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What changed in HORIZON BANCORP INC /IN/'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HORIZON BANCORP INC /IN/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+263 added−260 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-15)

Top changes in HORIZON BANCORP INC /IN/'s 2023 10-K

263 paragraphs added · 260 removed · 199 edited across 7 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

65 edited+29 added−28 removed87 unchanged
Biggest changeAlthough we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity, and availability of our systems, business applications and customer information, we are not able to anticipate or implement effective preventive measures against all cyber–security threats, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources, both domestic and foreign.
Biggest changeAlthough we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity, and availability of our systems, business applications and customer information, we are not able to anticipate or implement effective preventive measures against all cyber–security threats, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources, both domestic and foreign. 23 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K We also face risks related to cyber–attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and our processors.
Among the risks we face are the following: • Credit Risk – the risk that loan customers or other parties will be unable to perform their contractual obligations; • Market Risk – the risk that changes in market rates and prices will adversely affect our financial condition or results of operation; • Liquidity Risk – the risk that Horizon or the Bank will have insufficient cash or access to cash to meet its operating needs; • Operational Risk – the risk of financial and reputational loss resulting from fraud, inadequate or failed internal processes, cyber–security breaches, people and systems, or external events; • Economic Risk – the risk that the economy in our markets could decline resulting in increased unemployment, decreased real estate values and increased loan charge–offs; • Compliance Risk – the risk of additional action by our regulators or additional regulation that could hinder our ability to do business profitably; • Regulatory Risk – the risk presented by the need to comply with all laws, rules and regulations from multiple regulatory agencies, including but not limited to the FDIC, CFPB, Indiana Department of Financial Institutions, Federal Reserve Bank and the Board of Governors of the Federal Reserve, and the Department of Labor; and • Fiduciary Risk – the risk of failing to act in our fiduciary capacity in the best interests of the grantors and beneficiaries of trust accounts and benefit plans.
Among the risks we face are the following: • Credit Risk – the risk that loan customers or other parties will be unable to perform their contractual obligations; • Market Risk – the risk that changes in market rates and prices will adversely affect our financial condition or results of operation; • Liquidity Risk – the risk that Horizon or the Bank will have insufficient cash or access to cash to meet its operating needs; • Operational Risk – the risk of financial and reputational loss resulting from fraud, inadequate or failed internal processes, cyber–security breaches, people and systems, or external events; • Economic Risk – the risk that the economy in our markets could decline resulting in increased unemployment, decreased real estate values and increased loan charge–offs; • Compliance Risk – the risk of additional action by our regulators or additional regulation that could hinder our ability to do business profitably; • Legal/Regulatory Risk – the risk presented by the need to comply with all laws, rules and regulations from multiple regulatory agencies, including but not limited to the FDIC, CFPB, Indiana Department of Financial Institutions, Federal Reserve Bank and the Board of Governors of the Federal Reserve, and the Department of Labor; and • Fiduciary Risk – the risk of failing to act in our fiduciary capacity in the best interests of the grantors and beneficiaries of trust accounts and benefit plans.
We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. We generally seek merger or acquisition partners that are culturally similar and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services.
We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial service companies. We generally seek merger or acquisition partners that are culturally similar and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services.
In addition, the stock market in general has experienced price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies and particularly those in the financial services and banking sector, including for reasons unrelated to their operating performance.
In addition, the stock market in general has experienced price and volume fluctuations. The volatility has had a significant effect on the market price of securities issued by many companies and particularly those in the financial services and banking sector, including for reasons unrelated to their operating performance.
Any future acquisition, particularly the acquisition of a significantly troubled institution or an institution of comparable size to us, may require us to raise additional capital in order to obtain regulatory approval and/or to remain well capitalized. 22 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.
Any future acquisition, particularly the acquisition of a significantly troubled institution or an institution of comparable size to us, may require us to raise additional capital in order to obtain regulatory approval and/or to remain well capitalized. 22 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.
If any of the following risks actually occur, our business, financial condition and results 17 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K of operations could be materially and adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
If any of the following risks actually occur, our business, financial condition and results 17 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K of operations could be materially and adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things: • potential exposure to unknown or contingent liabilities of the target company; • exposure to potential asset quality issues of the target company; • potential disruption to our business; • potential diversion of our management’s time and attention away from day–to–day operations; • the possible loss of key employees, business and customers of the target company; • difficulty in estimating the value of the target company; and • potential problems in integrating the target company’s data processing and ancillary systems, customers and employees with ours.
Acquiring other banks, businesses, or branch involves various risks commonly associated with acquisitions, including, among other things: • potential exposures to unknown or contingent liabilities of the target company; • exposure to potential asset quality issues of the target company; • potential disruption to our business; • potential diversion of our management's time and attention away from day–to–day operations; • the possible loss of key employees, business and customers of the target company; • difficulty in estimating the value of the target company; and • potential problems in integrating the target company's data processing and ancillary systems, customers and employees with ours.
For further discussion, see Notes 1 and 9, “Nature of Operations and Summary of Significant Accounting Policies” and “Goodwill and Intangible Assets,” to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10–K for the year ended December 31, 2022.
For further discussion, see Notes 1 and 8, “Nature of Operations and Summary of Significant Accounting Policies” and “Goodwill and Intangible Assets,” to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10–K for the year ended December 31, 2023.
We continually encounter technological changes. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology–driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology–driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
These factors include: • variations in our operating results or the quality of our assets; • operating results that vary from the expectations of management, securities analysts and investors; • increases in loan losses, non–performing loans and other real estate owned; • changes in the U.S. corporate tax rates; • changes in expectations as to our future financial performance; • announcements of new products, strategic developments, new technology, acquisitions and other material events by us or our competitors; • ability to fund Horizon’s assets through core deposits and/or wholesale funding; • the operating and securities price performance of other companies that investors believe are comparable to us; • our inclusion on the Russell 2000 or other indices; • actual or anticipated sales of our equity or equity–related securities; 29 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K • our past and future dividend practice; • our creditworthiness; • interest rates; • the credit, mortgage and housing markets, and the markets for securities relating to mortgages or housing; • developments with respect to financial institutions generally; and • economic, financial, geopolitical, regulatory, congressional or judicial events that affect us or the financial markets.
These factors include: • variations in our operating results or the quality of our assets; • operating results that vary from the expectations of management, securities analysts and investors; • increases in loan losses, non–performing loans and other real estate owned; • changes in the U.S. corporate tax rates; • changes in expectations as to our future financial performance; • announcements of new products, strategic developments, new technology, acquisitions and other material events by us or our competitors; • ability to fund Horizon's assets through core deposits and/or wholesale funding; • the operating and securities prices performance of other companies that investors believe are comparable to us; • our inclusion on the Russell 2000 or other indices; • actual or anticipated sales of our equity or equity–related securities; • our past and future dividend practice; • our creditworthiness; • interest rates; • the credit, mortgage and housing markets, and the markets for securities relating to mortgage or housing; • developments with respect to financial institutions generally; and • economic, financial, geopolitical, regulatory, congressional or judicial events that affect us or the financial markets.
As of December 31, 2022, we had $172.5 million of goodwill and other intangible assets. A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, or slower growth rates could result in impairment of goodwill.
As of December 31, 2023, we had $168.8 million of goodwill and other intangible assets. A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, or slower growth rates could result in impairment of goodwill.
An economic slowdown could hurt our business and the possible consequences of such a downturn could include the following: • increases in loan delinquencies and foreclosures; • declines in the value of real estate and other collateral securing loans; • an increase in loans charged off; • an increase in expense to fund loan loss reserves; • an increase in collection costs; • a decline in the demand for our products and services; and • an increase in non–accrual loans and other real estate owned. 19 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K Changes in interest rates could adversely affect our financial condition and results of operations.
An economic slowdown could hurt our business and the possible consequences of such a downturn could include the following: • increases in loan delinquencies and foreclosures; • declines in the value of real estate and other collateral securing loans; • an increase in loans charged off; • an increase in expense to fund loan loss reserves; • an increase in collection costs; 26 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K • a decline in the demand for our products and services; and • an increase in non–accrual loans and other real estate owned.
We buy loans originated by mortgage bankers and automobile dealers. Because we must rely on the mortgage bankers and automobile dealers in making and documenting these loans, there is an increased risk of fraud to us on the part of the third–party originators and the underlying borrowers.
We provide credit facilities for loans originated by mortgage bankers and originate auto loans through automobile dealers. Because we must rely on the mortgage bankers and automobile dealers in making and documenting these loans, there is an increased risk of fraud to us on the part of the third–party originators and the underlying borrowers.
Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities.
Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. We are exposed to intangible asset risk in that our goodwill may become impaired.
These risks have increased for all financial institutions as new technologies, including the use of the Internet and telecommunications technologies (including mobile devices), have become commonly used to conduct financial and other business transactions, during a time of increased technological sophistication of organized crime, perpetrators of fraud, hackers, terrorists and others.
These risks have increased for all financial institutions as new technologies, advancement consumer applications and the increase adoption of mobile devices, have become commonly used to conduct financial and other business transactions, during a time of increased technological sophistication of organized crime, perpetrators of fraud, hackers, terrorists and others.
The loss of the services of any senior management personnel or the inability to recruit and retain qualified lending and other personnel in the future, could have a material adverse effect on our consolidated results of operations, financial condition and prospects.
The loss of the services of any senior management personnel or the inability to recruit and retain qualified lending and other personnel in the future, could have a material adverse effect on our consolidated results of operations, financial condition and prospects. Our inability to continue to process large volumes of transactions accurately could adversely impact our business and financial results.
Risks Related to the Banking Industry Generally We are subject to extensive regulation and changes in laws and regulatory policies could adversely affect our business. Our operations are subject to extensive regulation by federal and state agencies.
We are subject to extensive regulation and changes in laws and regulatory policies could adversely affect our business. Our operations are subject to extensive regulation by federal and state agencies.
Pandemics, natural disasters, global climate change, acts of terrorism and global conflicts may have a negative impact on our business. Pandemics, including the continuing COVID–19 pandemic, natural disasters, global climate change, acts of terrorism, global conflicts or other similar events have in the past, and may in the future have, a negative impact on our business and operations.
Pandemics, such as the COVID–19 pandemic, other global or regional health crises or disease outbreaks, natural disasters, global climate change, acts of terrorism, global conflicts or other similar events have in the past, and may in the future have, a negative impact on our business and operations.
Land and construction loans are more likely to become non–performing as developers are unable to build and sell homes in volumes large enough for orderly repayment of loans and as other owners of such real estate (including homeowners) are unable to keep up with their payments.
When real estate values decrease, the developers to whom we lend are likely to become non–performing as developers are unable to build and sell homes in volumes large enough for orderly repayment of loans and as other owners of such real estate (including homeowners) are unable to keep up with their payments.
Our holdings of construction, land and home equity loans may pose more credit risk than other types of mortgage loans. Construction loans, loans secured by commercial real estate and home equity loans generally entail more risk than other types of mortgage loans.
Construction loans, loans secured by commercial real estate and home equity loans generally entail more risk than other types of mortgage loans.
Operational risk resulting from inadequate or failed internal processes, people and systems includes the risk of fraud by persons inside or outside Horizon, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements.
Operational risk resulting from inadequate or failed internal processes, people and systems includes the risk of fraud by persons inside or outside Horizon, the execution of unauthorized transactions 25 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements.
As an example, the Bank could experience higher credit losses because of federal or state legislation or by regulatory or bankruptcy court action that reduces the amount the Bank's borrowers are otherwise contractually required to pay under existing loan contracts.
As an example, the Bank could experience higher credit losses because of federal or state legislation or by regulatory or bankruptcy court action that reduces the amount the Bank's borrowers are otherwise contractually required 28 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K to pay under existing loan contracts.
The effects of disintermediation are also likely to continue to negatively impact the lending activities of 21 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K traditional banks because of the fast growing number of FinTech companies that use software and technology to deliver mortgage lending and other financial services with fewer employees.
The effects of disintermediation are also likely to continue to negatively impact the lending activities of traditional banks because of the fast growing number of FinTech companies that use software and technology to deliver mortgage lending and other financial services with fewer employees.
However, our access to liquidity sources could be affected by unrealized losses if securities within the investment portfolio must be sold at a loss or tangible capital ratios decline from an increase in unrealized losses or realized credit losses. We face intense competition in all phases of our business from other banks, financial institutions and non–banks.
However, our access to liquidity sources could be affected by unrealized losses if securities within the investment portfolio must be sold at a loss or tangible capital ratios decline from an increase in unrealized losses or realized credit losses.
Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our operations. Further, the criteria for loans to be accepted under such programs may be changed from time–to–time by the sponsoring entity which could result in a lower volume of corresponding loan originations.
Further, the criteria for loans to be accepted under such programs may be changed from time–to–time by the sponsoring entity which could result in a lower volume of corresponding loan originations.
To the extent we were to issue additional shares of common stock in any such transaction, our current shareholders 27 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K would be diluted and such an issuance may have the effect of decreasing our stock price, perhaps significantly.
To the extent we were to issue additional shares of common stock in any such transaction, our current shareholders would be diluted and such an issuance may have the effect of decreasing our stock price, perhaps significantly.
In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties (including liabilities for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination), or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. 24 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K We are exposed to intangible asset risk in that our goodwill may become impaired.
In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties (including liabilities for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination), or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property.
An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition and results of operations and may restrict our ability to grow. Our commercial, residential mortgage and consumer loans expose us to increased credit risks. We have a large percentage of commercial, residential mortgage and consumer loans.
An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition and results of operations and may restrict our ability to grow.
These events impact us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or in financial market settlement functions.
These events impact us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or in financial market settlement 24 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K functions.
These entities account for a substantial portion of the secondary market in residential mortgage loans. Some of the largest participants in the secondary market, including the Agencies, are government–sponsored enterprises whose activities are governed by federal law. Any future changes in laws that significantly affect the activity of such government–sponsored enterprises could, in turn, adversely affect our operations.
These entities account for a substantial portion of the secondary market in residential mortgage loans. Some of the largest participants in the secondary market, including the Agencies, are government–sponsored enterprises whose activities are governed by federal law.
