Horizon Bancorp, Inc.

Good morning, everyone, and welcome to the Horizon Bancorp conference call to discuss financial results for the fourth quarter and full year of 2022. If you need assistance during the call, please press star then zero. There will be a question and answer session after today's remarks. If you have a question, you may press star then one at any time. And to remove yourself from queue, please press star then two. Please note, this event is being recorded. Before turning the call over to the 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 those factors noted in the slide presentation. Additional information about factors that could cause actual results to differ materially is contained in the Horizon 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'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. 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 Horizon today are Chairman and Chief Executive Officer Craig Dwight, President Thomas Prane, EVP and Chief Financial Officer Mark Secor, EVP and Chief Commercial Banking Officer Lynn Kerber, and EVP and Senior Retail and Mortgage Lending Officer Noe Nahara. At this time, I would like to turn the call over to Mr. Craig Dwight, Chairman and Chief Executive Officer. Thank you, and over to you, sir.

Thank you, Rocco, and good morning. And thank you for participating in Horizon Bancorp's fourth quarter earnings conference call. Our comments today will follow the investor presentation and press release that we published yesterday, January 25th. Horizons, please report record earnings for 2022 and fourth quarter that continues our momentum into 2023 with strong commercial and consumer loan growth, efficiencies gained from closing seven offices, and effective expense control. The challenges during the quarter were the magnitude and velocity of the short-term interest rate increases by the Federal Reserve's Open Market Committee and the corresponding increased competition for deposits, which drove our costs of deposits up at a faster rate in the fourth quarter. The outlook for 2023 calls for the Federal Reserve Bank to slow the pace and magnitude of raising the Fed's targeted interest rate, with an expectation that our deposit betas will also moderate during the year. In addition, We see 2023 as a transition year as we continue to focus on reinvesting cash flows and maturing loans into higher-yielding assets. Starting on our presentation slide deck of number four, Horizon met or exceeded most of our 2022 goals as announced in fourth quarter 2021 and revised upward in the second quarter of 2022. Total loans excluding PPP and sold commercial loan participations increased 14.6% for the year, led by consumer and commercial loan growth of 30.6% and 11.4% respectively. Thomas Prime, our president, will provide more detail on Horizon's loan growth in a few minutes. Other notable Horizon financial metrics for the year include return on average assets of 1.24% and return on average equity of 13.66%. Given the size of our balance sheet, efficient operation, talented workforce, and solid additions to our team, Horizon is well positioned to capitalize on significant organic loan growth as we focus on shifting our balance sheet to higher yielding assets and continue our disciplined approach to expense control. So why invest in Horizon? Horizon continues to report solid returns with a low credit risk profile due to our diversified balance sheet, excellent liquidity, and low cost core deposits. Horizon's historical credit metrics, even during the Great Recession, have outperformed the U.S. commercial banks as a result of consistent underwriting and active portfolio management. Horizon's deposit mix has improved compared to our pre-pandemic deposit mix as a result of stabilizing the prior year's 14-branch acquisition and good organic growth. We are located in attractive Midwest growth markets where real estate values are not as volatile as in other areas of the country and where our manufacturing outlook calls for continued expansion. Regional infrastructure improvements are attracting record inflows of private investment to Indiana and Michigan, and include the commuter rail expansion in northwest Indiana, known as Double Track, and West Lake County Extensions, which is forecasted to have multi-billion dollar positive economic impact into northwest Indiana. The investment in quantum communication lines between Chicago, Lafayette, and South Bend, Indiana. Indiana's $6 billion state surplus with plans to increase infrastructure spending. The continued outbound migration by Illinois businesses and residents as they move into our attractive markets due to our quality of life, affordability, and lower taxes. Horizon has a proven history of organic growth, supplemented by strategic acquisitions as evidenced by our compounded annual growth rate for 2002 through 2022 for average assets at 12.7% and net income at 15.2%. In addition, Horizon has historically outpaced the change in GDP, which clearly demonstrates our ability to add market share, attract talent, and grow organically. This is further supported in reviewing Horizon's top 10 deposit markets. Five were entered into via acquisitions, and five represent our legacy or de novo markets. In the acquired markets, we increased market share over time, which results of hiring and retaining local talent in our disciplined approach to market development. Since 2010, our legacy and de novo markets have also demonstrated our ability to increase market share. A key long-term focus for Horizon is digital transformation. Horizon's advantages in technology over other community banks include our in-house CRM and core platforms, resulting in a lower cost per transaction than our peers, and the ability to expedite transactions the onboarding of new FinTech partners and flexibility in data management by not relying on a core service provider. Horizon is able to select technology partners based on best in class and who can deliver strategic products and services at the best price with the optimum flexibility. Our in-house core strategy has also proven very effective for integrating acquisitions, including our most recent 14 branch deal. As a result of our investments in technology, our digital transactions increased from 44% in 2018 to 70% of total transactions in 2022. We increased online consumer deposit account openings to 19% in 2022, and 84% of our online chats are answered by our program bots. Horizon manages and deploys capital efficiently, as evidenced by our most recent completed integration of 14 acquired branches and continuing focus on organic growth in 2022. Through the fourth quarter end, Horizon Bank continues to report strong regulatory capital ratios that succeed the regulatory definition for well-capitalized banks. In addition, Horizon has a consistent dividend policy as we fully expect to continue our 30-year-plus of uninterrupted quarterly cash dividends. We last increased our dividend in the second quarter of 2022, reporting a 6.3% increase from $0.15 to $0.16 per common share, which represents our 10th dividend increase in the past 11 years. Horizon's historical dividend increases are aligned with earnings growth, sound capital management, and as of December 31, 2022, our dividend yield was attractive at 4.2%. Now I'd like to congratulate Thomas Prem on his recent appointment to Chief Executive Officer of Horizon Bank Corp, Inc. and Horizon Bank, effective June 1, 2023. We're delighted with his addition to the team with big bank experience and passion for strategic planning, technology, and focus to move the company forward. Thomas Prem and our senior leadership team has what it takes to continue the bank's success. It's now my pleasure to introduce Thomas Prem.

