HBNC - Horizon Bancorp Inc. Announces Second Quarter 2020 Financial Results

July, 29 2020 04:35 PM Horizon Bancorp Inc.

MICHIGAN CITY, Ind., July 29, 2020 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and six months ending June 30, 2020.

Craig M. Dwight, Chairman and CEO of Horizon, commented, “Horizon’s team put in an incredible performance during the second quarter to originate and process record mortgage loan volume, help thousands of local employers to access federal stimulus funding, assist borrowers with payment modifications, and safely open branches that had been operating by appointment only since March. This extraordinary effort was complimented by profitably growing and strengthening the balance sheet, maintaining solid asset quality metrics, managing expenses with customary discipline, and meaningfully growing pre–tax, pre–provision net income.”

Second Quarter 2020 Highlights

Earned net income of $14.6 million, or $0.33 diluted earnings per share, compared to $11.7 million, or $0.26 diluted earnings per share, for the first quarter of 2020 and $16.6 million, or $0.37 diluted earnings per share, for the second quarter of 2019.
Grew pre–tax, pre–provision net income to $23.7 million for the quarter, compared to $21.8 million for the first quarter of 2020 and $20.8 million for the second quarter of 2019. This non–GAAP financial measure is utilized by banks to provide a greater understanding of pre–tax profitability before giving effect to credit loss expense. (See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income” table below.)
Reported return on average assets (“ROAA”) of 1.05% and return on average common equity (“ROACE”) of 9.07% in the quarter, as well as adjusted ROAA of 1.03% and adjusted ROACE of 8.95%, excluding the impact of gains on sale of investment securities, net of tax. (See the “Non–GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” tables below.)
Increased the allowance for credit losses (“ACL”) 13.7% during the quarter and 211.8% year–to–date to $55.1 million at period end, representing 1.38% 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 also represented 1.49% of loans excluding Federal Paycheck Protection Program (“PPP”) loans, and 196.4% of non–performing loans excluding those which have been modified under the CARES Act.
Maintained solid asset quality metrics, including non–performing and delinquent loans representing 0.70% and 0.10% of total loans, respectively, at June 30, 2020, while net charge–offs were unchanged at 0.01% of average loans for the period.
Granted payment deferrals to loans representing 14.3% of the total loan portfolio at period end, compared to 10.4% as previously reported.
Secured approval for 2,340 PPP loans during the quarter, providing approximately $308.1 million in funding for local employers in the communities Horizon serves, with $1.1 million in deferred salary expense associated with origination costs that will be amortized to interest income as PPP loans are forgiven or paid off. Accreted PPP loans fees, net of amortized origination costs, of $869,000 were recognized as interest income in the second quarter, with the balance of approximately $9.1 million expected to be accreted to interest income over the life of these loans.
Reported non–interest expense of $30.4 million, representing 2.18% of average assets on an annualized basis, or 2.26% after adding back $1.1 million of deferred PPP loan origination costs, compared to 2.38% for the first quarter of 2020 and 2.51% for the second quarter of 2019.
Improved the efficiency ratio in the period to 56.23% compared to 58.79% for the first quarter of 2020. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” tables below.)
Originated a record $252.8 million in mortgage loans during the quarter, up 128.1% from the first quarter of 2020 and 127.0% from the second quarter of 2019, and generated record gain on mortgage loan sales of $6.6 million, up 90.6% from the linked quarter and 218.6% from the year–ago period.
Reported net interest margin of 3.47% and adjusted net interest margin of 3.35%, with each declining by 9 basis points from the first quarter of 2020. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this Non–GAAP calculation). An estimated 3 basis points of compression is attributed to PPP lending in the quarter, for both net interest margin and adjusted net interest margin.
Horizon’s tangible book value per share increased from $10.63 at December 31, 2019 to $10.87 at June 30, 2020, which includes the accounting adjustment for CECL as of January 1, 2020. This represents the highest tangible book value per share in the Company’s history. (See the “Non–GAAP Reconciliation of Tangible Stockholders' Equity and Tangible Book Value per Share” tables below.)
Maintained strong liquidity position including approximately $1.3 billion in cash and investment securities, which is approximately 22.6% of total assets, and approximately $910.7 million in unused availability on lines of credit, at June 30, 2020.

Summary



For the Three Months Ended


June 30,

March 31,

June 30,
Net Interest Income and Net Interest Margin

2020

2020

2019
Net interest income

$
42,996


$
40,925


$
41,529

Net interest margin

3.47
%

3.56
%

3.73
%
Adjusted net interest margin

3.35
%

3.44
%

3.61
%

Mr. Dwight commented, “Our team’s success in managing the effect of significantly lower interest rates on Horizon’s loan and deposit pricing in the second quarter is reflected in net interest margin compression of only 9 basis points from the first quarter of this year, which includes an estimated 3 basis points of compression from PPP lending.”



For the Three Months Ended


June 30,

March 31,

June 30,
Asset Yields and Funding Costs

2020

2020

2019
Interest earning assets

4.05
%

4.47
%

4.81
%
Interest bearing liabilities

0.74
%

1.13
%

1.38
%



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

June 30,

March 31,

June 30,

2020

2020

2019
Total non–interest income

$
11,124



$
12,063


$
10,898

Gain on sale of mortgage loans

6,620



3,473


2,078

Mortgage servicing income net of impairment

(2,760
)


25


570



For the Three Months Ended


June 30,

March 31,

June 30,
Non–interest Expense

2020

2020

2019
Total non–interest expense

$
30,432


$
31,149


$
31,584

Annualized non–interest expense to average assets

2.18
%

2.38
%

2.51
%



At or for the Three Months Ended
Credit Quality

June 30,

March 31,

June 30,

2020

2020

2019
Allowance for credit losses to total loans

1.38
%

1.30
%

0.50
%
Non-performing loans to total loans

0.70
%

0.65
%

0.52
%
Percent of net charge–offs to average loans outstanding for the period

0.01
%

0.01
%

0.01
%





CECL Adoption


December 31,



January 1,

Net Reserve Build

Net Reserve Build

June 30,
Allowance for Credit Losses

2019

Impact

2020

1Q20

2Q20

2020
Commercial

$
11,996


$
13,618



$
25,614


$
6,936



$
6,597



$
39,147

Retail Mortgage

923


4,048



4,971


683



178



5,832

Warehouse

1,077


—



1,077


(22
)


