Horizon Bancorp, Inc. Announces Strong Second Quarter 2021 Financial Results Including EPS of $0.50

Michigan City, Indiana, UNITED STATES


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 ReserveJune 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 expenses242               242     
Tax effect(51)              (51)    
Net income excluding acquisition expenses22,364   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 securities22,364   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 BOLI22,098   19,700   19,822   19,421   14,443   41,798   25,597  
Prepayment penalties on borrowings125      3,804         125     
Tax effect(26)     (799)        (26)    
Net income excluding prepayment penalties on borrowings22,197   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 expenses0.01               0.01     
Tax effect                    
Diluted EPS excluding acquisition expenses0.51   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 securities0.51   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 BOLI0.50   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 borrowings0.50   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 expenses242               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 borrowings125      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 loans169,440  252,282  (82,842)  (32.8)%
Residential mortgage559,437  581,929  (22,492)  (3.9)%
Consumer650,144  638,403  11,741   1.8%
Subtotal3,314,208  3,398,190  (83,982)  (2.5)%
Loans held for sale7,228  7,798  (570)  (7.3)%
Mortgage warehouse205,311  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 ExpenseActual Acquisition
Expenses
 Adjusted Actual Acquisition 
Expenses
 Adjusted Amount 
Change
 Percent 
Change
Salaries and employee benefits$17,730  $   $17,730  $16,871  $  $16,871  $859   5.1%
Net occupancy expenses3,084     3,084  3,318    3,318  (234)  (7.1)%
Data processing2,388     2,388  2,376    2,376  12   0.5%
Professional fees588  (51)  537  544    544  (7)  (1.3)%
Outside services and consultants2,220  (187)  2,033  1,702    1,702  331   19.4%
Loan expense3,107     3,107  2,822    2,822  285   10.1%
FDIC insurance expense500     500  800    800  (300)  (37.5)%
Other losses6     6  283    283  (277)  (97.9)%
Other expense3,765  (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 assets2.18%   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 ExpenseActual Acquisition
Expenses
 Adjusted Actual Acquisition
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits$17,730  $   $17,730  $15,629  $  $15,629  $2,101   13.4%
Net occupancy expenses3,084     3,084  3,190    3,190  (106)  (3.3)%
Data processing2,388     2,388  2,432    2,432  (44)  (1.8)%
Professional fees588  (51)  537  518    518  19   3.7%
Outside services and consultants2,220  (187)  2,033  1,759    1,759  274   15.6%
Loan expense3,107     3,107  2,692    2,692  415   15.4%
FDIC insurance expense500     500  235    235  265   112.8%
Other losses6     6  193    193  (187)  (96.9)%
Other expense3,765  (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 assets2.18%   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 ExpenseActual Acquisition 
Expenses
 Adjusted Actual Acquisition 
Expenses
 Adjusted Amount 
Change
 Percent 
Change
Salaries and employee benefits$34,601  $   $34,601  $32,220  $  $32,220  $2,381   7.4%
Net occupancy expenses6,402     6,402  6,442    6,442  (40)  (0.6)%
Data processing4,764     4,764  4,837    4,837  (73)  (1.5)%
Professional fees1,132  (51)  1,081  1,054    1,054  27   2.6%
Outside services and consultants3,922  (187)  3,735  3,674    3,674  61   1.7%
Loan expense5,929     5,929  4,791    4,791  1,138   23.8%
FDIC insurance expense1,300     1,300  385    385  915   237.7%
Other losses289     289  313    313  (24)  (7.7)%
Other expense7,221  (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 assets2.19%   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 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$687,957  16.65% $330,550  8.00% $433,847  10.50% N/A N/A
Bank562,810  13.59% 331,308  8.00% 434,842  10.50% $414,135  10.00%
Tier 1 capital (to risk–weighted assets)               
Consolidated634,359  15.35% 247,958  6.00% 351,274  8.50% N/A N/A