Thomas? Thank you, Craig, and appreciate the comments. As mentioned previously, it was another solid quarter in total loan growth of $145 million, or just over 12% annualized. That's excluding our PPP and sold loan participations. Highlighting the quarter was our commercial balances, increasing $63 million, or just over 10% annualized. Net commercial loan fundings of $98 million was well balanced across our commercial asset classes and our markets. The commercial loan pipeline is positioned at $134 million and continues to provide confidence in our ability to generate mid to high single-digit growth in 2023, with yields continuing to increase as new production replaces our paydowns and our payoffs. As we transition to slide 16, consumer loan balances increased $49 million or 21% annualized. As we discussed in Q3, the short-term nature of the consumer portfolio creates opportunities to shift loan growth to higher-yielding assets. In Q4, we enhanced the pricing structure of our indirect lending, increasing production yields, and slowing the historical portfolio growth. This strategy was coupled with an acquisition of high-quality variable rate home equity loans that provided over 300 basis points in improved yield when compared to the indirect portfolio. These loans are also well positioned with higher floors to protect against potential down rate environments. We anticipate having similar opportunities throughout 2023 as we leverage the diversity of our loan platform and manage new origination yields. Looking at slide 17 with mortgage, our Q4 production and fee income results aligned with industry trends and the team also completed proactive steps to further reduce staffing levels and overall costs relative to volumes. Mortgage warehouse balances also reflected current industry trends at $69 million, down slightly of $4 million from Q3. In concert with the consumer portfolio, we continue to be smart in our balance sheet deployment, with mortgage balances growing about $18 million in Q4, with higher new production yields compared to payoffs and paydowns. Looking at slide 18, our credit metrics remain strong as evidenced by our 0.01% charge-offs and low non-performing loans in the quarter and also the last several quarters. Additionally, our allowance for credit losses is well positioned at 1.21% of total loans. This is down from 1.27% in the third quarter. This is primarily due to low historical charge-off levels and improvement in specific segments adjustments such as hotels that was offset by increased allocation for consumer loans and indirect auto. As we look at slide 19, Horizon's historical credit metrics display our ability to outperform the market during the previous economic cycle. We attribute this to our consistent and conservative underwriting practices. As Craig mentioned earlier, the strength of the markets we serve and the talent within our local bankers and credit teams. As this graph shows, the performance of our credit metrics lessens the impact from credit cycles, and we exit the cycle at a faster pace. As we move into a fluid economic environment, we feel confident our current credit profile will produce very similar results. At this time, I'll transition to Mark for highlights into our financial highlights. Thank you, Thomas.