Horizon Bancorp, Inc. Announces Record Earnings for 2021 and Fourth Quarter Results including Strong Profitability, Higher Net Interest Income, Growing Commercial and Consumer Loans, and Disciplined Expense Management

Rhea-AI Summary

Horizon Bancorp announced record earnings for 2021, achieving net income of $87.1 million or $1.98 per diluted share. In Q4, net income was $21.4 million with an adjusted EPS of $0.54. Net interest income reached $50.0 million, up 7.4% sequentially. Although net interest margin decreased to 2.97%, the company is well-positioned for rising interest rates. Total loans declined to $3.60 billion, mainly due to a decrease in PPP loans. Horizon successfully integrated 14 acquired branches, contributing to stable deposit relationships.

Positive

• Record annual earnings of $87.1 million, or $1.98 EPS in 2021.
• Q4 net interest income reached $50.0 million, up 7.4% from Q3.
• Strong loan growth with commercial loans growing by 2.4% in Q4.
• Successfully integrated 14 acquired branches, stabilizing deposit runoff.

Negative

• Net interest margin decreased to 2.97%, down from 3.17% in Q3.
• Total loan balance declined by $64.2 million in Q4.
• Non-interest expenses increased by $5.0 million in Q4 compared to Q3.

MICHIGAN CITY, Ind., Jan. 26, 2022 (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, 2021.

“Horizon capped 2021 with record annual earnings and net interest income, as well as continued growth in commercial and consumer loans through the fourth quarter, mortgage production well in–line with our expectations, strong asset quality metrics and continued disciplined expense management,” Chairman and CEO Craig M. Dwight said. “We enter 2022 with strong pipelines to support our loan growth goals for the year, successfully integrated a new team of advisors and customers onboarded through the September acquisition of 14 branches and low–cost deposits to expand Horizon’s Michigan franchise, and a balance sheet that is very well positioned for increasing short term interest rates.”

Fourth Quarter and Full Year 2021 Highlights

• Net income totaled $87.1 million, or $1.98 per diluted share for the 12 months of 2021 and $21.4 million, or $0.49 per diluted share in the fourth quarter. Adjusted diluted earnings per share was $0.54 for the fourth quarter of 2021 compared to $0.52 for the third quarter of 2021 and $0.52 for the fourth quarter of 2020. (See the “Non–GAAP Reconciliation of Diluted Earnings Per Share” table for the definition of this non–GAAP calculation of adjusted diluted earnings per share.)
  
  
• Net interest income grew to a record $50.0 million for the quarter, up 7.4% from the third quarter of 2021 and 14.6% from the fourth quarter of 2020. Reported net interest margin (“NIM”) was 2.97% and adjusted NIM was 2.86%, with reported NIM decreasing by 20 basis points and adjusted NIM decreasing by 26 basis points from the third quarter of 2021. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation of adjusted NIM.) Approximately 10 basis points of the NIM and adjusted NIM is attributed to Federal Paycheck Protection Program (“PPP”) lending, offset by an estimated 32 basis point compression attributed to excess liquidity during the quarter. During the fourth quarter, Horizon increased the average balance of its investment portfolio by $458.9 million to leverage capital and focus on increasing net interest income.
  
  
• The Company was asset sensitive as of December 31, 2021, resulting from the liquidity on the balance sheet, adjustable rate assets and the low beta's on deposit pricing based on expected deposit rates. Based on parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock, net interest income increases approximately $10.0 million and $20.0 million, respectively.
  
  
• Commercial loans, excluding PPP and acquired loans, grew by 2.4% during the quarter and 2.4% during 2021 to a record $2.13 billion at period end.
  
  
• Consumer loans, excluding acquired loans, grew by 1.9% during the fourth quarter and 2.7% during 2021 to a record $727.3 million at period end, with record production of $397.1 million.
  

• Residential mortgage loans, excluding acquired loans, declined in–line with expectations by 1.5% during the fourth quarter and 13.8% during 2021 to $594.4 million at period end, as the addition of new producers and the launch of a new jumbo mortgage product aimed at second home buyers in Horizon's very attractive second–home markets began to mitigate the impact of the industry–wide slowdown in mortgage lending from recent historic levels. Mortgage loan revenues only constituted 10.8% of total revenue in 2021.
  
  
• Non–interest expense was $39.4 million in the quarter, including ongoing operating expenses associated with the Michigan branch acquisition that closed on September 17. Excluding acquisition–related expenses and non–recurring Employee Stock Ownership Plan (“ESOP”) settlement expense, non–interest expense was $36.6 million, representing 1.95% of average assets on an annualized basis in the quarter, compared to $33.6 million, or 2.05%, in the third quarter of 2021 and $36.5 million, or 2.47%, in the fourth quarter of 2020. Acquisition–related expenses totaled approximately $884,000 in the fourth quarter of 2021 and $799,000 in the linked quarter. (See the “Non–GAAP Reconciliation of Non–Interest Expense” table for the definition of this non–GAAP calculation of adjusted non–interest expense.)
  
  
• Horizon accrued $1.9 million of expense in December for a mediation settlement related to a dispute with the U.S. Department of Labor (“DOL”) concerning valuations and sale transactions related to Horizon's ESOP trustee business. Horizon is no longer in the ESOP trustee business and sold all accounts to a third party on September 30, 2021 and recorded a $2.3 million gain on the sale in the third quarter.
  
  
• The efficiency ratio for the period was 62.69% compared to 54.88% for the third quarter of 2021 and 57.54% for the fourth quarter of 2020. The adjusted efficiency ratio, excluding acquisition–related expense and non–recurring settlement costs, was 58.25% compared to 56.16% for the third quarter of 2021 and 56.48% for the fourth quarter of 2020. (See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)
  
  
• Horizon’s in–market consumer and commercial deposit relationships, including those on–boarded as part of its branch acquisition near the end of the third quarter, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.31% in the quarter, compared to 0.38% in the third quarter of 2021 and 0.94% in the fourth quarter of 2020.
  
  
• Horizon recorded a provision release of $2.1 million in the quarter, compared to a provision expense of $1.1 million in the third quarter of 2021 and $3.0 million in the fourth quarter of 2020, as non–performing loans declined to $19.0 million, or 0.53% of total loans, on December 31, 2021.
  
  
• Horizon’s book value per share and tangible book value increased to all–time highs of $16.61 and $12.58. (See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table below.) Held to Maturity (“HTM”) securities were increased in the fourth quarter through a transfer from Available for Sale (“AFS”) securities and purchases to 57.2% of the investment portfolio. This increase in HTM securities will help manage the impact of unrealized losses to tangible capital in a rising rate environment.
  
  
• The integration of 14 branches purchased from TCF National Bank that closed on September 17, 2021 is complete and was very successful. The deposit runoff has stabilized at approximately 8% with the plan to begin to rebuild this runoff as we enter into 2022. The financial impact of this transaction to date is in line with management's projections.
  

Summary

		For the Three Months Ended
		December 31,				September 30,				December 31,
Net Interest Income and Net Interest Margin			2021				2021				2020
Net interest income		$	49,976			$	46,544			$	43,622
Net interest margin			2.97	%			3.17	%			3.34	%
Adjusted net interest margin			2.86	%			3.12	%			3.44	%

“Horizon's net interest income of approximately $50.0 million in the fourth quarter was an all–time high and was achieved despite margin compression during the quarter due to pressure from lower yielding investment securities and higher levels of cash,” Mr. Dwight commented. “We are well–positioned for a rising interest rate environment and believe that a 200 basis point increase in the federal funds rate would increase net interest income by approximately $20.0 million.”