In addition to the importance of retaining our lending team, we will also need to continue to attract and retain qualified banking personnel at all levels. Competition for such personnel is intense in our geographic market areas. If we are unable to attract and retain an effective lending team and other talented people, our business could suffer.
Competition for such personnel is intense in our geographic market areas. If we are unable to attract and retain an effective lending team and other talented people, our business could suffer.
Commercial loans generally have greater credit risk than residential mortgage loans because repayment of these loans often depends on the successful business operations of the borrowers. Commercial real estate loans generally have greater risk than residential mortgage loans because repayment of these loans is often dependent upon income being generated in amounts sufficient to cover operating costs and debt service.
Commercial real estate loans generally have greater risk because repayment of these loans is often dependent upon income being generated in amounts sufficient to cover operating costs and debt service. Both types of commercial loans also typically have much larger loan balances than residential mortgage and consumer loans.
Our inability to continue to process large volumes of transactions accurately could adversely impact our business and financial results. We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk.
We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk.
In addition, these or similar events may impact economic growth negatively, which could have an adverse effect on our business and operations and may have other adverse effects on us in ways that we are unable to predict. Potential acquisitions may disrupt our business and dilute stockholder value.
In addition, these or similar events may impact economic growth negatively, which could have an adverse effect on our business and operations and may have other adverse effects on us in ways that we are unable to predict. The preparation of our financial statements requires the use of estimates that may vary from actual results.
Any problems caused by these third parties, including as a result of inadequate or interrupted service or breach of customer information, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. In addition, any breach in customer information could affect our reputation and cause legal liability and a loss of business.
Although we have selected these third–party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of inadequate or interrupted service or breach of customer information, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business.
The increase in unrealized losses for available for sale investments is reflected in Accumulated Other Comprehensive Income (AOCI) on our balance sheet and reduces our book capital and tangible common equity ratio. However, unrealized losses do not affect our regulatory capital ratios.
Many of these instruments are particularly sensitive to interest rate fluctuations, especially long–term fixed–income securities. The unrealized losses for available for sale investments is reflected in Accumulated Other Comprehensive Income (“AOCI”) on our balance sheet and reduces our book capital and tangible common equity ratio. However, unrealized losses do not affect our regulatory capital ratios.
Our financial condition and results of operations are significantly affected by changes in interest rates. We can neither predict with certainty nor control changes in interest rates. These changes can occur at any time and are affected by many factors, including international, national, regional and local economic conditions, competitive pressures and monetary policies of the Federal Reserve.
These changes can occur at any time and are affected by many factors, including international, national, regional and local economic conditions, competitive and inflationary pressures and monetary policies of the Federal Reserve.
Residential mortgage loans and consumer loans are at risk due to the continuing volatility of unemployment rates and increasing interest rates, which may adversely affect the underlying real estate and other collateral values and the ability of our borrowers to repay their loans on scheduled terms.
Residential mortgage loans and consumer loans are at risk due to the continuing volatility of unemployment rates and increasing interest rates, which may adversely affect the underlying real estate and other collateral values and the ability of our borrowers to repay their loans on scheduled terms. 18 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K Our holdings of construction, land and home equity loans may pose more credit risk than other types of mortgage loans.
Unrealized losses in our investment portfolio could adversely affect liquidity. As market interest rates increased during 2022 and continued into the early months of 2023, we have experienced increased unrealized losses within our investment portfolio. Our investment portfolio consists of obligations of the U.S.
Unrealized losses in our investment portfolio could adversely affect liquidity. As market interest rates increased during 2022 and 2023, we have experienced increased unrealized losses within our investment portfolio. Our investment portfolio consists of obligations of the U.S. Treasury and federal agencies, obligations of state and local municipalities, federal agency mortgage obligations, private labeled mortgage–backed pools and corporate notes.
A higher interest rate environment can negatively affect the volume of loan originations and refinanced loans reducing the dollar amount of loans available to be sold to the secondary market. Higher interest rates can also negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate loans can reduce pricing.
Higher interest rates can also negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate loans can reduce pricing.
Our articles of incorporation and by–laws and Indiana law contain provisions that have certain anti–takeover effects.
Provisions in our articles of incorporation, our by–laws, and Indiana law may delay or prevent an acquisition of us by a third party. Our articles of incorporation and by–laws and Indiana law contain provisions that have certain anti–takeover effects.
Replacing these third–party vendors also could result in significant delay and expense. The loss of key members of our senior management team and our lending teams could affect our ability to operate effectively. We depend heavily on the services of our existing senior management team to carry out our business and investment strategies.
In addition, any breach in customer information could affect our reputation and cause legal liability and a loss of business. Replacing these third–party vendors also could result in significant delay and expense. The loss of key members of our senior management team and our lending teams could affect our ability to operate effectively.
Although we undertake a variety of underwriting, monitoring and reserving protections with respect to these types of loans, there can be no guarantee that we will not suffer unexpected losses.
Consumer loans generally involve greater risk than residential mortgage loans because they are unsecured or secured by assets that depreciate in value. Although we undertake a variety of underwriting, monitoring and reserving protections with respect to these types of loans, there can be no guarantee that we will not suffer unexpected losses.
Risks Related to our Common Stock The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell our common stock at times or at prices you find attractive.
The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell our common stock at times or at prices you find attractive. Although our common stock is listed on the NASDAQ Global Select Market, our stock price constantly changes, and we expect our stock price to continue to fluctuate in the future.
If the credit quality of our customer base materially decreases, if the risk profile of a market, industry or group of customers changes materially, or if the allowance for credit losses is not adequate, our business, financial condition, liquidity, capital, and results of operations could be materially adversely affected. 23 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K Our mortgage warehouse and indirect lending operations are subject to a higher fraud risk than our other lending operations.
If the credit quality of our customer base materially decreases, if the risk profile of a market, industry or group of customers changes materially, or if the allowance for credit losses is not adequate, our business, financial conditions, liquidity, capital, and results of operations could be materially adversely affected.
The profitability of participating in specific programs may vary depending on a number of factors, including our administrative costs of originating and purchasing qualifying loans and our costs of meeting such criteria. Our mortgage lending profitability could be significantly reduced as changes in interest rates could affect mortgage origination volume and pricing for selling mortgages on the secondary market.
The profitability of participating in specific programs may vary depending on a number of factors, including our administrative costs of originating and purchasing qualifying loans and our costs of meeting such criteria.
Department of Labor with respect to many of our prior engagement, we may still be exposed to an increased risk of litigation from the U.S. Department of Labor and the plaintiffs’ bar for these historical activities. We may be adversely impacted by the discontinuance of LIBOR as a short–term interest rate utilized for loans and other financing agreements.
Department of Labor with respect to many of our prior engagement, we may still be exposed to an increased risk of litigation from the U.S. Department of Labor and the plaintiffs’ bar for these historical activities. General Risks We continually encounter technological changes.
Procedures also exist that are designed to ensure that policies relating to conduct, ethics and business practices are followed. If these systems fail, significant losses could result. While we continually monitor and improve the system of internal controls, data processing systems and corporate–wide processes and procedures, there can be no assurance that future losses will not occur.
While we continually monitor and improve the system of internal controls, data processing systems and corporate–wide processes and procedures, there can be no assurance that future losses will not occur. Potential acquisitions may disrupt our business and dilute stockholder value.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. 26 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K We rely on other companies to provide key components of our business infrastructure.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. We face intense competition in all phases of our business from other banks, financial institutions and non–banks.
Currently, we sell a substantial portion of the mortgage loans we originate. The profitability of our mortgage banking operations depends in large part upon our ability to originate and sell mortgages to the secondary market at a gain.
The profitability of our mortgage banking operations depends in large part upon our ability to originate and sell mortgages to the secondary market at a gain. A higher interest rate environment can negatively affect the volume of loan originations and refinanced loans reducing the dollar amount of loans available to be sold to the secondary market.
Our prior role as a trustee for employee stock ownership plans (“ESOPs”) may expose us to increased risk of litigation due to heightened scrutiny of this role by the U.S. Department of Labor and the plaintiffs’ bar. Prior to September 30, 2021, we acted as an independent trustee for corporate ESOP plans throughout the U.S.
Department of Labor and the plaintiffs' bar. Prior to September 30, 2021, we acted as an independent trustee for corporate ESOP plans throughout the U.S. Over the last several years, the U.S.
Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general.
An inability to raise funds through deposits, borrowings, the sale or pledging as collateral of loans and other assets could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general.
As we continue to grow and expand our business and our locations, products and services, we will increasingly need to rely on our senior management team's experience, judgment and expertise. We also depend heavily on our experienced and effective lending teams and their respective special market insights, including, for example, our agricultural lending specialists.
We depend heavily on the services of our existing senior management team to carry out our business and investment strategies. As we continue to grow and expand our business and our locations, products and services, we will increasingly need to rely on our senior management team's experience, judgment and expertise.
In addition, trade negotiations between the U.S. and other nations remain uncertain and could adversely impact economic and market conditions for Horizon and its clients and counterparties. An economic slowdown in our primary market areas could affect our business. Our primary market area for deposits and loans consists of northern and central Indiana and southern and central Michigan.
Economic Risk An economic slowdown in our primary market areas could affect our business. Our primary market area for deposit and loans consists of northern and central Indiana and southern and central Michigan.
Accordingly, if systems of internal control should 28 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K fail to work as expected, if systems are used in an unauthorized manner, or if employees subvert the system of internal controls, significant losses could result.
Accordingly, if systems of internal control should fail to work as expected, if systems are used in an unauthorized manner, or if employees subvert the system of internal controls, significant losses could result. We establish and maintain systems of internal operational controls that are designed to provide us with timely and accurate information about our level of operational risk.
Third–party vendors provide key components of our business infrastructure, including Internet connections, mobile and internet banking, statement processing, loan document preparation, network access and transaction and other processing services. Although we have selected these third–party vendors carefully, we do not control their actions.
However, there is no guarantee that our procedures will detect all cases of fraud or legal noncompliance. We rely on other companies to provide key components of our business infrastructure. Third–party vendors provide key components of our business infrastructure, including Internet connections, mobile and internet banking, statement processing, loan document preparation, network access and transaction and other processing services.
Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not have to increase the allowance for loan losses and/or sustain loan losses that are significantly higher than the provided allowance. 25 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K Our information systems may experience cyber–attacks or an interruption or breach in security.
Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not have to increase the allowance for loan losses and/or sustain loan losses that are significantly higher than the provided allowance. Our mortgage warehouse and indirect lending operations are subject to a higher fraud risk than our other lending operations.
Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. Use of emerging alternative payment platforms, such as Apple Pay or Bitcoin or other cryptocurrencies, can alter consumer credit card behavior and consequently impact our interchange fee income.
Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.
However, there is no assurance that these same anti–takeover provisions could not have the effect of delaying, deferring or preventing a transaction or a change in control that shareholders might believe to be in their best interests.
However, there is no assurance that these same anti–takeover provisions could not have the effect of delaying, deferring or preventing a transaction or a change in control that shareholders might believe to be in their best interests. 29 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K Fiduciary Risk Our prior role as a trustee for employee stock ownership plans (“ESOPs”) may expose us to increased risk of litigation due to heightened scrutiny of this role by the U.S.
The continuing process of eliminating banks as intermediaries, known as “disintermediation,” will likely result in the loss of additional fee income, as well as the loss of customer deposits and the related income generated from those deposits.
Use of emerging alternative payment platforms, such as Apple Pay, Google Pay, and PayPal can alter consumer credit card behavior and consequently impact our interchange fee income. 30 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K The continuing process of eliminating banks as intermediaries, known as “disintermediation,” will likely result in the loss of additional fee income, as well as the loss of customer deposits and the related income generated from those deposits.
Although our common stock is listed on the NASDAQ Global Select Market, our stock price constantly changes, and we expect our stock price to continue to fluctuate in the future. Our stock price is impacted by a variety of factors, some of which are beyond our control.
Our stock price is impacted by a variety of factors, some of which are beyond our control.
Moderately traded stocks are also less liquid, and because of the low volume of trades, you may be unable to sell your shares when you desire to do so. Provisions in our articles of incorporation, our by–laws, and Indiana law may delay or prevent an acquisition of us by a third party.
Moderately traded stocks are also less liquid, and because of the low volume of trades, you may be unable to sell your shares when you desire to do so. 21 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K Liquidity Risk We are subject to liquidity risk in our operations, which could adversely affect the ability to fund various obligations.
We establish and maintain systems of internal operational controls that are designed to provide us with y and accurate information about our level of operational risk. While not foolproof, these systems have been designed to manage operational risk at appropriate, cost–effective levels.
While not foolproof, these systems have been designed to manage operational risk at appropriate, cost–effective levels. Procedures also exist that are designed to ensure that policies relating to conduct, ethics and business practices are followed. If these systems fail, significant losses could result.
Currently, we sell a substantial portion of the mortgage loans we originate. The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and to sell them in the secondary market at a gain.
Our mortgage lending profitability could be significantly reduced as changes in interest rates could affect mortgage origination volume and pricing for selling mortgages on the secondary market. Currently, we sell a substantial portion of the mortgage loans we originate.
We may be exposed to risk of environmental liabilities with respect to real property to which we take title.
As primarily a commercial bank, the Bank has a higher percentage of uninsured deposits compared to primarily retail focused banks. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community. We may be exposed to risk of environmental liabilities with respect to real property to which we take title.
Removed
We recently identified material weaknesses in our internal controls over financial reporting and determined that our disclosure controls and procedures were not effective. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, adequate disclosure controls and procedures, and evaluating and reporting on those systems of internal control and disclosure controls and procedures.
Added
Credit Risk Our commercial, residential mortgage and consumer loans expose us to increased credit risks. We have a large percentage of commercial, residential mortgage and consumer loans. Commercial loans generally have greater credit risk than residential mortgage and consumer loans because repayment of these loans often depends on the successful business operations of the borrowers.
Removed
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Added
Market Risk Changes in interest rates could adversely affect our financial condition and results of operations. Our financial condition and results of operations are significantly affected by changes in interest rates. We can neither predict with certainty nor control changes in interest rates.
Removed
Our disclosure controls and procedures are processes designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.
