Horizon Bancorp, Inc. · NASDAQ:HBNC
Horizon Bancorp — Q2 2020 Earnings Presentation
47 slides from Horizon Bancorp's earnings presentation, Jul 29, 2020
Slide 1: Investor Presentation July 29, 2020
A NASDAQA NASDAQ Traded Traded Company Company - Symbol- Symbol HBNC HBNC Investor Presentation July 29, 2020
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
HORIZON‘ _HORIZOP BANK Corporate Overview AGEPT! ONAL SERVI CI = SENSIBLE AOD V i CE
Slide 4: 2Q20 Highlights
2Q20 Highlights Change % Change % ($000s except per share data) 2Q20 1Q20 vs. 2Q19 ($000s except per share data) 2Q20 1Q20 vs. 2Q19 Income Statement Credit Quality Net interest income $42,996 5.1% 3.5% Non-performing assets $30,699 5.1% 3.5% Non-interest income 11,124 (7.8)% 2.1% NPA ratio 0.53% 3 b
Slide 5: Seasoned Management Team
Seasoned Management Team Seasoned Leadership Executive team has collectively >200 total Horizon’s employees understand the years’ banking experience value of work Horizon’s middle mgmt. team on average 14 mergers and 11 organic expansions has >25 years of banking experience completed in last
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: Diversified & Attractive Footprint
Diversified & Attractive Footprint Headquartered in Michigan City, Indiana 73 Locations (Indiana and Michigan) Approximately 800 FTEs $468 million market capitalization (6/30/20) NASDAQ: HBNC INDIANA 6/30/20 Loans: $2.2 Billion MICHIGAN 6/30/20 Loans: $1.4 Billion Multiple Revenue Streams Diversifie
Slide 8: Attractive & Stable Midwest Markets
Attractive & Stable Midwest Markets Top 5 Markets by Deposits Southwest Michigan City, IN Indianapolis, IN Northwest Indiana Lafayette, IN Michigan* / La Porte, IN (Growth) (Growth) (Growth) (Legacy) (Growth) $1.0B Deposits $573M Deposits $511M Deposits $341M Deposits $293M Deposits 9 Branches 9 Bra
Slide 9: COVID-19 Response
COVID-19 Response Supporting Employees, Customers & Communities Employees Consumers Businesses Communities Safety and well being of 97% of our branch locations are Preferred SBA Lender: Increased volunteerism in support employees & families is our first now open for walk-in traffic. • Active Partici
Slide 10: Digital Transformation
Digital Transformation • Approximately 71% of demand deposit account holders were active online banking users at June 30, 2020 • Third quarter upgrades include live online chat support, along with online and mobile deposit account opening Active Online Monthly Average Banking Users Transaction Volum
Slide 11: Financial Highlights
HORIZON‘ _HORIZOP BANK Financial Highlights A GOR PT IO NAL SERVI CI = SENSIBLE PTD Ae Ne, yas Gani
Slide 12: Strong Core Earnings
Strong Core Earnings Adj. Net Income(1) Adj. Net Interest Income(1) $24,917 $23,688 $22,803 $41,724 $41,443 $21,839 $40,230 $40,477 $39,491 $20,843 $20,324 $18,535 $17,591 $14,443 s s 0 $0.45 0 0 0 0 $0.39 $0.41 $11,154 0 $ $ 3.67% $0.32 3.61% 3.49% 3.44% 3.35% $0.24 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q
Slide 13: Stable Net Interest Margin
Stable Net Interest Margin • Lower yielding PPP loans impacted the second quarter margin ~ 3bps • Excess cash sold during the second quarter impacted the margin ~ 4bps (1) (1) (2) (1) Footnote Index included in Appendix (see slides 40-45 for non-GAAP reconciliation) (2) Source: S&P Global Market Int
Slide 14: Change in Loan Yields Directionally Consistent with Funding Costs
Change in Loan Yields Directionally Consistent with Funding Costs • Commercial loans: – 64% fixed / 36% variable – 21% of variable rate commercial loan have floors, 67% of which are at their floor • Retained Mortgage loans: – 26% fixed / 74% variable – 98% of variable rate mortgage loans have floors
Slide 15: Strong Core Funding
Strong Core Funding Deposit Re-Pricing Opportunities • Non-interest bearing balances increased 29% • 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 0.15% • CD’s maturing in 2020 total
Slide 16: Diverse Sources of Revenue
