Horizon Bancorp, Inc. Announces Record Earnings for 2022

MICHIGAN CITY, Ind., Jan. 25, 2023 (GLOBE NEWSWIRE) — (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and twelve months ended December 31, 2022.

“Horizon closed 2022 with record annual earnings reflecting continued strong growth in commercial and consumer loans through the fourth quarter, solid asset quality metrics and continued disciplined expense management,” Chairman and CEO Craig M. Dwight said. “We have continued to produce consistent and strong returns with ROAA of 1.24% and ROATE of 18.33% for 2022. As we enter 2023, we believe we are well–positioned with talent, technology and solid pipelines to continue to support our loan growth goals for the year, and focus on reinvesting our cash flows into higher yielding assets. Our well diversified balance sheet and low credit risk profile has performed well through previous economic cycles and, given the strong markets we operate in, we expect similar performance throughout the current economic cycle.”

Fourth
Quarter and Full Year
2022
Highlights

  • Return on average assets (“ROAA”) was 1.24% for the year ended 2022.
  • Return on average tangible equity was 18.33% for the year ended 2022.
  • Total loans grew 13.4% year–to–date and 12.8% annualized during the fourth quarter.
  • Commercial loans grew to a record $2.42 billion, up 13.4% year–to–date and 10.8% annualized during the fourth quarter.
  • Consumer loans grew to a record $967.8 million, up 30.6% year–to–date and 21.0% annualized during the fourth quarter.
  • Asset quality remained solid with total loan delinquency at 0.26% of total loans, net charge–offs to average loans of 0.01% and non–performing loans to total loans at 0.52%.
  • Total deposits remained strong increasing $26.9 million during the quarter at an average cost of 71 basis points and $54.8 million year–to–date at an average cost of 30 basis points.
  • Fourth quarter net interest income was $48.8 million compared to $51.9 million in the previous quarter. Lower loan fees, less purchase accounting accretion and higher dealer reserve amortization represented $2.2 million of this decrease.
  • An accounting revision was made to amounts reported in previously issued financial statements covering the third quarter of 2022 related to immaterial errors discovered in the fourth quarter of 2022. The errors relate to the inclusion of the dealer reserve amortization expense in loan expense in non–interest expenses for the third quarter of 2022 rather than loan interest income. The previously issued financial statements for the three and nine months dated September 30, 2022 have been revised to correct this error, which resulted in lowering both interest income and non–interest expense by $1.5 million for the quarter and lowering net interest margin by ten basis points from the historical presentation of these amounts (See Exhibit 1 – Revision of Previously Issued Financial Statements for details). All periods presented reflect this adjustment, and there was no impact to net income.
  • Non–interest income increased by 4.8% from $10.2 million to $10.7 million from the third quarter to the fourth quarter of 2022.
  • Non-interest expense was $35.7 million in the quarter, or 1.84% of average assets on an annualized basis, compared to $36.8 million, or 1.91%, in the third quarter of 2022. Year–to–date non–interest expense continued to be well managed at $143.2 million, or 1.90% of average assets.
  • Net income totaled $21.2 million, compared to $23.8 million in the third quarter and $21.4 million in the prior year period. Diluted earnings per share (“EPS”) was $0.48 compared to $0.55 for the third quarter of 2022 and $0.49 for the fourth quarter of 2021.
  • The Bank’s capital position continues to be robust with leverage and risk based capital ratios of 9.55% and 13.59%, respectively. The annualized dividend yield was 4.24% as of December 31, 2022.

Summary

    For the Three Months Ended
    December 31,   September 30,   December 31,
Net Interest Income and Net Interest Margin     2022       2022       2021  
Net interest income   $ 48,782     $ 51,861     $ 48,477  
Net interest margin     2.85 %     3.04 %     2.87 %
Adjusted net interest margin     2.83 %     2.99 %     2.77 %

“Horizon’s net interest income of approximately $48.8 million in the fourth quarter was a reduction from the third quarter due to rapidly rising short term interest rates, some lag in repricing adjustable rate loans and lower fee and non–interest related income. In addition, Horizon’s deposit betas increased at a faster pace in the fourth quarter due to the magnitude and velocity of the Federal Reserve Bank’s Open Market Committee raising the targeted federal funds rate. We expect funding costs to stabilize in 2023 as the Federal Reserve Bank tempers the velocity of future rate increases,” Mr. Dwight commented.

    For the Three Months Ended
    December 31,   September 30,   December 31,
Asset Yields and Funding Costs   2022     2022     2021  
Interest earning assets   3.88 %   3.58 %   3.11 %
Interest bearing liabilities   1.29 %   0.69 %   0.31 %

    For the Three Months Ended
Non–interest Income and   December 31,   September 30,   December 31,
Mortgage Banking Income     2022     2022     2021
Total non–interest income   $ 10,674   $ 10,188   $ 12,828
Gain on sale of mortgage loans     1,196     1,441     4,167
Mortgage servicing income net of impairment     637     355     300

    For the Three Months Ended
    December 31,   September 30,   December 31,
Non–interest Expense     2022       2022       2021  
Total non–interest expense   $ 35,711     $ 36,816     $ 37,871  
Annualized non–interest expense to average assets     1.84 %     1.91 %     2.01 %

    For the Three Months Ended
    December 31,   September 30,   December 31,
Credit Quality   2022     2022     2021  
Allowance for credit losses to total loans   1.21 %   1.27 %   1.48 %
Non–performing loans to total loans   0.52 %   0.47 %   0.52 %
Percent of net charge–offs to average loans outstanding for the period   0.01 %   0.00 %   0.04 %

Allowance for   December 31,   Net Reserve   December 31,
Credit Losses     2022     4Q22   3Q22   2Q22   1Q22     2021  
Commercial   $ 32,445     $ (1,361 )   $ (996 )   $ (2,987 )   $ (2,986 )   $ 40,775  
Retail Mortgage     5,577       440       715       71       495       3,856  
Warehouse     1,020       (4 )     (43 )     12       (4 )     1,059  
Consumer     11,422       20       (657 )     2,746       717       8,596  
Allowance for Credit Losses (“ACL”)   $ 50,464     $ (905 )   $ (981 )   $ (158 )   $ (1,778 )   $ 54,286  
ACL / Total Loans     1.21 %                     1.48 %
Acquired Loan Discount (“ALD”)   $ 6,279     $ (308 )   $ (619 )   $ (1,122 )   $ (769 )   $ 9,097  

“We continued to report solid asset quality metrics, including low net charge–offs and modest levels of non–performing loans to total loans. Asset quality continued to remain a hallmark of our franchise and a credit to our seasoned loan underwriters”, said Mr. Dwight.