Added
In addition, as market interest rates rise, the value of the Company's investment securities, particularly those that have fixed rates or longer maturities, could decrease.
Removed
Based on management’s assessment, we concluded that our disclosure controls and procedures were not effective as of December 31, 2022 and that we had, as of such date, material weaknesses in our internal control over financial reporting. The specific factors leading to this conclusion are described in Part II - Item 9A.
Added
Increasing rates 19 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K would also increase debt service requirements for some of the Bank's borrowers and may adversely affect those borrowers' ability to pay as contractually obligated and could result in additional delinquencies or charge–offs.
Removed
“Controls and Procedures” of this Annual Report on Form 10–K.
Added
Any future changes in laws that significantly affect the activity of such government–sponsored enterprises could, in turn, adversely affect our operations. 20 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our operations.
Removed
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected on a timely basis. 18 Table of Contents HORIZON BANCORP, INC. 2022 Annual Report on Form 10–K Management identified material weaknesses with respect to insufficient controls over the reporting, classification, and disclosure of loans, investments and individual cash flow line items, and lack of sufficient controls around the financial reporting process that allows for the timely release of financial statements.
Added
Operational Risk Our internal controls may be ineffective, circumvented, or fail.Our internal controls may be ineffective, circumvented, or fail Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
Removed
These material weaknesses in the Company’s internal controls over financial reporting resulted in • accounting revisions of previously issued financial statements with respect to the classification of sold commercial loan participation balances, the reporting of indirect loan dealer reserve asset balances and related amortization expense and the classification of certain available for sale and held to maturity securities from private labeled mortgage-backed pools to federal agency mortgage pool, which revisions were previously disclosed in the press release in the Company’s Form 8–K filed January 25, 2023 (the “Earnings Release”) and the Company’s Form 10–Q filings during 2022, in addition to errors in previously issued financial statement disclosures relating to the transfer of available for sale to held to maturity securities and the cash flow classification of repurchases of outstanding stock from an investing activity to a financing activity, which are being disclosed for the first time in this Annual Report on Form 10–K, and • a calculation error in the Company's public float which resulted in the late filing of this Annual Report on Form 10–K.
Added
Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
Removed
During the first quarter of 2023, we began (and are continuing) to implement a remediation plan to update the design and implementation of controls to remediate these deficiencies and enhance the Company's internal control environment.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeHorizon owns all of its facilities except for leased offices in East Lansing, Michigan and Grand Rapids, Michigan.
Biggest changeHorizon owns all of its facilities except for a leased office in Grand Rapids, Michigan.
ITEM 2. PROPERTIES The main office and full service branch of Horizon and the Bank is located at 515 Franklin Street, Michigan City, Indiana. The building located across the street from the main office of Horizon and the Bank, at 502 Franklin Street, houses the credit administration, operations, facilities and purchasing, and information technology departments of the Bank.
ITEM 2. PROPERTIES The main office and full service branch of Horizon and the Bank is located at 515 Franklin Street, Michigan City, Indiana. The building located across the street from the main office of Horizon and the Bank, at 502 Franklin Street, houses the credit administration, operations, purchasing, and information technology departments of the Bank.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Horizon and its subsidiaries are involved in various legal proceedings incidental to the conduct of their business. Management does not expect that the outcome of any such proceedings will have a material adverse effect on our consolidated financial position or results of operations.
Biggest changeIn addition to the matters described above, from time to time, Horizon and its subsidiaries are involved in various legal proceedings incidental to the conduct of their business. Management does not expect that the outcome of any such proceedings will have a material adverse effect on our consolidated financial position or results of operations.
Added
ITEM 3. LEGAL PROCEEDINGS As of April 20, 2023, a putative class action lawsuit entitled Chad Key, et al. v. Horizon Bancorp, Inc., et al., Case No. 1:23-cv-02961 (”Securities Action”) was filed against the Company and two of its officers in the U.S. District Court for the Eastern District of New York.
Added
The Securities Action asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 9, 2022 and March 10, 2023.
Added
As of (1) August 28, 2023, a lawsuit related to the Securities Action was filed by Sally Hundley, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors and (2) August 31, 2023, a lawsuit also related to the Securities Action was filed by Aziz Chowdhury, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors (the “Derivatives Actions”) in the U.S.
Added
District Court for the Eastern District of New York. The Derivative Actions allege, among other things, breach of the officers and directors' fiduciary duties. The Derivative Actions have been consolidated and stayed pending resolution of any motion to dismiss in the Securities Action.
Added
Based on our initial review of these actions, management believes that the Company has strong defenses to the claims and intends to vigorously defend against them. As of December 31, 2023, no liabilities related to the above matters were recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeAs previously disclosed, Mr. Dwight will continue to serve as Chief Executive Officer until June 1, 2023 and will continue to serve as Chairman of both Horizon and the Bank thereafter. Thomas M. Prame 53 President of Horizon and the Bank since August 15, 2022; Executive Vice President at First Midwest Bancorp from May 2012 to March 2022.
Biggest changeITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 Table of Contents SPECIAL ITEM: INFORMATION ABOUT OUR EXECUTIVE OFFICERS Thomas M. Prame 54 President of Horizon and the Bank since August 15, 2022; Executive Vice President at First Midwest Bancorp from May 2012 to March 2022. As previously disclosed, on January 17, 2023, the Board approved the appointment of Thomas M.
Etzler 56 Executive Vice President and General Counsel since January 2021; Senior Vice President and General Counsel from July 2018 to December 2020; Vice President and General Counsel from March 2017 to July 2018; Corporate Secretary since January 2018. General Counsel of Family Express Corporation from July 2011 to March 2017. Lynn M.
Etzler 57 Executive Vice President and General Counsel since January 2021; Senior Vice President and General Counsel from July 2018 to December 2020; Vice President and General Counsel from March 2017 to July 2018; Corporate Secretary since January 2018. General Counsel of Family Express Corporation from July 2011 to March 2017. Lynn M.
All officers are appointed annually by the Board of Directors of Horizon and the Bank, as applicable. 32 Table of Contents HORIZON BANCORP, INC. PART II
All officers are appointed annually by the Board of Directors of Horizon and the Bank, as applicable. 34 Table of Contents HORIZON BANCORP, INC. PART II
DeRuiter 61 Executive Vice President of Horizon and Senior Bank Operations Officer since January 2014; Senior Vice President, Senior Bank Operations Officer from January 2003 to January 2014; Vice President, Senior Bank Operations Officer from January 2000 to January 2003. Todd A.
DeRuiter 62 Executive Vice President of Horizon and Senior Bank Operations Officer since January 2014; Senior Vice President, Senior Bank Operations Officer from January 2003 to January 2014; Vice President, Senior Bank Operations Officer from January 2000 to January 2003. Todd A.
Kerber 54 Executive Vice President and Senior Commercial Credit Officer since January 2021; Senior Vice President and Senior Commercial Credit Officer from May 2018 to December 2020; Executive Vice President and Chief Risk Officer, Chemical Financial Corporation June 2015 to August 2017; President of the Chemical Bank Foundation 2013 to 2017. Noe S.
Kerber 55 Executive Vice President and Senior Commercial Credit Officer since January 2021; Senior Vice President and Senior Commercial Credit Officer from May 2018 to December 2020; Executive Vice President and Chief Risk Officer, Chemical Financial Corporation June 2015 to August 2017; President of the Chemical Bank Foundation 2013 to 2017.
Secor 56 Executive Vice President of Horizon since January 2014; Chief Financial Officer and Executive Vice President of Horizon and the Bank since January 2009; Vice President, Chief Investment and Asset Liability Manager from June 2007 to January 2009; Chief Financial Officer of St. Joseph Capital Corp., Mishawaka, Indiana from 2004 to 2007. Kathie A.
Secor 57 Executive Vice President of Horizon since January 2014; Chief Financial Officer and Executive Vice President of Horizon and the Bank since January 2009; Vice President, Chief Investment and Asset Liability Manager from June 2007 to January 2009; Chief Financial Officer of St. Joseph Capital Corp., Mishawaka, Indiana from 2004 to 2007.
As previously disclosed, on January 17, 2023, the Board approved the appointment of Thomas M. Prame to serve as the Chief Executive Officer of both Horizon and the Bank, effective as of June 1, 2023. Mark E.
Prame to serve as the Chief Executive Officer of both Horizon and the Bank, effective as of June 1, 2023. Mark E.
Removed
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 Table of Contents SPECIAL ITEM: INFORMATION ABOUT OUR EXECUTIVE OFFICERS Craig M. Dwight 65 Chairman of Horizon since July 2014; Chairman and Chief Executive Officer of the Bank since January 2003; Chief Executive Officer of Horizon and the Bank since July 2001; President of the Bank from 1998 to January 2003.
Added
On November 7, 2023, Horizon announced a succession plan for its Chief Financial Officer. Horizon and Mark E. Secor have agreed that he will transition from his role as Executive Vice President and Chief Financial Officer (“CFO”) of Horizon and the Bank. Mr.
Removed
Najera 52 Executive Vice President, Senior Retail & Mortgage Lending Officer since April 2022; Senior Vice President, Consumer Lending and CRA/Fair Lending from December 2018 to April 2022. Previously, Mr. Najera played professional baseball for five years with the Cleveland Indians and the Cincinnati Reds.
Added
Secor will continue in the role of Executive Vice President and Chief Financial Officer until a successor is appointed and support the transition process through April 30, 2024. Horizon has initiated a search process to identify Horizon's next CFO. Kathie A.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDecember 31 December 31 December 31 December 31 December 31 December 31 Index 2017 2018 2019 2020 2021 2022 Horizon Bancorp, Inc. 100.00 85.14 102.52 85.58 112.50 81.37 Indiana Banks (1) 100.00 99.36 114.02 103.84 130.31 115.99 Michigan Banks (1) 100.00 99.46 113.45 110.22 147.58 124.08 (1) Excludes merger targets Source: S&P Global Market Intelligence © 2023
Biggest changeDecember 31 December 31 December 31 December 31 December 31 December 31 Index 2018 2019 2020 2021 2022 2023 Horizon Bancorp, Inc. 100.00 120.41 100.51 132.13 95.56 90.68 Indiana Banks (1) 100.00 114.06 104.26 130.42 116.22 111.53 Michigan Banks (1) 100.00 112.31 107.02 143.18 120.22 117.48 (1) Excludes merger targets Source: S&P Global Market Intelligence © 2023
The Equity Compensation Plan Information table appears under the caption “Equity Compensation Plan Information” in Item 12 below and is incorporated herein by reference. Repurchases of Securities There were no purchases by the Company of its common stock during the fourth quarter of 2022.
The Equity Compensation Plan Information table appears under the caption “Equity Compensation Plan Information” in Item 12 below and is incorporated herein by reference. Repurchases of Securities There were no purchases by the Company of its common stock during the fourth quarter of 2023.
The return represented in the graph assumes the investment of $100 on December 31, 2017, and further assumes reinvestment of all dividends. The Company’s common stock began trading on the NASDAQ Global Market on February 1, 2007, and on the NASDAQ Global Select Market on January 2, 2014.
The return represented in the graph assumes the investment of $100 on December 31, 2018, and further assumes reinvestment of all dividends. The Company’s common stock began trading on the NASDAQ Global Market on February 1, 2007, and on the NASDAQ Global Select Market on January 2, 2014.
The following chart compares the change in market price of Horizon’s common stock since December 31, 2017 to that of publicly traded banks in Indiana and Michigan with assets greater than $500 million, excluding the reinvestment of dividends.
The following chart compares the change in market price of Horizon’s common stock since December 31, 2018 to that of publicly traded banks in Indiana and Michigan with assets greater than $500 million, excluding the reinvestment of dividends.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock and Related Stockholder Matters Horizon common stock is traded on the NASDAQ Global Select Market under the symbol “HBNC.” The approximate number of holders of record of Horizon’s outstanding common stock as of March 13, 2023 was 1,459.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock and Related Stockholder Matters Horizon common stock is traded on the NASDAQ Global Select Market under the symbol “HBNC.” The approximate number of holders of record of Horizon’s outstanding common stock as of March 14, 2024 was 1,383.
Prior to that date, the common stock was traded on the NASDAQ Capital Market. December 31 December 31 December 31 December 31 December 31 December 31 Index 2017 2018 2019 2020 2021 2022 Horizon Bancorp, Inc. 100.00 86.86 107.44 93.62 126.79 94.76 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 S&P U.S.
Prior to that date, the common stock was traded on the NASDAQ Capital Market. December 31 December 31 December 31 December 31 December 31 December 31 Index 2018 2019 2020 2021 2022 2023 Horizon Bancorp, Inc. 100.00 123.69 107.78 145.97 109.09 109.56 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 S&P U.S.
SmallCap Banks Index 100.00 83.44 104.69 95.08 132.36 116.69 Source: S&P Global Market Intelligence © 2023 33 Table of Contents HORIZON BANCORP, INC.
