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What changed in HORIZON BANCORP INC /IN/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of HORIZON BANCORP INC /IN/'s 2023 and 2024 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 2024 report.

+307 added−313 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-15)

Top changes in HORIZON BANCORP INC /IN/'s 2024 10-K

307 paragraphs added · 313 removed · 185 edited across 6 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

66 edited+24 added−11 removed104 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. 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.
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.
As described in detail below in “Item 3 - Legal Proceedings,” on April 20, 2023, a putative class action was filed against the Company and two of its officers in the U.S.
As described in detail below in “Item 3 - Legal Proceedings,” on April 20, 2023, a putative class action lawsuit was filed against the Company and two of its officers in the U.S.
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.
Acquiring other banks, businesses, or branches 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.
If rates increase rapidly, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments re–price, resulting in a negative impact on interest spreads and net interest income. The impact of rising rates could be compounded if deposit customers funds away from us into direct investments, such as U.S.
Alternatively, as rates increase, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments re–price, resulting in a negative impact on interest spreads and net interest income. The impact of rising rates could be compounded if deposit customers funds away from us into direct investments, such as 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.
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, U.S. government agency mortgage-backed securities, private labeled mortgage–backed pools and corporate notes.
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.
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. 2024 Annual Report on Form 10–K Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our operations.
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.
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, 2024.
In connection with high–profile bank failures, uncertainty and concern has been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.
In connection with high–profile bank failures, uncertainty and concern may be compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.
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. Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company's expenses and affect the Company's operations.
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. Any regulatory examination scrutiny or new regulatory requirements in the banking industry could increase the Company's expenses and affect the Company's 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.
Pandemics, 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.
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.
As of December 31, 2024, we had $165.4 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.
These market developments have caused general uncertainty and concern regarding the liquidity adequacy of the banking industry and in particular, regional banks like Horizon.
These market developments may cause general uncertainty and concern regarding the liquidity adequacy of the banking industry and in particular, regional banks like Horizon.
These market developments have negatively impacted customer confidence in the safety and soundness of financial institutions, as well as have caused significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets.
These market developments may negatively impact customer confidence in the safety and soundness of financial institutions, as well as cause significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets.
Our competitors include large banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, neo–banks (a digital or mobile–only bank that exists without any physical bank branches), and other non–bank financial and digital service providers, many of which have greater financial, marketing and technological resources than we do.
Our competitors include large banks, local community banks, savings and loan associations, securities and brokerage 30 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, neo–banks (a digital or mobile–only bank that exists without any physical bank branches), and other non–bank financial and digital service providers, many of which have greater financial, marketing and technological resources than we do.
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.
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.
Liquidity risk is the possibility of being unable to meet obligations as they come due, pay deposits when withdrawn, capitalized on growth opportunities as they arise, or pay dividends because of an inability to liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances.
Liquidity risk is the possibility of being unable to meet obligations as they come due, pay deposits when withdrawn, capitalized on growth opportunities as they arise, or pay dividends because of an inability to 21 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances.
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.
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. Operational Risk Our internal controls may be ineffective, circumvented, or fail.
Any failure or circumvention of our controls and procedures, failure to implement any necessary improvement of controls and procedures, or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
Any failure or circumvention of our controls and procedures, failure to implement any necessary improvement of controls and procedures, or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations. In addition, merger and acquisition costs incurred by Horizon may temporarily increase operating expenses.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations.
As a result, before making an investment decision, you should carefully consider these risks as well as information we include or incorporate by reference in this report and other filings we make with the SEC. Some statements in the following risk factors constitute forward–looking statements.
As a result, before making an investment 17 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K decision, you should carefully consider these risks as well as information we include or incorporate by reference in this report and other filings we make with the SEC. Some statements in the following risk factors constitute forward–looking statements.
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.
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.
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition. Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition.
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition. The macroeconomic environment in the United States is susceptible to global events and volatility in financial markets.
The Company also anticipates increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase the Company's costs of doing business and reduce its profitability.
Any increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address any negative developments in the banking industry, a change in the regulatory priorities of the prudential bank regulators, or otherwise may increase the Company's costs of doing business and reduce its profitability.
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.
Increasing rates 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.
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.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. 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.
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.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. 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.
Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair Horizon's business operations and its financial results. This report is qualified in its entirety by these risk factors.
Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair Horizon's business operations and its financial results. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.
Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, our depositors or counterparties participating in the capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity.
Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, our depositors or counterparties participating in the capital markets, may adversely affect our capital costs and 22 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K our ability to raise capital and, in turn, our liquidity.
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.
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. 28 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K We are subject to extensive regulation and changes in laws and regulatory policies could adversely affect our business.
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 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.
In order to guard against this increased risk, we perform investigations on the mortgage companies and other third parties who originate loans we purchase, and we review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance.
In order to guard against this increased risk, we perform investigations on third parties who originate loans we purchase, and we review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance. However, there is no guarantee that our procedures will detect all cases of fraud or legal noncompliance.
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.
If we are unable to attract and retain an effective lending team and other talented people, our business could suffer.
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.
Failure to adapt effectively could constrain our ability to invest in competitive products, hampering long-term growth and competitiveness. 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.
Our articles of incorporation provide for a staggered board, which means that only one–third of our board can be replaced by shareholders at any annual meeting. Our articles also provide that our directors may only be removed without cause by shareholders owning 70% or more of our outstanding common stock.
Our articles of incorporation provide for a staggered board, which means that only one–third of our board can be replaced by shareholders at any annual meeting.
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.
Our indirect lending operations are subject to a higher fraud risk than our other lending operations. We originate auto loans through automobile dealers. Because we must rely on 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.
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.
In addition, as market interest rates rise, the value of the Company's investment 19 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K securities, particularly those that have fixed rates or longer maturities, could decrease.
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.
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.
We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default by our counterparty or client.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients.
Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and many other aspects of our business. Changes in applicable laws, regulations or regulator policies can materially affect our business. The likelihood of any major changes in the future and their effects are impossible to predict.
Many of these regulations are intended to protect depositors, the public or the FDIC insurance funds, not shareholders. Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and many other aspects of our business. Changes in applicable laws, regulations or regulator policies can materially affect our business.
Our articles also preempt Indiana law with respect to business combinations with a person who acquires 10% or more of our common stock and provide that such transactions are subject to independent and super–majority shareholder approval requirements unless certain pricing and board pre–approval requirements are satisfied.
Our articles also provide that our directors may only be removed without cause by shareholders owning 70% or more of our outstanding common stock. 29 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K Our articles also preempt Indiana law with respect to business combinations with a person who acquires 10% or more of our common stock and provide that such transactions are subject to independent and super–majority shareholder approval requirements unless certain pricing and board pre–approval requirements are satisfied.
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.
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.
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 likelihood of any major changes in the future and their effects are impossible to predict. 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.
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.
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.
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.
However, 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.
See “Regulation and Supervision” in the description of our Business in Item 1 of Part I of this report for detailed information on the laws and regulations to which we are subject. Many of these regulations are intended to protect depositors, the public or the FDIC insurance funds, not shareholders.
Our operations are subject to extensive regulation by federal and state agencies. See “Regulation and Supervision” in the description of our Business in Item 1 of Part I of this report for detailed information on the laws and regulations to which we are subject.
