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Horizon Bancorp, Inc. Announces Record Fourth Quarter 2020 Financial Results

Company Release - 1/27/2021

MICHIGAN CITY, Ind., Jan. 27, 2021 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) -- Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and twelve months ending December 31, 2020.

“Horizon closed 2020 with record quarterly top– and bottom–line results, supported by continued strength in mortgage lending and other fee–generating businesses, the benefits of our work to deleverage and optimize returns on total earning assets, and favorable deferral trends and credit quality metrics,” Chairman and CEO Craig M. Dwight said. “Entering the new year with strong liquidity, capital, and reserves, we see clear opportunities to enhance the bank’s operating efficiency, deepen in–market retail and commercial customer relationships, and help to strengthen our resilient Indiana and Michigan communities in 2021.”

Fourth Quarter 2020 Highlights

  • Earned record net income of $21.9 million, or $0.50 diluted earnings per share, compared to $20.3 million, or $0.46 diluted earnings per share, for the third quarter of 2020 and $18.5 million, or $0.41 diluted earnings per share, for the fourth quarter of 2019.
     
  • Grew pre–tax, pre–provision net income to a record $26.9 million for the quarter, compared to $26.7 million for the third quarter of 2020 and $22.8 million for the fourth 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.)
     
  • Grew net interest income to a record $43.6 million for the quarter, compared to $43.4 million for the third quarter of 2020 and $41.5 million for the fourth quarter of 2019. Adjusted net interest income for the quarter was $45.0 million compared to $41.9 million for the third quarter of 2020. (See the “Non–GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” tables below.)
     
  • Reported return on average assets (“ROAA”) of 1.49% and return on average common equity (“ROACE”) of 12.79% in the quarter, as well as adjusted ROAA of 1.56% and adjusted ROACE of 13.33%, excluding the impact of gains on sale of investment securities and prepayment penalties on borrowings, net of tax. (See the “Non–GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity” tables below.)
     
  • Grew mortgage–related non–interest income by 8.5% from the linked quarter and 138.6% from the prior year period, with gain on mortgage loan sales of $7.8 million and net mortgage servicing income of $327,000. The bank originated $186.1 million in mortgage loans during the quarter, down 10.1% from the third quarter of 2020 and up 63.3% from the fourth quarter of 2019.
     
  • Total non–interest income, excluding securities gains, grew to a record $17.1 million, up 9.6% from the linked quarter and 43.5% from the prior year period, supported by increases in mortgage–related gains and servicing income, banking and fiduciary fees.
     
  • Reported net interest margin (“NIM”) of 3.34% and adjusted NIM of 3.44%, with reported NIM declining by 5 basis points and adjusted NIM increasing by 17 basis points from the third quarter of 2020. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation). An estimated 18 basis points attributed to PPP lending improved the margin, offset by an estimated 10 and 7 basis point compression, respectively, attributed to the subordinated notes and excess liquidity held during the quarter, for both NIM and adjusted NIM.
     
  • Increased the allowance for credit losses (“ACL”) by 1.3% during the quarter and 222.8% year–to–date to $57.0 million at period end, representing 1.47% of total loans, reflecting January 2020 implementation of the Current Expected Credit Losses (“CECL”) accounting method and prudent increases in the allocation for the Company’s identified stressed portfolios. ACL at period end also represented 1.55% of loans excluding $208.9 million in Federal Paycheck Protection Program (“PPP”) loans, and 212.7% of non–performing loans.
     
  • COVID–19 deferral levels improved to 3.5% of total loans at period end, compared to 4.1% on September 30, 2020 and 14.3% on June 30, 2020 and the bank experienced no material specific loan losses attributed to COVID–19 closures in 2020.
     
  • Maintained solid asset quality metrics, including non–performing and delinquent loans representing 0.69% and 0.19% of total loans, respectively, at December 31, 2020, while net charge–offs were 0.01% of average loans for the period.
     
  • The efficiency ratio for the period was 57.54% compared to 55.59% for the third quarter of 2020. The adjusted efficiency ratio was 56.48% compared to 56.64% for the third quarter of 2020. (See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” tables below.)
     
  • Horizon’s tangible book value per share increased from $10.63 at December 31, 2019 to $11.78 at December 31, 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 $1.6 billion in cash and investment securities, which is approximately 26.3% of total assets, and approximately $1.0 billion in unused availability on lines of credit, at December 31, 2020.
     
  • Horizon has reported over thirty years of uninterrupted dividends and as of year–end had in excess of $127 million in cash at the holding company, which provides us with considerable future optionality to build shareholder value.

Summary

    For the Three Months Ended
    December 31,   September 30,   December 31,
Net Interest Income and Net Interest Margin   2020   2020   2019
Net interest income   $ 43,622     $ 43,397     $ 41,519  
Net interest margin   3.34 %   3.39 %   3.58 %
Adjusted net interest margin   3.44 %   3.27 %   3.49 %


    For the Three Months Ended
    December 31,   September 30,   December 31,
Asset Yields and Funding Costs   2020   2020   2019
Interest earning assets   4.05 %   3.90 %   4.57 %
Interest bearing liabilities   0.94 %   0.67 %   1.24 %
                   

The yield on interest earning assets for the fourth quarter of 2020 was impacted by PPP loans and higher liquidity levels. Horizon estimates PPP loans increased the yield by 15 basis points and higher liquidity levels compressed the yield by 8 basis points. Horizon estimates PPP loans decreased the yield on interest earning assets by 6 basis point for the third quarter of 2020. The funding costs on interest bearing liabilities increased by an estimated 37 basis points for the fourth quarter of 2020 as a result of prepayment penalties on borrowings.

