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

April, 29 2020 05:30 PM Horizon Bancorp Inc.

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

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

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

First Quarter 2020 Keys

Horizon's focus on the safety and well-being of our employees, customers and community is always paramount in our decision making.
We believe that Horizon's balance sheet was well-positioned leading up to the COVID–19 National Health Emergency.
Horizon Bank's strong liquidity position includes approximately $1.1 billion in cash and investment securities, which is approximately 20.5% of total assets, and approximately $435.4 million in unused availability on lines of credit, at March 31, 2020.
Horizon began preparing staff and systems to enable customers to access funding provided by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed at the end of the first quarter, including the Paycheck Protection Program (“PPP”), for which Horizon Bank received SBA approval for 1,700 loans totaling approximately $280.0 million as of April 24, 2020. During round one of the PPP program, 95.5% of Horizon's applicants were approved for funding.
Horizon maintained stable asset quality metrics during the first quarter of 2020, including non-performing loans and delinquencies representing 0.65% and 0.33% of total loans, respectively, at March 31, 2020, while net charge-offs were 0.01% of average loans for the quarter. At March 31, 2020, Horizon's outstanding balance of other real estate owned and repossessed assets remained low totaling $2.8 million.
Credit loss expense of $8.6 million, $2.8 million of acquired loan discounts on Purchased Credit Impaired transferred to Purchase Credit Deteriorated and a $19.8 million increase in the Allowance for Credit Losses (“ACL”) reflected the implementation of the Current Expected Credit Losses (“CECL”) accounting method. ACL represented 1.30% of total loans and 201.8% of non-performing loans at March 31, 2020. ACL plus acquired loan discount to total loans was 1.74%.
Horizon has experienced an increase in mortgage loan originations during the first quarter of 2020, with 53% refinances and 47% new purchases.
Horizon's pre-tax, pre-provision net income totaled $21.8 million for the first quarter of 2020, compared to $22.8 million for the fourth quarter of 2019 and $13.3 million for the first quarter of 2019. This non-GAAP financial measure is utilized by banks to provide a greater understanding of pre-tax profitability before giving effect to credit loss expense, acquisition-related expenses, gains and losses on sale of investment securities and death benefit on bank owned life insurance. (See the "Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income" table below.)
Horizon's net interest margin remained relatively stable for the first quarter of 2020 at 3.56% and core net interest margin was 3.44%. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this Non–GAAP calculation.)
Comparisons to first quarter 2019 results reflect Horizon's acquisition of Salin Bancshares, Inc. on March 26, 2019.

Summary



At or for the Three Months Ended
Credit Quality Preceding National Emergency

March 31,

December 31,

March 31,

2020

2019

2019
Allowance for credit losses to total loans

1.30
%

0.49
%

0.49
%
Allowance for credit losses + acquired loan discount to total loans

1.74
%

1.04
%

1.10
%
Non-performing loans to total loans

0.65
%

0.58
%

0.54
%
Percent of net charge-offs to average loans outstanding for the period

0.01
%

0.02
%

0.01
%





CECL Adoption


December 31,



January 1,

(Net Charge-Offs)/

Reserve

March 31,
Allowance for Credit Losses

2019

Impact

2020

Recoveries

Build

2020
Commercial

$
11,996


$
13,618



$
25,614


$
20


$
6,916


$
32,550

Retail Mortgage

923


4,048



4,971


(17
)

700


5,654

Warehouse

1,077


—



1,077


—


(22
)

1,055

Consumer

3,671


4,911



8,582


(407
)

1,006


9,181

Allowance for Credit Losses ("ACL")

$
17,667


$
22,577



$
40,244


$
(404
)

$
8,600


$
48,440

ACL/Total Loans

0.49
%



1.10
%





1.30
%













Acquired Loan Discount ("ALD")

$
20,228


$
(2,786
)


$
17,442


$
—


$
—


$
16,006

ACL + ALD

$
37,895


$
19,791



$
57,686


$
(404
)