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.
Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not have to increase 24 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K the allowance for loan losses and/or sustain loan losses that are significantly higher than the provided allowance.
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.
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. Although we have selected these third–party vendors carefully, we do not control their actions.
Historically, U.S. and global markets have been adversely impacted by political and civil unrest occurring in the Middle East, Eastern Europe, Russia, Venezuela and Asia. The current Russia and Ukraine conflict has raised similar economic and financial market concerns causing uncertainty and disruption in financial markets globally and further straining an already struggling global supply chain.
Historically, U.S. and global markets have been adversely impacted by political and civil unrest occurring in the Middle East, Eastern Europe, Russia, Venezuela and Asia.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices 27 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K not sufficient to recover the full amount of the loan or derivative exposure due us.
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system and could have a material effect on our operations and/or stock price.
Negative developments affecting the banking industry, and resulting media coverage, may erode customer confidence in the banking system and could have a material effect on our operations and/or stock price. High–profile 2023 bank failures can generate significant market volatility among publicly traded bank holding companies and, in particular, regional banks.
To the extent we are involved in any future cyber–attacks or other breaches, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance we maintain.
Further cyber–attacks or other breaches in the future, whether affecting us or others, could intensify consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of which could have a material adverse effect on our business. 23 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K To the extent we are involved in any future cyber–attacks or other breaches, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance we maintain.
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.
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.
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.
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. 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.
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.
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. At December 31, 2024 $802.9 million or 16.6% of our loan portfolio consisted of commercial real estate loans.
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.
In addition, merger and acquisition costs incurred by Horizon may temporarily increase operating expenses. 26 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K 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.
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.
At December 31, 2024, nonperforming commercial loans, commercial real estate loans, and consumer loans totaled $26,958 and 0.6%, respectively. 18 Table of Contents HORIZON BANCORP, INC. 2024 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.
While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including previously uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.
While the Department of the Treasury, the Federal Reserve, and the FDIC may take measures to reassure depositors when bank failures occur, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly. The soundness of other financial institutions could adversely affect us.
Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.
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, Google Pay, and PayPal can alter consumer credit card behavior and consequently impact our interchange fee income.
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.
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 lower interest rate environment generally results in higher demand for mortgage products, and if demand increases, mortgage banking income will be positively impacted by more gains on sale.
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.
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.
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. 27 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K Legal/Regulatory/Compliance Risk As a public company, we face the risk of shareholder lawsuits and other related or unrelated litigation, particularly if we experience declines in the price of our common stock.
Legal/Regulatory/Compliance Risk As a public company, we face the risk of shareholder lawsuits and other related or unrelated litigation, particularly if we experience declines in the price of our common stock.
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.
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.
We also depend heavily on our experienced and effective lending teams and their respective special market insights, including, for example, our agricultural lending specialists. 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.
In addition to the importance of retaining our lending team, we will also need to continue to attract and retain qualified 25 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K banking personnel at all levels. Competition for such personnel is intense in our geographic market areas.
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.
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.
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.
If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
Furthermore, such events have the potential to adversely impact the availability of commodities, commodity prices, and create global inflationary pressures.
The on-going Russia and Ukraine conflict has continued to raise similar economic and financial market concerns causing uncertainty and disruption in financial markets globally and resulting in a re-ordering of certain global supply chains, particularly within the energy sector. Furthermore, such events have the potential to adversely impact the availability of commodities, commodity prices, and create global inflationary pressures.
Removed
These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results. Because our stock is moderately traded, it may be more difficult for you to sell your shares or buy additional shares when you desire to do so and the price may be volatile.
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. At December 31, 2024 $3.08 billion or 63.5% of our loan portfolio consisted of commercial loans.
Removed
Although our common stock has been listed on the NASDAQ stock market since December 2001, our common stock is moderately traded. The prices of moderately traded stocks, such as ours, can be more volatile than stocks traded in a large, active public market and can be more easily impacted by sales or purchases of large blocks of stock.
Added
At December 31, 2024 $966.0 million or19.9% of our loan portfolio consisted of consumer loans Consumer loans generally involve greater risk than residential mortgage loans because they are unsecured or secured by assets that depreciate in value.
Removed
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.
Added
Residential mortgage loans and consumer loans may present increase during periods 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.
Removed
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.
Added
For example, as interest rates decline, the amount of interest-earning assets expected to reprice will increase as borrowers have an economic incentive to reduce the cost of their mortgage or debt, which would negatively impact our interest income.
Removed
Further cyber–attacks or other breaches in the future, whether affecting us or others, could intensify consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of which could have a material adverse effect on our business.
Added
These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results. The trading volume in our common stock is less than that of other larger financial institutions. Although our common stock is listed on the Nasdaq Global Select Market, the trading volume in the common stock may be less than that of other, larger financial services companies.
Removed
High–profile 2023 bank failures including Silicon Valley Bank, Signature Bank and First Republic Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks.
Added
A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.
Removed
These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession.
Added
During any period of lower trading volume of our common stock, significant sales of shares of our common stock, or the expectation of these sales, could cause our common stock price to fall. Liquidity Risk We are subject to liquidity risk in our operations, which could adversely affect the ability to fund various obligations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

12 edited+1 added−0 removed9 unchanged
Biggest changeFor independence, the Information Security Officer reports to Horizon's Senior Vice President, 31 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K Senior Auditor and Compliance Officer. Horizon's risk escalation framework requires progressive escalation of cyber security risks to Management and its Committees, then to Board Committees and, ultimately, to the Board.
Biggest changeFor independence, the Information Security Officer reports to Horizon's Senior Vice President, Senior Auditor and Compliance Officer. Horizon's risk escalation framework requires progressive escalation of cyber security risks to Management and its Committees, then to Board Committees and, ultimately, to the Board. Management's Operations Committee meets quarterly and provides oversight and governance of the technology and cyber security programs.
It also maintains a third–party risk management program designed to identify, assess, and manage risk, including cybersecurity risks, associated with external service providers and our supply chain. The Executive Vice President, Senior Operations Officer has 34 years of experience in operations and technology with an educational background in Business Administration.
It also maintains a third–party risk management program designed to identify, assess, and manage risk, including cybersecurity risks, associated with external service providers and our supply chain. The Executive Vice President, Senior Operations Officer has 35 years of experience in operations and technology with an educational background in Business Administration.
In the role of Senior Bank Operations Officer and Executive for the past 23 years, she oversees and works closely with Horizon's technology and security teams to develop and implement robust security measures to protect the Bank's systems, networks, and customer data.
In the role of Senior Bank Operations Officer and Executive for the past 24 years, she oversees and works closely with Horizon's technology and security teams to develop and implement robust security measures to protect the Bank's systems, networks, and customer data.
He attends numerous industry training sessions including those put on by the SANS Institute, PaloAlto, Cisco, Microsoft, the Cybersecurity and Infrastructure Security Agency (CISA), and FS–ISAC. The Vice President, Information Security and Audit Information Security Officer has 27 years as an IT Professional, with the last 8 as the cybersecurity leader for Horizon Bank with an education background in Technology.
