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Horizon Bancorp, Inc. Announces Strong Second Quarter 2021 Financial Results Including EPS of $0.50
Source: Nasdaq GlobeNewswire / 27 Jul 2021 15:35:01 America/Chicago
MICHIGAN CITY, Ind., July 27, 2021 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and six months ending June 30, 2021.
“Horizon achieved strong earnings in the second quarter, along with increased non–interest income, stable net interest income, lower deposit costs and strong asset quality metrics,” Chairman and CEO Craig M. Dwight said. “With an improving commercial lending pipeline, and ample liquidity and capital, Horizon is very well positioned for loan growth more in line with historic levels in a recovering economy. We also continue to focus on disciplined management of our highly efficient operations and initiated plans to consolidate 10 locations this summer, reassigning employees to other open positions and investing savings into digital capabilities and opportunities in our growing Indiana and Michigan markets. We also announced the acquisition of 14 Michigan branches to extend our low–cost deposit franchise in a financially and strategically attractive transaction that is on schedule for completion during the third quarter.”
Second Quarter 2021 Highlights
- Net income grew to a record $22.2 million, up 8.6% from the linked quarter and 51.5% from the year–ago period. Diluted earnings per share (“EPS”) of $0.50 includes the $0.01 after–tax impact of expenses associated with Horizon’s agreement to acquire 14 TCF National Bank branches, approximately $976 million in deposits and approximately $278 million in loans in a financially and strategically attractive extension of Horizon’s low–cost deposit franchise in Michigan, announced in the quarter. EPS was $0.46 for the first quarter of 2021 and $0.33 for the second quarter of 2020.
- Pre–tax, pre–provision net income grew to a second–quarter record $24.5 million, up 0.9% from the linked quarter and 3.2% from the year–ago period. This non–GAAP financial measure is utilized by banks to provide a greater understanding of pre–tax profitability before giving effect to credit loss expense. (See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income” table below.)
- Net interest income was $42.6 million for the quarter, compared to $42.5 million for the first quarter of 2021 and $43.0 million for the second quarter of 2020. Reported net interest margin (“NIM”) was 3.14% and adjusted NIM was 3.13%, with reported NIM declining by 15 basis points and adjusted NIM decreasing by four basis points from the first quarter of 2021. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation of adjusted NIM.) An estimated seven basis points attributed to Federal Paycheck Protection Program (“PPP”) lending improved the margin, offset by an estimated 21 basis point compression attributed to excess liquidity held during the quarter, for both NIM and adjusted NIM.
- Horizon’s in–market consumer and commercial deposit relationships, 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 0.45% in the quarter, compared to 0.50% in the first quarter of 2021 and 0.74% in the second quarter of 2020.
- Non–interest expense was $33.4 million in the quarter, or 2.18% of average assets on an annualized basis, compared to $32.2 million, or 2.20%, in the first quarter of 2021 and $30.4 million, or 2.18%, in the second quarter of 2020.
- The efficiency ratio for the period was 57.73% compared to 57.03% for the first quarter of 2021 and 56.23% for the second quarter of 2020. The adjusted efficiency ratio was 57.45% compared to 57.97% for the first quarter of 2021 and 56.49% for the second quarter of 2020. (See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)
- Horizon experienced an increased return on average assets (“ROAA”) of 1.45% and return on average common equity (“ROACE”) of 12.59% in the quarter, as well as adjusted ROAA of 1.46% and adjusted ROACE of 12.61%, excluding the impact of acquisition expenses and prepayment penalties, net of tax, and death benefits on bank owned life insurance. (See the “Non–GAAP Reconciliation of Return on Average Assets” and the “Non–GAAP Reconciliation of Return on Average Common Equity” tables below.)
- Horizon recorded a provision release of $1.5 million and maintained solid asset quality metrics at period end, including non–performing loans declining 10.9% during the quarter to $22.3 million, or 0.63% of total loans, substandard loans declining 4.6% to $82.5 million, or 2.3% of total loans, net charge–offs declining 81.3% to $39,000, or 0.00% of average loans for the period, and COVID–19 deferrals declining 42.7% to $52.5 million, or 1.5% of total loans.
- Total non–interest income grew to $15.2 million, up 9.6% from the linked quarter and 36.7% from the year–ago period, due to favorable impact of mortgage production, bank owned life insurance, banking fees and fiduciary activities. Following record residential lending in 2020, mortgage–related non–interest income remained strong in the second three months of 2021, with gain on mortgage loan sales of $5.6 million and net mortgage servicing income of $1.5 million. The Horizon Bank (the “Bank”) originated $173.0 million in mortgage loans during the quarter, with 61% of volume from purchases, as Horizon continued to focus residential lending on prime borrowers in Indiana and Michigan markets.
- Loans, excluding PPP lending, totaled $3.36 billion on June 30, 2021, were lower reflecting cash reserves maintained by many current and prospective commercial borrowers and retail households through the quarter. Loans, excluding PPP lending, totaled $3.42 billion on March 31, 2021 and $3.69 billion on June 30, 2020.
- Horizon’s book value per share and tangible book value per share increased to all–time highs of $16.16 and $12.24, respectively. (See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table below.)
- As part of the Company's annual branch performance review and a third–party analysis of the Bank's retail network, Horizon's Board of Directors approved the permanent closure of nine Indiana branch locations and one in Michigan to occur on August 27, 2021.
- Horizon increased cash dividends paid in the quarter by 8.3% to $0.13 per share, as previously announced. As of June 30, 2021, in excess of $129 million in cash was maintained at the holding company, providing considerable future optionality to build shareholder value.
Summary
For the Three Months Ended June 30, March 31, June 30, Net Interest Income and Net Interest Margin 2021 2021 2020 Net interest income $ 42,632 $ 42,538 $ 42,996 Net interest margin 3.14 % 3.29 % 3.47 % Adjusted net interest margin 3.13 % 3.17 % 3.35 % “Expected net interest margin compression in the second quarter continued to reflect pressure on total earning assets as we invested significant liquidity in lower–yielding assets. This was partially offset by a four basis point increase in average loan yields and a five basis point reduction in our already low average cost of interest bearing liabilities,” Mr. Dwight commented.
“We continue to believe that Horizon's ample liquidity and capital positions us well to quickly respond to both commercial and consumer credit needs that we expect to accelerate as stimulus dollars are spent down and a recovering economy enhances demand.”
