Horizon Bancorp, Inc. Reports Record Second Quarter 2022 EPS of $0.57


MICHIGAN CITY, Ind., July 27, 2022 (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, 2022.

“We are extremely pleased with our performance during the second quarter of fiscal 2022. Record earnings and profitability can be attributed to strong loan growth and the higher interest rate environment which led to a meaningful increase in pre–tax, pre–provision net income,” Chairman and CEO Craig M. Dwight said. “This level of organic growth would not have been possible without the hard work and dedication from our team to meet the evolving needs of our customers. We remain committed to driving organic growth through our investments in commercial and consumer loan production, finding strategic opportunities to deploy capital, and leveraging our asset sensitive balance sheet and strong credit quality to achieve long–term shareholder value.”

Second Quarter 2022 Highlights

  • Net income grew to a record $24.9 million, up 5.5% from the linked quarter and 12.1% from the prior year period. Diluted earnings per share (“EPS”) of $0.57 was up from $0.54 for the first quarter of 2022 and $0.50 for the second quarter of 2021.

  • Pre–tax, pre–provision net income grew to $29.1 million, up 13.1% from the linked quarter and 18.9% 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 expense of $240,000 in the quarter compared to a provision release of $1.4 million in the linked quarter, and a provision release of $1.5 million in the prior year period.

  • Reported net interest margin (“NIM”) was 3.19% and adjusted NIM was 3.12%, with reported NIM increasing by 20 basis points and adjusted NIM increasing by 19 basis points from the first quarter of 2022. (See the “Non-GAAP Reconciliation of Net Interest Margin” table below for the definition of this non–GAAP calculation of adjusted NIM.)

  • Total loans, excluding Federal Paycheck Protection Program (“PPP”) loans and sold commercial participation loans, grew by 6.2%, or 25.1% annualized, during the second quarter to $3.89 billion at period end compared to $3.66 billion on March 31, 2022.

  • Commercial loans, excluding PPP loans and sold commercial participation loans, grew by 4.9%, or 19.7% annualized, during the second quarter to a record $2.31 billion from $2.20 billion on March 31, 2022.

  • Consumer loans grew by 12.6%, or 50.5% annualized, during the second quarter to a record $848.7 million at period end.

  • Non–interest expense was $36.4 million in the quarter, or 1.95% of average assets on an annualized basis, compared to $36.6 million, or 2.03%, in the first quarter of 2022 and $33.4 million, or 2.18%, in the second quarter of 2021. Non–interest expense was $73.0 million, or 1.99% of average assets on an annualized basis for the six months ended June 30, 2022 compared to $65.6 million, or 2.19% of average assets on an annualized basis for the six months ended June 30, 2021.

  • The efficiency ratio for the period was 55.57% compared to 58.74% for the first quarter of 2022 and 57.73% for the second quarter of 2021. The adjusted efficiency ratio was 56.13% compared to 58.74% for the first quarter of 2022 and 57.45% for the second 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. A one–time charge of approximately $380,000 was recorded during the second quarter to record these branch locations’ fixed assets at fair value.

  • Asset quality remains favorable as evidenced by non–performing loans at 0.51% of total loans at period end and net charge–offs to average loans represented 0.01% for the second quarter of 2022.

  • The Company was more asset sensitive as of June 30, 2022 compared to the previous quarter end, as deposit BETA’s have lagged rising rates and an increase in adjustable rate assets. Current estimates for parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock, increase net interest income by approximately $7.0 million and $12.8 million, respectively.

  • Since March 31, 2022, deposit betas have significantly lagged our modeled betas at a 3% beta on total deposits over the last three months compared to our model using a beta of 35% for total deposits.

  • During the second quarter of 2022, the continued steepening of the yield curve resulted in unrealized losses on available for sale investments of $122.0 million compared to unrealized losses of $73.6 million at March 31, 2022. The impact to the tangible capital ratio was a decrease of 46 basis points from 6.94% at March 31, 2022 to 6.48% at June 30, 2022, a 6.63% decrease.

  • The Bank's capital is still robust with leverage and risk based capital ratios of 9.17% and 14.81%, respectively.

Summary

  For the Three Months Ended
  June 30, March 31, June 30,
Net Interest Income and Net Interest Margin  2022   2022   2021 
Net interest income $53,008  $48,171  $42,632 
Net interest margin  3.19%  2.99%  3.14%
Adjusted net interest margin  3.12%  2.93%  3.13%


Mr. Dwight continued, “Net interest margin continues to expand, illustrating the Company’s highly asset sensitive balance sheet position. Both the expected additional rate increases, and loan volume will continue to positively impact net interest income and NIM through 2022. Pressure on deposit pricing so far has been limited and we believe will remain in line with or better than our competitors. This expectation reflects our confidence in the strength of our commercial and retail relationships.”

  For the Three Months Ended
  June 30, March 31, June 30,
Asset Yields and Funding Costs 2022 2022 2021
Interest earning assets 3.46% 3.22% 3.48%
Interest bearing liabilities 0.34% 0.30% 0.45%


  For the Three Months Ended
Non–interest Income and  June 30, March 31, June 30,
Mortgage Banking Income 2022  2022  2021
Total non–interest income $12,434  $14,155  $15,207 
Gain on sale of mortgage loans  2,501   2,027   5,612 
Mortgage servicing income net of impairment  319   3,489   1,503 


  For the Three Months Ended
  June 30, March 31, June 30,
Non–interest Expense  2022   2022   2021 
Total non–interest expense $36,368  $36,610  $33,388 
Annualized non–interest expense to average assets  1.95%  2.03%  2.18%


  For the Three Months Ended
  June 30, March 31, June 30,
Credit Quality 2022 2022 2021
Allowance for credit losses to total loans 1.33% 1.41% 1.58%
Non–performing loans to total loans 0.51% 0.54% 0.63%
Percent of net charge–offs to average loans outstanding for the period 0.01% 0.00% 0.00%


Allowance for June 30, Net ReserveDecember 31,
Credit Losses  2022  2Q22 1Q22  2021 
Commercial $34,802  $(2,987) $(2,986) $40,775 
Retail Mortgage  4,422   71   495   3,856 
Warehouse  1,067   12   (4)  1,059 
Consumer  12,059   2,746   717   8,596 
Allowance for Credit Losses (“ACL”) $52,350  $(158) $(1,778) $54,286 
ACL / Total Loans  1.33%      1.51%
Acquired Loan Discount (“ALD”) $7,206  $(1,122) $(769) $9,097 


“Our results this quarter were positively impacted by the significant progress towards achieving our goal of an annualized non–interest expense to average assets ratio of less than 2.00%. For the period ended June 30, 2022, our annualized non–interest expense to average assets ratio was 1.95%,” Mr. Dwight continued. “We remain disciplined with a focus on expense management which is critical given the economic uncertainty and rise in inflation, however; we are confident in our ability to continue to reduce our annualized target to less than 2.00%.”

