Horizon Bancorp Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2024

There are 9 speakers on the call.

Operator

Good morning, everyone, and welcome to the Horizon Bancorp Inc. Conference Call to discuss Financial Results for the Q1 of 2024. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Before turning the call over to management, please remember that today's call may contain statements that are forward looking in nature. These statements are subject to risks and uncertainties and other factors that could cause actual results to differ materially from those discussed, including those factors noted in the slide presentation.

Operator

Additional information about factors that could cause actual results to differ materially is contained in Horizon's most recent Form 10 ks and its later filings with the Securities and Exchange Commission. In addition, management may refer to certain non GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward looking statements made during the call. For anyone who does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, They can be accessed at the company's website, horizonbank.com.

Operator

Representing Horizon today are Executive Vice President and Senior Operations Officer, Kathy DeRuyter Executive Vice President, Corporate Secretary and General Counsel, Todd Etzler Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber Executive Vice President and Chief Financial Officer, Mark Secor and Chief Executive Officer and President, Thomas Preme. At this time, I would like to turn the call over to Mr. Thomas Preme. Please go ahead, sir.

Speaker 1

Good morning, and thank you for participating in today's call. Horizon had a solid start to the year with our 2nd consecutive quarter of expanded net interest income, both in dollars and in margin. Net interest margin for the quarter was 2.5% with continued improvement throughout March, exiting the quarter at 2.53%. Additionally, our results showed non interest income continues to perform well across our diversified operating model even with seasonality of lower mortgage volumes. Expenses were well managed in the quarter with the results at the lower end of our guidance as the team continues to be diligent in capturing cost savings.

Speaker 1

Credit performance and trends remain positive with minimal charge offs, low non performing loans through continued proactive portfolio management. As seen in the Q1, the franchise experienced significant loan growth on several fronts, both in our core business lines and our previously communicated asset repositioning strategy. We are very proud of the results of all of our teams this quarter, displaying the diversity of our lending platforms across our footprint and the capability of our team to deploy our excess liquidity into high quality and higher yielding assets and improving our go forward asset mix. Additional insight and detail into our loan growth will be shared by Lynn in the lending and credit sections later in our presentation. We are also optimistic about our deposit portfolio results that displayed very strong trends in the quarter with the continued resiliency in core balances, deposit costs increasing just 9 basis points from year end and the modest runoff in the Q1 was primarily attributed to the company's decision to reduce segments of its high cost public funds portfolio.

Speaker 1

Our first quarter results provide optimism on our go forward financial outlook as we move into the Q2 with a positive trajectory continuing in margin and improved balance sheet positioning, well managed expenses and continued solid credit trends. As we move forward, a key element of our positive outlook is the strength of our core lending platforms. And to provide more detail in this segment of our business model, I'll transition the presentation to Lynn Kerber, our Executive Vice President and Chief Commercial Banking Officer to provide details. Lynn?

Speaker 2

Thank you, Thomas. Beginning on Slide 5, we have an overview of the loan portfolio as of March 31 with a mix of 60% commercial, 17% residential and 22% consumer, which remains relatively unchanged from the prior quarter. Commercial loans increased $75,000,000 which includes $23,000,000 in equipment finance activity. Residential mortgage loans increased to 101,000,000 dollars and consumer loans increased to $13,000,000 1st quarter loan growth included $154,000,000 in acquired loans, including approximately $59,000,000 of consumer loans with credit protection, dollars 95,000,000 in residential and a reduction of $39,000,000 of indirect auto loans. These actions represent our planned redeployment of proceeds from December's balance sheet, restructuring into high credit quality and higher yielding assets.

Speaker 2

On Slide 6, we are pleased to report commercial loans increased to $74,800,000 for the 1st quarter, representing 11.2% on an annualized basis. Net fundings, including equipment finance, totaled $110,000,000 for the 1st quarter compared to $117,000,000 for the 4th quarter. We saw a meaningful increase in the average commercial loan portfolio yield in the 1st quarter, increasing to 6.14% from 6.05% in the 4th quarter. Also, new production yields were 7.5 2% in the Q1. The core commercial pipeline increased from $167,000,000 at December 31st to $187,000,000 as of March 31st.

