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Horizon Bancorp, Inc. Reports Record Second Quarter 2022 EPS of $0.57
ソース: Nasdaq GlobeNewswire / 27 7 2022 16:35:02 America/New_York
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 ManagementThree Months Ended June 30, March 31, 2022 2022 Non–interest Expense Actual Actual Amount
ChangePercent
ChangeSalaries 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
ExpensesAdjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries 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
ExpensesAdjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries 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 ProvisionsAmount 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 %
LiquidityThe Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the “FHLB”). At June 30, 2022, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $917.6 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $2.2 billion of unpledged investment securities at June 30, 2022.
Use of Non–GAAP Financial Measures
Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision net income. In each case, we have identified special circumstances that we consider to be non–recurring and have excluded them. We believe that this shows the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations. Horizon believes these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business and financial results without giving effect to the purchase accounting impacts and one–time costs of acquisitions and non–recurring items. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this press release for reconciliations of the non–GAAP information identified herein and its most comparable GAAP measures.
Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share (Dollars in Thousands, Unaudited) June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Total stockholders’ equity $ 657,865 $ 677,450 $ 723,209 $ 708,542 $ 710,374 Less: Intangible assets 173,662 174,588 175,513 183,938 172,398 Total tangible stockholders’ equity $ 484,203 $ 502,862 $ 547,696 $ 524,604 $ 537,976 Common shares outstanding 43,572,796 43,572,796 43,547,942 43,520,694 43,950,720 Book value per common share $ 15.10 $ 15.55 $ 16.61 $ 16.28 $ 16.16 Tangible book value per common share $ 11.11 $ 11.54 $ 12.58 $ 12.05 $ 12.24 Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2022 2022 2021 2021 2021 2022 2021 Non–interest expense as reported $ 36,368 $ 36,610 $ 39,370 $ 34,349 $ 33,388 $ 72,978 $ 65,560 Net interest income as reported 53,008 48,171 49,976 46,544 42,632 101,179 85,170 Non–interest income as reported $ 12,434 $ 14,155 $ 12,828 $ 16,044 $ 15,207 $ 26,589 $ 29,080 Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”)55.57 % 58.74 % 62.69 % 54.88 % 57.73 % 57.12 % 57.38 % Non–interest expense as reported $ 36,368 $ 36,610 $ 39,370 $ 34,349 $ 33,388 $ 72,978 $ 65,560 Acquisition expenses — — (884 ) (799 ) (242 ) — (242 ) DOL ESOP settlement expenses — — (1,900 ) — — — — Non–interest expense excluding acquisition and DOL ESOP settlement expenses 36,368 36,610 36,586 33,550 33,146 72,978 65,318 Net interest income as reported 53,008 48,171 49,976 46,544 42,632 101,179 85,170 Prepayment penalties on borrowings — — — — 125 — 125 Net interest income excluding prepayment penalties on borrowings 53,008 48,171 49,976 46,544 42,757 101,179 85,295 Non–interest income as reported 12,434 14,155 12,828 16,044 15,207 26,589 29,080 Gain on sale of ESOP trustee accounts — — — (2,329 ) — — — (Gain) / loss on sale of investment securities — — — — — — (914 ) Death benefit on BOLI (644 ) — — (517 ) (266 ) (644 ) (266 ) Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI $ 11,790 $ 14,155 $ 12,828 $ 13,198 $ 14,941 $ 25,945 $ 27,900 Adjusted efficiency ratio 56.13 % 58.74 % 58.25 % 56.16 % 57.45 % 57.41 % 57.70 % Non–GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2022 2022 2021 2021 2021 2022 2021 Average assets $ 7,476,238 $ 7,319,675 $ 7,461,343 $ 6,507,673 $ 6,142,507 $ 7,391,348 $ 6,039,897 Return on average assets (“ROAA”) as reported 1.33 % 1.31 % 1.14 % 1.41 % 1.45 % 1.32 % 1.42 % Acquisition expenses — — 0.05 0.05 0.02 — 0.01 Tax effect — — (0.01 ) (0.01 ) — — — ROAA excluding acquisition expenses 1.33 1.31 1.18 1.45 1.47 1.32 1.43 Credit loss expense acquired loans — — — 0.12 — — — Tax effect — — — (0.03 ) — — — ROAA excluding credit loss expense on acquired loans 1.33 1.31 1.18 1.54 1.47 1.32 1.43 Gain on sale of ESOP trustee accounts — — — (0.14 ) — — — Tax effect — — — 0.03 — — — ROAA excluding gain on sale of ESOP trustee accounts 1.33 1.31 1.18 1.43 1.47 1.32 1.43 DOL ESOP settlement expenses — — 0.10 — — — — Tax effect — — (0.02 ) — — — — ROAA excluding DOL ESOP settlement expenses 1.33 1.31 1.26 1.43 1.47 1.32 1.43 (Gain) / loss on sale of investment securities — — — — — — (0.03 ) Tax effect — — — — — — 0.01 ROAA excluding (gain) / loss on sale of investment securities 1.33 1.31 1.26 1.43 1.47 1.32 1.41 Death benefit on BOLI (0.03 ) — — (0.03 ) (0.02 ) (0.02 ) (0.01 ) ROAA excluding death benefit on BOLI 1.30 1.31 1.26 1.40 1.45 1.30 1.40 Prepayment penalties on borrowings — — — — 0.01 — — Tax effect — — — — — — — ROAA excluding prepayment penalties on borrowings 1.30 1.31 1.26 1.40 1.46 1.30 1.40 Adjusted ROAA 1.30 % 1.31 % 1.26 % 1.40 % 1.46 % 1.30 % 1.40 % Non–GAAP Reconciliation of Return on Average Common Equity (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2022 2022 2021 2021 2021 2022 2021 Average common equity $ 677,299 $ 716,341 $ 719,643 $ 724,412 $ 706,652 $ 697,004 $ 702,052 Return on average common equity (“ROACE”) as reported 14.72 % 13.34 % 11.81 % 12.64 % 12.59 % 14.01 % 12.23 % Acquisition expenses — — 0.49 0.44 0.14 — 0.07 Tax effect — — (0.10 ) (0.09 ) (0.03 ) — (0.01 ) ROACE excluding acquisition expenses 14.72 13.34 12.20 12.99 12.70 14.01 12.29 Credit loss expense acquired loans — — — 1.11 — — — Tax effect — — — (0.23 ) — — — ROACE excluding credit loss expense acquired loans 14.72 13.34 12.20 13.87 12.70 14.01 12.29 Gain on sale of ESOP trustee accounts — — — (1.28 ) — — — Tax effect — — — 0.27 — — — ROACE excluding gain on sale of ESOP trustee accounts 14.72 13.34 12.20 12.86 12.70 14.01 12.29 DOL ESOP settlement expenses — — 1.05 — — — — Tax effect — — (0.17 ) — — — — ROACE excluding DOL ESOP settlement expenses 14.72 13.34 13.08 12.86 12.70 14.01 12.29 (Gain) / loss on sale of investment securities — — — — — — (0.26 ) Tax effect — — — — — — 0.06 ROACE excluding (gain) / loss on sale of investment securities 14.72 13.34 13.08 12.86 12.70 14.01 12.09 Death benefit on BOLI (0.38 ) — — (0.28 ) (0.15 ) (0.19 ) (0.08 ) ROACE excluding death benefit on BOLI 14.34 13.34 13.08 12.58 12.55 13.82 12.01 Prepayment penalties on borrowings — — — — 0.07 — 0.04 Tax effect — — — — (0.01 ) — (0.01 ) ROACE excluding prepayment penalties on borrowings 14.34 % 13.34 % 13.08 % 12.58 % 12.61 % 13.82 % 12.04 % Adjusted ROACE 14.34 % 13.34 % 13.08 % 12.58 % 12.61 % 13.82 % 12.04 % Non–GAAP Reconciliation of Return on Average Tangible Equity (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2022 2022 2021 2021 2021 2022 2021 Average common equity $ 677,299 $ 716,341 $ 719,643 $ 724,412 $ 706,652 $ 697,004 $ 702,052 Less: Average intangible assets 175,321 176,356 179,594 174,920 173,905 175,836 174,343 Average tangible equity $ 501,978 $ 539,985 $ 540,049 $ 549,492 $ 532,747 $ 521,168 $ 527,709 Return on average tangible equity (“ROATE”) as reported 19.86 % 17.70 % 15.74 % 16.66 % 16.69 % 18.74 % 16.28 % Acquisition expenses — — 0.65 0.58 0.18 — 0.09 Tax effect — — (0.14 ) (0.12 ) (0.04 ) — (0.02 ) ROATE excluding acquisition expenses 19.86 17.70 16.25 17.12 16.83 18.74 16.35 Credit loss expense acquired loans — — — 1.47 — — — Tax effect — — — (0.31 ) — — — ROATE excluding credit loss expense acquired loans 19.86 17.70 16.25 18.28 16.83 18.74 16.35 Gain on sale of ESOP trustee accounts — — — (1.68 ) — — — Tax effect — — — 0.35 — — — ROATE excluding gain on sale of ESOP trustee accounts 19.86 17.70 16.25 16.95 16.83 18.74 16.35 DOL ESOP settlement expenses — — 1.40 — — — — Tax effect — — (0.23 ) — — — — ROATE excluding DOL ESOP settlement expenses 19.86 17.70 17.42 16.95 16.83 18.74 16.35 (Gain) / loss on sale of investment securities — — — — — — (0.35 ) Tax effect — — — — — — 0.07 ROATE excluding (gain) / loss on sale of investment securities 19.86 17.70 17.42 16.95 16.83 18.74 16.07 Death benefit on BOLI (0.51 ) — — (0.37 ) (0.20 ) (0.25 ) (0.10 ) ROATE excluding death benefit on BOLI 19.35 17.70 17.42 16.58 16.63 18.49 15.97 Prepayment penalties on borrowings — — — — 0.09 — 0.05 Tax effect — — — — (0.02 ) — (0.01 ) ROATE excluding prepayment penalties on borrowings 19.35 % 17.70 % 17.42 % 16.58 % 16.70 % 18.49 % 16.01 % Adjusted ROATE 19.35 % 17.70 % 17.42 % 16.58 % 16.70 % 18.49 % 16.01 %
Earnings Conference CallAs previously announced, Horizon will host a conference call to review its second quarter financial results and operating performance.
Participants may access the live conference call on July 28, 2022 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 833–974–2379 from the United States, 866–450–4696 from Canada or 412–317–5772 from international locations and requesting the “Horizon Bancorp Call.” Participants are asked to dial in approximately 10 minutes prior to the call.
A telephone replay of the call will be available approximately one hour after the end of the conference through August 4, 2022. The replay may be accessed by dialing 877–344–7529 from the United States, 855–669–9658 from Canada or 412–317–0088 from other international locations, and entering the access code 7261627.
About Horizon Bancorp, Inc.
Horizon Bancorp, Inc. (NASDAQ GS: HBNC) is the $7.6 billion–asset bank holding company for Horizon Bank, which serves customers across diverse and economically attractive Midwestern markets through convenient digital and virtual tools, as well as its Indiana and Michigan branches. Horizon’s retail offerings include prime residential, indirect auto, and other secured consumer lending to in–market customers, as well as a range of personal banking and wealth management solutions. Horizon also provides a comprehensive array of in–market business banking and treasury management services, with commercial lending representing over half of total loans. More information on Horizon, headquartered in Northwest Indiana’s Michigan City, is available at horizonbank.com and investor.horizonbank.com.
Forward Looking Statements
This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection of the safe harbor for forward–looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission. Forward–looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance.
Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Horizon’s reports filed with the Securities and Exchange Commission, including those described in Horizon’s Annual Report on Form 10–K and its quarterly reports on Form 10–Q. Further, statements about the effects of the COVID–19 pandemic on our business, operations, financial performance, and prospects may constitute forward–looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward–looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties, and us. Undue reliance should not be placed on the forward–looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward–looking statement to reflect the events or circumstances after the date on which the forward–looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.
Financial Highlights (Dollars in Thousands, Unaudited) June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Balance sheet: Total assets $ 7,640,936 $ 7,420,328 $ 7,374,903 $ 7,534,240 $ 6,109,227 Interest earning deposits & federal funds sold 5,646 20,827 502,364 872,540 209,304 Interest earning time deposits 3,799 4,046 4,782 5,767 6,994 Investment securities 3,093,792 3,118,641 2,713,255 2,438,874 1,844,470 Commercial loans 2,363,991 2,259,327 2,213,945 2,173,200 2,104,627 Mortgage warehouse loans 116,488 105,118 109,031 169,909 205,311 Residential mortgage loans 608,582 593,372 594,382 603,540 559,437 Consumer loans 848,749 753,900 727,259 713,432 650,144 Total loans 3,937,810 3,711,717 3,644,617 3,660,081 3,519,519 Earning assets 7,070,667 6,883,254 6,865,051 7,006,513 5,610,538 Non–interest bearing deposit accounts 1,328,213 1,325,570 1,360,338 1,324,757 1,102,950 Interest bearing transaction accounts 3,760,890 3,782,644 3,711,767 3,875,882 3,105,328 Time deposits 756,482 743,283 730,886 779,260 573,348 Total deposits 5,845,585 5,851,497 5,802,991 5,979,899 4,781,626 Borrowings 959,222 728,664 712,739 670,753 439,094 Subordinated notes 58,823 58,786 58,750 58,713 58,676 Junior subordinated debentures issued to capital trusts 56,907 56,850 56,785 56,722 56,662 Total stockholders’ equity 657,865 677,450 723,209 708,542 710,374 Financial Highlights (Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Income statement: Net interest income $ 53,008 $ 48,171 $ 49,976 $ 46,544 $ 42,632 Credit loss expense (recovery) 240 (1,386 ) (2,071 ) 1,112 (1,492 ) Non–interest income 12,434 14,155 12,828 16,044 15,207 Non–interest expense 36,368 36,610 39,370 34,349 33,388 Income tax expense 3,975 3,539 4,080 4,056 3,770 Net income $ 24,859 $ 23,563 $ 21,425 $ 23,071 $ 22,173 Per share data: Basic earnings per share $ 0.57 $ 0.54 $ 0.49 $ 0.53 $ 0.50 Diluted earnings per share 0.57 0.54 0.49 0.52 0.50 Cash dividends declared per common share 0.16 0.15 0.15 0.15 0.13 Book value per common share 15.10 15.55 16.61 16.28 16.16 Tangible book value per common share 11.11 11.54 12.58 12.05 12.24 Market value – high 19.21 23.45 21.14 18.47 19.13 Market value – low $ 16.72 $ 18.67 $ 18.01 $ 15.83 $ 16.98 Weighted average shares outstanding – Basis 43,572,796 43,554,713 43,534,298 43,810,729 43,950,501 Weighted average shares outstanding – Diluted 43,684,691 43,734,556 43,733,416 43,958,870 44,111,103 Key ratios: Return on average assets 1.33 % 1.31 % 1.14 % 1.41 % 1.45 % Return on average common stockholders’ equity 14.72 13.34 11.81 12.64 12.59 Net interest margin 3.19 2.99 2.97 3.17 3.14 Allowance for credit losses to total loans 1.33 1.41 1.51 1.55 1.58 Average equity to average assets 9.06 9.79 9.64 11.13 11.50 Efficiency ratio 55.57 58.74 62.69 54.88 57.73 Annualized non–interest expense to average assets 1.95 2.03 2.09 2.09 2.18 Bank only capital ratios: Tier 1 capital to average assets 9.17 8.83 8.50 8.38 8.79 Tier 1 capital to risk weighted assets 13.74 13.23 13.69 11.86 12.80 Total capital to risk weighted assets 14.81 14.25 14.72 12.97 14.09 Financial Highlights (Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited) Six Months Ended June 30, June 30, 2022 2021 Income statement: Net interest income $ 101,179 $ 85,170 Credit loss expense (recovery) (1,146 ) (1,125 ) Non–interest income 26,589 29,080 Non–interest expense 72,978 65,560 Income tax expense 7,514 7,220 Net income $ 48,422 $ 42,595 Per share data: Basic earnings per share $ 1.11 $ 0.97 Diluted earnings per share 1.11 0.97 Cash dividends declared per common share 0.31 0.26 Book value per common share 15.10 16.16 Tangible book value per common share 11.11 12.24 Market value – high 23.45 19.94 Market value – low $ 16.72 $ 16.98 Weighted average shares outstanding – Basis 43,563,804 43,935,111 Weighted average shares outstanding – Diluted 43,711,822 44,092,577 Key ratios: Return on average assets 1.32 % 1.42 % Return on average common stockholders’ equity 14.01 12.23 Net interest margin 3.03 3.21 Allowance for credit losses to total loans 1.33 1.58 Average equity to average assets 9.43 11.62 Efficiency ratio 57.12 57.38 Annualized non–interest expense to average assets 1.99 2.19 Bank only capital ratios: Tier 1 capital to average assets 9.17 8.79 Tier 1 capital to risk weighted assets 13.74 12.80 Total capital to risk weighted assets 14.81 14.09 Financial Highlights (Dollars in Thousands Except Ratios, Unaudited) June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Loan data: Substandard loans $ 59,377 $ 57,928 $ 56,968 $ 91,317 $ 82,488 30 to 89 days delinquent 6,739 6,358 8,536 3,997 3,336 Non–performing loans: 90 days and greater delinquent – accruing interest 210 107 145 200 — Trouble debt restructures – accruing interest 2,535 2,372 2,391 2,433 1,853 Trouble debt restructures – non–accrual 1,345 1,501 1,521 1,604 2,294 Non–accrual loans 16,116 16,133 14,962 25,137 18,175 Total non–performing loans $ 20,206 $ 20,113 $ 19,019 $ 29,374 $ 22,322 Non–performing loans to total loans 0.51 % 0.54 % 0.53 % 0.80 % 0.63 % Allocation of the Allowance for Credit Losses (Dollars in Thousands, Unaudited) June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Commercial $ 34,802 $ 37,789 $ 40,775 $ 43,121 $ 41,766 Residential mortgage 4,422 4,351 3,856 3,737 4,108 Mortgage warehouse 1,067 1,055 1,059 1,054 1,155 Consumer 12,059 9,313 8,596 8,867 8,620 Total $ 52,350 $ 52,508 $ 54,286 $ 56,779 $ 55,649 Net Charge–offs (Recoveries) (Dollars in Thousands Except Ratios, Unaudited) June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Commercial $ (75 ) $ 38 $ 926 $ (25 ) $ 40 Residential mortgage 40 (10 ) 126 (29 ) (23 ) Mortgage warehouse — — — — — Consumer 319 108 360 36 22 Total $ 284 $ 136 $ 1,412 $ (18 ) $ 39 Percent of net charge–offs (recoveries) to average loans outstanding for the period 0.01 % 0.00 % 0.04 % 0.00 % 0.00 % Total Non–performing Loans (Dollars in Thousands Except Ratios, Unaudited) June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Commercial $ 8,008 $ 7,844 $ 7,509 $ 16,121 $ 10,345 Residential mortgage 8,469 8,584 8,005 8,641 7,841 Mortgage warehouse — — — — — Consumer 3,729 3,685 3,505 4,612 4,136 Total $ 20,206 $ 20,113 $ 19,019 $ 29,374 $ 22,322 Non–performing loans to total loans 0.51 % 0.54 % 0.53 % 0.80 % 0.63 % Other Real Estate Owned and Repossessed Assets (Dollars in Thousands, Unaudited) June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Commercial $ 1,414 $ 2,245 $ 2,861 $ 2,861 $ 1,400 Residential mortgage — 170 695 117 37 Mortgage warehouse — — — — — Consumer 58 5 5 29 46 Total $ 1,472 $ 2,420 $ 3,561 $ 3,007 $ 1,483 Average Balance Sheets (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended June 30, 2022 June 30, 2021 Average
BalanceInterest Average
RateAverage
BalanceInterest Average
RateAssets Interest earning assets Federal funds sold $ 7,083 $ 17 0.96 % $ 359,184 $ 98 0.11 % Interest earning deposits 15,661 26 0.67 % 29,584 44 0.60 % Investment securities – taxable 1,770,816 8,673 1.96 % 645,139 2,386 1.48 % Investment securities – non–taxable (1) 1,374,032 7,307 2.70 % 1,054,703 5,656 2.72 % Loans receivable (2) (3) 3,759,718 41,549 4.45 % 3,570,774 39,236 4.43 % Total interest earning assets 6,927,310 57,572 3.46 % 5,659,384 47,420 3.48 % Non–interest earning assets Cash and due from banks 98,040 84,469 Allowance for credit losses (52,525 ) (57,196 ) Other assets 503,413 455,850 Total average assets $ 7,476,238 $ 6,142,507 Liabilities and Stockholders’ Equity Interest bearing liabilities Interest bearing deposits $ 4,540,959 $ 1,677 0.15 % $ 3,680,796 $ 2,053 0.22 % Borrowings 613,282 1,409 0.92 % 334,804 1,256 1.50 % Repurchase agreements 141,470 41 0.12 % 119,052 40 0.13 % Subordinated notes 58,800 881 6.01 % 58,653 881 6.02 % Junior subordinated debentures issued to capital trusts 56,870 556 3.92 % 56,627 558 3.95 % Total interest bearing liabilities 5,411,381 4,564 0.34 % 4,249,932 4,788 0.45 % Non–interest bearing liabilities Demand deposits 1,335,779 1,139,068 Accrued interest payable and other liabilities 51,779 46,855 Stockholders’ equity 677,299 706,652 Total average liabilities and stockholders’ equity $ 7,476,238 $ 6,142,507 Net interest income / spread $ 53,008 3.12 % $ 42,632 3.03 % Net interest income as a percent of average interest earning assets (1) 3.19 % 3.14 % (1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis. (2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate. (3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis. Average Balance Sheets (Dollars in Thousands, Unaudited) Six Months Ended Six Months Ended June 30, 2022 June 30, 2021 Average
BalanceInterest Average
RateAverage
BalanceInterest Average
RateAssets Interest earning assets Federal funds sold $ 121,707 $ 108 0.18 % $ 313,467 $ 164 0.11 % Interest earning deposits 18,154 50 0.56 % 27,567 90 0.66 % Investment securities – taxable 1,709,014 16,064 1.90 % 528,250 3,822 1.46 % Investment securities – non–taxable (1) 1,326,819 14,004 2.69 % 1,005,855 10,879 2.76 % Loans receivable (2) (3) 3,688,586 79,428 4.36 % 3,674,977 80,054 4.41 % Total interest earning assets 6,864,280 109,654 3.34 % 5,550,116 95,009 3.57 % Non–interest earning assets Cash and due from banks 101,340 84,866 Allowance for credit losses (53,411 ) (57,486 ) Other assets 479,139 462,401 Total average assets $ 7,391,348 $ 6,039,897 Liabilities and Stockholders’ Equity Interest bearing liabilities Interest bearing deposits $ 4,509,962 $ 3,173 0.14 % $ 3,602,882 $ 4,396 0.25 % Borrowings 558,867 2,453 0.89 % 350,110 2,487 1.43 % Repurchase agreements 140,610 77 0.11 % 115,392 78 0.14 % Subordinated notes 58,782 1,761 6.04 % 58,635 1,761 6.06 % Junior subordinated debentures issued to capital trusts 56,839 1,011 3.59 % 56,599 1,117 3.98 % Total interest bearing liabilities 5,325,060 8,475 0.32 % 4,183,618 9,839 0.47 % Non–interest bearing liabilities Demand deposits 1,329,316 1,101,377 Accrued interest payable and other liabilities 39,968 52,850 Stockholders’ equity 697,004 702,052 Total average liabilities and stockholders’ equity $ 7,391,348 $ 6,039,897 Net interest income / spread $ 101,179 3.02 % $ 85,170 3.10 % Net interest income as a percent of average interest earning assets (1) 3.03 % 3.21 % (1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis. (2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate. (3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis. Condensed Consolidated Balance Sheets (Dollars in Thousands) June 30,
2022December 31,
2021(Unaudited) Assets Cash and due from banks $ 108,848 $ 593,508 Interest earning time deposits 3,799 4,782 Investment securities, available for sale 1,041,020 1,160,812 Investment securities, held to maturity (fair value $1,754,214 and $1,559,991) 2,052,772 1,552,443 Loans held for sale 2,943 12,579 Loans, net of allowance for credit losses of $52,350 and $54,286 3,885,460 3,590,331 Premises and equipment, net 93,778 93,441 Federal Home Loan Bank stock 26,677 24,440 Goodwill 154,572 154,572 Other intangible assets 19,090 20,941 Interest receivable 28,996 26,137 Cash value of life insurance 94,625 97,150 Other assets 128,356 80,753 Total assets $ 7,640,936 $ 7,411,889 Liabilities Deposits Non–interest bearing $ 1,328,213 $ 1,360,338 Interest bearing 4,517,372 4,442,653 Total deposits 5,845,585 5,802,991 Borrowings 959,222 712,739 Subordinated notes 58,823 58,750 Junior subordinated debentures issued to capital trusts 56,907 56,785 Interest payable 2,402 2,235 Other liabilities 60,132 55,180 Total liabilities 6,983,071 6,688,680 Commitments and contingent liabilities Stockholders’ equity Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares — — Common stock, no par value, Authorized 99,000,000 shares
Issued 43,883,415 and 43,766,931 shares,
Outstanding 43,572,796 and 43,547,942 shares— — Additional paid–in capital 352,412 352,122 Retained earnings 398,517 363,742 Accumulated other comprehensive income (93,064 ) 7,345 Total stockholders’ equity 657,865 723,209 Total liabilities and stockholders’ equity $ 7,640,936 $ 7,411,889 Condensed Consolidated Statements of Income (Dollars in Thousands Except Per Share Data, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Interest income Loans receivable $ 41,549 $ 37,879 $ 41,171 $ 40,392 $ 39,236 Investment securities – taxable 8,716 7,506 6,491 4,565 2,528 Investment securities – non–taxable 7,307 6,697 6,456 5,911 5,656 Total interest income 57,572 52,082 54,118 50,868 47,420 Interest expense Deposits 1,677 1,496 1,663 1,808 2,053 Borrowed funds 1,450 1,080 1,061 1,075 1,296 Subordinated notes 881 880 881 880 881 Junior subordinated debentures issued to capital trusts 556 455 537 561 558 Total interest expense 4,564 3,911 4,142 4,324 4,788 Net interest income 53,008 48,171 49,976 46,544 42,632 Credit loss expense (recovery) 240 (1,386 ) (2,071 ) 1,112 (1,492 ) Net interest income after credit loss expense (recovery) 52,768 49,557 52,047 45,432 44,124 Non–interest Income Service charges on deposit accounts 2,833 2,795 2,510 2,291 2,157 Wire transfer fees 170 159 205 210 222 Interchange fees 3,582 2,780 3,082 2,587 2,892 Fiduciary activities 1,405 1,503 1,591 2,124 1,961 Gains / (losses) on sale of investment securities — — — — — Gain on sale of mortgage loans 2,501 2,027 4,167 4,088 5,612 Mortgage servicing income net of impairment 319 3,489 300 336 1,503 Increase in cash value of bank owned life insurance 519 510 547 534 502 Death benefit on bank owned life insurance 644 — — 517 266 Other income 461 892 426 3,357 92 Total non–interest income 12,434 14,155 12,828 16,044 15,207 Non–interest expense Salaries and employee benefits 19,957 19,735 20,549 18,901 17,730 Net occupancy expenses 3,190 3,561 3,204 2,935 3,084 Data processing 2,607 2,537 2,672 2,526 2,388 Professional fees 283 314 562 522 588 Outside services and consultants 2,485 2,525 2,197 2,330 2,220 Loan expense 2,497 2,545 2,803 2,645 3,107 FDIC insurance expense 775 725 798 279 500 Other losses 362 168 1,925 69 6 Other expenses 4,212 4,500 4,660 4,142 3,765 Total non–interest expense 36,368 36,610 39,370 34,349 33,388 Income before income taxes 28,834 27,102 25,505 27,127 25,943 Income tax expense 3,975 3,539 4,080 4,056 3,770 Net income $ 24,859 $ 23,563 $ 21,425 $ 23,071 $ 22,173 Basic earnings per share $ 0.57 $ 0.54 $ 0.49 $ 0.53 $ 0.50 Diluted earnings per share 0.57 0.54 0.49 0.52 0.50 Condensed Consolidated Statements of Income (Dollars in Thousands Except Per Share Data, Unaudited) Six Months Ended June 30, June 30, 2022 2021 Interest income Loans receivable $ 79,428 $ 80,054 Investment securities – taxable 16,222 4,076 Investment securities – non–taxable 14,004 10,879 Total interest income 109,654 95,009 Interest expense Deposits 3,173 4,396 Borrowed funds 2,530 2,565 Subordinated notes 1,761 1,761 Junior subordinated debentures issued to capital trusts 1,011 1,117 Total interest expense 8,475 9,839 Net interest income 101,179 85,170 Credit loss expense (recovery) (1,146 ) (1,125 ) Net interest income after credit loss expense (recovery) 102,325 86,295 Non–interest Income Service charges on deposit accounts 5,628 4,391 Wire transfer fees 329 477 Interchange fees 6,362 5,232 Fiduciary activities 2,908 3,704 Gains / (losses) on sale of investment securities — 914 Gain on sale of mortgage loans 4,528 10,908 Mortgage servicing income net of impairment 3,808 1,716 Increase in cash value of bank owned life insurance 1,029 1,013 Death benefit on bank owned life insurance 644 266 Other income 1,353 459 Total non–interest income 26,589 29,080 Non–interest expense Salaries and employee benefits 39,692 34,601 Net occupancy expenses 6,751 6,402 Data processing 5,144 4,764 Professional fees 597 1,132 Outside services and consultants 5,010 3,922 Loan expense 5,042 5,929 FDIC insurance expense 1,500 1,300 Other losses 530 289 Other expenses 8,712 7,221 Total non–interest expense 72,978 65,560 Income before income taxes 55,936 49,815 Income tax expense 7,514 7,220 Net income $ 48,422 $ 42,595 Basic earnings per share $ 1.11 $ 0.97 Diluted earnings per share 1.11 0.97 Contact: Mark E. Secor Chief Financial Officer Phone: (219) 873-2611 Fax: (219) 874-9280 Date: July 27, 2022 
- 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.