HBNC 8-K
Horizon Bancorp Inc /In/ (HBNC)
8-K
2020-07-29
For: 2020-07-29
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April 11, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 29, 2020
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||
(Address of principal executive offices, including zip code)
(219 ) 879-0211
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 2.02 Results of Operations and Financial Condition
Earnings Release
On July 29, 2020, Horizon Bancorp, Inc. (the “Company”) issued a press release announcing earnings and other financial results for the three and six-month periods ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 to this report and incorporated here by reference.
Item 7.01 Regulation FD Disclosure
Investor Presentation
The Company has prepared presentation materials (the “Investor Presentation”) that management intends to use during its previously announced Earnings Conference Call on Thursday, July 30, 2020 at 7:30 a.m. Central Time, and from time to time thereafter in presentations about the Company’s operations and performance. The Investor Presentation also contains information relating to the Company’s COVID–19 response and planning efforts to date. The Company may use the Investor Presentation, possibly with modifications, in presentations to current and potential investors, analysts, lenders, business partners, acquisition candidates, customers, employees and others with an interest in the Company and its business.
A copy of the Investor Presentation is furnished as Exhibit 99.2 to this report and incorporated here by reference. The Investor Presentation is also available on the Company’s investor website at www.horizonbank.com. Materials on the Company’s investor website are not part of or incorporated by reference into this report.
In accordance with General Instruction B.2 of Form 8–K, the information in this Current Report on Form 8–K, including Exhibits 99.1 and 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits
| (d) Exhibits | |||||||||||
| EXHIBIT INDEX | |||||||||||
| Exhibit No. | Description | Location | |||||||||
| 99.1 | Attached | ||||||||||
| 99.2 | Attached | ||||||||||
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document) | Within the Inline XBRL document | |||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: | July 29, 2020 | HORIZON BANCORP, INC. | |||||||||
| By: | /s/ Mark E. Secor | ||||||||||
| Mark E. Secor, | |||||||||||
| Executive Vice President & Chief Financial Officer | |||||||||||
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| Contact: | Mark E. Secor | ||||
| Chief Financial Officer | |||||
| Phone: | (219) 873–2611 | ||||
| Fax: | (219) 874–9280 | ||||
| Date: | July 29, 2020 | ||||
FOR IMMEDIATE RELEASE
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
Michigan City, Indiana, July 29, 2020 (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, 2020.
Craig M. Dwight, Chairman and CEO of Horizon, commented, “Horizon’s team put in an incredible performance during the second quarter to originate and process record mortgage loan volume, help thousands of local employers to access federal stimulus funding, assist borrowers with payment modifications, and safely open branches that had been operating by appointment only since March. This extraordinary effort was complimented by profitably growing and strengthening the balance sheet, maintaining solid asset quality metrics, managing expenses with customary discipline, and meaningfully growing pre–tax, pre–provision net income.”
Second Quarter 2020 Highlights
■Earned net income of $14.6 million, or $0.33 diluted earnings per share, compared to $11.7 million, or $0.26 diluted earnings per share, for the first quarter of 2020 and $16.6 million, or $0.37 diluted earnings per share, for the second quarter of 2019.
■Grew pre–tax, pre–provision net income to $23.7 million for the quarter, compared to $21.8 million for the first quarter of 2020 and $20.8 million for the second quarter of 2019. 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.)
■Reported return on average assets (“ROAA”) of 1.05% and return on average common equity (“ROACE”) of 9.07% in the quarter, as well as adjusted ROAA of 1.03% and adjusted ROACE of 8.95%, excluding the impact of gains on sale of investment securities, net of tax. (See the “Non–GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” tables below.)
■Increased the allowance for credit losses (“ACL”) 13.7% during the quarter and 211.8% year–to–date to $55.1 million at period end, representing 1.38% of total loans, reflecting implementation of the Current Expected Credit Losses (“CECL”) accounting method and prudent increases in the Company’s general reserves. ACL at period end also represented 1.49% of loans excluding Federal Paycheck Protection Program (“PPP”) loans, and 196.4% of non–performing loans excluding those which have been modified under the CARES Act.
■Maintained solid asset quality metrics, including non–performing and delinquent loans representing 0.70% and 0.10% of total loans, respectively, at June 30, 2020, while net charge–offs were unchanged at 0.01% of average loans for the period.
■Granted payment deferrals to loans representing 14.3% of the total loan portfolio at period end, compared to 10.4% as previously reported.
■Secured approval for 2,340 PPP loans during the quarter, providing approximately $308.1 million in funding for local employers in the communities Horizon serves, with $1.1 million in deferred salary expense associated with origination costs that will be amortized to interest income as PPP loans are forgiven or paid off. Accreted PPP loans fees, net of amortized origination costs, of $869,000 were recognized as interest income in the second quarter, with the balance of approximately $9.1 million expected to be accreted to interest income over the life of these loans.
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Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
■Reported non–interest expense of $30.4 million, representing 2.18% of average assets on an annualized basis, or 2.26% after adding back $1.1 million of deferred PPP loan origination costs, compared to 2.38% for the first quarter of 2020 and 2.51% for the second quarter of 2019.
■Improved the efficiency ratio in the period to 56.23% compared to 58.79% for the first quarter of 2020. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” tables below.)
■Originated a record $252.8 million in mortgage loans during the quarter, up 128.1% from the first quarter of 2020 and 127.0% from the second quarter of 2019, and generated record gain on mortgage loan sales of $6.6 million, up 90.6% from the linked quarter and 218.6% from the year–ago period.
■Reported net interest margin of 3.47% and adjusted net interest margin of 3.35%, with each declining by 9 basis points from the first quarter of 2020. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this Non–GAAP calculation). An estimated 3 basis points of compression is attributed to PPP lending in the quarter, for both net interest margin and adjusted net interest margin.
■Horizon’s tangible book value per share increased from $10.63 at December 31, 2019 to $10.87 at June 30, 2020, which includes the accounting adjustment for CECL as of January 1, 2020. This represents the highest tangible book value per share in the Company’s history. (See the “Non–GAAP Reconciliation of Tangible Stockholders' Equity and Tangible Book Value per Share” tables below.)
■Maintained strong liquidity position including approximately $1.3 billion in cash and investment securities, which is approximately 22.6% of total assets, and approximately $910.7 million in unused availability on lines of credit, at June 30, 2020.
Summary
| For the Three Months Ended | ||||||||||||||||||||
| June 30, | March 31, | June 30, | ||||||||||||||||||
| Net Interest Income and Net Interest Margin | 2020 | 2020 | 2019 | |||||||||||||||||
| Net interest income | $ | 42,996 | $ | 40,925 | $ | 41,529 | ||||||||||||||
| Net interest margin | 3.47 | % | 3.56 | % | 3.73 | % | ||||||||||||||
| Adjusted net interest margin | 3.35 | % | 3.44 | % | 3.61 | % | ||||||||||||||
Mr. Dwight commented, “Our team’s success in managing the effect of significantly lower interest rates on Horizon’s loan and deposit pricing in the second quarter is reflected in net interest margin compression of only 9 basis points from the first quarter of this year, which includes an estimated 3 basis points of compression from PPP lending.”
| For the Three Months Ended | ||||||||||||||||||||
| June 30, | March 31, | June 30, | ||||||||||||||||||
| Asset Yields and Funding Costs | 2020 | 2020 | 2019 | |||||||||||||||||
| Interest earning assets | 4.05 | % | 4.47 | % | 4.81 | % | ||||||||||||||
| Interest bearing liabilities | 0.74 | % | 1.13 | % | 1.38 | % | ||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||
Non–interest Income and Mortgage Banking Income | June 30, | March 31, | June 30, | |||||||||||||||||
| 2020 | 2020 | 2019 | ||||||||||||||||||
Total non–interest income | $ | 11,124 | $ | 12,063 | $ | 10,898 | ||||||||||||||
| Gain on sale of mortgage loans | 6,620 | 3,473 | 2,078 | |||||||||||||||||
| Mortgage servicing income net of impairment | (2,760) | 25 | 570 | |||||||||||||||||
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Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| For the Three Months Ended | ||||||||||||||||||||
| June 30, | March 31, | June 30, | ||||||||||||||||||
Non–interest Expense | 2020 | 2020 | 2019 | |||||||||||||||||
Total non–interest expense | $ | 30,432 | $ | 31,149 | $ | 31,584 | ||||||||||||||
Annualized non–interest expense to average assets | 2.18 | % | 2.38 | % | 2.51 | % | ||||||||||||||
| At or for the Three Months Ended | ||||||||||||||||||||
| Credit Quality | June 30, | March 31, | June 30, | |||||||||||||||||
| 2020 | 2020 | 2019 | ||||||||||||||||||
| Allowance for credit losses to total loans | 1.38 | % | 1.30 | % | 0.50 | % | ||||||||||||||
| Non-performing loans to total loans | 0.70 | % | 0.65 | % | 0.52 | % | ||||||||||||||
| Percent of net charge–offs to average loans outstanding for the period | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||
| CECL Adoption | ||||||||||||||||||||||||||||||||||||||
| December 31, | January 1, | Net Reserve Build | Net Reserve Build | June 30, | ||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses | 2019 | Impact | 2020 | 1Q20 | 2Q20 | 2020 | ||||||||||||||||||||||||||||||||
| Commercial | $ | 11,996 | $ | 13,618 | $ | 25,614 | $ | 6,936 | $ | 6,597 | $ | 39,147 | ||||||||||||||||||||||||||
| Retail Mortgage | 923 | 4,048 | 4,971 | 683 | 178 | 5,832 | ||||||||||||||||||||||||||||||||
| Warehouse | 1,077 | — | 1,077 | (22) | 135 | 1,190 | ||||||||||||||||||||||||||||||||
| Consumer | 3,671 | 4,911 | 8,582 | 599 | (260) | 8,921 | ||||||||||||||||||||||||||||||||
Allowance for Credit Losses (“ACL”) | $ | 17,667 | $ | 22,577 | $ | 40,244 | $ | 8,196 | $ | 6,650 | $ | 55,090 | ||||||||||||||||||||||||||
| ACL/Total Loans | 0.49 | % | 1.10 | % | 1.38 | % | ||||||||||||||||||||||||||||||||
Acquired Loan Discount (“ALD”) | $ | 20,228 | $ | (2,786) | $ | 17,442 | $ | — | $ | — | $ | 14,474 | ||||||||||||||||||||||||||
Mr. Dwight stated, “Horizon’s asset quality metrics continued to remain favorable through the second quarter, as evidenced by low delinquency and other real estate owned and a moderate increase in non–performing loans. Horizon's reserve build reflects adoption of CECL on January 1 and the increase in our quarterly allocation to cover anticipated loan losses related to economic factors and the nature and characteristics of our loan portfolios, primarily related to the impact on non–essential businesses caused by COVID–19 closures and the slow pace of reopening and economic recovery. However, at the current time, we are not aware of any material specific loan losses caused by COVID–19 closures. We believe federal stimulus programs softened the adverse economic impact of COVID–19 for some businesses and consumers to date. Looking ahead, as federal stimulus programs begin to roll back and the pandemic continues, we will be closely monitoring the potential for increased loan losses, and intend to maintain prudent reserves, tightly manage operating expenses, and use our strong balance sheet and ample funding to continue to meet the needs of the businesses and consumers we serve.”
Income Statement Highlights
Net income for the second quarter of 2020 was $14.6 million, or $0.33 diluted earnings per share, compared to $11.7 million, or $0.26, for the linked quarter and $16.6 million, or $0.37, for the year–ago period.
Adjusted net income for the second quarter of 2020 was $14.4 million, or $0.32 diluted earnings per share, compared to $11.2 million, or $0.24, for the linked quarter and to $17.6 million, or $0.39, for the year–ago 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.
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Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
The increase in net income for the second quarter of 2020 when compared to the first quarter of 2020 reflects an increase in net interest income of $2.1 million, a decrease in credit loss expense of $1.5 million and a decrease in non–interest expense of $717,000, offset by a decrease in non–interest income of $939,000 and an increase in tax expense of $409,000.
Second quarter 2020 non–interest income was reduced by a non-cash mortgage servicing asset impairment of $2.9 million, recorded to reflect the national increase in mortgage prepayment speeds and past due levels and determined based on a third-party valuation of Horizon's mortgage servicing asset. Gain on sale of mortgage loans grew to a record $6.6 million, up from $3.5 million in the linked quarter and $2.1 million in the year-ago period.
Non-interest expense of $30.4 million in the second quarter of 2020 reflected a $962,000 decline in salaries and employee benefits expense from the linked quarter. The reduction in salaries and employee benefits expense reflected the deferral of approximately $1.1 million in PPP loan origination costs in the second quarter of 2020, which will be amortized over the life of the PPP loans and would be recognized when the loans are forgiven or paid off.
The decrease in net income for the second quarter of 2020 when compared to the same prior year period reflects an increase in credit loss expense of $6.2 million, offset by an increase in net interest income of $1.5 million, an increase in non–interest income of $226,000, a decrease in non–interest expense of $1.2 million and a decrease in tax expense of $1.3 million.