$
8,600


$
64,446

ACL + ALD/Total Loans

1.04
%



1.58
%





1.74
%

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



For the Three Months Ended


March 31,

December 31,

March 31,
Net Interest Income and Net Interest Margin

2020

2019

2019
Net interest income

$
40,925


$
41,519


$
34,280

Net interest margin

3.56
%

3.58
%

3.62
%
Core net interest margin

3.44
%

3.49
%

3.46
%

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



For the Three Months Ended


March 31,

December 31,

March 31,
Asset Yields and Funding Costs

2020

2019

2019
Interest earning assets

4.47
%

4.57
%

4.76
%
Interest bearing liabilities

1.13
%

1.24
%

1.44
%



For the Three Months Ended
Non-interest Income and Mortgage Banking Income

March 31,

December 31,

March 31,

2020

2019

2019
Total non-interest income

$
12,063

$
11,934

$
8,712
Gain on sale of mortgage loans

3,473

3,119

1,309
Mortgage servicing income net of impairment

25

294

606



For the Three Months Ended


March 31,

December 31,

March 31,
Non-interest Expense

2020

2019

2019
Total non-interest expense

$
31,149


$
30,650


$
29,738

Annualized non-interest expense to average assets

2.38
%

2.32
%

2.80
%

Net income for the first quarter of 2020 was $11.7 million, or $0.26 diluted earnings per share, compared to $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019 and $10.8 million, or $0.28 diluted earnings per share, for the first quarter of 2019. Excluding acquisition-related expenses, gains and losses on sale of investment securities and death benefit on bank owned life insurance‚ core net income was $11.2 million, or $0.24 diluted earnings per share for the first quarter of 2020, compared to $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019 and $14.2 million, or $0.37 diluted earnings per share, for the first quarter of 2019. Core net income, which is not calculated according to generally accepted accounting principles (“GAAP”), is a measure that Horizon uses to provide a greater understanding of operating profitability. Horizon’s earnings in the first quarter of 2020 reflect Horizon’s adoption of the CECL accounting method on January 1, 2020.

Capital

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

March 31, 2020

Actual

Required for Capital Adequacy Purposes

Required for Capital Adequacy Purposes with Capital Buffer

Well Capitalized Under Prompt Corrective Action Provisions


Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio
Total capital (to risk-weighted assets)
















Consolidated

$
548,429


13.59
%

$
322,843

8.00
%

$
423,731

10.50
%


N/A

N/A
Bank

510,462


12.67
%

322,312

8.00
%

423,035

10.50
%

$
402,890

10.00%
Tier 1 capital (to risk-weighted assets)
















Consolidated

514,493


12.75
%

242,114

6.00
%

342,995

8.50
%


N/A

N/A
Bank

476,526


11.83
%

241,687

6.00
%

342,390

8.50
%

322,249

8.00%
Common equity tier 1 capital (to risk-weighted assets)
















Consolidated

457,000


11.33
%

181,509

4.50
%

282,348

7.00
%


N/A

N/A
Bank

476,526


11.83
%

181,265

4.50
%

281,968

7.00
%

261,827

6.50%
Tier 1 capital (to average assets)
















Consolidated

514,493


10.14
%

202,956

4.00
%

202,956

4.00
%


N/A

N/A
Bank

476,526


9.43
%

202,132

4.00
%

202,132

4.00
%

252,665

5.00%

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

Liquidity

The Bank maintains a stable base of core deposits provided by long-standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the "FHLB"). At March 31, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $435.4 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Bank Discount Window. The Bank had approximately $743.5 million of unpledged investment securities at March 31, 2020.

