HORIZON BANCORP INC IN
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
HBNC$20.81-0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-10.
0000706129-24-000070
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000706129-24-000092
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 101 previous paragraphs and 95 current paragraphs.
44 unchanged; 9 reworded; 42 added; 48 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 20 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (42)
Current report
Critical Accounting Estimates
Current report
For additional information regarding critical accounting estimates, see Note 1 – Nature of Operations and Summary of Significant Accounting Policies included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes in the Company’s application of critical accounting estimates since December 31, 2023.
Current report
Net Income
Current report
Net income declined $4.6 million to $14.1 million, or $0.32 per share, during the three months ended June 30, 2024 when compared to $18.8 million, or $0.43 per share, for the same period in 2023. The decrease from the year ago period was primarily driven by the increased provision for loan loss related to loan growth in the current period and non-interest expense growth compared to the year ago period. Additionally, net interest income, compared to the second quarter of last year, decreased by $0.9 million, or 1.9%, mainly due to an increase in interest expense on interest bearing deposits of $9 million and borrowings of $1.5 million. This increase in interest expense was mainly offset by an increase in interest income on loans receivable of $11.3 million.
Current report
Net income declined $8.9 million to $28.1 million, or $0.64 per share, during the six months ended June 30, 2024 when compared to $37.0 million, or $0.85 per share, for the same period in 2023. The decrease from the year ago period was primarily a result of growth in non-interest expense, a decline in the net interest income and increased provision for loan loss related to loan growth in the current period.
Current report
Net interest income decreased $0.9 million during the three months ended June 30, 2024, to $45.3 million, when compared to the same period in 2023. While average earning asset balances were relatively unchanged, the reported net FTE interest margin 1 decreased by 5 basis points, to 2.64% for the three months ended June 30, 2024 compared to the year ago period, which included a $1.5 million swap termination gain that did not recur. Additionally, the contribution from interest accretion on acquired loans declined by $0.7 million when compared to the year ago period, to an insignificant amount for the three months ended June 30, 2024.
Current report
1 Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.
Current report
Net interest income decreased $2.8 million during the six months ended June 30, 2024, to $88.6 million, when compared to the same period in 2023. While average earning asset balances grew modestly, the reported net FTE interest margin 2 decreased by 11 basis points, to 2.57% for the six months ended June 30, 2024 compared to the year ago period. The primary driver of the decline in net interest income compared with the year ago period was the $1.5 million swap termination gain and $1.1 million of additional contribution from interest accretion on acquired loans in the year ago period. Following are the average balance sheets for the six months ended (dollars in thousands):
Current report
2 Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.
Current report
Total non-interest income declined $0.5 million for the three months ended June 30, 2024 compared to the same period in 2023, and declined $0.2 million for the six months ended June 30, 2024 compared to the same period in 2023. Primary drivers of the periodic changes are noted below.
Current report
Service charges on deposit accounts increased $0.1 million for the three months ended June 30, 2024 and $0.3 million for the six months ended June 30, 2024, as compared to the same periods in 2023. The increases compared to the year ago periods were primarily a result of higher transaction-based fee activity in the current period.
Current report
Interchange fees, which include fees earned on qualified debit card volume and merchant processing fees, increased $0.2 million for the three months ended June 30, 2024 and $0.5 million for the six months ended June 30, 2024, as compared to the same periods in 2023. The increases were primarily driven by growth in qualified debit card volume for both periods.
Current report
Gain on sale of mortgage loans decreased $0.1 million for the three months ended June 30, 2024 and $0.3 million for the six months ended June 30, 2024, as compared to the same periods in 2023. The decrease was primarily driven by lower volumes of sold loans in both periods compared to the year ago periods.
Current report
Cash value of bank owned life insurance decreased $0.7 million for the three months ended June 30, 2024 and $1.4 million for the six months ended June 30, 2024, as compared to the same periods in 2023. The declines were due to the surrender of several policies during the fourth quarter of 2023.
Current report
Other income, which includes various miscellaneous income items as well as fair market value adjustments to certain other assets, increased by $0.5 million during the six months ended June 30, 2024 primarily related to positive fair market value adjustments on certain marketable securities.
Current report
Non-interest expense increased $1.3 million for the three months ended June 30, 2024 compared to the same period in 2023, primarily the result of higher expenses related to outside services and consultants, FDIC insurance, salaries and employee benefits and other losses, which was partially mitigated by lower expenses related to data processing and loan expense. Non-interest expense increased $3.8 million for the six months ended June 30, 2024 compared to the same period in 2023, primarily the result of higher expenses related to salaries and benefits, FDIC insurance, outside services and consulting and other expense.
