Welcome to the Horizon Bancorp 2023 Virtual Investor Day. Management may periodically reference the investor presentation that will be broadcasted throughout today's event. This presentation, along with a replay of this event, will also be available on the investor relations section of horizonbank.com. Before turning the event over to management, please remember that today's presentation 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 investor presentation prepared for today's event. Additional information about factors that could cause actual results to differ materially is contained in Horizon's current 10-K and later filings. Portions of today's event have been pre-recorded. Therefore, Q&A relating to pre-recorded portions will be available during the live portions of today's event.
The company assumes no obligation to update any forward-looking statements made or presented after the date on which the forward-looking statement is made. In addition, management may refer to non-GAAP financial measures, which are intended to help investors understand Horizon's business. Reconciliations for those measures are contained in the company's most recent quarterly financial results news release. In addition to presentations and prepared remarks by Horizon executives, this Investor Day will include Q&A sessions with management. Please use the form on the web page below the video player to submit your questions. You may begin submitting now, during the presentation and during the live Q&A sessions themselves. If you have any difficulties using the Q&A form, please submit your questions via email to HBNC@lambert.com. Again, the address is Horizon ticker HBNC@lambert.com. L-A-M-B-E-R-T.
Now, at this time, I'd like to turn it over to Horizon's Chairman and Chief Executive Officer, Craig Dwight.
Hello and welcome to Horizon's Investor Day. Today, you will hear our view of what we believe will be an exciting and productive 2023 as we transition the company to a more stable interest rate environment, lower rate of inflation and hopefully a calmer and more rational global community. I'm excited about Horizon's strategy to continue to build shareholder value and the strength of our team going forward. During 2023, Horizon Bank will be celebrating its 150th anniversary, which is an incredible milestone and is a direct result of our core principles of people first, community engagement and the diversified revenue streams. These principles have proven to be effective in why we have weathered many economic storms over the past century and a half.
Today, our leadership will be covering brief review of 2022 results, 2023 market outlook, technology and digital banking, commercial and retail banking and our 2023 financial performance outlook. Let me refresh your memory on Horizon's footprint. Horizon's footprint is diverse, has a stable economic base and expands from Columbus, Indiana, south of Indianapolis, north through the Michigan state line and includes southwestern, central, northern and eastern parts of the Lower Peninsula of Michigan. We remind you that Horizon's expansion and growth has occurred in college and university towns and in state or county governmental seats in Indiana and Michigan. Therefore, a majority of our footprint has an economic base that is traditionally more stable than other areas of the Midwest. I'd like to share with you several local initiatives taking place in our primary markets in Indiana and Michigan. First, Northwest Indiana.
This area is benefiting from considerable investment in infrastructure and quality-of-life initiatives. These investments include the Marquette Greenway Project from Chicago to the state line of Michigan. Upgrades to the National Lakeshore in Indiana Dunes state parks, two of the most visited parks in the nation. The expansion of the local metro commuter train lines from Chicago to Michigan City, Indiana, and South Lake County, Indiana, extension, which will speed up commute times to downtown Chicago. The quantum communication lines that run from South Side of Chicago to South Bend and Lafayette, Indiana, in support of quantum computing and our natural freshwater supply, which is an extremely important resource to cool computer servers in this rapidly expanding information age and its demand for cloud storage.
As a result of these current investments, Northwest Indiana is expected to incur billions of dollars in private and public economic investment over the next five years. Northeast Indiana, home of Fort Wayne, Auburn, and Warsaw, Indiana, cities that are highly ranked in the United States as places to live for both retirees and families. Considerable investments are being made in infrastructure, housing, healthcare, automotive, defense, and aerospace sectors. Northeast Indiana is ranked sixth in the nation for aerospace manufacturing, number one globally for orthopedic manufacturing, and is the second-largest global music equipment supplier. These sectors are typically resilient during varying economic cycles. Central Indiana, home of Indianapolis, Kokomo, Columbus, and Lafayette, Indiana.
