Horizon Bancorp, Inc. Announces Record Earnings for 2021 and Fourth Quarter Results including Strong Profitability, Higher Net Interest Income, Growing Commercial and Consumer Loans, and Disciplined Expense Management


MICHIGAN CITY, Ind., Jan. 26, 2022 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and twelve months ending December 31, 2021.

“Horizon capped 2021 with record annual earnings and net interest income, as well as continued growth in commercial and consumer loans through the fourth quarter, mortgage production well in–line with our expectations, strong asset quality metrics and continued disciplined expense management,” Chairman and CEO Craig M. Dwight said. “We enter 2022 with strong pipelines to support our loan growth goals for the year, successfully integrated a new team of advisors and customers onboarded through the September acquisition of 14 branches and low–cost deposits to expand Horizon’s Michigan franchise, and a balance sheet that is very well positioned for increasing short term interest rates.”

Fourth Quarter and Full Year 2021 Highlights

  • Net income totaled $87.1 million, or $1.98 per diluted share for the 12 months of 2021 and $21.4 million, or $0.49 per diluted share in the fourth quarter. Adjusted diluted earnings per share was $0.54 for the fourth quarter of 2021 compared to $0.52 for the third quarter of 2021 and $0.52 for the fourth quarter of 2020. (See the “Non–GAAP Reconciliation of Diluted Earnings Per Share” table for the definition of this non–GAAP calculation of adjusted diluted earnings per share.)

  • Net interest income grew to a record $50.0 million for the quarter, up 7.4% from the third quarter of 2021 and 14.6% from the fourth quarter of 2020. Reported net interest margin (“NIM”) was 2.97% and adjusted NIM was 2.86%, with reported NIM decreasing by 20 basis points and adjusted NIM decreasing by 26 basis points from the third quarter of 2021. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation of adjusted NIM.) Approximately 10 basis points of the NIM and adjusted NIM is attributed to Federal Paycheck Protection Program (“PPP”) lending, offset by an estimated 32 basis point compression attributed to excess liquidity during the quarter. During the fourth quarter, Horizon increased the average balance of its investment portfolio by $458.9 million to leverage capital and focus on increasing net interest income.

  • The Company was asset sensitive as of December 31, 2021, resulting from the liquidity on the balance sheet, adjustable rate assets and the low beta's on deposit pricing based on expected deposit rates. Based on parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock, net interest income increases approximately $10.0 million and $20.0 million, respectively.

  • Commercial loans, excluding PPP and acquired loans, grew by 2.4% during the quarter and 2.4% during 2021 to a record $2.13 billion at period end.

  • Consumer loans, excluding acquired loans, grew by 1.9% during the fourth quarter and 2.7% during 2021 to a record $727.3 million at period end, with record production of $397.1 million.
  • Residential mortgage loans, excluding acquired loans, declined in–line with expectations by 1.5% during the fourth quarter and 13.8% during 2021 to $594.4 million at period end, as the addition of new producers and the launch of a new jumbo mortgage product aimed at second home buyers in Horizon's very attractive second–home markets began to mitigate the impact of the industry–wide slowdown in mortgage lending from recent historic levels. Mortgage loan revenues only constituted 10.8% of total revenue in 2021.

  • Non–interest expense was $39.4 million in the quarter, including ongoing operating expenses associated with the Michigan branch acquisition that closed on September 17. Excluding acquisition–related expenses and non–recurring Employee Stock Ownership Plan (“ESOP”) settlement expense, non–interest expense was $36.6 million, representing 1.95% of average assets on an annualized basis in the quarter, compared to $33.6 million, or 2.05%, in the third quarter of 2021 and $36.5 million, or 2.47%, in the fourth quarter of 2020. Acquisition–related expenses totaled approximately $884,000 in the fourth quarter of 2021 and $799,000 in the linked quarter. (See the “Non–GAAP Reconciliation of Non–Interest Expense” table for the definition of this non–GAAP calculation of adjusted non–interest expense.)

  • Horizon accrued $1.9 million of expense in December for a mediation settlement related to a dispute with the U.S. Department of Labor (“DOL”) concerning valuations and sale transactions related to Horizon's ESOP trustee business. Horizon is no longer in the ESOP trustee business and sold all accounts to a third party on September 30, 2021 and recorded a $2.3 million gain on the sale in the third quarter.

  • The efficiency ratio for the period was 62.69% compared to 54.88% for the third quarter of 2021 and 57.54% for the fourth quarter of 2020. The adjusted efficiency ratio, excluding acquisition–related expense and non–recurring settlement costs, was 58.25% compared to 56.16% for the third quarter of 2021 and 56.48% for the fourth quarter of 2020. (See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)

  • 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, 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 0.31% in the quarter, compared to 0.38% in the third quarter of 2021 and 0.94% in the fourth quarter of 2020.

  • Horizon recorded a provision release of $2.1 million in the quarter, compared to a provision expense of $1.1 million in the third quarter of 2021 and $3.0 million in the fourth quarter of 2020, as non–performing loans declined to $19.0 million, or 0.53% of total loans, on December 31, 2021.

  • Horizon’s book value per share and tangible book value increased to all–time highs of $16.61 and $12.58. (See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table below.) Held to Maturity (“HTM”) securities were increased in the fourth quarter through a transfer from Available for Sale (“AFS”) securities and purchases to 57.2% of the investment portfolio. This increase in HTM securities will help manage the impact of unrealized losses to tangible capital in a rising rate environment.

  • The integration of 14 branches purchased from TCF National Bank that closed on September 17, 2021 is complete and was very successful. The deposit runoff has stabilized at approximately 8% with the plan to begin to rebuild this runoff as we enter into 2022. The financial impact of this transaction to date is in line with management's projections.

Summary

  For the Three Months Ended
  December 31, September 30, December 31,
Net Interest Income and Net Interest Margin  2021   2021   2020 
Net interest income $49,976  $46,544  $43,622 
Net interest margin  2.97%  3.17%  3.34%
Adjusted net interest margin  2.86%  3.12%  3.44%

“Horizon's net interest income of approximately $50.0 million in the fourth quarter was an all–time high and was achieved despite margin compression during the quarter due to pressure from lower yielding investment securities and higher levels of cash,” Mr. Dwight commented. “We are well–positioned for a rising interest rate environment and believe that a 200 basis point increase in the federal funds rate would increase net interest income by approximately $20.0 million.”