Speaker 2

Activity continues to be well diversified by industry and geography. The equipment finance division contributed approximately $23,000,000 in originations in the first quarter and will be continuing to ramp in the 2nd quarter. We continue to anticipate a total contribution of 100 to $125,000,000 for the full year 2024. Commercial credit quality remained strong with low past dues of 18 basis points for quarter end comparing to 16 basis points at December 31, 16 basis points for March 2023. Non performing commercial loans decreased 27 percent in the quarter due to the payoff and upgrade of several non accrual and substandard loans.

Speaker 2

Accordingly, we recorded commercial net recoveries of $57,000 Also provided for reference on Slide 7 is a breakdown of key sectors in our commercial portfolio, which demonstrates no significant concentration in any one sector and particularly multifamily, non owner occupied office and healthcare. As noted, the percent of risk based capital is consistent with the UBPR peer group and well within regulatory guidance. With continued focus on the interest rate environment for 2024, we have included a summary of maturing CRE loans for 2024 2025 on Slide 8. For the remainder of 2024, we have 2.77 notes with current balances of $213,000,000 maturing, representing 10.9 percent of our portfolio. Of this tranche, there are balances of 101,000,000 with interest rates of less than 7%, representing 5.2% of our CRE portfolio.

Speaker 2

Similarly, 2025 has 240 notes maturing with balances of $188,000,000 maturing, representing 9.6 percent of the portfolio. Of this tranche, there are balances of $123,000,000 with rates of less than 7%, representing 6.3% of our CRE portfolio. In all, this is another example of how Horizon benefits from our long standing commitment to pricing discipline, and we believe rates and maturities are well managed in our CRE portfolio to limit exposure to rate related credit risk at this time. Turning to Slide 9, you will see that consumer direct loan balances increased $52,000,000 during the quarter, reflective of previously mentioned acquired home improvement loans and continued reduction of auto loans by $39,000,000 in the quarter. These actions are consistent with our stated strategy of limiting loan production that no longer meets our risk adjusted return target and redeploying capital to higher yielding and proved credit products.

Speaker 2

The average consumer direct yield was 8.23% for the portfolio with an average of 8.92% for new production. The average yield for consumer indirect was 3.28%, which is consistent with recent quarters. Consumer direct past dues improved in the 1st quarter with delinquency of 0.76%, a reduction from 1.3% at December 31 and a continuation over the past 6 month period. Indirect loans reported past dues of 1.12 percent, also a reduction from 1.49% at December 31st and the 6 month trend. Year to date net charge offs for consumer direct are 4 basis points and the annualized rate of 17 basis points and consumer indirect were 7 basis points annualized rate of 28 basis points, which represents an improvement from Q4 charge offs.

Speaker 2

Slide 10 highlights our mortgage loan performance for the quarter. Our portfolio grew $101,000,000 in the quarter, in part due to approximately 95,000,000 dollars of acquired high credit quality residential mortgages. We expect residential mortgages to benefit from seasonality during the second, third quarter with both purchases and new construction. The average mortgage loan yield was 4.53% for the portfolio and 7.25 percent for new production. With net recoveries for the quarter, this portfolio continues to reflect quality homeowners with significant payment capacity and equity in their homes.

Speaker 2

Our asset quality metrics continue to be strong as outlined on Slide 11. Past dues over 30 days were 0.33 percent, a slight improvement from the prior quarter. As noted earlier, both direct and indirect consumer loans reported lower past dues for this quarter offset by an increase in residential mortgage loans. Non performing loans decreased slightly from $20,300,000 to $19,200,000 representing 41 basis points, a reduction from 46 basis points as a percent of total loans. The decrease was driven principally by a reduction in commercial loans, non performing loans.

