Horizon Bancorp, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020 unless noted. Horizon is an Indiana-based bank holding company operating through Horizon Bank, serving Indiana and Michigan. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2021 | Comparable period / change |
|---|---|---|
| Net income; diluted EPS | $20.4; $0.46 | Q1 2020: $11.7; $0.26 |
| Net interest income | $42.5 | Q1 2020: $40.9; Q4 2020: $43.6 |
| Net interest margin | 3.29% | Q1 2020: 3.56%; Q4 2020: 3.34% |
| Adjusted net interest margin | 3.17% | Q1 2020: 3.44%; Q4 2020: 3.44% |
| Total non-interest income | $13.9 | Q1 2020: $12.1 |
| Total non-interest expense | $32.2 | Q1 2020: $31.1; Q4 2020: $36.5 |
| Credit loss expense | $0.4 | Q1 2020: $8.6 |
| Net cash from operating activities | $33.4 | Q1 2020: $28.2 |
Net income rose year over year, chiefly reflecting much lower credit loss expense, higher net interest income and higher non-interest income, partly offset by increased operating costs and taxes. Mortgage loan sale gains were $5.3 million, up from $3.5 million. The company reported a 57.03% efficiency ratio, 1.40% return on average assets and 11.88% return on average common equity. Adjusted measures exclude specified items and are non-GAAP.
Financial position, liquidity and capital
- Total assets were $6.06 billion, up $168.9 million from year-end. Cash and due from banks increased to $529.3 million; available-for-sale securities rose to $1.26 billion.
- Total loans were $3.66 billion, down $203.0 million from year-end; net loans were $3.61 billion. Mortgage warehouse loans fell to $266.2 million from $395.6 million. PPP loans were $252.3 million, up from $208.9 million.
- Deposits increased $190.7 million to $4.72 billion, which management attributed largely to federal stimulus payments and PPP loan proceeds. Reported borrowings were $481.5 million; subordinated notes were $58.6 million and junior subordinated debentures were $56.6 million.
- Cash and cash equivalents increased $279.6 million to $529.3 million. Available unused credit lines were approximately $946.1 million, and unpledged investment securities were approximately $772.8 million.
- Stockholders’ equity was $689.4 million, compared with $692.2 million at year-end. Accumulated other comprehensive income declined to $10.7 million from $27.9 million, primarily reflecting securities valuation changes. Book value per share was $15.69; tangible book value per share, a non-GAAP measure, was $11.74.
- At March 31, the Bank’s total risk-based capital ratio was 13.86%, common equity tier 1 ratio 12.71%, and Tier 1 leverage ratio 8.81%. The company and Bank met applicable capital requirements; the Bank was categorized as well capitalized.
Material changes and credit quality
- Compared with Q1 2020, net interest income increased $1.6 million even as interest income fell $4.1 million; lower funding costs reduced interest expense by $5.7 million. Net interest margin nevertheless compressed 27 basis points year over year, reflecting lower asset yields. Management estimated excess cash reduced Q1 margin by 16 basis points, while PPP lending added 10 basis points.
- The allowance for credit losses was $57.2 million, or 1.56% of total loans, versus $57.0 million and 1.47% at year-end. Non-performing loans declined to $25.1 million (0.68% of loans) from $26.8 million (0.69%). Net charge-offs were 0.01% of average loans.
- COVID-related loan deferrals/extensions improved: $91.6 million of loans qualified for CARES Act modification treatment at quarter-end, compared with $126.7 million at year-end. Separately, management reported $89 million of commercial loans with payment extensions and approximately $2 million of consumer and mortgage payment-relief modifications.
- Comprehensive income was $3.3 million versus $14.5 million in Q1 2020, reflecting a $17.2 million after-tax other comprehensive loss, including a decline in unrealized gains on available-for-sale securities.
Outlook, risks and unusual items
The filing provides no specific numerical earnings or margin guidance. Management described mortgage activity as strong for a seasonally light quarter, reported a first-quarter record $24.2 million in pre-tax, pre-provision net income (non-GAAP), and said COVID-related deferrals and non-performing loans had declined. It also noted excess liquidity was weighing on margin. The company announced a quarterly dividend increase of 8.3% to $0.13 per share in March; Q1 dividends paid were $0.12 per share.
Key stated risks include the pandemic and economic recovery, borrower credit performance, interest-rate and margin changes, liquidity and deposit behavior, securities and other fair-value estimates, mortgage prepayments and servicing-rights valuation, regulation, cybersecurity, competition, and risks from acquisitions. The Bank elected CARES Act relief from certain TDR accounting requirements for qualifying COVID-19 modifications. Management reported no goodwill impairment in Q1 and no expected material adverse effect from ordinary-course litigation. Unrealized securities losses were attributed by management to interest-rate changes; management said it did not intend to sell the affected securities before recovery.
Important facts for investors to verify
- Whether deposit growth and elevated cash balances persist, and how they affect asset deployment, funding needs and net interest margin.
- Loan growth and mix, especially PPP forgiveness, mortgage warehouse activity, and the trend in non-PPP lending.
- Whether declining deferrals and non-performing loans translate into stable credit costs; review CARES Act-modified loans and the adequacy of the $57.2 million allowance.
- How interest-rate movements affect the securities portfolio, accumulated other comprehensive income, mortgage servicing rights and reported equity.
- The sustainability of mortgage banking income and the effects of lower refinancing volumes, prepayments and servicing-rights valuations.
- Capital and liquidity capacity, including unused lines and unpledged securities, alongside subordinated and other borrowing obligations.