Horizon Bancorp, Inc. Reports First Quarter 2022 EPS of $0.54 on Record Profitability, Higher Fees and Pre–Tax, Pre–Provision Net Income, and Organic Growth in Total, Commercial and Consumer Loans

MICHIGAN CITY, Ind., April 27, 2022 (GLOBE NEWSWIRE) — (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three months ending March 31, 2022.

“The intentional build out of Horizon’s lending teams, technology, durable customer relationships, and low–cost Midwest deposit franchise is reflected in the Company’s first quarter loan growth, higher fees and pre–tax, pre–provision net income, and record earnings,” Chairman and CEO Craig M. Dwight said. “We believe our asset sensitive balance sheet, strong credit quality and scalable business model will continue to provide an excellent foundation for organic growth in commercial and consumer lending, revenue and profits, along with incremental improvement in operating leverage through 2022.”

First Quarter 2022 Highlights

• Net income grew to a record $23.6 million, up 10.0% from the linked quarter and 15.4% from the prior year period. Diluted earnings per share (“EPS”) of $0.54 was up from $0.49 for the fourth quarter of 2021 and $0.46 for the first quarter of 2021.
• Pre–tax, pre–provision net income grew to $25.7 million, up 9.7% from the linked quarter and 6.1% from the prior year period. 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.) Horizon recorded a provision release of $1.4 million in the quarter and $2.1 million in the linked quarter, as well as provision expense of $367,000 in the prior year period.
• Reported net interest margin (“NIM”) was 2.99% and adjusted NIM was 2.93%, with reported NIM increasing by two basis points and adjusted NIM increasing by seven basis points from the fourth quarter of 2021. (See the “Non-GAAP Reconciliation of Net Interest Margin” table below for the definition of this non–GAAP calculation of adjusted NIM.)
• The Company was asset sensitive as of March 31, 2022 but less than the previous quarter as additional cash was deployed to higher yielding assets. Due to the deployment of cash the base case estimate increased over $10.0 million from last quarter and reduced estimates for parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock, to net interest income increases of approximately $2.5 million and $3.8 million, respectively.
• The steepening of the yield curve during the first quarter resulted in unrealized losses on available for sale investments of $73.6 million compared to unrealized gains of $7.2 million at December 31, 2021. The impact to the tangible capital ratio was a decrease of 67 basis points from 7.61% at December 31, 2021 to 6.94% at March 31, 2022, an 8.8% decrease.
• The Bank’s capital is still robust with leverage and risk based capital ratios of 9.7% and 15.21%, respectively.
• Total loans, excluding Federal Paycheck Protection Program (“PPP”) loans and sold commercial participation loans, grew by 2.3%, or 9.5% annualized, during the first quarter to $3.66 billion at period end from $3.57 billion on December 31, 2021.
• Commercial loans, excluding PPP loans and sold commercial participation loans, grew by 3.3%, or 13.5% annualized, during the first quarter to a record $2.20 billion from $2.13 billion on December 31, 2021.
• Consumer loans grew by 3.7%, or 14.9% annualized, during the first quarter to a record $753.9 million at period end.
• The decline in residential mortgage loans slowed during the first quarter with a 0.2% reduction to $593.4 million at period end, as refinancing activity decreased and we experienced movement to adjustable rate products which are held on the balance sheet. Gain on sale of mortgage loans and mortgage warehouse income only constituted 4.7% of total revenue in the first quarter of 2022.
• Non–interest expense was $36.6 million in the quarter, or 2.03% of average assets on an annualized basis, compared to $39.4 million, or 2.09%, in the fourth quarter of 2021 and $32.2 million, or 2.20%, in the first quarter of 2021. As previously disclosed, acquisition–related and non–recurring Department of Labor (“DOL”) Employee Stock Ownership Plan (“ESOP“) settlement expenses totaled $2.8 million in the fourth quarter of 2021.
• The efficiency ratio for the period was 58.74% compared to 62.69% for the fourth quarter of 2021 and 57.03% for the first quarter of 2021. The adjusted efficiency ratio was 58.74% compared to 58.25% for the fourth quarter of 2021 and 57.97% for the first quarter of 2021. (See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)
• As part of the Company’s annual branch performance review of Horizon Bank’s (the “Bank”) retail network, Horizon’s Board of Directors approved the permanent closure of seven branch locations in the second half of 2022. We expect to incur a one–time charge of approximately $432,000 with an earn–back period of approximately six months.
• Horizon’s in–market consumer and commercial deposit relationships, including those on–boarded as part of its branch acquisition near the end of the third quarter of 2021, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.30% in the quarter, compared to 0.31% in the fourth quarter of 2021 and 0.50% in the first quarter of 2021.
• Asset quality remains favorable as evidenced by non–performing loans at 0.54% of total loans at period end and net charge–offs to average loans represented 0.00% for the first quarter of 2022.

“Sequential quarter net interest margin expansion begins to illustrate the Company’s asset sensitive balance sheet positioning.” Mr. Dwight said. “We expect to see continued NIM improvement in 2022 driven by both rates and loan volume, along with deposit betas that we believe will remain in line with or better than in–footprint competition, given Horizon’s mix of commercial and retail relationships, strong marketplace positioning and conservative expectations for higher–priced deposit runoff.”

