Horizon Bancorp Inc
NASDAQ:HBNC
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Horizon Bancorp Inc
Earnings Call Analysis
Q4-2023 Analysis
Horizon Bancorp Inc
Horizon's earnings call opened with a positive tone, citing strong lending growth and credit metrics for the fourth quarter of 2023. Commercial banking led the charge with a 13% annualized loan growth rate. The company showed prudence with a provision expense reflecting modest charge offs and loan growth. Net interest income expanded due to a disciplined pricing strategy alongside a resilient deposit base. Looking forward, there is a strategic positioning of excess liquidity to enhance financial performance through higher-yielding assets and strong loan pipelines.
Horizon's lending and credit quality insights revealed diverse loan originations, with 25% in commercial & industrial (C&I) and 11% in owner-occupied real estate. A ramp-up in the Equipment Finance division is predicted to bolster the C&I segment in 2024. Commercial loans grew $208 million year-over-year, while residential and consumer loan segments also saw increases by 4% and 5%, respectively. With low charge-offs and nonperforming loans, Horizon's credit quality remains robust and well-managed.
The deposit performance remained stable with core consumer and commercial relationships seeing a modest uptick and total combined balances growing 1.14% in the quarter. Horizon intends to reduce reliance on higher-cost public funds and instead focus on full client relationships and treasury management services. The quarter concluded with plentiful access to high liquidity levels and capital discretion for upcoming initiatives.
Horizon's yield on interest-bearing assets increased by 23 basis points, outpacing the increase in liability costs. This shift suggests that the company might have reached the margin floor considering the current rate environment. Horizon's strategic balance sheet restructuring has positioned a liquidity surplus to be invested in growing the leasing platform and achieving higher-yielding assets.
Horizon anticipates a sustainable loan growth of 4-5% annually for the first quarter of 2024, with projected net interest margins rising above 2.5%. They target a pre-provision net interest income above $43.8 million and noninterest income in the range of $10 million to $10.5 million. Noninterest expenses are being rigorously managed with an expected first-quarter range of $37 million to $38 million, keeping them below 2% of average assets. Horizon is also allocating resources to grow digital banking and tech to bolster customer acquisition and revenue.
With a well-thought-out Midwest market placement, Horizon aims to leverage its consistent operating culture and a conservative credit profile to maintain low operational costs and nonperforming loans. At less than 9x 2023 adjusted EPS and offering a 4.8% dividend yield, the company's stock appears to be a compelling value play complemented by over three decades of consistent dividend payments.
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Good morning, everyone, and welcome to the Horizon Bancorp Inc. Conference Call to discuss financial results for the fourth quarter and full year 2023. [Operator Instructions]. Please note this event is being recorded. Before turning the call over to management, please remember that today's call may contain statements that are forward-looking in nature. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed, including those factors noted in the slide presentation. Additional information about factors that could cause actual results to differ materially is contained in Horizon's most recent Form 10-K and its later filings with the Securities and Exchange Commission. In addition, management may refer to certain non-GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward-looking statements made during the call. For anyone who does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, they can be accessed at the company's website, horizonbank.com. Representing Horizon today are Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber; Executive Vice President and Senior Operations Officer; Kathie DeRuiter; Executive Vice President, Corporate Secretary, and General Counsel, Todd Etzler; Executive Vice President and Chief Financial Officer, Mark Secor; and Chief Executive Officer and President, Thomas Prame. At this time, I would like to turn the call over to Mr. Thomas Prame. Please go ahead, Sir.
