Horizon Bancorp - Q1 2025

Executive Summary

• Q1 2025 delivered a clean beat on both EPS and revenue: diluted EPS of $0.54 versus $0.41 consensus (≈33% beat) and revenue of $67.4M versus $64.5M consensus (≈4.5% beat), aided by a $7.0M gain on sale of the mortgage warehouse business and sixth consecutive quarter of FTE net interest margin expansion to 3.04%. Values retrieved from S&P Global for consensus.
• Core fundamentals improved: net interest income $52.3M, expenses fell to $39.3M after Q4 right-sizing, deposits grew $165.1M with non-interest-bearing up $62.5M, and borrowings declined $330.1M; credit remained strong with NCOs at 0.07% and NPLs at 0.59% of loans HFI.
• Guidance reaffirmed: mid-teens net interest income growth, mid-single-digit loan growth (net of ~$100M indirect auto runoff), low-single-digit deposit growth, flat-to-low-single-digit expense growth, and mid-teens effective tax rate; exit 2025 NIM expected ~3.15–3.20%.
• Capital optionality emerged post-sale gain and improving ratios; management highlighted active consideration of buybacks (citing intrinsic value at current P/B) alongside M&A and balance sheet repositioning strategies.

What Went Well and What Went Wrong

What Went Well

• Margin and core earnings strengthened: net FTE interest margin rose 8 bps sequentially to 3.04%; net interest income was $52.3M; efficiency ratio improved to 57.16% on lower expenses.
• Balance sheet and deposits: total deposits +$165.1M (3%), with non-interest-bearing +$62.5M and time deposits +$155.9M; borrowings reduced by $330.1M, improving funding mix.
• Strategic execution: completed sale of mortgage warehouse business with $7.0M pre-tax gain, adding capital optionality; management reiterated mid-teens NII growth outlook for 2025.
• Quote: “Horizon’s first quarter earnings displayed continued positive momentum… sixth consecutive quarter of margin expansion, now above 3%… added optionality to our capital position through the successful sale of our mortgage warehouse business” — CEO Thomas Prame.

What Went Wrong

• Non-performing assets ticked up: NPAs rose to $31.4M (0.41% of assets) from $27.4M in Q4, with non-accrual loans up to 0.59% of HFI; modest increases in residential and commercial non-accruals.
• Loan growth mixed: consumer balances declined $40M with continued indirect auto runoff; total loans HFI rose only ~$62.8M, offset by warehouse sale.
• Deposit costs/mix: linked-quarter deposit costs were up ~3 bps, with mix shifting toward time deposits; management expects little change until Fed cuts commence.

Transcript

Operator (participant)

Good morning everyone, and welcome to the Horizon Bancorp conference call to discuss financial results for the first quarter of 2025. All participants will be listed on the note. Should you need assistance, please signal a conference specialist by pressing star followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone telephone. To withdraw your question, please press star, then two. Before turning the call over to the management, please remember that today's call may contain statements that are forward-looking in nature. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed, including those factors noted in the slide presentation.

Additional information about factors that could cause actual results to differ materially is contained in Horizon's most recent Form 10-K and its later filings with the Securities and Exchange Commission. In addition, management may refer to certain non-GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward-looking statements made during the call. For anyone who does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, they can be accessed at the company's website, horizonbank.com.

Representing Horizon today are Executive Vice President and Senior Operations Officer, Kathie DeRuiter, Executive Vice President, Corporate Secretary and General Counsel, Todd Etzler, Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber, Executive Vice President and Chief Financial Officer, John Stewart, Executive Vice President and Chief Administration Officer, Mark Secor, and Chief Executive Officer and President, Thomas Prame. At this time, I would like to turn the conference over to Thomas Prame. Please go ahead, sir.