		For the Three Months Ended
		December 31,			September 30,			December 31,
Asset Yields and Funding Costs		2021			2021			2020
Interest earning assets		3.20	%		3.46	%		4.05	%
Interest bearing liabilities		0.31	%		0.38	%		0.94	%

		For the Three Months Ended
Non–interest Income and		December 31,			September 30,			December 31,
Mortgage Banking Income		2021			2021			2020
Total non–interest income		$	12,828		$	16,044		$	19,733
Gain on sale of mortgage loans			4,167			4,088			7,815
Mortgage servicing income net of impairment			300			336			327

		For the Three Months Ended
		December 31,				September 30,				December 31,
Non–interest Expense		2021				2021				2020
Total non–interest expense		$	39,370			$	34,349			$	36,453
Annualized non–interest expense to average assets			2.09	%			2.09	%			2.47	%

		For the Three Months Ended
		December 31,			September 30,			December 31,
Credit Quality		2021			2021			2020
Allowance for credit losses to total loans		1.51	%		1.55	%		1.47	%
Non–performing loans to total loans		0.53	%		0.80	%		0.69	%
Percent of net charge–offs to average loans outstanding for the period		0.04	%		0.00	%		0.01	%

Allowance for		December 31,				Net Reserve																December 31,
Credit Losses			2020			1Q21				2Q21				3Q21				4Q21					2021
Commercial		$	42,210			$	770			$	(1,214	)		$	1,355			$	(2,346	)		$	40,775
Retail Mortgage			4,620				(391	)			(121	)			(371	)			119				3,856
Warehouse			1,267				(104	)			(8	)			(101	)			5				1,059
Consumer			8,930				(116	)			(194	)			247				(271	)			8,596
Allowance for Credit Losses (“ACL”)		$	57,027			$	159			$	(1,537	)		$	1,130			$	(2,493	)		$	54,286
ACL / Total Loans			1.47	%																			1.51	%
Acquired Loan Discount (“ALD”)		$	11,494			$	(221	)		$	(815	)		$	(27	)		$	(1,334	)		$	9,097

“We reported strong asset quality metrics, including reductions in non–performing loans from both the linked and year–ago quarter–ends, with non–performing loans making up just 0.53% of total loans at December 31, 2021,” Mr. Dwight said. “We were pleased to be able to make progress on workouts on loans acquired as part of our September branch acquisition and see continued opportunity to work with these new borrowers and sponsors through our hands–on credit–management.”

Income Statement Highlights

Net income for the fourth quarter of 2021 was $21.4 million, or $0.49 diluted earnings per share, compared to $23.1 million, or $0.52, for the linked quarter and $21.9 million, or $0.50, for the prior year period.

Adjusted net income for the fourth quarter of 2021 was $23.7 million, or $0.54 diluted earnings per share, compared to $23.0 million, or $0.52, for the linked quarter and $22.8 million, or $0.52, 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 decrease in net income for the fourth quarter of 2021 when compared to the third quarter of 2021 reflects an increase in non–interest expense of $5.0 million and a decrease in non–interest income of $3.2 million, offset by an increase in net interest income of $3.4 million and a decrease in credit loss expense of $3.2 million.

Interest income includes the recognition of PPP interest and net loan processing fees totaling $2.1 million in the fourth quarter of 2021, compared to $3.5 million in the linked quarter. On December 31, 2021, the Company had $561,000 in net deferred PPP loan processing fees outstanding and $25.8 million in PPP loans outstanding. PPP net deferred fees and loans outstanding at September 30, 2021 were $2.5 million and $92.3 million, respectively. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness.

Fourth quarter 2021 income from the gain on sale of mortgage loans totaled $4.2 million, up from $4.1 million in the linked quarter and down from $7.8 million in the prior year period.

Non–interest expense of $39.4 million in the fourth quarter of 2021 reflected a $1.9 million increase in other losses, an increase of $1.6 million in salaries and employee benefits expense, an increase of $519,000 in FDIC deposit insurance expense, an increase of $518,000 in other expense, an increase of $269,000 in net occupancy expense, an increase of $158,000 in loan expense and an increase of $146,000 in data processing, offset by a decrease in outside services and consultants expense of $133,000, from the linked quarter. Acquisition related expenses in the fourth quarter of 2021 increased $85,000 from the linked quarter.

The decrease in net income for the fourth quarter of 2021 when compared to the same prior year period reflects a decrease in non–interest income of $6.9 million, an increase in non–interest expense of $2.9 million and an increase in income tax expense of $2.1 million, offset by an increase in net interest income of $6.4 million and a decrease in credit loss expense of $5.1 million.

Net income for the year ended December 31, 2021 was $87.1 million, or $1.98 diluted earnings per share, compared to $68.5 million, or $1.55 diluted earnings per share, for the year ended December 31, 2020. Adjusted net income for the year ended December 31, 2021 was $88.6 million, or $2.00 diluted earnings per share, compared to $67.8 million, or $1.53 diluted earnings per share, for the year ended December 31, 2020. The increase in net income for the year ended December 31, 2021 when compared to the same prior year period reflects a decrease in credit loss expense of $22.8 million and an increase in net interest income of $10.8 million, offset by an increase in non–interest expense of $7.8 million, an increase in income tax expense of $5.5 million and a decrease in non–interest income of $1.7 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,
			2021				2021				2021				2021				2020				2021				2020
Net income as reported		$	21,425			$	23,071			$	22,173			$	20,422			$	21,893			$	87,091			$	68,499
Acquisition expenses			884				799				242				—				—				1,925				—
Tax effect			(184	)			(166	)			(51	)			—				—				(401	)			—
Net income excluding acquisition expenses			22,125				23,704				22,364				20,422				21,893				88,615				68,499
Credit loss expense acquired loans			—				2,034				—				—				—				2,034				—
Tax effect			—				(427	)			—				—				—				(427	)			—
Net income excluding credit loss expense acquired loans			22,125				25,311				22,364				20,422				21,893				90,222				68,499
Gain on sale of ESOP trustee accounts			—				(2,329	)			—				—				—				(2,329	)			—
Tax effect			—				489				—				—				—				489				—
Net income excluding gain on sale of ESOP trustee accounts			22,125				23,471				22,364				20,422				21,893				88,382				68,499
ESOP settlement expenses			1,900				—				—				—				—				1,900				—
Tax effect			(315	)			—				—				—				—				(315	)			—
Net income excluding ESOP settlement expenses			23,710				23,471				22,364				20,422				21,893				89,967				68,499
(Gain) / loss on sale of investment securities			—				—				—				(914	)			(2,622	)			(914	)			(4,297	)
Tax effect			—				—				—				192				551				192				902
Net income excluding (gain) / loss on sale of investment securities			23,710				23,471				22,364				19,700				19,822				89,245				65,104
Death benefit on bank owned life insurance (“BOLI”)			—				(517	)			(266	)			—				—				(783	)			(264	)
Net income excluding death benefit on BOLI			23,710				22,954				22,098				19,700				19,822				88,462				64,840
Prepayment penalties on borrowings			—				—				125				—				3,804				125				3,804
Tax effect			—				—				(26	)			—				(799	)			(26	)			(799	)
Net income excluding prepayment penalties on borrowings			23,710				22,954				22,197				19,700				22,827				88,561				67,845
Adjusted net income		$	23,710			$	22,954			$	22,197			$	19,700			$	22,827			$	88,561			$	67,845