Bank510,983  12.34% 248,452  6.00% 351,974  8.50% 331,269  8.00%
Common equity tier 1 capital (to risk–weighted assets)               
Consolidated519,058  12.56% 185,968  4.50% 289,284  7.00% N/A N/A
Bank510,983  12.34% 186,339  4.50% 289,861  7.00% 269,156  6.50%
Tier 1 capital (to average assets)               
Consolidated634,359  10.76% 235,821  4.00% 235,821  4.00% N/A N/A
Bank510,983  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 assets172,398  173,296  174,193  175,107  176,020 
Total tangible stockholders’ equity$537,976  $516,083  $518,023  $495,186  $476,186 
Common shares outstanding43,950,720  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 reported42,632   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 expenses33,146   32,172   36,453   33,407   30,432   65,318   61,581  
Net interest income as reported42,632   42,538   43,622   43,397   42,996   85,170   83,921  
Prepayment penalties on borrowings125      3,804         125     
Net interest income excluding prepayment penalties on borrowings42,757   42,538   47,426   43,397   42,996   85,295   83,921  
Non–interest income as reported15,207   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 ratio57.45 % 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 reported1.45 % 1.40 % 1.49 % 1.40 % 1.05 % 1.42 % 0.97 %
Acquisition expenses0.02               0.01     
Tax effect                    
ROAA excluding acquisition expenses1.47   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 securities1.47   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 BOLI1.45   1.35   1.35   1.34   1.03   1.40   0.94  
Prepayment penalties on borrowings0.01      0.26              
Tax effect      (0.05)             
ROAA excluding prepayment penalties on borrowings1.46   1.35   1.56   1.34   1.03   1.40   0.94  
Adjusted ROAA1.46 % 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 reported12.59 % 11.88 % 12.79 % 12.08 % 9.07 % 12.23 % 8.07 %
Acquisition expenses0.14               0.07     
Tax effect(0.03)              (0.01)    
ROACE excluding acquisition expenses12.70   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 securities12.70   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 BOLI12.55   11.46   11.58   11.55   8.95   12.01   7.86  
Prepayment penalties on borrowings0.07      2.22         0.04     
Tax effect(0.01)     (0.47)        (0.01)    
ROACE excluding prepayment penalties on borrowings12.61 % 11.46 % 13.33 % 11.55 % 8.95 % 12.04 % 7.86 %
Adjusted ROACE12.61 % 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 sold209,304  444,239  158,979  15,707  82,328 
Interest earning time deposits6,994  7,983  8,965  9,213  9,247 
Investment securities1,844,470  1,423,825  1,302,701  1,195,613  1,126,075 
Commercial loans2,104,627  2,177,858  2,192,271  2,321,608  2,312,715 
Mortgage warehouse loans205,311  266,246  395,626  374,653  300,386 
Residential mortgage loans559,437  581,929  624,286  675,220  704,410 
Consumer loans650,144  638,403  655,200  658,884  660,871 
Earning assets5,610,538  5,571,304  5,374,589  5,286,974  5,235,553 
Non–interest bearing deposit accounts1,102,950  1,133,412  1,053,242  1,016,646  981,868 
Interest bearing transaction accounts3,105,328  2,947,438  2,802,673  2,600,691  2,510,854 
Time deposits573,348  640,966  675,218  718,952  814,877 
Borrowings439,094  481,488  475,000  587,473  583,073 
Subordinated notes58,676  58,640  58,603  58,566  58,824 
Junior subordinated debentures issued to capital trusts56,662  56,604  56,548  56,491  56,437 
Total stockholders’ equity710,374  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 income15,207   13,873  19,733  16,700  11,125 
Non–interest expense33,388   32,172  36,453  33,407  30,432 
Income tax expense3,770   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 share0.50   0.46  0.50  0.46  0.33 
Cash dividends declared per common share0.13   0.12  0.12  0.12  0.12 
Book value per common share16.16   15.69  15.78  15.28  14.88 
Tangible book value per common share12.24   11.74  11.81  11.29  10.87 
Market value – high19.13   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 – Basis43,950,501   43,919,549  43,862,435  43,862,435  43,781,249 
Weighted average shares outstanding – Diluted44,111,103   44,072,581  43,903,881  43,903,881  43,802,794 
          