Good morning, and thank you for participating in Horizon's earnings call. We are pleased to share our fourth quarter and full year 2023 results. The fourth quarter experienced many positive trends highlighted by strong lending results that were led by our commercial banking team, which posted a 13% annualized growth rate in Q4. Horizon also continues to see excellent credit metrics with low nonperforming loans and charge-offs with provision expense for the quarter primarily reflective of our positive loan growth and modest charge-offs. In Q4, we were pleased to see net interest income expand as a result of our disciplined pricing strategy and the resiliency of our core deposit base. Late in the quarter, we also executed on a balance sheet restructuring, which positioned the company exceptionally well heading into 2024 to further enhance our financial performance with significant excess cash that can be deployed in the higher-yielding assets and a meaningful reduction in door-yielding securities and liquidity ready to fund a robust loan pipeline. Within our comments today, we will update the fourth quarter and full-year results, the positive momentum in our core revenue platforms going into 2024, financial details from the balance sheet restructuring, and progress in our new leasing division. Additionally, we'll provide insight to our continued disciplined operating model as well as our well-positioned capital and liquidity levels that will continue to build throughout 2024. To offer more detail into our fourth quarter results, let me introduce Lynn Kerber, our Executive Vice President and Chief Commercial Banking Officer, to shed light on our lending and credit performance. Lynn?
Thank you, Thomas. Beginning on Slide 5, we are pleased to report commercial loans increased $85.7 million for the fourth quarter or 13.1% on an annualized basis. Net fundings were $117 million for the quarter versus $96.8 million for the third quarter. Our average commercial loan portfolio yield increased from 5.80% for the third quarter to 6.05% for the fourth quarter, and new production yields increased from 7.50% to 7.87% in the fourth quarter. New loan originations continue to be very diverse across our markets and industries. In the fourth quarter, 25% of our new fundings were C&I and 11% owner-occupied commercial real estate, with a balance of 64% being diversified across various commercial real estate categories. As our Equipment Finance division ramps up in 2024, we expect C&I production to expand measurably as a proportion of both new originations and the total commercial portfolio. We have hired several key managers for the equipment financing division and expect balance sheet growth in Q1 with continued expansion throughout the second quarter. The overall commercial pipeline increased from $145 million at September 30 to $167 million as of December 31. Activity continues to be well diversified by industry and geography, and this pipeline excludes the new equipment finance business, which we expect to contribute over $100 million in 2024. Commercial credit quality remained strong with year-to-date net charge-offs of 2 basis points on an annualized basis. On Slide 6, we have an overview of the loan portfolio as of December 31, 2023, with a mix of 61% commercial, 15% residential, and 23% consumer. Year-over-year commercial loans increased $208 million, and our residential mortgage increased 4% and consumer loans increased 5%, which is a net effect of an increase in home equity loans and a decrease in indirect loans. Also provided for reference is a breakdown of key sectors in our commercial portfolio, which demonstrates no significant concentration in any one sector, including office, which represents just 3.5% of our total portfolio and less than 6% of commercial loans. We believe our portfolio breakdown is well-balanced and represents the disciplined nature of Horizon's risk profile. Turning to Slide 7, you will see the consumer direct loan balances increased $27 million during the quarter, driven principally by the addition of transactional home equity lines of credit. Indirect auto loans decreased by $38 million in the quarter, which is consistent with our stated strategy of reducing exposure in this lower-performing loan category and redeploying capital to higher-yielding product types. The average consumer direct yield increased from 8.05% to 8.26% for the portfolio with an average of 8.95% for new production. The average yield for consumer indirect was 3.27%, which is consistent with recent quarters. Credit remains positive and in line with expectations with year-to-date net recoveries, consumer direct at 1 basis point, and consumer indirect charge-offs at 36 basis points. Slide 8 highlights our mortgage loan performance through our quarter. Our portfolio was stable and consistent with our expectations for 2023 aligning with industry trends. Mortgages increased $5.7 million in the fourth quarter, representing a 3.4% increase on an annualized basis. The average mortgage loan yield was 4.32% for the portfolio and 7.50% for new production. With 0 charge-offs for the quarter, this portfolio continues to reflect high-quality borrowers with significant payment capacity and equity in our homes. Our asset quality metrics continue to be strong, as outlined on Slide 9. Past dues over 30 days were 0.38%, a slight increase, which was spread across all portfolios. Nonperforming loans increased slightly from $19.4 million to $19.6 million. However, they decreased 1 basis point as a percent of total loans. The increases were primarily in retail loans, offset by a reduction in commercial nonperforming loans. Net charge-offs for the fourth quarter were $785,000, representing 2 basis points of average loans. The provision of $1.1 million was primarily due to loan growth with replenishment of the reserve for charge-off loans in the fourth quarter. The allowance represents 1.13% of total gross loans, which we believe is appropriate given credit performance and the current economic forecast. Future reserve amount and related provisions will be driven by loan growth and mix, economic forecast, and credit trends. Credit quality across all of our lending classes is performing well and reflects our history of a consistent and well-balanced approach to lending. Now I'd like to turn things back to Thomas, who will provide an overview of how our earnings asset mix, deposit franchise, and flexible funding profile are contributing to Horizon's performance.