Income Statement Highlights

Net income for the second quarter of 2022 was $24.9 million, or $0.57 diluted earnings per share, compared to $23.6 million, or $0.54, for the linked quarter and $22.2 million, or $0.50, for the prior year period. This represents the highest quarterly net income in the Company’s history.

Adjusted net income for the second quarter of 2022 was $24.2 million, or $0.56 diluted earnings per share, compared to $23.6 million, or $0.54, for the linked quarter and $22.2 million, or $0.50, 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 second quarter of 2022 when compared to the first quarter of 2022 reflects an increase in net interest income of $4.8 million and a decrease in non–interest expense of $242,000. These items were offset by an increase in credit loss expense of $1.6 million and a decrease in non–interest income of $1.7 million and an increase in income tax expense of $436,000 for the second quarter of 2022 when compared to the first quarter of 2022.

Interest income includes the recognition of PPP loan interest and net loan processing fees totaling $198,000 in the second quarter of 2022, compared to $457,000 in the linked quarter. On June 30, 2022, the Company had $32,000 in net deferred PPP loan processing fees outstanding and $2.3 million in PPP loans outstanding. PPP loan net deferred fees and loans outstanding at March 31, 2021 were $141,000 and $6.7 million, respectively.

Second quarter 2022 income from the gain on sale of mortgage loans totaled $2.5 million, up from $2.0 million in the linked quarter and down from $5.6 million in the prior year period.

Certain revenue streams that generated higher income in the quarter ended June 30, 2021, were replaced in the most recent quarter with earning assets that had higher income margins and the increasing margin generated higher net interest income. For the quarter ending June 30, 2021, income from PPP lending, gain on sale of mortgage loans and mortgage servicing income net of impairment totaled $9.8 million. For the quarter ending June 30, 2022, the income from those same revenue streams totaled $3.0 million. The ability to replace this income and increase overall net income in the second quarter was attributed to the strategies management implemented to focus on higher earning assets.

Non–interest expense of $36.4 million in the second quarter of 2022 reflected a $371,000 decrease in net occupancy expenses and a $288,000 decrease in other expenses, offset by an increase in salaries and employee benefit expense of $222,000 and an increase in other losses of $194,000 from the linked quarter.

The increase in net income for the second quarter of 2022 when compared to the same prior year period reflects an increase in net interest income of $10.4 million, offset by an increase in credit loss expense of $1.7 million, a decrease in non–interest income of $2.8 million, an increase in non–interest expense of $3.0 million and an increase in income tax expense of $205,000.

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,
   2022   2022   2021   2021   2021   2022   2021 
Net income as reported $24,859  $23,563  $21,425  $23,071  $22,173  $48,422  $42,595 
Acquisition expenses        884   799   242      242 
Tax effect        (184)  (166)  (51)     (51)
Net income excluding acquisition expenses  24,859   23,563   22,125   23,704   22,364   48,422   42,786 
Credit loss expense acquired loans           2,034          
Tax effect           (427)         
Net income excluding credit loss expense acquired loans  24,859   23,563   22,125   25,311   22,364   48,422   42,786 
Gain on sale of ESOP trustee accounts           (2,329)         
Tax effect           489          
Net income excluding gain on sale of ESOP trustee accounts  24,859   23,563   22,125   23,471   22,364   48,422   42,786 
DOL ESOP settlement expenses        1,900             
Tax effect        (315)            
Net income excluding DOL ESOP settlement expenses  24,859   23,563   23,710   23,471   22,364   48,422   42,786 
(Gain) / loss on sale of investment securities                    (914)
Tax effect                    192 
Net income excluding (gain) / loss on sale of investment securities  24,859   23,563   23,710   23,471   22,364   48,422   42,064 
Death benefit on bank owned life insurance (“BOLI”)  (644)        (517)  (266)  (644)  (266)
Net income excluding death benefit on BOLI  24,215   23,563   23,710   22,954   22,098   47,778   41,798 
Prepayment penalties on borrowings              125      125 
Tax effect              (26)     (26)
Net income excluding prepayment penalties on borrowings  24,215   23,563   23,710   22,954   22,197   47,778   41,897 
Adjusted net income $24,215  $23,563  $23,710  $22,954  $22,197  $47,778  $41,897 


Non–GAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
  Three Months Ended Six Months Ended
  June 30, March 31, December 31, September 30, June 30, June 30, June 30,
   2022   2022   2021   2021   2021   2022   2021 
Diluted earnings per share (“EPS”) as reported $0.57  $0.54  $0.49  $0.52  $0.50  $1.11  $0.97 
Acquisition expenses        0.02   0.02   0.01      0.01 
Tax effect                     
Diluted EPS excluding acquisition expenses  0.57   0.54   0.51   0.54   0.51   1.11   0.98 
Credit loss expense acquired loans           0.05          
Tax effect           (0.01)         
Diluted EPS excluding credit loss expense acquired loans  0.57   0.54   0.51   0.58   0.51   1.11   0.98 
Gain on sale of ESOP trustee accounts           (0.05)         
Tax effect           0.01          
Diluted EPS excluding gain on sale of ESOP trustee accounts  0.57   0.54   0.51   0.54   0.51   1.11   0.98 
DOL ESOP settlement expenses        0.04             
Tax effect        (0.01)            
Diluted EPS excluding DOL ESOP settlement expenses  0.57   0.54   0.54   0.54   0.51   1.11   0.98 
(Gain) / loss on sale of investment securities                    (0.02)
Tax effect                     
Diluted EPS excluding (gain) / loss on sale of investment securities  0.57   0.54   0.54   0.54   0.51   1.11   0.96 
Death benefit on bank owned life insurance (“BOLI”)  (0.01)        (0.02)  (0.01)  (0.01)  (0.01)
Diluted EPS excluding death benefit on BOLI  0.56   0.54   0.54   0.52   0.50   1.10   0.95 
Prepayment penalties on borrowings                     
Tax effect                     
Diluted EPS excluding prepayment penalties on borrowings  0.56   0.54   0.54   0.52   0.50   1.10   0.95 
Adjusted diluted EPS $0.56  $0.54  $0.54  $0.52  $0.50  $1.10  $0.95 


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,
   2022   2022   2021   2021   2021   2022   2021 
Pre–tax income $28,834  $27,102  $25,505  $27,127  $25,943  $55,936  $49,815 
Credit loss expense  240   (1,386)  (2,071)  1,112   (1,492)  (1,146)  (1,125)
Pre–tax, pre–provision net income $29,074  $25,716  $23,434  $28,239  $24,451  $54,790  $48,690 
               