Thomas Prame (CEO and President)

Good morning, and thank you for joining us. Horizon's first-quarter earnings reflect the continued positive momentum in our core financial performance metrics and management's commitment to deliver long-term value to its shareholders. Our results are highlighted by a sixth consecutive quarter of margin expansion, now above 3%, quality loan growth, and exceptional credit metrics, and a funding base that continues to deliver value even in uncertain economic environments. The team also delivered a more efficient expense base entering 2025 and completed the successful sale of our mortgage warehouse business, adding optionality to our capital position. Page four provides insight into the quarter's results. The quarter displayed positive growth in our revenue model, with the margin continuing to expand and annualized loan growth of 5%, driven by a solid performance of our commercial team at 14% annualized.

Non-interest income was aligned with expectations and reflected the positive gain from the sale of the mortgage warehouse division of $7 million. Additionally, the team delivered on the forecasted significant step-down in expense run rate from the fourth quarter. This will add to our operating leverage in 2025 as we continue to be prudent on expenses while expanding top-line revenue. Our first-quarter results advance the financial health of the organization, and as stated in my opening comments, we're very pleased with our momentum jumping into 2025. As noted in previous quarters, a key element of our goal forward success will be the execution of our asset mix strategy to higher-yielding lending portfolios that are accretive to the long-term franchise value of our community banking model.

To provide additional insight on our lending growth and credit performance, I'll transition the presentation to our Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber.

Lynn Kerber (EVP and Chief Commercial Banking Officer)

Thank you, Thomas. Good morning. During the first quarter, our loan growth performed well and was consistent with our expectations. Total loans held for investment grew $63 million and was principally in our core commercial lending segment, with net loan growth of $105 million and also increased activity in the residential mortgage lending segment. This growth was partially funded by our planned continued reduction in indirect auto loans of $36 million. Transitioning to some detail on each portfolio, we have commercial loans highlighted on slide six. As noted, commercial loans grew $105 million, which represented a 14% annualized increase for the quarter. Our activity for the quarter was 58% commercial real estate, both owner-occupied and non-owner-occupied, and 42% commercial and industrial, which is considered a favorable mix, reflecting positive growth in our C&I category and continuing to increasingly diversify our commercial book.

We continue to be well-diversified, with no individual sector exceeding 10% of our commercial portfolio and no more than 6% of total loans. In the first quarter, we benefited from growth in key markets of Troy, Kalamazoo, Grand Rapids, and Midland, Michigan, and Northwest Indiana, as well as small-ticket equipment originations. While the timing from quarter to quarter may vary, we anticipate our annualized growth rate to remain generally consistent. We continue to stay focused in our core markets, primary segments of owner-occupied and non-owner-occupied commercial real estate, traditional C&I lending, and small and mid-ticket equipment finance. Pipelines remain stable at this time, and we are staying highly engaged with our client and prospects on potential impacts on the macroeconomic environment. Commercial credit quality is performing well, with March 31st, 2025, key metrics at or below peer performance.

Key metrics include past due loans greater than 30 days of 14 basis points, non-performing loan ratio of 27 basis points, and net recoveries of $42,000 year-to-date. Turning to slide seven, consumer loan balances decreased $40 million during the quarter, reflective of our continued wind down in indirect auto lending. Excluding indirect auto lending, core consumer loans remained flat, with primary activity being residential mortgage and home equity lending. Residential mortgage lending modestly grew during the quarter. We continue to opportunistically expand our mortgage lending team with local in-market lenders that are relationship-focused and work well with our commercial and retail teams. We expect to realize increased mortgage lending activities in 2025 through a continued disciplined sales approach and outbound calling efforts.

Overall, credit quality remains satisfactory in the consumer and mortgage portfolios with delinquencies and charge-offs within targeted ranges, with improvement in past dues for the first quarter versus prior quarters in 2024. Our asset quality metrics continue to be strong and perform within satisfactory ranges as outlined on slide eight. Substandard and non-performing loans of $67 million represented 1.36% of loans, reflecting an increase of $2 million for the quarter. Non-performing loans were $30 million, representing 62 basis points of total loans held for investment. The modest quarterly increase was predominantly in residential loans of $2 million and commercial loans of $2.5 million, offset by a reduction in revolving lines of $1.2 million. The results in the first quarter remain within historical ranges, and we do not expect this change to materially impact our outlook performance in these segments at this time.