For the Three Months Ended June 30, March 31, June 30, Asset Yields and Funding Costs 2021 2021 2020 Interest earning assets 3.48 % 3.66 % 4.05 % Interest bearing liabilities 0.45 % 0.50 % 0.74 % For the Three Months Ended Non–interest Income and June 30, March 31, June 30, Mortgage Banking Income 2021 2021 2020 Total non–interest income $ 15,207 $ 13,873 $ 11,125 Gain on sale of mortgage loans 5,612 5,296 6,620 Mortgage servicing income net of impairment 1,503 213 (2,760 ) For the Three Months Ended June 30, March 31, June 30, Non–interest Expense 2021 2021 2020 Total non–interest expense $ 33,388 $ 32,172 $ 30,432 Annualized non–interest expense to average assets 2.18 % 2.20 % 2.18 % For the Three Months Ended June 30, March 31, June 30, Credit Quality 2021 2021 2020 Allowance for credit losses to total loans 1.58 % 1.56 % 1.38 % Non–performing loans to total loans 0.63 % 0.68 % 0.70 % Percent of net charge–offs to average loans outstanding for the period 0.00 % 0.01 % 0.01 % Allowance for December 31, Net Reserve June 30, Credit Losses 2020 1Q20 2Q20 2021 Commercial $ 42,210 $ 770 $ (1,214 ) $ 41,766 Retail Mortgage 4,620 (391 ) (121 ) 4,108 Warehouse 1,267 (104 ) (8 ) 1,155 Consumer 8,930 (116 ) (194 ) 8,620 Allowance for Credit Losses (“ACL”) $ 57,027 $ 159 $ (1,537 ) $ 55,649 ACL / Total Loans 1.47 % 1.58 % Acquired Loan Discount (“ALD”) $ 11,494 $ (221 ) $ (815 ) $ 10,458 “Horizon recorded a provision release reflecting continuing economic improvement and the Bank's strong asset quality, including significant reductions in non–performing and substandard loans, net charge–offs and COVID–19 deferral levels in the quarter,” Mr. Dwight said.
Income Statement Highlights
Net income for the second quarter of 2021 was $22.2 million, or $0.50 diluted earnings per share, compared to $20.4 million, or $0.46, for the linked quarter and $14.6 million, or $0.33, for the prior year period. This represents the highest quarterly net income in the Company’s history, even with the $0.01 after tax effect of second quarter 2021 acquisition expenses.
Adjusted net income for the second quarter of 2021 was $22.2 million, or $0.50 diluted earnings per share, compared to $19.7 million, or $0.44, for the linked quarter and $14.4 million, or $0.32, for the prior year period. Adjusted net income, which is not calculated according to generally accepted accounting principles (“GAAP”), is a measure that Horizon uses to provide a greater understanding of operating profitability.
The increase in net income for the second quarter of 2021 when compared to the first quarter of 2021 reflects an increase in non–interest income of $1.3 million, a decrease of $1.9 million in credit loss expense and an increase in net interest income of $94,000, offset by an increase in non–interest expense of $1.2 million and an increase in income tax expense of $320,000.
Interest income includes the recognition of PPP interest and net loan processing fees totaling $2.7 million in the second quarter of 2021, compared to $3.2 million in the linked quarter. On June 30, 2021, the Company had $5.7 million in deferred PPP loan processing fees outstanding and $169.4 million in PPP loans outstanding. PPP deferred fees and loans outstanding at March 31, 2021 were $7.3 million and $252.3 million, respectively. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness.
Second quarter 2021 income from the gain on sale of mortgage loans totaled $5.6 million, up from $5.3 million in the linked quarter and down from $6.6 million in the prior year period.
Non–interest expense of $33.4 million in the second quarter of 2021 reflected an $859,000 increase in salaries and employee benefits expense, an increase of $518,000 in outside services and consultants, an increase of $309,000 in other expenses, an increase of $285,000 in loan expenses and $242,000 in acquisition expenses, offset by a decrease in FDIC deposit insurance expense of $300,000, a decrease in other losses of $277,000 and a decrease in net occupancy expenses of $234,000, from the linked quarter.
The increase in net income for the second quarter of 2021 when compared to the same prior year period reflects an increase in non–interest income of $4.1 million and a decrease in credit loss expense of $8.5 million, offset by an increase in non–interest expense of $3.0 million, an increase in income tax expense of $1.8 million and a decrease in net interest income of $364,000.
Net income for the first six months of 2021 was $42.6 million, or $0.97 diluted earnings per share, compared to $26.3 million, or $0.59 diluted earnings per share, for the first six months of 2020. Adjusted net income for the first six months of 2021 was $41.9 million, or $0.95 diluted earnings per share, compared to $25.6 million, or $0.57 diluted earnings per share, for the first six months of 2020. The increase in net income for the first six months of 2021 when compared to the same prior year period reflects a decrease in credit loss expense of $16.8 million, an increase in non–interest income of $5.9 million and an increase in net interest income of $1.2 million, offset by an increase in non–interest expense of $4.0 million and an increase in income tax expense of $3.6 million.
