Beyond
2023
Annual Report
Beyond Ordinary Banking
Dear Fellow Shareholders,
In 2023, Horizon Bank celebrated its 150th
anniversary, and we are incredibly thankful for
the trust our clients continue to place in us
helping them achieve their financial goals. We
remain steadfast in our efforts to deliver
consistent value to our key stakeholders while
remaining leaders in serving the local
communities we call home.
The economic environment for the banking
segment was very challenging in 2023 with
high-profile bank failures, significant increases in
interest rates, and continued elevated inflation.
The bank and its parent company, Horizon
Bancorp, Inc., were not immune to the cyclical headwinds of the industry that impacted historical revenue
models through lower margins, higher operating expenses, and heightened regulatory review and oversight.
Even with these headwinds, Horizon’s sustainable business model continued to support long-term value creation
through quality loan growth, a resilient and loyal core deposit franchise, ongoing strong asset quality, prudent
expense management, and commitment to its quarterly cash dividend.
Horizon’s plan of operating a safe and
sound business model, which has
delivered consistent and growing returns
over time, continues to be the
cornerstone of our value proposition for
shareholders. Horizon has a proven track record of exceeding its prior year’s net income 21 out of 23 years. This
consistency can be attributed to a business model focused on quality loan and deposit growth combined with
accretive acquisitions of institutions that share Horizon’s client-centric values and desire to achieve top-tier
performance among our peers. Executing on this strategy has delivered an average annual shareholder return
of 12% over the last 20 years.
Although success could be measured by Horizon’s decades of positive performance, we feel a key differentiator
for our organization is our ability to continually adapt and find new value-added opportunities for our clients,
communities, and shareholders. Last year was not unique in this aspect, as the organization quickly adapted to
the market’s fluid economic environment and repositioned the company’s balance sheet and revenue models
for what we anticipate will be a sustained elevated rate environment. Additionally, as the leadership team
extends its outlook through its multi-year plan, Horizon has made key investments in technology and talent to
align with client preferences and developed new and sustainable revenue models to increase total shareholder
returns.
the future.
Horizon’s long-term success is grounded in our unwavering core values of people first, relationships built on
trust, community engagement, and a disciplined and diversified revenue model. As an organization we
continue to be proud of our ability to be agile and navigate the challenges of our industry, encourage curiosity
to challenge the norm, and to find creative solutions that align with our desire to deliver positive outcomes for
our key stakeholders. This speaks to how Horizon has flourished for 150 years and plans to continue well into
Balance Sheet Strength Heading into 2024
balance sheets and capacity to repay. Our prudent operating model and in-market leadership expertise further
positions the organization to navigate economic cycles and consistently produce positive shareholder returns.
Total assets increased by 0.8% in 2023 to $7.94
billion on December 31, while loans grew by
6.1% over the same period to $4.42 billion at
year end. These results reflect Horizon’s
deliberate shift toward higher yielding loans
and other interest-earning assets to improve
our balance sheet’s performance and position
Horizon for expanded revenue and earnings
growth. Throughout 2023, the company shifted
its growth into higher yielding loans through
its diversified origination platform and re-directed cash flows from securities and lower yielding loan portfolios
into lending segments that provided improved returns and aligned with the company’s high quality credit
metrics. These initiatives were well executed and further enhanced by a strategic repositioning of the balance
sheet in December 2023. The balance sheet reposition leveraged Horizon’s positive capital position to exit lower
yielding securities and Bank Owned Life Insurance policies (BOLI), enabling a reinvestment strategy into higher
yielding assets. We believe the positive impact of this strategic repositioning will quickly be visible in 2024,
providing significant revenue benefits, flexibility to accelerate our core business model of relationship banking,
and nimbleness in our funding strategies. These actions will not only enhance our ability to help our clients to
succeed, but they are also well aligned to create long-term shareholder value.
The franchise value of our resilient core deposit base continued
to be vibrant in 2023. Total deposits at year-end were $5.66
billion with 74.0% in core business and consumer accounts that
frequent our 70+ local branches. As the industry witnessed the
demise of three coastal banks with non-traditional banking
models in the spring of 2023, Horizon quickly adapted to these market events with proactive client
communication and outreach efforts. After experiencing a modest downward trend of mainly seasonal
accounts in the first quarter of 2023, total deposit balances were relatively stable for the reminder of the year.
We feel confident that our clients’ trust in our relationship banking model and sound business practices. These
core values provided a great foundation for our advisors to do an admirable job of maintaining and gathering
new relationships throughout 2023. Horizon also managed deposit costs favorably compared to peers and
positioned the organization to take advantage of the forecasted rate reductions in 2024. We believe our core
deposit relationships, located in economically strong and diverse communities throughout Indiana and
Michigan, view Horizon as their trusted business partner, and provide significant franchise value to the
organization.
Consistent and Proven Asset Quality
Asset quality throughout 2023 remained a core pillar of strength for Horizon as evidenced by low
non-performing loans to total loans of 0.44% on December 31 and net charge offs representing just 0.05% of
average loans for the year, continuing the excellent credit trends experienced in 2022.
Horizon’s high quality and diversified credit portfolio has historically outperformed the industry in terms of
asset quality performance over time. We believe the company is well positioned to maintain its credit quality as
it moves into what could be a less favorable environment in 2024, due to Horizon’s limited exposure to higher
risk lending segments, such as high-rise office buildings and unsecured consumer lending. Horizon has
consistently focused on industry verticals, local business and clients that align with our traditional relationship
banking model. This has delivered a lending portfolio of high-quality clients with proven credit histories, strong
Building for the Future and Beyond
In 2023, Horizon made significant progress on its strategic initiatives to improve the performance of the balance
sheet, continue the bank’s sound operating model, while investing in platforms that create long-term franchise
value. As outlined earlier, the deliberate shift to higher yielding assets and the repositioning of the balance sheet
in 2023 are designed to fuel our revenue growth expectations. The successful execution of these strategies
provided an environment to further grow our earnings through the introduction of Horizon’s new vertical of
equipment financing, announced in the fall of 2023. Through this platform Horizon will provide essential
equipment financing options for commercial and small business clients,
further diversify our lending platforms, and expand our interest income
results. Additionally, we added resources to our Treasury Management team
serving commercial clients by adding talent in our growth markets in Michigan
and Indiana. These resources deepen relationships with core commercial
clients and prospects while balancing resources dedicated to public funds.
Consistently adding accretive revenue initiatives are key elements of our longer-term objectives of building a
premier community banking model in the Midwest and achieving top-tier financial performance relative to our
peers.
Digital expansion efforts continued throughout the year that aligned new functionality and accessibility with a
focus on capturing efficiencies. Additional interactive video teller machines were added to our fleet in 2023,
increasing the total number of machines to 53. These
easy-to-use devices extend hours of accessibility to our
clients through live video interaction with remote
advisors. This platform also increases Horizon’s reach
within our communities and provides an operating
model that is approximately 50% lower in delivery cost
than a traditional in-branch model. Client feedback has
been very positive and the flexibility it provides our
advisors to manage work schedules is an added benefit.
In late 2023, the team introduced a new digital account
opening platform for our consumer and small business
clients. This new platform integrates industry leading technology that permits clients to open an account
online in less than five minutes. Additional capabilities of the platform include multiple funding options,
mobile wallet integration, and significantly enhanced fraud-detection technology advancements. We
anticipate having this fully deployed in the first quarter of 2024 and leverage this new technology to further
accelerate our growth in core deposit relationships.
Beyond. We believe this word brings to life what
Horizon has created for its clients and shareholders for
over 150 years. Beyond average, beyond the expected,
and beyond typical results. Horizon is a lean-in
organization that has proven its ability to evolve, achieve
high performance levels, and extend its reach to
improve the communities we work and live. With this backdrop of success and engagement, Horizon is proud to
launch its new brand positioning: Beyond. This new branding aligns well with our vision, mission, and values
and captures the essence of excellence we look to achieve for all our stakeholders. Our internal launch of the
brand was well received in the second half of 2023 and will be highly visible in our markets and media assets
throughout 2024.
Horizon continues to align its core values and strategic plan with long-term
shareholder value. In 2023, we displayed our unwavering commitment to our
Creating Shareholder Value
shareholders through:
• Quality loan growth of 6.1%.
•
•
•
Continued excellent credit trends as measured by low non-performing
loans to total loans at period end and net charge-offs to average loans
ratio of 0.44% and 0.05%, respectively.
Productive use of capital to restructure the balance sheet and reinvest over
$500 million in proceeds into higher yielding assets to improve top line
revenue results.
Established new equipment financing division to accelerate high yielding,
quality asset growth and diversify the bank’s revenue model.
• Monetizing technology investments to capture new low-cost deposits via
digital applications and leveraging video teller machines to capture
efficiencies in our distribution costs.
•
Provided over 11,600 hours of volunteering to help advance and give back
to our local markets. This included Horizon’s first “Day of Caring”, enabling
800+ advisors to volunteer as one team across our Indiana and Michigan
communities.
•
Continued disciplined operational leverage by managing non-interest
expense to total average assets to < 2%.
• Maintained our commitment to our shareholder dividend strategy,
through 30-plus years of uninterrupted payment of quarterly cash
dividends, with an attractive dividend yield at year end of 4.5%.
Horizon is a company on the move with a lean-in culture of evolution, creating
shareholder value, and helping to advance our local communities. We feel
confident Horizon is well positioned for success as we enter 2024. The
organization has improved its balance sheet momentum, invested in new
business lines and talent to accelerate earnings, and maintained its disciplined
business model. We look to achieve beyond expectations for our communities,
clients and shareholders throughout the year and invite you to join us on our
quarterly updates to gain insight into our financial results and progress on key
initiatives.
We look forward to a successful 2024 and thank you for your continued support and investment in the company.
Dear Fellow Shareholders,
In 2023, Horizon Bank celebrated its 150th
anniversary, and we are incredibly thankful for
the trust our clients continue to place in us
helping them achieve their financial goals. We
remain steadfast in our efforts to deliver
consistent value to our key stakeholders while
remaining leaders in serving the local
communities we call home.
Horizon’s long-term
success is grounded
in our unwavering
core values of people
first, relationships
built on trust,
community
engagement, and a
disciplined and
diversified revenue
model.
The economic environment for the banking
segment was very challenging in 2023 with
high-profile bank failures, significant increases in
interest rates, and continued elevated inflation.
The bank and its parent company, Horizon
Bancorp, Inc., were not immune to the cyclical headwinds of the industry that impacted historical revenue
models through lower margins, higher operating expenses, and heightened regulatory review and oversight.
Even with these headwinds, Horizon’s sustainable business model continued to support long-term value creation
through quality loan growth, a resilient and loyal core deposit franchise, ongoing strong asset quality, prudent
expense management, and commitment to its quarterly cash dividend.
Thomas M. Prame
Chief Executive Officer & President
Horizon has a proven track record by exceeding
its prior year’s net income 21 out of 23 years.
Horizon’s plan of operating a safe and
sound business model, which has
delivered consistent and growing returns
over time, continues to be the
cornerstone of our value proposition for
shareholders. Horizon has a proven track record of exceeding its prior year’s net income 21 out of 23 years. This
consistency can be attributed to a business model focused on quality loan and deposit growth combined with
accretive acquisitions of institutions that share Horizon’s client-centric values and desire to achieve top-tier
performance among our peers. Executing on this strategy has delivered an average annual shareholder return
of 12% over the last 20 years.
Although success could be measured by Horizon’s decades of positive performance, we feel a key differentiator
for our organization is our ability to continually adapt and find new value-added opportunities for our clients,
communities, and shareholders. Last year was not unique in this aspect, as the organization quickly adapted to
the market’s fluid economic environment and repositioned the company’s balance sheet and revenue models
for what we anticipate will be a sustained elevated rate environment. Additionally, as the leadership team
extends its outlook through its multi-year plan, Horizon has made key investments in technology and talent to
align with client preferences and developed new and sustainable revenue models to increase total shareholder
returns.
Horizon’s long-term success is grounded in our unwavering core values of people first, relationships built on
trust, community engagement, and a disciplined and diversified revenue model. As an organization we
continue to be proud of our ability to be agile and navigate the challenges of our industry, encourage curiosity
to challenge the norm, and to find creative solutions that align with our desire to deliver positive outcomes for
our key stakeholders. This speaks to how Horizon has flourished for 150 years and plans to continue well into
the future.
1
Balance Sheet Strength Heading into 2024
balance sheets and capacity to repay. Our prudent operating model and in-market leadership expertise further
positions the organization to navigate economic cycles and consistently produce positive shareholder returns.
Total assets increased by 0.8% in 2023 to $7.94
billion on December 31, while loans grew by
6.1% over the same period to $4.42 billion at
year end. These results reflect Horizon’s
deliberate shift toward higher yielding loans
and other interest-earning assets to improve
our balance sheet’s performance and position
Horizon for expanded revenue and earnings
growth. Throughout 2023, the company shifted
its growth into higher yielding loans through
its diversified origination platform and re-directed cash flows from securities and lower yielding loan portfolios
into lending segments that provided improved returns and aligned with the company’s high quality credit
metrics. These initiatives were well executed and further enhanced by a strategic repositioning of the balance
sheet in December 2023. The balance sheet reposition leveraged Horizon’s positive capital position to exit lower
yielding securities and Bank Owned Life Insurance policies (BOLI), enabling a reinvestment strategy into higher
yielding assets. We believe the positive impact of this strategic repositioning will quickly be visible in 2024,
providing significant revenue benefits, flexibility to accelerate our core business model of relationship banking,
and nimbleness in our funding strategies. These actions will not only enhance our ability to help our clients to
succeed, but they are also well aligned to create long-term shareholder value.
The franchise value of our resilient core deposit base continued
to be vibrant in 2023. Total deposits at year-end were $5.66
billion with 74.0% in core business and consumer accounts that
frequent our 70+ local branches. As the industry witnessed the
demise of three coastal banks with non-traditional banking
models in the spring of 2023, Horizon quickly adapted to these market events with proactive client
communication and outreach efforts. After experiencing a modest downward trend of mainly seasonal
accounts in the first quarter of 2023, total deposit balances were relatively stable for the reminder of the year.
We feel confident that our clients’ trust in our relationship banking model and sound business practices. These
core values provided a great foundation for our advisors to do an admirable job of maintaining and gathering
new relationships throughout 2023. Horizon also managed deposit costs favorably compared to peers and
positioned the organization to take advantage of the forecasted rate reductions in 2024. We believe our core
deposit relationships, located in economically strong and diverse communities throughout Indiana and
Michigan, view Horizon as their trusted business partner, and provide significant franchise value to the
organization.
Consistent and Proven Asset Quality
Asset quality throughout 2023 remained a core pillar of strength for Horizon as evidenced by low
non-performing loans to total loans of 0.44% on December 31 and net charge offs representing just 0.05% of
average loans for the year, continuing the excellent credit trends experienced in 2022.
Horizon’s high quality and diversified credit portfolio has historically outperformed the industry in terms of
asset quality performance over time. We believe the company is well positioned to maintain its credit quality as
it moves into what could be a less favorable environment in 2024, due to Horizon’s limited exposure to higher
risk lending segments, such as high-rise office buildings and unsecured consumer lending. Horizon has
consistently focused on industry verticals, local business and clients that align with our traditional relationship
banking model. This has delivered a lending portfolio of high-quality clients with proven credit histories, strong
Building for the Future and Beyond
In 2023, Horizon made significant progress on its strategic initiatives to improve the performance of the balance
sheet, continue the bank’s sound operating model, while investing in platforms that create long-term franchise
value. As outlined earlier, the deliberate shift to higher yielding assets and the repositioning of the balance sheet
in 2023 are designed to fuel our revenue growth expectations. The successful execution of these strategies
provided an environment to further grow our earnings through the introduction of Horizon’s new vertical of
equipment financing, announced in the fall of 2023. Through this platform Horizon will provide essential
equipment financing options for commercial and small business clients,
further diversify our lending platforms, and expand our interest income
results. Additionally, we added resources to our Treasury Management team
serving commercial clients by adding talent in our growth markets in Michigan
and Indiana. These resources deepen relationships with core commercial
clients and prospects while balancing resources dedicated to public funds.
Consistently adding accretive revenue initiatives are key elements of our longer-term objectives of building a
premier community banking model in the Midwest and achieving top-tier financial performance relative to our
peers.
Digital expansion efforts continued throughout the year that aligned new functionality and accessibility with a
focus on capturing efficiencies. Additional interactive video teller machines were added to our fleet in 2023,
increasing the total number of machines to 53. These
easy-to-use devices extend hours of accessibility to our
clients through live video interaction with remote
advisors. This platform also increases Horizon’s reach
within our communities and provides an operating
model that is approximately 50% lower in delivery cost
than a traditional in-branch model. Client feedback has
been very positive and the flexibility it provides our
advisors to manage work schedules is an added benefit.
In late 2023, the team introduced a new digital account
opening platform for our consumer and small business
clients. This new platform integrates industry leading technology that permits clients to open an account
online in less than five minutes. Additional capabilities of the platform include multiple funding options,
mobile wallet integration, and significantly enhanced fraud-detection technology advancements. We
anticipate having this fully deployed in the first quarter of 2024 and leverage this new technology to further
accelerate our growth in core deposit relationships.
Beyond. We believe this word brings to life what
Horizon has created for its clients and shareholders for
over 150 years. Beyond average, beyond the expected,
and beyond typical results. Horizon is a lean-in
organization that has proven its ability to evolve, achieve
high performance levels, and extend its reach to
improve the communities we work and live. With this backdrop of success and engagement, Horizon is proud to
launch its new brand positioning: Beyond. This new branding aligns well with our vision, mission, and values
and captures the essence of excellence we look to achieve for all our stakeholders. Our internal launch of the
brand was well received in the second half of 2023 and will be highly visible in our markets and media assets
throughout 2024.
Horizon continues to align its core values and strategic plan with long-term
shareholder value. In 2023, we displayed our unwavering commitment to our
Creating Shareholder Value
shareholders through:
• Quality loan growth of 6.1%.
•
•
•
Continued excellent credit trends as measured by low non-performing
loans to total loans at period end and net charge-offs to average loans
ratio of 0.44% and 0.05%, respectively.
Productive use of capital to restructure the balance sheet and reinvest over
$500 million in proceeds into higher yielding assets to improve top line
revenue results.
Established new equipment financing division to accelerate high yielding,
quality asset growth and diversify the bank’s revenue model.
• Monetizing technology investments to capture new low-cost deposits via
digital applications and leveraging video teller machines to capture
efficiencies in our distribution costs.
•
Provided over 11,600 hours of volunteering to help advance and give back
to our local markets. This included Horizon’s first “Day of Caring”, enabling
800+ advisors to volunteer as one team across our Indiana and Michigan
communities.
•
Continued disciplined operational leverage by managing non-interest
expense to total average assets to < 2%.
• Maintained our commitment to our shareholder dividend strategy,
through 30-plus years of uninterrupted payment of quarterly cash
dividends, with an attractive dividend yield at year end of 4.5%.
Horizon is a company on the move with a lean-in culture of evolution, creating
shareholder value, and helping to advance our local communities. We feel
confident Horizon is well positioned for success as we enter 2024. The
organization has improved its balance sheet momentum, invested in new
business lines and talent to accelerate earnings, and maintained its disciplined
business model. We look to achieve beyond expectations for our communities,
clients and shareholders throughout the year and invite you to join us on our
quarterly updates to gain insight into our financial results and progress on key
initiatives.
We look forward to a successful 2024 and thank you for your continued support and investment in the company.
Dear Fellow Shareholders,
In 2023, Horizon Bank celebrated its 150th
anniversary, and we are incredibly thankful for
the trust our clients continue to place in us
helping them achieve their financial goals. We
remain steadfast in our efforts to deliver
consistent value to our key stakeholders while
remaining leaders in serving the local
communities we call home.
The economic environment for the banking
segment was very challenging in 2023 with
high-profile bank failures, significant increases in
interest rates, and continued elevated inflation.
The bank and its parent company, Horizon
Bancorp, Inc., were not immune to the cyclical headwinds of the industry that impacted historical revenue
models through lower margins, higher operating expenses, and heightened regulatory review and oversight.
Even with these headwinds, Horizon’s sustainable business model continued to support long-term value creation
through quality loan growth, a resilient and loyal core deposit franchise, ongoing strong asset quality, prudent
expense management, and commitment to its quarterly cash dividend.
Horizon’s plan of operating a safe and
sound business model, which has
delivered consistent and growing returns
over time, continues to be the
cornerstone of our value proposition for
shareholders. Horizon has a proven track record of exceeding its prior year’s net income 21 out of 23 years. This
consistency can be attributed to a business model focused on quality loan and deposit growth combined with
accretive acquisitions of institutions that share Horizon’s client-centric values and desire to achieve top-tier
performance among our peers. Executing on this strategy has delivered an average annual shareholder return
of 12% over the last 20 years.
Although success could be measured by Horizon’s decades of positive performance, we feel a key differentiator
for our organization is our ability to continually adapt and find new value-added opportunities for our clients,
communities, and shareholders. Last year was not unique in this aspect, as the organization quickly adapted to
the market’s fluid economic environment and repositioned the company’s balance sheet and revenue models
for what we anticipate will be a sustained elevated rate environment. Additionally, as the leadership team
extends its outlook through its multi-year plan, Horizon has made key investments in technology and talent to
align with client preferences and developed new and sustainable revenue models to increase total shareholder
returns.
the future.
Horizon’s long-term success is grounded in our unwavering core values of people first, relationships built on
trust, community engagement, and a disciplined and diversified revenue model. As an organization we
continue to be proud of our ability to be agile and navigate the challenges of our industry, encourage curiosity
to challenge the norm, and to find creative solutions that align with our desire to deliver positive outcomes for
our key stakeholders. This speaks to how Horizon has flourished for 150 years and plans to continue well into
Balance Sheet Strength Heading into 2024
balance sheets and capacity to repay. Our prudent operating model and in-market leadership expertise further
positions the organization to navigate economic cycles and consistently produce positive shareholder returns.
Total assets
increased to
$7.94 billion
Total assets increased by 0.8% in 2023 to $7.94
billion on December 31, while loans grew by
6.1% over the same period to $4.42 billion at
year end. These results reflect Horizon’s
deliberate shift toward higher yielding loans
and other interest-earning assets to improve
our balance sheet’s performance and position
Horizon for expanded revenue and earnings
growth. Throughout 2023, the company shifted
its growth into higher yielding loans through
its diversified origination platform and re-directed cash flows from securities and lower yielding loan portfolios
into lending segments that provided improved returns and aligned with the company’s high quality credit
metrics. These initiatives were well executed and further enhanced by a strategic repositioning of the balance
sheet in December 2023. The balance sheet reposition leveraged Horizon’s positive capital position to exit lower
yielding securities and Bank Owned Life Insurance policies (BOLI), enabling a reinvestment strategy into higher
yielding assets. We believe the positive impact of this strategic repositioning will quickly be visible in 2024,
providing significant revenue benefits, flexibility to accelerate our core business model of relationship banking,
and nimbleness in our funding strategies. These actions will not only enhance our ability to help our clients to
succeed, but they are also well aligned to create long-term shareholder value.
The franchise value of our
resilient core deposit base
continued to be vibrant in 2023.
The franchise value of our resilient core deposit base continued
to be vibrant in 2023. Total deposits at year-end were $5.66
billion with 74.0% in core business and consumer accounts that
frequent our 70+ local branches. As the industry witnessed the
demise of three coastal banks with non-traditional banking
models in the spring of 2023, Horizon quickly adapted to these market events with proactive client
communication and outreach efforts. After experiencing a modest downward trend of mainly seasonal
accounts in the first quarter of 2023, total deposit balances were relatively stable for the reminder of the year.
We feel confident that our clients’ trust in our relationship banking model and sound business practices. These
core values provided a great foundation for our advisors to do an admirable job of maintaining and gathering
new relationships throughout 2023. Horizon also managed deposit costs favorably compared to peers and
positioned the organization to take advantage of the forecasted rate reductions in 2024. We believe our core
deposit relationships, located in economically strong and diverse communities throughout Indiana and
Michigan, view Horizon as their trusted business partner, and provide significant franchise value to the
organization.