Net charge-offs for the first quarter continue to be low at $874,000, representing 7 basis points on an annualized basis. Both non-performing loans and net charge-offs continue to perform at or below peer data for our UBPR banker. Finally, our allowance for credit losses increased by approximately $700,000 in the quarter to $52.7 million, with the ACL's loan ratio of 1.07%. Primary drivers in the ACL components are loan growth, an increased economic forecast allocation, and a positive elimination of a larger specific reserve. Provision expense of $1.4 million reflects the net effect of these key components. Future reserve amounts and related provision will be driven by loan growth and mix, economic forecasts, and credit trends. Recent national macroeconomic trends and the impact of tariffs on our portfolio continue to be actively monitored and may result in additional allocations in the course of 2025.

Now, I'd like to turn things back to Thomas, who will provide an overview of our deposit trends.

Thomas Prame (CEO and President)

Thank you, Lynn. Moving on to our deposit portfolio displayed on slide nine, Horizon's core relationship balances were stable within the quarter, with non-interest-bearing deposits up modestly from the fourth quarter. The organization remains disciplined in its approach to deposit pricing and took advantage of the market volatility in the first quarter to improve the cost of its funding position and enhance the profitability of the balance sheet. We believe the deposit portfolio is positioned well to continue to benefit the organization moving forward with its granular composition and long-standing relationships in our local markets. We are pleased with the value created by our relationship-based banking model and the dexterity the team has displayed leveraging multiple funding options while balancing cost and duration within the portfolios.

Let me hand the presentation over to our Executive Vice President and Chief Financial Officer, John Stewart, who will walk through additional first-quarter highlights, as well as our outlook for the remainder of 2025.

John Stewart (EVP and CFO)

Thank you, Thomas. Turning to slide 10, consistent with our expectations, the Q1 net interest margin increased by another 8 basis points to 3.04%. Recall, as we noted last quarter, the Q4 reported net interest margin of 2.97% did benefit by about 5 basis points from outsized interest recoveries on resolved commercial loans, which, if adjusted for, yielded an even wider margin expansion in Q1. Margin expansion in this quarter was again driven by the execution of our organic balance sheet strategies, resulting in an improved mix of both earning assets and liabilities when compared to the prior quarter averages. Additionally, and importantly, excluding the Q4 commercial loan interest recoveries just noted, loan yields were relatively unchanged in the first quarter, which is a result of the continued remixing of the loan portfolio towards higher-yielding commercial assets.

The combination of these factors resulted in just a 2 basis point decline in earning asset yields in Q1, which, combined with further reductions in our deposit costs from the Q4 Fed funds cuts, drove a strong sequential widening of the net interest margin. Looking ahead, many of these same favorable dynamics are expected to persist for the balance of the year, such that we would still expect additional margin expansion as the year progresses. Recall, we previously anticipated paying down $200 million of Federal Home Loan Bank advances in late March and early April. However, you may have noted the $330 million reduction in borrowings in Q1, which was more than planned. In addition to the late March maturity, which was repaid as expected, rate volatility earlier in the quarter gave us the opportunity to pay down some advances ahead of schedule.

Therefore, we would anticipate our borrowing position to remain relatively similar to March 31 balances for the remainder of the year. Finally, there continues to be a great deal of volatility in the forward rate expectations for Fed funds for the balance of the year. Our current outlook assumes two cuts in June and September. As mentioned last quarter, we do not view short-end rate changes to be a major driver of our net interest margin outlook. Rather, net interest income and margin performance will be a factor of our continued strategic execution on both sides of the balance sheet. Thus, there is no change to our outlook for full-year net interest income growth to be in the mid-teens. Slide 11 provides a profile of the remaining investment securities and projected cash flows and yield rolloff for the coming year.

As has been the case for a while now, we do not intend to reinvest cash flows in 2025. Rather, we will continue to use those proceeds to fund organic relationship-based commercial loan growth. As you can see on slide 12, reported non-interest income included the previously disclosed $7 million gain on the sale of our mortgage warehouse business, which closed in January, as well as a small loss on the sale of a single corporate bond. Excluding those items and the loss on sale of securities in Q4, non-interest income declined modestly from the prior quarter, mainly related to normal seasonal declines in interchange fees. That said, when compared with the year-ago period, we are pleased to see generally favorable results in many of our key client-facing items, such as mortgage, interchange, and fiduciary activity, and stability in our service charges.