Non–GAAP Reconciliation of Net Income (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2021 2021 2020 2020 2020 2021 2020 Net income as reported $ 22,173 $ 20,422 $ 21,893 $ 20,312 $ 14,639 $ 42,595 $ 26,294 Acquisition expenses 242 — — — — 242 — Tax effect (51 ) — — — — (51 ) — Net income excluding acquisition expenses 22,364 20,422 21,893 20,312 14,639 42,786 26,294 (Gain) / loss on sale of investment securities — (914 ) (2,622 ) (1,088 ) (248 ) (914 ) (587 ) Tax effect — 192 551 228 52 192 123 Net income excluding (gain) / loss on sale of investment securities 22,364 19,700 19,822 19,452 14,443 42,064 25,830 Death benefit on bank owned life insurance (“BOLI”) (266 ) — — (31 ) — (266 ) (233 ) Net income excluding death benefit on BOLI 22,098 19,700 19,822 19,421 14,443 41,798 25,597 Prepayment penalties on borrowings 125 — 3,804 — — 125 — Tax effect (26 ) — (799 ) — — (26 ) — Net income excluding prepayment penalties on borrowings 22,197 19,700 22,827 19,421 14,443 41,897 25,597 Adjusted net income $ 22,197 $ 19,700 $ 22,827 $ 19,421 $ 14,443 $ 41,897 $ 25,597 Non–GAAP Reconciliation of Diluted Earnings per Share (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2021 2021 2020 2020 2020 2021 2020 Diluted earnings per share (“EPS”) as reported $ 0.50 $ 0.46 $ 0.50 $ 0.46 $ 0.33 $ 0.97 $ 0.59 Acquisition expenses 0.01 — — — — 0.01 — Tax effect — — — — — — — Diluted EPS excluding acquisition expenses 0.51 0.46 0.50 0.46 0.33 0.98 0.59 (Gain) / loss on sale of investment securities — (0.02 ) (0.06 ) (0.02 ) (0.01 ) (0.02 ) (0.01 ) Tax effect — — 0.01 0.01 — — — Diluted EPS excluding (gain) / loss on sale of investment securities 0.51 0.44 0.45 0.45 0.32 0.96 0.58 Death benefit on bank owned life insurance (“BOLI”) (0.01 ) — — — — (0.01 ) (0.01 ) Diluted EPS excluding death benefit on BOLI 0.50 0.44 0.45 0.45 0.32 0.95 0.57 Prepayment penalties on borrowings — — 0.09 — — — — Tax effect — — (0.02 ) — — — — Diluted EPS excluding prepayment penalties on borrowings 0.50 0.44 0.52 0.45 0.32 0.95 0.57 Adjusted diluted EPS $ 0.50 $ 0.44 $ 0.52 $ 0.45 $ 0.32 $ 0.95 $ 0.57 Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2021 2021 2020 2020 2020 2021 2020 Pre–tax income $ 25,943 $ 23,872 $ 23,860 $ 24,638 $ 16,632 $ 49,815 $ 29,871 Credit loss expense (1,492 ) 367 3,042 2,052 7,057 (1,125 ) 15,657 Pre–tax, pre–provision income $ 24,451 $ 24,239 $ 26,902 $ 26,690 $ 23,689 $ 48,690 $ 45,528 Pre–tax, pre–provision income $ 24,451 $ 24,239 $ 26,902 $ 26,690 $ 23,689 $ 48,690 $ 45,528 Acquisition expenses 242 — — — — 242 — (Gain) / loss on sale of investment securities — (914 ) (2,622 ) (1,088 ) (248 ) (914 ) (587 ) Death benefit on BOLI (266 ) — — (31 ) — (266 ) (233 ) Prepayment penalties on borrowings 125 — 3,804 — — 125 — Adjusted pre–tax, pre–provision income $ 24,552 $ 23,325 $ 28,084 $ 25,571 $ 23,441 $ 47,752 $ 44,708 Horizon’s net interest margin decreased to 3.14% for the second quarter of 2021 compared to 3.29% for the first quarter of 2021. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 18 basis points, offset by a decrease in the cost of interest bearing liabilities of five basis points. Interest income from acquisition–related purchase accounting adjustments was $1.3 million lower during the second quarter of 2021 when compared to the first quarter of 2021.
Horizon’s net interest margin decreased to 3.14% for the second quarter of 2021 compared to 3.47% for the second quarter of 2020. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 57 basis points offset by a decrease in the cost of interest bearing liabilities of 29 basis points.
Horizon’s net interest margin decreased to 3.21% for the first six months of 2021 compared to 3.51% 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 46 basis points.
The net interest margin was impacted during the second and first quarters of 2021 by PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by seven and 10 basis points for the second and first 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 second and first 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 21 and 16 basis points for the second and first 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 Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2021 2021 2020 2020 2020 2021 2020 Net interest income as reported $ 42,632 $ 42,538 $ 43,622 $ 43,397 $ 42,996 $ 85,170 $ 83,921 Average interest earning assets 5,659,384 5,439,634 5,365,888 5,251,611 5,112,636 5,550,116 4,929,388 Net interest income as a percentage of average interest earning assets (“Net Interest Margin”) 3.14 % 3.29 % 3.34 % 3.39 % 3.47 % 3.21 % 3.51 % Net interest income as reported $ 42,632 $ 42,538 $ 43,622 $ 43,397 $ 42,996 $ 85,170 $ 83,921 Acquisition–related purchase accounting adjustments (“PAUs”) (230 ) (1,579 ) (2,461 ) (1,488 ) (1,553 ) (1,809 ) (2,987 ) Prepayment penalties on borrowings 125 — 3,804 — — 125 — Adjusted net interest income $ 42,527 $ 40,959 $ 44,965 $ 41,909 $ 41,443 $ 83,361 $ 80,934 Adjusted net interest margin 3.13 % 3.17 % 3.44 % 3.27 % 3.35 % 3.15 % 3.39 % Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 3.13% for the second quarter of 2021, compared to 3.17% for the linked quarter and 3.35% for the second quarter of 2020. Interest income from acquisition–related purchase accounting adjustments was $230,000, $1.6 million and $1.6 million for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively.
The adjusted net interest margin was 3.15% for the first six months of 2021 compared to 3.39% for the same prior year period. Interest income from acquisition–related purchase accounting adjustments was $1.8 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively.
Lending Activity
Total loans were $3.53 billion, or $3.36 billion excluding PPP loans, on June 30, 2021. Total loans were $3.67 billion, or $3.42 billion excluding PPP loans, on March 31, 2021. During the three months ended June 30, 2021, PPP loans decreased $82.8 million, mortgage warehouse loans decreased $60.9 million, residential mortgage loans decreased $22.5 million and loans held for sale decreased $570,000, offset by an increase in consumer loans of $11.7 million and an increase in commercial loans, excluding PPP loans, of $9.6 million.
Loan Growth by Type, Excluding Acquired Loans (Dollars in Thousands, Unaudited) June 30, March 31, Amount Percent 2021 2021 Change Change Commercial, excluding PPP loans $ 1,935,187 $ 1,925,576 $ 9,611 0.5 % PPP loans 169,440 252,282 (82,842 ) (32.8 )% Residential mortgage 559,437 581,929 (22,492 ) (3.9 )% Consumer 650,144 638,403 11,741 1.8 % Subtotal 3,314,208 3,398,190 (83,982 ) (2.5 )% Loans held for sale 7,228 7,798 (570 ) (7.3 )% Mortgage warehouse 205,311 266,246 (60,935 ) (22.9 )% Total loans $ 3,526,747 $ 3,672,234 $ (145,487 ) (4.0 )% Residential mortgage lending activity for the three months ended June 30, 2021 generated $5.6 million in income from the gain on sale of mortgage loans, increasing $316,000 from the first quarter of 2021 and decreasing $1.0 million from the second quarter of 2020. Total origination volume for the second quarter of 2021, including loans placed into the portfolio, totaled $173.0 million, representing an increase of 11.2% from first quarter 2021 levels, and a decrease of 31.6% from the second quarter of 2020. As a percentage of total originations, 39% of the volume was for refinances and 61% was for new purchases during the second quarter of 2021. Total origination volume of loans sold to the secondary market totaled $113.2 million, representing a decrease of 10.2% from the first quarter of 2021 and a decrease of 41.2% from the second quarter of 2020.
Revenue derived from Horizon's residential mortgage and mortgage warehouse lending activities was 12% for the three months ended June 30, 2021, compared to 14% for the linked quarter and 15% for the three months ended June 30, 2020.
