Horizon Bancorp (IN) Q2 2025 Earnings Call Transcript

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July 24, 2025

Key Takeaways

  • Positive Sentiment: Solid Q2 performance with 58% EPS growth vs. prior year, NIM up 19 bp to 3.23%, and improved ROA/ROATCE metrics.
  • Positive Sentiment: Net loans held for investment grew 1.5% QoQ (6.2% annualized), led by 14.8% commercial loan growth, while non‐core portfolios ran off as planned.
  • Positive Sentiment: Net interest margin continued to expand and full-year net interest income is expected to grow in the mid-teens, aided by strategic use of securities runoff for higher-yielding commercial loans.
  • Positive Sentiment: Disciplined expense management kept Q2 noninterest expense at $39.4 M and full-year 2025 expense guidance is flat versus 2024, supporting positive operating leverage.
  • Neutral Sentiment: Deposit balances were flat QoQ with stable funding costs and strong credit metrics, including low net charge-offs (2 bps) and an ACL of 1.09% of loans.
AI Generated. May Contain Errors.
Earnings Conference Call
Horizon Bancorp (IN) Q2 2025
00:00 / 00:00

There are 8 speakers on the call.

Speaker 4

Hey everyone, and welcome to the Horizon Bancorp Inc. conference call to discuss financial results for the second quarter of 2025. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key 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 phone. To withdraw your question, please press star then two. Now, I will turn the call over to Todd Etzler, Executive Vice President, Corporate Secretary, and General Counsel for the opening introduction.

Speaker 1

Good morning, and welcome to our second quarter conference call. 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 10A, 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.

Speaker 1

For anyone who does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, they may 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 will turn the call over to Thomas Prame. Thomas.

Speaker 6

Thank you, Todd. Good morning, and we appreciate you joining us. Horizon's second quarter earnings reflect the strength of the organization's exceptional core community banking franchise. Strong loan growth, stable and granular core funding, excellent credit quality, and prudent management of expenses fueled the quarter's positive results and expanded on management's commitment to improve the financial performance of the company. The quarter was highlighted by a seventh consecutive quarter of significant net interest margin expansion, low net charge-offs of two basis points annualized, and enhanced momentum in key performance metrics of ROAA and ROA CCE. We continue to show the strength across our core community banking platform that is being driven by a disciplined approach to creating a more efficient balance sheet and effective deployment of capital.

Speaker 6

We are pleased with our results for the first six months of 2025, with reported earnings per share growing by 58% versus the comparable period a year ago. Page three provides insight into the quarter's results. The quarter displayed positive growth in our revenue model, with the margins continuing to expand through solid loan growth of approximately 6% and disciplined pricing both on loans and deposits. Non-interest income continues to deliver good results, and the consistency in our expense management efforts further provided momentum to our improving operating metrics. Overall, a solid quarter on many fronts, and we feel well-positioned heading into the second half of 2025. As mentioned earlier, the second quarter was highlighted by strong loan growth and asset quality that has been a consistent theme of our excellent community banking model.

Speaker 6

I'll transition the presentation to our Executive Vice President and Chief Commercial Banking Officer Lynn Kerber, who will share highlights for the second quarter in this part of our business model.

Speaker 3

Thank you, Thomas. We are very pleased with loan growth for the second quarter, which closely aligned with our forecast for volume, debt, and yield. Net loans held for investment grew $75.5 million, representing 1.5% growth in the quarter and 6.2% on an annualized basis. Primary drivers of loan growth included commercial loans of $117 million and consumer loans of $8 million, offset by the sale of residential loans and the planned contraction of indirect loans. Commercial loan growth of $117 million represents a growth of 14.8% in the quarter, driven by growth in our core commercial banking segment. Growth for the quarter is consistent with our overall portfolio composition, with expansion of our C&I portfolio. We continue to actively manage a diverse portfolio, both from a geographic and segment basis, with the largest segment at 6% of total loans and our CRE ratio below our peer group.

