Horizon Bancorp(HBNC) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Horizon Bancorp's unaudited consolidated financial statements, detailing key financial positions and performance metrics Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $7,963,353 | $7,872,518 | | Cash and due from banks | $228,986 | $123,505 | | Investment securities, available for sale | $905,813 | $997,558 | | Investment securities, held to maturity | $1,983,496 | $2,022,748 | | Loans, net | $4,216,284 | $4,107,534 | | Goodwill | $155,211 | $155,211 | | Total Liabilities | $7,254,110 | $7,195,143 | | Total deposits | $5,709,332 | $5,857,774 | | Borrowings | $1,352,039 | $1,142,949 | | Total Stockholders' Equity | $709,243 | $677,375 | Condensed Consolidated Statements of Income Condensed Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $46,160 | $52,044 | $91,397 | $98,875 | | Credit loss expense (recovery) | $680 | $240 | $922 | $(1,146) | | Total non-interest income | $10,997 | $12,434 | $20,617 | $26,589 | | Total non-interest expense | $36,262 | $35,404 | $70,786 | $70,674 | | Net Income | $18,763 | $24,859 | $36,991 | $48,422 | | Diluted Earnings Per Share | $0.43 | $0.57 | $0.85 | $1.11 | Condensed Consolidated Statements of Comprehensive Income (Loss) - For the three months ended June 30, 2023, the company reported a Comprehensive Income of $12.9 million, consisting of $18.8 million in Net Income offset by a $5.9 million Other Comprehensive Loss, contrasting with a Comprehensive Loss of $13.4 million in 2022 driven by a $38.3 million Other Comprehensive Loss[13] - For the six months ended June 30, 2023, Comprehensive Income was $45.3 million, including $8.3 million in Other Comprehensive Income, a significant reversal from the $52.0 million Comprehensive Loss in 2022, primarily due to a $100.4 million Other Comprehensive Loss[13] Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $677.4 million at the beginning of 2023 to $709.2 million as of June 30, 2023, driven by $37.0 million in net income and $8.3 million in other comprehensive income, partially offset by $14.2 million in cash dividends paid[17] Dividends Per Share | Period | Dividends Per Share | | :--- | :--- | | Three Months Ended June 30, 2023 | $0.16 | | Six Months Ended June 30, 2023 | $0.32 | | Three Months Ended June 30, 2022 | $0.16 | | Six Months Ended June 30, 2022 | $0.31 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,114 | $55,449 | | Net cash used in investing activities | $15,609 | $(813,937) | | Net cash provided by financing activities | $45,758 | $273,828 | | Net Change in Cash and Cash Equivalents | $105,481 | $(484,660) | Notes to Condensed Consolidated Financial Statements - The company revised previously issued financial statements for the three and six months ended June 30, 2022, to correct immaterial errors related to amortization of indirect loan dealer reserve assets and non-cash security transfers, with no impact on net income[29][30] - As of June 30, 2023, the company repurchased 803,349 shares at an average price of $16.89 per share under its authorized stock repurchase program[24] - The company adopted ASU 2022-02 in Q1 2023, eliminating Troubled Debt Restructuring (TDR) guidance, which had no material impact on financial statements[37][38] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, focusing on net income, margin compression, and capital adequacy - Net income for Q2 2023 was $18.8 million ($0.43/share), down from $24.9 million ($0.57/share) in Q2 2022, primarily due to a $5.9 million decline in net interest income[191] - Net interest margin compressed to 2.69% in Q2 2023 from 3.13% in Q2 2022, as the cost of interest-bearing liabilities rose by 176 basis points, outpacing the 100 basis point increase in asset yields[196][197][198] - Total deposits remained stable at $5.71 billion at the end of Q2 2023, while total borrowings increased to $1.4 billion from $1.1 billion at year-end 2022 to manage liquidity[188][189] - Asset quality remains sound, with non-performing loans at 0.52% of total loans and net charge-offs at 0.01% of average loans for the quarter[166][212] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section reports no significant changes in the company's interest rate sensitivity since its 2022 Annual Report on Form 10-K - The company reports no significant changes in its interest rate sensitivity since its 2022 Annual Report on Form 10-K[249] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective due to material weaknesses, with remediation efforts underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2023[250] - The ineffectiveness stems from material weaknesses in internal control over financial reporting, previously disclosed in the 2022 Form 10-K, regarding loans, investments, cash flow, and reporting timeliness[250][251] - Remediation efforts are in progress, including additional resources and enhanced controls, with estimated completion before the end of fiscal 2023[252] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is defending against a putative class action lawsuit alleging materially false and misleading statements, with management believing it is without merit - A putative class action lawsuit was filed against the Company and two officers on April 20, 2023, alleging violations of the Securities Exchange Act of 1934[255] - The lawsuit claims the company made materially false and misleading statements between March 9, 2022, and March 10, 2023[255] - Management believes the lawsuit is without merit and has not recorded any liability, concluding a loss is not probable[256] Item 1A. Risk Factors This section introduces a new risk factor concerning recent negative developments in the banking industry and their potential impact on the company - A new risk factor addresses the negative impact of recent high-profile bank failures on the banking industry[259] - These events have eroded customer confidence, caused market volatility, and could adversely affect Horizon's liquidity, funding, net interest margin, and operations due to potential deposit outflows[259] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales or repurchases of equity securities during the period - The company reports no unregistered sales of equity securities or repurchases of its equity securities for the period[260] Item 3. Defaults Upon Senior Securities This item is reported as not applicable - Not Applicable[260] Item 4. Mine Safety Disclosures This item is reported as not applicable - Not Applicable[262] Item 5. Other Information The company reports no adoption or termination of Rule 10b5-1 trading plans by directors or executive officers - During Q2 2023, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or similar arrangements[262] Item 6. Exhibits This section lists the exhibits filed with the report, including employment agreements, certifications, and interactive data files - Lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and interactive data files[263]