Speaker 2

Net charge offs for the Q1 were $426,000 representing 1 basis point of average loans on an annualized rate of 4 basis points. This was also an improvement over the 3rd and 4th quarters of 2023. Finally, our allowance for credit losses increased 300 and $57,000 in the quarter to $50,400,000 as of March 31. The increase is the net effect of loan growth, reductions due to loan product mix shifting to portfolios with lower historical loss rates, economic forecasts and the elimination of dedicated specific reserves related to commercial loans that paid us in full during the Q1. Provision expense of $804,000 is a combination of the allowance increase of $357,000 unfunded commitment and replenishing the reserve for charge off loans in the Q1.

Speaker 2

The allowance represents 1.09% of total gross loans, which we believe is appropriate given credit performance and current economic forecast. Future reserve amounts and related provision will be driven by loan growth and mix, economic forecasts and credit trends. Credit quality across all of our lending classes is performing well and it reflects our history of consistent and well balanced approach to lending. Now, I'd like to turn things back to Thomas, who will provide an overview of our net interest income trends.

Speaker 1

Thank you, Lynn. Great insight and information. As mentioned earlier, we are pleased to see the positive momentum in our net interest margin through our strategic efforts to reposition our balance sheet to higher yielding and higher quality assets, also while maintaining a disciplined approach to deposit pricing. To help illustrate the progress on our margin, we have included a waterfall graph on Page 12. As seen, the deliberate shift from lower yielding assets to high quality loans is making a meaningful impact on our asset yields, increasing by 19 basis points in the quarter.

Speaker 1

We expect this positive trend to continue into the 2nd quarter as higher yielding new production continues to replace lower yielding amortization and cash flows from the securities portfolio. Also within the Q1, we experienced softer demand for swap fee income and overall commercial loan fee income was down due to the seasonal nature of payoffs, and we expect this to even out over the course of the year. As I stated in my opening remarks, Horizon's deposits and funding costs were well managed throughout the quarter. Horizon's core consumer and commercial balances were flat from the 4th quarter with single digit increases in funding costs. Non interest bearing deposits experienced minor seasonal fluctuations, primarily due to commercial tax payments and year end distributions.

Speaker 1

And the company elected to leverage its excess liquidity to reduce its public funds portfolio by allowing higher priced CD maturities to flow off the balance sheet. With this backdrop, our 1st quarter interest bearing liability costs increased a modest 5 basis points for the quarter and purchase accounting adjustments were relatively flat compared to the 4th quarter. As we enter the Q2, we have confidence in our ability to continue to improve our net interest margin even in a flat rate environment. We expect to see further expansion in the Q2. As stated, March posted a continued advancement of 2.53% in net interest margin, and the team continues to remain diligent on improving our asset mix and yields, while keeping a measured approach to funding costs.

Speaker 1

Let me hand the presentation over to our Executive Vice President and Chief Financial Officer, Mark Secor, who will walk through other key financial metrics from the Q1 and our outlook as we move forward. Mark?

Speaker 3

Thank you, Thomas. Beginning with Slide 13, total non interest income for the Q1 was in line with the 1st 3 months of 2023, with the largest segment being account service fees, up approximately 7.5% from the Q1 of 2023. Non interest income was down from the adjusted linked quarter due to a decrease of $360,000 in BOLI income, resulting from the policy surrendered at the end of last year and with lower mortgage banking income. The company continues to diversify core fee income through key talent adds in treasury management and expanded private wealth capabilities and anticipates growth in these non interest income segments throughout the year as we expand our relationship banking model. On Slide 14, 1st quarter results displayed our commitment to diligent expense management.

Speaker 3

Non interest expenses were 1.9% of average assets annualized for the Q1 compared to 1.94% in the linked quarter. The decrease reflected overall proactive expense management across the franchise. We do expect expenses to be in the range of $37,500,000 to $38,300,000 in the 2nd quarter, reflecting a full quarter of merit increases and new talent in the equipment finance division. Slide 15. Horizon continues to maintain solid regulatory capital ratios that are well above the requirements to be considered well capitalized.