Speaker 3

Loan demand and pipelines remain stable at this time, and we continue to focus on quality, origination, and pricing discipline. Despite volatility related to federal policies and their associated impact on interest rates, our lenders have done an excellent job managing rates and maintaining spread. In the second quarter, we piloted equipment financing vacation sales and expect this will be an additional tool to support balance sheet management and the generation of additional non-interest income. Turning to slide six, consumer loan balances decreased $41 million during the quarter, reflective of the continued strategic shift to run down the indirect auto portfolio and reinvest this liquidity into higher yielding and franchise value for sole lending relationships. Residential mortgage lending modestly grew during the quarter, reflecting our organization's strategy to sell a majority of its production and leverage its balance sheet for higher quality client relationships in our local market.

Speaker 3

Credit quality remains satisfactory and consistent with credit performance over the past year. Substandard loans and non-performing loans represent 1.29% and 54 basis points, respectively, a slight reduction in both metrics this quarter. Net charge-offs were $254,000 or two basis points in the quarter, which compares favorably to performance over the past year. Year-to-date charge-offs total $1.1 million, representing an annualized charge-off rate of just five basis points. Finally, our allowance for credit losses increased to $54 million, representing an increase from 1.07% to 1.09% of loans held for investment. Provision expense of $2.4 million represents an increase from recent quarters, which is primarily driven by loan growth and the economic forecast. The most recent quarters have benefited from the release of special reserve allocations. We continue to monitor economic conditions, and future provision expense will be driven by anticipated loan growth and debt, economic factors, and credit quality trends.

Speaker 3

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

Speaker 6

Thank you, Lynn. Moving on to our deposit portfolio displayed on slide eight, Horizon's core relationship balances continue to show the strength of the franchise's community banking model. Balances for the quarter were relatively flat in Q1, and the team extended its disciplined approach to deposit pricing while continuing to take advantage of Horizon's diversified funding sources. These efforts helped our funding costs remain relatively flat from the first quarter. We continue to believe the deposit portfolio is positioned well to benefit the organization moving forward with its granular composition and longstanding relationships in our local markets. The team has displayed its ability to be agile in leveraging multiple funding options and creating optionality within the portfolio to continue to create shareholder value.

Speaker 6

Let me hand the presentation over to our Executive Vice President and Chief Financial Officer John Stewart, who will walk through additional second quarter financial highlights and our outlooks as we look to the remainder of 2025.

Operator

Thank you, Thomas. Turning to slide nine, the Q2 net interest margin increased by another 19 basis points to 3.23%, which was above expectations. Included in the margin this quarter is approximately 7 basis points of outsized interest recoveries on commercial and residential loans. Excluding that recovery income, the margin expanded nicely in Q2, driven by the continued execution of our core balance sheet strategies, which resulted in an improved mix of both earning assets and liabilities. Additionally, and importantly, excluding the interest recoveries just noted, loan yield expanded in the second quarter, which is a result of the purposeful mix-shift, favorable roll-on yield dynamics, and disciplined pricing. The combination of these factors resulted in a widening of our net spread in the quarter as earning asset yields expanded with and without the recoveries, while interest-bearing funding costs declined by 2 basis points versus the prior quarter.

Operator

Looking ahead, many of these same balance sheet dynamics are expected to persist for the balance of the year, such that we would still expect additional net interest margin expansion as the year progresses, albeit at a more modest pace. While our current outlook assumes 2 cuts in September and December, neither will have a material impact on the net interest income outlook or margin outlook for the remainder of the year, which remains for full-year net interest income growth to be in the mid-teens. Slide 10 provides a profile of the remaining investment securities and the projected cash flows and yield rollouts for the coming year. It continues to be the case that we do not intend to reinvest cash flows in 2025. As we have done in the past several quarters, we will continue to use those proceeds to fund organic, relationship-based commercial loans.