SmallCap Banks Index 100.00 125.46 113.94 158.62 139.85 140.55 Source: S&P Global Market Intelligence © 2023 35 Table of Contents HORIZON BANCORP, INC.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

116 edited+26 added−30 removed91 unchanged
Biggest changeAND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited) Years Ended December 31 2022 2021 2020 Net interest income as reported $ 199,518 $ 175,805 $ 165,530 Average interest earning assets 6,977,407 6,035,161 5,133,550 Net interest income as a percentage of average interest earning assets (“Net Interest Margin”) 2.98 % 3.03 % 3.33 % Net interest income as reported $ 199,518 $ 175,805 $ 165,530 Acquisition–related purchase accounting adjustments (“PAUs”) (3,476) (4,503) (6,936) Prepayment penalties on borrowings — 125 3,804 Adjusted net interest income $ 196,042 $ 171,427 $ 162,398 Adjusted net interest margin 2.93 % 2.96 % 3.27 % Non–GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited) Years Ended December 31 2022 2021 2020 Average assets $ 7,533,915 $ 6,514,251 $ 5,628,783 Return on average assets (“ROAA”) as reported 1.24 % 1.34 % 1.22 % Acquisition expenses — % 0.03 % — % Tax effect — % (0.01) % — % ROAA excluding acquisition expenses 1.24 % 1.36 % 1.22 % Credit loss expense on acquired loans — % 0.03 % — % Tax effect — % (0.01) % — % ROAA excluding credit loss expense on acquired loans 1.24 % 1.38 % 1.22 % Gain on sale of ESOP trustee accounts — % (0.04) % — % Tax effect — % 0.01 % — % ROAA excluding gain on sale of ESOP trustee accounts 1.24 % 1.35 % 1.22 % ESOP settlement expenses — % 0.03 % — % Tax effect — % — % — % ROAA excluding ESOP settlement expenses 1.24 % 1.38 % 1.22 % (Gain) / loss on sale of investment securities — % (0.01) % (0.08) % Tax effect — % — % 0.02 % ROAA excluding (gain) / loss on sale of investment securities 1.24 % 1.37 % 1.16 % Death benefit on bank owned life insurance (0.01) % (0.01) % — % ROAA excluding death benefit on bank owned life insurance 1.23 % 1.36 % 1.16 % Prepayment penalties on borrowings — % — % 0.07 % Tax effect — % — % (0.01) % ROAA excluding prepayment penalties on borrowings 1.23 % 1.36 % 1.22 % Adjusted ROAA 1.23 % 1.36 % 1.22 % 59 Table of Contents HORIZON BANCORP, INC.
Biggest changeAND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited) Years Ended December 31 2023 2022 2021 Average assets $ 7,869,628 $ 7,533,915 $ 6,514,251 Return on average assets (“ROAA”) as reported 0.36 % 1.24 % 1.34 % Acquisition expenses — % — % 0.03 % Tax effect — % — % (0.01) % ROAA excluding acquisition expenses 0.36 % 1.24 % 1.36 % Swap termination fee (0.02) % — % — % Tax effect — % — % — % ROAA excluding swap termination fee 0.34 % 1.24 % 1.36 % Credit loss expense on acquired loans — % — % 0.03 % Tax effect — % — % (0.01) % ROAA excluding credit loss expense on acquired loans 0.34 % 1.24 % 1.38 % Gain on sale of ESOP trustee accounts — % — % (0.04) % Tax effect — % — % 0.01 % ROAA excluding gain on sale of ESOP trustee accounts 0.34 % 1.24 % 1.35 % ESOP settlement expenses — % — % 0.03 % Tax effect — % — % — % ROAA excluding ESOP settlement expenses 0.34 % 1.24 % 1.38 % (Gain) / loss on sale of investment securities 0.41 % — % (0.01) % Tax effect (0.09) % — % — % Tax valuation reserve 0.07 % — % — % ROAA excluding (gain) / loss on sale of investment securities 0.73 % 1.24 % 1.37 % Death benefit on bank owned life insurance — % (0.01) % (0.01) % ROAA excluding death benefit on bank owned life insurance 0.73 % 1.23 % 1.36 % Extraordinary expenses (1) 0.01 % — % — % Tax effect — % — % — % ROAA excluding extraordinary expenses 0.74 % 1.23 % 1.36 % Prepayment penalties on borrowings — % — % — % Tax effect — % — % — % ROAA excluding prepayment penalties on borrowings 0.74 % 1.23 % 1.36 % BOLI tax expense and excise tax 0.11 % — % — % ROAA excluding BOLI tax expense and excise tax 0.85 % 1.23 % 1.36 % Adjusted ROAA 0.85 % 1.23 % 1.36 % (1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. 63 Table of Contents HORIZON BANCORP, INC.
This increase was due to the overall increase in interest rates during 2022 and the increase in average balance of interest bearing liabilities of $905.1 million.
This increase was due to the overall increase in interest rates during 2022 and the increase in the average balance of interest bearing liabilities of $905.1 million.
Fiduciary activities income decreased $2.0 million during 2022 primarily due to the sale of ESOP trustee accounts which was completed during the third quarter 2021. Mortgage servicing net of impairment increased by $2.4 million during 2022 compared to 2021 primarily due to the recovery net impairment charges of $2.6 million recorded during 2022.
Fiduciary activities income decreased $2.0 million during 2022 primarily due to the sale of ESOP trustee accounts which was completed during the third quarter of 2021. Mortgage servicing net of impairment increased by $2.4 million during 2022 compared to 2021 primarily due to the recovery net impairment charges of $2.6 million recorded during 2022.
Horizon's subsidiary bank had no funds invested in Eurodollar Certificates of Deposit at December 31, 2022. (2) Yields are presented on a tax–equivalent basis. (3) Non–accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees.
Horizon's subsidiary bank had no funds invested in Eurodollar Certificates of Deposit at December 31, 2023. (2) Yields are presented on a tax–equivalent basis. (3) Non–accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees.
These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the following tables for reconciliations of the non–GAAP measures identified in this Form 10–K to their most comparable GAAP measures. 56 Table of Contents HORIZON BANCORP, INC.
These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the following tables for reconciliations of the non–GAAP measures identified in this Form 10–K to their most comparable GAAP measures. 59 Table of Contents HORIZON BANCORP, INC.
Home equity credit lines are primarily not combined with a first mortgage and are therefore evaluated in the allowance for loan losses as a separate pool. These loans are classified as consumer loans in the Loans table above and in Note 5 of the Consolidated Financial Statements at Item 8. Residential real estate lending is a highly competitive business.
Home equity credit lines are primarily not combined with a first mortgage and are therefore evaluated in the allowance for loan losses as a separate pool. These loans are classified as consumer loans in the Loans table above and in Note 4 of the Consolidated Financial Statements at Item 8. Residential real estate lending is a highly competitive business.
Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or negatively. 37 Table of Contents HORIZON BANCORP, INC.
Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or negatively. 39 Table of Contents HORIZON BANCORP, INC.
As indicated above, 20.6% of the investment portfolio consists of mortgage–backed securities and collateralized mortgage obligations. These instruments are secured by residential mortgages of varying maturities. Principal and interest payments are received monthly as the underlying mortgages are repaid. These payments also include prepayments of mortgage balances as borrowers either sell their homes or refinance their mortgages.
As indicated above, 20.7% of the investment portfolio consists of mortgage–backed securities and collateralized mortgage obligations. These instruments are secured by residential mortgages of varying maturities. Principal and interest payments are received monthly as the underlying mortgages are repaid. These payments also include prepayments of mortgage balances as borrowers either sell their homes or refinance their mortgages.
The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities and 39 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) certain prepayment assumptions.
The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities and 41 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) certain prepayment assumptions.
The following is a schedule of maturities of each categories of available for sale and held to maturity debt securities and the related weighted–average yield of such securities as of December 31, 2022: One Year or Less After One Year Through Five Years After Five Years Through Ten Years After Ten Years (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Available for sale U.S.
The following is a schedule of maturities of each categories of available for sale and held to maturity debt securities and the related weighted–average yield of such securities as of December 31, 2023: One Year or Less After One Year Through Five Years After Five Years Through Ten Years After Ten Years (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Available for sale U.S.
Off–Balance Sheet Arrangements As of December 31, 2022, Horizon did not have any off–balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Off–Balance Sheet Arrangements As of December 31, 2023, Horizon did not have any off–balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Horizon further considered the amount by which fair value exceeded book value in the most recent quantitative analysis and stress testing performed. At the conclusion of the assessment, the Company determined that as of December 31, 2022, it was more likely than not that the fair value exceeded its carrying value.
Horizon further considered the amount by which fair value exceeded book value in the most recent quantitative analysis and stress testing performed. At the conclusion of the assessment, the Company determined that as of December 31, 2023, it was more likely than not that the fair value exceeded its carrying value.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) For more information about securities, see Note 4 – Securities to the Consolidated Financial Statements at Item 8.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) For more information about securities, see Note 3 – Securities to the Consolidated Financial Statements at Item 8.
Critical Accounting Policies The Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10–K for 2022 contain a summary of the Company’s significant accounting policies.
Critical Accounting Policies The Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10–K for 2023 contain a summary of the Company’s significant accounting policies.
The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations. 38 Table of Contents HORIZON BANCORP, INC.
The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations. 40 Table of Contents HORIZON BANCORP, INC.
As of December 31, 2022 and 2021, approximately $2.4 billion and $2.4 billion, respectively, or our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for Horizon Bank's regulatory reporting requirements.
As of December 31, 2023 and 2022, approximately $2.6 billion and $2.4 billion, respectively, or our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for Horizon Bank's regulatory reporting requirements.
These securities may mature, call, or be sold, which would reduce the available collateral. ◦ Horizon had approximately $1.9 billion of unpledged investment securities at December 31, 2022. ◦ A downgrade in Horizon’s ability to obtain credit due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition could impact the availability of funding sources. ◦ An act of terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund, hedge fund or a government agency could affect the cost and availability of funding sources. ◦ Market speculation or rumors about Horizon or the banking industry in general may adversely affect the cost and availability of normal funding sources.
These securities may mature, call, or be sold, which would reduce the available collateral. ◦ Horizon had approximately $601.7 million of unpledged investment securities at December 31, 2023. ◦ A downgrade in Horizon’s ability to obtain credit due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition could impact the availability of funding sources. ◦ An act of terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund, hedge fund or a government agency could affect the cost and availability of funding sources. ◦ Market speculation or rumors about Horizon or the banking industry in general may adversely affect the cost and availability of normal funding sources.
Other sources of liquidity for Horizon include earnings, loan repayments, investment security sales, cashflows and maturities, sale of real estate loans and borrowing relationships with correspondent banks, including the FHLB and the Federal Reserve Bank (“FRB”).
Other sources of liquidity for Horizon include earnings, loan repayments, investment security sales, cash flows and maturities, sale of real estate loans and borrowing relationships with correspondent banks, including the FHLB and the Federal Reserve Bank (“FRB”).
Financial difficulties at the FHLB could reduce or eliminate Horizon’s additional borrowing capacity with the FHLB or the FHLB could change collateral requirements, which could lower the Company’s borrowing availability. ◦ If residential mortgage loan rates remain low, Horizon’s mortgage warehouse loans could create an additional need for funding. ◦ Horizon had a total of $45.0 million of unused Federal Fund lines from various money center banks.
Financial difficulties at the FHLB could reduce or eliminate Horizon’s additional borrowing capacity with the FHLB or the FHLB could change collateral requirements, which could lower the Company’s borrowing availability. ◦ If residential mortgage loan rates move lower, Horizon’s mortgage warehouse loans could create an additional need for funding. ◦ Horizon had a total of $190.0 million of unused Federal Fund lines from various money center banks.
The recovery of the ACL in 2022 was the result of allocations related to the impact of COVID–19 being reduced during the year and partially reallocated to current economic factors and also required some release from the ACL. 52 Table of Contents HORIZON BANCORP, INC.
The recovery of the ACL in 2022 was the result of allocations related to the impact of COVID–19 being reduced and/or eliminated during the year and partially reallocated to current economic factors and also required some release from the ACL. 55 Table of Contents HORIZON BANCORP, INC.
FASB ASC 350–10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At December 31, 2022, Horizon had core deposit intangibles of $17.2 million subject to amortization and $155.2 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired.
FASB ASC 350–10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At December 31, 2023, Horizon had core deposit intangibles of $13.6 million subject to amortization and $155.2 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired.
Capital Resources Horizon has no material commitments for capital expenditures as of December 31, 2022. Horizon’s sources of funds and liquidity are discussed below in the section captioned “Liquidity” in this Item 7. 49 Table of Contents HORIZON BANCORP, INC.
Capital Resources Horizon has no material commitments for capital expenditures as of December 31, 2023. Horizon’s sources of funds and liquidity are discussed below in the section captioned “Liquidity” in this Item 7. 52 Table of Contents HORIZON BANCORP, INC.
Management has identified the allowance for loan losses, goodwill and intangible assets, mortgage servicing rights, derivative instruments and valuation measurements as critical accounting policies. 35 Table of Contents HORIZON BANCORP, INC.
Management has identified the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, derivative instruments and valuation measurements as critical accounting policies. 37 Table of Contents HORIZON BANCORP, INC.
Income Taxes Income tax expense totaled $12.2 million for the year ended December 31, 2022, a decrease of $3.2 million when compared to the year ended December 31, 2021.
Income tax expense totaled $12.2 million for the year ended December 31, 2022, an decrease of $3.2 million when compared to the year ended December 31, 2021.
At December 31, 2022 and 2021, 33.0% and 42.8%, respectively, of investment securities were classified as available for sale. Securities classified as available for sale are carried at their fair value, with both unrealized gains and losses recorded, net of tax, directly to stockholders’ equity.
At December 31, 2023 and 2022, 22.0% and 33.0%, respectively, of investment securities were classified as available for sale. Securities classified as available for sale are carried at their fair value, with both unrealized gains and losses recorded, net of tax, directly to stockholders’ equity.
The current level of total loans increased 14.0% from the December 31, 2021, level of $3.6 billion primarily due to an increase in commercial, consumer, residential mortgage and residential construction loans, offset by a decrease in mortgage warehouse loans during the year. The table below provides comparative detail on the loan categories.
The current level of total loans increased 6.3% from the December 31, 2022, level of $4.1 billion primarily due to an increase in commercial, consumer and residential mortgage loans, offset by a decrease in residential construction and mortgage warehouse loans during the year. The table below provides comparative detail on the loan categories.
During 2022, a release of provision for credit losses was recorded totaling $1.8 million compared to a release of provision for credit losses totaling $2.1 million in 2021. Horizon assesses the adequacy of its Allowance for Credit Losses (“ACL”) by regularly reviewing the performance of all of its loan portfolios.
During 2023, a provision for credit losses on loans was recorded totaling $2.1 million compared to a release of provision for credit losses totaling $2.2 million in 2022. Horizon assesses the adequacy of its Allowance for Credit Losses (“ACL”) by regularly reviewing the performance of all of its loan portfolios.
Total Loans Total loans, net of deferred fees/costs, the principal earning asset of the Bank, were $4.1 billion at December 31, 2022.