    For the Three Months Ended
Non–interest Income and   December 31,   September 30,   December 31,
Mortgage Banking Income   2020   2020   2019
Total non–interest income   $ 19,733     $ 16,700     $ 11,934  
Gain on sale of mortgage loans   7,815     8,813     3,119  
Mortgage servicing income net of impairment   327     (1,308 )   294  


    For the Three Months Ended
    December 31,   September 30,   December 31,
Non–interest Expense   2020   2020   2019
Total non–interest expense   $ 36,453     $ 33,407     $ 30,432  
Annualized non–interest expense to average assets   2.47 %   2.30 %   2.32 %


    For the Three Months Ended
    December 31,   September 30,   December 31,
Credit Quality   2020   2020   2019
Allowance for credit losses to total loans   1.47 %   1.39 %   0.49 %
Non–performing loans to total loans   0.69     0.72     0.58  
Percent of net charge–offs to average loans outstanding for the period   0.01     0.02     0.02  


        CECL Adoption
Allowance for   December 31,       January 1,   Net Reserve Build   December 31,
Credit Losses   2019   Impact   2020   1Q20   2Q20   3Q20   4Q20   2020
Commercial   $ 11,996     $ 13,618     $ 25,614     $ 6,936     $ 6,597     $ 648     $ 2,415     $ 42,210  
Retail Mortgage   923     4,048     4,971     683     178     (368 )   (844 )   4,620  
Warehouse   1,077         1,077     (22 )   135     60     17     1,267  
Consumer   3,671     4,911     8,582     599     (260 )   889     (880 )   8,930  
Allowance for Credit Losses (“ACL”)   $ 17,667     $ 22,577     $ 40,244     $ 8,196     $ 6,650     $ 1,229     $ 708     $ 57,027  
ACL / Total Loans   0.49 %       1.10 %                   1.47 %
Acquired Loan Discount (“ALD”)   $ 20,228     $ (2,786 )   $ 17,442     $ (1,436 )   $ (1,532 )   $ (1,541 )   $ (1,439 )   $ 11,494  
                                                                 

Horizon’s asset quality metrics continued to remain favorable through the fourth quarter, with low levels of delinquency and other real estate owned and a decrease in non–performing loans. Horizon’s reserve build reflects adoption of CECL on January 1, 2020 and the increase in the Company’s quarterly allocations to cover potential future loan losses related to economic factors and the nature and characteristics of its 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. Through December 31, 2020, Horizon has not recorded any material specific loan losses attributed to COVID–19 closures. Lower losses are attributable to Horizon working with its customers to provide payment modifications to help assist our customers as they manage through the economic slowdown due to the pandemic and the location of a high percentage of our retail and restaurant loans have benefited from the influx of Chicago residents into our markets. In addition, during the quarter Horizon made good progress on lowering its non–performing assets as a result of payoffs received on two non–performing credits.

During the fourth quarter, $2.0 million of the ACL related to the January 1, 2020, transfer of acquired loan discounts to the ACL was used in the payoff on two non–performing credits and a portion included with the $2.5 million of acquisition related income recognized during the quarter.

Income Statement Highlights

Net income for the fourth quarter of 2020 was $21.9 million, or $0.50 diluted earnings per share, compared to $20.3 million, or $0.46, for the linked quarter and $18.5 million, or $0.41, for the prior year period.

Adjusted net income for the fourth quarter of 2020 was $22.8 million, or $0.52 diluted earnings per share, compared to $19.4 million, or $0.45, for the linked quarter and $18.5 million, or $0.41, for the prior year period. Adjusted net income, which is not calculated according to generally accepted accounting principles (“GAAP”), is a measure that Horizon uses to provide a greater understanding of operating profitability.

The increase in net income for the fourth quarter of 2020 when compared to the third quarter of 2020 reflects an increase in non–interest income of $3.0 million, an increase of $225,000 in net interest income and a decrease in income tax expense of $2.4 million, offset by an increase in non–interest expense of $3.0 million and an increase in credit loss expense of $990,000.

Interest income includes the recognition of PPP loan processing fees totaling $4.6 million in the fourth quarter of 2020, compared to $2.2 million in the linked quarter. On December 31, 2020, the Company had $4.0 million in deferred PPP loan processing fees outstanding and $208.9 million in PPP loans outstanding. PPP deferred fees and loans outstanding at September 30, 2020 were $8.0 million and $310.8 million, respectively. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness.

Fourth quarter 2020 income from the gain on sale of mortgage loans, totaled $7.8 million in the fourth quarter of 2020, down from $8.8 million in the linked quarter and up from $3.1 million in the prior year period.

Non–interest expense of $36.5 million in the fourth quarter of 2020 reflected a $1.2 million increase in salaries and employee benefits expense from the linked quarter. The increase in salaries and employee benefits expense reflected higher performance–based compensation accruals due to the record 2020 net interest income, non–interest income revenues and other key performance metrics. The increase in other losses included mostly one–time items including losses on liquidation of bank owned real estate held from previous branch closings.

The increase in net income for the fourth quarter of 2020 when compared to the prior year period reflects an increase in net interest income of $2.1 million, an increase in non–interest income of $7.8 million and a decrease in income tax expense of $2.0 million, offset by an increase in non–interest expense of $5.8 million and an increase in credit loss expense of $2.7 million.

Net income for the year ended December 31, 2020 was $68.5 million, or $1.55 diluted earnings per share, compared to $66.5 million, or $1.53 diluted earnings per share, for the year ended December 31, 2019. Adjusted net income for the year ended December 31, 2020 was $67.8 million, or $1.53 diluted earnings per share, compared to $70.7 million, or $1.63 diluted earnings per share for the year ended December 31, 2019. The increase in net income for the year ended December 31, 2020 when compared to the prior year reflects an increase in net interest income of $10.1 million, an increase in non–interest income of $16.6 million and a decrease in income tax expense of $3.4 million, offset by an increase in the provision for credit loss expense of $18.8 million and an increase in non–interest expense of $9.4 million.