Operator

As you can see on slide 11, reported non-interest income was straightforward this quarter. Interest fees and mortgage payment sale experienced some seasonal strength in the quarter, while most other categories were relatively stable. Additionally, mortgage continues to benefit from the prior period investment in the business and the efforts of new leadership. 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 12, at $39.4 million, you can see it was another well-managed expense quarter for the company, as we remain focused on delivering sustainable positive operating leverage. While we are pleased with the expense results through the first half of the year, we understand the need to remain diligent.

Operator

Therefore, we are modestly reducing our outlook for full-year reported expenses to now be approximately flat when compared to the $158.8 million reported for the full year 2024. Turning to capital on slide 13, the positive momentum of the last few quarters continued again this quarter with mid-quarter increases in all capital ratios, as well as tangible book value per share. The increases were driven by improved profitability and the strategic repositioning of the balance sheet, which continues to restrict growth in risk-weighted and total assets. We would generally expect these capital trends to continue for the balance of the year as profitability improves and total balance sheet growth remains relatively muted. Finally, turning to slide 14 and our updated outlook for the full year, in short, we are pleased with the progress through the first six months of the year and are optimistic for a strong finish.

Operator

Net interest income and margin are trending nicely, while our expense outlook is modestly more favorable. As we have said for several quarters now, the objective remains to drive improvement in recurring and predictable operating profitability and are trending in the right direction. There are a few items I would like to highlight. While expectations for loan growth in loans held for investment are unchanged in the mid-single-digit range for the year, we are anticipating a bit more runoff in the indirect auto portfolio versus prior expectations, which would now total about $125 million for the year, up from about $100 million previously. Deposit growth expectations remain unchanged in the low single digits. Under our base set of assumptions, which now includes two 25 bps Fed fund cuts in September and December, our net interest income growth expectations for the full year 2025 remain unchanged in the mid-teens.

Operator

Total reported expenses for 2025 are now expected to be approximately flat relative to the reported full year 2024. Finally, the full year effective tax rate for 2025 is still expected to be in the mid-teens. With that, I'll turn the call back over to Thomas.

Speaker 6

Thank you, John, and appreciate the summary of the second quarter and our outlook for 2025. As you can see from our financial results and momentum entering the second half of the year, we continue to see a bright future for Horizon Bancorp Inc., and we are delighted with the positive strides in our financial performance metrics for the quarter and year-over-year comparison. A very good performance for the team on many fronts, and we look forward to continuing to deliver incremental shareholder value in the second half of 2025. This is the end of our prepared remarks, and I welcome the operators to open the line up for questions for our management team.

Speaker 4

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 are using a speaker phone, please pick up your handset before pressing your keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Brendan Nosal with Hovde Group. Please go ahead.

Speaker 7

Hey, good morning, everybody. Hope you're doing well.

Speaker 6

Morning Brendan.

Speaker 7

First of all, congrats on the quarter and the progress you've been making. Maybe just to start off here on capital, you folks continue to build ratios this quarter. Just kind of curious if you have any updated thoughts on your viewing for the capital build from here, potential usage as they move through the next two quarters, and just the ultimate thought process on resolution of ACM and borrowing. Thanks.

Speaker 6

Sure, Brendan, thanks for the question, and I appreciate the acknowledgment of the performance in capital build over the last year. If you specifically look at our CET1, they're up about 90 bps over the last 12 months. That includes some capital actions that we've taken internally, so it's been really nice momentum. If you look at the second half of the year and the capital level that we have and the generation coming off from a more profitable balance sheet, I would say that's going to give us more optionality of what we'd like to do. As John mentioned in our opening comments, our focus over the last year is really about making sure we have a balance sheet and income statement that can have predictable returns and predictable operating income. I think the team's done really nice strides on that.