Our outlook for 2025 remains unchanged for growth in the low single digits. This comparable excludes the securities losses in both 2024 and 2025 and the $7 million gain in the first quarter. On slide 13, you can see it was a strong expense quarter for the company, as the successful execution of our Q4 efforts led to the sequential decline in Q1 in line with expectations. Total expenses were $39.3 million, which included $305,000 of expense directly related to the warehouse sale. As anticipated, given the previously discussed items that impacted Q4 results, we experienced a nice sequential decline in salaries and benefits and outside services expense, which should now approximate a go-forward run rate for these key expense lines. While we are pleased with this quarter's results, our work is not done, and we understand the need to control expenses as we right-size the balance sheet.

As such, we continue to expect full-year 2025 expense growth to be flat to up low single digits. Turning to capital on slide 14, the positive momentum of the last few quarters continued again this quarter, with strong link quarter increases in all capital ratios and tangible book value per share. The increases were driven by organic profitability, the realized gain on the warehouse business, and the strategic repositioning of the balance sheet, which has restricted growth in risk-weighted assets and total assets. Going forward, further improvement in the company's capital ratios is expected, given our outlook for stronger profitability and a continued disciplined approach to balance sheet growth, while we are constantly evaluating the investment of this capital, with the goal being to put any excess to work in the most accretive and risk-averse ways while adding to the long-term franchise value of the company.

Finally, turning to slide 15, in short, there is no change to our full-year outlook, and we continue to expect 2025 to represent a significant step forward for the company, both in terms of recurring and predictable operating profitability and momentum in our core operations. There are a few items I'd like to highlight. Our expectations for growth in loans held for investment are unchanged in the mid-single digit range for the year. This is net of the continued runoff of indirect auto, which should total about $100 million for the full year. Deposit growth expectations remain unchanged in the low single digits, but with a slightly different mix, modestly more time deposit growth and less commercial growth versus prior expectations.

Under our base set of assumptions, which now includes two 25 basis point Fed fund cuts in June and September, our net interest income growth expectations for the full year 2025 remain unchanged in the mid-teens. Total reported expenses for 2025 are still expected to be flat to up low single digits relative to the reported full year 2024, and the full-year effective tax rate for 2025 is still expected to be in the mid-teens. With that, I'll turn the presentation back over to Thomas.

Thomas Prame (CEO and President)

Thank you, John, and appreciate the summary of the quarter and our outlook for 2025. As you can see from our first quarter results, we continue to see a bright future for Horizon, and we're delighted with the momentum across the franchise and the continued positive advancement in our core operating performance. This is the end of our prepared remarks, and I welcome the operator to open up the line for questions for our management team.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. The first question comes from the line of Brendan Nosal, Hovde Group. Please go ahead.

Brendan Nosal (Director of Research Department)

Good morning, folks. Hope you're all doing well.

Thomas Prame (CEO and President)

Good morning.

Brendan Nosal (Director of Research Department)

First of all, congrats on the quarter. Second of all, just to start off here on capital, I think you folks noted in the release we added capital optionality from the warehouse gain. Can you maybe just unpack that a little bit more and specifically hit on any appetite to repurchase shares at some point this year? Thanks.

Thomas Prame (CEO and President)

Sure, Brendan. Thanks for the question. I appreciate it. This is Thomas. If you look over the last year, we've been very pleased with our overall capital strategy about redeployment into restructuring the balance sheet. We also made some strategic investments in some of our digital technologies and teams to increase our overall asset and lending portfolios. When we look at our capital, we really look at our chance to enhance our overall shareholder returns. Multiple options in front of us, everything from stock repurchases, dividend increase, balance sheet repositioning, and M&A. As we talked about our fourth quarter results, we don't believe right now the market is really providing the option to further restructure our securities portfolio at a level that would be beneficial to our shareholders.

