Business Overview and History
Horizon Bancorp, Inc. (HBNC) is a bank holding company headquartered in Michigan City, Indiana, providing a wide range of commercial and retail banking services, as well as corporate and individual trust and agency services, across northern and central Indiana and southern and central Michigan. With a rich history dating back to 1873, Horizon Bank has evolved into a respected financial institution serving a diverse customer base through its network of 71 full-service offices.
Horizon Bancorp, Inc. was founded in 1873 as a national association bank, originally operating under the name Horizon Bank, N.A. The bank remained a national association until its conversion to an Indiana commercial bank in 2017. Over the past 20 years, Horizon has expanded its geographic reach and experienced financial growth through a combination of organic expansion and mergers and acquisitions.
Horizon's initial operations focused on northwest Indiana, but since then, the company has developed a presence in new markets in southern and central Michigan and northeastern and central Indiana. Today, Horizon Bank maintains 71 full service offices across these regions. As of December 31, 2024, the bank had total assets of $7.8 billion and total deposits of $5.6 billion.
In 2005, Horizon acquired Alliance Financial Corporation. This was followed by the acquisition of American Trust Savings Bank in 2010 and Heartland Bancshares, Inc. in 2013. Horizon also acquired LaPorte Bancorp, Inc. in 2016 and Salin Bancshares, Inc. in 2019 through separate transactions. These acquisitions allowed Horizon to expand its footprint and customer base across the Midwest region.
Horizon has faced some challenges over the years. In 2009, the company was required to increase its capital levels due to regulatory concerns. Horizon was also involved in litigation in 2023 related to alleged misstatements, though management believed the company had strong defenses against the claims. Despite these obstacles, Horizon has maintained its position as a well-capitalized, full-service commercial bank serving customers throughout northern and central Indiana and southern and central Michigan.
Financial Performance and Ratios
Horizon Bancorp has consistently delivered strong financial results, showcasing its ability to navigate the evolving banking landscape. For the fiscal year ended December 31, 2024, the company reported net income of $35.4 million, or $0.80 per diluted share, compared to $27.98 million, or $0.64 per diluted share, in the previous year.
The company's financial ratios demonstrate its financial stability and growth potential. As of December 31, 2024, Horizon Bancorp's return on assets (ROA) stood at 0.49%, while its return on equity (ROE) was 4.78%. The company's efficiency ratio, a measure of its cost-effectiveness, was 68.3% in 2024, showcasing its ability to generate revenue while managing expenses.
In terms of asset quality, Horizon Bancorp's non-performing assets to total assets ratio was 0.35% as of December 31, 2024, indicating a low level of credit risk. The company's allowance for credit losses to total loans ratio was 1.07%, reflecting its prudent approach to risk management.
Horizon Bancorp's capital position remains strong, with a total risk-based capital ratio of 13.91% and a Tier 1 leverage ratio of 8.88% as of December 31, 2024. These ratios exceed the well-capitalized thresholds set by regulatory authorities, providing the company with the financial flexibility to support its growth initiatives and weather potential economic challenges.
Lending and Deposit Portfolios
Horizon Bancorp's lending portfolio is diversified across commercial, real estate, and consumer segments. As of December 31, 2024, the company's total loans held for investment, excluding the mortgage warehouse portfolio, stood at $4.85 billion, representing a 9.7% increase from the previous year.
The commercial loan portfolio, which made up 63.5% of the total loan book, grew by $403.2 million, or 15.1%, in 2024. This growth was driven by the company's focus on owner-occupied and non-owner-occupied commercial real estate, as well as traditional commercial and industrial (C&I) lending and equipment finance. The residential real estate portfolio, accounting for 16.6% of total loans, expanded by $76.7 million, or 10.6%, during the year.
On the deposit side, Horizon Bancorp maintained a stable and diversified funding base, with total deposits of $5.6 billion as of December 31, 2024. The company's non-interest-bearing demand deposits remained relatively flat, while it strategically allowed higher-cost time deposits to roll off the balance sheet, contributing to an improved net interest margin.
Horizon Bancorp's deposit mix is well-balanced, with 19.0% in non-interest-bearing demand deposits, 31.5% in interest-bearing demand deposits, 12.8% in savings deposits, 17.1% in money market accounts, and 19.6% in time deposits. This diverse deposit portfolio provides the company with a stable source of funding to support its lending activities.
Strategic Initiatives and Outlook
Horizon Bancorp has been proactive in executing strategic initiatives to enhance its long-term profitability and shareholder value. In the fourth quarter of 2024, the company successfully completed the repositioning of its available-for-sale securities portfolio, redeploying the proceeds into higher-yielding commercial loans. This strategic move, combined with the company's disciplined approach to deposit pricing, contributed to a fifth consecutive quarter of net interest margin expansion, reaching 2.97% in the fourth quarter of 2024.
Additionally, Horizon Bancorp made significant progress in simplifying its business model, including the sale of its mortgage warehouse division, which will be recognized as a gain in the first quarter of 2025. The company also restructured its expense base, with initiatives aimed at improving the go-forward cost structure and efficiency.
Looking ahead, Horizon Bancorp is well-positioned to capitalize on the favorable economic conditions in its core Midwest markets. The company's initial outlook for 2025 reflects continued loan growth in the mid-single-digit range, with a focus on expanding its commercial and residential mortgage portfolios. The company also expects its net interest margin to expand further, driven by the repositioning of its balance sheet and the strategic reduction of higher-cost funding sources.