Expense Management
Three Months Ended June 30, March 31, 2021 2021 Adjusted Non–interest Expense Actual Acquisition
ExpensesAdjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries and employee benefits $ 17,730 $ — $ 17,730 $ 16,871 $ — $ 16,871 $ 859 5.1 % Net occupancy expenses 3,084 — 3,084 3,318 — 3,318 (234 ) (7.1 )% Data processing 2,388 — 2,388 2,376 — 2,376 12 0.5 % Professional fees 588 (51 ) 537 544 — 544 (7 ) (1.3 )% Outside services and consultants 2,220 (187 ) 2,033 1,702 — 1,702 331 19.4 % Loan expense 3,107 — 3,107 2,822 — 2,822 285 10.1 % FDIC insurance expense 500 — 500 800 — 800 (300 ) (37.5 )% Other losses 6 — 6 283 — 283 (277 ) (97.9 )% Other expense 3,765 (4 ) 3,761 3,456 — 3,456 305 8.8 % Total non–interest expense $ 33,388 $ (242 ) $ 33,146 $ 32,172 $ — $ 32,172 $ 974 3.0 % Annualized non–interest expense to average assets 2.18 % 2.16 % 2.20 % 2.20 % Total non–interest expense was $1.2 million higher in the second quarter of 2021 when compared to the first quarter of 2021. The increase in expenses was primarily due to an increase in salaries and employee benefits of $859,000, an increase in outside services and consultants of $518,000, an increase in other expenses of $309,000 and an increase in loan expense of $285,000, offset by decreases in FDIC insurance expense of $300,000, other losses of $277,000 and net occupancy of $234,000. The increase in salaries and employee benefits expense was due to a decrease of $581,000 in deferred loan origination costs and an increase of $272,000 in health insurance expense. Excluding acquisition expenses, total non–interest expense increased by $974,000 in the second quarter of 2021 when compared to the first quarter of 2021.
Three Months Ended June 30, June 30, 2021 2020 Adjusted Non–interest Expense Actual Acquisition
ExpensesAdjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries and employee benefits $ 17,730 $ — $ 17,730 $ 15,629 $ — $ 15,629 $ 2,101 13.4 % Net occupancy expenses 3,084 — 3,084 3,190 — 3,190 (106 ) (3.3 )% Data processing 2,388 — 2,388 2,432 — 2,432 (44 ) (1.8 )% Professional fees 588 (51 ) 537 518 — 518 19 3.7 % Outside services and consultants 2,220 (187 ) 2,033 1,759 — 1,759 274 15.6 % Loan expense 3,107 — 3,107 2,692 — 2,692 415 15.4 % FDIC insurance expense 500 — 500 235 — 235 265 112.8 % Other losses 6 — 6 193 — 193 (187 ) (96.9 )% Other expense 3,765 (4 ) 3,761 3,784 — 3,784 (23 ) (0.6 )% Total non–interest expense $ 33,388 $ (242 ) $ 33,146 $ 30,432 $ — $ 30,432 $ 2,714 8.9 % Annualized non–interest expense to average assets 2.18 % 2.16 % 2.18 % 2.18 % Total non–interest expense was $3.0 million higher in the second quarter of 2021 when compared to the second quarter of 2020. Increases in salaries and employee benefits, outside services and consultants, loan expense and FDIC insurance expense were offset in part by decreases in other losses and net occupancy expenses. Excluding acquisition expenses, total non–interest expense increased by $2.7 million in the second quarter when compared to the same prior year period.
Six Months Ended June 30, June 30, 2021 2020 Adjusted Non–interest Expense Actual Acquisition
ExpensesAdjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries and employee benefits $ 34,601 $ — $ 34,601 $ 32,220 $ — $ 32,220 $ 2,381 7.4 % Net occupancy expenses 6,402 — 6,402 6,442 — 6,442 (40 ) (0.6 )% Data processing 4,764 — 4,764 4,837 — 4,837 (73 ) (1.5 )% Professional fees 1,132 (51 ) 1,081 1,054 — 1,054 27 2.6 % Outside services and consultants 3,922 (187 ) 3,735 3,674 — 3,674 61 1.7 % Loan expense 5,929 — 5,929 4,791 — 4,791 1,138 23.8 % FDIC insurance expense 1,300 — 1,300 385 — 385 915 237.7 % Other losses 289 — 289 313 — 313 (24 ) (7.7 )% Other expense 7,221 (4 ) 7,217 7,865 — 7,865 (648 ) (8.2 )% Total non–interest expense $ 65,560 $ (242 ) $ 65,318 $ 61,581 $ — $ 61,581 $ 3,737 6.1 % Annualized non–interest expense to average assets 2.19 % 2.18 % 2.28 % 2.28 % Total non–interest expense was $4.0 million higher for the first six months of 2021 when compared to the same prior year period. Increases in salaries and employee benefits, loan expenses and FDIC insurance expense were offset in part by a decrease in other expense. Excluding acquisition expenses, total non–interest expense increased $3.7 million for the first six months of 2021 when compared to the same prior year period.
Annualized non–interest expense as a percent of average assets was 2.18%, 2.20% and 2.18% for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively. Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.16%, 2.20% and 2.18% for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively.Annualized non–interest expense as a percent of average assets was 2.19% and 2.28% for the six months ended June 30, 2021 and 2020, respectively. Annualized non–interest expense, excluding acquisition expenses, as a percentage of average assets was 2.18% and 2.28% for the six months ended June 30, 2021 and 2020, respectively.
Income tax expense totaled $3.8 million for the second quarter of 2021, an increase of $320,000 when compared to the first quarter of 2021 and an increase of $1.8 million when compared to the second quarter of 2020. The increase in income tax expense in the second quarter of 2021 compared to both periods was primarily due to increases in income before tax expense.
Income tax expense totaled $7.2 million for the six months ended June 30, 2021, an increase of $3.6 million when compared to the six months ended June 30, 2020. The increase in income tax expense was primarily due to an increase in income before taxes of $19.9 million.
Capital
The capital resources of the Company and the Bank exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2021. Stockholders’ equity totaled $710.4 million at June 30, 2021 and the ratio of average stockholders’ equity to average assets was 11.62% for the six months ended June 30, 2021.
Capital levels benefited from the Company’s previously disclosed public offering of subordinated notes raising $60.0 million in June 2020. Horizon’s fortress balance sheet at June 30, 2021 maintained adequate regulatory capital ratios when stress testing for highly adverse scenarios.
The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of June 30, 2021.
