ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS ON FINANCIAL POSITION AND RESULTS OF OPERATIONS
Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect toHorizon Bancorp, Inc. ("Horizon" or the "Company") andHorizon Bank (the "Bank"). Horizon intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for the purposes of these safe harbor provisions. Statements in this report should be considered in conjunction with the other information available about Horizon, including the information in the other filings we make with theSecurities and Exchange Commission . 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," "expect," "estimate," "project," "intend," "plan," "believe," "could," "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.
Actual results may differ materially, negatively or positively, from the Company’s expectations expressed or implied by any forward-looking statement. The risks, uncertainties and factors that could cause the Company’s actual results to differ materially from those expressed or implied by any forward-looking statement include, but are not limited to:
•COVID-19 related impact on Horizon and its customers, employees and vendors, which may depend on several factors, including the scope and continued duration of the pandemic, its influence on the financial markets, long-term and post-pandemic changes in the banking preferences and behaviors of customers, supply chain risks to the bank and its customers and actions taken by governmental authorities and other third parties in response to the pandemic;
•economic conditions and their impact on Horizon and its customers, including local and global economic recovery from the pandemic;
•changes in government regulations, including the CARES Act, on accounting for modified loans;
•changes in the level and volatility of interest rates, differences between earning assets and interest-bearing liabilities and sensitivity to interest rates;
•the growing use of Bitcoin and other crypto-currencies and/or stablecoins and the possible impact that these alternative currencies may have on the disintermediation of deposits and revenues from payment systems;
•the effect of low interest rates on the net interest rate margin and their impact on mortgage loan volumes and deposit outflows;
•loss of key Horizon personnel;
•increased disintermediation, as new technologies allow consumers to carry out financial transactions without the help of banks, which may have been accelerated by the pandemic;
•potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms (e.g., Apple Pay or Bitcoin) take a greater market share of the payment systems;
•estimates of the fair value of certain assets and liabilities of Horizon;
•volatility and disruption of financial markets;
• prepayment terms, loan originations, credit losses and market values, collateral securing loans and other assets;
•sources of liquidity;
•the potential risk of environmental liability associated with lending and acquisition activities;
• changes in the competitive environment in Horizon’s market areas and among other financial services providers;
•laws and/or regulations affecting the financial services industry as a whole, and Horizon and its subsidiaries in particular;
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•changes in regulatory oversight and surveillance, including monetary policy and capital requirements;
•changes in accounting policies or procedures that may be adopted and required by regulatory bodies;
• litigation, regulatory enforcement, tax and legal compliance risks and costs as they apply generally and specifically to the financial and fiduciary environment (generally and as an ESOP fiduciary ), particularly if they differ materially from the amount we expect to incur or have accrued for , and any disruption caused thereby;
• the effects and costs of government investigations or related actions by third parties;
• rapid technological developments and changes;
•the risks presented by cyberterrorism and breaches of data security;
•the rising costs of effective cybersecurity;
•contain costs and expenses;
• the capacity of the
•the potential influence on the
•the potential influence on theU.S. financial markets and economy from material changes outside theU.S. or in overseas relations, including changes in theU.S. trade relations related to imposition of tariffs, Brexit and the phase out of the London Interbank Offered Rate ("LIBOR") according to regulatory guidance; •the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with acquired loans, difficulty integrating acquired operations and material differences in the actual financial results of such transactions compared with Horizon's initial expectations, including the full realization of anticipated cost savings; and •acts of terrorism, war and global conflicts, such as theRussia andUkraine conflict, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, inflationary pressure and the overallU.S. and global financial markets. The foregoing list of important factors is not exclusive, and you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or, in the case of documents incorporated by reference, the dates of those documents. We do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf. For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward-looking statements, see "Risk Factors" in Item 1A of Part I of our 2021 Annual Report on Form 10-K and in the subsequent reports we file with theSEC .
Insight
Horizon Bancorp, Inc. ("Horizon" or the "Company") is a registered bank holding company incorporated inIndiana and headquartered inMichigan City, Indiana . Horizon provides a broad range of banking services in northern and centralIndiana and southern and centralMichigan through its bank subsidiary,Horizon Bank ("Horizon Bank " or the "Bank"), and other affiliated entities andHorizon Risk Management, Inc. Horizon operates as a single segment, which is commercial banking. Horizon's common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.Horizon Bank (formerly known as "Horizon Bank, N.A. ") was founded in 1873 as a national association, and it remained a national association until its conversion to anIndiana commercial bank effectiveJune 23, 2017 . The Bank is a full-service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services, and other services incident to banking.Horizon Risk Management, Inc. is a captive insurance company incorporated inNevada and was formed as a wholly-owned subsidiary of Horizon. 45
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And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Over the last 20 years, Horizon has expanded its geographic reach and
experienced financial growth through a combination of both organic expansion and
mergers and acquisitions. Horizon's initial operations focused on northwest
Indiana , but since then, the Company has developed a presence in new markets in
southern and central Michigan and northeastern and central Indiana .
