Horizon Bancorp, Inc. (NASDAQ:HBNC) is a bank holding company headquartered in Michigan City, Indiana, providing a diverse range of banking services across northern and central Indiana and southern and central Michigan. With a history dating back to 1873, Horizon Bank has established itself as a trusted financial institution, known for its strong credit quality, prudent risk management, and commitment to serving its local communities.

In the latest quarter ended March 31, 2024, Horizon Bancorp reported net income of $13.991 million, or $0.32 per diluted share. For the full year 2023, the company generated net income of $27.981 million on total revenue of $324.379 million. The company's operating cash flow for the year 2023 was $81.444 million, while its free cash flow stood at $73.669 million.

Business Overview

Horizon Bancorp operates as a single segment, commercial banking, offering a comprehensive suite of products and services to its customers. The company's core business lines include commercial lending, residential mortgage lending, consumer lending, and wealth management. Horizon's geographic footprint is primarily concentrated in the Midwest, with a strong presence in northern and central Indiana and southern and central Michigan.

The company's commercial lending division is a key driver of its success, accounting for approximately 60% of the total loan portfolio as of March 31, 2024. Horizon's commercial loan book is well-diversified across various industries and geographies, with a focus on owner-occupied and non-owner-occupied commercial real estate, as well as commercial and industrial loans. The residential mortgage and consumer lending segments contribute 17% and 22% of the total loan portfolio, respectively.

Horizon's wealth management division provides trust, investment management, and financial planning services to its clients, further diversifying the company's revenue streams.

Financials

Horizon Bancorp's financial performance in the first quarter of 2024 showcased the company's ability to navigate the evolving market conditions. Net interest income decreased to $43.288 million, down from $45.237 million in the same period last year, despite a 65-basis-point expansion in the net interest margin to 2.50%. This margin expansion was achieved through disciplined loan pricing and effective management of interest-bearing funding costs.

The company's non-interest income also demonstrated resilience, totaling $9.929 million in the first quarter of 2024, compared to $9.620 million in the prior-year period. Key contributors to the non-interest income included strong performance in service charges on deposit accounts, interchange fees, and mortgage banking activities.

Horizon's credit quality remained exceptional, with non-performing loans at just 0.41% of total loans as of March 31, 2024. The allowance for credit losses stood at $50.387 million, or 1.09% of total loans, reflecting the company's prudent risk management practices.

Looking ahead, Horizon Bancorp provided guidance for the remainder of 2024. The company expects modest further net interest margin expansion in the third quarter, driven by the favorable shift in the mix of earning assets and disciplined loan pricing. However, the pace of margin expansion is likely to moderate in the fourth quarter, absent any changes in the interest rate environment.

On the fee income front, Horizon anticipates a quarterly run rate of $10.5 million to $11 million for the second half of 2024, supported by continued momentum in its mortgage banking, treasury management, and wealth management businesses.

Expense management remains a key focus for the company, with Horizon expecting annualized expenses to remain below 2% of average total assets, despite planned investments in the business to drive future growth.

Liquidity

Horizon Bancorp maintains a strong liquidity position, with $271.1 million in cash and due from banks as of March 31, 2024. The company also has access to significant funding capacity, including $1.56 billion in unused credit lines with various money center banks and the Federal Home Loan Bank.

The company's capital ratios remain well above the regulatory requirements for "well-capitalized" banks. As of March 31, 2024, Horizon's total risk-based capital ratio was 13.82%, its tier 1 risk-based capital ratio was 12.93%, and its common equity tier 1 risk-based capital ratio was 10.89%. These robust capital levels provide the company with the flexibility to support future growth and navigate potential economic headwinds.

Geographical and Segmental Breakdown

Horizon Bancorp's operations are primarily concentrated in the Midwest region, with a strong presence in northern and central Indiana and southern and central Michigan. The company's loan portfolio is well-diversified, with commercial loans accounting for 60% of the total, residential mortgages at 17%, and consumer loans at 22% as of March 31, 2024.

Within the commercial loan segment, owner-occupied commercial real estate loans make up 24% of the total portfolio, non-owner-occupied commercial real estate loans account for 47%, and commercial and industrial loans comprise 28%. The residential mortgage and consumer loan segments are further broken down into various product types, such as residential construction, mortgage warehouse, installment, indirect auto, and home equity loans.

Horizon's fee income is generated from a variety of sources, including service charges on deposit accounts, interchange fees, fiduciary activities, mortgage banking, and other miscellaneous income streams. The company has been successful in diversifying its revenue mix, reducing its reliance on any single business line.

Risks and Challenges

While Horizon Bancorp has demonstrated resilience and consistent performance, the company faces several risks and challenges that warrant consideration:

1. Interest Rate Risk: The company's net interest margin and profitability are susceptible to changes in interest rates. Horizon's ability to effectively manage its asset-liability position and pricing discipline will be crucial in navigating potential interest rate fluctuations.

2. Competitive Landscape: Horizon operates in a highly competitive banking environment, with both traditional and non-traditional financial institutions vying for market share. The company's ability to maintain its competitive edge through innovative product offerings, superior customer service, and efficient operations will be essential.

3. Regulatory Environment: As a financial institution, Horizon is subject to extensive regulatory oversight and compliance requirements. Changes in the regulatory landscape could impact the company's operations, profitability, and growth strategies.

4. Economic Conditions: Horizon's performance is closely tied to the economic health of the Midwest region. Adverse economic conditions, such as a slowdown in economic growth, rising unemployment, or a decline in real estate values, could adversely affect the company's loan portfolio and overall financial performance.

Conclusion

Horizon Bancorp has demonstrated its ability to deliver consistent financial performance and navigate the evolving banking landscape. The company's strong credit quality, prudent risk management, and diversified business model have positioned it well to capitalize on growth opportunities in its core Midwest markets. With a robust liquidity position, solid capital ratios, and a seasoned management team, Horizon Bancorp appears poised to continue its track record of creating value for its shareholders.