135



1,190

Consumer

3,671


4,911



8,582


599



(260
)


8,921

Allowance for Credit Losses (“ACL”)

$
17,667


$
22,577



$
40,244


$
8,196



$
6,650



$
55,090

ACL/Total Loans

0.49
%



1.10
%





1.38
%













Acquired Loan Discount (“ALD”)

$
20,228


$
(2,786
)


$
17,442


$
—



$
—



$
14,474

Mr. Dwight stated, “Horizon’s asset quality metrics continued to remain favorable through the second quarter, as evidenced by low delinquency and other real estate owned and a moderate increase in non–performing loans. Horizon's reserve build reflects adoption of CECL on January 1 and the increase in our quarterly allocation to cover anticipated loan losses related to economic factors and the nature and characteristics of our loan portfolios, primarily related to the impact on non–essential businesses caused by COVID–19 closures and the slow pace of reopening and economic recovery. However, at the current time, we are not aware of any material specific loan losses caused by COVID–19 closures. We believe federal stimulus programs softened the adverse economic impact of COVID–19 for some businesses and consumers to date. Looking ahead, as federal stimulus programs begin to roll back and the pandemic continues, we will be closely monitoring the potential for increased loan losses, and intend to maintain prudent reserves, tightly manage operating expenses, and use our strong balance sheet and ample funding to continue to meet the needs of the businesses and consumers we serve.”

Income Statement Highlights

Net income for the second quarter of 2020 was $14.6 million, or $0.33 diluted earnings per share, compared to $11.7 million, or $0.26, for the linked quarter and $16.6 million, or $0.37, for the year–ago period.

Adjusted net income for the second quarter of 2020 was $14.4 million, or $0.32 diluted earnings per share, compared to $11.2 million, or $0.24, for the linked quarter and to $17.6 million, or $0.39, for the year–ago period. Adjusted net income, which is not calculated according to generally accepted accounting principles (“GAAP”), is a measure that Horizon uses to provide a greater understanding of operating profitability.

The increase in net income for the second quarter of 2020 when compared to the first quarter of 2020 reflects an increase in net interest income of $2.1 million, a decrease in credit loss expense of $1.5 million and a decrease in non–interest expense of $717,000, offset by a decrease in non–interest income of $939,000 and an increase in tax expense of $409,000.

Second quarter 2020 non–interest income was reduced by a non-cash mortgage servicing asset impairment of $2.9 million, recorded to reflect the national increase in mortgage prepayment speeds and past due levels and determined based on a third-party valuation of Horizon's mortgage servicing asset. Gain on sale of mortgage loans grew to a record $6.6 million, up from $3.5 million in the linked quarter and $2.1 million in the year-ago period.

Non-interest expense of $30.4 million in the second quarter of 2020 reflected a $962,000 decline in salaries and employee benefits expense from the linked quarter. The reduction in salaries and employee benefits expense reflected the deferral of approximately $1.1 million in PPP loan origination costs in the second quarter of 2020, which will be amortized over the life of the PPP loans and would be recognized when the loans are forgiven or paid off.

The decrease in net income for the second quarter of 2020 when compared to the same prior year period reflects an increase in credit loss expense of $6.2 million, offset by an increase in net interest income of $1.5 million, an increase in non–interest income of $226,000, a decrease in non–interest expense of $1.2 million and a decrease in tax expense of $1.3 million.

Net income for the first six months of 2020 was $26.3 million, or $0.59 diluted earnings per share, compared to $27.5 million, or $0.65 diluted earnings per share, for the first six months of 2019. Adjusted net income for the first six months of 2020 was $25.6 million, or $0.57 diluted earnings per share, compared to $31.8 million, or $0.75 diluted earnings per share for the first six months of 2019. The decrease in net income for the first six months of 2020 when compared to the same prior year period reflects an increase in the provision for credit loss expense of $14.4 million and an increase in non–interest expense of $259,000, offset by an increase in net interest income of $8.1 million, an increase in non–interest income of $3.6 million and a decrease in tax expense of $1.8 million.

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


Three Months Ended

Six Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

June 30,

June 30,


2020

2020

2019

2019

2019

2020

2019















Net income as reported

$
14,639



$
11,655



$
18,543



$
20,537



$
16,642



$
26,294



$
27,458


Merger expenses

—



—



—



—



1,532



—



5,650


Tax effect

—



—



—



—



(295
)


—



(987
)

Net income excluding merger expenses

14,639



11,655



18,543



20,537



17,879



26,294



32,121

















(Gain)/loss on sale of investment securities

(248
)


(339
)


(10
)


—



100



(587
)


85


Tax effect

52



71



2



—



(21
)


123



(18
)

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

14,443



11,387



18,535



20,537



17,958



25,830



32,188

















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

—



(233
)


—



(213
)


(367
)


(233
)


(367
)

Net income excluding death benefit on BOLI

14,443



11,154



18,535



20,324



17,591



25,597



31,821

















Adjusted net income

$
14,443



$
11,154



$
18,535



$
20,324



$
17,591



$
25,597



$
31,821

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


Three Months Ended

Six Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

June 30,

June 30,


2020

2020

2019

2019

2019

2020

2019















Diluted earnings per share (“EPS”) as reported

$
0.33



$
0.26



$
0.41


$
0.46



$
0.37



$
0.59



$
0.65


Merger expenses

—



—



—


—



0.03



—



0.13


Tax effect

—



—



—


—



—



—



(0.02
)

Diluted EPS excluding merger expenses

0.33



0.26



0.41


0.46



0.40



0.59



0.76

















(Gain)/loss on sale of investment securities

(0.01
)


(0.01
)


—


—



—



(0.01
)


—


Tax effect

—



—



—


—



—



—



—


Diluted EPS excluding (gain)/loss on investment securities

0.32



0.25



0.41


0.46



0.40



0.58



0.76

















Death benefit on BOLI

—



(0.01
)


—


(0.01
)


(0.01
)


(0.01
)


