Horizon Bancorp, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; includes fourth-quarter results. Horizon is a commercial bank holding company serving northern and central Indiana and southern and central Michigan through Horizon Bank.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net income | $28.0 million | $93.4 million |
| Diluted EPS | $0.64 | $2.14 |
| Adjusted net income (non-GAAP) | $66.5 million | $92.8 million |
| Net interest income | $175.7 million | $199.5 million |
| Net interest margin | 2.55% | 2.98% |
| Total assets at year-end | $7.94 billion | $7.87 billion |
| Total deposits at year-end | $5.66 billion | $5.86 billion |
| Loans, net, at year-end | $4.37 billion | $4.11 billion |
| Cash and due from banks at year-end | $526.5 million | $123.5 million |
| Net cash from operating activities | $88.9 million | $94.4 million |
Interest income rose $76.3 million, but interest expense increased $100.0 million as deposit and borrowing costs repriced faster than asset yields. Total non-interest income fell to $12.0 million from $47.5 million, principally reflecting a $32.1 million securities-sale loss and lower mortgage-sale income. Non-interest expense increased 2.2% to $146.3 million. Credit-loss expense was $2.5 million, versus a $1.8 million recovery in 2022.
At year-end, borrowings were $1.35 billion, up from $1.14 billion. This included $430 million borrowed through the Federal Reserve Bank’s Bank Term Funding Program and $750.3 million of FHLB advances. The bank reported approximately $1.4 billion of available credit capacity. Regulatory capital remained above minimum requirements: the bank’s total risk-based capital ratio was 12.87%, common equity Tier 1 was 11.96%, and Tier 1 leverage was 8.41%; it was categorized as well capitalized.
Net interest margin pressure weighed on profitability, while loans grew 6.2% year over year. Deposits declined 3.3%; average lower-cost transactional deposits fell while average time deposits increased. Approximately $2.6 billion of deposits were estimated to be uninsured. The allowance for credit losses was $50.0 million, or 1.13% of loans, versus $50.5 million, or 1.21%, in 2022. Non-performing loans were $20.3 million, or 0.46% of loans, compared with $21.8 million, or 0.53%.
Material developments, outlook, and risks
- Fourth-quarter repositioning: Horizon sold $382.7 million of lower-yielding securities, recording a $31.6 million pretax loss, and surrendered $113.9 million of bank-owned life insurance policies. It recorded $8.6 million of related tax and excise expense. Fourth-quarter GAAP net loss was $25.2 million, or $0.58 per diluted share; adjusted net income was $14.1 million, or $0.33 per share, excluding the repositioning impact and approximately $705,000 of specified extraordinary expenses.
- Liquidity and rate exposure: Management said the elevated cash balance provides flexibility to deploy funds into higher-yielding assets during 2024, but provided no formal earnings or margin guidance. The company described its balance sheet as liability-sensitive; modeled parallel rate increases of 100 and 200 basis points reduced annual net interest income by approximately $6.8 million and $13.8 million, respectively.
- Funding and securities risks: Time deposits totaling $1.1 billion mature in 2024, and management expects some deposits to remain but may need to replace outflows at higher rates. The securities portfolio had substantial unrealized losses, principally attributed to interest rates; management said it did not expect to need material loss sales. AFS securities carried $87.8 million of gross unrealized losses at year-end, while HTM securities had a fair value about $277 million below amortized cost.
- Legal matters: A securities class action and related derivative lawsuits allege misleading statements and fiduciary-duty breaches. Management intends to defend the claims; no liability was recorded because loss was not considered probable or reasonably estimable.
- Controls and reporting: Management said material weaknesses identified in 2022 were remediated by year-end 2023. Management and the auditor concluded internal control over financial reporting was effective, and the auditor issued unqualified opinions on the financial statements and controls. The filing also corrects an immaterial prior-period loan-disclosure classification error; it did not change total loans or net income.
- Governance and execution: CEO Thomas Prame took office in June 2023. CFO Mark Secor is transitioning from the role, with support planned through April 30, 2024 while the company searches for a successor.
Key investor verification points
- Track deposit retention, uninsured-deposit levels, 2024 time-deposit renewals, and the cost and mix of replacement funding.
- Assess whether cash deployment and asset repricing can stabilize or improve net interest margin as funding costs evolve.
- Review the securities portfolio’s unrealized losses, liquidity needs, and the realized effects of the announced balance-sheet repositioning.
- Monitor credit quality and reserve adequacy, particularly commercial real estate, home equity, and consumer lending exposures.
- Follow the securities and derivative litigation, and confirm progress in the CFO succession and control-remediation processes.
- Compare GAAP results with management’s non-GAAP adjusted measures, including the exclusions used in the 2023 adjustment calculations.