Diverse Sources of Revenue Q2 ‘20 Non-interest Income Breakout Q2 ‘20 Highlights • Diverse sources of non-interest income, representing 20.6% of total revenue $6,620 • Record mortgage contribution s 0 0 $1,765 $1,888 $2,327 • Realized $2.9 million of mortgage 0 $1,284 $ servicing rights impairment -
Slide 17: Focus on Expense Control
Focus on Expense Control Non-interest Expense Breakout ($M) Highlights • Efficiency ratio improved to 56.2% as focus on expense control drives positive operating leverage • Continue annual rationalization of retail locations with two branches closed in 2020 • Second quarter expenses positively impac
Slide 18: CECL Implementation Driving Reserve Build
CECL Implementation Driving Reserve Build CECL Adoption Net Net Reserve Reserve Day One Build(1) Build(1) ($000s, unaudited) 12/31/19 Impact 1/1/20 1Q20 2Q20 6/30/20 Commercial $ 11,996 $ 13,618 $ 25,614 $ 6,936 $ 6,597 $ 39,147 Retail Mortgage 923 4,048 4,971 683 178 5,832 Warehousing 1,077 - 1,077
Slide 19: Robust Capital Foundation
Robust Capital Foundation TCE / TA (%) Leverage Ratio (%) 4.0% CET1 Ratio (%) Total RBC Ratio (%) 7.0% 10.5% KBW Regional Bank Index Median - MRQ Source: S&P Global Market Intelligence. Note: Company closed the acquisition of Salin Bancshares, Inc. in March 2019. Adequate + Buffer 19
Slide 20: Loan Portfolio Review
HORIZON‘ _HORIZOP BANK Loan Portfolio Review AGEPT! ONAL SERVI CI = SENSIBLE AOD VW ic 7 20
Slide 21: Diversified and Granular Loan Portfolio
Diversified and Granular Loan Portfolio Commercial Loans by Industry ($M) (6/30/20) Percentage of Gross Loan Composition ($M) – 6/30/20 Commercial Total Loan Industry Balance Portfolio Portfolio Lessors-ResidentialMultiFamily $228 9.9% 5.7% Health Care, Educational & Social 168 7.3% 4.2% Mortgage Of
Slide 22: Payment Deferrals as of June 30, 2020
Payment Deferrals as of June 30, 2020 ($ in millions) ($ in millions) Payment Extensions / Modifications By Loan Type Payment Extensions / Modifications By Type & Term Type Term Principal & Interest 90 Days Over Interest Only or Less 90 Days Interest Net Accrued % of % of Net Net Net Net Type of Loa
Slide 23: Payroll Protection Program
Payroll Protection Program Through June 30, 2020 • Leveraging the CARES Act to provide additional support to 2,340 loans booked small businesses and their employees PPP loans totaled ~ $308.1 million through June 30, 2020 Average loan size less than > $50K - $150K $135,000 28% As of 6/30/20, w
Slide 24: Quality Consumer Loan Portfolio
Quality Consumer Loan Portfolio As of 6/30/20: June 30, 2020 • 99.2% secured consumer loans Total Outstanding = $661M 93.5% prime, with credit scores Unsecured ≥700 for 80.4% of portfolio and RV & Boat 0.8% <640 for 6.5% 2.5% Other 0.3% Rescored annually HELOCs HELOC combined LTV limited 34.5%
Slide 25: Prime Mortgage Loan Portfolio
Prime Mortgage Loan Portfolio As of 6/30/20: • 71% of production sold YTD June 30, 2020 • Predominantly in-market lender Total Outstanding = $704M • Portfolio mortgages Rental 0.8% Underwriting to Fannie Mae guidelines Full documentation and employment, income and asset verification Jumbo 40.3%
Slide 26: Diversified Commercial Lending
Diversified Commercial Lending $2.3 billion in Total Commercial Loans Category at June 30, 2020 Agriculture Develop./Land Res. Spec. • Experienced commercial lenders (20+ years on 4.2% 1.2% Homes average) 0.5% Owner Occ. Real • Focus on in-market sponsors in resilient markets Estate Non-Owner 18.6%
Slide 27: Sectors with Escalated Monitoring
Sectors with Escalated Monitoring Hotel, Restaurant, Retail and Leisure & Hospitality • Hotels 19 relationships with $140.0M outstanding across 31 projects Average LTV of 50% and average loan size of ~ $4.8M $3.99B in Total Loans 70% select service properties / 23% economy properties / 7% Outs
Slide 28: Strong Asset Quality Metrics Through the Second Quarter
Strong Asset Quality Metrics Through the Second Quarter Net Charge Offs Credit Loss Expense $8,600 (CECL Implementation 1Q20) $725 $7,057 $629 s $412 $404 $407 s 0 0.02% 0.02% 0 0 0 CECL CECL 0 0 $ $ 0.01% 0.01% 0.01% $896 $376 $340 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 NCOs NCOs/Average
