Horizon Bancorp, Inc. Announces Record Profitability Including Diluted EPS of $0.52

Wednesday, 27. October 2021 22:35

MICHIGAN CITY, Ind., Oct. 27, 2021 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and nine months ending September 30, 2021.

“Organic commercial and consumer loan growth, the extension of Horizon’s Michigan franchise with our branch acquisition completed last month, record net interest income, Horizon’s low–cost deposit franchise, and our efficient operations all contributed to significant growth in pre–tax, pre–provision net income and bottom–line earnings,” Chairman and CEO Craig M. Dwight said. “We continue to conservatively manage our balance sheet while generating meaningful returns on excess liquidity, and we remain well positioned for more significant loan growth in our attractive and business–friendly Midwestern markets, which are seeing significant economic activity and favorable trends in a still–recovering economy.”

Third Quarter 2021 Highlights

  • On September 17, 2021, completed previously announced acquisition of 14 branches in 11 Michigan counties, approximately $206.8 million in loans and $846.4 million in deposits, in a transaction designed to further extend Horizon’s retail franchise and further enhance its low–cost core deposit and funding capability to support lending in its Midwestern growth markets.

  • Net income grew to a record $23.1 million, up 4.0% from the linked quarter and 13.6% from the year–ago period. Diluted earnings per share (“EPS”) of $0.52 was up from $0.50 for the second quarter of 2021 and $0.46 for the third quarter of 2020.

  • Pre–tax, pre–provision net income grew to a record $28.2 million, up 15.5% from the linked quarter and 5.8% 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.)

  • Non–interest expense was $34.3 million in the quarter, or 2.09% of average assets on an annualized basis, compared to $33.4 million, or 2.18%, in the second quarter of 2021 and $33.4 million, or 2.30%, in the third quarter of 2020. Acquisition–related expenses totaled approximately $799,000 in the third quarter of 2021 and $242,000 in the linked quarter.

  • The efficiency ratio for the period was 54.88% compared to 57.73% for the second quarter of 2021 and 55.59% for the third quarter of 2020. The adjusted efficiency ratio was 56.16% compared to 57.45% for the second quarter of 2021 and 56.64% for the third quarter of 2020. (See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)
  • A previously disclosed consolidation of 10 retail locations was completed on August 27 as part of Horizon’s rigorous annual branch performance review process, with employees reassigned to support other staffing needs and growth initiatives. Operating cost saves are largely expected to be redeployed into continued digital banking and technology investments.

  • Net interest income grew to a record $46.5 million for the quarter, up 9.2% from the second quarter of 2021 and 7.3% from the third quarter of 2020. Reported net interest margin (“NIM”) was 3.17% and adjusted NIM was 3.12%, with reported NIM increasing by three basis points and adjusted NIM decreasing by one basis point from the second quarter of 2021. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation of adjusted NIM.) Approximately 16 basis points of the NIM and adjusted NIM is attributed to Federal Paycheck Protection Program (“PPP”) lending, offset by an estimated 16 basis point compression attributed to excess liquidity during the quarter. During the third quarter, Horizon increased the average balance of its investment portfolio by $471.8 million to leverage capital and focus on increasing net interest income.

  • Total non–interest income was $16.0 million, including the recovery of $876,000 from an acquired charged–off loan, as well as a $2.4 million gain from the sale of the Company’s ESOP trustee accounts at the end of the quarter. The sale of these accounts is not expected to have any significant impact to the bottom line due to the related costs saves the Company will incur as it exited these account relationships. Non–interest income was $15.2 million in the second quarter of 2021 and $16.7 million, including a $1.1 million securities sale gain, in the third quarter of 2020.

  • Horizon’s in–market consumer and commercial deposit relationships, including those on–boarded as part of its branch acquisition during the quarter, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.38% in the quarter, compared to 0.45% in the second quarter of 2021 and 0.67% in the third quarter of 2020.

  • Horizon recorded a quarterly provision expense of $1.1 million, reflecting a $2.0 million allocation for loans acquired in the Michigan branch acquisition, as well as, solid asset quality metrics at period end.

  • Commercial loans, excluding PPP lending, grew by 2.3% organically and by 7.5% overall during the quarter to $2.1 billion at period end. Total loans, excluding PPP lending, grew organically 0.3% and 6.4% overall to $3.57 billion.

  • Horizon’s book value per share increased to an all–time high of $16.28 while tangible book value per share decreased to $12.05. (See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table below.) The decrease in tangible book value was a result of the repurchase of shares for approximately $7.6 million and $12.4 million of goodwill and intangible assets recorded during the third quarter.

  • Horizon announced an increase to cash dividends to be paid on October 22, 2021 of 15.4% to $0.15 per share. As of September 30, 2021, in excess of $120.9 million in cash was maintained at the holding company, providing considerable future optionality to build shareholder value. This is Horizon’s second dividend increase in 2021.

  • During the quarter, the Company repurchased 430,026 shares at an average cost of $17.74 per share for a total cost of $7.6 million. This resulted in a reduction in tangible book value of approximately $0.18 per share and an increase in EPS of $0.01 per share for the third quarter.

Summary

  For the Three Months Ended
  September 30, June 30, September 30,
Net Interest Income and Net Interest Margin 2021 2021 2020
Net interest income $46,544  $42,632  $43,397 
Net interest margin 3.17% 3.14% 3.39%
Adjusted net interest margin 3.12% 3.13% 3.27%

“Further improvement in our already low deposit and overall funding costs, coupled with higher average loan yields in the quarter, began to offset pressure from lower yielding investment securities, as evidenced in net interest margin expansion in the third quarter,” Mr. Dwight commented.