We also recognize today that buybacks are more attractive, especially when you look at the price-to-book levels in the markets that we're experiencing. We believe there's a lot of intrinsic value in our stock price at these levels, and this will be one of several strategies we're going to be looking at very actively in the near future. Now, we're very fortunate that our business right now is creating a lot of capital. It's growing at a very good clip, and we love the fact that we're going to have some optionality here in the near term.

Brendan Nosal (Director of Research Department)

All right. Fantastic. I appreciate the thoughts there. Maybe one more from me, more of a modeling question. Just looking at average earning assets, I mean, there's a fair bit of noise just given the strategic actions you're taking on borrowings in the quarter. Just kind of curious, where do you see the average earning asset base landing in the second quarter, just given the timing of some of those borrowing paydowns? Thanks.

John Stewart (EVP and CFO)

Yeah. Hey, Brendan. It's John. Thanks for the question. Yeah. I mean, you could see in the release where the end-of-period earning assets are, and so those are slightly below the averages. That's how we would expect it to play out in the second quarter here. I think full year over full year, you saw us about $7.3 billion in average earning assets last year. It'll be down a little bit from that this year, just again on some of the deleveraging activity that we've had over the last couple of quarters in place here. Yeah, I think that's how you can think about the averages as the year progresses.

Brendan Nosal (Director of Research Department)

All right. Thank you for taking my questions. Appreciate it.

Operator (participant)

The next question comes from the line of Terry McEvoy. Stephens, please go ahead.

Terry McEvoy (Managing Director)

Thanks. Good morning, everybody. First off, John, thanks for talking about the borrowings in your prepared remarks. Maybe a question for you, Steve. Could you just run through the yield pickup as you run off indirect and fund commercial loans? And then I'll also ask, are you still comfortable with that 315-320 exit NIM for the end of 2025?

John Stewart (EVP and CFO)

Yeah. Sure. Thanks, Terry. I'll handle a couple of those and hand the commercial loan discussion over to Lynn. The yield runoff on the indirect auto portfolio, the effective yield is in the mid-threes. So that's favorable as we roll those into the commercial assets that you talked about. Yeah. No change to the outlook for NII or the margin for the full year versus what we discussed last quarter. There's a lot of volatility out there. Rate expectations have changed pretty materially. I mean, if anything, we're probably lower end of that range versus the higher end of that range, but that's splitting hairs at this point. I would call it pretty unchanged here early in the year. I'll hand it to Lynn for the commercial loan production.

Lynn Kerber (EVP and Chief Commercial Banking Officer)

Good morning, Terry. Just a couple of comments on rates coming on and rates going off in the commercial book. For the first quarter, our average weighted rate for our commercial book was roughly 7.15. In the leasing department, those are a little bit higher spread, and those are averaging 8.40 for the quarter. Anywhere between 7 and 8 is our new roll-on, depending on the product type. As we have covered in the past, our maturities that are rolling off are in the 6% for 2025 maturities and roughly 5% for our 2026 maturities. We have some pickup there within our commercial book, as well as rearranging the overall loan portfolio, as John mentioned, from consumer and redeploying that.

Terry McEvoy (Managing Director)

Thank you both. Lynn, maybe another question for you on the C&I growth in the quarter. Could you just comment on specific markets, industries, borrowers getting ahead of potential impact from tariffs? Any color there on the $40 million-plus of growth?

Lynn Kerber (EVP and Chief Commercial Banking Officer)

Sure. Traditionally, we've been roughly 70-30 between real estate and C&I. This quarter, it was a little bit more C&I, roughly 40%. We view that as a positive so that we don't get too concentrated in commercial. I would say that a good majority of that is a result of our new equipment finance division. That's all small-ticket C&I-type credit. It is spread amongst several states, so it's pretty well-diversified from that standpoint. If you look at the industries that that's in, it's very well-diversified there to really less than 10% by sector: construction, manufacturing, professional, scientific, healthcare, some essential transportation. I would say it's pretty diversified, Terry. Not really any concentrations that I had observed at this point.