Income Statement Highlights

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

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

Non-GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)


Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019











Net income as reported

$
11,655


$
18,543


$
20,537


$
16,642


$
10,816

Merger expenses

—


—


—


1,532


4,118

Tax effect

—


—


—


(295
)

(692
)
Net income excluding merger expenses

11,655


18,543


20,537


17,879


14,242












(Gain)/loss on sale of investment securities

(339
)

(10
)

—


100


(15
)
Tax effect

71


2


—


(21
)

3

Net income excluding (gain)/loss on sale of investment securities

11,387


18,535


20,537


17,958


14,230












Death benefit on bank owned life insurance (“BOLI”)

(233
)

—


(213
)

(367
)

—

Net income excluding death benefit on BOLI

11,154


18,535


20,324


17,591


14,230












Core net income

$
11,154


$
18,535


$
20,324


$
17,591


$
14,230

Non-GAAP Reconciliation of Diluted Earnings per Share
(Unaudited)


Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019











Diluted earnings per share (“EPS”) as reported

$
0.26


$
0.41


$
0.46


$
0.37


$
0.28

Merger expenses

—


—


—


0.03


0.11

Tax effect

—


—


—


—


(0.02
)
Diluted EPS excluding merger expenses

0.26


0.41


0.46


0.40


0.37












(Gain)/loss on sale of investment securities

(0.01
)

—


—


—


—

Tax effect

—


—


—


—


—

Diluted EPS excluding (gain)/loss on investment securities

0.25


0.41


0.46


0.40


0.37












Death benefit on BOLI

(0.01
)

—


(0.01
)

(0.01
)

—

Diluted EPS excluding death benefit on BOLI

0.24


0.41


0.45


0.39


0.37












Core Diluted EPS

$
0.24


$
0.41


$
0.45


$
0.39


$
0.37

Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income
(Dollars in Thousands, Unaudited)


Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019











Pre-tax income

$
13,239


$
22,463


$
24,541


$
19,947


$
12,890

Credit loss expense

8,600


340


376


896


364

Pre-tax, pre-provision net income

$
21,839


$
22,803


$
24,917


$
20,843


$
13,254












Pre-tax, pre-provision net income

$
21,839


$
22,803


$
24,917


$
20,843


$
13,254

Merger expenses

—


—


—


1,532


4,118

(Gain)/loss on sale of investment securities

(339
)

(10
)

—


100


(15
)
Death benefit on bank owned life insurance

(233
)

—


(213
)

(367
)

—

Adjusted pre-tax, pre-provision net income

$
21,267


$
22,793


$
24,704


$
22,108


$
17,357

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

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

Non-GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)


Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019
Net interest income as reported

$
40,925



$
41,519



$
43,463



$
41,529



$
34,280













Average interest earning assets

4,723,755



4,748,217



4,623,985



4,566,674



3,929,296













Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)

3.56

%

3.58

%

3.82

%

3.73

%

3.62

%











Net interest income as reported

$
40,925



$
41,519



$
43,463



$
41,529



$
34,280













Acquisition-related purchase accounting adjustments (“PAUs”)

(1,434
)


(1,042
)


(1,739
)


(1,299
)


(1,510
)












Core net interest income

$
39,491



$
40,477



$
41,724



$
40,230



$
32,770













Core net interest margin

3.44

%

3.49

%

3.67

%

3.61

%

3.46

%

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

Lending Activity

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

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)











March 31,

December 31,

Amount

Percent


2020

2019

Change

Change
Commercial

$
2,050,402

$
2,046,651

$
3,751


0.2%
Residential mortgage

757,529

770,717

(13,188
)

(1.7)%
Consumer

675,849

669,180

6,669


1.0%
Subtotal

3,483,780

3,486,548

(2,768
)

(0.1)%
Loans held for sale

6,245

4,088

2,157


52.8%
Mortgage warehouse

223,519

150,293

73,226


48.7%
Total loans

$
3,713,544

$
3,640,929

$
72,615


2.0%

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

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

Expense Management


Three Months Ended





March 31,

December 31,





2020

2019

Adjusted
Non-interest Expense
Actual

Merger Expenses

Adjusted

Actual

Merger Expenses

Adjusted

Amount Change

Percent Change
Salaries and employee benefits
$
16,591


$
—

$
16,591


$
16,841


$
—

$
16,841


$
(250
)

