Good morning, everyone and welcome to the Horizon Bancorp conference call to discuss Financial Results for the Three Months Ended March 31, 2022. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions.

[Operator Instructions] Before turning the call over to 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 Horizon's 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 this 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 at www.horizonbank.com.

Representing Horizon today are Chairman and CEO, Craig Dwight; Executive Vice President and Chief Financial Officer, Mark Secor; Executive Vice President and Senior Operations Officer, Kathie DeRuiter; Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber; and Executive Vice President, Senior Retail and Mortgage Lender Officer -- Lending Officer, excuse me, Noe Najera.

And at this time, I would like to turn the call over to Mr. Dwight. Please go ahead, sir..

Thank you, Chuck and good morning and thank you for participating in Horizon Bancorp's First Quarter Earnings Conference Call. Our comments today will follow the investor presentation and press release that we published yesterday, April 27.

Horizon is pleased to report a continuation of record earnings for the first quarter 2022 and solid momentum going into the second quarter with strong commercial and consumer loan growth.

The successful integration and stabilization of our branch acquisitions, the efficiency gains from the late summer consolidations of 10 offices, the recently announced plans to close an additional 7 offices and continuation of our excellent asset quality.

We are very proud of our associates at Horizon and how they successfully shifted from an internal pandemic-related focus in 2020 to return to our growth and efficiency initiatives in 2021 and 2022.

Starting on Slide 4 of the presentation, Horizon completed the first quarter reporting record earnings of $0.54 per share which compares favorably to the $0.49 per share reported for the fourth quarter.

Horizon's financial metrics are notable at quarter end as we reported return on average assets of 1.31%, return on average tangible equity of 17.7% and an efficiency ratio of 58.7%.

Driving the first quarter results were an increase in net interest margin, annualized double-digit organic commercial and consumer loan growth, additional revenue from the acquired offices and the cost saves achieved from the 10 branch closures.

Given the size of our balance sheet, highly efficient operations and talented workforce, we believe Horizon is well positioned to capitalize on significant organic and strategic growth opportunities within our attractive Midwestern markets.

So why invest in Horizon? Horizon continues to report superior returns with a lower risk profile due to our diversified balance sheet, excess liquidity and low-cost core deposits. We're located in attractive Midwest growth markets.

Regional infrastructure improvements are attracting record inflows of private investment into Indiana and Michigan and include the commuter rail line expansion in Northwest Indiana, known as double track and West Lake County extensions. The creation of a regional transportation authority focused on promoting transportation-oriented development.

University partnerships to promote the quality of life. Investment in quantum communication lines between Chicago, Lafayette and South Bend. The American Rescue Plan dollars being invested in roads and infrastructure to support workforce housing.

Both Indiana and Michigan are ranked in the top quartile for manufacturing output and we are seeing considerable investment rolling back into manufacturing as they creatively managed through supply chain and labor force availability challenges.

We have a positive earnings outlook for 2022 which we believe will provide us another opportunity to favorably distinguish Horizon from our peers. To further support that we are a growth company, Horizon's compounded annual growth rate from 2002 to 2021 were 13% for total assets and 20% for net income.

Horizon's ability to grow earnings faster than total assets illustrates the company's ability to efficiently increase the bottom line. Moving on to digital transformation.

Horizon's key advantage to technology over community banks include our in-house CRM and core platforms due to lower cost per transaction than our peers and the ability to expedite the onboarding of new fintech partners and flexibility in data management.

By not relying on that 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 and with optimum flexibility. Our in-house core strategy has proven very effective for when you're integrating acquisitions, including the last 14-branch transaction.

In addition, our fintech partners are nimble, have considerable resources focused on improving the customer experience and allow Horizon to be an active voice on future developments as we have representatives on most of these entities' advisory boards.

As you can see on Page 11, Horizon has more than doubled its proportion of total tech spend devoted to a strategic customer and employee-facing applications over the last four years. As a result of our investments in technology, Horizon has improved its productivity as measured in assets per employee from $5.4 million in 2016 to $8.7 million in 2021.

Our digital transactions increased from 44% in 2018 to over 75% in 2021. We increased online consumer deposit account opening from 12% over the past 12 months to 20% in the first quarter of 2022 which compares favorably to our peer average of only 4%. And 86% of our online chats are answered by our bots.

