Horizon Bancorp, Inc.

Good morning everyone and welcome to the Horizon Bancorp Inc conference call to discuss financial results for the first quarter of 2024. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. 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 and 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 Horizon's most recent Form 10-K 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. Representing Horizon today are Executive Vice President and Senior Operations Officer Kathy DeReuter, Executive Vice President, Corporate Secretary and General Counsel Todd Edsler, Executive Vice President and Chief Commercial Banking Officer Lynn Kerber, Executive Vice President and Chief Financial Officer Mark Seekorf, and Chief Executive Officer and President Thomas Prem. At this time, I would like to turn the call over to Mr. Thomas Prem. Please go ahead, sir.

Good morning, and thank you for participating in today's call. Horizon had a solid start to the year with our second 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 results at the lower end of our guidance, as the team continues to be diligent in capturing cost savings. Credit performance and trends remain positive, with minimal charge-offs, low non-performing loans, through continued proactive portfolio management. As seen in the first quarter, 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 goal 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 and core balances, deposit costs increasing just nine basis points from year end, and the modest runoff in the first quarter was primarily attributed to the company's decision to reduce segments of its high-cost public funds portfolio. Our first quarter results provide optimism on our go-forward financial outlook as we move into the second quarter 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?

Thank you, Thomas. Beginning on slide five, we have an overview of the loan portfolio as of March 31st with a mix of 60% commercial, 17% residential, and 22% consumer, which remains relatively unchanged from the prior quarter. Commercial loans increased $75 million which includes $23 million in equipment finance activity. Residential mortgage loans increased to $101 million, and consumer loans increased to $13 million. First quarter loan growth included $154 million in acquired loans, including approximately $59 million of consumer loans with credit protections, $95 million in residential, and a reduction of $39 million 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. On slide six, we are pleased to report commercial loans increased to $74.8 million for the first quarter, representing 11.2% on an annualized basis. Net fundings, including equipment finance, totaled $110 million for the first quarter, compared to $117 million for the fourth quarter. We saw a meaningful increase in the average commercial loan portfolio yield in the first quarter, increasing to 6.14% from 6.05% in the fourth quarter. Also, new production yields were 7.52% in the first quarter. The core commercial pipeline increased from $167 million at December 31st to 187 million as of March 31st. Activity continues to be well diversified by industry and geography. The equipment finance division contributed approximately 23 million in originations in the first quarter and will be continuing to ramp in the second quarter. We continue to anticipate a total contribution of 100 to 125 million 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 31st and 16 basis points for March 2023. Non-performing commercial loans decreased 27% in the quarter due to the payoff and upgrade of several non-accrual and substandard loans. Accordingly, we recorded commercial net recoveries of $57,000. Also provided for reference on slide seven 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've included the summary of maturing CRE loans for 2024 and 2025 on slide eight. For the remainder of 2024, we have 277 notes with current balances of $213 million maturing, representing 10.9% of our portfolio. Of this tranche, there are balances of 101 million with interest rates of less than 7%, representing 5.2% of our CRE portfolio. Similarly, 2025 has 240 NOPs maturing with balances of 188 million maturing, representing 9.6% of the portfolio. Of this tranche, there are balances of 123 million 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 longstanding 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 nine, you will see that consumer direct loan balances increased $52 million during the quarter, reflective of previously mentioned acquired home improvement loans and continued reduction of auto loans by 39 million 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 improved credit products. 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 first quarter with delinquency of 0.76%, a reduction from 1.3% at December 31st, and a continuation over the past six-month period. Indirect loans reported past dues of 1.12%, also a reduction, from 1.49% at December 31st in the six-month trend. Year-to-date net charge-offs for consumer direct are four basis points, and the annualized rate of 17 basis points, and consumer indirect were seven basis points, annualized rate of 28 basis points, which represents an improvement from Q4 charge-offs. Slide 10 highlights our mortgage loan performance for the quarter. Our portfolio grew $101 million in a quarter, in part due to approximately $95 million of acquired high-credit quality residential mortgages. We expect residential mortgages to benefit from seasonality during the second and third quarter with both purchases and new construction. The average mortgage loan yield was 4.53% for the portfolio and 7.25% for new production. With net recoveries for the quarter, this portfolio continues to reflect quality homeowners, the significant payment capacity and equity in their home. Our asset quality metrics continue to be strong as outlined on slide 11. Past dues over 30 days were 0.33%, 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 20.3 million to 19.2 million, representing 41 basis points, a reduction from 46 basis points as a percent of total loans. The decrease was driven principally by reduction in commercial loans, non-performing loans, Net charge-offs for the first quarter were $426,000, representing one basis point of average loans on an annualized rate of four basis points. This was also an improvement over the third and fourth quarters of 2023. Finally, our allowance for credit losses increased $357,000 in the quarter to $50.4 million as of March 31st. The increase is the net effective 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 first quarter. Provision expense of $804,000 is a combination of the allowance increase of $357,000, unfunded commitments, and replenishing the reserve for charge off loans in the first quarter. 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 forecast, 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.