  For the Three Months Ended
  December 31, September 30, December 31,
Asset Yields and Funding Costs 2021 2021 2020
Interest earning assets 3.20% 3.46% 4.05%
Interest bearing liabilities 0.31% 0.38% 0.94%


  For the Three Months Ended
Non–interest Income and  December 31, September 30, December 31,
Mortgage Banking Income 2021 2021 2020
Total non–interest income $12,828 $16,044 $19,733
Gain on sale of mortgage loans  4,167  4,088  7,815
Mortgage servicing income net of impairment  300  336  327


  For the Three Months Ended
  December 31, September 30, December 31,
Non–interest Expense 2021 2021 2020
Total non–interest expense $39,370  $34,349  $36,453 
Annualized non–interest expense to average assets  2.09%  2.09%  2.47%


  For the Three Months Ended
  December 31, September 30, December 31,
Credit Quality 2021 2021 2020
Allowance for credit losses to total loans 1.51% 1.55% 1.47%
Non–performing loans to total loans 0.53% 0.80% 0.69%
Percent of net charge–offs to average loans outstanding for the period 0.04% 0.00% 0.01%


Allowance for December 31, Net Reserve December 31,
Credit Losses  2020  1Q21 2Q21 3Q21 4Q21  2021 
Commercial $42,210  $770  $(1,214) $1,355  $(2,346) $40,775 
Retail Mortgage  4,620   (391)  (121)  (371)  119   3,856 
Warehouse  1,267   (104)  (8)  (101)  5   1,059 
Consumer  8,930   (116)  (194)  247   (271)  8,596 
Allowance for Credit Losses (“ACL”) $57,027  $159  $(1,537) $1,130  $(2,493) $54,286 
ACL / Total Loans  1.47%          1.51%
Acquired Loan Discount (“ALD”) $11,494  $(221) $(815) $(27) $(1,334) $9,097 

“We reported strong asset quality metrics, including reductions in non–performing loans from both the linked and year–ago quarter–ends, with non–performing loans making up just 0.53% of total loans at December 31, 2021,” Mr. Dwight said. “We were pleased to be able to make progress on workouts on loans acquired as part of our September branch acquisition and see continued opportunity to work with these new borrowers and sponsors through our hands–on credit–management.”

Income Statement Highlights

Net income for the fourth quarter of 2021 was $21.4 million, or $0.49 diluted earnings per share, compared to $23.1 million, or $0.52, for the linked quarter and $21.9 million, or $0.50, for the prior year period.

Adjusted net income for the fourth quarter of 2021 was $23.7 million, or $0.54 diluted earnings per share, compared to $23.0 million, or $0.52, for the linked quarter and $22.8 million, or $0.52, for the prior year period. Adjusted net income, which is not calculated according to generally accepted accounting principles (“GAAP”), is a measure that Horizon uses to provide a greater understanding of operating profitability.

The decrease in net income for the fourth quarter of 2021 when compared to the third quarter of 2021 reflects an increase in non–interest expense of $5.0 million and a decrease in non–interest income of $3.2 million, offset by an increase in net interest income of $3.4 million and a decrease in credit loss expense of $3.2 million.

Interest income includes the recognition of PPP interest and net loan processing fees totaling $2.1 million in the fourth quarter of 2021, compared to $3.5 million in the linked quarter. On December 31, 2021, the Company had $561,000 in net deferred PPP loan processing fees outstanding and $25.8 million in PPP loans outstanding. PPP net deferred fees and loans outstanding at September 30, 2021 were $2.5 million and $92.3 million, respectively. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness.

Fourth quarter 2021 income from the gain on sale of mortgage loans totaled $4.2 million, up from $4.1 million in the linked quarter and down from $7.8 million in the prior year period.

Non–interest expense of $39.4 million in the fourth quarter of 2021 reflected a $1.9 million increase in other losses, an increase of $1.6 million in salaries and employee benefits expense, an increase of $519,000 in FDIC deposit insurance expense, an increase of $518,000 in other expense, an increase of $269,000 in net occupancy expense, an increase of $158,000 in loan expense and an increase of $146,000 in data processing, offset by a decrease in outside services and consultants expense of $133,000, from the linked quarter. Acquisition related expenses in the fourth quarter of 2021 increased $85,000 from the linked quarter.

The decrease in net income for the fourth quarter of 2021 when compared to the same prior year period reflects a decrease in non–interest income of $6.9 million, an increase in non–interest expense of $2.9 million and an increase in income tax expense of $2.1 million, offset by an increase in net interest income of $6.4 million and a decrease in credit loss expense of $5.1 million.

Net income for the year ended December 31, 2021 was $87.1 million, or $1.98 diluted earnings per share, compared to $68.5 million, or $1.55 diluted earnings per share, for the year ended December 31, 2020. Adjusted net income for the year ended December 31, 2021 was $88.6 million, or $2.00 diluted earnings per share, compared to $67.8 million, or $1.53 diluted earnings per share, for the year ended December 31, 2020. The increase in net income for the year ended December 31, 2021 when compared to the same prior year period reflects a decrease in credit loss expense of $22.8 million and an increase in net interest income of $10.8 million, offset by an increase in non–interest expense of $7.8 million, an increase in income tax expense of $5.5 million and a decrease in non–interest income of $1.7 million.

Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
   2021   2021   2021   2021   2020   2021   2020 
Net income as reported $21,425  $23,071  $22,173  $20,422  $21,893  $87,091  $68,499 
Acquisition expenses  884   799   242         1,925    
Tax effect  (184)  (166)  (51)        (401)   
Net income excluding acquisition expenses  22,125   23,704   22,364   20,422   21,893   88,615   68,499 
Credit loss expense acquired loans     2,034            2,034    
Tax effect     (427)           (427)   
Net income excluding credit loss expense acquired loans  22,125   25,311   22,364   20,422   21,893   90,222   68,499 
Gain on sale of ESOP trustee accounts     (2,329)           (2,329)   
Tax effect     489            489    
Net income excluding gain on sale of ESOP trustee accounts  22,125   23,471   22,364   20,422   21,893   88,382   68,499 
ESOP settlement expenses  1,900               1,900    
Tax effect  (315)              (315)   
Net income excluding ESOP settlement expenses  23,710   23,471   22,364   20,422   21,893   89,967   68,499 
(Gain) / loss on sale of investment securities           (914)  (2,622)  (914)  (4,297)
Tax effect           192   551   192   902 
Net income excluding (gain) / loss on sale of investment securities  23,710   23,471   22,364   19,700   19,822   89,245   65,104 
Death benefit on bank owned life insurance (“BOLI”)     (517)  (266)        (783)  (264)
Net income excluding death benefit on BOLI  23,710   22,954   22,098   19,700   19,822   88,462   64,840 
Prepayment penalties on borrowings        125      3,804   125   3,804 
Tax effect        (26)     (799)  (26)  (799)
Net income excluding prepayment penalties on borrowings  23,710   22,954   22,197   19,700   22,827   88,561   67,845 
Adjusted net income $23,710  $22,954  $22,197  $19,700  $22,827  $88,561  $67,845 


