Horizon Bancorp IN) (NASDAQ: HBNC management said the bank’s second-quarter 2026 results reflected continued strength in net interest margin, fee income, commercial lending and credit quality, while also noting a one-time legal expense accrual tied to an unfavorable litigation decision.
President and Chief Executive Officer Thomas Prame said the quarter “continued to show impressive results,” citing a net interest margin in the mid-4.30% range, strong fee income performance and favorable credit trends. He said the company ended the quarter with a common equity Tier 1 capital ratio of 11.09% and total risk-based capital of 15.01%.
Prame said Horizon’s first-half performance reflected a “practical approach” to growth, with deposits up approximately 5% annualized year to date and lending growth of approximately 4% annualized. Commercial loans grew at a 5.7% annualized pace in the second quarter.
The company established a $3.1 million accrual for legal expenses related to an unfavorable litigation decision during the quarter. Prame said the accrual is expected to remain in place until Horizon finalizes its appeal process in later quarters. Excluding the one-time item, which management said represented approximately $0.05 per share in the quarter, Prame said results were positive and aligned with full-year expectations.
Commercial Lending Drives Loan Growth
Executive Vice President and Chief Commercial Banking Officer Lynn Kerber said the second quarter was “another solid quarter from a lending perspective,” with loan growth improving from the first quarter. Loans held for investment ended the quarter at just under $5 billion, up approximately $81 million, or 6.6% annualized.
Commercial balances increased approximately $64 million during the quarter, while residential and consumer portfolios contributed modest growth. Kerber said mortgage pipelines improved entering the third quarter, supported by production trends and strategic hiring.
Within commercial lending, Kerber said most of the growth came from commercial and industrial loans, which increased approximately $62 million and represented 31% of the commercial portfolio. Growth was broad-based across the franchise, with contributions from Michigan, Indianapolis and Northwest Indiana.
Commercial real estate balances were relatively flat, which Kerber attributed primarily to elevated payoff activity rather than weaker production. She said most payoffs resulted from customers completing business plans through property sales or reaching the natural conclusion of financing needs. During the question-and-answer session, Kerber added that some deals were allowed to leave over pricing or structure because Horizon chose not to compromise on profitability or portfolio mix.
Kerber said C&I growth was led by the community banking franchise and supported by the equipment finance team. Key segments included professional services, construction services, property management, warehouse and logistics, and utility-related businesses.
Credit Quality Remains Stable
Horizon reported net charge-offs of approximately $605,000, or five basis points annualized. Kerber described that level as “exceptionally low” relative to historical levels and peer performance.
Early-stage delinquencies remained low, borrower performance was stable, and substandard loans totaled $64.6 million, or 1.3% of loans. Non-performing loans declined to $34.9 million, or 0.70% of loans. The allowance for credit losses was $51.9 million, or 1.05% of loans held for investment.
In response to an analyst question about changes in the mix of non-performing loans, Kerber said mortgage and consumer balances improved as some clients were upgraded. On the commercial side, she said there was nothing concerning, noting that commercial real estate was performing well and that some larger credits were still moving through rehabilitation or collection processes.
Deposits Support Balance Sheet Strategy
Prame said Horizon’s deposit portfolio delivered favorable first-half performance, with growth in non-interest-bearing and interest-bearing categories and relatively flat certificate of deposit balances year to date. Deposits were up $125 million year to date, representing a 4.8% annualized growth rate.
He said the company expected to use liquidity gathered in the first quarter to fund loan growth in the second quarter. That approach helped Horizon maintain what Prame described as its historically low cost of interest-bearing deposits, which increased only four basis points during the quarter.
During the Q&A session, Prame said competition varies across markets and products. He described large commercial real estate lending as highly competitive in both pricing and structure, while also noting elevated CD rates in some credit union markets. However, he said Horizon’s model is based on relationship banking rather than leading with rate.
Margin Expands, Fee Income Rises
Chief Financial Officer John Stewart said the net interest margin expanded eight basis points in the second quarter to 4.37%. He attributed the improvement partly to lower average interest-earning cash balances, which declined by about $59 million, as well as a favorable spread between loan yields and deposit costs.
Loan yields increased nine basis points from the prior quarter, while total deposit costs, including non-interest-bearing balances, rose three basis points. Stewart said the weighted average new production rate on total loans was about 6.75% in the second quarter and had continued at that level into July.
Stewart said Horizon expects interest-bearing deposit costs to trend modestly higher assuming no additional rate cuts. However, he said marginal loan and deposit growth should generally support the company’s net interest margin and net interest income outlook.
Non-interest income increased 10% year over year, led by fiduciary activities and mortgage banking, which each grew about 20%. Stewart said both business lines benefited from new leadership, talent investments and improved sales management practices. Interchange fees also grew as card usage and spending increased.
Expenses totaled $43.8 million, including the $3.1 million legal charge. Excluding that item, Stewart said expenses were modestly better than expectations and largely unchanged from the prior quarter.
Guidance Updated Modestly Higher
Stewart said Horizon’s 2026 outlook is “modestly more favorable.” The company still expects period-end loan and deposit balances to grow in the mid-single digits, with balance sheet growth driven by deposit growth.
- Non-FTE net interest income is expected to grow in the low teens year over year.
- Fully taxable equivalent net interest margin is expected to be in the 4.30% to 4.35% range over the second half of 2026.
- Fee income is expected to be in the mid-$40 million range for the year.
- Excluding the legal charge, full-year expenses are expected to be in the low to mid-$160 million range.
- The effective tax rate is expected to be 18% to 20%.
The outlook now assumes one 25-basis-point Federal Reserve rate hike in October, compared with no rate changes in the company’s April update. Stewart said the change did not affect Horizon’s outlook because management views the company’s interest rate exposure as close to neutral.
Management also discussed capital deployment during the call. Prame said Horizon does not have a published target capital level and does not consider the company overcapitalized with CET1 just above 11%. He said acquisitions would be considered only as an “accelerant” to Horizon’s strategy, with a focus on logical market extensions, cultural fit and attractive core deposits. Stewart said the company has 1.5 million shares remaining under a prior buyback authorization and will continue evaluating repurchases alongside other capital deployment options.
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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