Speaker 6

As we look forward to optionality of how the pregnancy and ED discussion around potential buybacks, other uses of capital, as the table's gotten a little bit broader for us. The second part of your question, I imagine, deals with some of the tone of actions that we've seen over the last year around individuals perhaps raising equity and/or using capital to restructure their balance sheet. In most of these cases, what we've seen out in the marketplace is these organizations have done that to achieve where Horizon has achieved success over the last year on their own. We're really proud of that track record, and if you look over time, we've executed on several capital actions that are very strongly to our shareholders. A couple of them have to do with investment restructures. We ran off the indirect auto portfolio.

Speaker 6

We sold the mortgage warehouse business and took that capital and added to our stack. Additionally, we also are making different choices around capital and around tax investment. I think you can expect the same approach going forward as we continue to improve the performance of the organization and look for capital optionality.

Speaker 7

Okay, all right. Thank you for the thoughts there. Maybe kind of turning to lending and the competitive environment, can you get an update on how the competitive environment's evolved for both lending and funding? I've heard from several that largely regional, we're stepping back into certain asset classes like commercial real estate, and also hearing that funding competition has backed a little bit as more banks choose to grow loans. What are your thoughts there? Thanks.

Speaker 3

Good morning, this is Lynn. Regarding commercial, I think generally I would describe the environment as fairly competitive, specifically on pricing. We've seen some compression on spreads in the commercial area with our competition. As I commented in my earlier remarks, I think our team has done an excellent job of navigating the rate environment and, you know, negotiating yield. It does remain very competitive. We've seen some reduction in that spread over the indexes over the last, I would say, four months, probably more than I actually maybe anticipated with the volatility in the rate indexes. As far as underwriting classes, it really depends on the competitor. Everybody's managing each of their concentrations. I've been asked in the past about our office exposure, multi-family. Those segments have performed extremely well for us. We just continue to be very focused on our basic underwriting, the fundamental, and also opportunistic.

Speaker 3

There have been some office loans that we've done over the last year, strong sponsors, low loan to value, strong underwriting metrics. I would say it's more situational.

Speaker 7

Okay, thank you for the thoughts. Thanks for the questions.

Speaker 4

The next question comes from Terry McEvoy with Stephens. Please go ahead.

Speaker 7

All right, Terry.

Speaker 2

Hi, good morning. Thanks for taking my questions. Maybe just start with a small one. The interchange revenue down quite a bit year over year. I know there's seasonality you talk about in the second quarter, but any color there on the decline in Q2 and your thoughts going forward?

Speaker 6

Appreciate the question. As far as interchange, we keep a pretty close eye on that. We've seen two aspects of interchange this year compared to last year. One, the overall swipes are slightly down and the spend per swipe is down. Mainly, we're just seeing a little bit more conservative spend from the consumer base and also where they're spending that. You know, as you know, not every swipe is equal at the terminal. As we see higher interchange buy-ins, such as in our lower interchange buy-ins and things like groceries and gas, that's going to impact us. Again, I think where we're seeing right now, these levels will probably be our go-forward look.

Speaker 2

Here's a follow-up. Could you discuss market competition for deposits in your markets and where you see deposit costs trending in the back half of the year?

Speaker 6

Yeah, I'd say for, I'll split it up by segment. First, I'll cover the consumer segment. I'd say that's relatively been a consistent quarter over quarter. We're seeing promotional rates come down and also we're starting to see the term of those promotional rates fall back into the three to five month territory. For us, as we've been disciplined around that, we're making sure that we're not taking on expense risk and pricing for us in that portfolio is about 4%. It's in a good spot. We anticipate as we start seeing further Fed moves that they'll probably move, that market will move towards us. As we get into larger institutional funds and then also in the public fund area, that can still be a pretty wide bid ask.

Speaker 6

As you saw in the second quarter for us, we strategically let some higher priced CDs go off the balance sheet because it just didn't make incremental sense from a margin management and overall flexibility on the balance sheet. I would say the competitive in the public space is still pretty competitive. There are some banks out there in our marketplace and also some credit unions that perhaps have a little bit higher loan to deposit ratio. I wouldn't say that's changed our insuring our operating model. We're just being conscious of it, being diligent in our pricing going forward. I think as you saw from our quarterly results, we were able to hold our overall funding cost slightly down from Q1.