Total Loans Total loans, net of deferred fees/costs, the principal earning asset of the Bank, were $4.4 billion at December 31, 2023.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Analysis of Financial Condition Horizon’s total assets were $7.9 billion as of December 31, 2022, an increase of $460.6 million from December 31, 2021.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Analysis of Financial Condition Horizon’s total assets were $7.9 billion as of December 31, 2023, an increase of $68.0 million from December 31, 2022.
During the year 2022, the decrease in the yield of interest–earning assets outpaced the decrease in the cost of funding resulting in a decrease in net interest margin. 63 Table of Contents HORIZON BANCORP, INC.
During the year 2023, the decrease in the yield of interest–earning assets outpaced the decrease in the cost of funding resulting in a decrease in net interest margin. 68 Table of Contents HORIZON BANCORP, INC.
During 2021, the Company originated approximately $438.1 million of mortgage loans to be sold on the secondary market, compared to $584.1 million in 2020 as long–term interest rates began to increase during 2021.
During 2022, the Company originated approximately $221.9 million of mortgage loans to be sold on the secondary market, compared to $438.1 million in 2021 as long–term interest rates began to increase during 2022.
The Bank has established underwriting standards including a policy that monitors the lending function through strict administrative and reporting requirements as well as an internal loan review of consumer and small business loans. The Bank also uses an independent third-party loan review function that regularly reviews asset quality. 41 Table of Contents HORIZON BANCORP, INC.
The Bank has established underwriting standards including a policy that monitors the lending function through strict administrative and reporting requirements as well as an internal loan review of commercial, residential real estate and consumer loans. The Bank also uses an independent third–party loan review function that regularly reviews asset quality. 43 Table of Contents HORIZON BANCORP, INC.
At December 31, 2021, this same model reported that the amount of assets that reprice within one year was approximately 257% of the amount of liabilities that reprice within the same time period.
At December 31, 2022, this same model reported that the amount of assets that reprice within one year was approximately 95% of the amount of liabilities that reprice within the same time period.
Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. 36 Table of Contents HORIZON BANCORP, INC.
Losses are charged against the allowance when management believes the available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. 38 Table of Contents HORIZON BANCORP, INC.
The decrease was primarily due to the additional benefit related to investments that generate tax credits, an increase in tax exempt investments, offset slightly by an increase in income before income taxes of $3.1 million in 2022.
The decrease was primarily due to the additional benefit related to investments that generate tax credits, an increase in tax exempt investments, offset slightly by an increase in income before taxes of $3.1 million in 2022. 58 Table of Contents HORIZON BANCORP, INC.
At December 31, 2022, the Bank had $1.5 billion in commitments to extend credit outstanding, excluding interest rate lock commitments for residential mortgage loans intended for sale in the secondary market that meet the definition of a derivative. Time deposits due within one year of December 31, 2022 totaled $697.6 million, or 70.0% of time deposits.
At December 31, 2023, the Bank had $1.6 billion in commitments to extend credit outstanding, excluding interest rate lock commitments for residential mortgage loans intended for sale in the secondary market that meet the definition of a derivative. Time deposits due within one year of December 31, 2023 totaled $1.1 billion, or 94.4% of time deposits.
The transactional accounts average balances, as the lower cost funding sources, increased $621.3 million and the average balances for higher cost time deposits increased $139.2 million. Horizon continually enhances its interest bearing consumer and commercial demand deposit products based on local market conditions and its need for funding to support various types of assets.
The transactional accounts average balances, as the lower cost funding sources, decreased $526.4 million and the average balances for higher cost time deposits increased $359.7 million. Horizon continually enhances its interest bearing consumer and commercial demand deposit products based on local market conditions and its need for funding to support various types of assets.
This decrease in volume, in addition to a slight decrease in the percentage earned on the sale of mortgage loans, resulted in a decrease in the overall gain on sale of mortgage loans of $7.6 million compared to the prior year.
This decrease in volume, in addition to a decrease in the percentage earned on the sale of mortgage loans, resulted in a decrease in the overall gain on sale of mortgage loans of $2.8 million compared to the prior year.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Results of Operations Net Income Consolidated net income was $93.4 million, or $2.14 per diluted share, in 2022, $87.1 million or $1.98 per diluted share in 2021, and $68.5 million or $1.55 per diluted share in 2020.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Results of Operations Net Income Consolidated net income was $28.0 million, or $0.64 per diluted share, in 2023, $93.4 million or $2.14 per diluted share in 2022, and $87.1 million or $1.98 per diluted share in 2021.
For the twelve months ended December 31, 2021, salaries increased $2.4 million reflecting annual merit increases and the additional employees from the branch acquisition completed during the third quarter. Outside services and consultants and other expenses each increased by $1.1 million during 2021.
For the twelve months ended December 31, 2022, salaries increased $6.0 million reflecting annual merit increases and the additional employees from the branch acquisition completed during the third quarter of 2021. Outside services and consultants and other expenses each increased by $2.4 million from additional consulting services performed during the year.
Based on parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock up, net interest income decreases approximately $5.1 million and $10.5 million, respectively. At a 100 basis point shock and 200 basis point shock down, net interest income increases approximately $5.1 million and $6.8 million, respectively.
Based on parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock up, net interest income decreases approximately $6.8 million and $13.8 million, respectively. At a 100 basis point shock and 200 basis point shock down, net interest income increases approximately $7.3 million and $2.7 million, respectively.
At December 31, 2022 and 2021, Horizon had investments in the common stock of the Federal Home Loan Bank totaling $26.7 million and $24.4 million, respectively. At December 31, 2022, Horizon did not maintain a trading account. 40 Table of Contents HORIZON BANCORP, INC.
At December 31, 2023 and 2022, Horizon had investments in the common stock of the Federal Home Loan Bank totaling $34.5 million and $26.7 million, respectively. At December 31, 2023, Horizon did not maintain a trading account. 42 Table of Contents HORIZON BANCORP, INC.
Securities that have interest rates above current market rates are purchased at a premium. Available for sale municipal securities are priced by a third party using a pricing grid which estimates prices based on recent sales of similar securities. All municipal securities are investment grade or local non–rated issues. A credit review is performed annually on the municipal securities portfolio.
Available for sale municipal securities are priced by a third party using a pricing grid which estimates prices based on recent sales of similar securities. All municipal securities are investment grade or local non–rated issues. A credit review is performed annually on the municipal securities portfolio.
Credit loss expense totaled a recovery of $1.8 million in 2022 compared to a recovery of $2.1 million in 2021. Total loan net charge–offs were $843,000, which included commercial loan net recoveries of $80,000, residential mortgage loan net recoveries of $53,000 and consumer loan net charge–offs of $976,000 for the year ending December 31, 2022.
Credit loss expense totaled $2.5 million in 2023 compared to a recovery of $1.8 million in 2022. Total loan net charge–offs were $2.2 million, which included commercial loan net charge–offs of $580,000, residential mortgage loan net recoveries of $34,000 and consumer loan net charge–offs of $1.6 million for the year ending December 31, 2023.
The increase in interchange fee income in 2021 compared to 2020 was the result of organic growth in transactional deposit accounts and volume during 2021. 54 Table of Contents HORIZON BANCORP, INC.
The increase in interchange fee income in 2022 compared to 2021 was the result of the branch acquisition in September 2021 and organic growth in transactional deposit accounts and volume during 2022. 57 Table of Contents HORIZON BANCORP, INC.
These are uncommitted lines and could be withdrawn at any time by the correspondent banks. ◦ Horizon had a total of $385.9 million of available collateral at the FRB secured by municipal securities.
These are uncommitted lines and could be withdrawn at any time by the correspondent banks. ◦ Horizon had a total of $1.5 billion of available collateral at the FRB secured by securities.
The increase in diluted earnings per share compared to the previous year reflects an increase in net income and a decrease in diluted shares. Adjusted net income for the year ended December 31, 2022 was $92.8 million, or $2.13 diluted earnings per share, compared to $88.6 million, or $2.00 diluted earnings per share, for the year ended December 31, 2021.
The decrease in diluted earnings per share compared to the previous year reflects a decrease in net income and an increase in diluted shares. Adjusted net income for the year ended December 31, 2023 was $66.5 million, or $1.54 diluted earnings per share, compared to $92.8 million, or $2.13 diluted earnings per share, for the year ended December 31, 2022.
In addition to the customary real estate loans described above, the Bank also had outstanding on December 31, 2022, $355.2 million in home equity lines of credit compared to $252.4 million at December 31, 2021. Credit lines normally limit the loan to collateral value to no more than 89%.
In addition to the customary real estate loans described above, the Bank also had outstanding on December 31, 2023, $478.7 million in home equity lines of credit compared to $346.8 million at December 31, 2022. Credit lines normally limit the loan to collateral value to no more than 89%.
The officer responsible for the loan, Executive Vice President and Chief Commercial Banking Officer and the senior commercial loan workout officer must review all loans placed on non–accrual status. Management continues to work diligently toward returning non–performing loans to an earning asset basis.
The officer responsible for the loan, Executive Vice President and Chief Commercial Banking Officer, Senior Vice President Commercial Credit Officer and the Vice President Senior Commercial Workout Manager review all loans placed on non–accrual status. Management continues to work diligently toward returning non–performing loans to an earning asset basis. 48 Table of Contents HORIZON BANCORP, INC.
Based on a model that assumes a lag in repricing, at December 31, 2022, the amount of assets that reprice within one year was 95% of liabilities that reprice within one year.
Based on our interest rate model which assumes a lag in repricing the amount of assets that reprice within one year was approximately 95% of liabilities that reprice within one year at December 31, 2023.
The increase in net income from the previous year reflects an increase in net interest income of $23.7 million and a decrease in income tax expense of $3.2 million, offset by an increase in non–interest expense of $9.8 million and a decrease in non–interest income of $10.5 million.
The decrease in net income from the previous year reflects a decrease in net interest income of $23.8 million, a decrease in non–interest income of $35.5 million, an increase in non–interest expense of $3.1 million and an increase in credit loss expense of $4.3 million, offset by a decrease in income tax expense of $1.2 million.
Excluding interest income recognized from acquisition–related purchase accounting adjustments and prepayment penalties on borrowings, the margin would have been 2.93% for 2022 compared to 2.96% for 2021. Management believes that the current level of interest rates is driven by external factors and therefore impacts the results of the Company’s net interest margin. 50 Table of Contents HORIZON BANCORP, INC.
Excluding interest income recognized from acquisition–related purchase accounting adjustments and a swap termination fee, the margin would have been 2.51% for 2023 compared to 2.93% for 2022. Management believes that the current level of interest rates is driven by external factors and therefore impacts the results of the Company’s net interest margin. 53 Table of Contents HORIZON BANCORP, INC.
Net interest margin refers to net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities. Net interest income during 2022 was $199.5 million, an increase of $23.7 million, or 13.5%, over the $175.8 million earned in 2021.
Net interest margin refers to net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities. Net interest income during 2023 was $175.7 million, a decrease of $23.8 million, or 11.9%, compared to the $199.5 million earned in 2022.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Net interest income during 2021 was $175.8 million, an increase of $10.3 million, or 6.2%, over the $165.5 million earned in 2020.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Net interest income during 2022 was $199.5 million, an increase of $23.7 million, or 13.5%, over the $175.8 million earned in 2021.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–interest Income The following is a summary of changes in non–interest income: Twelve Months Ended December 31 2021 - 2022 Twelve Months Ended December 31 2020 - 2021 Non–interest Income 2022 2021 Amount Change Percent Change 2021 2020 Amount Change Percent Change Service charges on deposit accounts $ 11,598 $ 9,192 $ 2,406 26.2 % $ 9,192 $ 8,848 $ 344 3.9 % Wire transfer fees 595 892 (297) (33.3) % 892 1,000 (108) (10.8) % Interchange fees 12,402 10,901 1,501 13.8 % 10,901 9,306 1,595 17.1 % Fiduciary activities 5,381 7,419 (2,038) (27.5) % 7,419 9,145 (1,726) (18.9) % Gain (loss) on sale of investment securities — 914 (914) (100.0) % 914 4,297 (3,383) (78.7) % Gain on sale of mortgage loans 7,165 19,163 (11,998) (62.6) % 19,163 26,721 (7,558) (28.3) % Mortgage servicing net of impairment 4,800 2,352 2,448 104.1 % 2,352 (3,716) 6,068 (163.3) % Increase in cash surrender value of bank owned life insurance 2,594 2,094 500 23.9 % 2,094 2,243 (149) (6.6) % Death benefit on officer life insurance 644 783 (139) (17.8) % 783 264 519 196.6 % Other income 2,272 4,242 (1,970) (46.4) % 4,242 1,513 2,729 180.4 % Total non–interest income $ 47,451 $ 57,952 $ (10,501) (18.1) % $ 57,952 $ 59,621 $ (1,669) (2.8) % During 2022, the Company originated approximately $221.9 million of mortgage loans to be sold on the secondary market, compared to $438.1 million in 2021 as long–term interest rates began to increase during 2022.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–interest Income The following is a summary of changes in non–interest income: Twelve Months Ended December 31 2022 - 2023 Twelve Months Ended December 31 2021 - 2022 Non–interest Income 2023 2022 Amount Change Percent Change 2022 2021 Amount Change Percent Change Service charges on deposit accounts $ 12,227 $ 11,598 $ 629 5.4 % $ 11,598 $ 9,192 $ 2,406 26.2 % Wire transfer fees 448 595 (147) (24.7) % 595 892 (297) (33.3) % Interchange fees 12,861 12,402 459 3.7 % 12,402 10,901 1,501 13.8 % Fiduciary activities 5,080 5,381 (301) (5.6) % 5,381 7,419 (2,038) (27.5) % Gain (loss) on sale of investment securities (32,052) — (32,052) (100.0) % — 914 (914) (100.0) % Gain on sale of mortgage loans 4,323 7,165 (2,842) (39.7) % 7,165 19,163 (11,998) (62.6) % Mortgage servicing net of impairment 2,708 4,800 (2,092) (43.6) % 4,800 2,352 2,448 104.1 % Increase in cash surrender value of bank owned life insurance 3,709 2,594 1,115 43.0 % 2,594 2,094 500 23.9 % Death benefit on officer life insurance — 644 (644) (100.0) % 644 783 (139) (17.8) % Other income 2,694 2,272 422 18.6 % 2,272 4,242 (1,970) (46.4) % Total non–interest income $ 11,998 $ 47,451 $ (35,453) (74.7) % $ 47,451 $ 57,952 $ (10,501) (18.1) % During 2023, the Company originated approximately $142.8 million of mortgage loans to be sold on the secondary market, compared to $221.9 million in 2022 as long–term interest rates increased during 2023.