Consistent and Proven Asset Quality
Asset quality throughout 2023 remained a core pillar of strength for Horizon as evidenced by low
non-performing loans to total loans of 0.44% on December 31 and net charge offs representing just 0.05% of
average loans for the year, continuing the excellent credit trends experienced in 2022.
Horizon’s high quality and diversified credit portfolio has historically outperformed the industry in terms of
asset quality performance over time. We believe the company is well positioned to maintain its credit quality as
it moves into what could be a less favorable environment in 2024, due to Horizon’s limited exposure to higher
risk lending segments, such as high-rise office buildings and unsecured consumer lending. Horizon has
consistently focused on industry verticals, local business and clients that align with our traditional relationship
banking model. This has delivered a lending portfolio of high-quality clients with proven credit histories, strong
2
Building for the Future and Beyond
In 2023, Horizon made significant progress on its strategic initiatives to improve the performance of the balance
sheet, continue the bank’s sound operating model, while investing in platforms that create long-term franchise
value. As outlined earlier, the deliberate shift to higher yielding assets and the repositioning of the balance sheet
in 2023 are designed to fuel our revenue growth expectations. The successful execution of these strategies
provided an environment to further grow our earnings through the introduction of Horizon’s new vertical of
equipment financing, announced in the fall of 2023. Through this platform Horizon will provide essential
equipment financing options for commercial and small business clients,
further diversify our lending platforms, and expand our interest income
results. Additionally, we added resources to our Treasury Management team
serving commercial clients by adding talent in our growth markets in Michigan
and Indiana. These resources deepen relationships with core commercial
clients and prospects while balancing resources dedicated to public funds.
Consistently adding accretive revenue initiatives are key elements of our longer-term objectives of building a
premier community banking model in the Midwest and achieving top-tier financial performance relative to our
peers.
Digital expansion efforts continued throughout the year that aligned new functionality and accessibility with a
focus on capturing efficiencies. Additional interactive video teller machines were added to our fleet in 2023,
increasing the total number of machines to 53. These
easy-to-use devices extend hours of accessibility to our
clients through live video interaction with remote
advisors. This platform also increases Horizon’s reach
within our communities and provides an operating
model that is approximately 50% lower in delivery cost
than a traditional in-branch model. Client feedback has
been very positive and the flexibility it provides our
advisors to manage work schedules is an added benefit.
In late 2023, the team introduced a new digital account
opening platform for our consumer and small business
clients. This new platform integrates industry leading technology that permits clients to open an account
online in less than five minutes. Additional capabilities of the platform include multiple funding options,
mobile wallet integration, and significantly enhanced fraud-detection technology advancements. We
anticipate having this fully deployed in the first quarter of 2024 and leverage this new technology to further
accelerate our growth in core deposit relationships.
Beyond. We believe this word brings to life what
Horizon has created for its clients and shareholders for
over 150 years. Beyond average, beyond the expected,
and beyond typical results. Horizon is a lean-in
organization that has proven its ability to evolve, achieve
high performance levels, and extend its reach to
improve the communities we work and live. With this backdrop of success and engagement, Horizon is proud to
launch its new brand positioning: Beyond. This new branding aligns well with our vision, mission, and values
and captures the essence of excellence we look to achieve for all our stakeholders. Our internal launch of the
brand was well received in the second half of 2023 and will be highly visible in our markets and media assets
throughout 2024.
Horizon continues to align its core values and strategic plan with long-term
shareholder value. In 2023, we displayed our unwavering commitment to our
Creating Shareholder Value
shareholders through:
• Quality loan growth of 6.1%.
•
•
•
Continued excellent credit trends as measured by low non-performing
loans to total loans at period end and net charge-offs to average loans
ratio of 0.44% and 0.05%, respectively.
Productive use of capital to restructure the balance sheet and reinvest over
$500 million in proceeds into higher yielding assets to improve top line
revenue results.
Established new equipment financing division to accelerate high yielding,
quality asset growth and diversify the bank’s revenue model.
• Monetizing technology investments to capture new low-cost deposits via
digital applications and leveraging video teller machines to capture
efficiencies in our distribution costs.
•
Provided over 11,600 hours of volunteering to help advance and give back
to our local markets. This included Horizon’s first “Day of Caring”, enabling
800+ advisors to volunteer as one team across our Indiana and Michigan
communities.
•
Continued disciplined operational leverage by managing non-interest
expense to total average assets to < 2%.
• Maintained our commitment to our shareholder dividend strategy,
through 30-plus years of uninterrupted payment of quarterly cash
dividends, with an attractive dividend yield at year end of 4.5%.
Horizon is a company on the move with a lean-in culture of evolution, creating
shareholder value, and helping to advance our local communities. We feel
confident Horizon is well positioned for success as we enter 2024. The
organization has improved its balance sheet momentum, invested in new
business lines and talent to accelerate earnings, and maintained its disciplined
business model. We look to achieve beyond expectations for our communities,
clients and shareholders throughout the year and invite you to join us on our
quarterly updates to gain insight into our financial results and progress on key
initiatives.
We look forward to a successful 2024 and thank you for your continued support and investment in the company.
Dear Fellow Shareholders,
In 2023, Horizon Bank celebrated its 150th
anniversary, and we are incredibly thankful for
the trust our clients continue to place in us
helping them achieve their financial goals. We
remain steadfast in our efforts to deliver
consistent value to our key stakeholders while
remaining leaders in serving the local
communities we call home.
The economic environment for the banking
segment was very challenging in 2023 with
high-profile bank failures, significant increases in
interest rates, and continued elevated inflation.
The bank and its parent company, Horizon
Bancorp, Inc., were not immune to the cyclical headwinds of the industry that impacted historical revenue
models through lower margins, higher operating expenses, and heightened regulatory review and oversight.
Even with these headwinds, Horizon’s sustainable business model continued to support long-term value creation
through quality loan growth, a resilient and loyal core deposit franchise, ongoing strong asset quality, prudent
expense management, and commitment to its quarterly cash dividend.
Horizon’s plan of operating a safe and
sound business model, which has
delivered consistent and growing returns
over time, continues to be the
cornerstone of our value proposition for
shareholders. Horizon has a proven track record of exceeding its prior year’s net income 21 out of 23 years. This
consistency can be attributed to a business model focused on quality loan and deposit growth combined with
accretive acquisitions of institutions that share Horizon’s client-centric values and desire to achieve top-tier
performance among our peers. Executing on this strategy has delivered an average annual shareholder return
of 12% over the last 20 years.
Although success could be measured by Horizon’s decades of positive performance, we feel a key differentiator
for our organization is our ability to continually adapt and find new value-added opportunities for our clients,
communities, and shareholders. Last year was not unique in this aspect, as the organization quickly adapted to
the market’s fluid economic environment and repositioned the company’s balance sheet and revenue models
for what we anticipate will be a sustained elevated rate environment. Additionally, as the leadership team
extends its outlook through its multi-year plan, Horizon has made key investments in technology and talent to
align with client preferences and developed new and sustainable revenue models to increase total shareholder
returns.
the future.
Horizon’s long-term success is grounded in our unwavering core values of people first, relationships built on
trust, community engagement, and a disciplined and diversified revenue model. As an organization we
continue to be proud of our ability to be agile and navigate the challenges of our industry, encourage curiosity
to challenge the norm, and to find creative solutions that align with our desire to deliver positive outcomes for
our key stakeholders. This speaks to how Horizon has flourished for 150 years and plans to continue well into
Balance Sheet Strength Heading into 2024
balance sheets and capacity to repay. Our prudent operating model and in-market leadership expertise further
positions the organization to navigate economic cycles and consistently produce positive shareholder returns.
Building for the Future and Beyond
In 2023, Horizon made significant progress on its strategic initiatives to improve the performance of the balance
sheet, continue the bank’s sound operating model, while investing in platforms that create long-term franchise
value. As outlined earlier, the deliberate shift to higher yielding assets and the repositioning of the balance sheet
in 2023 are designed to fuel our revenue growth expectations. The successful execution of these strategies
provided an environment to further grow our earnings through the introduction of Horizon’s new vertical of
equipment financing, announced in the fall of 2023. Through this platform Horizon will provide essential
equipment financing options for commercial and small business clients,
further diversify our lending platforms, and expand our interest income
results. Additionally, we added resources to our Treasury Management team
serving commercial clients by adding talent in our growth markets in Michigan
and Indiana. These resources deepen relationships with core commercial
clients and prospects while balancing resources dedicated to public funds.
Consistently adding accretive revenue initiatives are key elements of our longer-term objectives of building a
premier community banking model in the Midwest and achieving top-tier financial performance relative to our
peers.
Digital expansion efforts continued throughout the year that aligned new functionality and accessibility with a
focus on capturing efficiencies. Additional interactive video teller machines were added to our fleet in 2023,
increasing the total number of machines to 53. These
easy-to-use devices extend hours of accessibility to our
clients through live video interaction with remote
advisors. This platform also increases Horizon’s reach
within our communities and provides an operating
model that is approximately 50% lower in delivery cost
than a traditional in-branch model. Client feedback has
been very positive and the flexibility it provides our
advisors to manage work schedules is an added benefit.
Digital expansion
efforts align
customer
accessibility with
operational
efficiencies.
In late 2023, the team introduced a new digital account
opening platform for our consumer and small business
clients. This new platform integrates industry leading technology that permits clients to open an account
online in less than five minutes. Additional capabilities of the platform include multiple funding options,
mobile wallet integration, and significantly enhanced fraud-detection technology advancements. We
anticipate having this fully deployed in the first quarter of 2024 and leverage this new technology to further
accelerate our growth in core deposit relationships.
Beyond
Beyond. We believe this word brings to life what
Horizon has created for its clients and shareholders for
over 150 years. Beyond average, beyond the expected,
and beyond typical results. Horizon is a lean-in
organization that has proven its ability to evolve, achieve
high performance levels, and extend its reach to
improve the communities we work and live. With this backdrop of success and engagement, Horizon is proud to
launch its new brand positioning: Beyond. This new branding aligns well with our vision, mission, and values
and captures the essence of excellence we look to achieve for all our stakeholders. Our internal launch of the
brand was well received in the second half of 2023 and will be highly visible in our markets and media assets
throughout 2024.
3
Total assets increased by 0.8% in 2023 to $7.94
billion on December 31, while loans grew by
6.1% over the same period to $4.42 billion at
year end. These results reflect Horizon’s
deliberate shift toward higher yielding loans
and other interest-earning assets to improve
our balance sheet’s performance and position
Horizon for expanded revenue and earnings
growth. Throughout 2023, the company shifted
its growth into higher yielding loans through
its diversified origination platform and re-directed cash flows from securities and lower yielding loan portfolios
into lending segments that provided improved returns and aligned with the company’s high quality credit
metrics. These initiatives were well executed and further enhanced by a strategic repositioning of the balance
sheet in December 2023. The balance sheet reposition leveraged Horizon’s positive capital position to exit lower
yielding securities and Bank Owned Life Insurance policies (BOLI), enabling a reinvestment strategy into higher
yielding assets. We believe the positive impact of this strategic repositioning will quickly be visible in 2024,
providing significant revenue benefits, flexibility to accelerate our core business model of relationship banking,
and nimbleness in our funding strategies. These actions will not only enhance our ability to help our clients to
succeed, but they are also well aligned to create long-term shareholder value.
The franchise value of our resilient core deposit base continued
to be vibrant in 2023. Total deposits at year-end were $5.66
billion with 74.0% in core business and consumer accounts that
frequent our 70+ local branches. As the industry witnessed the
demise of three coastal banks with non-traditional banking
models in the spring of 2023, Horizon quickly adapted to these market events with proactive client
communication and outreach efforts. After experiencing a modest downward trend of mainly seasonal
accounts in the first quarter of 2023, total deposit balances were relatively stable for the reminder of the year.
We feel confident that our clients’ trust in our relationship banking model and sound business practices. These
core values provided a great foundation for our advisors to do an admirable job of maintaining and gathering
new relationships throughout 2023. Horizon also managed deposit costs favorably compared to peers and
positioned the organization to take advantage of the forecasted rate reductions in 2024. We believe our core
deposit relationships, located in economically strong and diverse communities throughout Indiana and
Michigan, view Horizon as their trusted business partner, and provide significant franchise value to the
organization.
Consistent and Proven Asset Quality
Asset quality throughout 2023 remained a core pillar of strength for Horizon as evidenced by low
non-performing loans to total loans of 0.44% on December 31 and net charge offs representing just 0.05% of
average loans for the year, continuing the excellent credit trends experienced in 2022.
Horizon’s high quality and diversified credit portfolio has historically outperformed the industry in terms of
asset quality performance over time. We believe the company is well positioned to maintain its credit quality as
it moves into what could be a less favorable environment in 2024, due to Horizon’s limited exposure to higher
risk lending segments, such as high-rise office buildings and unsecured consumer lending. Horizon has
consistently focused on industry verticals, local business and clients that align with our traditional relationship
banking model. This has delivered a lending portfolio of high-quality clients with proven credit histories, strong
Horizon continues to align its core values and strategic plan with long-term
shareholder value. In 2023, we displayed our unwavering commitment to our
Creating Shareholder Value
shareholders through:
• Quality loan growth of 6.1%.
•
•
•
Continued excellent credit trends as measured by low non-performing
loans to total loans at period end and net charge-offs to average loans
ratio of 0.44% and 0.05%, respectively.
Productive use of capital to restructure the balance sheet and reinvest over
$500 million in proceeds into higher yielding assets to improve top line
revenue results.
Established new equipment financing division to accelerate high yielding,
quality asset growth and diversify the bank’s revenue model.
• Monetizing technology investments to capture new low-cost deposits via
digital applications and leveraging video teller machines to capture
efficiencies in our distribution costs.
•
Provided over 11,600 hours of volunteering to help advance and give back
to our local markets. This included Horizon’s first “Day of Caring”, enabling
800+ advisors to volunteer as one team across our Indiana and Michigan
communities.
•
Continued disciplined operational leverage by managing non-interest
expense to total average assets to < 2%.
• Maintained our commitment to our shareholder dividend strategy,
through 30-plus years of uninterrupted payment of quarterly cash
dividends, with an attractive dividend yield at year end of 4.5%.
Horizon is a company on the move with a lean-in culture of evolution, creating
shareholder value, and helping to advance our local communities. We feel
confident Horizon is well positioned for success as we enter 2024. The
organization has improved its balance sheet momentum, invested in new
business lines and talent to accelerate earnings, and maintained its disciplined
business model. We look to achieve beyond expectations for our communities,
clients and shareholders throughout the year and invite you to join us on our
quarterly updates to gain insight into our financial results and progress on key
initiatives.
We look forward to a successful 2024 and thank you for your continued support and investment in the company.
Dear Fellow Shareholders,
In 2023, Horizon Bank celebrated its 150th
anniversary, and we are incredibly thankful for
the trust our clients continue to place in us
helping them achieve their financial goals. We
remain steadfast in our efforts to deliver
consistent value to our key stakeholders while
remaining leaders in serving the local
communities we call home.
The economic environment for the banking
segment was very challenging in 2023 with
high-profile bank failures, significant increases in
interest rates, and continued elevated inflation.
The bank and its parent company, Horizon
Bancorp, Inc., were not immune to the cyclical headwinds of the industry that impacted historical revenue
models through lower margins, higher operating expenses, and heightened regulatory review and oversight.
Even with these headwinds, Horizon’s sustainable business model continued to support long-term value creation
through quality loan growth, a resilient and loyal core deposit franchise, ongoing strong asset quality, prudent
expense management, and commitment to its quarterly cash dividend.
Horizon’s plan of operating a safe and
sound business model, which has
delivered consistent and growing returns
over time, continues to be the
cornerstone of our value proposition for
shareholders. Horizon has a proven track record of exceeding its prior year’s net income 21 out of 23 years. This
consistency can be attributed to a business model focused on quality loan and deposit growth combined with
accretive acquisitions of institutions that share Horizon’s client-centric values and desire to achieve top-tier
performance among our peers. Executing on this strategy has delivered an average annual shareholder return
of 12% over the last 20 years.
Although success could be measured by Horizon’s decades of positive performance, we feel a key differentiator
for our organization is our ability to continually adapt and find new value-added opportunities for our clients,
communities, and shareholders. Last year was not unique in this aspect, as the organization quickly adapted to
the market’s fluid economic environment and repositioned the company’s balance sheet and revenue models
for what we anticipate will be a sustained elevated rate environment. Additionally, as the leadership team
extends its outlook through its multi-year plan, Horizon has made key investments in technology and talent to
align with client preferences and developed new and sustainable revenue models to increase total shareholder
returns.
the future.
Horizon’s long-term success is grounded in our unwavering core values of people first, relationships built on
trust, community engagement, and a disciplined and diversified revenue model. As an organization we
continue to be proud of our ability to be agile and navigate the challenges of our industry, encourage curiosity
to challenge the norm, and to find creative solutions that align with our desire to deliver positive outcomes for
our key stakeholders. This speaks to how Horizon has flourished for 150 years and plans to continue well into
Balance Sheet Strength Heading into 2024
balance sheets and capacity to repay. Our prudent operating model and in-market leadership expertise further
positions the organization to navigate economic cycles and consistently produce positive shareholder returns.
Total assets increased by 0.8% in 2023 to $7.94
billion on December 31, while loans grew by
6.1% over the same period to $4.42 billion at
year end. These results reflect Horizon’s
deliberate shift toward higher yielding loans
and other interest-earning assets to improve
our balance sheet’s performance and position
Horizon for expanded revenue and earnings
growth. Throughout 2023, the company shifted
its growth into higher yielding loans through
its diversified origination platform and re-directed cash flows from securities and lower yielding loan portfolios
into lending segments that provided improved returns and aligned with the company’s high quality credit
metrics. These initiatives were well executed and further enhanced by a strategic repositioning of the balance
sheet in December 2023. The balance sheet reposition leveraged Horizon’s positive capital position to exit lower
yielding securities and Bank Owned Life Insurance policies (BOLI), enabling a reinvestment strategy into higher
yielding assets. We believe the positive impact of this strategic repositioning will quickly be visible in 2024,
providing significant revenue benefits, flexibility to accelerate our core business model of relationship banking,
and nimbleness in our funding strategies. These actions will not only enhance our ability to help our clients to
succeed, but they are also well aligned to create long-term shareholder value.
The franchise value of our resilient core deposit base continued
to be vibrant in 2023. Total deposits at year-end were $5.66
billion with 74.0% in core business and consumer accounts that
frequent our 70+ local branches. As the industry witnessed the
demise of three coastal banks with non-traditional banking
models in the spring of 2023, Horizon quickly adapted to these market events with proactive client
communication and outreach efforts. After experiencing a modest downward trend of mainly seasonal
accounts in the first quarter of 2023, total deposit balances were relatively stable for the reminder of the year.
We feel confident that our clients’ trust in our relationship banking model and sound business practices. These
core values provided a great foundation for our advisors to do an admirable job of maintaining and gathering
new relationships throughout 2023. Horizon also managed deposit costs favorably compared to peers and
positioned the organization to take advantage of the forecasted rate reductions in 2024. We believe our core
deposit relationships, located in economically strong and diverse communities throughout Indiana and
Michigan, view Horizon as their trusted business partner, and provide significant franchise value to the
organization.
Consistent and Proven Asset Quality
Asset quality throughout 2023 remained a core pillar of strength for Horizon as evidenced by low
non-performing loans to total loans of 0.44% on December 31 and net charge offs representing just 0.05% of
average loans for the year, continuing the excellent credit trends experienced in 2022.
Horizon’s high quality and diversified credit portfolio has historically outperformed the industry in terms of
asset quality performance over time. We believe the company is well positioned to maintain its credit quality as
it moves into what could be a less favorable environment in 2024, due to Horizon’s limited exposure to higher
risk lending segments, such as high-rise office buildings and unsecured consumer lending. Horizon has
consistently focused on industry verticals, local business and clients that align with our traditional relationship
banking model. This has delivered a lending portfolio of high-quality clients with proven credit histories, strong
Building for the Future and Beyond
In 2023, Horizon made significant progress on its strategic initiatives to improve the performance of the balance
sheet, continue the bank’s sound operating model, while investing in platforms that create long-term franchise
value. As outlined earlier, the deliberate shift to higher yielding assets and the repositioning of the balance sheet
in 2023 are designed to fuel our revenue growth expectations. The successful execution of these strategies
provided an environment to further grow our earnings through the introduction of Horizon’s new vertical of
equipment financing, announced in the fall of 2023. Through this platform Horizon will provide essential
equipment financing options for commercial and small business clients,
further diversify our lending platforms, and expand our interest income
results. Additionally, we added resources to our Treasury Management team
serving commercial clients by adding talent in our growth markets in Michigan
and Indiana. These resources deepen relationships with core commercial
clients and prospects while balancing resources dedicated to public funds.
Consistently adding accretive revenue initiatives are key elements of our longer-term objectives of building a
premier community banking model in the Midwest and achieving top-tier financial performance relative to our
peers.
Digital expansion efforts continued throughout the year that aligned new functionality and accessibility with a
focus on capturing efficiencies. Additional interactive video teller machines were added to our fleet in 2023,
increasing the total number of machines to 53. These
easy-to-use devices extend hours of accessibility to our
clients through live video interaction with remote
advisors. This platform also increases Horizon’s reach
within our communities and provides an operating
model that is approximately 50% lower in delivery cost
than a traditional in-branch model. Client feedback has
been very positive and the flexibility it provides our
advisors to manage work schedules is an added benefit.
In late 2023, the team introduced a new digital account
opening platform for our consumer and small business
clients. This new platform integrates industry leading technology that permits clients to open an account
online in less than five minutes. Additional capabilities of the platform include multiple funding options,
mobile wallet integration, and significantly enhanced fraud-detection technology advancements. We
anticipate having this fully deployed in the first quarter of 2024 and leverage this new technology to further
accelerate our growth in core deposit relationships.
Beyond. We believe this word brings to life what
Horizon has created for its clients and shareholders for
over 150 years. Beyond average, beyond the expected,
and beyond typical results. Horizon is a lean-in
organization that has proven its ability to evolve, achieve
high performance levels, and extend its reach to
improve the communities we work and live. With this backdrop of success and engagement, Horizon is proud to
launch its new brand positioning: Beyond. This new branding aligns well with our vision, mission, and values
and captures the essence of excellence we look to achieve for all our stakeholders. Our internal launch of the
brand was well received in the second half of 2023 and will be highly visible in our markets and media assets
throughout 2024.
Creating Shareholder Value
Horizon continues to align its core values and strategic plan with long-term
shareholder value. In 2023, we displayed our unwavering commitment to our
shareholders through:
• Quality loan growth of 6.1%.
•
•
•
Continued excellent credit trends as measured by low non-performing
loans to total loans at period end and net charge-offs to average loans
ratio of 0.44% and 0.05%, respectively.
Productive use of capital to restructure the balance sheet and reinvest over
$500 million in proceeds into higher yielding assets to improve top line
revenue results.
Established new equipment financing division to accelerate high yielding,
quality asset growth and diversify the bank’s revenue model.
• Monetizing technology investments to capture new low-cost deposits via
digital applications and leveraging video teller machines to capture
efficiencies in our distribution costs.
•
•
Provided over 11,600 hours of volunteering to help advance and give back
to our local markets. This included Horizon’s first “Day of Caring”, enabling
800+ advisors to volunteer as one team across our Indiana and Michigan
communities.
Continued disciplined operational leverage by managing non-interest
expense to total average assets to < 2%.
• Maintained our commitment to our shareholder dividend strategy,
through 30-plus years of uninterrupted payment of quarterly cash
dividends, with an attractive dividend yield at year end of 4.5%.
Horizon is a company on the move with a lean-in culture of evolution, creating
shareholder value, and helping to advance our local communities. We feel
confident Horizon is well positioned for success as we enter 2024. The
organization has improved its balance sheet momentum, invested in new
business lines and talent to accelerate earnings, and maintained its disciplined
business model. We look to achieve beyond expectations for our communities,
clients and shareholders throughout the year and invite you to join us on our
quarterly updates to gain insight into our financial results and progress on key
initiatives.
11,600 volunteer
hours by Advisors
in 2023
We look forward to a successful 2024 and thank you for your continued support and investment in the company.
