Horizon Bancorp, Inc. · NASDAQ:HBNC
Horizon Bancorp — Q3 2020 Earnings Presentation
50 slides from Horizon Bancorp's earnings presentation, Oct 29, 2020
Slide 1: Investor Presentation | October 28, 2020
A NASDAQ Traded Company - Symbol HBNC INVESTOR PRESENTATION | OCTOBER 28, 2020 EXCEPTIONALSERVICE•SENSIBLEADVICE ®
Slide 2: Important Information: Forward-Looking Statements
Important Information Forward-Looking Statements This presentation 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 clai
Slide 3: Corporate Overview
Corporate Overview EXCEPTIONALSERVICE•SENSIBLEADVICE ® 3
Slide 4: 3Q20 Highlights
3Q20 Highlights • Profitably grew and strengthened balance Change % vs. sheet ($000s except per share data) 3Q20 2Q20 3Q19 • Net income increased >38% during the quarter Income Statement • Pre-tax pre-provision income increased >12% Net interest income $43,397 0.9% (0.2)% Non-interestincome $16,700
Slide 5: Seasoned Management Team
Seasoned Management Team Craig M. Dwight James D. "Jim" Neff Chairman & CEO President • 41 Years of Banking • 42 Years of Banking Experience SEASONED LEADERSHIP Experience • 2 Years as President • 21 Years as President or • 19 Years as Senior Mortgage and • Executive team has CEO of Bank Retail Cred
Slide 6: A History of Profitable Growth
A History of Profitable Growth Extensive and Diligent M&A Expertise Supplements Organic Growth 2014 - 2019 Organic Expansions 11 Organic M&A • Carmel, IN • 1st Mtg. • Bargersville 14 M&A • Ft. Wayne, IN • Summit • Lafayette • Grand Rapids, • Peoples • Wolverine 2008 - 2013 MI • Farmers • Salin Organ
Slide 7: Built to Outpace GDP & Industry Over Long-Term
Built to Outpace GDP & Industry Over Long-Term Assets expected to grow 3%-4% during 2020 and remain stable in 2021, ex. PPP Well-Established Long-Term Goals 2009 - 2019 2014 - 2019 Meaningfully outpace GDP and 14% average asset growth 20% average asset growth industry 4.7x GDP 5.2x GDP ~50/50 growth
Slide 8: Diversified & Attractive Footprint Serving the Right Side of Chicago
Diversified & Attractive Footprint Serving the Right Side of Chicago Headquartered in Michigan City, IN, with 73 locations MICHIGAN in attractive markets in Indiana and Michigan $1.4B IN LOANS WISCONSIN Double commuter track addition to the South Shore train lines supports growth in Northwest Indian
Slide 9: Attractive & Stable Midwest Markets
Attractive & Stable Midwest Markets Top 5 Markets by Deposits Michigan City, IN / Southwest Indianapolis, IN Northwest Indiana Lafayette, IN La Porte, IN Michigan* (Growth) (Growth) (Growth) (Legacy) (Growth) $1.1B Deposits $680M Deposits $548M Deposits $413M Deposits $322M Deposits 8 Branches 9 Bra
Slide 10: COVID-19 Response Supporting Employees, Customers & Communities
COVID-19 Response Supporting Employees, Customers & Communities EMPLOYEESCONSUMERSBUSINESSESCOMMUNITIES Safety and well being of 100% of our branch locations Preferred SBA Lender: Increased volunteerism in employees & families is our first are now open for walk-in traffic • Active Participant in all
Slide 11: Digital Transformation
Digital Transformation • Approximately 73% of demand deposit account holders were active online banking users at September 30, 2020 • Third quarter upgrade - live online chat support, with 85% of the responses from bots • Fourth quarter upgrade - online and mobile deposit account opening Active Onli
Slide 12: Financial Highlights
Financial Highlights EXCEPTIONALSERVICE•SENSIBLEADVICE ® 12
Slide 13: Strong Core Earnings
Strong Core Earnings (1) Adj. Net Income (1) $26,690 Adj. Net Interest Income $24,917 $41,724 $41,443 $41,909 $22,803 $23,688 $40,477 $39,491 $21,839 $20,324 $18,535 $19,421 $14,443 s s 0 0 0 $0.45 $11,154 $0.45 0 0 $0.41 0 $ $ 3.67% 3.49% 3.44% 3.35% $0.32 3.27% $0.24 3Q19 4Q19 1Q20 2Q20 3Q20 3Q19