(0.01
)

Diluted EPS excluding death benefit on BOLI

0.32



0.24



0.41


0.45



0.39



0.57



0.75

















Adjusted Diluted EPS

$
0.32



$
0.24



$
0.41


$
0.45



$
0.39



$
0.57



$
0.75

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


Three Months Ended

Six Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

June 30,

June 30,


2020

2020

2019

2019

2019

2020

2019















Pre–tax income

$
16,632



$
13,239



$
22,463



$
24,541



$
19,947



$
29,871



$
32,837


Credit loss expense

7,057



8,600



340



376



896



15,657



1,260


Pre–tax, pre–provision net income

$
23,689



$
21,839



$
22,803



$
24,917



$
20,843



$
45,528



$
34,097

















Pre–tax, pre–provision net income

$
23,689



$
21,839



$
22,803



$
24,917



$
20,843



$
45,528



$
34,097


Merger expenses

—



—



—



—



1,532



—



5,650


(Gain)/loss on sale of investment securities

(248
)


(339
)


(10
)


—



100



(587
)


85


Death benefit on bank owned life insurance

—



(233
)


—



(213
)


(367
)


(233
)


(367
)

Adjusted pre–tax, pre–provision net income

$
23,441



$
21,267



$
22,793



$
24,704



$
22,108



$
44,708



$
39,465

Horizon’s net interest margin decreased to 3.47% for the second quarter of 2020 compared to 3.56% for the first quarter of 2020. The decrease in net interest margin reflects a decrease in the yield of interest earning assets of 42 basis points, offset by a decrease in the cost of interest bearing liabilities of 39 basis points. Interest income from acquisition–related purchase accounting adjustments was $119,000 higher during the second quarter of 2020 when compared to the first quarter of 2020.

Horizon’s net interest margin decreased to 3.47% for the second quarter of 2020 when compared to 3.73% for the second quarter of 2019. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 76 basis points offset by a decrease in the cost of interest bearing liabilities of 64 basis points.

Horizon’s net interest margin decreased to 3.51% for the first six months of 2020 when compared to 3.68% for the same prior year period. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 54 basis points offset by a decrease in the cost of interest bearing liabilities of 48 basis points.

The net interest margin was impacted during the second quarter of 2020 due to the PPP loans that were originated. Horizon estimates that the PPP loans compressed the net interest margin by 3 basis points for the quarter. This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in non-interest bearing deposits. The compression to the net interest margin for the first six months of 2020 using the same assumptions was estimated to be 2 basis points.

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


Three Months Ended

Six Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

June 30,

June 30,


2020

2020

2019

2019

2019

2020

2019
Net interest income as reported

$
42,996



$
40,925



$
41,519



$
43,463



$
41,529



$
83,921



$
75,809

















Average interest earning assets

5,112,636



4,746,202



4,748,217



4,623,985



4,566,674



4,929,388



4,249,644

















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

3.47

%

3.56

%

3.58

%

3.82

%

3.73

%

3.51

%

3.68

%















Net interest income as reported

$
42,996



$
40,925



$
41,519



$
43,463



$
41,529



$
83,921



$
75,809

















Acquisition–related purchase accounting adjustments (“PAUs”)

(1,553
)


(1,434
)


(1,042
)


(1,739
)


(1,299
)


(2,987
)


(2,809
)
















Adjusted net interest income

$
41,443



$
39,491



$
40,477



$
41,724



$
40,230



$
80,934



$
73,000

















Adjusted net interest margin

3.35

%

3.44

%

3.49

%

3.67

%

3.61

%

3.39

%

3.55

%

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 3.35% for the second quarter of 2020 compared to 3.44% for the prior quarter and 3.61% for the second quarter of 2019. Interest income from acquisition–related purchase accounting adjustments was $1.6 million, $1.4 million and $1.3 million for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

Net interest margin, excluding acquisition–related purchase accounting adjustment (“adjusted net interest margin”), was 3.39% for the first six months of 2020 compared to 3.55% for the same prior year period. Interest income from acquisition–related purchase accounting adjustments was $3.0 million and $2.8 million for the six months ended June 30, 2020 and 2019, respectively.

Lending Activity

Total loans of $3.99 billion, or $3.69 billion excluding PPP loans, on June 30, 2020 compared to $3.71 billion on March 31, 2020, $3.64 on December 31, 2019 and $3.67 billion on June 30, 2019. During the six months ended June 30, 2020, commercial loans increased $266.1 million, mortgage warehouse loans increased $150.1 million, and loans held for sale increased $11.8 million, offset by a decrease in residential mortgage loans of $66.3 million and a decrease in consumer loans of $8.3 million.

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











June 30,

December 31,

Amount

Percent


2020

2019

Change

Change
Commercial

$
2,312,715


$
2,046,651


$
266,064



13.0
%
Residential mortgage

704,410


770,717


(66,307
)


(8.6
)%
Consumer

660,871


669,180


(8,309
)


(1.2
)%
Subtotal

3,677,996


3,486,548


191,448



5.5
%
Loans held for sale

15,913


4,088


11,825



289.3
%
Mortgage warehouse

300,386


150,293


150,093



99.9
%
Total loans

$
3,994,295


$
3,640,929


$
353,366



9.7
%

Residential mortgage lending activity for the three months ended June 30, 2020 generated a record $6.6 million in income from the gain on sale of mortgage loans, an increase of $3.1 million from the first quarter of 2020 and $4.5 million from the second quarter of 2019. Total origination volume for the second quarter of 2020, including loans placed into portfolio, totaled a record $252.8 million, representing an increase of 128.1% from the first quarter of 2020 and an increase of 127.0% from the second quarter of 2019. As a percentage of total originations, 77% of the volume was for refinances and 23% was for new purchases during the second quarter of 2020. Total origination volume of loans sold to the secondary market totaled $192.4 million, representing an increase of 184.7% from the first quarter of 2020 and an increase of 217.2% from the second quarter of 2019.

