Horizon Bancorp, Inc. · NASDAQ:HBNC
Horizon Bancorp — Q4 2022 Earnings Presentation
57 slides from Horizon Bancorp's earnings presentation, Jan 25, 2023
Slide 1: Investor Presentation January 25, 2023
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® A NASDAQ Traded Company - Symbol HBNC INVESTOR PRESENTATION | JANUARY 25, 2023
Slide 2: Forward-Looking Statements
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 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,
Slide 3: Corporate Overview
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Corporate Overview 3
Slide 4: Met or Exceeded Most 2022 Goals
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Annual Commercial Loan Growth 10% 10-14% 11.4% Reduction in Mortgage Originations 15-18% 15-18% 34.7% Annual Consumer Loan Growth 5-9% 10-14% 30.6% Annual Expenses to Average Assets <2.00% <2.00% 1.90% ROAA >1.20% >1.30% 1.24% ROAE
Slide 5: Why Horizon? A High-Performing Operator in Growth Markets
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 5 Disciplined operating culture Compelling value supported by commitment to dividend Well-established long-term growth goals Very attractive Midwest markets Diversified mix of businesses delivers very strong operational performance
Slide 6: Seasoned Management Team
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 6 Mark E. Secor EVP & Chief Financial Officer • 34 Years of Banking and Public Accounting Experience • 14 Years with Horizon as CFO and EVP of Horizon Kathie A. DeRuiter EVP & Senior Operations Officer • 33 Years of Banking and Oper
Slide 7: A History of Profitable Growth
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 7 $0.1 $0.1 $0.2 $0.2 $0.5 $0.7 $0.6 $0.9 $1.0 $0.5 $0.6 $0.7 $0.8 $0.9 $1.1 $1.2 $1.3 $1.3 $1.4 $1.4 $1.5 $1.8 $1.8 $2.1 $2.7 $3.1 $4.0 $4.2 $5.2 $5.9 $7.4 $7.9 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '1
Slide 8: Horizon's growth in top deposit markets
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 8 Horizon’s growth in top 10 deposit markets Organic growth Acquired deposits Growth in established markets since 2010 Market share 32.9% 55.3% 0.1% 0.1% 0.1% 0.1% 7.3% 12.0% 0.1% 0.6% Growth markets entered via acquisition $263 $22
Slide 9: Built to Outpace GDP & Industry Over Long-Term
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 9 * U.S. Bureau of Economic Analysis, retrieved from FRED, Federal Reserve Bank of St. Louis, fred.stlouisfed.org, April 18, 2022. Built to Outpace GDP & Industry Over Long-Term Assets Grew 7% ex. PPP During 2022 23% 5% 21% 23% 8% 3
Slide 10: Diversified & Attractive Footprint
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 10 Multiple Revenue Streams Diversifies Risk 10 Retail Banking Business Banking Mortgage Banking Wealth Management Complementary Revenue Streams that are Counter-Cyclical to Varying Economic Cycles Serving the Right Side of Chicago
Slide 11: Multiple High Growth Markets
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 11 Northern Indiana Central Indiana Michigan $2.4B Deposits $1.5B Deposits $1.9B Deposits 27 Branches 18 Branches 26 Branches • Positive and stable economic base comparable to markets in Northern Indiana • Grand Rapids one of the mo
Slide 12: Expanding Technology Capabilities
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Expanding Technology Capabilities NEW IN 2022 • Online account opening platform enhanced, adding new products and improved client experience • Developed real-time API automations anticipating customer needs and expand marketing/sale
Slide 13: Productive Use of Capital
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 13 Productive Use of Capital Deploying capital through productive acquisitions and to drive organic growth • Integrated acquisition of 14 Michigan branches and associated deposits and loans, adding mass and scale to Horizon’s Midlan
Slide 14: Loan Portfolio Review
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Loan Portfolio Review 14
Slide 15: Solid and Diverse Commercial Loan Growth