Speaker 3

We believe we have sufficient capital to be open to options to improve our earnings outlook in the future quarters and anticipate that growth in capital will outpace the growth in total assets during the next 12 months. As we continue to deploy additional excess liquidity and cash flows from securities portfolio, we do anticipate risk weighted assets will increase resulting in a slight decline to risk weighted capital ratios. Looking ahead on Slide 16, we're providing you with an update on our current expectations for 2024. We expect sustainable organic loan growth in the core business lines, which should be valuable contributors to core earnings. For the Q2 of 2024, we expect 5% to 6% annualized organic loan growth with the anticipation that we will replace the indirect auto runoff with an acquired pool that reflect improved yield and credit quality, resulting in total loan growth of 8% to 10% annualized for the quarter.

Speaker 3

Our net interest margin and net interest income trends should continue to benefit from our asset repositioning strategy and pricing management. We expect a net interest margin to be in a range of 2.55 percent to 2.58% for the 2nd quarter, as well as pre provision net interest income in a range of $44,700,000 to 45,500,000 dollars Non interest income should continue near recent level with the anticipation of consistent fee income from our investments in treasury management and private wealth, coupled with seasonal increases for interchange and mortgage originations. The expected range is $10,000,000 to $10,500,000 in non interest income in the 2nd quarter. Non interest expenses continue to be proactively managed across the organization, specifically in segments of our business impacted by higher rates such as mortgage and consumer lending. As discussed, we have invested in revenue generating out and treasury management teams, which are expected to contribute to revenue growth in 2024.

Speaker 3

We expect total non interest expense to range from about $37,500,000 to $38,300,000 in the second quarter and remain below 2% of average assets. In our original plan and current outlook for 2024, we still anticipate only 2 rate cuts in the second half of twenty twenty four, which will add additional benefit to the momentum we are seeing in our net interest margin. As the timing of these potential rate moves becomes more certain, we will update our outlook and forecast. Now, I will turn it back over to Thomas for some final comments.

Speaker 1

Thank you, Mark. I appreciate that. As outlined in our presentation, we see significant positive momentum for Horizon in 2024. We are located in excellent growth markets in the Midwest that are economically attractive for business and for individuals. Our loan growth is strong and aligned with our historical low credit risk profile.

Speaker 1

The commercial pipeline continues to be robust and our equipment leasing division has started to make an impact with upside potential in future quarters. The resiliency and stability of our core deposit base maintains its great value with additional opportunity to help performance as rates decline. The company also continues to have significant funding capacity if needed. Horizon has a lean and operating culture that consistently adapts to its markets and environment to deliver long term shareholder value. We are strategically investing in improving our revenue models, maintaining an excellent credit profile and consistently capturing efficiencies and how we deliver our products and our services.

Speaker 1

We believe Horizon is still a very compelling value, supported by our 30 plus years of commitment to our dividend and currently offering a 5.4 percent dividend yield. As always, we thank you in advance for joining our presentation this morning. This concludes our prepared remarks. And now I'll ask our operator to please open the line for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Terry McEvoy with Stephens. Please go ahead.

Speaker 4

Hi, good morning everyone. Good morning.

Speaker 5

Appreciate all the details on Slide 16.

Speaker 4

I was wondering if you could share your thoughts on how you see earning asset balances trending over the course of the year. You've got kind of cash at $2.71 you've got growth in certain portfolios, but then there's the runoff of indirect. So if you could just help us put that all together, that'd be great.

Speaker 6

Thanks for the question, Terry. We would anticipate there should be some slight growth in marine assets after we deploy the remaining cash that we have that we planned from the restructure. That will shift into higher yielding. And then we would anticipate that the runoff from indirect and from the insecurity portfolio would primarily fund the growth as we go forward this year.

Speaker 4

Thanks, Mark. And then as a follow-up, can you maybe talk about the type of borrowers that contributed to the commercial loan growth ex leasing last quarter? Any certain sectors, markets, customers new to the bank? Any color there would be appreciated.

Speaker 2

Good morning. This is Lynn Trevor. I would say overall, it really represents our overall mix. We've been pretty consistent between CRE and C and I every quarter and in our overall portfolio. So it really has not changed.

Speaker 2

We are proactively managing concentration limits in certain sectors. And so as far as any originations in hospitality, office, multifamily, those have been more limited. And so I think most of the growth was more so or occupied medical and a little bit of mini storage. So overall, very consistent with our traditional lending.

