Horizon Bancorp, Inc. Announces First Quarter 2021 Financial Results

Michigan City, Indiana, UNITED STATES


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

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

First Quarter 2021 Highlights

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary

  For the Three Months Ended
  March 31, December 31, March 31,
Net Interest Income and Net Interest Margin 2021 2020 2020
Net interest income $42,538  $43,622  $40,925 
Net interest margin 3.29% 3.34% 3.56%
Adjusted net interest margin 3.17% 3.44% 3.44%

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

  For the Three Months Ended
  March 31, December 31, March 31,
Asset Yields and Funding Costs 2021 2020 2020
Interest earning assets 3.66% 4.05% 4.47%
Interest bearing liabilities 0.50% 0.94% 1.13%


  For the Three Months Ended
Non–interest Income and  March 31, December 31, March 31,
Mortgage Banking Income 2021 2020 2020
Total non–interest income $13,873  $19,733  $12,063 
Gain on sale of mortgage loans 5,296  7,815  3,473 
Mortgage servicing income net of impairment 213  327  25 


  For the Three Months Ended
  March 31, December 31, March 31,
Non–interest Expense 2021 2020 2020
Total non–interest expense $32,172  $36,453  $31,149 
Annualized non–interest expense to average assets 2.20% 2.47% 2.38%


  For the Three Months Ended
  March 31, December 31, March 31,
Credit Quality 2021 2020 2020
Allowance for credit losses to total loans 1.56% 1.47% 1.30%
Non–performing loans to total loans 0.68% 0.69% 0.65%
Percent of net charge–offs to average loans outstanding for the period 0.01% 0.01% 0.01%


Allowance for December 31, Net Reserve BuildMarch 31,
Credit Losses 2020 1Q20 2021
Commercial $42,210  $770  $42,980 
Retail Mortgage 4,620  (391) 4,229 
Warehouse 1,267  (104) 1,163 
Consumer 8,930  (116) 8,814 
Allowance for Credit Losses (“ACL”) $57,027  $159  $57,186 
ACL / Total Loans 1.47%   1.56%
Acquired Loan Discount (“ALD”) $11,494  $(221) $11,273 

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

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

Income Statement Highlights

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

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

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

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

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

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

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

Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Net income as reported$20,422  $21,893  $20,312  $14,639  $11,655 
(Gain) / loss on sale of investment securities(914) (2,622) (1,088) (248) (339)
Tax effect192  551  228  52  71 
Net income excluding (gain) / loss on sale of investment securities19,700  19,822  19,452  14,443  11,387 
Death benefit on bank owned life insurance (“BOLI”)    (31)   (233)
Net income excluding death benefit on BOLI19,700  19,822  19,421  14,443  11,154 
Prepayment penalties on borrowings  3,804       
Tax effect  (799)      
Net income excluding prepayment penalties on borrowings19,700  22,827  19,421  14,443  11,154 
Adjusted net income$19,700  $22,827  $19,421  $14,443  $11,154 


Non–GAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Diluted earnings per share (“EPS”) as reported$0.46  $0.50  $0.46  $0.33  $0.26 
(Gain) / loss on sale of investment securities(0.02) (0.06) (0.02) (0.01) (0.01)
Tax effect  0.01  0.01     
Diluted EPS excluding (gain) / loss on sale of investment securities0.44  0.45  0.45  0.32  0.25 
Death benefit on bank owned life insurance (“BOLI”)        (0.01)
Diluted EPS excluding death benefit on BOLI0.44  0.45  0.45  0.32  0.24 
Prepayment penalties on borrowings  0.09       
Tax effect  (0.02)      
Diluted EPS excluding prepayment penalties on borrowings0.44  0.52  0.45  0.32  0.24 
Adjusted diluted EPS$0.44  $0.52  $0.45  $0.32  $0.24 


Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income
(Dollars in Thousands, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Pre–tax income$23,872  $23,860  $24,638  $16,632  $13,239 
Credit loss expense367  3,042  2,052  7,057  8,600 
Pre–tax, pre–provision income$24,239  $26,902  $26,690  $23,689  $21,839 
          