“Our 2.03% annualized non–interest expense to average assets continues to represent an improvement over the prior quarter and the first quarter supports our full–year 2022 target of less than 2% for this performance metric,” Mr. Dwight said. “Even with nationwide wage inflation and the ongoing operating costs associated with our branch acquisition last fall, we believe our scalable and technology–enabled model, along with our disciplined expense management culture and annual branch network review process, will enable us to achieve our target for the full year.”

Income Statement Highlights

Net income for the first quarter of 2022 was $23.6 million, or $0.54 diluted earnings per share, compared to $21.4 million, or $0.49, for the linked quarter and $20.4 million, or $0.46, for the prior year period. This represents the highest quarterly net income in the Company’s history.

Adjusted net income for the first quarter of 2022 was $23.6 million, or $0.54 diluted earnings per share, compared to $23.7 million, or $0.54, for the linked quarter and $19.7 million, or $0.44, for the prior year period. Adjusted net income, which is not calculated according to generally accepted accounting principles (“GAAP”), is a measure that Horizon uses to provide a greater understanding of operating profitability. (See the “Non–GAAP Reconciliation of Net Income” table below.)

The increase in net income for the first quarter of 2022 when compared to the fourth quarter of 2021 reflects an increase in non–interest income of $1.3 million, a decrease in non–interest expense of $2.8 million and a decrease in income tax expense of $541,000. These items were offset by a decrease in net interest income of $1.8 million and a decrease in provision release of $685,000 for the first quarter of 2022 when compared to the fourth quarter of 2021.

Interest income includes the recognition of PPP loan interest and net loan processing fees totaling $457,000 in the first quarter of 2022, compared to $2.1 million in the linked quarter. On March 31, 2022, the Company had $141,000 in net deferred PPP loan processing fees outstanding and $6.7 million in PPP loans outstanding. PPP loan net deferred fees and loans outstanding at December 31, 2021 were $561,000 and $25.8 million, respectively.

First quarter 2022 income from the gain on sale of mortgage loans totaled $2.0 million, down from $4.2 million in the linked quarter and down from $5.3 million in the prior year period.

Non–interest expense of $36.6 million in the first quarter of 2022, including ongoing operating expenses associated with the September 2021 acquisition of 14 branches and low–cost deposits to expand Horizon’s Michigan franchise, reflected a $1.8 million decrease in other losses, a $814,000 decrease in salaries and employee benefits, a decrease of $258,000 in loan expenses and a decrease of $224,000 in professional fees, offset by an increase in occupancy expense of $357,000 and an increase in outside services and consultants of $268,000 from the linked quarter. As previously disclosed, acquisition–related and non–recurring DOL ESOP settlement expenses totaled $2.8 million in the fourth quarter of 2021.

The increase in net income for the first quarter of 2022 when compared to the same prior year period reflects an increase in net interest income of $5.6 million, a decrease in credit loss expense of $1.8 million and an increase in non–interest income of $282,000, offset by an increase in non–interest expense of $4.4 million and an increase in income tax expense of $89,000.

Horizon’s net interest margin increased to 2.99% for the first quarter of 2022 compared to 2.97% for the fourth quarter of 2021. The increase in net interest margin reflects an increase in the yield on interest earning assets of two basis points and a decrease in the cost of interest bearing liabilities of one basis point. Interest income from acquisition–related purchase accounting adjustments was $903,000 lower during the first quarter of 2022 when compared to the fourth quarter of 2021.

Horizon’s net interest margin decreased to 2.99% for the first quarter of 2022 compared to 3.29% for the first quarter of 2021. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 44 basis points offset by a decrease in the cost of interest bearing liabilities of 20 basis points.

The net interest margin was impacted during the first quarter of 2022 and fourth quarter of 2021 by PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by 2 basis points for the first quarter of 2022 and 10 basis points for the fourth quarter of 2021, respectively. This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in non–interest bearing deposits.

The net interest margin was also impacted during the first quarter of 2022 and fourth quarter of 2021 by excess liquidity carried on the balance sheet through increased deposits. Horizon estimates that the excess liquidity compressed the net interest margin by 11 basis points for the first quarter of 2022 and 32 basis points for the fourth quarter of 2021, respectively. This assumes that the excess liquidity was not included in average interest earning assets or interest income and was excluded from non–interest bearing deposits.

