Horizon Bancorp(US:HBNC)2022-10-30 12:01Financial Data and Key Metrics Changes - Horizon Bancorp reported a return on average assets of 1.24% and return on average equity of 13.89% for Q3 2022, with year-to-date figures at 1.29% and 13.97% respectively [8][33] - The adjusted net income decreased by $400,000 compared to Q2 2022, with adjusted earnings per share at $0.55, down $0.01 from the previous quarter but up $0.03 year-over-year [17][33] - The tangible common equity (TCE) declined to 6.25% as of September 30, down from 6.48% at the end of Q2 2022, reflecting a 3.5% decline quarter-over-quarter [13][23] Business Line Data and Key Metrics Changes - Total loan growth for Q3 2022 was 7.8% annualized, with year-to-date growth at 14.5%, driven by commercial loan growth of 13.8% and consumer loan growth of 31.7% [7][33] - Commercial lending generated robust loan growth of $41.8 million or 7.2% annualized, while consumer loan funding increased by $149 million, elevating balances by 23% annualized [27][28] - Mortgage loan production decreased by 27% year-to-date, significantly better than the industry average decline of 46% [29] Market Data and Key Metrics Changes - Horizon operates in attractive Midwest growth markets, benefiting from regional infrastructure improvements and economic stimulus initiatives [9][10] - The company reported strong regulatory capital ratios that exceed the definition for well-capitalized banks, indicating a solid liquidity position [14][23] Company Strategy and Development Direction - Horizon aims to achieve a non-interest expense to average assets ratio of less than 2% for 2022, supported by branch closures and cost-saving measures [6][25] - The company is focused on digital transformation, increasing technology spending on strategic customer and employee-facing applications [11][12] - Horizon's investment strategy includes reallocating resources to more productive areas, particularly in commercial lending, while managing costs in underperforming segments [84] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining loan growth despite a competitive funding environment, with expectations for moderate growth in Q4 2022 [48][67] - The company is closely monitoring credit quality, with no net charge-offs reported and a solid allowance to total loans at 1.28% [31][89] - Management anticipates that the economic environment may lead to increased pressure on deposit rates, but believes in the strength of their low-cost core deposits [24][60] Other Important Information - Horizon's technology plan includes increasing annual spending to enhance customer experience while offsetting costs through improved efficiencies [13] - The company has a consistent dividend policy, with a recent increase of 6.3% in dividends per share [15][14] Q&A Session Summary Question: Margin trends and expectations - Management noted that while net interest income increased, the margin decreased due to cash flow declines from the investment portfolio and reliance on more expensive borrowed funds [39][40] Question: Branch closure-related costs - All write-downs for branch closures were taken in Q2, with expected cost savings from closures helping to manage inflationary pressures [41] Question: Loan growth funding sources - Management expects to rely on cash flows from securities and retained earnings to fund loan growth, reducing reliance on borrowed funds [48][75] Question: Credit quality outlook - Credit quality metrics remain strong, with no significant deterioration expected, although management is monitoring certain sectors closely [89] Question: Tax rate expectations - The tax rate is expected to normalize between 14% to 15% following the recognition of solar credits [90]