Exhibit 1 – Revision of Previously Issued Financial Statements

We have revised amounts reported in previously issued financial statements for our third quarter 2022 results reflected in this press release related to immaterial errors. Subsequent to the third quarter of 2022, the Company’s management determined that the dealer reserve amortization expense was incorrectly included in loan expense in non–interest expenses rather than loan interest income. In addition, the dealer reserve asset was incorrectly included with other assets on the balance sheet rather than included with loans. As a result, loan interest income for the three and nine months ended September 30, 2022 has been revised to include dealer reserve amortization expense, and we have reversed the impact of the inclusion of the dealer reserve amortization expense in loan expense in non–interest expenses for the three and nine months ended September 30, 2022 and for all other prior periods presented. This revision for the third quarter reduced both loan interest income and loan expense by $1.5 million, and lowered the net interest margin by ten basis points from the amounts previously reported in the interim condensed consolidated statements of income for the three and nine months ended September 30, 2022. Our financial statements for the quarter and year ended December 31, 2022 and December 31, 2021 set forth in this press release reflect the inclusion of the dealer reserve amortization expense in loan interest income for those periods.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our Quarterly Reports on Form 10–Q for the quarterly period ended September 30, 2022.

    Three Months Ended
    December 31,   December 31,
      2022       2021  
    Without

Dealer
Reserve
Change
  Dealer
Reserve


Change
  Actual   Pre

Revision
  Revision   Post

Revision
Balance Sheet                        
Loans, net of allowance for credit losses   $ 4,089,370     $ 18,164     $ 4,107,534     $ 3,590,331     $ 13,917     $ 3,604,248  
Other assets     157,445       (18,164 )     139,281       80,753       (13,917 )     66,836  
Total assets     7,872,518             7,872,518       7,411,889             7,411,889  
                         
Income Statement                        
Interest income     69,211       (2,024 )     67,187       54,118       (1,499 )     52,619  
Net interest income     50,806       (2,024 )     48,782       49,976       (1,499 )     48,477  
Non–interest expense     37,735       (2,024 )     35,711       39,370       (1,499 )     37,871  
Net income     21,165             21,165       21,425             21,425  
                         
Average Balance Sheet                        
Loans     4,019,744       18,912       4,038,656       3,630,896       13,792       3,644,688  
Interest earning assets     7,073,068       18,912       7,091,980       6,938,258       13,792       6,952,050  
Other assets     599,786       (18,912 )     580,874       477,352       (13,792 )     463,560  
Total assets   $ 7,718,366     $     $ 7,718,366     $ 7,461,343     $     $ 7,461,343  
                         
Other Financial Information                        
Average rate on loans     5.22 %     (0.20 )%     5.02 %     4.52 %     (0.18 )%     4.34 %
Average rate on interest earning assets     4.01       (0.13 )     3.88       3.20       (0.09 )     3.11  
Net interest spread     2.72       (0.13 )     2.59       2.89       (0.09 )     2.80  
Net interest margin     2.97       (0.12 )     2.85       2.97       (0.10 )     2.87  
Efficiency ratio     61.38       (1.32 )     60.06       62.69       (0.92 )     61.77  
Non–interest expense to average assets     1.94 %     (0.10 )%     1.84 %     2.09 %     (0.08 )%     2.01 %

    Twelve Months Ended
    December 31,   December 31,
      2022       2021  
    Without

Dealer
Reserve
Change
  Dealer
Reserve

Change
  Actual   Pre

Revision
  Revision   Post

Revision
Balance Sheet                        
Loans, net of allowance for credit losses   $ 4,089,370     $ 18,164     $ 4,107,534     $ 3,590,331     $ 13,917     $ 3,604,248  
Other assets     157,445       (18,164 )     139,281       80,753       (13,917 )     66,836  
Total assets     7,872,518             7,872,518       7,411,889             7,411,889  
                         
Income Statement                        
Interest income     241,895       (5,862 )     236,033       199,995       (5,885 )     194,110  
Net interest income     205,380       (5,862 )     199,518       181,690       (5,885 )     175,805  
Non–interest expense     149,063       (5,862 )     143,201       139,279       (5,885 )     133,394  
Net income     93,408             93,408       87,091             87,091  
                         
Average Balance Sheet                        
Loans     3,828,090       17,047       3,845,137       3,626,033       13,421       3,639,454  
Interest earning assets     6,960,360       17,047       6,977,407       6,021,740       13,421       6,035,161  
Other assets     526,276       (17,047 )     509,229       459,316       (13,421 )     445,895  
Total assets   $ 7,533,915     $     $ 7,533,915     $ 6,514,251         $ 6,514,251  
                         
Other Financial Information                        
Average rate on loans     4.70 %     (0.17 )%     4.53 %     4.47 %     (0.17 )%     4.30 %
Average rate on interest earning assets     3.60       (0.10 )     3.50       3.43       (0.10 )     3.33  
Net interest spread     2.93       (0.10 )     2.83       3.03       (0.10 )     2.93  
Net interest margin     3.07       (0.09 )     2.98       3.13       (0.10 )     3.03  
Efficiency ratio     58.96       (0.98 )     57.98       58.12       (1.05 )     57.07  
Non–interest expense to average assets     1.98 %     (0.08 )%     1.90 %     2.14 %     (0.09 )%     2.05 %

Income Statement

Net income for the fourth quarter of 2022 was $21.2 million, or $0.48 diluted earnings per share, compared to $23.8 million, or $0.55, for the linked quarter and $21.4 million, or $0.49, for the prior year period.

The change in net income for the fourth quarter of 2022 when compared to the third quarter of 2022 reflects an increase in non–interest income of $486,000 and a decrease in non–interest expense of $1.1 million, offset by a decrease in net interest income of $3.1 million and an increase in credit loss expense of $532,000.

Non–interest expense of $35.7 million in the fourth quarter of 2022 reflected a $635,000 decrease in salaries and employee benefits, a $400,000 decrease in other expense, a $282,000 decrease in FDIC insurance expense and a $280,000 decrease in other losses, offset by a $345,000 increase in data processing expense and a $142,000 increase in professional fees from the linked quarter.

Net income for the fourth quarter of 2022 when compared to the same prior year period reflects a decrease in non–interest income of $2.2 million and an increase in credit loss expense of $2.0 million, offset by a decrease in non–interest expense of $2.2 million, a decrease in income tax expense of $1.4 million and an increase in net interest income of $305,000.

Net income for the year ended December 31, 2022 was $93.4 million, or $2.14 diluted earnings per share, compared to $87.1 million, or $1.98 diluted earnings per share, for the year ended December 31, 2021. Adjusted net income for the year ended December 31, 2022 was $92.8 million, or $2.13 diluted earnings per share, compared to $88.6 million, or $2.00 diluted earnings per share, for the year ended December 31, 2021. The increase in net income for the year ended December 31, 2022 when compared to the same prior year period reflects an increase in net interest income of $23.7 million and a decrease in income tax expense of $3.2 million, offset by an increase in non–interest expense of $9.8 million, a decrease in non–interest income of $10.5 million and an increase in credit loss expense of $268,000.

Net Interest Margin

Horizon’s net interest margin was 2.85% for the fourth quarter of 2022 compared to 3.04% for the third quarter. The decrease in net interest margin reflects an increase in the cost of interest bearing liabilities of 60 basis points, offset by an increase in the yield on interest earning assets of 42 basis points. Additionally, interest income from acquisition–related purchase accounting adjustments was $475,000 lower during the fourth quarter of 2022 when compared to the third quarter of 2022.