At December 31, 2022, Horizon had available approximately $672.0 million in available credit from various money center banks, including the FHLB and the FRB Discount Window. The following factors could impact Horizon’s funding needs in the future: ◦ Horizon had outstanding borrowings of approximately $575.4 million with the FHLB and total borrowing capacity with the FHLB of $816.5 million.
At December 31, 2023, Horizon had available approximately $1.4 billion in available credit from the FHLB, FRB Discount Window and various money center banks. The following factors could impact Horizon’s funding needs in the future: ◦ Horizon had outstanding borrowings of approximately $750.3 million with the FHLB and total borrowing capacity with the FHLB of $926.2 million.
Net depreciation on these securities totaled $140.1 million, which resulted in a balance of $110.7 million, net of tax, included in stockholders’ equity at December 31, 2022. This compared to net appreciation on securities which totaled $5.7 million, net of tax, included in stockholders’ equity at December 31, 2021.
Net depreciation on these securities totaled $87.4 million, which resulted in a balance of $69.0 million, net of tax, included in stockholders’ equity at December 31, 2023. This compared to net depreciation on securities which totaled $110.7 million, net of tax, included in stockholders’ equity at December 31, 2022.
Therefore, mortgage–backed securities and collateralized mortgage obligations have maturities that are stated in terms of average life. The average life is the average amount of time that each dollar of principal is expected to be outstanding. As of December 31, 2022, the mortgage–backed securities and collateralized mortgage obligations in the investment portfolio had an average duration of 5 years.
Therefore, mortgage–backed securities and collateralized mortgage obligations have maturities that are stated in terms of average life. The average life is the average amount of time that each dollar of principal is expected to be outstanding.
Allowance and Provision for Credit Losses The table below provides an allocation of the year–end allowance for credit losses on loans by loan portfolio segment; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Allowance and Provision for Credit Losses The table below provides an allocation of the year–end allowance for credit losses on loans by loan portfolio segment; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
December 31, December 31, December 31, 2022 2021 2020 Commercial $ 2,280,553 $ 2,155,018 $ 2,218,812 Real estate 621,163 591,395 725,168 Mortgage warehouse 89,409 206,932 259,727 Consumer 850,667 679,712 676,849 Total average loans $ 3,841,792 $ 3,633,057 $ 3,880,556 Maturities and Sensitivities of Loans to Changes in Interest Rates The following table presents the maturity distribution of our loan portfolio as December 31, 2022.
December 31, December 31, December 31, 2023 2022 2021 Commercial $ 2,498,453 $ 2,280,553 $ 2,155,018 Real estate 675,520 621,163 591,395 Mortgage warehouse 54,798 89,409 206,932 Consumer 1,011,166 850,667 679,712 Total average loans $ 4,239,937 $ 3,841,792 $ 3,633,057 Maturities and Sensitivities of Loans to Changes in Interest Rates The following table presents the maturity distribution of our loan portfolio as December 31, 2023.
Twelve Months Ended Twelve Months Ended Twelve Months Ended December 31, 2022 December 31, 2021 December 31, 2020 Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate Assets Interest earning assets Federal funds sold $ 62,211 $ 165 0.27 % $ 398,528 $ 535 0.13 % $ 61,408 $ 154 0.25 % Interest earning deposits 13,596 141 1.04 % 25,993 160 0.62 % 25,943 268 1.03 % Investment securities – taxable 1,700,418 33,202 1.95 % 884,244 14,437 1.63 % 459,551 8,071 1.76 % Investment securities – non–taxable (1) 1,356,045 29,025 2.71 % 1,086,942 23,246 2.71 % 706,092 17,213 3.09 % Loans receivable (2)(3)(4) 3,845,137 173,500 4.53 % 3,639,454 155,732 4.30 % 3,880,556 174,262 4.51 % Total interest earning assets (1) 6,977,407 236,033 3.50 % 6,035,161 194,110 3.33 % 5,133,550 199,968 4.00 % Non–interest earning assets Cash and due from banks 99,885 89,993 84,065 Allowance for loan losses (52,606) (56,798) (46,329) Other assets 509,229 445,895 457,497 Total average assets $ 7,533,915 $ 6,514,251 $ 5,628,783 Liabilities and Stockholders’ Equity Interest bearing liabilities Interest bearing deposits $ 4,513,668 $ 17,809 0.39 % $ 3,897,750 $ 7,867 0.20 % $ 3,327,917 $ 18,556 0.56 % Borrowings 696,584 11,938 1.71 % 425,214 4,546 1.07 % 459,752 11,160 2.43 % Repurchase agreements 141,048 527 0.37 % 123,675 155 0.13 % 100,201 270 0.27 % Subordinated notes 58,819 3,522 5.99 % 58,672 3,522 6.00 % 30,610 1,824 5.96 % Junior subordinated debentures issued to capital trusts 56,899 2,719 4.78 % 56,657 2,215 3.91 % 56,427 2,628 4.66 % Total interest bearing liabilities 5,467,018 36,515 0.67 % 4,561,968 18,305 0.40 % 3,974,907 34,438 0.87 % Non–interest bearing liabilities Demand deposits 1,332,937 1,188,275 919,449 Accrued interest payable and other liabilities 50,330 51,886 68,961 Stockholders’ equity 683,630 712,122 665,466 Total average liabilities and stockholders’ equity $ 7,533,915 $ 6,514,251 $ 5,628,783 Net interest income/spread $ 199,518 2.83 % $ 175,805 2.93 % $ 165,530 3.13 % Net interest income as a percent of average interest earning assets (1) 2.98 % 3.03 % 3.33 % (1) Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations.
Twelve Months Ended Twelve Months Ended Twelve Months Ended December 31, 2023 December 31, 2022 December 31, 2021 Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate Assets Interest earning assets Federal funds sold $ 82,865 $ 4,442 5.36 % $ 62,211 $ 165 0.27 % $ 398,528 $ 535 0.13 % Interest earning deposits 12,930 525 4.06 % 13,596 141 1.04 % 25,993 160 0.62 % Investment securities – taxable 1,658,160 34,410 2.08 % 1,700,418 33,202 1.95 % 884,244 14,437 1.63 % Investment securities – non–taxable (1) 1,236,607 28,384 2.91 % 1,356,045 29,025 2.71 % 1,086,942 23,246 2.71 % Loans receivable (2)(3)(4) 4,244,893 244,544 5.79 % 3,845,137 173,500 4.53 % 3,639,454 155,732 4.30 % Total interest earning assets (1) 7,235,455 312,305 4.44 % 6,977,407 236,033 3.50 % 6,035,161 194,110 3.33 % Non–interest earning assets Cash and due from banks 102,535 99,885 89,993 Allowance for loan losses (49,774) (52,606) (56,798) Other assets 581,412 509,229 445,895 Total average assets $ 7,869,628 $ 7,533,915 $ 6,514,251 Liabilities and Stockholders’ Equity Interest bearing liabilities Interest bearing deposits $ 4,498,588 $ 85,857 1.91 % $ 4,513,668 $ 17,809 0.39 % $ 3,897,750 $ 7,867 0.20 % Borrowings 1,154,714 39,514 3.42 % 696,584 11,938 1.71 % 425,214 4,546 1.07 % Repurchase agreements 137,153 2,964 2.16 % 141,048 527 0.37 % 123,675 155 0.13 % Subordinated notes 58,764 3,511 5.97 % 58,819 3,522 5.99 % 58,672 3,522 6.00 % Junior subordinated debentures issued to capital trusts 57,137 4,715 8.25 % 56,899 2,719 4.78 % 56,657 2,215 3.91 % Total interest bearing liabilities 5,906,356 136,561 2.31 % 5,467,018 36,515 0.67 % 4,561,968 18,305 0.40 % Non–interest bearing liabilities Demand deposits 1,181,233 1,332,937 1,188,275 Accrued interest payable and other liabilities 75,765 50,330 51,886 Stockholders’ equity 706,274 683,630 712,122 Total average liabilities and stockholders’ equity $ 7,869,628 $ 7,533,915 $ 6,514,251 Net interest income/spread $ 175,744 2.13 % $ 199,518 2.83 % $ 175,805 2.93 % Net interest income as a percent of average interest earning assets (1) 2.55 % 2.98 % 3.03 % (1) Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations.
Investment Securities Investment securities carrying values totaled $3.0 billion at December 31, 2022, and consisted of Treasury and federal agency securities of $562.4 million (18.6%); state and municipal securities of $1.6 billion (51.7%); federal agency mortgage–backed pools of $534.6 million and federal agency collateralized mortgage obligations of $87.8 million (20.6%); private labeled mortgage–backed pools of $35.5 million (1.2%); and corporate securities of $238.8 million (7.9%).
Investment Securities Investment securities carrying values totaled $2.5 billion at December 31, 2023, and consisted of Treasury and federal agency securities of $351.6 million (14.1%); state and municipal securities of $1.4 billion (55.8%); federal agency mortgage–backed pools of $460.9 million and federal agency collateralized mortgage obligations of $54.9 million (20.7%); private labeled mortgage–backed pools of $32.3 million (1.3%); and corporate securities of $200.7 million (8.1%).
(4) Net loan fees included in interest on loans aggregated $5.2 million, $13.9 million and $11.2 million in 2022, 2021 and 2020, respectively. 51 Table of Contents HORIZON BANCORP, INC.
(4) Net loan fees included in interest on loans aggregated $7.9 million, $11.0 million and $19.8 million in 2023, 2022 and 2021, respectively. 54 Table of Contents HORIZON BANCORP, INC.
The following table shows the major components of deferred tax: December 31, December 31, 2022 2021 Assets Allowance for loan losses $ 12,762 $ 13,707 Net operating loss and tax credits 9,313 — Director and employee benefits 2,019 2,094 Unrealized loss on AFS securities and cash flow hedge 28,230 — Other 555 1,785 Total assets 52,879 17,586 Liabilities Depreciation (4,599) (4,540) State tax (262) (261) Federal Home Loan Bank stock dividends (368) (371) Difference in basis of intangible assets (4,440) (3,476) Fair value adjustment on acquisitions (2,807) (3,435) Unrealized gain on AFS securities and cash flow hedge — (1,953) Other (68) (222) Total liabilities (12,544) (14,258) Net deferred tax asset/(liability) $ 40,335 $ 3,328 Deposits The primary source of funds for the Bank comes from the acceptance of demand and time deposits.
The following table shows the major components of deferred tax: December 31, December 31, 2023 2022 Assets Allowance for credit losses $ 12,546 $ 12,762 Net operating loss and tax credits 9,592 9,313 Director and employee benefits 2,471 2,019 Unrealized loss on AFS securities and cash flow hedge 17,706 28,230 Basis in partnership equity investments 1,322 — Capital loss carryover 5,201 — Other 2,856 555 Total assets 51,694 52,879 Liabilities Depreciation (4,512) (4,599) State tax (253) (262) Federal Home Loan Bank stock dividends (365) (368) Difference in basis of intangible assets (4,545) (4,440) Fair value adjustment on acquisitions (2,142) (2,807) Other (1,131) (68) Total liabilities (12,948) (12,544) Valuation allowance (5,201) — Net deferred tax asset/(liability) $ 33,545 $ 40,335 Deposits The primary source of funds for the Bank comes from the acceptance of demand and time deposits.
Non–performing loans as a percentage of total loans was 0.52% as of December 31, 2022, which was the same percentage as of December 31, 2021 and a decrease from 0.58% from December 31, 2020.
Non–performing loans as a percentage of total loans was 0.46% as of December 31, 2023, a decrease from 0.53% as of December 31, 2022 and December 31, 2021.
Total loan net charge–offs were $1.6 million, which included commercial loan net charge–offs of $1.1 million, residential mortgage loan net charge–offs of $9,000 and consumer loan net charge–offs of $533,000 for the year ending December 31, 2021.
Total loan net charge–offs were $843,000, which included commercial loan net recoveries of $80,000, residential mortgage loan net recoveries of $53,000 and consumer loan net charge–offs of $976,000 for the year ending December 31, 2022.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–GAAP Reconciliation of Net Income (Dollars in Thousands, Unaudited) Years Ended December 31 2022 2021 2020 Net income as reported $ 93,408 $ 87,091 $ 68,499 Acquisition expenses — 1,925 — Tax effect — (401) — Net income excluding acquisition expenses 93,408 88,615 68,499 Credit loss expense on acquired loans — 2,034 — Tax effect — (427) — Net income excluding credit loss expense on acquired loans 93,408 90,222 68,499 Gain on sale of ESOP trustee accounts — (2,329) — Tax effect — 489 — Net income excluding gain on sale of ESOP trustee accounts 93,408 88,382 68,499 ESOP settlement expenses — 1,900 — Tax effect — (315) — Net income excluding ESOP settlement expenses 93,408 89,967 68,499 (Gain) / loss on sale of investment securities — (914) (4,297) Tax effect — 192 902 Net income excluding (gain) / loss on sale of investment securities 93,408 89,245 65,104 Death benefit on bank owned life insurance (“BOLI”) (644) (783) (264) Net income excluding death benefit on BOLI 92,764 88,462 64,840 Prepayment penalties on borrowings — 125 3,804 Tax effect — (26) (799) Net income excluding prepayment penalties on borrowings 92,764 88,561 67,845 Adjusted net income $ 92,764 $ 88,561 $ 67,845 57 Table of Contents HORIZON BANCORP, INC.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–GAAP Reconciliation of Net Income (Dollars in Thousands, Unaudited) Years Ended December 31 2023 2022 2021 Net income as reported $ 27,981 $ 93,408 $ 87,091 Acquisition expenses — — 1,925 Tax effect — — (401) Net income excluding acquisition expenses 27,981 93,408 88,615 Swap termination fee (1,453) — — Tax effect 305 — — Net income excluding swap termination fee 26,833 93,408 88,615 Credit loss expense on acquired loans — — 2,034 Tax effect — — (427) Net income excluding credit loss expense on acquired loans 26,833 93,408 90,222 Gain on sale of ESOP trustee accounts — — (2,329) Tax effect — — 489 Net income excluding gain on sale of ESOP trustee accounts 26,833 93,408 88,382 ESOP settlement expenses — — 1,900 Tax effect — — (315) Net income excluding ESOP settlement expenses 26,833 93,408 89,967 (Gain) / loss on sale of investment securities 32,052 — (914) Tax effect (6,731) — 192 Tax valuation reserve 5,201 — — Net income excluding (gain) / loss on sale of investment securities 57,355 93,408 89,245 Death benefit on bank owned life insurance (“BOLI”) — (644) (783) Net income excluding death benefit on BOLI 57,355 92,764 88,462 Extraordinary expenses (1) 705 — — Tax effect (148) — — Net income excluding extraordinary expenses 57,912 92,764 88,462 Prepayment penalties on borrowings — — 125 Tax effect — — (26) Net income excluding prepayment penalties on borrowings 57,912 92,764 88,561 BOLI tax expense and excise tax 8,597 — — Net income excluding BOLI tax expense and excise tax 66,509 92,764 88,561 Adjusted net income $ 66,509 $ 92,764 $ 88,561 (1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. 60 Table of Contents HORIZON BANCORP, INC.