Net income for the first six months of 2020 was $26.3 million, or $0.59 diluted earnings per share, compared to $27.5 million, or $0.65 diluted earnings per share, for the first six months of 2019. Adjusted net income for the first six months of 2020 was $25.6 million, or $0.57 diluted earnings per share, compared to $31.8 million, or $0.75 diluted earnings per share for the first six months of 2019. The decrease in net income for the first six months of 2020 when compared to the same prior year period reflects an increase in the provision for credit loss expense of $14.4 million and an increase in non–interest expense of $259,000, offset by an increase in net interest income of $8.1 million, an increase in non–interest income of $3.6 million and a decrease in tax expense of $1.8 million.
| 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, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Net income as reported | $ | 14,639 | $ | 11,655 | $ | 18,543 | $ | 20,537 | $ | 16,642 | $ | 26,294 | $ | 27,458 | ||||||||||||||||||||||||||||||
| Merger expenses | — | — | — | — | 1,532 | — | 5,650 | |||||||||||||||||||||||||||||||||||||
| Tax effect | — | — | — | — | (295) | — | (987) | |||||||||||||||||||||||||||||||||||||
| Net income excluding merger expenses | 14,639 | 11,655 | 18,543 | 20,537 | 17,879 | 26,294 | 32,121 | |||||||||||||||||||||||||||||||||||||
| (Gain)/loss on sale of investment securities | (248) | (339) | (10) | — | 100 | (587) | 85 | |||||||||||||||||||||||||||||||||||||
| Tax effect | 52 | 71 | 2 | — | (21) | 123 | (18) | |||||||||||||||||||||||||||||||||||||
| Net income excluding (gain)/loss on sale of investment securities | 14,443 | 11,387 | 18,535 | 20,537 | 17,958 | 25,830 | 32,188 | |||||||||||||||||||||||||||||||||||||
| Death benefit on bank owned life insurance (“BOLI”) | — | (233) | — | (213) | (367) | (233) | (367) | |||||||||||||||||||||||||||||||||||||
| Net income excluding death benefit on BOLI | 14,443 | 11,154 | 18,535 | 20,324 | 17,591 | 25,597 | 31,821 | |||||||||||||||||||||||||||||||||||||
| Adjusted net income | $ | 14,443 | $ | 11,154 | $ | 18,535 | $ | 20,324 | $ | 17,591 | $ | 25,597 | $ | 31,821 | ||||||||||||||||||||||||||||||
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Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Non–GAAP Reconciliation of Diluted Earnings per Share | ||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share (“EPS”) as reported | $ | 0.33 | $ | 0.26 | $ | 0.41 | $ | 0.46 | $ | 0.37 | $ | 0.59 | $ | 0.65 | ||||||||||||||||||||||||||||||
| Merger expenses | — | — | — | — | 0.03 | — | 0.13 | |||||||||||||||||||||||||||||||||||||
| Tax effect | — | — | — | — | — | — | (0.02) | |||||||||||||||||||||||||||||||||||||
| Diluted EPS excluding merger expenses | 0.33 | 0.26 | 0.41 | 0.46 | 0.40 | 0.59 | 0.76 | |||||||||||||||||||||||||||||||||||||
| (Gain)/loss on sale of investment securities | (0.01) | (0.01) | — | — | — | (0.01) | — | |||||||||||||||||||||||||||||||||||||
| Tax effect | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Diluted EPS excluding (gain)/loss on investment securities | 0.32 | 0.25 | 0.41 | 0.46 | 0.40 | 0.58 | 0.76 | |||||||||||||||||||||||||||||||||||||
| Death benefit on BOLI | — | (0.01) | — | (0.01) | (0.01) | (0.01) | (0.01) | |||||||||||||||||||||||||||||||||||||
| Diluted EPS excluding death benefit on BOLI | 0.32 | 0.24 | 0.41 | 0.45 | 0.39 | 0.57 | 0.75 | |||||||||||||||||||||||||||||||||||||
| Adjusted Diluted EPS | $ | 0.32 | $ | 0.24 | $ | 0.41 | $ | 0.45 | $ | 0.39 | $ | 0.57 | $ | 0.75 | ||||||||||||||||||||||||||||||
| 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, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Pre–tax income | $ | 16,632 | $ | 13,239 | $ | 22,463 | $ | 24,541 | $ | 19,947 | $ | 29,871 | $ | 32,837 | ||||||||||||||||||||||||||||||
| Credit loss expense | 7,057 | 8,600 | 340 | 376 | 896 | 15,657 | 1,260 | |||||||||||||||||||||||||||||||||||||
| Pre–tax, pre–provision net income | $ | 23,689 | $ | 21,839 | $ | 22,803 | $ | 24,917 | $ | 20,843 | $ | 45,528 | $ | 34,097 | ||||||||||||||||||||||||||||||
| Pre–tax, pre–provision net income | $ | 23,689 | $ | 21,839 | $ | 22,803 | $ | 24,917 | $ | 20,843 | $ | 45,528 | $ | 34,097 | ||||||||||||||||||||||||||||||
| Merger expenses | — | — | — | — | 1,532 | — | 5,650 | |||||||||||||||||||||||||||||||||||||
| (Gain)/loss on sale of investment securities | (248) | (339) | (10) | — | 100 | (587) | 85 | |||||||||||||||||||||||||||||||||||||
| Death benefit on bank owned life insurance | — | (233) | — | (213) | (367) | (233) | (367) | |||||||||||||||||||||||||||||||||||||
| Adjusted pre–tax, pre–provision net income | $ | 23,441 | $ | 21,267 | $ | 22,793 | $ | 24,704 | $ | 22,108 | $ | 44,708 | $ | 39,465 | ||||||||||||||||||||||||||||||
Horizon’s net interest margin decreased to 3.47% for the second quarter of 2020 compared to 3.56% for the first quarter of 2020. The decrease in net interest margin reflects a decrease in the yield of interest earning assets of 42 basis points, offset by a decrease in the cost of interest bearing liabilities of 39 basis points. Interest income from acquisition–related purchase accounting adjustments was $119,000 higher during the second quarter of 2020 when compared to the first quarter of 2020.
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Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
Horizon’s net interest margin decreased to 3.47% for the second quarter of 2020 when compared to 3.73% for the second quarter of 2019. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 76 basis points offset by a decrease in the cost of interest bearing liabilities of 64 basis points.
Horizon’s net interest margin decreased to 3.51% for the first six months of 2020 when compared to 3.68% for the same prior year period. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 54 basis points offset by a decrease in the cost of interest bearing liabilities of 48 basis points.
The net interest margin was impacted during the second quarter of 2020 due to the PPP loans that were originated. Horizon estimates that the PPP loans compressed the net interest margin by 3 basis points for the quarter. This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in non-interest bearing deposits. The compression to the net interest margin for the first six months of 2020 using the same assumptions was estimated to be 2 basis points.
| 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, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Net interest income as reported | $ | 42,996 | $ | 40,925 | $ | 41,519 | $ | 43,463 | $ | 41,529 | $ | 83,921 | $ | 75,809 | ||||||||||||||||||||||||||||||
| Average interest earning assets | 5,112,636 | 4,746,202 | 4,748,217 | 4,623,985 | 4,566,674 | 4,929,388 | 4,249,644 | |||||||||||||||||||||||||||||||||||||
| Net interest income as a percentage of average interest earning assets (“Net Interest Margin”) | 3.47 | % | 3.56 | % | 3.58 | % | 3.82 | % | 3.73 | % | 3.51 | % | 3.68 | % | ||||||||||||||||||||||||||||||
| Net interest income as reported | $ | 42,996 | $ | 40,925 | $ | 41,519 | $ | 43,463 | $ | 41,529 | $ | 83,921 | $ | 75,809 | ||||||||||||||||||||||||||||||
| Acquisition–related purchase accounting adjustments (“PAUs”) | (1,553) | (1,434) | (1,042) | (1,739) | (1,299) | (2,987) | (2,809) | |||||||||||||||||||||||||||||||||||||
| Adjusted net interest income | $ | 41,443 | $ | 39,491 | $ | 40,477 | $ | 41,724 | $ | 40,230 | $ | 80,934 | $ | 73,000 | ||||||||||||||||||||||||||||||
| Adjusted net interest margin | 3.35 | % | 3.44 | % | 3.49 | % | 3.67 | % | 3.61 | % | 3.39 | % | 3.55 | % | ||||||||||||||||||||||||||||||
Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 3.35% for the second quarter of 2020 compared to 3.44% for the prior quarter and 3.61% for the second quarter of 2019. Interest income from acquisition–related purchase accounting adjustments was $1.6 million, $1.4 million and $1.3 million for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.
Net interest margin, excluding acquisition–related purchase accounting adjustment (“adjusted net interest margin”), was 3.39% for the first six months of 2020 compared to 3.55% for the same prior year period. Interest income from acquisition–related purchase accounting adjustments was $3.0 million and $2.8 million for the six months ended June 30, 2020 and 2019, respectively.
Lending Activity
Total loans of $3.99 billion, or $3.69 billion excluding PPP loans, on June 30, 2020 compared to $3.71 billion on March 31, 2020, $3.64 on December 31, 2019 and $3.67 billion on June 30, 2019. During the six months ended June 30, 2020, commercial loans increased $266.1 million, mortgage warehouse loans increased $150.1 million, and loans held for sale increased $11.8 million, offset by a decrease in residential mortgage loans of $66.3 million and a decrease in consumer loans of $8.3 million.
6
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Loan Growth by Type, Excluding Acquired Loans | ||||||||||||||||||||||||||
| (Dollars in Thousands, Unaudited) | ||||||||||||||||||||||||||
| June 30, | December 31, | Amount | Percent | |||||||||||||||||||||||
| 2020 | 2019 | Change | Change | |||||||||||||||||||||||
| Commercial | $ | 2,312,715 | $ | 2,046,651 | $ | 266,064 | 13.0% | |||||||||||||||||||
| Residential mortgage | 704,410 | 770,717 | (66,307) | (8.6)% | ||||||||||||||||||||||
| Consumer | 660,871 | 669,180 | (8,309) | (1.2)% | ||||||||||||||||||||||
| Subtotal | 3,677,996 | 3,486,548 | 191,448 | 5.5% | ||||||||||||||||||||||
| Loans held for sale | 15,913 | 4,088 | 11,825 | 289.3% | ||||||||||||||||||||||
| Mortgage warehouse | 300,386 | 150,293 | 150,093 | 99.9% | ||||||||||||||||||||||
| Total loans | $ | 3,994,295 | $ | 3,640,929 | $ | 353,366 | 9.7% | |||||||||||||||||||
Residential mortgage lending activity for the three months ended June 30, 2020 generated a record $6.6 million in income from the gain on sale of mortgage loans, an increase of $3.1 million from the first quarter of 2020 and $4.5 million from the second quarter of 2019. Total origination volume for the second quarter of 2020, including loans placed into portfolio, totaled a record $252.8 million, representing an increase of 128.1% from the first quarter of 2020 and an increase of 127.0% from the second quarter of 2019. As a percentage of total originations, 77% of the volume was for refinances and 23% was for new purchases during the second quarter of 2020. Total origination volume of loans sold to the secondary market totaled $192.4 million, representing an increase of 184.7% from the first quarter of 2020 and an increase of 217.2% from the second quarter of 2019.
Expense Management
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | Adjusted | |||||||||||||||||||||||||||||||||||||||||||||
| Non–interest Expense | Actual | Merger Expenses | Adjusted | Actual | Merger Expenses | Adjusted | Amount Change | Percent Change | |||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 15,629 | $ | — | $ | 15,629 | $ | 16,591 | $ | — | $ | 16,591 | $ | (962) | (5.8)% | ||||||||||||||||||||||||||||||||
| Net occupancy expenses | 3,190 | — | 3,190 | 3,252 | — | 3,252 | (62) | (1.9)% | |||||||||||||||||||||||||||||||||||||||
| Data processing | 2,432 | — | 2,432 | 2,405 | — | 2,405 | 27 | 1.1% | |||||||||||||||||||||||||||||||||||||||
| Professional fees | 518 | — | 518 | 536 | — | 536 | (18) | (3.4)% | |||||||||||||||||||||||||||||||||||||||
| Outside services and consultants | 1,759 | — | 1,759 | 1,915 | — | 1,915 | (156) | (8.1)% | |||||||||||||||||||||||||||||||||||||||
| Loan expense | 2,692 | — | 2,692 | 2,099 | — | 2,099 | 593 | 28.3% | |||||||||||||||||||||||||||||||||||||||
| FDIC insurance expense | 235 | — | 235 | 150 | — | 150 | 85 | 56.7% | |||||||||||||||||||||||||||||||||||||||
| Other losses | 193 | — | 193 | 120 | — | 120 | 73 | 60.8% | |||||||||||||||||||||||||||||||||||||||
| Other expense | 3,784 | — | 3,784 | 4,081 | — | 4,081 | (297) | (7.3)% | |||||||||||||||||||||||||||||||||||||||
| Total non–interest expense | $ | 30,432 | $ | — | $ | 30,432 | $ | 31,149 | $ | — | $ | 31,149 | $ | (717) | (2.3)% | ||||||||||||||||||||||||||||||||
| Annualized non–interest expense to average assets | 2.18 | % | 2.18 | % | 2.38 | % | 2.38 | % | |||||||||||||||||||||||||||||||||||||||
Total non–interest expense was $717,000 lower in the second quarter of 2020 when compared to the first quarter of 2020. Decreases in salaries and employee benefits, other expense and outside services and consultants expense were partially offset by an increase in loan expense. The reduction in salaries and employee benefits expense reflected the deferral of approximately $1.1 million in PPP loan origination costs in the second quarter of 2020, which will be amortized over the life of the PPP loans and recognized when the loans are forgiven or paid off.
7
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Adjusted | |||||||||||||||||||||||||||||||||||||||||||||
| Non–interest Expense | Actual | Merger Expenses | Adjusted | Actual | Merger Expenses | Adjusted | Amount Change | Percent Change | |||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 15,629 | $ | — | $ | 15,629 | $ | 16,951 | $ | (482) | $ | 16,469 | $ | (840) | (5.1)% | ||||||||||||||||||||||||||||||||
| Net occupancy expenses | 3,190 | — | 3,190 | 3,148 | (75) | 3,073 | 117 | 3.8% | |||||||||||||||||||||||||||||||||||||||
| Data processing | 2,432 | — | 2,432 | 2,139 | (68) | 2,071 | 361 | 17.4% | |||||||||||||||||||||||||||||||||||||||
| Professional fees | 518 | — | 518 | 598 | (153) | 445 | 73 | 16.4% | |||||||||||||||||||||||||||||||||||||||
| Outside services and consultants | 1,759 | — | 1,759 | 1,655 | (176) | 1,479 | 280 | 18.9% | |||||||||||||||||||||||||||||||||||||||
| Loan expense | 2,692 | — | 2,692 | 2,048 | (2) | 2,046 | 646 | 31.6% | |||||||||||||||||||||||||||||||||||||||
| FDIC insurance expense | 235 | — | 235 | 365 | — | 365 | (130) | (35.6)% | |||||||||||||||||||||||||||||||||||||||
| Other losses | 193 | — | 193 | 169 | (69) | 100 | 93 | 93.0% | |||||||||||||||||||||||||||||||||||||||
| Other expense | 3,784 | — | 3,784 | 4,511 | (507) | 4,004 | (220) | (5.5)% | |||||||||||||||||||||||||||||||||||||||
| Total non–interest expense | $ | 30,432 | $ | — | $ | 30,432 | $ | 31,584 | $ | (1,532) | $ | 30,052 | $ | 380 | 1.3% | ||||||||||||||||||||||||||||||||
| Annualized non–interest expense to average assets | 2.18 | % | 2.18 | % | 2.51 | % | 2.39 | % | |||||||||||||||||||||||||||||||||||||||
Total non–interest expense was $1.2 million lower in the second quarter of 2020 when compared to the second quarter of 2019. Decreases in salaries and employee benefits, other expenses and FDIC deposit expense were offset in part by increases in loan expenses, data processing expenses and outside services and consultants expense. Excluding merger expenses, total non–interest expense increased by $380,000 in the second quarter of 2020 when compared to the second quarter of 2019. This increase was primarily related to closing the Salin Bancshares, Inc. merger on March 26, 2019 and the related increase in costs.
| Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Adjusted | |||||||||||||||||||||||||||||||||||||||||||||
| Non–interest Expense | Actual | Merger Expenses | Adjusted | Actual | Merger Expenses | Adjusted | Amount Change | Percent Change | |||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 32,220 | $ | — | $ | 32,220 | $ | 31,417 | $ | (484) | $ | 30,933 | $ | 1,287 | 4.2% | ||||||||||||||||||||||||||||||||
| Net occupancy expenses | 6,442 | — | 6,442 | 5,920 | (75) | 5,845 | 597 | 10.2% | |||||||||||||||||||||||||||||||||||||||
| Data processing | 4,837 | — | 4,837 | 4,105 | (360) | 3,745 | 1,092 | 29.2% | |||||||||||||||||||||||||||||||||||||||
| Professional fees | 1,054 | — | 1,054 | 1,091 | (392) | 699 | 355 | 50.8% | |||||||||||||||||||||||||||||||||||||||
| Outside services and consultants | 3,674 | — | 3,674 | 5,185 | (2,466) | 2,719 | 955 | 35.1% | |||||||||||||||||||||||||||||||||||||||
| Loan expense | 4,791 | — | 4,791 | 3,997 | (2) | 3,995 | 796 | 19.9% | |||||||||||||||||||||||||||||||||||||||
| FDIC insurance expense | 385 | — | 385 | 525 | — | 525 | (140) | (26.7)% | |||||||||||||||||||||||||||||||||||||||
| Other losses | 313 | — | 313 | 273 | (71) | 202 | 111 | 55.0% | |||||||||||||||||||||||||||||||||||||||
| Other expense | 7,865 | — | 7,865 | 8,809 | (1,800) | 7,009 | 856 | 12.2% | |||||||||||||||||||||||||||||||||||||||
| Total non–interest expense | $ | 61,581 | $ | — | $ | 61,581 | $ | 61,322 | $ | (5,650) | $ | 55,672 | $ | 5,909 | 10.6% | ||||||||||||||||||||||||||||||||
| Annualized non–interest expense to average assets | 2.28 | % | 2.28 | % | 2.64 | % | 2.40 | % | |||||||||||||||||||||||||||||||||||||||
Total non–interest expense was $259,000 higher for the first six months of 2020 when compared to the same prior year period. Increases in salaries and employee benefits, loan expenses, data processing and net occupancy expenses were offset in part by decreases in outside services and consultants expense, other expenses and FDIC deposit insurance.
8
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
Annualized non–interest expense as a percent of average assets were 2.18%, 2.38% and 2.51% for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively. Annualized non–interest expense, excluding merger expenses, as a percent of average assets were 2.18%, 2.38% and 2.39% for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.
Annualized non–interest expense as a percent of average assets were 2.28% and 2.64% for the six months ended June 30, 2020 and 2019, respectively. Annualized non–interest expense, excluding merger expenses, as a percent of average assets were 2.28% and 2.40% for the six months ended June 30, 2020 and 2019, respectively.
Income tax expense totaled $2.0 million for the second quarter of 2020, an increase of $409,000 when compared to the first quarter of 2020 and a decrease of $1.3 million when compared to the second quarter of 2019. The increase in income tax expense in the second quarter of 2020 compared to the first quarter of 2020 was primarily due to an increase in income before taxes of $3.4 million. The decrease in income tax expense in the second quarter of 2020 compared to the second quarter of 2019 was primarily due to a decrease in income before taxes of $3.3 million.
Income tax expense totaled $3.6 million for the six months ended June 30, 2020, a decrease of $1.8 million when compared to the six months ended June 30, 2019. The decrease in income tax expense was primarily due to a decrease in income before taxes of $3.0 million.
Capital
The capital resources of Horizon and Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2020. Stockholders’ equity totaled $652.2 million at June 30, 2020 and the ratio of average stockholders’ equity to average assets was 12.07% for the six months ended June 30, 2020.
Capital levels benefited from the Company’s previously disclosed public offering of subordinated notes raising $60.0 million. Horizon’s fortress balance sheet at June 30, 2020 maintained adequate regulatory capital ratios when stress testing for highly adverse scenarios.
The following table presents the actual regulatory capital dollar amounts and ratios of Horizon and the Bank as of June 30, 2020.
| June 30, 2020 | Actual | Required for Capital Adequacy Purposes | Required for Capital Adequacy Purposes with Capital Buffer | Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||||||||||||||||
| Total capital (to risk–weighted assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 628,750 | 14.37 | % | $ | 350,035 | 8.00 | % | $ | 459,421 | 10.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
| Bank | 514,371 | 11.74 | % | 350,508 | 8.00 | % | 460,042 | 10.50 | % | $ | 438,135 | 10.00 | % | |||||||||||||||||||||||||||||||||||||
| Tier 1 capital (to risk–weighted assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | 585,386 | 13.38 | % | 262,505 | 6.00 | % | 371,882 | 8.50 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||
| Bank | 459,621 | 10.49 | % | 262,891 | 6.00 | % | 372,429 | 8.50 | % | 350,521 | 8.00 | % | ||||||||||||||||||||||||||||||||||||||
| Common equity tier 1 capital (to risk–weighted assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | 469,069 | 10.72 | % | 196,904 | 4.50 | % | 306,295 | 7.00 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||
| Bank | 459,621 | 10.49 | % | 197,168 | 4.50 | % | 306,706 | 7.00 | % | 284,799 | 6.50 | % | ||||||||||||||||||||||||||||||||||||||
| Tier 1 capital (to average assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | 585,386 | 10.75 | % | 217,818 | 4.00 | % | 217,818 | 4.00 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||
| Bank | 459,621 | 8.48 | % | 216,802 | 4.00 | % | 216,802 | 4.00 | % | 271,003 | 5.00 | % | ||||||||||||||||||||||||||||||||||||||
9
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
“Horizon’s capital position continues to be well capitalized, as defined by regulations, after the adoption of CECL,” said Mr. Dwight. “In addition, Horizon’s earnings were able to offset the adoption of CECL, ACL build, stock repurchases and dividends to successfully build tangible capital to a record $10.87 per share. Horizon also completed a $60.0 million subordinated debt offering, further strengthening our capital position, increasing liquidity at the holding company, and providing optionality to Horizon as we navigate through the economic challenges created by the pandemic.”
Liquidity
The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the “FHLB”). At June 30, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $910.7 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Bank Discount Window. The Bank had approximately $453.6 million of unpledged investment securities at June 30, 2020.
Branch Network and Customer Experience
Horizon continues to implement its disciplined approach for enhancing the efficiency of its branch network on an ongoing basis, while leveraging technology to enhance the customer experience.
The Bank closed two branches during the second quarter of 2020, one of its Indianapolis branches acquired from Salin and its Horseprairie Valparaiso branch. The Bank expects to replace its Troy, Michigan loan production office with a full-service branch during the third quarter of 2020.
Also during the third quarter, Horizon expects to fully implement live online chat support, as well as fully online and mobile enabled deposit account opening capabilities, for the convenience of new and prospective customers.
Use of Non–GAAP Financial Measures
Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for loan and lease losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision net income. In each case, we have identified special circumstances that we consider to be 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 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 figures identified herein and their most comparable GAAP measures.
| Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands Except per Share Data, Unaudited) | ||||||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | ||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | ||||||||||||||||||||||||||||
| Total stockholders’ equity | $ | 652,206 | $ | 630,842 | $ | 656,023 | $ | 642,711 | $ | 626,461 | ||||||||||||||||||||||
| Less: Intangible assets | 176,020 | 176,961 | 177,917 | 178,896 | 179,776 | |||||||||||||||||||||||||||
| Total tangible stockholders’ equity | $ | 476,186 | $ | 453,881 | $ | 478,106 | $ | 463,815 | $ | 446,685 | ||||||||||||||||||||||
| Common shares outstanding | 43,821,878 | 43,763,623 | 44,975,771 | 44,969,021 | 45,061,372 | |||||||||||||||||||||||||||
| Tangible book value per common share | $ | 10.87 | $ | 10.37 | $ | 10.63 | $ | 10.31 | $ | 9.91 | ||||||||||||||||||||||
10
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| 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, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Non–GAAP Calculation of Efficiency Ratio | ||||||||||||||||||||||||||||||||||||||||||||
| Non–interest expense as reported | $ | 30,432 | $ | 31,149 | $ | 30,650 | $ | 30,060 | $ | 31,584 | $ | 61,581 | $ | 61,322 | ||||||||||||||||||||||||||||||
| Net interest income as reported | 42,996 | 40,925 | 41,519 | 43,463 | 41,529 | 83,921 | 75,809 | |||||||||||||||||||||||||||||||||||||
| Non–interest income as reported | $ | 11,125 | $ | 12,063 | $ | 11,934 | $ | 11,514 | $ | 10,898 | $ | 23,188 | $ | 19,610 | ||||||||||||||||||||||||||||||
Non–interest expense/(Net interest income + Non–interest income) (“Efficiency Ratio”) | 56.23 | % | 58.79 | % | 57.34 | % | 54.68 | % | 60.24 | % | 57.49 | % | 64.27 | % | ||||||||||||||||||||||||||||||
| Non–GAAP Reconciliation of Adjusted Efficiency Ratio | ||||||||||||||||||||||||||||||||||||||||||||
| Non–interest expense as reported | $ | 30,432 | $ | 31,149 | $ | 30,650 | $ | 30,060 | $ | 31,584 | $ | 61,581 | $ | 61,322 | ||||||||||||||||||||||||||||||
| Merger expenses | — | — | — | — | (1,532) | — | (5,650) | |||||||||||||||||||||||||||||||||||||
| Non–interest expense excluding merger expenses | 30,432 | 31,149 | 30,650 | 30,060 | 30,052 | 61,581 | 55,672 | |||||||||||||||||||||||||||||||||||||
| Net interest income as reported | 42,996 | 40,925 | 41,519 | 43,463 | 41,529 | 83,921 | 75,809 | |||||||||||||||||||||||||||||||||||||
| Non–interest income as reported | 11,125 | 12,063 | 11,934 | 11,514 | 10,898 | 23,188 | 19,610 | |||||||||||||||||||||||||||||||||||||
| (Gain)/loss on sale of investment securities | (248) | (339) | (10) | — | 100 | (587) | 85 | |||||||||||||||||||||||||||||||||||||
Death benefit on bank owned life insurance (“BOLI”) | — | (233) | — | (213) | (367) | (233) | (367) | |||||||||||||||||||||||||||||||||||||
| Non–interest income excluding (gain)/loss on sale of investment securities and death benefit on BOLI | $ | 10,877 | $ | 11,491 | $ | 11,924 | $ | 11,301 | $ | 10,631 | $ | 22,368 | $ | 19,328 | ||||||||||||||||||||||||||||||
| Adjusted efficiency ratio | 56.49 | % | 59.43 | % | 57.35 | % | 54.89 | % | 57.62 | % | 57.94 | % | 58.52 | % | ||||||||||||||||||||||||||||||
11
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| 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, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Average assets | $ | 5,620,695 | $ | 5,257,332 | $ | 5,250,574 | $ | 5,107,259 | $ | 5,047,365 | $ | 5,433,187 | $ | 4,679,423 | ||||||||||||||||||||||||||||||
Return on average assets (“ROAA”) as reported | 1.05 | % | 0.89 | % | 1.40 | % | 1.60 | % | 1.32 | % | 0.97 | % | 1.18 | % | ||||||||||||||||||||||||||||||
| Merger expenses | — | — | — | — | 0.12 | — | 0.24 | |||||||||||||||||||||||||||||||||||||
| Tax effect | — | — | — | — | (0.02) | — | (0.04) | |||||||||||||||||||||||||||||||||||||
| ROAA excluding merger expenses | 1.05 | 0.89 | 1.40 | 1.60 | 1.42 | 0.97 | 1.38 | |||||||||||||||||||||||||||||||||||||
| (Gain)/loss on sale of investment securities | (0.02) | (0.03) | — | — | 0.01 | (0.02) | — | |||||||||||||||||||||||||||||||||||||
| Tax effect | — | 0.01 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| ROAA excluding (gain)/loss on sale of investment securities | 1.03 | 0.87 | 1.40 | 1.60 | 1.43 | 0.95 | 1.38 | |||||||||||||||||||||||||||||||||||||
Death benefit on bank owned life insurance (“BOLI”) | — | (0.02) | — | (0.02) | (0.03) | (0.01) | (0.02) | |||||||||||||||||||||||||||||||||||||
| ROAA excluding death benefit on BOLI | 1.03 | 0.85 | 1.40 | 1.58 | 1.40 | 0.94 | 1.36 | |||||||||||||||||||||||||||||||||||||
| Adjusted ROAA | 1.03 | % | 0.85 | % | 1.40 | % | 1.58 | % | 1.40 | % | 0.94 | % | 1.36 | % | ||||||||||||||||||||||||||||||
12
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| 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, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Average common equity | $ | 649,490 | $ | 667,588 | $ | 653,071 | $ | 640,770 | $ | 622,028 | $ | 655,538 | $ | 563,862 | ||||||||||||||||||||||||||||||
Return on average common equity (“ROACE”) as reported | 9.07 | % | 7.02 | % | 11.26 | % | 12.72 | % | 10.73 | % | 8.07 | % | 9.82 | % | ||||||||||||||||||||||||||||||
| Merger expenses | — | — | — | — | 0.99 | — | 2.02 | |||||||||||||||||||||||||||||||||||||
| Tax effect | — | — | — | — | (0.19) | — | (0.35) | |||||||||||||||||||||||||||||||||||||
| ROACE excluding merger expenses | 9.07 | 7.02 | 11.26 | 12.72 | 11.53 | 8.07 | 11.49 | |||||||||||||||||||||||||||||||||||||
| (Gain)/loss on sale of investment securities | (0.15) | (0.20) | (0.01) | — | 0.06 | (0.18) | 0.03 | |||||||||||||||||||||||||||||||||||||
| Tax effect | 0.03 | 0.04 | — | — | (0.01) | 0.04 | (0.01) | |||||||||||||||||||||||||||||||||||||
| ROACE excluding (gain)/loss on sale of investment securities | 8.95 | 6.86 | 11.25 | 12.72 | 11.58 | 7.93 | 11.51 | |||||||||||||||||||||||||||||||||||||
Death benefit on bank owned life insurance (“BOLI”) | — | (0.14) | — | (0.13) | (0.24) | (0.07) | (0.13) | |||||||||||||||||||||||||||||||||||||
| ROACE excluding death benefit on BOLI | 8.95 | 6.72 | 11.25 | 12.59 | 11.34 | 7.86 | 11.38 | |||||||||||||||||||||||||||||||||||||
| Adjusted ROACE | 8.95 | % | 6.72 | % | 11.25 | % | 12.59 | % | 11.34 | % | 7.86 | % | 11.38 | % | ||||||||||||||||||||||||||||||
Conference Call
As previously announced, Horizon will host a conference call to review its second quarter financial results and operating performance.