Pre–tax, pre–provision net income $29,074  $25,716  $23,434  $28,239  $24,451  $54,790  $48,690 
Acquisition expenses        884   799   242      242 
Gain on sale of ESOP trustee accounts           (2,329)         
DOL ESOP settlement expenses        1,900             
(Gain) / loss on sale of investment securities                    (914)
Death benefit on BOLI  (644)        (517)  (266)  (644)  (266)
Prepayment penalties on borrowings              125      125 
Adjusted pre–tax, pre–provision net income $28,430  $25,716  $26,218  $26,192  $24,552  $54,146  $47,752 


Pre–tax, pre–provision net income grew to $29.1 million, up 13.1% from the linked quarter and 18.9% 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. Horizon recorded a provision expense of $240,000 in the quarter and provision release of $1.4 million in the linked quarter, and a provision release of $1.5 million in the prior year period.

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,
   2022   2022   2021   2021   2021   2022   2021 
Net interest income as reported $53,008  $48,171  $49,976  $46,544  $42,632  $101,179  $85,170 
Average interest earning assets  6,927,310   6,800,549   6,938,258   6,033,088   5,659,384   6,864,280   5,550,116 
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)  3.19%  2.99%  2.97%  3.17%  3.14%  3.03%  3.21%
               
Net interest income as reported $53,008  $48,171  $49,976  $46,544  $42,632  $101,179  $85,170 
Acquisition–related purchase accounting adjustments (“PAUs”)  (1,223)  (916)  (1,819)  (875)  (230)  (2,139)  (1,809)
Prepayment penalties on borrowings              125      125 
Adjusted net interest income $51,785  $47,255  $48,157  $45,669  $42,527  $99,040  $83,361 
Adjusted net interest margin  3.12%  2.93%  2.86%  3.12%  3.13%  2.97%  3.15%


Horizon’s net interest margin increased to 3.19% for the second quarter of 2022 compared to 2.99% for the first quarter of 2022. The increase in net interest margin reflects an increase in the yield on interest earning assets of 24 basis points offset by an increase in the cost of interest bearing liabilities of four basis points. Interest income from acquisition–related purchase accounting adjustments was $307,000 higher during the second quarter of 2022 when compared to the first quarter of 2022.

Horizon’s net interest margin increased to 3.19% for the second quarter of 2022 compared to 3.14% for the second quarter of 2021. The increase in net interest margin reflects a decrease in the cost of interest bearing liabilities of 11 basis points offset by a decrease in the yield on interest earning assets of two basis points.

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 3.12% for the second quarter of 2021, compared to 2.93% for the linked quarter and 3.13% for the second quarter of 2021. Interest income from acquisition–related purchase accounting adjustments was $1.2 million, $916,000 and $230,000 for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively.

Lending Activity

Total loan balances were $3.94 billion, or $3.89 billion excluding PPP loans and sold commercial participation loans, on June 30, 2022. Total loans were $3.72 billion, or $3.66 billion excluding PPP loans and sold commercial participation loans, on March 31, 2022. During the three months ended June 30, 2022, commercial loans, excluding PPP loans and sold commercial participation loans, increased $108.0 million, consumer loans increased $94.8 million, mortgage warehouse loans increased $11.4 million, residential mortgage loans increased $15.2 million and sold commercial participation loans increased $1.0 million, offset by decreases in PPP loans of $4.4 million and loans held for sale of $838,000. PPP loan income was $198,000, $457,000 and $2.7 million for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
  June 30, March 31, Amount QTD Annualized
  2022 2022 Change % Change % Change
Commercial, excluding PPP loans and sold commercial participation loans $2,310,605  $2,202,568  $108,037  4.9% 19.9%
PPP loans  2,343   6,705   (4,362) (65.1)% (263.8)%
Sold commercial participation loans  51,043   50,054   989  2.0% 8.0%
Residential mortgage  608,582   593,372   15,210  2.6% 10.4%
Consumer  848,749   753,900   94,849  12.6% 51.0%
Subtotal  3,821,322   3,606,599   214,723  6.0% 24.1%
Loans held for sale  2,943   3,781   (838) (22.2)% (89.9)%
Mortgage warehouse  116,488   105,118   11,370  10.8% 43.9%
Total loans $3,940,753  $3,715,498  $225,255  6.1% 24.6%
           
Total loans, excluding PPP loans and sold commercial participation loans $3,887,367  $3,658,739  $228,628  6.2% 25.3%


Residential mortgage lending activity for the three months ended June 30, 2022 generated $2.5 million in income from the gain on sale of mortgage loans, increasing $474,000 from the first quarter of 2022 and decreasing $3.1 million from the second quarter of 2021. Total mortgage origination volume for the second quarter of 2022, including loans placed into the portfolio, totaled $115.1 million, representing a decrease of 3.2% from first quarter 2022 levels, and a decrease of 33.5% from the second quarter of 2021. As a percentage of total mortgage loan originations, 17% of the volume was from refinancings and 83% was from loans for new home purchases during the second quarter of 2022. Total origination volume of mortgage loans sold to the secondary market totaled $67.3 million, representing a decrease of 17.2% from the first quarter of 2022 and a decrease of 40.5% from the second quarter of 2021.

Gain on sale of mortgage loans and mortgage warehousing income was 5.6% of total revenue for the three months ended June 30, 2022, compared to 4.7% for the linked quarter and 12.3% for the three months ended June 30, 2021.

Deposit Activity

Total deposit balances were $5.85 billion on June 30, 2022 compared to $5.85 billion on March 31, 2022, a decrease of $5.9 million.

Deposit Growth by Type, Excluding Acquired Deposits
(Dollars in Thousands, Unaudited)
 June 30, March 31, Amount  QTD Annualized
  2022   2022  Change % Change % Change
Non–interest bearing$1,328,213  $1,325,570  $2,643  0.2% 0.8%
Interest bearing 3,760,890   3,782,644   (21,754) (0.6)% (2.3)%
Time deposits 756,482   743,283   13,199  1.8% 7.2%
Total deposits$5,845,585  $5,851,497  $(5,912) (0.1)% (0.4)%


Expense Management

  Three Months Ended
  June 30,March 31,    
   2022 2022   
Non–interest Expense Actual Actual Amount
Change
 Percent
Change
Salaries and employee benefits $19,957  $19,735  $222  1.1%
Net occupancy expenses  3,190   3,561   (371) (10.4)%
Data processing  2,607   2,537   70  2.8%
Professional fees  283   314   (31) (9.9)%
Outside services and consultants  2,485   2,525   (40) (1.6)%
Loan expense  2,497   2,545   (48) (1.9)%
FDIC insurance expense  775   725   50  6.9%
Other losses  362   168   194  115.5%
Other expense  4,212   4,500   (288) (6.4)%
Total non–interest expense $36,368  $36,610  $(242) (0.7)%
Annualized non–interest expense to average assets  1.95%  2.03%    


Total non–interest expense was $242,000 lower in the second quarter of 2022 when compared to the first quarter of 2022. The decrease was primarily due to a decrease in net occupancy expenses of $371,000 and a decrease in other expense $288,000, offset by an increase in salaries and employee benefits expense of $222,000.