Current report
Salaries and employee benefits expense increased by $0.4 million for the three months ended June 30, 2024, and $2.0 million for the six months ended June 30, 2024, when compared to the same periods a year ago. The increase in both periods is primarily attributable to growth in salary expense related to ongoing hiring efforts in revenue generating roles in commercial lending, equipment finance and treasury management.
Current report
Outside services and consultant expense increased by $0.5 million for the three months ended June 30, 2024, and $1.2 million for the six months ended June 30, 2024, when compared to the same periods a year ago. The increase in both periods is partly attributable to hiring-related expense and other business development efforts.
Current report
FDIC insurance expense increased by $0.5 million for the three months ended June 30, 2024 when compared to the same period in 2023, and increased by $1.3 million in the six months ended June 30, 2024 compared to the year ago period. The increase in both periods related to higher incurred assessment rates.
Current report
Other expenses, which includes corporate and other service expenses, increased by $0.3 million for the three months ended June 30, 2024 when compared to the same period in 2023, and increased by $0.7 million for the six months ended June 30, 2024 when compared to the same period in 2023.
Current report
Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments
Current report
Horizon assesses the adequacy of its Allowance for Credit Losses (“ACL”) by regularly reviewing the performance of its loan portfolio against various economic backdrops, which periodically change. During the second quarter of 2024, the Company recorded a provision for credit losses on loans of $2.4 million. This compares to a provision for credit losses on loans of $0.7 million during the second quarter of 2023. The increase in the provision for credit losses when compared to the year ago period was primarily attributable to loan growth during the quarter.
Current report
For the three months ended June 30, 2024, net loan charge-offs increased by $0.3 million to $0.6 million, compared to $0.3 million in the second quarter of last year.
Current report
The provision for credit losses on loans of $3.1 million for the six months ended June 30, 2024 increased by $2.7 million when compared to the prior year period, which is primarily attributable to loan growth
Current report
For the six months ended June 30, 2024, net loan charge-offs increased by $0.1 million to $0.9 million compared to $0.8 million in the prior year period. .
Current report
The Company’s allowance for credit losses as a percentage of period-end loans HFI was 1.08% at June 30, 2024, compared to 1.17% at June 30, 2023.
Current report
As of June 30, 2024, the allowance on unfunded lending commitments decreased by $0.3 million to $0.7 million, compared to $1.0 million in the second quarter of last year.
Current report
The Company’s income tax expense for the second quarter of 2024 was $1.7 million compared to $1.5 million for the second quarter of 2023, resulting in effective tax rates of 10.9% and 7.2%, respectively. The increase in the effective tax rate for the second quarter 2024 is primarily due to the increase in the tax provision for the second quarter of 2024 to bring the year-to-date tax rate in line with the current estimated annual effective tax rate for the full year 2024, less tax-advantaged BOLI income related to the policies surrendered in the fourth quarter of 2023 and the impact of the adoption of ASU 2023-02, partially offset by a decrease in pre-tax income.
Current report
The Company’s income tax expense for the first six months of 2024 was $3.0 million compared to $3.3 million for the same period in 2023, resulting in effective tax rates of 9.8% and 8.2%, respectively. The increase in the effective tax rate for the first six months 2024 is primarily due to less tax-advantaged BOLI income related to the policies surrendered in the fourth quarter of 2023 and the impact of the adoption of ASU 2023-02, partially offset by a decrease in pre-tax income.
Current report
The effective income tax rates differed from the U.S. statutory federal income tax rates of 21% during the comparable periods primarily due to the effect of tax exempt income from securities, loans, and life insurance policies, and net tax benefits from tax credit investments.
Current report
Total assets decreased by $28.0 million, or 0.4%, as of June 30, 2024, from $7.9 billion as of December 31, 2023. The decrease in total assets is primarily due to decreases in cash and cash equivalents of $380.4 million over the period, or 72.3%, to $146.1 million as of June 30, 2024, and a decrease in total securities balances of $61.6 million, to $2.4 billion, partially offset by growth in loans HFI of $403.0 million, or 9.2%, to $4.8 billion as of June 30, 2024.