Expense Management


Three Months Ended





June 30,

March 31,





2020

2020

Adjusted
Non–interest Expense
Actual

Merger Expenses

Adjusted

Actual

Merger Expenses

Adjusted

Amount Change

Percent Change
Salaries and employee benefits
$
15,629


$
—


$
15,629


$
16,591


$
—


$
16,591


$
(962
)


(5.8
)%
Net occupancy expenses
3,190


—


3,190


3,252


—


3,252


(62
)


(1.9
)%
Data processing
2,432


—


2,432


2,405


—


2,405


27



1.1
%
Professional fees
518


—


518


536


—


536


(18
)


(3.4
)%
Outside services and consultants
1,759


—


1,759


1,915


—


1,915


(156
)


(8.1
)%
Loan expense
2,692


—


2,692


2,099


—


2,099


593



28.3
%
FDIC insurance expense
235


—


235


150


—


150


85



56.7
%
Other losses
193


—


193


120


—


120


73



60.8
%
Other expense
3,784


—


3,784


4,081


—


4,081


(297
)


(7.3
)%
Total non–interest expense
$
30,432


$
—


$
30,432


$
31,149


$
—


$
31,149


$
(717
)


(2.3
)%
Annualized non–interest expense to average assets
2.18
%



2.18
%

2.38
%



2.38
%

Total non–interest expense was $717,000 lower in the second quarter of 2020 when compared to the first quarter of 2020. Decreases in salaries and employee benefits, other expense and outside services and consultants expense were partially offset by an increase in loan expense. The reduction in salaries and employee benefits expense reflected the deferral of approximately $1.1 million in PPP loan origination costs in the second quarter of 2020, which will be amortized over the life of the PPP loans and recognized when the loans are forgiven or paid off.


Three Months Ended





June 30,

June 30,





2020

2019

Adjusted
Non–interest Expense
Actual

Merger Expenses

Adjusted

Actual

Merger Expenses

Adjusted

Amount Change

Percent Change
Salaries and employee benefits
$
15,629


$
—


$
15,629


$
16,951


$
(482
)


$
16,469


$
(840
)


(5.1
)%
Net occupancy expenses
3,190


—


3,190


3,148


(75
)


3,073


117



3.8
%
Data processing
2,432


—


2,432


2,139


(68
)


2,071


361



17.4
%
Professional fees
518


—


518


598


(153
)


445


73



16.4
%
Outside services and consultants
1,759


—


1,759


1,655


(176
)


1,479


280



18.9
%
Loan expense
2,692


—


2,692


2,048


(2
)


2,046


646



31.6
%
FDIC insurance expense
235


—


235


365


—



365


(130
)


(35.6
)%
Other losses
193


—


193


169


(69
)


100


93



93.0
%
Other expense
3,784


—


3,784


4,511


(507
)


4,004


(220
)


(5.5
)%
Total non–interest expense
$
30,432


$
—


$
30,432


$
31,584


$
(1,532
)


$
30,052


$
380



1.3
%
Annualized non–interest expense to average assets
2.18
%



2.18
%

2.51
%



2.39
%

Total non–interest expense was $1.2 million lower in the second quarter of 2020 when compared to the second quarter of 2019. Decreases in salaries and employee benefits, other expenses and FDIC deposit expense were offset in part by increases in loan expenses, data processing expenses and outside services and consultants expense. Excluding merger expenses, total non–interest expense increased by $380,000 in the second quarter of 2020 when compared to the second quarter of 2019. This increase was primarily related to closing the Salin Bancshares, Inc. merger on March 26, 2019 and the related increase in costs.


Six Months Ended





June 30,

June 30,





2020

2019

Adjusted
Non–interest Expense
Actual

Merger Expenses

Adjusted

Actual

Merger Expenses

Adjusted

Amount Change

Percent Change
Salaries and employee benefits
$
32,220


$
—


$
32,220


$
31,417


$
(484
)


$
30,933


$
1,287



4.2
%
Net occupancy expenses
6,442


—


6,442


5,920


(75
)


5,845


597



10.2
%
Data processing
4,837


—


4,837


4,105


(360
)


3,745


1,092



29.2
%
Professional fees
1,054


—


1,054


1,091


(392
)


699


355



50.8
%
Outside services and consultants
3,674


—


3,674


5,185


(2,466
)


2,719


955



35.1
%
Loan expense
4,791


—


4,791


3,997


(2
)


3,995


796



19.9
%
FDIC insurance expense
385


—


385


525


—



525


(140
)


(26.7
)%
Other losses
313


—


313


273


(71
)


202


111



55.0
%
Other expense
7,865


—


7,865


8,809


(1,800
)


7,009


856



12.2
%
Total non–interest expense
$
61,581


$
—


$
61,581


$
61,322


$
(5,650
)


$
55,672


$
5,909



10.6
%
Annualized non–interest expense to average assets
2.28
%



2.28
%

2.64
%



2.40
%

Total non–interest expense was $259,000 higher for the first six months of 2020 when compared to the same prior year period. Increases in salaries and employee benefits, loan expenses, data processing and net occupancy expenses were offset in part by decreases in outside services and consultants expense, other expenses and FDIC deposit insurance.
Annualized non–interest expense as a percent of average assets were 2.18%, 2.38% and 2.51% for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively. Annualized non–interest expense, excluding merger expenses, as a percent of average assets were 2.18%, 2.38% and 2.39% for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

Annualized non–interest expense as a percent of average assets were 2.28% and 2.64% for the six months ended June 30, 2020 and 2019, respectively. Annualized non–interest expense, excluding merger expenses, as a percent of average assets were 2.28% and 2.40% for the six months ended June 30, 2020 and 2019, respectively.

Income tax expense totaled $2.0 million for the second quarter of 2020, an increase of $409,000 when compared to the first quarter of 2020 and a decrease of $1.3 million when compared to the second quarter of 2019. The increase in income tax expense in the second quarter of 2020 compared to the first quarter of 2020 was primarily due to an increase in income before taxes of $3.4 million. The decrease in income tax expense in the second quarter of 2020 compared to the second quarter of 2019 was primarily due to a decrease in income before taxes of $3.3 million.

Income tax expense totaled $3.6 million for the six months ended June 30, 2020, a decrease of $1.8 million when compared to the six months ended June 30, 2019. The decrease in income tax expense was primarily due to a decrease in income before taxes of $3.0 million.