Actual Required for Capital
Adequacy PurposesRequired for Capital
Adequacy Purposes
with Capital BufferWell Capitalized
Under Prompt
Corrective Action
ProvisionsAmount Ratio Amount Ratio Amount Ratio Amount Ratio Total capital (to risk–weighted assets) Consolidated $ 687,957 16.65 % $ 330,550 8.00 % $ 433,847 10.50 % N/A N/A Bank 562,810 13.59 % 331,308 8.00 % 434,842 10.50 % $ 414,135 10.00 % Tier 1 capital (to risk–weighted assets) Consolidated 634,359 15.35 % 247,958 6.00 % 351,274 8.50 % N/A N/A Bank 510,983 12.34 % 248,452 6.00 % 351,974 8.50 % 331,269 8.00 % Common equity tier 1 capital (to risk–weighted assets) Consolidated 519,058 12.56 % 185,968 4.50 % 289,284 7.00 % N/A N/A Bank 510,983 12.34 % 186,339 4.50 % 289,861 7.00 % 269,156 6.50 % Tier 1 capital (to average assets) Consolidated 634,359 10.76 % 235,821 4.00 % 235,821 4.00 % N/A N/A Bank 510,983 8.72 % 234,396 4.00 % 234,396 4.00 % 292,995 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 repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the “FHLB”). At June 30, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $890.6 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $1.187 billion of unpledged investment securities at June 30, 2021.
Branch Network and Customer Experience
Horizon continues to implement its disciplined approach to enhancing the efficiency of its branch network on an ongoing basis, while leveraging technology to enhance the customer experience. Following management's annual review of branch performance for potential closure and a third–party consulting firm’s review of the Bank's physical branch network and strategy, Horizon’s Board of Directors approved the permanent closure on August 27, 2021 of nine branch locations in Indiana and one office in Michigan. At the same time, the Bank continues to invest in its Midwest footprint. On May 25, 2021, Horizon announced it agreed to acquire 14 TCF National Bank branches with approximately $976 million in deposits and $278 million in associated loans in a financially and strategically attractive extension of the Bank's low–cost deposit franchise in Michigan. Horizon expects to close the transaction during the third quarter of 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 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) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Total stockholders’ equity $ 710,374 $ 689,379 $ 692,216 $ 670,293 $ 652,206 Less: Intangible assets 172,398 173,296 174,193 175,107 176,020 Total tangible stockholders’ equity $ 537,976 $ 516,083 $ 518,023 $ 495,186 $ 476,186 Common shares outstanding 43,950,720 43,949,189 43,880,562 43,874,353 43,821,878 Book value per common share $ 16.16 $ 15.69 $ 15.78 $ 15.28 $ 14.88 Tangible book value per common share $ 12.24 $ 11.74 $ 11.81 $ 11.29 $ 10.87 Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2021 2021 2020 2020 2020 2021 2020 Non–interest expense as reported $ 33,388 $ 32,172 $ 36,453 $ 33,407 $ 30,432 $ 65,560 $ 61,581 Net interest income as reported 42,632 42,538 43,622 43,397 42,996 85,170 83,921 Non–interest income as reported $ 15,207 $ 13,873 $ 19,733 $ 16,700 $ 11,125 $ 29,080 $ 23,188 Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”)57.73 % 57.03 % 57.54 % 55.59 % 56.23 % 57.38 % 57.49 % Non–interest expense as reported $ 33,388 $ 32,172 $ 36,453 $ 33,407 $ 30,432 $ 65,560 $ 61,581 Acquisition expenses (242 ) — — — — (242 ) — Non–interest expense excluding acquisition expenses 33,146 32,172 36,453 33,407 30,432 65,318 61,581 Net interest income as reported 42,632 42,538 43,622 43,397 42,996 85,170 83,921 Prepayment penalties on borrowings 125 — 3,804 — — 125 — Net interest income excluding prepayment penalties on borrowings 42,757 42,538 47,426 43,397 42,996 85,295 83,921 Non–interest income as reported 15,207 13,873 19,733 16,700 11,125 29,080 23,188 (Gain) / loss on sale of investment securities — (914 ) (2,622 ) (1,088 ) (248 ) (914 ) (587 ) Death benefit on BOLI (266 ) — — (31 ) — (266 ) (233 ) Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI $ 14,941 $ 12,959 $ 17,111 $ 15,581 $ 10,877 $ 27,900 $ 22,368 Adjusted efficiency ratio 57.45 % 57.97 % 56.48 % 56.64 % 56.49 % 57.70 % 57.94 % Non–GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2021 2021 2020 2020 2020 2021 2020 Average assets $ 6,142,507 $ 5,936,149 $ 5,864,086 $ 5,768,691 $ 5,620,695 $ 6,039,897 $ 5,433,187 Return on average assets (“ROAA”) as reported 1.45 % 1.40 % 1.49 % 1.40 % 1.05 % 1.42 % 0.97 % Acquisition expenses 0.02 — — — — 0.01 — Tax effect — — — — — — — ROAA excluding acquisition expenses 1.47 1.40 1.49 1.40 1.05 1.43 0.97 (Gain) / loss on sale of investment securities — (0.06 ) (0.18 ) (0.08 ) (0.02 ) (0.03 ) (0.02 ) Tax effect — 0.01 0.04 0.02 — 0.01 — ROAA excluding (gain) / loss on sale of investment securities 1.47 1.35 1.35 1.34 1.03 1.41 0.95 Death benefit on BOLI (0.02 ) — — — — (0.01 ) (0.01 ) ROAA excluding death benefit on BOLI 1.45 1.35 1.35 1.34 1.03 1.40 0.94 Prepayment penalties on borrowings 0.01 — 0.26 — — — — Tax effect — — (0.05 ) — — — — ROAA excluding prepayment penalties on borrowings 1.46 1.35 1.56 1.34 1.03 1.40 0.94 Adjusted ROAA 1.46 % 1.35 % 1.56 % 1.34 % 1.03 % 1.40 % 0.94 % Non–GAAP Reconciliation of Return on Average Common Equity (Dollars in Thousands, Unaudited) Three Months Ended Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, 2021 2021 2020 2020 2020 2021 2020 Average common equity $ 706,652 $ 697,401 $ 680,857 $ 668,797 $ 649,490 $ 702,052 $ 655,538 Return on average common equity (“ROACE”) as reported 12.59 % 11.88 % 12.79 % 12.08 % 9.07 % 12.23 % 8.07 % Acquisition expenses 0.14 — — — — 0.07 — Tax effect (0.03 ) — — — — (0.01 ) — ROACE excluding acquisition expenses 12.70 11.88 12.79 12.08 9.07 12.29 8.07 (Gain) / loss on sale of investment securities — (0.53 ) (1.53 ) (0.65 ) (0.15 ) (0.26 ) (0.18 ) Tax effect — 0.11 0.32 0.14 0.03 0.06 0.04 ROACE excluding (gain) / loss on sale of investment securities 12.70 11.46 11.58 11.57 8.95 12.09 7.93 Death benefit on BOLI (0.15 ) — — (0.02 ) — (0.08 ) (0.07 ) ROACE excluding death benefit on BOLI 12.55 11.46 11.58 11.55 8.95 12.01 7.86 Prepayment penalties on borrowings 0.07 — 2.22 — — 0.04 — Tax effect (0.01 ) — (0.47 ) — — (0.01 ) — ROACE excluding prepayment penalties on borrowings 12.61 % 11.46 % 13.33 % 11.55 % 8.95 % 12.04 % 7.86 % Adjusted ROACE 12.61 % 11.46 % 13.33 % 11.55 % 8.95 % 12.04 % 7.86 % Conference Call
As previously announced, Horizon will host a conference call to review its second quarter financial results and operating performance.