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Northern Indiana, 19% Central Indiana, 29%Other, 3% Michigan, 49% Geography at 12/31/22 Non-Owner Occupied Real Estate, 48.2% C&I, 25.5% Owner Occ. Real Estate, 22.5% Agriculture, 2.3% Develop./Land, 1.1% Res. Spec. Homes, 0.4% Cate
Slide 16: Strong Consumer Loan Growth
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 16 • Growth in Higher Yielding Segments • Portfolio grew $49 million, representing 5.3% quarterly growth, or 21.0% annualized • Growth of $60 million in HELOCs inclusive of an ~$50 million purchase (~8.50% yield – floating) • Indire
Slide 17: Adaptable Mortgage Portfolio
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 17 Jumbo, 43.0% Rental, 1.0%Conforming, 40.9% Warehouse, 9.5% Construction, 5.6% Total Outstanding at 12/31/22 $723M Adaptable Mortgage Portfolio • Volumes Aligned With Industry Trends • $63 million in Retail originations; Q3 origin
Slide 18: Strong Asset Quality Metrics
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® $1,412 $136 $284 $138 $285 0.04% 0.01% 0.01% 4Q21 1Q22 2Q22 3Q22 4Q22 Net Charge Offs NCOs NCOs/Average Loans $ 0 0 0 s $19,019 $20,113 $20,206 $19,158 $21,840 0.53% 0.54% 0.51% 0.48% 0.52% 4Q21 1Q22 2Q22 3Q22 4Q22 Non-Performing Lo
Slide 19: Conservative Credit Profile through Business Cycles
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 19 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 HBNC U.S. commercial banks¹ Net charge offs as a % of average loans 0.17% 0.48% 0.25% 0.01% 0.00% 0.5
Slide 20: Financial Highlights
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 20 Financial Highlights
Slide 21: Strong Core Earnings
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 21 $ M $23.4 $25.7 $29.1 $25.2 $23.7$23.7 $23.6 $24.2 $23.8 $21.2 $0.54 $0.54 $0.56 $0.55 $0.48 4Q21 1Q22 2Q22 3Q22 4Q22 Adj. Net Income(1) Pre-tax, Pre-provision Income Adj. Net Income Adj. EPS 14.45% 14.56% 16.84% 14.71% 14.27% 4Q
Slide 22: Consistent, Top Tier Profitability
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 22 Greater than KRX… 3 years 85% 10 years 46% … of the time Source: SNL Financial; Note: Financial Data as of September 30, 2022 ¹ Represents the average Nasdaq Regional Banking Index; ² Based on HBNC’s ROATCE Beta relative to avera
Slide 23: Balance Sheet Management
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 23 Balance Sheet Management Deposit Betas Drive Sensitivity • Of the $2.0 billion of adjustable rate loans, $1.2 billion adjust with a rate change to their index • Including investment cash flow, adjustable rate loans, loan payments
Slide 24: Dealer Reserve Revision
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 24 Dealer Reserve Revision Without Dealer Reserve Change Dealer Reserve Change Actual Without Dealer Reserve Change Dealer Reserve Change Actual Pre Revision Revision Post Revision Loans, net of allowance for credit losses 4,089,370
Slide 25: Net Interest Margin
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 3.66% 3.71% 3.63% 3.61% 3.58% 3.60% 3.59% 3.43% 3.46% 3.61% 3.67% 3.49% 3.44% 3.35% 3.27% 3.44% 3.17% 3.13% 3.12% 2.86% 2.93% 3.12% 3.08% 2.96% 3.61% 3.67% 3.58% 3.55% 3.54% 3.51% 3.51% 3.32% 3.33% 3.52% 3.57% 3.36% 3.33% 3.23% 3.16
Slide 26: Stable Core Deposits
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Non-interest bearing 22% Interest bearing(1) 61% CDs 17% 26 • In-market relationships and strategic pricing, contributed to total deposit cost of 0.71% • Deposit beta’s have accelerated in Q4, well managed through out the cycle • St
Slide 27: Improved Core Funding Profile
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 27 $mm Funding composition $ % Non-interest bearing $1,278 18% Interest bearing 3,583 50% Time deposits 997 14% Borrowings 1,259 18% Total funding $7,117 100% 18% 50% 14% 18% Improved Core Funding Profile Compared to Pre-pandemic 16
Slide 28: Other Comprehensive Income
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 28 • Accumulated Other Comprehensive Income metrics improved increasing Tangible Common Equity (“TCE”) to 6.56% in the fourth quarter compared to 6.25% in the third quarter • We have the intent and ability to hold the investments to