Capital

The capital resources of Horizon and Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2020. Stockholders’ equity totaled $652.2 million at June 30, 2020 and the ratio of average stockholders’ equity to average assets was 12.07% for the six months ended June 30, 2020.

Capital levels benefited from the Company’s previously disclosed public offering of subordinated notes raising $60.0 million. Horizon’s fortress balance sheet at June 30, 2020 maintained adequate regulatory capital ratios when stress testing for highly adverse scenarios.

The following table presents the actual regulatory capital dollar amounts and ratios of Horizon and the Bank as of June 30, 2020.

June 30, 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

$
628,750


14.37
%

$
350,035


8.00
%

$
459,421


10.50
%

N/A

N/A
Bank

514,371


11.74
%

350,508


8.00
%

460,042


10.50
%

$
438,135


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
















Consolidated

585,386


13.38
%

262,505


6.00
%

371,882


8.50
%

N/A

N/A
Bank

459,621


10.49
%

262,891


6.00
%

372,429


8.50
%

350,521


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
















Consolidated

469,069


10.72
%

196,904


4.50
%

306,295


7.00
%

N/A

N/A
Bank

459,621


10.49
%

197,168


4.50
%

306,706


7.00
%

284,799


6.50
%
Tier 1 capital (to average assets)
















Consolidated

585,386


10.75
%

217,818


4.00
%

217,818


4.00
%

N/A

N/A
Bank

459,621


8.48
%

216,802


4.00
%

216,802


4.00
%

271,003


5.00
%

“Horizon’s capital position continues to be well capitalized, as defined by regulations, after the adoption of CECL,” said Mr. Dwight. “In addition, Horizon’s earnings were able to offset the adoption of CECL, ACL build, stock repurchases and dividends to successfully build tangible capital to a record $10.87 per share. Horizon also completed a $60.0 million subordinated debt offering, further strengthening our capital position, increasing liquidity at the holding company, and providing optionality to Horizon as we navigate through the economic challenges created by the pandemic.”

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 June 30, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $910.7 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Bank Discount Window. The Bank had approximately $453.6 million of unpledged investment securities at June 30, 2020.

Branch Network and Customer Experience

Horizon continues to implement its disciplined approach for enhancing the efficiency of its branch network on an ongoing basis, while leveraging technology to enhance the customer experience.

The Bank closed two branches during the second quarter of 2020, one of its Indianapolis branches acquired from Salin and its Horseprairie Valparaiso branch. The Bank expects to replace its Troy, Michigan loan production office with a full-service branch during the third quarter of 2020.

Also during the third quarter, Horizon expects to fully implement live online chat support, as well as fully online and mobile enabled deposit account opening capabilities, for the convenience of new and prospective customers.

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–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 Except per Share Data, Unaudited)













June 30,

March 31,

December 31,

September 30,

June 30,


2020

2020

2019

2019

2019
Total stockholders’ equity

$
652,206


$
630,842


$
656,023


$
642,711


$
626,461

Less: Intangible assets

176,020


176,961


177,917


178,896


179,776

Total tangible stockholders’ equity

$
476,186


$
453,881


$
478,106


$
463,815


$
446,685












Common shares outstanding

43,821,878


43,763,623


44,975,771


44,969,021


45,061,372












Tangible book value per common share

$
10.87


$
10.37


$
10.63


$
10.31


$
9.91

Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)

















Three Months Ended

Six Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

June 30,

June 30,


2020

2020

2019

2019

2019

2020

2019
Non–GAAP Calculation of Efficiency Ratio




Non–interest expense as reported

$
30,432



$
31,149



$
30,650



$
30,060



$
31,584



$
61,581



$
61,322

















Net interest income as reported

42,996



40,925



41,519



43,463



41,529



83,921



75,809

















Non–interest income as reported

$
11,125



$
12,063



$
11,934



$
11,514



$
10,898



$
23,188



$
19,610

















Non–interest expense/(Net interest income + Non–interest income) (“Efficiency Ratio”)

56.23

%

58.79

%

57.34

%

54.68

%

60.24

%

57.49

%

64.27

%















Non–GAAP Reconciliation of Adjusted Efficiency Ratio




Non–interest expense as reported

$
30,432



$
31,149



$
30,650



$
30,060



$
31,584



$
61,581



$
61,322


Merger expenses

—



—



—



—



(1,532
)


—



(5,650
)

Non–interest expense excluding merger expenses

30,432



31,149



30,650



30,060



30,052



61,581



55,672

















Net interest income as reported

42,996



40,925



41,519



43,463



41,529



83,921



75,809

















Non–interest income as reported

11,125



12,063



11,934



11,514



10,898



23,188



19,610


(Gain)/loss on sale of investment securities

(248
)


(339
)


(10
)


—



100



(587
)


85


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

—



(233
)


—



(213
)


(367
)


(233
)


(367
)

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

$
10,877



$
11,491



$
11,924



$
11,301



$
10,631



$
22,368



$
19,328

















Adjusted efficiency ratio

56.49

%

59.43

%

57.35

%

54.89

%

57.62

%

57.94

%

58.52

%

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

















Three Months Ended

Six Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

June 30,

June 30,


2020

2020

2019

2019

2019

2020

2019
Average assets

$
5,620,695



$
5,257,332



$
5,250,574


$
5,107,259



$
5,047,365



$
5,433,187



$
4,679,423

















Return on average assets (“ROAA”) as reported

1.05

%

0.89

%

1.40
%

1.60

%

1.32

%

0.97

%

1.18

%
Merger expenses

—



—



—


—



0.12



—



0.24


Tax effect

—



—



—


—



(0.02
)


—



(0.04
)

ROAA excluding merger expenses

1.05



0.89



1.40


1.60



1.42



0.97



1.38

















(Gain)/loss on sale of investment securities

(0.02
)


(0.03
)


—


—



0.01



(0.02
)


—


Tax effect

—



0.01



—


—



—



—



—


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

1.03



0.87



1.40


1.60



1.43



0.95



1.38

















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

—



(0.02
)


—


(0.02
)


(0.03
)


(0.01
)


(0.02
)