(1.5)%
Net occupancy expenses
3,252


—

3,252


3,106


—

3,106


146


4.7%
Data processing
2,405


—

2,405


2,235


—

2,235


170


7.6%
Professional fees
536


—

536


520


—

520


16


3.1%
Outside services and consultants
1,915


—

1,915


1,415


—

1,415


500


35.3%
Loan expense
2,099


—

2,099


2,438


—

2,438


(339
)

(13.9)%
FDIC insurance expense
150


—

150


—


—

—


150


—%
Other losses
120


—

120


377


—

377


(257
)

(68.2)%
Other expense
4,081


—

4,081


3,718


—

3,718


363


9.8%
Total non-interest expense
$
31,149


$
—

$
31,149


$
30,650


$
—

$
30,650


$
499


1.6%
Annualized non-interest expense to average assets
2.38
%



2.38
%

2.32
%



2.32
%

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


Three Months Ended





March 31,

March 31,





2020

2019

Adjusted
Non-interest Expense
Actual

Merger Expenses

Adjusted

Actual

Merger Expenses

Adjusted

Amount Change

Percent Change
Salaries and employee benefits
$
16,591


$
—

$
16,591


$
14,466


$
(2
)

$
14,464


$
2,127


14.7%
Net occupancy expenses
3,252


—

3,252


2,772


—


2,772


480


17.3%
Data processing
2,405


—

2,405


1,966


(292
)

1,674


731


43.7%
Professional fees
536


—

536


493


(239
)

254


282


111.0%
Outside services and consultants
1,915


—

1,915


3,530


(2,290
)

1,240


675


54.4%
Loan expense
2,099


—

2,099


1,949


—


1,949


150


7.7%
FDIC insurance expense
150


—

150


160


—


160


(10
)

(6.3)%
Other losses
120


—

120


104


(2
)

102


18


17.6%
Other expense
4,081


—

4,081


4,298


(1,293
)

3,005


1,076


35.8%
Total non-interest expense
$
31,149


$
—

$
31,149


$
29,738


$
(4,118
)

$
25,620


$
5,529


21.6%
Annualized non-interest expense to average assets
2.38
%



2.38
%

2.80
%



2.41
%

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

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

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

Use of Non–GAAP Financial Measures

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

Non-GAAP Reconciliation of Tangible Stockholders' Equity and Tangible Book Value per Share
(Dollars in Thousands Except per Share Data, Unaudited)













March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019
Total stockholders' equity

$
630,842

$
656,023

$
642,711

$
626,461

$
609,468
Less: Intangible assets

176,961

177,917

178,896

179,776

176,864
Total tangible stockholders' equity

$
453,881

$
478,106

$
463,815

$
446,685

$
432,604











Common shares outstanding

43,763,623

44,975,771

44,969,021

45,061,372

45,052,747











Tangible book value per common share

$
10.37

$
10.63

$
10.31

$
9.91

$
9.60

Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Core Efficiency Ratio
(Dollars in Thousands, Unaudited)













Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019
Non-GAAP Calculation of Efficiency Ratio










Non-interest expense as reported

$
31,149



$
30,650



$
30,060



$
31,584



$
29,738













Net interest income as reported

40,925



41,519



43,463



41,529



34,280













Non-interest income as reported

$
12,063



$
11,934



$
11,514



$
10,898



$
8,712













Non-interest expense/(Net interest income + Non-interest income) ("Efficiency Ratio")

58.79

%

57.34

%

54.68

%

60.24

%

69.17

%











Non-GAAP Reconciliation of Core Efficiency Ratio










Non-interest expense as reported

$
31,149



$
30,650



$
30,060



$
31,584



$
29,738


Merger expenses

—



—



—



(1,532
)


(4,118
)

Non-interest expense excluding merger expenses

31,149



30,650



30,060



30,052



25,620













Net interest income as reported

40,925



41,519



43,463



41,529



34,280













Non-interest income as reported

12,063



11,934



11,514



10,898



8,712


(Gain)/loss on sale of investment securities

(339
)


(10
)


—



100



(15
)

Death benefit on bank owned life insurance ("BOLI")

(233
)


—



(213
)


(367
)


—


Non-interest income excluding (gain)/loss on sale of investment securities and death benefit on BOLI