These cities and their surrounding communities continue to experience solid population growth. Considerable infrastructure improvements, including expansion of local and international airports, investment in local housing developments, expansion of local manufacturing, healthcare and warehousing hubs, as well as an increase in investment in higher education. Recent announcements include two new Eli Lilly manufacturing plants, a new automotive battery plant, two new semiconductor manufacturing facilities in Purdue University's Tech Park, and a new GM plant to build electric vehicles. Southwest Michigan includes the cities of Grand Rapids, Holland, Kalamazoo, St. Joseph, and Benton Harbor. Several of these cities are ranked in the top places in the United States to raise a family, to live or start a tech career. They all provide an excellent quality of life with considerable access to recreational activities.
A recent survey in Grand Rapids, Michigan, found that 56% of all local manufacturers plan to expand in 2023. This area has a well-diversified economy with advanced manufacturing, aerospace, food, healthcare, and tourism leading the way. Recently, a major new battery component manufacturing facility announced a $2.3 billion investment in this region. Northern Michigan is a stable market with a strong manufacturing tourism base throughout the region and enjoys a low cost of living. Recent announcements in this area include reconstruction of the dams in the Midland area, a $400 million expansion of Dow Chemical's research and development facility, and a $375 million expansion of an existing semiconductor plant.
Across our footprint, Horizon remains positioned well to take advantage of the outbound migration from Illinois, which continues to increase as consumers, retirees, and businesses exit high taxes, increasing crime rates and a high cost of living. Both Indiana and Michigan continue to exhibit strong economies, as evidenced by low unemployment and an increase in total workforce participation. Public investment continues to increase in both states and specifically Indiana, which reported a record state surplus in excess of $6 billion at the end of their 2022 fiscal year, and plans to spend down this surplus through investments in infrastructure and education in return of approximately $545 million to individual taxpayers as inflationary relief. This, coupled with the American Rescue Plan Act dollars that will be spent over the next two years, adds considerable public investment to all of our communities.
Michigan State University's 2023 outlook for the state of Michigan is very optimistic. To quote the survey, "Given that the supply chain disruptions that interfered with 2022 production cycles have abated and despite lower consumer sentiment, they continue to spend." End of quote. In 2022, Michigan saw a record manufacturing employment base and higher wages, and the outlook for 2023 calls for continued expansion in the state manufacturing employment base. They are forecasting that all of Michigan's business sectors will see expansion in labor force participation except construction and utility sectors. The good news, the state's unemployment rate is expected to fall in 2023. For a quick recap of 2022.
The 2022 unprecedented increases in short-term interest rates by the Federal Open Market Committee caused an increase in our deposit betas above the betas that we experienced during the previous rising rate environment. This change has increased the downward pressure on Horizon debt interest margin. In addition, higher interest rates have caused a considerable reduction in mortgage loan production. Even with these challenges, Horizon delivered strong returns on average equity and average assets for the year of 13.66% and 1.24%, respectively. In December of 2021, and updated in April 2022, Horizon announced six key financial objectives. I'm pleased to report that for the year, Horizon either met or exceeded the majority of these financial objectives as you can see on this chart.
Other highlights during this past year include closure of seven branch offices compared to 10 that we closed in 2021. Completion of a reduction in workforce at December 31st, 2022. Continued expansion of our digital brand. Increased net income over the prior year's net income, which represents beating the prior year's net income 21 of the past 22 years. In addition to the results mentioned above, you will hear later today a continuation of our efforts to offset lower mortgage loan volumes through staff efficiencies and an increase in other non-interest income items. In 2023, Horizon will continue to moderate growth and use the cash flows from retained earnings into our investment in loan portfolios to invest in higher-yielding assets.