ROAA excluding death benefit on BOLI

1.03



0.85



1.40


1.58



1.40



0.94



1.36

















Adjusted ROAA

1.03

%

0.85

%

1.40
%

1.58

%

1.40

%

0.94

%

1.36

%

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

















Three Months Ended

Six Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

June 30,

June 30,


2020

2020

2019

2019

2019

2020

2019
Average common equity

$
649,490



$
667,588



$
653,071



$
640,770



$
622,028



$
655,538



$
563,862

















Return on average common equity (“ROACE”) as reported

9.07

%

7.02

%

11.26

%

12.72

%

10.73

%

8.07

%

9.82

%
Merger expenses

—



—



—



—



0.99



—



2.02


Tax effect

—



—



—



—



(0.19
)


—



(0.35
)

ROACE excluding merger expenses

9.07



7.02



11.26



12.72



11.53



8.07



11.49

















(Gain)/loss on sale of investment securities

(0.15
)


(0.20
)


(0.01
)


—



0.06



(0.18
)


0.03


Tax effect

0.03



0.04



—



—



(0.01
)


0.04



(0.01
)

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

8.95



6.86



11.25



12.72



11.58



7.93



11.51

















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

—



(0.14
)


—



(0.13
)


(0.24
)


(0.07
)


(0.13
)

ROACE excluding death benefit on BOLI

8.95



6.72



11.25



12.59



11.34



7.86



11.38

















Adjusted ROACE

8.95

%

6.72

%

11.25

%

12.59

%

11.34

%

7.86

%

11.38

%

Conference Call

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

Participants may access the live conference call on July 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 August 6, 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 10145660.

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)











June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019
Balance sheet:









Total assets
$
5,739,262


$
5,351,325


$
5,246,829


$
5,186,714


$
5,098,682

Investment securities
1,126,075


1,099,943


1,042,675


977,536


887,187

Commercial loans
2,312,715


2,050,402


2,046,651


2,046,165


2,062,623

Mortgage warehouse loans
300,386


223,519


150,293


155,631


133,428

Residential mortgage loans
704,410


757,529


770,717


796,497


814,065

Consumer loans
660,871


675,849


669,180


668,332


654,552

Earning assets
5,143,978


4,835,934


4,706,051


4,667,668


4,577,487

Non–interest bearing deposit accounts
981,868


709,978


709,760


756,707


810,350

Interest bearing transaction accounts
2,510,854


2,264,576


2,245,631


2,173,100


2,153,189

Time deposits
814,877


907,717


975,611


986,150


967,236

Borrowings
583,073


704,613


549,741


516,591


436,233

Subordinated notes
58,824


—


—


—


—

Junior subordinated debentures issued to capital trusts
56,437


56,374


56,311


56,250


56,194

Total stockholders’ equity
652,206


630,842


656,023


642,711


626,461

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











Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019
Income statement:









Net interest income
$
42,996


$
40,925


$
41,519


$
43,463


$
41,529

Credit loss expense
7,057


8,600


340


376


896

Non–interest income
11,125


12,063


11,934


11,514


10,898

Non–interest expense
30,432


31,149


30,650


30,060


31,584

Income tax expense
1,993


1,584


3,920


4,004


3,305

Net income
$
14,639


$
11,655


$
18,543


$
20,537


$
16,642











Per share data:









Basic earnings per share
$
0.33


$
0.26


$
0.41


$
0.46


$
0.37

Diluted earnings per share
0.33


0.26


0.41


0.46


0.37

Cash dividends declared per common share
0.12


0.12


0.12


0.12


0.12

Book value per common share
14.88


14.41


14.59


14.29


13.90

Tangible book value per common share
10.87


10.37


10.63


10.31


9.91

Market value – high
12.44


18.79


19.42


17.77


17.13

Market value – low
$
8.40


$
7.97


$
16.60


$
15.93


$
15.51

Weighted average shares outstanding – Basic
43,781,249


44,658,512


44,971,676


45,038,021


45,055,117

Weighted average shares outstanding – Diluted
43,802,794


44,756,716


45,103,065


45,113,730


45,130,408











Key ratios:









Return on average assets
1.05
%

0.89
%

1.40
%

1.60
%

1.32
%
Return on average common stockholders’ equity
9.07


7.02


11.26


12.72


10.73

Net interest margin
3.47


3.56


3.58


3.82


3.73

Allowance for credit losses to total loans
1.38


1.30


0.49


0.49


0.50

Average equity to average assets
11.56


12.70


12.44


12.55


12.32

Bank only capital ratios:









Tier 1 capital to average assets
8.48


9.43


9.49


9.35


9.52

Tier 1 capital to risk weighted assets
10.49


11.83


12.20


11.62


11.76

Total capital to risk weighted assets
11.74


12.67


12.65


12.08


12.23

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





Six Months Ended

June 30,

June 30,

2020

2019
Income statement:



Net interest income
$
83,921


$
75,809

Credit loss expense
15,656


1,260

Non-interest income
23,187


19,610

Non-interest expense
61,581


61,322

Income tax expense
3,577


5,379

Net income
$
26,294


$
27,458





Per share data:



Basic earnings per share
$
0.59


$
0.65

Diluted earnings per share
0.59


0.65

Cash dividends declared per common share
0.24


0.22

Book value per common share
14.88


13.90

Tangible book value per common share
10.87


9.91

Market value - high
18.79


17.82

Market value - low
$
7.97


$
15.50

Weighted average shares outstanding - Basic
44,219,880


41,956,047

Weighted average shares outstanding - Diluted
44,286,864


42,032,971





Key ratios:



Return on average assets
0.97
%

1.18
%
Return on average common stockholders’ equity
8.07


9.82

Net interest margin
3.51


3.68

Allowance for credit losses to total loans
1.38


0.50

Average equity to average assets
12.07


12.05

Bank only capital ratios:



Tier 1 capital to average assets
8.48


9.52

Tier 1 capital to risk weighted assets
10.49


11.76

Total capital to risk weighted assets
11.74


12.23

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











June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019
Loan data:









Substandard loans
$
61,385


$
61,322


$
58,670


$
62,130


$
47,764

30 to 89 days delinquent
4,029


12,017


7,729


10,204


9,633











Non-performing loans:









90 days and greater delinquent – accruing interest
$
123


$
246


$
146


$
34


$
391

Trouble debt restructures – accruing interest
2,039


2,115


3,354


3,491


2,198

Trouble debt restructures – non–accrual
3,443


3,360


2,006


1,807


1,576

Non–accrual loans
22,451


18,281


15,679


13,823


14,764

Total non–performing loans
$
28,056


$
24,002


$
21,185


$
19,155


$
18,929

Non–performing loans to total loans
0.70
%

0.65
%

0.58
%

0.52
%

0.52
%

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











June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019
Commercial
$
39,147


$
32,550


$
11,996


$
12,082


$
11,881

Real estate
5,832


5,654


923


1,449


1,732

Mortgage warehouse
1,190


1,055


1,077


1,041


1,040

Consumer
8,921


9,181


3,671


3,384


3,652

Total
$
55,090


$
48,440


$
17,667


$
17,956


$
18,305

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











June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019
Commercial
$
6


$
(20
)


$
146


$
192



$
265

Real estate
24


17



40


(7
)


41

Mortgage warehouse
—


—



—


—



—

Consumer
377


407



443


540



106

Total
$
407


$
404



$
629


$
725



$
412

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

0.01

%

0.02
%

0.02

%

0.01
%

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











June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019
Commercial
$
14,238


$
9,579


$
7,347


$
8,193


$
8,697

Real estate
9,945


10,411


9,884


7,212


6,444

Mortgage warehouse
—


—


—


—


—

Consumer
3,873


4,012


3,954


3,750


3,788

Total
$
28,056


$
24,002


$
21,185


$
19,155


$
18,929

Non–performing loans to total loans
0.70
%

0.65
%

0.58
%

0.52
%

0.52
%

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











June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019
Commercial
$
2,374


$
2,464


$
3,698


$
3,972


$
3,694

Real estate
249


336


28


48


113

Mortgage warehouse
—


—


—


—


—

Consumer
20


13


—


24


48

Total
$
2,643


$
2,813


$
3,726


$
4,044


$
3,855


Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)















Three Months Ended

Three Months Ended


June 30, 2020

June 30, 2019


Average Balance

Interest

Average Rate

Average Balance

Interest

Average Rate

Assets












Interest earning assets












Federal funds sold
$
62,832



$
17


0.11
%

$
18,251



$
120


2.64
%

Interest earning deposits
20,278



61


1.21
%

18,516



83


1.80
%

Investment securities – taxable
481,552



2,243


1.87
%

480,036



3,070


2.57
%

Investment securities – non-taxable ⁽¹⁾
647,375



4,105


3.15
%

411,944



2,793


3.44
%

Loans receivable ^{(2) (3)}
3,900,599



43,918


4.54
%

3,637,927



47,784


5.29
%

Total interest earning assets
5,112,636



50,344


4.05
%

4,566,674



53,850


4.81
%














Non–interest earning assets












Cash and due from banks
84,297







67,537







Allowance for credit losses
(48,611
)






(18,036
)






Other assets
472,373







431,190




















Total average assets
$
5,620,695







$
5,047,365




















Liabilities and Stockholders’ Equity












Interest bearing liabilities












Interest bearing deposits
$
3,299,661



$
4,506


0.55
%

$
3,118,821



$
8,938


1.15
%

Borrowings
618,274



2,074


1.35
%

398,320



2,495


2.51
%

Subordinated notes
4,527



58


5.15
%

—



—


—
%

Junior subordinated debentures issued to capital trusts
52,835



710


5.40
%

53,572



888


6.65
%

Total interest bearing liabilities
3,975,297



7,348


0.74
%

3,570,713



12,321


1.38
%














Non–interest bearing liabilities












Demand deposits
924,890







818,872







Accrued interest payable and other liabilities
71,018







35,752







Stockholders’ equity
649,490







622,028




















Total average liabilities and stockholders’ equity
$
5,620,695







$
5,047,365




















Net interest income/spread


$
42,996


3.31
%



$
41,529


3.43
%

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




3.47
%





3.73
%













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













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













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


Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)















Six Months Ended

Six Months Ended


June 30, 2020

June 30, 2019


Average Balance

Interest

Average Rate

Average Balance

Interest

Average Rate

Assets












Interest earning assets












Federal funds sold
$
43,903



$
113


0.52
%

$
13,072



$
224


3.46
%

Interest earning deposits
23,391



163


1.40
%

22,414



191


1.72
%

Investment securities – taxable
491,360



4,943


2.02
%

464,544



5,980


2.60
%

Investment securities – non-taxable ⁽¹⁾
618,080



7,903


3.16
%

402,883



5,421


3.43
%

Loans receivable ^{(2) (3)}
3,752,654



88,876


4.78
%

3,346,731



87,407


5.28
%

Total interest earning assets
4,929,388



101,998


4.25
%

4,249,644



99,223


4.79
%














Non–interest earning assets












Cash and due from banks
81,203







56,160







Allowance for credit losses
(36,588
)






(17,939
)






Other assets
459,184







391,558




















Total average assets
$
5,433,187







$
4,679,423




















Liabilities and Stockholders’ Equity












Interest bearing liabilities












Interest bearing deposits
$
3,262,492



$
12,222


0.75
%

$
2,818,496



$
15,814


1.13
%

Borrowings
575,702



4,312


1.51
%

487,266



6,116


2.53
%

Subordinated notes
2,264



58


5.15
%

—



—


—
%

Junior subordinated debentures issued to capital trusts
52,801



1,485


5.66
%

45,735



1,484


6.54
%

Total interest bearing liabilities
3,893,259



18,077


0.93
%

3,351,497



23,414


1.41
%














Non–interest bearing liabilities












Demand deposits
820,997







731,556







Accrued interest payable and other liabilities
63,393







32,508







Stockholders’ equity
655,538







563,862




















Total average liabilities and stockholders’ equity
$
5,433,187







$
4,679,423




















Net interest income/spread


$
83,921


3.32
%



$
75,809


3.38
%

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




3.51
%





3.68
%













⁽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)







June 30, 2020

December 31, 2019


(Unaudited)


Assets




Cash and due from banks

$
170,135


$
98,831

Interest earning time deposits

9,247


8,455

Investment securities, available for sale

935,140


834,776

Investment securities, held to maturity (fair value of $201,818 and $215,147)

190,935


207,899

Loans held for sale

15,913


4,088

Loans, net of allowance for credit losses of $55,090 and $17,667

3,923,292


3,619,174

Premises and equipment, net

92,232


92,209

Federal Home Loan Bank stock

23,608


22,447

Goodwill

151,238


151,238

Other intangible assets

24,782


26,679

Interest receivable

20,185


18,828

Cash value of life insurance

95,709


95,577

Other assets

86,846


66,628

Total assets

$
5,739,262


$
5,246,829






Liabilities




Deposits




Non–interest bearing

$
981,868


$
709,760

Interest bearing

3,325,731


3,221,242

Total deposits

4,307,599


3,931,002

Borrowings

583,073


549,741

Subordinated notes

58,824


—

Junior subordinated debentures issued to capital trusts

56,437


56,311

Interest payable

2,353


3,062

Other liabilities

78,770


50,690

Total liabilities

5,087,056


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 43,846,947 and 45,000,840 shares, Outstanding 43,821,878 and 44,975,771 shares

—


—

Additional paid–in capital

361,087


379,853

Retained earnings

269,849


269,738

Accumulated other comprehensive income

21,270


6,432

Total stockholders’ equity

652,206


656,023

Total liabilities and stockholders’ equity

$
5,739,262


$
5,246,829

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


Three Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,


2020

2020

2019

2019

2019
Interest Income










Loans receivable

$
43,918



$
44,958


$
46,769


$
49,455



$
47,784


Investment securities – taxable

2,321



2,898


3,054


3,157



3,273


Investment securities – non-taxable

4,105



3,798


3,575


3,099



2,793


Total interest income

50,344



51,654


53,398


55,711



53,850


Interest Expense










Deposits

4,506



7,716


8,767


9,109



8,938


Borrowed funds

2,074



2,238


2,281


2,275



2,495


Subordinated notes

58



—


—


—



—


Junior subordinated debentures issued to capital trusts

710



775


831


864



888


Total interest expense

7,348



10,729


11,879


12,248



12,321


Net Interest Income

42,996



40,925


41,519


43,463



41,529


Credit loss expense

7,057



8,600


340


376



896


Net Interest Income after Credit Loss Expense

35,939



32,325


41,179


43,087



40,633


Non–interest Income










Service charges on deposit accounts

1,888



2,446


2,766


2,836



2,480


Wire transfer fees

230



171


179


189



167


Interchange fees

2,327



1,896


1,996


2,138



2,160


Fiduciary activities

1,765



2,528


2,594


1,834



2,063


Gains/(losses) on sale of investment securities

248



339


10


—



(100
)

Gain on sale of mortgage loans

6,620



3,473


3,119


2,702



2,078


Mortgage servicing income net of impairment

(2,760
)


25


294


444



570


Increase in cash value of bank owned life insurance

557



554


566


556



555


Death benefit on bank owned life insurance

—



233


—


213



367


Other income

250



398


410


602



558


Total non-interest income

11,125



12,063


11,934


11,514



10,898


Non–interest Expense










Salaries and employee benefits

15,629



16,591


16,841


16,948



16,951


Net occupancy expenses

3,190



3,252


3,106


3,131



3,148


Data processing

2,432



2,405


2,235


2,140



2,139


Professional fees

518



536


520


335



598


Outside services and consultants

1,759



1,915


1,415


1,552



1,655


Loan expense

2,692



2,099


2,438


2,198



2,048


FDIC insurance expense

235



150


—


(273
)


365


Other losses

193



120


377


90



169


Other expense

3,784



4,081


3,718


3,939



4,511


Total non-interest expense

30,432



31,149


30,650


30,060



31,584


Income Before Income Taxes

16,632



13,239


22,463


24,541



19,947


Income tax expense

1,993



1,584


3,920


4,004



3,305


Net Income

$
14,639



$
11,655


$
18,543


$
20,537



$
16,642


Basic Earnings Per Share

$
0.33



$
0.26


$
0.41


$
0.46



$
0.37


Diluted Earnings Per Share

0.33



0.26


0.41


0.46



0.37

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

Six Months Ended

June 30,

2020

2019

Interest Income

Loans receivable

88,876

87,407

Investment securities – taxable

5,219

6,395

Investment securities – non-taxable

7,903

5,421

Total interest income

101,998

99,223

Interest Expense

Deposits

12,222

15,814

Borrowed funds

4,312

6,116

Subordinated notes

—

Junior subordinated debentures issued to capital trusts

1,485

1,484

Total interest expense

18,077

23,414

Net Interest Income

83,921

75,809

Credit loss expense

15,657

1,260

Net Interest Income after Credit Loss Expense

68,264

74,549

Non–interest Income

Service charges on deposit accounts

4,334

4,357

Wire transfer fees

401

285

Interchange fees

4,223

3,521

Fiduciary activities

4,293

4,152

Gains/(losses) on sale of investment securities

587

(85

)

Gain on sale of mortgage loans

10,093

3,387

Mortgage servicing income net of impairment

(2,735

)

1,176

Increase in cash value of bank owned life insurance

1,111

1,068

Death benefit on bank owned life insurance

233

367

Other income

648

1,382

Total non-interest income

23,188

19,610

Non–interest Expense

Salaries and employee benefits

32,220

31,417

Net occupancy expenses

6,442

5,920

Data processing

4,837

4,105

Professional fees

1,054

1,091

Outside services and consultants

3,674

5,185

Loan expense

4,791

3,997

FDIC insurance expense

385

525

Other losses

313

273

Other expense

7,865

8,809

Total non-interest expense

61,581

61,322

Income Before Income Taxes

29,871

32,837

Income tax expense

3,577

5,379

Net Income

26,294

27,458

Basic Earnings Per Share

0.59

0.65

Diluted Earnings Per Share

0.59

0.65

Contact:

Mark E. Secor

Chief Financial Officer

Phone:

(219) 873–2611

Fax:

(219) 874–9280

Date:

July 29, 2020

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

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