Speaker 4

Thank you, Lynn, and thanks for taking my questions.

Operator

Thank you. The next question comes from Nathan Race with Piper Sandler. Please go ahead.

Speaker 7

Hi, everyone. Good morning.

Speaker 4

Good morning, Nathan.

Speaker 7

I was curious just to get some thoughts on just the geographic breakdown of the loans acquired in the quarter. Are these largely in footprint clients that you think you can cross sell clients, additional products going forward? And just curious kind of the appetite to continue to acquire some loans just to help redeploy the still relatively excess cash balance coming out of the

Speaker 4

quarter? Sure. Thanks, Nathan. The geography was across the more mainly outside of our geography on the both coasts when the mortgages were more on the East Coast, West Coast and also a little bit down in the South. As we look at these transactions that we do, as we do the acquire loans, we're really looking at it from 1st, making sure we get acceptable yields and risk returns.

Speaker 4

2nd is that we are looking for significantly high quality borrowers that both have capability. And as we look at these assets, specifically in mortgage, that they have equity in their homes. So we're not looking to change our credit profile for the organization. In fact, these assets would probably improve credit profile and we'll give up a little bit on geography and our ability to cross sell to make sure that we keep our credit metrics and our movement of earning assets up. As far as on a go forward basis, we do have a little bit of excess liquidity.

Speaker 4

We would most likely start to continue to redeploy in the second quarter. Do not see that the same magnitude. As Mark said, we're going to look at the runoff of the indirect auto portfolio and look at rebalancing there and then we'll look at the overall cash flows off securities portfolio also. But I wouldn't see the magnitude in Q2 that we see in Q1 and then as we look at outer quarters Q3 and Q4 primarily will just be organic growth.

Speaker 7

Okay, great. And perhaps looking past the Q2 guidance for loan growth, do you still feel like kind of high single digits is achievable in 3Q and 4Q of this year just given all the hires that you've made across the platform over the last several quarters?

Speaker 4

Sure. I'll let let Lynn piggyback on my comments here. Our pipelines coming out of the Q1 were strong, in most cases stronger than coming out of the Q4 and our organic growth in the 4th in the Q1 was at those levels. Specifically, very feel very confident about what we're seeing with the commercial team, and I'll pass over to Lynn for some color there.

Speaker 2

Thanks, Thomas, and good morning. Yes, our commercial pipeline has been running pretty steady. As we noted in our slide deck, our pipeline as of March 31 is $187,000,000 This does not include the equipment leasing division that and so the $187,000,000 compares to about $167,000,000 at twelvethirty one, dollars 198,000,000 at September 30. So it's been pretty consistent. We've had a nice cadence.

Speaker 2

And I'm looking at the Equipment Finance division as it ramps up this quarter, start to hit its cadence in the 3rd Q4. So that will really have a nice increase for us overall.

Speaker 7

Okay, great. Very helpful. And then just on deposits, it seems like there is some seasonality in terms of flows this quarter on the public fund side of things. Just curious how you guys are thinking about core deposit growth prospects over the course of 2024 going forward?

Speaker 6

Thank you

Speaker 4

for the question. As we look in the Q2, this is where we usually see some inflows from our public funds groups as we see tax money come in. It will be held in the second quarter. We'll see some growth in the Q3 on our core deposits usually from our consumers are building up. And then in the Q4, there's a little bit of seasonal decline as people start spending around the holiday season.

Speaker 4

So we would say as we look at our outlook, we see the deposits being relatively flat for the remainder of the year, small fluctuations, but nothing material.

Speaker 7

Okay, great. If I could just ask one last one on the margin going forward, perhaps for Mark, just curious to kind of get a sense for the understanding of kind of the progression in the margin over the course of 1Q and just to try to get more comfort with the continued expansion guidance for 2Q?

Speaker 6

Yes, Nate. As we said, we exited with March being at 2.53. The purchases nearing the month and the growth of the loan portfolio were mid quarter to some towards the end of the quarter. So those higher yielding assets, we anticipate will continue to help the margin to get us to the outlook that we gave for the Q2. So the trajectory is still there.