Participants may access the live conference call on July 30, 2020 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 877–317–6789 from the United States, 866–450–4696 from Canada or 412–317–6789 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 6, 2020. 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 10145660.
About Horizon Bancorp, Inc.
Horizon Bancorp, Inc. is an independent, commercial bank holding company serving northern and central Indiana, and southern and central Michigan through its commercial banking subsidiary, Horizon Bank. Horizon may be reached online at www.horizonbank.com. Its common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.
13
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
Forward Looking Statements
This presentation 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 the presentation materials 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. 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 except share and per share data and ratios, Unaudited) | |||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||||||||
| Balance sheet: | |||||||||||||||||||||||||||||
| Total assets | $ | 5,739,262 | $ | 5,351,325 | $ | 5,246,829 | $ | 5,186,714 | $ | 5,098,682 | |||||||||||||||||||
| Investment securities | 1,126,075 | 1,099,943 | 1,042,675 | 977,536 | 887,187 | ||||||||||||||||||||||||
| Commercial loans | 2,312,715 | 2,050,402 | 2,046,651 | 2,046,165 | 2,062,623 | ||||||||||||||||||||||||
| Mortgage warehouse loans | 300,386 | 223,519 | 150,293 | 155,631 | 133,428 | ||||||||||||||||||||||||
| Residential mortgage loans | 704,410 | 757,529 | 770,717 | 796,497 | 814,065 | ||||||||||||||||||||||||
| Consumer loans | 660,871 | 675,849 | 669,180 | 668,332 | 654,552 | ||||||||||||||||||||||||
| Earning assets | 5,143,978 | 4,835,934 | 4,706,051 | 4,667,668 | 4,577,487 | ||||||||||||||||||||||||
Non–interest bearing deposit accounts | 981,868 | 709,978 | 709,760 | 756,707 | 810,350 | ||||||||||||||||||||||||
| Interest bearing transaction accounts | 2,510,854 | 2,264,576 | 2,245,631 | 2,173,100 | 2,153,189 | ||||||||||||||||||||||||
| Time deposits | 814,877 | 907,717 | 975,611 | 986,150 | 967,236 | ||||||||||||||||||||||||
| Borrowings | 583,073 | 704,613 | 549,741 | 516,591 | 436,233 | ||||||||||||||||||||||||
| Subordinated notes | 58,824 | — | — | — | — | ||||||||||||||||||||||||
| Junior subordinated debentures issued to capital trusts | 56,437 | 56,374 | 56,311 | 56,250 | 56,194 | ||||||||||||||||||||||||
| Total stockholders’ equity | 652,206 | 630,842 | 656,023 | 642,711 | 626,461 | ||||||||||||||||||||||||
14
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| 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, | |||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||||||||
| Income statement: | |||||||||||||||||||||||||||||
| Net interest income | $ | 42,996 | $ | 40,925 | $ | 41,519 | $ | 43,463 | $ | 41,529 | |||||||||||||||||||
| Credit loss expense | 7,057 | 8,600 | 340 | 376 | 896 | ||||||||||||||||||||||||
Non–interest income | 11,125 | 12,063 | 11,934 | 11,514 | 10,898 | ||||||||||||||||||||||||
Non–interest expense | 30,432 | 31,149 | 30,650 | 30,060 | 31,584 | ||||||||||||||||||||||||
| Income tax expense | 1,993 | 1,584 | 3,920 | 4,004 | 3,305 | ||||||||||||||||||||||||
| Net income | $ | 14,639 | $ | 11,655 | $ | 18,543 | $ | 20,537 | $ | 16,642 | |||||||||||||||||||
| Per share data: | |||||||||||||||||||||||||||||
| Basic earnings per share | $ | 0.33 | $ | 0.26 | $ | 0.41 | $ | 0.46 | $ | 0.37 | |||||||||||||||||||
| Diluted earnings per share | 0.33 | 0.26 | 0.41 | 0.46 | 0.37 | ||||||||||||||||||||||||
| Cash dividends declared per common share | 0.12 | 0.12 | 0.12 | 0.12 | 0.12 | ||||||||||||||||||||||||
| Book value per common share | 14.88 | 14.41 | 14.59 | 14.29 | 13.90 | ||||||||||||||||||||||||
| Tangible book value per common share | 10.87 | 10.37 | 10.63 | 10.31 | 9.91 | ||||||||||||||||||||||||
Market value – high | 12.44 | 18.79 | 19.42 | 17.77 | 17.13 | ||||||||||||||||||||||||
Market value – low | $ | 8.40 | $ | 7.97 | $ | 16.60 | $ | 15.93 | $ | 15.51 | |||||||||||||||||||
Weighted average shares outstanding – Basic | 43,781,249 | 44,658,512 | 44,971,676 | 45,038,021 | 45,055,117 | ||||||||||||||||||||||||
Weighted average shares outstanding – Diluted | 43,802,794 | 44,756,716 | 45,103,065 | 45,113,730 | 45,130,408 | ||||||||||||||||||||||||
| Key ratios: | |||||||||||||||||||||||||||||
| Return on average assets | 1.05 | % | 0.89 | % | 1.40 | % | 1.60 | % | 1.32 | % | |||||||||||||||||||
| Return on average common stockholders’ equity | 9.07 | 7.02 | 11.26 | 12.72 | 10.73 | ||||||||||||||||||||||||
| Net interest margin | 3.47 | 3.56 | 3.58 | 3.82 | 3.73 | ||||||||||||||||||||||||
| Allowance for credit losses to total loans | 1.38 | 1.30 | 0.49 | 0.49 | 0.50 | ||||||||||||||||||||||||
| Average equity to average assets | 11.56 | 12.70 | 12.44 | 12.55 | 12.32 | ||||||||||||||||||||||||
| Bank only capital ratios: | |||||||||||||||||||||||||||||
| Tier 1 capital to average assets | 8.48 | 9.43 | 9.49 | 9.35 | 9.52 | ||||||||||||||||||||||||
| Tier 1 capital to risk weighted assets | 10.49 | 11.83 | 12.20 | 11.62 | 11.76 | ||||||||||||||||||||||||
| Total capital to risk weighted assets | 11.74 | 12.67 | 12.65 | 12.08 | 12.23 | ||||||||||||||||||||||||
15
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Financial Highlights | |||||||||||
| (Dollars in thousands except share and per share data and ratios, Unaudited) | |||||||||||
| Six Months Ended | |||||||||||
| June 30, | June 30, | ||||||||||
| 2020 | 2019 | ||||||||||
| Income statement: | |||||||||||
| Net interest income | $ | 83,921 | $ | 75,809 | |||||||
| Credit loss expense | 15,656 | 1,260 | |||||||||
| Non-interest income | 23,187 | 19,610 | |||||||||
| Non-interest expense | 61,581 | 61,322 | |||||||||
| Income tax expense | 3,577 | 5,379 | |||||||||
| Net income | $ | 26,294 | $ | 27,458 | |||||||
| Per share data: | |||||||||||
| Basic earnings per share | $ | 0.59 | $ | 0.65 | |||||||
| Diluted earnings per share | 0.59 | 0.65 | |||||||||
| Cash dividends declared per common share | 0.24 | 0.22 | |||||||||
| Book value per common share | 14.88 | 13.90 | |||||||||
| Tangible book value per common share | 10.87 | 9.91 | |||||||||
| Market value - high | 18.79 | 17.82 | |||||||||
| Market value - low | $ | 7.97 | $ | 15.50 | |||||||
| Weighted average shares outstanding - Basic | 44,219,880 | 41,956,047 | |||||||||
| Weighted average shares outstanding - Diluted | 44,286,864 | 42,032,971 | |||||||||
| Key ratios: | |||||||||||
| Return on average assets | 0.97 | % | 1.18 | % | |||||||
| Return on average common stockholders’ equity | 8.07 | 9.82 | |||||||||
| Net interest margin | 3.51 | 3.68 | |||||||||
| Allowance for credit losses to total loans | 1.38 | 0.50 | |||||||||
| Average equity to average assets | 12.07 | 12.05 | |||||||||
| Bank only capital ratios: | |||||||||||
| Tier 1 capital to average assets | 8.48 | 9.52 | |||||||||
| Tier 1 capital to risk weighted assets | 10.49 | 11.76 | |||||||||
| Total capital to risk weighted assets | 11.74 | 12.23 | |||||||||
16
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Financial Highlights | |||||||||||||||||||||||||||||
| (Dollars in thousands except share and per share data and ratios, Unaudited) | |||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||||||||
| Loan data: | |||||||||||||||||||||||||||||
| Substandard loans | $ | 61,385 | $ | 61,322 | $ | 58,670 | $ | 62,130 | $ | 47,764 | |||||||||||||||||||
| 30 to 89 days delinquent | 4,029 | 12,017 | 7,729 | 10,204 | 9,633 | ||||||||||||||||||||||||
| Non-performing loans: | |||||||||||||||||||||||||||||
90 days and greater delinquent – accruing interest | $ | 123 | $ | 246 | $ | 146 | $ | 34 | $ | 391 | |||||||||||||||||||
Trouble debt restructures – accruing interest | 2,039 | 2,115 | 3,354 | 3,491 | 2,198 | ||||||||||||||||||||||||
Trouble debt restructures – non–accrual | 3,443 | 3,360 | 2,006 | 1,807 | 1,576 | ||||||||||||||||||||||||
Non–accrual loans | 22,451 | 18,281 | 15,679 | 13,823 | 14,764 | ||||||||||||||||||||||||
Total non–performing loans | $ | 28,056 | $ | 24,002 | $ | 21,185 | $ | 19,155 | $ | 18,929 | |||||||||||||||||||
Non–performing loans to total loans | 0.70 | % | 0.65 | % | 0.58 | % | 0.52 | % | 0.52 | % | |||||||||||||||||||
| Allocation of the Allowance for Credit Losses | |||||||||||||||||||||||||||||
| (Dollars in Thousands, Unaudited) | |||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||||||||
| Commercial | $ | 39,147 | $ | 32,550 | $ | 11,996 | $ | 12,082 | $ | 11,881 | |||||||||||||||||||
| Real estate | 5,832 | 5,654 | 923 | 1,449 | 1,732 | ||||||||||||||||||||||||
| Mortgage warehouse | 1,190 | 1,055 | 1,077 | 1,041 | 1,040 | ||||||||||||||||||||||||
| Consumer | 8,921 | 9,181 | 3,671 | 3,384 | 3,652 | ||||||||||||||||||||||||
| Total | $ | 55,090 | $ | 48,440 | $ | 17,667 | $ | 17,956 | $ | 18,305 | |||||||||||||||||||
Net Charge–offs (Recoveries) | |||||||||||||||||||||||||||||
| (Dollars in Thousands, Unaudited) | |||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||||||||
| Commercial | $ | 6 | $ | (20) | $ | 146 | $ | 192 | $ | 265 | |||||||||||||||||||
| Real estate | 24 | 17 | 40 | (7) | 41 | ||||||||||||||||||||||||
| Mortgage warehouse | — | — | — | — | — | ||||||||||||||||||||||||
| Consumer | 377 | 407 | 443 | 540 | 106 | ||||||||||||||||||||||||
| Total | $ | 407 | $ | 404 | $ | 629 | $ | 725 | $ | 412 | |||||||||||||||||||
Percent of net charge–offs to average loans outstanding for the period | 0.01 | % | 0.01 | % | 0.02 | % | 0.02 | % | 0.01 | % | |||||||||||||||||||
17
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
Total Non–performing Loans | |||||||||||||||||||||||||||||
| (Dollars in Thousands, Unaudited) | |||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||||||||
| Commercial | $ | 14,238 | $ | 9,579 | $ | 7,347 | $ | 8,193 | $ | 8,697 | |||||||||||||||||||
| Real estate | 9,945 | 10,411 | 9,884 | 7,212 | 6,444 | ||||||||||||||||||||||||
| Mortgage warehouse | — | — | — | — | — | ||||||||||||||||||||||||
| Consumer | 3,873 | 4,012 | 3,954 | 3,750 | 3,788 | ||||||||||||||||||||||||
| Total | $ | 28,056 | $ | 24,002 | $ | 21,185 | $ | 19,155 | $ | 18,929 | |||||||||||||||||||
Non–performing loans to total loans | 0.70 | % | 0.65 | % | 0.58 | % | 0.52 | % | 0.52 | % | |||||||||||||||||||
| Other Real Estate Owned and Repossessed Assets | |||||||||||||||||||||||||||||
| (Dollars in Thousands, Unaudited) | |||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||||||||
| Commercial | $ | 2,374 | $ | 2,464 | $ | 3,698 | $ | 3,972 | $ | 3,694 | |||||||||||||||||||
| Real estate | 249 | 336 | 28 | 48 | 113 | ||||||||||||||||||||||||
| Mortgage warehouse | — | — | — | — | — | ||||||||||||||||||||||||
| Consumer | 20 | 13 | — | 24 | 48 | ||||||||||||||||||||||||
| Total | $ | 2,643 | $ | 2,813 | $ | 3,726 | $ | 4,044 | $ | 3,855 | |||||||||||||||||||
18
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Average Balance Sheets | ||||||||||||||||||||||||||||||||||||||
| (Dollar Amount in Thousands, Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest earning assets | ||||||||||||||||||||||||||||||||||||||
| Federal funds sold | $ | 62,832 | $ | 17 | 0.11 | % | $ | 18,251 | $ | 120 | 2.64 | % | ||||||||||||||||||||||||||
| Interest earning deposits | 20,278 | 61 | 1.21 | % | 18,516 | 83 | 1.80 | % | ||||||||||||||||||||||||||||||
Investment securities – taxable | 481,552 | 2,243 | 1.87 | % | 480,036 | 3,070 | 2.57 | % | ||||||||||||||||||||||||||||||
Investment securities – non-taxable (1) | 647,375 | 4,105 | 3.15 | % | 411,944 | 2,793 | 3.44 | % | ||||||||||||||||||||||||||||||
Loans receivable (2) (3) | 3,900,599 | 43,918 | 4.54 | % | 3,637,927 | 47,784 | 5.29 | % | ||||||||||||||||||||||||||||||
| Total interest earning assets | 5,112,636 | 50,344 | 4.05 | % | 4,566,674 | 53,850 | 4.81 | % | ||||||||||||||||||||||||||||||
Non–interest earning assets | ||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 84,297 | 67,537 | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses | (48,611) | (18,036) | ||||||||||||||||||||||||||||||||||||
| Other assets | 472,373 | 431,190 | ||||||||||||||||||||||||||||||||||||
| Total average assets | $ | 5,620,695 | $ | 5,047,365 | ||||||||||||||||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 3,299,661 | $ | 4,506 | 0.55 | % | $ | 3,118,821 | $ | 8,938 | 1.15 | % | ||||||||||||||||||||||||||
| Borrowings | 618,274 | 2,074 | 1.35 | % | 398,320 | 2,495 | 2.51 | % | ||||||||||||||||||||||||||||||