Horizon’s net interest margin decreased to 2.98% for the year ended December 31, 2022 compared to 3.03% for the same prior year period. 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 on interest earning assets of 28 basis points.

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 2.83% for the fourth quarter of 2022, compared to 2.99% for the linked quarter and 2.77% for the fourth quarter of 2021. Interest income from acquisition–related purchase accounting adjustments was $431,000, $906,000 and $1.8 million for the three months ended December 31, 2022, September 30, 2022 and December 31, 2021, respectively.

The adjusted net interest margin was 2.93% for the year ended December 31, 2022 compared to 2.96% for the same prior year period. Interest income from acquisition–related purchase accounting adjustments was $3.5 million and $4.5 million for the year ended December 31, 2022 and 2021, respectively.

Lending Activity

Total loan balances were $4.16 billion, or $4.11 billion excluding PPP loans and sold commercial participation loans, on December 31, 2022 compared to $4.03 billion, or $3.98 billion excluding PPP loans and sold commercial participation loans, on September 30, 2022. During the three months ended December 31, 2022, commercial loans, excluding PPP loans and sold commercial participation loans, increased $63.8 million, consumer loans increased $48.6 million, residential mortgage loans increased $18.4 million, and loans held for sale increased $4.0 million, offset by a decrease in mortgage warehouse loans of $4.2 million.

Loan Growth by Type
(Dollars in Thousands, Unaudited)
  December 31,   September 30,   QTD   QTD   Annualized
    2022     2022   $ Change   % Change   % Change
Commercial, excluding PPP loans and sold commercial participation loans $ 2,416,249   $ 2,352,446   $ 63,803     2.7%   10.8%
PPP loans   217     315     (98 )   (31.1)%   (123.4)%
Sold commercial participation loans   50,956     50,982     (26 )   (0.1)%   (0.2)%
Residential mortgage   653,292     634,901     18,391     2.9%   11.5%
Consumer   967,755     919,198     48,557     5.3%   21.0%
Subtotal   4,088,469     3,957,842     130,627     3.3%   13.1%
Loans held for sale   5,807     1,852     3,955     213.6%   847.2%
Mortgage warehouse   69,529     73,690     (4,161 )   (5.6)%   (22.4)%
Total loans $ 4,163,805   $ 4,033,384   $ 130,421     3.2%   12.8%
                   
Total loans, excluding PPP loans and sold commercial participation loans $ 4,112,632   $ 3,982,087   $ 130,545     3.3%   13.0%

Loan Growth by Type
(Dollars in Thousands, Unaudited)
  December 31,   December 31,   YTD   YTD
    2022     2021   $ Change   % Change
Commercial, excluding PPP loans and sold commercial participation loans $ 2,416,249   $ 2,131,644   $ 284,605     13.4%
PPP loans   217     25,844     (25,627 )   (99.2)%
Sold commercial participation loans   50,956     56,457     (5,501 )   (9.7)%
Residential mortgage   653,292     594,382     58,910     9.9%
Consumer   967,755     741,176     226,579     30.6%
Subtotal   4,088,469     3,549,503     538,966     15.2%
Loans held for sale   5,807     12,579     (6,772 )   (53.8)%
Mortgage warehouse   69,529     109,031     (39,502 )   (36.2)%
Total loans $ 4,163,805   $ 3,671,113   $ 492,692     13.4%
               
Total loans, excluding PPP loans and sold commercial participation loans $ 4,112,632   $ 3,588,812   $ 523,820     14.6%

Residential mortgage lending activity for the three months ended December 31, 2022 generated $1.2 million in income from the gain on sale of mortgage loans, decreasing $245,000 from the third quarter of 2022 and decreasing $3.0 million from the fourth quarter of 2021. Total mortgage origination volume for the fourth quarter of 2022, including loans placed into the portfolio, totaled $62.3 million, representing a decrease of 43.8% from third quarter 2022 levels, and a decrease of 58.6% from the fourth quarter of 2021. As a percentage of total mortgage loan originations, 8% of the volume was from refinancing and 92% was from new purchases during the fourth quarter of 2022. Total origination volume of loans sold to the secondary market totaled $23.0 million, compared to $50.2 million in the third quarter.

Gain on sale of mortgage loans and mortgage warehousing income was 3.2% of total revenue for the three months ended December 31, 2022, compared to 3.8% for the linked quarter and 8.8% for the three months ended December 31, 2021.

Deposit Activity

Total deposit balances of $5.86 billion on December 31, 2022 increased 0.5% compared to $5.83 billion on September 30, 2022, or 1.8% annualized.

Deposit Growth by Type
(Dollars in Thousands, Unaudited)
  December 31,   September 30,   QTD   QTD   Annualized
  2022   2022   $ Change   % Change   % Change
Non–interest bearing $ 1,277,768   $ 1,315,155   $ (37,387 )   (2.8)%   (11.3)%
Interest bearing   3,582,891     3,736,798     (153,907 )   (4.1)%   (16.3)%
Time deposits   997,115     778,885     218,230     28.0%   111.2%
Total deposits $ 5,857,774   $ 5,830,838   $ 26,936     0.5%   1.8%


Total deposit balances of $5.86 billion on December 31, 2022 increased 0.9% compared to $5.80 billion on December 31, 2021.

Deposit Growth by Type
(Dollars in Thousands, Unaudited)
  December 31,   December 31,   YTD   YTD
    2022     2021   $ Change   % Change
Non–interest bearing $ 1,277,768   $ 1,360,338   $ (82,570 )   (6.1)%
Interest bearing   3,582,891     3,711,767     (128,876 )   (3.5)%
Time deposits   997,115     730,886     266,229     36.4%
Total deposits $ 5,857,774   $ 5,802,991   $ 54,783     0.9%



Expense Management

Non–Interest Expense
(Dollars in Thousands, Unaudited)
  Three Months Ended
  December 31, September 30, QTD   QTD
Non–interest Expense 2022 2022 $ Change   % Change
Salaries and employee benefits $ 19,978     $ 20,613     $ (635 )   (3.1)%
Net occupancy expenses   3,279       3,293       (14 )   (0.4)%
Data processing   2,884       2,539       345     13.6%
Professional fees   694       552       142     25.7%
Outside services and consultants   2,985       2,855       130     4.6%
Loan expense   1,281       1,392       (111 )   (8.0)%
FDIC insurance expense   388       670       (282 )   (42.1)%
Other losses   118       398       (280 )   (70.4)%
Other expense   4,104       4,504       (400 )   (8.9)%
Total non–interest expense $ 35,711     $ 36,816     $ (1,105 )   (3.0)%
Annualized non–interest expense to average assets   1.84 %     1.91 %        

Total non–interest expense was $1.1 million lower in the fourth quarter of 2022 when compared to the third quarter of 2022. The decrease in expenses was primarily due to a decrease in salaries and employee benefits of $635,000 from lower commissions and health care costs, a decrease in other expense of $400,000, a decrease in FDIC insurance expense of $282,000 and a decrease in other losses of $280,000, offset by an increase in data processing of $345,000 and professional fees of $142,000.

