What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-03-15 · 245 added, 140 removed, 924 unchanged (29% of the section changed)

7 unchanged sentences

Fourth Quarter and Full Year 2023 Highlights

• Return on average assets (“ROAA”) was 1.24% for the year ended 2022.

• Return on average tangible equity was 18.33% for the year ended 2022.

• Total loans grew 13.4% year–to–date and 12.8% annualized during the fourth quarter.

• Commercial loans grew to a record $2.42 billion, up 13.4% year–to–date and 10.8% annualized during the fourth quarter.

• Consumer loans grew to a record $967.8 million, up 30.6% year–to–date and 21.0% annualized during the fourth quarter.

• Asset quality remained solid with total loan delinquency at 0.26% of total loans, net charge–offs to average loans of 0.02% and non–performing loans to total loans at 0.52%.

• Total deposits remained strong increasing $26.9 million during the quarter at an average cost of 71 basis points and $54.8 million year–to–date at an average cost of 30 basis points.

• An accounting revision was made to amounts reported in previously issued financial statements covering the years ended December 31, 2021 and 2020 related to immaterial errors discovered in the fourth quarter of 2022.

The errors relate to the inclusion of the dealer reserve amortization expense in loan expense in non–interest expenses for the years ended December 31, 2021 and 2020 rather than loan interest income.

The previously issued financial statements for the years ended December 31, 2021 and 2020 have been revised to correct this error, which resulted in lowering both interest income and non–interest expense by $5.9 million and $5.4 million, respectively.

In addition, net interest margin was lowered by ten basis points and eleven basis points for the years ended December 31, 2021 and 2020, respectively.

All periods presented reflect this adjustment, and there was no impact to net income.

See Note 1 of Horizon's Consolidated Financial Statements for further details.

• Non-interest expense was $35.7 million in the quarter, or 1.84% of average assets on an annualized basis, compared to $36.8 million, or 1.91%, in the third quarter of 2022.

Year–to–date non–interest expense continued to be well managed at $139.5 million, or 1.85% of average assets.

• The Bank’s capital position continues to be robust with leverage and risk based capital ratios of 8.89% and 13.59%, respectively.

The annualized dividend yield was 4.24% as of December 31, 2022.

• 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

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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 loan losses, goodwill and intangible assets, mortgage servicing rights, derivative instruments and valuation measurements as critical accounting policies.

Management has identified the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, derivative instruments and valuation measurements as critical accounting policies.

HORIZON BANCORP, INC.

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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 uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

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.

HORIZON BANCORP, INC.

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Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued.

Investment securities, residential mortgage loans held for sale 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.

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.

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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 net loans of $503.3 million, investment securities of $307.1 million, and other assets of $72.4 million, offset by a decrease in cash and due from banks of $470.0 million.

The increase was primarily in cash and due from banks of $403.0 million and in net loans of $260.1 million, offset by decreases in investment securities of $527.4 million and cash value of life insurance of $110.0 million.

Investment Securities

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The average life is the average amount of time that each dollar of principal is expected to be outstanding.

As of December 31, 2022, the mortgage–backed securities and collateralized mortgage obligations in the investment portfolio had an average duration of 5 years.

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.

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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 appreciation on securities which totaled $5.7 million, net of tax, included in stockholders’ equity at December 31, 2021.

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.

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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 14.0% from the December 31, 2021, level of $3.6 billion primarily due to an increase in commercial, consumer, residential mortgage and residential construction loans, offset by a decrease in mortgage warehouse loans during the year.

The 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.

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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 consumer and small business loans.

The Bank also uses an independent third–party loan review function that regularly reviews asset quality.

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Total $ 312,074 $ 387,865 $ 711,162 $ 784,930 $ 2,196,031

Commercial Loans

Commercial loans totaled $2.47 billion, or 59.3% of total loans as of December 31, 2022, compared to $2.21 billion, or 60.5% as of December 31, 2021.

The increase during 2022 was due to growth in all types of commercial loans offset by a decrease in PPP loans of $25.6 million to $217,000 at December 31, 2022 compared to $25.8 million at December 31, 2021.

