Horizon (HBNC) Q4 2025 Earnings Transcript

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DATE

Jan. 22, 2026

CALL PARTICIPANTS

• Chief Executive Officer — Thomas Prame
• Executive Vice President & Chief Commercial Banking Officer — Lynn Kerber
• Executive Vice President & Chief Financial Officer — John Stewart
• Executive Vice President & Chief Administrative Officer — Mark Secor

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TAKEAWAYS

• Return Metrics -- Annualized return on average assets above 1.6% and return on average equity approaching 16%, according to management's opening remarks.
• Net Interest Margin -- 4.29% for the quarter, up 77 basis points sequentially, and above the upper end of the company’s guidance range.
• Total Loans -- $4.9 billion at period end, an increase of $60.7 million from the previous quarter, driven by $76 million in commercial loan growth (9% annualized).
• Loan Portfolio Mix -- Commercial and industrial loans constitute 28%, commercial real estate 72%; largest segment is 6.3% of total loans.
• Substandard Loans -- $59.4 million (1.22% of loans), down from 1.31% in the previous quarter and 1.33% a year prior; decreased by $5.2 million (8%) year over year.
• Non-Performing Loans -- $34.9 million (72 basis points of loans), up from 64 basis points prior quarter and 56 basis points a year ago; increases driven by commercial nonaccrual, residential, and consumer loans past due over 90 days.
• Net Charge-Offs -- $1 million (8 basis points annualized) for the quarter; full year net charge-offs were $2.9 million (6 basis points annualized).
• Allowance for Credit Losses -- $51.3 million (1.05% of loans held for investment), up from $50.2 million, with the increase primarily due to updated economic forecasts.
• Deposit Portfolio -- Deliberate runoff of nearly $200 million in high-cost transactional deposits, exceeding earlier $125 million plan; deposit funding now represents 93% of total non-equity funding.
• Net Interest Margin (NIM) Outlook -- Management guided to an expected 2026 NIM of 4.25%-4.35% with low anticipated volatility, assuming two 25 basis point rate cuts during the year.
• Noninterest Income -- $11.5 million for the quarter; up 7% year over year (excluding prior-year securities losses), led by 19% growth in wealth management and 14% in total mortgage fees.
• Expenses -- $40.6 million for the quarter, including $0.7 million for subordinated note issuance expense write-off; otherwise, increases were attributed to seasonal occupancy and higher marketing costs.
• Capital Position -- Improved capital ratios driven by higher profitability and completion of balance sheet restructuring; management described the balance sheet as "significantly derisked."
• 2026 Growth Guidance -- Management expects mid-single digit growth in both loans and deposits, with deposit growth to modestly outpace loans; average earning assets expected to exceed $6 billion for the year.
• Net Interest Income Guidance -- Non-FTE net interest income projected to grow in the low teens percent year over year, driven mainly by NIM and earning asset growth.
• Fee Income and Expenses Guidance -- Fee income targeted for the mid-$40 million range; expenses expected in the mid-$160 million range, inclusive of expected inflation and higher medical benefit costs.
• Tax Rate Outlook -- Effective tax rate projected between 18%-20% for 2026.
• Branch Expansion Plans -- One new office opening in Indianapolis this summer and consideration for additional sites in Michigan core markets, focusing on targeted distribution rather than broad expansion.

SUMMARY

Horizon Bancorp (NASDAQ:HBNC) emphasized successful execution of its balance sheet repositioning, reporting multi-quarter improvement in profitability, capital ratios, and operational focus. Management highlighted completion of its restructuring efforts, resulting in a more loan-centric asset base and a deposit portfolio weighted toward lower-cost, core relationships. The company’s outlook for 2026 projects consistent loan and deposit growth, stable margins, and continued peer-leading returns, with modest sensitivity to potential interest rate movements. Expense guidance incorporates expected growth in medical benefits and marketing as management aims to support commercial loan expansion, selective talent additions, and controlled branch network growth. Strategic priorities remain centered on relationship-based commercial banking, organic growth within key Midwest markets, and disciplined capital deployment aligned with shareholder value creation.