Thank you, Lynn, and truly appreciate the insight in detail. On Slide 10, you can see the positive impact of the team's stewardship towards loan pricing and the strategic efforts to shift to higher-yielding assets. We feel confident in continuing this momentum in 2024 as we begin to redeploy our abundant cash position. Horizon is achieving meaningful increases in loan yields with an intentional focus on loan pricing discipline, while we continue to maintain our historical conservative credit culture. Our securities portfolio is now strategically smaller and exhibits a slightly increased yield from Q3, and our cash position has increased significantly late in the quarter, the impact on our margin was minimal. We will realize the full effect of this balance sheet repositioning in Q1 as we are well-positioned to fund the growth of higher-yielding assets throughout 2024. As I stated in my opening remarks, we are also very pleased with our fourth-quarter deposit performance. With Slide 11 providing detail on the resiliency of the portfolio and our upbeat view about its strength. Our core consumer and commercial relationships were slightly up in Q4 with minimal changes in total balances. The combined portfolio balances experienced a positive growth of 1.14% for the quarter with noninterest-bearing deposits relatively flat from the third quarter. Public funds balances were strategically down in the quarter, aligned with the objective to reduce exposure to these higher-cost funding sources. The leadership team will continue to be well-balanced in its approach to this segment, focusing on full client relationships and expansion of treasury management services. The quarter closed out with brokered CDs and other fixed-rate borrowings on chains with ample capacity if needed. As mentioned previously, we ended the quarter with approximately $416 million in excess cash. Beyond the ability to reinvest into higher-yielding assets, this excess liquidity provides great flexibility in our funding strategies, limits our dependency on higher-cost funding sources, and provides flexibility to our go-forward deposit pricing. The consistency and discipline of our pricing strategy of loans and deposits has yielded very positive results this quarter and the added flexibility of excess cash further advances Horizon's revenue growth options. On Slide 12, you'll see that Horizon's margin improved from the third quarter. Horizon yield on interest-bearing assets increased 23 basis points during the quarter, compared to the liability costs increasing 19 basis points and purchase accounting down 2 basis points. We believe this result is an indication that we've hit the floor on margin compression based on current expectations for short-term rates. The contribution of the balance sheet restructuring was minimum during the quarter due to the timing of settlement throughout December as the lower yield investments were liquidated and moved into cash later in the quarter. As previously mentioned, we anticipate a portion of the cash from the restructure will be redeployed into higher-yielding assets throughout 2024, including funding the growth of our leasing platform. Let me hand the presentation over to Executive Vice President and Chief Financial Officer, Mark Secor, who will walk through some other key financial metrics and our outlook for the beginning of 2024. Mark?