December 31, December 31, December 31, 2022 2021 2020 Mortgage servicing rights Balances, January 1 $ 17,780 $ 17,644 $ 15,046 Servicing rights capitalized 3,184 4,209 5,530 Amortization of servicing rights (2,345) (4,073) (2,932) Balances, December 31 18,619 17,780 17,644 Impairment allowance Balances, January 1 (2,594) (5,172) (719) Additions — — (5,106) Reductions 2,594 2,578 653 Balances, December 31 — (2,594) (5,172) Mortgage servicing rights, net $ 18,619 $ 15,186 $ 12,472 Mortgage Warehouse Loans Horizon’s mortgage warehousing lending has specific mortgage companies as customers of Horizon Bank.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) December 31, December 31, December 31, 2023 2022 2021 Mortgage servicing rights Balances, January 1 $ 18,619 $ 17,780 $ 17,644 Servicing rights capitalized 1,220 3,184 4,209 Amortization of servicing rights (1,032) (2,345) (4,073) Balances, December 31 18,807 18,619 17,780 Impairment allowance Balances, January 1 — (2,594) (5,172) Additions — — — Reductions — 2,594 2,578 Balances, December 31 — — (2,594) Mortgage servicing rights, net $ 18,807 $ 18,619 $ 15,186 Mortgage Warehouse Loans Horizon’s mortgage warehousing lending has specific mortgage companies as customers of Horizon Bank.
As a result of its quarterly reviews, a provision for credit losses is determined to bring the total ACL to a level called for by the analysis.
As a result of its quarterly reviews, a provision for credit losses is determined to bring the total ACL to a level called for by the analysis. Horizon's reserve includes allocations for potential future loan losses related to economic factors and the nature and characteristics of its loan portfolios.
Excluding interest income recognized from acquisition–related purchase accounting adjustments and prepayment penalties on borrowings, the margin would have been 2.96% for 2021 compared to 3.27% for 2020. 2022 - 2021 2021 - 2020 Total Change Change Due To Volume Change Due To Rate Total Change Change Due To Volume Change Due To Rate Interest Income Federal funds sold $ (370) $ (655) $ 285 $ 381 $ 483 $ (102) Interest earning deposits (19) (97) 78 (108) 1 (109) Investment securities – taxable 18,765 15,480 3,285 6,366 6,973 (607) Investment securities – non–taxable 5,779 7,291 (1,512) 6,033 10,582 (4,549) Loans receivable 17,768 9,087 8,681 (18,530) (10,585) (7,945) Total interest income 41,923 31,106 10,817 (5,858) 7,454 (13,312) Interest Expense Interest bearing deposits 9,942 1,412 8,530 (10,689) 2,760 (13,449) Borrowings 7,392 3,800 3,592 (6,614) (783) (5,831) Repurchase agreements 372 25 347 (115) 53 (168) Subordinated notes — 9 (9) 1,698 1,684 14 Junior subordinated debentures issued to capital trusts 504 9 495 (413) 11 (424) Total interest expense 18,210 5,255 12,955 (16,133) 3,725 (19,858) Net interest income $ 23,713 $ 25,851 $ (2,138) $ 10,275 $ 3,729 $ 6,546 Credit Loss Expense Horizon assesses the adequacy of its ACL by regularly reviewing the performance of its loan portfolios.
Excluding interest income recognized from acquisition–related purchase accounting adjustments and prepayment penalties on borrowings, the margin would have been 2.93% for 2022 compared to 2.96% for 2021. 2023 - 2022 2022 - 2021 Total Change Change Due To Volume Change Due To Rate Total Change Change Due To Volume Change Due To Rate Interest Income Federal funds sold $ 4,277 $ 73 $ 4,204 $ (370) $ (655) $ 285 Interest earning deposits 384 (7) 391 (19) (97) 78 Investment securities – taxable 1,208 (840) 2,048 18,765 15,480 3,285 Investment securities – non–taxable (641) (3,364) 2,723 5,779 7,291 (1,512) Loans receivable 71,044 19,478 51,566 17,768 9,087 8,681 Total interest income 76,272 15,340 60,932 41,923 31,106 10,817 Interest Expense Interest bearing deposits 68,048 (59) 68,107 9,942 1,412 8,530 Borrowings 27,576 10,962 16,614 7,392 3,800 3,592 Repurchase agreements 2,437 (15) 2,452 372 25 347 Subordinated notes (11) (3) (8) — 9 (9) Junior subordinated debentures issued to capital trusts 1,996 11 1,985 504 9 495 Total interest expense 100,046 10,896 89,150 18,210 5,255 12,955 Net interest income $ (23,774) $ 4,444 $ (28,218) $ 23,713 $ 25,851 $ (2,138) Credit Loss Expense Horizon assesses the adequacy of its ACL by regularly reviewing the performance of its loan portfolios.
Other income decreased $2.0 million during 2022 primarily due to the gain on sale of ESOP trustee accounts of $2.3 million recorded in 2021. The increase in interchange fee income in 2022 compared to 2021 was the result of the branch acquisition in September 2021 and organic growth in transactional deposit accounts and volume during 2022.
Other income decreased $2.0 million during 2022 primarily due to the gain on sale of ESOP trustee accounts of $2.3 million recorded in 2021.
Credit Loss Expense (Recovery) Net (Charge–Offs) Recoveries Average Loans Ratio of Annualized Net (Charge–Offs) Recoveries to Average Loans Twelve Months Ended December 31, 2022 Commercial $ (7,650) $ 80 $ 2,280,553 0.00 % Real estate 1,668 53 621,163 0.01 % Mortgage warehouse (39) — 89,409 0.00 % Consumer 3,802 (976) 850,667 (0.11) % Total (2,219) (843) 3,841,792 (0.02) % Excluding PPP loans $ (2,219) $ (843) $ 3,836,682 (0.02) % Twelve Months Ended December 31, 2021 Commercial $ (1,320) $ (1,099) $ 2,155,018 (0.05) % Real estate (755) (9) 591,395 0.00 % Mortgage warehouse (208) — 206,932 0.00 % Consumer 199 (533) 679,712 (0.08) % Total (2,084) (1,641) 3,633,057 (0.05) % Excluding PPP loans $ (2,084) $ (1,641) $ 3,466,912 (0.05) % Twelve Months Ended December 31, 2020 Commercial $ 19,198 $ (497) $ 2,218,812 (0.02) % Real estate (184) (167) 725,168 (0.02) % Mortgage warehouse 190 — 259,727 0.00 % Consumer 1,547 (1,199) 676,849 (0.18) % Total 20,751 (1,863) 3,880,556 (0.05) % Excluding PPP loans $ 20,751 $ (1,863) $ 3,682,173 (0.05) % 53 Table of Contents HORIZON BANCORP, INC.
Credit Loss Expense (Recovery) Net (Charge–Offs) Recoveries Average Loans Ratio of Net (Charge–Offs) Recoveries to Average Loans Twelve Months Ended December 31, 2023 Commercial $ (1,765) $ (580) $ 2,498,453 (0.02) % Real estate (3,107) 33 675,520 0.00 % Mortgage warehouse (539) — 54,798 0.00 % Consumer 7,501 (1,614) 1,011,166 (0.16) % Total 2,090 (2,161) 4,239,937 (0.05) % Twelve Months Ended December 31, 2022 Commercial $ (7,650) $ 80 $ 2,280,553 0.00 % Real estate 1,668 53 621,163 0.01 % Mortgage warehouse (39) — 89,409 0.00 % Consumer 3,802 (976) 850,667 (0.11) % Total (2,219) (843) 3,841,792 (0.02) % Twelve Months Ended December 31, 2021 Commercial $ (1,320) $ (1,099) $ 2,155,018 (0.05) % Real estate (755) (9) 591,395 0.00 % Mortgage warehouse (208) — 206,932 0.00 % Consumer 199 (533) 679,712 (0.08) % Total (2,084) (1,641) 3,633,057 (0.05) % 56 Table of Contents HORIZON BANCORP, INC.
Non–performing loans for the previous three years ending December 31 are as follows: December 31, December 31, December 31, (dollars in thousands) 2022 2021 2020 Non–performing loans Commercial More than 90 days past due $ — $ — $ — Non–accrual 8,493 6,621 12,714 Trouble debt restructuring – accruing 837 603 168 Trouble debt restructuring – non–accrual — 285 1,466 Real estate More than 90 days past due 43 66 17 Non–accrual 5,479 5,626 5,674 Trouble debt restructuring – accruing 1,391 1,421 1,381 Trouble debt restructuring – non–accrual 1,210 892 922 Mortgage warehouse More than 90 days past due — — — Non–accrual — — — Trouble debt restructuring – accruing — — — Trouble debt restructuring – non–accrual — — — Consumer More than 90 days past due 49 79 245 Non–accrual 3,658 2,715 3,754 Trouble debt restructuring – accruing 342 367 244 Trouble debt restructuring – non–accrual 338 344 222 Total non–performing loans 21,840 19,019 26,807 Other real estate owned and repossessed collateral Commercial 1,881 2,861 1,908 Real estate 107 695 — Mortgage warehouse — — — Consumer 152 5 — Total other real estate owned and repossessed collateral 2,140 3,561 1,908 Total non–performing assets $ 23,980 $ 22,580 $ 28,715 Non–performing loans totaled 43.3%, 35.0% and 47.0% of the allowance for credit losses at December 31, 2022, 2021 and 2020, respectively.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–performing loans for the previous three years ending December 31 are as follows: December 31, December 31, December 31, (dollars in thousands) 2023 2022 2021 Non–performing loans Commercial More than 90 days past due $ — $ — $ — Non–accrual 7,362 8,493 6,621 Trouble debt restructuring – accruing — 837 603 Trouble debt restructuring – non–accrual — — 285 Real estate More than 90 days past due — 43 66 Non–accrual 8,058 5,479 5,626 Trouble debt restructuring – accruing — 1,391 1,421 Trouble debt restructuring – non–accrual — 1,210 892 Mortgage warehouse More than 90 days past due — — — Non–accrual — — — Trouble debt restructuring – accruing — — — Trouble debt restructuring – non–accrual — — — Consumer More than 90 days past due 559 49 79 Non–accrual 4,290 3,658 2,715 Trouble debt restructuring – accruing — 342 367 Trouble debt restructuring – non–accrual — 338 344 Total non–performing loans 20,269 21,840 19,019 Other real estate owned and repossessed collateral Commercial 1,124 1,881 2,861 Real estate 182 107 695 Mortgage warehouse — — — Consumer 205 152 5 Total other real estate owned and repossessed collateral 1,511 2,140 3,561 Total non–performing assets $ 21,780 $ 23,980 $ 22,580 49 Table of Contents HORIZON BANCORP, INC.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–interest Expense The following is a summary of changes in non–interest expense: Twelve Months Ended December 31 2021 - 2022 Twelve Months Ended December 31 2020 - 2021 Non–interest Expense 2022 2021 Amount Change Percent Change 2021 2020 Amount Change Percent Change Salaries $ 55,422 $ 49,463 $ 5,959 12.0 % $ 49,463 $ 44,671 $ 4,792 10.7 % Commission and bonuses 8,442 11,089 (2,647) (23.9) % 11,089 6,861 4,228 61.6 % Employee benefits 16,419 13,499 2,920 21.6 % 13,499 13,673 (174) (1.3) % Net occupancy expenses 13,323 12,541 782 6.2 % 12,541 12,811 (270) (2.1) % Data processing 10,567 9,962 605 6.1 % 9,962 9,200 762 8.3 % Professional fees 1,843 2,216 (373) (16.8) % 2,216 2,433 (217) -8.9 % Outside services and consultants 10,850 8,449 2,401 28.4 % 8,449 7,318 1,131 15.5 % Loan expense 5,411 5,492 (81) (1.5) % 5,492 5,218 274 5.3 % FDIC deposit insurance 2,558 2,377 181 7.6 % 2,377 1,855 522 28.1 % Core deposit intangible amortization 3,702 3,644 58 1.6 % 3,644 3,723 (79) (2.1) % Other losses 1,046 2,283 (1,237) (54.2) % 2,283 1,162 1,121 96.5 % Other expenses 13,618 12,379 1,239 10.0 % 12,379 11,229 1,150 10.2 % Total non–interest expense $ 143,201 $ 133,394 $ 9,807 7.4 % $ 133,394 $ 120,154 $ 13,240 11.0 % For the twelve months ended December 31, 2022, salaries increased $6.0 million reflecting annual merit increases and the additional employees from the branch acquisition completed during the third quarter of 2021.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Non–interest Expense The following is a summary of changes in non–interest expense: Twelve Months Ended December 31 2022 - 2023 Twelve Months Ended December 31 2021 - 2022 Non–interest Expense 2023 2022 Amount Change Percent Change 2022 2021 Amount Change Percent Change Salaries $ 56,165 $ 55,422 $ 743 1.3 % $ 55,422 $ 49,463 $ 5,959 12.0 % Commission and bonuses 6,021 8,442 (2,421) (28.7) % 8,442 11,089 (2,647) (23.9) % Employee benefits 18,623 16,419 2,204 13.4 % 16,419 13,499 2,920 21.6 % Net occupancy expenses 13,355 13,323 32 0.2 % 13,323 12,541 782 6.2 % Data processing 11,626 10,567 1,059 10.0 % 10,567 9,962 605 6.1 % Professional fees 2,645 1,843 802 43.5 % 1,843 2,216 (373) (16.8) % Outside services and consultants 9,942 10,850 (908) (8.4) % 10,850 8,449 2,401 28.4 % Loan expense 4,980 5,411 (431) (8.0) % 5,411 5,492 (81) (1.5) % FDIC deposit insurance 3,880 2,558 1,322 51.7 % 2,558 2,377 181 7.6 % Core deposit intangible amortization 3,612 3,702 (90) (2.4) % 3,702 3,644 58 1.6 % Other losses 1,051 1,046 5 0.5 % 1,046 2,283 (1,237) (54.2) % Other expenses 14,384 13,618 766 5.6 % 13,618 12,379 1,239 10.0 % Total non–interest expense $ 146,284 $ 143,201 $ 3,083 2.2 % $ 143,201 $ 133,394 $ 9,807 7.4 % For the twelve months ended December 31, 2023, employee benefits increased $2.2 million due to the increase in health care costs and variable costs in certain deferred compensation plans.