• Stewart stated, "Q4 marks the ninth consecutive quarter of net interest margin expansion," citing a total increase of 188 basis points since Q3 2023.
• Commercial loan origination continues to be the company’s primary growth lever, with the majority of new lending activity concentrated in Michigan and Indiana, notably in Troy, Kalamazoo, Lake County, Metro Indianapolis, and Johnson County.
• Kerber indicated the commercial loan pipeline remains "pretty strong and steady," with anticipated seasonal quarterly fluctuations but no overall softness seen.
• Management noted competitive but not irrational lending and deposit pricing in their markets, maintaining discipline as a relationship-focused bank.
• Prame affirmed, "ample runway to build capital" exists, with organic growth prioritized over M&A for capital deployment in the near term.

INDUSTRY GLOSSARY

• Net Interest Margin (NIM): A key bank profitability metric, calculated as net interest income divided by average earning assets, reflecting the spread between interest earned and paid.
• Basis Point: One one-hundredth of a percentage point, commonly used to describe changes in interest rates and lending margins.
• Substandard Loans: Loans considered to have some risk of default but not classified as non-performing; often reflect early credit quality deterioration.
• Non-Performing Loans (NPLs): Loans on which the borrower is not making interest payments or repaying any principal, often 90 days or more past due.
• Allowance for Credit Losses: Reserve set aside to cover estimated future loan losses, presented as a percentage of total loans.
• Net Charge-Offs: The amount by which loans are written off as uncollectible, minus recoveries, over a given period.
• Betas (Deposit Betas): The degree to which loan or deposit rates move in response to changes in market interest rates; deposit betas reflect how much banks adjust deposit rates following market moves.
• BOLI: Bank-owned life insurance, which provides tax-advantaged income and offsets benefit costs.
• FTE (Full-Time Equivalent) Rate: Yield or rate adjusted for tax equivalency, enabling comparison regardless of tax treatment.

Full Conference Call Transcript

Thomas Prame: Thank you, Mark. Good morning. We appreciate you joining us. Horizon's fourth quarter results demonstrate the core strength of our community banking model and the excellent execution of the balance sheet repositioning. We have delivered on our shareholder commitment to create a top-performing community bank with durable peer-leading performance metrics and shareholder returns. The fourth quarter exceeded our prior performance estimates with annualized return on average assets above 1.6%, return on average equity approaching 16% and a net interest margin of 4.29%. Within the quarter, loan growth and credit quality continued to be excellent, and the team performed well, strategically reducing our portfolio of higher cost transactional deposits.

Fee income continued to make progress, and our expense management efforts reflect our commitment to continually improve our operating leverage. We are very pleased with the fourth quarter results for our shareholders and the transparency the quarter provided to highlight the strength of Horizon's core community banking model that truly remains the cornerstone of our value proposition. Additionally, the company is kicking off the new year from a position of strength with the franchise well positioned to deliver durable earnings and continued top-tier performance metrics. As we look ahead, our thesis remains consistent with management focused on creating sustainable long-term value for our shareholders through our disciplined operating model, consistent profitable growth and peer-leading capital generation.

I'll pass the presentation over to Horizon's Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber, who will share highlights for the quarter on our loan growth and our continued excellent credit performance. Lynn?

Lynn Kerber: Good morning. Total loans were $4.9 billion at December 31, an increase of $60.7 million from September 30. Commercial relationship lending continues to be our lead strategy with modest declines in consumer loans and residential mortgage loans predominantly being sold into the secondary market. Commercial loans increased $76 million in the fourth quarter, representing 9% growth on an annualized basis. Growth in the portfolio mirrored our overall portfolio mix with 28% in commercial and industrial and 72% in commercial real estate. Our growth for the quarter was well balanced across our attractive footprint of Michigan and Indiana.

This quarter, we experienced growth primarily driven by the markets of Troy and Kalamazoo, Michigan, Lake County, Indiana, Metro Indianapolis and Johnson County in Central Indiana. As noted on Slide 5, our commercial portfolio is well diversified by geography and remains consistent with the overall mix. As referenced in Slide 15 of the appendix, our portfolio remains very granular with our largest segment representing 6.3% of total loans. Overall, our pipeline remains steady and quarterly volumes are consistent with our averages, for new origination activity, payoffs and net line of credit activity.