First Quarter 2022 Highlights
•Net income grew to a record$23.6 million , up 10.0% from the linked quarter and 15.4% from the prior year period. Diluted earnings per share ("EPS") of$0.54 was up from$0.49 for the fourth quarter of 2021 and$0.46 for the first quarter of 2021. •Pre-tax, pre-provision net income grew to$25.7 million , up 9.7% from the linked quarter and 6.1% from the prior year period. This non-GAAP financial measure is utilized by banks to provide a greater understanding of pre-tax profitability before giving effect to credit loss expense. (See the "Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income" table below.) Horizon recorded a provision release of$1.4 million in the quarter and$2.1 million in the linked quarter, as well as provision expense of$367,000 in the prior year period. •Reported net interest margin ("NIM") was 2.99% and adjusted NIM was 2.93%, with reported NIM increasing by two basis points and adjusted NIM increasing by seven basis points from the fourth quarter of 2021. (See the "Non-GAAP Reconciliation of Net Interest Margin" table below for the definition of this non-GAAP calculation of adjusted NIM.) •The Company was asset sensitive as ofMarch 31, 2022 but less than the previous quarter as additional cash was deployed to higher yielding assets. Due to the deployment of cash the base case estimate increased over$10.0 million from last quarter and reduced estimates for parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock, to net interest income increases of approximately$2.5 million and$3.8 million , respectively. •The steepening of the yield curve during the first quarter resulted in unrealized losses on available for sale investments of$73.6 million compared to unrealized gains of$7.2 million atDecember 31, 2021 . The impact to the tangible capital ratio was a decrease of 67 basis points from 7.61% atDecember 31, 2021 to 6.94% atMarch 31, 2022 , an 8.8% decrease.
•The Bank’s capital remains strong with leveraged capital and capital at risk ratios of 9.7% and 15.21%, respectively.
•Total loans, excluding Federal Paycheck Protection Program ("PPP") loans and
sold commercial participation loans, grew by 2.3%, or 9.5% annualized, during
the first quarter to $3.66 billion at period end from $3.57 billion on December
31, 2021 .
•Commercial loans, excluding PPP loans and sold commercial participation loans,
grew by 3.3%, or 13.5% annualized, during the first quarter to a record $2.20
billion from $2.13 billion on December 31, 2021 .
• Consumer loans rose 3.7%, or 14.9% annualized, in the first quarter to a record high
•The decline in residential mortgage loans slowed during the first quarter with a 0.2% reduction to$593.4 million at period end, as refinancing activity decreased and we experienced movement to adjustable rate products which are held on the balance sheet. Gain on sale of mortgage loans and mortgage warehouse income only constituted 4.7% of total revenue in the first quarter of 2022. •Non-interest expense was$36.6 million in the quarter, or 2.03% of average assets on an annualized basis, compared to$39.4 million , or 2.09%, in the fourth quarter of 2021 and$32.2 million , or 2.20%, in the first quarter of 2021. As previously disclosed, acquisition-related and non-recurringDepartment of Labor ("DOL") Employee Stock Ownership Plan ("ESOP") settlement expenses totaled$2.8 million in the fourth quarter of 2021. 46
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•The efficiency ratio for the period was 58.74% compared to 62.69% for the
fourth quarter of 2021 and 57.03% for the first quarter of 2021. The adjusted
efficiency ratio was 58.74% compared to 58.25% for the fourth quarter of 2021
and 57.97% for the first quarter of 2021. (See the "Non-GAAP Calculation and
Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio" table below.)
•As part of the Company's annual branch performance review of the Bank's retail
network, Horizon's Board of Directors approved the permanent closure of seven
branch locations in the second half of 2022. We expect to incur a one-time
charge of approximately $432,000 with an earn-back period of approximately six
months.
•Horizon's in-market consumer and commercial deposit relationships, including
those on-boarded as part of its branch acquisition near the end of the third
quarter of 2021, combined with strategic pricing moves to manage deposit growth
and runoff of higher-priced time deposits, contributed to continued improvement
in the cost of interest bearing liabilities, which declined to 0.30% in the
quarter, compared to 0.31% in the fourth quarter of 2021 and 0.50% in the first
quarter of 2021.
•Asset quality remains favorable as evidenced by non-performing loans at 0.54%
of total loans at period end and net charge-offs to average loans represented
0.00% for the first quarter of 2022.
Financial Summary
For the Three Months Ended
March 31, December 31, March 31,
Net Interest Income and Net Interest Margin 2022 2021 2021
Net interest income $ 48,171 $ 49,976 $ 42,538
Net interest margin 2.99 % 2.97 % 3.29 %
Adjusted net interest margin 2.93 % 2.86 % 3.17 %
For the Three Months Ended
March 31, December 31, March 31,
Asset Yields and Funding Costs 2022 2021 2021
Interest earning assets 3.22 %
3.20% 3.66%
Interest bearing liabilities 0.30 % 0.31 % 0.50 %
For the Three Months Ended
Non-interest Income and March 31, December 31, March 31,
Mortgage Banking Income 2022 2021 2021
Total non-interest income $ 14,155 $ 12,828 $ 13,873
Gain on sale of mortgage loans 2,027 4,167 5,296
Mortgage servicing income net of impairment or 3,489 300 213
recovery
For the Three Months Ended
March 31, December 31, March 31,
Non-interest Expense 2022 2021 2021
Total non-interest expense $ 36,610 $ 39,370 $ 32,172
Annualized non-interest expense to average 2.03 % 2.09 % 2.20 %
assets
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At or for the Three Months Ended
March 31, December 31, March 31,
Credit Quality 2022 2021 2021
Allowance for credit losses to total loans 1.41 % 1.51 % 1.56 %
Non-performing loans to total loans 0.54 % 0.53 % 0.68 %
Percent of net charge-offs to average loans 0.00 % 0.04 % 0.01 %
unpaid for the period
Allowance for December 31, Net Reserve March 31, Credit Losses 2021 1Q21 2022 Commercial$ 40,775 $ (2,986) $ 37,789 Retail Mortgage 3,856 495 4,351 Warehouse 1,059 (4) 1,055 Consumer 8,596 717 9,313
Allowance for Credit Losses (“ACL”)
$ 52,508 ACL/Total Loans 1.51 % 1.41 %
Critical accounting policies
The notes to the consolidated financial statements included in Item 8 of the Company's Annual Report on Form 10-K for 2021 contain a summary of the Company's significant accounting policies. Certain of these policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management has identified as critical accounting policies the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.
Provision for credit losses
The allowance for credit losses represents management's best estimate of current
expected credit losses over the life of the portfolio of loan and leases.
