Horizon Bancorp (IN) (NASDAQ:HBNC) executives highlighted strong fourth-quarter 2025 performance and an improved outlook for 2026, pointing to continued benefit from a multi-quarter balance sheet repositioning, steady commercial loan growth, and progress in reducing higher-cost deposits.
Fourth-quarter profitability and repositioning gains
CEO Thomas Prame said the company’s fourth-quarter results “demonstrate the core strength” of Horizon’s community banking model and what he described as “excellent execution” of its balance sheet repositioning. Prame reported that the quarter exceeded prior performance estimates, citing annualized return on average assets above 1.6%, return on average equity approaching 16%, and a net interest margin (NIM) of 4.29%.
Loan growth led by commercial relationship lending
Chief Commercial Banking Officer Lynn Kerber said total loans were $4.9 billion at December 31, increasing $60.7 million from September 30. Commercial loans rose $76 million in the fourth quarter, which management characterized as 9% annualized growth, while consumer loans and residential mortgage loans declined modestly, with residential production predominantly sold into the secondary market.
Kerber said fourth-quarter commercial growth reflected the portfolio’s broader mix, with 28% in commercial and industrial (C&I) and 72% in commercial real estate (CRE). She cited growth across both Michigan and Indiana, driven primarily by Troy and Kalamazoo, Michigan, and Lake County, Metro Indianapolis, and Johnson County in Indiana. She also emphasized portfolio granularity, noting that Horizon’s largest segment represented 6.3% of total loans.
In the Q&A session, management reiterated that the bank’s strategy remains centered on commercial banking and full-relationship growth, including deposits and treasury management. Prame said the company is not looking to “stretch” for higher consumer loan growth, describing the consumer portfolio as primarily HELOCs and consumer closed-end real estate loans and emphasizing risk discipline.
Credit quality trends and allowance build
Kerber said credit metrics remained within expected ranges. Substandard loans were $59.4 million, or 1.22% of loans, down from 1.31% in the third quarter and 1.33% in the fourth quarter of 2024. Non-performing loans increased to $34.9 million, or 72 basis points of loans, from 64 basis points in the third quarter and 56 basis points a year earlier.
She attributed the $3.9 million linked-quarter increase in non-performing loans to a $2.2 million rise in commercial non-accrual loans, an $831,000 increase in residential non-accrual loans, and an approximately $800,000 increase in consumer loans over 90 days past due. Kerber described the changes as “relatively modest” and not reflective of stress in any one sector, characterizing commercial nonperforming movements as episodic by customer. She also noted that substandard loans have declined for the last three quarters and were down roughly 8% from the year-ago period.
Net charge-offs were $1.0 million in the quarter, or 8 basis points annualized, while full-year net charge-offs totaled approximately $2.9 million, an annualized rate of 6 basis points, which Kerber said reflected Horizon’s conservative credit culture.
The allowance for credit losses rose to $51.3 million from $50.2 million, representing 1.05% of loans held for investment. Kerber said the increase was predominantly related to economic forecast assumptions. The quarter’s provision for credit losses was $1.6 million, including the allowance build, replenishment of charge-offs, and an offset from a reduced reserve for unfunded commitments as several large construction loans were completed.
Deposit strategy and net interest margin outlook
Prame said a key fourth-quarter priority was further reducing exposure to high-cost transactional deposits. He said management felt “very confident” in the deposit portfolio’s mix, relationship tenure, and granularity entering 2026, and noted that non-interest-bearing balances were up year-over-year.
Stewart said the NIM increased 77 basis points in the quarter to 4.29%, above the upper end of the company’s guidance range. He attributed the expansion largely to the remaining balance sheet repositioning, including a shift to more than 80% of earning assets in loans and deposits reaching 93% of total non-equity funding.
Stewart said margin performance also benefited from increasing planned deposit runoff to nearly $200 million in the quarter, versus a planned $125 million, with the runoff carrying a weighted average cost exceeding 4%. He added that loan yields were stable as origination spreads held up, while core deposit costs declined more than expected as realized deposit betas approached 40% for rate cuts during the quarter.
Looking ahead, Stewart raised the full-year 2026 net interest margin outlook to 4.25% to 4.35% and said management does not expect significant volatility throughout the year. He said new loan production coupons above 6.5% continue to exceed cash flows rolling off the loan book, which are still below 6%. He also noted expected securities portfolio principal cash flows of $75 million to $100 million during 2026 at a weighted average FTE rate of approximately 4.75%, with January replacement yields modestly above that rate.
Noninterest income, expenses, and 2026 guidance
Stewart said fourth-quarter reported noninterest income was $11.5 million, broadly in line with expectations. Excluding securities losses in the comparable period, total fee income increased 7% year-over-year, driven by wealth management and mortgage fees, which rose 19% and 14%, respectively. Results also included a bank-owned life insurance (BOLI) death benefit of just under $600,000 in other income.
Fourth-quarter expenses were $40.6 million and included a $0.7 million write-off of remaining unamortized issuance expense tied to subordinated notes called on October 1. Stewart said excluding that item, expenses increased modestly due to seasonal occupancy-related costs and higher marketing, and included episodic legal fees tied to certain legacy matters that have “now largely concluded.”
For 2026, management provided updated guidance and said the outlook has improved modestly from prior commentary. Key items discussed included:
- Period-end loans and deposits: expected to grow at mid-single-digit rates, with deposits growing modestly more than loans.
- Net interest margin: expected at 4.25% to 4.35%, with assumptions including two 25-basis-point rate cuts (April and October) that management said should not materially affect results.
- Non-FTE net interest income: expected to grow in the low teens year-over-year.
- Fee income: expected in the mid-$40 million range, which Stewart said reflects continuation of trends seen in the back half of 2025 and is not dependent on one outsized category.
- Expenses: expected in the mid-$160 million range, reflecting inflationary growth, somewhat higher medical benefit costs, and continued growth and marketing efforts.
- Effective tax rate: expected at 18% to 20%.
Stewart said average earning assets should modestly exceed $6 billion for the full year, though first-quarter averages are expected to be down from fourth-quarter levels and represent the low point for 2026.
On capital deployment, Prame said the company’s near-term focus remains organic growth in Michigan and Indiana and that capital build is not expected to “burn a hole in our pockets.” He said the bank intends to remain disciplined and focused on accretive uses of capital for shareholders. Management also discussed selective expansion, including an Indianapolis office expected to open in the summer and potential additional distribution in markets such as Grand Rapids, Lansing, and Holland, Michigan, while emphasizing it is not pursuing a wholesale branch expansion strategy.
About Horizon Bancorp (IN) (NASDAQ:HBNC)
Horizon Bancorp (NASDAQ: HBNC) is a financial holding company headquartered in Columbus, Indiana, offering community banking and wealth management services through its subsidiary, Horizon Bank. As a locally focused institution, it provides a full range of retail and commercial banking products, including checking and savings accounts, consumer and mortgage lending, commercial real estate financing, and treasury management solutions.
In addition to traditional deposit and loan products, Horizon Bancorp’s services encompass investment advisory and trust administration, retirement planning, and insurance products.
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