Horizon Bancorp(US:HBNC)2024-11-12 21:16Net Income and Earnings - Net income increased by $2.0 million to $18.2 million, or $0.42 per share, for the three months ended September 30, 2024, compared to $16.2 million, or $0.37 per share, for the same period in 2023[173] - Net income declined by $6.9 million to $46.3 million, or $1.06 per share, for the nine months ended September 30, 2024, compared to $53.2 million, or $1.22 per share, for the same period in 2023[174] - Net income (GAAP) for September 30, 2024, was $18.180 million, up from $14.140 million in June 2024 and $13.991 million in March 2024[221] Net Interest Income and Margin - Net interest income increased by $4.8 million, or 11.5%, for the three months ended September 30, 2024, driven by a 25 basis point increase in the net FTE interest margin to 2.66%[174] - The net FTE interest margin increased by 25 basis points to 2.66% for the three months ended September 30, 2024, due to a favorable mix shift in average interest-earning assets and funding mix[175] - Net interest income increased by $2.0 million to $135.5 million for the nine months ended September 30, 2024, compared to the same period in 2023[179] - Net FTE interest margin increased by 1 basis point to 2.60% for the nine months ended September 30, 2024[179] - Net FTE interest margin (Non-GAAP) was 2.66% for the three months ended September 30, 2024[177] - Net FTE interest margin (non-GAAP) for September 30, 2024, was 2.66%, compared to 2.64% in June 2024 and 2.50% in March 2024[219] - Net interest income (GAAP) for September 30, 2024, was $46.910 million, up from $45.279 million in June 2024 and $43.288 million in March 2024[219] Interest Rates and Sensitivity - A 100 basis points rise in interest rates would decrease net interest income by $7.9 million (3.5%), while a 100 basis points fall would increase net interest income by $2.8 million (1.3%)[226] - The company's net interest income is projected to decrease by $17.7 million (7.9%) with a 200 basis points rise in interest rates[226] - A 100 basis points rise in interest rates is expected to reduce net interest income by $7.9 million (3.5%)[226] - A 100 basis points fall in interest rates is projected to increase net interest income by $2.8 million (1.3%)[226] - A 200 basis points fall in interest rates is expected to decrease net interest income by $2.7 million (1.2%)[226] - The company uses earnings simulation models to assess net interest income sensitivity to interest rate changes over 12- and 24-month periods[225] - Deposit beta assumptions in the simulation model range from 12% to 80% based on underlying products[225] - The company's interest-bearing liabilities are projected to reprice faster than interest-earning assets for the next 100 basis points of declining interest rates[225] Non-Interest Income and Expense - Non-interest expense growth and a decline in non-interest income contributed to the decrease in net income for the nine months ended September 30, 2024[174] - The increase in net interest income for the three months ended September 30, 2024 was partially offset by an increase in non-interest expense compared to the year-ago period[173] - Total non-interest income declined by $0.3 million for the three months ended September 30, 2024, compared to the same period in 2023[186] - Total non-interest income for the nine months ended September 30, 2024, was $31.9 million, down from $32.4 million in the same period in 2023[184] - Non-interest expense increased by $3.1 million for the three months ended September 30, 2024, and $6.9 million for the nine months ended September 30, 2024, driven by higher salaries, outside services, and other expenses[191] - Salaries and employee benefits expense increased by $1.8 million for the three months ended September 30, 2024, and $3.7 million for the nine months ended September 30, 2024, due to hiring efforts and legacy benefits program expenses[192][193] Loans and Deposits - Total loans HFI increased by $383.5 million, or 8.8%, to $4.8 billion as of September 30, 2024, led by organic commercial loan growth[205] - Total deposit balances increased by $62.1 million, or 1.1%, to $5.7 billion as of September 30, 2024, with a focus on core commercial and consumer deposits[206] - Total borrowings decreased by $87.9 million, or 6.5%, to $1.3 billion as of September 30, 2024, due to repayment of Federal Home Loan Bank advances[207] - Loans receivable averaged $4,775.8 million with an average rate of 6.32% for the three months ended September 30, 2024[177] - Interest-bearing deposits averaged $3,386.2 million with an average rate of 2.14% for the three months ended September 30, 2024[177] Credit Quality and Allowance for Credit Losses - The ACL balance increased to $52.9 million, or 1.10% of period-end loans HFI, up from $50.0 million at December 31, 2023[210] - Total non-accrual loans increased by $3.9 million, or 19.6%, to 0.49% of total loans HFI as of September 30, 2024[211] - Net charge-offs for the three months ended September 30, 2024, were $0.4 million, or 3 basis points annualized of average loans[212] - Total non-performing assets increased by $3.8 million, or 17.4%, to 0.32% of total assets as of September 30, 2024[211] - Provision for credit losses on loans increased by $1.0 million for the three months ended September 30, 2024, and $4.2 million for the nine months ended September 30, 2024, driven by loan growth and changes in economic forecasts[196][197] Investment Securities and Other Assets - Investment securities