Estimating credit losses requires judgment in determining loan specific
attributes impacting the borrower's ability to repay contractual obligations.
Other factors such as economic forecasts used to determine a reasonable and
supportable forecast, prepayment assumptions, the value of underlying
collateral, and changes in size composition and risks within the portfolio are
also considered.
The allowance for credit losses is assessed at each balance sheet date and
adjustments are recorded in the provision for credit losses. The allowance is
estimated based on loan level characteristics using historical loss rates, a
reasonable and supportable economic forecast. Loan losses are estimated using
the fair value of collateral for collateral-dependent loans, or when the
borrower is experiencing financial difficulty such that repayment of the loan is
expected to be made through the operation or sale of the collateral. Loan
balances considered uncollectible are charged-off against the ACL. Recoveries of
amounts previously charged-off are credited to the ACL. Assets purchased with
credit deterioration ("PCD") assets represent assets that are acquired with
evidence of more than insignificant credit quality deterioration since
origination at the acquisition date. At acquisition, the allowance for credit
losses on PCD assets is booked directly the ACL. Any subsequent changes in the
ACL on PCD assets is recorded through the provision for credit losses.
Management believes that the ACL is adequate to absorb the expected life of loan
credit losses on the portfolio of loans and leases as of the balance sheet date.
Actual losses incurred may differ materially from our estimates. Particularly,
the impact of COVID-19 on both borrower credit and the greater macroeconomic
environment is uncertain and changes in the duration, spread and severity of the
virus will affect our loss experience.
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. FASB ASC 350-10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. AtMarch 31, 2022 , Horizon had core deposit intangibles of$20.0 million subject to amortization and$154.6 million of goodwill, which is not subject to amortization.Goodwill arising from 48
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business combinations represents the value attributable to unidentifiable
intangible assets in the business acquired. Horizon's goodwill relates to the
value inherent in the banking industry and that value is dependent upon the
ability of Horizon to provide quality, cost effective banking services in a
competitive marketplace. The goodwill value is supported by revenue that is in
part driven by the volume of business transacted. A decrease in earnings
resulting from a decline in the customer base or the inability to deliver cost
effective services over sustained periods can lead to impairment of goodwill
that could adversely affect earnings in future periods. FASB ASC 350-10 requires
an annual evaluation of goodwill for impairment.
At each reporting date between annual goodwill impairment tests, Horizon
considers potential indicators of impairment. Given the current economic
uncertainty and volatility surrounding COVID-19, Horizon assessed whether the
events and circumstances resulted in it being more likely than not that the fair
value of any reporting unit was less than its carrying value. Impairment
indicators considered comprised the condition of the economy and banking
industry; government intervention and regulatory updates; the impact of recent
events to financial performance and cost factors of the reporting unit;
performance of the Company's stock and other relevant events. Horizon further
considered the amount by which fair value exceeded book value in the most recent
quantitative analysis and stress testing performed. At the conclusion of the
most recent qualitative assessment, the Company determined that as of March 31,
2022 , it was more likely than not that the fair value exceeded its carrying
values. Horizon will continue to monitor developments regarding the COVID-19
pandemic and measures implemented in response to the pandemic, market
capitalization, overall economic conditions and any other triggering events or
circumstances that may indicate an impairment of goodwill in the future.
Mortgage service fees
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets on a servicing-retained basis. Capitalized servicing rights are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. When the book value of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value. In periods of falling market interest rates, accelerated loan prepayment can adversely affect the fair value of these mortgage-servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management's assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon's financial condition and results of operations either positively or negatively. Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, Horizon utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon's own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis. In addition, on a quarterly basis Horizon engages a third party to independently test the value of its servicing asset.
Derivatives
As part of the Company's asset/liability management program, Horizon utilizes,
from time-to-time, interest rate floors, caps or swaps to reduce the Company's
sensitivity to interest rate fluctuations. These are derivative instruments,
which are recorded as assets or liabilities in the consolidated balance sheets
at fair value. Changes in the fair values of derivatives are reported in the
consolidated income statements or other comprehensive income ("OCI") depending
on the use of the derivative and whether the instrument qualifies for hedge
accounting. The key criterion for the hedge accounting is that the
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hedged relationship must be highly effective in achieving offsetting changes in
those cash flows that are attributable to the hedged risk, both at inception of
the hedge and on an ongoing basis.
Horizon's accounting policies related to derivatives reflect the guidance in
FASB ASC 815-10. Derivatives that qualify for the hedge accounting treatment are
designated as either: a hedge of the fair value of the recognized asset or
liability or of an unrecognized firm commitment (a fair value hedge) or a hedge
of a forecasted transaction or the variability of cash flows to be received or
paid related to a recognized asset or liability (a cash flow hedge). For fair
value hedges, the cumulative change in fair value of both the hedge instruments
and the underlying loans is recorded in non-interest income. For cash flow
hedges, changes in the fair values of the derivative instruments are reported in
OCI to the extent the hedge is effective. The gains and losses on derivative
instruments that are reported in OCI are reflected in the consolidated income
statement in the periods in which the results of operations are impacted by the
variability of the cash flows of the hedged item. Generally, net interest income
is increased or decreased by amounts receivable or payable with respect to the
derivatives, which qualify for hedge accounting. At inception of the hedge,
Horizon establishes the method it uses for assessing the effectiveness of the
hedging derivative and the measurement approach for determining the ineffective
aspect of the hedge. The ineffective portion of the hedge, if any, is recognized
currently in the consolidated statements of income. Horizon excludes the time
value expiration of the hedge when measuring ineffectiveness.
Evaluation measures
Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities, residential mortgage loans held for sale and derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other post-retirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent, to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon's results of operations.