Finally, we believe that our diversified balance sheet, both geographically and through a broad mix of varying asset classes, provides a lower credit risk than most community banks. This diversity has historically held up well during prior economic downturns, and we would expect similar performances going forward. Now, I'd like to introduce to you our next presenter, who will give you the 2023 outlook and key goals, Horizon's President and our next Chief Executive Officer, Thomas Prame.
Thank you, Craig. As Craig mentioned, Horizon's located in economically strong and growing markets, allowing Horizon's diversified business model to create significant shareholder value. Our established relationship-centric commercial team is well-balanced with solid organic loan growth and significantly funded through a highly skilled treasury management team, expanding our deposit gathering capabilities and driving meaningful non-interest income. The commercial team's ability to consistently gain market share is founded on sensible credit criteria focused on real estate, C&I lending, and a variety of loan options to support our small business clients. Additionally, the nimbleness provided by our local presence model creates superior response times delivered with great experience without expanding our credit risk. Complementing our commercial banking platform is our consumer mortgage and wealth divisions that are embedded in our local communities, creating significant brand awareness and further expanding our core client base.
Consumer banking is focused around our 70-plus local branches, providing loyal and granular low-cost deposits, expansion opportunities in the lending products, and significant non-interest income through relationships that call Horizon their primary bank. An extension of our branch banking presence, Horizon's consumer platform encompasses a profitable indirect lending program focused primarily on markets where we have branch presence, increasing our ability to help our communities grow and prosper. Horizon has created an in-market and digitally-enabled mortgage division, delivering home lending services to our consumer, commercial, and wealth clients. Our mortgage platform provides the ability to hold or sell mortgages and the ability to retain client servicing. The flexibility of this platform delivers multiple financing options to our clients and creates flexibility in our balance sheet and fee income strategies.
In 2022, within our wealth division, we invested in new leadership, sales talent, and planning capabilities, broadening our ability to provide wealth services to our network of clients who already know Horizon well. The wealth team offers a wide range of services, including trust, investment management, financial planning, as well as retirement plans for employers. All these services are designed around being our clients' financial partner for life and expanding our revenue capabilities. As we look forward, we believe Horizon's diversified business model uniquely positions us to be our clients' full-service financial partner through exceptional experience and quality advice. For our shareholders, our operating model allows Horizon to continuously expand its client base, diversifies our risk, and delivers flexible revenue streams that can adjust to changing economic cycles. In 2023, our strategic plan will come to life through our people-first culture.
We are confident in our ability to continue to build the highest quality team of advisors through personalized career plans, thoughtful succession planning, and stretch assignments. Additionally, we will continue to embrace the diversity of our teams and markets through our advisor resource groups and community development organizations. These organizations enhance our already inclusive culture that appreciates the diversity of individual experiences and viewpoints. The team sees great opportunity in our balance sheet strategies that will be highlighted in more detail by the upcoming presenters. At a high level, we anticipate leveraging the cash flows from our loan amortization, securities portfolio, and retained earnings to provide higher funding for targeted higher-yielding loan segments and limit our need for additional borrowing. Our business divisions will accelerate growth in the more profitable segments of commercial, consumer home equity, and mortgage, increasing overall portfolio yield.
Moreover, we anticipate Horizon's extensive branch network, relationship commercial banking, and treasury management teams to provide meaningful lower-cost funding sources and to expand our market share. This strategy will allow us to position net interest income dollars relatively consistent year-over-year and anticipate a growth in new clients and services in our commercial, consumer, and wealth divisions, elevating non-interest income results year-over-year. Consistent with prior performance, our goal is to continue to manage expenses well, with the team proactively starting this process in the second half of 2022, with adjustments in our consumer lending and mortgage staffing models. Historically, Horizon's strategic plan balanced strong organic growth with financially attractive and culturally aligned acquisitions.