 
Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,   December 31,   December 31,
    2020   2020   2020   2020   2019   2020   2019
Net income as reported   $ 21,893     $ 20,312     $ 14,639     $ 11,655     $ 18,543     $ 68,499     $ 66,538  
Merger expenses                           5,650  
Tax effect                           (987 )
Net income excluding merger expenses   21,893     20,312     14,639     11,655     18,543     68,499     71,201  
(Gain) / loss on sale of investment securities   (2,622 )   (1,088 )   (248 )   (339 )   (10 )   (4,297 )   75  
Tax effect   551     228     52     71     2     902     (16 )
Net income excluding (gain) / loss on sale of investment securities   19,822     19,452     14,443     11,387     18,535     65,104     71,260  
Death benefit on bank owned life insurance (“BOLI”)       (31 )       (233 )       (264 )   (580 )
Net income excluding death benefit on BOLI   19,822     19,421     14,443     11,154     18,535     64,840     70,680  
Prepayment penalties on borrowings   3,804                     3,804      
Tax effect   (799 )                   (799 )    
Net income excluding prepayment penalties on borrowings   22,827     19,421     14,443     11,154     18,535     67,845     70,680  
Adjusted net income   $ 22,827     $ 19,421     $ 14,443     $ 11,154     $ 18,535     $ 67,845     $ 70,680  
                                                         


Non–GAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,   December 31,   December 31,
    2020   2020   2020   2020   2019   2020   2019
Diluted earnings per share (“EPS”) as reported   $ 0.50     $ 0.46     $ 0.33     $ 0.26     $ 0.41     $ 1.55     $ 1.53  
Merger expenses                           0.13  
Tax effect                           (0.02 )
Diluted EPS excluding merger expenses   0.50     0.46     0.33     0.26     0.41     1.55     1.64  
(Gain) / loss on sale of investment securities   (0.06 )   (0.02 )   (0.01 )   (0.01 )       (0.10 )    
Tax effect   0.01     0.01                 0.02      
Diluted EPS excluding (gain) / loss on sale of investment securities   0.45     0.45     0.32     0.25     0.41     1.47     1.64  
Death benefit on bank owned life insurance (“BOLI”)               (0.01 )       (0.01 )   (0.01 )
Diluted EPS excluding death benefit on BOLI   0.45     0.45     0.32     0.24     0.41     1.46     1.63  
Prepayment penalties on borrowings   0.09                     0.09      
Tax effect   (0.02 )                   (0.02 )    
Diluted EPS excluding prepayment penalties on borrowings   0.52     0.45     0.32     0.24     0.41     1.53     1.63  
Adjusted diluted EPS   $ 0.52     $ 0.45     $ 0.32     $ 0.24     $ 0.41     $ 1.53     $ 1.63  
                                                         


Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income
(Dollars in Thousands, Unaudited)
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,   December 31,   December 31,
    2020   2020   2020   2020   2019   2020   2019
Pre–tax income   $ 23,860     $ 24,638     $ 16,632     $ 13,239     $ 22,463     $ 78,369     $ 79,841  
Credit loss expense   3,042     2,052     7,057     8,600     340     20,751     1,976  
Pre–tax, pre–provision income   $ 26,902     $ 26,690     $ 23,689     $ 21,839     $ 22,803     $ 99,120     $ 81,817  
                             
Pre–tax, pre–provision income   $ 26,902     $ 26,690     $ 23,689     $ 21,839     $ 22,803     $ 99,120     $ 81,817  
Merger expenses                           5,650  
(Gain) / loss on sale of investment securities   (2,622 )   (1,088 )   (248 )   (339 )   (10 )   (4,297 )   75  
Death benefit on BOLI       (31 )       (233 )       (264 )   (580 )
Prepayment penalties on borrowings   3,804                     3,804      
Adjusted pre–tax, pre–provision income   $ 28,084     $ 25,571     $ 23,441     $ 21,267     $ 22,793     $ 98,363     $ 86,962  
                                                         

Horizon’s net interest margin decreased to 3.34% for the fourth quarter of 2020 compared to 3.39% for the third quarter of 2020. The decrease in net interest margin reflects an increase in the cost of interest bearing liabilities of 27 basis points, offset by an increase in the yield of interest earning assets of 15 basis points. Interest income from acquisition–related purchase accounting adjustments was $973,000 higher during the fourth quarter of 2020 when compared to the third quarter of 2020.

Horizon’s net interest margin decreased to 3.34% for the fourth quarter of 2020 when compared to 3.58% for the fourth quarter of 2019. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 52 basis points offset by a decrease in the cost of interest bearing liabilities of 30 basis points.

Horizon’s net interest margin decreased to 3.44% for the year ended December 31, 2020 compared to 3.69% for the prior year. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 64 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 third and fourth quarters of 2020 due to the PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by 18 basis points in the fourth quarter and compressed the margin 4 basis points for the third 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 increase to the net interest margin for the twelve months of 2020 using the same assumptions was estimated to be 3 basis points.

The net interest margin was impacted during the third and fourth quarters of 2020 due to higher liquidity levels impacting the mix of interest earning assets. Horizon estimates the higher liquidity levels compressed the net interest margin by 7 basis points for the fourth quarter and 3 basis points for the third quarter. This assumes the higher liquidity level was not included in average interest earning assets or interest income. The compression to the net interest margin for the twelve months of 2020 using the same assumptions was estimated to be 4 basis points.

The net interest margin was also impacted during the third and fourth quarters of 2020 due to the issuance of $60.0 million in subordinated notes in June 2020. Horizon estimates that the subordinated notes compressed the net interest margin by 10 basis points for both the third and fourth quarters. This assumes the subordinated notes were not included in average interest bearing liabilities or interest expense and were primarily offset by a reduction in cash. The compression to the net interest margin for the twelve months of 2020 using the same assumptions was estimated to be 6 basis points.