Non–GAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
   2021   2021   2021   2021   2020   2021   2020 
Diluted earnings per share (“EPS”) as reported $0.49  $0.52  $0.50  $0.46  $0.50  $1.98  $1.55 
Acquisition expenses  0.02   0.02   0.01         0.04    
Tax effect                     
Diluted EPS excluding acquisition expenses  0.51   0.54   0.51   0.46   0.50   2.02   1.55 
Credit loss expense acquired loans     0.05            0.05    
Tax effect     (0.01)           (0.01)   
Diluted EPS excluding credit loss expense acquired loans  0.51   0.58   0.51   0.46   0.50   2.06   1.55 
Gain on sale of ESOP trustee accounts     (0.05)           (0.05)   
Tax effect     0.01            0.01    
Diluted EPS excluding gain on sale of ESOP trustee accounts  0.51   0.54   0.51   0.46   0.50   2.02   1.55 
ESOP settlement expenses  0.04               0.04    
Tax effect  (0.01)              (0.01)   
Diluted EPS excluding ESOP settlement expenses  0.54   0.54   0.51   0.46   0.50   2.05   1.55 
(Gain) / loss on sale of investment securities           (0.02)  (0.06)  (0.02)  (0.10)
Tax effect              0.01      0.02 
Diluted EPS excluding (gain) / loss on sale of investment securities  0.54   0.54   0.51   0.44   0.45   2.03   1.47 
Death benefit on bank owned life insurance (“BOLI”)     (0.02)  (0.01)        (0.03)  (0.01)
Diluted EPS excluding death benefit on BOLI  0.54   0.52   0.50   0.44   0.45   2.00   1.46 
Prepayment penalties on borrowings              0.09      0.09 
Tax effect              (0.02)     (0.02)
Diluted EPS excluding prepayment penalties on borrowings  0.54   0.52   0.50   0.44   0.52   2.00   1.53 
Adjusted diluted EPS $0.54  $0.52  $0.50  $0.44  $0.52  $2.00  $1.53 


Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
   2021   2021   2021   2021   2020   2021   2020 
Pre–tax income $25,505  $27,127  $25,943  $23,872  $23,860  $102,447  $78,369 
Credit loss expense  (2,071)  1,112   (1,492)  367   3,042   (2,084)  20,751 
Pre–tax, pre–provision income $23,434  $28,239  $24,451  $24,239  $26,902  $100,363  $99,120 
               
Pre–tax, pre–provision income $23,434  $28,239  $24,451  $24,239  $26,902  $100,363  $99,120 
Acquisition expenses  884   799   242         1,925    
Gain on sale of ESOP trustee accounts     (2,329)           (2,329)   
ESOP settlement expenses  1,900               1,900    
(Gain) / loss on sale of investment securities           (914)  (2,622)  (914)  (4,297)
Death benefit on BOLI     (517)  (266)        (783)  (264)
Prepayment penalties on borrowings        125      3,804   125   3,804 
Adjusted pre–tax, pre–provision income $26,218  $26,192  $24,552  $23,325  $28,084  $100,162  $94,559 

Horizon’s net interest margin decreased to 2.97% for the fourth quarter of 2021 compared to 3.17% for the third quarter of 2021. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 26 basis points, offset by a decrease in the cost of interest bearing liabilities of seven basis points. Interest income from acquisition–related purchase accounting adjustments was $944,000 higher during the fourth quarter of 2021 when compared to the third quarter of 2021.

Horizon’s net interest margin decreased to 2.97% for the fourth quarter of 2021 compared to 3.34% for the fourth quarter of 2020. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 85 basis points offset by a decrease in the cost of interest bearing liabilities of 63 basis points.

Horizon’s net interest margin decreased to 3.13% for the year ended December 31, 2021 compared to 3.44% for the same prior year period. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 68 basis points offset by a decrease in the cost of interest bearing liabilities of 95 basis points.

The net interest margin was impacted during the fourth and third quarters of 2021 by PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by 10 and 16 basis points for the fourth and third quarters 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 fourth and third quarters 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 32 and 16 basis points for the fourth and third quarters 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.
  

Non–GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
   2021   2021   2021   2021   2020   2021   2020 
Net interest income as reported $49,976  $46,544  $42,632  $42,538  $43,622  $181,690  $170,940 
Average interest earning assets  6,938,258   6,033,088   5,659,384   5,439,634   5,365,888   6,021,740   5,120,106 
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)  2.97%  3.17%  3.14%  3.29%  3.34%  3.13%  3.44%
               
Net interest income as reported $49,976  $46,544  $42,632  $42,538  $43,622  $181,690  $170,940 
Acquisition–related purchase accounting adjustments (“PAUs”)  (1,819)  (875)  (230)  (1,579)  (2,461)  (4,503)  (6,936)
Prepayment penalties on borrowings        125      3,804   125   3,804 
Adjusted net interest income $48,157  $45,669  $42,527  $40,959  $44,965  $177,187  $164,004 
Adjusted net interest margin  2.86%  3.12%  3.13%  3.17%  3.44%  3.06%  3.38%

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 2.86% for the fourth quarter of 2021, compared to 3.12% for the linked quarter and 3.44% for the fourth quarter of 2020. Interest income from acquisition–related purchase accounting adjustments was $1.8 million, $875,000 and $2.5 million for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

The adjusted net interest margin was 3.06% for the year ended December 31, 2021 compared to 3.38% for the same prior year period. Interest income from acquisition–related purchase accounting adjustments was $4.5 million and $6.9 million for the year ended December 31, 2021 and 2020, respectively.

Lending Activity

Total loan balances were $3.60 billion, or $3.57 billion excluding PPP loans, on December 31, 2021. Total loans were $3.66 billion, or $3.57 billion excluding PPP loans, on September 30, 2021. During the three months ended December 31, 2021, commercial loans, excluding PPP loans, increased $50.7 million, consumer loans increased $13.8 million and loans held for sale increased $7.8 million, offset by decreases in PPP loans of $66.4 million, mortgage warehouse loans of $60.9 million and residential mortgage loans of $9.2 million.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
  December 31, September 30, Amount QTD Annualized
  2021 2021 Change % Change % Change
Commercial, excluding PPP loans $2,131,644 $2,080,943 $50,701  2.4% 9.7%
PPP loans  25,844  92,257  (66,413) (72.0)% (285.6)%
Residential mortgage  594,382  603,540  (9,158) (1.5)% (6.0)%
Consumer  727,259  713,432  13,827  1.9% 7.7%
Subtotal  3,479,129  3,490,172  (11,043) (0.3)% (1.3)%
Loans held for sale  12,579  4,811  7,768  161.5% 640.6%
Mortgage warehouse  109,031  169,909  (60,878) (35.8)% (142.2)%
Total loans $3,600,739 $3,664,892 $(64,153) (1.8)% (6.9)%
           
Total loans, excluding PPP loans $3,574,895 $3,572,635 $2,260  0.1% 0.3%

Total loan balances were $3.60 billion, or $3.57 billion excluding PPP loans, on December 31, 2021. Total loans were $3.88 billion, or $3.67 billion excluding PPP loans, on December 31, 2020. During the year ended December 31, 2021, commercial loans, excluding PPP and acquired loans, increased $46.9 million and consumer loans, excluding acquired loans, increased $17.8 million, offset by decreases in mortgage warehouse loans of $286.6 million, PPP loans of $183.0 million and residential mortgage loans, excluding acquired loans, of $86.4 million.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
  December 31, December 31, Amount Acquired Amount YTD
  2021 2020 Change Loans Change % Change
Commercial, excluding PPP loans $2,131,644 $1,983,389 $148,255  $(101,327) $46,928  2.4%
PPP loans  25,844  208,882  (183,038)     (183,038) (87.6)%
Residential mortgage  594,382  624,286  (29,904)  (56,499)  (86,403) (13.8)%
Consumer  727,259  655,200  72,059   (54,212)  17,847  2.7%
Subtotal  3,479,129  3,471,757  7,372   (212,038)  (204,666) (5.9)%
Loans held for sale  12,579  13,538  (959)     (959) (7.1)%
Mortgage warehouse  109,031  395,626  (286,595)     (286,595) (72.4)%
Total loans $3,600,739 $3,880,921 $(280,182) $(212,038) $(492,220) (12.7)%
             