As we look forward to 2026, our focus remains on steady diversified growth, disciplined pricing and credit and growing well-rounded customer relationships to drive cross-sell activity with deposit gathering and treasury management services. Residential mortgage lending continues to be a foundation product for the bank and volume has been predominantly sold in the secondary market to align with our strategy to create capacity for commercial lending activities and the generation of gain on sale fee income. Balances for the fourth quarter were essentially flat in alignment with the strategy. Turning to credit quality and the allowance. Our credit quality metrics remain within expected ranges and are summarized on Slide 7 of the presentation deck.

Substandard loans of $59.4 million represent 1.22% of loans for the fourth quarter, a decrease from 1.31% for the third quarter and 1.33% for the fourth quarter of 2024. Non-performing loans of $34.9 million represent 72 basis points of loans for the fourth quarter, an increase from 64 basis points in the third quarter and 56 basis points for the fourth quarter of 2024. The increase of $3.9 million in the fourth quarter is an increase of $2.2 million in commercial nonaccrual loans, $831,000 in residential nonaccrual loans and approximately $800,000 increase in consumer loans over 90 days past due.

While there is a modest increase in this metric, our overall substandard loans have decreased by $5.2 million or 8% from the year ago period, and our net charge-offs remain within historical loan ranges and continue to compare favorably to the industry. Net charge-offs were $1 million in the quarter, representing 8 basis points on an annualized basis. Net charge-off results for the full year were very positive, totaling approximately $2.9 million, representing an annualized charge-off rate of 6 basis points. This is reflective of our conservative and consistent approach of Horizon's credit culture. Finally, our allowance for credit losses increased from $50.2 million to $51.3 million, representing 1.05% of loans held for investment.

The net increase of $1.127 million was predominantly related to economic forecast assumptions. The related provision for credit losses of $1.6 million consists of the $1.1 million increase in the allowance, replenishment of our fourth quarter charge-offs, offset by a reduction in reserve for unfunded commitments with the completion of several large construction loans. We continue to monitor economic conditions and future provision expense will be driven by anticipated loan growth and mix, economic factors and credit quality trends. Now I'd like to turn things back to Thomas, who will provide an overview of our deposit trends.

Thomas Prame: Thank you, Lynn. Moving on to our deposit portfolio displayed on Slide 8. Horizon's core relationship balances continue to show the strength of the franchise's community banking model. As noted in our Q3 earnings call, a deliberate strategy for the fourth quarter was to further reduce the organization's exposure to high-cost transactional deposits. As we review the quarter's results, we feel very confident in the strength of the deposit portfolio in terms of mix, relationship tenure and granularity entering 2026. Comparing the current portfolio to the fourth quarter of 2024 provides good insight in the stability of the noninterest-bearing balances, which are up year-over-year and the improved cost structure of the core relationships within the interest-bearing segments.

The performance of the team transitioning and improving the profile of our balance sheet while capturing the benefits of previous rate cuts has created significant benefits for the organization heading into 2026. Additionally, we believe our deposit portfolio continues to have opportunity to benefit the organization moving forward with its granular composition and long-standing relationships in our local markets. The team is well positioned to fund our go-forward loans grow with a treasury management team that has renewed capacity, commercial relationship bankers with aligned deposit objectives and an excellent branch distribution in some of the most attractive markets in Michigan and Indiana.

Let me hand the presentation over to our Executive Vice President and Chief Financial Officer, John Stewart, who will walk through additional fourth quarter financial highlights and provide an outlook to what we believe will be a very successful 2026.

John Stewart: Thank you, Thomas. Turning to Slide 9. Q4 marks the ninth consecutive quarter of net interest margin expansion, totaling 188 basis points from the low in Q3 of 2023. What you see now reflects the true economic profitability of our organic community banking operations without the distractions of the non-core assets and liabilities that were impeding our returns previously. Through these efforts, we believe we have built a balance sheet that is relatively neutral to changes in interest rates with a cash flow profile that should create reliable returns for our shareholders.

As of the year-end, the restructuring activities are now complete and balance sheet activity from here is expected to be marginal and tactical, where growth will be driven primarily through commercial lending relationships funded with organic core deposit generation. Specific to Q4, the net interest margin increased by 77 basis points to 4.29% and above the upper end of our guidance range. Certainly, the remainder of the balance sheet repositioning played a big role in the linked quarter expansion, which can be seen in the transition of the earning asset base to more than 80% in loans and deposits are now 93% of total non-equity funding.

