In the fourth quarter, Horizon saw positive momentum and results with total loans increasing by $123 million, representing 10% annualized growth. Commercial lending had a strong quarter, with net loan growth of $164 million, a 22% increase. Consumer loan balances decreased due to the wind-down of indirect auto lending, but residential mortgage lending saw modest growth. Asset quality metrics remain strong, with substandard loans decreasing by $16.5 million. The net interest margin was 2.97%, up 31 basis points from the previous quarter, driven by strategic initiatives and a more profitable balance sheet. Overall, Horizon is well-positioned for continued growth in 2025. The company anticipates sequential quarterly margin improvement throughout the year, paying down $200 million of FHLB advances in March and April. Net interest income outlook for the year will not be driven by short-end rate changes, but rather by strategic execution on both sides of the balance sheet.
Remaining investment securities will not be reinvested in 2025 and proceeds will be reinvested in commercial lending. Non-interest income declined slightly linked quarter, but growth is expected in treasury management, mortgage, and private wealth. Expenses were impacted by specific initiatives in Q4, but are expected to reset to a lower level in 2025.
Capital ratios improved despite a realized securities loss, with further improvement expected due to stronger profitability. Strategic actions in Q4 aimed at strengthening the balance sheet and simplifying the business model. The company sold its mortgage warehouse division for a gain in Q1.
The initial outlook for full year 2025 includes mid-single-digit loan growth and a decline in indirect auto loans. Deposit balances are expected to grow in the low single-digit range, with a relatively consistent deposit mix. The company remains committed to improving profitability and core operations throughout the year. Horizon is on track to pay down $200 million in maturing FHLB advances in late March and early April, which currently cost around 4%. Full-year 2025 net interest income is expected to grow in the mid-teens, primarily driven by net interest margin expansion. Non-interest expenses are projected to decline, with the effective tax rate for 2025 expected to be in the mid-teens due to a stronger outlook for pre-tax income and discontinuation of new investments in solar tax credits.
Horizon’s outlook for 2025 is optimistic, with a focus on expanding their client base and brand in economically attractive Midwest markets. The core commercial portfolio is experiencing strong loan growth, with a diverse geography and portfolio mix. The bank’s core deposit base remains resilient, offering opportunities for improved financial performance as rates decline. Horizon is strategically managing its balance sheet to deliver improved returns to shareholders.
In terms of loan growth expectations, Horizon aims to achieve mid-single-digit commercial loan growth while absorbing runoff in the indirect book. The company plans to maintain discipline on pricing and credit box criteria. In terms of capital deployment, Horizon expects to build capital in 2025 and is considering various options, including stock buybacks, due to a stronger earnings engine and increased flexibility. The company will continue to focus on creating long-term value for shareholders through strategic capital allocation. In the fourth quarter, the margin was 292 core NIM, with a December exit run rate in the low 3s. Anticipated margin expansion in 2025 to be around 3.15 to 3.20. FHLB advances will be accretive mid-single-digits on a basis point basis in the second quarter. Commercial loan growth and liability mix will drive expansion.
The reserve against the warehouse gain was released in Q4 when migrated to held-for-sale, no reserve going forward. The gain will be recognized in the quarter and will add to the capital base. No strategic actions planned for the gain unless it adds long-term shareholder value. Expected margin expansion to be fairly ratable over the year.
New loan pricing for fixed rates ranges from high 6s to 8s depending on credit quality and term. Emphasis on floating rates as customers assess the rate environment. Rates move correspondingly with the overall rate environment. Commercial loan pricing based on T-bills and prime indexes, with a focus on floating rates currently. In small ticket leasing, rates ranged from 7.5% to the high 8’s depending on credit quality. Runoff yields for the year around 6%. CRE maturities for 2025 under 7% are $139 million, and for 2026 under 7% are $161 million. Expenses expected to be around $39 million as a starting point for quarterly run rate. Loan loss reserve level stable with factors like loan growth, mix, and credit quality considered. No plans to strategically change lending portfolio in 2025, stable FTE count expected. Equipment finance is showing strong growth with ample runway ahead. Deposit competition remains fluid post-Fed moves, but 1st Source Bank is navigating with a competitive advantage of 70 local branches and a strong commercial team. Tax rate is projected to remain in the mid-teens for the year. M&A is on the radar, with a focus on cultural fit, infills in natural growth markets, and appropriate size. Commercial loan growth is driven by organic engine and capacity within existing teams. Horizon Bancorp’s Equipment Finance division contributed $140 million to production in 2024, with 60% from small-ticket origination and 40% from middle-market. They aim for $150-$175 million in 2025. Commercial pipeline varies quarterly but annual run-rate is a good predictor for 2025. Momentum is strong heading into the new year. The Motley Fool recommends investing in Nvidia, Apple, and Netflix for potential high returns. Stock Advisor alerts for three companies are available now.
Read more at Yahoo Finance: Horizon Bancorp (HBNC) Q4 2024 Earnings Transcript