$
11,491



$
11,924



$
11,301



$
10,631



$
8,697













Core efficiency ratio

59.43

%

57.35

%

54.89

%

57.62

%

59.61

%

Non-GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)




























Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019
Non-GAAP Reconciliation of Return on Average Assets

























Average assets

$
5,257,332



$
5,250,574



$
5,107,259



$
5,047,365



$
4,307,189


Return on average assets ("ROAA") as reported


0.89

%


1.40

%


1.60

%


1.32

%


1.02

%
Merger expenses


—




—




—




0.12




0.39


Tax effect


—




—




—




(0.02
)



(0.07
)

ROAA excluding merger expenses


0.89




1.40




1.60




1.42




1.34


(Gain)/loss on sale of investment securities


(0.03
)



—




—




0.01




—


Tax effect


0.01




—




—




—




—


ROAA excluding (gain)/loss on sale of investment securities


0.87




1.40




1.60




1.43




1.34


Death benefit on bank owned life insurance ("BOLI")


(0.02
)



—




(0.02
)



(0.03
)



—


ROAA excluding death benefit on BOLI


0.85




1.40




1.58




1.40




1.34


Core ROAA


0.85

%


1.40

%


1.58

%


1.40

%


1.34

%


























Non-GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)




























Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019
Non-GAAP Reconciliation of Return on Average Common Equity

























Average common equity

$
667,588



$
653,071



$
640,770



$
622,028



$
506,449


Return on average common equity ("ROACE") as reported


7.02




11.26

%


12.72




10.73

%


8.66

%
Merger expenses


—




—




—

%


0.99




3.30


Tax effect


—




—




—




(0.19
)



(0.55
)

ROACE excluding merger expenses


7.02




11.26




12.72




11.53




11.41




























(Gain)/loss on sale of investment securities


(0.20
)



(0.01
)



—




0.06




(0.01
)

Tax effect


0.04




—




—




(0.01
)



—


ROACE excluding (gain)/loss on sale of investment securities


6.86




11.25




12.72




11.58




11.40




























Death benefit on bank owned life insurance ("BOLI")


(0.14
)



—




(0.13
)



(0.24
)



—


ROACE excluding death benefit on BOLI


6.72




11.25




12.59




11.34




11.40




























Core ROACE


6.72

%


11.25

%


12.59

%


11.34

%


11.40

%

Conference Call

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

Participants may access the live conference call on April 30, 2020 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 877-317-6789 from the United States, 866-450-4696 from Canada or 412-317-6789 from international locations and requesting the “Horizon Bancorp Call.” Participants are asked to dial in approximately 10 minutes prior to the call.

A telephone replay of the call will be available approximately one hour after the end of the conference through May 7, 2020. The replay may be accessed by dialing 877-344-7529 from the United States, 855-669-9658 from Canada or 412-317-0088 from other international locations, and entering the access code 10142971.

About Horizon Bancorp, Inc.

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

Forward Looking Statements

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

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

Financial Highlights
(Dollars in thousands except share and per share data and ratios, Unaudited)











March 31,

December 31,

September 30,

June 30,

March 31,

2020

2019

2019

2019

2019
Balance sheet:









Total assets
$
5,351,325

$
5,246,829

$
5,186,714

$
5,098,682

$
5,051,639
Investment securities
1,099,943

1,042,675

977,536

887,187

893,469
Commercial loans
2,050,402

2,046,651

2,046,165

2,062,623

2,089,579
Mortgage warehouse loans
223,519

150,293

155,631

133,428

71,944
Residential mortgage loans
757,529

770,717

796,497

814,065

819,824
Consumer loans
675,849

669,180

668,332

654,552

639,710
Earning assets
4,835,934

4,706,051

4,667,668

4,577,487

4,538,952
Non-interest bearing deposit accounts
709,978

709,760

756,707

810,350

811,768
Interest bearing transaction accounts
2,264,576

2,245,631

2,173,100

2,153,189

2,115,847
Time deposits
907,717

975,611

986,150

967,236

960,408
Borrowings
704,613

549,741

516,591

436,233

457,788
Subordinated debentures
56,374

56,311

56,250

56,194

55,310
Total stockholders' equity
630,842

656,023

642,711

626,461

609,468

Financial Highlights
(Dollars in thousands except share and per share data and ratios, Unaudited)











Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2020

2019

2019

2019

2019
Income statement:









Net interest income
$
40,925


$
41,519


$
43,463


$
41,529


$
34,280

Credit loss expense
8,600


340


376


896


364

Non-interest income
12,063


11,934


11,514


10,898


8,712

Non-interest expense
31,149


30,650


30,060


31,584


29,738

Income tax expense
1,584


3,920


4,004


3,305


2,074

Net income
$
11,655


$
18,543


$
20,537


$
16,642


$
10,816











Per share data:









Basic earnings per share
$
0.26


$
0.41


$
0.46


$
0.37


$
0.28

Diluted earnings per share
0.26


0.41


0.46


0.37


0.28

Cash dividends declared per common share
0.12


0.12


0.12


0.12


0.10

Book value per common share
14.41


14.59


14.29


13.90


13.53

Tangible book value per common share
10.37


10.63


10.31


9.91


9.60

Market value - high
18.79


19.42


17.77


17.13


17.82

Market value - low
$
7.97


$
16.60


$
15.93


$
15.51


$
15.50

Weighted average shares outstanding - Basic
44,658,512


44,971,676


45,038,021


45,055,117


38,822,543

Weighted average shares outstanding - Diluted
44,756,716


45,103,065


45,113,730


45,130,408


38,906,172











Key ratios:









Return on average assets
0.89
%

1.40
%

1.60
%

1.32
%

1.02
%
Return on average common stockholders' equity
7.02


11.26


12.72


10.73


8.66

Net interest margin
3.56


3.58


3.82


3.73


3.62

Allowance for credit losses to total loans
1.30


0.49


0.49


0.50


0.49

Average equity to average assets
12.70


12.44


12.55


12.32


11.76

Bank only capital ratios:









Tier 1 capital to average assets
9.43


9.49


9.35


9.52


10.99

Tier 1 capital to risk weighted assets
11.83


12.20


11.62


11.76


11.84

Total capital to risk weighted assets
12.67


12.65


12.08


12.23


12.30

Financial Highlights
(Dollars in thousands except share and per share data and ratios, Unaudited)











Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2020

2019

2019

2019

2019
Loan data:









Substandard loans
$
61,322


$
58,670


$
62,130


$
47,764


$
41,728

30 to 89 days delinquent
12,017


7,729


10,204


9,633


9,980











90 days and greater delinquent - accruing interest
246


146


34


391


192

Trouble debt restructures - accruing interest
2,115


3,354


3,491


2,198


2,532

Trouble debt restructures - non-accrual
3,360


2,006


1,807


1,576


1,349

Non-accrual loans
18,281


15,679


13,823


14,764


15,313

Total non-performing loans
$
24,002


$
21,185


$
19,155


$
18,929


$
19,386

Non-performing loans to total loans
0.65
%

0.58
%

0.52
%

0.52
%

0.54
%

Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)











March 31,

December 31,

September 30,

June 30,

March 31,

2020

2019

2019

2019

2019
Commercial
$
32,550


$
11,996


$
12,082


$
11,881


$
11,556

Real estate
5,654


923


1,449


1,732


1,588

Mortgage warehouse
1,055


1,077


1,041


1,040


1,014

Consumer
9,181


3,671


3,384


3,652


3,663

Total
$
48,440


$
17,667


$
17,956


$
18,305


$
17,821

Net Charge-offs (Recoveries)
(Dollars in Thousands, Unaudited)











March 31,

December 31,

September 30,

June 30,

March 31,

2020

2019

2019

2019

2019
Commercial
$
(20
)


$
146



$
192



$
265



$
61


Real estate
17



40



(7
)


41



(27
)

