Horizon Bancorp, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Horizon is a commercial bank holding company operating primarily in Indiana and Michigan.
Financial performance and position
| Metric | 2021 | Prior comparable period |
|---|---|---|
| Net income | $87.1 million | $68.5 million in 2020 |
| Diluted earnings per share | $1.98 | $1.55 in 2020 |
| Net interest income | $181.7 million | $170.9 million in 2020 |
| Net interest margin | 3.13%; adjusted 3.06% | 3.44%; adjusted 3.38% in 2020 |
| Total assets | $7.37 billion | $5.89 billion at year-end 2020 |
| Total deposits | $5.80 billion | $4.53 billion at year-end 2020 |
| Loans, net of allowance | $3.55 billion | $3.81 billion at year-end 2020 |
| Cash and due from banks | $593.5 million | $249.7 million at year-end 2020 |
| Net cash from operating activities | $105.3 million | $78.8 million in 2020 |
| Stockholders’ equity | $723.2 million | $692.2 million at year-end 2020 |
Total 2021 revenue, calculated as net interest income plus non-interest income, was approximately $239.6 million, versus $230.6 million in 2020. Non-interest expense was $139.3 million, up 6.0%. The efficiency ratio was 58.12%, compared with 57.01%.
Year-end borrowings were $675.8 million, including $525.5 million of FHLB advances and $130.8 million of repurchase agreements. Separate from borrowings, Horizon reported $58.8 million of subordinated notes and $56.8 million of junior subordinated debentures. The Bank’s regulatory capital ratios included a 14.72% total risk-based capital ratio and an 8.50% Tier 1 leverage ratio; it was categorized as well capitalized.
Material changes and notable items
- Net income rose about 27% year over year, primarily reflecting a $22.8 million improvement in credit-loss expense and $10.8 million higher net interest income. Higher expenses, income taxes, and lower non-interest income partly offset the gains.
- Net interest margin contracted 31 basis points to 3.13%. Lower asset yields were partly offset by lower funding costs; the cost of interest-bearing liabilities declined to 0.40% from 0.87%.
- Assets and deposits expanded substantially, principally following the September 2021 purchase of 14 former TCF branches in Michigan. The transaction added $846.4 million of deposits and generated $3.3 million of goodwill. Management said integration was complete and deposit runoff had stabilized at about 8%.
- Loans declined 6.7%, largely because mortgage warehouse and PPP balances fell. Commercial loans excluding PPP and acquired loans grew 3.3%; consumer loans excluding acquired loans grew 2.7%. Residential mortgage balances declined amid the industry-wide slowdown.
- Credit quality improved: non-performing loans fell to $19.0 million, or 0.53% of loans, from $26.8 million, or 0.69%. The company recorded a $2.1 million provision release, versus $20.8 million of provision expense in 2020. COVID-related loan deferrals were $10.8 million, down from $126.7 million.
- Cash increased $343.8 million during 2021. Investing activities used $363.1 million, including substantial securities purchases; financing activities provided $601.5 million. Operating cash flow was $105.3 million.
- Horizon transferred $490.2 million of securities from available-for-sale to held-to-maturity and increased held-to-maturity securities to 57.2% of the investment portfolio. Accumulated other comprehensive income fell to $7.3 million from $27.9 million, reflecting a decline in securities values and other changes.
Outlook, risks, and contingencies
No specific earnings or revenue guidance was provided. Management described Horizon as asset sensitive at year-end: its model estimated net interest income would increase approximately $10 million under a parallel 100-basis-point rate shock and $20 million under a 200-basis-point shock. These are modeled sensitivities, not forecasts.
Management cited excess liquidity as a source of margin pressure and expected to rebuild deposits following acquisition-related runoff. It reported approximately $672.7 million of available credit from various sources, while noting that some correspondent-bank lines are uncommitted. Time deposits totaling $511.7 million mature during 2022, and $1.3 billion of commitments to extend credit were outstanding at year-end.
Key risks include economic and COVID-19 effects on borrowers and collateral, interest-rate and deposit-pricing changes, competition and digital disintermediation, cybersecurity and third-party service risks, acquisition integration, and the transition away from LIBOR. Approximately $2.4 billion of deposits were estimated to be uninsured. Horizon also warned that credit-loss estimates and goodwill, servicing-rights, and securities valuations involve judgment.
Unusual items included a $1.9 million accrual for a Department of Labor mediation settlement concerning the former ESOP trustee business, which Horizon sold in September 2021 for a reported $2.3 million gain. Management said it had reached a settlement; it also noted possible residual litigation risk relating to historical trustee activities. Management expected ordinary-course litigation to have no material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the acquired Michigan deposits retain or rebuild after the reported 8% runoff, and how branch integration affects costs and earnings.
- Whether loan growth, credit quality, deferrals, and the allowance remain consistent with management’s assumptions as economic conditions change.
- How rising rates affect deposit costs, net interest margin, securities values, and the reported asset-sensitivity estimates.
- The liquidity implications of uninsured deposits, 2022 time-deposit maturities, available borrowing lines, and $1.3 billion of credit commitments.
- Any further developments, costs, or claims related to the DOL settlement and the discontinued ESOP trustee business.
- Progress on LIBOR-linked contract conversion and any effects on funding, hedges, systems, or customer relationships.