Slide 14: Stable Net Interest Margin
Stable Net Interest Margin • Lower yielding PPP loans impacted the third quarter margin by an additional ~ 1bps • The cost of the subordinated debt in the third quarter lowered the margin ~ 10bps Stable Net Interest Margin 3.71% 3.67% 3.66% 3.63% 3.61% 3.58% 3.60% 3.59% 3.61% 3.45% 3.46% 3.49% 3.36%
Slide 15: Change in Loan Yields Directionally Consistent with Funding Costs
Change in Loan Yields Directionally Consistent with Funding Costs Commercial loans: • 64% fixed / 36% variable • 26% of variable rate commercial Yield on Loans (%) / Total Loans ($B) loans have floors, 80% of which are 5.41% 5.27% 5.29% 5.14% 5.10% at their floor 5.07% 5.03% $4.0 Retained Mortgage l
Slide 16: Strong Core Funding Deposit Re-Pricing Opportunities
Strong Core Funding Deposit Re-Pricing Opportunities • Non-interest bearing balances increased 8% • Quick and decisive action to reprice deposits began immediately after the Fed’s interest rate cuts in March resulting in interest bearing deposit account costs of 0.13% • CD’s maturing in 2020 total $
Slide 17: Use of Expected Additional Liquidity
Use of Expected Additional Liquidity • Improved and strong liquidity position and Securities Portfolio at borrowing capacity as of 9/30/20 September 30, 2020: $1.2B • $1.2B securities portfolio consistently U.S. Treasury, Corporate, 1% managed for liquidity rather than return Federal 1% agency MBS,
Slide 18: Diverse Sources of Revenue
Diverse Sources of Revenue Q3 ‘20 Non-interest Income Breakout Q3 ‘20 Highlights • Diverse sources of non-interest income, $8,813 representing 27.8% of total revenue s 0 0 0 • Record mortgage gain on sale $ $2,105 $2,154 $2,438 $2,498 • Realized $1.5 million of mortgage -$1,308 servicing rights impa
Slide 19: Focus on Expense Control
Focus on Expense Control Highlights Non-interest Expense Breakout ($M) • Efficiency ratio improved to 55.6% as focus $40,000 on expense control drives positive operating leverage $35,000 • Engaged an independent consultant to $30,000 review all branch locations to identify opportunities for growth,
Slide 20: CECL Implementation Driving Reserve Build
CECL Implementation Driving Reserve Build CECL Adoption Net Net Net Day Reserve Reserve Reserve ($000s, unaudited) 12/31/19 Impact One 9/30/20 Build(1) Build(1) Build(1) 1/1/20 1Q20 2Q20 3Q20 Commercial $ 11,996 $ 13,618 $ 25,614 $ 6,936 $ 6,597 $ 648 $ 39,795 Retail Mortgage 923 4,048 4,971 683 178
Slide 21: Robust Capital Foundation
Robust Capital Foundation TCE / TA (%) Leverage Ratio (%) 9.1% 9.2% 9.3% 8.7% 8.7% 8.5% 10.8% 9.3% 10.5% 8.8% 8.8% 10.4% 8.3% 8.5% 7.6% 10.1% 9.9% 9.8% 9.9% 9.7% 9.7% 9.4% 9.3% 9.0% 4.0% 2015 2016 2017 2018 2019 3Q20 2015 2016 2017 2018 2019 3Q20 CET1 Ratio (%) Total RBC Ratio (%) 11.9% 12.0% 14.4%
Slide 22: Ability to Sustain Capital Levels Under Stress Test
Ability to Sustain Capital Levels Under Stress Test Less Excess Allowance for Credit Losses HBNC Industry $325.482 (Similar Size) $ for Industry Have Been Calibrated to Horizon Levels Adequate Capital, $280.895 $83.414 Adequate Capital, 2.9x $56.061 2.6x Capital & Earnings Capital & Earnings Well Ca
Slide 23: Loan Portfolio Review
Loan Portfolio Review EXCEPTIONALSERVICE•SENSIBLEADVICE ® 23
Slide 24: Diversified & Granular Loan Portfolio
Diversified & Granular Loan Portfolio % of % of Total Commercial Loans by 9/30/20 Commercial Loan Industry ($M) Balance Portfolio Portfolio Lessors–ResidentialMultiFamily $230 9.9% 5.7% Health Care, Educational & Social 169 7.3% 4.2% Office(exceptmedical) 167 7.2% 4.1% Individuals&OtherServices 162
Slide 25: Payment Deferrals as of September 30, 2020
Payment Deferrals as of September 30, 2020 Payment Extensions / Modifications By Loan Type ($ in millions) June 30, 2020 September 30, 2020 Net Net % of % of Net % of % of Balance Type of Loan # Balance Total Portfolio # Balance Total Portfolio % Decrease Commercial 670 $470.8 88.2% 20.1% 61 $152.0