| Subordinated notes | 4,527 | 58 | 5.15 | % | — | — | — | % | ||||||||||||||||||||||||||||||
| Junior subordinated debentures issued to capital trusts | 52,835 | 710 | 5.40 | % | 53,572 | 888 | 6.65 | % | ||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 3,975,297 | 7,348 | 0.74 | % | 3,570,713 | 12,321 | 1.38 | % | ||||||||||||||||||||||||||||||
Non–interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 924,890 | 818,872 | ||||||||||||||||||||||||||||||||||||
| Accrued interest payable and other liabilities | 71,018 | 35,752 | ||||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 649,490 | 622,028 | ||||||||||||||||||||||||||||||||||||
| Total average liabilities and stockholders’ equity | $ | 5,620,695 | $ | 5,047,365 | ||||||||||||||||||||||||||||||||||
| Net interest income/spread | $ | 42,996 | 3.31 | % | $ | 41,529 | 3.43 | % | ||||||||||||||||||||||||||||||
Net interest income as a percent of average interest earning assets (1) | 3.47 | % | 3.73 | % | ||||||||||||||||||||||||||||||||||
(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. | |||||||||||||||||||||||||||||||||||||
19
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Average Balance Sheets | ||||||||||||||||||||||||||||||||||||||
| (Dollar Amount in Thousands, Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest earning assets | ||||||||||||||||||||||||||||||||||||||
| Federal funds sold | $ | 43,903 | $ | 113 | 0.52 | % | $ | 13,072 | $ | 224 | 3.46 | % | ||||||||||||||||||||||||||
| Interest earning deposits | 23,391 | 163 | 1.40 | % | 22,414 | 191 | 1.72 | % | ||||||||||||||||||||||||||||||
Investment securities – taxable | 491,360 | 4,943 | 2.02 | % | 464,544 | 5,980 | 2.60 | % | ||||||||||||||||||||||||||||||
Investment securities – non-taxable (1) | 618,080 | 7,903 | 3.16 | % | 402,883 | 5,421 | 3.43 | % | ||||||||||||||||||||||||||||||
Loans receivable (2) (3) | 3,752,654 | 88,876 | 4.78 | % | 3,346,731 | 87,407 | 5.28 | % | ||||||||||||||||||||||||||||||
| Total interest earning assets | 4,929,388 | 101,998 | 4.25 | % | 4,249,644 | 99,223 | 4.79 | % | ||||||||||||||||||||||||||||||
Non–interest earning assets | ||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 81,203 | 56,160 | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses | (36,588) | (17,939) | ||||||||||||||||||||||||||||||||||||
| Other assets | 459,184 | 391,558 | ||||||||||||||||||||||||||||||||||||
| Total average assets | $ | 5,433,187 | $ | 4,679,423 | ||||||||||||||||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 3,262,492 | $ | 12,222 | 0.75 | % | $ | 2,818,496 | $ | 15,814 | 1.13 | % | ||||||||||||||||||||||||||
| Borrowings | 575,702 | 4,312 | 1.51 | % | 487,266 | 6,116 | 2.53 | % | ||||||||||||||||||||||||||||||
| Subordinated notes | 2,264 | 58 | 5.15 | % | — | — | — | % | ||||||||||||||||||||||||||||||
| Junior subordinated debentures issued to capital trusts | 52,801 | 1,485 | 5.66 | % | 45,735 | 1,484 | 6.54 | % | ||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 3,893,259 | 18,077 | 0.93 | % | 3,351,497 | 23,414 | 1.41 | % | ||||||||||||||||||||||||||||||
Non–interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 820,997 | 731,556 | ||||||||||||||||||||||||||||||||||||
| Accrued interest payable and other liabilities | 63,393 | 32,508 | ||||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 655,538 | 563,862 | ||||||||||||||||||||||||||||||||||||
| Total average liabilities and stockholders’ equity | $ | 5,433,187 | $ | 4,679,423 | ||||||||||||||||||||||||||||||||||
| Net interest income/spread | $ | 83,921 | 3.32 | % | $ | 75,809 | 3.38 | % | ||||||||||||||||||||||||||||||
Net interest income as a percent of average interest earning assets (1) | 3.51 | % | 3.68 | % | ||||||||||||||||||||||||||||||||||
(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. | |||||||||||||||||||||||||||||||||||||
20
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
| Condensed Consolidated Balance Sheets | ||||||||||||||
| (Dollar Amounts in Thousands) | ||||||||||||||
| June 30, 2020 | December 31, 2019 | |||||||||||||
| (Unaudited) | ||||||||||||||
| Assets | ||||||||||||||
| Cash and due from banks | $ | 170,135 | $ | 98,831 | ||||||||||
| Interest earning time deposits | 9,247 | 8,455 | ||||||||||||
| Investment securities, available for sale | 935,140 | 834,776 | ||||||||||||
| Investment securities, held to maturity (fair value of $201,818 and $215,147) | 190,935 | 207,899 | ||||||||||||
| Loans held for sale | 15,913 | 4,088 | ||||||||||||
| Loans, net of allowance for credit losses of $55,090 and $17,667 | 3,923,292 | 3,619,174 | ||||||||||||
| Premises and equipment, net | 92,232 | 92,209 | ||||||||||||
| Federal Home Loan Bank stock | 23,608 | 22,447 | ||||||||||||
| Goodwill | 151,238 | 151,238 | ||||||||||||
| Other intangible assets | 24,782 | 26,679 | ||||||||||||
| Interest receivable | 20,185 | 18,828 | ||||||||||||
| Cash value of life insurance | 95,709 | 95,577 | ||||||||||||
| Other assets | 86,846 | 66,628 | ||||||||||||
| Total assets | $ | 5,739,262 | $ | 5,246,829 | ||||||||||
| Liabilities | ||||||||||||||
| Deposits | ||||||||||||||
Non–interest bearing | $ | 981,868 | $ | 709,760 | ||||||||||
| Interest bearing | 3,325,731 | 3,221,242 | ||||||||||||
| Total deposits | 4,307,599 | 3,931,002 | ||||||||||||
| Borrowings | 583,073 | 549,741 | ||||||||||||
| Subordinated notes | 58,824 | — | ||||||||||||
| Junior subordinated debentures issued to capital trusts | 56,437 | 56,311 | ||||||||||||
| Interest payable | 2,353 | 3,062 | ||||||||||||
| Other liabilities | 78,770 | 50,690 | ||||||||||||
| Total liabilities | 5,087,056 | 4,590,806 | ||||||||||||
| 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 43,846,947 and 45,000,840 shares, Outstanding 43,821,878 and 44,975,771 shares | — | — | ||||||||||||
Additional paid–in capital | 361,087 | 379,853 | ||||||||||||
| Retained earnings | 269,849 | 269,738 | ||||||||||||
| Accumulated other comprehensive income | 21,270 | 6,432 | ||||||||||||
| Total stockholders’ equity | 652,206 | 656,023 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 5,739,262 | $ | 5,246,829 | ||||||||||
21
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
Condensed Consolidated Statements of Income (Dollar Amounts in Thousands, Except Per Share Data, Unaudited) | ||||||||||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | ||||||||||||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | ||||||||||||||||||||||||||||
| Interest Income | ||||||||||||||||||||||||||||||||
| Loans receivable | $ | 43,918 | $ | 44,958 | $ | 46,769 | $ | 49,455 | $ | 47,784 | ||||||||||||||||||||||
| Investment securities – taxable | 2,321 | 2,898 | 3,054 | 3,157 | 3,273 | |||||||||||||||||||||||||||
| Investment securities – non-taxable | 4,105 | 3,798 | 3,575 | 3,099 | 2,793 | |||||||||||||||||||||||||||
| Total interest income | 50,344 | 51,654 | 53,398 | 55,711 | 53,850 | |||||||||||||||||||||||||||
| Interest Expense | ||||||||||||||||||||||||||||||||
| Deposits | 4,506 | 7,716 | 8,767 | 9,109 | 8,938 | |||||||||||||||||||||||||||
| Borrowed funds | 2,074 | 2,238 | 2,281 | 2,275 | 2,495 | |||||||||||||||||||||||||||
| Subordinated notes | 58 | — | — | — | — | |||||||||||||||||||||||||||
| Junior subordinated debentures issued to capital trusts | 710 | 775 | 831 | 864 | 888 | |||||||||||||||||||||||||||
| Total interest expense | 7,348 | 10,729 | 11,879 | 12,248 | 12,321 | |||||||||||||||||||||||||||
| Net Interest Income | 42,996 | 40,925 | 41,519 | 43,463 | 41,529 | |||||||||||||||||||||||||||
| Credit loss expense | 7,057 | 8,600 | 340 | 376 | 896 | |||||||||||||||||||||||||||
| Net Interest Income after Credit Loss Expense | 35,939 | 32,325 | 41,179 | 43,087 | 40,633 | |||||||||||||||||||||||||||
| Non–interest Income | ||||||||||||||||||||||||||||||||
| Service charges on deposit accounts | 1,888 | 2,446 | 2,766 | 2,836 | 2,480 | |||||||||||||||||||||||||||
| Wire transfer fees | 230 | 171 | 179 | 189 | 167 | |||||||||||||||||||||||||||
| Interchange fees | 2,327 | 1,896 | 1,996 | 2,138 | 2,160 | |||||||||||||||||||||||||||
| Fiduciary activities | 1,765 | 2,528 | 2,594 | 1,834 | 2,063 | |||||||||||||||||||||||||||
| Gains/(losses) on sale of investment securities | 248 | 339 | 10 | — | (100) | |||||||||||||||||||||||||||
| Gain on sale of mortgage loans | 6,620 | 3,473 | 3,119 | 2,702 | 2,078 | |||||||||||||||||||||||||||
| Mortgage servicing income net of impairment | (2,760) | 25 | 294 | 444 | 570 | |||||||||||||||||||||||||||
| Increase in cash value of bank owned life insurance | 557 | 554 | 566 | 556 | 555 | |||||||||||||||||||||||||||
| Death benefit on bank owned life insurance | — | 233 | — | 213 | 367 | |||||||||||||||||||||||||||
| Other income | 250 | 398 | 410 | 602 | 558 | |||||||||||||||||||||||||||
| Total non-interest income | 11,125 | 12,063 | 11,934 | 11,514 | 10,898 | |||||||||||||||||||||||||||
| Non–interest Expense | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | 15,629 | 16,591 | 16,841 | 16,948 | 16,951 | |||||||||||||||||||||||||||
| Net occupancy expenses | 3,190 | 3,252 | 3,106 | 3,131 | 3,148 | |||||||||||||||||||||||||||
| Data processing | 2,432 | 2,405 | 2,235 | 2,140 | 2,139 | |||||||||||||||||||||||||||
| Professional fees | 518 | 536 | 520 | 335 | 598 | |||||||||||||||||||||||||||
| Outside services and consultants | 1,759 | 1,915 | 1,415 | 1,552 | 1,655 | |||||||||||||||||||||||||||
| Loan expense | 2,692 | 2,099 | 2,438 | 2,198 | 2,048 | |||||||||||||||||||||||||||
| FDIC insurance expense | 235 | 150 | — | (273) | 365 | |||||||||||||||||||||||||||
| Other losses | 193 | 120 | 377 | 90 | 169 | |||||||||||||||||||||||||||
| Other expense | 3,784 | 4,081 | 3,718 | 3,939 | 4,511 | |||||||||||||||||||||||||||
| Total non-interest expense | 30,432 | 31,149 | 30,650 | 30,060 | 31,584 | |||||||||||||||||||||||||||
| Income Before Income Taxes | 16,632 | 13,239 | 22,463 | 24,541 | 19,947 | |||||||||||||||||||||||||||
| Income tax expense | 1,993 | 1,584 | 3,920 | 4,004 | 3,305 | |||||||||||||||||||||||||||
| Net Income | $ | 14,639 | $ | 11,655 | $ | 18,543 | $ | 20,537 | $ | 16,642 | ||||||||||||||||||||||
| Basic Earnings Per Share | $ | 0.33 | $ | 0.26 | $ | 0.41 | $ | 0.46 | $ | 0.37 | ||||||||||||||||||||||
| Diluted Earnings Per Share | 0.33 | 0.26 | 0.41 | 0.46 | 0.37 | |||||||||||||||||||||||||||
22
Horizon Bancorp, Inc. Announces Second Quarter 2020 Financial Results
Condensed Consolidated Statements of Income (Dollar Amounts in Thousands, Except Per Share Data, Unaudited) | |||||||||||
| Six Months Ended | |||||||||||
| June 30, | June 30, | ||||||||||
| 2020 | 2019 | ||||||||||
| Interest Income | |||||||||||
| Loans receivable | $ | 88,876 | $ | 87,407 | |||||||
| Investment securities – taxable | 5,219 | 6,395 | |||||||||
| Investment securities – non-taxable | 7,903 | 5,421 | |||||||||
| Total interest income | 101,998 | 99,223 | |||||||||
| Interest Expense | |||||||||||
| Deposits | 12,222 | 15,814 | |||||||||
| Borrowed funds | 4,312 | 6,116 | |||||||||
| Subordinated notes | 58 | — | |||||||||
| Junior subordinated debentures issued to capital trusts | 1,485 | 1,484 | |||||||||
| Total interest expense | 18,077 | 23,414 | |||||||||
| Net Interest Income | 83,921 | 75,809 | |||||||||
| Credit loss expense | 15,657 | 1,260 | |||||||||
| Net Interest Income after Credit Loss Expense | 68,264 | 74,549 | |||||||||
| Non–interest Income | |||||||||||
| Service charges on deposit accounts | 4,334 | 4,357 | |||||||||
| Wire transfer fees | 401 | 285 | |||||||||
| Interchange fees | 4,223 | 3,521 | |||||||||
| Fiduciary activities | 4,293 | 4,152 | |||||||||
| Gains/(losses) on sale of investment securities | 587 | (85) | |||||||||
| Gain on sale of mortgage loans | 10,093 | 3,387 | |||||||||
| Mortgage servicing income net of impairment | (2,735) | 1,176 | |||||||||
| Increase in cash value of bank owned life insurance | 1,111 | 1,068 | |||||||||
| Death benefit on bank owned life insurance | 233 | 367 | |||||||||
| Other income | 648 | 1,382 | |||||||||
| Total non-interest income | 23,188 | 19,610 | |||||||||
| Non–interest Expense | |||||||||||
| Salaries and employee benefits | 32,220 | 31,417 | |||||||||
| Net occupancy expenses | 6,442 | 5,920 | |||||||||
| Data processing | 4,837 | 4,105 | |||||||||
| Professional fees | 1,054 | 1,091 | |||||||||
| Outside services and consultants | 3,674 | 5,185 | |||||||||
| Loan expense | 4,791 | 3,997 | |||||||||
| FDIC insurance expense | 385 | 525 | |||||||||
| Other losses | 313 | 273 | |||||||||
| Other expense | 7,865 | 8,809 | |||||||||
| Total non-interest expense | 61,581 | 61,322 | |||||||||