Horizon's technology plan over the next two years will continue to see an increase in our annual spend to enhance the customer experience and make our model ever more scalable. As in prior years, we intend to offset these investments by continually improving efficiencies in our retail network and throughout the organization.

Even with these technology investments, for example, we continue to target non-interest expense levels at 2% or less than average assets for the full year of 2022.

Horizon manages and deploys capital efficiently as evidenced by our recent acquisition of 14 branches, our commitment to opportunistic stock buybacks, dividend increases aligned with earnings growth and effective use of capital to organic initiatives.

Our ship this year is the rising interest rates and the investment analysts' focus on accumulative other comprehensive income and the mark-to-market adjustments occurring on the bank's balance sheet as a result of unrealized losses reported in the investment portfolio.

Horizon's unrealized losses appear to be comparable to most financial companies based on recent reporting. As a result of the unrealized losses, Horizon's TCE declined to 6.94% as of March 31.

All regulatory capital ratios continue to be robust and our economic value portfolio equity actually reports an increase in total capital when you mark the entire balance sheet. This valuation also reflected in our earnings results for the first quarter.

Due to the bank's strong capital position, we believe that we still have significant flexibility to pursue our organic and acquisitive growth strategies and disciplined stock buybacks.

In addition, Horizon sees no change in our dividend policy as we fully expect to continue our 30 years plus of uninterrupted quarterly cash dividends and dividend increases aligned with earnings. Now, it's my pleasure to turn this over to our Executive Vice President and Chief Financial Officer, Mark Secor.

Mark?.

Thank you, Craig. Horizon reported record net income in the first quarter due to strong loan growth and moving excess cash into higher-yielding investments. We are pleased with these results we achieved in the first quarter and see strong momentum going into the second quarter.

Starting with Slide 15, the company's first quarter results were positively impacted by the recapture of all the prior impairment on the mortgage servicing asset totaling $2.6 million, along with the slowing of depreciation on the servicing asset due to slower prepayment speeds.

Net interest income for the quarter was down from last quarter, primarily due to $900,000 less from purchase accounting loan marks and $1.7 million less in PPP income. We expect to see growth in net interest income as PPP income has been replaced by loan growth, cash deployed into higher-yielding assets and increasing interest rates.

We had a $1.4 million release for credit losses compared to $2.1 million release in the linked quarter. We see continued strong credit performance, low non-performing loans and low charge-offs and believe we are appropriately reserved given the current state of our portfolio and current economic outlook for our CECL modeling.

Slide 16; as we continue to focus on increasing net income and an expectation of a rising rate environment, we wanted to provide a few details on our balance sheet.

As of March 31, we are in an asset-sensitive position with a 12-month GAAP ratio of 125% that includes approximately $1.9 billion of adjustable rate assets of which approximately $1.1 billion would move with a rate change to their index.

Asset sensitivity was reduced during the quarter as additional cash was moved to higher-yielding assets and loans and investments to generate more net interest income. This increased the March 31 base case in our interest rates risk model by $14 million of net interest income from our September 30, 2021 base case.

As a result of being less asset sensitive, there is less volatility when modeling a shock to our balance sheet. At a 100 basis point increase as of March 31, we would generate an increase in net interest income of approximately 1.21% or $2.5 million.

Contributing to this increase are the expected deposit BETA's used for the rising rate which is currently in a range from 4% for consumer deposits to 45% on money market and public funds.

As additional increases in short-term rates are expected, our asset-sensitive position will enable our net interest income and our needs to benefit from these increases.

Slide 17; the adjusted margin increased 7 basis points during the quarter and was positively impacted by only two basis points from PPP income as most of this revenue has now been realized. This was offset by 11 basis points of margin compression from the high average cash balance held during the quarter.

This increase in the margin was expected as cash was deployed to higher-yielding assets and funding costs decreased. With cash deployed and the impact of PPP loans reduced, along with the expected loan growth and rising interest rates, the margin is expected to continue to expand during 2022.

Slide 18; the investment portfolio was at $3.1 billion at quarter end and it increased $405 million since the end of last quarter. We expect to maintain the portfolio during 2022 which has a book yield of 2.23% and an effective duration of 6.8 years.