Key ratios:         
Return on average assets1.45 % 1.40% 1.49% 1.40% 1.05%
Return on average common stockholders’ equity12.59   11.88  12.79  12.08  9.07 
Net interest margin3.14   3.29  3.34  3.39  3.47 
Allowance for credit losses to total loans1.58   1.56  1.47  1.39  1.38 
Average equity to average assets11.50   11.75  11.61  11.59  11.56 
Efficiency ratio57.73   57.03  57.54  55.59  56.23 
Annualized non–interest expense to average assets2.18   2.20  2.47  2.30  2.18 
Bank only capital ratios:         
Tier 1 capital to average assets8.72   8.81  8.71  8.57  8.48 
Tier 1 capital to risk weighted assets12.34   12.71  11.29  10.67  10.49 
Total capital to risk weighted assets13.59   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 income29,080   23,188 
Non–interest expense65,560   61,581 
Income tax expense7,220   3,577 
Net income$42,595   $26,294 
    
Per share data:   
Basic earnings per share$0.97   $0.59 
Diluted earnings per share0.97   0.59 
Cash dividends declared per common share0.25   0.24 
Book value per common share16.16   14.88 
Tangible book value per common share12.24   10.87 
Market value – high19.94   18.79 
Market value – low$15.43   $7.97 
Weighted average shares outstanding – Basis43,935,111   44,219,880 
Weighted average shares outstanding – Diluted44,092,577   44,286,864 
    
Key ratios:   
Return on average assets1.42 % 0.97%
Return on average common stockholders’ equity12.23   8.07 
Net interest margin3.21   3.51 
Allowance for credit losses to total loans1.58   1.38 
Average equity to average assets11.62   12.07 
Efficiency ratio57.38   57.49 
Annualized non–interest expense to average assets2.19   2.28 
Bank only capital ratios:   
Tier 1 capital to average assets8.72   8.48 
Tier 1 capital to risk weighted assets12.34   10.49 
Total capital to risk weighted assets13.59   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 delinquent3,336  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 interest1,853  1,828  1,793  1,825  2,039 
Trouble debt restructures – non–accrual2,294  2,271  2,610  2,704  3,443 
Non–accrual loans18,175  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 loans0.63% 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 mortgage4,108  4,229  4,620  5,464  5,832 
Mortgage warehouse1,155  1,163  1,267  1,250  1,190 
Consumer8,620  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            
Consumer22   115   216   199  377 
Total$39   $208   $229   $823  $407 
Percent of net charge–offs (recoveries) to average loans outstanding for the period0.00 % 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 mortgage7,841   7,916   7,994   9,209   9,945  
Mortgage warehouse—   —   —   —   —  
Consumer4,136   4,348   4,465   3,936   3,873  
Total$22,322   $25,066   $26,807   $29,314   $28,056  
Non–performing loans to total loans0.63 % 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 mortgage37  37    70  249 
Mortgage warehouse         
Consumer46      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 
Balance
 Interest Average 
Rate
 Average 
Balance
 Interest Average 
Rate
Assets           
Interest earning assets           
Federal funds sold$359,184   $98  0.11% $62,832   $17  0.11%
Interest earning deposits29,584   44  0.60% 20,278   61  1.21%
Investment securities – taxable645,139   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 assets5,659,384   47,420  3.48% 5,112,636   50,344  4.05%
Non–interest earning assets           
Cash and due from banks84,469       84,297      
Allowance for credit losses(57,196)      (48,611)     
Other assets455,850       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%
Borrowings453,856   1,296  1.15% 618,274   2,074  1.35%
Subordinated notes58,653   881  6.02% 4,527   58  5.15%
Junior subordinated debentures issued to capital trusts56,627   558  3.95% 52,835   710  5.40%
Total interest bearing liabilities4,249,932   4,788  0.45% 3,975,297   7,348  0.74%
Non–interest bearing liabilities           
Demand deposits1,139,068       924,890      
Accrued interest payable and other liabilities46,855       71,018      
Stockholders’ equity706,652       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 
Balance
 Interest Average 
Rate
 Average 
Balance
 Interest Average 
Rate
Assets           
Interest earning assets           
Federal funds sold$313,467   $164  0.11% $43,903   $113  0.52%
Interest earning deposits27,567   90  0.66% 23,391   163  1.40%
Investment securities – taxable528,250   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 assets5,550,116   95,009  3.57% 4,929,388   101,998  4.25%
Non–interest earning assets           
Cash and due from banks84,866       81,203      
Allowance for credit losses(57,486)      (36,588)     
Other assets462,401       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%
Borrowings465,502   2,565  1.11% 575,702   4,312  1.51%
Subordinated notes58,635   1,761  6.06% 2,264   58  5.15%
Junior subordinated debentures issued to capital trusts56,599   1,117  3.98% 52,801   1,485  5.66%
Total interest bearing liabilities4,183,618   9,839  0.47% 3,893,259   18,077  0.93%
Non–interest bearing liabilities           
Demand deposits1,101,377       820,997      
Accrued interest payable and other liabilities52,850       63,393      
Stockholders’ equity702,052       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, 
2021
 December 31, 
2020
 (Unaudited)  
Assets   
Cash and due from banks$304,171  $249,711 
Interest earning time deposits6,994  8,965 
Investment securities, available for sale1,691,186  1,134,025 
Investment securities, held to maturity (fair value $162,651 and $179,990)153,284  168,676 
Loans held for sale7,228  13,538 
Loans, net of allowance for credit losses of $55,649 and $57,0273,463,870  3,810,356 
Premises and equipment, net88,604  92,416 
Federal Home Loan Bank stock23,023  23,023 
Goodwill151,238  151,238 
Other intangible assets21,160  22,955 
Interest receivable21,702  21,396 
Cash value of life insurance97,071  96,751 
Other assets79,696  93,564 
Total assets$6,109,227  $5,886,614 
    