Total loans, excluding PPP loans $3,574,895 $3,672,039 $(97,144) $(212,038) $(309,182) (8.4)%

Residential mortgage lending activity for the three months ended December 31, 2021 generated $4.2 million in income from the gain on sale of mortgage loans, increasing $79,000 from the third quarter of 2021 and decreasing $3.6 million from the fourth quarter of 2020. Total origination volume for the fourth quarter of 2021, including loans placed into the portfolio, totaled $150.3 million, representing an increase of 4.1% from third quarter 2021 levels, and a decrease of 19.2% from the fourth quarter of 2020. As a percentage of total originations, 48% of the volume was from refinances and 52% was from new purchases during the fourth quarter of 2021. Total origination volume of loans sold to the secondary market totaled $95.9 million, representing a decrease of 7.0% from the third quarter of 2021 and a decrease of 39.2% from the fourth quarter of 2020.

The percentage of revenue derived from Horizon's residential mortgage and mortgage warehouse lending activities was 9% for the three months ended December 31, 2021, compared to 9% for the linked quarter and 16% for the three months ended December 31, 2020.

Deposit Activity

Total deposit balances were $5.80 billion on December 31, 2021 compared to $5.98 billion on September 30, 2021, a decrease of $176.9 million primarily due to lower municipal deposit balances.

Deposit Growth by Type, Excluding Acquired Deposits
(Dollars in Thousands, Unaudited)
 December 31, September 30, Amount QTD Annualized
 2021 2021 Change % Change % Change
Non–interest bearing$1,360,338 $1,324,757 $35,581  2.7% 10.7%
Interest bearing 3,711,767  3,875,882  (164,115) (4.2)% (16.8)%
Time deposits 730,886  779,260  (48,374) (6.2)% (24.6)%
Total deposits$5,802,991 $5,979,899 $(176,908) (3.0)% (11.7)%

Expense Management

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
  Three Months Ended
  December 31, September 30,    
   2021   2021  Adjusted
Non–interest Expense Actual Acquisition &
Non–Recurring Expenses
 Adjusted Actual Acquisition
&
Non–Recurring
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits $20,549  $(202) $20,347  $18,901  $(25) $18,876  $1,471  7.8%
Net occupancy expenses  3,204      3,204   2,935   (13)  2,922   282  9.7%
Data processing  2,672   (1)  2,671   2,526   (17)  2,509   162  6.5%
Professional fees  562   (45)  517   522   (53)  469   48  10.2%
Outside services and consultants  2,197   (162)  2,035   2,330   (401)  1,929   106  5.5%
Loan expense  2,803   (83)  2,720   2,645      2,645   75  2.8%
FDIC insurance expense  798   (6)  792   279      279   513  183.9%
Other losses  1,925   (1,904)  21   69   (1)  68   (47) (69.1)%
Other expense  4,660   (381)  4,279   4,142   (289)  3,853   426  11.1%
Total non–interest expense $39,370  $(2,784) $36,586  $34,349  $(799) $33,550  $3,036  9.0%
Annualized non–interest expense to average assets  2.09%    1.95%  2.09%    2.05%    

Total non–interest expense was $5.0 million higher in the fourth quarter of 2021 when compared to the third quarter of 2021. The increase in expenses was primarily due to an increase in other losses of $1.9 million from the ESOP settlement, an increase in salaries and employee benefits of $1.6 million due to the addition of revenue producing lenders, increasing the incentive bonus accrual and a full quarter of cost for the acquired branches, an increase in FDIC insurance expense of $519,000 and an increase in other expense of $518,000. Excluding acquisition expenses and non–recurring ESOP settlement expenses, total non–interest expense increased by $3.0 million in the fourth quarter of 2021 when compared to the third quarter of 2021.

Horizon accrued $1.9 million of expense in December for a mediation settlement related to a dispute with the U.S. Department of Labor (“DOL”) concerning valuations and sale transactions related to Horizon's ESOP trustee business. Horizon is no longer in the ESOP trustee business and sold all accounts to a third party on September 30, 2021.

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
  Three Months Ended
  December 31, December 31,    
   2021   2020  Adjusted
Non–interest Expense Actual Acquisition
&
Non–Recurring
Expenses
 Adjusted Actual Acquisition
&
Non–Recurring
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits $20,549  $(202) $20,347  $20,030  $ $20,030  $317  1.6%
Net occupancy expenses  3,204      3,204   3,262     3,262   (58) (1.8)%
Data processing  2,672   (1)  2,671   2,126     2,126   545  25.6%
Professional fees  562   (45)  517   691     691   (174) (25.2)%
Outside services and consultants  2,197   (162)  2,035   2,083     2,083   (48) (2.3)%
Loan expense  2,803   (83)  2,720   2,961     2,961   (241) (8.1)%
FDIC insurance expense  798   (6)  792   900     900   (108) (12.0)%
Other losses  1,925   (1,904)  21   735     735   (714) (97.1)%
Other expense  4,660   (381)  4,279   3,665     3,665   614  16.8%
Total non–interest expense $39,370  $(2,784) $36,586  $36,453  $ $36,453  $133  0.4%
Annualized non–interest expense to average assets  2.09%    1.95%  2.47%    2.47%    

Total non–interest expense was $2.9 million higher in the fourth quarter of 2021 when compared to the fourth quarter of 2020. The increase in expenses was primarily due to an increase in other losses of $1.2 million, an increase in other expense of $995,000, an increase in data processing of $546,000 and an increase in salaries and employee benefits of $519,000, offset by a decrease in loan expense of $158,000 and a decrease in professional fees of $129,000. Excluding acquisition expenses and non–recurring ESOP settlement expenses, total non–interest expense increased by $133,000 in the fourth quarter when compared to the same prior year period.