Pre–tax, pre–provision income$24,239  $26,902  $26,690  $23,689  $21,839 
(Gain) / loss on sale of investment securities(914) (2,622) (1,088) (248) (339)
Death benefit on BOLI    (31)   (233)
Prepayment penalties on borrowings  3,804       
Adjusted pre–tax, pre–provision income$23,325  $28,084  $25,571  $23,441  $21,267 

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

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

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

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

Non–GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Net interest income as reported$42,538  $43,622  $43,397  $42,996  $40,925 
Average interest earning assets5,439,634  5,365,888  5,251,611  5,112,636  4,746,202 
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)3.29% 3.34% 3.39% 3.47% 3.56%
               
Net interest income as reported$42,538  $43,622  $43,397  $42,996  $40,925 
Acquisition–related purchase accounting adjustments (“PAUs”)(1,579) (2,461) (1,488) (1,553) (1,434)
Prepayment penalties on borrowings  3,804       
Adjusted net interest income$40,959  $44,965  $41,909  $41,443  $39,491 
Adjusted net interest margin3.17% 3.44% 3.27% 3.35% 3.44%

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

Lending Activity

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

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
 March 31, December 31, Amount Percent
 2021 2020 Change Change
Commercial$2,177,858  $2,192,271  $(14,413) (0.7)%
Residential mortgage581,929  624,286  (42,357) (6.8)%
Consumer638,403  655,200  (16,797) (2.6)%
Subtotal3,398,190  3,471,757  (73,567) (2.1)%
Loans held for sale7,798  13,538  (5,740) (42.4)%
Mortgage warehouse266,246  395,626  (129,380) (32.7)%
Total loans$3,672,234  $3,880,921  $(208,687) (5.4)%

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

Expense Management

 Three Months Ended
 March 31, December 31, Amount Percent
Non–interest Expense2021 2020 Change Change
Salaries and employee benefits$16,871  $20,030  $(3,159) (15.8)%
Net occupancy expenses3,318  3,262  56  1.7%
Data processing2,376  2,126  250  11.8%
Professional fees544  691  (147) (21.3)%
Outside services and consultants1,702  2,083  (381) (18.3)%
Loan expense2,822  2,961  (139) (4.7)%
FDIC insurance expense800  900  (100) (11.1)%
Other losses283  735  (452) (61.5)%
Other expense3,456  3,665  (209) (5.7)%
Total non–interest expense$32,172  $36,453  $(4,281) (11.7)%
Annualized non–interest expense to average assets2.20% 2.47%    

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

 Three Months Ended
 March 31, March 31, Amount Percent
Non–interest Expense2021 2020 Change Change
Salaries and employee benefits$16,871  $16,591  $280  1.7%
Net occupancy expenses3,318  3,252  66  2.0%
Data processing2,376  2,405  (29) (1.2)%
Professional fees544  536  8  1.5%
Outside services and consultants1,702  1,915  (213) (11.1)%
Loan expense2,822  2,099  723  34.4%
FDIC insurance expense800  150  650  433.3%
Other losses283  120  163  135.8%
Other expense3,456  4,081  (625) (15.3)%
Total non–interest expense$32,172  $31,149  $1,023  3.3%
Annualized non–interest expense to average assets2.20% 2.38%    

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

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

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

Capital

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

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

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

 Actual Required for Capital Adequacy Purposes Required for Capital Adequacy Purposes with Capital Buffer Well Capitalized
Under Prompt Corrective Action Provisions
 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk–weighted assets)                 
Consolidated$669,098  16.94% $315,985  8.00% $414,730  10.50%  N/A N/A 
Bank548,682  13.86% 316,700  8.00% 415,668  10.50% $395,874 10.00%
Tier 1 capital (to risk–weighted assets)                 
Consolidated622,085  15.75% 236,985  6.00% 335,728  8.50%  N/A N/A 
Bank503,222  12.71% 237,556  6.00% 336,537  8.50%  316,741 8.00%
Common equity tier 1 capital (to risk–weighted assets)                 
Consolidated506,877  12.84% 177,644  4.50% 276,335  7.00%  N/A N/A 
Bank503,222  12.71% 178,167  4.50% 277,148  7.00%  257,352 6.50%
Tier 1 capital (to average assets)                 
Consolidated622,085  10.82% 229,976  4.00% 229,976  4.00%  N/A N/A 
Bank503,222  8.81% 228,478  4.00% 228,478  4.00%  285,597 5.00%

Liquidity

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

Branch Network and Customer Experience

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

Use of Non–GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for credit losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision income. In each case, we have identified special circumstances that we consider to be non–recurring and have excluded them. We believe that this shows the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations. Horizon believes these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and one–time costs of acquisitions and non–recurring items. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this press release for reconciliations of the non–GAAP figures identified herein and their most comparable GAAP measures.

