Horizon Bancorp, Inc.

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Good morning, everyone, and welcome to the Horizon Bancorp conference call to discuss financial results for the third quarter of 2022. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. 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, uncertainties, and other factors that could cause actual results to differ materially from those discussed, including factors noted in the slide presentation. Additional information about the factors that could cause actual results to differ materially is contained in the Horizon's current 10-K and later filings. In addition, management may refer to certain non-GAAP financial measures that are intended to help investors understand Horizon 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. If anyone does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, you can access it at the company's website www.horizonbank.com. Representing Horizons today are the Chairman and Chief Executive Officer, Craig Dwight, EVP and Chief Executive Financial Officer, Mark Secor, President Thomas Prame, EVP and Chief Commercial Banking Officer, Lynn Kerber, and EVP and Senior Retail and Mortgage Lending Officer, Noe Nahara. At this time, I'd like to turn the call over to Mr. Craig Dwight, Chairman and Chief Executive Officer. Thank you, and over to you, sir.

Thank you, Matt, and good morning. And thank you for participating in Horizon Bancorp's third quarter earnings conference call. Our comments today will follow the investor presentation and press release that we published yesterday, October 26. Horizons, please report solid earnings for the third quarter, driven by a continuation of strong commercial and consumer loan growth, An increase in net interest income, excellent asset quality, and robust capital ratios that exceed the regulatory definition for well-capitalized banks. In addition, during the third quarter, we closed five branches, with two more offices to close in the fourth quarter. The offices' closings will contribute to our objective towards achieving our target of non-interest expense to average assets of less than 2% for the full year of 2022. Starting on slide four of the presentation, third quarter highlights, Horizon completed the third quarter with quarter-over-quarter loan growth at 7.8% annualized, excluding PPP loans and sold commercial participation loans. Year-to-date total loan growth was 14.5% annualized. This level of growth was achieved in part from year... to date in annualized strong commercial consumer loan growth of 13.8% and 31.7% respectively. Thomas Prame, our president, will provide more detail on Horizon Loan Growth in just a few minutes. Other notable financial metrics for the quarter end, as reported, include return on average assets of 1.24% and return on average equity of 13.89%. Year-to-date through September 30th, Horizon's return on average assets was reported at 1.29% and ROE of 13.97. Given the size of our balance sheet, efficient operations, talented workforce, and solid additions to our team, Horizon is well-positioned to capitalize on significant organic loan growth, to shift lower-earning assets to higher-yielding assets, and continuation of disciplined expense control. So why invest in Horizon? Our investment thesis is simple. Horizon continues to report solid returns with a low credit risk profile due to our diversified balance sheet excess liquidity and low-cost core deposits. We are located in attractive Midwest growth markets where real estate values are not as volatile as in other areas of the country. Regional infrastructure improvements are attracting record inflows of private investment into Indiana and Michigan and include the commuter rail line expansion in northwest Indiana, known as the Double Track and West Lake County Extensions, which is forecast to have a $3 billion positive economic impact to northwest Indiana. The recent creation of the Regional Transportation Authority focused on promoting transportation-oriented development. The investment in quantum communication lines between Chicago, Lafayette, and South Bend. The recently enacted U.S. federal statute, known as CHIPS Science Act, which is anticipated to provide additional economic stimulus to the states of Indiana and Michigan, including the Quantum Communications Corridor. The American Rescue Plan Act, dollars being invested in new roads, infrastructure, support, workforce, housing, and capital equipment for our local municipalities. Indiana's $6 billion state surplus with the plans to invest $2 billion in infrastructure over the next couple of years. The continued deceleration of our outbound migration by Illinois businesses and residents as they move into our attractive markets due to quality of life, affordability, and lower taxes. Finally, Horizon has a long history of successfully managing through varying economic cycles. To support that we are a growth company, Horizon's compounded annual growth rate from 2002 through 2021 were 13% for total assets and 20% for net income. Horizon has historically outpaced the change in GDP, and for the past four years, we grew at 4.9 times the change in GDP. This clearly demonstrates our ability to grow market share and attract talent. Moving on to digital transformation, Horizon's key advantage in technology over other community banks include our in-house CRM core platforms, resulting in lower cost per transaction than our peers, and the ability to expedite the onboarding of new fintech partners, infects flexibility in data management. By not relying on a core service provider, Horizon is able to select technology partners based on the best in class and who can deliver strategic products and services at best price and with optimum flexibility. Our in-house core strategy has also proven very effective for integrating acquisitions, including last fall's 14-branch deal. In addition, our fintech partners are nimble. have considerable resources focused on improving the customer experience and allow Horizon to be an active voice on future developments, as we have representatives on most of these entities, advisory boards, or user groups. As you can see on slide 11, Horizon has more than doubled the proportion of total tax spend devoted to strategic customer and employee-facing applications over the last four years. As a result of our investments in technology, Verizon has improved its productivity as measured in assets per employee from $5.4 billion in 2016 to $8.7 million in 2021. Our digital transactions increased from 44% in 2018 to over 70% in 2022. We increased online consumer deposit account opening from 12% over the 12 months of 2021 to 19% year-to-date. And finally, 84% of our online chats are answered by programmative bots. Horizon's technology plan over the next two years will continue to see an increase in our annual spend to enhance the customer experience and make our model ever more scalable. As in prior years, we intend to offset these investments by continually improving efficiencies in our retail network and throughout the organization. Horizon manages and deploys capital efficiently, as evidenced by our recent acquisition of 14 branches in the fall of 2021 and continuing focus on organic growth in 2022 and 2023. Rising interest rates has increased the market's focus on accumulative other comprehensive income, and the market-to-market adjustments occurring in the bank's balance sheet has resulted in an increase of unrealized losses reported on the available-for-sale securities portfolio. As a result of the accumulated unrealized losses, Horizons TCE declined to 6.25% as of September 30th, Thank you. Thank you. We recently increased our dividend in the second quarter of this year, reporting a 6.3% increase from $0.15 to $0.16 per common share. Horizon's historical dividend increases are aligned with earnings growth, and as of September 30th, Horizon's dividend yield was attractive at 3.6%. Now for the financial update, it's my privilege to introduce to you Horizon Bank's Executive Vice President and Chief Financial Officer, Mark Secor. Mark?