The margin did see some modest upside relative to expectations from the decision to increase the planned deposit runoff to nearly $200 million in the quarter, which carried a weighted average cost exceeding 4% versus the planned $125 million. However, on an organic basis, we continue to see notable stability in our loan yields, as origination spreads held up well and reductions in our core deposit costs that exceeded prior expectations as realized deposit betas approached 40% for the rate cuts during the quarter.

Looking ahead, to account for some of the favorable outcomes just mentioned, you will note that we have increased our net interest margin outlook for the full year 2026, which we now expect to be in the range of 4.25% to 4.35%. Importantly, as has been the objective all along, we are not anticipating there to be much volatility in that result over the year. New loan production coupons above 6.5% continue to exceed cash flows rolling off the book.

At the same time, we are anticipating somewhere in the range of $75 million to $100 million of principal cash flows from the securities portfolio over the year, which is coming off at a weighted average FTE rate of approximately 4.75%. Replacement yields in January thus far have modestly exceeded that rate. As you can see on Slide 10, reported noninterest income results were broadly in line with expectations at $11.5 million for the quarter. Excluding securities losses in the comparable period, total fee income was up 7% year-over-year, led by strong results in wealth management and total mortgage fees, which grew 19% and 14%, respectively.

Results in Q4 did include a BOLI death benefit of just under $600,000, which is included in other income. On Slide 11, at $40.6 million, expenses were generally in line with expectations and as planned, included $0.7 million related to the write-off of the remaining unamortized issuance expense for the subordinated notes we called on October 1. Absent this item, expenses were up modestly from the linked quarter related to seasonal occupancy-related expenses and higher marketing costs. Results also include episodic legal fees related to certain legacy items that have now largely concluded. Turning to capital on Slide 12. Capital ratios have improved quite strongly in the quarter on the heels of a much more profitable balance sheet.

Additionally, you'll recall in our prepared remarks last quarter that we anticipated the leverage ratio and the total risk-based ratio to revert closer to Q2 '25 levels as average assets caught up with the mid-Q3 balance sheet activities and the prior subordinated debt issuance was repaid in early Q4. You can see that these results were consistent with those expectations. As we have previously communicated, we are comfortable with the company's current capital position, particularly against what is a significantly derisked balance sheet. Additionally, as our 2026 outlook suggests, our peer-leading levels of profitability will accrete capital very quickly, which you will see over the course of the coming year. Turning to our 2026 guidance on Slide 13.

Our overall outlook has generally improved from the preliminary commentary provided last quarter, which I will make a few comments about. Period-end loans and deposit balances are expected to grow mid-single digits. This outlook would suggest deposit balances will grow modestly more than loan balances. We anticipate balance sheet growth to be driven by organic deposit funding going forward, leveraging our relationship banking model and well-positioned 70-plus branches located throughout Indiana and Michigan. Non-FTE net interest income is now expected to grow in the low teens year-over-year. This will be driven by the FTE net interest margin in the range of 4.25% to 4.35%. Average earning asset balances are likely to modestly exceed $6 billion for the full year.

The first quarter average earning assets are likely to be down from the fourth quarter averages, but should represent the low point for 2026. This outlook includes the assumption for two, 25 basis point rate cuts, one in April and October, but neither moves the needle much on the outlook as intended. Fee income in the mid-$40 million range generally expresses the continuation of trends we have seen over the back half of 2025. Expenses in the mid-$160 million range represents standard inflationary expense growth, modestly higher expenses in medical benefits compared with 2025 and the continuation of ongoing growth and marketing efforts. Finally, the effective tax rate is still anticipated to land in the range of 18% to 20%.

Overall, 2026 should be a strong year for Horizon, steady growth with durable peer-leading returns on assets, returns on tangible common equity and top quartile internal capital generation. With that, I'll turn the call back over to Thomas.