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
  Three Months Ended
  December 31,   December 31,    
    2022       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 $ 19,978     $   $ 19,978     $ 20,549     $ (202 )   $ 20,347     $ (369 )   (1.8)%
Net occupancy expenses   3,279           3,279       3,204             3,204       75     2.3%
Data processing   2,884           2,884       2,672       (1 )     2,671       213     8.0%
Professional fees   694           694       562       (45 )     517       177     34.2%
Outside services and consultants   2,985           2,985       2,197       (162 )     2,035       950     46.7%
Loan expense   1,281           1,281       1,304       (83 )     1,221       60     4.9%
FDIC insurance expense   388           388       798       (6 )     792       (404 )   (51.0)%
Other losses   118           118       1,925       (1,904 )     21       97     461.9%
Other expense   4,104           4,104       4,660       (381 )     4,279       (175 )   (4.1)%
Total non–interest expense $ 35,711     $   $ 35,711     $ 37,871     $ (2,784 )   $ 35,087     $ 624     1.8%
Annualized non–interest expense to average assets   1.84 %         1.84 %     2.01 %         1.87 %        

Total adjusted non–interest expense was $624,000 higher in the fourth quarter of 2022 when compared to the fourth quarter of 2021. The increase in expenses was primarily due to an increase in outside services and consultants of $950,000 and an increase in data processing of $213,000, offset by a decrease in salaries and employee benefits of $369,000, a decrease in FDIC insurance expense of $404,000 and a decrease in other expense of $175,000.

Non–GAAP Reconciliation of Non–Interest Expense
(Dollars in Thousands, Unaudited)
  Twelve Months Ended
  December 31,   December 31,        
    2022       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 $ 80,283     $   $ 80,283     $ 74,051     $ (227 )   $ 73,824     $ 6,459     8.7%
Net occupancy expenses   13,323           13,323       12,541       (13 )     12,528       795     6.3%
Data processing   10,567           10,567       9,962       (18 )     9,944       623     6.3%
Professional fees   1,843           1,843       2,216       (149 )     2,067       (224 )   (10.8)%
Outside services and consultants   10,850           10,850       8,449       (750 )     7,699       3,151     40.9%
Loan expense   5,411           5,411       5,492       (83 )     5,409       2     —%
FDIC insurance expense   2,558           2,558       2,377       (6 )     2,371       187     7.9%
Other losses   1,046           1,046       2,283       (5 )     2,278       (1,232 )   (54.1)%
Other expense   17,320           17,320       16,023       (2,574 )     13,449       3,871     28.8%
Total non–interest expense $ 143,201     $   $ 143,201     $ 133,394     $ (3,825 )   $ 129,569     $ 13,632     10.5%
Annualized non–interest expense to average assets   1.90 %         1.90 %     2.05 %         1.99 %        


Total adjusted non–interest expense was $13.6 million higher for the year ended December 31, 2022 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 expense, net occupancy expenses and data processing, offset by a decrease in other losses.

Annualized non–interest expense as a percent of average assets was 1.84%, 1.91% and 2.01% for the three months ended December 31, 2022, September 30, 2022 and December 31, 2021, respectively. Annualized non–interest expense, excluding acquisition expenses and non–recurring ESOP settlement expenses, as a percent of average assets was 1.84%, 1.91% and 1.87% for the three months ended December 31, 2022, September 30, 2022 and December 31, 2021, respectively.

Annualized non–interest expense as a percent of average assets was 1.90% and 2.05% for the year ended December 31, 2022 and 2021, respectively. Annualized non–interest expense, excluding acquisition expenses and non–recurring ESOP settlement expenses, as a percentage of average assets was 1.90% and 1.99% for the year ended December 31, 2022 and 2021, respectively.

Income tax expense totaled $2.6 million for the fourth quarter of 2022, $2.0 million for the third quarters of 2022 and $4.1 million for the fourth quarter of 2021.

Income tax expense totaled $12.2 million for the year ended December 31, 2022, a decrease of $3.2 million when compared to the year ended December 31, 2021. The decrease in income tax expense was primarily due to an increase income tax credits received during 2022.

Capital

The capital resources of the Company and the Bank exceeded regulatory capital ratios for “well capitalized” banks at December 31, 2022. Stockholders’ equity totaled $677.4 million at December 31, 2022 and the ratio of average stockholders’ equity to average assets was 9.07% for the twelve months ended December 31, 2022.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of December 31, 2022.

  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 $ 782,705   14.48 %   $ 432,525   8.00 %   $ 567,688   10.50 %     N/A   N/A  
Bank   734,578   13.59 %     432,413   8.00 %     567,542   10.50 %   $ 540,516   10.00 %
Tier 1 capital (to risk–weighted assets)                                
Consolidated   736,150   13.62 %     324,393   6.00 %     459,557   8.50 %     N/A   N/A  
Bank   686,069   12.69 %     324,310   6.00 %     459,439   8.50 %     432,413   8.00 %
Common equity tier 1 capital (to risk–weighted assets)                                
Consolidated   616,231   11.40 %     243,295   4.50 %     378,459   7.00 %     N/A   N/A  
Bank   686,069   12.69 %     243,232   4.50 %     378,361   7.00 %     351,336   6.50 %
Tier 1 capital (to average assets)                                
Consolidated   736,150   10.23 %     287,867   4.00 %     287,867   4.00 %     N/A   N/A  
Bank   686,069   9.55 %     287,262   4.00 %     287,262   4.00 %     359,077   5.00 %

Tangible book value per common share (“TBVPS”) declined $0.99 during the twelve months ended December 31, 2022 to $11.59, as unrealized net losses on securities available for sale (“AFS”) of $2.71 per common share, reduced accumulated other comprehensive income (“AOCI”) by $118.0 million during the twelve months ended December 31, 2022.

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, while 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, 2022, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $438.0 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank also had approximately $2.1 billion of unpledged investment securities at December 31, 2022. Total available liquidity was $2.7 billion at December 31, 2022.