  For the Three Months Ended
  September 30, June 30, September 30,
Asset Yields and Funding Costs 2021 2021 2020
Interest earning assets 3.46% 3.48% 3.90%
Interest bearing liabilities 0.38% 0.45% 0.67%


  For the Three Months Ended
Non–interest Income and  September 30, June 30, September 30,
Mortgage Banking Income 2021 2021 2020
Total non–interest income $16,044  $15,207  $16,700 
Gain on sale of mortgage loans 4,088  5,612  8,813 
Mortgage servicing income net of impairment 336  1,503  (1,308)


  For the Three Months Ended
  September 30, June 30, September 30,
Non–interest Expense 2021 2021 2020
Total non–interest expense $34,349  $33,388  $33,407 
Annualized non–interest expense to average assets 2.09% 2.18% 2.30%


  For the Three Months Ended
  September 30, June 30, September 30,
Credit Quality 2021 2021 2020
Allowance for credit losses to total loans 1.55% 1.58% 1.39%
Non–performing loans to total loans 0.80% 0.63% 0.72%
Percent of net charge–offs to average loans outstanding for the period 0.00% 0.00% 0.02%


Allowance for December 31, Net Reserve September 30,
Credit Losses 2020 1Q20 2Q20 3Q20 2021
Commercial $42,210  $770  $(1,214) $1,355  $43,121 
Retail Mortgage 4,620  (391) (121) (371) 3,737 
Warehouse 1,267  (104) (8) (101) 1,054 
Consumer 8,930  (116) (194) 247  8,867 
Allowance for Credit Losses (“ACL”) $57,027  $159  $(1,537) $1,130  $56,779 
ACL / Total Loans 1.47%       1.55%
Acquired Loan Discount (“ALD”) $11,494  $(221) $(815) $(27) $10,431 

“The modest increase in non–performing, substandard and delinquent loans during the third quarter is fully attributed to the portfolio acquired as part of our September branch acquisition as total non–performing loans, excluding acquired loans, decreased $206,000 from June 30, 2021,” Mr. Dwight said. “In addition, we see opportunities to make significant progress on workouts on the acquired loan portfolio, by applying Horizon’s hands–on, personalized and attentive credit–management approach of working with these new borrowers and sponsors,” Mr. Dwight added.

Income Statement Highlights

Net income for the third quarter of 2021 was $23.1 million, or $0.52 diluted earnings per share, compared to $22.2 million, or $0.50, for the linked quarter and $20.3 million, or $0.46, for the prior year period. This represents the highest quarterly net income in the Company’s history.

Adjusted net income for the third quarter of 2021 was $23.0 million, or $0.52 diluted earnings per share, compared to $22.2 million, or $0.50, for the linked quarter and $19.4 million, or $0.45, 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 third quarter of 2021 when compared to the second quarter of 2021 reflects an increase in net interest income of $3.9 million and an increase in non–interest income of $837,000, offset by an increase in credit loss expense of $2.6 million, an increase non–interest expense of $961,000 and an increase in income tax expense of $286,000.

Interest income includes the recognition of PPP interest and net loan processing fees totaling $3.5 million in the third quarter of 2021, compared to $2.7 million in the linked quarter. On September 30, 2021, the Company had $2.5 million in net deferred PPP loan processing fees outstanding and $92.3 million in PPP loans outstanding. PPP net deferred fees and loans outstanding at June 30, 2021 were $5.7 million and $169.4 million, respectively. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness.

Third quarter 2021 income from the gain on sale of mortgage loans totaled $4.1 million, down from $5.6 million in the linked quarter and down from $8.8 million in the prior year period.

Non–interest expense of $34.3 million in the third quarter of 2021 reflected a $1.2 million increase in salaries and employee benefits expense, an increase of $377,000 in other expense, an increase of $138,000 in data processing, an increase of $110,000 in outside services and consulting, and an increase of $63,000 in other losses, offset by a decrease in loan expense of $462,000, a decrease in FDIC deposit insurance expense of $221,000, a decrease in net occupancy expenses of $149,000 and a decrease in professional fees of $66,000, from the linked quarter. Acquisition related expenses in the third quarter of 2021 increased $557,000 from the linked quarter.

The increase in net income for the third quarter of 2021 when compared to the same prior year period reflects an increase in net interest income of $3.1 million, a decrease in credit loss expense of $940,000 and a decrease in income tax expense of $270,000, offset by an increase in non–interest expense of $942,000 and a decrease in non–interest income of $656,000.

Net income for the first nine months of 2021 was $65.7 million, or $1.49 diluted earnings per share, compared to $46.6 million, or $1.06 diluted earnings per share, for the first nine months of 2020. Adjusted net income for the first nine months of 2021 was $64.9 million, or $1.46 diluted earnings per share, compared to $45.0 million, or $1.02 diluted earnings per share, for the first nine months of 2020. The increase in net income for the first nine months of 2021 when compared to the same prior year period reflects a decrease in credit loss expense of $17.7 million, an increase in non–interest income of $5.2 million and an increase in net interest income of $4.4 million, offset by an increase in non–interest expense of $4.9 million and an increase in income tax expense of $3.4 million.

Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30, September 30,
 2021 2021 2021 2020 2020 2021 2020
Net income as reported$23,071  $22,173  $20,422  $21,893  $20,312  $65,666  $46,606 
Acquisition expenses799  242        1,041   
Tax effect(166) (51)       (217)  
Net income excluding acquisition expenses23,704  22,364  20,422  21,893  20,312  66,490  46,606 
Credit loss expense acquired loans2,034          2,034   
Tax effect(427)         (427)  
Net income excluding credit loss expense acquired loans25,311  22,364  20,422  21,893  20,312  68,097  46,606 
Gain on sale of ESOP trustee accounts(2,329)         (2,329)  
Tax effect489          489   
Net income excluding gain on sale of ESOP trustee accounts23,471  22,364  20,422  21,893  20,312  66,257  46,606 
(Gain) / loss on sale of investment securities    (914) (2,622) (1,088) (914) (1,675)
Tax effect    192  551  228  192  352 
Net income excluding (gain) / loss on sale of investment securities23,471  22,364  19,700  19,822  19,452  65,535  45,283 
Death benefit on bank owned life insurance (“BOLI”)(517) (266)     (31) (783) (264)
Net income excluding death benefit on BOLI22,954  22,098  19,700  19,822  19,421  64,752  45,019 
Prepayment penalties on borrowings  125    3,804    125   
Tax effect  (26)   (799)   (26)  
Net income excluding prepayment penalties on borrowings22,954  22,197  19,700  22,827  19,421  64,851  45,019 
Adjusted net income$22,954  $22,197  $19,700  $22,827  $19,421  $64,851  $45,019 


