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Horizon Bancorp, Inc. Announces Record Profitability Including Diluted EPS of $0.52
ソース: Nasdaq GlobeNewswire / 27 10 2021 16:35:01 America/New_York
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 expenses 799 242 — — — 1,041 — Tax effect (166 ) (51 ) — — — (217 ) — Net income excluding acquisition expenses 23,704 22,364 20,422 21,893 20,312 66,490 46,606 Credit loss expense acquired loans 2,034 — — — — 2,034 — Tax effect (427 ) — — — — (427 ) — Net income excluding credit loss expense acquired loans 25,311 22,364 20,422 21,893 20,312 68,097 46,606 Gain on sale of ESOP trustee accounts (2,329 ) — — — — (2,329 ) — Tax effect 489 — — — — 489 — Net income excluding gain on sale of ESOP trustee accounts 23,471 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 securities 23,471 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 BOLI 22,954 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 borrowings 22,954 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 expenses 0.02 0.01 — — — 0.02 — Tax effect — — — — — — — Diluted EPS excluding acquisition expenses 0.54 0.51 0.46 0.50 0.46 1.51 1.06 Credit loss expense acquired loans 0.05 — — — — 0.05 — Tax effect (0.01 ) — — — — (0.01 ) — Diluted EPS excluding credit loss expense acquired loans 0.58 0.51 0.46 0.50 0.46 1.55 1.06 Gain on sale of ESOP trustee accounts (0.05 ) — — — — (0.05 ) — Tax effect 0.01 — — — — 0.01 — Diluted EPS excluding gain on sale of ESOP trustee accounts 0.54 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 securities 0.54 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 BOLI 0.52 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 borrowings 0.52 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 expense 1,112 (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 expenses 799 242 — — — 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 assets 6,033,088 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 margin 3.12 % 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 loans 92,257 169,440 (77,183 ) — (77,183 ) (45.6)% (180.7)% Residential mortgage 603,540 559,437 44,103 (54,222 ) (10,119 ) (1.8)% (7.2)% Consumer 713,432 650,144 63,288 (52,142 ) 11,146 1.7% 6.8% Subtotal 3,490,172 3,314,208 175,964 (206,770 ) (30,806 ) (0.9)% (3.7)% Loans held for sale 4,811 7,228 (2,417 ) — (2,417 ) (33.4)% (132.7)% Mortgage warehouse 169,909 205,311 (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 bearing 3,875,882 3,105,328 770,554 (565,538 ) 205,016 6.6% 26.2% Time deposits 779,260 573,348 205,912 (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 Expense Actual Acquisition Expenses Adjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries and employee benefits $ 18,901 $ (25 ) $ 18,876 $ 17,730 $ — $ 17,730 $ 1,146 6.5% Net occupancy expenses 2,935 (13 ) 2,922 3,084 — 3,084 (162 ) (5.3)% Data processing 2,526 (17 ) 2,509 2,388 — 2,388 121 5.1% Professional fees 522 (53 ) 469 588 (51 ) 537 (68 ) (12.7)% Outside services and consultants 2,330 (401 ) 1,929 2,220 (187 ) 2,033 (104 ) (5.1)% Loan expense 2,645 — 2,645 3,107 — 3,107 (462 ) (14.9)% FDIC insurance expense 279 — 279 500 — 500 (221 ) (44.2)% Other losses 69 (1 ) 68 6 — 6 62 1033.3% Other expense 4,142 (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 assets 2.09 % 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 Expense Actual Acquisition
ExpensesAdjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries and employee benefits $ 18,901 $ (25 ) $ 18,876 $ 18,832 $ — $ 18,832 $ 44 0.2% Net occupancy expenses 2,935 (13 ) 2,922 3,107 — 3,107 (185 ) (6.0)% Data processing 2,526 (17 ) 2,509 2,237 — 2,237 272 12.2% Professional fees 522 (53 ) 469 688 — 688 (219 ) (31.8)% Outside services and consultants 2,330 (401 ) 1,929 1,561 — 1,561 368 23.6% Loan expense 2,645 — 2,645 2,876 — 2,876 (231 ) (8.0)% FDIC insurance expense 279 — 279 570 — 570 (291 ) (51.1)% Other losses 69 (1 ) 68 114 — 114 (46 ) (40.4)% Other expense 4,142 (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 assets 2.09 % 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 Expense Actual Acquisition