Thomas Prame: Thank you, John, and I appreciate the summary of the quarter and the updated outlook for the year. As you can see from our financial results, we're very well positioned entering 2026 to create significant shareholder value through durable top-tier financial metrics, excellent capital generation and a premier community banking franchise located in some of the best markets in the Midwest. As the leadership team, we'll continue to be front-footed in our execution and disciplined in our operating model, focusing on profitable growth and continued smart stewardship of capital decisions for our shareholders. We look forward to what we believe will be a very positive outlook for our shareholders, clients and the communities that we call home.

At this time, I would like to turn the presentation back over to our moderator to open up the lines for questions for the management team.

Operator: [Operator Instructions] The first question comes from Brendan Nosal with Hovde Group.

Brendan Nosal: Maybe just to kind of start here at a top level, if you guys look at your outlook for 2026, pretty similar to what you guys offered last quarter. As you look at kind of the opportunities and risks, like what in that outlook could end up going better for you guys? And conversely, what are some downside risks as you look at the year ahead?

John Stewart: Brendan, this is John. I think first and foremost, I commented on this in my prepared remarks. We actually view the outlook to be slightly more favorable than it was when we initially gave it. The NII, in particular, is where the leverage is higher base and more growth in the low teens. I think as you kind of generally push that through the numbers, you'll get a non-FTE number that's closer to $260 million. I think that guidance was maybe closer to mid-250s last quarter. FTE would be then about $4 million above that. So we do view there to be a more optimistic outlook.

Maybe the very modest offset to some of that NII upside would be on the expenses, but really nothing materially there, just maybe $1 million delta or something from what we had initially put out there. I think some of the levers as you kind of work your way through the year, it's really going to come down to the ability to grow organic core deposits to fund organic core commercial loan growth. And I think a favorable outcome on that front is probably the biggest leverage point to upside to the outlook. And conversely, the opposite would be true. The loan growth pipeline, Lynn can talk a lot more about this. We feel really good about it.

Spreads have held up really well. The team has done a fantastic job on the asset side, and it's going to come down on the liability side, I think, most notably.

Brendan Nosal: Okay. All right. That's helpful, John. Maybe pivoting here to that topic of loan growth. Is there a point at which like the modest decline in the consumer category of the loans eases, which would allow the high single-digit commercial loan growth to shine through more visibly in that net growth number?

Thomas Prame: Thomas, thanks for the question again. As we look at the portfolio of our loans, our business model is truly a commercial banking model. That has been our lead strategy and Lynn and her team has just done a fantastic job on that. our consumer loan portfolio right now is primarily made up of HELOCs and consumer closed-end mortgages that deal with real estate. We feel as though we are well positioned there. We have a great credit profile in that area. Again, that's something we feel like we're going to stretch and try to create demand and/or try to create excess growth in that with taking on extra risk.

So for us, it's a good product, but we're not seeing the consumer side to be something that we're going to probably push to accelerate. We really found great value not only on the lending side in commercial, but truly getting the full relationships with the deposits.

Brendan Nosal: Let me sneak one more in here. Just on asset quality, can you unpack the rise in NPAs over the past couple of quarters? Like each quarter's increase is relatively small, but I think they've been up in 5 in the past 6. Like is this normalization from a low base? Or is there perhaps pockets of stress that you're seeing at this point?

Lynn Kerber: Thanks for the question. I appreciate your observation. We had a very low base that we're starting from, and our overall metrics continue to be very strong and within the expected ranges for our portfolio and credit risk appetite. So recognizing that we're starting from a very low point, any increase, while modest, may appear to be a larger percent. As I noted in my comments, substandard loans did increase this quarter, roughly $2.2 million of it was commercial, $800,000 mortgage, nonaccrual and over 90 days, $800,000 consumer. These are all relatively modest numbers. I don't see it as reflective of any one sector, any particular product.

When I look at our commercial nonperforming, it's really more episodic with the customer. As I shared in some previous calls, we had one customer that started up a new business, they had road construction. It just caused some delays. Sometimes we use nonaccrual as a tool to help them weather some of those challenges that they have. And the goal always is to hopefully get them back on the right path and upgrade them. Sometimes, however, we recognize that it might be a liquidation and try to work hand-in-hand with the customer. I think ultimately, though, if you look at the bigger picture, substandard loans have decreased for the last 3 quarters and roughly 8% for 2025.