Thank you, Thomas. Beginning with Slide 14. Excluding the $31.6 million loss on the sale of securities in the quarter, noninterest income was down slightly from the linked quarter primarily due to lower gain on the sale of mortgages and lower BOLI income from the balance sheet restructuring. The company continued to diversify core fee income through key talent adds in treasury management and expanded private wealth capabilities to elevate noninterest income performance and expand our relationship banking model. Slide 15. Noninterest expenses were 1.98% of average assets annualized for the fourth quarter compared to 1.81% in the linked quarter. The increase reflected $705,000 of extraordinary expenses from previously announced personnel changes, the start-up of Horizon's Equipment Finance, and the talent adds in our Treasury Management division. We also had additional employee benefit costs due to an adjustment to variable deferred compensation costs as we ended the year. Excluding extraordinary items, annualized noninterest expense would have represented 1.94% of average assets in the quarter or 1.85% for all of 2023. On FDIC insurance expense, Horizon was not subject to the special assessment that recently impacted some other banks, given our relatively low level of uninsured deposits. Our regular FDIC assessment was $1.2 million in the fourth quarter, and we currently believe that it is a good baseline run rate for the full year of 2024. Overall, for the full year of 2024, we expect noninterest expenses to be slightly higher than last year. This is primarily due to annual merit increases, the addition of the Equipment Finance business, and 2024 investments in digital banking and technology that are designed to improve our customer acquisition capabilities and drive additional revenue. We will provide guidance on the first-quarter expenses in the upcoming slides. Moving to the investment portfolio on Slide 16. After the sale of $383 million of AFS securities in the fourth quarter, we wanted to provide details on the remaining portfolio. The portfolio totaled $2.5 billion at the end of the quarter, down $339 million from September 30, netting out the cash flows, sales, and the decrease in unrealized losses during the quarter. The portfolio had a book yield of 2.25% and an effective duration of approximately 7 years at the end of the quarter. As longer-term investments were originally identified as held to maturity, the duration for that portfolio is approximately 1 year longer than the available-for-sale portfolio. Expected cash flows from investments are estimated to be approximately $34 million for the first quarter of 2024 and a total of $105 million over the next 12 months. We will continue to actively manage our portfolio for opportunities to create shareholder value in the future. Slide 17, Horizon continues to maintain solid regulatory capital ratios after the balance sheet restructuring. Capital ratios are well above the requirements to be considered well-capitalized, and we believe we have sufficient capital to be open to additional options to improve our earnings outlook in the foreseeable future. We anticipate that growth in capital will outpace the growth in total assets during the next 12 months, providing strength and flexibility to pursue strategic growth options. As we deploy the liquidity from the balance sheet restructuring, we do anticipate risk-weighted assets to increase and there will be a slight decline to risk-weighted capital ratios. Looking ahead, on Slide 18, we provide you with an update on our current expectations for 2024. We expect sustainable loan growth in both our commercial and direct consumer portfolios, which should be valuable contributors to core earnings. For the first quarter of 2024, we expect 4% to 5% total loan growth annualized. Our net interest margin and net interest income trend should continue to benefit from our balance sheet restructure and pricing management. We expect a net interest margin of greater than 2.5% for the first quarter as well as a pre-provision net interest income of greater than $43.8 million. As stated, we believe Horizon's net interest margin has reached its floor in the third quarter of 2023, assuming the Fed funds target is at its terminal rate. Noninterest income should continue near recent levels, with the anticipation of consistent fee income from our investments in treasury management and private wealth, coupled with seasonal softening in mortgage originations and lower BOLI income. The expected range is $10 million to $10.5 million in noninterest income in the first quarter. Noninterest expenses continue to be proactively managed across the organization, specifically in segments of our business impacted by rising rates, such as mortgage and consumer lending. As discussed, we have invested in revenue-generating talent in our lease buildout and our treasury management teams, which are expected to contribute to revenue growth in 2024. As a result, we expect noninterest expense to range from about $37 million to $38 million in the first quarter. We also expect noninterest expense to continue to remain below 2% of average assets. Now I'll turn it back over to Thomas for some final comments.