ExpensesAdjusted Actual Acquisition
ExpensesAdjusted Amount
ChangePercent
ChangeSalaries and employee benefits $ 53,502 $ (25 ) $ 53,477 $ 51,052 $ — $ 51,052 $ 2,425 4.8% Net occupancy expenses 9,337 (13 ) 9,324 9,549 — 9,549 (225 ) (2.4)% Data processing 7,290 (17 ) 7,273 7,074 — 7,074 199 2.8% Professional fees 1,654 (104 ) 1,550 1,742 — 1,742 (192 ) (11.0)% Outside services and consultants 6,252 (588 ) 5,664 5,235 — 5,235 429 8.2% Loan expense 8,574 — 8,574 7,667 — 7,667 907 11.8% FDIC insurance expense 1,579 — 1,579 955 — 955 624 65.3% Other losses 358 (1 ) 357 427 — 427 (70 ) (16.4)% Other expense 11,363 (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 assets 2.16 % 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 PurposesRequired for Capital
Adequacy Purposes
with Capital BufferWell Capitalized
Under Prompt
Corrective Action
ProvisionsAmount Ratio Amount Ratio Amount Ratio Amount Ratio Total capital (to risk–weighted assets) Consolidated $ 678,665 15.27 % $ 355,555 8.00 % $ 466,666 10.50 % N/A N/A Bank 575,693 12.97 % 355,092 8.00 % 466,058 10.50 % $ 443,865 10.00% Tier 1 capital (to risk–weighted assets) Consolidated 634,105 14.27 % 266,617 6.00 % 377,708 8.50 % N/A N/A Bank 526,731 11.86 % 266,474 6.00 % 377,505 8.50 % 355,299 8.00% Common equity tier 1 capital (to risk–weighted assets) Consolidated 518,670 11.67 % 200,001 4.50 % 311,113 7.00 % N/A N/A Bank 526,731 11.86 % 199,856 4.50 % 310,887 7.00 % 288,681 6.50% Tier 1 capital (to average assets) Consolidated 634,105 10.03 % 252,883 4.00 % 252,883 4.00 % N/A N/A Bank 526,731 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 assets 183,938 172,398 173,296 174,193 175,107 Total tangible stockholders’ equity $ 524,604 $ 537,976 $ 516,083 $ 518,023 $ 495,186 Common shares outstanding 43,520,694 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 reported 46,544 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 expenses 33,550 33,146 32,172 36,453 33,407 98,868 94,988 Net interest income as reported 46,544 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 borrowings 46,544 42,757 42,538 47,426 43,397 131,839 127,318 Non–interest income as reported 16,044 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 ratio 56.16 % 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 reported 1.41 % 1.45 % 1.40 % 1.49 % 1.40 % 1.42 % 1.12 % Acquisition expenses 0.05 0.02 — — — 0.02 — Tax effect (0.01 ) — — — — — — ROAA excluding acquisition expenses 1.45 1.47 1.40 1.49 1.40 1.44 1.12 Credit loss expense acquired loans 0.12 — — — — 0.04 — Tax effect (0.03 ) — — — — (0.01 ) — ROAA excluding credit loss expense on acquired loans 1.54 1.47 1.40 1.49 1.40 1.47 1.12 Gain on sale of ESOP trustee accounts (0.14 ) — — — — (0.05 ) — Tax effect 0.03 — — — — 0.01 — ROAA excluding gain on sale of ESOP trustee accounts 1.43 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 securities 1.43 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 BOLI 1.40 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 borrowings 1.40 1.46 1.35 1.56 1.34 1.39 1.08 Adjusted ROAA 1.40 % 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 reported 12.64 % 12.59 % 11.88 % 12.79 % 12.08 % 12.37 % 9.43 % Acquisition expenses 0.44 0.14 — — — 0.20 — Tax effect (0.09 ) (0.03 ) — — — (0.04 ) — ROACE excluding acquisition expenses 12.99 12.70 11.88 12.79 12.08 12.53 9.43 Credit loss expense acquired loans 1.11 — — — — 0.38 — Tax effect (0.23 ) — — — — (0.08 ) — ROACE excluding credit loss expense acquired loans 13.87 12.70 11.88 12.79 12.08 12.83 9.43 Gain on sale of ESOP trustee accounts (1.28 ) — — — — (0.44 ) — Tax effect 0.27 — — — — 0.09 — ROACE excluding gain