Speaker 2

Perfect. Appreciate that. Thomas also appreciates the comments on the ACM securities and definitely acknowledge the actions taken and how they've resulted in improved earnings and overall profitability. Thanks for the color there earlier.

Speaker 6

Thank you.

Speaker 4

The next question comes from Damon DelMonte with KBW. Please go ahead.

Speaker 7

Hey, good morning everyone. Thanks for taking my questions and I appreciate all the color and disclosure in the slides. Just kind of curious from the loan growth perspective, you know, you guys continue to feel pretty optimistic, it sounds like, on the back half of the year on the commercial side. Are you finding that the growth's being driven more by new customers coming to the bank, or do you have some amount of increased line utilization from some of your current customers?

Speaker 3

Yeah, good morning. Relative to the commercial customers, I would say a good majority of our business has been with existing customers. Regarding the line of credit utilization, it's remained actually pretty stable. In fact, it actually reduced a little bit the last couple of months. It's being driven by expansion of business with our customers and referrals by our customers. C&I is probably a little bit more new customer acquisition. It's mixed, but it's really truly our core market and expanding over these two years and just three years.

Speaker 7

Got it. Okay, I appreciate that. Then with regards to the margin and the outlook there, John, can you just remind us, do you have any sizable CDs that are repricing in the back half of the year?

Speaker 6

No, the CD book is fairly homogenous. You know, the duration is relatively short. It's about five or six months, kind of all year long, so those dynamics also stay in place.

Speaker 7

Got it. Okay. Is there anything specific you guys are doing on the expense front to be able to manage them so successfully and kind of keep the total amount flat year over year? I don't know if there's any initiatives or anything kind of that's going on that's giving you the leverage there.

Speaker 6

No, thanks. I appreciate the acknowledgment there. Nothing in particular. I mean, it's just really diligent expense management across the organization, both, you know, corporate out in the markets. We understand where the bogeys are and we're working hard to meet them. There's nothing, no big, no big named expense plan or anything else out there. It's just, you know, just business as usual. We've got a pretty tight budget and the folks are doing a really good job managing for us.

Speaker 7

Got it. Great. I appreciate all the call, and thank you very much.

Speaker 6

Yeah, thanks, Damon.

Speaker 4

The next question comes from Nathan Race with Piper Sandler. Please go ahead.

Speaker 5

Yes. Hi everyone, good morning. Thanks for the question. You guys have obviously done a great job building a more kind of core funded balance sheet over the last several quarters. I was just curious, you know, how you're thinking about, you know, the target for wholesale funding on the balance sheet going forward. I'll just be kind of where we came out at the end of this quarter and maybe what your targets are over the next 12 to 18 months as the positive growth is expected to pick up.

Speaker 6

Yeah, thanks for the question. I wouldn't say there's any specific targets out there. The general objectives at the top of the house remain the same, which is, the balance sheet has been more heavily dependent on wholesale funding than in the past, and maybe we would want to see going forward really nothing to the borrowings picking up here in the second quarter. We just took advantage of, as Thomas mentioned before, we just swapped some expensive deposit funding out and had a nice opportunity to do so at the very beginning of the quarter with the rally in rates. A pretty sharp rally that backed right off. Longer term, the objectives remain the same, which is to reduce the reliance on wholesale funding. From here, if we have some good success from the positive side, maybe it'll give us a chance to modestly reduce that going forward.

Speaker 6

I wouldn't anticipate any step function changes though at the moment.

Speaker 5

Okay, great. John, I imagine that implies, you know, some modest earning asset growth in the back half of this year?

Speaker 6

That's correct.

Speaker 5

Okay, great. John, if I heard you correctly, it sounds like the way the balance sheet is positioned there, you guys are pretty neutral in terms of the margin impacts or any rate cuts on the short end?

Speaker 6

Sorry, that's also correct.