HORIZON BANCORP, INC.

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(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:

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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;

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.

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

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Some special guaranteed or insured real estate loan programs do permit a higher loan to collateral value ratio.

The increase during 2022 was primarily due to borrowers selecting adjustable rate loans, which are held on the balance sheet, as fixed rates increased during the year.

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.

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Monthly payment $ 402,038 59.0 % 4.06 % $ 375,185 57.4 % 3.76 %

Biweekly payment — — % — % — — % — %

Adjustable rate

Monthly payment 279,098 41.0 % 4.98 % 278,107 42.6 % 4.21 %

Biweekly payment — — % — % — — % — %

Subtotal 681,136 100.0 % 4.44 % 653,292 100.0 % 3.95 %

1 unchanged sentence

Total real estate loans $ 682,554 $ 659,099

The decrease in adjustable rate residential mortgage loans and increase in fixed rate residential mortgage loans was primarily due to customers moving to fixed rate products during the first half of 2022 as a result of the low interest rate environment.

In addition to the real estate loan portfolio, the Bank originates and sells real estate loans and retains the servicing rights.

During 2022 and 2021, approximately $221.9 million and $438.1 million,

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)

respectively, of residential mortgages were sold into the secondary market.

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.

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For purposes of measuring impairment, risk characteristics including product type, investor type and interest rates, were used to stratify the originated mortgage servicing rights.

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)

December 31, December 31, December 31,

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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.

HORIZON BANCORP, INC.

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(Table dollars in thousands except per share data)

At December 31, 2022, the mortgage warehouse loan balance was $69.5 million compared to $109.0 million as of December 31, 2021.

Consumer Loans

Consumer loans totaled $967.8 million, or 23.3% of total loans as of December 31, 2022, compared to $741.2 million, or 20.3% as of December 31, 2021.

The increase during 2022 was due to strong indirect lending during the first half of 2022 and home equity lines of credit production during the second half of 2022, in addition to approximately $52.4 million of purchased home equity lines of credit in the fourth quarter of 2022.

Allowance and Provision for Credit Losses

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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 2022, a release of provision for credit losses was recorded totaling $1.8 million compared to a release of provision for credit losses totaling $2.1 million in 2021.

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, primarily related to the impact on non–essential businesses caused by COVID–19 closures and the slow pace of reopening and economic recovery.

Through December 31, 2022, Horizon has not recorded any material specific loan losses attributed to COVID–19 closures.

As a result, the allocations related to the impact of COVID–19 were reduced during 2022 and partially reallocated to current economic factors and also released from the ACL.

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.

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

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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 and the senior commercial loan workout officer must review all loans placed on non–accrual status.

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.

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:

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Total non–performing assets $ 21,780 $ 23,980 $ 22,580

Non–performing loans totaled 43.3%, 35.0% and 47.0% of the allowance for credit losses at December 31, 2022, 2021 and 2020, respectively.

Non–performing loans at December 31, 2022 totaled $21.8 million, an increase from a balance of $19.0 million as of December 31, 2021 and a decrease from a balance of $26.8 million as of

HORIZON BANCORP, INC.

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(Table dollars in thousands except per share data)

December 31, 2020.

The increase in non–performing loans in 2022 was primarily due to the downgrade of one previously performing commercial relationship to non–performing status during the year.

Non–performing loans as a percentage of total loans was 0.52% as of December 31, 2022, which was the same percentage as of December 31, 2021 and a decrease from 0.58% from December 31, 2020.

Non–performing loans 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

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Ratio of allowance for credit losses on loans to non–performing loans 231.06 %

There were no COVID–19 related loan deferrals at December 31, 2022, a decrease from $10.8 million, or 0.3% of total loans at December 31, 2021, and $126.7 million, or 3.3% of total loans at December 31, 2020.

Other Real Estate Owned (“OREO”) totaled $1.9 million on December 31, 2022, a decrease of $1.6 million from December 31, 2021 and an increase of $211,000 from December 31, 2020.

On December 31, 2022, OREO was comprised of eight properties, six of these properties were bank owned properties from branch closures and two properties were residential.