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands, Unaudited)
  
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Total stockholders’ equity$689,379  $692,216  $670,293  $652,206  $630,842 
Less: Intangible assets173,296  174,193  175,107  176,020  176,961 
Total tangible stockholders’ equity$516,083  $518,023  $495,186  $476,186  $453,881 
Common shares outstanding43,949,189  43,880,562  43,874,353  43,821,878  43,763,623 
Book value per common share$15.69  $15.78  $15.28  $14.88  $14.41 
Tangible book value per common share$11.74  $11.81  $11.29  $10.87  $10.37 


Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Non–interest expense as reported$32,172  $36,453  $33,407  $30,432  $31,149 
Net interest income as reported42,538  43,622  43,397  42,996  40,925 
Non–interest income as reported$13,873  $19,733  $16,700  $11,125  $12,063 
Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”)
57.03% 57.54% 55.59% 56.23% 58.79%
               
Non–interest expense as reported$32,172  $36,453  $33,407  $30,432  $31,149 
Net interest income as reported42,538  43,622  43,397  42,996  40,925 
Prepayment penalties on borrowings  3,804       
Net interest income excluding prepayment penalties on borrowings42,538  47,426  43,397  42,996  40,925 
Non–interest income as reported13,873  19,733  16,700  11,125  12,063 
(Gain) / loss on sale of investment securities(914) (2,622) (1,088) (248) (339)
Death benefit on BOLI    (31)   (233)
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI$12,959  $17,111  $15,581  $10,877  $11,491 
Adjusted efficiency ratio57.97% 56.48% 56.64% 56.49% 59.43%


Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Average assets$5,936,149  $5,864,086  $5,768,691  $5,620,695  $5,257,332 
Return on average assets (“ROAA”) as reported1.40% 1.49% 1.40% 1.05% 0.89%
(Gain) / loss on sale of investment securities(0.06) (0.18) (0.08) (0.02) (0.03)
Tax effect0.01  0.04  0.02    0.01 
ROAA excluding (gain) / loss on sale of investment securities1.35  1.35  1.34  1.03  0.87 
Death benefit on BOLI        (0.02)
ROAA excluding death benefit on BOLI1.35  1.35  1.34  1.03  0.85 
Prepayment penalties on borrowings  0.26       
Tax effect  (0.05)      
ROAA excluding prepayment penalties on borrowings1.35  1.56  1.34  1.03  0.85 
Adjusted ROAA1.35% 1.56% 1.34% 1.03% 0.85%


Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Average common equity$697,401  $680,857  $668,797  $649,490  $667,588 
Return on average common equity (“ROACE”) as reported11.88% 12.79% 12.08% 9.07% 7.02%
(Gain) / loss on sale of investment securities(0.53) (1.53) (0.65) (0.15) (0.20)
Tax effect0.11  0.32  0.14  0.03  0.04 
ROACE excluding (gain) / loss on sale of investment securities11.46  11.58  11.57  8.95  6.86 
Death benefit on BOLI    (0.02)   (0.14)
ROACE excluding death benefit on BOLI11.46  11.58  11.55  8.95  6.72 
Prepayment penalties on borrowings  2.22       
Tax effect  (0.47)      
ROACE excluding prepayment penalties on borrowings11.46% 13.33% 11.55% 8.95% 6.72%
Adjusted ROACE11.46% 13.33% 11.55% 8.95% 6.72%

Conference Call

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

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

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

About Horizon Bancorp, Inc.

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

Forward Looking Statements

This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection of the safe harbor for forward–looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission. Forward–looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance.

Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Horizon’s reports filed with the Securities and Exchange Commission, including those described in Horizon’s Annual Report on Form 10–K and its quarterly reports on Form 10–Q. Further, statements about the effects of the COVID–19 pandemic on our business, operations, financial performance, and prospects may constitute forward–looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward–looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties, and us. Undue reliance should not be placed on the forward–looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward–looking statement to reflect the events or circumstances after the date on which the forward–looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

Financial Highlights
(Dollars in Thousands, Unaudited)
  
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Balance sheet:         
Total assets$6,055,528  $5,886,614  $5,790,143  $5,739,262  $5,351,325 
Interest earning deposits & federal funds sold444,239  158,979  15,707  82,328  7,191 
Interest earning time deposits7,983  8,965  9,213  9,247  9,239 
Investment securities1,423,825  1,302,701  1,195,613  1,126,075  1,099,943 
Commercial loans2,177,858  2,192,271  2,321,608  2,312,715  2,050,402 
Mortgage warehouse loans266,246  395,626  374,653  300,386  223,519 
Residential mortgage loans581,929  624,286  675,220  704,410  757,529 
Consumer loans638,403  655,200  658,884  660,871  675,849 
Earning assets5,571,304  5,374,589  5,286,974  5,235,553  4,852,364 
Non–interest bearing deposit accounts1,133,412  1,053,242  1,016,646  981,868  709,978 
Interest bearing transaction accounts2,947,438  2,802,673  2,600,691  2,510,854  1,923,260 
Time deposits640,966  675,218  718,952  814,877  1,249,033 
Borrowings481,488  475,000  587,473  583,073  704,613 
Subordinated notes58,640  58,603  58,566  58,824   
Junior subordinated debentures issued to capital trusts56,604  56,548  56,491  56,437  56,374 
Total stockholders’ equity689,379  692,216  670,293  652,206  630,842 


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Income statement:         
Net interest income$42,538  $43,622  $43,397  $42,996  $40,925 
Credit loss expense367  3,042  2,052  7,057  8,600 
Non–interest income13,873  19,733  16,700  11,125  12,063 
Non–interest expense32,172  36,453  33,407  30,432  31,149 
Income tax expense3,450  1,967  4,326  1,993  1,584 
Net income$20,422  $21,893  $20,312  $14,639  $11,655 
          
Per share data:         
Basic earnings per share$0.46  $0.50  $0.46  $0.33  $0.26 
Diluted earnings per share0.46  0.50  0.46  0.33  0.26 
Cash dividends declared per common share0.12  0.12  0.12  0.12  0.12 
Book value per common share15.69  15.78  15.28  14.88  14.41 
Tangible book value per common share11.74  11.81  11.29  10.87  10.37 
Market value – high19.94  15.86  11.48  12.44  18.79 
Market value – low$15.43  $10.16  $9.05  $8.40  $7.97 
Weighted average shares outstanding – Basis43,919,549  43,862,435  43,862,435  43,781,249  44,658,512 
Weighted average shares outstanding – Diluted44,072,581  43,903,881  43,903,881  43,802,794  44,756,716 
          
Key ratios:         
Return on average assets1.40% 1.49% 1.40% 1.05% 0.89%
Return on average common stockholders’ equity11.88  12.79  12.08  9.07  7.02 
Net interest margin3.29  3.34  3.39  3.47  3.56 
Allowance for credit losses to total loans1.56  1.47  1.39  1.38  1.30 
Average equity to average assets11.75  11.61  11.59  11.56  12.70 
Bank only capital ratios:         
Tier 1 capital to average assets8.81  8.71  8.57  8.48  9.43 
Tier 1 capital to risk weighted assets12.71  11.29  10.67  10.49  11.83 
Total capital to risk weighted assets13.86  12.21  11.56  11.74  12.67 


Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
  
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Loan data:         
Substandard loans$86,472  $98,874  $88,286  $61,385  $61,322 
30 to 89 days delinquent5,099  6,938  5,513  3,853  12,017 
          