  Three Months Ended
  June 30, June 30,    
  2022 2021 Adjusted
Non–interest Expense Actual Acquisition
Expenses
 Adjusted Actual Acquisition
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits $19,957  $  $19,957  $17,730  $  $17,730  $2,227  12.6%
Net occupancy expenses  3,190      3,190   3,084      3,084   106  3.4%
Data processing  2,607      2,607   2,388      2,388   219  9.2%
Professional fees  283      283   588   (51)  537   (254) (47.3)%
Outside services and consultants  2,485      2,485   2,220   (187)  2,033   452  22.2%
Loan expense  2,497      2,497   3,107      3,107   (610) (19.6)%
FDIC insurance expense  775      775   500      500   275  55.0%
Other losses  362      362   6      6   356  5933.3%
Other expense  4,212      4,212   3,765   (4)  3,761   451  12.0%
Total non–interest expense $36,368  $  $36,368  $33,388  $(242) $33,146  $3,222  9.7%
Annualized non–interest expense to average assets  1.95%    1.95%  2.18%    2.16%    


Total non–interest expense was $3.0 million higher in the second quarter of 2022 when compared to the second quarter of 2021. The increases in expenses was primarily due to an increase in salaries and employee benefits of $2.2 million due to additional employees hired as a result of the 2021 branch acquisition, an increase in other expense of $447,000, an increase in other losses of $356,000, an increase in FDIC insurance expense of $275,000 and an increase in outside services and consultants expense of $265,000, offset by a decrease of $610,000 in loan expense and a decrease of $305,000 in professional fees.

Annualized non–interest expense as a percent of average assets was 1.95%, 2.03% and 2.18% for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively. Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 1.95%, 2.03% and 2.16% for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below for these non–GAAP calculations.)

  Six Months Ended
  June 30, June 30,    
   2022  2021 Adjusted
Non–interest Expense Actual Acquisition
Expenses
 Adjusted Actual Acquisition
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits $39,692  $  $39,692  $34,601  $  $34,601  $5,091  14.7%
Net occupancy expenses  6,751      6,751   6,402      6,402   349  5.5%
Data processing  5,144      5,144   4,764      4,764   380  8.0%
Professional fees  597      597   1,132   (51)  1,081   (484) (44.8)%
Outside services and consultants  5,010      5,010   3,922   (187)  3,735   1,275  34.1%
Loan expense  5,042      5,042   5,929      5,929   (887) (15.0)%
FDIC insurance expense  1,500      1,500   1,300      1,300   200  15.4%
Other losses  530      530   289      289   241  83.4%
Other expense  8,712      8,712   7,221   (4)  7,217   1,495  20.7%
Total non–interest expense $72,978  $  $72,978  $65,560  $(242) $65,318  $7,660  11.7%
Annualized non–interest expense to average assets  1.99%    1.99%  2.19%    2.18%    


Total non–interest expense was $7.4 million higher in the first six months of 2022 when compared to the first six months of 2021. The increases in expenses was primarily due to an increase in salaries and employee benefits of $5.1 million primarily due to additional employees hired as a result of the 2021 branch acquisition, an increase in other expense of $1.5 million, an increase in outside services and consultants expense of $1.1 million, offset by a decrease of $887,000 in loan expense and a decrease of $535,000 in professional fees.

Annualized non–interest expense as a percent of average assets was 1.99% for the first six months of 2022 compared to 2.19% for the first six months of 2021. Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 1.99% and 2.18% for the six months ended June 30, 2022 and June 30, 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 $4.0 million for the second quarter of 2022, an increase of $436,000 when compared to the first quarter of 2022 and an increase of $205,000 when compared to the second quarter of 2021.

Income tax expense totaled $7.5 million for the six months ended June 30, 2022, an increase of $294,000 when compared to the six months ended June 30, 2021.

Capital

The capital resources of the Company and the Bank exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2022. Stockholders’ equity totaled $657.9 million at June 30, 2022 and the ratio of average stockholders’ equity to average assets was 9.43% for the six months ended June 30, 2022.

Tangible book value per common share (“TBVPS”) declined $0.43 in the first quarter of 2022 to $11.11 at period end, as unrealized net losses on securities available for sale (“AFS”) of $2.37 per common share reduced other comprehensive income (“OCI”) by $103.4 million in the first six months of this year. Fluctuations in the fair market value of AFS are widely expected to be recorded by banks in the first six months of 2022.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of June 30, 2022.

  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 $749,948  15.83% $379,022  8.00% $497,467  10.50% N/A N/A
Bank  701,422  14.81%  378,939  8.00%  497,358  10.50% $473,674  10.00%
Tier 1 capital (to risk–weighted assets)                
Consolidated  699,552  14.77%  284,267  6.00%  402,711  8.50% N/A N/A
Bank  651,026  13.74%  284,204  6.00%  402,623  8.50%  378,939  8.00%
Common equity tier 1 capital (to risk–weighted assets)                
Consolidated  583,199  12.31%  213,200  4.50%  331,645  7.00% N/A N/A
Bank  651,026  13.74%  213,153  4.50%  331,572  7.00%  307,888  6.50%
Tier 1 capital (to average assets)                
Consolidated  699,552  9.83%  284,722  4.00%  284,722  4.00% N/A N/A
Bank  651,026  9.17%  284,117  4.00%  284,117  4.00%  355,146  5.00%


Liquidity

The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the “FHLB”). At June 30, 2022, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $917.6 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $2.2 billion of unpledged investment securities at June 30, 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.