He attends numerous industry training sessions including those put on by the SANS Institute, PaloAlto, Cisco, Microsoft, the Cybersecurity and Infrastructure Security Agency (CISA), and FS–ISAC. The Vice President, Information Security and Audit Information Security Officer has 28 years as an IT Professional, with the last 9 as the cybersecurity leader for Horizon Bank with an education background in Technology.
Pursuant to the Cyber Security Committee Charter, the Cyber Security Committee is required to meet at least three times per year and report to the Board annually. The Cyber Security Committee met three times in 2023.
Pursuant to the Cyber Security Committee Charter, the Cyber Security Committee is required to meet at least three times per year and report to the Board annually. The Cyber Security Committee met three times in 2024.
The Senior Vice President, Senior Technology Officer has 27 years of experience in information technology, with the last 12 as the information technology leader for the Bank. He holds a Bachelor's Degree in Computer Science.
The Senior Vice President, Senior Technology Officer has 28 years of experience in information technology, with the last 13 as the information technology leader for the Bank. He holds a Bachelor's Degree in Computer Science.
Horizon's senior management briefs the Cyber Security Committee at each Cyber Security Committee meeting (see below for detailed discussion). In 2023, Horizon's information technology/cyber security program was audited by Horizon's internal and external auditors.
Horizon's senior management briefs the Cyber Security Committee at each Cyber Security Committee meeting (see below for detailed discussion). In 2024, Horizon's information technology/cyber security program was audited by RSM and internal audit.
Notwithstanding our defensive measures and processes, the threat posed by cyber–attacks is severe. Our internal systems, processes, and controls are designed to mitigate loss from cyberattacks and, while we have experienced cybersecurity incidents in the past, to date, risks from cybersecurity threats have not materially affected our Company. See Item 1A.
Our internal systems, processes, and controls are designed to mitigate loss from cyberattacks and, while we have experienced cybersecurity incidents in the past, to date, risks from cybersecurity threats have not materially affected our Company. See Item 1A.
Management's Operations Committee meets monthly and provides oversight and governance of the technology and cyber security programs. The Senior Vice President, Senior Technology Officer and Information Security Officer are members of this committee and report monthly on the technology and cyber security programs.
The Senior Vice President, Senior Technology Officer and Information Security Officer are members of this committee and report monthly on the technology and cyber security programs.
In addition, the Cyber Security Committee Charter provides that a majority of the Cyber Security Committee's voting members must qualify as independent directors under SEC rules and NASDAQ listing standards. During 2023, 80% of the Cyber Security Committee's members qualified as independent.
In addition, the Cyber Security Committee Charter provides that a majority of the Cyber Security Committee's voting members 31 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K must qualify as independent directors under SEC rules and NASDAQ listing standards. During 2024, 3 of the Cyber Security Committee's members qualified as independent.
Risk Factors for further discussion of risks related to cyber security in Horizon's 2023 Annual Report on Form 10–K filed with the Securities and Exchange Commission. 32 Table of Contents HORIZON BANCORP, INC. 2023 Annual Report on Form 10–K
Risk Factors for further discussion of risks related to cyber security. 33 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K
Through continuous learning and professional development, the Information Security Officer has honed his expertise in cybersecurity frameworks, threat detection, incident response, and risk management. He also serves as a member of the Indiana Bankers Association (IBA) Cyber Security Committee and attends numerous industry training sessions including those put on by Microsoft, FS–ISAC, SANS Institute.
Through continuous learning and professional development, the Information Security Officer has honed his expertise in cybersecurity frameworks, threat detection, incident response, and risk management.
Added
He also serves as a member of the Indiana Bankers Association (IBA) Cyber Security Committee and attends numerous industry training sessions including those put on by Microsoft, FS–ISAC, SANS Institute. 32 Table of Contents HORIZON BANCORP, INC. 2024 Annual Report on Form 10–K Notwithstanding our defensive measures and processes, the threat posed by cyber–attacks is severe.

Item 2. Properties

Properties — owned and leased real estate

1 edited+1 added−1 removed1 unchanged
Biggest changeIn addition to these principal facilities, the Bank has 70 sales offices located in various cities and towns in northern and central Indiana and southern and central Michigan. Horizon maintains such branches and offices as it believes are necessary for the convenience of its customers and the community, and Horizon frequently assesses the suitability of all its business locations.
Biggest changeHorizon maintains such branches and offices as it believes are necessary for the convenience of its customers and the community, and Horizon frequently assesses the suitability of all its business locations. Horizon owns all of its facilities except for a leased office in Grand Rapids, Michigan.
Removed
Horizon owns all of its facilities except for a leased office in Grand Rapids, Michigan.
Added
In addition to these principal facilitie s, the Bank has 71 sales offices locate d in various cities and towns in northern and central Indiana and southern and central Michigan.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−3 removed1 unchanged
Biggest changePrior 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.
Biggest changePrior to that date, the common stock was traded on the NASDAQ Capital Market. 34 Table of Contents HORIZON BANCORP, INC. December 31 December 31 December 31 December 31 December 31 December 31 Index 2019 2020 2021 2022 2023 2024 Horizon Bancorp, Inc. 100.00 87.14 118.01 88.20 88.57 104.69 Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93 S&P U.S.
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 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 2024.
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 return represented in the graph assumes the investment of $100 on December 31, 2019, 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.
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.
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 12, 2025 was 1,272.
Removed
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.
Added
SmallCap Banks Index 100.00 90.82 126.43 111.47 112.03 132.44 Source: S&P Global Market Intelligence © 2024
Removed
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.
Removed
December 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

Item 7. Management's Discussion & Analysis

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

101 edited+77 added−104 removed28 unchanged
Biggest changeTwelve 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.
Biggest changeYears Ended December 31, 2024 December 31, 2023 December 31, 2022 Average Balance Interest Avg Rate Average Balance Interest Avg Rate Average Balance Interest Avg Rate Assets Interest earning assets Interest-bearing deposits in banks $ 187,262 $ 9,680 5.17 % $ 95,795 $ 4,967 5.19 % $ 75,807 $ 306 0.40 % Federal Home Loan Bank stock 49,879 5,430 10.89 % 33,312 2,250 6.75 % 25,899 1,034 3.99 % Investment securities – taxable 1,290,190 24,865 1.93 % 1,658,160 32,160 1.94 % 1,700,418 32,168 1.89 % Investment securities – non–taxable (1) 1,134,198 32,201 2.84 % 1,236,607 35,929 2.91 % 1,356,045 36,741 2.71 % Loans receivable (2)(3)(4) 4,682,978 292,485 6.25 % 4,244,893 245,594 5.79 % 3,845,137 174,184 4.53 % Total interest earning assets (1) 7,344,507 364,661 4.97 % 7,268,767 320,900 4.41 % 7,003,306 244,433 3.49 % Non–interest earning assets Cash and due from banks 102,581 102,535 99,885 Allowance for loan losses (51,282) (49,774) (52,606) Other assets 433,752 548,100 483,330 Total average assets $ 7,829,558 $ 7,869,628 $ 7,533,915 Liabilities and Stockholders’ Equity Interest bearing liabilities Interest-bearing demand deposits $ 1,672,181 $ 27,504 1.64 % $ 1,749,674 $ 22,083 1.26 % $ 1,971,567 $ 5,460 0.28 % Savings and money market deposits 1,693,394 39,581 2.34 % 1,597,732 24,230 1.52 % 1,750,544 4,868 0.28 % Time deposits 1,165,349 47,957 4.12 % 1,151,182 39,544 3.44 % 791,557 7,481 0.95 % Borrowings 1,166,145 42,059 3.61 % 1,154,714 39,514 3.42 % 696,584 11,938 1.71 % Repurchase agreements 119,605 2,871 2.40 % 137,153 2,964 2.16 % 141,048 527 0.37 % Subordinated notes 55,651 3,319 5.96 % 58,764 3,511 5.97 % 58,819 3,522 5.99 % Junior subordinated debentures issued to capital trusts 57,362 4,588 8.00 % 57,137 4,715 8.25 % 56,899 2,719 4.78 % Total interest bearing liabilities 5,929,687 167,879 2.83 % 5,906,356 136,561 2.31 % 5,467,018 36,515 0.67 % Non–interest bearing liabilities Demand deposits 1,085,195 1,181,233 1,332,937 Accrued interest payable and other liabilities 76,883 75,765 50,330 Stockholders’ equity 737,793 706,274 683,630 Total average liabilities and stockholders’ equity $ 7,829,558 $ 7,869,628 $ 7,533,915 Net FTE interest income (Non-GAAP) and spread (5) $ 196,782 2.13 % $ 184,339 2.10 % $ 207,918 2.81 % Less FTE adjustments (4) $ 8,178 $ 8,595 $ 8,400 Net Interest Income $ 188,604 $ 175,744 $ 199,518 Net FTE interest margin (Non-GAAP) (4)(5) 2.68 % 2.54 % 2.97 % (1) Securities balances represent daily average balances for the fair value of securities.
