Horizon Bancorp, Inc. · NASDAQ:HBNC
Horizon Bancorp — Q4 2020 Earnings Presentation
49 slides from Horizon Bancorp's earnings presentation, Jan 27, 2021
Slide 1: Investor Presentation January 27, 2021
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 27, 2021
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: 2020 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 ® 4 2020 Highlights ($000s except per share data) 2020 Change % vs. 2019 Income Statement Net interest income $170,940 6.3% Non-interest income $59,621 38.5% Reported net income $68,499 3.0% Diluted EPS $1.55 1.3% Efficiency ratio 57.
Slide 5: Executive 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 ® 5 • 31 Years of Banking & Public Accounting Experience • 11 Years with Horizon as CFO Executive Vice President of Horizon • 35 Years of Banking Experience • 10 Years with Horizon, 2 years as Chief Commercial Banking Officer • 41 Yea
Slide 6: 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 ® 6 2002 - 2007 Organic M&A • St. Joseph, MI • South Bend, IN • Elkhart, IN • Merrillville, IN • Anchor Mortgage • Alliance Financial 2008 - 2013 Organic M&A • Kalamazoo, MI • Indianapolis, IN • American Trust • Heartland Bancshares 2
Slide 7: Well-Established Long-Term 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 ® 7 Well-Established Long-Term Goals Meaningfully outpace GDP and industry ~50/50 growth organic/acquired Organic growth of ≥3x GDP growth 2009 - 2019 2014 - 2019 Source: Federal Reserve Bank of St. Louis and company data. Built to Ou
Slide 8: Multiple Revenue Streams Diversifies Risk
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 Multiple Revenue Streams Diversifies Risk Diversified & Attractive Footprint E X C E P T I O N A L S E R V I C E • Q U A L I T Y A D V I C E ® 8 Retail Banking Business Banking Mortgage Banking Wealth Management Complementary Reve
Slide 9: Markets: Legacy and 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 ® 9 Michigan City, IN / La Porte, IN (Legacy) Indianapolis, IN (Growth) Northwest Indiana (Growth) Lafayette, IN (Growth) Southwest Michigan* (Growth) $1.1B Deposits $680M Deposits $548M Deposits $322M Deposits$413M Deposits 8 Branche
Slide 10: COVID-19 response
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 ® EMPLOYEES CONSUMERS BUSINESSES COMMUNITIES Safety and well being of employees & families is our first priority Implemented pandemic plan in March after completing test run in February 2020 Installed sneeze guards, customer direction
Slide 11: Digital Transformation
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 ® 73,340 92,498 105,240 65% 66% 75% 60% 64% 68% 72% 76% 80% 40,000 50,000 60,000 70,000 80,000 90,000 100,000 110,000 December 2018 December 2019 December 2020 Active Online Banking Users Active Online Banking Users As a Percentage to
Slide 12: 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 ® 12 Financial Highlights
Slide 13: 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 ® 13 $ 0 0 0 s $22,803 $21,839 $23,688 $26,690 $26,902 $18,535 $11,154 $14,443 $19,421 $22,827 $0.41 $0.24 $0.32 $0.45 $0.52 4Q19 1Q20 2Q20 3Q20 4Q20 Adj. Net Income(1) Pre-tax, Pre-provision Income Adj. Net Income Adj. EPS 1.74% 1.63
Slide 14: Stable 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 ® 3.36% 3.42% 3.31% 3.45% 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% 0.66%0.63% 0.62% 0.50% 0.48% 0.50% 0.55% 0.63% 0.70% 0.82% 0.93% 1.07% 1.19% 1.13% 1.10% 1.04% 0.95% 0.60% 0.53%