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands, Unaudited)
   
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Total stockholders’ equity $657,865  $677,450  $723,209  $708,542  $710,374 
Less: Intangible assets  173,662   174,588   175,513   183,938   172,398 
Total tangible stockholders’ equity $484,203  $502,862  $547,696  $524,604  $537,976 
Common shares outstanding  43,572,796   43,572,796   43,547,942   43,520,694   43,950,720 
Book value per common share $15.10  $15.55  $16.61  $16.28  $16.16 
Tangible book value per common share $11.11  $11.54  $12.58  $12.05  $12.24 


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,
   2022   2022   2021   2021   2021   2022   2021 
Non–interest expense as reported $36,368  $36,610  $39,370  $34,349  $33,388  $72,978  $65,560 
Net interest income as reported  53,008   48,171   49,976   46,544   42,632   101,179   85,170 
Non–interest income as reported $12,434  $14,155  $12,828  $16,044  $15,207  $26,589  $29,080 
Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”)
  55.57%  58.74%  62.69%  54.88%  57.73%  57.12%  57.38%
               
Non–interest expense as reported $36,368  $36,610  $39,370  $34,349  $33,388  $72,978  $65,560 
Acquisition expenses        (884)  (799)  (242)     (242)
DOL ESOP settlement expenses        (1,900)            
Non–interest expense excluding acquisition and DOL ESOP settlement expenses  36,368   36,610   36,586   33,550   33,146   72,978   65,318 
Net interest income as reported  53,008   48,171   49,976   46,544   42,632   101,179   85,170 
Prepayment penalties on borrowings              125      125 
Net interest income excluding prepayment penalties on borrowings  53,008   48,171   49,976   46,544   42,757   101,179   85,295 
Non–interest income as reported  12,434   14,155   12,828   16,044   15,207   26,589   29,080 
Gain on sale of ESOP trustee accounts           (2,329)         
(Gain) / loss on sale of investment securities                    (914)
Death benefit on BOLI  (644)        (517)  (266)  (644)  (266)
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI $11,790  $14,155  $12,828  $13,198  $14,941  $25,945  $27,900 
Adjusted efficiency ratio  56.13%  58.74%  58.25%  56.16%  57.45%  57.41%  57.70%


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,
   2022   2022   2021   2021   2021   2022   2021 
Average assets $7,476,238  $7,319,675  $7,461,343  $6,507,673  $6,142,507  $7,391,348  $6,039,897 
Return on average assets (“ROAA”) as reported  1.33%  1.31%  1.14%  1.41%  1.45%  1.32%  1.42%
Acquisition expenses        0.05   0.05   0.02      0.01 
Tax effect        (0.01)  (0.01)         
ROAA excluding acquisition expenses  1.33   1.31   1.18   1.45   1.47   1.32   1.43 
Credit loss expense acquired loans           0.12          
Tax effect           (0.03)         
ROAA excluding credit loss expense on acquired loans  1.33   1.31   1.18   1.54   1.47   1.32   1.43 
Gain on sale of ESOP trustee accounts           (0.14)         
Tax effect           0.03          
ROAA excluding gain on sale of ESOP trustee accounts  1.33   1.31   1.18   1.43   1.47   1.32   1.43 
DOL ESOP settlement expenses        0.10             
Tax effect        (0.02)            
ROAA excluding DOL ESOP settlement expenses  1.33   1.31   1.26   1.43   1.47   1.32   1.43 
(Gain) / loss on sale of investment securities                    (0.03)
Tax effect                    0.01 
ROAA excluding (gain) / loss on sale of investment securities  1.33   1.31   1.26   1.43   1.47   1.32   1.41 
Death benefit on BOLI  (0.03)        (0.03)  (0.02)  (0.02)  (0.01)
ROAA excluding death benefit on BOLI  1.30   1.31   1.26   1.40   1.45   1.30   1.40 
Prepayment penalties on borrowings              0.01       
Tax effect                     
ROAA excluding prepayment penalties on borrowings  1.30   1.31   1.26   1.40   1.46   1.30   1.40 
Adjusted ROAA  1.30%  1.31%  1.26%  1.40%  1.46%  1.30%  1.40%


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,
   2022   2022   2021   2021   2021   2022   2021 
Average common equity $677,299  $716,341  $719,643  $724,412  $706,652  $697,004  $702,052 
Return on average common equity (“ROACE”) as reported  14.72%  13.34%  11.81%  12.64%  12.59%  14.01%  12.23%
Acquisition expenses        0.49   0.44   0.14      0.07 
Tax effect        (0.10)  (0.09)  (0.03)     (0.01)
ROACE excluding acquisition expenses  14.72   13.34   12.20   12.99   12.70   14.01   12.29 
Credit loss expense acquired loans           1.11          
Tax effect           (0.23)         
ROACE excluding credit loss expense acquired loans  14.72   13.34   12.20   13.87   12.70   14.01   12.29 
Gain on sale of ESOP trustee accounts           (1.28)         
Tax effect           0.27          
ROACE excluding gain on sale of ESOP trustee accounts  14.72   13.34   12.20   12.86   12.70   14.01   12.29 
DOL ESOP settlement expenses        1.05             
Tax effect        (0.17)            
ROACE excluding DOL ESOP settlement expenses  14.72   13.34   13.08   12.86   12.70   14.01   12.29 
(Gain) / loss on sale of investment securities                    (0.26)
Tax effect                    0.06 
ROACE excluding (gain) / loss on sale of investment securities  14.72   13.34   13.08   12.86   12.70   14.01   12.09 
Death benefit on BOLI  (0.38)        (0.28)  (0.15)  (0.19)  (0.08)
ROACE excluding death benefit on BOLI  14.34   13.34   13.08   12.58   12.55   13.82   12.01 
Prepayment penalties on borrowings              0.07      0.04 
Tax effect              (0.01)     (0.01)
ROACE excluding prepayment penalties on borrowings  14.34%  13.34%  13.08%  12.58%  12.61%  13.82%  12.04%
Adjusted ROACE  14.34%  13.34%  13.08%  12.58%  12.61%  13.82%  12.04%