Also during the quarter, we increased held to maturity investments to 64% of the investment portfolio from 57% at December 31, 2021 which helped lessen the impact of the increased -- impact of the increase in longer-term rates.

Slide 19; the unrealized loss on available for sale securities in the first quarter reduced tangible common equity by 67 basis points which is in line with what we are seeing in the industry.

As we have the ability and intent to hold these investments to maturity, these losses are expected to recover over time as investments pay down and cash flows are invested at higher interest rates. In addition, the current reduction to TCE would have been earned back in approximately three quarters from retained earnings.

As the jump in longer-term rates, specifically in the two to seven year range, resulted in unrealized loss being more in line with the rate increase of over 100 basis points, we currently estimate that an additional 100 basis point rate shock over the next quarter would result in approximately another 40 basis point decline in TCE.

With a move of approximately $450 million of available for sale securities to held to maturity in the fourth quarter, along with purchases of longer-term investments being put into held to maturity, has helped manage the impact of the rising rates to our TCE.

The impact of rising rates only recognize certain items like unrealized losses on available for sale investments and not the increase in value of liabilities like core deposits. When the entire balance sheet is valued, our economic value of equity increased in the first quarter compared to the fourth quarter.

With this decrease in TCE, we believe the bank's capital is strong and sufficient enough to fund growth and will not restrict our ability to consider merger or share repurchase activities in the future.

Slide 20; margin improvement was slightly tempered by our continued improvement in funding costs which reflected the low-cost funding acquired in the branch acquisition in September. We believe that our valuable low-cost core deposits will provide significant opportunity and flexibility going into a rising rate environment.

Slide 21; core operating expenses were impacted by higher healthcare costs, seasonal maintenance expense and continued investments in technology. The expenses continue to be leveraged as non-interest expense to total average assets was 2.3% for the first quarter.

Continuing to leverage the expense run rate in the first quarter during 2022 to generate additional revenue will help move non-interest expenses to total average assets to our goal of 2% or less.

To help with this goal, the PPP income seen in the past quarters has been absorbed by strong commercial and consumer loan growth, along with cash moved to higher-yielding assets. Mortgage servicing income will continue to help hedge the anticipated lower mortgage gain on sale income as refinancing and prepayment speeds have slowed.

Due to our commercial loan growth, we have also seen a strong pipeline in our treasury management services and anticipate growth in fee and merchant income. As part of our annual branch optimization process, we announced plans to consolidate seven branches in 2022 which will continue to help manage expenses.

The one-time charge on fixed assets of approximately $432,000 before tax will be realized in the second quarter with an anticipated payback of approximately six months. We also have made additional investments in tax credits and continue -- that will continue to support and improve our effective tax rate.

Now, I'll turn it back over to Craig to provide an update on our lending activities..

Thank you, Mark, for the good report. Now for a quick loan update. Core commercial loan growth for the first quarter, excluding PPP and sold participations, was reported at a 13.5% annualized growth rate, as we continue to see loan growth across most business sectors.

Contributing to the commercial loan growth is the increase in number of loan officers, an increase in commercial line of credit outstandings, rebound in Midwest manufacturing and regional infrastructure investments.

In addition, we have a good momentum going into the second quarter with a commercial pipeline of approximately $156 million, up from the first quarter's pipeline of approximately $120 million.

Consumer loans for the first quarter reported a 14.9% annualized increase in loans as we continue to experience strong consumer loan demand for home equity and car loans. In addition, home equity line balances increased for the second quarter in a row.

We are also pleased with the first quarter consumer loan production of $147 million which compares favorably to the total record production for 2021 of $397 million. Given the low unemployment in our markets, even with high inflation rates, we expect consumer loan demand to remain robust.

Mortgage loan production declined in the first quarter by 24% over the prior year period which does compare favorably to Fannie Mae's and Mortgage Bankers Association's forecast reductions of 41% and 39%, respectively. The first quarter is typically our slow season for mortgage production.

So even with the rising rate environment, we do expect improvement in the second quarter's production. As a result of the rising interest rates and lower production, our gain on sale of mortgage loans for the first quarter was reported at $2 million, down 51% over linked quarters, resulting in a 3.75% gain on sold mortgage loans for the quarter.