Slide 29: Key Franchise Highlights
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 and growth opportunities • High quality balance sheet with strong l
Slide 30: Appendix
HORIZON‘ _HORIZOP BANK Appendix SE PT | O NAL SERVI CI = SENSIBLE AOD VW ic 7k 220
Slide 31: Ample Sources of Liquidity
Ample Sources of Liquidity Securities Portfolio at June 30, 2020 • Improved and strong liquidity position and borrowing capacity as of 6/30/20 $1.1B Corporate Pledging majority of municipal 1% securities to the FRB for immediate available liquidity Federal agency Federal Additional liquidity ava
Slide 32: Low Levels of Concentrated Exposure
Low Levels of Concentrated Exposure Commercial Portfolio By Industry Type Non-Owner Occupied CRE – Owner Occupied CRE – C&I Loans – % of Total Commercial Loans % of Total Commercial Loans % of Total Commercial Loans 48% of Total Commercial Loans 19% of Total Commercial Loans 33% of Total Commercial
Slide 33: Historical Financials
Historical Financials Year Ended December 31, Quarter Ended, ($M except per share data) 2015 2016 2017 2018 2019 6/30/19 9/30/19 12/31/19 3/31/20 6/30/20 Balance Sheet: Total Assets $2,652 $3,141 $3,964 $4,247 $5,247 $5,099 $5,187 $5,247 $5,351 $5,739 Gross Loans $1,757 $2,144 $2,838 $3,014 $3,641 $
Slide 34: 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 9 59.2% $1,011 $53,255 0.1% 6.8% Indianapolis-Carmel-Anderson, IN 16 9 1.1% 573 65,306 3.8% 11.2% Chicago-Nap
Slide 35: Footnote Index
Footnote Index • Slide 12 – 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 counterp
Slide 36: Non-GAAP 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 June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Pre-tax income $ 16,632 $ 13,239 $ 22,463 $ 24,541 $ 19,947 Provision for credit losses 7,0
Slide 37: Non-GAAP Reconciliation of Net Income
Footnote Index Non-GAAP Reconciliation of Net Income (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Net income as reported $ 14,639 $ 11,655 $ 18,543 $ 20,537 $ 16,642 Merger expenses - - - - 1,532 Tax effect - - -
Slide 38: Non-GAAP Reconciliation of Diluted Earnings per Share
Footnote Index Non-GAAP Reconciliation of Diluted Earnings per Share (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Diluted earnings per share ("EPS") as reported $ 0.33 $ 0.26 $ 0.41 $ 0.46 $ 0.37 Merger expenses
Slide 39: Non-GAAP Reconciliation of Return on Average Assets
Footnote Index Non-GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Average assets $ 5,620,695 $ 5,257,332 $ 5,250,574 $ 5,107,259 $ 5,047,365 Return on average assets
Slide 40: Non-GAAP Reconciliation of Net Interest Margin
Footnote Index Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Three Months Ended Three Months Ended June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2019 2019 2019 2019 Net interest income as reported $ 42,996 $ 40,925 $ 41,519 $ 43,463 $ 4
Slide 41: Non-GAAP 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 42: Non-GAAP 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 43: Non-GAAP 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 June 30, March 31, December 31, September 30, June 30, March 31, 2020 2020 2019 2019 2019 2019 Total interest expense as reported $ 7,348 $ 10,729 $
Slide 44: Non-GAAP 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 45: Non-GAAP 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 46: Non-GAAP Reconciliation of Cost of Deposits
Footnote Index Non-GAAP Reconciliation of Cost of Deposits (Dollars in Thousands, Unaudited) Three Months Ended June 30, March 31, 2020 2020 Total deposit interest expense as reported $ 4,506 $ 7,716 Average interest bearing deposits 3,299,661 3,225,323 Annualized total deposit interest expense as a
Slide 47: Non-GAAP 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 June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Non-GAAP Calculation of Efficiency Ratio Non-interest expense