Mortgage warehouse
—



—



—



—



—


Consumer
407



443



540



106



329


Total
$
404



$
629



$
725



$
412



$
363


Percent of net charge-offs to average loans outstanding for the period
0.01
%


0.02

%

0.02

%

0.01

%

0.01

%

Total Non-performing Loans
(Dollars in Thousands, Unaudited)











March 31,

December 31,

September 30,

June 30,

March 31,

2020

2019

2019

2019

2019
Commercial
$
9,579


$
7,347


$
8,193


$
8,697


$
9,750

Real estate
10,411


9,884


7,212


6,444


5,995

Mortgage warehouse
—


—


—


—


—

Consumer
4,012


3,954


3,750


3,788


3,641

Total
$
24,002


$
21,185


$
19,155


$
18,929


$
19,386

Non-performing loans to total loans
0.65
%

0.58
%

0.52
%

0.52
%

0.54
%

Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)











March 31,

December 31,

September 30,

June 30,

March 31,

2020

2019

2019

2019

2019
Commercial
$
2,464


$
3,698


$
3,972


$
3,694


$
3,496

Real estate
336


28


48


113


126

Mortgage warehouse
—


—


—


—


—

Consumer
13


—


24


48


30

Total
$
2,813


$
3,726


$
4,044


$
3,855


$
3,652


Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)















Three Months Ended

Three Months Ended


March 31, 2020

March 31, 2019


Average Balance

Interest

Average Rate

Average Balance

Interest

Average Rate

Assets












Interest earning assets












Federal funds sold
$
24,974


$
96


1.55
%

$
7,843


$
57


2.95
%

Interest earning deposits
26,491


101


1.53
%

26,355


155


2.39
%

Investment securities - taxable
478,697


2,701


2.27
%

448,840


2,910


2.63
%

Investment securities - non-taxable ⁽¹⁾
588,784


3,798


3.18
%

393,720


2,628


3.40
%

Loans receivable ^{(2) (3)}
3,604,809


44,958


5.03
%

3,052,538


39,623


5.27
%

Total interest earning assets
4,723,755


51,654


4.47
%

3,929,296


45,373


4.76
%














Non-interest earning assets












Cash and due from banks
78,108






44,527






Allowance for credit losses
(24,468
)





(17,836
)





Other assets
479,937






351,202



















Total average assets
$
5,257,332






$
4,307,189



















Liabilities and Stockholders' Equity












Interest bearing liabilities












Interest bearing deposits
$
3,225,323


$
7,716


0.96
%

$
2,514,841


$
6,876


1.11
%

Borrowings
533,129


2,238


1.69
%

577,199


3,621


2.54
%

Subordinated debentures
56,333


775


5.53
%

39,236


596


6.16
%

Total interest bearing liabilities
3,814,785


10,729


1.13
%

3,131,276


11,093


1.44
%














Non-interest bearing liabilities












Demand deposits
717,257






643,601






Accrued interest payable and other liabilities
57,702






25,863






Stockholders' equity
667,588






506,449



















Total average liabilities and stockholders' equity
$
5,257,332






$
4,307,189



















Net interest income/spread


$
40,925


3.34
%



$
34,280


3.32
%

Net interest income as a percent of average interest earning assets ⁽¹⁾




3.56
%





3.62
%













⁽¹⁾
Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.













⁽²⁾
Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.













⁽³⁾
Non-accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.

Condensed Consolidated Balance Sheets

(Dollar Amounts in Thousands)

March 31,
2020

December 31,
2019

(Unaudited)

Assets

Cash and due from banks

86,458

98,831

Interest earning time deposits

9,239

8,455

Investment securities, available for sale

900,476

834,776

Investment securities, held to maturity (fair value of $207,323 and $215,147)