available for sale decreased by $6.1 million to $541.2 million as of September 30, 2024, compared to December 31, 2023[209] - Securities held to maturity decreased by $57.3 million to $1.9 billion as of September 30, 2024[209] - Federal Home Loan Bank stock averaged $53.8 million with an average rate of 11.88% for the three months ended September 30, 2024[177] - The Bank had approximately $1.52 billion in unused credit lines with various money center banks as of September 30, 2024[215] Equity and Capital Ratios - Stockholders' equity totaled $754.8 million as of September 30, 2024, compared to $718.8 million at December 31, 2023[216] - Tangible common equity totaled $588.5 million at September 30, 2024, with a ratio of tangible common equity to tangible assets of 7.58%[216] - The dividend payout ratio was 45.3% for the first nine months of 2024, compared to 39.3% for the same period in 2023[216] - Total tangible common equity (non-GAAP) for September 30, 2024, was $588.544 million, up from $559.544 million in June 2024 and $553.285 million in March 2024[222] - Tangible common equity to tangible assets (non-GAAP) for September 30, 2024, was 7.58%, compared to 7.22% in June 2024 and 7.20% in March 2024[222] - Tangible book value per common share (non-GAAP) for September 30, 2024, was $13.46, up from $12.80 in June 2024 and $12.65 in March 2024[223] - Return on average tangible common equity (ROACE) (non-GAAP) for September 30, 2024, was 12.65%, compared to 10.18% in June 2024 and 10.11% in March 2024[221] Risks and Accounting Estimates - The company's critical accounting estimates include the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting, and valuation measurements[172] - The company identified risks such as changes in interest rates, inflation, and the impact of cryptocurrencies on deposit disintermediation and payment system income[169] - The company highlighted potential risks from cyber terrorism, data security breaches, and the rising costs of effective cybersecurity[170] - The company noted the risks of expansion through mergers and acquisitions, including unexpected credit quality problems and difficulty integrating acquired operations[170] Internal Controls and Reporting - The company's disclosure controls and procedures were effective as of September 30, 2024, ensuring timely and accurate reporting[228] - Horizon's disclosure controls and procedures were evaluated as effective as of September 30, 2024[228] - No material changes in internal control over financial reporting were identified during the fiscal quarter ended September 30, 2024[229] Interest Income and Expense Details - Total interest earning assets averaged $7,330.3 million with an average rate of 5.04% for the three months ended September 30, 2024[177] - Total interest bearing liabilities averaged $5,961.9 million with an average rate of 2.93% for the three months ended September 30, 2024[177] - Net FTE interest income (non-GAAP) was $48.9 million for the three months ended September 30, 2024[177] - Net interest income was $46.9 million for the three months ended September 30, 2024[177] - Total interest income increased by $10.8 million for the three months ended September 30, 2024, compared to the same period in 2023, driven by higher loan interest income[183] - Net interest income rose by $4.8 million for the three months ended September 30, 2024, compared to the same period in 2023, despite a $3.2 million decrease due to rate changes[183] - Loans receivable interest income increased by $12.5 million for the three months ended September 30, 2024, compared to the same period in 2023, with a significant contribution from rate changes[183] - Interest-bearing deposits expense increased by $5.5 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to rate changes[183] - Federal Home Loan Bank stock interest income increased by $989,000 for the three months ended September 30, 2024, compared to the same period in 2023[183] - Interest income (GAAP) for September 30, 2024, was $90.888 million, showing an increase from $86.981 million in June 2024 and $85.264 million in March 2024[219] Service Charges and Fees - Service charges on deposit accounts increased to $9.7 million for the nine months ended September 30, 2024, compared to $9.1 million in the same period in 2023[184] - Service charges on deposit accounts increased by $0.2 million for the three months ended September 30, 2024, and $0.5 million for the nine months ended September 30, 2024, compared to the same periods in 2023[187] - Interchange fees increased by $0.3 million for the three months ended September 30, 2024, and $0.8 million for the nine months ended September 30, 2024, driven by growth in qualified debit card volume[188] - Mortgage servicing income decreased by $0.2 million for the three months ended September 30, 2024, and $0.7 million for the nine months ended September 30, 2024, due to higher amortization expense of mortgage servicing rights[189] - Cash value of bank-owned life insurance decreased by $0.7 million for the three months ended September 30, 2024, and $2.1 million for the nine months ended September 30, 2024, due to policy surrenders in Q4 2023[190] Total Assets and Liabilities - Total average assets for the nine months ended September 30, 2024, were $7.82 billion, slightly lower than the $7.87 billion in the same period in 2023[181] - Net FTE interest margin (Non-GAAP) remained stable at 2.60% for the nine months ended September 30, 2024, compared to 2.59% in the same period in 2023[181]