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,
			2021				2021				2021				2021				2020				2021				2020
Diluted earnings per share (“EPS”) as reported		$	0.49			$	0.52			$	0.50			$	0.46			$	0.50			$	1.98			$	1.55
Acquisition expenses			0.02				0.02				0.01				—				—				0.04				—
Tax effect			—				—				—				—				—				—				—
Diluted EPS excluding acquisition expenses			0.51				0.54				0.51				0.46				0.50				2.02				1.55
Credit loss expense acquired loans			—				0.05				—				—				—				0.05				—
Tax effect			—				(0.01	)			—				—				—				(0.01	)			—
Diluted EPS excluding credit loss expense acquired loans			0.51				0.58				0.51				0.46				0.50				2.06				1.55
Gain on sale of ESOP trustee accounts			—				(0.05	)			—				—				—				(0.05	)			—
Tax effect			—				0.01				—				—				—				0.01				—
Diluted EPS excluding gain on sale of ESOP trustee accounts			0.51				0.54				0.51				0.46				0.50				2.02				1.55
ESOP settlement expenses			0.04				—				—				—				—				0.04				—
Tax effect			(0.01	)			—				—				—				—				(0.01	)			—
Diluted EPS excluding ESOP settlement expenses			0.54				0.54				0.51				0.46				0.50				2.05				1.55
(Gain) / loss on sale of investment securities			—				—				—				(0.02	)			(0.06	)			(0.02	)			(0.10	)
Tax effect			—				—				—				—				0.01				—				0.02
Diluted EPS excluding (gain) / loss on sale of investment securities			0.54				0.54				0.51				0.44				0.45				2.03				1.47
Death benefit on bank owned life insurance (“BOLI”)			—				(0.02	)			(0.01	)			—				—				(0.03	)			(0.01	)
Diluted EPS excluding death benefit on BOLI			0.54				0.52				0.50				0.44				0.45				2.00				1.46
Prepayment penalties on borrowings			—				—				—				—				0.09				—				0.09
Tax effect			—				—				—				—				(0.02	)			—				(0.02	)
Diluted EPS excluding prepayment penalties on borrowings			0.54				0.52				0.50				0.44				0.52				2.00				1.53
Adjusted diluted EPS		$	0.54			$	0.52			$	0.50			$	0.44			$	0.52			$	2.00			$	1.53

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,
			2021				2021				2021				2021				2020				2021				2020
Pre–tax income		$	25,505			$	27,127			$	25,943			$	23,872			$	23,860			$	102,447			$	78,369
Credit loss expense			(2,071	)			1,112				(1,492	)			367				3,042				(2,084	)			20,751
Pre–tax, pre–provision income		$	23,434			$	28,239			$	24,451			$	24,239			$	26,902			$	100,363			$	99,120
Pre–tax, pre–provision income		$	23,434			$	28,239			$	24,451			$	24,239			$	26,902			$	100,363			$	99,120
Acquisition expenses			884				799				242				—				—				1,925				—
Gain on sale of ESOP trustee accounts			—				(2,329	)			—				—				—				(2,329	)			—
ESOP settlement expenses			1,900				—				—				—				—				1,900				—
(Gain) / loss on sale of investment securities			—				—				—				(914	)			(2,622	)			(914	)			(4,297	)
Death benefit on BOLI			—				(517	)			(266	)			—				—				(783	)			(264	)
Prepayment penalties on borrowings			—				—				125				—				3,804				125				3,804
Adjusted pre–tax, pre–provision income		$	26,218			$	26,192			$	24,552			$	23,325			$	28,084			$	100,162			$	94,559

Horizon’s net interest margin decreased to 2.97% for the fourth quarter of 2021 compared to 3.17% for the third quarter of 2021. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 26 basis points, offset by a decrease in the cost of interest bearing liabilities of seven basis points. Interest income from acquisition–related purchase accounting adjustments was $944,000 higher during the fourth quarter of 2021 when compared to the third quarter of 2021.

Horizon’s net interest margin decreased to 2.97% for the fourth quarter of 2021 compared to 3.34% for the fourth quarter of 2020. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 85 basis points offset by a decrease in the cost of interest bearing liabilities of 63 basis points.

Horizon’s net interest margin decreased to 3.13% for the year ended December 31, 2021 compared to 3.44% for the same prior year period. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 68 basis points offset by a decrease in the cost of interest bearing liabilities of 95 basis points.

The net interest margin was impacted during the fourth and third quarters of 2021 by PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by 10 and 16 basis points for the fourth and third quarters of 2021, respectively. 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 net interest margin was also impacted during the fourth and third quarters of 2021 by excess liquidity carried on the balance sheet through increased deposits. Horizon estimates that the excess liquidity compressed the net interest margin by 32 and 16 basis points for the fourth and third quarters of 2021, respectively. This assumes that the excess liquidity was not included in average interest earning assets or interest income and was excluded from non–interest bearing deposits.
  

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,
			2021				2021				2021				2021				2020				2021				2020
Net interest income as reported		$	49,976			$	46,544			$	42,632			$	42,538			$	43,622			$	181,690			$	170,940
Average interest earning assets			6,938,258				6,033,088				5,659,384				5,439,634				5,365,888				6,021,740				5,120,106
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)			2.97	%			3.17	%			3.14	%			3.29	%			3.34	%			3.13	%			3.44	%
Net interest income as reported		$	49,976			$	46,544			$	42,632			$	42,538			$	43,622			$	181,690			$	170,940
Acquisition–related purchase accounting adjustments (“PAUs”)			(1,819	)			(875	)			(230	)			(1,579	)			(2,461	)			(4,503	)			(6,936	)
Prepayment penalties on borrowings			—				—				125				—				3,804				125				3,804
Adjusted net interest income		$	48,157			$	45,669			$	42,527			$	40,959			$	44,965			$	177,187			$	164,004
Adjusted net interest margin			2.86	%			3.12	%			3.13	%			3.17	%			3.44	%			3.06	%			3.38	%

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 2.86% for the fourth quarter of 2021, compared to 3.12% for the linked quarter and 3.44% for the fourth quarter of 2020. Interest income from acquisition–related purchase accounting adjustments was $1.8 million, $875,000 and $2.5 million for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

The adjusted net interest margin was 3.06% for the year ended December 31, 2021 compared to 3.38% for the same prior year period. Interest income from acquisition–related purchase accounting adjustments was $4.5 million and $6.9 million for the year ended December 31, 2021 and 2020, respectively.

Lending Activity

Total loan balances were $3.60 billion, or $3.57 billion excluding PPP loans, on December 31, 2021. Total loans were $3.66 billion, or $3.57 billion excluding PPP loans, on September 30, 2021. During the three months ended December 31, 2021, commercial loans, excluding PPP loans, increased $50.7 million, consumer loans increased $13.8 million and loans held for sale increased $7.8 million, offset by decreases in PPP loans of $66.4 million, mortgage warehouse loans of $60.9 million and residential mortgage loans of $9.2 million.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
		December 31,			September 30,			Amount				QTD			Annualized
		2021			2021			Change				% Change			% Change
Commercial, excluding PPP loans		$	2,131,644		$	2,080,943		$	50,701			2.4	%		9.7	%
PPP loans			25,844			92,257			(66,413	)		(72.0	)%		(285.6	)%
Residential mortgage			594,382			603,540			(9,158	)		(1.5	)%		(6.0	)%
Consumer			727,259			713,432			13,827			1.9	%		7.7	%
Subtotal			3,479,129			3,490,172			(11,043	)		(0.3	)%		(1.3	)%
Loans held for sale			12,579			4,811			7,768			161.5	%		640.6	%
Mortgage warehouse			109,031			169,909			(60,878	)		(35.8	)%		(142.2	)%
Total loans		$	3,600,739		$	3,664,892		$	(64,153	)		(1.8	)%		(6.9	)%
Total loans, excluding PPP loans		$	3,574,895		$	3,572,635		$	2,260			0.1	%		0.3	%