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.

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(Table dollars in thousands except per share data)

As of December 31, 2022, other assets totaled $139.3 million, an increase of $72.4 million, or 108.4%, from $66.8 million as of December 31, 2021.

The increase in other assets was primarily due to an increase in the deferred tax asset related to unrealized gains (losses) on investment securities of $31.4 million, an increase in the fair value of hedging activities of $28.5 million and an increase in mortgage servicing rights, net of impairment, of $3.4 million.

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.

1 unchanged sentence

December 31, December 31,

Allowance for loan losses $ 12,762 $ 13,707

Allowance for credit losses $ 12,546 $ 12,762

Net operating loss and tax credits 9,592 9,313

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Unrealized loss on AFS securities and cash flow hedge 17,706 28,230

Basis in partnership equity investments 1,322 —

Capital loss carryover 5,201 —

Other 2,856 555

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Fair value adjustment on acquisitions (2,142) (2,807)

Unrealized gain on AFS securities and cash flow hedge — (1,953)

Other (1,131) (68)

Total liabilities (12,948) (12,544)

Valuation allowance (5,201) —

Net deferred tax asset/(liability) $ 33,545 $ 40,335

2 unchanged sentences

Total deposits were $5.7 billion at December 31, 2023, compared to $5.9 billion at December 31, 2022.

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)

Average deposits and rates by category for the three years ended December 31 are as follows:

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Total deposits $ 5,679,821 $ 5,846,605 $ 5,086,025

The $760.6 million increase in average deposits during 2022 was primarily due to the acquisition of 14 branches on September 17, 2021.

The transactional accounts average balances, as the lower cost funding sources, increased $621.3 million and the average balances for higher cost time deposits increased $139.2 million.

HORIZON 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.

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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:

Retail Brokered Total

2024 $ 961,848 $ 151,636 $ 1,113,484

2025 34,614 9,224 43,838

2026 12,004 — 12,004

2027 7,286 — 7,286

2028 3,070 — 3,070

Thereafter 57 — 57

$ 1,018,879 $ 160,860 $ 1,179,739

Certificates of deposit of $250,000 or more, which are considered to be rate sensitive and are not considered a part of core deposits, mature as follows as of December 31, 2023:

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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 increase in net income from the previous year reflects an increase in net interest income of $23.7 million and a decrease in income tax expense of $3.2 million, offset by an increase in non–interest expense of $9.8 million and a decrease in non–interest income of $10.5 million.

The increase in diluted earnings per share compared to the previous year reflects an increase in net income and a decrease in diluted shares.

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.

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Net interest margin refers to net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities.

Net interest income during 2022 was $199.5 million, an increase of $23.7 million, or 13.5%, over the $175.8 million earned in 2021.

Net interest 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.

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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 prepayment penalties on borrowings, the margin would have been 2.93% for 2022 compared to 2.96% for 2021.

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.

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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 decreased by 67 basis points to 3.33% during 2021 from 4.00% in 2020.

Interest income decreased $5.9 million to $194.1 million for 2021 from $200.0 million in 2020.

This decrease was due to the overall decrease in interest rates during 2021 and a decrease in the recognition of interest income from acquisition–related purchase accounting adjustments of approximately $2.4 million from $6.9 million in 2020 to $4.5 million in 2021, offset by an increase in the average balance of interest earning assets of $901.6 million.

Interest expense decreased $16.1 million from $34.4 million in 2020 to $18.3 million in 2021.

This decrease was due to the overall decrease in interest rates during 2021 and $3.8 million in prepayment penalties on borrowings paid in 2020.

The prepayment penalties on borrowings were incurred as part of a deleverage strategy in which $83.0 million in FHLB advances with an average cost of 2.61% were paid off during the 4th quarter of 2020.

The decrease in rates paid on interest bearing liabilities in addition to the decrease in the yield on the Company's interest earning assets resulted in a decrease in the net interest margin of 30 basis points from 3.33% for 2020 to 3.03% 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.

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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 during the year and partially reallocated to current economic factors and also required some release from the ACL.

