HBNC - Horizon Bancorp Inc. Reports Third Quarter 2023 Results

MICHIGAN CITY, Ind., Oct. 25, 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 nine months ended September 30, 2023.

“Horizon's third quarter performance demonstrated our diversified lending platform's ability to produce solid growth while successfully continuing to shift our loan mix to higher yielding assets. This strategy paired with the strength of our credit culture will continue to add value over time,” President and Chief Executive Officer Thomas M. Prame said. “Horizon's core deposit funding base remained stable and our business units provided another promising quarter of non–interest income results. Recognizing the near term headwinds facing the banking industry, Horizon remains dedicated to disciplined expense management and prudently deploying resources into new revenue opportunities that can quickly realize positive momentum.”

Third Quarter 2023 Highlights

• Net income was $16.2 million or $0.37 per diluted share. This compared to $18.8 million or $0.43 in the second quarter of 2023, which included an after–tax benefit of approximately $1.1 million, or $0.02 per share on a non–recurring swap termination fee.
  
  
• Loans totaled $4.36 billion at period end, increasing by 8.2% annualized during the quarter and 6.4% annualized since December 31, 2022. Commercial loan growth totaled $83.0 million, increasing by 13.1% annualized during the quarter and 6.6% annualized since December 31, 2022.
  
  
• Deposits remained resilient, totaling $5.7 billion at period end, compared to $5.7 billion on June 30, 2023. Brokered deposits and wholesale borrowing levels were consistent with second quarter balances.
  
  
• Net interest income was $42.1 million. This compared to $46.2 million in the linked quarter, which benefited from the aforementioned non–recurring swap termination fee by $1.5 million.
  
  
• Non–interest income expanded to $11.8 million from $11.0 million in the linked quarter, primarily due to higher mortgage–related revenue.
  
  
• Well–managed non–interest expense was $36.2 million, or 1.81% of average assets annualized. Results slightly improved from the second quarter, even with an additional $460,000 in FDIC insurance expense.
  
  
• Maintained sound asset quality, with 30 to 89 days delinquent loans representing 0.30% of total loans and non–performing loans representing 0.45% of total loans at period end, as well as net charge–offs representing 0.02% of average loans during the quarter.
  
  
• Horizon's dividend performance included a 5.99% yield as of September 30, 2023, with cash maintained at the holding company level representing approximately eight quarters of dividend payments and fixed costs.
  

Summary

“Our historical conservative credit culture remains a strength of Horizon as displayed by our third quarter asset quality metrics,” Mr. Prame added. “We believe our focus on lending to well–qualified borrowers, the teams' proactive and proven approach to loss mitigation, and our focus on building a diverse portfolio will further position us well to traverse a fluid economic outlook.”

Income Statement Highlights

Net income for the third quarter of 2023 was $16.2 million, or $0.37 diluted earnings per share, compared to $18.8 million, or $0.43, for the linked quarter and $23.8 million, or $0.55, for the prior year period. The change in net income for the third quarter of 2023 when compared to the linked quarter, reflects growth in non–interest income of $833,000 and decreases in credit loss expense of $417,000, income tax expense of $168,000 and non–interest expense of $94,000, offset by a decrease in net interest income of $4.1 million.

Net interest income was $42.1 million in the third quarter of 2023, compared to $46.2 million in the linked quarter which benefited from a swap termination fee of $1.5 million.

Total non–interest income of $11.8 million was $833,000 higher in the third quarter of 2023 when compared to the second quarter of 2023, primarily due to a $615,000 increase in other income and a $577,000 increase in gain on sale of mortgage loans, offset by a decrease of $398,000 in interchange fees.

Total non–interest expense was $94,000 lower in the third quarter of 2023 when compared to the second quarter of 2023, primarily due to a $277,000 decrease in loan expense, a $199,000 decrease in outside services and consultants and a $119,000 decrease in other expense, offset by an increase $460,000 increase in FDIC insurance expense from the linked quarter.

Horizon's effective tax rate was 7.3% for the third quarter of 2023, with income tax expense of $1.3 million decreasing $168,000 when compared to the second quarter of 2023.

Net Interest Margin

Horizon’s net interest margin (“NIM”) was 2.41% for the third quarter of 2023. This compared to 2.69% for the second quarter of 2023, when NIM benefited by approximately 0.08% from a non–recurring swap termination fee.

Net interest margin, excluding the aforementioned swap termination fee in the linked quarter and acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 2.38% for the third quarter of 2023, compared to 2.57% 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 $4.36 billion on September 30, 2023 compared to $4.27 billion on June 30, 2023. During the three months ended September 30, 2023, commercial loans increased $83.0 million, consumer loans increased $25.6 million and residential mortgage loans increased $648,000, offset by a decrease in mortgage warehouse loans of $16.4 million and loans held for sale of $4.1 million.

Lending activity in the third quarter was led by strong results of our relationship banking model in commercial lending. Mortgage banking activities aligned with client demand in a continuing rising interest rate environment, while the lift in consumer balances was primarily in home equity loans, which offset a decrease in indirect auto lending. These results reflect the continued strategic shift of the organization to focus on higher yielding assets.

Deposit Activity

Total deposit balances of $5.70 billion on September 30, 2023 decreased 0.16% compared to $5.71 billion on June 30, 2023.

The deposit mix at the end of the third quarter of 2023 represented the demand for clients to earn more interest on their excess funds and consumers spending excess liquidity. The Bank's tenured and granular core deposit relationships remain steadfast, reflecting the value of Horizon's relationship banking model and local community engagement.

Capital

The capital resources of the Company and the Bank continued to exceed regulatory capital ratios for “well capitalized” banks at September 30, 2023. Stockholders’ equity totaled $693.4 million at September 30, 2023 and the ratio of average stockholders’ equity to average assets was 8.99% for the nine months ended September 30, 2023.

Tangible book value, which excludes intangible assets from total equity, per common share (“TBVPS”) was $12.00, decreasing $0.34 during the third quarter of 2023, as meaningfully higher interest rates led to unrealized net losses on securities available for sale (“AFS”) of $2.83 per common share, reducing accumulated other comprehensive income (“AOCI”) by $25.5 million in the three months ending September 30, 2023. TBVPS increased by $0.41 during the first nine months of the year. Tangible common equity was changed modestly to 6.72% of tangible assets as of September 30, 2023, a decrease of 19 basis points during the quarter but still elevated by 16 basis points since December 31, 2022.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of September 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 September 30, 2023, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.64 billion in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Bank. The Bank had approximately $622.9 million of unpledged investment securities on September 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.