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
| For the Three Months Ended | ||||||||||||
| June 30, | March 31, | June 30, | ||||||||||
| Net Interest Income and Net Interest Margin | 2023 | 2023 | 2022 | |||||||||
| Net interest income | $ | 46,160 | $ | 45,237 | $ | 52,044 | ||||||
| Net interest margin | 2.69 | % | 2.67 | % | 3.13 | % | ||||||
| Adjusted net interest margin | 2.57 | % | 2.65 | % | 3.06 | % | ||||||
| For the Three Months Ended | |||||||||
| June 30, | March 31, | June 30, | |||||||
| Asset Yields and Funding Costs | 2023 | 2023 | 2022 | ||||||
| Interest earning assets | 4.39 | % | 4.17 | % | 3.39 | % | |||
| Interest bearing liabilities | 2.10 | % | 1.85 | % | 0.34 | % | |||
| For the Three Months Ended | |||||||||
| Non-interest Income and | June 30, | March 31, | June 30, | ||||||
| Mortgage Banking Income | 2023 | 2023 | 2022 | ||||||
| Total non–interest income | $ | 10,997 | $ | 9,620 | $ | 12,434 | |||
| Gain on sale of mortgage loans | 1,005 | 785 | 2,501 | ||||||
| Mortgage servicing income net of impairment | 640 | 713 | 319 | ||||||
| For the Three Months Ended | ||||||||||||
| June 30, | March 31, | June 30, | ||||||||||
| Non-interest Expense | 2023 | 2023 | 2022 | |||||||||
| Total non–interest expense | $ | 36,262 | $ | 34,524 | $ | 35,404 | ||||||
| Annualized non–interest expense to average assets | 1.86 | % | 1.79 | % | 1.90 | % | ||||||
| For the Three Months Ended | |||||||||
| June 30, | March 31, | June 30, | |||||||
| Credit Quality | 2023 | 2023 | 2022 | ||||||
| Allowance for credit losses to total loans | 1.17 | % | 1.17 | % | 1.32 | % | |||
| Non–performing loans to total loans | 0.52 | % | 0.47 | % | 0.51 | % | |||
| Percent of net charge–offs to average loans outstanding for the period | 0.01 | % | 0.01 | % | 0.01 | % | |||
| June 30, | Net Reserve | December 31, | ||||||||||||||
| Allowance for Credit Losses | 2023 | 2Q23 | 1Q23 | 2022 | ||||||||||||
| Commercial | $ | 30,354 | $ | (802 | ) | $ | (1,289 | ) | $ | 32,445 | ||||||
| Retail Mortgage | 3,648 | (799 | ) | (1,130 | ) | 5,577 | ||||||||||
| Warehouse | 893 | 95 | (222 | ) | 1,020 | |||||||||||
| Consumer | 15,081 | 1,956 | 1,703 | 11,422 | ||||||||||||
| Allowance for Credit Losses (“ACL”) | $ | 49,976 | $ | 450 | $ | (938 | ) | $ | 50,464 | |||||||
| ACL / Total Loans | 1.17 | % | 1.21 | % | ||||||||||||
| Acquired Loan Discount (“ALD”) | $ | 5,519 | $ | (639 | ) | $ | (121 | ) | $ | 6,279 | ||||||
“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.
| Loan Growth by Type | |||||||||||||||
| (Dollars in Thousands, Unaudited) | |||||||||||||||
| June 30, | March 31, | QTD | QTD | Annualized | |||||||||||
| 2023 | 2023 | $ Change | % Change | % Change | |||||||||||
| Commercial | $ | 2,506,279 | $ | 2,505,459 | $ | 820 | 0.0 | % | 0.1 | % | |||||
| Residential mortgage | 674,751 | 662,459 | 12,292 | 1.9 | % | 7.4 | % | ||||||||
| Consumer | 1,002,885 | 1,026,076 | (23,191 | ) | (2.3 | )% | (9.1 | )% | |||||||
| Subtotal | 4,183,915 | 4,193,994 | (10,079 | ) | (0.2 | )% | (1.0 | )% | |||||||
| Loans held for sale | 6,933 | 2,409 | 4,524 | 187.8 | % | 753.2 | % | ||||||||
| Mortgage warehouse | 82,345 | 52,957 | 29,388 | 55.5 | % | 222.6 | % | ||||||||
| Total loans and loans held for sale | $ | 4,273,193 | $ | 4,249,360 | $ | 23,833 | 0.6 | % | 2.2 | % | |||||
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.
| Deposit Growth by Type | |||||||||||||||
| (Dollars in Thousands, Unaudited) | |||||||||||||||
| June 30, | March 31, | QTD | QTD | Annualized | |||||||||||
| 2023 | 2023 | $ Change | % Change | % Change | |||||||||||
| Non–interest bearing | $ | 1,170,055 | $ | 1,231,845 | $ | (61,790 | ) | (5.0 | )% | (20.3 | )% | ||||
| Interest bearing | 3,289,474 | 3,402,525 | (113,051 | ) | (3.3 | ||||||||||