 
Non–GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,   December 31,   December 31,
    2020   2020   2020   2020   2019   2020   2019
Net interest income as reported   $ 43,622     $ 43,397     $ 42,996     $ 40,925     $ 41,519     $ 170,940     $ 160,791  
Average interest earning assets   5,365,888     5,251,611     5,112,636     4,746,202     4,748,217     5,120,106     4,470,450  
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)   3.34 %   3.39 %   3.47 %   3.56 %   3.58 %   3.44 %   3.69 %
                             
Net interest income as reported   $ 43,622     $ 43,397     $ 42,996     $ 40,925     $ 41,519     $ 170,940     $ 160,791  
Acquisition–related purchase accounting adjustments (“PAUs”)   (2,461 )   (1,488 )   (1,553 )   (1,434 )   (1,042 )   (6,936 )   (5,590 )
Prepayment penalties on borrowings   3,804                     3,804      
Adjusted net interest income   $ 44,965     $ 41,909     $ 41,443     $ 39,491     $ 40,477     $ 167,808     $ 155,201  
Adjusted net interest margin   3.44 %   3.27 %   3.35 %   3.44 %   3.49 %   3.38 %   3.57 %
                                           

Net interest margin, excluding acquisition–related purchase accounting adjustments and prepayment penalties on borrowings (“adjusted net interest margin”), was 3.44% for the fourth quarter of 2020 compared to 3.27% for the prior quarter and 3.49% for the fourth quarter of 2019. Interest income from acquisition–related purchase accounting adjustments was $2.5 million, $1.5 million and $1.0 million for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Adjusted net interest margin was 3.38% for the year ended December 31, 2020 compared to 3.57% for the prior year. Interest income from acquisition–related purchase accounting adjustments was $6.9 million and $5.6 million for the years ended December 31, 2020 and 2019.

Lending Activity

Total loans were $3.88 billion, or $3.67 billion excluding PPP lending, on December 31, 2020. Total loans were $4.04 billion, or $3.73 billion excluding PPP lending, on September 30, 2020 and $3.64 billion on December 31, 2019. During the year ended December 31, 2020, commercial loans increased $145.6 million, mortgage warehouse loans increased $245.3 million, and loans held for sale increased $9.4 million, offset by a decrease in residential mortgage loans of $146.4 million and a decrease in consumer loans of $14.0 million.

 
Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
    December 31,   December 31,   Amount   Percent
    2020   2019   Change   Change
Commercial   $ 2,192,271      $ 2,046,651      $ 145,620      7.1%
Residential mortgage   624,286      770,717      (146,431 )   (19.0)%
Consumer   655,200      669,180      (13,980 )   (2.1)%
Subtotal   3,471,757      3,486,548      (14,791 )   (0.4)%
Loans held for sale   13,538      4,088      9,450      231.2%
Mortgage warehouse   395,626      150,293      245,333      163.2%
Total loans   $ 3,880,921      $ 3,640,929      $ 239,992      6.6%
                             

Residential mortgage lending activity for the three months ended December 31, 2020 generated $7.8 million in income from the gain on sale of mortgage loans, a decrease of $1.0 million from the third quarter of 2020's record level and an increase of $4.7 million from the fourth quarter of 2019. Total origination volume for the fourth quarter of 2020, including loans placed into the portfolio, totaled $186.1 million, representing a decrease of 10.1% from third quarter 2020 levels, and an increase of 63.3% from the fourth quarter of 2019. As a percentage of total originations, 58% of fourth quarter 2020 volume was related to refinances and 42% was for new purchases. Total origination volume of loans sold to the secondary market totaled $157.7 million, representing a decrease of 5.2% from the third quarter of 2020 and an increase of 88.8% from the fourth quarter of 2019.

Expense Management

    Three Months Ended
    December 31, September 30,   Amount   Percent
Non–interest Expense   2020 2020   Change   Change
Salaries and employee benefits   $ 20,030      $ 18,832      $ 1,198      6.4%
Net occupancy expenses   3,262      3,107      155      5.0%
Data processing   2,126      2,237      (111 )   (5.0)%
Professional fees   691      688          0.4%
Outside services and consultants   2,083      1,561      522      33.4%
Loan expense   2,961      2,876      85      3.0%
FDIC insurance expense   900      570      330      57.9%
Other losses   735      114      621      544.7%
Other expense   3,665      3,422      243      7.1%
Total non–interest expense   $ 36,453      $ 33,407      $ 3,046      9.1%
Annualized non–interest expense to average assets   2.47  %   2.30  %        
                     

Total non–interest expense was $3.0 million higher in the fourth quarter of 2020 when compared to the third quarter of 2020. Increased salaries and employee benefits reflected higher performance–based compensation accruals following improved financial performance in the second half of this year. Higher FDIC insurance expense reflected significant growth in deposits through the end of the fourth quarter of 2020. Outside services and consultants, other losses and other expenses were partially offset by a decrease in data processing.

     
    Three Months Ended
    December 31, December 31,   Amount   Percent
Non–interest Expense   2020 2019   Change   Change
Salaries and employee benefits   $ 20,030     $ 16,841     $ 3,189     18.9%
Net occupancy expenses   3,262     3,106     156     5.0%
Data processing   2,126     2,235     (109 )   (4.9)%
Professional fees   691     520     171     32.9%
Outside services and consultants   2,083     1,415     668     47.2%
Loan expense   2,961     2,438     523     21.5%
FDIC insurance expense   900         900     —%
Other losses   735     377     358     95.0%
Other expense   3,665     3,718     (53 )   (1.4)%
Total non–interest expense   $ 36,453     $ 30,650     $ 5,803     18.9%
Annualized non–interest expense to average assets   2.47 %   2.32 %        
                     

Total non–interest expense was $5.8 million higher in the fourth quarter of 2020 when compared to the fourth quarter of 2019. Increases in salaries and employee benefits, FDIC insurance expense, outside services and consultants, loan expense and other losses were offset in part by decreases in data processing and other expense.