Slide 15: 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 ® PPP loans: • Increased the fourth quarter 2020 loan yield an additional ~ 15bps • Compressed the third quarter 2020 loan yield ~ 13bps Commercial loans: • 61% fixed / 39% variable • 24% of variable rate commercial loans have floors,
Slide 16: Strong 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 23% Interest bearing(1) 60% CDs 17% 16 • Non-interest bearing balances increased 4% • Quick and decisive action to reprice deposits began immediately after the Fed’s interest rate cuts in March 2020 resulting in
Slide 17: Strong Liquidity Position
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 ® Federal agency CMO, 12% State and municipal, 76% Federal agency MBS, 10% U.S. Treasury, 1% Corporate, 1% 17 • Improved and strong liquidity position and borrowing capacity as of 12/31/20 • $1.3B securities portfolio consistently man
Slide 18: Diverse Sources of Revenue
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 ® $7,815 $2,747 $2,360 $2,645 $327 $3,839 Mtg. Loan Sales Fiduciary Activities Service Charges - Deposits Interchange Fees Mtg. Servicing Other $ 0 0 0 s 18 $459,840 $361,463 $365,865 $408,972 $756,859 2016 2017 2018 2019 2020 $ 0 0 0
Slide 19: Focus on 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 ® • Adjusted efficiency ratio (excluding prepayment penalties on borrowings and securities gains) improved to 56.5% • Annualized non-interest expense represented 2.34% of average assets for the twelve months ending 2020 • Salaries and
Slide 20: CECL Implementation Driving Reserve Build
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 CECL Adoption ($000s, unaudited) 12/31/19 Impact Day One 1/1/20 Net Reserve Build(1) 1Q20 Net Reserve Build(1) 2Q20 Net Reserve Build(1) 3Q20 Net Reserve Build(1) 4Q20 12/31/20 Commercial $ 11,996 $ 13,618 $ 25,614 $ 6,936 $ 6,59
Slide 21: 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 ® 10.8% 11.5% 11.1% 11.6% 12.0% 11.3% 11.3% 11.5% 11.5% 11.9% 11.7% 11.5% 2015 2016 2017 2018 2019 2020 9.8% 10.4% 9.9% 10.1% 10.5% 10.7% 9.4% 9.3% 9.7% 9.9% 9.7% 9.0% 2015 2016 2017 2018 2019 2020 14.0% 13.9% 12.9% 13.4% 14.0% 14.9%
Slide 22: 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 22
Slide 23: Diversified & Granular Loan 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 ® Commercial, $2,192M, 57% Residential Mortgage, $624M, 16% Consumer, $655M, 17% Mortgage Warehouse, $396M, 10% Held For Sale, $14M, 0% 23 Gross Loans at 12/31/20 $3.8B Diversified & Granular Loan Portfolio Commercial Loans by Industr
Slide 24: Deferrals Decline to 3.3% of Loans
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 24 Deferrals Decline to 3.3% of Loans Down from 14.3% of portfolio at June 30, 2020 ($ in millions) Net Type of Loan # Net Balance % of Total % of Portfolio # Net Balance % of Total % of Portfolio Balance % Decrease Commercial 61 $1
Slide 25: Diversified Commercial Lending
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 ® • Experienced commercial lenders (20+ years on average) • Focus on in-market sponsors in resilient markets • Predominantly a secured lender with recourse to owners • Prudent underwriting standards Northern Indiana, 24% Central India
Slide 26: Hotels, Restaurants and Leisure exposure
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 ® 26 Hotels • 16 relationships with $142.7M outstanding across 28 projects • Average LTV of 58% and average loan size of ~ $4.0M • 77% select service / 11% full service / 7% independent / 5% economy properties • Modifications of $103.