Total loan balances were $3.60 billion, or $3.57 billion excluding PPP loans, on December 31, 2021. Total loans were $3.88 billion, or $3.67 billion excluding PPP loans, on December 31, 2020. During the year ended December 31, 2021, commercial loans, excluding PPP and acquired loans, increased $46.9 million and consumer loans, excluding acquired loans, increased $17.8 million, offset by decreases in mortgage warehouse loans of $286.6 million, PPP loans of $183.0 million and residential mortgage loans, excluding acquired loans, of $86.4 million.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
		December 31,			December 31,			Amount				Acquired				Amount				YTD
		2021			2020			Change				Loans				Change				% Change
Commercial, excluding PPP loans		$	2,131,644		$	1,983,389		$	148,255			$	(101,327	)		$	46,928			2.4	%
PPP loans			25,844			208,882			(183,038	)			—				(183,038	)		(87.6	)%
Residential mortgage			594,382			624,286			(29,904	)			(56,499	)			(86,403	)		(13.8	)%
Consumer			727,259			655,200			72,059				(54,212	)			17,847			2.7	%
Subtotal			3,479,129			3,471,757			7,372				(212,038	)			(204,666	)		(5.9	)%
Loans held for sale			12,579			13,538			(959	)			—				(959	)		(7.1	)%
Mortgage warehouse			109,031			395,626			(286,595	)			—				(286,595	)		(72.4	)%
Total loans		$	3,600,739		$	3,880,921		$	(280,182	)		$	(212,038	)		$	(492,220	)		(12.7	)%
Total loans, excluding PPP loans		$	3,574,895		$	3,672,039		$	(97,144	)		$	(212,038	)		$	(309,182	)		(8.4	)%

Residential mortgage lending activity for the three months ended December 31, 2021 generated $4.2 million in income from the gain on sale of mortgage loans, increasing $79,000 from the third quarter of 2021 and decreasing $3.6 million from the fourth quarter of 2020. Total origination volume for the fourth quarter of 2021, including loans placed into the portfolio, totaled $150.3 million, representing an increase of 4.1% from third quarter 2021 levels, and a decrease of 19.2% from the fourth quarter of 2020. As a percentage of total originations, 48% of the volume was from refinances and 52% was from new purchases during the fourth quarter of 2021. Total origination volume of loans sold to the secondary market totaled $95.9 million, representing a decrease of 7.0% from the third quarter of 2021 and a decrease of 39.2% from the fourth quarter of 2020.

The percentage of revenue derived from Horizon's residential mortgage and mortgage warehouse lending activities was 9% for the three months ended December 31, 2021, compared to 9% for the linked quarter and 16% for the three months ended December 31, 2020.

Deposit Activity

Total deposit balances were $5.80 billion on December 31, 2021 compared to $5.98 billion on September 30, 2021, a decrease of $176.9 million primarily due to lower municipal deposit balances.

Deposit Growth by Type, Excluding Acquired Deposits
(Dollars in Thousands, Unaudited)
	December 31,			September 30,			Amount				QTD			Annualized
	2021			2021			Change				% Change			% Change
Non–interest bearing	$	1,360,338		$	1,324,757		$	35,581			2.7	%		10.7	%
Interest bearing		3,711,767			3,875,882			(164,115	)		(4.2	)%		(16.8	)%
Time deposits		730,886			779,260			(48,374	)		(6.2	)%		(24.6	)%
Total deposits	$	5,802,991		$	5,979,899		$	(176,908	)		(3.0	)%		(11.7	)%

Expense Management

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
		Three Months Ended
		December 31,												September 30,
			2021												2021											Adjusted
Non–interest Expense		Actual				Acquisition & Non–Recurring Expenses				Adjusted				Actual				Acquisition & Non–Recurring Expenses				Adjusted				Amount Change				Percent Change
Salaries and employee benefits		$	20,549			$	(202	)		$	20,347			$	18,901			$	(25	)		$	18,876			$	1,471			7.8	%
Net occupancy expenses			3,204				—				3,204				2,935				(13	)			2,922				282			9.7	%
Data processing			2,672				(1	)			2,671				2,526				(17	)			2,509				162			6.5	%
Professional fees			562				(45	)			517				522				(53	)			469				48			10.2	%
Outside services and consultants			2,197				(162	)			2,035				2,330				(401	)			1,929				106			5.5	%
Loan expense			2,803				(83	)			2,720				2,645				—				2,645				75			2.8	%
FDIC insurance expense			798				(6	)			792				279				—				279				513			183.9	%
Other losses			1,925				(1,904	)			21				69				(1	)			68				(47	)		(69.1	)%
Other expense			4,660				(381	)			4,279				4,142				(289	)			3,853				426			11.1	%
Total non–interest expense		$	39,370			$	(2,784	)		$	36,586			$	34,349			$	(799	)		$	33,550			$	3,036			9.0	%
Annualized non–interest expense to average assets			2.09	%							1.95	%			2.09	%							2.05	%

Total non–interest expense was $5.0 million higher in the fourth quarter of 2021 when compared to the third quarter of 2021. The increase in expenses was primarily due to an increase in other losses of $1.9 million from the ESOP settlement, an increase in salaries and employee benefits of $1.6 million due to the addition of revenue producing lenders, increasing the incentive bonus accrual and a full quarter of cost for the acquired branches, an increase in FDIC insurance expense of $519,000 and an increase in other expense of $518,000. Excluding acquisition expenses and non–recurring ESOP settlement expenses, total non–interest expense increased by $3.0 million in the fourth quarter of 2021 when compared to the third quarter of 2021.

Horizon accrued $1.9 million of expense in December for a mediation settlement related to a dispute with the U.S. Department of Labor (“DOL”) concerning valuations and sale transactions related to Horizon's ESOP trustee business. Horizon is no longer in the ESOP trustee business and sold all accounts to a third party on September 30, 2021.

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
		Three Months Ended
		December 31,												December 31,
			2021												2020										Adjusted
Non–interest Expense		Actual				Acquisition & Non–Recurring Expenses				Adjusted				Actual				Acquisition & Non–Recurring Expenses			Adjusted				Amount Change				Percent Change
Salaries and employee benefits		$	20,549			$	(202	)		$	20,347			$	20,030			$	—		$	20,030			$	317			1.6	%
Net occupancy expenses			3,204				—				3,204				3,262				—			3,262				(58	)		(1.8	)%
Data processing			2,672				(1	)			2,671				2,126				—			2,126				545			25.6	%
Professional fees			562				(45	)			517				691				—			691				(174	)		(25.2	)%
Outside services and consultants			2,197				(162	)			2,035				2,083				—			2,083				(48	)		(2.3	)%
Loan expense			2,803				(83	)			2,720				2,961				—			2,961				(241	)		(8.1	)%
FDIC insurance expense			798				(6	)			792				900				—			900				(108	)		(12.0	)%
Other losses			1,925				(1,904	)			21				735				—			735				(714	)		(97.1	)%
Other expense			4,660				(381	)			4,279				3,665				—			3,665				614			16.8	%
Total non–interest expense		$	39,370			$	(2,784	)		$	36,586			$	36,453			$	—		$	36,453			$	133			0.4	%
Annualized non–interest expense to average assets			2.09	%							1.95	%			2.47	%						2.47	%

Total non–interest expense was $2.9 million higher in the fourth quarter of 2021 when compared to the fourth quarter of 2020. The increase in expenses was primarily due to an increase in other losses of $1.2 million, an increase in other expense of $995,000, an increase in data processing of $546,000 and an increase in salaries and employee benefits of $519,000, offset by a decrease in loan expense of $158,000 and a decrease in professional fees of $129,000. Excluding acquisition expenses and non–recurring ESOP settlement expenses, total non–interest expense increased by $133,000 in the fourth quarter when compared to the same prior year period.