Terry McEvoy (Managing Director)

Thank you for taking my questions.

Operator (participant)

The next question comes from the line of Damon DelMonte, KBW. Please go ahead.

Damon DelMonte (Managing Director of Equity Research)

Hey. Good morning, all. Hope everybody's doing well today. First question just regarding the outlook for loan growth. Appreciate all the color and commentary around that. Thomas, could you talk a little bit about kind of the mood of your client base? I think your outlook seems to be a little bit more optimistic than some of your peers. Just wondering, what you guys are seeing and hearing and kind of what gives you the confidence for the positive outlook?

Thomas Prame (CEO and President)

Thank you. I appreciate the question. When I look across our five-plus positive outlooks, first, I start with our talent in our markets. As we've talked about before, we are a franchise that's truly embedded in our local communities. The talent that we have there is, I always use the reference, they punch above their weight. When I look at our leadership and our business model, having local market presidents, having regional presidents, being able to be nimble and quickly react, I think gives us a competitive advantage in that space. The second part, we are a very diversified portfolio, which Lynn has outlined several times, and there are a couple of slides in the deck to talk about the granularity of our platform. We are not just in the commercial real estate. We do everything from your small business loans up to your, I'll say, small or commercial-sized loans.

Most importantly, when I look at it, it's about consistency. We aren't stretching our box. Clients know when they come to us, they're going to get a quick answer. It's going to be the same answer they probably would have gotten six months ago. I think the reputation in the market's helping us out quite a bit. Lynn had also mentioned we've got a couple of platforms that are in their infancy stages that are growing, I'd say, at a modest clip and a very measured clip. They just haven't experienced the runoff yet. As those portfolios mature, we'll probably see a little bit less growth, I'll say, year-over-year growth in those portfolios. I'd say we've got some really good tailwinds behind us.

Damon DelMonte (Managing Director of Equity Research)

Got it. Have your customers really expressed any concern or shown some pause, just kind of given the ongoing noise out of D.C. with tariff and trade war potential issues?

Thomas Prame (CEO and President)

Yeah. I'll talk to the consumer side first, and then I'll pass over to Lynn for the commercial side. On the consumer side, we aren't seeing the impact into that yet, anything that I would say job losses. Again, where we're located, we don't have a lot of, say, massive government agencies that are going to be filling up different local roles. For us on the consumer side, it's been relatively consistent. We don't have a consumer portfolio that would be high risk, such as credit card. We've been deleveraging auto. I'd say from that standpoint, we're in really good shape around the credit side. I'll pass over to Lynn on the commercial.

Lynn Kerber (EVP and Chief Commercial Banking Officer)

Yeah. Good morning, Damon. Really, at this point, it's just really too early to tell what the impact is going to be. I'm sure you appreciate every day when you watch the news and the headlines, it's bouncing all over the place. Our customers, I would say, are really just being cautious and watchful. As we are underwriting any new construction projects, we always look hard at our sponsors, their liquidity, interest in construction reserves. That's not going to change. We're going to continue to do that and probably be more mindful of it in this environment. We do monitor our construction loans very closely. Everything's on track. We don't see any issues with current projects.

As far as the customer outlook, I think with the rate environment, that's actually been working in their favor a little bit, with the rates reducing a bit with the treasuries. Our pipeline hasn't really been unchanged at this point. Right now, it's more of a watch. I wish I had better information, but it's really just a watch right now.

Damon DelMonte (Managing Director of Equity Research)

Yeah. No, that's all very helpful, Lynn. I appreciate it. While I have you, I think in your prepared remarks, you mentioned ongoing investments in the mortgage banking platform. Could you just talk a little bit about, I guess, how the pipeline looks going into the middle part of the year? Obviously, the mortgage market's been a challenging segment of the economy. Just kind of curious of how you guys are feeling about pipelines and potential pickup in gain on sale over the next couple of quarters? Thanks.

