HORIZON BANCORP INC /IN/ 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Horizon Bancorp, Inc.

10-K

Annual report

Filing date:

03/14/2025

TLDR:

ELI5:

Horizon Bank made more money in 2024 because they focused on lending to businesses. They sold some investments at a loss, which needs to be watched, and lending to businesses can be risky.

Accession #:

0000706129-25-000036

Published on

March 16, 2025

Analyst Summary

Net income increased from $28.0 million in 2023 to $35.4 million in 2024, driven by higher total interest income and lower income tax expense.
Net interest income increased to $188.6 million in 2024 from $175.7 million in 2023, with the net interest margin expanding to 2.68% from 2.54%.
Total loans increased by 11% year-over-year, reaching $4.91 billion, led by a 15% increase in commercial loans.
Total deposits decreased slightly to $5.60 billion, but non-maturity deposits showed strength.
Management attributes the improved net interest margin to a shift towards higher-yielding loans; the loss on the sale of investment securities requires monitoring.
Net Profit Margin increased by 14.62% from 8.62% to 9.88%.
ROA increased by 25% from 0.36% to 0.45%.
ROE increased by 21.21% from 3.96% to 4.80%.
Basic EPS increased by 26.56% and Diluted EPS increased by 25%.
Revenue Growth: 10.84%
Net Income Growth: 26.62%
EPS Growth: 26.56%

Opportunities and Risks

Credit Risk: The commercial loan portfolio, while a growth driver, exposes the company to increased credit risk due to its reliance on borrowers’ business operations.
Market Risk: Changes in interest rates could adversely affect the company’s financial condition and results of operations.
Operational Risk: Cybersecurity threats and data security breaches pose a significant risk to the company’s operations and reputation.
Economic Risk: An economic slowdown in the company’s primary market areas could lead to increased loan delinquencies and foreclosures.
Regulatory Risk: New or changing legislation and regulation could increase the company’s expenses and affect its operations.
Strategic Repositioning: The sale of lower-yielding investment securities and the mortgage warehouse division could improve future profitability and efficiency.
Commercial Loan Growth: Continued focus on commercial loan growth could drive revenue and earnings growth.
Strong Credit Quality: Maintaining strong credit quality will help mitigate potential losses and support future growth.
Non-Maturity Deposit Growth: Continued growth in non-maturity deposits provides a stable and low-cost funding source.

Potential Implications

Company Performance

Strategic repositioning and focus on core banking activities appear to be positively impacting profitability.
The loss on the sale of investment securities and potential risks associated with the commercial loan portfolio warrant careful monitoring.

Stock Price

P/E Ratio: 19.27
P/B Ratio: 0.89
P/S Ratio: 1.91
EV/EBITDA: 3.89

SEC Filing Report: Horizon Bancorp, Inc. 10-K for 2024

Executive Summary

This report analyzes Horizon Bancorp, Inc.’s 10-K filing for the fiscal year ended December 31, 2024. Overall, Horizon Bancorp shows improved financial performance compared to 2023, driven by net interest income growth and a strategic shift towards higher-yielding commercial loans. However, the significant loss on the sale of investment securities in Q4 2024 warrants attention. Credit quality remains strong, but potential risks associated with the commercial loan portfolio and the evolving regulatory landscape need to be carefully monitored. The company’s strategic initiatives, including the sale of the mortgage warehouse division, appear to be positively impacting profitability. A “Hold” recommendation is maintained, pending further observation of the long-term effects of the strategic repositioning and the macroeconomic environment.

Company Overview

Horizon Bancorp, Inc. is an Indiana-based bank holding company operating primarily through its subsidiary, Horizon Bank. The bank provides a range of commercial and retail banking services in northern and central Indiana and southern and central Michigan. Horizon operates as a single segment, commercial banking, and its common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.

Financial Statement Analysis

Income Statement Highlights

Net income increased from $28.0 million in 2023 to $35.4 million in 2024. This improvement was driven by an increase in total interest income and a decrease in income tax expense, partially offset by increases in interest expense, non-interest expense, and credit loss expense.

Net Interest Income and Margin

Net interest income increased to $188.6 million in 2024 from $175.7 million in 2023. The net interest margin (FTE) expanded to 2.68% from 2.54%, reflecting a shift towards higher-yielding commercial loans and away from lower-yielding investment securities.

Loan Portfolio

Total loans increased by 11% year-over-year, reaching $4.91 billion at December 31, 2024. Commercial loans led the growth, increasing by 15%, while the indirect auto portfolio declined by 24% as part of a strategic objective.

Deposit Analysis

Total deposits decreased slightly to $5.60 billion at December 31, 2024. The company’s non-maturity deposit base continued to display strength, growing for the third consecutive quarter.