Speaker 6

And then as we reprice, you can see from some of the slides, the repricing of loans is still significantly or higher than what our portfolio rates are. So that will continue to help the margin also.

Operator

Thank you. The next question comes from Damon DelMonte with KBW.

Speaker 8

Credit has been exceptionally strong for you guys. And as you guys continue to grow the loan portfolio, just kind of curious as to your thoughts on the provision level and the reserve level. I think loan loss reserve came down by 4 basis points this quarter to like 109. So wondering how you're thinking about that? Do you feel you need to increase that going forward because of the nature of the types of loans that you're putting on the books?

Speaker 2

Thanks for the question. Relative to the allowance, first of all, I'll just say that we had a couple of factors that affected it this quarter as far as its reduction, as far as the percent of total loans. First of all, we had a larger non performing loan that paid off and it had a specific reserve. So that was eliminated and then allowed us to decrease the reserve just under 500,000 dollars So that was sort of extraordinary for this quarter. That's not always a repeating event.

Speaker 2

We also had a change in mix in our portfolio. As we've stated, we have been intentionally reducing our indirect auto paper that has traditionally had higher credit losses. And so with that reduction, it's decreased the amount that's needed. And with some of the loan purchases this quarter, those have a lower loss experience. And one of the portfolios has full coverage or credit enhancement.

Speaker 2

And so it was really a combination of the specific reserve being eliminated and the overall loan mix. As far as going forward, our provision is really being driven by a couple of factors. First, loan growth and loan mix. Of course, the economic forecast and our charge off experience. We are very pleased with charge offs this quarter.

Speaker 2

They were roughly half of 4th quarter and third quarter charge offs. So that's been very positive. So I expect the reserve really to be pretty stable as we move forward.

Speaker 8

Great. I appreciate that color. And then with regards to the upcoming CRE maturities, that was a great slide you guys included in the deck. Can you just talk a little bit about the approach that you take with your borrowers as they get close to the maturity date? Like are you guys reaching out to them and double checking financials and making sure they're comfortable with a higher rate in order to best position you guys to respond to any potential headwinds that you could be facing?

Speaker 2

Sure. We actually have several activities that are part of our overall credit risk management and account relationship management that are not new. I mean, this is just part of the fabric of monitoring our portfolio and working with our customers. Firstly, we're doing annual reviews on these clients, collecting financials on schedule depending on the type of credit it is. And so on a flow basis, we're continually monitoring those.

Speaker 2

As part of our underwriting and that annual review process, We do stress testing for interest rates, loan to value compression and some other factors. So that's an ongoing activity. And we have the opportunity to see how our customers are positioned to absorb the interest rate changes upon maturity. We also do a deep dive on certain CRE sectors, including hospitality, office, multifamily, nursing home, CRE that may have a term loan and are going to be approaching that maturity. We do a deep dive on those throughout the year.

Speaker 2

And so again, we have a pretty good idea of how they're performing and what their capacity is going to be to absorb any interest rate increase. As part of that stress testing, we go up to 300 basis points. And as you can see from our charts, we took a look at those that are under 7%. I didn't provide the color here, but by and large, most of the increases in these two tranches is about 200 basis points. So it's well within our stress testing metrics.

Speaker 8

Got it. That's great color. Thanks a lot for that, Wayne. That's all that

Speaker 3

I had for now. So thank you very much.

Operator

Thank you. Thank you. We have the next question from Brian Martin with Janney Montgomery.

Speaker 5

Hey, just wondering, maybe just one follow-up on the credit side. The performance has been great here. Just on the special mention credits or kind of the criticized assets as you kind of look this quarter, it sounds like my guess is there's not much change given what we saw with the provision in Lynn's comments just there. Is that accurate or just kind of a read through on that?

Speaker 2

Yes, there really wasn't significant change in the Q1. As noted in our Q4 10 ks, we did see some increases on a handful of credits in the Q4. There were some unusual circumstances there. We had 1 multifamily property that had a fire, water damage. It was under construction.