With the uncertainty of today's economic and political landscape, we anticipate M&A activity will not be as abundant, but we will be open to opportunistic transactions, both with bank partners and potential new lending platforms, such as leasing. Additionally, our commitment to creating long-term shareholder value will remain a priority, and our intent is to continue to provide a consistent dividend strategy to our shareholders who trust us as part of their investment plan. As you can tell, I'm very optimistic about our future and what our teams will deliver in 2023. Our financial metrics for 2023 display continued solid performance, and the team looks forward to sharing specific strategies and plan initiatives in the upcoming presentations.
To help lead us, please allow me to introduce Kathie DeRuiter, Executive Vice President and Senior Operations Officer, and Scott Kosik, Senior Vice President and Director of Digital Banking, to provide insight into our technology plan and digital banking roadmap.
Thank you, Thomas. Thank you all for joining us today. I'm excited about the progress we have made at Horizon towards our strategic objective to invest in technology that advances our corporate strategy as well as enhances our customers' experience and improves internal efficiency. Horizon is a company that continues to drive innovation in the community banking space. Our growth strategy, M&A success, and our ability to pivot and change to beat the many challenges that community banks face demonstrates Horizon's ability to innovate. We believe what sets us apart is our true commitment to community banking, team collaboration, and our creative problem-solving skills that position Horizon to create long-term shareholder value. When we review our technology spend, we break this down into five categories: strategic applications, electronic remote delivery, data communications, infrastructure and core.
Today, we will drill down on the spend in the category of strategic applications that will showcase our investments in technology, and we believe differentiate Horizon from its peers. Horizon periodically conducts a corporate-wide gap analysis related to technology. Our board of directors has made a strategic commitment to increase technology spend by at least 10% annually to enhance the customer's experience, growth, and improve operational efficiencies. As this chart exhibits, we have increased our strategic application spend that is focused on improving sales effectiveness and client experience by 297% since 2018. Horizon continues its investment commitment in technology to advance client-facing applications, improve internal workflows and strengthen our infrastructure. Another important initiative that is supporting Horizon's ability to innovate is our strategic decision to maintain an in-house core banking platform.
This provides us the ability to pivot quickly, to fully integrate best-in-class applications, and to control costs. Now let's drill down into these new technology investments and our progress. High-priority projects that we've implemented over the past five years and which have driven our key strategies and objectives include the following. 2019, with the acquisition of Salin Bank, Horizon entered the video banking space with the conversion of 24 ITMs, interactive teller machines. Since market entry, Horizon has expanded the fleet to 50 ITM machines. The video banking model is a key component to our branch rationalization project that is currently underway. In addition, in the same year, we implemented Weiland, our commercial relationship pricing model, which supports our treasury management team and has driven a six-figure improvement in service charge income.
2020 live chat went live, providing 24/7 customer communications with an 84% bot containment, which represents the equivalent of 6 FTEs. In 2020, the bank's in-house development continued to deliver with the go live of Horizon's secure portal and digital signature solutions. These technology enhancements supported the origination and efficient forgiveness of $452 million in PPP loans. 2021, we launched Encompass with our partner Ellie Mae as an end-to-end digitally enabled platform, which includes integrated compensation and construction modules. In addition, we rolled out a person-to-person payment platform through the adoption of Zelle. Since adoption in 2021, we have experienced over 400% increase in transaction volume in this channel. 2022, Horizon introduces Credit Advisor, a SavvyMoney product which has seen strong adoption since rollout late 2022.
Our delivery and investment continues in 2023, with investments being made not only in our digital channel, but also enhancements planned for Horizon debit card offerings and Horizon's move to real-time payments with the early adoption of FedNow later this year. We believe investment in applications to enhance customer experience and improve operational efficiency coupled with talent investment is a recipe for successful implementation and value creation. We continue down the path of innovation and vision, a key driver to our success will be talent. There are many choices in technology being provided from the core banking providers to fintech startups. We must focus and keep in mind that systems with bells and whistles or the newest thing in fintech do not alone return results, people do. Strengthening our bench in digital technology, data and development have also been a key focus in our overall strategy.
