HBNC - Horizon Bancorp Inc. Announces Fourth Quarter and Full Year 2023 Results Successfully Executes Balance Sheet Restructuring for Future Earnings Growth

MICHIGAN CITY, Ind., Jan. 24, 2024 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) – Horizon Bancorp, Inc. (“Horizon” or the “Company”) announced its unaudited financial results for the three and twelve months ended December 31, 2023.

“Horizon had a very positive and productive fourth quarter, led by strong loan growth, consistent core deposit balances, stabilized net interest margin and excellent asset quality,” President and Chief Executive Officer Thomas M. Prame said. “Additionally, we closed out the year with a successful restructure of our balance sheet, providing abundant liquidity to deploy into higher yielding assets and drive meaningful earnings growth in future quarters. Over the quarter, the team made significant progress building out our leasing platform, and we expect to see positive impacts from this effort in the second quarter of 2024. The franchise is experiencing positive momentum in its core business models and we are very optimistic about our position as we enter 2024 and our ability to create value for our shareholders and clients.”

Fourth Quarter 2023 Highlights

• Commercial loan growth totaled $85.7 million, increasing by 13.1% annualized during the quarter and 8.4% since December 31, 2022. Total loans were $4.42 billion at period end, increasing by 5.2% annualized during the quarter and 6.1% since December 31, 2022.
  
  
• Deposits remained resilient, totaling $5.7 billion at period end, compared to $5.7 billion on September 30, 2023. Brokered deposits and wholesale borrowing levels were consistent with third quarter balances.
  
  
• Net interest margin increased to 2.43% compared to 2.41% in the linked quarter. Interest income was $42.3 million compared to $42.1 million in the linked quarter.
  
  
• Cash totaled $519.4 million at period end, providing significant flexibility to drive future net interest margin growth through deployment into higher yielding assets throughout 2024.
  
  
• Excellent asset quality with net charge–offs representing 0.02% of average loans for the quarter, delinquent loans representing 0.38% of total loans at period end and non–performing loans representing 0.44% of total loans at period end, with the increase in provision primarily attributable to loan growth.
  
  
• In December, the Company announced a balance sheet repositioning that included the sale of $382.7 million in lower-yielding securities and the surrender of $112.8 million of bank owned life insurance (“BOLI”) policies. For the quarter, the Company recorded a net loss of $25.2 million, or $0.58 per diluted share. Excluding the $38.7 million after-tax impact of the balance sheet repositioning and approximately $705,000 in extraordinary expenses associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities, adjusted net income was $14.1 million, or $0.33 per diluted share, in the quarter. (See the “Non–GAAP Reconciliation of Net Income” table below.) This compared to third quarter 2023 net income of $16.2 million, or $0.37 per diluted share.
  
  
• Horizon continues to maintain cash at the holding company level representing approximately eight quarters of dividend payments and fixed costs.
  

Summary

Income Statement Highlights

Net loss for the fourth quarter of 2023 was $25.2 million, or $0.58 diluted earnings per share, compared to net income of $16.2 million, or $0.37, for the linked quarter and $21.2 million, or $0.48, for the prior year period. The results for the fourth quarter of 2023 when compared to the linked quarter reflect a decrease in non–interest income of $32.3 million due primarily to a $31.6 million net loss on the sale of securities, and increases in credit loss expense of $1.0 million, income tax expense of $5.1 million due to the early surrender of bank owned life insurance, and non–interest expense of $3.2 million including $705,000 of extraordinary items.

Net interest income was $42.3 million in the fourth quarter of 2023, increasing $167,000 from $42.1 million in the linked quarter.

Total non–interest income of negative $20.4 million was $32.3 million lower in the fourth quarter of 2023 when compared to the third quarter of 2023, primarily due to a $31.6 million loss on sale of investment securities, a decrease in gain on sale of mortgage loans of $631,000 and a decrease of $397,000 in income from bank owned life insurance.

Total non–interest expense was $3.2 million higher in the fourth quarter of 2023 when compared to the third quarter of 2023, primarily due to a $1.8 million increase in salaries and employee benefits, a $835,000 increase in other expense, a $320,000 increase in other losses and a $225,000 increase in loan expense from the linked quarter. The increase in expenses was substantially due to costs associated with previously disclosed staffing restructuring, recruiting costs, the launch of Horizon Equipment Finance and related variable benefits cost.

Income tax expense was $5.1 million higher in the fourth quarter of 2023 when compared to the third quarter of 2023, primarily attributed to bank owned life insurance tax expense and excise tax of $8.6 million and a tax valuation allowance of $5.2 million recorded during the fourth quarter for the carry forward timing of recognizing capital losses from the previously announced fourth quarter securities sale for tax purposes.

Net Interest Margin

Horizon’s net interest margin (“NIM”) was 2.43% for the fourth quarter of 2023 compared to 2.41% for the third quarter of 2023.