| Income Before Income Taxes | 29,871 | 32,837 | |||||||||
| Income tax expense | 3,577 | 5,379 | |||||||||
| Net Income | $ | 26,294 | $ | 27,458 | |||||||
| Basic Earnings Per Share | $ | 0.59 | $ | 0.65 | |||||||
| Diluted Earnings Per Share | 0.59 | 0.65 | |||||||||
23
A NASDAQA NASDAQ Traded Traded Company Company - Symbol- Symbol HBNC HBNC Investor Presentation July 29, 2020
Important Information Forward-Looking Statements This presentation 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 the presentation materials 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 (the “SEC”), including those described in Horizon’s Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and other subsequent filings with the SEC. 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. Non-GAAP Measures Certain non-GAAP financial measures are presented herein. Horizon believes they are useful to investors and provide a greater understanding of Horizon’s business without giving effect to non-recurring costs and non-core items. For each non-GAAP financial measure, we have presented comparable GAAP measures and reconciliations of the non-GAAP measures to those GAAP measures in the Appendix to this presentation. Please see slides 36-45. 2
Corporate Overview 3
2Q20 Highlights Change % Change % ($000s except per share data) 2Q20 1Q20 vs. 2Q19 ($000s except per share data) 2Q20 1Q20 vs. 2Q19 Income Statement Credit Quality Net interest income $42,996 5.1% 3.5% Non-performing assets $30,699 5.1% 3.5% Non-interest income 11,124 (7.8)% 2.1% NPA ratio 0.53% 3 bps 8 bps Reported net income 14,639 25.6% (12.0)% Net charge-offs to avg. loans for Diluted EPS $0.33 26.9% (10.8)% theperiod 0.01% 0bps 0bps Balance Sheet Capital Average earning assets $5,112,636 8.2% 12.0% Tangible book value per share $10.87 4.8% 9.7% Average total loans 3,900,599 8.2% 7.2% Book value per share $14.88 3.3% 7.1% Average total deposits 4,224,551 7.2% 7.3% Dividends payout ratio 36.4% • Profitably grew and strengthened the balance sheet – Average earning assets up >8% compared to linked quarter – Net income increased >25% during the quarter • Record mortgage volume and record gain on mortgage loan sales of $6.6 million for the period • Continued solid asset quality metrics, with NPAs/total assets of 0.53% at June 30, 2020 – Disciplined expense management, with annualized non-interest expense to average assets ratio improving 20 bps to 2.18% • Completed $60.0 million subordinated debt offering, strengthening capital position and increasing liquidity at the holding company 4
Seasoned Management Team Seasoned Leadership Executive team has collectively >200 total Horizon’s employees understand the years’ banking experience value of work Horizon’s middle mgmt. team on average 14 mergers and 11 organic expansions has >25 years of banking experience completed in last 16 years Craig M. Dwight James D. "Jim" Neff Mark E. Secor Chairman & CEO President Executive VP & CFO • 42 Years of Banking Experience • 31 Years of Banking & Public • 41 Years of Banking Experience • 2 Years as President Accounting Experience • 21 Years as President or CEO • 11 Years with Horizon as CFO of Bank • 19 Years as Senior Mortgage and Retail credit officer Executive Vice President of Horizon Kathie A. DeRuiter Dennis J. Kuhn Todd A. Etzler EVP & Senior Operations EVP & Chief Commercial SVP , Corporate Secretary Officer Banking Officer & General Counsel • 30 Years of Banking and • 28 Years of Corporate Legal • 35 Years of Banking Experience Operational Experience Experience and 9 years of • 19 Years as Senior Bank • 2 Years as Chief Commercial General Counsel Experience Banking Officer Operations Officer • 3 Years as SVP and General Counsel 5
A History of Profitable Growth Extensive and Diligent M&A Expertise Supplements Organic Growth 2014 - 2019 Organic Expansions 11 Organic M&A Carmel, IN 1st Mtg. Bargersville 14 M&A Ft. Wayne, IN Summit Lafayette Grand Rapids, Peoples Wolverine 2008 - 2013 MI Farmers Salin Organic M&A Columbus, OH(1) Kalamazoo, MI American Trust LaPorte Noblesville, IN Indianapolis, IN Heartland CNB 2002 - 2007 Bancshares Holland, MI Organic M&A St. Joseph, MI Anchor Mortgage South Bend, IN Alliance Financial Elkhart, IN Merrillville, IN (1) Columbus location closed February 2018. 6
Diversified & Attractive Footprint Headquartered in Michigan City, Indiana 73 Locations (Indiana and Michigan) Approximately 800 FTEs $468 million market capitalization (6/30/20) NASDAQ: HBNC INDIANA 6/30/20 Loans: $2.2 Billion MICHIGAN 6/30/20 Loans: $1.4 Billion Multiple Revenue Streams Diversifies Risk Retail Banking Mortgage Banking Business Banking Wealth Management Complementary Revenue Streams that are Counter- Cyclical to Varying Economic Cycles Note: Total loan figures for Indiana and Michigan do not include Mortgage Warehouse. 7
Attractive & Stable Midwest Markets Top 5 Markets by Deposits Southwest Michigan City, IN Indianapolis, IN Northwest Indiana Lafayette, IN Michigan* / La Porte, IN (Growth) (Growth) (Growth) (Legacy) (Growth) $1.0B Deposits $573M Deposits $511M Deposits $341M Deposits $293M Deposits 9 Branches 9 Branches 10 Branches 10 Branches 7 Branches Significant Greater Double commuter Similar culture Purdue University manufacturing, Indianapolis area track addition to and economic collaborates with healthcare, and exhibits strong the South Shore base to legacy contiguous cities education growth train lines markets in of Lafayette and industries Over $500m in High cost of Northern Indiana West Lafayette Over $1.5B in new investment living in Chicago Grand Rapids one Subaru expanding public and private and 4,000 new Population of the most facilities investments since jobs created in density of attractive markets 2012 2019 Chicago in the Midwest Michigan City, IN / Southwest La Porte, IN Indianapolis, IN Northwest Indiana Michigan* Lafayette, IN MedianHHI $53,255 $65,306 $74,285 $58,856 $59,404 '20-'25HHIGrowth 6.8% 11.2% 11.5% 11.8% 10.9% '20-'25Pop.Growth 0.12% 3.81% 0.08% 1.02% 3.86% Source: S&P Global Market Intelligence. Note: Core market demographics reflect MSA data. *Southwest Michigan defined as the MSAs of Niles, Grand Rapids-Kentwood and Kalamazoo-Portage. Demographic data weighted by HBNC deposits. 8
COVID-19 Response Supporting Employees, Customers & Communities Employees Consumers Businesses Communities Safety and well being of 97% of our branch locations are Preferred SBA Lender: Increased volunteerism in support employees & families is our first now open for walk-in traffic. • Active Participant in all SBA of local not-for-profit entities priority loan programs (PPP, 7a, Two locations still serving Express & 504) Contributed over $300,000 to Implemented pandemic plan in customers by appointment only COVID-19 related not-for-profit March after completing test run in and through alternative delivery Payment Relief Programs: efforts (local food banks, United February 2020 channels. • Approximately $470 million in Way, housing) commercial loans with payment Installed sneeze guards, customer Installed nine additional extensions Participating in community directional signage, implemented Interactive Teller Machines • Processed and received conference calls related to mask requirements, and (ITMs) staffed by Remote Video approval for 2,340 PPP loans COVID-19 continuing with sanitizing and Tellers (Rounds One and Two), social distancing protocols. funding approximately $308.1 Partnered with local Opened fourth call center location million neighborhood housing Steadily reducing percentage of • Continue to provide new loans partnerships to provide funding employees working remotely from Payment Relief: to qualified applicants for low to moderate income early second quarter peak • Approximately $63 million in families consumer & mortgage loans Increased PTO / sick time with payment extensions Partnered with local Certified benefits • Continue to provide new loans Development Corporations to to qualified applicants provide capital to small businesses • Providing mortgage loan education programs Supported flood victims in • Providing additional financial Midland, Michigan assistance in the form of fee waivers, freeze on all debt collection activities Note: Modification and PPP data as of June 30, 2020 9
Digital Transformation • Approximately 71% of demand deposit account holders were active online banking users at June 30, 2020 • Third quarter upgrades include live online chat support, along with online and mobile deposit account opening Active Online Monthly Average Banking Users Transaction Volume 110,000 330,000 100,000 305,000 98,836 90,000 280,000 255,000 80,000 86,020 230,000 70,000 73,998 205,000 60,000 180,000 50,000 155,000 40,000 130,000 June 2018 June 2019 June 2020 2016 2017 2018 2019 2Q20 Branch Transactions Active Online Banking Users - MTD Digital & Virtual Transactions 10
Financial Highlights 11
Strong Core Earnings Adj. Net Income(1) Adj. Net Interest Income(1) $24,917 $23,688 $22,803 $41,724 $41,443 $21,839 $40,230 $40,477 $39,491 $20,843 $20,324 $18,535 $17,591 $14,443 s s 0 $0.45 0 0 0 0 $0.39 $0.41 $11,154 0 $ $ 3.67% $0.32 3.61% 3.49% 3.44% 3.35% $0.24 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 Pre-tax, Pre-provision Income Adj. Net Income Adj. EPS Adj. Net Interest Income Adj. NIM Adj. ROAA(1) Adj. PTPP ROAA(1) 1.58% 1.92% 1.40% 1.40% 1.74% 1.64% 1.63% 1.68% 1.03% 0.85% 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 Adj. ROAA Adj. PTPP ROAA (1) Footnote Index included in Appendix (see slides 36-40 for non-GAAP reconciliation) 12
Stable Net Interest Margin • Lower yielding PPP loans impacted the second quarter margin ~ 3bps • Excess cash sold during the second quarter impacted the margin ~ 4bps (1) (1) (2) (1) Footnote Index included in Appendix (see slides 40-45 for non-GAAP reconciliation) (2) Source: S&P Global Market Intelligence. 13
Change in Loan Yields Directionally Consistent with Funding Costs • Commercial loans: – 64% fixed / 36% variable – 21% of variable rate commercial loan have floors, 67% of which are at their floor • Retained Mortgage loans: – 26% fixed / 74% variable – 98% of variable rate mortgage loans have floors, 5% of which are at their floor • PPP loans impacted the second quarter loan yield ~ 10bps Yield on Loans (%) / Total Loans ($B) 14
Strong Core Funding Deposit Re-Pricing Opportunities • Non-interest bearing balances increased 29% • Quick and decisive action to reprice deposits began immediately after the Fed’s interest rate cuts in March resulting in interest bearing deposit account costs of 0.15% • CD’s maturing in 2020 total $400 million with a weighted average rate of 1.64% • CD portfolio has a duration of just over 10 months and weighted average rate of 1.55% • Account and deposit retention data very strong to date Average Cost(1) 2Q 1Q Average 2Q 1Q 2020 2020 Deposits 2020 2020 CDs Non-interest Average Average bearing ($000s) (QTD) (QTD) 19% Balances Balances 23% Non-interest $924,890 $717,257 0.00% 0.00% bearing Interest $2,461,108 $2,268,374 0.15% 0.53% Interest bearing bearing(1) Time Deposits $838,553 $956,949 1.73% 1.99% 58% (CDs) TotalDeposits $4,224,551 $3,942,580 0.43% 0.79% (1) Footnote Index included in Appendix (see slide 46 for non-GAAP reconciliation) 15
Diverse Sources of Revenue Q2 ‘20 Non-interest Income Breakout Q2 ‘20 Highlights • Diverse sources of non-interest income, representing 20.6% of total revenue $6,620 • Record mortgage contribution s 0 0 $1,765 $1,888 $2,327 • Realized $2.9 million of mortgage 0 $1,284 $ servicing rights impairment -$2,760 • Shift with lower non-sufficient funds fees and growth in interchange income Mortgage Contribution Servicing, net Gain on Sale Mortgage Volume s s $9,208 0 0 0 0 $7,906 $6,613 $10,093 $408,972 0 0 $ $ $361,463 $365,865 $363,610 $3,387 $1,583 $2,120 $1,914 $1,176 $173,899 -$2,735 2017 2018 2019 2Q19 (YTD) 2Q20 (YTD) 2017 2018 2019 2Q19 (YTD) 2Q20 (YTD) 16
Focus on Expense Control Non-interest Expense Breakout ($M) Highlights • Efficiency ratio improved to 56.2% as focus on expense control drives positive operating leverage • Continue annual rationalization of retail locations with two branches closed in 2020 • Second quarter expenses positively impacted by $1.1 million of PPP deferred costs Efficiency Ratio(1) Salaries & Employee Benefits Net Occupancy Expenses Data Processing Professional Fees Outside Services & Consultants Loan Expense Other (1) Footnote Index included in Appendix (see slide 47 for non-GAAP reconciliation) 17