Thomas M. Prame
Chief Executive Officer & President
Craig M. Dwight
Chairman
4
Dear Fellow Shareholders,
In 2023, Horizon Bank celebrated its 150th
anniversary, and we are incredibly thankful for
the trust our clients continue to place in us
helping them achieve their financial goals. We
remain steadfast in our efforts to deliver
consistent value to our key stakeholders while
remaining leaders in serving the local
communities we call home.
The economic environment for the banking
segment was very challenging in 2023 with
high-profile bank failures, significant increases in
interest rates, and continued elevated inflation.
The bank and its parent company, Horizon
Bancorp, Inc., were not immune to the cyclical headwinds of the industry that impacted historical revenue
models through lower margins, higher operating expenses, and heightened regulatory review and oversight.
Even with these headwinds, Horizon’s sustainable business model continued to support long-term value creation
through quality loan growth, a resilient and loyal core deposit franchise, ongoing strong asset quality, prudent
expense management, and commitment to its quarterly cash dividend.
Horizon’s plan of operating a safe and
sound business model, which has
delivered consistent and growing returns
over time, continues to be the
cornerstone of our value proposition for
shareholders. Horizon has a proven track record of exceeding its prior year’s net income 21 out of 23 years. This
consistency can be attributed to a business model focused on quality loan and deposit growth combined with
accretive acquisitions of institutions that share Horizon’s client-centric values and desire to achieve top-tier
performance among our peers. Executing on this strategy has delivered an average annual shareholder return
of 12% over the last 20 years.
Although success could be measured by Horizon’s decades of positive performance, we feel a key differentiator
for our organization is our ability to continually adapt and find new value-added opportunities for our clients,
communities, and shareholders. Last year was not unique in this aspect, as the organization quickly adapted to
the market’s fluid economic environment and repositioned the company’s balance sheet and revenue models
for what we anticipate will be a sustained elevated rate environment. Additionally, as the leadership team
extends its outlook through its multi-year plan, Horizon has made key investments in technology and talent to
align with client preferences and developed new and sustainable revenue models to increase total shareholder
returns.
the future.
Horizon’s long-term success is grounded in our unwavering core values of people first, relationships built on
trust, community engagement, and a disciplined and diversified revenue model. As an organization we
continue to be proud of our ability to be agile and navigate the challenges of our industry, encourage curiosity
to challenge the norm, and to find creative solutions that align with our desire to deliver positive outcomes for
our key stakeholders. This speaks to how Horizon has flourished for 150 years and plans to continue well into
Balance Sheet Strength Heading into 2024
balance sheets and capacity to repay. Our prudent operating model and in-market leadership expertise further
positions the organization to navigate economic cycles and consistently produce positive shareholder returns.
Total assets increased by 0.8% in 2023 to $7.94
billion on December 31, while loans grew by
6.1% over the same period to $4.42 billion at
year end. These results reflect Horizon’s
deliberate shift toward higher yielding loans
and other interest-earning assets to improve
our balance sheet’s performance and position
Horizon for expanded revenue and earnings
growth. Throughout 2023, the company shifted
its growth into higher yielding loans through
its diversified origination platform and re-directed cash flows from securities and lower yielding loan portfolios
into lending segments that provided improved returns and aligned with the company’s high quality credit
metrics. These initiatives were well executed and further enhanced by a strategic repositioning of the balance
sheet in December 2023. The balance sheet reposition leveraged Horizon’s positive capital position to exit lower
yielding securities and Bank Owned Life Insurance policies (BOLI), enabling a reinvestment strategy into higher
yielding assets. We believe the positive impact of this strategic repositioning will quickly be visible in 2024,
providing significant revenue benefits, flexibility to accelerate our core business model of relationship banking,
and nimbleness in our funding strategies. These actions will not only enhance our ability to help our clients to
succeed, but they are also well aligned to create long-term shareholder value.
The franchise value of our resilient core deposit base continued
to be vibrant in 2023. Total deposits at year-end were $5.66
billion with 74.0% in core business and consumer accounts that
frequent our 70+ local branches. As the industry witnessed the
demise of three coastal banks with non-traditional banking
models in the spring of 2023, Horizon quickly adapted to these market events with proactive client
communication and outreach efforts. After experiencing a modest downward trend of mainly seasonal
accounts in the first quarter of 2023, total deposit balances were relatively stable for the reminder of the year.
We feel confident that our clients’ trust in our relationship banking model and sound business practices. These
core values provided a great foundation for our advisors to do an admirable job of maintaining and gathering
new relationships throughout 2023. Horizon also managed deposit costs favorably compared to peers and
positioned the organization to take advantage of the forecasted rate reductions in 2024. We believe our core
deposit relationships, located in economically strong and diverse communities throughout Indiana and
Michigan, view Horizon as their trusted business partner, and provide significant franchise value to the
organization.
Consistent and Proven Asset Quality
Asset quality throughout 2023 remained a core pillar of strength for Horizon as evidenced by low
non-performing loans to total loans of 0.44% on December 31 and net charge offs representing just 0.05% of
average loans for the year, continuing the excellent credit trends experienced in 2022.
Horizon’s high quality and diversified credit portfolio has historically outperformed the industry in terms of
asset quality performance over time. We believe the company is well positioned to maintain its credit quality as
it moves into what could be a less favorable environment in 2024, due to Horizon’s limited exposure to higher
risk lending segments, such as high-rise office buildings and unsecured consumer lending. Horizon has
consistently focused on industry verticals, local business and clients that align with our traditional relationship
banking model. This has delivered a lending portfolio of high-quality clients with proven credit histories, strong
Building for the Future and Beyond
In 2023, Horizon made significant progress on its strategic initiatives to improve the performance of the balance
sheet, continue the bank’s sound operating model, while investing in platforms that create long-term franchise
value. As outlined earlier, the deliberate shift to higher yielding assets and the repositioning of the balance sheet
in 2023 are designed to fuel our revenue growth expectations. The successful execution of these strategies
provided an environment to further grow our earnings through the introduction of Horizon’s new vertical of
equipment financing, announced in the fall of 2023. Through this platform Horizon will provide essential
equipment financing options for commercial and small business clients,
further diversify our lending platforms, and expand our interest income
results. Additionally, we added resources to our Treasury Management team
serving commercial clients by adding talent in our growth markets in Michigan
and Indiana. These resources deepen relationships with core commercial
clients and prospects while balancing resources dedicated to public funds.
Consistently adding accretive revenue initiatives are key elements of our longer-term objectives of building a
premier community banking model in the Midwest and achieving top-tier financial performance relative to our
peers.
Digital expansion efforts continued throughout the year that aligned new functionality and accessibility with a
focus on capturing efficiencies. Additional interactive video teller machines were added to our fleet in 2023,
increasing the total number of machines to 53. These
easy-to-use devices extend hours of accessibility to our
clients through live video interaction with remote
advisors. This platform also increases Horizon’s reach
within our communities and provides an operating
model that is approximately 50% lower in delivery cost
than a traditional in-branch model. Client feedback has
been very positive and the flexibility it provides our
advisors to manage work schedules is an added benefit.
In late 2023, the team introduced a new digital account
opening platform for our consumer and small business
clients. This new platform integrates industry leading technology that permits clients to open an account
online in less than five minutes. Additional capabilities of the platform include multiple funding options,
mobile wallet integration, and significantly enhanced fraud-detection technology advancements. We
anticipate having this fully deployed in the first quarter of 2024 and leverage this new technology to further
accelerate our growth in core deposit relationships.
Beyond. We believe this word brings to life what
Horizon has created for its clients and shareholders for
over 150 years. Beyond average, beyond the expected,
and beyond typical results. Horizon is a lean-in
organization that has proven its ability to evolve, achieve
high performance levels, and extend its reach to
improve the communities we work and live. With this backdrop of success and engagement, Horizon is proud to
launch its new brand positioning: Beyond. This new branding aligns well with our vision, mission, and values
and captures the essence of excellence we look to achieve for all our stakeholders. Our internal launch of the
brand was well received in the second half of 2023 and will be highly visible in our markets and media assets
throughout 2024.
Dollar amounts in thousands except per share data and ratios.
2023
2022
2021
2020
2019
Earnings
Net interest income
Credit loss expense
Non-interest income
Non-interest expense
Income tax expense
Net income available to common shareholders
$
$
$
$
$
175,744
2,459
11,998
146,284
11,018
27,981
199,518
(1,816)
47,451
143,201
12,176
93,408
175,805
(2,084)
57,952
133,394
15,356
87,091
165,530
20,751
59,621
126,031
9,870
68,499
156,393
1,976
43,058
117,634
13,303
66,538
$
$
$
$
$
Cash dividends
$
28,345
$
27,765
$
24,768
$
21,183
$
20,835
Per Share Data
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Book value per common share
Tangible book value per common share
Weighted-average shares outstanding
Basic
Diluted
Period End Totals
Loans, net of deferred loan fees and unearned
$0.64
0.64
0.64
16.47
12.60
$2.14
2.14
0.63
15.55
11.59
$1.99
1.98
0.56
16.61
12.58
$1.56
1.55
0.48
15.78
11.81
$1.53
1.53
0.46
14.59
10.63
43,630,160
43,843,880
43,568,823
43,699,734
43,802,733
43,955,280
44,044,737
44,123,208
43,493,316
43,597,595
income
Allowance for credit losses
Total assets
Total deposits
Total borrowings
$
4,417,630
$
4,157,998
$
3,658,534
$
3,880,682
$
3,650,063
50,029
7,940,485
5,664,893
1,353,050
50,464
7,872,518
5,857,774
1,258,872
54,286
7,411,889
5,802,991
828,274
57,027
5,886,614
4,531,133
590,151
17,667
5,246,829
3,931,002
606,052
Ratios
Loan to deposit
Loan to total funding
Return on average assets
Average stockholders’ equity to average total
assets
Return on average stockholders’ equity
Dividend payout ratio (dividends divided by
basic earnings per share)
Price to book value ratio
Price to earnings ratio
78.01%
62.97%
0.36%
8.97%
3.96%
100.00%
86.89%
22.36x
71.08%
58.51%
1.24%
9.07%
13.66%
29.44%
63.26%
55.36%
1.34%
10.93%
12.23%
28.14%
85.94%
76.04%
1.22%
11.82%
10.29%
30.77%
92.96%
80.54%
1.35%
12.28%
10.98%
31.31%
96.98%
125.53%
100.51%
130.27%
7.05x
10.53x
10.23x
12.42x
5
Horizon continues to align its core values and strategic plan with long-term
shareholder value. In 2023, we displayed our unwavering commitment to our
Creating Shareholder Value
shareholders through:
• Quality loan growth of 6.1%.
•
•
•
Continued excellent credit trends as measured by low non-performing
loans to total loans at period end and net charge-offs to average loans
ratio of 0.44% and 0.05%, respectively.
Productive use of capital to restructure the balance sheet and reinvest over
$500 million in proceeds into higher yielding assets to improve top line
revenue results.
Established new equipment financing division to accelerate high yielding,
quality asset growth and diversify the bank’s revenue model.
• Monetizing technology investments to capture new low-cost deposits via
digital applications and leveraging video teller machines to capture
efficiencies in our distribution costs.
•
Provided over 11,600 hours of volunteering to help advance and give back
to our local markets. This included Horizon’s first “Day of Caring”, enabling
800+ advisors to volunteer as one team across our Indiana and Michigan
communities.
•
Continued disciplined operational leverage by managing non-interest
expense to total average assets to < 2%.
• Maintained our commitment to our shareholder dividend strategy,
through 30-plus years of uninterrupted payment of quarterly cash
dividends, with an attractive dividend yield at year end of 4.5%.
Horizon is a company on the move with a lean-in culture of evolution, creating
shareholder value, and helping to advance our local communities. We feel
confident Horizon is well positioned for success as we enter 2024. The
organization has improved its balance sheet momentum, invested in new
business lines and talent to accelerate earnings, and maintained its disciplined
business model. We look to achieve beyond expectations for our communities,
clients and shareholders throughout the year and invite you to join us on our
quarterly updates to gain insight into our financial results and progress on key
initiatives.
We look forward to a successful 2024 and thank you for your continued support and investment in the company.
This page intentionally left blank.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
Commission file number 0000-10792
Horizon Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Indiana
35-1562417
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
515 Franklin Street, Michigan City, Indiana 46360
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 219-879-0211
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, no par value
HBNC
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well–known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
Emerging Growth Company
☐
☐
☐
Accelerated Filer
Smaller Reporting Company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes–Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non–affiliates of the registrant, based on the last sale price of
such stock as of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, was
approximately $441.4 million.
As of March 14, 2024, the registrant had 44,111,174 shares of common stock outstanding.
Documents Incorporated by Reference
Document
Part of Form 10–K into which portion of document is incorporated
Portions of the Registrant’s Proxy Statement to be filed for
its May 2, 2024 annual meeting of shareholders
Part III
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
TABLE OF CONTENTS
FORWARD–LOOKING STATEMENTS
PART I
Item 1
Item 1A
Item 1B
Item 1C
Item 2
Item 3
Item 4
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Special
Information about our Executive Officers
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10–K Summary
SIGNATURES
Page
3
5
17
31
31
32
33
33
34
35
36
37
69
71
142
142
143
143
144
144
144
145
145
146
149
150
2
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
FORWARD–LOOKING STATEMENTS
A cautionary note about forward-looking statements: In addition to historical information, information included
and incorporated by reference in this Annual Report on Form 10–K contains certain “forward–looking statements”
within the meaning of the federal securities laws. Horizon Bancorp, Inc. (“Horizon”) intends such forward–looking
statements to be covered by the safe harbor provisions for forward–looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this statement for purposes of invoking those safe–harbor
provisions. Forward–looking statements can include statements about estimated cost savings, plans and objectives
for future operations and expectations about Horizon’s financial and business performance as well as economic
and market conditions. They often can be identified by the use of words such as “expect,” “may,” “likely,” “could,”
“should,” “will,” “intend,” “project,” “estimate,” “believe,” “anticipate,” “seek,” “plan,” “goals,” “strategy,” “future” and
variations of such words and similar expressions.
Horizon may include forward-looking statements in filings it makes with the Securities and Exchange Commission
(“SEC”), such as this Form 10–K, in other written materials, and in oral statements made by senior management to
analysts, investors, representatives of the media and others. Horizon intends that these forward–looking statements
speak only as of the date they are made, and Horizon undertakes no obligation to update any forward–looking
statement to reflect events or circumstances after the date on which the forward–looking statement is made or to
reflect the occurrence of unanticipated events.
Although management believes that the expectations reflected in forward–looking statements are reasonable,
actual results may differ materially, whether adversely or positively, from the expectations of Horizon that are
expressed or implied by any forward–looking statement. Risks, uncertainties, and factors that could cause Horizon’s
actual results to vary materially from those expressed or implied by any forward–looking statement include but are
not limited to the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
current financial conditions within the banking industry, including the effects of failures of other financial
institutions, liquidity levels, and responses by the Federal Reserve, Department of the Treasury, and the
Federal Deposit Insurance Corporation to address these issues;
any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the
banking industry;
changes in the level and volatility of interest rates, spreads on earning assets and interest bearing liabilities,
and interest rate sensitivity;
the ability of the Company to remediate its material weaknesses in its internal control over financial
reporting;
continuing increases in inflation;
loss of key Horizon personnel;
economic conditions and their impact on Horizon and its customers, including local and global economic
recovery from the pandemic;
the increasing use of Bitcoin and other crypto currencies and/or stable coin and the possible impact these
alternative currencies may have on deposit disintermediation and income derived from payment systems;
the effect of interest rates on net interest rate margin and their impact on mortgage loan volumes and the
outflow of deposits;
increases in disintermediation, as new technologies allow consumers to complete financial transactions
without the assistance of banks, which may have been accelerated by the COVID–19 pandemic;
potential loss of fee income, including interchange fees, as new and emerging alternative payment
platforms (e.g., Apple Pay or Bitcoin) take a greater market share of the payment systems;
estimates of fair value of certain of Horizon’s assets and liabilities;
volatility and disruption in financial markets;
3
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
prepayment speeds, loan originations, credit losses and market values, collateral securing loans and other
assets;
sources of liquidity;
potential risk of environmental liability related to lending and acquisition activities;
changes in the competitive environment in Horizon’s market areas and among other financial service
providers;
legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its
subsidiaries in particular;
changes in regulatory supervision and oversight, including monetary policy and capital requirements;
changes in accounting policies or procedures as may be adopted and required by regulatory agencies;
litigation, regulatory enforcement, tax, and legal compliance risk and costs, as applicable generally and
specifically to the financial and fiduciary (generally and as an ESOP fiduciary) environment, especially if
materially different from the amount we expect to incur or have accrued for, and any disruptions caused by
the same;
the effects and costs of governmental investigations or related actions by third parties;
rapid technological developments and changes;
the risks presented by cyber terrorism and data security breaches;
the rising costs of effective cybersecurity;
containing costs and expenses;
the ability of the U.S. federal government to manage federal debt limits;
the potential influence on the U.S. financial markets and economy from the effects of climate change and
social justice initiatives;
the potential influence on the U.S. financial markets and economy from material changes outside the U.S.
or in overseas relations, including changes in U.S. trade relations related to imposition of tariffs, Brexit, and
the phase out of the London Interbank Offered Rate (“LIBOR”) according to regulatory guidance;
the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with
acquired loans, difficulty integrating acquired operations and material differences in the actual financial
results of such transactions compared with Horizon’s initial expectations, including the full realization of
anticipated cost savings; and
acts of terrorism, war and global conflicts, such as the ongoing conflicts between Russia and Ukraine and
Israel and Hamas, and the potential impact they may have on supply chains, the availability of commodities,
commodity prices, inflationary pressure and the overall U.S. and global financial markets.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
You are cautioned that actual results may differ materially from those contained in the forward–looking statements.
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this
Form 10–K lists some of the factors that could cause Horizon’s actual results to vary materially from those
expressed in or implied by any forward–looking statements. We direct your attention to this discussion.
Other risks and uncertainties that could affect Horizon’s future performance are set forth below in Item 1A, “Risk
Factors.”
4
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
PART I
ITEM1. BUSINESS
The disclosures in this Item 1 are qualified by the disclosures below in Item 1A, “Risk Factors,” and Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other cautionary
statements set forth elsewhere in this Annual Report on Form 10–K.
General
Horizon Bancorp, Inc. (“Horizon” or the “Company”) 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 Bank” or the
“Bank”) and other affiliated entities. 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. Horizon Bank (formerly
known as “Horizon Bank, N.A.”) 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 Bank is a full–service
commercial bank offering commercial and retail banking services, corporate and individual trust and agency
services and other services incident to banking.
Over the last 20 years, Horizon has expanded its geographic reach and experienced financial growth through a
combination of both organic expansion and mergers and acquisitions. Horizon’s initial operations focused on
northwest Indiana, but since then, the Company has developed a presence in new markets in southern and central
Michigan and northeastern and central Indiana. The most recent material expansions through acquisitions are
described below.
On September 17, 2021, Horizon Bank completed the purchase and assumption of certain assets and liabilities of
14 former TCF National Bank (“TCF”) branches in 11 Michigan counties. Net cash of $618.2 million was received in
the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans of $212.0
million, fixed assets of $6.9 million, cash of $4.0 million and a 1.75% premium on deposits. Customer deposit
balances were recorded at $846.4 million and a core deposit intangible of $1.6 million was recorded in the
transaction, which will be amortized over 10 years on a straight line basis. Goodwill of $4.0 million was generated in
the transaction.
The Bank maintains 71 full service offices. At December 31, 2023, the Bank had total assets of $7.9 billion and total
deposits of $5.7 billion. The Bank has wholly–owned direct and indirect subsidiaries: Horizon Investments, Inc.
(“Horizon Investments”), Horizon Properties, Inc. (“Horizon Properties”), Horizon Insurance Services, Inc. (“Horizon
Insurance”), Horizon Grantor Trust and Wolverine Commercial Holdings, LLC. Horizon Investments manages the
investment portfolio of the Bank. Horizon Properties manages the real estate investment trust. Horizon Insurance is
used by the Company’s Wealth Management to sell certain life insurance products through a third party. Horizon
Grantor Trust holds title to certain company owned life insurance policies. Wolverine Commercial Holdings, LLC
currently holds one piece of property but does not otherwise engage in significant business activities.
Horizon formed Horizon Bancorp Capital Trust II in 2004 (“Trust II”) and Horizon Bancorp Capital Trust III in 2006
(“Trust III”) for the purpose of participating in pooled trust preferred securities offerings. The Company assumed
additional debentures as the result of the acquisition of Alliance Financial Corporation in 2005, which formed
Alliance Financial Statutory Trust I (“Alliance Trust”). The Company also assumed additional debentures as the
result of the acquisition of American Trust & Savings Bank (“American”) in 2010, which formed Am Tru Statutory
Trust I (“Am Tru Trust”). The Company also assumed additional debentures as the result of the Heartland
transaction, which formed Heartland (IN) Statutory Trust II (“Heartland Trust”). In 2016, the Company also assumed
additional debentures as the result of the LaPorte Bancorp transaction. LaPorte Bancorp acquired City Savings
Financial Corporation in 2007. City Savings Financial Corporation issued the debentures and formed City Savings
Statutory Trust I (“City Savings”) in 2003. The Company also assumed additional debentures as the result of the
Salin transaction, which formed Salin Statutory Trust I (“Salin Trust”) in 2003. See Note 13 of the Consolidated
Financial Statements included at Item 8 for further discussion regarding these previously consolidated entities that
are now reported separately.
5
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The business of Horizon is not seasonal to any material degree. No material part of Horizon’s business is
dependent upon a single or small group of customers, the loss of any one or more of which would have a materially
adverse effect on the business of Horizon. In 2023, revenues from loans accounted for 75.4% of the total
consolidated revenue, and revenues from investment securities accounted for 19.4% of total consolidated revenue.
Available Information
The Company’s Internet address is www.horizonbank.com. Information on or accessible through our website is not
deemed to be incorporated into this Annual Report on Form 10–K. Website references in this Annual Report are
merely textual references. The Company makes available, free of charge through the “About Us – Investor
Relations – Documents – SEC Filings” section of its Internet website, copies of the Company’s Annual Report on
Form 10–K, Quarterly Reports on Form 10–Q, Current Reports on Form 8–K and any amendments to those reports
filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as soon as reasonably practicable after those reports are filed with or furnished to the SEC. The contents of
our website are not incorporated by reference into this Annual Report on Form 10–K or in any other report or
document we file with the SEC, and any references to our website are intended to be inactive textual references
only.
Employees and Human Capital Resources
We believe that the foundation of our success in the banking business lies with the quality of our employees, the
development of our employees' skills and career goals, and our ability to provide a comprehensive rewarding
experience and work environment. We encourage and support the development of our employees and, wherever
possible, strive to fill positions from within the organization. As of December 31, 2023, the Company employed 818
full–time and 58 part–time employees across all locations.
Competition
Horizon faces a high degree of competition in all of its primary markets. The Bank’s primary market consists of
areas throughout the northern and central regions of the state of Indiana along with the southern and central regions
of the state of Michigan. The Bank’s primary market is further defined by the Indiana and Michigan counties
identified below. The Bank competes with other commercial banks, savings and loan associations, consumer
finance companies, credit unions and other non–bank and digital financial service providers. In addition, Financial
Technology, or FinTech, start–ups are emerging in key banking areas. To a more moderate extent, the Bank
competes with Chicago money center banks, mortgage banking companies, insurance companies, brokerage
houses, other institutions engaged in money market financial services and certain government agencies. Many
non–financial institution competitors face fewer regulatory restrictions.
