Horizon Bancorp(HBNC) - 2022 Q4 - Annual Report

Financial Performance and Assets - Horizon Bank completed the purchase and assumption of certain assets and liabilities of 14 former TCF National Bank branches, receiving net cash of $618.2 million, with customer deposit balances recorded at $846.4 million[23] - Horizon Bank had total assets of $7.9 billion and total deposits of $5.9 billion as of December 31, 2022[24] - Revenues from loans accounted for 61.2% of total consolidated revenue, while revenues from investment securities accounted for 22.0% in 2022[27] - Horizon Bank completed the purchase of 14 former TCF National Bank branches, receiving net cash of $618.2 million, with customer deposit balances recorded at $846.4 million and goodwill of $4.0 million generated in the transaction[23] - As of December 31, 2022, Horizon Bank had total assets of $7.9 billion and total deposits of $5.9 billion, operating 71 full-service offices[24] - In 2022, revenues from loans accounted for 61.2% of total consolidated revenue, while revenues from investment securities accounted for 22.0%[27] Market Presence and Competition - Horizon Bank operates 71 full-service offices and employs 852 full-time and 71 part-time employees as of December 31, 2022[24][29] - The Bank faces competition from commercial banks, savings and loan associations, credit unions, FinTech startups, and other non-bank financial service providers[30] - Horizon Bank's primary market includes northern and central Indiana and southern and central Michigan, competing with Chicago money center banks and other financial institutions[30] - Horizon holds a 55.34% market share in La Porte County, Indiana, making it the largest of eight bank and thrift institutions in the area[32] - In Carroll County, Indiana, Horizon has a 24.41% market share, ranking as the largest of six institutions[32] - Horizon is the second largest of seven bank and thrift institutions in Midland County, Michigan[33] - Horizon faces competition from 20 financial institutions in Allen County, Indiana, with a market share of 0.82%, and 4 institutions in Arenac County, Michigan, with a market share of 31.40%[32] - Horizon was the largest of the eight bank and thrift institutions in La Porte County, Indiana, with a market share of 55.34%[32] - Horizon was the second largest of the seven bank and thrift institutions in Midland County, Michigan[33] Regulatory Compliance and Capital Requirements - Horizon is subject to extensive regulation by the Federal Reserve Board and must file annual reports and undergo examinations[34] - The Bank is regulated by the Indiana Department of Financial Institutions and the FDIC, which provides deposit insurance[36] - Horizon is required to act as a source of financial strength to its subsidiary bank under the Dodd-Frank Act[42] - The Bank's deposits are insured up to $250,000 per account title by the FDIC's Deposit Insurance Fund[49] - The FDIC's reserve ratio for the Deposit Insurance Fund reached 1.36% by September 2018, exceeding the statutory minimum of 1.35%[54] - Horizon must comply with risk-based capital guidelines, including maintaining sufficient capital for risk-weighted asset and leverage ratio tests[58] - The FDIC may terminate deposit insurance if an institution engages in unsafe practices or violates regulations[56] - Horizon and the Bank met all capital adequacy requirements under Basel III as of December 31, 2022[66] - Basel III increased the minimum common equity Tier 1 capital ratio to 4.5%, Tier 1 capital ratio to 6.0%, and total capital ratio to 8.0%[60] - The capital conservation buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, Tier 1 capital ratio to 8.5%, and total capital ratio to 10.5%[62] - Horizon's consolidated total capital ratio was 14.37%, Tier 1 capital ratio was 13.51%, and common equity Tier 1 capital ratio was 11.28% as of December 31, 2022[70] - The Bank's total capital ratio was 13.59%, Tier 1 capital ratio was 12.72%, and common equity Tier 1 capital ratio was 12.72% as of December 31, 2022[70] - The Community Bank Leverage Ratio was established at 9% for qualifying community banking organizations[64] - Horizon's consolidated Tier 1 capital to average assets ratio was 10.03%, exceeding the minimum requirement of 4.0%[70] - The Bank was categorized as "well capitalized" with a total risk-based capital ratio exceeding 10%, Tier 1 risk-based capital ratio exceeding 8%, and common equity Tier 1 risk-based capital ratio exceeding 6.5%[77] - The capital simplification rules effective for 2020 increased the individual regulatory limit for mortgage servicing assets and certain deferred tax assets[65] - Horizon is subject to the USA PATRIOT Act and the Bank Secrecy Act, requiring anti-money laundering and financial transparency measures[79][80] - The Dodd-Frank Act has increased Horizon's operating costs, and the company expects these higher costs to continue in the foreseeable future[96] - Horizon adopted the CECL accounting standard effective January 1, 2020, impacting the measurement of expected credit losses on financial assets[114] - The CFPB has examination and enforcement authority over depository institutions with $10 billion or more in assets, while smaller institutions like Horizon are subject to CFPB rules but supervised by federal banking