on sale of ESOP trustee accounts 12.86 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 securities 12.86 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 BOLI 12.57 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 borrowings 12.57 % 12.61 % 11.46 % 13.33 % 11.55 % 12.22 % 9.11 % Adjusted ROACE 12.57 % 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 sold 872,540 209,304 444,239 158,979 15,707 Interest earning time deposits 5,767 6,994 7,983 8,965 9,213 Investment securities 2,438,874 1,844,470 1,423,825 1,302,701 1,195,613 Commercial loans 2,173,200 2,104,627 2,177,858 2,192,271 2,321,608 Mortgage warehouse loans 169,909 205,311 266,246 395,626 374,653 Residential mortgage loans 603,540 559,437 581,929 624,286 675,220 Consumer loans 713,432 650,144 638,403 655,200 658,884 Earning assets 7,006,513 5,610,538 5,571,304 5,374,589 5,286,974 Non–interest bearing deposit accounts 1,324,757 1,102,950 1,133,412 1,053,242 1,016,646 Interest bearing transaction accounts 3,875,882 3,105,328 2,947,438 2,802,673 2,600,691 Time deposits 779,260 573,348 640,966 675,218 718,952 Borrowings 670,753 439,094 481,488 475,000 587,473 Subordinated notes 58,713 58,676 58,640 58,603 58,566 Junior subordinated debentures issued to capital trusts 56,722 56,662 56,604 56,548 56,491 Total stockholders’ equity 708,542 710,374 689,379 692,216 670,293 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 income 16,044 15,207 13,873 19,733 16,700 Non–interest expense 34,349 33,388 32,172 36,453 33,407 Income tax expense 4,056 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 share 0.52 0.50 0.46 0.50 0.46 Cash dividends declared per common share 0.15 0.13 0.13 0.12 0.12 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 Market value – high 18.47 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 – Basis 43,810,729 43,950,501 43,919,549 43,862,435 43,862,435 Weighted average shares outstanding – Diluted 43,958,870 44,111,103 44,072,581 43,903,881 43,903,881 Key ratios: Return on average assets 1.41 % 1.45 % 1.40 % 1.49 % 1.40 % Return on average common stockholders’ equity 12.64 12.59 11.88 12.79 12.08 Net interest margin 3.17 3.14 3.29 3.34 3.39 Allowance for credit losses to total loans 1.55 1.58 1.56 1.47 1.39 Average equity to average assets 11.13 11.50 11.75 11.61 11.59 Efficiency ratio 54.88 57.73 57.03 57.54 55.59 Annualized non–interest expense to average assets 2.09 2.18 2.20 2.47 2.30 Bank only capital ratios: Tier 1 capital to average assets 8.38 8.79 8.81 8.71 8.57 Tier 1 capital to risk weighted assets 11.86 12.80 12.71 11.29 10.67 Total capital to risk weighted assets 12.97 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 income 45,124 39,888 Non–interest expense 99,909 94,988 Income tax expense 11,276 7,903 Net income $ 65,666 $ 46,606 Per share data: Basic earnings per share $ 1.50 $ 1.06 Diluted earnings per share 1.49 1.06 Cash dividends declared per common share 0.41 0.36 Book value per common share 16.28 15.28 Tangible book value per common share 12.05 11.29 Market value – high 19.94 18.79 Market value – low $ 15.43 $ 7.97 Weighted average shares outstanding – Basis 43,893,194 44,099,862 Weighted average shares outstanding – Diluted 44,047,043 44,165,650 Key ratios: Return on average assets 1.42 % 1.12 % Return on average common stockholders’ equity 12.37 9.43 Net interest margin 3.20 3.48 Allowance for credit losses to total loans 1.55 1.39 Average equity to average assets 11.45 11.90 Efficiency ratio 56.50 56.81 Annualized non–interest expense to average assets 2.16 2.29 Bank only capital ratios: Tier 1 capital to average assets 8.38 8.57 Tier 1 capital to risk weighted assets 11.86 10.67 Total capital to risk weighted assets 12.97 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 delinquent 3,997 3,336 5,099 6,938 5,513 Non–performing loans: 90 days and greater delinquent – accruing interest 200 — 267 262 331 Trouble