     
    Twelve Months Ended
    December 31,   December 31,        
    2020   2019   Adjusted
Non–interest Expense   Actual   Merger
Expenses
  Adjusted   Actual   Merger
Expenses
  Adjusted   Amount
Change
  Percent
Change
Salaries and employee benefits   $ 71,082     $     $ 71,082     $ 65,206     $ (484 )   $ 64,722     $ 6,360     9.8%
Net occupancy expenses   12,811         12,811     12,157     (75 )   12,082     729     6.0%
Data processing   9,200         9,200     8,480     (360 )   8,120     1,080     13.3%
Professional fees   2,433         2,433     1,946     (392 )   1,554     879     56.6%
Outside services and consultants   7,318         7,318     8,152     (2,466 )   5,686     1,632     28.7%
Loan expense   10,628         10,628     8,633     (2 )   8,631     1,997     23.1%
FDIC insurance expense   1,855         1,855     252         252     1,603     636.1%
Other losses   1,162         1,162     740     (71 )   669     493     73.7%
Other expense   14,952         14,952     16,466     (1,800 )   14,666     286     2.0%
Total non–interest expense   $ 131,441     $     $ 131,441     $ 122,032     $ (5,650 )   $ 116,382     $ 15,059     12.9%
Annualized non–interest expense to average assets   2.34 %       2.34 %   2.47 %       2.36 %        
                                         

Total non–interest expense was $9.4 million higher for the year ended December 31, 2020 when compared to the prior year. Increases in salaries and employee benefits, loan expenses, data processing, FDIC insurance expense and net occupancy expenses were offset in part by decreases in outside services and consultants expense and other expense.

Annualized non–interest expense as a percent of average assets were 2.47%, 2.30% and 2.32% for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Annualized non–interest expense as a percent of average assets were 2.34% and 2.47% for the years ended December 31, 2020 and 2019, respectively. Annualized non–interest expense, excluding merger expenses, as a percent of average assets were 2.34% and 2.36% for the years ended December 31, 2020 and 2019, respectively.

Income tax expense totaled $2.0 million for the fourth quarter of 2020, a decrease of $2.4 million when compared to the third quarter of 2020 and a decrease of $2.0 million when compared to the fourth quarter of 2019. The decrease in income tax expense in the fourth quarter of 2020 compared to the third quarter of 2020 and the fourth quarter of 2019 was primarily due to the ability to recognize solar tax credits from completed projects the Company has invested in along with an increase in tax exempt municipal investments.

Income tax expense totaled $9.9 million for the year ended December 31, 2020, a decrease of $3.4 million when compared to the same prior year period. The decrease in income tax expense was primarily due to the solar tax credits, an increase in tax exempt municipal investments and lower taxable income.

Capital

The capital resources of the Company and Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at December 31, 2020. Stockholders’ equity totaled $692.2 million at December 31, 2020 and the ratio of average stockholders’ equity to average assets was 11.82% for the year ended December 31, 2020.

Capital levels benefited from the Company’s previously disclosed public offering of subordinated notes raising $60.0 million in June 2020. Horizon’s fortress balance sheet at December 31, 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 the Company and the Bank as of December 31, 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   $ 650,206     14.92 %   $ 348,617     8.00 %   $ 457,560     10.50 %   N/A     N/A  
Bank   532,315     12.21 %   348,810     8.00 %   457,813     10.50 %   $ 436,013     10.00 %
Tier 1 capital (to risk–weighted assets)                                
Consolidated   606,395     13.92 %   261,462     6.00 %   370,404     8.50 %   N/A     N/A  
Bank   492,221     11.29 %   261,606     6.00 %   370,609     8.50 %   348,808     8.00 %
Common equity tier 1 capital (to risk–weighted assets)                                
Consolidated   491,281     11.27 %   196,096     4.50 %   305,038     7.00 %   N/A     N/A  
Bank   492,221     11.29 %   196,205     4.50 %   305,207     7.00 %   283,407     6.50 %
Tier 1 capital (to average assets)                                
Consolidated   606,395     10.66 %   227,453     4.00 %   227,453     4.00 %   N/A     N/A  
Bank   492,221     8.71 %   226,158     4.00 %   226,158     4.00 %   282,697     5.00 %
                                                 

“The strength and resilience of Horizon’s business is demonstrated by the Company’s strong operating fundamentals, ability to consistently generate retained earnings and growth in tangible book value per share and the Company’s healthy capital position overall,” said Mr. Dwight. “Accordingly, we will continue to be opportunistic with share repurchases under our current buyback authorization, and we remain committed to maintaining our current quarterly cash dividend.”

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 December 31, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.04 billion in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $632.4 million of unpledged investment securities at December 31, 2020.

Use of Non–GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for credit losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision income. In each case, we have identified special circumstances that we consider to be non–recurring and have excluded them. We believe that this shows the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations. Horizon believes these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business 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, Unaudited)
     
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Total stockholders’ equity   $ 692,216     $ 670,293     $ 652,206     $ 630,842     $ 656,023  
Less: Intangible assets   175,140     175,107     176,020     176,961     177,917  
Total tangible stockholders’ equity   $ 517,076     $ 495,186     $ 476,186     $ 453,881     $ 478,106  
Common shares outstanding   43,880,562     43,874,353     43,821,878     43,763,623     44,975,771  
Book value per common share   $ 15.78     $ 15.28     $ 14.88     $ 14.41     $ 14.59  
Tangible book value per common share   $ 11.78     $ 11.29     $ 10.87     $ 10.37     $ 10.63  
                                         


Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,   December 31,   December 31,
    2020   2020   2020   2020   2019   2020   2019
Non–interest expense as reported   $ 36,453     $ 33,407     $ 30,432     $ 31,149     $ 30,650     $ 131,441     $ 122,032  
Net interest income as reported   43,622     43,397     42,996     40,925     41,519     170,940     160,791  
Non–interest income as reported   $ 19,733     $ 16,700     $ 11,125     $ 12,063     $ 11,934     $ 59,621     $ 43,058  
Non–interest expense / (Net interest income + Non–interest income) (“Efficiency Ratio”)   57.54 %   55.59 %   56.23 %   58.79 %   57.34 %   57.01 %   59.86 %
                             