Current report
Total investment securities decreased $61.6 million, or 2.5%, to $2.4 billion as of June 30, 2024 from $2.5 billion as of December 31, 2023, primarily as a result of scheduled amortization and maturities. There were no purchases of investment securities during the first six months of 2024.
Current report
Total loans HFI increased to $4.8 billion as of June 30, 2024 compared to $4.4 billion as of December 31, 2023, led by organic commercial loan growth of $229.6 million. The company continues to maintain a balanced growth profile across various geographies, products and industries, and holds a diverse lending portfolio consisting primarily of commercial real estate, consumer, residential and commercial and industrial portfolios.
Current report
Total deposit balances decreased by $34.7 million, or 0.6%, to $5.6 billion on June 30, 2024 when compared to balances as of December 31, 2023. The Company maintains a granular and tenured deposit base, with over 81% of balances insured or collateralized, with a continued focus on core commercial and consumer deposit gathering.
Current report
All other interest bearing liabilities at June 30, 2024, primarily comprised of Federal Home Loan Bank of Indianapolis advances, remained relatively stable when compared to balances as of December 31, 2023.
Current report
Credit Quality
Current report
As of June 30, 2024, total non-accrual loans decreased by $1.4 million, or 7.3%, from December 31, 2023, to 0.38% of total loans HFI. Total non-performing assets decreased $1.3 million, or 6.0%, to $20.5 million, compared to $21.8 million as of December 31, 2023. The ratio of non-performing assets to total assets decreased slightly compared to December 31, 2023.
Current report
As of June 30, 2024, net charge-offs decreased by $0.2 million to $0.6 million, compared to $0.8 million as of December 31, 2023, while remaining low at 0.05% annualized of average loan balances. Total non–performing loans decreased $1.0 million, or 4.8%, compared to $20.3 million as of December 31, 2023.
Current report
The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash equivalents and restricted cash of $380.4 million during the first six months of 2024, as reported in the consolidated statements of cash flows in this report. Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $22.5 million and have historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, used cash of $357.5 million due growth in the loan portfolio, which used cash of $407.0 million. Financing activities used cash of $45.4 million, largely resulting from net decreases in deposits of $34.7 million and $14.2 million in dividends paid on common stock during the first six months of 2024.
Current report
As of June 30, 2024, the ratio of total stockholders’ equity to total assets is 9.18%. Book value per common share was $16.62, increasing $0.15 compared to December 31, 2023.
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Removed paragraphs (48)
Previous report
Overview
Previous report
Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in northern and central Indiana and southern and central Michigan through its bank subsidiary, Horizon Bank, and other affiliated entities. Horizon operates as a single segment, which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. Horizon Bank was founded in 1873 as a national association, and it remained a national association until its conversion to an Indiana commercial bank effective June 23, 2017. The Bank is a full–service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services, and other services incident to banking. Horizon Risk Management, Inc. is a captive insurance company incorporated in Nevada and was formed as a wholly–owned subsidiary of Horizon.
Previous report
Over the last 20 years, Horizon has expanded its geographic reach and experienced financial growth through a combination of both organic expansion and mergers and acquisitions. Horizon's initial operations focused on northwest Indiana, but since then, the Company has developed a presence in new markets in southern and central Michigan and northeastern and central Indiana.
Previous report
First Quarter 2024 Highlights
Previous report
•Net interest margin increased to 2.50% compared to 2.43% in the linked quarter. Net interest income was $43.3 million compared to $42.3 million in the linked quarter. The net interest margin for the month ended March 31, 2024 was 2.53%.
Previous report
•Commercial loans grew 11.2% annualized in the quarter, including $22.8 million in new equipment finance production and a $52.0 million increase in other commercial loans.
Previous report
•Total loans were $4.62 billion at period end, increasing by 18.2% annualized during the quarter. Balances included the strategic deployment of excess liquidity into higher yielding and excellent credit quality residential mortgages of $94.7 million and consumer loans with credit protection of $59.1 million.
Previous report
•Cash totaled $271.1 million at period end, providing significant flexibility to drive future net interest margin growth through deployment into higher yielding assets throughout 2024.
Previous report
•Excellent asset quality with net charge-offs representing only 0.01% of average loans, as well as delinquent and non-performing loans representing 0.33% and 0.41%, respectively, at period end. The Company's first quarter credit loss expense of $805,000 was primarily attributable to loan growth and replacement of net charge-offs.
Previous report
•Stable deposit base with continued pricing discipline. Deposits totaled $5.58 billion at quarter end, compared to $5.66 billion on December 31, 2023. Modest outflows were primarily attributed to public fund certificates of deposits.