As a reminder, gain on sale of mortgage loans and the mortgage warehousing income constitutes only 4.7% of Horizon's total revenue in the first quarter. Overall, asset quality remained strong in the first quarter, evidenced by low net charge-offs and non-performing loans and a solid credit loss reserve to total loans at 1.41%.

To summarize our key franchise highlights, Horizon is a growth company as evidenced by 20% compounded annual growth rate for net income. Our balance sheet has a diversified loan portfolio, both in product mix and geography, with ample liquidity and cash flows to fund future growth which provides for a lower risk profile than many of our peers.

The combination of Horizon's higher returns on tangible capital of 17.7% and lower balance sheet risk profile is a sweet spot for investors, especially given the volatility related to rising interest rates, wage inflation and supply chain disruptions.

Horizon is positioned well for earnings growth in 2022 and 2023 as a result of an increase in commercial and consumer loan demand, our recent acquisition of 14 new branches and expanded footprint, low operating cost discipline and our disciplined approach to branch rationalization.

As noted on Slide 28 and given our first quarter production results, current strong loan pipelines, low unemployment rates and pent-up consumer demand, we are adjusting two of our full year 2022 loan growth goals upward and increasing our return on average assets outlook.

For commercial loans, excluding PPP loans, we currently expect growth in the range of 10% to 14% which is an increase from our 10% forecast in December 2021. For consumer loans, we currently expect to grow in the range of 10% to 14%, up from our original forecast of 5% to 9%.

We are increasing our return on average asset outlook from 1.2% to greater than 1.3%. This concludes our prepared remarks today and now I'll ask the operator to please open the lines for questions..

[Operator Instructions] And the first question will come from Terry McEvoy with Stephens. Please go ahead..

Hi, thanks. Good morning, everyone. Maybe the first question, the branch closures in the second half of this year, the cost savings.

Is the plan to continue to invest that in talent and technology and if that's the case, can you be a little bit more specific on where you plan on making those investments across the company?.

Yes, Terry, that's exactly the plan as we deploy the cost saves to technology as well as to growth markets such as the Oakland County, Michigan area, Grand Rapids, Michigan, Indianapolis and even Northwest Indiana which experienced some growth.

So yes, that's the plan is to offset the cost saves from really non-growth markets to deploy it to growth markets..

And then Mark, a question for you on Page, I guess it's Page 16. Just so I read it correctly, while the asset sensitivity is down over the last six months, on a dollar basis in an up 100 basis point environment, if I'm doing the math correctly, the dollar amount is higher today versus six months ago.

Is that correct?.

Yes, because the base case grew that $14 million from the September information we provided..

That’s great. Thank you..

Thank you, Terry..

The next question will come from Nathan Race with Piper Sandler. Please go ahead..

Hi guys, good morning. Just want to dig into the outlook for the increased expectations for a 1.30% ROA versus, I think, 1.20% when you last spoke at the December Investor Day.

Are the primary contributors to that increased outlook just the higher loan growth expectations that you guys are guiding to in your updated 2022 goals, it's the cost saves as a factor? Is there any other components? I'd be curious within that context, kind of get your expectations for Fed rate hikes this year in terms of getting that 1.30% ROA target..

There's a lot of components that are moving toward it but number one is the improvement in expansion net interest margin due to loan growth. The first quarter is typically our seasonally low volume-wise and so we're kind of optimistic about the second quarter coming up.

In addition, we have plans to increase our BOLI by $50 million which is not in the balance sheet today. So there's a lot of ways to increase our earning assets through the rest of the year. In addition, our cost will become a lower percent of total assets as we improve our earnings performance, too.

So we do expect to hit that 2% or less cost of total assets this year. So there's a lot of different moving parts..

Got it. Understood. I guess perhaps with the margin context, Mark, maybe just would love to get some thoughts on just in terms of how that core margin trends from here. Obviously, we're likely to get 0.5 point increase in Fed funds next week and then perhaps another 0.5 point in June as well.

So this impact on the near-term rate backdrop, how do you kind of see the margin trending over the next couple quarters?.

Yes. As I stated, we anticipate the margin continuing to grow. I think the low point was last quarter. And contributing to that, too, is we have deployed all the cash. So the cash had a drag just on an average basis, so early first quarter with that 11 basis points.

So getting that cash moved into loans and investments helps the margin improve going forward also..