Non–interest expense as reported   $ 36,453     $ 33,407     $ 30,432     $ 31,149     $ 30,650     $ 131,441     $ 122,032  
Merger expenses                           (5,650 )
Non–interest expense excluding merger expenses   36,453     33,407     30,432     31,149     30,650     131,441     116,382  
Net interest income as reported   43,622     43,397     42,996     40,925     41,519     170,940     160,791  
Prepayment penalties on borrowings   3,804                     3,804      
Net interest income excluding prepayment penalties on borrowings   47,426     43,397     42,996     40,925     41,519     174,744     160,791  
Non–interest income as reported   19,733     16,700     11,125     12,063     11,934     59,621     43,058  
(Gain) / loss on sale of investment securities   (2,622 )   (1,088 )   (248 )   (339 )   (10 )   (4,297 )   75  
Death benefit on BOLI       (31 )       (233 )       (264 )   (580 )
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI   $ 17,111     $ 15,581     $ 10,877     $ 11,491     $ 11,924     $ 55,060     $ 42,553  
Adjusted efficiency ratio   56.48 %   56.64 %   56.49 %   59.43 %   57.35 %   57.20 %   57.23 %
                                           


Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,   December 31,   December 31,
    2020   2020   2020   2020   2019   2020   2019
Average assets   $ 5,864,086     $ 5,768,691     $ 5,620,695     $ 5,257,332     $ 5,250,574     $ 5,628,783     $ 4,933,058  
Return on average assets (“ROAA”) as reported   1.49 %   1.40 %   1.05 %   0.89 %   1.40 %   1.22 %   1.35 %
Merger expenses                           0.11  
Tax effect                           (0.02 )
ROAA excluding merger expenses   1.49     1.40     1.05     0.89     1.40     1.22     1.44  
(Gain) / loss on sale of investment securities   (0.18 )   (0.08 )   (0.02 )   (0.03 )       (0.08 )    
Tax effect   0.04     0.02         0.01         0.02      
ROAA excluding (gain) / loss on sale of investment securities   1.35     1.34     1.03     0.87     1.40     1.16     1.44  
Death benefit on BOLI               (0.02 )           (0.01 )
ROAA excluding death benefit on BOLI   1.35     1.34     1.03     0.85     1.40     1.16     1.43  
Prepayment penalties on borrowings   0.26                     0.07      
Tax effect   (0.05 )                   (0.01 )    
ROAA excluding prepayment penalties on borrowings   1.56 %   1.34 %   1.03 %   0.85 %   1.40 %   1.22 %   1.43 %
Adjusted ROAA   1.56 %   1.34 %   1.03 %   0.85 %   1.40 %   1.22 %   1.43 %
                                           


Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,   December 31,   December 31,
    2020   2020   2020   2020   2019   2020   2019
Average common equity   $ 680,857     $ 668,797     $ 649,490     $ 667,588     $ 653,071     $ 665,466     $ 605,719  
Return on average common equity (“ROACE”) as reported   12.79 %   12.08 %   9.07 %   7.02 %   11.26 %   10.29 %   10.98 %
Merger expenses                           0.93  
Tax effect                           (0.16 )
ROACE excluding merger expenses   12.79     12.08     9.07     7.02     11.26     10.29     11.75  
(Gain) / loss on sale of investment securities   (1.53 )   (0.65 )   (0.15 )   (0.20 )   (0.01 )   (0.65 )   0.01  
Tax effect   0.32     0.14     0.03     0.04         0.14      
ROACE excluding (gain) / loss on sale of investment securities   11.58     11.57     8.95     6.86     11.25     9.78     11.76  
Death benefit on BOLI       (0.02 )       (0.14 )       (0.04 )   (0.10 )
ROACE excluding death benefit on BOLI   11.58     11.55     8.95     6.72     11.25     9.74     11.66  
Prepayment penalties on borrowings   2.22                     0.57      
Tax effect   (0.47 )                   (0.12 )    
ROACE excluding prepayment penalties on borrowings   13.33 %   11.55 %   8.95 %   6.72 %   11.25 %   10.19 %   11.66 %
Adjusted ROACE   13.33 %   11.55 %   8.95 %   6.72 %   11.25 %   10.19 %   11.66 %
                                           

Conference Call

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

Participants may access the live conference call on January 28, 2021 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 February 4, 2021. 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 10150632.

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.

Forward Looking Statements

This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection of the safe harbor for forward–looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission. Forward–looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance.

Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Horizon’s reports filed with the Securities and Exchange Commission, including those described in Horizon’s Annual Report on Form 10–K and its quarterly reports on Form 10–Q. Further, statements about the effects of the COVID–19 pandemic on our business, operations, financial performance, and prospects may constitute forward–looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward–looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties, and us. Undue reliance should not be placed on the forward–looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward–looking statement to reflect the events or circumstances after the date on which the forward–looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

 
Financial Highlights
(Dollars in Thousands, Unaudited)
     
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Balance sheet:                    
Total assets   $ 5,886,614     $ 5,790,143     $ 5,739,262     $ 5,351,325     $ 5,246,829  
Investment securities   1,302,701     1,195,613     1,126,075     1,099,943     1,042,675  
Commercial loans   2,192,271     2,321,608     2,312,715     2,050,402     2,046,651  
Mortgage warehouse loans   395,626     374,653     300,386     223,519     150,293  
Residential mortgage loans   624,286     675,220     704,410     757,529     770,717  
Consumer loans   655,200     658,884     660,871     675,849     669,180  
Earning assets   5,206,645     5,262,054     5,143,978     4,835,934     4,706,051  
Non–interest bearing deposit accounts   1,053,242     1,016,646     981,868     709,978     709,760  
Interest bearing transaction accounts   2,802,673     2,600,691     2,510,854     2,264,576     2,245,631  
Time deposits   675,218     718,952     814,877     907,717     975,611  
Borrowings   475,000     587,473     583,073     704,613     549,741  
Subordinated notes   58,603     58,566     58,824          
Junior subordinated debentures issued to capital trusts   56,548     56,491     56,437     56,374     56,311  
Total stockholders’ equity   692,216     670,293     652,206     630,842     656,023  
                               