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
		Twelve Months Ended
		December 31,												December 31,
			2021												2020										Adjusted
Non–interest Expense		Actual				Acquisition & Non–Recurring Expenses				Adjusted				Actual				Acquisition & Non–Recurring Expenses			Adjusted				Amount Change				Percent Change
Salaries and employee benefits		$	74,051			$	(227	)		$	73,824			$	71,082			$	—		$	71,082			$	2,742			3.9	%
Net occupancy expenses			12,541				(13	)			12,528				12,811				—			12,811				(283	)		(2.2	)%
Data processing			9,962				(18	)			9,944				9,200				—			9,200				744			8.1	%
Professional fees			2,216				(149	)			2,067				2,433				—			2,433				(366	)		(15.0	)%
Outside services and consultants			8,449				(750	)			7,699				7,318				—			7,318				381			5.2	%
Loan expense			11,377				(83	)			11,294				10,628				—			10,628				666			6.3	%
FDIC insurance expense			2,377				(6	)			2,371				1,855				—			1,855				516			27.8	%
Other losses			2,283				(1,905	)			378				1,162				—			1,162				(784	)		(67.5	)%
Other expense			16,023				(674	)			15,349				14,952				—			14,952				397			2.7	%
Total non–interest expense		$	139,279			$	(3,825	)		$	135,454			$	131,441			$	—		$	131,441			$	4,013			3.1	%
Annualized non–interest expense to average assets			2.14	%							2.08	%			2.34	%						2.34	%

Total non–interest expense was $7.8 million higher for the year ended December 31, 2021 when compared to the same prior year period. The year–over–increase was due to increases in salaries and employee benefits, outside services and consultants, other losses, other expense, data processing and loan expense. Excluding acquisition expenses and non–recurring ESOP settlement expenses, total non–interest expense increased $4.0 million for the year ended December 31, 2021 when compared to the same prior year period.
  
Annualized non–interest expense as a percent of average assets was 2.09%, 2.09% and 2.47% for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively. Annualized non–interest expense, excluding acquisition expenses and non–recurring ESOP settlement expenses, as a percent of average assets was 1.95%, 2.05% and 2.47% for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

Annualized non–interest expense as a percent of average assets was 2.14% and 2.34% for the year ended December 31, 2021 and 2020, respectively. Annualized non–interest expense, excluding acquisition expenses and non–recurring ESOP settlement expenses, as a percentage of average assets was 2.08% and 2.34% for the year ended December 31, 2021 and 2020, respectively.

Income tax expense totaled $4.1 million for the fourth and third quarters of 2021. Income tax expense was $2.1 million higher when compared to the fourth quarter of 2020. The increase in income tax expense when compared to the fourth quarter of 2020 was primarily due to timing of certain tax credits.

Income tax expense totaled $15.4 million for the year ended December 31, 2021, an increase of $5.5 million when compared to the year ended December 31, 2020. The increase in income tax expense was primarily due to an increase in income before taxes of $24.1 million.

Capital

The capital resources of the Company and the Company’s wholly–owned subsidiary bank, Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at December 31, 2021. Stockholders’ equity totaled $723.2 million at December 31, 2021 and the ratio of average stockholders’ equity to average assets was 11.61% for the year ended December 31, 2021.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of December 31, 2021.

		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		$	716,171		15.39	%		$	372,279		8.00	%		$	488,616		10.50	%		N/A			N/A
Bank			667,881		14.37	%			371,820		8.00	%			488,013		10.50	%		$	464,775		10.00	%
Tier 1 capital (to risk–weighted assets)
Consolidated			657,976		14.14	%			279,198		6.00	%			395,530		8.50	%		N/A			N/A
Bank			609,686		13.11	%			279,032		6.00	%			395,296		8.50	%			372,043		8.00	%
Common equity tier 1 capital (to risk–weighted assets)
Consolidated			543,726		11.68	%			209,483		4.50	%			325,863		7.00	%		N/A			N/A
Bank			609,686		13.11	%			209,274		4.50	%			325,538		7.00	%			302,285		6.50	%
Tier 1 capital (to average assets)
Consolidated			657,976		9.21	%			285,766		4.00	%			285,766		4.00	%		N/A			N/A
Bank			609,686		8.54	%			285,567		4.00	%			285,567		4.00	%			356,959		5.00	%

Liquidity

The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayments, 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, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $672.7 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank also had approximately $2.0 billion of unpledged investment securities at December 31, 2021.

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 and financial results without giving effect to the purchase accounting impacts and one–time costs of acquisitions and non–recurring items. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this press release for reconciliations of the non–GAAP information identified herein and its most comparable GAAP measures.

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands, Unaudited)
		December 31,			September 30,			June 30,			March 31,			December 31,
		2021			2021			2021			2021			2020
Total stockholders’ equity		$	723,209		$	708,542		$	710,374		$	689,379		$	692,216
Less: Intangible assets			175,513			183,938			172,398			173,296			174,193
Total tangible stockholders’ equity		$	547,696		$	524,604		$	537,976		$	516,083		$	518,023
Common shares outstanding			43,547,942			43,520,694			43,950,720			43,949,189			43,880,562
Book value per common share		$	16.61		$	16.28		$	16.16		$	15.69		$	15.78
Tangible book value per common share		$	12.58		$	12.05		$	12.24		$	11.74		$	11.81

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,
			2021				2021				2021				2021				2020				2021				2020
Non–interest expense as reported		$	39,370			$	34,349			$	33,388			$	32,172			$	36,453			$	139,279			$	131,441
Net interest income as reported			49,976				46,544				42,632				42,538				43,622				181,690				170,940
Non–interest income as reported		$	12,828			$	16,044			$	15,207			$	13,873			$	19,733			$	57,952			$	59,621
Non–interest expense / (Net interest income + Non–interest income) (“Efficiency Ratio”)			62.69	%			54.88	%			57.73	%			57.03	%			57.54	%			58.12	%			57.01	%
Non–interest expense as reported		$	39,370			$	34,349			$	33,388			$	32,172			$	36,453			$	139,279			$	131,441
Acquisition expenses			(884	)			(799	)			(242	)			—				—				(1,925	)			—
ESOP settlement expenses			(1,900	)			—				—				—				—				(1,900	)			—
Non–interest expense excluding acquisition expenses and ESOP settlement expenses			36,586				33,550				33,146				32,172				36,453				135,454				131,441
Net interest income as reported			49,976				46,544				42,632				42,538				43,622				181,690				170,940
Prepayment penalties on borrowings			—				—				125				—				3,804				125				3,804
Net interest income excluding prepayment penalties on borrowings			49,976				46,544				42,757				42,538				47,426				181,815				174,744
Non–interest income as reported			12,828				16,044				15,207				13,873				19,733				57,952				59,621
Gain on sale of ESOP trustee accounts			—				(2,329	)			—				—				—				(2,329	)			—
(Gain) / loss on sale of investment securities			—				—				—				(914	)			(2,622	)			(914	)			(4,297	)
Death benefit on BOLI			—				(517	)			(266	)			—				—				(783	)			(264	)
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI		$	12,828			$	13,198			$	14,941			$	12,959			$	17,111			$	53,926			$	55,060
Adjusted efficiency ratio			58.25	%			56.16	%			57.45	%			57.97	%			56.48	%			57.46	%			57.20	%

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,
			2021				2021				2021				2021				2020				2021				2020
Average assets		$	7,461,343			$	6,507,673			$	6,142,507			$	5,936,149			$	5,864,086			$	6,514,251			$	5,628,783
Return on average assets (“ROAA”) as reported			1.14	%			1.41	%			1.45	%			1.40	%			1.49	%			1.34	%			1.22	%
Acquisition expenses			0.05				0.05				0.02				—				—				0.03				—
Tax effect			(0.01	)			(0.01	)			—				—				—				(0.01	)			—
ROAA excluding acquisition expenses			1.18				1.45				1.47				1.40				1.49				1.36				1.22
Credit loss expense acquired loans			—				0.12				—				—				—				0.03				—
Tax effect			—				(0.03	)			—				—				—				(0.01	)			—
ROAA excluding credit loss expense on acquired loans			1.18				1.54				1.47				1.40				1.49				1.38				1.22
Gain on sale of ESOP trustee accounts			—				(0.14	)			—				—				—				(0.04	)			—
Tax effect			—				0.03				—				—				—				0.01				—
ROAA excluding gain on sale of ESOP trustee accounts			1.18				1.43				1.47				1.40				1.49				1.35				1.22
ESOP settlement expenses			0.10				—				—				—				—				0.03				—
Tax effect			(0.02	)			—				—				—				—				—				—
ROAA excluding ESOP settlement expenses			1.26				1.43				1.47				1.40				1.49				1.38				1.22
(Gain) / loss on sale of investment securities			—				—				—				(0.06	)			(0.18	)			(0.01	)			(0.08	)
Tax effect			—				—				—				0.01				0.04				—				0.02
ROAA excluding (gain) / loss on sale of investment securities			1.26				1.43				1.47				1.35				1.35				1.37				1.16
Death benefit on BOLI			—				(0.03	)			(0.02	)			—				—				(0.01	)			—
ROAA excluding death benefit on BOLI			1.26				1.40				1.45				1.35				1.35				1.36				1.16
Prepayment penalties on borrowings			—				—				0.01				—				0.26				—				0.07
Tax effect			—				—				—				—				(0.05	)			—				(0.01	)
ROAA excluding prepayment penalties on borrowings			1.26				1.40				1.46				1.35				1.56				1.36				1.22
Adjusted ROAA			1.26	%			1.40	%			1.46	%			1.35	%			1.56	%			1.36	%			1.22	%