debt restructures – accruing interest 2,433 1,853 1,828 1,793 1,825 Trouble debt restructures – non–accrual 1,604 2,294 2,271 2,610 2,704 Non–accrual loans 25,137 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 loans 0.80 % 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 mortgage 3,737 4,108 4,229 4,620 5,464 Mortgage warehouse 1,054 1,155 1,163 1,267 1,250 Consumer 8,867 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 — — — — — Consumer 36 22 115 216 199 Total $ (18 ) $ 39 $ 208 $ 229 $ 823 Percent of net charge–offs (recoveries) to average loans outstanding for the period 0.00 % 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 mortgage 8,641 7,841 7,916 7,994 9,209 Mortgage warehouse — — — — — Consumer 4,612 4,136 4,348 4,465 3,936 Total $ 29,374 $ 22,322 $ 25,066 $ 26,807 $ 29,314 Non–performing loans to total loans 0.80 % 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 mortgage 117 37 37 — 70 Mortgage warehouse — — — — — Consumer 29 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
BalanceInterest Average
RateAverage
BalanceInterest Average
RateAssets Interest earning assets Federal funds sold $ 310,180 $ 119 0.15 % $ 45,307 $ 12 0.11 % Interest earning deposits 26,352 39 0.59 % 28,428 53 0.74 % Investment securities – taxable 1,063,177 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 assets 6,033,088 50,868 3.46 % 5,251,611 50,146 3.90 % Non–interest earning assets Cash and due from banks 87,799 94,039 Allowance for credit losses (55,703 ) (55,271 ) Other assets 442,489 478,312 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 % Borrowings 598,327 1,075 0.71 % 577,447 1,662 1.15 % Subordinated notes 58,689 880 5.95 % 58,716 895 6.06 % Junior subordinated debentures issued to capital trusts 56,684 561 3.93 % 56,458 576 4.06 % Total interest bearing liabilities 4,545,332 4,324 0.38 % 4,027,057 6,749 0.67 % Non–interest bearing liabilities Demand deposits 1,180,890 996,427 Accrued interest payable and other liabilities 57,039 76,410 Stockholders’ equity 724,412 668,797 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
BalanceInterest Average
RateAverage
BalanceInterest Average
RateAssets Interest earning assets Federal funds sold $ 312,359 $ 284 0.12 % $ 44,375 $ 125 0.38 % Interest earning deposits 27,157 128 0.63 % 25,083 216 1.15 % Investment securities – taxable 708,519 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 assets 5,712,875 145,877 3.53 % 5,037,540 152,144 4.13 % Non–interest earning assets Cash and due from banks 85,855 85,511 Allowance for credit losses (56,885 ) (42,864 ) Other assets 455,181 469,509 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 % Borrowings 510,264 3,640 0.95 % 576,288 5,974 1.38 % Subordinated notes 58,653 2,641 6.02 % 21,218 953 6.00 % Junior subordinated debentures issued to capital trusts 56,628 1,678 3.96 % 56,398 2,061 4.88 % Total interest bearing liabilities 4,305,515 14,163 0.44 % 3,940,552 24,826 0.84 % Non–interest bearing liabilities Demand deposits 1,128,173 879,840 Accrued interest payable and other liabilities 53,751 69,026 Stockholders’ equity 709,587 660,278 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,
2021December 31,
2020(Unaudited) Assets Cash and due from banks $ 971,817 $ 249,711 Interest earning time deposits 5,767 8,965 Investment securities, available for sale 1,669,634 1,134,025 Investment securities, held to maturity (fair value $768,099 and $179,990) 769,240 168,676 Loans held for sale 4,811 13,538 Loans, net of allowance for credit losses of $56,779 and $57,027 3,603,302 3,810,356 Premises and equipment, net 93,866 92,416 Federal Home Loan Bank stock 24,440 23,023 Goodwill 162,788 151,238 Other intangible assets 21,150 22,955 Interest receivable 24,762 21,396 Cash value of life insurance 97,003 96,751 Other assets 85,660 93,564 Total assets $ 7,534,240 $ 5,886,614 Liabilities Deposits Non–interest bearing $ 