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
    Three Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Income statement:                    
Net interest income   $ 43,622     $ 43,397     $ 42,996     $ 40,925     $ 41,519  
Credit loss expense   3,042     2,052     7,057     8,600     340  
Non–interest income   19,733     16,700     11,125     12,063     11,934  
Non–interest expense   36,453     33,407     30,432     31,149     30,650  
Income tax expense   1,967     4,326     1,993     1,584     3,920  
Net income   $ 21,893     $ 20,312     $ 14,639     $ 11,655     $ 18,543  
                     
Per share data:                    
Basic earnings per share   $ 0.50     $ 0.46     $ 0.33     $ 0.26     $ 0.41  
Diluted earnings per share   0.50     0.46     0.33     0.26     0.41  
Cash dividends declared per common share   0.12     0.12     0.12     0.12     0.12  
Book value per common share   15.78     15.28     14.88     14.41     14.59  
Tangible book value per common share   11.78     11.29     10.87     10.37     10.63  
Market value – high   15.86     11.48     12.44     18.79     19.42  
Market value – low   $ 10.16     $ 9.05     $ 8.40     $ 7.97     $ 16.60  
Weighted average shares outstanding – Basis   43,862,435     43,862,435     43,781,249     44,658,512     44,971,676  
Weighted average shares outstanding – Diluted   43,903,881     43,903,881     43,802,794     44,756,716     45,103,065  
                     
Key ratios:                    
Return on average assets   1.49 %   1.40 %   1.05 %   0.89 %   1.40 %
Return on average common stockholders’ equity   12.79     12.08     9.07     7.02     11.26  
Net interest margin   3.34     3.39     3.47     3.56     3.58  
Allowance for credit losses to total loans   1.47     1.39     1.38     1.30     0.49  
Average equity to average assets   11.61     11.59     11.56     12.70     12.44  
Bank only capital ratios:                    
Tier 1 capital to average assets   8.71     8.57     8.48     9.43     9.49  
Tier 1 capital to risk weighted assets   11.29     10.67     10.49     11.83     12.20  
Total capital to risk weighted assets   12.21     11.56     11.74     12.67     12.65  
                               


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
    Twelve Months Ended
    December 31,   December 31,
    2020   2019
Income statement:        
Net interest income   $ 170,940     $ 160,791  
Credit loss expense   20,751     1,976  
Non–interest income   59,621     43,058  
Non–interest expense   131,441     122,032  
Income tax expense   9,870     13,303  
Net income   $ 68,499     $ 66,538  
         
Per share data:        
Basic earnings per share   $ 1.56     $ 1.53  
Diluted earnings per share   1.55     1.53  
Cash dividends declared per common share   0.48     0.46  
Book value per common share   15.78     14.59  
Tangible book value per common share   11.78     10.63  
Market value – high   18.79     19.42  
Market value – low   $ 7.97     $ 15.50  
Weighted average shares outstanding – Basis   44,044,737     43,493,316  
Weighted average shares outstanding – Diluted   44,123,208     43,598,373  
         
Key ratios:        
Return on average assets   1.22 %   1.35 %
Return on average common stockholders’ equity   10.29     10.98  
Net interest margin   3.44     3.69  
Allowance for credit losses to total loans   1.47     0.49  
Average equity to average assets   11.82     12.28  
Bank only capital ratios:        
Tier 1 capital to average assets   8.71     9.49  
Tier 1 capital to risk weighted assets   11.29     12.20  
Total capital to risk weighted assets   12.21     12.65  
             


Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
     
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Loan data:                    
Substandard loans   $ 98,874     $ 88,286     $ 61,385     $ 61,322     $ 58,670  
30 to 89 days delinquent   6,938     5,513     4,029     12,017     7,729  
                     
Non–performing loans:                    
90 days and greater delinquent – accruing interest   262     331     123     246     146  
Trouble debt restructures – accruing interest   1,793     1,825     2,039     2,115     3,354  
Trouble debt restructures – non–accrual   2,610     2,704     3,443     3,360     2,006  
Non–accrual loans   22,142     24,454     22,451     18,281     15,679  
Total non–performing loans   $ 26,807     $ 29,314     $ 28,056     $ 24,002     $ 21,185  
Non–performing loans to total loans   0.69 %   0.72 %   0.70 %   0.65 %   0.58 %
                               


Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
     
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Commercial   $ 42,210     $ 39,795     $ 39,147     $ 32,550     $ 11,996  
Residential mortgage   4,620     5,464     5,832     5,654     923  
Mortgage warehouse   1,267     1,250     1,190     1,055     1,077  
Consumer   8,930     9,810     8,921     9,181     3,671  
Total   $ 57,027     $ 56,319     $ 55,090     $ 48,440     $ 17,667  
                                         


Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
     
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Commercial   $ 23     $ 488     $ 6     $ (20 )   $ 146  
Residential mortgage   (10 )   136     24     17     40  
Mortgage warehouse                    
Consumer   216     199     377     407     443  
Total   $ 229     $ 823     $ 407     $ 404     $ 629  
Percent of net charge–offs (recoveries) to average loans outstanding for the period   0.01 %   0.02 %   0.01 %   0.01 %   0.02 %
                               


Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
     
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Commercial   $ 14,348      $ 16,169      $ 14,238      $ 9,579      $ 7,347   
Residential mortgage   7,994      9,209      9,945      10,411      9,884   
Mortgage warehouse   —      —      —      —      —   
Consumer   4,465      3,936      3,873      4,012      3,954   
Total   $ 26,807      $ 29,314      $ 28,056      $ 24,002      $ 21,185   
Non–performing loans to total loans   0.69  %   0.72  %   0.70  %   0.65  %   0.58  %
                               


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
     
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Commercial   $ 1,908     $ 2,191     $ 2,374     $ 2,464     $ 3,698  
Residential mortgage       70     249     336     28  
Mortgage warehouse                    
Consumer       80     20     13      
Total   $ 1,908     $ 2,341     $ 2,643     $ 2,813     $ 3,726  
                                         