This investment in talent is making a significant impact in leveraging our data analytics to improve our client calling efforts and marketing campaigns. We have added talent both in business intelligence and technology to allow us to take off-the-shelf technology and connect directly to our core banking platform. The bank continues to maintain our key talent in our risk areas. This ensures safety and soundness in our infrastructure, including maintaining a strong cybersecurity posture. At this time, I am pleased to introduce Scott Kosik, Senior Vice President and Director of Digital Banking, to provide insight into our digital banking roadmap.
Thank you, Kathie. It is my pleasure to present Horizon's digital banking roadmap to you today. As Cathy mentioned, Horizon has made strategic investments in the technology and talent that we believe will enable us to deliver digital banking solutions that create significant value for our customers in the bank. Coinciding with our bank-wide growth, Horizon experienced a significant increase in our digital banking client base as well as their overall engagement through the digital channel. Whether it is opening accounts, remote depositing checks or interacting with our live chat solution, Horizon has a large digitally engaged client base who want to accomplish more of their everyday banking needs through the digital channel than ever before. We have a tremendous opportunity to deliver the right solutions to these clients and produce meaningful results such as increased wallet share and customer retention, as well as new client acquisition and effective onboarding.
There are four pillars guiding Horizon's digital banking roadmap that will provide focus and priority in areas our clients find value and fit well within our community banking strategy. These pillars are financial wellness, Customer experience, payments, and sales and offers. There is significant potential to create value by making digital enhancements in our core community banking products and services. Starting with financial wellness, Horizon will invest in solutions that provide more insight and control to our customers and increase engagement by integrating valuable tools into our digital banking platform. I am excited to highlight two of these solutions, Credit Sense and Card Hub, in more detail with you today. We are also executing several projects in 2023 that will create a seamless and robust, yet simple digital customer experience focused on integrating new services and making real-time enhancements by leveraging our API and software development kit architecture.
Deploying value-added solutions will enable Horizon to compete in the rapidly evolving payment space and position the bank to be the top wallet choice for our customers. As previously mentioned, we anticipate deploying the FedNow technology this year, allowing commercial clients immediate receipt and transmittal of payments. This will be coupled with our consumer strategy of migrating our debit cards to enable contactless transactions. As customers increasingly want their banking to be on demand, there is a remarkable opportunity for Horizon to integrate our core product and sales journeys into the digital banking channel. Our 2023 sales initiatives will center on improving the client experience and KPIs for digital deposit and loan account opening. Understanding industry trends continue to shift in this direction.
Integrating our core product journeys into digital banking will allow Horizon to capture additional wallet share, which we believe we can scale profitably over the long term. We are excited to announce the successful rollout of our new credit score monitoring solution, aptly named Credit Sense, in December 2022. This is a big win for our customers and a great example of our strategy to enhance the financial wellness benefits we provide and increase customer engagement. In addition to providing numerous financial wellness benefits to our consumer customers, Credit Sense will provide Horizon with rich data and the opportunity to present personalized money-saving offers through its seamless integration to digital banking. Credit Sense has a very easy enrollment workflow and has been well-received by our customers, as evidenced by the 6,000 enrollments in the first 30 days, representing 8% of our active digital consumer customers.
We are optimistic that up to 25% of our active digital customers will enroll in Credit Sense by the end of 2023. Horizon's digital team will be implementing Fiserv's Card Hub in 2023 as well. Card Hub is a card management solution that will drive debit card acquisition, usage, and growth on a single unified platform. With Card Hub, users can get digital debit cards quicker and add to mobile wallet with one touch so they can be used right away. The solution will provide our customers with more control to manage their cards on the go and enable real-time spending alerts, allowing them to easily track where their card is being used. Card Hub will deliver numerous value-added benefits to our customers to ensure Horizon cards are top of wallet and drive interchange revenue to the bank.