6
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The following table estimates the number of financial institution competitors in Horizon’s primary market areas,
along with Horizon’s competitive position in these areas, based on the June 30, 2023 Federal Deposit Insurance
Corporation (“FDIC”) Deposit Market Share Report (available at www.fdic.gov ):
County
Allen
Bartholomew
Carroll
Cass
DeKalb
Elkhart
Fountain
Grant
Hamilton
Howard
Johnson
Kosciusko
LaGrange
Lake
LaPorte
Marion
Noble
Porter
St. Joseph
Tippecanoe
Whitley
INDIANA
MICHIGAN
Number of
Institutions
Horizon
Market
Share
County
Number of
Institutions
Horizon
Market
Share
20
9
6
6
11
16
4
7
27
8
21
10
4
16
8
25
6
11
14
16
7
1.69 % Arenac
5.84 % Berrien
30.01 % Charlevoix
15.80 % Crawford
11.52 % Ingham
0.69 % Kalamazoo
9.71 % Kent
8.01 % Mecosta
0.28 % Midland
4.37 % Missaukee
10.61 % Newaygo
4.56 % Oakland
3.42 % Otsego
1.78 % Ottawa
58.56 % Roscommon
0.77 % Shiawassee
4.95 % St. Joseph
8.55 % Wexford
0.36 %
6.55 %
6.38 %
4
8
4
2
18
14
24
8
7
2
6
29
5
15
4
6
9
5
29.36 %
12.15 %
3.15 %
23.29 %
1.34 %
2.12 %
0.49 %
11.76 %
18.90 %
50.58 %
6.65 %
0.20 %
17.34 %
0.90 %
12.78 %
15.40 %
4.68 %
24.04 %
At the time of the FDIC Deposit Market Share Report, Horizon was the largest of the eight bank and thrift institutions
in LaPorte County, the largest of the six institutions in Carroll County, the third largest of the 21 institutions in
Johnson County, the fourth largest of the 11 institutions in DeKalb County, the third largest of the six institutions in
Cass County, the fifth largest of the 16 institutions in Tippecanoe County, and the fifth largest of the 11 institutions in
Porter County.
In Michigan, Horizon was the second largest of the seven bank and thrift institutions in Midland County and the
fourth largest of the eight bank and thrift institutions in Berrien County.
Regulation and Supervision
General
As a bank holding company and a financial holding company, the Company is subject to extensive regulation,
supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve
Board” or “Federal Reserve”) as its primary federal regulator under the Bank Holding Company Act of 1956, as
amended (“BHC Act”). The Company is required to file annual reports with the Federal Reserve and provide other
information that the Federal Reserve may require. The Federal Reserve may also make examinations and
inspections of the Company.
7
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The Bank, as an Indiana–state chartered bank, is subject to extensive regulation, supervision and examination by
the Indiana Department of Financial Institutions (“DFI”) as its primary state regulator. Also, as to certain matters, the
Bank is under the supervision of, and subject to examination by, the Federal Deposit Insurance Corporation
(“FDIC”) because the FDIC provides deposit insurance to the Bank and is the Bank’s primary federal regulator.
The supervision, regulation and examination of Horizon and the Bank by the bank regulatory agencies are intended
primarily for the protection of depositors rather than for the benefit of Horizon’s shareholders.
Horizon is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended,
and the Exchange Act, as administered by the SEC. Horizon’s common stock is listed on the NASDAQ Global
Select Market under the trading symbol “HBNC,” and Horizon is subject to the NASDAQ rules applicable to listed
companies.
Included below is a brief summary of significant aspects of the laws, regulations and policies applicable to Horizon
and the Bank. This summary is qualified in its entirety by reference to the full text of the statutes, regulations and
policies that are referenced and is not intended to be an exhaustive description of the statutes, regulations and
policies applicable to the business of Horizon and the Bank. Also, such statutes, regulations and policies are
continually under review by Congress and state legislatures and by federal and state regulatory agencies. A change
in statutes, regulations or regulatory policies applicable to Horizon and the Bank could have a material effect on
Horizon’s business, financial condition and results of operations.
Bank Holding Company Regulation
The Bank Holding Company (“BHC”) Act generally limits the business in which a bank holding company and its
subsidiaries may engage to banking or managing or controlling banks and those activities that the Federal Reserve
Board has determined to be so closely related to banking as to be a proper incident thereto. Those closely related
activities currently can include such activities as consumer finance, mortgage banking and securities brokerage.
Certain well–managed and well–capitalized bank holding companies may elect to be treated as a “financial holding
company” and, as a result, will be permitted to engage in a broader range of activities that are financial in nature
and in activities that are determined to be incidental or complementary to activities that are financial in nature.
Horizon has both qualified as, and elected to be, a financial holding company. Activities that are considered financial
in nature include securities underwriting and dealing, insurance underwriting and making merchant banking
investments.
To commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity
permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have
received a rating of at least “satisfactory” in its most recent examination under the Community Reinvestment Act.
The Federal Reserve Board has the power to order any bank holding company or its subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when the Federal Reserve Board has reasonable
grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the
financial soundness, safety or stability of any bank subsidiary of the bank holding company.
Federal Reserve Board policy has historically required bank holding companies to act as a source of financial and
managerial strength for their subsidiary banks. The Dodd–Frank Wall Street Reform and Consumer Protection Act
(the “Dodd–Frank Act”), which was signed into law on July 21, 2010, codified this policy. Under this requirement,
Horizon is required to act as a source of financial strength to the Bank and to commit resources to support the Bank
in circumstances in which Horizon might not otherwise do so. For this purpose, “source of financial strength” means
Horizon’s ability to provide financial assistance to the Bank in the event of the Bank’s financial distress.
The BHC Act, the Bank Merger Act (which is the popular name for Section 18(c) of the Federal Deposit Insurance
Act) and other federal and state statutes regulate acquisitions of banks and bank holding companies. The BHC Act
requires the prior approval of the Federal Reserve before a bank holding company may acquire more than a 5%
voting interest or substantially all the assets of any bank or bank holding company. Banks must also seek prior
approval from their primary state and federal regulators for any such acquisitions. In reviewing applications seeking
approval for mergers and other acquisition transactions, the bank regulatory authorities will consider, among other
things, the competitive effect and public benefits of the transactions, the capital position of the combined
organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record
8
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
under the Community Reinvestment Act and the effectiveness of the subject organizations in combating money
laundering activities.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a bank holding company is
required to guarantee the compliance of any insured depository institution subsidiary that may become
“undercapitalized” (as defined in FDICIA), with the terms of any capital restoration plan filed by such subsidiary with
its appropriate federal bank regulatory agency.
Bank holding companies, such as Horizon, and their insured depository institutions, such as the Bank, are subject to
various regulatory capital requirements administered by the federal and state regulators. The guidelines establish a
systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Risk–based capital ratios are determined by allocating assets and specified
off–balance sheet commitments to four risk weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk. In 2019, the Federal bank regulatory agencies, working jointly,
adopted final regulations designed to simplify capital requirements for community banks, allowing qualifying
community banks to adopt a simple community bank leverage ratio. For an additional discussion of the Company’s
regulatory capital ratios and regulatory requirements as of December 31, 2023, please refer to the subsection titled
“Capital Regulation” in this “Regulation and Supervision” section.
Branching and Acquisitions
Indiana law, the BHC Act and the Bank Merger Act restrict certain types of expansion by the Company and the
Bank. The Company and the Bank may be required to apply for prior approval from (or give prior notice and an
opportunity for review to) the Federal Reserve, the DFI and the FDIC, and or other regulatory agencies as a
condition to the acquisition or establishment of new offices, or the acquisition by merger, purchase or otherwise of
the stock, business or assets of other banks or companies.
Under current law, Indiana chartered banks may establish branches throughout the state and in other states, subject
to certain limitations. Indiana law also authorizes an Indiana bank to establish one or more branches in states other
than Indiana through interstate merger transactions and to establish one or more interstate branches through de
novo branching or the acquisition of a branch. The Dodd–Frank Act permits the establishment of de novo branches
in states where such branches could be opened by a state bank chartered by that state. The consent of the state in
which the new branch will be opened is no longer required.
Deposit Insurance and Assessments
The Bank’s deposits are insured to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC. Generally,
deposits are insured up to the statutory limit of $250,000 per separately insured depositor. Banks are subject to
deposit insurance premiums and assessments to maintain the DIF. The FDIC has authority to raise or lower
assessment rates on insured banks in order to achieve statutorily required reserve ratios in the DIF and to impose
special additional assessments.
The Dodd–Frank Act resulted in significant changes to the FDIC’s deposit insurance system. Under the Dodd–Frank
Act, the FDIC is authorized to set the reserve ratio for the DIF at no less than 1.35%. The FDIC must offset the
effect of the increase in the minimum designated reserve ratio from 1.15% to 1.35% on insured depository
institutions of less than $10 billion and may declare dividends to depository institutions when the reserve ratio at the
end of a calendar quarter is at least 1.50%, although the FDIC has the authority to suspend or limit such permitted
dividend declarations. The FDIC has set the long term goal for the designated reserve ratio of the deposit insurance
fund at 2% of estimated insured deposits. The FDIC adopted a plan to restore the DIF to the 1.35% ratio by
September 30, 2028.
Also under the Dodd–Frank Act, the assessment base for deposit insurance premiums is the institution's average
consolidated total assets minus average tangible equity. Tangible equity for this purpose means Tier 1 capital. The
initial base assessment rates ranged from 5 to 35 basis points. For small Risk Category I banks, such as Horizon
Bank, the rates ranged from 5 to 9 basis points. Adjustments are made to the initial assessment rates based on
long–term unsecured debt, depository institution debt, and brokered deposits.
9
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Assessment rates (inclusive of possible adjustments) currently range from 2.5 to 32 basis points of an institution's
total assets minus average tangible equity. Assessment rates for all established smaller banks will be determined
using financial measures and supervisory ratings derived from a statistical model estimating the probability of failure
over three years. The FDIC may increase or decrease the assessment rate scale uniformly, except that no
adjustment can deviate more than two basis points from the base rate without notice and comment rulemaking.
The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a
hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe and unsound
condition to continue operations or has violated any applicable law, regulation, order or any condition imposed in
writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution has no tangible capital.
Transactions with Affiliates and Insiders
Horizon and the Bank are subject to the Federal Reserve Act, which restricts financial transactions between banks,
affiliated companies and their executive officers, including limits on credit transactions between these parties. The
statute prescribes terms and conditions in order for bank affiliate transactions to be deemed to be consistent with
safe and sound banking practices, and it also restricts the types of collateral security permitted in connection with a
bank’s extension of credit to an affiliate. In general, extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, and subject to credit underwriting procedures that are at least as
stringent as those prevailing at the time for comparable transactions with non–affiliates, and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
Capital Regulation
The federal bank regulatory authorities have adopted risk–based capital guidelines for banks and bank holding
companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies and account for off–balance sheet items. Generally, to satisfy the capital
requirements, the Company must maintain capital sufficient to meet both risk–based asset ratio tests and a
leverage ratio test on a consolidated basis. Risk–based capital ratios are determined by allocating assets and
specified off–balance sheet commitments into various risk–weighted categories, with higher weighting assigned to
categories perceived as representing greater risk. A risk–based ratio represents the applicable measure of capital
divided by total risk–weighted assets. The leverage ratio is a measure of the Company’s core capital divided by total
assets adjusted as specified in the guidelines.
Federal regulations require FDIC insured depository institutions to meet several minimum capital standards; (i) a
common equity Tier 1 capital to risk–based assets ratio of 4.5%; (ii) a Tier 1 capital to risk–based assets ratio of
6.0%; (iii) a total capital to risk–based assets ratio of 8%; and (iv) a 4% Tier 1 capital to total assets leverage ratio.
Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1
capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally
includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity
accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus
Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus
meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred
stock, mandatory convertible securities, intermediate preferred stock, and subordinated debt. Also included in Tier 2
capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for
institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive
Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable
fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common
equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). Calculation of all types
of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets,
including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, and residual interests)
are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of
asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk
10
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to
prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to
commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of
between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by
the institution and certain discretionary bonus payments to management if an institution does not hold a “capital
conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount
necessary to meet its minimum risk-based capital requirements.
The Federal Reserve and FDIC have authority to establish individual minimum capital requirements in appropriate
cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular
risks or circumstances. As of December 31, 2023, Horizon Bank met all applicable capital adequacy requirements.
Bank holding companies are generally subject to consolidated capital requirements established by the Federal
Reserve. The Dodd-Frank Act required the Federal Reserve to set minimum capital levels for bank holding
companies that are as stringent as those required for insured depository subsidiaries.
Section 201 of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “Economic
Growth Act”) directed federal banking agencies to draft regulations establishing a new optional Community Bank
Leverage Ratio (“CBLR”). The Economic Growth Act provides that the CBLR will apply to a “qualifying community
bank” which the Economic Growth Act defines as a bank with consolidated assets of less than $10 billion and
satisfying additional criteria designed to disqualify institutions with a higher risk profile. Under the Economic Growth
Act, qualifying community banks that meet or exceed the CBLR and elect to follow the alternative regulatory capital
structure will be deemed to have satisfied all generally applicable leverage capital and risk-based capital
requirements and will be considered “well capitalized” under the FDIC prompt corrective action provisions. The
Economic Growth Act directed the FRB, the FDIC, and the Office of the Comptroller of the Currency (“OCC”) to
jointly determine a community bank leverage ratio percentage, not less than 8% nor more than 10%, that must be
maintained to be deemed to have satisfied all generally applicable leverage capital and risk-based capital
requirements and be considered well capitalized. The Economic Growth Act also directed agencies to establish
procedures for dealing with a qualifying bank that subsequently falls below the new ratio.
The final regulation implementing Section 201 became effective on January 1, 2021 (the “Final Rule”). Under the
Final Rule, to be eligible to use the CBLR framework, a banking organization must not be an advanced approaches
organization and must have (i) a leverage ratio of greater than 9%; (ii) total consolidated assets of less than $10
billion; (iii) total off-balance sheet exposures of 25% or less of total consolidated assets; and (iv) total trading assets
plus trading liabilities of 5% or less of total consolidated assets. A qualifying institution may opt in and out of the
CBLR framework on its quarterly call report. An institution that ceases to meet any qualifying criteria is provided with
a two-quarter grace period to either comply with the CBLR requirements or comply with the general capital
regulations, including the risk-based capital requirements.
Horizon’s management believes that, as of December 31, 2023, Horizon and the Bank met all applicable regulatory
capital requirements currently in effect.
11
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The following is a summary of Horizon’s and the Bank’s regulatory capital and capital requirements at December 31,
2023.
Actual
Amount
Ratio
Required for Capital
Adequacy Purposes(1)
Amount
Ratio
Required For Capital
Adequacy Purposes
with Capital Buffer(1)
Amount
Ratio
Well Capitalized
Under Prompt
Corrective Action
Provisions(1)
Amount
Ratio
Total capital (to risk-
weighted assets)(1)
Consolidated
Bank
Tier 1 capital (to risk-
weighted assets)(1)
Consolidated
Bank
Common equity tier 1
capital (to risk-weighted
assets)(1)
Consolidated
Bank
Tier 1 capital (to
average assets)(1)
Consolidated
Bank
$ 786,436
14.11 % $ 446,000
8.00 % $ 585,374
10.50 %
N/A
N/A
714,402
12.87 % 444,147
8.00 % 582,943
10.50 % $ 555,184
10.00 %
735,792
13.20 % 334,500
6.00 % 473,874
8.50 %
N/A
N/A
663,758
11.96 % 333,111
6.00 % 471,907
8.50 % 444,147
8.00 %
619,153
11.11 % 250,875
4.50 % 390,250
7.00 %
N/A
N/A
663,758
11.96 % 249,833
4.50 % 388,629
7.00 % 360,870
6.50 %
735,792
9.36 % 314,306
4.00 % 314,306
4.00 %
N/A
N/A
663,758
8.41 % 315,550
4.00 % 315,550
4.00 % 394,438
5.00 %
(1) As defined by regulatory agencies
Dividends
Horizon is a legal entity separate and distinct from the Bank. The primary source of Horizon’s cash flow, including
cash flow to pay dividends on its common stock, is the payment of dividends to Horizon by the Bank. Under Indiana
law, the Bank may pay dividends of so much of its undivided profits (generally, earnings less losses, bad debts,
taxes and other operating expenses) as is considered appropriate by the Bank’s Board of Directors. However, the
Bank must obtain the approval of the DFI for the payment of a dividend if the total of all dividends declared by the
Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the
year to date plus its retained net income for the previous two years. For this purpose, “retained net income” means
net income as calculated for call report purposes, less all dividends declared for the applicable period. The Bank is
generally exempt from this DFI pre–approval process for dividends if (i) the Bank has been assigned a composite
uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; (ii) the
proposed dividend will not result in a Tier 1 leverage ratio below 7.5%; and (iii) the Bank is not subject to any
corrective action, supervisory order, supervisory agreement or board approved operating agreement.
The FDIC has the authority to prohibit the Bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice in light of the financial condition of the Bank.
In addition, under Federal Reserve supervisory policy, a bank holding company generally should not maintain its
existing rate of cash dividends on common shares unless (i) the organization’s net income available to common
shareholders over the past year has been sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the organization’s capital needs, assets, quality and overall financial
condition. The Federal Reserve issued a letter dated February 24, 2009, to bank holding companies informing them
that it expects bank holding companies to consult with it in advance of declaring dividends that could raise safety
and soundness concerns (i.e., such as when the dividend is not supported by earnings or involves a material
increase in the dividend rate) and in advance of repurchasing shares of common stock or preferred stock. Although
the effect of this letter was revised in December 2015 to become inapplicable to certain large U.S. bank holding
companies (generally, those with at least $50 billion in average total consolidated assets), the guidance remains
effective for bank holding companies like Horizon.
12
Prompt Corrective Regulatory Action
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Under FDICIA, federal banking regulatory authorities are required to take regulatory enforcement actions known as
“prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements.
The extent of the regulators’ powers depends on whether the institution in question is categorized as “well
capitalized,”
“critically
“adequately
undercapitalized,” as defined by regulation.
“significantly undercapitalized,” or
“undercapitalized,”
capitalized,”
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1
risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of
6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a
Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, and a common equity Tier 1
ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%,
a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0%, or a common equity Tier 1 ratio
of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital
ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a
common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a
ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i)
requiring the submission of a capital restoration plan; (ii) placing limits on asset growth and restrictions on activities;
(iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv)
restricting transactions with affiliates; (v) restricting the interest rate the institution may pay on deposits; (vi) ordering
a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed;
(viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to
divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi)
ultimately, for critically undercapitalized institutions, appointing a receiver for the institution.
At December 31, 2023, the Bank was categorized as “well capitalized,” meaning that the Bank’s total risk–based
capital ratio exceeded 10%, the Bank’s Tier 1 risk–based capital ratio exceeded 8%, the Bank’s common equity Tier
1 risk–based capital ratio exceeded 6.5%, the Bank’s leverage ratio exceeded 5%, and the Bank was not subject to
a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure.
Banking regulators may change these capital requirements from time to time, depending on the economic outlook
generally and the outlook for the banking industry. The Company is unable to predict whether and when any such
further capital requirements would be imposed and, if so, to what levels and on what schedule.
Anti–Money Laundering — The USA Patriot Act and the Bank Secrecy Act
Horizon is subject to the provisions of the USA PATRIOT Act of 2001, which contains anti–money laundering and
financial transparency laws and requires financial institutions to implement additional policies and procedures to
address money laundering, suspicious activities and currency transaction reporting, and currency crimes. The
regulations promulgated under the USA PATRIOT Act of 2001 require financial institutions such as the Bank to
adopt controls to detect, prevent and report money laundering and terrorist financing and to verify the identities of
their customers.
The Bank Secrecy Act of 1970, which was amended to incorporate certain provisions of the USA PATRIOT Act of
2001, also focuses on combating money laundering and terrorist financing and requires financial institutions to
develop policies, procedures and practices to prevent, detect and deter these activities, including customer
identification programs and procedures for filing suspicious activity reports.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing, or to
comply with all of the relevant laws or regulations relating thereto, could have serious legal and reputational
consequences for Horizon and the Bank.
13
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Federal Securities Law and NASDAQ
The shares of common stock of Horizon have been registered with the SEC under the Exchange Act. Horizon is
subject to the information, proxy solicitation, insider trading restrictions and other requirements of the Exchange Act
and the rules of the SEC promulgated thereunder.
Shares of common stock held by persons who are affiliates of Horizon may not be resold without registration unless
sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933, as amended. If Horizon
meets the current public information requirements under Rule 144, each affiliate of Horizon who complies with the
other conditions of Rule 144 (including those that require the affiliate’s sale to be aggregated with those of certain
other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of Horizon or (ii) the average weekly volume
of trading in such shares during the preceding four calendar weeks.
Under the Dodd–Frank Act, Horizon is required to provide its shareholders an opportunity to vote on the executive
compensation payable to its named executive officers and on golden parachute payments in connection with
mergers and acquisitions. These votes are non-binding and advisory. At least once every six years, Horizon must
also permit shareholders to determine, on an advisory basis, whether such votes on executive compensation (called
“say on pay” votes) should be held every one, two, or three years. In both 2012 and 2018, Horizon’s shareholders
voted in favor of presenting the executive compensation “say on pay” question every year.
Shares of common stock of Horizon are listed on The NASDAQ Global Select Market under the trading symbol
“HBNC,” and Horizon is subject to the rules of NASDAQ for listed companies.
Sarbanes–Oxley Act of 2002
Horizon is subject to the Sarbanes–Oxley Act of 2002 (the “Sarbanes–Oxley Act”), which revised the laws affecting
corporate governance, accounting obligations and corporate reporting. The Sarbanes–Oxley Act applies to all
companies with equity or debt securities registered under the 1934 Act. In particular, the Sarbanes–Oxley Act
established: (i) new requirements for audit committees, including independence, expertise and responsibilities; (i)
additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer
of the reporting company; (ii) new standards for auditors and regulation of audits; (iv) increased disclosure and
reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased
civil and criminal penalties for violation of the securities laws.
Pursuant to the final rules adopted by the SEC to implement Section 404 of the Sarbanes–Oxley Act, Horizon is
required to include in each Form 10–K it files a report of management on Horizon’s internal control over financial
reporting. The internal control report must include a statement of management’s responsibility for establishing and
maintaining adequate control over financial reporting of Horizon, identify the framework used by management to
evaluate the effectiveness of Horizon’s internal control over financial reporting and provide management’s
assessment of the effectiveness of Horizon’s internal control over financial reporting. This Annual Report on Form
10–K also includes an attestation report issued by Horizon’s registered public accounting firm on Horizon’s internal
control over financial reporting.
Financial System Reform — The Dodd–Frank Act, the CFPB and the 2018 Regulatory Relief Act
The Dodd–Frank Act, which was signed into law in 2010, significantly changed the regulation of financial institutions
and the financial services industry. The Dodd–Frank Act includes provisions affecting large and small financial
institutions alike, including several provisions that have profoundly affected how community banks, thrifts, and small
bank and thrift holding companies are regulated. Among other things, these provisions eliminated the Office of Thrift
Supervision and transferred its functions to the other federal banking agencies, relaxed rules regarding interstate
branching, allowed financial institutions to pay interest on business checking accounts, changed the scope of
federal deposit insurance coverage and imposed new capital requirements on bank and thrift holding companies.
The Dodd–Frank Act created the Consumer Financial Protection Bureau (“CFPB”) as an independent bureau within
the Federal Reserve System with broad rulemaking, supervisory and enforcement powers under various federal
consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate
Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the Consumer Financial
14
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Privacy provisions of the Gramm–Leach–Bliley Act and certain other statutes. In July 2011, many of the consumer
financial protection functions formerly assigned to the federal banking and other designated agencies were
transferred to the CFBP. The CFBP has a large budget and staff, and has the authority to implement regulations
under federal consumer protection laws and enforce those laws against financial institutions. The CFPB has
examination and primary enforcement authority over depository institutions with $10 billion or more in assets.
Smaller institutions (like Horizon) are subject to rules promulgated by the CFPB but continue to be examined and
supervised by the federal banking regulators for consumer compliance purposes. The CFPB also has authority to
prevent unfair, deceptive or abusive practices in connection with offering consumer financial products. Additionally,
the CFPB is authorized to collect fines and provide consumer restitution in the event of violations, engage in
consumer financial education, track consumer complaints, request data, and promote the availability of financial
services to underserved consumers and communities.
The CFPB has indicated that mortgage lending is an area of supervisory focus. The CFPB has published several
final regulations impacting the mortgage industry, including rules related to ability–to–repay, mortgage servicing,
escrow accounts, and mortgage loan originator compensation. The ability–to–repay rule makes lenders liable if they
fail to assess a borrower’s ability to repay under a prescribed test, but also creates a safe harbor for so called
“qualified mortgages.” Failure to comply with the ability–to–repay rule may result in possible CFPB enforcement
action and special statutory damages plus actual, class action, and attorneys’ fees damages, all of which a borrower
may claim in defense of a foreclosure action at any time.
