of $57,027 and $17,667 3,810,356   3,619,174  
Premises and equipment, net 92,416   92,209  
Federal Home Loan Bank stock 23,023   22,447  
Goodwill 151,238   151,238  
Other intangible assets 23,902   26,679  
Interest receivable 21,396   18,828  
Cash value of life insurance 96,751   95,577  
Other assets 92,617   66,628  
Total assets $5,886,614   $5,246,829  
     
Liabilities    
Deposits    
Non–interest bearing $1,053,242   $709,760  
Interest bearing 3,477,891   3,221,242  
Total deposits 4,531,133   3,931,002  
Borrowings 475,000   549,741  
Subordinated notes 58,603   —  
Junior subordinated debentures issued to capital trusts 56,548   56,311  
Interest payable 2,712   3,062  
Other liabilities 70,402   50,690  
Total liabilities 5,194,398   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 43,905,631 and 45,000,840 shares,
  Outstanding 43,880,562 and 44,975,771 shares
 —   —  
Additional paid–in capital 362,945   379,853  
Retained earnings 301,419   269,738  
Accumulated other comprehensive income 27,852   6,432  
Total stockholders’ equity 692,216   656,023  
Total liabilities and stockholders’ equity $5,886,614   $5,246,829  
         


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
  Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Interest income          
Loans receivable $46,745  $44,051  $43,918  $44,958  $46,769 
Investment securities – taxable 1,570  1,704  2,321  2,898  3,054 
Investment securities – non–taxable 4,919  4,391  4,105  3,798  3,575 
Total interest income 53,234  50,146  50,344  51,654  53,398 
Interest expense          
Deposits 2,718  3,616  4,506  7,716  8,767 
Borrowed funds 5,456  1,662  2,074  2,238  2,281 
Subordinated notes 871  895  58     
Junior subordinated debentures issued to capital trusts 567  576  710  775  831 
Total interest expense 9,612  6,749  7,348  10,729  11,879 
Net interest income 43,622  43,397  42,996  40,925  41,519 
Credit loss expense 3,042  2,052  7,057  8,600  340 
Net interest income after credit loss expense 40,580  41,345  35,939  32,325  41,179 
Non–interest Income          
Service charges on deposit accounts 2,360  2,154  1,888  2,446  2,766 
Wire transfer fees 301  298  230  171  179 
Interchange fees 2,645  2,438  2,327  1,896  1,996 
Fiduciary activities 2,747  2,105  1,765  2,528  2,594 
Gains / (losses) on sale of investment securities 2,622  1,088  248  339  10 
Gain on sale of mortgage loans 7,815  8,813  6,620  3,473  3,119 
Mortgage servicing income net of impairment 327  (1,308) (2,760) 25  294 
Increase in cash value of bank owned life insurance 566  566  557  554  566 
Death benefit on bank owned life insurance   31    233   
Other income 350  515  250  398  410 
Total non–interest income 19,733  16,700  11,125  12,063  11,934 
Non–interest expense          
Salaries and employee benefits 20,030  18,832  15,629  16,591  16,841 
Net occupancy expenses 3,262  3,107  3,190  3,252  3,106 
Data processing 2,126  2,237  2,432  2,405  2,235 
Professional fees 691  688  518  536  520 
Outside services and consultants 2,083  1,561  1,759  1,915  1,415 
Loan expense 2,961  2,876  2,692  2,099  2,438 
FDIC insurance expense 900  570  235  150   
Other losses 735  114  193  120  377 
Other expenses 3,665  3,422  3,784  4,081  3,718 
Total non–interest expense 36,453  33,407  30,432  31,149  30,650 
Income before income taxes 23,860  24,638  16,632  13,239  22,463 
Income tax expense 1,967  4,326  1,993  1,584  3,920 
Net income $21,893  $20,312  $14,639  $11,655  $18,543 
Basic earnings per share $0.50  $0.46  $0.33  $0.26  $0.41 
Diluted earnings per share 0.50  0.46  0.33  0.26  0.41 
                


Condensed Consolidated Statements of Income
(Dollars in Thousands, Expect Per Share Data, Unaudited)
  Twelve Months Ended
  December 31,
  2020 2019
Interest income    
Loans receivable $179,672  $183,631 
Investment securities – taxable 8,493  12,606 
Investment securities – non–taxable 17,213  12,095 
Total interest income 205,378  208,332 
Interest expense    
Deposits 18,556  33,690 
Borrowed funds 11,430  10,672 
Subordinated notes 1,824   
Junior subordinated debentures issued to capital trusts 2,628  3,179 
Total interest expense 34,438  47,541 
Net interest income 170,940  160,791 
Credit loss expense 20,751  1,976 
Net interest income after credit loss expense 150,189  158,815 
Non–interest income    
Service charges on deposit accounts 8,848  9,959 
Wire transfer fees 1,000  653 
Interchange fees 9,306  7,655 
Fiduciary activities 9,145  8,580 
Gains / (losses) on sale of investment securities 4,297  (75)
Gain on sale of mortgage loans 26,721  9,208 
Mortgage servicing income net of impairment (3,716) 1,914 
Increase in cash value of bank owned life insurance 2,243  2,190 
Death benefit on bank owned life insurance 264  580 
Other income 1,513  2,394 
Total non–interest income 59,621  43,058 
Non-interest expense    
Salaries and employee benefits 71,082  65,206 
Net occupancy expenses 12,811  12,157 
Data processing 9,200  8,480 
Professional fees 2,433  1,946 
Outside services and consultants 7,318  8,152 
Loan expense 10,628  8,633 
FDIC insurance expense 1,855  252 
Other losses 1,162  740 
Other expense 14,952  16,466 
Total non–interest expense 131,441  122,032 
Income before income taxes 78,369  79,841 
Income tax expense 9,870  13,303 
Net income $68,499  $66,538 
Basic earnings per share $1.56  $1.53 
Diluted earnings per share $1.55  $1.53 
         


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