Speaker 2

So we felt it was to move into that category. We also had a couple of C and I credits that had some interim financial results that warranted additional monitoring, I'll say. Those companies are all strong. We have strong sponsors. In the Q1, we saw improvement with stabilization and recovery from the fire from the 1 property.

Speaker 2

And for the C and I credits we're seeing improvement in their interim numbers. So we remain very comfortable with those that there's not going to be further migration. And then certainly, as you saw in our substandard and non accruals, those improved this quarter. So we're very pleased with that performance.

Speaker 5

Yes. Okay. No, perfect. That's helpful. I appreciate the added color.

Speaker 5

And then maybe just for Mark. Mark, you talked about the loans that are repricing and that's still going to kind of continue. Can you just give us an idea of the magnitude of those loans that are repricing and then just how much of a rate pickup you're getting on those?

Speaker 6

Yes, Brian. I don't have the exact specifics. We're seeing the this quarter $39,000,000 come out of indirect, which that's one of the lowest yielding. And so those are going to pick up 3 to sometimes 4 basis points of overall yield or 300 to 400 basis points on those loans. You kind of see from Lynn's slide and what's coming off of CRE, we're around a 2, maybe 200 basis point pickup on some of those that are comp rolling off.

Speaker 6

So I think that's pretty much what we're seeing when they're rolling off.

Speaker 5

Got you. Okay. And then just one last one, Mark, just on the rate on the margin, last thing on that was just the as far as the I think you talked about maybe your outlook being a couple of cuts here over the balance of the year. Can you talk about just if we don't see cuts or if they come later than expected? Does that how does that change kind of your big picture outlook?

Speaker 5

And I know you'll update it as you get more details on the rate, but just to say, we don't see cuts like you're looking at, how do we how does that influence kind of what you already talked about guidance wise?

Speaker 6

Yes, Brian. So the Q2, we're not anticipating any rate cut. So the guidance we gave is without any rate cut. If we in our modeling, we put 1 in July range and then at the end of the year, mid of last quarter. So it has some slight impact.

Speaker 6

But overall, if we don't see them, we'll continue to see margin increase just from the repricing of the assets, specifically investments and indirect coming off. And then as we see higher rates for loans that are maturing. So, we would continue to anticipate margin increase as we go into the 3rd and 4th quarters. If we see a rate cut being still liability sensitive slightly, we would just see a little additional benefit.

Speaker 3

Got you. Okay, perfect. That's all I had.

Speaker 5

Thanks for taking my questions.

Speaker 6

Thanks, Brian.

Operator

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Thomas Prane for any closing remarks.

Speaker 4

Thank you. And again, I appreciate all the questions today. Also thank you for participating in today's earnings call. The team had a very solid first quarter with positive momentum in our key earnings metrics also heading into Q2. As stated, we're very optimistic in the near term about our ability to continue to improve our financial performance and remain well positioned for potential lowering rates that will be added to our positive financial trajectory.

Speaker 4

Thank you again for your attendance today, and we look forward to our next update in July.

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Key Takeaways

  • Net interest margin expanded to 2.50% in Q1, exiting at 2.53%, and is projected to rise to 2.55–2.58% in Q2, reflecting successful asset repositioning into higher-yielding loans.
  • Loans grew significantly across commercial (+$75 M), residential (+$101 M via acquisitions), and consumer (+$13 M), with a strategic shift from lower-yielding auto loans to higher-yielding, high-quality assets.
  • Credit quality remains strong with minimal charge-offs (annualized 4 bp), low non-performing loans (41 bp of total loans), and an allowance for credit losses of 1.09% backing loan growth and portfolio mix changes.
  • Core deposits were stable with only a 9 bp increase in funding costs, while modest runoff reflected a reduction in high-cost public fund CDs, underscoring a measured approach to deposit pricing.
  • For Q2, the bank expects 8–10% annualized loan growth, non-interest income of $10–10.5 M, controlled expenses of $37.5–38.3 M, and continued capital strength supporting a 5.4% dividend yield.
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Earnings Conference Call
Horizon Bancorp Q1 2024
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