Participants may access the live conference call on July 28, 2021 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 877–317–6789 from the United States, 866–450–4696 from Canada or 412–317–6789 from international locations and requesting the “Horizon Bancorp Call.” Participants are asked to dial in approximately 10 minutes prior to the call.
A telephone replay of the call will be available approximately one hour after the end of the conference through August 4, 2021. The replay may be accessed by dialing 877–344–7529 from the United States, 855–669–9658 from Canada or 412–317–0088 from other international locations, and entering the access code 10157826.
About Horizon Bancorp, Inc.
Horizon Bancorp, Inc. (NASDAQ GS: HBNC) is the $6.1 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.
Financial Highlights (Dollars in Thousands, Unaudited) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Balance sheet: Total assets $ 6,109,227 $ 6,055,528 $ 5,886,614 $ 5,790,143 $ 5,739,262 Interest earning deposits & federal funds sold 209,304 444,239 158,979 15,707 82,328 Interest earning time deposits 6,994 7,983 8,965 9,213 9,247 Investment securities 1,844,470 1,423,825 1,302,701 1,195,613 1,126,075 Commercial loans 2,104,627 2,177,858 2,192,271 2,321,608 2,312,715 Mortgage warehouse loans 205,311 266,246 395,626 374,653 300,386 Residential mortgage loans 559,437 581,929 624,286 675,220 704,410 Consumer loans 650,144 638,403 655,200 658,884 660,871 Earning assets 5,610,538 5,571,304 5,374,589 5,286,974 5,235,553 Non–interest bearing deposit accounts 1,102,950 1,133,412 1,053,242 1,016,646 981,868 Interest bearing transaction accounts 3,105,328 2,947,438 2,802,673 2,600,691 2,510,854 Time deposits 573,348 640,966 675,218 718,952 814,877 Borrowings 439,094 481,488 475,000 587,473 583,073 Subordinated notes 58,676 58,640 58,603 58,566 58,824 Junior subordinated debentures issued to capital trusts 56,662 56,604 56,548 56,491 56,437 Total stockholders’ equity 710,374 689,379 692,216 670,293 652,206 Financial Highlights (Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Income statement: Net interest income $ 42,632 $ 42,538 $ 43,622 $ 43,397 $ 42,996 Credit loss expense (recovery) (1,492 ) 367 3,042 2,052 7,057 Non–interest income 15,207 13,873 19,733 16,700 11,125 Non–interest expense 33,388 32,172 36,453 33,407 30,432 Income tax expense 3,770 3,450 1,967 4,326 1,993 Net income $ 22,173 $ 20,422 $ 21,893 $ 20,312 $ 14,639 Per share data: Basic earnings per share $ 0.50 $ 0.46 $ 0.50 $ 0.46 $ 0.33 Diluted earnings per share 0.50 0.46 0.50 0.46 0.33 Cash dividends declared per common share 0.13 0.12 0.12 0.12 0.12 Book value per common share 16.16 15.69 15.78 15.28 14.88 Tangible book value per common share 12.24 11.74 11.81 11.29 10.87 Market value – high 19.13 19.94 15.86 11.48 12.44 Market value – low $ 16.98 $ 15.43 $ 10.16 $ 9.05 $ 8.40 Weighted average shares outstanding – Basis 43,950,501 43,919,549 43,862,435 43,862,435 43,781,249 Weighted average shares outstanding – Diluted 44,111,103 44,072,581 43,903,881 43,903,881 43,802,794 Key ratios: Return on average assets 1.45 % 1.40 % 1.49 % 1.40 % 1.05 % Return on average common stockholders’ equity 12.59 11.88 12.79 12.08 9.07 Net interest margin 3.14 3.29 3.34 3.39 3.47 Allowance for credit losses to total loans 1.58 1.56 1.47 1.39 1.38 Average equity to average assets 11.50 11.75 11.61 11.59 11.56 Efficiency ratio 57.73 57.03 57.54 55.59 56.23 Annualized non–interest expense to average assets 2.18 2.20 2.47 2.30 2.18 Bank only capital ratios: Tier 1 capital to average assets 8.72 8.81 8.71 8.57 8.48 Tier 1 capital to risk weighted assets 12.34 12.71 11.29 10.67 10.49 Total capital to risk weighted assets 13.59 13.86 12.21 11.56 11.74 Financial Highlights (Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited) Six Months Ended June 30, June 30, 2021 2020 Income statement: Net interest income $ 85,170 $ 83,921 Credit loss expense (recovery) (1,125 ) 15,657 Non–interest income 29,080 23,188 Non–interest expense 65,560 61,581 Income tax expense 7,220 3,577 Net income $ 42,595 $ 26,294 Per share data: Basic earnings per share $ 0.97 $ 0.59 Diluted earnings per share 0.97 0.59 Cash dividends declared per common share 0.25 0.24 Book value per common share 16.16 14.88 Tangible book value per common share 12.24 10.87 Market value – high 19.94 18.79 Market value – low $ 15.43 $ 7.97 Weighted average shares outstanding – Basis 43,935,111 44,219,880 Weighted average shares outstanding – Diluted 44,092,577 44,286,864 Key ratios: Return on average assets 1.42 % 0.97 % Return on average common stockholders’ equity 12.23 8.07 Net interest margin 3.21 3.51 Allowance for credit losses to total loans 1.58 1.38 Average equity to average assets 11.62 12.07 Efficiency ratio 57.38 57.49 Annualized non–interest expense to average assets 2.19 2.28 Bank only capital ratios: Tier 1 capital to average assets 8.72 8.48 Tier 1 capital to risk weighted assets 12.34 10.49 Total capital to risk weighted assets 13.59 11.74 Financial Highlights (Dollars in Thousands Except Ratios, Unaudited) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Loan data: Substandard loans $ 82,488 $ 86,472 $ 98,874 $ 88,286 $ 61,385 30 to 89 days delinquent 3,336 5,099 6,938 5,513 3,853 Non–performing loans: 90 days and greater delinquent – accruing interest — 267 262 331 123 Trouble debt restructures – accruing interest 1,853 1,828 1,793 1,825 2,039 Trouble debt restructures – non–accrual 2,294 2,271 2,610 2,704 3,443 Non–accrual loans 18,175 20,700 22,142 24,454 22,451 Total