Previous report
•Solid fee income results, even with backdrop of lower BOLI income and mortgage seasonality. Expenses were well-managed in the quarter and at the lower end of guidance.
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Financial Summary
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Critical Accounting Policies
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Allowance for Credit Losses
Previous report
The allowance for credit losses represents management’s best estimate of current expected credit losses over the life of the portfolio of loan and leases. Estimating credit losses requires judgment in determining loan specific attributes impacting the borrower’s ability to repay contractual obligations. Other factors such as economic forecasts used to determine a reasonable and supportable forecast, prepayment assumptions, the value of underlying collateral, and changes in size composition and risks within the portfolio are also considered.
Previous report
The allowance for credit losses is assessed at each balance sheet date and adjustments are recorded in the provision for credit losses. The allowance is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast. Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan is expected to be made through the operation or sale of the collateral. Loan balances considered uncollectible are charged–off against the ACL. Recoveries of amounts previously charged–off are credited to the ACL. Assets purchased with credit deterioration (“PCD”) assets represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance for credit losses on PCD assets is booked directly the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses. Management believes that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans and leases as of the balance sheet date. Actual losses incurred may differ materially from our estimates.
Previous report
Goodwill and Intangible Assets
Previous report
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. FASB ASC 350–10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At March 31, 2024, Horizon had core deposit intangibles of $12.8 million subject to amortization and $155.2 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely affect earnings in future periods. FASB ASC 350–10 requires an annual evaluation of goodwill for impairment.
Previous report
At each reporting date between annual goodwill impairment tests, Horizon considers potential indicators of impairment. Given the current economic uncertainty and volatility surrounding the interest rate environment, Horizon assessed whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value. Impairment indicators considered comprised the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of the Company's stock and other relevant events. Horizon further considered the amount by which fair value exceeded book value in the most recent quantitative analysis and stress testing performed. At the conclusion of the most recent qualitative assessment, the Company determined that as of March 31, 2024, it was more likely than not that the fair value exceeded its carrying values. Horizon will continue to monitor developments regarding the current banking environment, market capitalization, overall economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill in the future.
Previous report
Mortgage Servicing Rights
Previous report
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets on a servicing–retained basis. Capitalized servicing rights are amortized into non–interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market–based assumptions. When the book value of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value. In periods of falling market interest rates, accelerated loan prepayment can adversely affect the fair value of these mortgage–servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or negatively.
Previous report
Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, Horizon utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis. In addition, on a quarterly basis Horizon engages a third party to independently test the value of its servicing asset.
Previous report
Derivative Instruments
Previous report
As part of the Company’s asset/liability management program, Horizon utilizes, from time–to–time, interest rate floors, caps or swaps to reduce the Company’s sensitivity to interest rate fluctuations. These are derivative instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair values of derivatives are reported in the consolidated income statements or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.
Previous report
Horizon’s accounting policies related to derivatives reflect the guidance in FASB ASC 815–10. Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized firm commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). For fair value hedges, the cumulative change in fair value of both the hedge instruments and the underlying loans is recorded in non–interest income. For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in OCI are reflected in the consolidated income statement in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, Horizon establishes the method it uses for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of income. Horizon excludes the time value expiration of the hedge when measuring ineffectiveness.
Previous report
Valuation Measurements
Previous report
Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities, residential mortgage loans held for sale and derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other post–retirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent, to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations.
Previous report
On March 31, 2024, Horizon’s total assets were $7.9 billion, a decrease of approximately $84.8 million compared to December 31, 2023. The decrease in total assets was primarily due to decreases in cash and due from banks of $255.4 million, investments held to maturity of $19.9 million and investments available for sale of $11.9 million offset by growth in net loans of $200.2 million.
Previous report
Net loans increased $200.2 million since December 31, 2023 to $4.6 billion as of March 31, 2024. Commercial loans increased $74.8 million, consumer loans increased $13.3 million, residential mortgage loans increased $100.9 million and mortgage warehouse loans increased $11.5 million since December 31, 2023.
Previous report
Total deposits decreased $85.0 million since December 31, 2023 to $5.6 billion as of March 31, 2024, primarily due to a reduction municipal and other public depositors of approximately $148.8 million, offset by an increase in consumer and commercial balances of $61.2 million and $2.6 million, respectively during the first three months of 2023.
