Transcript: Horizon Bancorp Q2 2026 Earnings Conference Call

On Thursday, Horizon Bancorp (NASDAQ: HBNC ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

01%. 7% annualized increase in commercial loans. An accrual for legal expenses related to unfavorable litigation impacted results slightly, but overall performance remained positive. Commercial loan growth was primarily in C&I lending, with strong contributions from Michigan, Indianapolis, and Northwest Indiana markets, while credit quality remained stable with low net charge-offs.

8% annualized increase in deposits, helping maintain low costs for interest-bearing deposits. Future guidance includes mid-single digit growth in loans and deposits, with non-interest income expected to grow in the low teens year-over-year. Management remains optimistic about continued profitability and capital generation, with no immediate plans for M&A but maintaining a focus on organic growth and potential shareholder value creation. Full Transcript OPERATOR (Operator) Good morning, everyone, and welcome to the Horizon Bancorp, Inc.

conference call to discuss financial results for the second quarter of 2026. All participants will be in 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 one on your touchtone phone. To withdraw your question, please press star then two. Now I will turn the call over to Todd Etzler, Executive Vice President, Corporate Secretary and General Counsel, for the opening introduction. Todd Etzler, CLRO & EVP Corporate Secretary Good morning and welcome to our conference call to review Horizon's second quarter results.

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 Horizon's most recent Form 10-K and 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. com. Representing Horizon today are Executive Vice President and Senior Operations Officer Kathy De Ruyter, Executive Vice President and Chief Commercial Banking Officer Lynn Kerber, Executive Vice President and Chief Legal and Risk Officer Todd Etzler, Executive Vice President and Chief Financial Officer John Stewart, and Chief Executive Officer and President Thomas Prame.

At this time I will turn the call over to Thomas Prame. Thomas. Thomas Prame, Chief Executive Officer Thank you, Todd. Good morning, and we appreciate you joining us.

Horizon Bancorp's second quarter results continue to highlight the strength and durability of our community banking model and management team's commitment to delivering shareholder value. 30% range, strong fee income performance and excellent credit trends. 01% at the end of the quarter. 7% annualized in the second quarter.

These results align well with our full-year expectations and display our disciplined approach to growth on both sides of the balance sheet while maintaining the consistency in our net interest margin performance throughout the year. Our strategy of efficient balance sheet growth, coupled with expansion of our fee income verticals and conservative approach to credit, positions the company well for continued positive shareholder value generation in the second half of 2026. As communicated to the market previously, the company did establish an accrual for legal expenses related to an unfavorable litigation decision in the second quarter.

We anticipate this accrual will remain in place until the company finalizes its appeal process in subsequent quarters. 05 per share in the quarter, the second quarter results were positive on many fronts, expanding on our momentum from the first quarter and aligned with our full-year expectations. Overall, we believe it's been a very successful start to the first half of 2026, and John will provide more specific details concerning our second quarter and year-to-date results.

The performance level of the franchise to date and the positive financial results we have delivered for our shareholders have been very strong, and we remain optimistic on this outlook as we head into the second half of 2026. At this time, I'd like to hand the presentation over to Lynn Kerber, Horizon's Executive Vice President and Chief Commercial Banking Officer, to provide additional insight into the quarter's excellent funding and credit performance. Lynn, Lynn Kerber, EVP & Chief Commercial Banking Officer Good morning. The second quarter was another solid quarter from a lending perspective and showed growth over the first quarter.

We generated strong commercial growth, maintained stable credit metrics and continued to deploy capital in a disciplined manner despite a competitive market environment. What I find most encouraging is not just the level of growth, but the composition of that growth. We continue to win attractive relationship opportunities across our footprint while maintaining underwriting and pricing discipline. This supports long-term profitability.

6% annualized. Commercial banking continued to drive growth, with commercial balances increasing approximately 64 million during the quarter. Residential and consumer portfolios contributed modest growth during the quarter and continue to perform well. Mortgage pipelines have improved entering the third quarter, supported by recent production trends and strategic hiring initiatives.

Page five provides an overview of our commercial lending portfolio and performance in the second quarter. The vast majority of our growth came from C&I lending, which increased approximately 62 million to 31% of the commercial portfolio. Growth was broad-based across the franchise with strong contributions from our Michigan markets as well as Indianapolis and Northwest Indiana. While commercial balances increased meaningfully, commercial real estate balances remained relatively flat.

This was primarily the result of elevated payoff activity rather than weaker production. The majority of payoffs occurred because customers successfully executed business plans through property sales or reached the natural conclusion of a financing need. We remained committed to our underwriting standards and rate discipline rather than compromising long-term credit quality or profitability. Regarding the C&I activity, the strongest growth came from our community banking franchise and was augmented by our equipment finance team.

Primary segments were professional services, construction services, property management, warehouse and logistics, and utility-related businesses. Importantly, this growth was not driven by one or two large transactions. Rather, it reflects healthy activity across a broad group of customers and the continued success of our relationship banking strategy. These relationships often extend beyond lending and create opportunities for deposits, treasury management, payments, which are strategic priorities for the bank.

Credit quality continues to be a significant strength for Horizon. Net charge-offs were approximately 605,000, or just 5 basis points annualized. That remains exceptionally low relative to both historical levels and peer performance. More importantly, we are not seeing deterioration in the underlying trends that would suggest a meaningful change in our outlook.