non–performing loans $ 22,322 $ 25,066 $ 26,807 $ 29,314 $ 28,056 Non–performing loans to total loans 0.63 % 0.68 % 0.69 % 0.72 % 0.70 % Allocation of the Allowance for Credit Losses (Dollars in Thousands, Unaudited) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Commercial $ 41,766 $ 42,980 $ 42,210 $ 39,795 $ 39,147 Residential mortgage 4,108 4,229 4,620 5,464 5,832 Mortgage warehouse 1,155 1,163 1,267 1,250 1,190 Consumer 8,620 8,814 8,930 9,810 8,921 Total $ 55,649 $ 57,186 $ 57,027 $ 56,319 $ 55,090 Net Charge–offs (Recoveries) (Dollars in Thousands Except Ratios, Unaudited) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Commercial $ 40 $ 158 $ 23 $ 488 $ 6 Residential mortgage (23 ) (65 ) (10 ) 136 24 Mortgage warehouse — — — — — Consumer 22 115 216 199 377 Total $ 39 $ 208 $ 229 $ 823 $ 407 Percent of net charge–offs (recoveries) to average loans outstanding for the period 0.00 % 0.01 % 0.01 % 0.02 % 0.01 % Total Non–performing Loans (Dollars in Thousands Except Ratios, Unaudited) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Commercial $ 10,345 $ 12,802 $ 14,348 $ 16,169 $ 14,238 Residential mortgage 7,841 7,916 7,994 9,209 9,945 Mortgage warehouse — — — — — Consumer 4,136 4,348 4,465 3,936 3,873 Total $ 22,322 $ 25,066 $ 26,807 $ 29,314 $ 28,056 Non–performing loans to total loans 0.63 % 0.68 % 0.69 % 0.72 % 0.70 % Other Real Estate Owned and Repossessed Assets (Dollars in Thousands, Unaudited) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Commercial $ 1,400 $ 1,696 $ 1,908 $ 2,191 $ 2,374 Residential mortgage 37 37 — 70 249 Mortgage warehouse — — — — — Consumer 46 — — 80 20 Total $ 1,483 $ 1,733 $ 1,908 $ 2,341 $ 2,643 Average Balance Sheets (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended June 30, 2021 June 30, 2020 Average
BalanceInterest Average
RateAverage
BalanceInterest Average
RateAssets Interest earning assets Federal funds sold $ 359,184 $ 98 0.11 % $ 62,832 $ 17 0.11 % Interest earning deposits 29,584 44 0.60 % 20,278 61 1.21 % Investment securities – taxable 645,139 2,386 1.48 % 481,552 2,243 1.87 % Investment securities – non–taxable (1) 1,054,703 5,656 2.72 % 647,375 4,105 3.15 % Loans receivable (2) (3) 3,570,774 39,236 4.43 % 3,900,599 43,918 4.54 % Total interest earning assets 5,659,384 47,420 3.48 % 5,112,636 50,344 4.05 % Non–interest earning assets Cash and due from banks 84,469 84,297 Allowance for credit losses (57,196 ) (48,611 ) Other assets 455,850 472,373 Total average assets $ 6,142,507 $ 5,620,695 Liabilities and Stockholders’ Equity Interest bearing liabilities Interest bearing deposits $ 3,680,796 $ 2,053 0.22 % $ 3,299,661 $ 4,506 0.55 % Borrowings 453,856 1,296 1.15 % 618,274 2,074 1.35 % Subordinated notes 58,653 881 6.02 % 4,527 58 5.15 % Junior subordinated debentures issued to capital trusts 56,627 558 3.95 % 52,835 710 5.40 % Total interest bearing liabilities 4,249,932 4,788 0.45 % 3,975,297 7,348 0.74 % Non–interest bearing liabilities Demand deposits 1,139,068 924,890 Accrued interest payable and other liabilities 46,855 71,018 Stockholders’ equity 706,652 649,490 Total average liabilities and stockholders’ equity $ 6,142,507 $ 5,620,695 Net interest income / spread $ 42,632 3.03 % $ 42,996 3.31 % Net interest income as a percent of average interest earning assets (1) 3.14 % 3.47 % (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) Six Months Ended Six Months Ended June 30, 2021 June 30, 2020 Average
BalanceInterest Average
RateAverage
BalanceInterest Average
RateAssets Interest earning assets Federal funds sold $ 313,467 $ 164 0.11 % $ 43,903 $ 113 0.52 % Interest earning deposits 27,567 90 0.66 % 23,391 163 1.40 % Investment securities – taxable 528,250 3,822 1.46 % 491,360 4,943 2.02 % Investment securities – non–taxable (1) 1,005,855 10,879 2.76 % 618,080 7,903 3.16 % Loans receivable (2) (3) 3,674,977 80,054 4.41 % 3,752,654 88,876 4.78 % Total interest earning assets 5,550,116 95,009 3.57 % 4,929,388 101,998 4.25 % Non–interest earning assets Cash and due from banks 84,866 81,203 Allowance for credit losses (57,486 ) (36,588 ) Other assets 462,401 459,184 Total average assets $ 6,039,897 $ 5,433,187 Liabilities and Stockholders’ Equity Interest bearing liabilities Interest bearing deposits $ 3,602,882 $ 4,396 0.25 % $ 3,262,492 $ 12,222 0.75 % Borrowings 465,502 2,565 1.11 % 575,702 4,312 1.51 % Subordinated notes 58,635 1,761 6.06 % 2,264 58 5.15 % Junior subordinated debentures issued to capital trusts 56,599 1,117 3.98 % 52,801 1,485 5.66 % Total interest bearing liabilities 4,183,618 9,839 0.47 % 3,893,259 18,077 0.93 % Non–interest bearing liabilities Demand deposits 1,101,377 820,997 Accrued interest payable and other liabilities 52,850 63,393 Stockholders’ equity 702,052 655,538 Total average liabilities and stockholders’ equity $ 6,039,897 $ 5,433,187 Net interest income / spread $ 85,170 3.10 % $ 83,921 3.32 % Net interest income as a percent of average interest earning assets (1) 3.21 % 3.51 % (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) June 30,
2021December 31,