Non–GAAP Reconciliation of Return on Average Tangible 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,
   2022   2022   2021   2021   2021   2022   2021 
Average common equity $677,299  $716,341  $719,643  $724,412  $706,652  $697,004  $702,052 
Less: Average intangible assets  175,321   176,356   179,594   174,920   173,905   175,836   174,343 
Average tangible equity $501,978  $539,985  $540,049  $549,492  $532,747  $521,168  $527,709 
Return on average tangible equity (“ROATE”) as reported  19.86%  17.70%  15.74%  16.66%  16.69%  18.74%  16.28%
Acquisition expenses        0.65   0.58   0.18      0.09 
Tax effect        (0.14)  (0.12)  (0.04)     (0.02)
ROATE excluding acquisition expenses  19.86   17.70   16.25   17.12   16.83   18.74   16.35 
Credit loss expense acquired loans           1.47          
Tax effect           (0.31)         
ROATE excluding credit loss expense acquired loans  19.86   17.70   16.25   18.28   16.83   18.74   16.35 
Gain on sale of ESOP trustee accounts           (1.68)         
Tax effect           0.35          
ROATE excluding gain on sale of ESOP trustee accounts  19.86   17.70   16.25   16.95   16.83   18.74   16.35 
DOL ESOP settlement expenses        1.40             
Tax effect        (0.23)            
ROATE excluding DOL ESOP settlement expenses  19.86   17.70   17.42   16.95   16.83   18.74   16.35 
(Gain) / loss on sale of investment securities                    (0.35)
Tax effect                    0.07 
ROATE excluding (gain) / loss on sale of investment securities  19.86   17.70   17.42   16.95   16.83   18.74   16.07 
Death benefit on BOLI  (0.51)        (0.37)  (0.20)  (0.25)  (0.10)
ROATE excluding death benefit on BOLI  19.35   17.70   17.42   16.58   16.63   18.49   15.97 
Prepayment penalties on borrowings              0.09      0.05 
Tax effect              (0.02)     (0.01)
ROATE excluding prepayment penalties on borrowings  19.35%  17.70%  17.42%  16.58%  16.70%  18.49%  16.01%
Adjusted ROATE  19.35%  17.70%  17.42%  16.58%  16.70%  18.49%  16.01%


Earnings 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 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 August 4, 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 7261627.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. (NASDAQ GS: HBNC) is the $7.6 billion–asset bank holding company for Horizon Bank, which serves customers across diverse and economically attractive Midwestern markets through convenient digital and virtual tools, as well as its Indiana and Michigan branches. Horizon’s retail offerings include prime residential, indirect auto, and other secured consumer lending to in–market customers, as well as a range of personal banking and wealth management solutions. Horizon also provides a comprehensive array of in–market business banking and treasury management services, with commercial lending representing over half of total loans. More information on Horizon, headquartered in Northwest Indiana’s Michigan City, is available at horizonbank.com and investor.horizonbank.com.

Forward Looking Statements

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

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



Financial Highlights
(Dollars in Thousands, Unaudited)
   
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Balance sheet:          
Total assets $7,640,936  $7,420,328  $7,374,903  $7,534,240  $6,109,227 
Interest earning deposits & federal funds sold  5,646   20,827   502,364   872,540   209,304 
Interest earning time deposits  3,799   4,046   4,782   5,767   6,994 
Investment securities  3,093,792   3,118,641   2,713,255   2,438,874   1,844,470 
Commercial loans  2,363,991   2,259,327   2,213,945   2,173,200   2,104,627 
Mortgage warehouse loans  116,488   105,118   109,031   169,909   205,311 
Residential mortgage loans  608,582   593,372   594,382   603,540   559,437 
Consumer loans  848,749   753,900   727,259   713,432   650,144 
Total loans  3,937,810   3,711,717   3,644,617   3,660,081   3,519,519 
Earning assets  7,070,667   6,883,254   6,865,051   7,006,513   5,610,538 
Non–interest bearing deposit accounts  1,328,213   1,325,570   1,360,338   1,324,757   1,102,950 
Interest bearing transaction accounts  3,760,890   3,782,644   3,711,767   3,875,882   3,105,328 
Time deposits  756,482   743,283   730,886   779,260   573,348 
Total deposits  5,845,585   5,851,497   5,802,991   5,979,899   4,781,626 
Borrowings  959,222   728,664   712,739   670,753   439,094 
Subordinated notes  58,823   58,786   58,750   58,713   58,676 
Junior subordinated debentures issued to capital trusts  56,907   56,850   56,785   56,722   56,662 
Total stockholders’ equity  657,865   677,450   723,209   708,542   710,374 


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,
   2022   2022   2021   2021   2021 
Income statement:          
Net interest income $53,008  $48,171  $49,976  $46,544  $42,632 
Credit loss expense (recovery)  240   (1,386)  (2,071)  1,112   (1,492)
Non–interest income  12,434   14,155   12,828   16,044   15,207 
Non–interest expense  36,368   36,610   39,370   34,349   33,388 
Income tax expense  3,975   3,539   4,080   4,056   3,770 
Net income $24,859  $23,563  $21,425  $23,071  $22,173 
           
Per share data:          
Basic earnings per share $0.57  $0.54  $0.49  $0.53  $0.50 
Diluted earnings per share  0.57   0.54   0.49   0.52   0.50 
Cash dividends declared per common share  0.16   0.15   0.15   0.15   0.13 
Book value per common share  15.10   15.55   16.61   16.28   16.16 
Tangible book value per common share  11.11   11.54   12.58   12.05   12.24 
Market value – high  19.21   23.45   21.14   18.47   19.13 
Market value – low $16.72  $18.67  $18.01  $15.83  $16.98 
Weighted average shares outstanding – Basis  43,572,796   43,554,713   43,534,298   43,810,729   43,950,501 
Weighted average shares outstanding – Diluted  43,684,691   43,734,556   43,733,416   43,958,870   44,111,103 
           
Key ratios:          
Return on average assets  1.33%  1.31%  1.14%  1.41%  1.45%
Return on average common stockholders’ equity  14.72   13.34   11.81   12.64   12.59 
Net interest margin  3.19   2.99   2.97   3.17   3.14 
Allowance for credit losses to total loans  1.33   1.41   1.51   1.55   1.58 
Average equity to average assets  9.06   9.79   9.64   11.13   11.50 
Efficiency ratio  55.57   58.74   62.69   54.88   57.73 
Annualized non–interest expense to average assets  1.95   2.03   2.09   2.09   2.18 
Bank only capital ratios:          
Tier 1 capital to average assets  9.17   8.83   8.50   8.38   8.79 
Tier 1 capital to risk weighted assets  13.74   13.23   13.69   11.86   12.80 
Total capital to risk weighted assets  14.81   14.25   14.72   12.97   14.09 


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
  Six Months Ended
  June 30, June 30,
   2022   2021 
Income statement:    
Net interest income $101,179  $85,170 
Credit loss expense (recovery)  (1,146)  (1,125)
Non–interest income  26,589   29,080 
Non–interest expense  72,978   65,560 
Income tax expense  7,514   7,220 
Net income $48,422  $42,595 
     
Per share data:    
Basic earnings per share $1.11  $0.97 
Diluted earnings per share  1.11   0.97 
Cash dividends declared per common share  0.31   0.26 
Book value per common share  15.10   16.16 
Tangible book value per common share  11.11   12.24 
Market value – high  23.45   19.94 
Market value – low $16.72  $16.98 
Weighted average shares outstanding – Basis  43,563,804   43,935,111 
Weighted average shares outstanding – Diluted  43,711,822   44,092,577 
     