For full-year 2025, Horizon Bancorp is guiding for mid-single-digit growth in loans held for investment, with continued runoff of lower-yielding indirect auto loans (expected decline of $100 million). The company anticipates low single-digit growth in deposit balances and plans to pay down $200 million in FHLB advances in late March or early April. Net interest income growth is expected to be in the mid-teens, driven by net interest margin expansion. Non-interest expense is projected to be flat to up low-single digits compared to full-year 2024, with an effective tax rate in the mid-teens.
Horizon Bancorp expects sequential quarterly margin improvement throughout 2025, with an anticipated exit run-rate in the 3.15% to 3.20% range. The company does not plan to reinvest cash flows from maturing securities in 2025, instead opting to redeploy those funds into higher-yielding commercial lending. Additionally, Horizon Bancorp intends to evaluate opportunities to deploy excess capital, including potential share repurchases and M&A in their natural growth markets.
Potential Risks and Challenges
While Horizon Bancorp has demonstrated its resilience, the company faces some potential risks and challenges that warrant consideration. The banking industry as a whole is subject to heightened regulatory scrutiny, which can impact the company's operations and compliance costs. Additionally, the continued evolution of financial technology and the rise of non-traditional competitors could pose challenges to Horizon Bancorp's market share and profitability.
The company's reliance on commercial and real estate lending also exposes it to cyclical economic conditions and potential changes in the real estate market. Horizon Bancorp's management team must remain vigilant in monitoring credit quality and adapting its risk management strategies accordingly.
Furthermore, the company's geographic concentration in the Midwest region, while providing a strong local customer base, also makes it susceptible to economic fluctuations within its core markets. Horizon Bancorp must continue to diversify its operations and explore opportunities for expansion into new, high-growth regions to mitigate this risk.
Financials
Horizon Bancorp's financial performance has shown consistent growth over the years. The company's net interest income for the fiscal year 2024 was $193.5 million, up from $187.2 million in the previous year. Non-interest income stood at $52.7 million, while non-interest expenses were $168.4 million. The net income of $35.4 million for 2024 represents a significant improvement from the previous year, demonstrating the company's ability to generate profits in a challenging economic environment.
For the most recent quarter, Horizon Bancorp reported a net loss of $10.9 million. This loss was primarily due to one-time expenses related to the company's strategic initiatives and restructuring efforts. Despite the quarterly loss, the company's full-year performance remained strong, with solid loan growth and improved credit quality metrics.
Horizon Bancorp operates primarily in northern and central Indiana and southern and central Michigan. The company's geographic focus has allowed it to build strong relationships with local businesses and communities, contributing to its stable financial performance.
Liquidity
Horizon Bancorp maintains a strong liquidity position to meet its operational needs and regulatory requirements. As of December 31, 2024, the company had $1.2 billion in cash and cash equivalents, providing ample liquidity to support its operations and potential growth opportunities. Additionally, the company has access to various funding sources, including federal funds purchased, securities sold under agreements to repurchase, and borrowings from the Federal Home Loan Bank, further enhancing its liquidity profile.
Horizon Bancorp had a total of $1.7 billion in available credit from the Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB) Discount Window, and various money center banks. This substantial available credit line provides the company with additional financial flexibility to support its growth initiatives and manage potential liquidity needs.
Business Segments
Horizon Bancorp operates primarily as a commercial bank, with its commercial banking segment accounting for 81% of the company's total consolidated revenue in 2024. The commercial loan portfolio totaled $3.08 billion, or 63.5% of the total loan portfolio, as of December 31, 2024. This portfolio includes owner-occupied real estate loans, non-owner occupied real estate loans, residential spec homes, development spec land, and commercial and industrial loans. The company actively monitors the commercial loan portfolio by industry, geography, and real estate sector, utilizing internal portfolio limits and regulatory concentration guidelines to manage risk.
The residential real estate segment is another important component of Horizon Bancorp's business. Residential real estate loans totaled $802.9 million, or 16.6% of the total loan portfolio, as of December 31, 2024. This segment includes traditional first mortgage loans, home equity lines of credit, and residential construction loans. The residential real estate portfolio grew by 10.6% year-over-year, driven primarily by growth in jumbo fixed-rate loans held on the balance sheet. Horizon faces competition in the residential lending market but has maintained a focus on originating and servicing mortgages, with $129.7 million in residential mortgages sold into the secondary market during 2024.
The consumer lending segment rounds out Horizon Bancorp's diversified loan portfolio. The consumer loan portfolio totaled $966.0 million, or 19.9% of the total loan portfolio, as of December 31, 2024. This segment includes installment loans, indirect auto loans, and home equity loans. The consumer portfolio declined by 5.0% year-over-year, primarily due to the planned runoff of the indirect auto loan portfolio, which decreased by 24.0% during the year. Horizon's consumer lending is subject to competition from other financial institutions as well as emerging financial technology (fintech) companies.
Conclusion
Horizon Bancorp, Inc. (HBNC) has established itself as a formidable community banking franchise in the Midwest, with a proven track record of organic growth and strategic acquisitions. The company's diversified lending portfolio, stable deposit base, and disciplined approach to balance sheet management have positioned it well to navigate the evolving banking landscape.
Through the execution of strategic initiatives, such as the repositioning of its securities portfolio and the simplification of its business model, Horizon Bancorp has demonstrated its ability to enhance its profitability and create long-term value for its shareholders. As the company continues to leverage its strong market presence and capitalize on favorable economic trends in its core markets, it remains well-poised to deliver consistent financial performance and sustainable growth in the years to come.
With a clear strategic focus on expanding its commercial and residential mortgage portfolios, improving its net interest margin, and exploring opportunities for capital deployment, Horizon Bancorp is well-positioned to build upon its success and further strengthen its position as a leading community bank in the Midwest region.