1,324,757 $ 1,053,242 Interest bearing 4,655,142 3,477,891 Total deposits 5,979,899 4,531,133 Borrowings 670,753 475,000 Subordinated notes 58,713 58,603 Junior subordinated debentures issued to capital trusts 56,722 56,548 Interest payable 1,427 2,712 Other liabilities 58,184 70,402 Total liabilities 6,825,698 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 capital 351,954 362,945 Retained earnings 348,943 301,419 Accumulated other comprehensive income 7,645 27,852 Total stockholders’ equity 708,542 692,216 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 – taxable 4,565 2,528 1,548 1,570 1,704 Investment securities – non–taxable 5,911 5,656 5,223 4,919 4,391 Total interest income 50,868 47,420 47,589 53,234 50,146 Interest expense Deposits 1,808 2,053 2,343 2,718 3,616 Borrowed funds 1,075 1,296 1,269 5,456 1,662 Subordinated notes 880 881 880 871 895 Junior subordinated debentures issued to capital trusts 561 558 559 567 576 Total interest expense 4,324 4,788 5,051 9,612 6,749 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 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 accounts 2,291 2,157 2,234 2,360 2,154 Wire transfer fees 210 222 255 301 298 Interchange fees 2,587 2,892 2,340 2,645 2,438 Fiduciary activities 2,124 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 loans 4,088 5,612 5,296 7,815 8,813 Mortgage servicing income net of impairment 336 1,503 213 327 (1,308 ) Increase in cash value of bank owned life insurance 534 502 511 566 566 Death benefit on bank owned life insurance 517 266 — — 31 Other income 3,357 92 367 350 515 Total non–interest income 16,044 15,207 13,873 19,733 16,700 Non–interest expense Salaries and employee benefits 18,901 17,730 16,871 20,030 18,832 Net occupancy expenses 2,935 3,084 3,318 3,262 3,107 Data processing 2,526 2,388 2,376 2,126 2,237 Professional fees 522 588 544 691 688 Outside services and consultants 2,330 2,220 1,702 2,083 1,561 Loan expense 2,645 3,107 2,822 2,961 2,876 FDIC insurance expense 279 500 800 900 570 Other losses 69 6 283 735 114 Other expenses 4,142 3,765 3,456 3,665 3,422 Total non–interest expense 34,349 33,388 32,172 36,453 33,407 Income before income taxes 27,127 25,943 23,872 23,860 24,638 Income tax expense 4,056 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 share 0.52 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 – taxable 8,641 6,923 Investment securities – non–taxable 16,790 12,294 Total interest income 145,877 152,144 Interest expense Deposits 6,204 15,838 Borrowed funds 3,640 5,974 Subordinated notes 2,641 953 Junior subordinated debentures issued to capital trusts 1,678 2,061 Total interest expense 14,163 24,826 Net interest income 131,714 127,318 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 accounts 6,682 6,488 Wire transfer fees 687 699 Interchange fees 7,819 6,661 Fiduciary activities 5,828 6,398 Gains / (losses) on sale of investment securities 914 1,675 Gain on sale of mortgage loans 14,996 18,906 Mortgage servicing income net of impairment 2,052 (4,043 ) Increase in cash value of bank owned life insurance 1,547 1,677 Death benefit on bank owned life insurance 783 264 Other income 3,816 1,163 Total non–interest income 45,124 39,888 Non–interest expense Salaries and employee benefits 53,502 51,052 Net occupancy expenses 9,337 9,549 Data processing 7,290 7,074 Professional fees 1,654 1,742 Outside services and consultants 6,252 5,235 Loan expense 8,574 7,667 FDIC insurance expense 1,579 955 Other losses 358 427 Other expenses 11,363 11,287 Total non–interest expense 99,909 94,988 Income before income taxes 76,942 54,509 Income tax expense 11,276 7,903 Net income $ 65,666 $ 46,606 Basic earnings per share $ 1.50 $ 1.06 Diluted earnings per share 1.49 1.06 Contact: Mark E. Secor Chief Financial Officer Phone: (219) 873-2611 Fax: (219) 874-9280 Date: October 27, 2021 
- 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.