Horizon Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Horizon is an Indiana-based bank holding company operating through Horizon Bank, with commercial banking as its single reportable segment. Unless otherwise stated, dollar amounts below are in millions.
Financial results and position
| Metric | Q1 2024 | Comparable period |
|---|---|---|
| Net interest income | $43.3 | $45.2 in Q1 2023 |
| Net interest margin | 2.50% | 2.67% in Q1 2023; 2.43% in Q4 2023 |
| Net income | $14.0 | $18.2 in Q1 2023 |
| Diluted EPS | $0.32 | $0.42 in Q1 2023 |
| Credit loss expense | $0.8 | $0.2 in Q1 2023 |
| Non-interest income | $9.9 | $9.6 in Q1 2023 |
| Non-interest expense | $37.1 | $34.5 in Q1 2023 |
- Interest income rose $13.5 million year over year to $85.3 million, but interest expense increased $15.4 million to $42.0 million. The company attributed the pressure on net interest income and margin chiefly to higher funding costs.
- Total assets were $7.86 billion, down $84.8 million from year-end 2023. Net loans grew $200.2 million to $4.57 billion, while cash and due from banks fell $255.4 million to $271.1 million.
- Deposits declined $85.0 million to $5.58 billion; management attributed the outflow primarily to public-fund certificates of deposit. Borrowings were $1.36 billion, up $6.1 million from year-end.
- Quarterly operating cash flow was $6.5 million, versus $25.3 million in Q1 2023. Investing activities used $175.2 million, including loan purchases and net loan growth; financing activities used $86.7 million. Cash and cash equivalents ended the quarter at $271.1 million.
- Liquidity sources included approximately $1.56 billion of unused credit lines and $581.1 million of unpledged investment securities. These supplement cash, deposits, loan repayments and other funding sources.
- Stockholders’ equity was $721.3 million. Book value per common share was $16.49 and tangible book value per share was $12.65. The quarterly dividend was $0.16 per share.
- The Bank reported regulatory capital ratios above well-capitalized thresholds: total risk-based capital 12.59%, Tier 1 risk-based capital 11.70%, common equity Tier 1 11.70%, and Tier 1 leverage 8.63%.
Material changes and credit quality
- Year-over-year net income fell $4.2 million, or about 23%, reflecting lower net interest income, higher credit loss expense and higher non-interest expense, partly offset by increased non-interest income and lower tax expense.
- Non-interest expense increased $2.6 million, led by salaries and benefits (+$1.6 million), FDIC insurance (+$0.8 million) and outside services (+$0.6 million). The efficiency ratio was 69.73%, compared with 62.93% in Q1 2023.
- Total loans grew $200.5 million from year-end, with increases in residential mortgages, commercial loans, consumer installment loans and mortgage warehouse balances. Management reported commercial loan growth of 11.2% annualized and total loan growth of 18.2% annualized.
- Non-performing loans were $19.2 million, or 0.41% of loans, down from $20.3 million and 0.46% at year-end. Net charge-offs were 0.01% of average loans. The allowance for credit losses was $50.4 million, or 1.09% of loans, versus 1.13% at year-end.
- Available-for-sale securities had $93.1 million of gross unrealized losses at quarter-end. Held-to-maturity securities had a reported fair value of $1.63 billion against a $1.93 billion carrying amount. Management said unrealized declines were primarily rate-driven and temporary, and stated it did not intend to sell the identified securities before recovery, which may not occur until maturity.
Outlook, risks and unusual items
- The filing provides no formal quantified earnings or margin guidance. Management said the $271.1 million cash balance provides flexibility to deploy funds into higher-yielding assets during 2024, and noted expenses were at the lower end of guidance; the excerpt does not specify the guidance range.
- Management highlighted interest-rate and funding-cost pressure, deposit outflows, liquidity, credit quality, economic conditions, inflation, commercial real estate exposure, competition, cybersecurity, regulation and litigation among risks. It reported no material changes to the risk factors in the 2023 Form 10-K.
- The securities-related class action and associated derivative suits remain pending. Management intends to defend them; no liability was recorded because management concluded loss was not probable and the amount was not reasonably estimable.
- Horizon stated that it met applicable capital adequacy requirements and that its Bank remained well capitalized. It also reported disclosure controls and procedures were effective at March 31, 2024, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit trends, funding costs and deployment of cash support a sustained recovery in net interest margin.
- Loan growth composition and subsequent performance, particularly commercial real estate, consumer and newly expanded loan balances.
- Changes in non-performing loans, charge-offs and the allowance relative to loan growth and economic forecasts.
- The size and duration of unrealized securities losses, available liquidity, and any reliance on wholesale borrowing or credit lines.
- Developments in the pending securities and derivative litigation, and any changes to internal-control disclosures or remediation risks in later filings.