2020(Unaudited) Assets Cash and due from banks $ 304,171 $ 249,711 Interest earning time deposits 6,994 8,965 Investment securities, available for sale 1,691,186 1,134,025 Investment securities, held to maturity (fair value $162,651 and $179,990) 153,284 168,676 Loans held for sale 7,228 13,538 Loans, net of allowance for credit losses of $55,649 and $57,027 3,463,870 3,810,356 Premises and equipment, net 88,604 92,416 Federal Home Loan Bank stock 23,023 23,023 Goodwill 151,238 151,238 Other intangible assets 21,160 22,955 Interest receivable 21,702 21,396 Cash value of life insurance 97,071 96,751 Other assets 79,696 93,564 Total assets $ 6,109,227 $ 5,886,614 Liabilities Deposits Non–interest bearing $ 1,102,950 $ 1,053,242 Interest bearing 3,678,676 3,477,891 Total deposits 4,781,626 4,531,133 Borrowings 439,094 475,000 Subordinated notes 58,676 58,603 Junior subordinated debentures issued to capital trusts 56,662 56,548 Interest payable 2,430 2,712 Other liabilities 60,365 70,402 Total liabilities 5,398,853 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 44,039,562 and 43,905,631 shares, Outstanding 43,950,720 and 43,880,562 shares — — Additional paid–in capital 359,227 362,945 Retained earnings 332,509 301,419 Accumulated other comprehensive income 18,638 27,852 Total stockholders’ equity 710,374 692,216 Total liabilities and stockholders’ equity $ 6,109,227 $ 5,886,614 Condensed Consolidated Statements of Income (Dollars in Thousands Except Per Share Data, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Interest income Loans receivable $ 39,236 $ 40,818 $ 46,745 $ 44,051 $ 43,918 Investment securities – taxable 2,528 1,548 1,570 1,704 2,321 Investment securities – non–taxable 5,656 5,223 4,919 4,391 4,105 Total interest income 47,420 47,589 53,234 50,146 50,344 Interest expense Deposits 2,053 2,343 2,718 3,616 4,506 Borrowed funds 1,296 1,269 5,456 1,662 2,074 Subordinated notes 881 880 871 895 58 Junior subordinated debentures issued to capital trusts 558 559 567 576 710 Total interest expense 4,788 5,051 9,612 6,749 7,348 Net interest income 42,632 42,538 43,622 43,397 42,996 Credit loss expense (recovery) (1,492 ) 367 3,042 2,052 7,057 Net interest income after credit loss expense (recovery) 44,124 42,171 40,580 41,345 35,939 Non–interest Income Service charges on deposit accounts 2,157 2,234 2,360 2,154 1,888 Wire transfer fees 222 255 301 298 230 Interchange fees 2,892 2,340 2,645 2,438 2,327 Fiduciary activities 1,961 1,743 2,747 2,105 1,765 Gains / (losses) on sale of investment securities — 914 2,622 1,088 248 Gain on sale of mortgage loans 5,612 5,296 7,815 8,813 6,620 Mortgage servicing income net of impairment 1,503 213 327 (1,308 ) (2,760 ) Increase in cash value of bank owned life insurance 502 511 566 566 557 Death benefit on bank owned life insurance 266 — — 31 — Other income 92 367 350 515 250 Total non–interest income 15,207 13,873 19,733 16,700 11,125 Non–interest expense Salaries and employee benefits 17,730 16,871 20,030 18,832 15,629 Net occupancy expenses 3,084 3,318 3,262 3,107 3,190 Data processing 2,388 2,376 2,126 2,237 2,432 Professional fees 588 544 691 688 518 Outside services and consultants 2,220 1,702 2,083 1,561 1,759 Loan expense 3,107 2,822 2,961 2,876 2,692 FDIC insurance expense 500 800 900 570 235 Other losses 6 283 735 114 193 Other expenses 3,765 3,456 3,665 3,422 3,784 Total non–interest expense 33,388 32,172 36,453 33,407 30,432 Income before income taxes 25,943 23,872 23,860 24,638 16,632 Income tax expense 3,770 3,450 1,967 4,326 1,993 Net income $ 22,173 $ 20,422 $ 21,893 $ 20,312 $ 14,639 Basic earnings per share $ 0.50 $ 0.46 $ 0.50 $ 0.46 $ 0.33 Diluted earnings per share 0.50 0.46 0.50 0.46 0.33 Condensed Consolidated Statements of Income (Dollars in Thousands Except Per Share Data, Unaudited) Six Months Ended June 30, June 30, 2021 2020 Interest income Loans receivable $ 80,054 $ 88,876 Investment securities – taxable 4,076 5,219 Investment securities – non–taxable 10,879 7,903 Total interest income 95,009 101,998 Interest expense Deposits 4,396 12,222 Borrowed funds 2,565 4,312 Subordinated notes 1,761 58 Junior subordinated debentures issued to capital trusts 1,117 1,485 Total interest expense 9,839 18,077 Net interest income 85,170 83,921 Credit loss expense (recovery) (1,125 ) 15,657 Net interest income after credit loss expense (recovery) 86,295 68,264 Non–interest Income Service charges on deposit accounts 4,391 4,334 Wire transfer fees 477 401 Interchange fees 5,232 4,223 Fiduciary activities 3,704 4,293 Gains / (losses) on sale of investment securities 914 587 Gain on sale of mortgage loans 10,908 10,093 Mortgage servicing income net of impairment 1,716 (2,735 ) Increase in cash value of bank owned life insurance 1,013 1,111 Death benefit on bank owned life insurance 266 233 Other income 459 648 Total non–interest income 29,080 23,188 Non–interest expense Salaries and employee benefits 34,601 32,220 Net occupancy expenses 6,402 6,442 Data processing 4,764 4,837 Professional fees 1,132 1,054 Outside services and consultants 3,922 3,674 Loan expense 5,929 4,791 FDIC insurance expense 1,300 385 Other losses 289 313 Other expenses 7,221 7,865 Total non–interest expense 65,560 61,581 Income before income taxes 49,815 29,871 Income tax expense 7,220 3,577 Net income $ 42,595 $ 26,294 Basic earnings per share $ 0.97 $ 0.59 Diluted earnings per share 0.97 0.59 Contract: Mark E. Secor Chief Financial Officer Phone: (219) 873-2611 Fax: (219) 874-9280 
- Net income grew to a record $22.2 million, up 8.6% from the linked quarter and 51.5% from the year–ago period. Diluted earnings per share (“EPS”) of $0.50 includes the $0.01 after–tax impact of expenses associated with Horizon’s agreement to acquire 14 TCF National Bank branches, approximately $976 million in deposits and approximately $278 million in loans in a financially and strategically attractive extension of Horizon’s low–cost deposit franchise in Michigan, announced in the quarter. EPS was $0.46 for the first quarter of 2021 and $0.33 for the second quarter of 2020.