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.
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. 49 Table of Contents HORIZON BANCORP, INC.
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.
Off–Balance Sheet Arrangements As of December 31, 2024, 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.
Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on deposits and borrowings. Changes in the net interest income are the result of changes in volume and the net interest spread which affects the net interest margin.
Net Interest Income The largest component of income is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on deposits and borrowings. Changes in the net interest income are the result of changes in volume and the net interest spread which affects the net interest margin.
The increase during 2023 was primarily due to jumbo fixed rate loan growth that are held on the balance sheet, as variable rate loans remained flat during the year.
The increase during 2024 was primarily due to jumbo fixed rate loan growth that are held on the balance sheet, as variable rate loans remained flat during the year.
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.
The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations. 39 Table of Contents HORIZON BANCORP, INC.
The Bank also utilizes external data sources to monitor commercial real estate segment and market trends. 45 Table of Contents HORIZON BANCORP, INC.
The Bank also utilizes external data sources to monitor commercial real estate segment and market trends. 51 Table of Contents HORIZON BANCORP, INC.
The top five segments within the owner occupied real estate portfolio as of December 31, 2023 as a percentage of total commercial loans were health care and education; individuals and other services; real estate rental and leasing; retail trade; and manufacturing with the highest concentration in health care and education at approximately 6% of total commercial loans.
The top five segments within the owner occupied real estate portfolio as of December 31, 2024 as a percentage of total commercial loans were health care and education; individuals and other services; real estate rental and leasing; retail trade; and manufacturing with the highest concentration in health care and education at approximately 22% of total commercial loans.
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.
Critical Accounting Estimates The Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10–K for 2024 contain a summary of the Company’s significant accounting policies.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Changes in the mix of the loan portfolio averages are shown in the following table.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Changes in the mix of the loans HFI portfolio averages are shown in the following table.
The term “off–balance sheet arrangement” generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party and under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
The term “off–balance sheet arrangement” generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party and under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. 59 Table of Contents HORIZON BANCORP, INC.
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%.
In addition to the customary real estate loans described above, the Bank also had outstanding on December 31, 2024, $470.8 million in revolving home equity lines of credit compared to $478.7 million at December 31, 2023. Credit lines normally limit the loan to collateral value to no more than 89%.
The increase during 2023 was due to growth in all types of commercial loans.
The increase during 2024 was due to growth in all types of commercial loans.
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.
As of December 31, 2024 and 2023, approximately $2.5 billion and $2.6 billion, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for Horizon Bank's regulatory reporting requirements.
Horizon operates as a single segment, which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. The Bank was founded in 1873 as a national association, and it remained a national association until its conversion to an Indiana commercial bank effective June 23, 2017.
Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. The Bank was founded in 1873 as a national association, and it remained a national association until its conversion to an Indiana commercial bank effective June 23, 2017.
The top five segments within the non–owner occupied real estate portfolio as of December 31, 2023 as a percentage of total commercial loans were lessor's of mutli–family; warehouse and industrial; retail; hospitality; and non–medical offices with the highest concentration in lessor's of mutli–family at approximately 10% of total commercial loans.
The top five segments within the non–owner occupied real estate portfolio as of December 31, 2024 as a percentage of total commercial loans were lessor's of multi–family; warehouse and industrial; retail; hospitality; and non–medical offices with the highest concentration in lessor's of multi–family at approximately 19% of total commercial loans.
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.
At December 31, 2024, the Bank had $1.0 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 dep osits due within one year of December 31, 2024 totaled $1.0 billion, or 94.0% of time deposits.
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.
The current level of total loans increased 9.7% from the December 31, 2023, level of $4.4 billion primarily due to an increase in commercial and residential mortgage loans, offset by a decrease in consumer, residential construction and mortgage warehouse loans during the year. The table below provides comparative detail on the loan categories.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Deferred Tax Horizon had a net deferred tax asset totaling $33.5 million as of December 31, 2023 and a net deferred tax asset of $40.3 million as of 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) Deferred Tax Horizon had a net deferred tax asset totaling $49.9 million as of December 31, 2024 and a net deferred tax asset of $33.5 million as of December 31, 2023.
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.
During 2024, a provision for credit losses on loans was recorded totaling $5.4 million compared to $2.5 million in 2023. Horizon assesses the adequacy of its Allowance for Credit Losses (“ACL”) by regularly reviewing the performance of all of its loan portfolios.
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.
The transactional accounts average balances, as the lower cost funding sources, decreased $77.9 million and the average balances for higher cost time deposits increased $14.2 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.
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.
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 $35.4 million, or $0.80 per diluted share, in 2024, $28.0 million or $0.64 per diluted share in 2023, and $93.4 million or $2.14 per diluted share in 2022.
The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.
The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index as well as a breakdown of floating rate loans.
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.
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.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Commercial Loans Commercial loans totaled $2.67 billion, or 60.6% of total loans as of December 31, 2023, compared to $2.47 billion, or 59.3% as of 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) Commercial Loans HFI Commercial loans totaled $3.08 billion, or 63.5% of total loans as of December 31, 2024, compared to $2.67 billion, or 60.6% as of December 31, 2023.
Of the commercial loans with interest rate floors, loans totaling $52.3 million were at their floor at December 31, 2023. The Bank's commercial loan portfolio consists generally of approximately 27% commercial and industrial loans and approximately 73% commercial real estate loans. Commercial loans are originated in the primary geographic markets of Indiana and Michigan.
Of the commercial loans with interest rate floors, loans totaling $39.3 million were at their floor at December 31, 2024. The Bank's commercial loan portfolio consists generally of approximately 28% commercial and industrial loans and approximately 72% commercial real estate loans. Commercial loans are originated in the primary geographic markets of Indiana and Michigan.
Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.
Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The Company considers these policies to be its critical accounting estimates.
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.
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, 2024 2023 2022 Mortgage servicing rights Balances, January 1 $ 18,807 $ 18,619 $ 17,780 Servicing rights capitalized 1,359 1,220 3,184 Amortization of servicing rights (1,971) (1,032) (2,345) Balances, December 31 18,195 18,807 18,619 Impairment allowance Balances, January 1 — — (2,594) Additions — — — Reductions — — 2,594 Balances, December 31 — — — Mortgage servicing rights, net $ 18,195 $ 18,807 $ 18,619 Mortgage Warehouse Loans Horizon’s mortgage warehousing lending has specific mortgage companies as customers of Horizon Bank.
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.
These are uncommitted lines and could be withdrawn at any time by the correspondent banks. ◦ Horizon had a total of $800.8 million of available collateral at the FRB secured by securities.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Residential Real Estate Loans Residential real estate loans totaled $681.1 million, or 15.4% of total loans as of December 31, 2023, compared to $653.3 million, or 15.7% of total loans as of 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) Residential Real Estate Loans Residential real estate loans totaled $802.9 million, or 16.6% of total loans as of December 31, 2024, compared to $681.1 million, or 15.4% of total loans as of December 31, 2023.
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.
As indicated above, 17.3% of the investment portfolio consists of U.S. government agency mortgage backed securities. 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.
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.
At December 31, 2024, Horizon had available approximately $1.7 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 $1.1 billion with the FHLB and total borrowing capacity with the FHLB of $1.6 billion.
The top five segments with the commercial and industrial portfolio as of December 31, 2023 as a percentage of total commercial loans were finance and insurance; individuals and other services; manufacturing; health care and education; and real estate rental and leasing, with the highest concentration in finance and insurance at approximately 5% of total commercial loans.
The top five segments with the commercial and industrial portfolio as of December 31, 2024 as a percentage of total commercial loans were finance and insurance; construction; manufacturing; health care and education; and individuals and other services, with the highest concentration in health care and education at approximately 15% of total commercial loans.
Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses. Management believes that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans and leases as of the balance sheet date. Actual losses incurred may differ materially from our estimates.
Management believes that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans and leases as of the balance sheet date. Actual losses incurred may differ materially from our estimates.
Total deposits were $5.7 billion at December 31, 2023, compared to $5.9 billion at December 31, 2022.
Total deposits were $5.6 billion at December 31, 2024, compared to $5.7 billion at December 31, 2023.
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.
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. ◦ Horizon had a total of $190.0 million of unused Federal Fund lines from various money center banks.
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.
At December 31, 2024 and 2023, Horizon had investments in the common stock of the Federal Home Loan Bank totaling $53.8 million and $34.5 million, respectively. At December 31, 2024, Horizon did not maintain a trading account.
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.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Financial Condition Horizon’s total assets were $7.8 billion as of December 31, 2024, a decrease of $139.3 million from 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) Allowance for Credit Losses on Held to Maturity Securities For held to maturity securities, the Company conducts an assessment of its held to maturity securities at the time of purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to perform satisfactorily in fulfilling its obligations.
Allowance for Credit Losses on Held to Maturity Securities For held to maturity securities, the Company conducts an assessment of its held to maturity securities at the time of purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to perform satisfactorily in fulfilling its obligations.
Yields are not presented on a tax–equivalent basis. As a member of the Federal Home Loan Bank system, Horizon is required to maintain an investment in the common stock of the Federal Home Loan Bank. The investment in common stock is based on a predetermined formula.
Yields on tax-exempt securities have been computed on a tax-equivalent basis using the federal statutory tax rate of 21%. As a member of the Federal Home Loan Bank system, Horizon is required to maintain an investment in the common stock of the Federal Home Loan Bank. The investment in common stock is based on a predetermined formula.
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.
The following table shows the major components of deferred tax: December 31, December 31, 2024 2023 Assets Allowance for credit losses $ 12,590 $ 12,546 Net operating loss and tax credits 10,805 9,592 Director and employee benefits 3,334 2,471 Unrealized loss on AFS securities and cash flow hedge 29,355 17,706 Basis in partnership equity investments 1,940 1,322 Capital loss carryover — 5,201 Fair value adjustment on acquisitions 883 — Other 2,938 2,856 Total assets 61,845 51,694 Liabilities Depreciation (4,061) (4,512) State tax — (253) Federal Home Loan Bank stock dividends (353) (365) Difference in basis of intangible assets (6,553) (4,545) Fair value adjustment on acquisitions — (2,142) Other (1,003) (1,131) Total liabilities (11,970) (12,948) Valuation allowance — (5,201) Net deferred tax asset/(liability) $ 49,875 $ 33,545 Deposits The primary source of funds for the Bank comes from the acceptance of demand and time deposits.
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.
Securities that have interest rates above current market rates are purchased at a premium. 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 issuers. A credit review is performed annually on the municipal securities portfolio.
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.
The increase in net income from the previous year reflects an increase of total interest income of $44.2 million and a decrease in income tax expense of $19.1 million, offset by increases in interest expense of $31.3 million, increases in non-interest expense of $12.6 million, and increase in credit loss expense of $2.9 million.
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.
At December 31, 2024 and 2023, 11% and 22%, 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, in accumulated other comprehensive income or loss, a component of stockholders’ equity.
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.
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. 55 Table of Contents HORIZON BANCORP, INC.
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.
Commercial loans consisted of the following types of loans at December 31: December 31, 2024 December 31, 2023 Number Amount Percent of Portfolio Number Amount Percent of Portfolio SBA guaranteed 284 $ 74,342 2 % 258 $ 54,806 2.0 % Municipal government 104 126,488 4 % 69 101,676 3.8 % Lines of credit 1,512 665,981 22 % 1,467 590,943 22.1 % Real estate and equipment 4,767 2,211,345 72 % 5,313 1,927,535 72.1 % Total 6,667 $ 3,078,156 100 % 7,107 $ 2,674,960 100.0 % At December 31, 2024, the commercial loan portfolio held $355.6 million of adjustable rate loans that had interest rate floors in the terms of the note.
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.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) ◦ 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in northern and central Indiana and southern and central Michigan through its bank subsidiary, Horizon Bank.
Overview Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in northern and central Indiana and southern and central Michigan through its bank subsidiary, Horizon Bank. Horizon operates as a single segment, which is commercial banking.
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.
Net unrealized losses on these securities totaled $48.3 million, which resulted in a balance of $38.2 million, net of tax, included in stockholders’ equity at December 31, 2024. This compared to net unrealized loss on securities which totaled $69.0 million, net of tax, included in stockholders’ equity at December 31, 2023.
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.
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 53 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.
Non–performing loans at December 31, 2024 totaled $27.0 million, an increase from $20.3 million as of December 31, 2023. The level of non–performing loans in 2024 remained consistent when compared to prior years. 54 Table of Contents HORIZON BANCORP, INC.
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.
Cash flows were primarily used to purchase investments totaling $0.3 million, to purchase loans totaling $240.0 million, an increase in net loans of $217.1 million, a decrease in deposits of $64.2 million and the repayment of borrowings totaling $563.5 million. The net cash and cash equivalent position decreased by $233.1 million during 2024.
