Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Horizon Bancorp (IN) (HBNC, Financial) reported sequential growth in revenue and pretax, pre-provision income, driven by expanded net interest income and margin for the third consecutive quarter.
- Loan growth was robust, with an increase of $205 million or 17.8% annualized, primarily driven by commercial and mortgage loans.
- The deposit portfolio showed stability with strong trends in core consumer and commercial relationships, and minimal increase in overall deposit costs.
- Credit quality remains strong with low past-dues, low non-performing loan levels, and net recoveries of $3,000 year-to-date.
- The company anticipates net interest income to grow in the upper single-digit range for the second half of 2024, supported by a favorable shift in the mix of earning assets.
Negative Points
- The allowance for credit losses increased to $52.2 million, primarily due to loan growth, which may indicate potential future risks.
- There was a modest compression in risk-based ratios due to strong loan growth, which could impact the company's capital position.
- The company expects funding costs to see a bit more lift relative to Q2 to support loan growth, which could pressure margins.
- The pace of net interest margin expansion is expected to moderate in Q4, absent any rate cuts or meaningful changes further out on the curve.
- The company noted elevated levels of operational loss, which could impact future profitability if not managed effectively.
Q & A Highlights
Q: Could you talk about the assumption for interest-bearing deposit costs and the impact of promo rates?
A: John Stewart, Executive Vice President, Chief Financial Officer, explained that they exited the quarter with strong loan growth and corresponding funding growth. The starting point for interest-bearing deposit costs was in the low 260s for the current quarter.
Q: Were there any purchases of jumbo mortgages in the second quarter, and how did leasing contribute to C&I growth?
A: Thomas Prame, President, Chief Executive Officer, Director, noted that about 90% of the $200 million aggregate growth was through their organic franchise. Lynn Kerber, Executive Vice President, Chief Commercial Banking Officer, added that the leasing team is ramping up nicely, targeting $110 million to $120 million for the year.
Q: What are the loan growth drivers for the back half of the year, and how will you fund this growth?
A: Lynn Kerber stated that new loan fundings have been consistent, with some timing differences between quarters. They expect construction funding to continue and have seen a slowdown in unscheduled payoffs. John Stewart mentioned that liquidity from securities run-off and cash from lower-yielding consumer assets will fund growth without significant deposit growth.
Q: What is the outlook for repurchases given the current stock price and growth opportunities?
A: John Stewart indicated that they will continue to evaluate capital allocation options, focusing on delivering shareholder value, and will remain diligent in examining potential stock buybacks or securities repositioning.
Q: How would the margin respond if the Fed cuts rates in the back half of the year?
A: John Stewart explained that a 25 basis point rate cut would be marginally accretive to the net interest margin. The team has experience managing non-maturity interest-bearing deposit costs, which would help maintain margin lift.
Q: What are the expectations for provisioning in the back half of the year?
A: Lynn Kerber noted that provisioning will primarily be driven by loan growth and economic forecasts. Credit metrics remain solid, and they will continue to monitor the situation.
Q: Can you provide insights into the C&I portfolio's health and any trends to be mindful of?
A: Kathie DeRuiter, Executive Vice President, Senior Operations Officer, stated that commercial past-dues are low, and they are in a net recovery position. Some C&I customers have improved their revenue run rates, and there are no overly concerning trends at this point.
Q: Where did the margin end for the month of June?
A: John Stewart confirmed that the margin for June was consistent with the full quarter at 2.64%, despite most growth occurring at the end of the quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