Non–GAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30, September 30,
 2021 2021 2021 2020 2020 2021 2020
Diluted earnings per share (“EPS”) as reported$0.52  $0.50  $0.46  $0.50  $0.46  $1.49  $1.06 
Acquisition expenses0.02  0.01        0.02   
Tax effect             
Diluted EPS excluding acquisition expenses0.54  0.51  0.46  0.50  0.46  1.51  1.06 
Credit loss expense acquired loans0.05          0.05   
Tax effect(0.01)         (0.01)  
Diluted EPS excluding credit loss expense acquired loans0.58  0.51  0.46  0.50  0.46  1.55  1.06 
Gain on sale of ESOP trustee accounts(0.05)         (0.05)  
Tax effect0.01          0.01   
Diluted EPS excluding gain on sale of ESOP trustee accounts0.54  0.51  0.46  0.50  0.46  1.51  1.06 
(Gain) / loss on sale of investment securities    (0.02) (0.06) (0.02) (0.02) (0.04)
Tax effect      0.01  0.01    0.01 
Diluted EPS excluding (gain) / loss on sale of investment securities0.54  0.51  0.44  0.45  0.45  1.49  1.03 
Death benefit on bank owned life insurance (“BOLI”)(0.02) (0.01)       (0.03) (0.01)
Diluted EPS excluding death benefit on BOLI0.52  0.50  0.44  0.45  0.45  1.46  1.02 
Prepayment penalties on borrowings      0.09       
Tax effect      (0.02)      
Diluted EPS excluding prepayment penalties on borrowings0.52  0.50  0.44  0.52  0.45  1.46  1.02 
Adjusted diluted EPS$0.52  $0.50  $0.44  $0.52  $0.45  $1.46  $1.02 


Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income
(Dollars in Thousands, Unaudited)
 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30, September 30,
 2021 2021 2021 2020 2020 2021 2020
Pre–tax income$27,127  $25,943  $23,872  $23,860  $24,638  $76,942  $54,509 
Credit loss expense1,112  (1,492) 367  3,042  2,052  (13) 17,709 
Pre–tax, pre–provision income$28,239  $24,451  $24,239  $26,902  $26,690  $76,929  $72,218 
              
Pre–tax, pre–provision income$28,239  $24,451  $24,239  $26,902  $26,690  $76,929  $72,218 
Acquisition expenses799  242        1,041   
Gain on sale of ESOP trustee accounts(2,329)         (2,329)  
(Gain) / loss on sale of investment securities    (914) (2,622) (1,088) (914) (1,675)
Death benefit on BOLI(517) (266)     (31) (783) (264)
Prepayment penalties on borrowings  125    3,804    125   
Adjusted pre–tax, pre–provision income$26,192  $24,552  $23,325  $28,084  $25,571  $73,944  $70,279 

Horizon’s net interest margin increased to 3.17% for the third quarter of 2021 compared to 3.14% for the second quarter of 2021. The increase in net interest margin reflects a decrease in the cost of interest bearing liabilities of seven basis points, offset by a decrease in the yield on interest earning assets of two basis points. Interest income from acquisition–related purchase accounting adjustments was $645,000 higher during the third quarter of 2021 when compared to the second quarter of 2021.

Horizon’s net interest margin decreased to 3.17% for the third quarter of 2021 compared to 3.39% for the third quarter of 2020. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 44 basis points offset by a decrease in the cost of interest bearing liabilities of 29 basis points.

Horizon’s net interest margin decreased to 3.20% for the first nine months of 2021 compared to 3.48% for the same prior year period. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 60 basis points offset by a decrease in the cost of interest bearing liabilities of 40 basis points.

The net interest margin was impacted during the third and second quarters of 2021 by PPP loans that were originated. Horizon estimates that the PPP loans increased the net interest margin by 16 and seven basis points for the third and second 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 third and second 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 16 and 21 basis points for the third and second 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 Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30, September 30,
 2021 2021 2021 2020 2020 2021 2020
Net interest income as reported$46,544  $42,632  $42,538  $43,622  $43,397  $131,714  $127,318 
Average interest earning assets6,033,088  5,659,384  5,439,634  5,365,888  5,251,611  5,712,875  5,037,540 
Net interest income as a percentage of average interest earning assets (“Net Interest Margin”)3.17% 3.14% 3.29% 3.34% 3.39% 3.20% 3.48%
              
Net interest income as reported$46,544  $42,632  $42,538  $43,622  $43,397  $131,714  $127,318 
Acquisition–related purchase accounting adjustments (“PAUs”)(875) (230) (1,579) (2,461) (1,488) (2,684) (4,475)
Prepayment penalties on borrowings  125    3,804    125   
Adjusted net interest income$45,669  $42,527  $40,959  $44,965  $41,909  $129,030  $122,843 
Adjusted net interest margin3.12% 3.13% 3.17% 3.44% 3.27% 3.14% 3.36%

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 3.12% for the third quarter of 2021, compared to 3.13% for the linked quarter and 3.27% for the third quarter of 2020. Interest income from acquisition–related purchase accounting adjustments was $875,000, $230,000 and $1.5 million for the three months ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

The adjusted net interest margin was 3.14% for the first nine months of 2021 compared to 3.36% for the same prior year period. Interest income from acquisition–related purchase accounting adjustments was $2.7 million and $4.5 million for the nine months ended September 30, 2021 and 2020, respectively.

Lending Activity

Total loan balances were $3.66 billion, or $3.57 billion excluding PPP loans, on September 30, 2021. Total loans were $3.53 billion, or $3.36 billion excluding PPP loans, on June 30, 2021. During the three months ended September 30, 2021, consumer loans, excluding acquired loans, increased $11.1 million and commercial loans, excluding PPP loans and acquired loans, increased $45.3 million, offset by decreases in PPP loans of $77.2 million, mortgage warehouse loans of $35.4 million, residential mortgage loans, excluding acquired loans, of $10.1 million and loans held for sale of $2.4 million.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
 September 30, June 30, Amount Acquired Amount QTD Annualized
 2021 2021 Change Loans Change % Change % Change
Commercial, excluding PPP loans$2,080,943  $1,935,187  $145,756  $(100,406) $45,350  2.3% 9.3%
PPP loans92,257  169,440  (77,183)   (77,183) (45.6)% (180.7)%
Residential mortgage603,540  559,437  44,103  (54,222) (10,119) (1.8)% (7.2)%
Consumer713,432  650,144  63,288  (52,142) 11,146  1.7% 6.8%
Subtotal3,490,172  3,314,208  175,964  (206,770) (30,806) (0.9)% (3.7)%
Loans held for sale4,811  7,228  (2,417)   (2,417) (33.4)% (132.7)%
Mortgage warehouse169,909  205,311  (35,402)   (35,402) (17.2)% (68.4)%
Total loans$3,664,892  $3,526,747  $138,145  $(206,770) $(68,625) (1.9)% (7.7)%
              
Total loans, excluding PPP loans$3,572,635  $3,357,307  $215,328  $(206,770) $8,558  0.3% 1.0%

Residential mortgage lending activity for the three months ended September 30, 2021 generated $4.1 million in income from the gain on sale of mortgage loans, decreasing $1.5 million from the second quarter of 2021 and $4.7 million from the third quarter of 2020. Total origination volume for the third quarter of 2021, including loans placed into the portfolio, totaled $144.3 million, representing a decrease of 16.6% from second quarter 2021 levels, and a decrease of 30.3% from the third quarter of 2020. As a percentage of total originations, 39% of the volume was from refinances and 61% was from new purchases during the third quarter of 2021. Total origination volume of loans sold to the secondary market totaled $103.1 million, representing a decrease of 8.9% from the second quarter of 2021 and a decrease of 38.0% from the third quarter of 2020.

