8-K: Horizon Bancorp Reports Mixed Q4 Results: Margin Expansion Offset by Securities Loss

Horizon Bancorp's Q4 2024 results show a net loss due to a significant loss on securities sales, despite improvements in net interest income and margin.

Summary

• Horizon Bancorp reported a net loss of $10.9 million, or $0.25 per diluted share, for the fourth quarter of 2024.
• This compares to a net income of $18.2 million in Q3 2024 and a net loss of $25.2 million in Q4 2023.
• The Q4 2024 results were negatively impacted by a $39.1 million pre-tax loss on the sale of investment securities and expenses related to strategic initiatives.
• Net interest income increased to $53.1 million, up from $46.9 million in the previous quarter.
• The net interest margin expanded to 2.97%, compared to 2.66% in the third quarter.
• Total loans were $4.91 billion at the end of December, an increase of $108.6 million from September.
• Total deposits decreased by $126.4 million to $5.60 billion.
• The company sold its mortgage warehouse division for a gain, effective January 17th, which will be recognized in Q1 2025.
• Net income for the twelve months ended December 31, 2024 was $35.4 million or $0.80 per diluted share, compared to net income of $28.0 million, or $0.64, for the twelve months ended December 31, 2023.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the company highlights positive developments like margin expansion and loan growth, these are overshadowed by the net loss and the significant loss on securities sales. The outlook is cautiously optimistic, but the current results are mixed.

Positives

• Net interest income increased for the fifth consecutive quarter.
• Net interest margin expanded for the fifth consecutive quarter.
• Commercial loan portfolio showed continued organic growth momentum.
• Credit quality remained strong, with low net charge-offs.
• Non-maturity deposit base continued to display strength.
• The company reversed a $5.1 million tax valuation allowance.
• Tangible book value per common share increased to $13.68.

Negatives

• Net loss of $10.9 million for the quarter.
• Loss on the sale of investment securities of $39.1 million.
• Total deposits decreased by $126.4 million.
• Increase in non-interest expense due to strategic initiatives and employee benefits.
• Total assets decreased by $126.3 million.
• Non-performing assets to total assets increased to 0.35%.

Risks

• Current financial conditions within the banking industry.
• Changes in interest rates and spreads.
• Increased interest rate sensitivity.
• The aggregate effects of elevated inflation levels in recent years.
• Potential loss of fee income from emerging payment platforms.
• Macroeconomic conditions impacting Horizon and its customers.
• Legislative and regulatory changes.
• Cyber terrorism and data security breaches.
• The ability of the U.S. federal government to manage federal debt limits.
• Climate change and social justice initiatives.
• Acts of terrorism, war and global conflicts, such as the Russia and Ukraine conflict and the Israel and Hamas conflict.
• Supply chain disruptions and delays.

Future Outlook

Horizon anticipates mid-single-digit growth in total loans HFI, low-single-digit growth in total deposit balances, mid-teens growth in net interest income, low-single-digit growth in non-interest income (excluding the Q4 securities loss), and flat to up low-single-digits growth in non-interest expense for full-year 2025. The company expects a full-year 2025 effective tax rate in the mid-teens.

Management Comments

• We are very pleased with Horizons fourth quarter results, which displayed a significantly more profitable core business model and the successful completion of several major initiatives aimed at continuing this positive trajectory throughout 2025.
• The team exited lower-yielding securities at a favorable time, and capitalized on the opportunity to redeploy this liquidity into higher yielding loans and to exit higher-cost funding.
• The core franchise continues to have strong momentum, and we are positioned well to create greater returns for our shareholders in 2025.

Industry Context

Horizon's focus on improving net interest margin and strategically managing its balance sheet aligns with broader trends in the banking industry, where institutions are seeking to optimize profitability in a changing interest rate environment. The sale of the mortgage warehouse business reflects a move towards focusing on core banking activities.

Comparison to Industry Standards

• Horizon's commercial real estate (CRE) exposure represents 197% of Risk Based Capital (RBC), compared to 239% for its peers, indicating a more conservative approach to CRE lending.
• The company's efficiency ratio of 185.89% is significantly higher than industry benchmarks, reflecting the impact of the securities loss and strategic initiatives; comparable banks such as First Midwest Bancorp (now part of Old National Bancorp) and MB Financial Bank (acquired by Fifth Third Bank) historically aimed for efficiency ratios below 60%.

Stakeholder Impact

• Shareholders will be concerned about the net loss, but may be encouraged by the strategic actions taken to improve future profitability.
• Employees may be affected by the restructuring and strategic initiatives.
• Customers may see improvements in service and product offerings as the company focuses on core banking activities.

Next Steps

• The company will continue to redeploy liquidity from the sale of the mortgage warehouse business into core business activities.
• Horizon anticipates repayment of $200 million in FHLB maturities in March and April.
• Management will focus on prudent expense control and positive operating leverage.

Key Dates