199,467

207,899

Loans held for sale

6,245

4,088

Loans, net of allowance for credit losses of $48,440 and $17,667

3,658,859

3,619,174

Premises and equipment, net

92,785

92,209

Federal Home Loan Bank stock

22,447

22,447

Goodwill

151,238

151,238

Other intangible assets

25,723

26,679

Interest receivable

17,774

18,828

Cash value of life insurance

95,153

95,577

Other assets

85,461

66,628

Total assets

5,351,325

5,246,829

Liabilities

Deposits

Non-interest bearing

709,978

709,760

Interest bearing

3,172,293

3,221,242

Total deposits

3,882,271

3,931,002

Borrowings

704,613

549,741

Subordinated debentures

56,374

56,311

Interest payable

2,772

3,062

Other liabilities

74,453

50,690

Total liabilities

4,720,483

4,590,806

Commitments and contingent liabilities

Stockholders' equity

Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares

—

Common stock, no par value, Authorized 99,000,000 shares
Issued 43,788,692 and 45,000,840 shares, Outstanding 43,763,623 and 44,975,771 shares

—

Additional paid-in capital

361,019

379,853

Retained earnings

260,501

269,738

Accumulated other comprehensive income

9,322

6,432

Total stockholders' equity

630,842

656,023

Total liabilities and stockholders' equity

5,351,325

5,246,829

Condensed Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data, Unaudited)


Three Months Ended


March 31,

December 31,

September 30,

June 30,

March 31,


2020

2019

2019

2019

2019
Interest Income










Loans receivable

$
44,958


$
46,769


$
49,455



$
47,784


$
39,623

Investment securities - taxable

2,898


3,054


3,157



3,273


3,122

Investment securities - non-taxable

3,798


3,575


3,099



2,793


2,628

Total interest income

51,654


53,398


55,711



53,850


45,373

Interest Expense










Deposits

7,716


8,767


9,109



8,938


6,876

Borrowed funds

2,238


2,281


2,275



2,495


3,621

Subordinated debentures

775


831


864



888


596

Total interest expense

10,729


11,879


12,248



12,321


11,093

Net Interest Income

40,925


41,519


43,463



41,529


34,280

Credit loss expense

8,600


340


376



896


364

Net Interest Income after Credit Loss Expense

32,325


41,179


43,087



40,633


33,916

Non-interest Income










Service charges on deposit accounts

2,446


2,766


2,836



2,480


1,877

Wire transfer fees

171


179


189



167


118

Interchange fees

1,896


1,996


2,138



2,160


1,361

Fiduciary activities

2,528


2,594


1,834



2,063


2,089

Gains/(losses) on sale of investment securities

339


10


—



(100
)

15

Gain on sale of mortgage loans

3,473


3,119


2,702



2,078


1,309

Mortgage servicing income net of impairment

25


294


444



570


606

Increase in cash value of bank owned life insurance

554


566


556



555


513

Death benefit on bank owned life insurance

233


—


213



367


—

Other income

398


410


602



558


824

Total non-interest income

12,063


11,934


11,514



10,898


8,712

Non-interest Expense










Salaries and employee benefits

16,591


16,841


16,948



16,951


14,466

Net occupancy expenses

3,252


3,106


3,131



3,148


2,772

Data processing

2,405


2,235


2,140



2,139


1,966

Professional fees

536


520


335



598


493

Outside services and consultants

1,915


1,415


1,552



1,655


3,530

Loan expense

2,099


2,438


2,198



2,048


1,949

FDIC insurance expense

150


—


(273
)


365


160

Other losses

120


377


90



169


104

Other expense

4,081


3,718


3,939



4,511


4,298

Total non-interest expense

31,149


30,650


30,060



31,584


29,738

Income Before Income Taxes

13,239


22,463


24,541



19,947


12,890

Income tax expense

1,584


3,920


4,004



3,305


2,074

Net Income

$
11,655


$
18,543


$
20,537



$
16,642


$
10,816

Basic Earnings Per Share

$
0.26


$
0.41


$
0.46



$
0.37


$
0.28

Diluted Earnings Per Share

0.26


0.41


0.46



0.37


0.28

Contact:

Mark E. Secor

Chief Financial Officer

Phone:

(219) 873-2611

Fax:

(219) 874-9280

Company Name:	Horizon Bancorp Inc.
Stock Symbol:	HBNC
Market:	NASDAQ
Website:	horizonbank.com

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