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.
Therefore, mortgage–backed securities 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, 2024, the mortgage–backed securities in the investment portfolio had an average duration of just over 8 years.
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.
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.
The allowance is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast. Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan is expected to be made through the operation or sale of the collateral.
Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan is expected to be made through the operation or sale of the collateral. Loan balances considered uncollectible are charged–off against the ACL.
Other factors such as economic forecasts used to determine a reasonable and supportable forecast, prepayment assumptions, the value of underlying collateral, and changes in size composition and risks within the portfolio are also considered. The allowance for credit losses is assessed at each balance sheet date and adjustments are recorded in the provision for credit losses.
Estimating credit losses requires judgment in determining loan specific attributes impacting the borrower’s ability to repay contractual obligations. Other factors such as economic forecasts used to determine a reasonable and supportable forecast, prepayment assumptions, the value of underlying collateral, and changes in size composition and risks within the portfolio are also considered.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) Liquidity and Rate Sensitivity Management Management and the Board of Directors meet regularly to review both the liquidity and rate sensitivity position of Horizon.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data)
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.
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 December 31, 2024 - 2023 2023 - 2022 Change Change (Dollars in Thousands) 2024 2023 2022 $ % $ % Service charges on deposit accounts $ 12,940 $ 12,227 $ 11,598 $ 713 5.8 % $ 629 5.4 % Wire transfer fees 461 448 595 13 2.9 % (147) (24.7) % Interchange fees 13,799 12,861 12,402 938 7.3 % 459 3.7 % Fiduciary activities 5,394 5,080 5,381 314 6.2 % (301) (5.6) % Gains (losses) on sale of investment securities (39,140) (32,052) — (7,088) 22.1 % (32,052) 100.0 % Gain on sale of mortgage loans 4,215 4,323 7,165 (108) (2.5) % (2,842) (39.7) % Mortgage servicing income net of impairment 1,677 2,708 4,800 (1,031) (38.1) % (2,092) (43.6) % Increase in cash value of bank owned life insurance 1,300 3,709 2,594 (2,409) (65.0) % 1,115 43.0 % Death benefit on bank owned life insurance — — 644 — — % (644) (100.0) % Other income 2,325 2,694 2,272 (369) (13.7) % 422 18.6 % Total non-interest income $ 2,971 $ 11,998 $ 47,451 $ (9,027) (75.2) % $ (35,453) (74.7) % Total non-interest income decreased $9.0 million for the year ended December 31, 2024 compared to the same period in 2023.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) The $166.8 million decrease in average deposits during 2023 was primarily due to the increase in rates during 2023 creating a competitive deposit environment, in addition to deposits leaving the banking system for alternative investment options.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) relationship accounts, in addition to deposits leaving the banking system for alternative inve stment options.
If these maturing time deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits due on or before December 31, 2023.
Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits due on or before December 31, 2024. We believe, however, based on past experience that a significant portion of our time deposits will remain with us.
Management maintains (within certain parameters) an essentially balanced ratio of interest sensitive assets to liabilities in order to protect against the effects of wide interest rate fluctuations. Liquidity The Bank maintains a stable base of core deposits provided by long standing relationships with consumers and local businesses. These deposits are the principal source of liquidity for Horizon.
Liquidity The Bank maintains a stable base of core deposits provided by long standing relationships with consumers and local businesses. These deposits are the principal source of liquidity for Horizon.
As of December 31, 2023, the real estate loan portfolio reflected a wide range of interest rates and repayment patterns, but could generally be categorized as follows: December 31, 2023 December 31, 2022 Amount Percent of Portfolio Yield Amount Percent of Portfolio Yield Fixed rate Monthly payment $ 402,038 59.0 % 4.06 % $ 375,185 57.4 % 3.76 % Adjustable rate Monthly payment 279,098 41.0 % 4.98 % 278,107 42.6 % 4.21 % Subtotal 681,136 100.0 % 4.44 % 653,292 100.0 % 3.95 % Loans held for sale 1,418 5,807 Total real estate loans $ 682,554 $ 659,099 In addition to the real estate loan portfolio, the Bank originates and sells real estate loans and retains the servicing rights.
As of December 31, 2024, the real estate loan portfolio reflected a wide range of interest rates and repayment patterns, but could generally be categorized as follows: December 31, 2024 December 31, 2023 Amount Percent of Portfolio Yield Amount Percent of Portfolio Yield Fixed rate Monthly payment $ 525,682 65.7 % 4.94 % $ 402,038 59.0 % 4.06 % Biweekly payment 2 — % — % — — % — % Adjustable rate Monthly payment 274,453 34.3 % 5.40 % 279,098 41.0 % 4.98 % Subtotal 800,137 100.0 % 5.10 % 681,136 100.0 % 4.44 % Loans held for sale (1) 2,772 1,418 Total real estate loans $ 802,909 $ 682,554 (1) Loans held for sale excludes mortgage warehouse loans reclassified during Q4 2024.
Average deposits and rates by category for the three years ended December 31 are as follows: Average Balance Outstanding for the Average Rate Paid for the Years Ended December 31 Years Ended December 31 2023 2022 2021 2023 2022 2021 Non–interest bearing demand deposits $ 1,181,233 $ 1,332,937 $ 1,188,275 Interest bearing demand deposits 1,749,674 1,971,567 1,651,060 1.26 % 0.28 % 0.09 % Savings deposits 841,644 940,499 779,325 0.61 % 0.13 % 0.05 % Money market 756,092 810,083 815,081 2.52 % 0.45 % 0.15 % Time deposits 1,151,178 791,519 652,284 3.44 % 0.95 % 0.75 % Total deposits $ 5,679,821 $ 5,846,605 $ 5,086,025 51 Table of Contents HORIZON BANCORP, INC.
Average deposits and rates by category for the three years ended December 31 are as follows: Average Balance Outstanding for the Average Rate Paid for the Years Ended December 31 Years Ended December 31 2024 2023 2022 2024 2023 2022 Non–interest bearing demand deposits $ 1,085,195 $ 1,181,233 $ 1,332,937 Interest bearing demand deposits 1,672,181 1,749,674 1,971,567 1.64 % 1.26 % 0.28 % Savings deposits 755,856 841,644 940,499 0.91 % 0.61 % 0.13 % Money market 937,538 756,092 810,083 3.49 % 2.52 % 0.45 % Time deposits 1,165,349 1,151,178 791,519 4.12 % 3.44 % 0.95 % Total deposits $ 5,616,119 $ 5,679,821 $ 5,846,605 Th e $63.7 million d ecrease in average deposits during 2024 was primarily due to the increase in rates during 2023 creating a competitive deposit environment and management's decision to strategically exit some higher-cost non- 58 Table of Contents HORIZON BANCORP, INC.
The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of income. Horizon excludes the time value expiration of the hedge when measuring ineffectiveness. Valuation Measurements Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued.
Valuation Measurements Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued.
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%).
Investment Securities Investment securities carrying values totaled $2.1 billion at December 31, 2024, and consisted of Treasury and federal agency securities of $280.2 million (13.3%); state and municipal securities of $1.3 billion (59.5%); U.S. government agency mortgage backed securities of $364.3 million (17.3%); private labeled mortgage–backed pools of $29.3 million (1.4%); and corporate securities of $177.1 million (8.4%).