Thank you, Mark, I appreciate the insight. [Technical difficulty] our investment thesis is simple. As seen on Slide 19, we are located in an attractive Midwest growth market. These markets have desirable economic environments, significant infrastructure investment, and flourishing ecosystems for both businesses and for our communities. Horizon has made significant progress executing on its strategy of shifting its balance sheet to higher-yielding assets in 2023. We are entering 2024 with an expanding margin and abundant cash position to further reinvest in higher-yielding assets to fund the growth of our new equipment leasing platform and to continue the flexibility in our revenue strategies. The franchise has a resilient and loyal deposit base that is actively managed by leadership to create shareholder value. Additionally, Horizon has excess liquidity of $2.9 billion, providing [ NIM Ex ] to our operating model as needed. Horizon has a disciplined operating culture that consistently displays a low ratio of operating expenses to average assets. We expect this to remain less than 2% even with the strategic investments in new revenue teams. Additionally, Horizon has a proven conservative credit profile displayed through its practical credit underwriting and proactive portfolio management. These efforts have consistently delivered low nonperforming loans and annual charge-offs. And lastly, even with the recent positive trends in our stock performance, we believe Horizon is still a compelling value, supported by our commitment to our dividend with shares recently trading less than 9x 2023 adjusted EPS and offering a 4.8% dividend yield. Horizon has a track record of 30-plus years of uninterrupted quarterly cash dividends to our shareholders. As always, we thank you for joining our presentation this morning. This concludes our prepared remarks. And I will now ask our operator to please open up the lines for questions.
[Operator Instructions] The first question comes from Terry McEvoy with Stephens.
Maybe a couple of modeling questions. Mark, could you just talk about the size of the balance sheet in 2024? Whether you think the loan growth will be offset by declining cash balances?
Thanks, Terry. This is Thomas. Appreciate the question. As we look at our asset growth strategy, we're pretty much spot on, we would see that we use a portion of our cash balances and then reinvest them into loan growth, but still keeping liquidity in our cash position for any type of fluctuations in other parts of the balance sheet.
And I think Lynn pointed out about $100 million of new leases in 2024. Leases, I'm guessing, carry higher yields. There's a fee component as well as maybe longer-term higher charge-offs. So could you just help us understand the growth dynamics, the profitability, and maybe some long-term charge-offs that you'd expect out of that portfolio?
Sure. Thanks for your question. Relative to the lease portfolio, we are focusing on small tickets and lower-end middle-market tickets. And as you have probably seen in our press releases, we've hired a very strong and experienced leader. Relative to originations in that portfolio, we're looking at approximately $100 million for the year. You're correct, the yields would be a little bit higher than our normal commercial portfolio with an anticipated spread that's higher than the commercial C&I typically. As far as losses go, we are still modeling some of that based on the credit quality that we're targeting. So I mean we'll probably need to potentially get back to you on that, Terry. But I would expect that it would be a little bit higher than our core commercial experience has been over recent years.
Terry, maybe just a little bit more color on that. I think if you look at the balance sheet and look at the momentum that are in different parts, and in the leasing assets at a higher yield, I completely agree with Lynn that we'll probably see somewhere around $100 million or so this year. We're also anticipating our continued trend in indirect auto, which is a much lower-yielding asset with higher credit losses. So as you look at the net-net, I would say, from the credit exposure, it's probably going to par out with the 2, if not, it might slightly pickup. So I wouldn't see the leasing part changing significantly the overall credit profile of the organization because the indirect auto will continue to decline.
The next question comes from Nathan Race with Piper Sandler.
Yes. I was curious just in terms of thinking about the size of the position of debt going forward. It looks like the borrowings were flat quarter-over-quarter. So just curious how you guys are maybe thinking about using some of that dry powder as opposed to repositioning in 4Q to maybe pay down some wholesale sources over the next quarter or two.
