Horizon Bancorp ratings affirmed by KBRA with stable outlook

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Horizon Bancorp ratings stable

Highlights

KBRA affirms Horizon Bancorp's senior unsecured debt at BBB and Horizon Bank's at BBB+, both with a stable outlook, citing solid core profitability and credit quality.
Recent realized losses from securities repositioning in 4Q23, 4Q24, and 3Q25 caused volatility, but stronger earnings in 4Q25 and 1Q26 support more stable profitability.
Horizon improved capital ratios with 39 basis points CET1 accretion in 1Q26 and reduced high-cost funding, maintaining a core deposit base with 20% noninterest-bearing deposits.

Rating action and financial drivers

As reported by Kroll Bond Rating Agency, the agency affirms Horizon Bancorp's senior unsecured debt rating at BBB, subordinated debt at BBB-, and short-term debt at K3, while affirming Horizon Bank's deposit and senior unsecured debt ratings at BBB+, subordinated debt at BBB, and short-term deposit and debt ratings at K2. The outlook on all long-term ratings remains stable.

KBRA says the ratings are supported by historically solid core profitability, particularly on a risk-adjusted basis, helped by strong credit quality. It notes earnings have been more volatile in recent periods because of separate securities repositioning transactions in 4Q23, 4Q24 and 3Q25 that produced realized losses, but says stronger returns in 4Q25 and 1Q26 point to more stable profitability near current levels, supported by net interest margin durability, modest credit costs and expense discipline.

Asset quality, funding and capital outlook

Asset quality remains a central support for the ratings, with very low charge-offs even as non-performing assets begin to normalize from unusually benign levels seen in recent years. KBRA says Horizon is positioned to manage industry headwinds because of management's conservative credit risk appetite and a diversified loan portfolio that has been further derisked after reducing indirect auto exposure.

The agency also highlights the group's granular core deposit base in its core markets, with noninterest-bearing deposits holding around 20% of total deposits. Management continues to reduce reliance on higher-cost deposits and wholesale funding, including paying down FHLB advances over the last year, while focusing on core deposit gathering through whole-relationship banking.

KBRA says regulatory capital ratios have been affected by realized losses tied to restructuring actions, but internal capital generation has improved with stronger earnings, as shown by 39 basis points of quarter-on-quarter CET1 ratio accretion in 1Q26. Over the longer term, upward rating momentum could emerge if capital ratios move closer to higher-rated peers and earnings remain durable, while weaker earnings, deteriorating credit quality, lower capital relative to peers or erosion in core funding could create downward pressure.

Our earlier report on U.S. lawmakers and bank regulators discussing a more tailored prudential framework covered a June 4 House Financial Services Committee hearing focused on aligning rules with banks’ size, complexity, and risk. We noted debates around recalibrating capital and supervision—such as revisions to Basel III, adjustments to key capital deductions and thresholds, and updates to community bank leverage standards—alongside parallel work on payments regulation, including proposed stablecoin rules.

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