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,
			2021				2021				2021				2021				2020				2021				2020
Average common equity		$	719,643			$	724,412			$	706,652			$	697,401			$	680,857			$	712,122			$	665,466
Return on average common equity (“ROACE”) as reported			11.81	%			12.64	%			12.59	%			11.88	%			12.79	%			12.23	%			10.29	%
Acquisition expenses			0.49				0.44				0.14				—				—				0.27				—
Tax effect			(0.10	)			(0.09	)			(0.03	)			—				—				(0.06	)			—
ROACE excluding acquisition expenses			12.20				12.99				12.70				11.88				12.79				12.44				10.29
Credit loss expense acquired loans			—				1.11				—				—				—				0.29				—
Tax effect			—				(0.23	)			—				—				—				(0.06	)			—
ROACE excluding credit loss expense acquired loans			12.20				13.87				12.70				11.88				12.79				12.67				10.29
Gain on sale of ESOP trustee accounts			—				(1.28	)			—				—				—				(0.33	)			—
Tax effect			—				0.27				—				—				—				0.07				—
ROACE excluding gain on sale of ESOP trustee accounts			12.20				12.86				12.70				11.88				12.79				12.41				10.29
ESOP settlement expenses			1.05				—				—				—				—				0.27				—
Tax effect			(0.17	)			—				—				—				—				(0.04	)			—
ROACE excluding ESOP settlement expenses			13.08				12.86				12.70				11.88				12.79				12.64				10.29
(Gain) / loss on sale of investment securities			—				—				—				(0.53	)			(1.53	)			(0.13	)			(0.65	)
Tax effect			—				—				—				0.11				0.32				0.03				0.14
ROACE excluding (gain) / loss on sale of investment securities			13.08				12.86				12.70				11.46				11.58				12.54				9.78
Death benefit on BOLI			—				(0.28	)			(0.15	)			—				—				(0.11	)			(0.04	)
ROACE excluding death benefit on BOLI			13.08				12.58				12.55				11.46				11.58				12.43				9.74
Prepayment penalties on borrowings			—				—				0.07				—				2.22				0.02				0.57
Tax effect			—				—				(0.01	)			—				(0.47	)			—				(0.12	)
ROACE excluding prepayment penalties on borrowings			13.08	%			12.58	%			12.61	%			11.46	%			13.33	%			12.45	%			10.19	%
Adjusted ROACE			13.08	%			12.58	%			12.61	%			11.46	%			13.33	%			12.45	%			10.19	%

Earnings Conference Call

As previously announced, Horizon will host a conference call to review its fourth quarter and full year 2021 financial results and operating performance.

Participants may access the live conference call on January 27, 2022 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 833–974–2379 from the United States, 866–450–4696 from Canada or 412–317–5772 from international locations and requesting the “Horizon Bancorp Call.” Participants are asked to dial in approximately 10 minutes prior to the call.

A telephone replay of the call will be available approximately one hour after the end of the conference through February 3, 2022. The replay may be accessed by dialing 877–344–7529 from the United States, 855–669–9658 from Canada or 412–317–0088 from other international locations, and entering the access code 8295135.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. (NASDAQ GS: HBNC) is the $7.4 billion–asset bank holding company for Horizon Bank, which serves customers across diverse and economically attractive Midwestern markets through convenient digital and virtual tools, as well as its Indiana and Michigan branches. Horizon's retail offerings include prime residential, indirect auto, and other secured consumer lending to in–market customers, as well as a range of personal banking and wealth management solutions. Horizon also provides a comprehensive array of in–market business banking and treasury management services, with commercial lending representing over half of total loans. More information on Horizon, headquartered in Northwest Indiana's Michigan City, is available at horizonbank.com and investor.horizonbank.com. 

Forward Looking Statements

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

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

Contact:	Mark E. Secor
	Chief Financial Officer
Phone:	(219) 873-2611
Fax:	(219) 874-9280
Date:	January 26, 2022

Financial Highlights
(Dollars in Thousands, Unaudited)
		December 31,			September 30,			June 30,			March 31,			December 31,
		2021			2021			2021			2021			2020
Balance sheet:
Total assets		$	7,355,432		$	7,534,240		$	6,109,227		$	6,055,528		$	5,886,614
Interest earning deposits & federal funds sold			502,364			872,540			209,304			444,239			158,979
Interest earning time deposits			4,782			5,767			6,994			7,983			8,965
Investment securities			2,713,255			2,438,874			1,844,470			1,423,825			1,302,701
Commercial loans			2,157,488			2,173,200			2,104,627			2,177,858			2,192,271
Mortgage warehouse loans			109,031			169,909			205,311			266,246			395,626
Residential mortgage loans			594,382			603,540			559,437			581,929			624,286
Consumer loans			727,259			713,432			650,144			638,403			655,200
Earning assets			6,845,580			7,006,513			5,610,538			5,571,304			5,374,589
Non–interest bearing deposit accounts			1,360,338			1,324,757			1,102,950			1,133,412			1,053,242
Interest bearing transaction accounts			3,711,767			3,875,882			3,105,328			2,947,438			2,802,673
Time deposits			730,886			779,260			573,348			640,966			675,218
Borrowings			656,282			670,753			439,094			481,488			475,000
Subordinated notes			58,750			58,713			58,676			58,640			58,603
Junior subordinated debentures issued to capital trusts			56,785			56,722			56,662			56,604			56,548
Total stockholders’ equity			723,209			708,542			710,374			689,379			692,216

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,
			2021				2021				2021				2021				2020
Income statement:
Net interest income		$	49,976			$	46,544			$	42,632			$	42,538			$	43,622
Credit loss expense (recovery)			(2,071	)			1,112				(1,492	)			367				3,042
Non–interest income			12,828				16,044				15,207				13,873				19,733
Non–interest expense			39,370				34,349				33,388				32,172				36,453
Income tax expense			4,080				4,056				3,770				3,450				1,967
Net income		$	21,425			$	23,071			$	22,173			$	20,422			$	21,893
Per share data:
Basic earnings per share		$	0.49			$	0.53			$	0.50			$	0.46			$	0.50
Diluted earnings per share			0.49				0.52				0.50				0.46				0.50
Cash dividends declared per common share			0.15				0.15				0.13				0.13				0.12
Book value per common share			16.61				16.28				16.16				15.69				15.78
Tangible book value per common share			12.58				12.05				12.24				11.74				11.81
Market value – high			21.14				18.47				19.13				19.94				15.86
Market value – low		$	18.01			$	15.83			$	16.98			$	15.43			$	10.16
Weighted average shares outstanding – Basis			43,534,298				43,810,729				43,950,501				43,919,549				43,862,435
Weighted average shares outstanding – Diluted			43,733,416				43,958,870				44,111,103				44,072,581				43,903,881
Key ratios:
Return on average assets			1.14	%			1.41	%			1.45	%			1.40	%			1.49	%
Return on average common stockholders’ equity			11.81				12.64				12.59				11.88				12.79
Net interest margin			2.97				3.17				3.14				3.29				3.34
Allowance for credit losses to total loans			1.51				1.55				1.58				1.56				1.47
Average equity to average assets			9.64				11.13				11.50				11.75				11.61
Efficiency ratio			62.69				54.88				57.73				57.03				57.54
Annualized non–interest expense to average assets			2.09				2.09				2.18				2.20				2.47
Bank only capital ratios:
Tier 1 capital to average assets			8.54				8.38				8.79				8.81				8.71
Tier 1 capital to risk weighted assets			13.11				11.86				12.80				12.71				11.29
Total capital to risk weighted assets			14.37				12.97				14.09				13.86				12.21

Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
		Twelve Months Ended
		December 31,				December 31,
			2021				2020
Income statement:
Net interest income		$	181,690			$	170,940
Credit loss expense (recovery)			(2,084	)			20,751
Non–interest income			57,952				59,621
Non–interest expense			139,279				131,441
Income tax expense			15,356				9,870
Net income		$	87,091			$	68,499
Per share data:
Basic earnings per share		$	1.99			$	1.56
Diluted earnings per share			1.98				1.55
Cash dividends declared per common share			0.56				0.48
Book value per common share			16.61				15.78
Tangible book value per common share			12.58				11.81
Market value – high			21.14				18.79
Market value – low		$	15.43			$	7.97
Weighted average shares outstanding – Basis			43,802,733				44,044,737
Weighted average shares outstanding – Diluted			43,955,280				44,123,208
Key ratios:
Return on average assets			1.34	%			1.22	%
Return on average common stockholders’ equity			12.23				10.29
Net interest margin			3.13				3.44
Allowance for credit losses to total loans			1.51				1.47
Average equity to average assets			10.93				11.82
Efficiency ratio			58.12				57.01
Annualized non–interest expense to average assets			2.14				2.34
Bank only capital ratios:
Tier 1 capital to average assets			8.54				8.71
Tier 1 capital to risk weighted assets			13.11				11.29
Total capital to risk weighted assets			14.37				12.21

Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
		December 31,				September 30,				June 30,				March 31,				December 31,
			2021				2021				2021				2021				2020
Loan data:
Substandard loans		$	56,968			$	91,317			$	82,488			$	86,472			$	98,874
30 to 89 days delinquent			8,536				3,997				3,336				5,099				6,938
Non–performing loans:
90 days and greater delinquent – accruing interest			146				200				—				267				262
Trouble debt restructures – accruing interest			2,390				2,433				1,853				1,828				1,793
Trouble debt restructures – non–accrual			1,522				1,604				2,294				2,271				2,610
Non–accrual loans			14,961				25,137				18,175				20,700				22,142
Total non–performing loans		$	19,019			$	29,374			$	22,322			$	25,066			$	26,807
Non–performing loans to total loans			0.53	%			0.80	%			0.63	%			0.68	%			0.69	%

Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
		December 31,			September 30,			June 30,			March 31,			December 31,
		2021			2021			2021			2021			2020
Commercial		$	40,775		$	43,121		$	41,766		$	42,980		$	42,210
Residential mortgage			3,856			3,737			4,108			4,229			4,620
Mortgage warehouse			1,059			1,054			1,155			1,163			1,267
Consumer			8,596			8,867			8,620			8,814			8,930
Total		$	54,286		$	56,779		$	55,649		$	57,186		$	57,027

Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
		December 31,				September 30,				June 30,				March 31,				December 31,
			2021				2021				2021				2021				2020
Commercial		$	926			$	(25	)		$	40			$	158			$	23
Residential mortgage			126				(29	)			(23	)			(65	)			(10	)
Mortgage warehouse			—				—				—				—				—
Consumer			360				36				22				115				216
Total		$	1,412			$	(18	)		$	39			$	208			$	229
Percent of net charge–offs (recoveries) to average loans outstanding for the period			0.04	%			0.00	%			0.00	%			0.01	%			0.01	%

Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
		December 31,				September 30,				June 30,				March 31,				December 31,
			2021				2021				2021				2021				2020
Commercial		$	7,509			$	16,121			$	10,345			$	12,802			$	14,348
Residential mortgage			8,005				8,641				7,841				7,916				7,994
Mortgage warehouse			—				—				—				—				—
Consumer			3,505				4,612				4,136				4,348				4,465
Total		$	19,019			$	29,374			$	22,322			$	25,066			$	26,807
Non–performing loans to total loans			0.53	%			0.80	%			0.63	%			0.68	%			0.69	%

Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
		December 31,			September 30,			June 30,			March 31,			December 31,
		2021			2021			2021			2021			2020
Commercial		$	2,861		$	2,861		$	1,400		$	1,696		$	1,908
Residential mortgage			695			117			37			37			—
Mortgage warehouse			—			—			—			—			—
Consumer			5			29			46			—			—
Total		$	3,561		$	3,007		$	1,483		$	1,733		$	1,908

Average Balance Sheets
(Dollars in Thousands, Unaudited)
		Three Months Ended										Three Months Ended
		December 31, 2021										December 31, 2020
		Average Balance				Interest			Average Rate			Average Balance				Interest			Average Rate
Assets
Interest earning assets
Federal funds sold		$	654,225			$	251		0.15	%		$	112,139			$	29		0.10	%
Interest earning deposits			22,537				32		0.56	%			28,507				52		0.73	%
Investment securities – taxable			1,405,689				6,208		1.75	%			408,412				1,489		1.45	%
Investment securities – non–taxable (1)			1,224,911				6,456		2.65	%			866,182				4,919		2.86	%
Loans receivable (2) (3)			3,630,896				41,171		4.52	%			3,950,648				46,745		4.72	%
Total interest earning assets			6,938,258				54,118		3.20	%			5,365,888				53,234		4.05	%
Non–interest earning assets
Cash and due from banks			102,273										79,753
Allowance for credit losses			(56,540	)									(56,657	)
Other assets			477,352										475,102
Total average assets		$	7,461,343									$	5,864,086
Liabilities and Stockholders’ Equity
Interest bearing liabilities
Interest bearing deposits		$	4,543,989			$	1,663		0.15	%		$	3,450,824			$	2,718		0.31	%
Borrowings			663,506				1,061		0.63	%			511,306				5,456		4.25	%
Subordinated notes			58,728				881		5.95	%			58,581				871		5.91	%
Junior subordinated debentures issued to capital trusts			56,745				537		3.75	%			56,512				567		3.99	%
Total interest bearing liabilities			5,322,968				4,142		0.31	%			4,077,223				9,612		0.94	%
Non–interest bearing liabilities
Demand deposits			1,366,621										1,037,232
Accrued interest payable and other liabilities			52,111										68,774
Stockholders’ equity			719,643										680,857
Total average liabilities and stockholders’ equity		$	7,461,343									$	5,864,086
Net interest income / spread						$	49,976		2.89	%						$	43,622		3.11	%
Net interest income as a percent of average interest earning assets (1)									2.97	%									3.34	%
(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, 2021										December 31, 2020
		Average Balance				Interest			Average Rate			Average Balance				Interest			Average Rate
Assets
Interest earning assets
Federal funds sold		$	398,528			$	535		0.13	%		$	61,408			$	154		0.25	%
Interest earning deposits			25,993				160		0.62	%			25,943				268		1.03	%
Investment securities – taxable			884,244				14,437		1.63	%			459,551				8,071		1.76	%
Investment securities – non–taxable (1)			1,086,942				23,246		2.71	%			706,092				17,213		3.09	%
Loans receivable (2) (3)			3,626,033				161,617		4.47	%			3,867,112				179,672		4.66	%
Total interest earning assets			6,021,740				199,995		3.43	%			5,120,106				205,378		4.11	%
Non–interest earning assets
Cash and due from banks			89,993										84,065
Allowance for credit losses			(56,798	)									(46,329	)
Other assets			459,316										470,941
Total average assets		$	6,514,251									$	5,628,783
Liabilities and Stockholders’ Equity
Interest bearing liabilities
Interest bearing deposits		$	3,897,750			$	7,867		0.20	%		$	3,327,917			$	18,556		0.56	%
Borrowings			548,889				4,701		0.86	%			559,953				11,430		2.04	%
Subordinated notes			58,672				3,522		6.00	%			30,610				1,824		5.96	%
Junior subordinated debentures issued to capital trusts			56,657				2,215		3.91	%			56,427				2,628		4.66	%
Total interest bearing liabilities			4,561,968				18,305		0.40	%			3,974,907				34,438		0.87	%
Non–interest bearing liabilities
Demand deposits			1,188,275										919,449
Accrued interest payable and other liabilities			51,886										68,961
Stockholders’ equity			712,122										665,466
Total average liabilities and stockholders’ equity		$	6,514,251									$	5,628,783
Net interest income / spread						$	181,690		3.03	%						$	170,940		3.24	%
Net interest income as a percent of average interest earning assets (1)									3.13	%									3.44	%
(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, 2021			December 31, 2020
		(Unaudited)
Assets
Cash and due from banks		$	593,508		$	249,711
Interest earning time deposits			4,782			8,965
Investment securities, available for sale			1,160,812			1,134,025
Investment securities, held to maturity (fair value $1,558,981 and $179,990)			1,552,443			168,676
Loans held for sale			12,579			13,538
Loans, net of allowance for credit losses of $54,286 and $57,027			3,533,874			3,810,356
Premises and equipment, net			93,441			92,416
Federal Home Loan Bank stock			24,440			23,023
Goodwill			154,572			151,238
Other intangible assets			20,941			22,955
Interest receivable			26,137			21,396
Cash value of life insurance			97,150			96,751
Other assets			80,753			93,564
Total assets		$	7,355,432		$	5,886,614
Liabilities
Deposits
Non–interest bearing		$	1,360,338		$	1,053,242
Interest bearing			4,442,653			3,477,891
Total deposits			5,802,991			4,531,133
Borrowings			656,282			475,000
Subordinated notes			58,750			58,603
Junior subordinated debentures issued to capital trusts			56,785			56,548
Interest payable			2,235			2,712
Other liabilities			55,180			70,402
Total liabilities			6,632,223			5,194,398
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 43,636,784 and 43,905,631 shares, Outstanding 43,547,942 and 43,880,562 shares			—			—
Additional paid–in capital			352,122			362,945
Retained earnings			363,742			301,419
Accumulated other comprehensive income			7,345			27,852
Total stockholders’ equity			723,209			692,216
Total liabilities and stockholders’ equity		$	7,355,432		$	5,886,614