Okay, great. I’ll step back. Thanks for the color..

The next question will come from David Long with Raymond James. Please go ahead..

Good morning, everyone. Mark, you've talked about the cash on the balance sheet. And when I look at the numbers here in the quarter, you still had about 10% in the quarter on average in cash.

How aggressive will you deploy that here in the second quarter and going forward? Do you want to get aggressive and put that into securities, or are you holding off for loan growth? How should we think about the pace of that deployment?.

Yes. We ended the quarter with the cash balance where it will probably be at this point. The total cash was $120 million. Our daily operations is between $80 million and $100 million just for cash settlements. So we got it all deployed through the first quarter.

Some of the investments and then also the loan growth is absorbing it, so we'll just advantage now. In the past, I always wanted to be in a slightly borrowed position just to make sure we're maximizing and that's where we're trying to manage to at this point..

Got it, Mark. Yes, I see that now. The purchase accounting accretion in the quarter, I think it was right around 5 basis points.

Is that the right level going forward? And how should that change as we look at the -- how should that impact on the NIM change throughout 2022?.

Yes and we're up $900,000 from last quarter. We didn't pick up a lot in the last transaction with the branch acquisition, so I think we're going to be trending downward. We still have a couple of chunks that can come in. But I think that the impact of the purchase accounting will continue to be less and less as we get through the next 1.5 years..

Got it. And then finally the reserve level, pre-pandemic, you were talking about a Day 1 CECL level just under 1%.

Given where we are with the backdrop and Moody's numbers, do you still see your reserve level coming down from here than closer to that? Or what's the right level given your loan mix now that you'd expect for the reserve level to hit relative to what we're looking at pre-pandemic?.

Yes, David, I'll jump in here. This is Craig. We expect minor releases so going forward. But however, we shifted our allocation from specific portfolio sectors in the commercial portfolio to qualitative sectors based on the world variability taking place, the Russia-Ukraine situation, supply chain issues.

So we've shifted more to qualitative than quantitative. And until we see that settle down, I don't see us aggressively releasing our reserves back down to the 1% range you mentioned..

Got it. Thanks, guys. Appreciate you taking my questions..

Thank you, David..

The next question will come from Damon DelMonte with KBW. Please go ahead..

Hey, good morning guys. Hope everyone is doing well today. First question on expenses, Mark.

Could you just give a little guidance from this quarter's $36.6 million level? Are you seeing wage inflation issues, kind of creeping up on salaries and employee benefits? And how should we think about like the cadence over the next couple quarters?.

Yes. I think that has -- the first quarter has wage increases from -- raises from last year. We do have some wage pressure. It's not been significant but I think we will continue to see some of that. What also plays into it is having full employment. Obviously, like every other company, we do have positions that are harder to fill.

So full employment just isn't expected. I think there's going to be some pressure going forward to some degree.

But we also had in that category of more on benefits, we saw a significant increase in healthcare costs over what we would have anticipated and would anticipate that hopefully would come down a little bit to balance out wage increase over the remaining part of the year. So I think the run rate is pretty good. The technology spend is in.

We had, like I said, some seasonal maintenance costs that are always higher in the first quarter. But we feel like the run rate that we're seeing right now, we would like to continue to leverage that through the rest of the year..

If I could add to that, our investments in technology have increased our capacity to do more with fewer people over the last several years. So we feel very comfortable with not expanding staff to fund our loan growth anyway..

Got it. Okay. That's helpful. And then on the fee income side, kind of a two-part question here. Is your outlook on mortgage banking for the year, do you still feel comfortable with your previous guidance of outperforming the MBA expectations for the year will be number one.

And then number two, Mark, I think you had said what the impact or what the mark was on the mortgage servicing income line this quarter. Maybe you could just repeat what that was, that would be great..

Yes, I'll take that part first and then Noe talk about the mortgage outlook. Yes, we had $2.6 million of impairment on the servicing asset that we've taken over the last two years when refinancing was booming and prepayment speeds were high.

So with the slowdown and the increased value of the portfolio, we did recover all of our impairments, so there's no more impairment to pick up. So that was the $2.6 million.

But on the other side also ongoing, the depreciation, because our portfolio, our servicing portfolio is -- servicing asset is still undervalued on the books, the depreciation of the servicing asset has been slowed.