And if you look at commercial specifically, our criticized loans have actually decreased 17% since December '23 and 7% since December '24. So I think our overall metrics are good. I look at this just really as the migration through the buckets.

Operator: The next question comes from Nathan Race with Piper Sandler.

Nathan Race: John, I was hoping you can just unpack some of the margin drivers over the course of this year? It seems like you guys are pretty well matched in terms of short-term rate-sensitive liabilities and assets. So I wonder if you could just hit on kind of what the asset repricing tailwinds look like and kind of where you're originating new loans these days relative to the portfolio yield?

John Stewart: Yes, sure. Thanks for the question. Yes, as I said in my prepared remarks, new originations spreads continue to be really good. We see that continuing here in January. New origination yields continue to sit on a coupon basis above 6.5%. We've got cash flows coming off the portfolio on the loan side that are still below 6%. So you do have some front book, back-book repricing that will help as we just kind of grow through the year. On the other side, it's going to come down to just deposit -- core deposit generation. I think those are going to be the big drivers for the margin, as I mentioned earlier.

The only other margin leverage that will flow through over the course of the year is just whatever the cash balance ends up looking like. So as the guidance suggested, based on where cash ended the year, the averages might be down in Q1 on a cash basis, the expectation deposit growth versus loan growth, the assumption there is that the excess is just flowing back into cash for the time being for liquidity purposes and nothing else. And of course, that's not -- that's NII accretive, but maybe at the margin on a NIM percentage, modestly dilutive.

So those are -- where the cash kind of lands is going to be whether or not it's up a bit flat, whatever the outcome ends up being, but I think those are the big drivers.

Nathan Race: Okay. That's really helpful. And changing gears a bit, as you guys alluded to in your comments, capital levels just with the profitability profile are going to build a pretty strong clips. I could see most capital ratios increasing by 100 basis points year-over-year by the end of this year. So just curious, maybe, Thomas, if you can update us on some of your capital deployment priorities. I imagine supporting growth is still #1, but would be curious to get your thoughts on the opportunity to deploy excess capital via acquisitions and kind of what you're seeing across that landscape these days?

Thomas Prame: Thanks for the question. And also, thanks for the recognition of the strong capital generation of the new profile of the organization. We're very pleased with the performance of the company and also the positive capital generation from the results coming from the fourth quarter. As we have discussed previously, there's ample opportunity internally to grow and expand our organic business model. We are located in some of the best markets in Michigan and Indiana, and we still see significant upside potential just through organic growth in our community banking model. This is going to continue to be our primary focus.

As we look at our capital going forward, as we mentioned in the third quarter, this isn't going to burn a hole in our pockets. In the near term, we believe we have ample runway to build capital to align with some of our industry peers. And again, as we review capital decisions in the future, we're going to continue to be disciplined about this and make sure that we focus on logical deployment that's accretive to our shareholder value proposition.

Nathan Race: Got it. That's helpful. If I could just sneak one last one in. I appreciate the expense guide. Curious if that contemplates any additional commercial hires? Obviously, you guys have been active taking advantage of M&A disruption across your footprint in the past. And there's obviously been some notable M&A announcements with some larger competitors that are maybe more focused on some southern geographies these days. So just curious what you see in terms of the opportunity to either add talent or just benefit from the existing team to grow share on the commercial side?

Lynn Kerber: Yes. Thank you for that. First of all, I'd say we have a stellar team. At this point, I don't see that we're going to be adding, although there may be some opportunities presented that we consider with some of the changes in the market. But our team has been performing really well, as you can see with our growth numbers, just doing a fantastic job, not only in volumes, rate management and credit quality. So really pleased with them. We do have a few retirements that are occurring. Really pleased with the candidates that we've hired and the talent there. So I would say that we're probably benefiting from some of that disruption in talent there.

We have expanded our treasury management team over the last year. We may look at some opportunistic additional adds throughout the year there, too.

Operator: The next question comes from Damon DelMonte with KBW.

Damon Del Monte: First question, just on the outlook for fee income. I was hoping you could just talk a little bit about some of the drivers that you see leading to the kind of that mid-$40s million of revenues for 2026? I don't know if it's going to be driven more by fiduciary duties or do you have other treasury management services? Kind of I guess, what are your key assumptions behind that growth?