Slide 26: Quality Consumer Loan Portfolio
Quality Consumer Loan Portfolio as of September 30, 2020 • 99.3% secured consumer loans • 93.9% prime, with credit scores ≥700 for 81.3% of portfolio and <640 for 6.2% Unsecured, 0.7% Other, 0.3% RV & Boat, 2.6% • Rescored annually HELOCs, • HELOC combined LTV limited to 34.5% 89.9% Total • Strong a
Slide 27: Prime Mortgage Loan Portfolio
Prime Mortgage Loan Portfolio as of September 30, 2020 • 75% of production sold YTD • Predominantly in-market lender • Portfolio mortgages • Underwriting to Fannie Mae guidelines Construction, 3.4% • Full documentation and employment, income and asset verification • 96.8% prime with credit score ≥67
Slide 28: Diversified Commercial Lending
Diversified Commercial Lending • Experienced commercial lenders (20+ years on average) • 30-89 days past due • 3Q20–0.05% • Focus on in-market sponsors in resilient markets • 2Q20–0.02% • Predominantly a secured lender with recourse to owners • NPLs • 3Q20–0.69% • Prudent underwriting standards • 2Q
Slide 29: Sectors with Escalated Monitoring
Sectors with Escalated Monitoring Hotel, Restaurant, Retail and Leisure & Hospitality Hotels • 16 relationships with $142.5M outstanding across 28 projects • Average LTV of 57% and average loan size of ~ $3.9M • 78% select service / 10% full service / 7% independent / 5% Restaurant, 1.6% economy pro
Slide 30: Hotel Sector: All Hotels Open
HOTEL SECTOR ALL HOTELS OPEN All hotel loans in Horizon’s portfolio are open for business, with occupancy rates ranging 20% - 70% Strong brands including Marriott, Hilton, IHG, WISCONSIN MICHIGAN Wyndham, Choice Hotels and independent brands Borrowers are long-time operators that have managed throug
Slide 31: Strong Asset Quality Metrics Through the Third Quarter
Strong Asset Quality Metrics Through the Third Quarter Credit Loss Expense Net Charge Offs $823 (CECL Implementation 1Q20) $725 $8,600 $629 $7,057 $404 $407 s 0.02% 0.02% 0.02% s 0 CECL 0 0 0 CECL 0 0 $ $ 0.01% 0.01% $2,052 $376 $340 CECL 3Q19 4Q19 1Q20 2Q20 3Q20 NCOs NCOs/Average Loans 3Q19 4Q19 1Q
Slide 32: Key Franchise Highlights
Key Franchise Highlights Seasoned management Geographic Stable Midwest markets High quality balance team – over 200 years diversification & with balanced industrial sheet with strong combined banking exposure – strong bases and growth liquidity – over $1.2 experience market share in core opportuniti
Slide 33: Appendix
Appendix EXCEPTIONALSERVICE•SENSIBLEADVICE ® 33
Slide 34: Payroll Protection Program Through September 30, 2020
Payroll Protection Program Through September 30, 2020 Leveraging the CARES Act to provide additional support to small businesses and their employees • PPP loans totaled ~ $310.8 million > $350K - $1M, > $1M, 2% through September 30, 2020 5% > $150K - $350K, 12% • Average loan size less than $135,000
Slide 35: Low Levels of Concentrated Exposure
Low Levels of Concentrated Exposure Commercial Portfolio By Industry Type Non-Owner Occupied CRE – % of Owner Occupied CRE – C&I Loans – Total Commercial Loans % of Total Commercial Loans % of Total Commercial Loans 48% of Total Commercial Loans 19% of Total Commercial Loans 33% of Total Commercial
Slide 36: Historical Financials
Historical Financials Year Ended December 31, Quarter Ended, ($M except per share data) 2015 2016 2017 2018 2019 9/30/19 12/31/19 3/31/20 6/30/20 9/30/20 Balance Sheet: Total Assets $2,652 $3,141 $3,964 $4,247 $5,247 $5,187 $5,247 $5,351 $5,739 $5,790 Gross Loans $1,757 $2,144 $2,838 $3,014 $3,641 $
Slide 37: Leader In Our Core Markets