HORIZON BANCORP, INC.

3 unchanged sentences

(Table dollars in thousands except per share data)

Credit loss expense totaled a recovery of $2.1 million in 2021 compared to an expense of $20.8 million in 2020.

Total loan net charge–offs were $1.6 million, which included commercial loan net charge–offs of $1.1 million, residential mortgage loan net charge–offs of $9,000 and consumer loan net charge–offs of $533,000 for the year ending December 31, 2021.

The higher level of credit loss expense for 2020 was due to the adoption of CECL at the beginning of 2020 increasing credit loss expense for economic factors due to the economic shutdown and exposures to loans with nature and characteristics that have greater loss exposure due to economic uncertainty brought on by COVID–19.

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 Annualized Net (Charge–Offs) Recoveries to Average Loans

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

4 unchanged sentences

Total 2,090 (2,161) 4,239,937 (0.05) %

Excluding PPP loans $ (2,219) $ (843) $ 3,836,682 (0.02) %

Twelve Months Ended December 31, 2022

4 unchanged sentences

Total (2,219) (843) 3,841,792 (0.02) %

Excluding PPP loans $ (2,084) $ (1,641) $ 3,466,912 (0.05) %

Twelve Months Ended December 31, 2021

4 unchanged sentences

Total (2,084) (1,641) 3,633,057 (0.05) %

Excluding PPP loans $ 20,751 $ (1,863) $ 3,682,173 (0.05) %

HORIZON BANCORP, INC.

20 unchanged sentences

Total non–interest income $ 11,998 $ 47,451 $ (35,453) (74.7) % $ 47,451 $ 57,952 $ (10,501) (18.1) %

During 2023, the Company originated approximately $142.8 million of mortgage loans to be sold on the secondary market, compared to $221.9 million in 2022 as long–term interest rates increased during 2023.

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.

1 unchanged sentence

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 2021.

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.

1 unchanged sentence

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.

During 2021, the Company originated approximately $438.1 million of mortgage loans to be sold on the secondary market, compared to $584.1 million in 2020 as long–term interest rates began to increase during 2021.

This decrease in volume, in addition to a slight decrease in the percentage earned on the sale of mortgage loans, resulted in a decrease in the overall gain on sale of mortgage loans of $7.6 million compared to the prior year.

Gain on the sale of investment securities decreased $3.4 million in 2021 due to the deleverage strategy executed in 2020.

Fiduciary activities income decreased $1.7 million during 2021 primarily due to the sale of ESOP trustee accounts which was completed during the third quarter.

Mortgage servicing net of impairment increased by $6.1 million during 2021 compared to 2020 primarily due to the recovery net impairment charges of $2.6 million recorded during 2021.

Other income increased $2.7 million during 2021 primarily due to the gain on sale of ESOP trustee accounts of $2.3 million.

The increase in interchange fee income in 2021 compared to 2020 was the result of organic growth in transactional deposit accounts and volume during 2021.

HORIZON BANCORP, INC.

25 unchanged sentences

Total non–interest expense $ 146,284 $ 143,201 $ 3,083 2.2 % $ 143,201 $ 133,394 $ 9,807 7.4 %

For the twelve months ended December 31, 2023, employee benefits increased $2.2 million due to the increase in health care costs and variable costs in certain deferred compensation plans.

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 increased $2.4 million from additional consulting services performed during the year.

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.

For the twelve months ended December 31, 2021, salaries increased $2.4 million reflecting annual merit increases and the additional employees from the branch acquisition completed during the third quarter.

Outside services and consultants and other expenses each increased by $1.1 million during 2021.

This was partially due to acquisition–related expenses of $671,000 in outside services and consultants and $674,000 in other expenses.

Other losses increased $1.1 million primarily due to $1.9 million in ESOP settlement expenses recorded during the fourth quarter of 2021.

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 the additional benefit related to investments that generate tax credits, an increase in tax exempt investments, offset slightly by an increase in income before income taxes of $3.1 million in 2022.

Income tax expense totaled $15.4 million for the year ended December 31, 2021, an increase of $5.5 million when compared to the year ended December 31, 2020.