John Stewart: Thanks for the question. This is John. As we kind of roll the year forward and look at our budgeted assumptions, there's not one piece of that fee business that is towing the line, so to speak, modest kind of low- to mid uptick in service charges and interchange would be the assumption. We've got some specific initiatives in the market around interchange, but nothing -- we're not assuming anything in that outlook that would significantly change that view for 2026 anyway. Fiduciary activities expect them to continue to be strong. Mortgage should continue to grow and hopefully benefit rates. We'll kind of see what the rate environment does.

But as we get back into the seasonally strong years, we'll get a better -- strong quarters, excuse me, we'll get a better outlook there. But there's nothing in particular, Damon, that is really pushing the growth number for 2026. It's pretty well balanced.

Damon Del Monte: Okay. That's helpful. And then just quickly on the margin. Do you happen to have what the spot margin was for December, kind of where you exited the year?

John Stewart: Yes. It was slightly a couple of basis points above where the full quarter average was, Damon.

Damon Del Monte: Okay. And I mean, based on your commentary, John, it seems like your guidance is including 225 basis point rate cuts. So it kind of seems like, again, based on what you've been saying, you guys seem to be pretty neutral. So we shouldn't see much movement either way if we do have a couple of cuts here in '26. Is that a fair characterization?

John Stewart: Yes. We continue to believe that's the case. I mean, if you -- we've walked through some of these numbers before. If on a static balance sheet, what happens inside 30 days, it's -- we'll probably need about a 30% beta on our non-time deposit balances, interest-bearing deposit balances to be neutral. We exceeded that in the fourth quarter. The assumption is that we would be able to kind of just achieve that in 2026. And so with that outcome, with that set of assumptions, I think, yes, your statement is correct that the rate cuts would not significantly change the trajectory of NII or the margin for the year.

Similarly, it's not a headwind if there is not a rate cut.

Operator: The next question comes from Terry McEvoy with Stepehns.

Terence McEvoy: Looking at the loan growth in 2025 on the commercial side, do you expect it to be weighted more towards CRE like we saw in the fourth quarter? Or do you expect more of a mix between C&I and CRE? And then I'm just curious, is leasing still, call it, a priority for Horizon?

Lynn Kerber: Terry, in regards to your question, we've been really consistent with our commercial portfolio. Our mix hasn't changed much over the last 3 years that I've been in the seat. If you look at our quarterly origination mix, it's generally pretty consistent with the overall book mix. We have been intentionally looking to add some additional C&I. Our equipment finance division has been a very nice complementary piece to that. When I say it's a priority, I would say it's one of our core products. And so is it going to be outsized? No. It's going to be complementary to what we're doing.

Nathan Race: And then as a follow-up, you opened up a pretty cool office in Kalamazoo last summer in terms of just history there. Lynn, I think you mentioned loan growth in that market. So my question is, are you planning to open up more offices, which, to John's point about funding loan growth, a new office would definitely help on the deposit generation side?

Thomas Prame: Thanks for the question. And I appreciate the commentary on the Kalamazoo office. Very excited about that and glad to be part of the renovation that's happening in what we feel is just an outstanding community. We do have another office that will be opening up this summer in Indianapolis that we started about 1 year ago, and that should be coming to fruition. We will look at some different opportunities throughout Michigan and some of the core markets that we've talked about that we feel like there's an opportunity for additional distribution where our teams have just have done extremely well, in both loans and deposits and get benefit from perhaps a second or third location.

Those will primarily be in the Grand Rapids, Lansing, the Holland area that we feel as though we've got the right people, the right teams, the right penetration, just again, need a little bit more market reach through distribution. But I wouldn't say it's going to be a wholesale branch strategy versus very optimistic as we see opportunities come to fruition in the marketplace.

Operator: [Operator Instructions] The next question comes from Brian Martin with Janney Montgomery.

Brian Martin: Just wondering, can you -- how has the pricing been both on the loan and deposit side in the markets? Have you seen any irrational pricing? Has it been -- it sounds as though it's not been irrational, but just hearing mixed commentary from other banks. So just thinking about that.