Revenue derived from Horizon's residential mortgage and mortgage warehouse lending activities was 9% for the three months ended September 30, 2021, compared to 12% for the linked quarter and 18% for the three months ended September 30, 2020.

Deposit Activity

Total deposit balances were $5.98 billion on September 30, 2021 compared to $4.78 billion on June 30, 2021, an increase of $1.20 billion. Excluding acquired deposits, total deposits increased $351.9 million during the three months ended September 30, 2021.

Deposit Growth by Type, Excluding Acquired Deposits
(Dollars in Thousands, Unaudited)
 September 30, June 30, Amount  Acquired Amount QTD Annualized
 2021 2021 Change Deposits Change % Change % Change
Non–interest bearing$1,324,757  $1,102,950  $221,807  $(181,403) $40,404  3.7% 14.5%
Interest bearing3,875,882  3,105,328  770,554  (565,538) 205,016  6.6% 26.2%
Time deposits779,260  573,348  205,912  (99,468) 106,444  18.6% 73.7%
Total deposits$5,979,899  $4,781,626  $1,198,273  $(846,409) $351,864  7.4% 29.2%

Expense Management

 Three Months Ended
 September 30, June 30,    
 2021 2021 Adjusted
Non–interest ExpenseActual Acquisition Expenses Adjusted Actual Acquisition
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits$18,901  $(25) $18,876  $17,730  $  $17,730  $1,146  6.5%
Net occupancy expenses2,935  (13) 2,922  3,084    3,084  (162) (5.3)%
Data processing2,526  (17) 2,509  2,388    2,388  121  5.1%
Professional fees522  (53) 469  588  (51) 537  (68) (12.7)%
Outside services and consultants2,330  (401) 1,929  2,220  (187) 2,033  (104) (5.1)%
Loan expense2,645    2,645  3,107    3,107  (462) (14.9)%
FDIC insurance expense279    279  500    500  (221) (44.2)%
Other losses69  (1) 68  6    6  62  1033.3%
Other expense4,142  (289) 3,853  3,765  (4) 3,761  92  2.4%
Total non–interest expense$34,349  $(799) $33,550  $33,388  $(242) $33,146  $404  1.2%
Annualized non–interest expense to average assets2.09%   2.05% 2.18%   2.16%    

Total non–interest expense was $961,000 higher in the third quarter of 2021 when compared to the second quarter of 2021. The increase in expenses was primarily due to an increase in salaries and employee benefits of $1.2 million due to the addition of revenue producing lenders and increasing the incentive bonus accrual. Excluding acquisition expenses, total non–interest expense increased by $404,000 in the third quarter of 2021 when compared to the second quarter of 2021.

 Three Months Ended
 September 30, September 30,    
 2021 2020 Adjusted
Non–interest ExpenseActual Acquisition
Expenses
 Adjusted Actual Acquisition
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits$18,901  $(25) $18,876  $18,832  $  $18,832  $44  0.2%
Net occupancy expenses2,935  (13) 2,922  3,107    3,107  (185) (6.0)%
Data processing2,526  (17) 2,509  2,237    2,237  272  12.2%
Professional fees522  (53) 469  688    688  (219) (31.8)%
Outside services and consultants2,330  (401) 1,929  1,561    1,561  368  23.6%
Loan expense2,645    2,645  2,876    2,876  (231) (8.0)%
FDIC insurance expense279    279  570    570  (291) (51.1)%
Other losses69  (1) 68  114    114  (46) (40.4)%
Other expense4,142  (289) 3,853  3,422    3,422  431  12.6%
Total non–interest expense$34,349  $(799) $33,550  $33,407  $  $33,407  $143  0.4%
Annualized non–interest expense to average assets2.09%   2.05% 2.30%   2.30%    

Total non–interest expense was $942,000 higher in the third quarter of 2021 when compared to the third quarter of 2020. Excluding acquisition expenses, total non–interest expense increased by $143,000 in the third quarter when compared to the same prior year period.

 Nine Months Ended
 September 30, September 30,    
 2021 2020 Adjusted
Non–interest ExpenseActual Acquisition
Expenses
 Adjusted Actual Acquisition
Expenses
 Adjusted Amount
Change
 Percent
Change
Salaries and employee benefits$53,502  $(25) $53,477  $51,052  $  $51,052  $2,425  4.8%
Net occupancy expenses9,337  (13) 9,324  9,549    9,549  (225) (2.4)%
Data processing7,290  (17) 7,273  7,074    7,074  199  2.8%
Professional fees1,654  (104) 1,550  1,742    1,742  (192) (11.0)%
Outside services and consultants6,252  (588) 5,664  5,235    5,235  429  8.2%
Loan expense8,574    8,574  7,667    7,667  907  11.8%
FDIC insurance expense1,579    1,579  955    955  624  65.3%
Other losses358  (1) 357  427    427  (70) (16.4)%
Other expense11,363  (293) 11,070  11,287    11,287  (217) (1.9)%
Total non–interest expense$99,909  $(1,041) $98,868  $94,988  $  $94,988  $3,880  4.1%
Annualized non–interest expense to average assets2.16%   2.13% 2.29%   2.29%    

Total non–interest expense was $4.9 million higher for the first nine 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 $3.9 million for the first nine months of 2021 when compared to the same prior year period.
  
Annualized non–interest expense as a percent of average assets was 2.09%, 2.18% and 2.30% for the three months ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively. Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.05%, 2.16% and 2.30% for the three months ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

Annualized non–interest expense as a percent of average assets was 2.16% and 2.29% for the nine months ended September 30, 2021 and 2020, respectively. Annualized non–interest expense, excluding acquisition expenses, as a percentage of average assets was 2.13% and 2.29% for the nine months ended September 30, 2021 and 2020, respectively.