The increase was primarily due to an increase in income before income taxes of $24.1 million in 2021 and fewer tax credits recognized due to delays in projects the Company has invested in offset by an increase in tax exempt municipal investments.

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.

HORIZON BANCORP, INC.

3 unchanged sentences

(Table dollars in thousands except per share data)

Replacement of London Interbank Offered Rate

In 2017, the United Kingdom's Financial Conduct Authority (the authority that regulates LIBOR) (the “FCA”) announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR.

Subsequently, on March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1–week and 2–month LIBOR, and immediately after June 30, 2023, in the case of the remaining LIBOR settings.

On March 15, 2022, the President of the United States signed into law the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”).

This legislation establishes a uniform benchmark replacement process for certain contracts that do not contain clearly defined or practicable fall–back provisions.

Under the LIBOR Act, such contracts will automatically transition as a matter of law to a Secured Overnight Financing Rate (“SOFR”) based replacement rate identified by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).

The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Federal Reserve.

We have loans, borrowings and other financial instruments with attributes that are directly or indirectly dependent on LIBOR and do not provide a replacement rate or include other fall–back provisions that would apply after June 30, 2023.

Thus, Horizon has elected to allow the LIBOR under these contracts to automatically convert into the CME Term SOFR after June 30, 2023 pursuant to an in accordance with the LIBOR Act.

Use of Non–GAAP Financial Measures

18 unchanged sentences

Net income excluding acquisition expenses 27,981 93,408 88,615

Swap termination fee (1,453) — —

Tax effect 305 — —

Net income excluding swap termination fee 26,833 93,408 88,615

Credit loss expense on acquired loans — — 2,034

9 unchanged sentences

Tax effect (6,731) — 192

Tax valuation reserve 5,201 — —

Net income excluding (gain) / loss on sale of investment securities 57,355 93,408 89,245

1 unchanged sentence

Net income excluding death benefit on BOLI 57,355 92,764 88,462

Extraordinary expenses (1)

Tax effect (148) — —

Net income excluding extraordinary expenses 57,912 92,764 88,462

Prepayment penalties on borrowings — — 125

1 unchanged sentence

Net income excluding prepayment penalties on borrowings 57,912 92,764 88,561

BOLI tax expense and excise tax 8,597 — —

Net income excluding BOLI tax expense and excise tax 66,509 92,764 88,561

Adjusted net income $ 66,509 $ 92,764 $ 88,561

(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities.

HORIZON BANCORP, INC.

11 unchanged sentences

Diluted EPS excluding acquisition expenses 0.64 2.14 2.02

Swap termination fee (0.03) — —

Tax effect 0.01 — —

Diluted EPS excluding swap termination fee 0.62 2.14 2.02

Credit loss expense on acquired loans — — 0.05

9 unchanged sentences

Tax effect (0.15) — —

Tax valuation reserve 0.12 — —

Diluted EPS excluding (gain) / loss on sale of investment securities 1.32 2.14 2.03

1 unchanged sentence

Diluted EPS excluding death benefit on BOLI 1.32 2.13 2.00

Extraordinary expenses (1)

Tax effect — — —

Diluted EPS excluding extraordinary expenses 1.34 2.13 2.00

Prepayment penalties on borrowings — — —

1 unchanged sentence

Diluted EPS excluding prepayment penalties on borrowings 1.34 2.13 2.00

BOLI tax expense and excise tax 0.20 — —

Net income excluding BOLI tax expense and excise tax 1.54 2.13 2.00

Adjusted diluted EPS $ 1.54 $ 2.13 $ 2.00

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

7 unchanged sentences

Acquisition expenses — — 1,925

Swap termination fee (1,453) — —

Gain on sale of ESOP trustee accounts — — (2,329)

2 unchanged sentences

Death benefit on bank owned life insurance — (644) (783)

Extraordinary expenses (1)

Prepayment penalties on borrowings — — 125

Adjusted pre–tax, pre–provision income $ 72,762 $ 103,124 $ 100,287

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 Interest Margin

8 unchanged sentences

Acquisition–related purchase accounting adjustments (“PAUs”) (1,628) (3,476) (4,503)