Lynn Kerber: Yes, I'll speak to commercial. I would say that it really just depends on the segment of the customer and their profile. I mean we are seeing some rates that -- for commercial real estate credit tenant, very attractive deal profile, it's pretty aggressive. And we've been seeing some 180, 190 spreads, which is pretty low. And so is it irrational? I guess every organization has to make a decision on what works in the balance sheet. But it just -- it depends on the sector. I think for us, we're priced appropriately for the types of deals that we're doing. We're in market generally, and there's going to be some that are higher and a little bit lower.

So I wouldn't say it's irrational. There's just some competitiveness in certain segments.

Thomas Prame: This is Thomas, I completely agree with Lynn's answer there. Horizon has positioned itself for decades of being a relationship bank, not a price lead bank. And so for us in our markets where we are, there's always been great competition. And for us, I think whether rates are up or down, we've seen recovery in our marketplace, there's always rational pricing out there, both on loans and deposits. And I think it gets to your go-to-market strategy. Our go-to-market strategy is really about being embedded in our communities, doing more than just price and really about being a consultant to our clients, both on the loans and deposit side.

So again, I think for us, how we approach our clients, how we approach our communities probably gives us a little bit of insulation from the edges on pricing and for us also from not just the pricing, but also a discipline around credit, I think it's been a forefront of the success we've seen over the years.

Brian Martin: Got you. And last couple. Just in terms of the commercial pipeline, Lynn, did you talk about kind of the commercial loan pipeline here? I know you talked about what areas did well here in the fourth quarter and geographically, we did better. But just the pipeline today, where that stands heading into first quarter?

Lynn Kerber: There's always a little bit of seasonality. And so you look at the first couple of months of the year, it's usually a little bit quieter. It tends to pick up in the second quarter or third quarter. So you'll hear me talk about fluctuations from quarter-to-quarter. That being said, our pipeline is pretty strong and steady. You're just going to see some fluctuations from quarter-to-quarter. We might have a couple of larger loans one quarter. We might have a larger commercial real estate project that goes to the secondary market or is sold that could impact results. But usually, it's pretty even. So at this point, I feel like it's steady as she goes.

You just might see some fluctuation quarter-to-quarter based on seasonality.

Brian Martin: Okay. So pipeline is likely down from what it was last quarter and just given seasonality. And I guess your expectation will be as you kind of build the loan growth, it's more second quarter and beyond, maybe less in the first quarter. Does that seem fair based on your comments?

Lynn Kerber: I don't know that I would infer that. It's just first quarter is traditionally a little bit softer as far as originations, but the pipeline itself is solid, and we look out more than 90 days, we're tracking 30, 60, 90, 120 up to 190 days. So I don't see the pipeline softening at all. It's just -- my point was is you're just going to have some timing differences month-to-month.

Brian Martin: Got you. Okay. That's helpful. And I don't know if it's maybe for John, but I think someone talked about the loan repricing or kind of the back book repricing being one opportunity. What -- can you just remind us what that loan repricing looks like throughout the year?

John Stewart: Sure. Yes, what I said before was new origination coupon yields have held up very well. Spreads have held up well. New production continues to be in excess of 6.5%. The roll-off amortizing, non-amortizing maturities, the cash flow coming off the book is still sitting below 6% in that 5.5% to 5.75% range. And it's pretty evenly distributed by quarter throughout the year in 2026.

Brian Martin: Right. And how much is repricing, John, I guess, in terms of throughout the year? It's pretty even by quarter, but just in aggregate, what's repricing this year at kind of that range?

John Stewart: Plus or minus $150 million a quarter.

Brian Martin: Okay. So $150 million coming across the quarter. Okay. And last one for me, just more housekeeping. I think, John, you said the average earning asset level. I missed what you said there, but I thought it was down linked quarter, but up thereafter. Is that kind of what you suggested?

John Stewart: Yes, that's right. Just based on where cash balances kind of ended the year, you might see that pull through the averages, slightly lower cash balances in Q1. We would anticipate that from -- that's the low point for the year, and it would grow and that the full year average would slightly exceed -- modestly exceed $6 billion. That's -- we had scripted that in the guidance slide as well.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Mark Secor: Again, we want to thank everyone for participating in today's earnings call. We appreciate your time and also your interest in Horizon, and we look forward to sharing our first quarter results in April. Have a wonderful day.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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