Income tax expense totaled $4.1 million for the third quarter of 2021, an increase of $320,000 when compared to the second quarter of 2021 and an increase of $1.8 million when compared to the third quarter of 2020. The increase in income tax expense in the third quarter of 2021 compared to both periods was primarily due to increases in income before tax expense.

Income tax expense totaled $11.3 million for the nine months ended September 30, 2021, an increase of $3.4 million when compared to the nine months ended September 30, 2020. The increase in income tax expense was primarily due to an increase in income before taxes of $22.4 million.

Capital

The capital resources of the Company and the Company’s wholly–owned subsidiary bank, Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2021. Stockholders’ equity totaled $708.5 million at September 30, 2021 and the ratio of average stockholders’ equity to average assets was 11.45% for the nine months ended September 30, 2021.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of September 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$678,665  15.27% $355,555  8.00% $466,666  10.50% N/A N/A
Bank575,693  12.97% 355,092  8.00% 466,058  10.50% $443,865  10.00%
Tier 1 capital (to risk–weighted assets)               
Consolidated634,105  14.27% 266,617  6.00% 377,708  8.50% N/A N/A
Bank526,731  11.86% 266,474  6.00% 377,505  8.50% 355,299  8.00%
Common equity tier 1 capital (to risk–weighted assets)               
Consolidated518,670  11.67% 200,001  4.50% 311,113  7.00% N/A N/A
Bank526,731  11.86% 199,856  4.50% 310,887  7.00% 288,681  6.50%
Tier 1 capital (to average assets)               
Consolidated634,105  10.03% 252,883  4.00% 252,883  4.00% N/A N/A
Bank526,731  8.38% 251,423  4.00% 251,423  4.00% 314,279  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 September 30, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $651.7 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $1.7 billion of unpledged investment securities at September 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 September 17, 2021, Horizon Bank closed on the purchase of 14 TCF National Bank branches.

Use of Non–GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for credit losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision income. In each case, we have identified special circumstances that we consider to be non–recurring and have excluded them. We believe that this shows the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations. Horizon believes these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business and financial results without giving effect to the purchase accounting impacts and one–time costs of acquisitions and non–recurring items. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this press release for reconciliations of the non–GAAP information identified herein and its most comparable GAAP measures.

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands, Unaudited)
  
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Total stockholders’ equity$708,542  $710,374  $689,379  $692,216  $670,293 
Less: Intangible assets183,938  172,398  173,296  174,193  175,107 
Total tangible stockholders’ equity$524,604  $537,976  $516,083  $518,023  $495,186 
Common shares outstanding43,520,694  43,950,720  43,949,189  43,880,562  43,874,353 
Book value per common share$16.28  $16.16  $15.69  $15.78  $15.28 
Tangible book value per common share$12.05  $12.24  $11.74  $11.81  $11.29 


Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30, September 30,
 2021 2021 2021 2020 2020 2021 2020
Non–interest expense as reported$34,349  $33,388  $32,172  $36,453  $33,407  $99,909  $94,988 
Net interest income as reported46,544  42,632  42,538  43,622  43,397  131,714  127,318 
Non–interest income as reported$16,044  $15,207  $13,873  $19,733  $16,700  $45,124  $39,888 
Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”)
54.88% 57.73% 57.03% 57.54% 55.59% 56.50% 56.81%
              
Non–interest expense as reported$34,349  $33,388  $32,172  $36,453  $33,407  $99,909  $94,988 
Acquisition expenses(799) (242)       (1,041)  
Non–interest expense excluding acquisition expenses33,550  33,146  32,172  36,453  33,407  98,868  94,988 
Net interest income as reported46,544  42,632  42,538  43,622  43,397  131,714  127,318 
Prepayment penalties on borrowings  125    3,804    125   
Net interest income excluding prepayment penalties on borrowings46,544  42,757  42,538  47,426  43,397  131,839  127,318 
Non–interest income as reported16,044  15,207  13,873  19,733  16,700  45,124  39,888 
Gain on sale of ESOP trustee accounts(2,329)         (2,329)  
(Gain) / loss on sale of investment securities    (914) (2,622) (1,088) (914) (1,675)
Death benefit on BOLI(517) (266)     (31) (783) (264)
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI$13,198  $14,941  $12,959  $17,111  $15,581  $41,098  $37,949 
Adjusted efficiency ratio56.16% 57.45% 57.97% 56.48% 56.64% 57.17% 57.48%


Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30, September 30,
 2021 2021 2021 2020 2020 2021 2020
Average assets$6,507,673  $6,142,507  $5,936,149  $5,864,086  $5,768,691  $6,197,026  $5,549,696 
Return on average assets (“ROAA”) as reported1.41% 1.45% 1.40% 1.49% 1.40% 1.42% 1.12%
Acquisition expenses0.05  0.02        0.02   
Tax effect(0.01)            
ROAA excluding acquisition expenses1.45  1.47  1.40  1.49  1.40  1.44  1.12 
Credit loss expense acquired loans0.12          0.04   
Tax effect(0.03)         (0.01)  
ROAA excluding credit loss expense on acquired loans1.54  1.47  1.40  1.49  1.40  1.47  1.12 
Gain on sale of ESOP trustee accounts(0.14)         (0.05)  
Tax effect0.03          0.01   
ROAA excluding gain on sale of ESOP trustee accounts1.43  1.47  1.40  1.49  1.40  1.43  1.12 
(Gain) / loss on sale of investment securities    (0.06) (0.18) (0.08) (0.02) (0.04)
Tax effect    0.01  0.04  0.02    0.01 
ROAA excluding (gain) / loss on sale of investment securities1.43  1.47  1.35  1.35  1.34  1.41  1.09 
Death benefit on BOLI(0.03) (0.02)       (0.02) (0.01)
ROAA excluding death benefit on BOLI1.40  1.45  1.35  1.35  1.34  1.39  1.08 
Prepayment penalties on borrowings  0.01    0.26       
Tax effect      (0.05)      
ROAA excluding prepayment penalties on borrowings1.40  1.46  1.35  1.56  1.34  1.39  1.08 
Adjusted ROAA1.40% 1.46% 1.35% 1.56% 1.34% 1.39% 1.08%


Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30, September 30,
 2021 2021 2021 2020 2020 2021 2020
Average common equity$724,412  $706,652  $697,401  $680,857  $668,797  $709,587  $660,278 
Return on average common equity (“ROACE”) as reported12.64% 12.59% 11.88% 12.79% 12.08% 12.37% 9.43%
Acquisition expenses0.44  0.14        0.20   
Tax effect(0.09) (0.03)       (0.04)  
ROACE excluding acquisition expenses12.99  12.70  11.88  12.79  12.08  12.53  9.43 
Credit loss expense acquired loans1.11          0.38   
Tax effect(0.23)         (0.08)  
ROACE excluding credit loss expense acquired loans13.87  12.70  11.88  12.79  12.08  12.83  9.43 
Gain on sale of ESOP trustee accounts(1.28)         (0.44)  
Tax effect0.27          0.09   
ROACE excluding gain on sale of ESOP trustee accounts12.86  12.70  11.88  12.79  12.08  12.48  9.43 
(Gain) / loss on sale of investment securities    (0.53) (1.53) (0.65) (0.17) (0.34)
Tax effect    0.11  0.32  0.14  0.04  0.07 
ROACE excluding (gain) / loss on sale of investment securities12.86  12.70  11.46  11.58  11.57  12.35  9.16 
Death benefit on BOLI(0.29) (0.15)     (0.02) (0.15) (0.05)
ROACE excluding death benefit on BOLI12.57  12.55  11.46  11.58  11.55  12.20  9.11 
Prepayment penalties on borrowings  0.07    2.22    0.02   
Tax effect  (0.01)   (0.47)      
ROACE excluding prepayment penalties on borrowings12.57% 12.61% 11.46% 13.33% 11.55% 12.22% 9.11%
Adjusted ROACE12.57% 12.61% 11.46% 13.33% 11.55% 12.22% 9.11%

Earnings Conference Call

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

Participants may access the live conference call on October 28, 2021 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 866–235–9917 from the United States, 855–669–9657 from Canada or 412–902–4103 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 November 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 10160473.

Investor Day

Horizon Bancorp, Inc. will hold a Virtual Investor Day on Thursday, December 2, 2021, 11 a.m. to 1 p.m. CT (12 to 2 p.m. ET). Horizon’s senior management team will discuss the company’s disciplined operating culture, its retail digital experience and franchise, including its recent Michigan branch acquisition, and how it intends to capitalize on commercial and consumer growth opportunities in 2022 and beyond. Additional information, including details on how to register and access the live event and replay, will be made available through a news release to be issued in November.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. (NASDAQ GS: HBNC) is the $7.5 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)
  
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Balance sheet:         
Total assets$7,534,240  $6,109,227  $6,055,528  $5,886,614  $5,790,143 
Interest earning deposits & federal funds sold872,540  209,304  444,239  158,979  15,707 
Interest earning time deposits5,767  6,994  7,983  8,965  9,213 
Investment securities2,438,874  1,844,470  1,423,825  1,302,701  1,195,613 
Commercial loans2,173,200  2,104,627  2,177,858  2,192,271  2,321,608 
Mortgage warehouse loans169,909  205,311  266,246  395,626  374,653 
Residential mortgage loans603,540  559,437  581,929  624,286  675,220 
Consumer loans713,432  650,144  638,403  655,200  658,884 
Earning assets7,006,513  5,610,538  5,571,304  5,374,589  5,286,974 
Non–interest bearing deposit accounts1,324,757  1,102,950  1,133,412  1,053,242  1,016,646 
Interest bearing transaction accounts3,875,882  3,105,328  2,947,438  2,802,673  2,600,691 
Time deposits779,260  573,348  640,966  675,218  718,952 
Borrowings670,753  439,094  481,488  475,000  587,473 
Subordinated notes58,713  58,676  58,640  58,603  58,566 
Junior subordinated debentures issued to capital trusts56,722  56,662  56,604  56,548  56,491 
Total stockholders’ equity708,542  710,374  689,379  692,216  670,293 


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
 Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Income statement:         
Net interest income$46,544  $42,632  $42,538  $43,622  $43,397 
Credit loss expense (recovery)1,112  (1,492) 367  3,042  2,052 
Non–interest income16,044  15,207  13,873  19,733  16,700 
Non–interest expense34,349  33,388  32,172  36,453  33,407 
Income tax expense4,056  3,770  3,450  1,967  4,326 
Net income$23,071  $22,173  $20,422  $21,893  $20,312 
          
Per share data:         
Basic earnings per share$0.53  $0.50  $0.46  $0.50  $0.46 
Diluted earnings per share0.52  0.50  0.46  0.50  0.46 
Cash dividends declared per common share0.15  0.13  0.13  0.12  0.12 
Book value per common share16.28  16.16  15.69  15.78  15.28 
Tangible book value per common share12.05  12.24  11.74  11.81  11.29 
Market value – high18.47  19.13  19.94  15.86  11.48 
Market value – low$15.83  $16.98  $15.43  $10.16  $9.05 
Weighted average shares outstanding – Basis43,810,729  43,950,501  43,919,549  43,862,435  43,862,435 
Weighted average shares outstanding – Diluted43,958,870  44,111,103  44,072,581  43,903,881  43,903,881 
          
Key ratios:         
Return on average assets1.41% 1.45% 1.40% 1.49% 1.40%
Return on average common stockholders’ equity12.64  12.59  11.88  12.79  12.08 
Net interest margin3.17  3.14  3.29  3.34  3.39 
Allowance for credit losses to total loans1.55  1.58  1.56  1.47  1.39 
Average equity to average assets11.13  11.50  11.75  11.61  11.59 
Efficiency ratio54.88  57.73  57.03  57.54  55.59 
Annualized non–interest expense to average assets2.09  2.18  2.20  2.47  2.30 
Bank only capital ratios:         
Tier 1 capital to average assets8.38  8.79  8.81  8.71  8.57 
Tier 1 capital to risk weighted assets11.86  12.80  12.71  11.29  10.67 
Total capital to risk weighted assets12.97  14.09  13.86  12.21  11.56 


Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
 Nine Months Ended
 September 30, September 30,
 2021 2020
Income statement:   
Net interest income$131,714  $127,318 
Credit loss expense (recovery)(13) 17,709 
Non–interest income45,124  39,888 
Non–interest expense99,909  94,988 
Income tax expense11,276  7,903 
Net income$65,666  $46,606 
    
Per share data:   
Basic earnings per share$1.50  $1.06 
Diluted earnings per share1.49  1.06 
Cash dividends declared per common share0.41  0.36 
Book value per common share16.28  15.28 
Tangible book value per common share12.05  11.29 
Market value – high19.94  18.79 
Market value – low$15.43  $7.97 
Weighted average shares outstanding – Basis43,893,194  44,099,862 
Weighted average shares outstanding – Diluted44,047,043  44,165,650 
    