Financial condition
OnMarch 31, 2022 , Horizon's total assets were$7.4 billion , an increase of approximately$8.4 million compared toDecember 31, 2021 . The increase in total assets was primarily in investments held to maturity of$453.7 million and net loans of$68.9 million . These increases were offset by decreases in cash and due from banks of$472.6 million and investments available for sale of$48.3 million . 50
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Investment securities were comprised of the following as of (dollars in
thousands):
March 31, 2022 December 31, 2021
Amortized Fair Amortized Fair
Cost Value Cost Value
Available for sale
U.S. Treasury and federal agencies $ 293,914 $ 282,520 $ 118,595 $ 116,979
State and municipal 510,936 469,052 632,652 639,746
Federal agency collateralized mortgage
obligations 50,201 49,592 60,600 61,577
Federal agency mortgage-backed pools 216,411 202,435 225,329 226,074
Private labeled mortgage-backed pools 30,239 28,633 31,856 31,617
Corporate notes 84,434 80,280 84,579 84,819
Total marketable securities available for sale
Held to maturity
$ 292,459 $ 272,497 $ 195,429 $ 194,226 State and municipal 1,091,037 980,443 862,461 878,917 Federal agency collateralized mortgage obligations 56,841 52,605 48,482 47,465 Federal agency mortgage-backed pools 302,407 279,050 188,426 185,965 Private labeled mortgage-backed pools 98,719 90,760 99,958 98,176 Corporate notes 164,666 152,490 157,687 155,242
Total marketable securities held to maturity
Investment securities available for sale decreased$48.3 million sinceDecember 31, 2021 to$1.1 billion as ofMarch 31, 2022 and investment securities held to maturity increased$453.7 million sinceDecember 31, 2021 to$2.0 billion as ofMarch 31, 2022 . This increase in investments held to maturity was due to additional purchases to increase earning assets as the result of organic deposit growth. Net loans increased$68.9 million sinceDecember 31, 2021 to$3.7 billion as ofMarch 31, 2022 . Commercial loans, excluding PPP loans and sold commercial participation loans, increased$70.9 million and consumer loans increased$26.6 million sinceDecember 31, 2021 . These increases were offset by decreases in PPP loans of$19.1 million , loans held for sale of$8.8 million , sold commercial participation loans of$6.4 million , mortgage warehouse loans of$3.9 million and residential mortgage loans of$1.0 million sinceDecember 31, 2021 .
Total deposits increased
from
Total borrowings increased from$712.7 million as ofDecember 31, 2021 to$728.7 million as ofMarch 31, 2022 . AtMarch 31, 2022 , the Company had$428.1 million in short-term funds borrowed compared to$180.8 million atDecember 31, 2021 . Stockholders' equity totaled$677.5 million atMarch 31, 2022 compared to$723.2 million atDecember 31, 2021 . The decrease in stockholders' equity during the period was primarily due to a decrease in accumulated other comprehensive income of$62.1 million as unrealized losses on available for sale securities totaled$73.6 million and the amount of dividends paid during the quarter, offset by the generation of net income. Book value per common share atMarch 31, 2022 decreased to$15.55 compared to$16.61 atDecember 31, 2021 . 51
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Operating results
Insight
Consolidated net income for the three-month period endedMarch 31, 2022 was$23.6 million , or$0.54 diluted earnings per share, compared to$20.4 million , or$0.46 diluted earnings per share for the same period in 2021. The increase in net income for the three-month period endedMarch 31, 2022 when compared to the same prior year period reflects an increase in net interest income of$5.6 million , a decrease in credit loss expense of$1.8 million , an increase in non-interest income of$282,000 and a decrease in income tax expense of$89,000 , offset by an increase in non-interest expense of$4.4 million .
Net interest income
The largest component of net income is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, less interest expense, principally on deposits and borrowings. Changes in the net interest income are the result of changes in volume and the net interest spread, which affects the net interest margin. Volume refers to the average dollar levels of interest earning assets and interest bearing liabilities. Net interest spread refers to the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities. Net interest margin refers to net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities. Net interest income during the three months endedMarch 31, 2022 was$48.2 million , an increase of$5.6 million from the$42.5 million earned during the same period in 2021. Yields on the Company's interest earning assets decreased by 44 basis points to 3.22% for the three months endedMarch 31, 2022 from 3.66% for the three months endedMarch 31, 2021 . Interest income increased$4.5 million from$47.6 million for the three months endedMarch 31, 2021 to$52.1 million for the same period in 2022. The increase in interest income was due to an increase in average balances of interest earning assets of$1.36 billion during the three months endedMarch 31, 2022 . Interest income from acquisition-related purchase accounting adjustments was$916,000 for the three months endingMarch 31, 2022 compared to$1.6 million for the same period of 2021. Rates paid on interest bearing liabilities decreased by 20 basis points for the three-month period endedMarch 31, 2022 compared to the same period in 2021. Interest expense decreased$1.1 million when compared to the three-month period endedMarch 31, 2021 to$3.9 million for the same period in 2022. This decrease was due to lower rates paid on deposits and borrowings. The cost of average interest bearing deposits decreased 13 basis points while the cost of average borrowings decreased 53 basis points. Average balances of interest bearing deposits increased$954.5 million and average balances of borrowings increased$138.3 million for the three-month period endedMarch 31, 2022 when compared to the same period in 2021. The net interest margin decreased 30 basis points from 3.29% for the three-month period endedMarch 31, 2021 to 2.99% for the same period in 2022. The decrease in the margin for the three-month period endedMarch 31, 2022 compared to the same period in 2021 was due to a decrease in the yield on interest earning assets, offset by a decrease in the cost of interest bearing liabilities. Excluding the interest income recognized from the acquisition-related purchase accounting adjustments ("adjusted net interest margin"), the margin would have been 2.93% for the three-month period endingMarch 31, 2022 compared to 3.17% for the same period in 2021. The net interest margin was impacted due to PPP lending and the high level of cash held during the first quarter of 2022. Horizon estimates that the PPP loans increased the net interest margin by 2 basis points for the first quarter of 2022. This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in non-interest bearing deposits. In addition, Horizon estimates that the high level of cash held on the balance sheet compressed the net interest margin by 11 basis points for the first quarter of 2021. This assumes that the high level of cash was not included in average interest earning assets or interest income and was excluded from non-interest bearing deposits. 52