Key Ratios

Ratio	December 31, 2024	December 31, 2023
Total capital (to risk-weighted assets) – Consolidated	13.91%	14.04% (Revised) / 14.11% (Reported)
Tier 1 capital (to risk-weighted assets) – Consolidated	12.00%	12.13% (Revised) / 13.20% (Reported)
Common equity tier 1 capital (to risk-weighted assets) – Consolidated	11.00%	11.11%
Tier 1 capital (to average assets) – Consolidated	8.88%	8.61% (Revised) / 9.36% (Reported)
Net charge-offs of average total loans	0.04%	0.07%
Allowance for credit losses to total loans	1.07%	1.13%
Non-performing assets to total assets	0.35%	0.27%

MD&A Insights and Red Flags

Management attributes the improved net interest margin to a favorable shift in asset mix towards higher-yielding loans. The significant loss on the sale of investment securities in Q4 2024, while intended to improve future profitability, requires careful monitoring to ensure the redeployment of proceeds is effective. The company’s continued focus on commercial loan growth is evident.

Uncommon Metrics

The filing highlights the company’s efforts to manage down higher-cost funding sources and grow core relationship consumer and commercial portfolios. The sale of the mortgage warehouse division is a strategic move to streamline operations and focus on core banking activities.

Risk Assessment

Credit Risk: The commercial loan portfolio, while a growth driver, exposes the company to increased credit risk due to its reliance on borrowers’ business operations.
Market Risk: Changes in interest rates could adversely affect the company’s financial condition and results of operations.
Operational Risk: Cybersecurity threats and data security breaches pose a significant risk to the company’s operations and reputation.
Economic Risk: An economic slowdown in the company’s primary market areas could lead to increased loan delinquencies and foreclosures.
Regulatory Risk: New or changing legislation and regulation could increase the company’s expenses and affect its operations.

Opportunity Assessment

Strategic Repositioning: The sale of lower-yielding investment securities and the mortgage warehouse division could improve future profitability and efficiency.
Commercial Loan Growth: Continued focus on commercial loan growth could drive revenue and earnings growth.
Strong Credit Quality: Maintaining strong credit quality will help mitigate potential losses and support future growth.
Non-Maturity Deposit Growth: Continued growth in non-maturity deposits provides a stable and low-cost funding source.

Conclusion and Actionable Insights

Horizon Bancorp demonstrates improved financial performance in 2024, driven by strategic initiatives and net interest income growth. However, the loss on the sale of investment securities and potential risks associated with the commercial loan portfolio warrant careful monitoring. The company’s strategic repositioning and focus on core banking activities appear to be positively impacting profitability.

Recommendation: Hold. Maintain a “Hold” recommendation, pending further observation of the long-term effects of the strategic repositioning and the macroeconomic environment. Monitor credit quality trends and the impact of regulatory changes.

Disclaimer: This report is for informational purposes only and should not be considered financial advice. The analysis is based on publicly available information and assumptions, and actual results may vary. Consult with a qualified financial advisor before making any investment decisions.

Commentary

Horizon Bancorp Inc. reported a mixed financial performance for the year ended December 31, 2024. While net interest income increased, non-interest income experienced a significant decline, largely due to losses on investment securities. The company maintained strong capital ratios, exceeding regulatory requirements. Loan growth was solid, but credit quality metrics showed some deterioration.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Metric: Not applicable for a bank.

Operating Profit Margin

Metric: Not directly calculable from the provided data. It would require separating operating expenses from total non-interest expenses.

Net Profit Margin

Metric: Net Income / Total Revenue = $35,429 / ($356,483 + $2,971) = 9.88%
Trend: In 2023, Net Profit Margin = $27,981 / ($312,305 + $11,998) = 8.62%. The Net Profit Margin increased by 14.62%.
Industry: The industry average net profit margin for banks varies, but generally ranges from 10-20%. Horizon’s net profit margin is below the average.

Return on Assets (ROA)

Metric: Net Income / Average Total Assets = $35,429 / $7,829,558 = 0.45%
Trend: In 2023, ROA = $27,981 / $7,869,628 = 0.36%. The ROA increased by 25%.
Industry: The industry average ROA for banks is typically between 0.8% and 1.5%. Horizon’s ROA is below the industry average.

Return on Equity (ROE)

Metric: Net Income / Average Stockholders’ Equity = $35,429 / $737,793 = 4.80%
Trend: In 2023, ROE = $27,981 / $706,274 = 3.96%. The ROE increased by 21.21%.
Industry: The industry average ROE for banks is typically between 8% and 15%. Horizon’s ROE is below the industry average.

Earnings Per Share (EPS) – Basic and Diluted

Metric: Basic EPS = $35,429 / 43,702,314 = $0.81; Diluted EPS = $35,429 / 44,064,490 = $0.80
Trend: In 2023, Basic EPS = $0.64; Diluted EPS = $0.64. Basic EPS increased by 26.56% and Diluted EPS increased by 25%.
Industry: EPS varies significantly based on the size and profitability of the bank.

Liquidity

Current Ratio

Metric: Total Assets / Total Liabilities = $7,801,146 / $7,037,564 = 1.11
Trend: In 2023, Current Ratio = $7,940,485 / $7,221,673 = 1.10. The Current Ratio increased by 0.91%.
Industry: A current ratio above 1 indicates that the company can pay off its short-term liabilities with its short-term assets.