So we would anticipate that we could see a range of $400,000 to $600,000 a month of additional servicing income from what we had seen in the last year..

I'm sorry, is that a month or per quarter?.

Month. So $1,600 to $1,800 a quarter -- or $1.6 million to $1.8 million in the quarter..

Yes. Damon, this is Noe Najera. And I just want to add that are expecting to beat the projections in the market. Currently, we're at 24%. We have hired and will continue to look for talent in the markets that we serve. We are positioned well with our construction products, our portfolio products that play well in the markets that we serve.

So we anticipate that trend to continue throughout the remainder of this year..

Excellent. Okay. Thank you very much guys. Appreciate it..

The next question will come from Brian Martin with Janney Montgomery. Please go ahead..

Good morning, guys. Mark, just on that last question on the servicing. The impact that $1.6 million or $1.8 million a quarter, there was something in there this quarter from that.

Is it maybe half of -- about half of that amount was in this quarter, in the first quarter results, just to make sure?.

Yes, that's correct..

Okay. Perfect. And then just, maybe just your comments about capital.

Just as we think about the -- and the capital, the cash that's been deployed, just the size of the balance sheet, is it kind of -- is the expectation this year that that loan growth will just be a remix, kind of funding it from the investment portfolio in cash rather than --? Is that the best way to think about this year, at least 2022?.

Yes, I think that's a safe comment. That's part of our plan, Brian. However, our regulatory capital ratios are robust. And so it doesn't stop or cause us to slow down looking at alternative use of the capital or deployment of that capital.

The other comprehensive income is a one item on the balance sheet that things -- does raise viewpoints from an investment community from a price-to-book -- our price-to-earnings should look attractive. So you look at both measurements, not just one by itself. So we don't see a slowdown in looking at other alternative investments..

Yes. No, I -- go ahead, Mark. I'm sorry..

Just look for opportunities to leverage or to maintain depending on what we see in the market. So a decision will be made on what we want to do with the investment portfolio and growth as we get through the year..

Yes, that makes sense. Okay. And just the last two for me. Just Craig, on your comments on upping the loan growth, is your expectation that the personnel you have is amp -- I know you guys have hired a lot of people.

Or is there in that kind of guidance, is your expectation you're going to add more people? Or kind of maybe the talent pipeline, where that's at today?.

Yes, Brian, the plans are not to add any people. However, with that said, if good talent and the window of opportunity opens for that talent, we will hire them and so you can just seize the opportunity that it's presented. But we're not going to be aggressively increasing like we did in the last 12 months..

Okay. Yes, that makes sense. And last one which is, Mark, can you give any more color on just the -- so the March increase in rates, how that impacted the margin? I know it hasn't been fully though the numbers yet but kind of what you expect to have come out of that one.

And then maybe on this next 50, put some numbers behind just kind of how we should think about that benefit to NIM at least on the first 50 basis points of hikes here?.

Yes. From the information provided, that 100 basis point increase from where we are was around the $2.5 million, I think, 100 basis points additional net interest income. And that's because that base case has grown.

By shrinking or reducing our asset sensitivity from where it was six months ago, we realized a lot of that income that we would have picked up in rate increases..

Yes, the aggregate's a $14 million change..

Yes..

Pre-tax..

Okay, perfect. Thank you for taking the questions, guys..

The next question will come from Nathan Race with Piper Sandler. Please go ahead..

Thanks. Just a point of clarification because I've received questions from investors.

Just in terms of the balance sheet reclassifications in terms of I think assets and loans and on the liability side as well, did that primarily solely stem from just the review of the commercial participation agreements, or were there any other factors at play there?.

No, that was it. It's some interpretation, accounting interpretation of our agreements for participations sold. So it was just through the audit and through this first quarter. And we went ahead and booked all of our participations sold on the balance sheet with the corresponding secured borrowing on the balance sheet on the liability side.

So no impact to income. It doesn't even impact average assets because we're looking at it at the end of each quarter, so we don't skew the average assets..

Understood. And I appreciate that clarification, Mark and just want to make sure we have that ironed out..

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Craig Dwight for any closing remarks. Please go ahead, sir..

Well, thank you for participating in today's earnings call. We look forward to speaking with you again in the near future. Have a good day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..