Key ratios:    
Return on average assets  1.32%  1.42%
Return on average common stockholders’ equity  14.01   12.23 
Net interest margin  3.03   3.21 
Allowance for credit losses to total loans  1.33   1.58 
Average equity to average assets  9.43   11.62 
Efficiency ratio  57.12   57.38 
Annualized non–interest expense to average assets  1.99   2.19 
Bank only capital ratios:    
Tier 1 capital to average assets  9.17   8.79 
Tier 1 capital to risk weighted assets  13.74   12.80 
Total capital to risk weighted assets  14.81   14.09 


Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
   
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Loan data:          
Substandard loans $59,377  $57,928  $56,968  $91,317  $82,488 
30 to 89 days delinquent  6,739   6,358   8,536   3,997   3,336 
           
Non–performing loans:          
90 days and greater delinquent – accruing interest  210   107   145   200    
Trouble debt restructures – accruing interest  2,535   2,372   2,391   2,433   1,853 
Trouble debt restructures – non–accrual  1,345   1,501   1,521   1,604   2,294 
Non–accrual loans  16,116   16,133   14,962   25,137   18,175 
Total non–performing loans $20,206  $20,113  $19,019  $29,374  $22,322 
Non–performing loans to total loans  0.51%  0.54%  0.53%  0.80%  0.63%


Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
   
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Commercial $34,802  $37,789  $40,775  $43,121  $41,766 
Residential mortgage  4,422   4,351   3,856   3,737   4,108 
Mortgage warehouse  1,067   1,055   1,059   1,054   1,155 
Consumer  12,059   9,313   8,596   8,867   8,620 
Total $52,350  $52,508  $54,286  $56,779  $55,649 


Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
   
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Commercial $(75) $38  $926  $(25) $40 
Residential mortgage  40   (10)  126   (29)  (23)
Mortgage warehouse               
Consumer  319   108   360   36   22 
Total $284  $136  $1,412  $(18) $39 
Percent of net charge–offs (recoveries) to average loans outstanding for the period  0.01%  0.00%  0.04%  0.00%  0.00%


Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
   
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Commercial $8,008  $7,844  $7,509  $16,121  $10,345 
Residential mortgage  8,469   8,584   8,005   8,641   7,841 
Mortgage warehouse               
Consumer  3,729   3,685   3,505   4,612   4,136 
Total $20,206  $20,113  $19,019  $29,374  $22,322 
Non–performing loans to total loans  0.51%  0.54%  0.53%  0.80%  0.63%


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
   
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Commercial $1,414  $2,245  $2,861  $2,861  $1,400 
Residential mortgage     170   695   117   37 
Mortgage warehouse               
Consumer  58   5   5   29   46 
Total $1,472  $2,420  $3,561  $3,007  $1,483 


Average Balance Sheets
(Dollars in Thousands, Unaudited)
  Three Months Ended Three Months Ended
  June 30, 2022 June 30, 2021
  Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets            
Interest earning assets            
Federal funds sold $7,083  $17  0.96% $359,184  $98  0.11%
Interest earning deposits  15,661   26  0.67%  29,584   44  0.60%
Investment securities – taxable  1,770,816   8,673  1.96%  645,139   2,386  1.48%
Investment securities – non–taxable (1)  1,374,032   7,307  2.70%  1,054,703   5,656  2.72%
Loans receivable (2) (3)  3,759,718   41,549  4.45%  3,570,774   39,236  4.43%
Total interest earning assets  6,927,310   57,572  3.46%  5,659,384   47,420  3.48%
Non–interest earning assets            
Cash and due from banks  98,040       84,469     
Allowance for credit losses  (52,525)      (57,196)    
Other assets  503,413       455,850     
Total average assets $7,476,238      $6,142,507     
             
Liabilities and Stockholders’ Equity            
Interest bearing liabilities            
Interest bearing deposits $4,540,959  $1,677  0.15% $3,680,796  $2,053  0.22%
Borrowings  613,282   1,409  0.92%  334,804   1,256  1.50%
Repurchase agreements  141,470   41  0.12%  119,052   40  0.13%
Subordinated notes  58,800   881  6.01%  58,653   881  6.02%
Junior subordinated debentures issued to capital trusts  56,870   556  3.92%  56,627   558  3.95%
Total interest bearing liabilities  5,411,381   4,564  0.34%  4,249,932   4,788  0.45%
Non–interest bearing liabilities            
Demand deposits  1,335,779       1,139,068     
Accrued interest payable and other liabilities  51,779       46,855     
Stockholders’ equity  677,299       706,652     
Total average liabilities and stockholders’ equity $7,476,238      $6,142,507     
             
Net interest income / spread   $53,008  3.12%   $42,632  3.03%
Net interest income as a percent of average interest earning assets (1)     3.19%     3.14%
             
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.


Average Balance Sheets
(Dollars in Thousands, Unaudited)
  Six Months Ended Six Months Ended
  June 30, 2022 June 30, 2021
  Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets            
Interest earning assets            
Federal funds sold $121,707  $108  0.18% $313,467  $164  0.11%
Interest earning deposits  18,154   50  0.56%  27,567   90  0.66%
Investment securities – taxable  1,709,014   16,064  1.90%  528,250   3,822  1.46%
Investment securities – non–taxable (1)  1,326,819   14,004  2.69%  1,005,855   10,879  2.76%
Loans receivable (2) (3)  3,688,586   79,428  4.36%  3,674,977   80,054  4.41%
Total interest earning assets  6,864,280   109,654  3.34%  5,550,116   95,009  3.57%
Non–interest earning assets            
Cash and due from banks  101,340       84,866     
Allowance for credit losses  (53,411)      (57,486)    
Other assets  479,139       462,401     
Total average assets $7,391,348      $6,039,897     
             
Liabilities and Stockholders’ Equity            
Interest bearing liabilities            
Interest bearing deposits $4,509,962  $3,173  0.14% $3,602,882  $4,396  0.25%
Borrowings  558,867   2,453  0.89%  350,110   2,487  1.43%
Repurchase agreements  140,610   77  0.11%  115,392   78  0.14%
Subordinated notes  58,782   1,761  6.04%  58,635   1,761  6.06%
Junior subordinated debentures issued to capital trusts  56,839   1,011  3.59%  56,599   1,117  3.98%
Total interest bearing liabilities  5,325,060   8,475  0.32%  4,183,618   9,839  0.47%
Non–interest bearing liabilities            
Demand deposits  1,329,316       1,101,377     
Accrued interest payable and other liabilities  39,968       52,850     
Stockholders’ equity  697,004       702,052     
Total average liabilities and stockholders’ equity $7,391,348      $6,039,897     
             
Net interest income / spread   $101,179  3.02%   $85,170  3.10%
Net interest income as a percent of average interest earning assets (1)     3.03%     3.21%
             
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.