Liabilities   
Deposits   
Non–interest bearing$1,102,950  $1,053,242 
Interest bearing3,678,676  3,477,891 
Total deposits4,781,626  4,531,133 
Borrowings439,094  475,000 
Subordinated notes58,676  58,603 
Junior subordinated debentures issued to capital trusts56,662  56,548 
Interest payable2,430  2,712 
Other liabilities60,365  70,402 
Total liabilities5,398,853  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 capital359,227  362,945 
Retained earnings332,509  301,419 
Accumulated other comprehensive income18,638  27,852 
Total stockholders’ equity710,374  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 – taxable2,528   1,548  1,570  1,704   2,321  
Investment securities – non–taxable5,656   5,223  4,919  4,391   4,105  
Total interest income47,420   47,589  53,234  50,146   50,344  
Interest expense         
Deposits2,053   2,343  2,718  3,616   4,506  
Borrowed funds1,296   1,269  5,456  1,662   2,074  
Subordinated notes881   880  871  895   58  
Junior subordinated debentures issued to capital trusts558   559  567  576   710  
Total interest expense4,788   5,051  9,612  6,749   7,348  
Net interest income42,632   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 accounts2,157   2,234  2,360  2,154   1,888  
Wire transfer fees222   255  301  298   230  
Interchange fees2,892   2,340  2,645  2,438   2,327  
Fiduciary activities1,961   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 loans5,612   5,296  7,815  8,813   6,620  
Mortgage servicing income net of impairment1,503   213  327  (1,308)  (2,760) 
Increase in cash value of bank owned life insurance502   511  566  566   557  
Death benefit on bank owned life insurance266       31     
Other income92   367  350  515   250  
Total non–interest income15,207   13,873  19,733  16,700   11,125  
Non–interest expense         
Salaries and employee benefits17,730   16,871  20,030  18,832   15,629  
Net occupancy expenses3,084   3,318  3,262  3,107   3,190  
Data processing2,388   2,376  2,126  2,237   2,432  
Professional fees588   544  691  688   518  
Outside services and consultants2,220   1,702  2,083  1,561   1,759  
Loan expense3,107   2,822  2,961  2,876   2,692  
FDIC insurance expense500   800  900  570   235  
Other losses6   283  735  114   193  
Other expenses3,765   3,456  3,665  3,422   3,784  
Total non–interest expense33,388   32,172  36,453  33,407   30,432  
Income before income taxes25,943   23,872  23,860  24,638   16,632  
Income tax expense3,770   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 share0.50   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 – taxable4,076   5,219  
Investment securities – non–taxable10,879   7,903  
Total interest income95,009   101,998  
Interest expense   
Deposits4,396   12,222  
Borrowed funds2,565   4,312  
Subordinated notes1,761   58  
Junior subordinated debentures issued to capital trusts1,117   1,485  
Total interest expense9,839   18,077  
Net interest income85,170   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 accounts4,391   4,334  
Wire transfer fees477   401  
Interchange fees5,232   4,223  
Fiduciary activities3,704   4,293  
Gains / (losses) on sale of investment securities914   587  
Gain on sale of mortgage loans10,908   10,093  
Mortgage servicing income net of impairment1,716   (2,735) 
Increase in cash value of bank owned life insurance1,013   1,111  
Death benefit on bank owned life insurance266   233  
Other income459   648  
Total non–interest income29,080   23,188  
Non–interest expense   
Salaries and employee benefits34,601   32,220  
Net occupancy expenses6,402   6,442  
Data processing4,764   4,837  
Professional fees1,132   1,054  
Outside services and consultants3,922   3,674  
Loan expense5,929   4,791  
FDIC insurance expense1,300   385  
Other losses289   313  
Other expenses7,221   7,865  
Total non–interest expense65,560   61,581  
Income before income taxes49,815   29,871  
Income tax expense7,220   3,577  
Net income$42,595   $26,294  
Basic earnings per share$0.97   $0.59  
Diluted earnings per share0.97   0.59  


Contract:Mark E. Secor
 Chief Financial Officer
Phone:(219) 873-2611
Fax:(219) 874-9280