Non–performing loans:         
90 days and greater delinquent – accruing interest267  262  331  123  246 
Trouble debt restructures – accruing interest1,828  1,793  1,825  2,039  2,115 
Trouble debt restructures – non–accrual2,271  2,610  2,704  3,443  3,360 
Non–accrual loans20,700  22,142  24,454  22,451  18,281 
Total non–performing loans$25,066  $26,807  $29,314  $28,056  $24,002 
Non–performing loans to total loans0.68% 0.69% 0.72% 0.70% 0.65%


Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
  
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Commercial$42,980  $42,210  $39,795  $39,147  $32,550 
Residential mortgage4,229  4,620  5,464  5,832  5,654 
Mortgage warehouse1,163  1,267  1,250  1,190  1,055 
Consumer8,814  8,930  9,810  8,921  9,181 
Total$57,186  $57,027  $56,319  $55,090  $48,440 


Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
               
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Commercial$158  $23  $488  $6  $(20)
Residential mortgage(65) (10) 136  24  17 
Mortgage warehouse         
Consumer115  216  199  377  407 
Total$208  $229  $823  $407  $404 
Percent of net charge–offs (recoveries) to average loans outstanding for the period0.01% 0.01% 0.02% 0.01% 0.01%


Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
  
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Commercial$12,802  $14,348  $16,169  $14,238  $9,579 
Residential mortgage7,916  7,994  9,209  9,945  10,411 
Mortgage warehouse         
Consumer4,348  4,465  3,936  3,873  4,012 
Total$25,066  $26,807  $29,314  $28,056  $24,002 
Non–performing loans to total loans0.68% 0.69% 0.72% 0.70% 0.65%


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
  
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Commercial$1,696  $1,908  $2,191  $2,374  $2,464 
Residential mortgage37    70  249  336 
Mortgage warehouse         
Consumer    80  20  13 
Total$1,733  $1,908  $2,341  $2,643  $2,813 


Average Balance Sheets
(Dollars in Thousands, Unaudited)
 Three Months Ended Three Months Ended
 March 31, 2021 March 31, 2020
 Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets           
Interest earning assets           
Federal funds sold$267,241  $66  0.10% $24,974  $96  1.55%
Interest earning deposits25,527  31  0.49% 26,491  101  1.53%
Investment securities – taxable410,063  1,451  1.44% 501,144  2,701  2.27%
Investment securities – non–taxable (1)956,464  5,223  2.80% 588,784  3,798  3.18%
Loans receivable (2) (3)3,780,339  40,818  4.39% 3,604,809  44,958  5.03%
Total interest earning assets5,439,634  47,589  3.66% 4,746,202  51,654  4.47%
Non–interest earning assets           
Cash and due from banks85,269      78,108     
Allowance for credit losses(57,779)     (24,468)    
Other assets469,025      457,490     
Total average assets$5,936,149      $5,257,332     
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities           
Interest bearing deposits$3,524,103  $2,343  0.27% $3,225,323  $7,716  0.96%
Borrowings477,278  1,269  1.08% 533,129  2,238  1.69%
Subordinated notes58,616  880  6.09%     %
Junior subordinated debentures issued to capital trusts56,571  559  4.01% 56,333  775  5.53%
Total interest bearing liabilities4,116,568  5,051  0.50% 3,814,785  10,729  1.13%
Non–interest bearing liabilities           
Demand deposits1,063,268      717,257     
Accrued interest payable and other liabilities58,912      57,702     
Stockholders’ equity697,401      667,588     
Total average liabilities and stockholders’ equity$5,936,149      $5,257,332     
            
Net interest income / spread  $42,538  3.16%   $40,925  3.34%
Net interest income as a percent of average interest earning assets (1)    3.29%     3.56%
            
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.