Speaker 5

All right. Just generally, from a margin perspective, is there still kind of an upward bias over the back half of this year, just given that neutral sensitivity and some of the repricing tailwinds that we talked about on the earning asset side and with maybe, you know, kind of flat positive costs as long as the Fed remains on pause?

Speaker 6

Yeah, I think that's correct as well. I think if you look at the margin in the second quarter, the 3.23%, we call it out to seven basis points, so back that off to about 3.16% on an operating basis. From there, we would anticipate there's some modest expansion, albeit less than what we've seen in the past. Most of the step function mix changes on the asset side and the liability side, as we just talked about, are largely behind us. It really becomes about the churn on the asset side and the management of funding costs on the liability side. I think it's correct that you would expect some modest improvement off that 3.16%, back half of the year and probably into the beginning parts of next year as well.

Speaker 6

Still feel pretty good about that landing spot in the Q4 for 3.15% to 3.20% on the operating margin.

Speaker 5

Just to clarify, that's not tax equivalent adjustment on the margin you're referring to?

Speaker 6

The FTE reported margin was the 3.23% in the quarter. About seven basis points of that is what we called out as outsized recoveries. If you back that down to the 3.16%, that's what I'm talking about. I'm off of that number.

Speaker 5

Understood. Got you. Thank you for that. I appreciate all the color. Thanks, everyone.

Speaker 6

Thank you.

Speaker 4

The next question comes from David Long with Raymond James. Please go ahead.

Speaker 7

Good morning, everyone, and thanks for taking that question. Big picture, and I don't want to put words in your mouth here, but overall, I think there's a general positive sentiment on the northern Indiana and Indiana as a whole economy. Can you talk about maybe your outlook for the economy within your footprint?

Speaker 6

Sure, David, and I appreciate the acknowledgment. We are very pleased to be in the markets that we're in. Northern Indiana is still seeing some significant infrastructure investment. Davis Center is the two tracks here locally. We are still experiencing the outflow of talents, people, and businesses to Indiana from Illinois. I would say we're very fortunate to have some good tailwinds here in the marketplace. Also, I want to acknowledge that Indiana is such a great state to have your banking franchise in. It's a bank-friendly state. It's a friendly business state. With that, our distribution specifically in Northern Indiana going all the way down to Indianapolis has been a benefit for us. I do want to not discount speculation on Michigan, but a great state also.

Speaker 6

Michigan has some great growth on the western side of Michigan, where we just have some very positive distribution there and great leadership and talent on our commercial team and retail team. We're seeing even in the CCS transaction that was done several years ago, the deposits that we've received from that have been stable and sticky and modestly growing. Also, just really good communities that our advisors are very intertwined in the DNA of helping make sure the communities are successful. I would say, you and talked a little bit earlier about our commercial growth. I do believe it's, you know, we got a really good client base there, but also we're very fortunate that we have the right talent in growing markets. As you said earlier, I think we're in the right spot to continue to be successful.

Speaker 7

Excellent. Thank you, Thomas. Appreciate that color.

Speaker 4

As a reminder, if you would like to ask a question, please press star then one to join the question queue. The next question comes from Brian Martin with Raymond James. Please go ahead.

Speaker 3

Hey, good morning, guys. Congrats on all the success here.

Speaker 7

Thanks, Brent.

Speaker 3

Hey, just a couple for me. Just in terms of the expense number, like just the efforts you guys have had in that project, I guess the expectation would be, I know you're not giving guidance on that, but we should start to see some pickup as you go into 2026 on the expense numbers.

Speaker 7

Yes, thanks for the question. I think you should anticipate us approaching expenses in a similar fashion as we did this year. That is to say, a pretty disciplined approach around budgeting. It's an important consideration for us to drop some positive operating leverage next year as well. Yeah, I mean, normal merit increases, you would anticipate there being some uplift to expenses in 2026 versus the guidance that we've given for 2024 or 2025.