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 2.93% for the first quarter of 2021, compared to 2.86% for the linked quarter and 3.17% for the first quarter of 2020. Interest income from acquisition–related purchase accounting adjustments was $916,000, $1.8 million and $1.6 million for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Lending Activity

Total loan balances were $3.72 billion, or $3.66 billion excluding PPP loans and sold commercial participation loans, on March 31, 2022. Total loans were $3.66 billion, or $3.57 billion excluding PPP loans and sold commercial participation loans, on December 31, 2021. During the three months ended March 31, 2022, commercial loans, excluding PPP loans and sold commercial participation loans, increased $70.9 million and consumer loans increased $26.6 million, offset by decreases in PPP loans of $19.1 million, loans held for sale of $8.8 million, sold commercial participation loans of $6.4 million mortgage warehouse loans of $3.9 million and residential mortgage loans of $1.0 million. PPP loan income was $457,000, $2.1 million and $3.2 million for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Following a recent review of commercial participation loan sold agreements, the Company determined that total loan balance amounts must include all commercial participations sold with a corresponding secured borrowing, as they do not qualify for sales treatment based on accounting guidelines. This resulted in revising December 31, 2021 net loan and borrowing line items on the balance sheet with the March 31, 2022 reporting. Net loan and borrowing line items for December 31, 2021 was $56.5 million of commercial participations sold and for March 31, 2022 was $50.5 million of commercial participations sold.

Residential mortgage lending activity for the three months ended March 31, 2022 generated $2.0 million in income from the gain on sale of mortgage loans, decreasing $2.1 million from the fourth quarter of 2021 and $3.3 million from the first quarter of 2021. Total mortgage origination volume for the first quarter of 2022, including loans placed into the portfolio, totaled $118.9 million, representing a decrease of 20.9% from fourth quarter 2021 levels, and a decrease of 23.5% from the first quarter of 2021. As a percentage of total mortgage loan originations, 44% of the volume was from refinancings and 56% was from loans for new home purchases during the first quarter of 2022. Total origination volume of mortgage loans sold to the secondary market totaled $81.3 million, representing a decrease of 15.1% from the fourth quarter of 2021 and a decrease of 35.5% from the first quarter of 2021.

Gain on sale of mortgage loans and mortgage warehousing income was 4.7% of total revenue for the three months ended March 31, 2022, compared to 8.6% for the linked quarter and 13.8% for the three months ended March 31, 2021.

Deposit Activity

Total deposit balances were $5.85 billion on March 31, 2022 compared to $5.80 billion on December 31, 2021, an increase of $48.5 million.

Total non–interest expense was $2.8 million lower in the first quarter of 2022 when compared to the fourth quarter of 2021. The decrease was primarily due to a decrease in other losses of $1.8 million as a result of the $1.9 million ESOP settlement expense recorded in the fourth quarter of 2021 and a decrease in salaries and employee benefits expense of $814,000. Excluding acquisition–related expenses and non–recurring DOL ESOP settlement expenses, total non–interest expense increased $24,000 in the first quarter of 2022 when compared to the fourth quarter of 2021. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below for these non–GAAP calculations.)

Total non–interest expense was $4.4 million higher in the first quarter of 2022 when compared to the first quarter of 2021. The increases in expenses was primarily due to an increase in salaries and employee benefits of $2.9 million, an increase in other expense of $1.0 million, an increase in outside services and consultants of $823,000 and an increase in net occupancy expenses of $243,000, offset by a decrease of $277,000 in loan expense and a decrease of $230,000 in professional fees.

Annualized non–interest expense as a percent of average assets was 2.03%, 2.09% and 2.20% for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively. Annualized non–interest expense, excluding acquisition expenses and non–recurring DOL ESOP settlement expenses, as a percent of average assets was 2.03%, 1.95% and 2.20% for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below for these non–GAAP calculations.)

Income tax expense totaled $3.5 million for the first quarter of 2022, a decrease of $541,000 when compared to the fourth quarter of 2021 and an increase of $89,000 when compared to the first quarter of 2021.

Capital

The capital resources of the Company and the Bank exceeded regulatory capital ratios for “well capitalized” banks at March 31, 2022. Stockholders’ equity totaled $677.5 million at March 31, 2022 and the ratio of average stockholders’ equity to average assets was 9.79% for the three months ended March 31, 2022.

Tangible book value per common share (“TBVPS”) declined $1.03 in the first quarter of 2022 to $11.55 at period end, as unrealized net losses on securities available for sale (“AFS”) of $1.48 per common share reduced other comprehensive income (“OCI”) by $64.3 million in the first three months of this year. Fluctuations in the fair market value of AFS are widely expected to be recorded by banks in the first quarter of 2022.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of March 31, 2022.

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, 2022, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $575.3 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $2.3 billion of unpledged investment securities at March 31, 2022.

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, 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 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 and financial results 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 information identified herein and its most comparable GAAP measures.

Earnings 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 28, 2022 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 833–974–2379 from the United States, 866–450–4696 from Canada or 412–317–5772 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 5, 2022. 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 7430984.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. (NASDAQ GS: HBNC) is the $7.4 billion–asset bank holding company for Horizon Bank, which serves customers across diverse and economically attractive Midwestern markets through convenient digital and virtual tools, as well as its Indiana and Michigan branches. Horizon’s retail offerings include prime residential, indirect auto, and other secured consumer lending to in–market customers, as well as a range of personal banking and wealth management solutions. Horizon also provides a comprehensive array of in–market business banking and treasury management services, with commercial lending representing over half of total loans. More information on Horizon, headquartered in Northwest Indiana’s Michigan City, is available at horizonbank.com and investor.horizonbank.com.

Forward Looking Statements

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

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