Swap termination fee (1,453) — —

Prepayment penalties on borrowings — — 125

1 unchanged sentence

Adjusted net interest margin 2.51 % 2.93 % 2.96 %

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

7 unchanged sentences

ROAA excluding acquisition expenses 0.36 % 1.24 % 1.36 %

Swap termination fee (0.02) % — % — %

Tax effect — % — % — %

ROAA excluding swap termination fee 0.34 % 1.24 % 1.36 %

Credit loss expense on acquired loans — % — % 0.03 %

9 unchanged sentences

Tax effect (0.09) % — % — %

Tax valuation reserve 0.07 % — % — %

ROAA excluding (gain) / loss on sale of investment securities 0.73 % 1.24 % 1.37 %

1 unchanged sentence

ROAA excluding death benefit on bank owned life insurance 0.73 % 1.23 % 1.36 %

Extraordinary expenses (1)

0.01 % — % — %

Tax effect — % — % — %

ROAA excluding extraordinary expenses 0.74 % 1.23 % 1.36 %

Prepayment penalties on borrowings — % — % — %

1 unchanged sentence

ROAA excluding prepayment penalties on borrowings 0.74 % 1.23 % 1.36 %

BOLI tax expense and excise tax 0.11 % — % — %

ROAA excluding BOLI tax expense and excise tax 0.85 % 1.23 % 1.36 %

Adjusted ROAA 0.85 % 1.23 % 1.36 %

HORIZON BANCORP, INC.

12 unchanged sentences

ROACE excluding acquisition expenses 3.96 % 13.66 % 12.44 %

Swap termination fee (0.21) % — % — %

Tax effect 0.04 % — % — %

ROACE excluding swap termination fee 3.79 % 13.66 % 12.44 %

Credit loss expense on acquired loans — % — % 0.29 %

9 unchanged sentences

Tax effect (0.95) % — % 0.03 %

Tax valuation reserve 0.74 % — % — %

ROACE excluding (gain) / loss on sale of investment securities 8.12 % 13.66 % 12.54 %

1 unchanged sentence

ROACE excluding death benefit on bank owned life insurance 8.12 % 13.57 % 12.43 %

Extraordinary expenses (1)

0.10 % — % — %

Tax effect (0.02) % — % — %

ROACE excluding extraordinary expenses 8.20 % 13.57 % 12.43 %

Prepayment penalties on borrowings — % — % 0.02 %

1 unchanged sentence

ROACE excluding prepayment penalties on borrowings 8.20 % 13.57 % 12.45 %

BOLI tax expense and excise tax 1.22 % — % — %

ROACE excluding BOLI tax expense and excise tax 9.42 % 13.57 % 12.45 %

Adjusted ROACE 9.42 % 13.57 % 12.45 %

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)

Non–GAAP Reconciliation of Return on Average Tangible Equity

(Dollars in Thousands, Unaudited)

Years Ended December 31

2023 2022 2021

Average common equity $ 706,274 $ 683,630 $ 712,122

Average intangible assets 170,745 174,003 175,811

Average tangible equity $ 535,529 $ 509,627 $ 536,311

Return on average tangible equity (“ROATE”) as reported 5.22 % 18.33 % 16.24 %

Acquisition expenses — % — % 0.36 %

Tax effect — % — % (0.08) %

ROATE excluding acquisition expenses 5.22 % 18.33 % 16.52 %

Swap termination fee (0.27) % — % — %

Tax effect 0.06 % — % — %

ROATE excluding swap termination fee 5.01 % 18.33 % 16.52 %

Credit loss expense on acquired loans — % — % 0.38 %

Tax effect — % — % (0.08) %

ROATE excluding credit loss expense on acquired loans 5.01 % 18.33 % 16.82 %

Gain on sale of ESOP trustee accounts — % — % (0.43) %

Tax effect — % — % 0.10 %

ROATE excluding gain on sale of ESOP trustee accounts 5.01 % 18.33 % 16.49 %

ESOP settlement expenses — % — % 0.35 %

Tax effect — % — % (0.06) %

ROATE excluding ESOP settlement expenses 5.01 % 18.33 % 16.78 %

(Gain) / loss on sale of investment securities 5.99 % — % (0.17) %

Tax effect (1.26) % — % 0.04 %

Tax valuation reserve 0.97 % — % — %

ROATE excluding (gain) / loss on sale of investment securities 10.71 % 18.33 % 16.65 %