Previous report
Total borrowings increased slightly by $6.1 million to $1.4 billion as of March 31, 2024.
Previous report
Stockholders’ equity totaled $721.3 million at March 31, 2024 compared to $718.8 million at December 31, 2023. The increase in stockholders’ equity during the period was primarily due to the generation of net income, offset by a decrease in accumulated other comprehensive loss of $4.7 million as unrealized losses on available for sale securities increased to $93.1 million and the amount of dividends paid during the quarter. Book value per common share at March 31, 2024 increased to $16.49 compared to $16.47 at December 31, 2023.
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Overview
Previous report
Consolidated net income for the three–month period ended March 31, 2024 was $14.0 million, or $0.32 diluted earnings per share, compared to $18.2 million, or $0.42 diluted earnings per share for the same period in 2023. The decrease in net income for the three–month period ended March 31, 2024 when compared to the same prior year period reflects a decrease in net interest income of $1.9 million, an increase in credit loss expense of $563,000 and an increase in non–interest expense of $2.6 million, offset by an increase in non–interest income of $309,000 and a decrease in income tax expense of $549,000.
Previous report
The largest component of net income is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, less interest expense, principally on deposits and borrowings. Changes in the net interest income are the result of changes in volume and the net interest spread, which affects the net interest margin. Volume refers to the average dollar levels of interest earning assets and interest bearing liabilities. Net interest spread refers to the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities. Net interest margin refers to net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities.
Previous report
Net interest income during the three months ended March 31, 2024 was $43.3 million, a decrease of $1.9 million from the $45.2 million earned during the same period in 2023. Yields on the Company’s interest earning assets increased by 65 basis points to 4.82% for the three months ended March 31, 2024 from 4.17% for the three months ended March 31, 2023. Interest income increased $13.5 million from $71.8 million for the three months ended March 31, 2023 to $85.3 million for the same period in 2024. The increase in interest income was due to higher yields earned on interest earning assets and an increase in average balances of interest earning assets of $92.3 million during the three months ended March 31, 2024. Interest income from acquisition–related purchase accounting adjustments was $13,000 for the three months ended March 31, 2024 compared to $367,000 for the same period in 2023.
Previous report
Rates paid on interest bearing liabilities increased by 99 basis points for the three–month period ended March 31, 2024 compared to the same period in 2023. Interest expense increased $15.4 million when compared to the three–month period ended March 31, 2023 to $42.0 million for the same period in 2024. This increase was due to higher rates paid on interest bearing liabilities. The cost of average interest bearing deposits increased 117 basis points while the cost of average borrowings increased 8 basis points. Average balances of interest bearing deposits decreased $2.1 million and average balances of borrowings increased $147.4 million for the three-month period ended March 31, 2024 when compared to the same period in 2023.
Previous report
The net interest margin decreased 17 basis points from 2.67% for the three–month period ended March 31, 2023 to 2.50% for the same period in 2024. The decrease in the margin for the three–month period ended March 31, 2024 compared to the same period in 2023 was due to an increase in the cost of interest bearing liabilities, offset by an increase in the yield on interest earning assets. Excluding the interest income recognized from the acquisition–related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 2.50% for the three-month period ended March 31, 2024 compared to 2.65% for the same period in 2023. (See the “Non–GAAP Reconciliation of Net Interest Margin” table below.)
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Rate/Volume Analysis
Previous report
Credit Loss Expense
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Reworded paragraphs (9)
Previous wording
•increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks, which may have been accelerated by the COVID–19 pandemic;
Current wording
•increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks;
Previous wording
The notes to the consolidated financial statements included in Item 8 of the Company’s 2023 Annual Report on Form 10–K contain a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management has identified as critical accounting policies the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.
Current wording
The notes to the consolidated financial statements included in Item 8 of the Company’s 2023 Annual Report on Form 10–K contain a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The Company considers these policies to be its critical accounting estimates. Management has identified as critical accounting policies the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.
Previous wording
The following are the average balance sheets for the three months ended (dollars in thousands):
Current wording
Following are the average balance sheets for the three months ended (dollars in thousands):
Previous wording
Investment securities available for sale decreased $11.9 million since December 31, 2023 to $535.3 million as of March 31, 2024 primarily due to principal repayments and the sale of certain securities and investment securities held to maturity decreased $19.9 million since December 31, 2023 to $1.9 billion as of March 31, 2024. This decrease in investments held to maturity was due to cash flows received during the first three months of 2023.