Net interest margin, excluding acquisition–related purchase accounting adjustments (“adjusted net interest margin”), was 2.42% for the fourth quarter of 2023, compared to 2.38% for the linked quarter. (See the “Non–GAAP Reconciliation of Net Interest Margin” table below).

Lending Activity

Total loan balances and loans held for sale increased to $4.42 billion on December 31, 2023 compared to $4.36 billion on September 30, 2023. During the three months ended December 31, 2023, commercial loans increased $85.7 million, and residential mortgage loans increased $5.7 million, offset by a decrease in mortgage warehouse loans of $20.8 million, consumer loans of $12.0 million and loans held for sale of $1.4 million.

Lending activity in the fourth quarter was led by commercial lending growth. Mortgage banking activities aligned with cyclical client demand in a continuing rising interest rate environment, while the decline in consumer balances was aligned with the announced strategy to reduce exposure in the lower yielding indirect auto lending portfolio. These results reflect the continued strategic shift of the organization to focus on higher yielding assets.

Deposit Activity

Total deposit balances of $5.66 billion on December 31, 2023 decreased 0.6% compared to $5.70 billion on September 30, 2023.

The deposit mix at the end of the fourth quarter of 2023 represented the demand for clients to earn more interest on their excess funds and consumers spending excess liquidity. Horizon Bank's (the “Bank”) tenured and granular core deposit relationships remain steadfast, reflecting the value of Horizon's relationship banking model and local community engagement.

Total deposit balances of $5.66 billion on December 31, 2023 decreased 3.3% compared to $5.86 billion on December 31, 2022.

Capital

The capital resources of the Company and the Bank continued to exceed regulatory capital ratios for “well capitalized” banks at December 31, 2023. Stockholders’ equity totaled $718.8 million at December 31, 2023 and the ratio of average stockholders’ equity to average assets was 8.97% for the twelve months ended December 31, 2023.

Tangible book value, which excludes intangible assets from total equity, per common share (“TBVPS”) was $12.60, increasing $0.60 during the fourth quarter of 2023. The sale of approximately $382.7 million in securities available for sale (“AFS”) in addition to lower long-term interest rates during the fourth quarter of 2023 reduced unrealized net losses on AFS securities and increased accumulated other comprehensive income (“AOCI”) by $56.8 million. TBVPS increased by $1.01 compared to December 31, 2022. Tangible common equity was 7.09% of tangible assets as of December 31, 2023, an increase of 37 basis points during the quarter and 53 basis points since December 31, 2022.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of December 31, 2023.

Liquidity

The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayments, investment security cash flows, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the “FHLB”). On December 31, 2023, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.4 billion in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Bank. The Bank had approximately $601.7 million of unpledged investment securities on December 31, 2023.

Forward Looking Statements

This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection of the safe harbor for forward–looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission (the “SEC”). Forward–looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance.

Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include: current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, liquidity levels, and responses by the Federal Reserve, Department of the Treasury, and the Federal Deposit Insurance Corporation to address these issues; changes in the level and volatility of interest rates, changes in spreads on earning assets and changes in interest bearing liabilities; increased interest rate sensitivity; the ability of Horizon to remediate its material weaknesses in its internal control over financial reporting; continuing increases in inflation; loss of key Horizon personnel; increases in disintermediation; potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms take a greater market share of the payment systems; estimates of fair value of certain of Horizon’s assets and liabilities; changes in prepayment speeds, loan originations, credit losses, market values, collateral securing loans and other assets; changes in sources of liquidity; economic conditions and their impact on Horizon and its customers, including local and global economic recovery from the pandemic; legislative and regulatory actions and reforms; changes in accounting policies or procedures as may be adopted and required by regulatory agencies; litigation, regulatory enforcement, and legal compliance risk and costs; rapid technological developments and changes; cyber terrorism and data security breaches; the rising costs of cybersecurity; the ability of the U.S. federal government to manage federal debt limits; climate change and social justice initiatives; material changes outside the U.S. or in overseas relations, including changes in U.S. trade relations related to imposition of tariffs, Brexit, and the phase out of the London Interbank Offered Rate (“LIBOR”); the inability to realize cost savings or revenues or to effectively implement integration plans and other consequences associated with mergers, acquisitions, and divestitures; acts of terrorism, war and global conflicts, such as the ongoing conflicts between Russia and Ukraine and Israel and Hamas; and supply chain disruptions and delays. These and additional factors that could cause actual results to differ materially from those expressed in the forward–looking statements are discussed in Horizon’s reports (such as the Annual Report on Form 10–K, Quarterly Reports on Form 10–Q, and Current Reports on Form 8–K) filed with the SEC and available at the SEC’s website (www.sec.gov). Undue reliance should not be placed on the forward–looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward–looking statement to reflect the events or circumstances after the date on which the forward–looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.