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 (the “SEC”). 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: changes in the level and volatility of interest rates, changes in spreads on earning assets and changes in interest bearing liabilities; increased interest rate sensitivity; continuing increases in inflation; loss of key Horizon personnel; increases in disintermediation; potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms take a greater market share of the payment systems; estimates of fair value of certain of Horizon’s assets and liabilities; changes in prepayment speeds, loan originations, credit losses, market values, collateral securing loans and other assets; changes in sources of liquidity; continuing risks and uncertainties relating to the COVID–19 pandemic and government responses thereto; legislative and regulatory actions and reforms; changes in accounting policies or procedures as may be adopted and required by regulatory agencies; litigation, regulatory enforcement, and legal compliance risk and costs; rapid technological developments and changes; cyber terrorism and data security breaches; the rising costs of cybersecurity; the ability of the U.S. federal government to manage federal debt limits; climate change and social justice initiatives; material changes outside the U.S. or in overseas relations, including changes in U.S. trade relations related to imposition of tariffs, Brexit, and the phase out of the London Interbank Offered Rate (“LIBOR”); the inability to realize cost savings or revenues or to effectively implement integration plans and other consequences associated with mergers, acquisitions, and divestitures; acts of terrorism, war and global conflicts, such as the Russia and Ukraine conflict; and supply chain disruptions and delays. These and additional factors that could cause actual results to differ materially from those expressed in the forward–looking statements are discussed in Horizon’s reports (such as the Annual Report on Form 10–K, Quarterly Reports on Form 10–Q, and Current Reports on Form 8–K) filed with the SEC and available at the SEC’s Internet website (www.sec.gov).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,
    2022     2022     2022     2022     2021
Balance sheet:                  
Total assets $ 7,872,518   $ 7,718,695   $ 7,640,936   $ 7,420,328   $ 7,374,903
Interest earning deposits & federal funds sold   12,233     7,302     5,646     20,827     502,364
Interest earning time deposits   2,812     2,814     3,799     4,046     4,782
Investment securities   3,020,306     3,017,191     3,093,792     3,118,641     2,713,255
Commercial loans   2,467,422     2,403,743     2,363,991     2,259,327     2,213,945
Mortgage warehouse loans   69,529     73,690     116,488     105,118     109,031
Residential mortgage loans   653,292     634,901     608,582     593,372     594,382
Consumer loans   967,755     919,198     866,819     768,854     741,176
Total loans   4,157,998     4,031,532     3,955,880     3,726,671     3,658,534
Earning assets   7,225,833     7,087,368     7,088,737     6,898,208     6,878,968
Non–interest bearing deposit accounts   1,277,768     1,315,155     1,328,213     1,325,570     1,360,338
Interest bearing transaction accounts   3,582,891     3,736,798     3,760,890     3,782,644     3,711,767
Time deposits   997,115     778,885     756,482     743,283     730,886
Total deposits   5,857,774     5,830,838     5,845,585     5,851,497     5,802,991
Borrowings   1,142,949     1,048,091     959,222     728,664     712,739
Subordinated notes   58,896     58,860     58,823     58,786     58,750
Junior subordinated debentures issued to capital trusts   57,027     56,966     56,907     56,850     56,785
Total stockholders’ equity   677,375     644,993     657,865     677,450     723,209

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,
    2022       2022       2022       2022       2021  
Income statement:                  
Net interest income $ 48,782     $ 51,861     $ 52,044     $ 46,831     $ 48,477  
Credit loss expense (recovery)   (69 )     (601 )     240       (1,386 )     (2,071 )
Non–interest income   10,674       10,188       12,434       14,155       12,828  
Non–interest expense   35,711       36,816       35,404       35,270       37,871  
Income tax expense   2,649       2,013       3,975       3,539       4,080  
Net income $ 21,165     $ 23,821     $ 24,859     $ 23,563     $ 21,425  
                   
Per share data:                  
Basic earnings per share $ 0.49     $ 0.55     $ 0.57     $ 0.54     $ 0.49  
Diluted earnings per share   0.48       0.55       0.57       0.54       0.49  
Cash dividends declared per common share   0.16       0.16       0.16       0.15       0.15  
Book value per common share   15.55       14.80       15.10       15.55       16.61  
Tangible book value per common share   11.59       10.82       11.11       11.54       12.58  
Market value – high   20.00       20.59       19.21       23.45       21.14  
Market value – low $ 14.51     $ 16.74     $ 16.72     $ 18.67     $ 18.01  
Weighted average shares outstanding – Basis   43,574,151       43,573,370       43,572,796       43,554,713       43,534,298  
Weighted average shares outstanding – Diluted   43,667,954       43,703,793       43,684,691       43,734,556       43,733,416  
                   
Key ratios:                  
Return on average assets   1.09 %     1.24 %     1.33 %     1.31 %     1.14 %
Return on average common stockholders’ equity   12.72       13.89       14.72       13.34       11.81  
Net interest margin   2.85       3.04       3.13       2.90       2.87  
Allowance for credit losses to total loans   1.21       1.27       1.32       1.41       1.48  
Average equity to average assets   8.55       8.91       9.06       9.79       9.64  
Efficiency ratio   60.06       59.33       54.91       57.83       61.77  
Annualized non–interest expense to average assets   1.84       1.91       1.90       1.95       2.01  
Bank only capital ratios:                  
Tier 1 capital to average assets   9.55       8.84       8.85       8.83       8.50  
Tier 1 capital to risk weighted assets   12.69       12.74       12.87       13.23       13.69  
Total capital to risk weighted assets   13.59       13.65       13.83       14.25       14.72  

Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
  Twelve Months Ended
  December 31,   December 31,
    2022       2021  
Income statement:      
Net interest income $ 199,518     $ 175,805  
Credit loss expense (recovery)   (1,816 )     (2,084 )
Non–interest income   47,451       57,952  
Non–interest expense   143,201       133,394  
Income tax expense   12,176       15,356  
Net income $ 93,408     $ 87,091  
       
Per share data:      
Basic earnings per share $ 2.14     $ 1.99  
Diluted earnings per share   2.14       1.98  
Cash dividends declared per common share   0.63       0.56  
Book value per common share   15.55       16.61  
Tangible book value per common share   11.59       12.58  
Market value – high   23.45       21.14  
Market value – low $ 14.51     $ 15.43  
Weighted average shares outstanding – Basis   43,568,823       43,802,733  
Weighted average shares outstanding – Diluted   43,699,734       43,955,280  
       
Key ratios:      
Return on average assets   1.24 %     1.34 %
Return on average common stockholders’ equity   13.66       12.23  
Net interest margin   2.98       3.03  
Allowance for credit losses to total loans   1.21       1.48  
Average equity to average assets   9.07       10.93  
Efficiency ratio   57.98       57.07  
Annualized non–interest expense to average assets   1.90       2.05  
Bank only capital ratios:      
Tier 1 capital to average assets   9.55       8.50  
Tier 1 capital to risk weighted assets   12.69       13.69  
Total capital to risk weighted assets   13.59       14.72  

Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31,   September 30,   June 30,   March 31,   December 31,
    2022       2022       2022       2022       2021  
Loan data:                  
Substandard loans $ 56,194     $ 57,932     $ 59,377     $ 57,928     $ 56,968  
30 to 89 days delinquent   10,709       6,970       6,739       6,358       8,536  
                   
Non–performing loans:                  
90 days and greater delinquent – accruing interest   92       193       210       107       145  
Trouble debt restructures – accruing interest   2,570       2,529       2,535       2,372       2,391  
Trouble debt restructures – non–accrual   1,548       1,665       1,345       1,501       1,521  
Non–accrual loans   17,630       14,771       16,116       16,133       14,962  
Total non–performing loans $ 21,840     $ 19,158     $ 20,206     $ 20,113     $ 19,019  
Non–performing loans to total loans   0.52 %     0.47 %     0.51 %     0.54 %     0.52 %

Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
   
  December 31,   September 30,   June 30,   March 31,   December 31,
  2022   2022   2022   2022   2021
Commercial $ 32,445   $ 33,806   $ 34,802   $ 37,789   $ 40,775
Residential mortgage   5,577     5,137     4,422     4,351     3,856
Mortgage warehouse   1,020     1,024     1,067     1,055     1,059
Consumer   11,422     11,402     12,059     9,313     8,596
Total $ 50,464   $ 51,369   $ 52,350   $ 52,508   $ 54,286

Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31,   September 30,   June 30,   March 31,   December 31,
    2022       2022       2022       2022       2021  
Commercial $ (94 )   $ 51     $ (75 )   $ 38     $ 926  
Residential mortgage   (8 )     (75 )     40       (10 )     126  
Mortgage warehouse                            
Consumer   387       162       319       108       360  
Total $ 285     $ 138     $ 284     $ 136     $ 1,412  
Percent of net charge–offs (recoveries) to average loans outstanding for the period   0.01 %     0.00 %     0.01 %     0.00 %     0.04 %

Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
   
  December 31,   September 30,   June 30,   March 31,   December 31,
    2022       2022       2022       2022       2021  
Commercial $ 9,330     $ 7,199     $ 8,008     $ 7,844     $ 7,509  
Residential mortgage   8,123       8,047       8,469       8,584       8,005  
Mortgage warehouse                            
Consumer   4,387       3,912       3,729       3,685       3,505  
Total $ 21,840     $ 19,158     $ 20,206     $ 20,113     $ 19,019  
Non–performing loans to total loans   0.52 %     0.47 %     0.51 %     0.54 %     0.52 %

Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
   
  December 31,   September 30,   June 30,   March 31,   December 31,
  2022   2022   2022   2022   2021
Commercial $ 1,881   $ 3,206   $ 1,414   $ 2,245   $ 2,861
Residential mortgage   107     22         170     695
Mortgage warehouse                  
Consumer   152     14     58     5     5
Total $ 2,140   $ 3,242   $ 1,472   $ 2,420   $ 3,561

Average Balance Sheets
(Dollars in Thousands, Unaudited)
  Three Months Ended   Three Months Ended
  December 31, 2022   December 31, 2021
  Average

Balance
  Interest   Average

Rate
  Average

Balance
  Interest   Average

Rate
Assets                      
Interest earning assets                      
Federal funds sold $ 4,023     $ 34   3.35 %   $ 654,225     $ 251   0.15 %
Interest earning deposits   8,233       48   2.31 %     22,537       32   0.56 %
Investment securities – taxable   1,655,728       8,703   2.09 %     1,405,689       6,208   1.75 %
Investment securities – non–taxable (1)   1,385,340       7,543   2.73 %     1,224,911       6,456   2.65 %
Loans receivable (2) (3)   4,038,656       50,859   5.02 %     3,644,688       39,672   4.34 %
Total interest earning assets   7,091,980       67,187   3.88 %     6,952,050       52,619   3.11 %
Non–interest earning assets                      
Cash and due from banks   96,835               102,273          
Allowance for credit losses   (51,323 )             (56,540 )        
Other assets   580,874               463,560          
Total average assets $ 7,718,366             $ 7,461,343          
                       
Liabilities and Stockholders’ Equity                      
Interest bearing liabilities                      
Interest bearing deposits $ 4,555,887     $ 10,520   0.92 %   $ 4,543,989     $ 1,663   0.15 %
Borrowings   850,236       5,729   2.67 %     525,638       1,025   0.77 %
Repurchase agreements   141,676       311   0.87 %     137,868       36   0.10 %
Subordinated notes   58,874       881   5.94 %     58,728       881   5.95 %
Junior subordinated debentures issued to capital trusts   56,988       964   6.71 %     56,745       537   3.75 %
Total interest bearing liabilities   5,663,661       18,405   1.29 %     5,322,968       4,142   0.31 %
Non–interest bearing liabilities                      
Demand deposits   1,321,139               1,366,621          
Accrued interest payable and other liabilities   73,378               52,111          
Stockholders’ equity   660,188               719,643          
Total average liabilities and stockholders’ equity $ 7,718,366             $ 7,461,343          
                       
Net interest income / spread     $ 48,782   2.59 %       $ 48,477   2.80 %
Net interest income as a percent of average interest earning assets (1)         2.85 %           2.87 %
                       
(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, 2022   December 31, 2021
  Average

Balance
  Interest   Average

Rate
  Average

Balance
  Interest   Average

Rate
Assets                      
Interest earning assets                      
Federal funds sold $ 62,211     $ 165   0.27 %   $ 398,528     $ 535   0.13 %
Interest earning deposits   13,596       141   1.04 %     25,993       160   0.62 %
Investment securities – taxable   1,700,418       33,202   1.95 %     884,244       14,437   1.63 %
Investment securities – non–taxable (1)   1,356,045       29,025   2.71 %     1,086,942       23,246   2.71 %
Loans receivable (2) (3)   3,845,137       173,500   4.53 %     3,639,454       155,732   4.30 %
Total interest earning assets   6,977,407       236,033   3.50 %     6,035,161       194,110   3.33 %
Non–interest earning assets                      
Cash and due from banks   99,885               89,993          
Allowance for credit losses   (52,606 )             (56,798 )        
Other assets   509,229               445,895          
Total average assets $ 7,533,915             $ 6,514,251          
                       
Liabilities and Stockholders’ Equity                      
Interest bearing liabilities                      
Interest bearing deposits $ 4,513,668     $ 17,809   0.39 %   $ 3,897,750     $ 7,867   0.20 %
Borrowings   696,584       11,938   1.71 %     425,214       4,546   1.07 %
Repurchase agreements   141,048       527   0.37 %     123,675       155   0.13 %
Subordinated notes   58,819       3,522   5.99 %     58,672       3,522   6.00 %
Junior subordinated debentures issued to capital trusts   56,899       2,719   4.78 %     56,657       2,215   3.91 %
Total interest bearing liabilities   5,467,018       36,515   0.67 %     4,561,968       18,305   0.40 %
Non–interest bearing liabilities                      
Demand deposits   1,332,937               1,188,275          
Accrued interest payable and other liabilities   50,330               51,886          
Stockholders’ equity   683,630               712,122          
Total average liabilities and stockholders’ equity $ 7,533,915             $ 6,514,251          
                       
Net interest income / spread     $ 199,518   2.83 %       $ 175,805   2.93 %
Net interest income as a percent of average interest earning assets (1)         2.98 %           3.03 %
                       