Amount of Allowance Allocated Percent of Loans in Each Category to Total Loans Total Loans Ratio of Allowance Allocated to Loans in Each Category December 31, 2022 Commercial $ 32,445 59.3 % $ 2,467,422 1.31 % Real estate 5,577 15.7 % 653,292 0.85 % Mortgage warehouse 1,020 1.7 % 69,529 1.47 % Consumer 11,422 23.3 % 967,755 1.18 % Total $ 50,464 100.0 % $ 4,157,998 1.21 % Excluding PPP loans $ 50,464 $ 4,157,781 1.21 % December 31, 2021 Commercial $ 40,775 60.6 % $ 2,213,945 1.84 % Real estate 3,856 16.2 % 594,382 0.65 % Mortgage warehouse 1,059 3.0 % 109,031 0.97 % Consumer 8,596 20.3 % 741,176 1.16 % Total $ 54,286 100.1 % $ 3,658,534 1.48 % Excluding PPP loans $ 54,286 $ 3,632,690 1.49 % At December 31, 2022, the allowance for credit losses was $50.5 million, or 1.21% of total loans outstanding, compared to $54.3 million, or 1.48%, at December 31, 2021.
Amount of Allowance Allocated Percent of Loans in Each Category to Total Loans Total Loans Ratio of Allowance Allocated to Loans in Each Category December 31, 2023 Commercial $ 29,736 60.6 % $ 2,674,960 1.11 % Real estate 2,503 15.4 % 681,136 0.37 % Mortgage warehouse 481 1.0 % 45,078 1.07 % Consumer 17,309 23.0 % 1,016,456 1.70 % Total $ 50,029 100.0 % $ 4,417,630 1.13 % Excluding PPP loans $ 50,029 $ 4,417,535 1.13 % December 31, 2022 Commercial $ 32,445 59.3 % $ 2,467,422 1.31 % Real estate 5,577 15.7 % 653,292 0.85 % Mortgage warehouse 1,020 1.7 % 69,529 1.47 % Consumer 11,422 23.3 % 967,755 1.18 % Total $ 50,464 100.0 % $ 4,157,998 1.21 % Excluding PPP loans $ 50,464 $ 4,157,781 1.21 % At December 31, 2023, the allowance for credit losses was $50.0 million, or 1.13% of total loans outstanding, compared to $50.5 million, or 1.21%, at December 31, 2022.
Additional information related to credit loss expense (recovery) and net charge–offs (recoveries) is presented in the table below. Also see Note 6 – Allowance for Credit and Loan Losses in the accompanying notes to consolidated financial statements included elsewhere in this report.
Also see Note 5 – Allowance for Credit and Loan Losses in the accompanying notes to consolidated financial statements included elsewhere in this report.
The increase was primarily in net loans of $503.3 million, investment securities of $307.1 million, and other assets of $72.4 million, offset by a decrease in cash and due from banks of $470.0 million.
The increase was primarily in cash and due from banks of $403.0 million and in net loans of $260.1 million, offset by decreases in investment securities of $527.4 million and cash value of life insurance of $110.0 million.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Commercial loans consisted of the following types of loans at December 31: December 31, 2022 December 31, 2021 Number Amount Percent of Portfolio Number Amount Percent of Portfolio SBA guaranteed 268 $ 56,650 2.3 % 491 $ 82,060 3.7 % Municipal government 73 85,520 3.5 % 75 67,029 3.0 % Lines of credit 1,507 561,995 22.8 % 1,494 448,685 20.3 % Real estate and equipment 5,261 1,763,257 71.6 % 4,896 1,616,171 73.0 % Total 7,109 $ 2,467,422 100.2 % 6,956 $ 2,213,945 100.0 % At December 31, 2022, the commercial loan portfolio held $279.9 million of adjustable rate loans that had interest rate floors in the terms of the note.
Commercial loans consisted of the following types of loans at December 31: December 31, 2023 December 31, 2022 Number Amount Percent of Portfolio Number Amount Percent of Portfolio SBA guaranteed 258 $ 54,806 2.0 % 268 $ 56,650 2.3 % Municipal government 69 101,676 3.8 % 73 85,520 3.5 % Lines of credit 1,467 590,943 22.1 % 1,507 561,995 22.8 % Real estate and equipment 5,313 1,927,535 72.1 % 5,261 1,763,257 71.4 % Total 7,107 $ 2,674,960 100.0 % 7,109 $ 2,467,422 100.0 % At December 31, 2023, the commercial loan portfolio held $270.2 million of adjustable rate loans that had interest rate floors in the terms of the note.
Cash flows were primarily used to purchase investments totaling $610.7 million, an increase in net loans of $448.3 million and the repayment of borrowings totaling $755.6 million. The net cash and cash equivalent position decreased by $470.0 million during 2022.
Cash flows were primarily used to purchase investments totaling $11.7 million, to purchase loans totaling $124.9 million, an increase in net loans of $140.5 million, a decrease in deposits of $192.9 million and the repayment of borrowings totaling $654.2 million. The net cash and cash equivalent position increased by $403.0 million during 2023.
Non–performing loans at December 31, 2022 totaled $21.8 million, an increase from a balance of $19.0 million as of December 31, 2021 and a decrease from a balance of $26.8 million as of 46 Table of Contents HORIZON BANCORP, INC.
Non–performing loans at December 31, 2023 totaled $20.3 million, a decrease from a balance of $21.8 million as of December 31, 2022 and an increase from a balance of $19.0 million as of December 31, 2021. The level of non–performing loans in 2023 remained consistent when compared to prior years.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+2 added−1 removed7 unchanged
Biggest changeHorizon utilizes a variety of strategies to maintain this position, including the sale of mortgage loans on the secondary market, hedging certain balance sheet items using derivatives, varying maturities of FHLB advances, certificates of deposit funding and investment securities. 64 Table of Contents The table which follows provides information about Horizon’s financial instruments that were sensitive to changes in interest rates as of December 31, 2022.
Biggest changeHorizon utilizes a variety of strategies to maintain this position, including the sale of mortgage loans on the secondary market, hedging certain balance sheet items using derivatives, varying maturities of FHLB advances, certificates of deposit funding and investment securities. 69 Table of Contents HORIZON BANCORP, INC.
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For deposits with no contractual maturity dates, the table presents principal cash flows and weighted average rate, as applicable, based upon Horizon’s experience and management’s judgment concerning the most likely withdrawal behaviors. 2023 2024 2025 2026 & 2027 2028 & Beyond Total Fair Value December 31, 2022 Rate–sensitive assets Fixed interest rate loans $ 585,893 $ 454,224 $ 355,675 $ 416,951 $ 357,144 $ 2,169,887 $ 1,929,662 Average interest rate 4.59 % 4.38 % 4.31 % 4.28 % 3.80 % 4.31 % Variable interest rate loans 1,477,403 119,063 120,817 208,755 67,880 1,993,918 1,928,603 Average interest rate 6.12 % 4.40 % 4.43 % 4.49 % 4.18 % 5.68 % Total loans 2,063,296 573,287 476,492 625,706 425,024 4,163,805 3,858,265 Average interest rate 5.69 % 4.38 % 4.34 % 4.35 % 3.86 % 4.97 % Securities, including FHLB stock 169,623 96,843 243,309 492,833 2,044,375 3,046,983 2,705,544 Average interest rate 3.10 % 2.32 % 2.22 % 2.27 % 2.49 % 2.46 % Other interest earning assets 15,045 — — — — 15,045 15,011 Average interest rate 1.95 % — % — % — % — % 1.95 % Total earning assets $ 2,247,964 $ 670,130 $ 719,801 $ 1,118,539 $ 2,469,399 $ 7,225,833 $ 6,578,820 Average interest rate 5.47 % 4.09 % 3.62 % 3.43 % 2.73 % 3.90 % Rate–sensitive liabilities Non–interest bearing deposits $ 127,777 $ 129,468 $ 102,052 $ 174,509 $ 743,962 $ 1,277,768 $ 1,277,768 NOW accounts 190,863 913,455 80,431 137,537 586,342 1,908,628 1,686,790 Average interest rate 0.87 % 1.28 % 0.41 % 0.41 % 0.41 % 0.87 % Savings and money market accounts 205,077 546,670 100,183 168,226 654,102 1,674,258 1,436,180 Average interest rate 0.60 % 0.92 % 0.39 % 0.39 % 0.40 % 0.59 % Certificates of deposit 702,579 250,010 18,416 18,516 7,594 997,115 977,184 Average interest rate 2.06 % 3.65 % 1.08 % 0.66 % 0.12 % 2.40 % Total deposits 1,226,296 1,839,603 301,082 498,788 1,992,000 5,857,769 5,377,922 Average interest rate 1.42 % 1.41 % 0.30 % 0.27 % 0.25 % 0.86 % Fixed interest rate borrowings 576,077 49,016 79 60,058 — 685,230 690,203 Average interest rate 2.09 % 1.66 % 2.62 % 5.79 % — % 2.38 % Variable interest rate borrowings 573,642 — — — — 573,642 557,546 Average interest rate 3.93 % — % — % — % — % 3.93 % Total funds $ 2,376,015 $ 1,888,619 $ 301,161 $ 558,846 $ 1,992,000 $ 7,116,641 $ 6,625,671 Average interest rate 2.19 % 1.41 % 0.30 % 0.86 % 0.25 % 1.26 % 65 Table of Contents
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AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) The table which follows provides information about Horizon’s financial instruments that were sensitive to changes in interest rates as of December 31, 2023.
Added
For deposits with no contractual maturity dates, the table presents principal cash flows and weighted average rate, as applicable, based upon Horizon’s experience and management’s judgment concerning the most likely withdrawal behaviors. 2024 2025 2026 2026 & 2027 2029 & Beyond Total Fair Value December 31, 2023 Rate–sensitive assets Fixed interest rate loans $ 617,287 $ 421,897 $ 331,905 $ 480,834 $ 431,672 $ 2,283,595 $ 2,035,552 Average interest rate 5.12 % 4.81 % 4.77 % 5.16 % 4.43 % 4.89 % Variable interest rate loans 1,585,285 175,392 144,219 188,114 42,443 2,135,453 2,038,434 Average interest rate 7.87 % 4.98 % 4.61 % 5.37 % 5.40 % 7.14 % Total loans 2,202,572 597,289 476,124 668,948 474,115 4,419,048 4,073,986 Average interest rate 7.10 % 4.86 % 4.72 % 5.22 % 4.51 % 5.98 % Securities, including FHLB stock 146,379 112,747 121,505 285,933 1,860,834 2,527,398 2,250,518 Average interest rate 3.06 % 2.17 % 2.67 % 2.02 % 2.42 % 2.41 % Other interest earning assets 415,948 — — — — 415,948 415,933 Average interest rate 5.15 % — % — % — % — % 5.15 % Total earning assets $ 2,764,899 $ 710,036 $ 597,629 $ 954,881 $ 2,334,949 $ 7,362,394 $ 6,740,437 Average interest rate 6.59 % 4.43 % 4.30 % 4.26 % 2.84 % 4.71 % Rate–sensitive liabilities Non–interest bearing deposits $ 181,354 $ 151,151 $ 126,119 $ 205,024 $ 452,357 $ 1,116,005 $ 1,116,005 NOW accounts 168,688 151,643 136,343 232,876 999,436 1,688,986 1,688,986 Average interest rate 1.96 % 1.97 % 1.99 % 2.01 % 2.15 % 2.08 % Savings and money market accounts 248,025 207,640 177,397 281,134 765,967 1,680,163 1,680,163 Average interest rate 1.71 % 1.74 % 1.74 % 1.74 % 1.74 % 1.73 % Certificates of deposit 1,111,003 43,375 11,628 9,442 4,291 1,179,739 1,171,452 Average interest rate 4.10 % 2.90 % 0.66 % 0.87 % 0.11 % 3.98 % Total deposits 1,709,070 553,809 451,487 728,476 2,222,051 5,664,893 5,656,606 Average interest rate 3.11 % 1.42 % 1.30 % 1.32 % 1.57 % 1.96 % Fixed interest rate borrowings 1,015,922 200,080 65 56,496 — 1,272,563 1,086,325 Average interest rate 3.49 % 4.01 % 2.63 % 5.74 % — % 3.67 % Variable interest rate borrowings 193,288 — — — — 193,288 161,424 Average interest rate 4.33 % — % — % — % — % 4.33 % Total funds $ 2,918,280 $ 753,889 $ 451,552 $ 784,972 $ 2,222,051 $ 7,130,744 $ 6,904,355 Average interest rate 3.32 % 2.11 % 1.30 % 1.64 % 1.57 % 2.33 % 70

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