Slide 29: Disciplined Expense Control
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® • Annualized non-interest expense was 1.84% of average assets, supporting long- term objective of less than 2% • Proactive expense reduction in Q4 within consumer/mortgage lending, reflective of market demand • Continued opportunity
Slide 30: Significant Liquidity
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Significant Liquidity 30 Sources of Liquidity $1,169 $251 $420 $897 $2,737 Tier 1: Cash/Equivalents Tier 2: Outstanding Advances Tier 3: Brokered Deposits Capacity Other Liquidity Total as of December 31, 2022
Slide 31: Key Franchise Highlights
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 31 Key Franchise Highlights Granular low cost core deposits – Creates long term franchise value Growth oriented Midwest markets with balanced industrial bases and population inflows Low Credit Risk Profile – High quality balance she
Slide 32: Appendix
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 32 Appendix
Slide 33: Investment Portfolio
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Fed Agy CMO, 3% State and Muni, 52% Fed Agy MBS, 18% Private labeled MBS, 1% U.S. Treasury, 18% Corp, 8% Total Investments at 12/31/22 $3.0B 33 • Investment portfolio cash flows are helping to fund higher yielding loans • Book yield
Slide 34: Stable Credit Loss Reserves
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 34 (1) Net Reserve Build is equal to the provision for credit losses net of net charge-offs/recoveries. Stable Credit Loss Reserves ($000s, unaudited) 12/31/22 Net Reserve(1) 4Q22 Net Reserve(1) 3Q22 Net Reserve(1) 2Q22 Net Reserve(
Slide 35: Gross Loans at 12/31/22
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Commercial, $2,467M, 59% Residential Mortgage, $653M, 16% Consumer, $968M, 23% Mortgage Warehouse, $70M, 2% Held For Sale, $6M, 0% 35 Gross Loans at 12/31/22 $4.2B Commercial Loans by Industry ($M) 12/31/22 Balance % of Commercial P
Slide 36: Commercial Real Estate and Owner Occupied Loans
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 1% 2% 2% 3% 3% 6% 6% 6% 6% 7% 9% Farm Land Mini Storage All Others Lessors - Residential 1-4 Medical Office Warehouse/ Industrial Lessors Student Housing Retail Motel Office (except medical) Lessors - Residential Multi Note: Data as
Slide 37: Stable Loan Yields
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® Commercial loans: • 64% fixed / 36% variable • 21% of variable rate commercial loans have floors, 17% of which are at their floor Retained mortgage loans: • 58% fixed / 42% variable • 94% of variable rate mortgage loans have floors,
Slide 38: Robust Capital Foundation
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 11.1% 11.6% 12.0% 11.3% 12.0% 13.6%11.2% 11.8% 12.2% 12.0% 12.1% 11.1% 2017 2018 2019 2020 2021 2022 9.9% 10.1% 10.5% 10.7% 9.1% 10.2% 9.7% 10.0% 10.2% 9.1% 8.9% 9.4% 2017 2018 2019 2020 2021 2022 12.9% 13.4% 14.0% 14.9% 15.7% 14.5%
Slide 39: Historical Financials
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 39 (1) Footnote Index included in Appendix (see slide 56 for non-GAAP reconciliation) (2) As calculated by S&P Global Market Intelligence. Historical Financials ($M except per share data) 2017 2018 2019 2020 2021 2022 12/31/21 3/31/
Slide 40: Leader In Our Core Markets
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 40 Leader In Our Core Markets Source: S&P Global Market Intelligence. Deposit data as of 6/30/22, estimated pro forma for recent or pending transactions per S&P Global Market Intelligence MSA HBNC Rank HBNC Branches HBNC Market Shar
Slide 41: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 41 Slide 5 • Return on average tangible equity excludes average intangible assets from average equity. (See further in the Appendix for a reconciliation of these non-GAAP amounts to their GAAP counterparts.) Slide 21 • Adjusted net
Slide 42: Use of Non-GAAP Financial Measures
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 42 Slides 43-57 Use of Non-GAAP Financial Measures • Certain information set forth in the presentation materials refers to financial measures determined by methods other than in accordance with GAAP. Horizon believes these non-GAAP