(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,

2022
  December 31,

2021
  (Unaudited)    
Assets      
Cash and due from banks $ 123,505     $ 593,508
Interest earning time deposits   2,812       4,782
Investment securities, available for sale   997,558       1,160,812
Investment securities, held to maturity (fair value $1,681,309 and $1,559,991)   2,022,748       1,552,443
Loans held for sale   5,807       12,579
Loans, net of allowance for credit losses of $50,464 and $54,286   4,107,534       3,604,248
Premises and equipment, net   92,677       93,441
Federal Home Loan Bank stock   26,677       24,440
Goodwill   155,211       154,572
Other intangible assets   17,239       20,941
Interest receivable   35,294       26,137
Cash value of life insurance   146,175       97,150
Other assets   139,281       66,836
Total assets $ 7,872,518     $ 7,411,889
       
Liabilities      
Deposits      
Non–interest bearing $ 1,277,768     $ 1,360,338
Interest bearing   4,580,006       4,442,653
Total deposits   5,857,774       5,802,991
Borrowings   1,142,949       712,739
Subordinated notes   58,896       58,750
Junior subordinated debentures issued to capital trusts   57,027       56,785
Interest payable   5,380       2,235
Other liabilities   73,117       55,180
Total liabilities   7,195,143       6,688,680
Commitments and contingent liabilities      
Stockholders’ equity      
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares        
Common stock, no par value, Authorized 99,000,000 shares
Issued and Outstanding 43,937,889 and 43,811,421 shares
       
Additional paid–in capital   354,188       352,122
Retained earnings   429,385       363,742
Accumulated other comprehensive income   (106,198 )     7,345
Total stockholders’ equity   677,375       723,209
Total liabilities and stockholders’ equity $ 7,872,518     $ 7,411,889

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,
    2022       2022     2022     2022       2021  
Interest income                  
Loans receivable $ 50,859     $ 45,517     $ 40,585   $ 36,539     $ 39,672  
Investment securities – taxable   8,785       8,501       8,716     7,506       6,491  
Investment securities – non–taxable   7,543       7,478       7,307     6,697       6,456  
Total interest income   67,187       61,496       56,608     50,742       52,619  
Interest expense                  
Deposits   10,520       4,116       1,677     1,496       1,663  
Borrowed funds   6,040       3,895       1,450     1,080       1,061  
Subordinated notes   881       880       881     880       881  
Junior subordinated debentures issued to capital trusts   964       744       556     455       537  
Total interest expense   18,405       9,635       4,564     3,911       4,142  
Net interest income   48,782       51,861       52,044     46,831       48,477  
Credit loss expense (recovery)   (69 )     (601 )     240     (1,386 )     (2,071 )
Net interest income after credit loss expense (recovery)   48,851       52,462       51,804     48,217       50,548  
Non–interest Income                  
Service charges on deposit accounts   2,947       3,023       2,833     2,795       2,510  
Wire transfer fees   118       148       170     159       205  
Interchange fees   2,951       3,089       3,582     2,780       3,082  
Fiduciary activities   1,270       1,203       1,405     1,503       1,591  
Gain on sale of mortgage loans   1,196       1,441       2,501     2,027       4,167  
Mortgage servicing income net of impairment   637       355       319     3,489       300  
Increase in cash value of bank owned life insurance   751       814       519     510       547  
Death benefit on bank owned life insurance               644            
Other income   804       115       461     892       426  
Total non–interest income   10,674       10,188       12,434     14,155       12,828  
Non–interest expense                  
Salaries and employee benefits   19,978       20,613       19,957     19,735       20,549  
Net occupancy expenses   3,279       3,293       3,190     3,561       3,204  
Data processing   2,884       2,539       2,607     2,537       2,672  
Professional fees   694       552       283     314       562  
Outside services and consultants   2,985       2,855       2,485     2,525       2,197  
Loan expense   1,281       1,392       1,533     1,205       1,304  
FDIC insurance expense   388       670       775     725       798  
Other losses   118       398       362     168       1,925  
Other expenses   4,104       4,504       4,212     4,500       4,660  
Total non–interest expense   35,711       36,816       35,404     35,270       37,871  
Income before income taxes   23,814       25,834       28,834     27,102       25,505  
Income tax expense   2,649       2,013       3,975     3,539       4,080  
Net income $ 21,165     $ 23,821     $ 24,859   $ 23,563     $ 21,425  
Basic earnings per share $ 0.49     $ 0.55     $ 0.57   $ 0.54     $ 0.49  
Diluted earnings per share   0.48       0.55       0.57     0.54       0.49  

Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
  Twelve Months Ended
  December 31,   December 31,
    2022       2021  
Interest income      
Loans receivable $ 173,500     $ 155,732  
Investment securities – taxable   33,508       15,132  
Investment securities – non–taxable   29,025       23,246  
Total interest income   236,033       194,110  
Interest expense      
Deposits   17,809       7,867  
Borrowed funds   12,465       4,701  
Subordinated notes   3,522       3,522  
Junior subordinated debentures issued to capital trusts   2,719       2,215  
Total interest expense   36,515       18,305  
Net interest income   199,518       175,805  
Credit loss expense (recovery)   (1,816 )     (2,084 )
Net interest income after credit loss expense (recovery)   201,334       177,889  
Non–interest Income      
Service charges on deposit accounts   11,598       9,192  
Wire transfer fees   595       892  
Interchange fees   12,402       10,901  
Fiduciary activities   5,381       7,419  
Gains / (losses) on sale of investment securities         914  
Gain on sale of mortgage loans   7,165       19,163  
Mortgage servicing income net of impairment   4,800       2,352  
Increase in cash value of bank owned life insurance   2,594       2,094  
Death benefit on bank owned life insurance   644       783  
Other income   2,272       4,242  
Total non–interest income   47,451       57,952  
Non–interest expense      
Salaries and employee benefits   80,283       74,051  
Net occupancy expenses   13,323       12,541  
Data processing   10,567       9,962  
Professional fees   1,843       2,216  
Outside services and consultants   10,850       8,449  
Loan expense   5,411       5,492  
FDIC insurance expense   2,558       2,377  
Other losses   1,046       2,283  
Other expenses   17,320       16,023  
Total non–interest expense   143,201       133,394  
Income before income taxes   105,584       102,447  
Income tax expense   12,176       15,356  
Net income $ 93,408     $ 87,091  
Basic earnings per share $ 2.14     $ 1.99  
Diluted earnings per share   2.14       1.98  