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
  Twelve Months Ended
  December 31, December 31,    
   2021   2020  Adjusted
Non–interest Expense Actual Acquisition
&
Non–Recurring
Expenses
 Adjusted Actual Acquisition
&
Non–Recurring
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits $74,051  $(227) $73,824  $71,082  $ $71,082  $2,742  3.9%
Net occupancy expenses  12,541   (13)  12,528   12,811     12,811   (283) (2.2)%
Data processing  9,962   (18)  9,944   9,200     9,200   744  8.1%
Professional fees  2,216   (149)  2,067   2,433     2,433   (366) (15.0)%
Outside services and consultants  8,449   (750)  7,699   7,318     7,318   381  5.2%
Loan expense  11,377   (83)  11,294   10,628     10,628   666  6.3%
FDIC insurance expense  2,377   (6)  2,371   1,855     1,855   516  27.8%
Other losses  2,283   (1,905)  378   1,162     1,162   (784) (67.5)%
Other expense  16,023   (674)  15,349   14,952     14,952   397  2.7%
Total non–interest expense $139,279  $(3,825) $135,454  $131,441  $ $131,441  $4,013  3.1%
Annualized non–interest expense to average assets  2.14%    2.08%  2.34%    2.34%    

Total non–interest expense was $7.8 million higher for the year ended December 31, 2021 when compared to the same prior year period. The year–over–increase was due to increases in salaries and employee benefits, outside services and consultants, other losses, other expense, data processing and loan expense. Excluding acquisition expenses and non–recurring ESOP settlement expenses, total non–interest expense increased $4.0 million for the year ended December 31, 2021 when compared to the same prior year period.
  
Annualized non–interest expense as a percent of average assets was 2.09%, 2.09% and 2.47% for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively. Annualized non–interest expense, excluding acquisition expenses and non–recurring ESOP settlement expenses, as a percent of average assets was 1.95%, 2.05% and 2.47% for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

Annualized non–interest expense as a percent of average assets was 2.14% and 2.34% for the year ended December 31, 2021 and 2020, respectively. Annualized non–interest expense, excluding acquisition expenses and non–recurring ESOP settlement expenses, as a percentage of average assets was 2.08% and 2.34% for the year ended December 31, 2021 and 2020, respectively.

Income tax expense totaled $4.1 million for the fourth and third quarters of 2021. Income tax expense was $2.1 million higher when compared to the fourth quarter of 2020. The increase in income tax expense when compared to the fourth quarter of 2020 was primarily due to timing of certain tax credits.

Income tax expense totaled $15.4 million for the year ended December 31, 2021, an increase of $5.5 million when compared to the year ended December 31, 2020. The increase in income tax expense was primarily due to an increase in income before taxes of $24.1 million.

Capital

The capital resources of the Company and the Company’s wholly–owned subsidiary bank, Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at December 31, 2021. Stockholders’ equity totaled $723.2 million at December 31, 2021 and the ratio of average stockholders’ equity to average assets was 11.61% for the year ended December 31, 2021.

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

  Actual Required for Capital Adequacy Purposes Required for Capital Adequacy Purposes with Capital Buffer Well Capitalized
Under Prompt Corrective Action Provisions
  Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk–weighted assets)                
Consolidated $716,171 15.39% $372,279 8.00% $488,616 10.50% N/A N/A 
Bank  667,881 14.37%  371,820 8.00%  488,013 10.50% $464,775 10.00%
Tier 1 capital (to risk–weighted assets)                
Consolidated  657,976 14.14%  279,198 6.00%  395,530 8.50% N/A N/A 
Bank  609,686 13.11%  279,032 6.00%  395,296 8.50%  372,043 8.00%
Common equity tier 1 capital (to risk–weighted assets)                
Consolidated  543,726 11.68%  209,483 4.50%  325,863 7.00% N/A N/A 
Bank  609,686 13.11%  209,274 4.50%  325,538 7.00%  302,285 6.50%
Tier 1 capital (to average assets)                
Consolidated  657,976 9.21%  285,766 4.00%  285,766 4.00% N/A N/A 
Bank  609,686 8.54%  285,567 4.00%  285,567 4.00%  356,959 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 repayments, 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 December 31, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $672.7 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank also had approximately $2.0 billion of unpledged investment securities at December 31, 2021.

Use of Non–GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for credit losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision income. In each case, we have identified special circumstances that we consider to be non–recurring and have excluded them. We believe that this shows the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations. Horizon believes these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business 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)
   
  December 31, September 30, June 30, March 31, December 31,
  2021 2021 2021 2021 2020
Total stockholders’ equity $723,209 $708,542 $710,374 $689,379 $692,216
Less: Intangible assets  175,513  183,938  172,398  173,296  174,193
Total tangible stockholders’ equity $547,696 $524,604 $537,976 $516,083 $518,023
Common shares outstanding  43,547,942  43,520,694  43,950,720  43,949,189  43,880,562
Book value per common share $16.61 $16.28 $16.16 $15.69 $15.78
Tangible book value per common share $12.58 $12.05 $12.24 $11.74 $11.81


Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
   2021   2021   2021   2021   2020   2021   2020 
Non–interest expense as reported $39,370  $34,349  $33,388  $32,172  $36,453  $139,279  $131,441 
Net interest income as reported  49,976   46,544   42,632   42,538   43,622   181,690   170,940 
Non–interest income as reported $12,828  $16,044  $15,207  $13,873  $19,733  $57,952  $59,621 
Non–interest expense / (Net interest income + Non–interest income) (“Efficiency Ratio”)  62.69%  54.88%  57.73%  57.03%  57.54%  58.12%  57.01%
               
Non–interest expense as reported $39,370  $34,349  $33,388  $32,172  $36,453  $139,279  $131,441 
Acquisition expenses  (884)  (799)  (242)        (1,925)   
ESOP settlement expenses  (1,900)              (1,900)   
Non–interest expense excluding acquisition expenses and ESOP settlement expenses  36,586   33,550   33,146   32,172   36,453   135,454   131,441 
Net interest income as reported  49,976   46,544   42,632   42,538   43,622   181,690   170,940 
Prepayment penalties on borrowings        125      3,804   125   3,804 
Net interest income excluding prepayment penalties on borrowings  49,976   46,544   42,757   42,538   47,426   181,815   174,744 
Non–interest income as reported  12,828   16,044   15,207   13,873   19,733   57,952   59,621 
Gain on sale of ESOP trustee accounts     (2,329)           (2,329)   
(Gain) / loss on sale of investment securities           (914)  (2,622)  (914)  (4,297)
Death benefit on BOLI     (517)  (266)        (783)  (264)
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI $12,828  $13,198  $14,941  $12,959  $17,111  $53,926  $55,060 
Adjusted efficiency ratio  58.25%  56.16%  57.45%  57.97%  56.48%  57.46%  57.20%


Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
   2021   2021   2021   2021   2020   2021   2020 
Average assets $7,461,343  $6,507,673  $6,142,507  $5,936,149  $5,864,086  $6,514,251  $5,628,783 
Return on average assets (“ROAA”) as reported  1.14%  1.41%  1.45%  1.40%  1.49%  1.34%  1.22%
Acquisition expenses  0.05   0.05   0.02         0.03    
Tax effect  (0.01)  (0.01)           (0.01)   
ROAA excluding acquisition expenses  1.18   1.45   1.47   1.40   1.49   1.36   1.22 
Credit loss expense acquired loans     0.12            0.03    
Tax effect     (0.03)           (0.01)   
ROAA excluding credit loss expense on acquired loans  1.18   1.54   1.47   1.40   1.49   1.38   1.22 
Gain on sale of ESOP trustee accounts     (0.14)           (0.04)   
Tax effect     0.03            0.01    
ROAA excluding gain on sale of ESOP trustee accounts  1.18   1.43   1.47   1.40   1.49   1.35   1.22 
ESOP settlement expenses  0.10               0.03    
Tax effect  (0.02)                  
ROAA excluding ESOP settlement expenses  1.26   1.43   1.47   1.40   1.49   1.38   1.22 
(Gain) / loss on sale of investment securities           (0.06)  (0.18)  (0.01)  (0.08)
Tax effect           0.01   0.04      0.02 
ROAA excluding (gain) / loss on sale of investment securities  1.26   1.43   1.47   1.35   1.35   1.37   1.16 
Death benefit on BOLI     (0.03)  (0.02)        (0.01)   
ROAA excluding death benefit on BOLI  1.26   1.40   1.45   1.35   1.35   1.36   1.16 
Prepayment penalties on borrowings        0.01      0.26      0.07 
Tax effect              (0.05)     (0.01)
ROAA excluding prepayment penalties on borrowings  1.26   1.40   1.46   1.35   1.56   1.36   1.22 
Adjusted ROAA  1.26%  1.40%  1.46%  1.35%  1.56%  1.36%  1.22%


Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
  Three Months Ended Twelve Months Ended
  December 31, September 30, June 30, March 31, December 31, December 31, December 31,
   2021   2021   2021   2021   2020   2021   2020 
Average common equity $719,643  $724,412  $706,652  $697,401  $680,857  $712,122  $665,466 
Return on average common equity (“ROACE”) as reported  11.81%  12.64%  12.59%  11.88%  12.79%  12.23%  10.29%
Acquisition expenses  0.49   0.44   0.14         0.27    
Tax effect  (0.10)  (0.09)  (0.03)        (0.06)   
ROACE excluding acquisition expenses  12.20   12.99   12.70   11.88   12.79   12.44   10.29 
Credit loss expense acquired loans     1.11            0.29    
Tax effect     (0.23)           (0.06)   
ROACE excluding credit loss expense acquired loans  12.20   13.87   12.70   11.88   12.79   12.67   10.29 
Gain on sale of ESOP trustee accounts     (1.28)           (0.33)   
Tax effect     0.27            0.07    
ROACE excluding gain on sale of ESOP trustee accounts  12.20   12.86   12.70   11.88   12.79   12.41   10.29 
ESOP settlement expenses  1.05               0.27    
Tax effect  (0.17)              (0.04)   
ROACE excluding ESOP settlement expenses  13.08   12.86   12.70   11.88   12.79   12.64   10.29 
(Gain) / loss on sale of investment securities           (0.53)  (1.53)  (0.13)  (0.65)
Tax effect           0.11   0.32   0.03   0.14 
ROACE excluding (gain) / loss on sale of investment securities  13.08   12.86   12.70   11.46   11.58   12.54   9.78 
Death benefit on BOLI     (0.28)  (0.15)        (0.11)  (0.04)
ROACE excluding death benefit on BOLI  13.08   12.58   12.55   11.46   11.58   12.43   9.74 
Prepayment penalties on borrowings        0.07      2.22   0.02   0.57 
Tax effect        (0.01)     (0.47)     (0.12)
ROACE excluding prepayment penalties on borrowings  13.08%  12.58%  12.61%  11.46%  13.33%  12.45%  10.19%
Adjusted ROACE  13.08%  12.58%  12.61%  11.46%  13.33%  12.45%  10.19%

Earnings Conference Call

As previously announced, Horizon will host a conference call to review its fourth quarter and full year 2021 financial results and operating performance.

Participants may access the live conference call on January 27, 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 February 3, 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 8295135.

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.

Contact:Mark E. Secor
 Chief Financial Officer
Phone:(219) 873-2611
Fax:(219) 874-9280
Date:January 26, 2022


Financial Highlights
(Dollars in Thousands, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2021 2021 2021 2021 2020
Balance sheet:          
Total assets $7,355,432 $7,534,240 $6,109,227 $6,055,528 $5,886,614
Interest earning deposits & federal funds sold  502,364  872,540  209,304  444,239  158,979
Interest earning time deposits  4,782  5,767  6,994  7,983  8,965
Investment securities  2,713,255  2,438,874  1,844,470  1,423,825  1,302,701
Commercial loans  2,157,488  2,173,200  2,104,627  2,177,858  2,192,271
Mortgage warehouse loans  109,031  169,909  205,311  266,246  395,626
Residential mortgage loans  594,382  603,540  559,437  581,929  624,286
Consumer loans  727,259  713,432  650,144  638,403  655,200
Earning assets  6,845,580  7,006,513  5,610,538  5,571,304  5,374,589
Non–interest bearing deposit accounts  1,360,338  1,324,757  1,102,950  1,133,412  1,053,242
Interest bearing transaction accounts  3,711,767  3,875,882  3,105,328  2,947,438  2,802,673
Time deposits  730,886  779,260  573,348  640,966  675,218
Borrowings  656,282  670,753  439,094  481,488  475,000
Subordinated notes  58,750  58,713  58,676  58,640  58,603
Junior subordinated debentures issued to capital trusts  56,785  56,722  56,662  56,604  56,548
Total stockholders’ equity  723,209  708,542  710,374  689,379  692,216


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
  Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
   2021   2021   2021   2021   2020 
Income statement:          
Net interest income $49,976  $46,544  $42,632  $42,538  $43,622 
Credit loss expense (recovery)  (2,071)  1,112   (1,492)  367   3,042 
Non–interest income  12,828   16,044   15,207   13,873   19,733 
Non–interest expense  39,370   34,349   33,388   32,172   36,453 
Income tax expense  4,080   4,056   3,770   3,450   1,967 
Net income $21,425  $23,071  $22,173  $20,422  $21,893 
           
Per share data:          
Basic earnings per share $0.49  $0.53  $0.50  $0.46  $0.50 
Diluted earnings per share  0.49   0.52   0.50   0.46   0.50 
Cash dividends declared per common share  0.15   0.15   0.13   0.13   0.12 
Book value per common share  16.61   16.28   16.16   15.69   15.78 
Tangible book value per common share  12.58   12.05   12.24   11.74   11.81 
Market value – high  21.14   18.47   19.13   19.94   15.86 
Market value – low $18.01  $15.83  $16.98  $15.43  $10.16 
Weighted average shares outstanding – Basis  43,534,298   43,810,729   43,950,501   43,919,549   43,862,435 
Weighted average shares outstanding – Diluted  43,733,416   43,958,870   44,111,103   44,072,581   43,903,881 
           
Key ratios:          
Return on average assets  1.14%  1.41%  1.45%  1.40%  1.49%
Return on average common stockholders’ equity  11.81   12.64   12.59   11.88   12.79 
Net interest margin  2.97   3.17   3.14   3.29   3.34 
Allowance for credit losses to total loans  1.51   1.55   1.58   1.56   1.47 
Average equity to average assets  9.64   11.13   11.50   11.75   11.61 
Efficiency ratio  62.69   54.88   57.73   57.03   57.54 
Annualized non–interest expense to average assets  2.09   2.09   2.18   2.20   2.47 
Bank only capital ratios:          
Tier 1 capital to average assets  8.54   8.38   8.79   8.81   8.71 
Tier 1 capital to risk weighted assets  13.11   11.86   12.80   12.71   11.29 
Total capital to risk weighted assets  14.37   12.97   14.09   13.86   12.21 