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,
		2021				2021			2021				2021			2020
Interest income
Loans receivable		$	41,171			$	40,392		$	39,236			$	40,818		$	46,745
Investment securities – taxable			6,491				4,565			2,528				1,548			1,570
Investment securities – non–taxable			6,456				5,911			5,656				5,223			4,919
Total interest income			54,118				50,868			47,420				47,589			53,234
Interest expense
Deposits			1,663				1,808			2,053				2,343			2,718
Borrowed funds			1,061				1,075			1,296				1,269			5,456
Subordinated notes			881				880			881				880			871
Junior subordinated debentures issued to capital trusts			537				561			558				559			567
Total interest expense			4,142				4,324			4,788				5,051			9,612
Net interest income			49,976				46,544			42,632				42,538			43,622
Credit loss expense (recovery)			(2,071	)			1,112			(1,492	)			367			3,042
Net interest income after credit loss expense (recovery)			52,047				45,432			44,124				42,171			40,580
Non–interest Income
Service charges on deposit accounts			2,510				2,291			2,157				2,234			2,360
Wire transfer fees			205				210			222				255			301
Interchange fees			3,082				2,587			2,892				2,340			2,645
Fiduciary activities			1,591				2,124			1,961				1,743			2,747
Gains / (losses) on sale of investment securities			—				—			—				914			2,622
Gain on sale of mortgage loans			4,167				4,088			5,612				5,296			7,815
Mortgage servicing income net of impairment			300				336			1,503				213			327
Increase in cash value of bank owned life insurance			547				534			502				511			566
Death benefit on bank owned life insurance			—				517			266				—			—
Other income			426				3,357			92				367			350
Total non–interest income			12,828				16,044			15,207				13,873			19,733
Non–interest expense
Salaries and employee benefits			20,549				18,901			17,730				16,871			20,030
Net occupancy expenses			3,204				2,935			3,084				3,318			3,262
Data processing			2,672				2,526			2,388				2,376			2,126
Professional fees			562				522			588				544			691
Outside services and consultants			2,197				2,330			2,220				1,702			2,083
Loan expense			2,803				2,645			3,107				2,822			2,961
FDIC insurance expense			798				279			500				800			900
Other losses			1,925				69			6				283			735
Other expenses			4,660				4,142			3,765				3,456			3,665
Total non–interest expense			39,370				34,349			33,388				32,172			36,453
Income before income taxes			25,505				27,127			25,943				23,872			23,860
Income tax expense			4,080				4,056			3,770				3,450			1,967
Net income		$	21,425			$	23,071		$	22,173			$	20,422		$	21,893
Basic earnings per share		$	0.49			$	0.52		$	0.50			$	0.46		$	0.50
Diluted earnings per share			0.49				0.52			0.50				0.46			0.50

Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
		Twelve Months Ended
		December 31,				December 31,
			2021				2020
Interest income
Loans receivable		$	161,617			$	179,672
Investment securities – taxable			15,132				8,493
Investment securities – non–taxable			23,246				17,213
Total interest income			199,995				205,378
Interest expense
Deposits			7,867				18,556
Borrowed funds			4,701				11,430
Subordinated notes			3,522				1,824
Junior subordinated debentures issued to capital trusts			2,215				2,628
Total interest expense			18,305				34,438
Net interest income			181,690				170,940
Credit loss expense (recovery)			(2,084	)			20,751
Net interest income after credit loss expense (recovery)			183,774				150,189
Non–interest Income
Service charges on deposit accounts			9,192				8,848
Wire transfer fees			892				1,000
Interchange fees			10,901				9,306
Fiduciary activities			7,419				9,145
Gains / (losses) on sale of investment securities			914				4,297
Gain on sale of mortgage loans			19,163				26,721
Mortgage servicing income net of impairment			2,352				(3,716	)
Increase in cash value of bank owned life insurance			2,094				2,243
Death benefit on bank owned life insurance			783				264
Other income			4,242				1,513
Total non–interest income			57,952				59,621
Non–interest expense
Salaries and employee benefits			74,051				71,082
Net occupancy expenses			12,541				12,811
Data processing			9,962				9,200
Professional fees			2,216				2,433
Outside services and consultants			8,449				7,318
Loan expense			11,377				10,628
FDIC insurance expense			2,377				1,855
Other losses			2,283				1,162
Other expenses			16,023				14,952
Total non–interest expense			139,279				131,441
Income before income taxes			102,447				78,369
Income tax expense			15,356				9,870
Net income		$	87,091			$	68,499
Basic earnings per share		$	1.99			$	1.56
Diluted earnings per share			1.98				1.55

FAQ

What were Horizon Bancorp's earnings for 2021?

Horizon Bancorp reported net income of $87.1 million for 2021, translating to $1.98 per diluted share.

How did Horizon Bancorp perform in the fourth quarter of 2021?

In Q4 2021, Horizon Bancorp reported net income of $21.4 million and an adjusted EPS of $0.54.

What was the net interest income for Horizon Bancorp in Q4 2021?

Horizon Bancorp achieved a net interest income of $50.0 million in Q4 2021.

What is the outlook for Horizon Bancorp in 2022?

Horizon Bancorp enters 2022 with a strong pipeline to support loan growth and is well-positioned for increasing short-term interest rates.