CECL Implementation Driving Reserve Build CECL Adoption Net Net Reserve Reserve Day One Build(1) Build(1) ($000s, unaudited) 12/31/19 Impact 1/1/20 1Q20 2Q20 6/30/20 Commercial $ 11,996 $ 13,618 $ 25,614 $ 6,936 $ 6,597 $ 39,147 Retail Mortgage 923 4,048 4,971 683 178 5,832 Warehousing 1,077 - 1,077 (22) 135 1,190 Consumer 3,671 4,911 8,582 599 (260) 8,921 AllowanceforCreditLosses $ 17,667 $ 22,577 $ 40,244 $ 8,196 $ 6,650 $ 55,090 ACL/Total Loans 0.49% 1.10% 1.38% Acquired Loan Discount $ 20,228 $ (2,786) $ 17,442 $ - $ - $ 14,474 (1) Net Reserve Build is equal to the provision for credit losses net of net charge-offs/recoveries. 18
Robust Capital Foundation TCE / TA (%) Leverage Ratio (%) 4.0% CET1 Ratio (%) Total RBC Ratio (%) 7.0% 10.5% KBW Regional Bank Index Median - MRQ Source: S&P Global Market Intelligence. Note: Company closed the acquisition of Salin Bancshares, Inc. in March 2019. Adequate + Buffer 19
Loan Portfolio Review 20
Diversified and Granular Loan Portfolio Commercial Loans by Industry ($M) (6/30/20) Percentage of Gross Loan Composition ($M) – 6/30/20 Commercial Total Loan Industry Balance Portfolio Portfolio Lessors-ResidentialMultiFamily $228 9.9% 5.7% Health Care, Educational & Social 168 7.3% 4.2% Mortgage Office (except medical) 149 6.4% 3.7% Held For Sale Warehouse IndividualsandOtherServices 145 6.3% 3.6% $300M $16M 7.5% 0.4% Real Estate Rental & Leasing 145 6.3% 3.6% Consumer Retail 143 6.2% 3.6% $661M Hotel 140 6.1% 3.5% 16.5% Construction 139 6.0% 3.5% Manufacturing 120 5.2% 3.0% Restaurants 101 4.4% 2.5% $4.0B Warehouse/Industrial 81 3.5% 2.0% Professional & Technical Services 81 3.5% 2.0% Commercial RetailTrade 78 3.4% 2.0% Residential $2,313M Lessors - Student Housing 63 2.7% 1.6% Mortgage 58.0% FarmLand 62 2.7% 1.6% $704M Medical Office 61 2.6% 1.5% 17.6% MiniStorage 43 1.9% 1.1% WholesaleTrade 40 1.7% 1.0% Transportation&Warehousing 39 1.7% 1.0% Lessors-Residential1-4Family 38 1.6% 1.0% Agriculture 37 1.6% 0.9% Leisure and Hospitality 36 1.6% 0.9% Government 26 1.0% 0.7% Other 150 6.4% 3.8% Total $2,313 100.0% 58.0% 21
Payment Deferrals as of June 30, 2020 ($ in millions) ($ in millions) Payment Extensions / Modifications By Loan Type Payment Extensions / Modifications By Type & Term Type Term Principal & Interest 90 Days Over Interest Only or Less 90 Days Interest Net Accrued % of % of Net Net Net Net Type of Loan # Balance to Date Total Portfolio Type of Loan # Balance # Balance # Balance # Balance Commercial 670 $470.8 $1.4 88.2% 20.1% Commercial 312 $192.0 358 $278.8 617 $350.7 53 $120.1 Mortgage(RetainedOnly) 137 39.1 0.6 7.3% 5.3% Mortgage 137 39.1 0 0.0 137 39.1 0 0.0 Indirect 819 17.4 0.1 3.3% 4.9% Indirect 819 17.4 0 0.0 819 17.4 0 0.0 Direct 133 3.6 0.0 0.7% 5.1% Direct 133 3.6 0 0.0 133 3.6 0 0.0 Consumer Revolving 48 3.0 0.0 0.5% 1.3% Consumer Revolving 13 0.5 35 2.5 48 3.0 0 0.0 Total 1,807 $533.9 $2.2 100.0% 14.3% Total 1,414 $252.6 393 $281.2 1,754 $413.8 53 $120.1 Mortgage(ServicedOnly) 268 22
Payroll Protection Program Through June 30, 2020 • Leveraging the CARES Act to provide additional support to 2,340 loans booked small businesses and their employees PPP loans totaled ~ $308.1 million through June 30, 2020 Average loan size less than > $50K - $150K $135,000 28% As of 6/30/20, we have received approximately $11.1 million in fees from the SBA. These fees will be earned over the life of > $150K - $350K 13% the loan. $50K and ~80% of PPP loans in under amounts ≤ $150,000 52% > $1M 2% 23
Quality Consumer Loan Portfolio As of 6/30/20: June 30, 2020 • 99.2% secured consumer loans Total Outstanding = $661M 93.5% prime, with credit scores Unsecured ≥700 for 80.4% of portfolio and RV & Boat 0.8% <640 for 6.5% 2.5% Other 0.3% Rescored annually HELOCs HELOC combined LTV limited 34.5% to 89.9% • Strong asset quality through end Indirect Auto of 2Q20 53.5% Direct 30-89 days past due 0.33% Auto 2.7% NPAs 0.59% Home Equity Term 5.7% 24
Prime Mortgage Loan Portfolio As of 6/30/20: • 71% of production sold YTD June 30, 2020 • Predominantly in-market lender Total Outstanding = $704M • Portfolio mortgages Rental 0.8% Underwriting to Fannie Mae guidelines Full documentation and employment, income and asset verification Jumbo 40.3% 93% prime with credit score ≥670 • Strong asset quality through end of 2Q20 30-89 days past due 0.22% Conforming 55.9% NPAs 1.38% Mortgage OREO consists of 4 Construction properties totaling $249,000 3.0% 25
Diversified Commercial Lending $2.3 billion in Total Commercial Loans Category at June 30, 2020 Agriculture Develop./Land Res. Spec. • Experienced commercial lenders (20+ years on 4.2% 1.2% Homes average) 0.5% Owner Occ. Real • Focus on in-market sponsors in resilient markets Estate Non-Owner 18.6% Occupied Real Estate • Predominantly a secured lender with recourse to 43.8% owners C&I 31.7% • Prudent underwriting standards Geography at June 30, 2020 • Commercial NPAs 0.61% Northern • 30-89 days past due 0.02% Indiana Michigan 22% 40% Central Indiana Other 37% 1% 26
Sectors with Escalated Monitoring Hotel, Restaurant, Retail and Leisure & Hospitality • Hotels 19 relationships with $140.0M outstanding across 31 projects Average LTV of 50% and average loan size of ~ $4.8M $3.99B in Total Loans 70% select service properties / 23% economy properties / 7% Outstanding 6/30/20 independent 90.4% Marriott, Hilton, IHG, Wyndham, Choice Hotels and Liesure & independent brands Hospitality 58% in Indianapolis area 0.8% Modifications of $105.4M; (75%) Restaurant 1.7% • Restaurants Hotel 150 borrowers with $67.0M outstanding (excluding PPP loans) 3.5% Average loan size of ~ $406,000 NOO - Retail 3.6% 56% full-service / 44% limited-service Modifications of $29.2M; (44%) • Leisure & Hospitality • Non-Owner Occupied Retail 40 borrowers with $30.6M outstanding (excluding PPP 190 borrowers with $142.8M outstanding loans) Average LTV 56% and average loan size of ~ $714,000 Average loan size of ~ $566,000 55% Retail Strip / 18% Single Retail / 12% Restaurant Diverse borrowers, i.e. golf courses, entertainment facilities, fitness establishments, zoo Modifications of $63.9M; (45%) Modifications of $13.5M; (44%) Note: Modification data as of 6/30/20. Outstandings data as of 6/30/20. 27
Strong Asset Quality Metrics Through the Second Quarter Net Charge Offs Credit Loss Expense $8,600 (CECL Implementation 1Q20) $725 $7,057 $629 s $412 $404 $407 s 0 0.02% 0.02% 0 0 0 CECL CECL 0 0 $ $ 0.01% 0.01% 0.01% $896 $376 $340 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 NCOs NCOs/Average Loans Non-Performing Loans Allowance for Credit Losses (“ACL”) $55,090 (CECL Implementation 1Q20) $48,440 $28,056 $24,002 0.70% $21,185 s 0.65% s 1.38% 0 $18,929 $19,155 0 1.30% 0 0 CECL 0 0 $ $ $18,305 $17,956 $17,667 0.58% 0.50% 0.49% 0.49% 0.52% 0.52% 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 NPLs (period end) NPLs/Loans (period end) ACL ACL/Loans 28
Key Franchise Highlights • Seasoned management team – over 200 years combined banking experience • Geographic diversification & exposure – strong market share in core footprint • Stable Midwest markets with balanced industrial bases and growth opportunities • High quality balance sheet with strong liquidity – Over $1.2 billion of cash and securities as of 6/30/20 • Robust capital position (12.0% Tier 1 / 13.0% Total RBC as of 6/30/20) • Diversified loan portfolio and complementary counter-cyclical revenue streams • Historical run rate demonstrates strong core operating earnings • Strong cash position at the holding company 29
Appendix 30
Ample Sources of Liquidity Securities Portfolio at June 30, 2020 • Improved and strong liquidity position and borrowing capacity as of 6/30/20 $1.1B Corporate Pledging majority of municipal 1% securities to the FRB for immediate available liquidity Federal agency Federal Additional liquidity available with MBS agency only $4.7 million of PPP loans 14% CMO 21% pledged • $1.1 billion securities portfolio State and municipal consistently managed for liquidity 64% rather than return. • 3/31/20 securities / total assets of 20.6% versus peer median of 15.1% Bank Level Liquidity ($M) (6/30/20) Available Unused Line Liquidity • Ample sources of liquidity at the FHLB Advances $239 holding company including ~$125.3 Federal Reserve Discount Window 492 million of unencumbered cash (as of Unsecured Fed Funds 180 Total $911 6/30/20) 31
Low Levels of Concentrated Exposure Commercial Portfolio By Industry Type Non-Owner Occupied CRE – Owner Occupied CRE – C&I Loans – % of Total Commercial Loans % of Total Commercial Loans % of Total Commercial Loans 48% of Total Commercial Loans 19% of Total Commercial Loans 33% of Total Commercial Loans $1.0 billion $0.5 billion $0.7 billion Lessors - Residential Real Estate Rental & Construction 5% Multi 10% Leasing 4% Health Care, Edu. Social Health Care, Educational Retail 5% 6% Assist. 2% Social Assist. Individuals and Other Individuals and Other Motel 4% 6% Services 2% Services Office (except Retail Trade Manufacturing 4% medical) 6% 2% Professional & Technical All Others Restaurants 4% 2% Services 3% Warehouse/ Manufacturing Restaurants Industrial 3% 2% 3% Real Estate Rental & Farm Land Construction 3% 1% Leasing 2% Medical Office 3% All Others 1% All Others 2% Lessors Student Leisure and Hospitality Agriculture Housing 3% 1% 1% Lessors - Residential Professional & Technical Government 1-4 2% Services 1% 1% Mini Storage 2% Wholesale Trade 1% Wholesale Trade 1% Transportation & Warehousing 1% Retail Trade 1% Note: Data as of 6/30/20. 32
Historical Financials Year Ended December 31, Quarter Ended, ($M except per share data) 2015 2016 2017 2018 2019 6/30/19 9/30/19 12/31/19 3/31/20 6/30/20 Balance Sheet: Total Assets $2,652 $3,141 $3,964 $4,247 $5,247 $5,099 $5,187 $5,247 $5,351 $5,739 Gross Loans $1,757 $2,144 $2,838 $3,014 $3,641 $3,668 $3,668 $3,641 $3,714 $3,994 Deposits $1,880 $2,471 $2,881 $3,139 $3,931 $3,931 $3,916 $3,931 $3,882 $4,308 Tangible Common Equity $197 $255 $325 $362 $478 $447 $464 $478 $454 $476 Profitability: Net Income $20.5 $23.9 $33.1 $53.1 $66.5 $16.6 $20.5 $18.5 $11.7 $14.6 Return on Average Assets 0.87% 0.81% 0.97% 1.31% 1.35% 1.32% 1.60% 1.40% 0.89% 1.05% Return on Average Equity 9.9% 7.9% 8.7% 11.2% 11.0% 10.7% 12.7% 11.3% 7.0% 9.1% Net Interest Margin 3.56% 3.29% 3.75% 3.71% 3.69% 3.73% 3.82% 3.58% 3.56% 3.47% Efficiency Ratio(1) 70.0% 71.5% 65.3% 60.7% 59.9% 60.2% 54.7% 57.3% 58.8% 56.2% Asset Quality(2): NPAs & 90+ PD / Assets 0.75% 0.44% 0.44% 0.41% 0.47% 0.45% 0.45% 0.47% 0.50% 0.53% NPAs & 90+ PD / Loans + OREO 1.13% 0.65% 0.61% 0.57% 0.68% 0.62% 0.63% 0.68% 0.72% 0.77% Reserves / Total Loans 0.83% 0.69% 0.58% 0.59% 0.49% 0.50% 0.49% 0.49% 1.30% 1.38% NCOs / Avg. Loans 0.32% 0.08% 0.04% 0.05% 0.06% 0.05% 0.08% 0.07% 0.04% 0.04% Bancorp Capital Ratios: TCE Ratio 7.6% 8.3% 8.5% 8.8% 9.4% 9.1% 9.3% 9.4% 8.8% 8.6% Leverage Ratio 9.8% 10.4% 9.9% 10.1% 10.5% 10.3% 10.5% 10.5% 10.1% 10.8% Tier 1 Capital Ratio 13.2% 13.2% 12.4% 12.8% 13.5% 12.8% 13.1% 13.5% 12.8% 13.4% Total Capital Ratio 14.0% 13.9% 12.9% 13.4% 14.0% 13.2% 13.5% 14.0% 13.7% 14.4% (1) Footnote Index included in Appendix (see slide 43 for non-GAAP reconciliation) (2) As calculated by S&P Global Market Intelligence. 33
Leader In Our Core Markets HBNC Deposits 2020 '20-'25 '20-'25 HBNC HBNC Market in Market Median Est. Pop. Est. HHI MSA Rank Branches Share ($M) HHI Change Change Michigan City-La Porte, IN 1 9 59.2% $1,011 $53,255 0.1% 6.8% Indianapolis-Carmel-Anderson, IN 16 9 1.1% 573 65,306 3.8% 11.2% Chicago-Naperville-Elgin, IL-IN-WI 48 10 0.1% 511 74,285 0.1% 11.5% Lafayette-WestLafayette,IN 4 7 8.6% 293 59,404 3.9% 10.9% Midland, MI 2 3 14.0% 246 69,009 0.0% 16.9% Niles, MI 4 7 9.2% 194 53,488 (0.5%) 10.8% Logansport, IN 3 2 19.9% 138 50,939 (0.2%) 9.9% Auburn, IN 3 2 18.7% 124 58,507 2.3% 9.4% Lansing-East Lansing, MI 14 2 1.6% 124 61,675 1.6% 11.5% Columbus, IN 4 7 7.9% 108 67,372 3.3% 12.8% Warsaw, IN 5 4 5.9% 101 65,982 2.0% 11.4% Grand Rapids-Kentwood, MI 24 2 0.4% 92 67,365 3.2% 11.9% Fort Wayne, IN 14 2 1.1% 81 58,865 3.0% 10.6% Marion, IN 6 1 9.1% 66 47,353 (1.9%) 11.1% Kalamazoo-Portage, MI 13 1 1.3% 55 63,546 2.6% 15.4% Kokomo, IN 6 1 3.8% 46 52,734 0.6% 7.5% Kendallville, IN 5 4 7.2% 42 59,362 1.0% 9.6% Sturgis, MI 7 1 5.2% 38 55,036 0.4% 11.5% South Bend-Mishawaka, IN-MI 13 1 0.6% 30 58,213 1.4% 15.4% Saginaw, MI 13 1 0.9% 19 48,941 (1.8%) 9.2% Elkhart-Goshen, IN 14 2 0.3% 10 65,928 2.5% 16.4% Total Franchise 75 $3,971 $60,882 1.3% 10.4% Source: S&P Global Market Intelligence. Deposit data as of 6/30/19, estimated pro forma for recent or pending transactions per S&P Global Market Intelligence. 34