The CFPB also amended Regulation C to implement amendments to the Home Mortgage Disclosure Act made by
the Dodd–Frank Act. The amendment added a significant number of new information collecting and reporting
requirements for financial institutions, most of which became effective as of January 1, 2018.
The Dodd–Frank Act contains numerous other provisions affecting financial institutions of all types, many of which
may have an impact on the operating environment of Horizon in substantial and unpredictable ways. Horizon has
incurred higher operating costs in complying with the Dodd–Frank Act, and expects these higher costs to continue
for the foreseeable future.
Rules promulgated in 2019 pursuant to the Regulatory Relief Act have simplified the regulatory capital calculation
and have established a “Community Bank Leverage Ratio” to replace the leverage and risk–based regulatory capital
ratios for those banks choosing to adopt it. In addition, the Regulatory Relief Act includes regulatory relief for
community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading
prohibitions), mortgage disclosures and risk weights for certain high–risk commercial real estate loans.
Horizon’s management will continue to review the status of the rules and regulations adopted pursuant to the Dodd–
Frank Act and the Regulatory Relief Act, particularly the Community Bank Leverage Ratio framework, and to assess
their probable impact on the business, financial condition and results of operations of Horizon. At this point, Horizon
Bank has not elected to opt into the Community Bank Leverage Ratio framework.
Federal Home Loan Bank (“FHLB”) System
The Bank is a member of the FHLB of Indianapolis, which is one of twelve regional FHLBs. Each FHLB serves as a
reserve or central bank for its members within its assigned region. The FHLB is funded primarily from funds
deposited by banks and savings associations and proceeds derived from the sale of consolidated obligations of the
FHLB system. It makes loans to members (i.e., advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. The Federal Housing Finance Board (“FHFB”), an independent agency, controls the FHLB
System, including the FHLB of Indianapolis.
The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate
related collateral to 30% of a member’s capital and limiting total advances to a member. Interest rates charged for
advances vary depending upon maturity, the cost of funds to the FHLB of Indianapolis and the purpose of the
borrowing.
15
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to
affordable housing programs through direct loans or interest subsidies on advances targeted for community
investment and low and moderate income housing projects.
As a member of the FHLB, the Bank is required to purchase and maintain stock in the FHLB of Indianapolis in an
amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts, or similar
obligations at the beginning of each year. At December 31, 2023, the Bank’s investment in stock of the FHLB of
Indianapolis was $34.5 million which exceeds the required stock purchase minimum for Horizon. For the year ended
December 31, 2023, dividends paid by the FHLB of Indianapolis to the Bank on the FHLB stock totaled
approximately $2.3 million, for an annualized rate paid in dividends of 6.5%.
Limitations on Rates Paid for Deposits; Restrictions on Brokered Deposits
FDIC regulations restrict the interest rates that less than well–capitalized insured depository institutions may pay on
deposits and also restrict the ability of such institutions to accept brokered deposits. These regulations permit a
“well capitalized” depository institution to accept, renew or roll over brokered deposits without restriction, and an
“adequately capitalized” depository institution to accept, renew or roll over brokered deposits with a waiver from the
FDIC (subject to certain restrictions on payments of rates). The regulations prohibit an “undercapitalized” depository
institution from accepting, renewing or rolling over brokered deposits. These regulations contemplate that the
definitions of “well capitalized,” “adequately capitalized” and “undercapitalized” will be the same as the definitions
adopted by the agencies to implement the prompt corrective action provisions of FDICIA. The Bank is a well–
capitalized institution, and management does not believe that these regulations have a materially adverse effect on
the Bank’s current operations.
Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”), the Bank has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes
are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC in connection with
its examination of the Bank, to assess its record of meeting the credit needs of its community and to take that record
into account in its evaluation of certain applications by the Bank. For example, the regulations specify that a bank’s
CRA performance will be considered in its expansion proposals (e.g., branching and acquisitions of other financial
institutions) and may be the basis for approving, denying or conditioning the approval of an application. As of the
date of its most recent regulatory examination, the Bank was rated “satisfactory” with respect to its CRA compliance.
Gramm–Leach–Bliley Act, Financial Privacy
The Gramm–Leach–Bliley Act adopted in 1999 (“Gramm–Leach”) was intended to modernize the banking industry
by removing barriers to affiliation among banks, insurance companies, the securities industry and other financial
service providers. Gramm–Leach was responsible for establishing a distinct type of bank holding company, known
as a financial holding company, which is allowed to engage in an expanded range of financial services, including
banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. As previously
discussed, Horizon has qualified as, and elected to become, a financial holding company under the Gramm–Leach
amendments to the BHC Act.
Under Gramm–Leach, federal banking regulators adopted rules limiting the ability of banks and other financial
institutions to disclose non–public information about consumers to non–affiliated third parties. The rules require
disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of
certain personal information to non–affiliated third parties. The privacy provisions of Gramm–Leach affect how
consumer information is transmitted through diversified financial services companies and conveyed to outside
vendors.
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HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
As a financial institution, the Bank handles a significant amount of sensitive data, including personal information.
The Company does not disclose any non–public information about any current or former customers to anyone
except as permitted by law and subject to contractual confidentiality provisions which restrict the release and use of
such information.
We are also subject to guidance from the Federal Financial Institutions Examination Council (“FFIEC”), an
interagency body for five federal banking regulators, with respect to such matters as data privacy, disaster recovery
and cybersecurity.
Horizon continues to monitor existing and new privacy and data security laws for their impact on Horizon’s business
operations and its customers, including the applicability and effect of laws such as the European Union’s
comprehensive 2018 General Data Privacy Regulation and the California Consumer Privacy Act that went into effect
on January 1, 2020.
Interchange Fees for Debit Cards
Under the Dodd–Frank Act, interchange fees for bank card transactions must be reasonable and proportional to the
issuer’s incremental cost incurred with respect to the transaction plus certain fraud related costs. Interchange fees
are transaction fees between banks for each bank card transaction, designed to reimburse the card-issuing bank for
the costs of handling and credit risk inherent in a bank credit or debit card transaction. Although institutions with total
assets of less than $10 billion, like the Bank, are exempt from this requirement, regulatory pressures may, over
time, require smaller depository institutions to reduce fees with respect to these bank card transactions.
Other Regulation
In addition to the matters discussed above, the Bank is subject to additional regulation of its activities, including a
variety of consumer protection regulations affecting its lending, deposit and debt collection activities and regulations
affecting secondary mortgage market activities. Both federal and state law extensively regulate various aspects of
the banking business, such as reserve requirements, truth-in-lending and truth-in-savings disclosures, equal credit
opportunity, fair credit reporting, trading in securities and other aspects of banking operations.
Effect of Governmental Monetary Policies
The Bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the
United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies
of the Federal Reserve have major effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to
predict the nature or impact of future changes in monetary and fiscal policies.
Legislative Initiatives
Additional legislative and administrative actions affecting the banking industry may be considered by the United
States Congress, state legislatures and various regulatory agencies. Horizon cannot predict with certainty whether
such legislative or administrative action will be enacted or the extent to which the banking industry in general or
Horizon and its affiliates in particular will be affected.
ITEM 1A. RISK FACTORS
An investment in Horizon’s securities is subject to numerous risks and uncertainties related to our business. The
material risks and uncertainties that management believes currently affect Horizon are described below, categorized
as risks related to our business, risks related to the banking industry generally, and risks related to our common
stock. 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
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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. 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. Please refer to "Forward–
Looking Statements" beginning on page 3 of this Annual Report on Form 10–K.
Risks Related to Our Business
As a financial institution, we are subject to a number of risks relating to our daily business. Although we undertake a
variety of efforts to manage and control those risks, many of the risks are outside of our control. Among the risks we
face are the following:
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Credit Risk – the risk that loan customers or other parties will be unable to perform their contractual
obligations;
Market Risk – the risk that changes in market rates and prices will adversely affect our financial condition or
results of operation;
Liquidity Risk – the risk that Horizon or the Bank will have insufficient cash or access to cash to meet its
operating needs;
Operational Risk – the risk of financial and reputational loss resulting from fraud, inadequate or failed
internal processes, cyber–security breaches, people and systems, or external events;
Economic Risk – the risk that the economy in our markets could decline resulting in increased
unemployment, decreased real estate values and increased loan charge–offs;
Compliance Risk – the risk of additional action by our regulators or additional regulation that could hinder
our ability to do business profitably;
Legal/Regulatory Risk – the risk presented by the need to comply with all laws, rules and regulations from
multiple regulatory agencies, including but not limited to the FDIC, CFPB, Indiana Department of Financial
Institutions, Federal Reserve Bank and the Board of Governors of the Federal Reserve, and the Department
of Labor; and
Fiduciary Risk – the risk of failing to act in our fiduciary capacity in the best interests of the grantors and
beneficiaries of trust accounts and benefit plans.
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 real estate
loans generally have greater risk because repayment of these loans is often dependent upon income being
generated in amounts sufficient to cover operating costs and debt service. Both types of commercial loans
also typically have much larger loan balances than residential mortgage and consumer loans. 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. 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.
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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.
Construction loans, loans secured by commercial real estate and home equity loans generally entail more
risk than other types of mortgage loans. When real estate values decrease, the developers to whom we
lend are likely to become non–performing as developers are unable to build and sell homes in volumes
large enough for orderly repayment of loans and as other owners of such real estate (including
homeowners) are unable to keep up with their payments. We strive to establish what we believe are
adequate reserves on our financial statements to cover the credit risk of these loan portfolios. However,
there can be no assurance that losses will not exceed our reserves, and ultimately result in a material level
of charge–offs, which would adversely impact our results of operations, liquidity and capital.
The allowance for credit losses on loans may prove inadequate or be negatively affected by credit
risk exposures.
Our business depends on the creditworthiness of our customers. We periodically review the allowance for
credit losses for adequacy considering economic conditions and trends, collateral values, and credit quality
indicators, including past charge–off experience and levels of past due loans and non–performing assets.
There is no certainty that the allowance for credit losses will be adequate over time to cover credit losses in
the portfolio because of unanticipated adverse changes in the economy, market conditions or events
adversely affecting specific customers, industries or markets. If the credit quality of our customer base
materially decreases, if the risk profile of a market, industry or group of customers changes materially, or if
the allowance for credit losses is not adequate, our business, financial conditions, liquidity, capital, and
results of operations could be materially adversely affected.
Market Risk
Changes in interest rates could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in interest rates. We
can neither predict with certainty nor control changes in interest rates. These changes can occur at any time
and are affected by many factors, including international, national, regional and local economic conditions,
competitive and inflationary pressures and monetary policies of the Federal Reserve.
Our results of operations depend substantially on our net interest income, which is the difference between
the interest income that we earn on our interest earning assets and the interest expense that we pay on our
interest bearing liabilities. Our profitability depends on our ability to manage our assets and liabilities during
periods of changing interest rates. 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. Government bonds, corporate
securities and other investments, including mutual funds, which, because of the absence of federal deposit
insurance premiums and reserve requirements, generally pay higher rates of return than those offered by
financial institutions.
We also expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and
liabilities, meaning that either our interest bearing liabilities will be more sensitive to changes in market
interest rates than our interest earning assets, or vice versa. In either event, if market interest rates should
move contrary to our position, this “gap” will negatively impact our earnings. The impact on earnings is more
adverse when the slope of the yield curve flattens, that is, when short–term interest rates increase more
than long–term interest rates or when long–term interest rates decrease more than short–term interest
rates.
Changes in interest rates also could affect loan volume. For instance, an increase in interest rates could
cause a decrease in the demand for mortgage loans (and other loans), which could result in a significant
decline in our revenues. 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. Increasing rates
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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.
Conversely, should market interest rates fall below current levels, our net interest margin could also be
negatively affected, as competitive pressures could keep us from further reducing rates on our deposits,
and prepayments on loans may continue. Such movements may cause a decrease in our interest rate
spread and net interest margin, and therefore, decrease our profitability.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates
may affect the average life of loans and mortgage–related securities. Increases in interest rates may
decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans, which
increases the potential for default. An increase in interest rates that adversely affects the ability of borrowers
to pay the principal or interest on may also lead to an increase in non–performing assets and a reduction of
income recognized, which could have a material adverse effect on our results of operations and cash flows.
Further, when we place a loan on non–accrual status, we reverse any accrued but unpaid interest
receivable, which decreases interest income. At the same time, we continue to have a cost to fund the loan,
which is reflected as interest expense, without any interest income to offset the associated funding expense.
Decreases in interest rates often result in increased prepayments of loans and mortgage–related securities,
as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to
reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in
loans or other investments that have interest rates that are comparable to the interest rates on existing
loans and securities.
We are exposed to intangible asset risk in that our goodwill may become impaired.
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. If we were to conclude that a future write-down of our goodwill is necessary, then we
would record the appropriate charge, which could be materially adverse to our operating results and
financial position. 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.
Our mortgage lending profitability could be significantly reduced as changes in interest rates could
affect mortgage origination volume and pricing for selling mortgages on the secondary market.
Currently, we sell a substantial portion of the mortgage loans we originate. 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.
Higher interest rates can also negatively affect the premium received on loans sold to the secondary market
as competitive pressures to originate loans can reduce pricing.
Our ability to sell mortgage loans readily is dependent upon the availability of an active secondary market
for single–family mortgage loans, which in turn depends in part upon the continuation of programs currently
offered by Fannie Mae, Freddie Mac and Ginnie Mae (the “Agencies”) and other institutional and non–
institutional investors. These entities account for a substantial portion of the secondary market in residential
mortgage loans. Some of the largest participants in the secondary market, including the Agencies, are
government–sponsored enterprises whose activities are governed by federal law. Any future changes in
laws that significantly affect the activity of such government–sponsored enterprises could, in turn, adversely
affect our operations.
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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. Further, the criteria for loans to be accepted under such programs may be changed from
time–to–time by the sponsoring entity which could result in a lower volume of corresponding loan
originations. The profitability of participating in specific programs may vary depending on a number of
factors, including our administrative costs of originating and purchasing qualifying loans and our costs of
meeting such criteria.
The price of our common stock may fluctuate significantly, and this may make it difficult for you to
resell our common stock at times or at prices you find attractive.
Although our common stock is listed on the NASDAQ Global Select Market, our stock price constantly
changes, and we expect our stock price to continue to fluctuate in the future. Our stock price is impacted by
a variety of factors, some of which are beyond our control.
These factors include:
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variations in our operating results or the quality of our assets;
operating results that vary from the expectations of management, securities analysts and investors;
increases in loan losses, non–performing loans and other real estate owned;
changes in the U.S. corporate tax rates;
changes in expectations as to our future financial performance;
announcements of new products, strategic developments, new technology, acquisitions and other
material events by us or our competitors;
ability to fund Horizon's assets through core deposits and/or wholesale funding;
the operating and securities prices performance of other companies that investors believe are
comparable to us;
our inclusion on the Russell 2000 or other indices;
actual or anticipated sales of our equity or equity–related securities;
our past and future dividend practice;
our creditworthiness;
interest rates;
the credit, mortgage and housing markets, and the markets for securities relating to mortgage or
housing;
developments with respect to financial institutions generally; and
economic, financial, geopolitical, regulatory, congressional or judicial events that affect us or the
financial markets.
In addition, the stock market in general has experienced price and volume fluctuations. The volatility has
had a significant effect on the market price of securities issued by many companies and particularly those in
the financial services and banking sector, including for reasons unrelated to their operating performance.
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.
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. 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.
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Liquidity Risk
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
We are subject to liquidity risk in our operations, which could adversely affect the ability to fund
various obligations.
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 is derived primarily from retail deposit growth and retention, principal and interest
payments on loans and investment securities, net cash provided from operations, and access to other
funding sources. Liquidity is essential to our business. We must maintain sufficient funds to respond to the
needs of depositors and borrowers. An inability to raise funds through deposits, borrowings, the sale or
pledging as collateral of loans and other assets could have a material adverse effect on our liquidity.
Our access to funding sources in amounts adequate to finance our activities could be impaired by factors
that affect us specifically or the financial services industry in general. Factors that could detrimentally impact
our access to liquidity sources include a decrease in the level of our business activity due to a market
downturn, failures of other financial institutions which reduces overall market confidence in the banking and
financial services industry, or regulatory action that limits or eliminates our access to alternate funding
sources. Our ability to borrow could also be impaired by factors that are nonspecific to us, such as severe
disruption of the financial markets or negative expectations about the prospects for the financial services
industry as a whole, as evidenced by the recent failures of certain depository institutions and the resulting
market turmoil and volatility stemming from such failures.
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. Many of these instruments are particularly
sensitive to interest rate fluctuations, especially long–term fixed–income securities. The unrealized losses
for available for sale investments is reflected in Accumulated Other Comprehensive Income (“AOCI”) on our
balance sheet and reduces our book capital and tangible common equity ratio. However, unrealized losses
do not affect our regulatory capital ratios.
Management continues to actively monitor the investment portfolio and does not currently anticipate the
need to realize material losses from the investment portfolio, and we believe it is unlikely we would be
required to sell the securities before recovery of their amortized cost bases, which may be at maturity.
However, our access to liquidity sources could be affected by unrealized losses if securities within the
investment portfolio must be sold at a loss or tangible capital ratios decline from an increase in unrealized
losses or realized credit losses.
We may need to raise additional capital in the future, and such capital may not be available when
needed or at all.
We may need to raise additional capital in the future to fund acquisitions and to provide us with sufficient
capital resources and liquidity to meet our commitments, regulatory capital requirements and business
needs, particularly if our asset quality or earnings were to deteriorate significantly. Although we are
currently, and have historically been, “well capitalized” for regulatory purposes, in the past we have been
required to maintain increased levels of capital in connection with certain acquisitions. Additionally, we
periodically explore acquisition opportunities with other financial institutions, some of which are in distressed
financial condition. 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.
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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. Economic conditions
and the loss of confidence in financial institutions may increase our cost of funding and limit access to
certain customary sources of capital, including inter–bank borrowings, repurchase agreements and
borrowings from the discount window of the Federal Reserve.
We cannot guarantee that such capital will be available on acceptable terms or at all. 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. Moreover, if we need to raise capital in the future, we
may have to do so when many other financial institutions are also seeking to raise capital and would have
to compete with those institutions for investors. 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.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. 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 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 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 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.
Our information systems may experience cyber–attacks or an interruption or breach in security. Our
cybersecurity systems could be inadequate or fail.
We rely heavily on internal and outsourced technologies, communications, and information systems to
conduct our business. Additionally, in the normal course of business, we collect, process and retain
sensitive and confidential information regarding our customers. As our reliance on technology has
increased, so have the potential risks of a technology–related operational interruption (such as disruptions
in our customer relationship management, general ledger, deposit, loan, or other systems) or the
occurrence of cyber–attacks (such as unauthorized access to our systems, computer viruses, ransom ware,
or other malicious code). These risks have increased for all financial institutions as new technologies,
advancement consumer applications and the increase adoption of mobile devices, have become commonly
used to conduct financial and other business transactions, during a time of increased technological
sophistication of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to cyber–
attacks or other security breaches involving the theft of sensitive and confidential information, hackers
recently have engaged in attacks against large financial institutions, particularly denial of service attacks,
which are designed to disrupt key business services, such as customer–facing web sites. Although 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.
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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. Some of these parties have in the past been the target of security
breaches and cyber–attacks, and because the transactions involve third parties and environments such as
the point of sale that we do not control or secure, future security breaches or cyber–attacks affecting any of
these third parties could impact us through no fault of our own, and in some cases, we may have exposure
and suffer losses for breaches or attacks relating to them. 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.
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 could also suffer significant
damage to our reputation. Although we are insured against many of these risks, including privacy breach
response costs, notification expenses, breach support and credit monitoring expenses, cyber extortion and
cyber terrorism, there can be no assurances that such insurance will be sufficient to cover all costs arising
from a data or information technology breach and our exposure may exceed our coverage.
Acts of terrorism or war, as well as the threat of terrorism or war, may adversely affect our results of
operations, financial condition, and liquidity.
Any act of terror, sustained military campaign, or war (threat of any of the foregoing) may cause general
economic decline and instability, volatility and/or weakness of U.S. and global financial markets. 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. Furthermore, such events have the
potential to adversely impact the availability of commodities, commodity prices, and create global
inflationary pressures.
As a result of any such events, the demand for our products and services may be significantly impacted and
could influence the recognition of credit losses in our loan portfolio and increase our allowance for credit
losses as both businesses and consumers are negatively impacted by such events and the economic
uncertainty and volatility related thereto. They may also cause significant decreases in value in our
investment portfolio, cause us to have to raise capital, or take other unforeseen actions to offset such
effects.
The extent to which such actions may impact our business, results of operations, and financial condition, as
well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly
uncertain, including the scope and duration of such conflicts and actions taken by governmental authorities
and other third parties in response thereto. Even after such conflicts subside, the U.S. and global
economies often require some time to recover, the length of which is unknown.
Any continued or further negative impact on economic conditions and global markets from these
developments could adversely affect our business, financial condition and liquidity.
Pandemics, other global or regional health crises or disease outbreaks, natural disasters, global
climate change, acts of terrorism and global conflicts may have a negative impact on our business.
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. 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
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HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
functions. In addition, these or similar events may impact economic growth negatively, which could have an
adverse effect on our business and operations and may have other adverse effects on us in ways that we
are unable to predict.
The preparation of our financial statements requires the use of estimates that may vary from actual
results.
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make significant estimates that affect the financial
statements. One of our most critical estimates is the level of the allowance for credit losses. 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.
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. 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. 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. 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. 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.
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. 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. 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. The loss of the services of any senior management personnel or the inability to recruit and retain
qualified lending and other personnel in the future, could have a material adverse effect on our consolidated
results of operations, financial condition and prospects.
Our inability to continue to process large volumes of transactions accurately could adversely
impact our business and financial results.
We process large volumes of transactions on a daily basis and are exposed to numerous types of
operational risk. 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
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. This risk of loss also includes the potential legal actions that could
arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory
standards. Accordingly, if systems of internal control should fail to work as expected, if systems are used in
an unauthorized manner, or if employees subvert the system of internal controls, significant losses could
result.
We establish and maintain systems of internal operational controls that are designed to provide us with
timely and accurate information about our level of operational risk. While not foolproof, these systems have
been designed to manage operational risk at appropriate, cost–effective levels. Procedures also exist that
are designed to ensure that policies relating to conduct, ethics and business practices are followed. If these
systems fail, significant losses could result.
While we continually monitor and improve the system of internal controls, data processing systems and
corporate–wide processes and procedures, there can be no assurance that future losses will not occur.
Potential acquisitions may disrupt our business and dilute stockholder value.
We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to
possible transactions with other financial institutions and financial service companies. We generally seek
merger or acquisition partners that are culturally similar and possess either significant market presence or
have potential for improved profitability through financial management, economies of scale or expanded
services. 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.
As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future
mergers or acquisitions involving the payment of cash or the issuance of our debt or equity securities may
occur at any time. Acquisitions typically involve the payment of a premium over book and market values,
and, therefore, some dilution of our tangible book value and net income per common share may occur in
connection with any future transaction. To the extent we were to issue additional shares of common stock in
any such transaction, our current shareholders would be diluted and such an issuance may have the effect
of decreasing our stock price, perhaps significantly. 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.
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. 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
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.
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.
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. 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 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. These market developments have caused general uncertainty and concern
regarding the liquidity adequacy of the banking industry and in particular, regional banks like Horizon. As a
result, customers may choose to maintain deposits with larger financial institutions or invest in higher
yielding short–term fixed income securities, all of which could materially adversely impact our liquidity, loan
funding capacity, net interest margin, capital and results of operations. 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. 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.
The soundness of other financial institutions could adversely affect us.
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. Many of these
transactions expose us to credit risk in the event of default by our counterparty or client. 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.
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. For example, global demand for products continues to exceed supply during the economic
recovery from the COVID–19 pandemic, creating significant inflationary pressures which, in turn, may
adversely impact consumer and business confidence and regional and global economic conditions, as well
as our financial condition and results of operations. 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
Legal/Regulatory/Compliance Risk
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
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. We have been
named as a party to purported class action and derivative lawsuits, and we may be named in
additional litigation, all of which could require significant management time and attention and result
in significant legal expenses.