Condensed Consolidated Balance Sheets
(Dollars in Thousands)
    
 March 31,
2021
 December 31,
2020
 (Unaudited)  
Assets   
Cash and due from banks$529,336  $249,711 
Interest earning time deposits7,983  8,965 
Investment securities, available for sale1,262,175  1,134,025 
Investment securities, held to maturity (fair value $170,949 and $179,990)161,650  168,676 
Loans held for sale7,798  13,538 
Loans, net of allowance for credit losses of $57,186 and $57,0273,607,250  3,810,356 
Premises and equipment, net92,109  92,416 
Federal Home Loan Bank stock23,023  23,023 
Goodwill151,238  151,238 
Other intangible assets22,058  22,955 
Interest receivable20,951  21,396 
Cash value of life insurance97,262  96,751 
Other assets72,695  93,564 
Total assets$6,055,528  $5,886,614 
    
Liabilities   
Deposits   
Non–interest bearing$1,133,412  $1,053,242 
Interest bearing3,588,404  3,477,891 
Total deposits4,721,816  4,531,133 
Borrowings481,488  475,000 
Subordinated notes58,640  58,603 
Junior subordinated debentures issued to capital trusts56,604  56,548 
Interest payable1,772  2,712 
Other liabilities45,829  70,402 
Total liabilities5,366,149  5,194,398 
Commitments and contingent liabilities   
Stockholders’ equity   
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares   
Common stock, no par value, Authorized 99,000,000 shares
Issued 43,974,258 and 43,905,631 shares,
Outstanding 43,949,189 and 43,880,562 shares
   
Additional paid–in capital362,613  362,945 
Retained earnings316,080  301,419 
Accumulated other comprehensive income10,686  27,852 
Total stockholders’ equity689,379  692,216 
Total liabilities and stockholders’ equity$6,055,528  $5,886,614 


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2021 2020 2020 2020 2020
Interest income         
Loans receivable$40,818  $46,745  $44,051  $43,918  $44,958 
Investment securities – taxable1,548  1,570  1,704  2,321  2,898 
Investment securities – non–taxable5,223  4,919  4,391  4,105  3,798 
Total interest income47,589  53,234  50,146  50,344  51,654 
Interest expense         
Deposits2,343  2,718  3,616  4,506  7,716 
Borrowed funds1,269  5,456  1,662  2,074  2,238 
Subordinated notes880  871  895  58   
Junior subordinated debentures issued to capital trusts559  567  576  710  775 
Total interest expense5,051  9,612  6,749  7,348  10,729 
Net interest income42,538  43,622  43,397  42,996  40,925 
Credit loss expense367  3,042  2,052  7,057  8,600 
Net interest income after credit loss expense42,171  40,580  41,345  35,939  32,325 
Non–interest Income         
Service charges on deposit accounts2,234  2,360  2,154  1,888  2,446 
Wire transfer fees255  301  298  230  171 
Interchange fees2,340  2,645  2,438  2,327  1,896 
Fiduciary activities1,743  2,747  2,105  1,765  2,528 
Gains / (losses) on sale of investment securities914  2,622  1,088  248  339 
Gain on sale of mortgage loans5,296  7,815  8,813  6,620  3,473 
Mortgage servicing income net of impairment213  327  (1,308) (2,760) 25 
Increase in cash value of bank owned life insurance511  566  566  557  554 
Death benefit on bank owned life insurance    31    233 
Other income367  350  515  250  398 
Total non–interest income13,873  19,733  16,700  11,125  12,063 
Non–interest expense         
Salaries and employee benefits16,871  20,030  18,832  15,629  16,591 
Net occupancy expenses3,318  3,262  3,107  3,190  3,252 
Data processing2,376  2,126  2,237  2,432  2,405 
Professional fees544  691  688  518  536 
Outside services and consultants1,702  2,083  1,561  1,759  1,915 
Loan expense2,822  2,961  2,876  2,692  2,099 
FDIC insurance expense800  900  570  235  150 
Other losses283  735  114  193  120 
Other expenses3,456  3,665  3,422  3,784  4,081 
Total non–interest expense32,172  36,453  33,407  30,432  31,149 
Income before income taxes23,872  23,860  24,638  16,632  13,239 
Income tax expense3,450  1,967  4,326  1,993  1,584 
Net income$20,422  $21,893  $20,312  $14,639  $11,655 
Basic earnings per share$0.46  $0.50  $0.46  $0.33  $0.26 
Diluted earnings per share0.46  0.50  0.46  0.33  0.26 


Contract:Mark E. Secor
 Chief Financial Officer
Phone:(219) 873-2611
Fax:(219) 874-9280
Date:April 28, 2021