Thanks, Nate. This is Mark. For the immediate future, NIM Ex period, we don't plan on seeing any reduction in the borrowings. It is a desire to reduce the borrowings. Down the road, we'd like to see that with deposit growth. But the cash that we have currently plan to go into lending and to be able to keep for liquidity. So we don't see any additional borrowings either as we see loans grow.
Got it. And I appreciate the margin guidance for the 1Q. And just thinking about the cadence of the margin over the rest of this year. In terms of just the impact from Fed cuts and maintaining that liability in the balance sheet with the borrowing is expected to remain flat and using that dry powder to support loan growth. So just trying to think about the liability sensitivity of the balance sheet and how the margin should react to some Fed rate cuts expected at some point this year.
Yes, we would expect it to be positive on the borrowing and the deposit side. Competition will drive a little bit of how quickly we can lower rates when it comes to some of the funding, but we would anticipate trying to bring down those funding costs if there are rate cuts.
On your question there around liability since Mark spot and also from our model, we're anticipating rate cuts in the second half of the year. I think we have a conservative profile there with 2 cuts later in the second half of the year. So completely agree with Mark, he's still on a liability-sensitive position and then we would have probably a nice pickup if something happened a little bit earlier.
Okay. So putting those pieces together, it sounds like the margin can continue to trend higher, at least in the second quarter if there aren't any rate cuts in 2Q and then maybe greater expansion in 3Q and 4Q if we do have those cuts in Fed rates.
That would be our expectation.
Okay. Great. And then just one lastly from me on expenses. I appreciate the guidance for 1Q. And just given some of the growth initiatives that you guys have laid out on the equipment leasing side of things and elsewhere. Curious how we should maybe think about the cadence of expense growth in 2Q, 3Q, and 4Q. And just any guidepost you can provide in terms of overall year-over-year expense growth in 2024.
Yes. We gave the guidance for the first quarter, so we don't get too far ahead, but there would be on the higher end of that range as we get into the second half and as we continue to build out. But we also anticipate revenue generation as those teams continue to grow and start to get active that will start to offset the expense as we get into the later part of the year.
Okay. Great. And then I'm sorry if I could just squeeze one last one on the tax rate going forward. Obviously, some noise this quarter, but I think historically, it's been in the 7% to 9% range. Is that still a good target to use going forward?
Yes. I think you can go back to the norms that we saw this year.
[Operator Instructions] The next question comes from Damon DelMonte with KBW.
Just wanted to check on the outlook here for provision. As you onboard these new equipment leasing or financing loans, do you feel like you're going to need to add to the provision since they tend to be shorter duration, higher levels of charge-offs? And I guess, when you look at your reserve, I think it ended at like 1.13% last quarter. Do you think that's an adequate level? Or should we plan for some build here?
Yes. Thanks for that question. So as far as the reserve, we do think that's appropriate for our current state as far as our credit quality and economic forecast as we sit here today. Moving forward into 2024, the provision is going to be really driven by 2 main factors. First is credit quality trends. So we're always going to cover or look at covering our charge-offs and replenishing those and then loan growth. And so it's going to really come down to the mix in the new originations, how much commercial, residential, and adding the leasing. The leasing, as I said, we're working on our credit [ files ] right now. In credit metrics, we have done some modeling around that. As you would expect, it's going to be a little bit different risk profile, but the originations this year compared to our overall portfolio are still going to be a fairly small portion.
Got it. Okay. That's helpful. And then I don't know if this is for Thomas or Lynn here. But as far as the commercial growth that we saw this past quarter, can you just talk a little bit about some of the key drivers of that solid growth and how the pipelines are shaping up as we head into 2024, please?
Sure. As mentioned in my comments, our pipeline is currently positioned at $167 million as we came into the quarter. That's some originations, that's not always new funding. For Q4, we really had a very strong quarter. I would say we had several things contributing to that. One, we had some longtime customers that we have been working with some projects on, and those came together in the fourth quarter. We also had some contributions from some of our construction loans that we're funding up in late December. And so we've kept a pretty even cadence on originations, and so we expect that to continue at this point in time.
