Horizon Bancorp, Inc. Common Stock 2026 Q3 Earnings Call

Thomas? Thank you, Deanna. Good morning, and we appreciate you joining us.

We're pleased with Horizon's productive third quarter, where strong financial results underscore our continued positive momentum. Highlights include top-tier performance as displayed by annualized returns on average assets extending above 1.7%, returns on tangible common equity in excess of 20%, and a sustained net interest margin in the mid 4.3% range. These results continue to advance our healthy capital levels, with CET1 exceeding 11.5% and total risk-based capital of 15.4% at the end of the quarter. As we look at the quarter, we continue to take a disciplined approach to growth on both sides of the balance sheet while simultaneously managing pricing and credit risk. This measured approach to balance sheet expansion resulted in both loans and deposits continuing to grow in the mid-single-digit range on an annualized basis.

Loan performance was further strengthened by broad-based expansion across our commercial, consumer, and mortgage platforms, complemented by continued excellent credit trends. Deposit performance remained strong during the quarter, with growth concentrated primarily in the core relationship balances, reflecting the strength of our local community banking model. The balance sheet performance continued to align well with our full-year growth expectations while continuing to display our commitment to maintaining durability in our net interest margin profile. Our strategy of efficient balance sheet expansion, continued development of our fee income businesses, and conservative approach to credit has delivered meaningful shareholder value and positions the company well to navigate a potentially uncertain interest rate environment. Horizon's third quarter performance was positive on many fronts.

I'll hand the presentation over to Lynn Kerber, Horizon's Executive Vice President and Chief Commercial Banking Officer, who will provide additional insight into the quarter's lending performance and continued positive credit trends.

Lynn? Good morning, and thank you, Thomas.

The third quarter was another strong quarter for our lending team and reflects the continued success of Horizon's relationship-based community banking model. We generated balanced growth across commercial, residential mortgage, and consumer portfolios, maintained stable credit performance, and continued to deploy capital in a disciplined manner despite a competitive operating environment. What I find most encouraging is not simply the level of growth but the quality and diversity of that growth. We continue to win attractive relationship opportunities across our footprint while maintaining the underwriting and pricing discipline that supports long-term profitability and sustainable performance. As outlined on page 4, loans held for investment ended the quarter at just over $5 billion, increasing approximately $47 million, or approximately 4% on an annualized basis.

Growth was broad-based across the franchise, with strong contributions from our Grand Rapids, Midland, and Lansing markets in Michigan and Lake County and Fort Wayne, Indiana. Our community banking teams continue to originate quality opportunities supported by additional production from our equipment finance platform. This year, we very deliberately balanced volumes and margins in alignment with our balance sheet and net interest margin optimization goals while focusing on expanding our customer relationships. Residential real estate grew $16 million, buoyed by an expanded mortgage lending team and seasonal summer home sales activity. Consumer loans grew $18 million predominantly in home lending segments. Commercial portfolio growth was $12.2 million for the quarter, with C&I balances increasing approximately $22 million during the quarter and nearly $118 million or 12% from a year ago. C&I balances now represent approximately 31% of our commercial portfolio.

Commercial real estate loans declined $9.9 million, impacted by both a deliberate selective strategy regarding real estate segments, as well as elevated payoffs in July and August due to our customers choosing to sell their properties. Payoff activity was elevated in Q2 and early Q3 and moderated in September. Based on our current view, expected payoff activity will return to a more normalized run rates in the fourth quarter. Looking ahead, our loan pipelines remain consistent and continue to reflect the strength of our local markets and customer activity levels. We believe Horizon remains well-positioned to continue generating mid-single-digit loan growth while maintaining our disciplined approach to risk management. Credit quality remains a strength for Horizon and continues to perform in line with our expectations. Net charge-offs were approximately $1.2 million during the quarter, or 10 basis points annualized of average loans.

While this was modestly higher than the prior quarter, the charges are reflective of timing between the second quarter and the third quarter, and overall loss levels remain consistent with historical and expected trends with a year-to-date annualized loss rate of 6 basis points. Borrower performance remains stable across the portfolios, and early-stage delinquencies continue to be well controlled. Substandard loans improved during the quarter, declining to approximately $60 million from $65 million in the prior quarter, a reduction from 1.3% to 1.2% of total loans. Non-performing loans ended the quarter at approximately $36 million or 72 basis points of loans, while non-performing assets represented just 68 basis points of total assets. Our allowance for credit losses ended the quarter at $52.3 million, representing 1.04% of loans held for investment.

We believe the reserve remains appropriate given the current risk profile of the portfolio, expected loss content, and prevailing economic assumptions. Overall, we delivered another quarter of profitable and balanced loan growth while maintaining disciplined underwriting and stable credit performance. The combination of diversified production, stable credit metrics, and consistent customer activity gives us confidence in our outlook for the remainder of 2026. Now, I'll turn the call back to Thomas for a discussion of deposit trends and the balance sheet.

Thank you, Lynn. Transitioning to our deposit portfolio displayed on slide 8. The deposit portfolio in the third quarter continued to deliver strong results. Growth in the quarter of approximately $81 million or 6% annualized was primarily focused within the relationship-based core deposit portfolios of the community bank, with CD balances slightly down from a planned reduction in higher cost deposits. Deposit growth during the quarter was achieved while maintaining a measured approach to pricing, supporting Horizon's historically low cost of deposits, with total deposits including non-interest-bearing balances increasing only 3 basis points and interest-bearing deposits increasing by only 4 basis points in the quarter. Year to date, deposits are up $206 million, representing a 5.2% annualized growth rate. The team continues to effectively align core deposit growth with prudent community lending opportunities across our local markets.