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. District Court for the Eastern District of New
York, which asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging,
among other things, the Company made materially false and misleading statements and failed to disclose
material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities
from March 9, 2022 and March 10, 2023. Derivative lawsuits have also been filed against the Company, as
nominal defendant, and two of our officers and ten of our directors arising from the same events, alleging,
among other things, breach of the officers and directors' fiduciary duties. Regardless of the merits, the
expense of defending such litigation may have a substantial impact if our insurance carriers fail to cover the
full cost of the litigation, and the time required to defend the actions could divert management’s attention
from the day-to-day operations of our business, which could adversely affect our business, results of
operations and cash flows. An unfavorable outcome in such litigation could have a material adverse effect
on our business, financial condition, results of operations and cash flows. The derivative lawsuits have been
consolidated and stayed pending resolution of any motion to dismiss in the putative class action. 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.
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. As primarily a commercial bank, the Bank has a higher
percentage of uninsured deposits compared to primarily retail focused banks. As a result, the Bank could
face increased scrutiny or be viewed as higher risk by regulators and the investor community.
We may be exposed to risk of environmental liabilities with respect to real property to which we take
title.
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.
We are subject to extensive regulation and changes in laws and regulatory policies could adversely
affect our business.
Our operations are subject to extensive regulation by federal and state agencies. 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. 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. 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
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
to pay under existing loan contracts. Also, the Bank could experience higher credit losses because of
federal or state legislation or regulatory action that limits its ability to foreclose on property or other collateral
or makes foreclosure less economically feasible.
We face other risks from recent actions of the U.S. Treasury and the Internal Revenue Service. In
November 2016, these agencies issued a Notice making captive insurance company activities “transactions
of interest” due to the potential for tax avoidance or evasion. We have a captive insurance company and it is
not certain at this point how the Notice may impact us on our operation of the captive insurance company
as a risk management tool.
Legislation enacted in recent years, together with additional actions announced by the U.S. Treasury and
other regulatory agencies, continue to develop. It is not clear at this time what impact legislation and
liquidity and funding initiatives of the U.S. Treasury and other bank regulatory agencies, and additional
programs that may be initiated in the future, will have on the financial markets and the financial services
industry.
We may also face compliance risks arising from the new and growing body of privacy and data security
laws enacted by foreign governments, such as the European Union's comprehensive 2018 General Data
Privacy Regulation, and by U.S. state governments, such as the California Consumer Privacy Act that went
into effect on January 1, 2020.
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. While the purpose of these provisions is to strengthen the negotiating position of the board of
directors in the event of a hostile takeover attempt, the overall effects of these provisions may be to render
more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of our shares, and the removal of incumbent directors and key management.
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 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 by–laws do not permit cumulative voting of shareholders in the election of directors, allowing the
holders of a majority of our outstanding shares to control the election of all our directors, and our directors
are elected by plurality voting; although, under our newly adopted Director Resignation Policy, directors not
receiving a majority of the votes cast in an uncontested election are required to submit a resignation, which
our Board has the discretion to accept or reject. Our by–laws also establish detailed procedures that
shareholders must follow if they desire to nominate directors for election or otherwise present issues for
consideration at a shareholders’ meeting.
These and other provisions of our governing documents and Indiana law are intended to provide the board
of directors with the negotiating leverage to achieve a more favorable outcome for our shareholders in the
event of an offer for the Company. 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
Fiduciary Risk
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
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. Over the last several years, the U.S. Department of Labor and the plaintiffs’ bar have been
aggressively targeting ESOP trustees and transactions on a variety of fronts, including valuations and the
amount that ESOP trustees pay to buy back stock from selling shareholders, as well as the indemnity
agreements commonly used by ESOP companies to protect ESOP trustees from undue risk and liability
exposure. In December 2021, Horizon reached a mediation settlement with the U.S. Department of Labor
concerning ESOP valuations and sale transactions relating to ESOPs for which we acted as trustee. On
September 30, 2021, we sold our ESOP trustee business to a third party. Despite exiting this line of
business and our settlement with the U.S. Department of Labor with respect to many of our prior
engagement, we may still be exposed to an increased risk of litigation from the U.S. Department of Labor
and the plaintiffs’ bar for these historical activities.
General Risks
We continually encounter technological changes.
The financial services industry is continually undergoing rapid technological change with frequent
introductions of new technology–driven products and services. The effective use of technology increases
efficiency and enables financial institutions to better serve customers and to reduce costs. Our future
success depends, in part, upon our ability to address the needs of our customers by using technology to
provide products and services that will satisfy customer demands, as well as to create additional efficiencies
in our operations. Many of our competitors have substantially greater resources to invest in technological
improvements, and we may not be able to effectively implement new technology–driven products and
services at the same speed at which our competitors do (or not at all) or be successful in marketing these
products and services to our customers. Failure to successfully keep pace with technological change
affecting the financial services industry could have a material adverse impact on our business and, in turn,
our financial condition and results of operations.
We face intense competition in all phases of our business from other banks, financial institutions
and non–banks.
The banking and financial services business in most of our markets is highly competitive. 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. Many of these competitors are not subject to the same regulatory
restrictions that we are and may be able to compete more effectively as a result.
Also, technology and other changes have lowered barriers to entry and made it possible for customers to
complete financial transactions using neo–banks, non–banks and financial technology (“FinTech”)
companies that historically have involved banks at one or both ends of the transaction. These entities now
offer products and services traditionally provided by banks and often at lower costs. The wide acceptance of
Internet–based commerce has resulted in a number of alternative payment processing systems, and
deposit and lending platforms in which banks play only minor roles. For example, consumers can maintain
funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.
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.
30
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 effects of disintermediation are also likely to continue to negatively
impact the lending activities of traditional banks because of the fast growing number of FinTech companies
that use software and technology to deliver mortgage lending and other financial services with fewer
employees. A related risk is the migration of bank personnel away from the traditional bank environments
into neo–banks, FinTech companies and other non–banks.
Increased competition in our markets may result in a decrease in the amounts of our loans and deposits,
reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the
borrower. Any of these results could have a material adverse effect on our ability to maintain our earnings
record, grow our loan portfolios and obtain low–cost funds. If increased competition causes us to
significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our
net interest income could be adversely impacted. If increased competition causes us to change our
underwriting standards, we could be exposed to higher losses from lending activities. Additionally, many of
our competitors are larger in total assets and capitalization and have greater access to capital markets.
Horizon is also experiencing an increase in competition to acquire other banks, due to the overall strength
of financial institutions and their high capital levels. In addition, credit unions, private equity groups, and
FinTech companies are now actively pursuing small bank acquisitions. Increased competition for bank
acquisitions may slow Horizon’s ability to grow earning assets at comparable historical growth rates.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. CYBERSECURITY
The Board established the Cyber Security Committee of the Board in December 2022 to augment the Board's
oversight with cybersecurity focus and expertise and to complement the risk framework activities of the Enterprise
Risk Management and Credit Policy Committee. The Cyber Security Committee considers risks associated with
Horizon's overall cyber security and information technology programs; information technology audits; the security
risk insurance that Horizon maintains for information technology, cyber security and privacy risks; Horizon's
information security training programs; and compliance with all rules and regulations and risk control policies and
procedures relating to information technology and cyber security.
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. 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.
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. The Cyber Security Committee Charter is posted on Horizon's website at
www.horizonbank.com in the section headed “About Us – Investor Relations – Corporate Information” under the
caption “Corporate Governance.”
Through Horizon's enterprise risk management framework and reporting functions, the Board, its Committees and
Management assess and manage cybersecurity risks created by cybersecurity threats. Horizon's Vice President,
Information Security and Audit Information Security officer (“Information Security Officer”) provides an annual
Information Security Program report to the Board and as needed when cybersecurity risk is elevated. Horizon's
Senior Vice President, Senior Technology Officer is a member of the Cyber Security Committee and reports on
cyber security risks at each meeting a minimum of three times a year. The Senior Vice President, Senior Technology
Officer reports to the Executive Vice President, Senior Operations Officer, who also is a member of the Cyber
Security Committee. For independence, the Information Security Officer reports to Horizon's Senior Vice President,
31
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.
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 also is a member of Management's Enterprise Risk & Disclosure Committee,
which meets a minimum of four times a year, to report on the technology and cyber security programs.
Horizon engages in regular assessments of its infrastructure, software systems, and network architecture, using
internal cybersecurity experts and third–party specialists. 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. 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. The
Senior Bank Operations Officer stays current on the latest industry trends and emerging cyber threats through
publications, webinars, seminars and banking association training around cyber security. She also collaborates with
external agencies, such as law enforcement and regulatory bodies, to address cyber threats and ensure compliance
with industry best practices.
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. He is
an active member of FS–ISAC's Mergers an Acquisition Working Group, and a named author of their 2023
“Cybersecurity Best Practices in Mergers, Acquisitions and Divestiture Deals” publication. He also serves as an
advisory member of the Indiana Governor's Executive Council on Cybersecurity. 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 has
achieved numerous certifications throughout his career including the Microsoft Certified Systems Engineer (MCSE)
and Certified Novell Engineering (CNE 5/6), and has demonstrated a continued commitment to excellence and has
attained certification as a Certified Information Systems Security Professional (CISSP) issued by ISC2 in 2022.
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.
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. 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
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
ITEM 2. PROPERTIES
The main office and full service branch of Horizon and the Bank is located at 515 Franklin Street, Michigan City,
Indiana. The building located across the street from the main office of Horizon and the Bank, at 502 Franklin Street,
houses the credit administration, operations, purchasing, and information technology departments of the Bank. In
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.
Horizon owns all of its facilities except for a leased office in Grand Rapids, Michigan.
ITEM 3. LEGAL PROCEEDINGS
As of April 20, 2023, a putative class action lawsuit entitled Chad Key, et al. v. Horizon Bancorp, Inc., et al., Case
No. 1:23-cv-02961 (”Securities Action”) was filed against the Company and two of its officers in the U.S. District
Court for the Eastern District of New York. The Securities Action asserts claims under §§ 10(b) and 20(a) of the
Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading
statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of
purchasers of our securities from March 9, 2022 and March 10, 2023.
As of (1) August 28, 2023, a lawsuit related to the Securities Action was filed by Sally Hundley, derivatively on behalf
of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its
directors and (2) August 31, 2023, a lawsuit also related to the Securities Action was filed by Aziz Chowdhury,
derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers
and 10 of its directors (the “Derivatives Actions”) in the U.S. District Court for the Eastern District of New York. The
Derivative Actions allege, among other things, breach of the officers and directors' fiduciary duties. The Derivative
Actions have been consolidated and stayed pending resolution of any motion to dismiss in the Securities Action.
Based on our initial review of these actions, management believes that the Company has strong defenses to the
claims and intends to vigorously defend against them. As of December 31, 2023, no liabilities related to the above
matters were recorded because we have concluded such liabilities are not probable and the amounts of such
liabilities are not reasonably estimable.
In addition to the matters described above, from time to time, Horizon and its subsidiaries are involved in various
legal proceedings incidental to the conduct of their business. Management does not expect that the outcome of any
such proceedings will have a material adverse effect on our consolidated financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
33
SPECIAL ITEM: INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Thomas M. Prame
Mark E. Secor
54 President of Horizon and the Bank since August 15, 2022; Executive Vice President at
First Midwest Bancorp from May 2012 to March 2022. As previously disclosed, on
January 17, 2023, the Board approved the appointment of Thomas M. Prame to serve
as the Chief Executive Officer of both Horizon and the Bank, effective as of June 1,
2023.
57 Executive Vice President of Horizon since January 2014; Chief Financial Officer and
Executive Vice President of Horizon and the Bank since January 2009; Vice President,
Chief Investment and Asset Liability Manager from June 2007 to January 2009; Chief
Financial Officer of St. Joseph Capital Corp., Mishawaka, Indiana from 2004 to 2007.
On November 7, 2023, Horizon announced a succession plan for its Chief Financial
Officer. Horizon and Mark E. Secor have agreed that he will transition from his role as
Executive Vice President and Chief Financial Officer (“CFO”) of Horizon and the Bank.
Mr. Secor will continue in the role of Executive Vice President and Chief Financial
Officer until a successor is appointed and support the transition process through April
30, 2024. Horizon has initiated a search process to identify Horizon's next CFO.
Kathie A. DeRuiter
62 Executive Vice President of Horizon and Senior Bank Operations Officer since January
2014; Senior Vice President, Senior Bank Operations Officer from January 2003 to
January 2014; Vice President, Senior Bank Operations Officer from January 2000 to
January 2003.
Todd A. Etzler
57 Executive Vice President and General Counsel since January 2021; Senior Vice
President and General Counsel from July 2018 to December 2020; Vice President and
General Counsel from March 2017 to July 2018; Corporate Secretary since January
2018. General Counsel of Family Express Corporation from July 2011 to March 2017.
Lynn M. Kerber
55 Executive Vice President and Senior Commercial Credit Officer since January 2021;
Senior Vice President and Senior Commercial Credit Officer from May 2018 to
December 2020; Executive Vice President and Chief Risk Officer, Chemical Financial
Corporation June 2015 to August 2017; President of the Chemical Bank Foundation
2013 to 2017.
All officers are appointed annually by the Board of Directors of Horizon and the Bank, as applicable.
34
HORIZON BANCORP, INC.
PART II
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.
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.
Performance Graph
The SEC requires Horizon to include a line graph comparing Horizon’s cumulative five–year total shareholder
returns on the common shares with market and industry returns over the past five years. S&P Global Market
Intelligence prepared the following graph. 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. Prior to that date, the common stock was traded on the NASDAQ Capital Market.
Index
Horizon Bancorp, Inc.
Russell 2000 Index
S&P U.S. SmallCap Banks
Index
December 31 December 31 December 31 December 31 December 31 December 31
2018
2019
2020
2021
2022
2023
100.00
100.00
123.69
125.53
107.78
150.58
145.97
172.90
109.09
137.56
109.56
160.85
100.00
125.46
113.94
158.62
139.85
140.55
Source: S&P Global Market Intelligence
© 2023
35
Index ValueTotal Return PerformanceHorizon Bancorp, Inc.Russell 2000 IndexS&P U.S. SmallCap Banks Index12/31/1812/31/1912/31/2012/31/2112/31/2212/31/2350100150200250
HORIZON BANCORP, INC.
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.
Index
Horizon Bancorp, Inc.
Indiana Banks (1)
Michigan Banks (1)
December 31 December 31 December 31 December 31 December 31 December 31
2018
2019
2020
2021
2022
2023
100.00
100.00
100.00
120.41
114.06
112.31
100.51
104.26
107.02
132.13
130.42
143.18
95.56
116.22
120.22
90.68
111.53
117.48
(1) Excludes merger targets
Source: S&P Global Market Intelligence
© 2023
ITEM 6. RESERVED
36
Index ValueRelative Price PerformanceHorizon Bancorp, Inc.Indiana BanksMichigan Banks12/31/1812/31/1912/31/2012/31/2112/31/2212/31/2350100150200250
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. 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. The Bank is a full–service commercial bank offering
commercial and retail banking services, corporate and individual trust and agency services, and other services
incident to banking.
Fourth Quarter and Full Year 2023 Highlights
•
•
•
•
•
•
Commercial loan growth totaled $85.7 million, increasing by 13.1% annualized during the quarter and 8.4%
since December 31, 2022. Total loans were $4.42 billion at period end, increasing by 5.2% annualized
during the quarter and 6.1% since December 31, 2022.
Deposits remained resilient, totaling $5.7 billion at period end, compared to $5.7 billion on September 30,
2023 and decreased 3.3% since December 31, 2022.
Net interest margin increased to 2.43% compared to 2.41% in the linked quarter. Interest income was $42.3
million compared to $42.1 million in the linked quarter.
Cash totaled $526.5 million at period end, providing significant flexibility to drive future net interest margin
growth through deployment into higher yielding assets throughout 2024.
Excellent asset quality with net charge–offs representing 0.05% of average loans for the year, delinquent
loans representing 0.38% of total loans at period end and non–performing loans representing 0.44% of total
loans at period end, with the increase in provision during the year primarily attributable to loan growth.
In December, the Company announced a balance sheet repositioning that included the sale of $382.7
million in lower-yielding securities and the surrender of $113.9 million of bank owned life insurance (“BOLI”)
policies. For the quarter, the Company recorded a net loss of $25.2 million, or $0.58 per diluted share.
Excluding the $38.7 million after-tax impact of the balance sheet repositioning and approximately $705,000
in extraordinary expenses associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities, adjusted net
income was $14.1 million, or $0.33 per diluted share, in the quarter. (See the “Non–GAAP Reconciliation of
Net Income” table below.) This compared to third quarter 2023 net income of $16.2 million, or $0.37 per
diluted share.
•
Horizon continues to maintain cash at the holding company level representing approximately eight quarters
of dividend payments and fixed costs.
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. 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. Management has identified
the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, derivative instruments and
valuation measurements as critical accounting policies.
37
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Allowance for Credit Losses
The allowance for credit losses on loans and leases (“ACL”) replaces the allowance for loan and lease losses as a
credit accounting estimate, as of January 1, 2020 with the adoption of ASU 2016–13, Financial Instruments–Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The allowance for credit losses represents management’s best estimate of current expected credit losses over the
life of the portfolio of loans and leases. 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.
The allowance for credit losses is assessed at each balance sheet date and adjustments are recorded in the
provision for credit losses. 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 balances considered uncollectible are
charged–off against the ACL. Assets purchased with credit deterioration (“PCD”) represent assets that are acquired
with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At
acquisition, the allowance for credit losses on PCD assets is booked directly to the ACL. 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.
Allowance for Credit Losses on Off–Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to
credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the
Company. The Company determines the estimated amount of expected credit extensions based on historical usage
to calculate the amount of exposure for a loss estimate and has recorded an allowance.
Allowance for Credit Losses on Available for Sale Securities
For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to
sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.
If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written
down to fair value through income. For debt securities available for sale that do not meet the aforementioned
criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In
making this assessment, management considers the extent to which fair value is less than amortized cost, any
changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security,
among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected
to be collected from the security are compared to the amortized cost basis of the security. If the present value of
cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is
recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any
impairment that has not been recorded through an ACL is recorded in other comprehensive income.
Changes in the ACL are recorded as provision for, or reversal of, credit loss expense. 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
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. The Company considers, among other factors,
the nature of the securities and credit ratings or financial condition of the issuer. If available, the Company obtains a
credit rating for issuers from the Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration.
If this assessment indicates that a material credit loss exists, the present value of cash flows expected to be
collected from the security are compared to the amortized cost basis of the security. If the present value of cash
flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for
the credit loss.
Goodwill and Intangible Assets
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of
judgment than most other significant accounting policies. FASB ASC 350–10 establishes standards for the
amortization of acquired intangible assets and impairment assessment of goodwill. At December 31, 2023, Horizon
had core deposit intangibles of $13.6 million subject to amortization and $155.2 million of goodwill, which is not
subject to amortization. Goodwill arising from business combinations represents the value attributable to
unidentifiable intangible assets in the business acquired. Horizon’s goodwill relates to the value inherent in the
banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking
services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the
volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability
to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely
affect earnings in future periods. FASB ASC 350–10 requires an annual evaluation of goodwill for impairment.
At each reporting date between annual goodwill impairment tests, Horizon considers potential indicators of
impairment. Impairment indicators considered comprised the condition of the economy and banking industry;
government intervention and regulatory updates; the impact of recent events to financial performance and cost
factors of the reporting unit; performance of the Company's stock and other relevant events. Horizon further
considered the amount by which fair value exceeded book value in the most recent quantitative analysis and stress
testing performed. At the conclusion of the assessment, the Company determined that as of December 31, 2023, it
was more likely than not that the fair value exceeded its carrying value. Horizon will continue to monitor overall
economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill
in the future.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale
of financial assets on a servicing–retained basis. Capitalized servicing rights are amortized into non–interest income
in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.
Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to
amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as
interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is
determined using prices for similar assets with similar characteristics, when available, or based upon discounted
cash flows using market–based assumptions. When the book value of an individual stratum exceeds its fair value,
an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book
value or fair value. In periods of falling market interest rates, accelerated loan prepayment can adversely affect the
fair value of these mortgage–servicing rights relative to their book value. In the event that the fair value of these
assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment
allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management’s
assessment of the impairment of these servicing assets, as a result of changes in observable market data relating
to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and
results of operations either positively or negatively.
39
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a
corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest
rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are
terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that
actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed
in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to
accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment
speeds, Horizon utilizes a third–party prepayment model, which is based upon statistically derived data linked to
certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in
the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment
experience. For purposes of model valuation, estimates are made for each product type within the mortgage
servicing rights portfolio on a monthly basis. In addition, on a quarterly basis Horizon engages a third party to
independently test the value of its servicing asset.
Derivative Instruments
As part of the Company’s asset/liability management program, Horizon utilizes, from time–to–time, interest rate
floors, caps or swaps to reduce the Company’s sensitivity to interest rate fluctuations. These are derivative
instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in
the fair values of derivatives are reported in the consolidated income statements or other comprehensive income
(“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key
criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting
changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an
ongoing basis.
Horizon’s accounting policies related to derivatives reflect the guidance in FASB ASC 815–10. Derivatives that
qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized
asset or liability or of an unrecognized firm commitment (a fair value hedge) or a hedge of a forecasted transaction
or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge).
For fair value hedges, the cumulative change in fair value of both the hedge instruments and the underlying loans is
recorded in non–interest income. For cash flow hedges, changes in the fair values of the derivative instruments are
reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are
reported in OCI are reflected in the consolidated income statement in the periods in which the results of operations
are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or
decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At
inception of the hedge, Horizon establishes the method it uses for assessing the effectiveness of the hedging
derivative and the measurement approach for determining the ineffective aspect of the hedge. 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. 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. To determine the values of
these assets and liabilities, as well as the extent to which related assets may be impaired, management makes
assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors. The use
of different discount rates or other valuation assumptions could produce significantly different results, which could
affect Horizon’s results of operations.
40
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. The increase was primarily in cash and due from banks of $403.0 million and in net loans of $260.1 million,
offset by decreases in investment securities of $527.4 million and cash value of life insurance of $110.0 million.
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%).
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. Therefore,
mortgage–backed securities and collateralized mortgage obligations have maturities that are stated in terms of
average life. The average life is the average amount of time that each dollar of principal is expected to be
outstanding. As of December 31, 2023, the mortgage–backed securities and collateralized mortgage obligations in
the investment portfolio had an average duration of just under 7 years. Securities that have interest rates above
current market rates are purchased at a premium.
Available for sale municipal securities are priced by a third party using a pricing grid which estimates prices based
on recent sales of similar securities. All municipal securities are investment grade or local non–rated issues. A credit
review is performed annually on the municipal securities portfolio.
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. 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.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A fair value hierarchy is also established which
requires an entity to maximize the use of observable and minimize the use of unobservable inputs. There are three
levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.
When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation
hierarchy. There are no Level 1 securities. If quoted market prices are not available, then fair values are estimated
by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2
securities include U.S. Treasury and Federal agency securities, State and municipal securities, Federal agency
collateralized mortgage obligations, Federal agency mortgage-backed pools and corporate notes. For Level 2
securities, Horizon uses a third party service to determine fair value. In performing the valuations, the pricing service
relies on models that consider security–specific details as well as relevant industry and economic factors. The most
significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities and
41
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
certain prepayment assumptions. To verify the reasonableness of the fair value determination by the service,
Horizon has a portion of the Level 2 securities priced by an independent securities broker–dealer.
Unrealized gains and losses on available for sale securities, deemed temporary, are recorded, net of income tax, in
a separate component of accumulated other comprehensive income on the balance sheet.