The next question comes from Brian Martin with Janney Montgomery Scott.
Can you comment at all about this -- I know it is just expenses, but any other changes you might be making as far as the additional hires, as far as the equipment finance team, or just others, considering some of the changes that were made in the fourth quarter. Just maybe just talk a little bit about on the expense side or any other initiatives you have going on as you look into 2024.
Great. I'll let Lynn give detail on the equipment finance. I'd say we made significant progress in both the treasury management and equipment finance. I'll let Lynn give detail there. More around the leadership team was put in place. We had a couple of strategic hires also on treasury management. We've made nice progress in the fourth quarter, which would be in our run rate. And I'll give Lynn a forward to talk a little bit more detail about what we're going to see as we had some additional FTE in our leasing vision over the next quarter, 1.5 quarters.
As far as leasing, we are really focusing on our key leadership roles right now. We've hired 3 key individuals and have a couple of other key management roles that we'll be adding in over the next month. Then we're going to really just start focusing on standing up the tenants and getting the operation going as far as new originations and syndication-type activity. Don't see a lot of sales and servicing type adds until probably late second quarter and then ramping up third quarter, fourth quarter. So as far as dollar amounts, I don't know that I can give you that specificity this morning. But it's going to ramp up, and I think you'll see it be aligned with new originations and that cadence will match and align some of our expense outlays later in the year.
Got you. Okay. And then just 2 last ones. Just in terms of the mortgage contribution this year, I guess, it sounds like consistent with the industry outlook, your expectations for mortgage would be improving in 2024? That was number one. And number two is just on the credit front, given how strong the performance has been. Any areas you'd point to as far that you're a little bit more concerned with today or watching more closely within the portfolio?
As far as the mortgage piece, we're anticipating a line from what the MBA forecast is, which would be a little bit softer Q1 and some recovery coming back in Q2 and then probably more aligned with the 2023 production as we get in the second half of the year. The mortgage piece for us, we have not seen anything of material in credit quality there. Again, most of our assets are sold with servicing retained. The assets that we do put on our balance sheet are of exceptional quality, as you can see from the slide around FICOs, and that's income ratios and we're relatively conservative in our strategy there. We do feel though with our excess liquidity that is going to give us an opportunity to portfolio some higher-quality clients as we go forward because the rates that are accepted in the market right now and where we have excess liquidity is going to give us some flexibility there. So we do think there's an opportunity there, but that would be fee income driven that will be more of a balance sheet growth for us.
This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Thank you. And again, thank you for participating in today's earnings call. As stated, we are very optimistic about 2024. The momentum in our lending platforms and our excess liquidity at year-end positions the franchise well to continue to fuel the strategy of growing higher-yielding assets and increasing top-line revenue. Our core community banking platforms are gaining momentum, and we expect to see an additional lift as our equipment financing team comes to life in subsequent quarters. We believe the balance sheet is extremely well positioned for potential lowering rates later in 2024 and the resiliency of our Horizon's deposit portfolio continues to deliver promising results even in an extended elevated rate environment. These positive tailwinds add to the value created by Horizon's disciplined operating model and our conservative credit culture. Lastly, as we close out the call today, I wanted to thank our industry partners and peers who reached out to provide support and well wishes regarding the passing of our Independent Director, Spero Valavanis. Spero was a member of the company's Board of Directors since 2000 and the bank's board since 1998. The organization significantly benefited from Spero's experience and reputation as a successful entrepreneur and community leader, but he'll be most remembered as a dedicated father, a grandfather, and her friend who had all the pleasure of meeting him. On behalf of all of this at Horizon, we want to express our condolences to Spero's family and thank them for sharing Spero with the Horizon family for over 2 decades. Thank you again for your attendance today, and we look forward to our next update in April.
This concludes the conference call today. Thank you for attending today's presentation. You may now disconnect.