Leader In Our Core Markets HBNC Deposits 2020 '20-'25 '20-'25 HBNC HBNC Market in Market Median Est. Pop. Est. HHI MSA Rank Branches Share ($M) HHI Change Change Michigan City-La Porte, IN 1 8 57.7% $1,150 $53,255 0.1% 6.8% Indianapolis-Carmel-Anderson, IN 16 9 1.0% 680 65,306 3.8% 11.2% Chicago-Nap
Slide 38: Footnote Index Slide
Footnote Index Slide 13 • Adjusted net income and adjusted diluted EPS excludes one-time merger expenses, (gain)/loss on sale of securities and death benefit on bank owned life insurance, net of tax. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterpar
Slide 39: Reconciliation of Pre-Tax, Pre-Provision Net Income
Footnote Index Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Net Income (Dollars in Thousands, Unaudited) Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 Pre-tax income $ 24,638 $ 16,632 $ 13,239 $ 22,463 $ 24,541 Provision for credit losse
Slide 40: Reconciliation of Net Income
Footnote Index Non-GAAP Reconciliation of Net Income (Dollars in Thousands, Unaudited) Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 Net income as reported $ 20,312 $ 14,639 $ 11,655 $ 18,543 $ 20,537 Merger expenses - - - - - Tax effect - -
Slide 41: Reconciliation of Diluted Earnings per Share
Footnote Index Non-GAAP Reconciliation of Diluted Earnings per Share (Dollars in Thousands, Unaudited) Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 Diluted earnings per share ("EPS") as reported $ 0.46 $ 0.33 $ 0.26 $ 0.41 $ 0.46 Merger expe
Slide 42: Reconciliation of Return on Average Assets
Footnote Index Non-GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited) Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 Average assets $ 5,768,691 $ 5,620,695 $ 5,257,332 $ 5,250,574 $ 5,107,259 Return on average as
Slide 43: Reconciliation of Net Interest Margin
Footnote Index Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2020 2019 2019 2019 2019 Net interest income as reported $ 43,397 $ 42,996 $
Slide 44: Reconciliation of Net Interest Margin
Footnote Index Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2018 2018 2018 2018 2017 2017 2017 2017 Net interest income as reported $
Slide 45: Reconciliation of Net Interest Margin
Footnote Index Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended December 31, September 30, June 30, March 31, 2016 2016 2016 2016 Net interest income as reported $ 20,939 $ 24,410 $ 20,869 $ 19,774 Average interest earning assets 2,932,145 2,957,944
Slide 46: Reconciliation of Cost of Interest Bearing Liabilities
Footnote Index Non-GAAP Reconciliation of Cost of Interest Bearing Liabilities (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2020 2019 2019 2019 2019 Total interest expense as reported
Slide 47: Reconciliation of Cost of Interest Bearing Liabilities
Footnote Index Non-GAAP Reconciliation of Cost of Interest Bearing Liabilities (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2018 2018 2018 2018 2017 2017 2017 2017 Total interest ex
Slide 48: Reconciliation of Cost of Interest Bearing Liabilities
Footnote Index Non-GAAP Reconciliation of Cost of Interest Bearing Liabilities (Dollars in Thousands, Unaudited) Three Months Ended December 31, September 30, June 30, March 31, 2016 2016 2016 2016 Total interest expense as reported $ 8,450 $ 4,552 $ 3,781 $ 3,754 Average interest bearing liabilitie
Slide 49: Reconciliation of Cost of Deposits
Footnote Index Non-GAAP Reconciliation of Cost of Deposits (Dollars in Thousands, Unaudited) Three Months Ended September 30, June 30, 2020 2020 Total deposit interest expense as reported $ 3,616 $ 4,506 Average interest bearing deposits 3,334,436 3,299,661 Annualized total deposit interest expense
Slide 50: Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
Footnote Index Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio (Dollars in Thousands, Unaudited) Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 Non-GAAP Calculation of Efficiency Ratio Non-interest exp