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. Treasury and federal
agencies(1)
State and municipal
Federal agency
collateralized mortgage
obligations(2)
Federal agency mortgage-
backed pools(2)
Private labeled mortgage-
backed pools(2)
Corporate notes
Total available for sale
Held to maturity
U.S. Treasury and federal
agencies(1)
State and municipal
Federal agency
collateralized mortgage
obligations(2)
Federal agency mortgage-
backed pools(2)
Private labeled mortgage-
backed pools(2)
Corporate notes
$ 3,764
0.82 % $ 38,921
1.44 % $ 19,983
2.17 % $
1,709
195
0.51 % 32,334
1.90 % 104,704
2.30 % 166,797
1.81 %
3.10 %
—
—
—
1,448
5,407
— %
921
3.04 %
—
— %
2,659
3.61 %
— % 11,661
3.38 %
5,825
2.61 % 119,811
2.05 %
— %
—
— %
—
— %
—
3.45 % 18,396
2.69 % 16,516
4.29 %
1,607
— %
— %
1.52 % 102,233
2.05 % 147,028
2.52 % 292,583
2.65 %
8,054
2.10 % 95,481
1.68 % 84,004
2.45 %
58,421
25,115
3.01 % 116,905
3.40 % 86,835
3.37 % 710,506
2.93 %
3.04 %
—
—
—
—
— %
—
— %
—
— %
43,479
2.40 %
— %
3,886
2.80 % 124,040
2.36 % 147,102
2.20 %
— %
—
— %
—
— %
27,734
2.91 %
— %
3,969
3.15 % 133,227
4.45 %
—
Total held to maturity
33,169
2.79 % 220,241
2.64 % 428,106
3.23 % 987,242
Total investment securities
$ 38,576
2.61 % $ 322,474
2.45 % $ 575,134
3.05 % $ 1,279,825
(1) Fair value is based on contractual maturity or call date where a call option exists
(2) Maturity based upon final maturity date
— %
2.88 %
2.82 %
The weighted–average interest rates are based on coupon rates for securities purchased at par value an on
effective interest rates considering amortization or accretion if the securities were purchased at a premium or
discount. 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. 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
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
For more information about securities, see Note 3 – Securities to the Consolidated Financial Statements at Item 8.
Total Loans
Total loans, net of deferred fees/costs, the principal earning asset of the Bank, were $4.4 billion at December 31,
2023. 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.
Commercial
Owner occupied real estate
Non–owner occupied real estate
Residential spec homes
Development & spec land
Commercial and industrial
Total commercial
Real estate
Residential mortgage
Residential construction
Mortgage warehouse
Total real estate
Consumer
Direct installment
Indirect installment
Home equity
Total consumer
Total loans
Allowance for loan losses
Loans, net
December 31,
December 31,
2023
2022
Dollar
Change
Percent
Change
$
640,731 $
594,562 $
1,273,838
1,187,077
13,489
34,039
712,863
10,838
27,358
647,587
2,674,960
2,467,422
654,295
26,841
45,078
726,214
52,366
399,946
564,144
1,016,456
4,417,630
612,551
40,741
69,529
722,821
56,614
500,549
410,592
967,755
4,157,998
(50,029)
(50,464)
46,169
86,761
2,651
6,681
65,276
207,538
41,744
(13,900)
(24,451)
3,393
(4,248)
(100,603)
153,552
48,701
259,632
435
$
4,367,601 $
4,107,534 $
260,067
7.8 %
7.3 %
24.5 %
24.4 %
10.1 %
8.4 %
6.8 %
(34.1) %
(35.2) %
0.5 %
(7.5) %
(20.1) %
37.4 %
5.0 %
6.2 %
(0.9) %
6.3 %
The acceptance and management of credit risk is an integral part of the Bank’s business as a financial intermediary.
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
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Changes in the mix of the loan portfolio averages are shown in the following table.
Commercial
Real estate
Mortgage warehouse
Consumer
Total average loans
December 31,
December 31,
December 31,
2023
2022
2021
$
2,498,453 $
2,280,553 $
2,155,018
675,520
54,798
1,011,166
621,163
89,409
850,667
591,395
206,932
679,712
$
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. 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.
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Loans with fixed interest
rates:
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Loans with variable interest
rates:
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Due in
One Year
or Less
After One,
but Within
Five Years
After Five,
but Within
Fifteen Years
After
Fifteen Years
Total
$
403,193 $
1,108,871 $
1,039,478 $
123,418 $
2,674,960
$
$
$
$
1,252
45,078
13,191
10,979
—
300,139
53,770
—
219,307
615,135
—
681,136
45,078
483,819
1,016,456
462,714 $
1,419,989 $
1,312,555 $
1,222,372 $
4,417,630
140,081 $
740,362 $
365,557 $
56,826 $
1,302,826
1,235
—
9,324
10,356
—
281,406
31,516
—
204,320
358,388
—
22,228
401,495
—
517,278
150,640 $
1,032,124 $
601,393 $
437,442 $
2,221,599
263,112 $
368,509 $
673,921 $
66,592 $
1,372,134
17
45,078
3,867
623
—
18,733
22,254
—
14,987
256,747
—
461,591
279,641
45,078
499,178
$
312,074 $
387,865 $
711,162 $
784,930 $
2,196,031
44
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. The increase during 2023 was due to growth in all types of commercial loans.
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
Municipal government
Lines of credit
258 $
54,806
69
1,467
101,676
590,943
2.0 %
3.8 %
268 $
56,650
73
85,520
22.1 %
1,507
561,995
Real estate and equipment
5,313
1,927,535
72.1 %
5,261
1,763,257
2.3 %
3.5 %
22.8 %
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. 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.
Commercial and industrial loans typically are comprised of loans to finance working capital, equipment and titled
vehicles. 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.
Owner occupied real estate loans are comprised of loans secured by the real estate for the business operator's
facilities such as their office, warehouse, manufacturing facility or medical offices. 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.
Non–owner occupied real estate loans are categorized as loans reliant on the leasing and/or operation of the
underlying real estate for repayment. 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.
Management actively monitors commercial and industrial loans and commercial real estate loans by NAICS code,
geography and real estate sector. Commercial real estate loans are managed to internal portfolio limits for certain
real estate categories, as well as regulatory concentration limits based on Tier 1 capital plus allowance for credit
losses, percent of portfolio and comparison to peer data. The Bank also utilizes external data sources to monitor
commercial real estate segment and market trends.
45
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. This category consists of home mortgages that
generally require a loan to value of no more than 80%. Some special guaranteed or insured real estate loan
programs do permit a higher loan to collateral value ratio. 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.
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%. Home equity credit lines are primarily not combined
with a first mortgage and are therefore evaluated in the allowance for loan losses as a separate pool. These loans
are classified as consumer loans in the Loans table above and in Note 4 of the Consolidated Financial Statements
at Item 8.
Residential real estate lending is a highly competitive business. 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:
Fixed rate
Monthly payment
Adjustable rate
Monthly payment
Subtotal
Loans held for sale
Total real estate loans
December 31, 2023
December 31, 2022
Amount
Percent of
Portfolio
Yield
Amount
Percent of
Portfolio
Yield
$ 402,038
59.0 %
4.06 % $ 375,185
57.4 %
3.76 %
279,098
681,136
1,418
$ 682,554
41.0 %
100.0 %
4.98 %
278,107
42.6 %
4.44 %
653,292
100.0 %
4.21 %
3.95 %
5,807
$ 659,099
In addition to the real estate loan portfolio, the Bank originates and sells real estate loans and retains the servicing
rights. 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.
The aggregate fair value of capitalized mortgage servicing rights at December 31, 2023, totaled approximately
$19.9 million compared to the carrying value of $18.8 million. 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 product type, investor type and interest rates, were used to stratify the
originated mortgage servicing rights.
46
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Mortgage servicing rights
Balances, January 1
Servicing rights capitalized
Amortization of servicing rights
Balances, December 31
Impairment allowance
Balances, January 1
Additions
Reductions
Balances, December 31
Mortgage servicing rights, net
Mortgage Warehouse Loans
December 31,
December 31,
December 31,
2023
2022
2021
$
18,619 $
17,780 $
1,220
3,184
(1,032)
(2,345)
18,807
18,619
17,644
4,209
(4,073)
17,780
—
—
—
—
(2,594)
(5,172)
—
2,594
—
—
2,578
(2,594)
$
18,807 $
18,619 $
15,186
Horizon’s mortgage warehousing lending has specific mortgage companies as customers of Horizon Bank.
Individual mortgage loans originated by these mortgage companies are funded as a secured borrowing with a
pledge of collateral under Horizon’s agreement with the mortgage company. 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. At the time
a loan is transferred to the secondary market, the mortgage company reacquires the loan under its option within the
agreement. Due to the reacquire feature contained in the agreement, the transaction does not qualify as a sale and
therefore is accounted for as a secured borrowing with a pledge of collateral pursuant to the agreement with the
mortgage company. When the individual loan is sold to the end investor by the mortgage company, the proceeds
from the sale of the loan are received by Horizon and used to pay off the loan balance with Horizon along with any
accrued interest and any related fees. The remaining balance from the sale is forwarded to the mortgage company.
These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than
90 days. Interest income is accrued during this period and collected at the time each loan is sold. Fee income for
each loan sold is collected when the loan is sold and no costs are deferred due to the term between each loan
funding and related payoff, which is typically less than 30 days.
Based on the agreements with each mortgage company, at any time a mortgage company can reacquire from
Horizon its outstanding loan balance on an individual mortgage and regain possession of the original note. Horizon
also has the option to request that the mortgage company reacquire an individual mortgage. Should this occur,
Horizon would return the original note and reassign the assignment of the mortgage to the mortgage company. Also,
in the event that the end investor would not be able to honor the purchase commitment and the mortgage company
would not be able to reacquire its loan on an individual mortgage, Horizon would be able to exercise its rights under
the agreement. The greatest risk related to these loans is transaction and fraud risk. During 2023, Horizon
processed approximately $1.4 billion in mortgage warehouse loans.
At December 31, 2023, the mortgage warehouse loan balance was $45.1 million compared to $69.5 million as of
December 31, 2022.
Consumer Loans
Consumer loans totaled $1.0 billion, or 23.0% of total loans as of December 31, 2023, compared to $967.8 million,
or 23.3% as of December 31, 2022. The increase during 2023 was due to growth in home equity lines of credit
primarily attributable to approximately $124.9 million of purchased home equity lines of credit as the indirect loan
portfolio declined $100.6 million.
47
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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.
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
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
December 31, 2022
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
$
$
$
$
$
$
29,736
2,503
481
17,309
50,029
50,029
32,445
5,577
1,020
11,422
50,464
50,464
60.6 % $
2,674,960
15.4 %
1.0 %
23.0 %
100.0 % $
$
681,136
45,078
1,016,456
4,417,630
4,417,535
59.3 % $
2,467,422
15.7 %
1.7 %
23.3 %
100.0 % $
$
653,292
69,529
967,755
4,157,998
4,157,781
1.11 %
0.37 %
1.07 %
1.70 %
1.13 %
1.13 %
1.31 %
0.85 %
1.47 %
1.18 %
1.21 %
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. 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. As a result of its quarterly reviews, a provision for credit losses is determined to bring the
total ACL to a level called for by the analysis. Horizon's reserve includes allocations for potential future loan losses
related to economic factors and the nature and characteristics of its loan portfolios.
No assurance can be given that Horizon will not, in any particular period, sustain loan losses that are significant in
relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of factors then
prevailing, including economic conditions and management’s ongoing quarterly assessments of the portfolio, will not
require increases in the allowance for credit losses. 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. From time to time, the Bank obtains information which may lead
management to believe that the collection of payments may be doubtful on a particular loan. In recognition of such,
it is management's policy to convert the loan from an “earning asset” to a non–accruing loan. Further, it is
management's policy to place a commercial loan on non–accrual status when delinquent in excess of 90 days or
management has determined that the borrower's ability to continue to make payments is in doubt. 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
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–performing loans for the previous three years ending December 31 are as follows:
(dollars in thousands)
Non–performing loans
Commercial
More than 90 days past due
Non–accrual
Trouble debt restructuring – accruing
Trouble debt restructuring – non–accrual
Real estate
More than 90 days past due
Non–accrual
Trouble debt restructuring – accruing
Trouble debt restructuring – non–accrual
Mortgage warehouse
More than 90 days past due
Non–accrual
Trouble debt restructuring – accruing
Trouble debt restructuring – non–accrual
Consumer
More than 90 days past due
Non–accrual
Trouble debt restructuring – accruing
Trouble debt restructuring – non–accrual
December 31, December 31, December 31,
2023
2022
2021
$
— $
— $
7,362
—
—
—
8,058
—
—
—
—
—
—
559
4,290
—
—
8,493
837
—
43
5,479
1,391
1,210
—
—
—
—
49
3,658
342
338
—
6,621
603
285
66
5,626
1,421
892
—
—
—
—
79
2,715
367
344
Total non–performing loans
20,269
21,840
19,019
Other real estate owned and repossessed collateral
Commercial
Real estate
Mortgage warehouse
Consumer
1,124
1,881
182
—
205
107
—
152
2,861
695
—
5
Total other real estate owned and repossessed collateral
1,511
2,140
3,561
Total non–performing assets
$
21,780 $
23,980 $
22,580
49
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–performing loans totaled 39.2%, 40.2% and 47.0% of the allowance for credit losses at December 31, 2023,
2022 and 2021, respectively. 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 as a percentage of total loans was 0.46% as of December 31, 2023, a decrease from 0.53%
as of December 31, 2022 and December 31, 2021.
Non–Performing
Loans
Percent of Non–
Performing Loans in
Each Category to
Total Loans
Total Loans
December 31, 2023
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
Allowance for credit losses on loans
Ratio of allowance for credit losses on loans to
non–performing loans
December 31, 2022
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
Allowance for credit losses on loans
Ratio of allowance for credit losses on loans to
non–performing loans
$
$
$
$
$
$
$
$
7,362
8,058
—
4,849
20,269
20,269
50,029
246.83 %
9,330
8,123
—
4,387
21,840
21,840
50,464
231.06 %
0.28 % $
2,674,960
1.18 %
0.00 %
0.48 %
0.46 % $
0.46 % $
681,136
45,078
1,016,456
4,417,630
4,417,535
0.38 % $
2,467,422
1.24 %
0.00 %
0.45 %
0.53 % $
0.53 % $
653,292
69,529
967,755
4,157,998
4,157,781
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. 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
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. The following table shows the major components of deferred tax:
December 31,
December 31,
2023
2022
Assets
Allowance for credit losses
Net operating loss and tax credits
Director and employee benefits
Unrealized loss on AFS securities and cash flow hedge
Basis in partnership equity investments
Capital loss carryover
Other
Total assets
Liabilities
Depreciation
State tax
Federal Home Loan Bank stock dividends
Difference in basis of intangible assets
Fair value adjustment on acquisitions
Other
Total liabilities
Valuation allowance
$
12,546 $
9,592
2,471
17,706
1,322
5,201
2,856
51,694
(4,512)
(253)
(365)
(4,545)
(2,142)
(1,131)
(12,948)
(5,201)
Net deferred tax asset/(liability)
$
33,545 $
12,762
9,313
2,019
28,230
—
—
555
52,879
(4,599)
(262)
(368)
(4,440)
(2,807)
(68)
(12,544)
—
40,335
Deposits
The primary source of funds for the Bank comes from the acceptance of demand and time deposits. However, at
times the Bank will use its ability to borrow funds from the Federal Home Loan Bank and other sources when it can
do so at interest rates and terms that are more favorable than those required for deposited funds or loan demand is
greater than the ability to grow deposits. Total deposits were $5.7 billion at December 31, 2023, compared to $5.9
billion at December 31, 2022.
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
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
Savings deposits
Money market
Time deposits
Total deposits
841,644
756,092
1,151,178
940,499
810,083
791,519
779,325
815,081
652,284
$ 5,679,821 $ 5,846,605 $ 5,086,025
51
Years Ended December 31
2022
2021
2023
1.26 %
0.61 %
2.52 %
3.44 %
0.28 %
0.13 %
0.45 %
0.95 %
0.09 %
0.05 %
0.15 %
0.75 %
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. 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.
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.
Certificates and other time deposits for both retail and brokered maturing in years ending December 31 are as
follows:
2024
2025
2026
2027
2028
Thereafter
Retail
Brokered
Total
$
961,848 $
151,636 $
1,113,484
34,614
12,004
7,286
3,070
57
9,224
—
—
—
—
43,838
12,004
7,286
3,070
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
Due after three months through six months
Due after six months through one year
Due after one year
$
220,003
148,487
238,954
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.
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.
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.
Capital Resources
Horizon has no material commitments for capital expenditures as of December 31, 2023. Horizon’s sources of funds
and liquidity are discussed below in the section captioned “Liquidity” in this Item 7.
52
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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. 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 decrease in diluted earnings per share compared to the
previous year reflects a decrease in net income and an increase in diluted shares. Adjusted net income for the year
ended December 31, 2023 was $66.5 million, or $1.54 diluted earnings per share, compared to $92.8 million, or
$2.13 diluted earnings per share, for the year ended December 31, 2022. (See the “Non–GAAP Reconciliation of
Net Income and Diluted Earnings per Share” table under the heading “Use of Non–GAAP Financial Measures”
below for the definition of adjusted net income.)
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. Volume refers to the average dollar levels of interest earning assets and
interest bearing liabilities. Net interest spread refers to the difference between the average yield on interest earning
assets and the average cost of interest bearing liabilities. 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. Yields on the Company’s interest earning assets increased by 94 basis points to 4.44%
during 2023 from 3.50% in 2022. Interest income increased $76.3 million to $312.3 million for 2023 from $236.0
million in 2022. This increase was due to the overall increase in interest rates during 2023 and the increase in the
average balance of interest earning assets of $258.0 million.
Interest expense increased $100.0 million from $36.5 million in 2022 to $136.6 million in 2023. This increase was
due to the overall increase in interest rates during 2023 and the increase in average balance of interest bearing
liabilities of $439.3 million. The increase in rates paid on interest bearing liabilities of 164 basis points was greater
than the increase in the yield of interest earning assets of 94 basis points that resulted in a decrease in the net
interest margin of 43 basis points from 2.98% for 2022 to 2.55% in 2023. Excluding interest income recognized from
acquisition–related purchase accounting adjustments and a swap termination fee, the margin would have been
2.51% for 2023 compared to 2.93% for 2022. Management believes that the current level of interest rates is driven
by external factors and therefore impacts the results of the Company’s net interest margin.
53
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related
weighted average yields and rates on our interest earning assets and interest bearing liabilities for the periods
indicated.
Twelve Months Ended
Twelve Months Ended
Twelve Months Ended
December 31, 2023
December 31, 2022
December 31, 2021
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Assets
Interest earning assets
Federal funds sold
Interest earning deposits
Investment securities –
taxable
Investment securities – non–
taxable(1)
Loans receivable(2)(3)(4)
Total interest earning
assets(1)
Non–interest earning assets
$ 82,865 $ 4,442
5.36 % $ 62,211 $
165
0.27 % $ 398,528 $
535
12,930
525
4.06 %
13,596
141
1.04 %
25,993
160
0.13 %
0.62 %
1,658,160
34,410
2.08 % 1,700,418
33,202
1.95 % 884,244
14,437
1.63 %
1,236,607
28,384
2.91 % 1,356,045
29,025
2.71 % 1,086,942
23,246
4,244,893
244,544
5.79 % 3,845,137
173,500
4.53 % 3,639,454
155,732
2.71 %
4.30 %
7,235,455
312,305
4.44 % 6,977,407
236,033
3.50 % 6,035,161
194,110
3.33 %
Cash and due from banks
102,535
Allowance for loan losses
Other assets
Total average assets
(49,774)
581,412
$ 7,869,628
Liabilities and Stockholders’
Equity
99,885
(52,606)
509,229
$ 7,533,915
89,993
(56,798)
445,895
$ 6,514,251
Interest bearing liabilities
Interest bearing deposits
Borrowings
Repurchase agreements
Subordinated notes
Junior subordinated
debentures issued to capital
trusts
Total interest bearing
liabilities
Non–interest bearing liabilities
Demand deposits
Accrued interest payable and
other liabilities
Stockholders’ equity
Total average liabilities and
stockholders’ equity
Net interest income/spread
Net interest income as a
percent of average interest
earning assets(1)
$ 4,498,588 $ 85,857
1.91 % $ 4,513,668 $ 17,809
0.39 % $ 3,897,750 $ 7,867
1,154,714
39,514
3.42 % 696,584
11,938
1.71 % 425,214
4,546
137,153
2,964
2.16 % 141,048
527
0.37 % 123,675
155
58,764
3,511
5.97 %
58,819
3,522
5.99 %
58,672
3,522
0.20 %
1.07 %
0.13 %
6.00 %
57,137
4,715
8.25 %
56,899
2,719
4.78 %
56,657
2,215
3.91 %
5,906,356
136,561
2.31 % 5,467,018
36,515
0.67 % 4,561,968
18,305
0.40 %
1,181,233
75,765
706,274
$ 7,869,628
1,332,937
50,330
683,630
$ 7,533,915
1,188,275
51,886
712,122
$ 6,514,251
$ 175,744
2.13 %
$ 199,518
2.83 %
$ 175,805
2.93 %
2.55 %
2.98 %
3.03 %
(1) Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations. 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.
(4) Net loan fees included in interest on loans aggregated $7.9 million, $11.0 million and $19.8 million in 2023, 2022 and 2021, respectively.
54
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Net interest income during 2022 was $199.5 million, an increase of $23.7 million, or 13.5%, over the $175.8 million
earned in 2021. Yields on the Company’s interest earning assets increased by 17 basis points to 3.50% during 2022
from 3.33% in 2021. Interest income increased $41.9 million to $236.0 million for 2022 from $194.1 million in 2021.
This increase was due to the overall increase in interest rates during 2022 and the increase in the average balance
of interest earning assets of $942.2 million.
Interest expense increased $18.2 million from $18.3 million in 2021 to $36.5 million in 2022. This increase was due
to the overall increase in interest rates during 2022 and the increase in the average balance of interest bearing
liabilities of $905.1 million. The increase in rates paid on interest bearing liabilities of 27 basis points was greater
than the increase in the yield of interest earning assets of 17 basis points that resulted in a decrease in the net
interest margin of 5 basis points from 3.03% for 2021 to 2.98% in 2022. Excluding interest income recognized from
acquisition–related purchase accounting adjustments and prepayment penalties on borrowings, the margin would
have been 2.93% for 2022 compared to 2.96% for 2021.
2023 - 2022
2022 - 2021
Total
Change
Change
Due To
Volume
Change
Due To
Rate
Total
Change
Change
Due To
Volume
Change
Due To
Rate
Investment securities – non–taxable
(641)
(3,364)
Interest Income
Federal funds sold
Interest earning deposits
Investment securities – taxable
Loans receivable
Total interest income
Interest Expense
Interest bearing deposits
Borrowings
Repurchase agreements
Subordinated notes
$
4,277 $
73 $
4,204 $
(370) $
(655) $
384
1,208
(7)
(840)
(19)
(97)
18,765
15,480
391
2,048
2,723
51,566
60,932
71,044
76,272
19,478
15,340
68,048
27,576
2,437
(59)
68,107
10,962
16,614
(15)
2,452
(11)
(3)
(8)
285
78
3,285
(1,512)
8,681
7,291
9,087
31,106
10,817
1,412
3,800
25
9
9
8,530
3,592
347
(9)
495
5,779
17,768
41,923
9,942
7,392
372
—
504
Junior subordinated debentures issued to
capital trusts
1,996
11
1,985
Total interest expense
Net interest income
Credit Loss Expense
100,046
10,896
89,150
18,210
5,255
12,955
$ (23,774) $
4,444 $ (28,218) $ 23,713 $ 25,851 $
(2,138)
Horizon assesses the adequacy of its ACL by regularly reviewing the performance of its loan portfolios. Credit loss
expense totaled $2.5 million in 2023 compared to a recovery of $1.8 million in 2022. Total loan net charge–offs were
$2.2 million, which included commercial loan net charge–offs of $580,000, residential mortgage loan net recoveries
of $34,000 and consumer loan net charge–offs of $1.6 million for the year ending December 31, 2023. The recovery
of the ACL in 2022 was the result of allocations related to the impact of COVID–19 being reduced and/or eliminated
during the year and partially reallocated to current economic factors and also required some release from the ACL.
Credit loss expense totaled a recovery of $1.8 million in 2022 compared to a recovery of $2.1 million in 2021. Total
loan net charge–offs were $843,000, which included commercial loan net recoveries of $80,000, residential
mortgage loan net recoveries of $53,000 and consumer loan net charge–offs of $976,000 for the year ending
December 31, 2022. The recovery of the ACL in 2022 was the result of allocations related to the impact of COVID–
19 being reduced and/or eliminated during the year and partially reallocated to current economic factors and also
required some release from the ACL.