Current wording
Investment securities available for sale decreased $20.2 million since December 31, 2023 to $527.1 million as of June 30, 2024 primarily due to principal repayments and maturities. Investment securities held to maturity decreased $41.4 million since December 31, 2023 to $1.9 billion as of June 30, 2024. This decrease in investments held to maturity was due to cash flows received during the first six months of 2024.
Previous wording
The ACL balance at March 31, 2024 was $50.4 million, or 1.09% of total loans compared to an ACL balance of $50.0 million at December 31, 2023 or 1.13% of total loans. The decrease in the ACL to total loans ratio was primarily due to the decrease in indirect consumer loans and continued favorable asset quality with non–performing loans at 0.41% of total loans at period end and net charge–offs to average loans represented 0.01% for the first quarter of 2024.
Current wording
The ACL balance at June 30, 2024 was $52.2 million, or 1.08% of period-end loans HFI compared to an ACL balance of $50.0 million at December 31, 2023 or 1.13% of loans HFI. The increase in the ACL was primarily due to the growth in commercial loans.
Previous wording
The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB. At March 31, 2024, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.56 billion in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.41 billion at December 31, 2023. The Bank had approximately $581.1 million of unpledged investment securities at March 31, 2024 compared to $601.7 million at December 31, 2023.
Current wording
The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB. At June 30, 2024, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.76 billion in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.41 billion at December 31, 2023.
Previous wording
The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at March 31, 2024. Stockholders’ equity totaled $721.3 million as of March 31, 2024, compared to $718.8 million as of December 31, 2023. For the three months ended March 31, 2024, the ratio of average stockholders’ equity to average assets was 9.25% compared to 8.97% for the twelve months ended December 31, 2023. The increase in stockholders’ equity during the period was due to net income generated during the period, offset by a decrease in accumulated other comprehensive income of $4.7 million and the amount of dividends paid.
Current wording
The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2024. Stockholders’ equity totaled $726.7 million as of June 30, 2024, compared to $718.8 million as of December 31, 2023. For the six months ended June 30, 2024, the ratio of average stockholders’ equity to average assets was 9.30% compared to 8.97% for the twelve months ended December 31, 2023. The increase in stockholders’ equity during the period was due to net income generated during the period, offset by a decrease in accumulated other comprehensive income of $7.4 million and cash dividends paid to common shareholders.
Previous wording
Horizon declared common stock dividends in the amount of $0.16 per share during the first three months of 2024 and $0.16 per share for the same period in 2023. The dividend payout ratio (dividends as a percent of basic earnings per share) was 50.0% and 38.1% for the first three months of 2024 and 2023, respectively. For additional information regarding dividends, see Horizon’s 2023 Annual Report on Form 10–K.
Current wording
Horizon declared common stock dividends in the amount of $0.32 per share during the first six months of 2024 and $0.32 per share for the same period in 2023. The dividend payout ratio (dividends as a percent of basic earnings per share) was 50.0% and 37.7% for the first six months of 2024 and 2023, respectively. For additional information regarding dividends, see Horizon’s 2023 Annual Report on Form 10–K.
Previous wording
Certain information set forth in this quarterly report on Form 10–Q refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, pre–tax pre–provision net income, net interest margin, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average common equity, and the return on average tangible equity. In each case, we have identified special circumstances that we consider to be adjustments and have excluded them, to show the impact of such events as acquisition–related purchase accounting adjustments and swap termination fees, among others we have identified in our reconciliations. Horizon believes that these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business and financial results without giving effect to the purchase accounting impacts and other adjustments. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this Report on Form 10–Q for reconciliations of the non–GAAP figures identified herein and their most comparable GAAP measures.
Current wording
Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non-GAAP financial measures relating to net income, diluted earnings per share, pre-tax, pre-provision net income, net interest margin, tangible stockholders’ equity and tangible book value per share, efficiency ratio, the return on average assets, the return on average common equity, and return on average tangible equity. In each case, we have identified special circumstances that we consider to be non-recurring and have excluded them. We believe that this shows the impact of such events as acquisition-related purchase accounting adjustments and swap termination fees, among others we have identified in our reconciliations. Horizon believes these non-GAAP financial measures are helpful to investors and provide a greater understanding of our business and financial results without giving effect to the purchase accounting impacts and one-time costs of acquisitions and non–recurring items. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this press release for reconciliations of the non-GAAP information identified herein and its most comparable GAAP measures.