Thomas Prame (CEO and President)

Yeah. Thanks for the question. I think as you saw year-over-year, we've had a nice change in our overall mortgage originations. Quarter-over-quarter, I anticipate we'll see a little bit of a spring buying season, a bit of a pickup. It's really not so much whether or not we have folks on the ground and rates are in our favor. I think right now in our local markets, whether or not we have inventory. That's really been, I would probably say, the part that we're seeing here in the Midwest. I know the MBA forecast is looking to have a little bit more positive second, third quarter. We're anticipating we could see a little bit of bump for us, but I'd say in our markets we're serving right now, it's mainly inventory.

I could see us being just slightly below perhaps the MBA forecast on a quarter-over-quarter increase, but I think we're positioned well to continue to grow.

Damon DelMonte (Managing Director of Equity Research)

Great. Appreciate all the color. Thank you very much, everyone.

Thomas Prame (CEO and President)

Thank you.

Operator (participant)

The next question comes from the line of Nathan Race, Piper Sandler. Please go ahead.

Nathan Race (Managing Director and Senior Research Analyst)

Hey, everyone. Good morning. Thanks for taking the questions. Just curious what you're seeing from a deposit pricing perspective these days across your footprint? Deposit costs ticked up about three basis points in the quarter. Just curious how you're thinking about the trajectory of deposit costs, assuming the Fed remains on hold at least through the second quarter?

John Stewart (EVP and CFO)

Yeah. Hey, Nate. Thanks. It's John. Thanks for the question. Yeah. I mean, varies by market, varies by category. We have some competitive dynamics that are different depending on where in our geography you sit. I would just say, generally speaking, I mean, if you're talking about kind of to be competitive in the time space, you're probably in the low fours. To be very competitive in the commercial money market space, you're probably not too dissimilar from that. Mix did change in the quarter, more toward time deposits. I think that might be some of the delta in the deposit costs that you're referencing there. We ended near the bottom of the range for the quarter. We would anticipate Fed unchanged. There's probably not going to be a whole lot of change in total deposit costs on a go-forward basis.

We would obviously expect to see some benefit, as we have seen in the past, when the Fed does start to change rates. It is as much about mix as anything else at this point, Nate.

Nathan Race (Managing Director and Senior Research Analyst)

Right. Got it. John, to your last point, can you just remind us in terms of the amount of exception or higher-paid deposits that can kind of reprice fairly quickly once the Fed cuts, presumably later this year?

John Stewart (EVP and CFO)

Yeah. I don't know if we put specific dollars out there for that, Nate. But we do have some public fund balances in our base that we could certainly reprice. Our CD book is very short. I think the weighted average duration of the CD book is only six or seven months at this point. We have a fair amount of those balances that have the ability to reprice lower as well.

Nathan Race (Managing Director and Senior Research Analyst)

Okay. Got it. Lastly, can you update us in terms of the amount of loans that are fixed rate on the commercial side that could reprice higher over the balance of this year?

John Stewart (EVP and CFO)

The amount of commercial loans that could reprice higher? I think that's a large number. Is that what you're asking?

Nathan Race (Managing Director and Senior Research Analyst)

Yeah. Just the kind of backbook repricing.

Lynn Kerber (EVP and Chief Commercial Banking Officer)

Yeah. I'll take that question. For 2025, this is our CRE maturities. We have roughly $139 million that's under 7%. Average rate is at 6%. We've got probably a 100-125 basis point pickup on that portfolio. In 2026, we've got roughly $161 million less than 7%. That's an average of 5%. There's about a 200 basis point pickup based on today's rate environment.

Nathan Race (Managing Director and Senior Research Analyst)

Okay. Perfect. I appreciate all the color. Thanks, everyone.

Operator (participant)

The next question comes from the line of David Long, Raymond James. Please go ahead.

David Long (Managing Director)

Good morning, everyone. It was great to see the efficiency initiative bear fruit in the quarter. How do you weigh the efficiency efforts with plans to hire veteran bankers? Is there still an appetite to add producers on the commercial side?