55
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Additional information related to credit loss expense (recovery) and net charge–offs (recoveries) is presented in the
table below. Also see Note 5 – Allowance for Credit and Loan Losses in the accompanying notes to consolidated
financial statements included elsewhere in this report.
Credit Loss
Expense
(Recovery)
Net (Charge–
Offs) Recoveries
Average Loans
Ratio of Net
(Charge–Offs)
Recoveries to
Average Loans
Twelve Months Ended December 31,
2023
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Twelve Months Ended December 31,
2022
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Twelve Months Ended December 31,
2021
Commercial
Real estate
Mortgage warehouse
Consumer
Total
$
(1,765) $
(580) $
2,498,453
(3,107)
(539)
7,501
2,090
33
—
(1,614)
(2,161)
675,520
54,798
1,011,166
4,239,937
$
(7,650) $
80 $
2,280,553
1,668
(39)
3,802
(2,219)
53
—
(976)
(843)
621,163
89,409
850,667
3,841,792
$
(1,320) $
(1,099) $
2,155,018
(755)
(208)
199
(9)
—
(533)
591,395
206,932
679,712
(2,084)
(1,641)
3,633,057
(0.02) %
0.00 %
0.00 %
(0.16) %
(0.05) %
0.00 %
0.01 %
0.00 %
(0.11) %
(0.02) %
(0.05) %
0.00 %
0.00 %
(0.08) %
(0.05) %
56
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–interest Income
The following is a summary of changes in non–interest income:
Twelve Months Ended
December 31
Non–interest Income
2023
2022
2022 - 2023
Amount
Change
Percent
Change
Twelve Months Ended
December 31
2022
2021
2021 - 2022
Amount
Change
Percent
Change
Service charges on deposit
accounts
Wire transfer fees
Interchange fees
Fiduciary activities
Gain (loss) on sale of
investment securities
Gain on sale of mortgage
loans
Mortgage servicing net of
impairment
Increase in cash surrender
value of bank owned life
insurance
Death benefit on officer life
insurance
Other income
Total non–interest
income
$ 12,227 $ 11,598 $
629
5.4 % $ 11,598 $
9,192 $ 2,406
26.2 %
448
595
(147)
(24.7) %
595
892
(297)
(33.3) %
12,861
12,402
5,080
5,381
459
(301)
3.7 %
12,402
10,901
1,501
13.8 %
(5.6) %
5,381
7,419
(2,038)
(27.5) %
(32,052)
—
(32,052)
(100.0) %
—
914
(914)
(100.0) %
4,323
7,165
(2,842)
(39.7) %
7,165
19,163
(11,998)
(62.6) %
2,708
4,800
(2,092)
(43.6) %
4,800
2,352
2,448
104.1 %
3,709
2,594
1,115
43.0 %
2,594
2,094
500
23.9 %
—
2,694
644
2,272
(644)
(100.0) %
644
783
(139)
(17.8) %
422
18.6 %
2,272
4,242
(1,970)
(46.4) %
$ 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. This decrease in
volume, in addition to a decrease in the percentage earned on the sale of mortgage loans, resulted in a decrease in
the overall gain on sale of mortgage loans of $2.8 million compared to the prior year. Gain (loss) on the sale of
investment securities decreased $32.1 million in 2023 as there were no sales in 2022 and the Company executed a
balance sheet restructure in the fourth quarter of 2023 resulting in a $31.6 million loss on the sale of investment
securities. Mortgage servicing net of impairment decreased by $2.1 million during 2023 compared to 2022 primarily
due to the recovery net impairment charges of $2.6 million recorded during 2022. The increase in bank owned life
insurance income in 2023 was due to additional purchases of bank owned life insurance in 2022.
During 2022, the Company originated approximately $221.9 million of mortgage loans to be sold on the secondary
market, compared to $438.1 million in 2021 as long–term interest rates began to increase during 2022. This
decrease in volume, in addition to a decrease in the percentage earned on the sale of mortgage loans, resulted in a
decrease in the overall gain on sale of mortgage loans of $12.0 million compared to the prior year. Gain on the sale
of investment securities decreased $914,000 in 2022 as there were no sales in 2022. Fiduciary activities income
decreased $2.0 million during 2022 primarily due to the sale of ESOP trustee accounts which was completed during
the third quarter of 2021. Mortgage servicing net of impairment increased by $2.4 million during 2022 compared to
2021 primarily due to the recovery net impairment charges of $2.6 million recorded during 2022. Other income
decreased $2.0 million during 2022 primarily due to the gain on sale of ESOP trustee accounts of $2.3 million
recorded in 2021. The increase in interchange fee income in 2022 compared to 2021 was the result of the branch
acquisition in September 2021 and organic growth in transactional deposit accounts and volume during 2022.
57
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–interest Expense
The following is a summary of changes in non–interest expense:
Twelve Months Ended
December 31
Non–interest Expense
2023
2022
2022 - 2023
Amount
Change
Percent
Change
Twelve Months Ended
December 31
2022
2021
2021 - 2022
Amount
Change
Percent
Change
$ 56,165 $ 55,422 $
743
1.3 % $ 55,422 $ 49,463 $ 5,959
12.0 %
8,442
(2,421)
(28.7) %
8,442
Salaries
Commission and bonuses
Employee benefits
Net occupancy expenses
Data processing
Professional fees
Outside services and
consultants
Loan expense
FDIC deposit insurance
Core deposit intangible
amortization
Other losses
Other expenses
Total non–interest
expense
6,021
18,623
13,355
11,626
2,645
9,942
4,980
3,880
3,612
1,051
16,419
13,323
10,567
1,843
10,850
5,411
2,558
3,702
1,046
2,204
13.4 %
16,419
32
0.2 %
13,323
1,059
10.0 %
10,567
802
43.5 %
1,843
(908)
(431)
(8.4) %
10,850
(8.0) %
5,411
1,322
51.7 %
2,558
(90)
(2.4) %
3,702
0.5 %
1,046
5
766
11,089
13,499
12,541
9,962
2,216
8,449
5,492
2,377
3,644
2,283
(2,647)
(23.9) %
2,920
21.6 %
782
605
6.2 %
6.1 %
(373)
(16.8) %
2,401
28.4 %
(81)
181
(1.5) %
7.6 %
58
1.6 %
(1,237)
(54.2) %
14,384
13,618
5.6 %
13,618
12,379
1,239
10.0 %
$ 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. FDIC deposit insurance increased $1.3
million as the FDIC's plan to replenish the Deposit Insurance Fund increased the rates paid during 2023.
Commission and bonuses decreased $2.4 million primarily due to lower mortgage volume in 2023 and lower bonus
expense accruals due to the results of certain performance measurements.
For the twelve months ended December 31, 2022, salaries increased $6.0 million reflecting annual merit increases
and the additional employees from the branch acquisition completed during the third quarter of 2021. Outside
services and consultants and other expenses each increased by $2.4 million from additional consulting services
performed during the year. Other losses decreased $1.2 million primarily due to $1.9 million in ESOP settlement
expenses recorded during the fourth quarter of 2021.
Income Taxes
Income tax expense totaled $11.0 million for the year ended December 31, 2023, a decrease of $1.2 million when
compared to the year ended December 31, 2022. The decrease was primarily due to a decrease in income before
taxes of $66.6 million, offset by a tax valuation reserve of $5.2 million recorded related to the sale of investment
securities and tax expense and excise tax of $8.6 million related to the redemption of bank owned life insurance
policies in 2023.
Income tax expense totaled $12.2 million for the year ended December 31, 2022, an decrease of $3.2 million when
compared to the year ended December 31, 2021. The decrease was primarily due to the additional benefit related
to investments that generate tax credits, an increase in tax exempt investments, offset slightly by an increase in
income before taxes of $3.1 million in 2022.
58
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Use of Non–GAAP Financial Measures
Certain information set forth in this report on Form 10–K refers to financial measures determined by methods other
than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income,
diluted earnings per share, net interest margin, the allowance for credit losses, tangible stockholders’ equity,
tangible book value per share, the return on average assets, the return on average common equity and pre–tax
pre–provision net income. In each case, we have identified special circumstances that we consider to be
adjustments and have excluded them, in order to show the impact of such events as acquisition–related purchase
accounting adjustments, prepayment penalties on borrowings and the Tax Cuts and Jobs Act, among other matters
we have identified in our reconciliations. Horizon believes these non–GAAP financial measures are helpful to
investors and provide a greater understanding of our business without giving effect to the purchase accounting
impacts and other adjustments. 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
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
Net income as reported
Acquisition expenses
Tax effect
Net income excluding acquisition expenses
Swap termination fee
Tax effect
Net income excluding swap termination fee
Credit loss expense on acquired loans
Tax effect
Net income excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
Net income excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
Net income excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
Tax valuation reserve
Net income excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance (“BOLI”)
Net income excluding death benefit on BOLI
Extraordinary expenses (1)
Tax effect
Net income excluding extraordinary expenses
Prepayment penalties on borrowings
Tax effect
Net income excluding prepayment penalties on borrowings
BOLI tax expense and excise tax
Net income excluding BOLI tax expense and excise tax
Years Ended December 31
2022
2021
2023
$
27,981 $
93,408 $
87,091
—
—
—
—
1,925
(401)
27,981
93,408
88,615
(1,453)
305
26,833
—
—
—
—
93,408
—
—
26,833
93,408
—
—
—
—
26,833
93,408
—
—
—
—
88,615
2,034
(427)
90,222
(2,329)
489
88,382
1,900
(315)
—
—
26,833
32,052
(6,731)
5,201
57,355
—
57,355
705
(148)
93,408
89,967
—
—
—
(914)
192
—
93,408
89,245
(644)
(783)
92,764
88,462
—
—
—
—
57,912
92,764
88,462
—
—
57,912
8,597
66,509
—
—
125
(26)
92,764
88,561
—
—
92,764
88,561
Adjusted net income
$
66,509 $
92,764 $
88,561
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities.
60
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–GAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
Years Ended December 31
2022
2021
2023
Diluted earnings per share (“EPS”) as reported
$
0.64 $
2.14 $
Acquisition expenses
Tax effect
Diluted EPS excluding acquisition expenses
Swap termination fee
Tax effect
Diluted EPS excluding swap termination fee
Credit loss expense on acquired loans
Tax effect
Diluted EPS excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
Diluted EPS excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
Diluted EPS excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
Tax valuation reserve
Diluted EPS excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance (“BOLI”)
Diluted EPS excluding death benefit on BOLI
Extraordinary expenses (1)
Tax effect
Diluted EPS excluding extraordinary expenses
Prepayment penalties on borrowings
Tax effect
Diluted EPS excluding prepayment penalties on borrowings
BOLI tax expense and excise tax
Net income excluding BOLI tax expense and excise tax
—
—
0.64
(0.03)
0.01
0.62
—
—
0.62
—
—
0.62
—
—
0.62
0.73
(0.15)
0.12
1.32
—
1.32
0.02
—
1.34
—
—
1.34
0.20
1.54
—
—
2.14
—
—
2.14
—
—
2.14
—
—
2.14
—
—
2.14
—
—
—
2.14
(0.01)
2.13
—
—
2.13
—
—
2.13
—
2.13
Adjusted diluted EPS
$
1.54 $
2.13 $
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities.
1.98
0.04
—
2.02
—
—
2.02
0.05
(0.01)
2.06
(0.05)
0.01
2.02
0.04
(0.01)
2.05
(0.02)
—
—
2.03
(0.03)
2.00
—
—
2.00
—
—
2.00
—
2.00
2.00
61
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income
(Dollars in Thousands, Unaudited)
Years Ended December 31
2022
2021
2023
Pre–tax income
Credit loss expense
Pre–tax, pre–provision income
Pre–tax, pre–provision income
Acquisition expenses
Swap termination fee
Gain on sale of ESOP trustee accounts
ESOP settlement expenses
(Gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
Extraordinary expenses (1)
Prepayment penalties on borrowings
Adjusted pre–tax, pre–provision income
$
$
$
38,999 $
105,584 $
102,447
2,459
(1,816)
(2,084)
41,458 $
103,768 $
100,363
41,458 $
103,768 $
100,363
—
(1,453)
—
—
32,052
—
705
—
—
—
—
—
—
(644)
—
—
1,925
—
(2,329)
1,900
(914)
(783)
—
125
$
72,762 $
103,124 $
100,287
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities.
Non–GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
Years Ended December 31
2022
2021
2023
Net interest income as reported
Average interest earning assets
$ 175,744
$ 199,518
$ 175,805
7,235,455
6,977,407
6,035,161
Net interest income as a percentage of average interest earning assets
(“Net Interest Margin”)
2.55 %
2.98 %
3.03 %
Net interest income as reported
Acquisition–related purchase accounting adjustments (“PAUs”)
Swap termination fee
Prepayment penalties on borrowings
Adjusted net interest income
Adjusted net interest margin
$ 175,744
$ 199,518
$ 175,805
(1,628)
(1,453)
—
(3,476)
(4,503)
—
—
—
125
$ 172,663
$ 196,042
$ 171,427
2.51 %
2.93 %
2.96 %
62
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
Average assets
$ 7,869,628
$ 7,533,915
$ 6,514,251
Years Ended December 31
2022
2021
2023
Return on average assets (“ROAA”) as reported
0.36 %
1.24 %
Acquisition expenses
Tax effect
ROAA excluding acquisition expenses
Swap termination fee
Tax effect
ROAA excluding swap termination fee
Credit loss expense on acquired loans
Tax effect
ROAA excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
ROAA excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
ROAA excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
Tax valuation reserve
ROAA excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
ROAA excluding death benefit on bank owned life insurance
Extraordinary expenses (1)
Tax effect
ROAA excluding extraordinary expenses
Prepayment penalties on borrowings
Tax effect
ROAA excluding prepayment penalties on borrowings
BOLI tax expense and excise tax
ROAA excluding BOLI tax expense and excise tax
Adjusted ROAA
1.34 %
0.03 %
(0.01) %
1.36 %
— %
— %
1.36 %
0.03 %
(0.01) %
1.38 %
(0.04) %
0.01 %
1.35 %
0.03 %
— %
1.38 %
(0.01) %
— %
— %
1.37 %
(0.01) %
1.36 %
— %
— %
— %
— %
0.36 %
(0.02) %
— %
0.34 %
— %
— %
— %
— %
1.24 %
— %
— %
1.24 %
— %
— %
0.34 %
1.24 %
— %
— %
— %
— %
0.34 %
1.24 %
— %
— %
1.24 %
— %
— %
— %
1.24 %
(0.01) %
1.23 %
— %
— %
— %
— %
0.34 %
0.41 %
(0.09) %
0.07 %
0.73 %
— %
0.73 %
0.01 %
— %
0.74 %
— %
— %
0.74 %
0.11 %
0.85 %
0.85 %
1.23 %
1.36 %
— %
— %
1.23 %
— %
1.23 %
1.23 %
— %
— %
1.36 %
— %
1.36 %
1.36 %
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities.
63
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
Average common equity
$ 706,274
$ 683,630
$ 712,122
Years Ended December 31
2022
2021
2023
Return on average common equity (“ROACE”) as reported
3.96 %
13.66 %
Acquisition expenses
Tax effect
ROACE excluding acquisition expenses
Swap termination fee
Tax effect
ROACE excluding swap termination fee
Credit loss expense on acquired loans
Tax effect
ROACE excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
ROACE excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
ROACE excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
Tax valuation reserve
ROACE excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
ROACE excluding death benefit on bank owned life insurance
Extraordinary expenses (1)
Tax effect
ROACE excluding extraordinary expenses
Prepayment penalties on borrowings
Tax effect
ROACE excluding prepayment penalties on borrowings
BOLI tax expense and excise tax
ROACE excluding BOLI tax expense and excise tax
Adjusted ROACE
12.23 %
0.27 %
(0.06) %
12.44 %
— %
— %
12.44 %
0.29 %
(0.06) %
12.67 %
(0.33) %
0.07 %
12.41 %
0.27 %
(0.04) %
12.64 %
(0.13) %
0.03 %
— %
12.54 %
(0.11) %
12.43 %
— %
— %
12.43 %
0.02 %
— %
— %
— %
3.96 %
(0.21) %
0.04 %
3.79 %
— %
— %
— %
— %
13.66 %
— %
— %
13.66 %
— %
— %
3.79 %
13.66 %
— %
— %
— %
— %
3.79 %
13.66 %
— %
— %
13.66 %
— %
— %
— %
13.66 %
(0.09) %
13.57 %
— %
— %
13.57 %
— %
— %
— %
— %
3.79 %
4.54 %
(0.95) %
0.74 %
8.12 %
— %
8.12 %
0.10 %
(0.02) %
8.20 %
— %
— %
8.20 %
1.22 %
9.42 %
9.42 %
13.57 %
12.45 %
— %
13.57 %
13.57 %
— %
12.45 %
12.45 %
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities.
64
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–GAAP Reconciliation of Return on Average Tangible Equity
(Dollars in Thousands, Unaudited)
Years Ended December 31
2022
2021
2023
Average common equity
Less: Average intangible assets
Average tangible equity
$ 706,274
$ 683,630
$ 712,122
170,745
174,003
175,811
$ 535,529
$ 509,627
$ 536,311
Return on average tangible equity (“ROATE”) as reported
5.22 %
18.33 %
Acquisition expenses
Tax effect
ROATE excluding acquisition expenses
Swap termination fee
Tax effect
ROATE excluding swap termination fee
Credit loss expense on acquired loans
Tax effect
ROATE excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
ROATE excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
ROATE excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
Tax valuation reserve
ROATE excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
ROATE excluding death benefit on bank owned life insurance
Extraordinary expenses (1)
Tax effect
ROATE excluding extraordinary expenses
Prepayment penalties on borrowings
Tax effect
ROATE excluding prepayment penalties on borrowings
BOLI tax expense and excise tax
ROATE excluding BOLI tax expense and excise tax
Adjusted ROATE
— %
— %
5.22 %
(0.27) %
0.06 %
5.01 %
— %
— %
— %
— %
18.33 %
— %
— %
18.33 %
— %
— %
5.01 %
18.33 %
— %
— %
— %
— %
5.01 %
18.33 %
— %
— %
5.01 %
5.99 %
(1.26) %
0.97 %
10.71 %
— %
10.71 %
0.13 %
(0.03) %
10.81 %
— %
— %
10.81 %
1.61 %
12.42 %
12.42 %
— %
— %
18.33 %
— %
— %
— %
18.33 %
(0.13) %
18.20 %
— %
— %
18.20 %
— %
— %
18.20 %
— %
18.20 %
18.20 %
16.24 %
0.36 %
(0.08) %
16.52 %
— %
— %
16.52 %
0.38 %
(0.08) %
16.82 %
(0.43) %
0.10 %
16.49 %
0.35 %
(0.06) %
16.78 %
(0.17) %
0.04 %
— %
16.65 %
(0.15) %
16.50 %
— %
— %
16.50 %
0.02 %
(0.01) %
16.51 %
— %
16.51 %
16.51 %
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities.
65
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands Except per Share Data, Unaudited)
Total stockholders’ equity
Less: Intangible assets
December 31, September 30,
June 30,
March 31,
December 31,
2023
2023
2023
2023
2022
$
718,812 $
693,369 $
709,243 $
702,559 $
677,375
168,837
169,741
170,644
171,547
172,450
Total tangible stockholders’ equity
$
549,975 $
523,628 $
538,599 $
531,012 $
504,925
Common shares outstanding
43,652,063
43,648,501
43,645,216
43,621,422
43,574,151
Book value per common share
Tangible book value per common share
$
$
16.47 $
12.60 $
15.89 $
12.00 $
16.25 $
12.34 $
16.11 $
12.17 $
15.55
11.59
Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
Non–interest expense as reported
Net interest income as reported
Non–interest income as reported
Years Ended December 31
2023
2022
2021
$ 146,284
$ 143,201
$ 133,394
175,744
199,518
175,805
$
11,998
$
47,451
$
57,952
Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”)
77.92 %
57.98 %
57.07 %
Non–interest expense as reported
Acquisition expenses
ESOP settlement expenses
Extraordinary expenses (1)
Non–interest expense excluding acquisition expenses and ESOP settlement
expenses
Net interest income as reported
Swap termination fee
Prepayment penalties on borrowings
Net interest income excluding prepayment penalties on borrowings
Non–interest income as reported
Gain on sale of ESOP trustee accounts
(Gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
$ 146,284
$ 143,201
$ 133,394
—
—
(705)
145,579
175,744
(1,453)
—
174,291
11,998
—
32,052
—
—
—
—
143,201
199,518
—
—
199,518
47,451
—
—
(644)
(1,925)
(1,900)
—
129,569
175,805
—
125
175,930
57,952
(2,329)
(914)
(783)
Non–interest income excluding gain on sale of ESOP trustee accounts,
(gain) / loss on sale of investment securities and death benefit on bank
owned life insurance
$
44,050
$
46,807
$
53,926
Adjusted efficiency ratio
66.68 %
58.13 %
56.37 %
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon
Equipment Finance and the expansion of the Bank's treasury management capabilities.
66
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Liquidity and Rate Sensitivity Management
Management and the Board of Directors meet regularly to review both the liquidity and rate sensitivity position of
Horizon. Effective asset and liability management ensures Horizon’s ability to monitor the cash flow requirements of
depositors along with the demands of borrowers and to measure and manage interest rate risk. Horizon utilizes an
interest rate risk assessment model designed to highlight sources of existing interest rate risk and consider the
effect of these risks on strategic planning. 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. Other sources of liquidity for
Horizon include earnings, loan repayments, investment security sales, cash flows and maturities, sale of real estate
loans and borrowing relationships with correspondent banks, including the FHLB and the Federal Reserve Bank
(“FRB”). 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. Generally, the loan terms from the FHLB are better than the
terms Horizon can receive from other sources, making it less expensive to borrow money from the
FHLB. 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.
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
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.
If any of these events occur, they could force Horizon to borrow money from other sources including negotiable
certificates of deposit. Such other monies may only be available at higher interest rates and on less advantageous
terms, which will impact our net income and could impact our ability to grow. Management believes Horizon has
adequate funding sources to meet short and long term needs.
67
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Horizon maintains a liquidity contingency plan that outlines the process for addressing a liquidity crisis. The plan
provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and
responsibilities for effectively managing liquidity through a problem period.
During 2023, cash flows were generated primarily from the proceeds from borrowings totaling $866.1 million, the
sales, maturities, and prepayments of investment securities of $548.9 million. 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.
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. We believe the large percentage of time deposits that mature within one year reflects the outlook of
the market for declining interest rates in future periods. The balance also includes $151.6 million in brokered time
deposits at December 31, 2023. 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. We believe, however, based on past experience that a significant
portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the
interest rates offered.
Interest Rate Sensitivity
The degree by which net interest income may fluctuate due to changes in interest rates is monitored by Horizon
using computer simulation models, incorporating not only the current GAP position but the effect of expected
repricing of specific financial assets and liabilities. When repricing opportunities are not properly aligned, net interest
income may be affected when interest rates change. Forecasting results of the possible outcomes determines the
exposure to interest rate risk inherent in Horizon’s balance sheet. The goal is to manage imbalanced positions that
arise when the total amount of assets that reprice or mature in a given time period differs significantly from liabilities
that reprice or mature in the same time period. The theory behind managing the difference between repricing assets
and liabilities is to have more assets repricing in a rising rate environment and more liabilities repricing in a declining
rate environment.
Based on our interest rate model which assumes a lag in repricing the amount of assets that reprice within one year
was approximately 95% of liabilities that reprice within one year at December 31, 2023. At December 31, 2022, this
same model reported that the amount of assets that reprice within one year was approximately 95% of the amount
of liabilities that reprice within the same time period. During the year 2023, the decrease in the yield of interest–
earning assets outpaced the decrease in the cost of funding resulting in a decrease in net interest margin.
68
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Loans
Federal funds sold
Interest earning balances with banks
Investment securities and FHLB stock
Other assets
Total assets
3 Months
or Less
> 3 Months
&
6 Months
&