Average Balance Sheets
(Dollars in Thousands, Unaudited)
    Three Months Ended   Three Months Ended
    December 31, 2020   December 31, 2019
    Average
Balance
  Interest   Average
Rate
  Average
Balance
  Interest   Average
Rate
Assets                        
Interest earning assets                        
Federal funds sold   $ 112,139     $ 29     0.10 %   $ 40,657     $ 172     1.68 %
Interest earning deposits   28,507     52     0.73 %   12,665     58     1.82 %
Investment securities – taxable   408,412     1,489     1.45 %   491,160     2,824     2.28 %
Investment securities – non–taxable (1)   866,182     4,919     2.86 %   545,832     3,575     3.26 %
Loans receivable (2) (3)   3,950,648     46,745     4.72 %   3,657,903     46,769     5.10 %
Total interest earning assets   5,365,888     53,234     4.05 %   4,748,217     53,398     4.57 %
Non–interest earning assets                        
Cash and due from banks   79,753             75,248          
Allowance for credit losses   (56,657 )           (17,916 )        
Other assets   475,102             445,025          
Total average assets   $ 5,864,086             $ 5,250,574          
                         
Liabilities and Stockholders’ Equity                        
Interest bearing liabilities                        
Interest bearing deposits   $ 3,450,824     $ 2,718     0.31 %   $ 3,255,725     $ 8,767     1.07 %
Borrowings   511,306     5,456     4.25 %   484,729     2,281     1.87 %
Subordinated notes   58,581     871     5.91 %           %
Junior subordinated debentures issued to capital trusts   56,512     567     3.99 %   54,489     831     6.05 %
Total interest bearing liabilities   4,077,223     9,612     0.94 %   3,794,943     11,879     1.24 %
Non–interest bearing liabilities                        
Demand deposits   1,037,232             747,513          
Accrued interest payable and other liabilities   68,774             55,047          
Stockholders’ equity   680,857             653,071          
Total average liabilities and stockholders’ equity   $ 5,864,086             $ 5,250,574          
                         
Net interest income / spread       $ 43,622     3.11 %       $ 41,519     3.33 %
Net interest income as a percent of average interest earning assets (1)           3.34 %           3.58 %
                         
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.
 


Average Balance Sheets
(Dollars in Thousands, Unaudited)
    Twelve Months Ended   Twelve Months Ended
    December 31, 2020   December 31, 2019
    Average
Balance
  Interest   Average
Rate
  Average
Balance
  Interest   Average
Rate
Assets                        
Interest earning assets                        
Federal funds sold   $ 61,408     $ 154     0.25 %   $ 21,301     $ 511     2.40 %
Interest earning deposits   25,943     268     1.03 %   19,601     342     1.74 %
Investment securities – taxable   459,551     8,071     1.76 %   474,833     11,753     2.48 %
Investment securities – non–taxable (1)   706,092     17,213     3.09 %   454,066     12,095     3.34 %
Loans receivable (2) (3)   3,867,112     179,672     4.66 %   3,500,649     183,631     5.27 %
Total interest earning assets   5,120,106     205,378     4.11 %   4,470,450     208,332     4.75 %
Non–interest earning assets                        
Cash and due from banks   84,065             62,920          
Allowance for credit losses   (46,329 )           (18,019 )        
Other assets   470,941             417,707          
Total average assets   $ 5,628,783             $ 4,933,058          
                         
Liabilities and Stockholders’ Equity                        
Interest bearing liabilities                        
Interest bearing deposits   $ 3,327,917     $ 18,556     0.56 %   $ 3,007,937     $ 33,690     1.12 %
Borrowings   559,953     11,430     2.04 %   468,159     10,672     2.28 %
Subordinated notes   30,610     1,824     5.96 %           %
Junior subordinated debentures issued to capital trusts   56,427     2,628     4.66 %   50,134     3,179     6.34 %
Total interest bearing liabilities   3,974,907     34,438     0.87 %   3,526,230     47,541     1.35 %
Non–interest bearing liabilities                        
Demand deposits   919,449             757,389          
Accrued interest payable and other liabilities   68,961             43,720          
Stockholders’ equity   665,466             605,719          
Total average liabilities and stockholders’ equity   $ 5,628,783             $ 4,933,058          
                         
Net interest income / spread       $ 170,940     3.24 %       $ 160,791     3.40 %
Net interest income as a percent of average interest earning assets (1)           3.44 %           3.69 %
                         
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.
 


Condensed Consolidated Balance Sheets
(Dollars in Thousands)
         
    December 31,
2020
  December 31,
2019
    (Unaudited)    
Assets        
Cash and due from banks   $ 249,711      $ 98,831   
Interest earning time deposits   8,965      8,455   
Investment securities, available for sale   1,134,025      834,776   
Investment securities, held to maturity (fair value $179,990 and $215,147)   168,676      207,899   
Loans held for sale   13,538      4,088   
Loans, net of allowance for credit losses of $57,027 and $17,667   3,810,356      3,619,174   
Premises and equipment, net   92,416      92,209   
Federal Home Loan Bank stock   23,023      22,447   
Goodwill   151,238      151,238   
Other intangible assets   23,902      26,679   
Interest receivable   21,396      18,828   
Cash value of life insurance   96,751      95,577   
Other assets   92,617      66,628   
Total assets   $ 5,886,614      $ 5,246,829   
         
Liabilities        
Deposits        
Non–interest bearing   $ 1,053,242      $ 709,760   
Interest bearing   3,477,891      3,221,242   
Total deposits   4,531,133      3,931,002   
Borrowings   475,000      549,741   
Subordinated notes   58,603      —   
Junior subordinated debentures issued to capital trusts   56,548      56,311   
Interest payable   2,712      3,062   
Other liabilities   70,402      50,690   
Total liabilities   5,194,398      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 43,905,631 and 45,000,840 shares,
  Outstanding 43,880,562 and 44,975,771 shares
  —      —   
Additional paid–in capital   362,945      379,853   
Retained earnings   301,419      269,738   
Accumulated other comprehensive income   27,852      6,432   
Total stockholders’ equity   692,216      656,023   
Total liabilities and stockholders’ equity   $ 5,886,614      $ 5,246,829   
                 


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
    Three Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Interest income                    
Loans receivable