Lynn Kerber (EVP and Chief Commercial Banking Officer)

I'll take that question. Really, our commercial team has been pretty overall stable in the number of FTEs that we had. We dialed back maybe three years ago. We added some team members strategically in several of our markets, principally Troy and Indianapolis. As I look at our stable of lenders, we have capacity at this point. I'm not looking at a wholesale addition of new lenders. We really are working within the capacity that we have. We added a few people in Northwest Indiana about two years ago. They're all off of their non-solicit, non-compete, and they're out doing more business. I feel like we have capacity right now and don't need to add additional staffing there.

David Long (Managing Director)

Great. Thanks, Lynn. Appreciate it. The second question I had, the reserve-to-loan ratio was pretty much unchanged in the quarter. It sounds like there was a specific reserve release in there. How do you weigh the worsening economic forecast into the ultimate reserve levels at this point?

Lynn Kerber (EVP and Chief Commercial Banking Officer)

Sure. Thanks for the question. We did actually make some economic changes in our model this quarter, but with the specific reserve that was released, it somewhat masked it. I would expect that the economic forecast could have some impact on our allowance ratio as we move forward this year. Again, it's pretty early to tell. We subscribe to the moving economic scenarios, and those have been fluid and changing a bit month to month. There could be some additional impact there. It's just that we had a rather large specific reserve, so it did mask some of that.

David Long (Managing Director)

Great. Thanks for taking my questions. Thank you.

Operator (participant)

The next question comes from the line of Brian Martin, Janney Montgomery. Please go ahead.

Brian Martin (Director)

Hey, good morning. Hey, just one question on the loan growth. I do not know if it is maybe Lynn. Just the total loan growth, I appreciate the color on just kind of the outlook for growth for the year, but just wondering how your outlook is for the C&I or the commercial book, really, in particular, kind of where those pipelines stand today on the commercial side.

Lynn Kerber (EVP and Chief Commercial Banking Officer)

I would say our forecast is relatively unchanged at this point from what we've communicated previously. We're watchful of the economic conditions. I would say that, by and large, our core commercial pipeline is pretty steady. We are seeing some lift in the equipment finance division that's bolstering that a bit. As I look forward for this year, I still think we'll be in the mid to high single digits.

Brian Martin (Director)

Okay. The mid to high single digits on the commercial side at this point. Okay. Perfect. Maybe just a follow-up. Did I hear on—in some of these remarks, we talked about the deposit growth this year maybe being a little bit more slanted towards CDs and less from commercial. If I heard that right, just kind of trying to understand what dynamics are occurring on the funding side.

Thomas Prame (CEO and President)

Yep. This is Thomas. Thanks for the question. As we went into the year here, I think there was a natural assumption that we'd see some pivoting in the curve here, especially around CD pricing. The curve really has not moved as aggressively as we thought on CD pricing. It's just attracting clients who have a little bit more liquidity to take out some term. I wouldn't say it's a shift in our clients and changing or losing clients. I think it's just a shift to where they're holding their deposits right now. As we talked about, we'll probably have a little less money markets than we originally anticipated, a little bit more CDs in the near term.

Brian Martin (Director)

Gotcha. Okay. All right. John, I missed the comment maybe just early on on the borrowings. Could you just recap what you said on the borrowings in terms of I think you prepaid some of it, so it's less now. Is that the high level?

John Stewart (EVP and CFO)

Yeah, Brian, thanks for the question. Yeah. I mean, the short of it is we're just ahead of schedule. We had anticipated paying off $200 million in March and April. We've talked a lot about that since the fourth quarter repositioning of the securities portfolio. We were able to do some of that earlier in the quarter. If you look at the end-of-period borrowing base, it's down about $330 million. Pleased with the progress there.

Brian Martin (Director)

Yeah. Okay. Gotcha. That's what I thought. All right. I appreciate it. Thanks, guys.

Operator (participant)

We have a follow-up question from Nathan Race, Piper Sandler. Please go ahead.

Speaker 10

Time. We've really been pleased with the momentum on the core deposit front.

Operator (participant)

Mr. Race, your line is open. This concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing remarks.

Thomas Prame (CEO and President)

Again, thank you for participating in today's earnings call. We appreciate your time and interest in Horizon, and we look forward to sharing our second quarter results in July. Have a wonderful day.

Operator (participant)

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