HBNC - Horizon Bancorp Inc. Reports Second Quarter 2023 Results

MICHIGAN CITY, Ind., July 26, 2023 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) – Horizon Bancorp, Inc. (“Horizon” or the “Company”), the parent company of Horizon Bank (the “Bank”), announced its unaudited financial results for the three and six months ended June 30, 2023.

“Horizon’s favorable second quarter earnings reflect the strength of our diversified business model across our retail, commercial and wealth platforms,” President and Chief Executive Officer Thomas M. Prame said. “Our seasoned and granular deposit base performed well, maintaining a measured approach to funding costs while navigating a highly competitive market and shifting client demand to interest bearing products. These efforts paired well with our strategy of focusing loan production on higher yielding categories, resulting in improved yields and spread income. In the second quarter, we also posted strong non–interest income growth, with the active engagement of our clients in card spending and mortgage banking services. The positive results of our core revenue drivers were complimented by our consistent credit quality strength and our long standing expense management discipline.”

Second Quarter 2023 Highlights

• Increased net income to $18.8 million or $0.43 per diluted share, from $18.2 million or $0.42 in the first quarter of 2023.
  

• Net interest income of $46.2 million increased from $45.2 million in the linked quarter. Second quarter 2023 net interest income benefited from average total loan and earning asset growth over the linked quarter, as well as a swap termination fee of $1.5 million that contributed approximately $0.02 to diluted earnings per share.
  

• Non–interest income expanded to $11.0 million from $9.6 million in the linked quarter.
  

• Continued to manage non–interest expense as a percentage of average assets to less than 1.90% on an annualized basis, totaling $36.3 million, or 1.86%, compared to $34.5 million, or 1.79% in the linked quarter.
  

• Deposits remained resilient during the quarter, totaling $5.71 billion at period end, compared to $5.70 billion on March 31, 2023.
  

• Loans grew to $4.27 billion at period end, increasing by 2.2% annualized during the quarter and 5.3% annualized since December 31, 2022.
  

• Maintained consistent and sound asset quality with 30 to 89 days delinquent loans representing 0.26% of total loans and non–performing loans representing 0.52% of total loans at period end, as well as net charge–offs representing 0.01% of average loans during the quarter.
  

• Tangible common equity continued to improve to 6.91% of tangible assets on June 30, 2023, an improvement of 4 basis points during the quarter and 35 basis points since December 31, 2022.
  

• The Bank’s capital position was strong with leverage and risk based capital ratios of 8.72% and 13.03%, respectively.
  

• Horizon’s annualized dividend yield was robust at 6.15% as of June 30, 2023, with cash maintained at the holding company level representing approximately eight quarters of dividend payments and fixed costs.
  

Summary

“Horizon’s unwavering focus on lending to well qualified commercial and consumer borrowers in our dynamic local markets was reflected in our strong asset quality metrics,” Mr. Prame said. “Our consistent and conservative underwriting practices are expected to outperform relative to the industry, and we believe we are well positioned to navigate potential shifts in the economic outlook.”

Income Statement Highlights

Net income for the second quarter of 2023 was $18.8 million, or $0.43 diluted earnings per share, compared to $18.2 million, or $0.42, for the linked quarter and $24.9 million, or $0.57, for the prior year period. The change in net income for the second quarter of 2023 when compared to the linked quarter, reflects growth in non–interest income of $1.4 million, improved net interest income of $923,000 and lower income tax expense of $411,000, offset by an increase in non–interest expense of $1.7 million and a modest increase in credit loss expense of $438,000.

Net interest income was $46.2 million in the second quarter of 2023, compared to $45.2 million in the linked quarter, benefiting from growth in average loans receivable and average interest earning assets, as well as a swap termination fee of $1.5 million.

Total non–interest income was $1.4 million higher in the second quarter of 2023 when compared to the first quarter of 2023, primarily due to a $717,000 increase in interchange fees, a $520,000 increase in gain on sale of investment securities and a $220,000 increase in gain on sale of mortgage loans, offset by a decrease of $73,000 in mortgage servicing income net of impairment and a decrease of $28,000 in fiduciary activities.

Total non–interest expense was $1.7 million higher in the second quarter of 2023 when compared to the first quarter of 2023, primarily due to a $1.4 million increase in salaries and employee benefits resulting from merit increases, commission expense and higher variable health care costs, a $300,000 increase in FDIC insurance expense and an increase in loan expenses, offset by a decrease in net occupancy expense and outside services expense from the linked quarter.