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For the Three Months ended March 31, 2022 and 2021
The following are the average balance sheets for the three months ending
(dollars in thousands):
Average Balance Sheets
(Dollar Amount in Thousands, Unaudited)
Three Months Ended Three Months Ended
March 31, 2022 March 31, 2021
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Assets
Interest earning assets
Federal funds sold $ 237,605 $ 91 0.16 % $ 267,241 $ 66
0.10%
Interest earning deposits 20,673 24 0.47 % 25,527 31
0.49%
Investment securities - taxable 1,646,525 7,391 1.82 % 410,063 1,451
1.44%
Investment security –
non-taxable (1) 1,279,082 6,697 2.69 % 956,464 5,223
2.80%
Loans receivable (2) (3) 3,616,664 37,879 4.26 % 3,780,339 40,818
4.39%
Total interest earning assets 6,800,549 52,082 3.22 % 5,439,634 47,589
3.66%
Non-interest earning assets
Cash and due from banks 104,676 85,269
Allowance for credit losses (54,307) (57,779)
Other assets 468,757 469,025
Total average assets $ 7,319,675 $ 5,936,149
Liabilities and Stockholders'
Equity
Interest bearing liabilities
Interest bearing deposits $ 4,478,621 $ 1,496 0.14 % $ 3,524,103 $ 2,343
0.27 %
Borrowings 503,846 1,043 0.84 % 365,586 1,231 1.37 %
Repurchase agreements 139,742 37 0.11 % 111,692 38 0.14 %
Subordinated notes 58,763 880 6.07 % 58,616 880 6.09 %
Junior subordinated debentures
issued to capital trusts 56,807 455 3.25 % 56,571 559
4.01%
Total interest bearing liabilities 5,237,779 3,911 0.30 % 4,116,568 5,051
0.50%
Non-interest bearing liabilities
Demand deposits 1,322,781 1,063,268
Accrued interest payable and other
liabilities 42,774 58,912
Stockholders' equity 716,341 697,401
Total average liabilities and
stockholders' equity $ 7,319,675 $ 5,936,149
Net interest income/spread $ 48,171 2.92 % $ 42,538
3.16%
Net interest income as a percentage
average interest-earning assets
(1) 2.99 %
3.29%
(1) Securities balances represent daily average fair value balances of securities. The average rate is calculated on the basis of the daily average
balance of the amortized cost of the securities. The average rate is presented in fiscal equivalent.
(2) Includes commissions on borrowings. The inclusion of borrowing costs does not have a material impact on the average interest rate.
(3) For the purposes of the above calculation, non-accumulated loans are included in the average daily loans outstanding. Loan totals are presented net of
unearned income and deferred loan fees. The average rate is presented in fiscal equivalent.
53
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Expenses for credit losses
Horizon assesses the adequacy of its allowance for credit losses (“ACL”) by regularly reviewing the performance of its loan portfolio. During the three-month period ended
The ACL balance atMarch 31, 2022 was$52.5 million , or 1.41% of total loans compared to an ACL balance of$54.3 million atDecember 31, 2021 or 1.51% of total loans. The decrease in the ACL to total loans ratio was primarily due to favorable asset quality with non-performing loans at 0.54% of total loans at period end and net charge-offs to average loans represented 0.00% for the first quarter of 2022. As ofMarch 31, 2022 , non-performing loans totaled$20.1 million , reflecting a$1.1 million increase from$19.0 million in non-performing loans as ofDecember 31, 2021 . Non-performing commercial loans increased by$335,000 , non-performing real estate loans increased by$579,000 and non-performing consumer loans increased by$180,000 atMarch 31, 2022 compared toDecember 31, 2021 . The Bank has elected (i) to suspend the requirements under GAAP for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR; and (ii) to suspend any determination of a loan modified as a result of the effects of COVID-19 pandemic as being a TDR, including impairment for accounting purposes. AtMarch 31, 2022 , the Bank modified loans totaling$1.2 million which qualify for treatment under the CARES Act. The following is a summary of loan modifications related to the COVID-19 pandemic by type of loan. % of Net Total % of Type of Loan # Balance
Portfolio of changes
Commercial 3$0.8 66.7 % 0.0 % Mortgage (Retained Only) 3$0.3 25.0 % 0.0 % Indirect Auto 6$0.1 8.3 % 0.0 % Consumer Direct 0$0.0 0.0 % 0.0 % Consumer Revolving 0$0.0 0.0 % 0.0 % Total 12$1.2 100.0 % 0.0 % Mortgage (Serviced Only) 7 Other Real Estate Owned ("OREO") and repossessed assets totaled$2.4 million atMarch 31, 2022 compared to$3.6 million atDecember 31, 2021 . The decrease was primarily due to the sale of five properties during the first quarter of 2022. 54
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-interest income
The following is a summary of the changes in non-interest income for the three months ending
Three Months Ended
March 31, Amount Percent
2022 2021 Change Change
Non-interest Income
Service charges on deposit accounts $ 2,795 $ 2,234 $ 561 25.1 %
Wire transfer fees 159 255 (96) (37.6) %
Interchange fees 2,780 2,340 440 18.8 %
Fiduciary activities 1,503 1,743 (240) (13.8) %
Gain on sale of investment securities - 914 (914) (100.0) %
Gain on sale of mortgage loans 2,027 5,296 (3,269) (61.7) %
Mortgage servicing net of impairment 3,489 213 3,276 1,538.0 %
Increase in cash surrender value of bank owned
life insurance 510 511 (1) (0.2) %
Other income 892 367 525 143.1 %
Total non-interest income $ 14,155 $ 13,873 $ 282 2.0 %
Total non-interest income was $282,000 higher during the first quarter of 2022
compared to the same period of 2021. Residential mortgage loan activity during
the first quarter of 2022 generated $2.0 million of income from the gain on sale
of mortgage loans, down from $5.3 million for the same period in 2021 due to a
lower volume of loans sold and a decrease in the percentage gain on loans sold.