Death benefit on bank owned life insurance — % (0.13) % (0.15) %

ROATE excluding death benefit on bank owned life insurance 10.71 % 18.20 % 16.50 %

Extraordinary expenses (1)

0.13 % — % — %

Tax effect (0.03) % — % — %

ROATE excluding extraordinary expenses 10.81 % 18.20 % 16.50 %

Prepayment penalties on borrowings — % — % 0.02 %

Tax effect — % — % (0.01) %

ROATE excluding prepayment penalties on borrowings 10.81 % 18.20 % 16.51 %

BOLI tax expense and excise tax 1.61 % — % — %

ROATE excluding BOLI tax expense and excise tax 12.42 % 18.20 % 16.51 %

Adjusted ROATE 12.42 % 18.20 % 16.51 %

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

8 unchanged sentences

Tangible book value per common share $ 12.60 $ 12.00 $ 12.34 $ 12.17 $ 11.59

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 Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio

10 unchanged sentences

ESOP settlement expenses — — (1,900)

Extraordinary expenses (1) (705) — —

Non–interest expense excluding acquisition expenses and ESOP settlement expenses 145,579 143,201 129,569

Net interest income as reported 175,744 199,518 175,805

Swap termination fee (1,453) — —

Prepayment penalties on borrowings — — 125

6 unchanged sentences

Adjusted efficiency ratio 66.68 % 58.13 % 56.37 %

HORIZON BANCORP, INC.

10 unchanged sentences

These deposits are the principal source of liquidity for Horizon.

Other sources of liquidity for Horizon include earnings, loan repayments, investment security sales, cashflows and maturities, sale of real estate loans and borrowing relationships with correspondent banks, including the FHLB and the Federal Reserve Bank (“FRB”).

At December 31, 2022, Horizon had available approximately $672.0 million in available credit from various money center banks, including the FHLB and the FRB Discount Window.

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:

2 unchanged sentences

Financial difficulties at the FHLB could reduce or eliminate Horizon’s additional borrowing capacity with the FHLB or the FHLB could change collateral requirements, which could lower the Company’s borrowing availability.

◦ If residential mortgage loan rates remain low, Horizon’s mortgage warehouse loans could create an additional need for funding.

◦ 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 $385.9 million of available collateral at the FRB secured by municipal securities.

◦ 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 $1.9 billion of unpledged investment securities at December 31, 2022.

◦ 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.

4 unchanged sentences

Management believes Horizon has adequate funding sources to meet short and long term needs.

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.

HORIZON BANCORP, INC.

3 unchanged sentences

(Table dollars in thousands except per share data)

During 2022, cash flows were generated primarily from the proceeds from borrowings totaling $675.0 million, the sales, maturities, and prepayments of investment securities of $142.1 million and an increase in deposits of $54.8 million.

Cash flows were primarily used to purchase investments totaling $610.7 million, an increase in net loans of $448.3 million and the repayment of borrowings totaling $755.6 million.

The net cash and cash equivalent position decreased by $470.0 million during 2022.

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, 2022 totaled $697.6 million, or 70.0% of time deposits.

We believe the large percentage of time deposits that mature within one year reflects customers' hesitancy to invest their funds for long periods due to the recent low interest rate environment and local competitive pressure.

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.

9 unchanged sentences

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 a model that assumes a lag in repricing, at December 31, 2022, the amount of assets that reprice within one year was 95% of liabilities that reprice within one year.

Based on our interest rate model which assumes a lag in repricing the amount of assets that reprice within one year was approximately 95% of liabilities that reprice within one year at December 31, 2023.

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.

26 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis