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 Reserve | December 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 | ||||||||||||||||||||||||