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
  Twelve Months Ended
  December 31, December 31,
   2021   2020 
Income statement:    
Net interest income $181,690  $170,940 
Credit loss expense (recovery)  (2,084)  20,751 
Non–interest income  57,952   59,621 
Non–interest expense  139,279   131,441 
Income tax expense  15,356   9,870 
Net income $87,091  $68,499 
     
Per share data:    
Basic earnings per share $1.99  $1.56 
Diluted earnings per share  1.98   1.55 
Cash dividends declared per common share  0.56   0.48 
Book value per common share  16.61   15.78 
Tangible book value per common share  12.58   11.81 
Market value – high  21.14   18.79 
Market value – low $15.43  $7.97 
Weighted average shares outstanding – Basis  43,802,733   44,044,737 
Weighted average shares outstanding – Diluted  43,955,280   44,123,208 
     
Key ratios:    
Return on average assets  1.34%  1.22%
Return on average common stockholders’ equity  12.23   10.29 
Net interest margin  3.13   3.44 
Allowance for credit losses to total loans  1.51   1.47 
Average equity to average assets  10.93   11.82 
Efficiency ratio  58.12   57.01 
Annualized non–interest expense to average assets  2.14   2.34 
Bank only capital ratios:    
Tier 1 capital to average assets  8.54   8.71 
Tier 1 capital to risk weighted assets  13.11   11.29 
Total capital to risk weighted assets  14.37   12.21 


Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
   2021   2021   2021   2021   2020 
Loan data:          
Substandard loans $56,968  $91,317  $82,488  $86,472  $98,874 
30 to 89 days delinquent  8,536   3,997   3,336   5,099   6,938 
           
Non–performing loans:          
90 days and greater delinquent – accruing interest  146   200      267   262 
Trouble debt restructures – accruing interest  2,390   2,433   1,853   1,828   1,793 
Trouble debt restructures – non–accrual  1,522   1,604   2,294   2,271   2,610 
Non–accrual loans  14,961   25,137   18,175   20,700   22,142 
Total non–performing loans $19,019  $29,374  $22,322  $25,066  $26,807 
Non–performing loans to total loans  0.53%  0.80%  0.63%  0.68%  0.69%


Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2021 2021 2021 2021 2020
Commercial $40,775 $43,121 $41,766 $42,980 $42,210
Residential mortgage  3,856  3,737  4,108  4,229  4,620
Mortgage warehouse  1,059  1,054  1,155  1,163  1,267
Consumer  8,596  8,867  8,620  8,814  8,930
Total $54,286 $56,779 $55,649 $57,186 $57,027


Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
   2021   2021   2021   2021   2020 
Commercial $926  $(25) $40  $158  $23 
Residential mortgage  126   (29)  (23)  (65)  (10)
Mortgage warehouse               
Consumer  360   36   22   115   216 
Total $1,412  $(18) $39  $208  $229 
Percent of net charge–offs (recoveries) to average loans outstanding for the period  0.04%  0.00%  0.00%  0.01%  0.01%


Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
   2021   2021   2021   2021   2020 
Commercial $7,509  $16,121  $10,345  $12,802  $14,348 
Residential mortgage  8,005   8,641   7,841   7,916   7,994 
Mortgage warehouse               
Consumer  3,505   4,612   4,136   4,348   4,465 
Total $19,019  $29,374  $22,322  $25,066  $26,807 
Non–performing loans to total loans  0.53%  0.80%  0.63%  0.68%  0.69%


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
   
  December 31, September 30, June 30, March 31, December 31,
  2021 2021 2021 2021 2020
Commercial $2,861 $2,861 $1,400 $1,696 $1,908
Residential mortgage  695  117  37  37  
Mortgage warehouse          
Consumer  5  29  46    
Total $3,561 $3,007 $1,483 $1,733 $1,908


Average Balance Sheets
(Dollars in Thousands, Unaudited)
  Three Months Ended Three Months Ended
  December 31, 2021 December 31, 2020
  Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets            
Interest earning assets            
Federal funds sold $654,225  $251 0.15% $112,139  $29 0.10%
Interest earning deposits  22,537   32 0.56%  28,507   52 0.73%
Investment securities – taxable  1,405,689   6,208 1.75%  408,412   1,489 1.45%
Investment securities – non–taxable (1)  1,224,911   6,456 2.65%  866,182   4,919 2.86%
Loans receivable (2) (3)  3,630,896   41,171 4.52%  3,950,648   46,745 4.72%
Total interest earning assets  6,938,258   54,118 3.20%  5,365,888   53,234 4.05%
Non–interest earning assets            
Cash and due from banks  102,273       79,753     
Allowance for credit losses  (56,540)      (56,657)    
Other assets  477,352       475,102     
Total average assets $7,461,343      $5,864,086     
             
Liabilities and Stockholders’ Equity            
Interest bearing liabilities            
Interest bearing deposits $4,543,989  $1,663 0.15% $3,450,824  $2,718 0.31%
Borrowings  663,506   1,061 0.63%  511,306   5,456 4.25%
Subordinated notes  58,728   881 5.95%  58,581   871 5.91%
Junior subordinated debentures issued to capital trusts  56,745   537 3.75%  56,512   567 3.99%
Total interest bearing liabilities  5,322,968   4,142 0.31%  4,077,223   9,612 0.94%
Non–interest bearing liabilities            
Demand deposits  1,366,621       1,037,232     
Accrued interest payable and other liabilities  52,111       68,774     
Stockholders’ equity  719,643       680,857     
Total average liabilities and stockholders’ equity $7,461,343      $5,864,086     
             
Net interest income / spread   $49,976 2.89%   $43,622 3.11%
Net interest income as a percent of average interest earning assets (1)     2.97%     3.34%
             
(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)
  Twelve Months Ended Twelve Months Ended
  December 31, 2021 December 31, 2020
  Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets            
Interest earning assets            
Federal funds sold $398,528  $535 0.13% $61,408  $154 0.25%
Interest earning deposits  25,993   160 0.62%  25,943   268 1.03%
Investment securities – taxable  884,244   14,437 1.63%  459,551   8,071 1.76%
Investment securities – non–taxable (1)  1,086,942   23,246 2.71%  706,092   17,213 3.09%
Loans receivable (2) (3)  3,626,033   161,617 4.47%  3,867,112   179,672 4.66%
Total interest earning assets  6,021,740   199,995 3.43%  5,120,106   205,378 4.11%
Non–interest earning assets            
Cash and due from banks  89,993       84,065     
Allowance for credit losses  (56,798)      (46,329)    
Other assets  459,316       470,941     
Total average assets $6,514,251      $5,628,783     
             