Key ratios:   
Return on average assets1.42% 1.12%
Return on average common stockholders’ equity12.37  9.43 
Net interest margin3.20  3.48 
Allowance for credit losses to total loans1.55  1.39 
Average equity to average assets11.45  11.90 
Efficiency ratio56.50  56.81 
Annualized non–interest expense to average assets2.16  2.29 
Bank only capital ratios:   
Tier 1 capital to average assets8.38  8.57 
Tier 1 capital to risk weighted assets11.86  10.67 
Total capital to risk weighted assets12.97  11.56 


Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
  
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Loan data:         
Substandard loans$91,428  $82,488  $86,472  $98,874  $88,286 
30 to 89 days delinquent3,997  3,336  5,099  6,938  5,513 
          
Non–performing loans:         
90 days and greater delinquent – accruing interest200    267  262  331 
Trouble debt restructures – accruing interest2,433  1,853  1,828  1,793  1,825 
Trouble debt restructures – non–accrual1,604  2,294  2,271  2,610  2,704 
Non–accrual loans25,137  18,175  20,700  22,142  24,454 
Total non–performing loans$29,374  $22,322  $25,066  $26,807  $29,314 
Non–performing loans to total loans0.80% 0.63% 0.68% 0.69% 0.72%


Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
  
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Commercial$43,121  $41,766  $42,980  $42,210  $39,795 
Residential mortgage3,737  4,108  4,229  4,620  5,464 
Mortgage warehouse1,054  1,155  1,163  1,267  1,250 
Consumer8,867  8,620  8,814  8,930  9,810 
Total$56,779  $55,649  $57,186  $57,027  $56,319 


Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
  
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Commercial$(25) $40  $158  $23  $488 
Residential mortgage(29) (23) (65) (10) 136 
Mortgage warehouse         
Consumer36  22  115  216  199 
Total$(18) $39  $208  $229  $823 
Percent of net charge–offs (recoveries) to average loans outstanding for the period0.00% 0.00% 0.01% 0.01% 0.02%


Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
  
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Commercial$16,121  $10,345  $12,802  $14,348  $16,169 
Residential mortgage8,641  7,841  7,916  7,994  9,209 
Mortgage warehouse         
Consumer4,612  4,136  4,348  4,465  3,936 
Total$29,374  $22,322  $25,066  $26,807  $29,314 
Non–performing loans to total loans0.80% 0.63% 0.68% 0.69% 0.72%


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
  
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Commercial$2,861  $1,400  $1,696  $1,908  $2,191 
Residential mortgage117  37  37    70 
Mortgage warehouse         
Consumer29  46      80 
Total$3,007  $1,483  $1,733  $1,908  $2,341 


Average Balance Sheets
(Dollars in Thousands, Unaudited)
 Three Months Ended Three Months Ended
 September 30, 2021 September 30, 2020
 Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets           
Interest earning assets           
Federal funds sold$310,180  $119  0.15% $45,307  $12  0.11%
Interest earning deposits26,352  39  0.59% 28,428  53  0.74%
Investment securities – taxable1,063,177  4,407  1.64% 447,762  1,639  1.46%
Investment securities – non–taxable (1)1,108,503  5,911  2.68% 720,111  4,391  3.07%
Loans receivable (2) (3)3,524,876  40,392  4.56% 4,010,003  44,051  4.39%
Total interest earning assets6,033,088  50,868  3.46% 5,251,611  50,146  3.90%
Non–interest earning assets           
Cash and due from banks87,799      94,039     
Allowance for credit losses(55,703)     (55,271)    
Other assets442,489      478,312     
Total average assets$6,507,673      $5,768,691     
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities           
Interest bearing deposits$3,831,632  $1,808  0.19% $3,334,436  $3,616  0.43%
Borrowings598,327  1,075  0.71% 577,447  1,662  1.15%
Subordinated notes58,689  880  5.95% 58,716  895  6.06%
Junior subordinated debentures issued to capital trusts56,684  561  3.93% 56,458  576  4.06%
Total interest bearing liabilities4,545,332  4,324  0.38% 4,027,057  6,749  0.67%
Non–interest bearing liabilities           
Demand deposits1,180,890      996,427     
Accrued interest payable and other liabilities57,039      76,410     
Stockholders’ equity724,412      668,797     
Total average liabilities and stockholders’ equity$6,507,673      $5,768,691     
            
Net interest income / spread  $46,544  3.08%   $43,397  3.23%
Net interest income as a percent of average interest earning assets (1)    3.17%     3.39%
            
(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)
 Nine Months Ended Nine Months Ended
 September 30, 2021 September 30, 2020
 Average
Balance
 Interest Average
Rate
 Average
Balance
 Interest Average
Rate
Assets           
Interest earning assets           
Federal funds sold$312,359  $284  0.12% $44,375  $125  0.38%
Interest earning deposits27,157  128  0.63% 25,083  216  1.15%
Investment securities – taxable708,519  8,229  1.55% 476,735  6,582  1.84%
Investment securities – non–taxable (1)1,040,447  16,790  2.73% 652,339  12,294  3.19%
Loans receivable (2) (3)3,624,393  120,446  4.46% 3,839,008  132,927  4.64%
Total interest earning assets5,712,875  145,877  3.53% 5,037,540  152,144  4.13%
Non–interest earning assets           
Cash and due from banks85,855      85,511     
Allowance for credit losses(56,885)     (42,864)    
Other assets455,181      469,509     
Total average assets$6,197,026      $5,549,696     
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities           
Interest bearing deposits$3,679,970  $6,204  0.23% $3,286,648  $15,838  0.64%
Borrowings510,264  3,640  0.95% 576,288  5,974  1.38%
Subordinated notes58,653  2,641  6.02% 21,218  953  6.00%
Junior subordinated debentures issued to capital trusts56,628  1,678  3.96% 56,398  2,061  4.88%
Total interest bearing liabilities4,305,515  14,163  0.44% 3,940,552  24,826  0.84%
Non–interest bearing liabilities           
Demand deposits1,128,173      879,840     
Accrued interest payable and other liabilities53,751      69,026     
Stockholders’ equity709,587      660,278     
Total average liabilities and stockholders’ equity$6,197,026      $5,549,696     
            