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, pre–tax, pre–provision income, net interest margin, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average common equity and the return on average tangible equity. 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 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,
    2022     2022     2022       2022     2021       2022       2021  
Net income as reported $ 21,165   $ 23,821   $ 24,859     $ 23,563   $ 21,425     $ 93,408     $ 87,091  
Acquisition expenses                     884             1,925  
Tax effect                     (184 )           (401 )
Net income excluding acquisition expenses   21,165     23,821     24,859       23,563     22,125       93,408       88,615  
Credit loss expense acquired loans                                 2,034  
Tax effect                                 (427 )
Net income excluding credit loss expense acquired loans   21,165     23,821     24,859       23,563     22,125       93,408       90,222  
Gain on sale of ESOP trustee accounts                                 (2,329 )
Tax effect                                 489  
Net income excluding gain on sale of ESOP trustee accounts   21,165     23,821     24,859       23,563     22,125       93,408       88,382  
ESOP settlement expenses                     1,900             1,900  
Tax effect                     (315 )           (315 )
Net income excluding ESOP settlement expenses   21,165     23,821     24,859       23,563     23,710       93,408       89,967  
(Gain) / loss on sale of investment securities                                 (914 )
Tax effect                                 192  
Net income excluding (gain) / loss on sale of investment securities   21,165     23,821     24,859       23,563     23,710       93,408       89,245  
Death benefit on bank owned life insurance (“BOLI”)           (644 )               (644 )     (783 )
Net income excluding death benefit on BOLI   21,165     23,821     24,215       23,563     23,710       92,764       88,462  
Prepayment penalties on borrowings                                 125  
Tax effect                                 (26 )
Net income excluding prepayment penalties on borrowings   21,165     23,821     24,215       23,563     23,710       92,764       88,561  
Adjusted net income $ 21,165   $ 23,821   $ 24,215     $ 23,563   $ 23,710     $ 92,764     $ 88,561  

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,
    2022     2022     2022       2022     2021       2022       2021  
Diluted earnings per share (“EPS”) as reported $ 0.48   $ 0.55   $ 0.57     $ 0.54   $ 0.49     $ 2.14     $ 1.98  
Acquisition expenses                     0.02             0.04  
Tax effect                                  
Diluted EPS excluding acquisition expenses   0.48     0.55     0.57       0.54     0.51       2.14       2.02  
Credit loss expense acquired loans                                 0.05  
Tax effect                                 (0.01 )
Diluted EPS excluding credit loss expense acquired loans   0.48     0.55     0.57       0.54     0.51       2.14       2.06  
Gain on sale of ESOP trustee accounts                                 (0.05 )
Tax effect                                 0.01  
Diluted EPS excluding gain on sale of ESOP trustee accounts   0.48     0.55     0.57       0.54     0.51       2.14       2.02  
ESOP settlement expenses                     0.04             0.04  
Tax effect                     (0.01 )           (0.01 )
Diluted EPS excluding ESOP settlement expenses   0.48     0.55     0.57       0.54     0.54       2.14       2.05  
(Gain) / loss on sale of investment securities                                 (0.02 )
Tax effect                                  
Diluted EPS excluding (gain) / loss on sale of investment securities   0.48     0.55     0.57       0.54     0.54       2.14       2.03  
Death benefit on bank owned life insurance (“BOLI”)           (0.01 )               (0.01 )     (0.03 )
Diluted EPS excluding death benefit on BOLI   0.48     0.55     0.56       0.54     0.54       2.13       2.00  
Prepayment penalties on borrowings                                  
Tax effect                                  
Diluted EPS excluding prepayment penalties on borrowings   0.48     0.55     0.56       0.54     0.54       2.13       2.00  
Adjusted diluted EPS $ 0.48   $ 0.55   $ 0.56     $ 0.54   $ 0.54     $ 2.13     $ 2.00  

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,
    2022       2022       2022       2022       2021       2022       2021  
Pre–tax income $ 23,814     $ 25,834     $ 28,834     $ 27,102     $ 25,505     $ 105,584     $ 102,447  
Credit loss expense   (69 )     (601 )     240       (1,386 )     (2,071 )     (1,816 )     (2,084 )
Pre–tax, pre–provision income $ 23,745     $ 25,233     $ 29,074     $ 25,716     $ 23,434     $ 103,768     $ 100,363  
                           
Pre–tax, pre–provision income $ 23,745     $ 25,233     $ 29,074     $ 25,716     $ 23,434     $ 103,768     $ 100,363  
Acquisition expenses                           884             1,925  
Gain on sale of ESOP trustee accounts                                       (2,329 )
ESOP settlement expenses                           1,900             1,900  
(Gain) / loss on sale of investment securities                                       (914 )
Death benefit on BOLI               (644 )                 (644 )     (783 )
Prepayment penalties on borrowings                                       125  
Adjusted pre–tax, pre–provision income $ 23,745     $ 25,233     $ 28,430     $ 25,716     $ 26,218     $ 103,124     $ 100,162  

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,
    2022       2022       2022       2022       2021       2022       2021  
Net interest income as reported $ 48,782     $ 51,861     $ 52,044     $ 46,831     $ 48,477     $ 199,518     $ 175,805  
Average interest earning assets   7,091,980       7,056,208       6,943,633       6,814,756       6,952,050       6,977,407       6,035,161  
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)   2.85 %     3.04 %     3.13 %     2.90 %     2.87 %     2.98 %     3.03 %
                           
Net interest income as reported $ 48,782     $ 51,861     $ 52,044     $ 46,831     $ 48,477     $ 199,518     $ 175,805  
Acquisition–related purchase accounting adjustments (“PAUs”)   (431 )     (906 )     (1,223 )     (916 )     (1,819 )     (3,476 )     (4,503 )
Prepayment penalties on borrowings                                       125  
Adjusted net interest income $ 48,351     $ 50,955     $ 50,821     $ 45,915     $ 46,658     $ 196,042     $ 171,302  
Adjusted net interest margin   2.83 %     2.99 %     3.06 %     2.85 %     2.77 %     2.93 %     2.96 %

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,
    2022     2022     2022     2022     2021
Total stockholders’ equity $ 677,375   $ 644,993   $ 657,865   $ 677,450   $ 723,209
Less: Intangible assets   172,450     173,375     173,662     174,588     175,513
Total tangible stockholders’ equity $ 504,925   $ 471,618   $ 484,203   $ 502,862   $ 547,696
Common shares outstanding   43,574,151     43,574,151     43,572,796     43,572,796     43,547,942
Book value per common share $ 15.55   $ 14.80   $ 15.10   $ 15.55   $ 16.61
Tangible book value per common share $ 11.59   $ 10.82   $ 11.11   $ 11.54   $ 12.58

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,
    2022       2022       2022       2022       2021       2022       2021  
Non–interest expense as reported $ 35,711     $ 36,816     $ 35,404     $ 35,270     $ 37,871     $ 143,201     $ 133,394  
Net interest income as reported   48,782       51,861       52,044       46,831       48,477       199,518       175,805  
Non–interest income as reported $ 10,674     $ 10,188     $ 12,434     $ 14,155     $ 12,828     $ 47,451     $ 57,952  
Non–interest expense / (Net interest income + Non–interest income) (“Efficiency Ratio”)   60.06 %     59.33 %     54.91 %     57.83 %     61.77 %     57.98 %     57.07 %
                           
Non–interest expense as reported $ 35,711     $ 36,816     $ 35,404     $ 35,270     $ 37,871     $ 143,201     $ 133,394  
Acquisition expenses                           (884 )           (1,925 )
ESOP settlement expenses                           (1,900 )           (1,900 )
Non–interest expense excluding acquisition expenses and ESOP settlement expenses   35,711       36,816       35,404       35,270       35,087       143,201       129,569  
Net interest income as reported   48,782       51,861       52,044       46,831       48,477