Slide 27: Hotel Sector
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 HOTEL SECTOR E X C E P T I O N A L S E R V I C E • Q U A L I T Y A D V I C E ® 27 FAVORABLE LOCATIONS Majority are located near major interstate highways or resort communities, which have rebounded faster than hotels located in m
Slide 28: 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 ® $629 $404 $407 $823 $229 0.02% 0.01% 0.01% 0.02% 0.01% 4Q19 1Q20 2Q20 3Q20 4Q20 Net Charge Offs NCOs NCOs/Average Loans $ 0 0 0 s $21,185 $24,002 $28,056 $29,314 $26,807 0.58% 0.65% 0.70% 0.72% 0.69% 4Q19 1Q20 2Q20 3Q20 4Q20 Non-Per
Slide 29: 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 ® 29 Key Franchise Highlights Seasoned management team – over 200 years combined banking experience Geographic diversification & exposure – strong market share in core footprint Stable Midwest markets with balanced industrial bases an
Slide 30: 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 ® 30 Appendix
Slide 31: Payroll Protection Program
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 Leveraging the CARES Act to provide additional support to small businesses and their employees • PPP loans totaled ~ $208.9 million through December 31, 2020 • Average loan size less than $125,000 • Continue to process PPP forgiv
Slide 32: Commercial real estate and industry exposure
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% 3% 3% 3% 4% 4% 6% 6% 7% 10% Lessors - Residential 1-4 Farm Land Mini Storage Medical Office All Others Warehouse/ Industrial Lessors Student Housing Motel Retail Office (except medical) Lessors - Residential Multi 1% 1% 1% 1%
Slide 33: Quality Consumer Loan 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 ® 33 • 99.3% secured consumer loans • 94.3% prime, with credit scores ≥700 for 82.1% of portfolio and <640 for 5.7% • Rescored annually • HELOC combined LTV limited to 89.9% • Strong asset quality through end of 4Q20 • 30-89 days past
Slide 34: Prime Mortgage Loan 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 ® 34 Jumbo, 41.3% Rental, 0.9% Conforming, 53.8% Construction, 4.0% Total Outstanding at 12/31/20 $624M • 77% of production sold YTD • Predominantly in-market lender • Portfolio mortgages • Underwriting to Fannie Mae guidelines • Full
Slide 35: Historical Financials
E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 35 (1) Footnote Index included in Appendix (see slide 49 for non-GAAP reconciliation) (2) As calculated by S&P Global Market Intelligence. Historical Financials ($M except per share data) 2015 2016 2017 2018 2019 2020 12/31/19 3/31/
Slide 36: 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 ® 36 Source: S&P Global Market Intelligence. Deposit data as of 6/30/20, estimated pro forma for recent or pending transactions per S&P Global Market Intelligence. Leader In Our Core Markets MSA HBNC Rank HBNC Branches HBNC Market Sha
Slide 37: 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 ® 37 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 reconcili
Slide 38: Non-GAAP Reconciliation: Pre-tax, pre-provision 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 ® 38 Footnote Index December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 Pre-tax income 23,860$ 24,638$ 16,632$ 13,239$ 22,463$ Provision for credit losses 3,042 2,052 7,057 8,600 340 Pre-tax, pre-provis
Slide 39: Non-GAAP Reconciliation of Net 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 ® 39 Footnote Index December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 Net income as reported 21,893$ 20,312$ 14,639$ 11,655$ 18,543$ Merger expenses - - - - - Tax effect - - - - - Net income excluding
Slide 40: Non-GAAP Reconciliation of Diluted EPS
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 Footnote Index December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 Diluted earnings per share ("EPS") as reported 0.50$ 0.46$ 0.33$ 0.26$ 0.41$ Merger expenses - - - - - Tax effect - - - - - Dilute
Slide 41: Non-GAAP Reconciliation of ROAA
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 Footnote Index December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 Average assets 5,864,086$ 5,768,691$ 5,620,695$ 5,257,332$ 5,250,574$ Return on average assets ("ROAA") as reported 1.49% 1.40% 1.
Slide 42: Non-GAAP Reconciliation of 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 ® 42 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 43,622$ 43,397$ 42,996$ 40,925$ 41,519$ 43,463$ 41
Slide 43: Non-GAAP Reconciliation of Net Interest Margin 2017-2018
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, September 30, June 30, March 31, 2018 2018 2018 2018 2017 2017 2017 2017 Net interest income as reported 33,836$ 33,772$ 33,550$ 33,411$ 31,455$ 27,879$ 27
Slide 44: Non-GAAP Reconciliation of Net Interest Margin 2016
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, 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 2,471,354 2,367,250 Net interest
Slide 45: Non-GAAP Reconciliation of Cost of Funds
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, 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 46: Non-GAAP Reconciliation of Cost of Funds 2017-2018
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, 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 47: Non-GAAP Reconciliation of Cost of Funds 2016
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, 2016 2016 2016 2016 Total interest expense as reported 8,450$ 4,552$ 3,781$ 3,754$ Average interest bearing liabilities 2,369,810 2,443,986 2,058,463 1,974,325 Annualiz
Slide 48: 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 ® 48 Footnote Index December 31, September 30, 2020 2020 Total deposit interest expense as reported 2,718$ 3,616$ Average interest bearing deposits 3,450,824 3,334,436 Annualized total deposit interest expense as a percentage of avera
Slide 49: 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 ® 49 Footnote Index December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 Non-GAAP Calculation of Efficiency Ratio Non-interest expense as reported 36,453$ 33,407$ 30,432$ 31,149$ 30,650$ Net interest inc