Condensed Consolidated Balance Sheets
(Dollars in Thousands)
     
  June 30,
2022
 December 31,
2021
  (Unaudited)  
Assets    
Cash and due from banks $108,848  $593,508 
Interest earning time deposits  3,799   4,782 
Investment securities, available for sale  1,041,020   1,160,812 
Investment securities, held to maturity (fair value $1,754,214 and $1,559,991)  2,052,772   1,552,443 
Loans held for sale  2,943   12,579 
Loans, net of allowance for credit losses of $52,350 and $54,286  3,885,460   3,590,331 
Premises and equipment, net  93,778   93,441 
Federal Home Loan Bank stock  26,677   24,440 
Goodwill  154,572   154,572 
Other intangible assets  19,090   20,941 
Interest receivable  28,996   26,137 
Cash value of life insurance  94,625   97,150 
Other assets  128,356   80,753 
Total assets $7,640,936  $7,411,889 
     
Liabilities    
Deposits    
Non–interest bearing $1,328,213  $1,360,338 
Interest bearing  4,517,372   4,442,653 
Total deposits  5,845,585   5,802,991 
Borrowings  959,222   712,739 
Subordinated notes  58,823   58,750 
Junior subordinated debentures issued to capital trusts  56,907   56,785 
Interest payable  2,402   2,235 
Other liabilities  60,132   55,180 
Total liabilities  6,983,071   6,688,680 
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 43,883,415 and 43,766,931 shares,
Outstanding 43,572,796 and 43,547,942 shares
      
Additional paid–in capital  352,412   352,122 
Retained earnings  398,517   363,742 
Accumulated other comprehensive income  (93,064)  7,345 
Total stockholders’ equity  657,865   723,209 
Total liabilities and stockholders’ equity $7,640,936  $7,411,889 


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
  Three Months Ended
  June 30, March 31, December 31, September 30, June 30,
   2022   2022   2021   2021   2021 
Interest income          
Loans receivable $41,549  $37,879  $41,171  $40,392  $39,236 
Investment securities – taxable  8,716   7,506   6,491   4,565   2,528 
Investment securities – non–taxable  7,307   6,697   6,456   5,911   5,656 
Total interest income  57,572   52,082   54,118   50,868   47,420 
Interest expense          
Deposits  1,677   1,496   1,663   1,808   2,053 
Borrowed funds  1,450   1,080   1,061   1,075   1,296 
Subordinated notes  881   880   881   880   881 
Junior subordinated debentures issued to capital trusts  556   455   537   561   558 
Total interest expense  4,564   3,911   4,142   4,324   4,788 
Net interest income  53,008   48,171   49,976   46,544   42,632 
Credit loss expense (recovery)  240   (1,386)  (2,071)  1,112   (1,492)
Net interest income after credit loss expense (recovery)  52,768   49,557   52,047   45,432   44,124 
Non–interest Income          
Service charges on deposit accounts  2,833   2,795   2,510   2,291   2,157 
Wire transfer fees  170   159   205   210   222 
Interchange fees  3,582   2,780   3,082   2,587   2,892 
Fiduciary activities  1,405   1,503   1,591   2,124   1,961 
Gains / (losses) on sale of investment securities               
Gain on sale of mortgage loans  2,501   2,027   4,167   4,088   5,612 
Mortgage servicing income net of impairment  319   3,489   300   336   1,503 
Increase in cash value of bank owned life insurance  519   510   547   534   502 
Death benefit on bank owned life insurance  644         517   266 
Other income  461   892   426   3,357   92 
Total non–interest income  12,434   14,155   12,828   16,044   15,207 
Non–interest expense          
Salaries and employee benefits  19,957   19,735   20,549   18,901   17,730 
Net occupancy expenses  3,190   3,561   3,204   2,935   3,084 
Data processing  2,607   2,537   2,672   2,526   2,388 
Professional fees  283   314   562   522   588 
Outside services and consultants  2,485   2,525   2,197   2,330   2,220 
Loan expense  2,497   2,545   2,803   2,645   3,107 
FDIC insurance expense  775   725   798   279   500 
Other losses  362   168   1,925   69   6 
Other expenses  4,212   4,500   4,660   4,142   3,765 
Total non–interest expense  36,368   36,610   39,370   34,349   33,388 
Income before income taxes  28,834   27,102   25,505   27,127   25,943 
Income tax expense  3,975   3,539   4,080   4,056   3,770 
Net income $24,859  $23,563  $21,425  $23,071  $22,173 
Basic earnings per share $0.57  $0.54  $0.49  $0.53  $0.50 
Diluted earnings per share  0.57   0.54   0.49   0.52   0.50 


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
  Six Months Ended
  June 30, June 30,
   2022   2021 
Interest income    
Loans receivable $79,428  $80,054 
Investment securities – taxable  16,222   4,076 
Investment securities – non–taxable  14,004   10,879 
Total interest income  109,654   95,009 
Interest expense    
Deposits  3,173   4,396 
Borrowed funds  2,530   2,565 
Subordinated notes  1,761   1,761 
Junior subordinated debentures issued to capital trusts  1,011   1,117 
Total interest expense  8,475   9,839 
Net interest income  101,179   85,170 
Credit loss expense (recovery)  (1,146)  (1,125)
Net interest income after credit loss expense (recovery)  102,325   86,295 
Non–interest Income    
Service charges on deposit accounts  5,628   4,391 
Wire transfer fees  329   477 
Interchange fees  6,362   5,232 
Fiduciary activities  2,908   3,704 
Gains / (losses) on sale of investment securities     914 
Gain on sale of mortgage loans  4,528   10,908 
Mortgage servicing income net of impairment  3,808   1,716 
Increase in cash value of bank owned life insurance  1,029   1,013 
Death benefit on bank owned life insurance  644   266 
Other income  1,353   459 
Total non–interest income  26,589   29,080 
Non–interest expense    
Salaries and employee benefits  39,692   34,601 
Net occupancy expenses  6,751   6,402 
Data processing  5,144   4,764 
Professional fees  597   1,132 
Outside services and consultants  5,010   3,922 
Loan expense  5,042   5,929 
FDIC insurance expense  1,500   1,300 
Other losses  530   289 
Other expenses  8,712   7,221 
Total non–interest expense  72,978   65,560 
Income before income taxes  55,936   49,815 
Income tax expense  7,514   7,220 
Net income $48,422  $42,595 
Basic earnings per share $1.11  $0.97 
Diluted earnings per share  1.11   0.97 



Contact:Mark E. Secor
 Chief Financial Officer
Phone:(219) 873-2611
Fax:(219) 874-9280
Date:July 27, 2022