Horizon’s effective tax rate was 7.2% for the second quarter of 2023, with income tax expense of $1.5 million decreasing $411,000 when compared to the first quarter of 2023.

Net Interest Margin

Horizon’s net interest margin was 2.69% for the second quarter of 2023 compared to 2.67% for the first quarter of 2023. The increase in net interest margin reflects an increase in the yield on interest earning assets of 22 basis points, offset by an increase in the cost of interest bearing liabilities of 25 basis points.

Net interest margin, excluding the aforementioned swap termination fee and acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 2.57% for the second quarter of 2023, compared to 2.65% for the linked quarter. (See the “Non–GAAP Reconciliation of Net Interest Margin” table below).

Lending Activity

Total loan balances and loans held for sale increased to $4.27 billion on June 30, 2023 compared to $4.25 billion on March 31, 2023. During the three months ended June 30, 2023, mortgage warehouse loans increased $29.4 million, residential mortgage loans increased $12.3 million, loans held for sale increased $4.5 million and commercial loans increased $820,000, offset by measured payoffs and pay downs of lower yielding indirect auto loans that were the primary driver of a $23.2 million decrease in consumer loans.

The lending activities for the quarter were well balanced, with mortgage activities increasing with client demand and consumer lending displaying the strategic shift of the organization to focus on higher yielding assets. Commercial lending activity for the quarter was strong but impacted by accelerated large pay downs during the last week of the quarter.

Deposit Activity

Total deposit balances of $5.71 billion on June 30, 2023 increased 0.13% compared to $5.70 billion on March 31, 2023.

The deposit mix at the end of the second quarter of 2023 represented the demand for clients to earn more interest on their excess funds and consumers spending excess liquidity. Horizon successfully held deposits in the quarter while continuing to prudently manage funding costs as the Bank’s long–tenured and granular core deposit relationships remained with the Bank, reflecting the stability of the Bank’s in–market deposit portfolio.

Capital

The capital resources of the Company and the Bank continued to exceed regulatory capital ratios for “well capitalized” banks at June 30, 2023. Stockholders’ equity totaled $709.2 million at June 30, 2023 and the ratio of average stockholders’ equity to average assets was 8.97% for the six months ended June 30, 2023.

Tangible book value, which excludes intangible assets from total equity, per common share (“TBVPS”) grew to $12.34, increasing $0.17 during the second quarter of 2023 and $0.75 during the first six months of the year.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of June 30, 2023.

Liquidity

The Bank maintains a stable base of core deposits provided by long–standing and new 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 repayments, investment security cash flows, 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”). On June 30, 2023, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.71 billion in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Bank. The Bank had approximately $650.7 million of unpledged investment securities on June 30, 2023.

Forward Looking Statements

This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection of the safe harbor for forward–looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission (the “SEC”). Forward–looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance.

Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include: current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, liquidity levels, and responses by the Federal Reserve, Department of the Treasury, and the Federal Deposit Insurance Corporation to address these issues; changes in the level and volatility of interest rates, changes in spreads on earning assets and changes in interest bearing liabilities; increased interest rate sensitivity; the ability of Horizon to remediate its material weaknesses in its internal control over financial reporting; continuing increases in inflation; loss of key Horizon personnel; increases in disintermediation; potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms take a greater market share of the payment systems; estimates of fair value of certain of Horizon’s assets and liabilities; changes in prepayment speeds, loan originations, credit losses, market values, collateral securing loans and other assets; changes in sources of liquidity; economic conditions and their impact on Horizon and its customers, including local and global economic recovery from the pandemic; legislative and regulatory actions and reforms; changes in accounting policies or procedures as may be adopted and required by regulatory agencies; litigation, regulatory enforcement, and legal compliance risk and costs; rapid technological developments and changes; cyber terrorism and data security breaches; the rising costs of cybersecurity; the ability of the U.S. federal government to manage federal debt limits; climate change and social justice initiatives; material changes outside the U.S. or in overseas relations, including changes in U.S. trade relations related to imposition of tariffs, Brexit, and the phase out of the London Interbank Offered Rate (“LIBOR”); the inability to realize cost savings or revenues or to effectively implement integration plans and other consequences associated with mergers, acquisitions, and divestitures; acts of terrorism, war and global conflicts, such as the Russia and Ukraine conflict; and supply chain disruptions and delays. These and additional factors that could cause actual results to differ materially from those expressed in the forward–looking statements are discussed in Horizon’s reports (such as the Annual Report on Form 10–K, Quarterly Reports on Form 10–Q, and Current Reports on Form 8–K) filed with the SEC and available at the SEC’s website (www.sec.gov). 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.