Early-stage delinquencies remain low and well controlled, while borrower performance remains stable across the portfolio. 3% of loans, and were essentially unchanged from both the prior quarter and prior year. 70% of loans. The key takeaway is that criticized asset levels remain stable, non-performing loans improved, and loss experience with the portfolio continues to be very low.

05% of loans held for investment. We believe the reserve remains appropriate given current portfolio performance and economic assumptions. Overall, we delivered another quarter of strong commercial growth led by C&I lending while maintaining disciplined underwriting and stable credit performance. With healthy pipelines, strong customer activity and a diversified portfolio, we believe Horizon remains well positioned to continue delivering profitable growth through the remainder of 2026.

I'll now turn the call back to Thomas for a discussion of deposit trends and the balance sheet. Thomas Prame, Chief Executive Officer Thank you, Lynn. Transitioning to our deposit portfolio displayed on slide 8, Horizon Bancorp's deposit portfolio for the first half of 2026 continued to deliver favorable performance with positive growth in its major categories of non-interest-bearing and interest-bearing segments, with CD balances relatively flat year-to-date.

As mentioned in our Q1 earnings comments, the company expected to be a net user of the strong deposit-gathering efforts generated in the first quarter and leverage this liquidity as fuel for our quality loan growth in the second quarter. This agility in our business model helped maintain our historically low cost of interest-bearing deposits, increasing only 4 basis points in the quarter while providing ample funding capacity for loan growth, which was led by the commercial team in the second quarter. 8% annualized growth rate.

As we move forward, the franchise remains highly engaged on pairing core deposit growth with common-sense community lending efforts in our local markets. These activities have produced solid year-to-date performances on both sides of the balance sheet and we remain committed to this parallel strategy of growth and margin management as we approach the second half of 2026. Let me hand the presentation over to our Executive Vice President and Chief Financial Officer, John Stewart, who will walk through additional income statement highlights and the continued positive outlook we see for the remainder of 2026. John R.

Stewart, EVP, Chief Financial Officer Thank you, Thomas. 37%. As noted in Thomas' comments, we expected to be a net user of cash in the second quarter, which turned out to be the case with average interest-earning cash down about $59 million. This result was certainly a favorable contributor to the margin expansion in Q2.

As we have said all year, the movement of average cash quarter to quarter has the potential to impact the net interest margin percentage, but has little impact on net interest income dollars. More notably, we saw expansion in the spread between loan yields and total deposit costs. Loan yields increased by 9 basis points versus the prior quarter compared with a 3 basis point increase in total deposit costs inclusive of noninterest balances. This, coupled with the favorable earning asset mix shift previously mentioned, drove the margin expansion we experienced during the quarter.

Looking ahead, I'll make a few comments. Loan yield dynamics remain generally favorable. 75% in Q2, which has continued thus far in July. 2% range.

As noted last quarter, and as we saw in Q2, it was and continues to be our expectation that interest-bearing deposit costs trend modestly higher from here with no additional rate cuts. Given the loan yield dynamics just mentioned, we do have some promotional deposit pricing in the markets aimed at winning new households and greater wallet share. 3% inclusive of the mix of production and noninterest-bearing balances. Therefore, marginal growth in loan and deposits should be generally supportive of our net interest margin and net interest income outlook.

Cash balances will continue to move the margin percentage around with balances ending the quarter $44 million above the average, and our expectations for loan and deposit growth, we would anticipate average cash over the balance of the year to exceed the $102 million we saw in Q2. 35% over the second half of the year. Finally, you'll note that the outlook on slide 13 now includes the general market expectations for one 25 basis point Fed hike later in the year, compared with two cuts in our initial 2026 outlook in January and no rate changes in our April update.

As was the objective all along, we feel our interest rate exposure is very close to neutral and therefore our net interest income and margin outlook have remained unchanged all year. As you can see on slide 10, noninterest income results were strong during the quarter, growing 10% compared with the year-ago period, led by fiduciary activities and mortgage, which each grew by about 20% year on year. Both business lines are benefiting from new leadership, investments in talent, and improved sales management practices.

Additionally, we were pleased to see an acceleration in year-over-year growth in interchange fees as both card usage and spend experienced growth in the current period. 1 million legal charge. Excluding this item, expenses were modestly better than expectations and largely unchanged from the prior quarter as operational efficiency and positive operating leverage remain a focal point. We did see the anticipated uptick in salary expense and higher strategic marketing spend, which was largely offset by seasonal declines in benefits and occupancy costs and lower professional fees.

09%. This result was driven by continued strong levels of operating profitability and modest sequential growth in risk-weighted assets as we continue to proactively manage the deployment of risk capital across the balance sheet. As we have previously communicated, we are very comfortable with the company's capital position, particularly considering the sustained high level of profitability we are expecting. As our 2026 outlook suggests, the expectation is that we will continue to accrete capital quickly, which you will see over the balance of the year.

Turning to slide 13, our guidance for 2026 is modestly more favorable. Period-end loan and deposit balances are still expected to grow mid-single digits, which would suggest loan and deposit growth to be well balanced in dollars over the second half of the year. As we have consistently noted, balance sheet growth will be driven by deposit growth going forward, and this strategy has not changed. 35% range.

Assuming higher cash balances going forward, average earning asset balances are still expected to modestly exceed $6 billion for the full year. This outlook now includes one 25 basis point rate hike in October compared with no changes to rates in April. This change in assumption did not impact the outlook. 1 million legal charge in the second quarter.

Expenses are now expected to be in the low- to mid-$160 million range for the full year.