Net interest income / spread  $131,714  3.09%   $127,318  3.29%
Net interest income as a percent of average interest earning assets (1)    3.20%     3.48%
            
(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)
    
 September 30,
2021
 December 31,
2020
 (Unaudited)  
Assets   
Cash and due from banks$971,817  $249,711 
Interest earning time deposits5,767  8,965 
Investment securities, available for sale1,669,634  1,134,025 
Investment securities, held to maturity (fair value $768,099 and $179,990)769,240  168,676 
Loans held for sale4,811  13,538 
Loans, net of allowance for credit losses of $56,779 and $57,0273,603,302  3,810,356 
Premises and equipment, net93,866  92,416 
Federal Home Loan Bank stock24,440  23,023 
Goodwill162,788  151,238 
Other intangible assets21,150  22,955 
Interest receivable24,762  21,396 
Cash value of life insurance97,003  96,751 
Other assets85,660  93,564 
Total assets$7,534,240  $5,886,614 
    
Liabilities   
Deposits   
Non–interest bearing$1,324,757  $1,053,242 
Interest bearing4,655,142  3,477,891 
Total deposits5,979,899  4,531,133 
Borrowings670,753  475,000 
Subordinated notes58,713  58,603 
Junior subordinated debentures issued to capital trusts56,722  56,548 
Interest payable1,427  2,712 
Other liabilities58,184  70,402 
Total liabilities6,825,698  5,194,398 
Commitments and contingent liabilities   
Stockholders’ equity   
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares   
Common stock, no par value, Authorized 99,000,000 shares Issued 43,609,536 and 43,905,631 shares, Outstanding 43,520,694 and 43,880,562 shares   
Additional paid–in capital351,954  362,945 
Retained earnings348,943  301,419 
Accumulated other comprehensive income7,645  27,852 
Total stockholders’ equity708,542  692,216 
Total liabilities and stockholders’ equity$7,534,240  $5,886,614 


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
 Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Interest income         
Loans receivable$40,392  $39,236  $40,818  $46,745  $44,051 
Investment securities – taxable4,565  2,528  1,548  1,570  1,704 
Investment securities – non–taxable5,911  5,656  5,223  4,919  4,391 
Total interest income50,868  47,420  47,589  53,234  50,146 
Interest expense         
Deposits1,808  2,053  2,343  2,718  3,616 
Borrowed funds1,075  1,296  1,269  5,456  1,662 
Subordinated notes880  881  880  871  895 
Junior subordinated debentures issued to capital trusts561  558  559  567  576 
Total interest expense4,324  4,788  5,051  9,612  6,749 
Net interest income46,544  42,632  42,538  43,622  43,397 
Credit loss expense (recovery)1,112  (1,492) 367  3,042  2,052 
Net interest income after credit loss expense (recovery)45,432  44,124  42,171  40,580  41,345 
Non–interest Income         
Service charges on deposit accounts2,291  2,157  2,234  2,360  2,154 
Wire transfer fees210  222  255  301  298 
Interchange fees2,587  2,892  2,340  2,645  2,438 
Fiduciary activities2,124  1,961  1,743  2,747  2,105 
Gains / (losses) on sale of investment securities    914  2,622  1,088 
Gain on sale of mortgage loans4,088  5,612  5,296  7,815  8,813 
Mortgage servicing income net of impairment336  1,503  213  327  (1,308)
Increase in cash value of bank owned life insurance534  502  511  566  566 
Death benefit on bank owned life insurance517  266      31 
Other income3,357  92  367  350  515 
Total non–interest income16,044  15,207  13,873  19,733  16,700 
Non–interest expense         
Salaries and employee benefits18,901  17,730  16,871  20,030  18,832 
Net occupancy expenses2,935  3,084  3,318  3,262  3,107 
Data processing2,526  2,388  2,376  2,126  2,237 
Professional fees522  588  544  691  688 
Outside services and consultants2,330  2,220  1,702  2,083  1,561 
Loan expense2,645  3,107  2,822  2,961  2,876 
FDIC insurance expense279  500  800  900  570 
Other losses69  6  283  735  114 
Other expenses4,142  3,765  3,456  3,665  3,422 
Total non–interest expense34,349  33,388  32,172  36,453  33,407 
Income before income taxes27,127  25,943  23,872  23,860  24,638 
Income tax expense4,056  3,770  3,450  1,967  4,326 
Net income$23,071  $22,173  $20,422  $21,893  $20,312 
Basic earnings per share$0.53  $0.50  $0.46  $0.50  $0.46 
Diluted earnings per share0.52  0.50  0.46  0.50  0.46 


Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
 Nine Months Ended
 September 30, September 30,
 2021 2020
Interest income   
Loans receivable$120,446  $132,927 
Investment securities – taxable8,641  6,923 
Investment securities – non–taxable16,790  12,294 
Total interest income145,877  152,144 
Interest expense   
Deposits6,204  15,838 
Borrowed funds3,640  5,974 
Subordinated notes2,641  953 
Junior subordinated debentures issued to capital trusts1,678  2,061 
Total interest expense14,163  24,826 
Net interest income131,714  127,318 
Credit loss expense (recovery)(13) 17,709 
Net interest income after credit loss expense (recovery)131,727  109,609 
Non–interest Income   
Service charges on deposit accounts6,682  6,488 
Wire transfer fees687  699 
Interchange fees7,819  6,661 
Fiduciary activities5,828  6,398 
Gains / (losses) on sale of investment securities914  1,675 
Gain on sale of mortgage loans14,996  18,906 
Mortgage servicing income net of impairment2,052  (4,043)
Increase in cash value of bank owned life insurance1,547  1,677 
Death benefit on bank owned life insurance783  264 
Other income3,816  1,163 
Total non–interest income45,124  39,888 
Non–interest expense   
Salaries and employee benefits53,502  51,052 
Net occupancy expenses9,337  9,549 
Data processing7,290  7,074 
Professional fees1,654  1,742 
Outside services and consultants6,252  5,235 
Loan expense8,574  7,667 
FDIC insurance expense1,579  955 
Other losses358  427 
Other expenses11,363  11,287 
Total non–interest expense99,909  94,988 
Income before income taxes76,942  54,509 
Income tax expense11,276  7,903 
Net income$65,666  $46,606 
Basic earnings per share$1.50  $1.06 
Diluted earnings per share1.49  1.06 


Contact:Mark E. Secor
 Chief Financial Officer
Phone:(219) 873-2611
Fax:(219) 874-9280
Date:October 27, 2021

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