Footnote Index • Slide 12 – Adjusted net income and adjusted diluted EPS excludes one-time merger expenses, (gain)/loss on sale of securities and death benefit on bank owned life insurance, net of tax. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterparts.) – Pre-tax, pre-provision income excludes income tax expense and credit loss expense. (See further in the Appendix for a reconciliation of these non- GAAP amounts to their GAAP counterparts.) – Adjusted net interest income and adjusted net margin exclude acquisition-related purchase accounting adjustments. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterparts.) – Adjusted ROAA and Adjusted pre-tax, pre-provision ROAA excludes one-time merger expenses, (gain)/loss on sale of securities and death benefit on bank owned life insurance, net of tax. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterparts.) • Slide 13 – Adjusted net interest income and adjusted net interest margin excludes prepayment penalties on borrowings and acquisition-related purchase accounting adjustments. Adjusted cost of core funds includes average balances of non-interest bearing deposits and excludes prepayment penalties on borrowings. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterparts.) • Slide 15 – Average cost of average total deposits includes average balances of non-interest bearing deposits. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterparts.) • Slide 17 – Adjusted efficiency ratio excludes one-time merger expenses, (gain)/loss on sale of securities and death benefit on bank owned life insurance. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterparts.) • Slides 36-47 Use of Non-GAAP Financial Measures – Certain information set forth in the presentation materials refers to financial measures determined by methods other than in accordance with GAAP. Horizon believes these non-GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to purchase accounting impacts, one-time acquisition and other non-recurring costs and non-core 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. 35
Footnote Index Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Pre-tax income $ 16,632 $ 13,239 $ 22,463 $ 24,541 $ 19,947 Provision for credit losses 7,056 8,600 340 376 896 Pre-tax, pre-provision net income $ 23,688 $ 21,839 $ 22,803 $ 24,917 $ 20,843 Pre-tax, pre-provision net income $ 23,688 $ 21,839 $ 22,803 $ 24,917 $ 20,843 Merger expenses - - - - - (Gain)/loss on sale of investment securities (248) (339) (10) - 100 Death benefit on bank owned life insurance - (233) - (213) (367) Adjusted pre-tax, pre-provision net income $ 23,440 $ 21,267 $ 22,793 $ 24,704 $ 20,576 Average Assets $ 5,620,695 $ 5,257,332 $ 5,250,574 $ 5,107,259 $ 5,047,365 Unadjusted pre-tax, pre-provision ROAA 1.70% 1.67% 1.74% 1.94% 1.66% Adjusted pre-tax, pre-provision ROAA 1.68% 1.63% 1.74% 1.92% 1.64% 36
Footnote Index Non-GAAP Reconciliation of Net Income (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Net income as reported $ 14,639 $ 11,655 $ 18,543 $ 20,537 $ 16,642 Merger expenses - - - - 1,532 Tax effect - - - - (295) Net income excluding merger expenses 14,639 11,655 18,543 20,537 17,879 (Gain)/loss on sale of investment securities (248) (339) (10) - 100 Tax effect 52 71 2 - (21) Net income excluding (gain)/loss on sale of investment securities 14,443 11,387 18,535 20,537 17,958 Death benefit on bank owned life insurance ("BOLI") - (233) - (213) (367) Net income excluding death benefit on BOLI 14,443 11,154 18,535 20,324 17,591 Adjusted net income $ 14,443 $ 11,154 $ 18,535 $ 20,324 $ 17,591 37
Footnote Index Non-GAAP Reconciliation of Diluted Earnings per Share (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Diluted earnings per share ("EPS") as reported $ 0.33 $ 0.26 $ 0.41 $ 0.46 $ 0.37 Merger expenses - - - - 0.03 Tax effect - - - - - Diluted EPS excluding merger expenses 0.33 0.26 0.41 0.46 0.40 (Gain)/loss on sale of investment securities (0.01) (0.01) - - - Tax effect - - - - - Diluted EPS excluding (gain)/loss on investment securities 0.32 0.25 0.41 0.46 0.40 Death benefit on BOLI - (0.01) - (0.01) (0.01) Diluted EPS excluding death benefit on BOLI 0.32 0.24 0.41 0.45 0.39 Adjusted Diluted EPS $ 0.32 $ 0.24 $ 0.41 $ 0.45 $ 0.39 38
Footnote Index Non-GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Average assets $ 5,620,695 $ 5,257,332 $ 5,250,574 $ 5,107,259 $ 5,047,365 Return on average assets ("ROAA") as reported 1.05% 0.89% 1.40% 1.60% 1.32% Merger expenses - - - - 0.12 Tax effect - - - - (0.02) ROAA excluding merger expenses 1.05 0.89 1.40 1.60 1.42 (Gain)/loss on sale of investment securities (0.02) (0.03) - - 0.01 Tax effect - 0.01 - - - ROAA excluding (gain)/loss on sale of 1.03 0.87 1.40 1.60 1.43 investment securities Death benefit on bank owned life insurance - (0.02) - (0.02) (0.03) ("BOLI") ROAA excluding death benefit on BOLI 1.03 0.85 1.40 1.58 1.40 Adjusted ROAA 1.03% 0.85% 1.40% 1.58% 1.40% 39
Footnote Index Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2019 2019 2019 2019 Net interest income as reported $ 42,996 $ 40,925 $ 41,519 $ 43,463 $ 41,529 $ 34,280 Average interest earning assets 5,112,636 4,746,202 4,748,217 4,623,985 4,566,674 3,929,296 Net interest income as a percentage of average interest earning assets ("Net Interest 3.47% 3.56% 3.58% 3.82% 3.73% 3.62% Margin") Net interest income as reported $ 42,996 $ 40,925 $ 41,519 $ 43,463 $ 41,529 $ 34,280 Acquisition-related purchase accounting (1,553) (1,434) (1,042) (1,739) (1,299) (1,510) adjustments ("PAU") Adjusted net interest income $ 41,443 $ 39,491 $ 40,477 $ 41,724 $ 40,230 $ 32,770 Adjusted net interest margin 3.35% 3.44% 3.49% 3.67% 3.61% 3.46% 40
Footnote Index Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2018 2018 2018 2018 2017 2017 2017 2017 Net interest income as reported $ 33,836 $ 33,772 $ 33,550 $ 33,411 $ 31,455 $ 27,879 $ 27,198 $ 25,568 Average interest earning assets 3,808,822 3,717,139 3,638,801 3,580,143 3,471,169 3,078,611 2,943,627 2,797,429 Net interest income as a percentage of average interest earning assets ("Net Interest 3.60% 3.67% 3.78% 3.81% 3.71% 3.71% 3.84% 3.80% Margin") Net interest income as reported $ 33,836 $ 33,772 $ 33,550 $ 33,411 $ 31,455 $ 27,879 $ 27,198 $ 25,568 Acquisition-related purchase accounting (1,629) (789) (1,634) (2,037) (868) (661) (939) (1,016) adjustments ("PAU") Adjusted net interest income $ 32,207 $ 32,983 $ 31,916 $ 31,374 $ 30,587 $ 27,218 $ 26,259 $ 24,552 Adjusted net interest margin 3.43% 3.59% 3.60% 3.58% 3.61% 3.63% 3.71% 3.66% 41
Footnote Index Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended December 31, September 30, June 30, March 31, 2016 2016 2016 2016 Net interest income as reported $ 20,939 $ 24,410 $ 20,869 $ 19,774 Average interest earning assets 2,932,145 2,957,944 2,471,354 2,367,250 Net interest income as a percentage of average interest earning assets ("Net Interest 2.92% 3.37% 3.48% 3.45% Margin") Net interest income as reported $ 20,939 $ 24,410 $ 20,869 $ 19,774 Interest expense from prepayment penalties 4,839 - - - on borrowings Acquisition-related purchase accounting (900) (459) (397) (547) adjustments ("PAU") Adjusted net interest income $ 24,878 $ 23,951 $ 20,472 $ 19,227 Adjusted net interest margin 3.45% 3.31% 3.42% 3.36% 42
Footnote Index Non-GAAP Reconciliation of Cost of Interest Bearing Liabilities (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2019 2019 2019 2019 Total interest expense as reported $ 7,348 $ 10,729 $ 11,879 $ 12,248 $ 12,321 $ 11,093 Average interest bearing liabilities 3,975,297 3,814,785 3,794,943 3,601,144 3,570,713 3,131,276 Annualized total interest expense as a percentage of average interest bearing 0.74% 1.13% 1.24% 1.35% 1.38% 1.44% liabilities ("Cost of Interest Bearing Liabilities") Total interest expense as reported $ 7,348 $ 10,729 $ 11,879 $ 12,248 $ 12,321 $ 11,093 Interest expense from prepayment penalties ------ on borrowings Adjusted interest expense $ 7,348 $ 10,729 $ 11,879 $ 12,248 $ 12,321 $ 11,093 Average interest bearing liablities 3,975,297 3,814,785 3,794,943 3,601,144 3,570,713 3,131,276 Average non-interest bearing deposits 924,890 717,257 747,513 818,164 818,872 643,601 Average core funding $ 4,900,187 $ 4,532,042 $ 4,542,456 $ 4,419,308 $ 4,389,585 $ 3,774,877 Annualzied adjusted interest expense as a percentage of average core funding 0.60% 0.95% 1.04% 1.10% 1.13% 1.19% ("Adjusted Cost of Core Funds") 43
Footnote Index Non-GAAP Reconciliation of Cost of Interest Bearing Liabilities (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2018 2018 2018 2018 2017 2017 2017 2017 Total interest expense as reported $ 9,894 $ 8,499 $ 7,191 $ 6,015 $ 5,319 $ 4,191 $ 3,607 $ 3,266 Average interest bearing liabilities 3,021,310 2,971,074 2,929,913 2,869,372 2,766,948 2,459,262 2,375,827 2,246,550 Annualized total interest expense as a percentage of average interest bearing 1.30% 1.13% 0.98% 0.85% 0.76% 0.68% 0.61% 0.59% liabilities ("Cost of Interest Bearing Liabilities") Total interest expense as reported $ 9,894 $ 8,499 $ 7,191 $ 6,015 $ 5,319 $ 4,191 $ 3,607 $ 3,266 Interest expense from prepayment penalties -------- on borrowings Adjusted interest expense $ 9,894 $ 8,499 $ 7,191 $ 6,015 $ 5,319 $ 4,191 $ 3,607 $ 3,266 Average interest bearing liablities 3,021,310 2,971,074 2,929,913 2,869,372 2,766,948 2,459,262 2,375,827 2,246,550 Average non-interest bearing deposits 656,114 640,983 605,188 595,644 603,733 540,109 499,446 491,154 Average core funding $ 3,677,424 $ 3,612,057 $ 3,535,101 $ 3,465,016 $ 3,370,681 $ 2,999,371 $ 2,875,273 $ 2,737,704 Annualzied adjusted interest expense as a percentage of average core funding 1.07% 0.93% 0.82% 0.70% 0.63% 0.55% 0.50% 0.48% ("Adjusted Cost of Core Funds") 44
Footnote Index Non-GAAP Reconciliation of Cost of Interest Bearing Liabilities (Dollars in Thousands, Unaudited) Three Months Ended December 31, September 30, June 30, March 31, 2016 2016 2016 2016 Total interest expense as reported $ 8,450 $ 4,552 $ 3,781 $ 3,754 Average interest bearing liabilities 2,369,810 2,443,986 2,058,463 1,974,325 Annualized total interest expense as a percentage of average interest bearing 1.42% 0.74% 0.74% 0.76% liabilities ("Cost of Interest Bearing Liabilities") Total interest expense as reported $ 8,450 $ 4,552 $ 3,781 $ 3,754 Interest expense from prepayment penalties (4,839) - - - on borrowings Adjusted interest expense $ 3,611 $ 4,552 $ 3,781 $ 3,754 Average interest bearing liablities 2,369,810 2,443,986 2,058,463 1,974,325 Average non-interest bearing deposits 504,274 462,253 364,822 339,141 Average core funding $ 2,874,084 $ 2,906,239 $ 2,423,285 $ 2,313,466 Annualzied adjusted interest expense as a percentage of average core funding 0.50% 0.62% 0.63% 0.66% ("Adjusted Cost of Core Funds") 45
Footnote Index Non-GAAP Reconciliation of Cost of Deposits (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, 2020 2020 Total deposit interest expense as reported $ 4,506 $ 7,716 Average interest bearing deposits 3,299,661 3,225,323 Annualized total deposit interest expense as a percentage of average interest bearing 0.55% 0.96% deposits ("Cost of Interest Bearing Deposits") Average interest bearing deposits 3,299,661 3,225,323 Average non-interest bearing deposits 924,890 717,257 Average total deposits $ 4,224,551 $ 3,942,580 Annualzied deposit interest expense as a percentage of average total deposits ("Cost 0.43% 0.79% of Total Deposits") 46
Footnote Index Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Non-GAAP Calculation of Efficiency Ratio Non-interest expense as reported $ 30,432 $ 31,149 $ 30,650 $ 30,060 $ 31,584 Net interest income as reported 42,996 40,925 41,519 43,463 41,529 Non-interest income as reported 11,124 12,063 11,934 11,514 10,898 Non-interest expense/ (Net interest income + Non-interest income) ("Efficiency Ratio") 56.23% 58.79% 57.34% 54.68% 60.24% Non-GAAP Reconciliation of Adjusted Efficiency Ratio Non-interest expense as reported $ 30,432 $ 31,149 $ 30,650 $ 30,060 $ 31,584 Merger expenses - - - - (1,532) Non-interest expense excluding merger expenses 30,432 31,149 30,650 30,060 30,052 Net interest income as reported 42,996 40,925 41,519 43,463 41,529 Non-interest income as reported 11,124 12,063 11,934 11,514 10,898 (Gain)/loss on sale of investment securities (248) (339) (10) - 100 Death benefit on bank owned life insurance ("BOLI") - (233) - (213) (367) Non-interest income excluding (gain)/loss on sale of investment securities and death benefit on BOLI $ 10,876 $ 11,491 $ 11,924 $ 11,301 $ 10,631 Adjusted efficiency ratio 56.49% 59.43% 57.35% 54.89% 57.62% 47