Horizon Bancorp(US:HBNC)2021-08-01 00:21Financial Data and Key Metrics Changes - Horizon reported strong quarterly earnings of $22.1 million for Q2 2021, with a year-to-date earnings increase of 64% compared to the same period last year [11][14] - Return on average assets was 1.45% and return on average equity was 12.59%, which are favorable compared to peer medians [12] - The company demonstrated a compounded annual growth rate of 16% in net income over the past 22 years [46] Business Line Data and Key Metrics Changes - Net interest income increased due to a higher level of interest-earning assets, despite lower PPP income and mortgage loan balances [22] - Non-interest income rose primarily due to mortgage gain on sale and interchange income, along with a recovery of $1.6 million from mortgage servicing right impairment [23][30] - The loan yield increased in Q2, but was impacted by lower yielding PPP and mortgage warehouse loans [27] Market Data and Key Metrics Changes - Horizon's expansion is focused on college towns and governmental seats, with the pending branch acquisition enhancing its market presence [16] - The company is well-positioned to benefit from the outbound migration from Illinois, as Indiana and Michigan show improving economic conditions [17] Company Strategy and Development Direction - Horizon is pursuing a strategy of growth through acquisitions, with a pending acquisition of 14 branches and plans to close 10 branches to optimize operations [8][9] - The company aims to maintain a low non-interest expense to average asset ratio, targeting around 2% [57] - Horizon is investing in technology to enhance customer experience and sales, while also expanding its commercial lending team by 20% [10][41] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about Horizon's earning power over the next two years, driven by strategic growth and operational efficiencies [7] - The company is cautious about potential economic disruptions, including the impact of COVID-19 variants on credit quality [78] - Management highlighted the importance of maintaining strong underwriting standards and a diversified loan portfolio [39][40] Other Important Information - Horizon's total loans amount to $3.5 billion, with a well-diversified portfolio [37] - The company has a robust capital position with excess cash of over $125 million, which may be deployed for future acquisitions or stock buybacks [46] Q&A Session Summary Question: Loan growth outlook excluding PPP and warehouse - Management noted a solid pipeline for commercial loan growth, with significant increases in production and funded loans [51][52] Question: Expense outlook for the next quarters - Management indicated that expenses will be noisy due to branch transitions, but aims to achieve a 2% expense ratio in the future [56][57] Question: Loan portfolio levels and mortgage warehouse expectations - Management expects mortgage production to drop, aligning with industry forecasts, and targets a normal warehouse level of $100 million to $125 million [68] Question: Core margin expectations for the second half of the year - Management stated that core margin will depend on investment yields and cash flow, with a targeted investment yield of around 1.5% [73][75] Question: Provision for credit losses outlook - Management anticipates minimal provision reversals in the near term due to economic uncertainties [78] Question: M&A opportunities and size considerations - Management is focused on acquisitions in the $500 million to $2 billion range, particularly in Michigan [82]