Quick Ratio (Acid-Test Ratio)

Metric: (Cash + Securities + Loans Held for Sale) / Total Liabilities = ($92,300 + $233,677 + $67,597) / $7,037,564 = 0.056
Trend: In 2023, Quick Ratio = ($112,772 + $547,251 + $1,418) / $7,221,673 = 0.092. The Quick Ratio decreased by -39.13%.
Industry: A low quick ratio is typical for banks, as they rely on deposits and borrowings for funding.

Cash Ratio

Metric: Cash and Cash Equivalents / Total Current Liabilities = $293,431 / $7,037,564 = 0.042
Trend: In 2023, Cash Ratio = $526,515 / $7,221,673 = 0.073. The Cash Ratio decreased by -42.47%.
Industry: Banks generally operate with a low cash ratio, relying on liquid investments and access to funding markets.

Solvency/Leverage

Debt-to-Equity Ratio

Metric: Total Liabilities / Total Stockholders’ Equity = $7,037,564 / $763,582 = 9.22
Trend: In 2023, Debt-to-Equity Ratio = $7,221,673 / $718,812 = 10.05. The Debt-to-Equity Ratio decreased by -8.26%.
Industry: The average debt-to-equity ratio for banks is high, typically ranging from 7 to 11. Horizon’s ratio is within this range.

Debt-to-Assets Ratio

Metric: Total Liabilities / Total Assets = $7,037,564 / $7,801,146 = 0.90
Trend: In 2023, Debt-to-Assets Ratio = $7,221,673 / $7,940,485 = 0.91. The Debt-to-Assets Ratio decreased by -1.10%.
Industry: Banks generally have a high debt-to-assets ratio due to the nature of their business.

Interest Coverage Ratio (Times Interest Earned)

Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense = ($35,429 + $8,079 + $167,879) / $167,879 = 1.27
Trend: In 2023, Interest Coverage Ratio = ($27,981 + -$11,018 + $136,561) / $136,561 = 1.19. The Interest Coverage Ratio increased by 6.72%.
Industry: A ratio above 1 indicates that the company can cover its interest expense with its earnings.

Activity/Efficiency

Inventory Turnover

Metric: Not applicable for a bank.

Days Sales Outstanding (DSO)

Metric: Not directly applicable for a bank.

Days Payable Outstanding (DPO)

Metric: Not directly applicable for a bank.

Asset Turnover

Metric: Total Revenue / Average Total Assets = ($356,483 + $2,971) / $7,829,558 = 0.046
Trend: In 2023, Asset Turnover = ($312,305 + $11,998) / $7,869,628 = 0.041. The Asset Turnover increased by 12.20%.
Industry: Banks typically have a low asset turnover ratio.

Valuation

Price-to-Earnings Ratio (P/E)

Metric: Market Cap / Net Income = (43,722,086 * $15.63) / $35,429,000 = 19.27
Trend: To determine the trend, we would need the P/E ratio from the previous comparable period, which is not provided in the filing.
Industry: The average P/E ratio for banks varies depending on market conditions and growth prospects.

Price-to-Book Ratio (P/B)

Metric: Market Cap / Book Value of Equity = (43,722,086 * $15.63) / $763,582,000 = 0.89
Trend: To determine the trend, we would need the P/B ratio from the previous comparable period, which is not provided in the filing.
Industry: A P/B ratio of less than 1 may indicate that the stock is undervalued.

Price-to-Sales Ratio (P/S)

Metric: Market Cap / Total Revenue = (43,722,086 * $15.63) / ($356,483,000 + $2,971,000) = 1.91
Trend: To determine the trend, we would need the P/S ratio from the previous comparable period, which is not provided in the filing.
Industry: The P/S ratio varies depending on the bank’s business model and revenue generation.

Enterprise Value to EBITDA (EV/EBITDA)

Metric: (Market Cap + Total Debt – Cash) / EBITDA = ((43,722,086 * $15.63) + $1,232,252,000 + $55,738,000 + $57,477,000 – $293,431,000) / ($35,429,000 + $8,079,000 + $167,879,000) = 3.89
Trend: To determine the trend, we would need the EV/EBITDA ratio from the previous comparable period, which is not provided in the filing.
Industry: The EV/EBITDA ratio is a common valuation metric, but its interpretation varies by industry and specific company characteristics.

Growth Rates

Revenue Growth: ($359,454 – $324,303) / $324,303 = 10.84%
Net Income Growth: ($35,429 – $27,981) / $27,981 = 26.62%
EPS Growth: ($0.81 – $0.64) / $0.64 = 26.56%

Other Relevant Metrics

Net FTE Interest Margin (Non-GAAP): The company presents a non-GAAP measure, Net Fully Taxable Equivalent (FTE) Interest Margin, which adjusts interest income for tax-exempt loans and securities to an FTE basis. This metric increased from 2.54% in 2023 to 2.68% in 2024. Management believes this metric is useful for investors in evaluating the company’s performance by providing a comparison of returns between tax-free investments and taxable alternatives. While this adjustment provides additional insight, investors should be aware that it is a non-GAAP measure and may not be directly comparable to similar metrics used by other companies.