Liabilities and Stockholders’ Equity            
Interest bearing liabilities            
Interest bearing deposits $3,897,750  $7,867 0.20% $3,327,917  $18,556 0.56%
Borrowings  548,889   4,701 0.86%  559,953   11,430 2.04%
Subordinated notes  58,672   3,522 6.00%  30,610   1,824 5.96%
Junior subordinated debentures issued to capital trusts  56,657   2,215 3.91%  56,427   2,628 4.66%
Total interest bearing liabilities  4,561,968   18,305 0.40%  3,974,907   34,438 0.87%
Non–interest bearing liabilities            
Demand deposits  1,188,275       919,449     
Accrued interest payable and other liabilities  51,886       68,961     
Stockholders’ equity  712,122       665,466     
Total average liabilities and stockholders’ equity $6,514,251      $5,628,783     
             
Net interest income / spread   $181,690 3.03%   $170,940 3.24%
Net interest income as a percent of average interest earning assets (1)     3.13%     3.44%
             
(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)
     
  December 31,
2021
 December 31,
2020
  (Unaudited)  
Assets    
Cash and due from banks $593,508 $249,711
Interest earning time deposits  4,782  8,965
Investment securities, available for sale  1,160,812  1,134,025
Investment securities, held to maturity (fair value $1,558,981 and $179,990)  1,552,443  168,676
Loans held for sale  12,579  13,538
Loans, net of allowance for credit losses of $54,286 and $57,027  3,533,874  3,810,356
Premises and equipment, net  93,441  92,416
Federal Home Loan Bank stock  24,440  23,023
Goodwill  154,572  151,238
Other intangible assets  20,941  22,955
Interest receivable  26,137  21,396
Cash value of life insurance  97,150  96,751
Other assets  80,753  93,564
Total assets $7,355,432 $5,886,614
     
Liabilities    
Deposits    
Non–interest bearing $1,360,338 $1,053,242
Interest bearing  4,442,653  3,477,891
Total deposits  5,802,991  4,531,133
Borrowings  656,282  475,000
Subordinated notes  58,750  58,603
Junior subordinated debentures issued to capital trusts  56,785  56,548
Interest payable  2,235  2,712
Other liabilities  55,180  70,402
Total liabilities  6,632,223  5,194,398
Commitments and contingent liabilities    
Stockholders’ equity    
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares    
Common stock, no par value, Authorized 99,000,000 shares
Issued 43,636,784 and 43,905,631 shares,
Outstanding 43,547,942 and 43,880,562 shares
    
Additional paid–in capital  352,122  362,945
Retained earnings  363,742  301,419
Accumulated other comprehensive income  7,345  27,852
Total stockholders’ equity  723,209  692,216
Total liabilities and stockholders’ equity $7,355,432 $5,886,614


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
  Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2021 2021 2021 2021 2020
Interest income          
Loans receivable $41,171  $40,392 $39,236  $40,818 $46,745
Investment securities – taxable  6,491   4,565  2,528   1,548  1,570
Investment securities – non–taxable  6,456   5,911  5,656   5,223  4,919
Total interest income  54,118   50,868  47,420   47,589  53,234
Interest expense          
Deposits  1,663   1,808  2,053   2,343  2,718
Borrowed funds  1,061   1,075  1,296   1,269  5,456
Subordinated notes  881   880  881   880  871
Junior subordinated debentures issued to capital trusts  537   561  558   559  567
Total interest expense  4,142   4,324  4,788   5,051  9,612
Net interest income  49,976   46,544  42,632   42,538  43,622
Credit loss expense (recovery)  (2,071)  1,112  (1,492)  367  3,042
Net interest income after credit loss expense (recovery)  52,047   45,432  44,124   42,171  40,580
Non–interest Income          
Service charges on deposit accounts  2,510   2,291  2,157   2,234  2,360
Wire transfer fees  205   210  222   255  301
Interchange fees  3,082   2,587  2,892   2,340  2,645
Fiduciary activities  1,591   2,124  1,961   1,743  2,747
Gains / (losses) on sale of investment securities          914  2,622
Gain on sale of mortgage loans  4,167   4,088  5,612   5,296  7,815
Mortgage servicing income net of impairment  300   336  1,503   213  327
Increase in cash value of bank owned life insurance  547   534  502   511  566
Death benefit on bank owned life insurance     517  266     
Other income  426   3,357  92   367  350
Total non–interest income  12,828   16,044  15,207   13,873  19,733
Non–interest expense          
Salaries and employee benefits  20,549   18,901  17,730   16,871  20,030
Net occupancy expenses  3,204   2,935  3,084   3,318  3,262
Data processing  2,672   2,526  2,388   2,376  2,126
Professional fees  562   522  588   544  691
Outside services and consultants  2,197   2,330  2,220   1,702  2,083
Loan expense  2,803   2,645  3,107   2,822  2,961
FDIC insurance expense  798   279  500   800  900
Other losses  1,925   69  6   283  735
Other expenses  4,660   4,142  3,765   3,456  3,665
Total non–interest expense  39,370   34,349  33,388   32,172  36,453
Income before income taxes  25,505   27,127  25,943   23,872  23,860
Income tax expense  4,080   4,056  3,770   3,450  1,967
Net income $21,425  $23,071 $22,173  $20,422 $21,893
Basic earnings per share $0.49  $0.52 $0.50  $0.46 $0.50
Diluted earnings per share  0.49   0.52  0.50   0.46  0.50


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
  Twelve Months Ended
  December 31, December 31,
   2021   2020 
Interest income    
Loans receivable $161,617  $179,672 
Investment securities – taxable  15,132   8,493 
Investment securities – non–taxable  23,246   17,213 
Total interest income  199,995   205,378 
Interest expense    
Deposits  7,867   18,556 
Borrowed funds  4,701   11,430 
Subordinated notes  3,522   1,824 
Junior subordinated debentures issued to capital trusts  2,215   2,628 
Total interest expense  18,305   34,438 
Net interest income  181,690   170,940 
Credit loss expense (recovery)  (2,084)  20,751 
Net interest income after credit loss expense (recovery)  183,774   150,189 
Non–interest Income    
Service charges on deposit accounts  9,192   8,848 
Wire transfer fees  892   1,000 
Interchange fees  10,901   9,306 
Fiduciary activities  7,419   9,145 
Gains / (losses) on sale of investment securities  914   4,297 
Gain on sale of mortgage loans  19,163   26,721 
Mortgage servicing income net of impairment  2,352   (3,716)
Increase in cash value of bank owned life insurance  2,094   2,243 
Death benefit on bank owned life insurance  783   264 
Other income  4,242   1,513 
Total non–interest income  57,952   59,621 
Non–interest expense    
Salaries and employee benefits  74,051   71,082 
Net occupancy expenses  12,541   12,811 
Data processing  9,962   9,200 
Professional fees  2,216   2,433 
Outside services and consultants  8,449   7,318 
Loan expense  11,377   10,628 
FDIC insurance expense  2,377   1,855 
Other losses  2,283   1,162 
Other expenses  16,023   14,952 
Total non–interest expense  139,279   131,441 
Income before income taxes  102,447   78,369 
Income tax expense  15,356   9,870 
Net income $87,091  $68,499 
Basic earnings per share $1.99  $1.56 
Diluted earnings per share  1.98   1.55