Speaker 3

Okay, just making sure there's no initiatives that could keep the caveat. Again, like we'll see initially with all the efforts you guys have done. Maybe one additional on the asset side, you talk about the mix is continuing to get better on the average earning assets and the funding side. Can you just talk about maybe what the target of those mixes are as you kind of go forward here? Is there something you're targeting in terms of where those mixes go to over time?

Speaker 6

Yeah, sure. I think on an organic balance sheet basis, we've still got near 30% of earning assets in the securities portfolio. I mean, can that be over time something that looks more like 20%? Absolutely. However, the cash flows of the portfolio are fairly locked in at this point. We give you the full four quarters. If you extrapolate that out, four to six or eight quarters beyond that, it doesn't look too terribly different. The waypoint may be something close to what I just mentioned, but it's going to be a pretty radical path forward to get there. There's no large, chunky cash flows coming off in the next couple of years. Only so much of that is in our control unless you really, really gas pedal the loan growth, and that's just not the objective at the moment.

Speaker 3

Gotcha. Okay. On the actual side, anything you're targeting on that side other than just, I mean, I know you talked about the remix here with the indirect.

Speaker 6

No, the indirect auto portfolio will continue to run off over the next, call it, 18 to 24 months. Beyond that, and then the securities remix that I just mentioned, I don't think there's any specific targets to know.

Speaker 3

Yeah, okay. All right. Maybe just last two, just on the provision, I know you talked about it being up a bit this quarter for a couple of items. Just how we think about that going forward is just in terms of the pickup we saw this quarter with credit quality still being very, very strong. Good morning. Regarding the reserve, it did increase this quarter. It was driven predominantly by loan growth and MIPS, and then just economic forecasts. That was predominant. Of $1.7 million, roughly $1 million, a little over $1 million of it was economic forecasts, and the balance was loan growth. When you get to the provision, as you know, our credit quality has been really strong. We had very low charge-offs for the quarter, but we did have an increase in the unfunded commitments, and so that's the other piece there.

Speaker 3

As we move forward, I don't expect any significant change. It's really going to be moderated by loan growth levels and economic forecasts. Gotcha. Okay, I appreciate that, Lynn. Just the last one, Brendan, I know you talked about broadening out the capital initiative. Can you talk about your appetite for M&A here and if you are, are discussions up? Is it, are there something you're targeting, certain markets, geographies? Just kind of what your approach to M&A is here as things possibly broaden out.

Speaker 6

Yes, thank you for the question. As you look across Horizon Bancorp Inc.'s decades of success here, a lot of it has come from successful M&A, and we would look to continue that for the targets. As we talked about before, we're very excited about the marketplace here in Indiana and also in Michigan, so the right filler in would be great. As you've probably seen also in the marketplace, there's an increasing dialogue going on, and we're glad to be part of those dialogues. We'll be very disciplined about the approach to M&A and make sure that it's, as you talked about earlier, very shareholder-friendly discussions on that, make sure we have positive earnings backs, and that it makes logical sense to our investment base of why we involve M&A and also the returns that come along with that.

Speaker 3

In terms of geography or size, are you looking for something larger, smaller, multiple deals? Any more commentary on that?

Speaker 6

I think every CEO out there has a specific market size, exactly who they would want to be. For us, I would say we'd like to be continuous within our footprints. We have some marketplaces that I feel like we could definitely expand our brand and also print our distribution in the Grand Rapids area. I'll call it also in eastern Michigan. There'd be some great opportunities for us there. We have great platforms for leaders to see more distribution from a size standpoint. We've been successful historically in that $500 million to $1 billion space. I think with our skill set leadership here, we could even go a little bit bigger than that, but I'd probably say that's about the size we'd be looking at.

Speaker 3

Gotcha. Okay, perfect. Again, congrats on all the success and thanks for taking the questions.

Speaker 6

Appreciate it also. Thank you.

Speaker 4

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

Speaker 6

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

Speaker 4

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

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