regulators[91] - The CFPB has implemented regulations impacting the mortgage industry, including ability-to-repay rules and mortgage servicing requirements[94] - Horizon is required to maintain stock in the FHLB of Indianapolis equal to at least 1% of its aggregate unpaid residential mortgage loans[102] - The Regulatory Relief Act of 2018 introduced the Community Bank Leverage Ratio, simplifying regulatory capital calculations for community banks[97] - Horizon is a well-capitalized institution, allowing it to accept brokered deposits without restrictions under FDIC regulations[104] - The CFPB amended Regulation C, adding new information collection and reporting requirements for financial institutions effective January 1, 2018[95] - Horizon continues to monitor privacy and data security laws, including the EU's GDPR and California's Consumer Privacy Act, for their impact on business operations[110] - The company is subject to regulation and supervision by the Federal Reserve Board as a bank holding company and financial holding company[34] - Horizon's common stock is listed on the NASDAQ Global Select Market under the trading symbol "HBNC"[38] - Horizon has elected to be treated as a financial holding company, allowing it to engage in a broader range of financial activities[40] - Horizon must maintain a minimum common equity Tier 1 capital ratio of 4.5%, Tier 1 capital ratio of 6.0%, and total capital ratio of 8.0% under Basel III rules[60] - Horizon's deposits are insured by the FDIC up to the statutory limit of $250,000 per account title[49] - The FDIC's reserve ratio for the Deposit Insurance Fund (DIF) is set at no less than 1.35% under the Dodd-Frank Act[50] - Horizon's initial base assessment rates for deposit insurance premiums ranged from 5 to 9 basis points for small Risk Category I banks[51] - Horizon's regulatory capital requirements include a leverage ratio of 4.0% and a capital conservation buffer of 2.5% of risk-weighted assets[62] - Horizon met all capital adequacy requirements under Basel III as of December 31, 2022[66] - Horizon's regulatory capital framework includes Tier I and Tier II capital, with specific requirements for risk-weighted assets and leverage ratios[58] - Consolidated total capital ratio is 14.37% with an amount of $776,390 million, exceeding the required 8.00% for capital adequacy purposes[70] - Bank's Tier 1 capital ratio is 12.72% with an amount of $679,784 million, exceeding the required 6.00% for capital adequacy purposes[70] - Bank's common equity Tier 1 capital ratio is 12.72% with an amount of $679,784 million, exceeding the required 4.50% for capital adequacy purposes[70] - Bank is categorized as "well capitalized" with a total risk-based capital ratio exceeding 10%, Tier 1 risk-based capital ratio exceeding 8%, and common equity Tier 1 risk-based capital ratio exceeding 6.5%[77] - Bank's leverage ratio exceeds 5%, and it is not subject to any regulatory order or agreement to meet specific capital levels[77] - Bank must maintain a Tier 1 leverage ratio above 7.5% to avoid DFI pre-approval for dividend payments[71] - Federal Reserve expects bank holding companies to consult before declaring dividends not supported by earnings or involving a material increase in the dividend rate[73] - Dodd-Frank Act imposes new capital requirements on bank and thrift holding companies, affecting Horizon's operating environment and increasing compliance costs[90][96] - Regulatory Relief Act of 2019 introduced a "Community Bank Leverage Ratio" to simplify regulatory capital calculations for community banks[97] - Horizon Bank has not elected to opt into the Community Bank Leverage Ratio framework[98] Subsidiaries and Business Operations - The Bank's subsidiaries include Horizon Investments, Horizon Properties, Horizon Insurance Services, Horizon Grantor Trust, and Wolverine Commercial Holdings[24] - Horizon's business is not seasonal, and no material part of its business depends on a single or small group of customers[27] - Horizon expanded its geographic reach through organic growth and mergers, including acquisitions in southern and central Michigan and northeastern and central Indiana[22] - The Bank recorded a core deposit intangible of $1.6 million and goodwill of $4.0 million from the TCF National Bank branch acquisition[23] - Horizon's business is not seasonal, and no material part of its business is dependent on a single or small group of customers[27] - The company has expanded its geographic reach and experienced financial growth through organic expansion and mergers and acquisitions over the last 20 years[22] Investments and Dividends - Horizon's investment in FHLB of Indianapolis stock was $26.7 million at December 31, 2022, with dividends totaling $1.0 million at an annualized rate of 4.0%[102] - The Bank's investment in stock of the FHLB of Indianapolis was $26.7 million at December 31, 2022[102] - Dividends paid by the FHLB of Indianapolis to the Bank totaled approximately $1.0 million for the year ended December 31, 2022, with an annualized dividend rate of 4.0%[102] - The FHLB limits certain types of real estate-related collateral to 30% of a member's capital[100] - The Bank is required to purchase and maintain stock in the FHLB of Indianapolis equal to at least 1% of its aggregate unpaid residential mortgage loans[102]