Mortgage servicing income, net of impairment or recovery, increased $3.3 million
during the first quarter of 2022 compared to the same period of 2021 due to an
impairment recovery of $2.6 million recorded during the first quarter of 2022 as
mortgage pre-payment speeds have slowed. Service charges on deposit accounts and
interchange fees increased $561,000 and $440,000 , respectively, when comparing
the first quarter of 2022 to the same period of 2021 primarily due to the
deposits acquired with the branch acquisition completed during the third quarter
of 2021. Gain on sale of investment securities decreased $914,000 when comparing
the first quarter of 2022 to the same period of 2021.
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-interest expenses
The following is a summary of the changes in non-interest expense for the three months ending
Three Months Ended
Amount Percent
March 31, 2022 March 31, 2021 Change Change
Non-interest Expense
Salaries and employee benefits $ 19,735 $ 16,871 $ 2,864 17.0 %
Net occupancy expenses 3,561 3,318 243 7.3 %
Data processing 2,537 2,376 161 6.8 %
Professional fees 314 544 (230) (42.3) %
Outside services and consultants 2,525 1,702 823 48.4 %
Loan expense 2,545 2,822 (277) (9.8) %
FDIC deposit insurance 725 800 (75) (9.4) %
Other losses 168 283 (115) (40.6) %
Other expenses 4,500 3,456 1,044 30.2 %
Total non-interest expense $ 36,610 $ 32,172 $ 4,438 13.8 %
Annualized Non-interest Exp. to Avg. Assets 2.03 % 2.20 %
Total non-interest expense was $4.4 million higher for the first quarter of 2022
when compared to the first quarter of 2021. The increases in expenses was
primarily due to an increase in salaries and employee benefits of $2.9 million ,
an increase in other expense of $1.0 million , an increase in outside services
and consultants of $823,000 and an increase in net occupancy expenses of
$243,000 primarily due to the 14 branches acquired in September 2021 , wage
increases, higher health care costs and continued investments in technology.
These increases were partially offset by decreases of $277,000 in loan expense
and $230,000 in professional fees.
Annualized non-interest expense as a percentage of average assets was 2.03% and 2.20% for the three months ended
Income taxes
Income tax expense totaled
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 FHLB. AtMarch 31, 2022 , in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately$575.3 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to$672.7 million atDecember 31, 2021 . The Bank had approximately$2.3 billion of unpledged investment securities atMarch 31, 2022 compared to$2.0 billion atDecember 31, 2021 . 56
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Capital resources
The capital resources of Horizon and the Bank exceeded regulatory capital ratios for "well capitalized" banks atMarch 31, 2022 . Stockholders' equity totaled$677.5 million as ofMarch 31, 2022 , compared to$723.2 million as ofDecember 31, 2021 . For the three months endedMarch 31, 2022 , the ratio of average stockholders' equity to average assets was 9.79% compared to 10.93% for the twelve months endedDecember 31, 2021 . The decrease in stockholders' equity during the period was due to an decrease in accumulated other comprehensive income of$62.1 million and the amount of dividends paid, offset by net income recorded during the period. Horizon declared common stock dividends in the amount of$0.15 per share during the first three months of 2022 and$0.13 per share for the same period of 2021. The dividend payout ratio (dividends as a percent of basic earnings per share) was 27.8% and 26.1% for the first three months of 2022 and 2021, respectively. For additional information regarding dividends, see Horizon's Annual Report on Form 10-K for 2021.
Use of Non-GAAP Financial Measures
Certain information set forth in this quarterly report on Form 10-Q 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 common equity, the return on average tangible
equity and pre-tax pre-provision net income. In each case, we have identified
special circumstances that we consider to be adjustments and have excluded them,
to show the impact of such events as acquisition-related purchase accounting
adjustments, among others we have identified in our reconciliations. Horizon
believes that 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 other adjustments. 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 Report on Form 10-Q for reconciliations of
the non-GAAP figures identified herein and their most comparable GAAP measures.
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Net income as reported $ 23,563 $ 21,425 $ 23,071 $ 22,173 $ 20,422
Acquisition expenses - 884 799 242 -
Tax effect - (184) (166) (51) -
Net income excluding
acquisition expenses 23,563 22,125 23,704 22,364 20,422
Credit loss expense acquired
loans - - 2,034 - -
Tax effect - - (427) - -
Net income excluding credit
loss expense acquired loans 23,563 22,125 25,311 22,364 20,422
Gain on sale of ESOP trustee
accounts - - (2,329) - -
Tax effect - - 489 - -
Net income excluding gain on
sale of ESOP trustee accounts 23,563 22,125 23,471 22,364 20,422
DOL ESOP settlement expenses - 1,900 - - -
Tax effect - (315) - - -
Net income excluding DOL ESOP
settlement expenses 23,563 23,710 23,471 22,364 20,422
(Gain)/loss on sale of
investment
securities - - - - (914)
Tax effect - - - - 192
Net income excluding
(gain)/loss on sale of
investment securities 23,563 23,710 23,471 22,364 19,700
Death benefit on bank owned
life insurance ("BOLI") - - (517) (266) -
Net income excluding death
benefit on BOLI 23,563 23,710 22,954 22,098 19,700
Prepayment penalties on
borrowings - - - 125 -
Tax effect - - - (26) -
Net income excluding prepayment
penalties on borrowings 23,563 23,710 22,954 22,197 19,700
Adjusted net income $ 23,563 $ 23,710 $ 22,954 $ 22,197 $ 19,700
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-GAAP Reconciliation of Diluted Earnings per Share
(Unaudited)
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Diluted earnings per share
("EPS") as reported $ 0.54 $ 0.49 $ 0.52 $ 0.50 $ 0.46
Acquisition expenses - 0.02 0.02 0.01 -
Tax effect - - - - -
Diluted EPS excluding
acquisition expenses 0.54 0.51 0.54 0.51 0.46
Credit loss expense acquired
loans - - 0.05 - -
Tax effect - - (0.01) - -
Diluted EPS excluding credit
loss expense acquired loans 0.54 0.51 0.58 0.51 0.46
Gain on sale of ESOP trustee
accounts - - (0.05) - -
Tax effect - - 0.01 - -
Diluted EPS excluding gain on
sale of ESOP trustee accounts 0.54 0.51 0.54 0.51 0.46
DOL ESOP settlement expenses - 0.04 - - -
Tax effect - (0.01) - - -
Diluted EPS excluding DOL ESOP
settlement expenses 0.54 0.54 0.54 0.51 0.46
(Gain)/loss on sale of
investment securities - - - - (0.02)
Tax effect - - - - -
Diluted EPS excluding
(gain)/loss on investment
securities 0.54 0.54 0.54 0.51 0.44
Death benefit on BOLI - - (0.02) (0.01) -
Diluted EPS excluding death
benefit on BOLI 0.54 0.54 0.52 0.50 0.44
Prepayment penalties on
borrowings - - - - -
Tax effect - - - - -
Diluted EPS excluding
prepayment penalties on
borrowings 0.54 0.54 0.52 0.50 0.44
Adjusted Diluted EPS $ 0.54 $ 0.54 $ 0.52 $ 0.50 $ 0.44
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income
(Dollars in Thousands, Unaudited)
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Pre-tax income $ 27,102 $ 25,505
Credit loss charge (recovery)
(1,386) (2,071) 1,112 (1,492) 367 Pre-tax, pre-provision net income$ 25,716 $ 23,434 $ 28,239 $ 24,451 $ 24,239 Pre-tax, pre-provision net income$ 25,716 $ 23,434 $ 28,239 $ 24,451 $ 24,239 Acquisition expenses - 884 799 242 - 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 bank owned life insurance - - (517) (266) - Prepayment penalties on borrowings - - - 125 - Adjusted pre-tax, pre-provision net income$ 25,716 $ 26,218 $ 26,192 $ 24,552 $ 23,325 Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended March 31, December 31, September 30, June 30, March 31, 2022 2021 2021 2021 2021 Net interest income as reported$ 48,171 $
49,976
Average interest-earning assets
6,800,549 6,938,258 6,033,088 5,659,384 5,439,634
Net interest income as a percentage
of average interest earning assets 2.99 % 2.97 % 3.17 % 3.14 % 3.29 %
("Net Interest Margin")
Net interest income as reported $ 48,171 $ 49,976 $ 46,544 $ 42,632 $ 42,538
Acquisition-related purchase
accounting adjustments
("PAUs") (916) (1,819) (875) (230) (1,579)
Prepayment penalties on borrowings - - - 125 -
Adjusted net interest income $ 47,255 $
48 157
Adjusted net interest margin
2.93 % 2.86 % 3.12 % 3.13 % 3.17 %
Non-GAAP Reconciliation of Tangible
Equity and tangible book value per share
(Dollars in Thousands Except per Share Data, Unaudited)
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Total stockholders' equity $ 677,450 $ 723,209 $ 708,542 $ 710,374 $ 689,379
Less: Intangible assets 174,588 175,513 183,938 172,398 173,296
Total tangible stockholders'
equity $ 502,862 $ 547,696 $ 524,604 $ 537,976 $ 516,083
Common shares outstanding 43,572,796 43,547,942 43,520,694 43,950,720 43,949,189
Book value per common share $ 15.55 $ 16.61 $ 16.28 $ 16.16 $ 15.69
Tangible book value per common
share $ 11.54 $ 12.58 $ 12.05 $ 12.24 $ 11.74
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-GAAP Calculation and Reconciliation of Efficiency
Ratio and adjusted efficiency ratio
(Dollars in Thousands, Unaudited)
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Non-interest expense as
reported $ 36,610 $ 39,370
Net interest income as published 48,171
49,976 46,544 42,632 42,538
Reported non-interest income
$ 16,044 $ 15,207 $ 13,873 Non-interest expense/(Net interest income + Non-interest income) ("Efficiency Ratio") 58.74 % 62.69 % 54.88 % 57.73 % 57.03 % Non-interest expense as reported$ 36,610 $ 39,370 $ 34,349 $ 33,388 $ 32,172 Acquisition expenses - (884) (799) (242) - DOL ESOP settlement expenses - (1,900) - - - Non-interest expense excluding acquisition expenses and DOL ESOP settlement expenses 36,610 36,586 33,550 33,146 32,172 Net interest income as reported 48,171 49,976 46,544 42,632 42,538 Prepayment penalties on borrowings - - - 125 - Net interest income excluding prepayment penalties on borrowings 48,171 49,976 46,544 42,757 42,538 Non-interest income as reported 14,155 12,828 16,044 15,207 13,873 Gain on sale of ESOP trustee accounts - - (2,329) - - (Gain)/loss on sale of investment securities - - - - (914) Death benefit on bank owned life insurance ("BOLI") - - (517) (266) - Non-interest income excluding (gain)/loss on sale of investment securities and death benefit on BOLI$ 14,155 $ 12,828
Adjusted efficiency rate
58.74 % 58.25 %
56.16% 57.45% 57.97%
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Average assets $ 7,319,675 $ 7,461,343 $ 6,507,673 $ 6,142,507 $ 5,936,149
Return on average assets
("ROAA") as reported 1.31 % 1.14 % 1.41 % 1.45 % 1.40 %
Acquisition expenses - 0.05 0.05 0.02 -
Tax effect - (0.01) (0.01) - -
ROAA excluding acquisition
expenses 1.31 1.18 1.45 1.47 1.40
Credit loss expense acquired
loans - - 0.12 - -
Tax effect - - (0.03) - -
ROAA excluding credit loss
expense acquired loans 1.31 1.18 1.54 1.47 1.40
Gain on sale of ESOP trustee
accounts - - (0.14) - -
Tax effect - - 0.03 - -
ROAA excluding gain on sale of
ESOP trustee accounts 1.31 1.18 1.43 1.47 1.40
DOL ESOP settlement expenses - 0.10 - - -
Tax effect - (0.02) - - -
ROAA excluding DOL ESOP
settlement expenses 1.31 1.26 1.43 1.47 1.40
(Gain)/loss on sale of
investment securities - - - - (0.06)
Tax effect - - - - 0.01
ROAA excluding (gain)/loss on
sale of investment securities 1.31 1.26 1.43 1.47 1.35
Death benefit on bank owned
life insurance ("BOLI") - - (0.03) (0.02) -
ROAA excluding death benefit on
BOLI 1.31 1.26 1.40 1.45 1.35
Prepayment penalties on
borrowings - - - 0.01 -
Tax effect - - - - -
ROAA excluding prepayment
penalties on borrowings 1.31 1.26 1.40 1.46 1.35
Adjusted ROAA 1.31 % 1.26 % 1.40 % 1.46 % 1.35 %
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Average common equity $ 716,341 $ 719,643
Return on Average Equity (“ROACE”) as reported
13.34 % 11.81 % 12.64 % 12.59 % 11.88 %
Acquisition expenses - 0.49 0.44 0.14 -
Tax effect - (0.10) (0.09) (0.03) -
ROACE excluding acquisition
expenses 13.34 12.20 12.99 12.70 11.88
Credit loss expense acquired
loans - - 1.11 - -
Tax effect - - (0.23) - -
ROACE excluding credit loss
expense acquired loans 13.34 12.20 13.87 12.70 11.88
Gain on sale of ESOP trustee
accounts - - (1.28) - -
Tax effect - - 0.27 - -
ROACE excluding gain on sale
of ESOP trustee accounts 13.34 12.20 12.86 12.70 11.88
DOL ESOP settlement expenses - 1.05 - - -
Tax effect - (0.17) - - -
ROACE DOL ESOP settlement
expenses 13.34 13.08 12.86 12.70 11.88
(Gain)/loss on sale of
investment securities - - - - (0.53)
Tax effect - - - - 0.11
ROACE excluding (gain)/loss on
sale of investment securities 13.34 13.08 12.86 12.70 11.46
Death benefit on bank owned
life insurance ("BOLI") - - (0.28) (0.15) -
ROACE excluding death benefit
on BOLI 13.34 13.08 12.58 12.55 11.46
Prepayment penalties on
borrowings - - - 0.07 -
Tax effect - - - (0.01) -
ROACE excluding prepayment
penalties on borrowings 13.34 13.08 12.58 12.61 11.46
Adjusted ROACE 13.34 % 13.08 % 12.58 % 12.61 % 11.46 %
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HORIZON BANCORP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
For the Three Months ended March 31, 2022 and 2021
Non-GAAP Reconciliation of Return on Average Tangible Equity
(Dollars in Thousands, Unaudited)
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2022 2021 2021 2021 2021
Average common equity $ 716,341 $ 719,643
Less: Average intangible assets 176,356
179,594 174,920 173,905 174,785 Average tangible equity$ 539,985 $ 540,049 $ 549,492 $ 532,747 $ 522,616 Return on average common equity ("ROATE") 17.70 % 15.74 % 16.66 % 16.69 % 15.85 % Acquisition expenses - 0.65 0.58 0.18 - Tax effect - (0.14) (0.12) (0.04) - ROATE excluding acquisition expenses 17.70 16.25 17.12 16.83 15.85 Credit loss expense acquired loans - - 1.47 - - Tax effect - - (0.31) - - ROATE excluding credit loss expense acquired loans 17.70 16.25 18.28 16.83 15.85 Gain on sale of ESOP trustee accounts - - (1.68) - - Tax effect - - 0.35 - - ROATE excluding gain on sale of ESOP trustee accounts 17.70 16.25 16.95 16.83 15.85 DOL ESOP settlement expenses - 1.40 - - - Tax effect - (0.23) - - - ROATE DOL ESOP settlement expenses 17.70 17.42 16.95 16.83 15.85 (Gain)/loss on sale of investment securities - - - - (0.71) Tax effect - - - - 0.15 ROATE excluding (gain)/loss on sale of investment securities 17.70 17.42 16.95 16.83 15.29 Death benefit on bank owned life insurance ("BOLI") - - (0.37) (0.20) - ROATE excluding death benefit on BOLI 17.70 17.42 16.58 16.63 15.29 Prepayment penalties on borrowings - - - 0.09 - Tax effect - - - (0.02) - ROATE excluding prepayment penalties on borrowings 17.70 17.42 16.58 16.70 15.29 Adjusted ROATE 17.70 % 17.42 % 16.58 % 16.70 % 15.29 % 64
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HORIZON BANCORP, INC. AND SUBSIDIARIES
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