Slide 43: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 43 Footnote Index December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Net income as reported 21,165$ 23,821$ 24,859$ 23,563$ 21,425$ Acquisition expenses - - - - 884 Tax effect - - - - (184) Net incom
Slide 44: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 44 Footnote Index December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Diluted EPS as reported 0.48$ 0.55$ 0.57$ 0.54$ 0.49$ Acquisition expenses - - - - 0.02 Tax effect - - - - - Diluted EPS excluding
Slide 45: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 45 Footnote Index December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Average assets 7,718,366$ 7,635,102$ 7,476,238$ 7,319,675$ 7,461,343$ Return on average assets ("ROAA") as reported 1.09% 1.24% 1.
Slide 46: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 46 Footnote Index December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Average common equity 660,188$ 680,376$ 677,299$ 716,341$ 719,643$ Return on average common equity ("ROACE") as reported 12.72% 13
Slide 47: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 47 Footnote Index December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Average common equity 660,188$ 680,376$ 677,299$ 716,341$ 719,643$ Less: Average intangible assets 173,050 173,546 175,321 176,356
Slide 48: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 48 Footnote Index December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Pre-tax income 23,814$ 25,834$ 28,834$ 27,102$ 25,505$ Provision for credit losses (69) (601) 240 (1,386) (2,071) Pre-tax, pre-pro
Slide 49: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 49 Footnote Index December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 Net interest income as reported 48,782$ 51,861$ 52,044$ 46,831$ 48,477$ 45,080$ 41
Slide 50: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 50 Footnote Index December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2020 2020 2019 2019 2019 2019 Net interest income as reported 42,141$ 41,997$ 41,620$ 39,773$ 40,303$ 42,374$ 40
Slide 51: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 51 Footnote Index 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 32,890$ 33,120$ 32,973$ 32,940$ 30,995$ 27,558$ 26
Slide 52: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 52 Footnote Index December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 Total interest expense as reported 18,405$ 9,635$ 4,564$ 3,911$ 4,142$ 4,324$ 4,78
Slide 53: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 53 Footnote Index December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2020 2020 2019 2019 2019 2019 Total interest expense as reported 9,612$ 6,749$ 7,348$ 10,729$ 11,879$ 12,248$ 12
Slide 54: Footnote Index
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 54 Footnote Index 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 expense as reported 9,894$ 8,499$ 7,191$ 6,015$ 5,319$ 4,191$ 3,607
Slide 55: Non-GAAP Reconciliation of Cost of Deposits
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 55 Footnote Index December 31, September 30, 2022 2022 Total deposit interest expense as reported 10,520$ 4,116$ Average interest bearing deposits 4,555,887 4,478,741 Annualized total deposit interest expense as a percentage of aver
Slide 56: Non-GAAP Calculation of Efficiency Ratio
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 56 Footnote Index December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Non-GAAP Calculation of Efficiency Ratio Non-interest expense as reported 35,711$ 36,816$ 35,404$ 35,270$ 37,871$ Net interest inc
Slide 57: Non-Interest Expense Reconciliation
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 57 Footnote Index Actual Acquisition & Non- Recurring Expenses Adjusted Actual Acquisition & Non- Recurring Expenses Adjusted Actual Acquisition & Non- Recurring Expenses Adjusted Non-interest Expense Salaries and employee benefits