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.
December 31, December 31, 2024 2023 Commercial $ 2,811,689 $ 2,498,453 Real estate 784,043 675,520 Mortgage warehouse 61,219 54,798 Consumer 1,022,619 1,011,166 Total average loans HFI $ 4,679,570 $ 4,239,937 Maturities and Sensitivities of Loans HFI to Changes in Interest Rates The following table presents the maturity distribution based on payment due dates of our loan portfolio as December 31, 2024.
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.
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, 2024: 47 Table of Contents HORIZON BANCORP, INC.
Non–Performing Loans Percent of Non–Performing Loans in Each Category to Total Loans Total Loans December 31, 2023 Commercial $ 7,362 0.28 % $ 2,674,960 Real estate 8,058 1.18 % 681,136 Mortgage warehouse — 0.00 % 45,078 Consumer 4,849 0.48 % 1,016,456 Total $ 20,269 0.46 % $ 4,417,630 Excluding PPP loans $ 20,269 0.46 % $ 4,417,535 Allowance for credit losses on loans $ 50,029 Ratio of allowance for credit losses on loans to non–performing loans 246.83 % December 31, 2022 Commercial $ 9,330 0.38 % $ 2,467,422 Real estate 8,123 1.24 % 653,292 Mortgage warehouse — 0.00 % 69,529 Consumer 4,387 0.45 % 967,755 Total $ 21,840 0.53 % $ 4,157,998 Excluding PPP loans $ 21,840 0.53 % $ 4,157,781 Allowance for credit losses on loans $ 50,464 Ratio of allowance for credit losses on loans to non–performing loans 231.06 % Other Real Estate Owned (“OREO”) totaled $1.2 million on December 31, 2023, a decrease of $759,000 from December 31, 2022 and a decrease of $2.4 million from December 31, 2021.
Non-Accrual Loans Percent of Non–Accrual Loans in Each Category to Total Loans Total Loans December 31, 2024 Commercial $ 5,658 0.18 % $ 3,078,156 Real estate 11,215 1.40 % 802,909 Mortgage warehouse — 0.00 % — Consumer 8,919 0.92 % 965,975 Total $ 25,792 0.53 % $ 4,847,040 Allowance for credit losses on loans $ 51,980 Ratio of allowance for credit losses on loans to non–performing loans 49.62 % December 31, 2023 Commercial $ 7,362 0.28 % $ 2,674,960 Real estate 8,058 1.18 % 681,136 Mortgage warehouse — 0.00 % 45,078 Consumer 4,849 0.48 % 1,016,456 Total $ 20,269 0.46 % $ 4,417,630 Allowance for credit losses on loans $ 50,029 Ratio of allowance for credit losses on loans to non–performing loans 40.51 % Other Real Estate Owned (“OREO”) totaled $0.4 million on December 31, 2024, a decrease of $0.8 million from December 31, 2023.
Investment securities and derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other post–retirement benefit obligations.
Investment securities, mortgage derivatives, and deferred compensation plan assets and associated liabilities are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair value for such assets and liabilities is determined.
On December 31, 2023, OREO was comprised of six properties, three of these properties were bank owned properties from branch closures and three properties were residential. No mortgage warehouse loans were non–performing or OREO as of December 31, 2023, 2022 or 2021. 50 Table of Contents HORIZON BANCORP, INC.
On December 31, 2024, OREO was comprised of two properties, both of which properties were bank owned. No mortgage warehouse loans were non–performing or OREO as of December 31, 2024 and 2023.
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.
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.
For purposes of measuring impairment, risk characteristics including product type, investor type and interest rates, were used to stratify the originated mortgage servicing rights. 46 Table of Contents HORIZON BANCORP, INC.
Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including loan term, rate type and investor type, were used to stratify the originated mortgage servicing rights. 52 Table of Contents HORIZON BANCORP, INC.
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.
AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) 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, 2024 Commercial $ 30,953 63.5 % $ 3,078,156 1.01 % Real estate 2,715 16.6 % 802,909 0.34 % Mortgage warehouse — — % — — % Consumer 18,312 19.9 % 965,975 1.90 % Total $ 51,980 100.0 % $ 4,847,040 1.07 % 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 % At December 31, 2024, the allowance for credit losses was $52.0 million, or 1.07% of total loans outstanding, compared to $50.0 million, or 1.13%, at December 31, 2023.
Horizon considers the allowance for credit losses to be adequate to cover losses inherent in the loan portfolio as of December 31, 2023. Non–performing Loans Non–performing loans are defined as loans that are greater than 90 days delinquent or have had the accrual of interest discontinued by management.
This decrease was partially offset by increases in the Company's installment portfolio. Credit Quality Non-Performing Assets Non–performing loans are defined as loans that are greater than 90 days delinquent or have had the accrual of interest discontinued by management.
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.
(3) Non-accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees.
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 totaled 39.2%, 40.2% and 47.0% of the allowance for credit losses at December 31, 2023, 2022 and 2021, 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 as a percentage of total loans was 0.56% as of December 31, 2024, an increase from 0.46% as of 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) 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.
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 December 31, 2024 - 2023 2023 - 2022 Change Change (Dollars in Thousands) 2024 2023 2022 $ % $ % Non–interest Expense Salaries and employee benefits $ 88,244 $ 80,809 $ 80,283 $ 7,435 9.2 % $ 526 0.7 % Net occupancy expenses 13,376 13,355 13,323 21 0.2 % 32 0.2 % Data processing 10,861 11,626 10,567 (765) (6.6) % 1,059 10.0 % Professional fees 2,733 2,645 1,843 88 3.3 % 802 43.5 % Outside services and consultants 14,564 9,942 10,850 4,622 46.5 % (908) (8.4) % Loan expense 4,076 4,980 5,411 (904) (18.2) % (431) (8.0) % FDIC insurance expense 5,032 3,880 2,558 1,152 29.7 % 1,322 51.7 % Core deposit intangible amortization 3,403 3,612 3,702 (209) (5.8) % (90) (2.4) % Other losses 1,199 1,051 1,046 148 14.1 % 5 0.5 % Other expense 15,348 14,384 13,618 964 6.7 % 766 5.6 % Total non–interest expense $ 158,836 $ 146,284 $ 143,201 $ 12,552 8.6 % $ 3,083 2.2 % Non-interest expense increased $12.6 million for the year ended December 31, 2024 compared to the same period in 2023, primarily the result of higher expenses related to salaries and employee benefits, outside services and consultants, and FDIC insurance expense, which was partially mitigated by lower loan and data processing expenses.
Certificates and other time deposits for both retail and brokered maturing in years ending December 31 are as follows: Retail Brokered Total 2024 $ 961,848 $ 151,636 $ 1,113,484 2025 34,614 9,224 43,838 2026 12,004 — 12,004 2027 7,286 — 7,286 2028 3,070 — 3,070 Thereafter 57 — 57 $ 1,018,879 $ 160,860 $ 1,179,739 Certificates of deposit of $250,000 or more, which are considered to be rate sensitive and are not considered a part of core deposits, mature as follows as of December 31, 2023: Due in three months or less $ 220,003 Due after three months through six months 148,487 Due after six months through one year 238,954 Due after one year 25,402 $ 632,846 Interest expense on time certificates of $250,000 or more was approximately $16.7 million, $4.2 million and $1.4 million for 2023, 2022 and 2021.
Certificates and other time deposits for both retail and brokered maturing in years ending December 31, 2024 are as follows: Retail Brokered Total 2025 $ 924,549 $ 99,509 $ 1,024,058 2026 33,733 15,023 48,756 2027 9,165 — 9,165 2028 2,826 — 2,826 2029 4,329 — 4,329 Thereafter 19 — 19 $ 974,621 $ 114,532 $ 1,089,153 Certificates of deposit of $250,000 or more, which are considered to be rate sensitive and are not considered a part of core deposits, mature as follows as of December 31, 2024: Due in three months or less $ 291,732 Due after three months through six months 139,080 Due after six months through one year 82,233 Due after one year 36,316 $ 549,361 Interest expense on time certificates of $250,000 or more was approximately $22.7 million, $16.7 million and $4.2 million for 2024, 2023 and 2022.
Each mortgage loan funded by Horizon undergoes an underwriting review by Horizon to the end investor guidelines and is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. In addition, Horizon takes possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan.
Each mortgage loan funded by Horizon undergoes an underwriting review by Horizon to the end investor guidelines and is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. At December 31, 2024, the mortgage warehouse loan balance was $64.8 million compared to $45.1 million as of December 31, 2023.
During 2023 and 2022, approximately $142.8 million and $221.9 million, respectively, of residential mortgages were sold into the secondary market. Loans serviced for others are not included in the consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled approximately $1.5 billion and $1.5 billion at December 31, 2023 and 2022.
See Note 1 for more details In addition to the real estate loan portfolio, the Bank originates and sells real estate loans and retains the servicing rights. During 2024 and 2023, approximately $129.7 million and $142.8 million, respectively, of residential mortgages were sold into the secondary market. Loans serviced for others are not included in the consolidated balance sheets.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAND 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.
Biggest changeAND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (Table dollars in thousands except per share data) deposit pricing may vary significantly from this assumption due to management actions, customer behavior, and market forces, which may have significant impacts to our net interest income.
Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Horizon’s primary market risk exposure is interest rate risk. Interest rate risk (“IRR”) is the risk that Horizon’s earnings and capital will be adversely affected by changes in interest rates.
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is interest rate risk. The Company's business and the composition of our balance sheet consists of investments in interest earning assets (principally loans and investment securities) which are primarily funded by interest bearing liabilities (deposits and debt).
Removed
The primary approach to IRR management is one that focuses on adjustments to the asset/liability mix in order to limit the magnitude of IRR. Horizon’s exposure to interest rate risk arises from repricing or mismatch risk, embedded options risk, and yield curve risk.
Added
Such financial instruments have varying levels of sensitivity to changes in market interest rates such as the level of interest rates, changes in interest rates, the speed of changes in interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities.
Removed
Repricing risk is the risk of adverse consequence from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect Horizon’s assets and liabilities. Basis risk is the risk that the spread, or rate difference, between instruments of similar maturities will change.
Added
Interest rate risk results when, due to different maturity dates and repricing intervals, interest rate indices for interest earning assets fluctuate adversely relative to interest bearing liabilities, thereby creating a risk of decreased net earnings and cash flow.
Removed
Options risk arises whenever products give the customer the right, but not the obligation, to alter the quantity or timing of cash flows. Yield curve risk is the risk that changes in prevailing interest rates will affect instruments of different maturities by different amounts. Horizon’s objective is to remain reasonably neutral with respect to IRR.
Added
Although the Company characterizes some of the interest-sensitive assets as securities available-for-sale, such securities are not purchased with the intent to sell in the near term. Rather, such securities may be sold in response to or in anticipation of changes in interest rates and resulting prepayment risk.
Removed
Horizon 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.
Added
The Company does not have any trading instruments nor do we classify any portion of the investment portfolio as trading. See “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies” included in Part IV, Item 15 of this report. Asset Liability Management The goal of asset liability management is the prudent control of market risk, liquidity, and capital.
Removed
The table incorporates Horizon’s internal system generated data related to the maturity and repayment/withdrawal of interest earning assets and interest bearing liabilities.
Added
Asset liability management is governed by policies, goals, and objectives adopted and reviewed by the Bank’s board of directors. Development of asset liability management strategies and monitoring of interest rate risk are the responsibility of the Asset Liability Committee, or ALCO, which is composed of members of senior management.
Removed
For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and related weighted–average interest rates by contractual maturities as well as the historical experience of Horizon related to the impact of interest rate fluctuations on the prepayment of residential loans and mortgage–backed securities.
Added
Interest Rate Risk Interest rate risk is the risk of loss of future earnings or long-term value due to changes in interest rates.
Removed
From a risk management perspective, Horizon believes that repricing dates are more relevant than contractual maturity dates when analyzing the value of financial instruments.
Added
The Company's primary source of earnings is net interest income, which is affected by the level of interest rates, changes in interest rates, the speed of changes in interest rates, the relationship between rates on interest-bearing assets and liabilities, the impact of interest rate fluctuations on asset prepayments, and the mix of interest-bearing assets and liabilities.
Removed
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
Added
The ability to optimize net interest income is largely dependent upon the achievement of an interest rate spread that can be managed during periods of fluctuating interest rates. Interest sensitivity is a measure of the extent to which net interest income will be affected by market interest rates over a period of time.
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Net Interest Income Sensitivity The Company believes net interest income sensitivity provides the best perspective of how day-to-day decisions affect our interest rate risk profile. Net interest income sensitivity is monitored by utilizing an income simulation model to subject 12- and 24- month net interest income to various rate movements.
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Simulations modeled quarterly include scenarios where market rates change instantaneously up or down in a parallel or non-parallel manner.
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Estimates produced by our income simulation model are based on numerous assumptions including, but not limited to: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) repricing characteristics for market rate sensitive instruments, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate limitations in our assets, such as caps and floors, and (7) overall growth and repayment rates and product mix of assets and liabilities.
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Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results, but rather to provide insight into our current interest rate exposure and execute appropriate asset/liability management strategies accordingly.
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The following table presents the net interest income simulation model’s projected change in net interest income over a one-year horizon due to a change in interest rates. The net interest income simulation assumes parallel shifts in the yield curve and a static balance sheet.
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The net interest income simulation also uses a “deposit beta” modeling assumption which is an estimate of the change in interest-bearing deposit pricing for a given change in market interest rates. In up-rate scenarios, the deposit beta assumption is 15% with the pricing change occurring in the first month of the net interest income simulation horizon.
Added
In down-rate scenarios, the deposit beta assumption is 80% with the pricing change occurring in the first month of the net interest income simulation horizon. Actual changes to 64 Table of Contents HORIZON BANCORP, INC.
Added
As shown below, the model output would indicate that as of December 31, 2024, the Company's interest-bearing liabilities are projected to reprice at a faster pace than interest-earning assets for the next 100 basis points of declining interest rates.
Added
December 31, 2024 $ Change in Net Interest Income % Change in Net Interest Income 200 basis points rising $ (18,859) (8.0) % 100 basis points rising $ (9,274) (3.9) % 100 basis points falling $ 5,779 2.5 % 200 basis points falling (1,424) (0.6) % The preceding interest rate sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. 65

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