Additionally, and key to all of our digital investments, Card Hub will be seamlessly integrated into our digital banking platform, ensuring an exceptional and engaging experience for our customers. Horizon's digital team is working hard to build on the successful introduction of our digital account opening platform that went live in the Q4 of 2020. Our digital account opening rollout came at just the right time, enabling Horizon to serve our customers and capture new accounts through the pandemic. Building on this success is a key long-term strategy as customers increasingly transition to digital channels and desire an experience that is quick, easy, and convenient. Key components to our strategy include creating additional automation that will enable us to scale efficiently, enhance fraud reduction capabilities, integrating the application into our digital banking platform, and an expanded product suite.
With these enhancements, we believe Horizon will be able to expand our new relationships and attract new profitable customers to the bank. Our teams have made great progress investing in our digital capabilities. We anticipate 2023 to be another successful year, creating value for our clients and shareholders through our investments in technology. At this time, I will transition back to Craig to lead us through our question and answer session. Thank you.
Commercial banking is a core offering of Horizon Bank with a history of consistent performance and continued growth. Total commercial loans represented 59% of the bank's loan portfolio as of December 31, 2022, with a growth of commercial loans of 11% in 2022. Commercial lending and treasury management will continue to be an area of long-term focus as the bank leverages its investment in its expanded markets and staff in the ongoing expansion of additional products and services. As we look ahead to 2023, we'll continue to build upon the momentum we gained in 2021 and 2022. While economic conditions will likely temper growth, we have commercial loan growth in a range of 6%-9% for 2023. As Craig previously mentioned, Horizon has a presence in most of the key growth markets across both Indiana and Michigan.
Our predominant markets include our legacy Northwest Indiana markets, West and Southwest Michigan, and growth markets of Merrillville, Indianapolis, Holland, Grand Rapids, and Troy. We underwrite on a tailored basis, enabling us to consider a variety of industry and borrower needs. We focus on established businesses with experienced management, strong sponsors, and demonstrated repayment ability. In addition, our in-house lending limits enable us to meet the needs of the vast majority of clients within our communities. Horizon's commercial loan portfolio is also well-diversified by business sector with less than 10% of total commercial loans in any one NAICS super sector. Horizon believes in establishing lifelong business relationships by offering a full array of products and services to our customers and communities. While we are relationship-centric bankers, we have core product offerings that will remain part of our business strategy, as well as continued development of new products and services.
Commercial real estate represents 74% of our portfolio. As we look to 2023, we believe there's continued opportunity in this sector in industrial and warehouse, multi-family, including affordable and workforce housing, medical office, and student housing segments. In 2022, we enhanced our construction loan underwriting and management capabilities, and we expect to leverage this competency and technology to support our customers. Commercial and industrial represents 26% of our portfolio, with a primary focus on professional, medical, and light industrial manufacturing. Furthermore, we plan to expand our equipment finance capabilities in 2023. Through the origination of Paycheck Protection loans in 2020 and 2021, we provided access to capital and peace of mind to our customers as they navigated the impacts of COVID-19.
We continue to expand and enhance our SBA lending program capabilities, assisting our customers as they grow and navigate a potential recession in 2023. Our treasury management capabilities continue to be enhanced with the rollout of FedNow for real-time business to business payments, with plans to offer integrated payables and receivable services. In 2022, we invested in the addition of two regional merchant business development officers, and this is a growing segment of our treasury suite of products. We expect this to have a positive impact on treasury management fee income with a contribution of 10%-15% annually. In 2022, we added a seasoned team of wealth management professionals with the hiring of a president of wealth management, a highly experienced trust and investment director, and a director of employee benefit programs, which complements our commercial banking relationships.
We expect our employee benefit programs to have a positive impact on wealth management revenues with a contribution of 7%- 15% annually over the next three years. Horizon is focused on continuous improvement efforts with the goal of exemplary customer service and operational efficiency. In the past two years, commercial lending initiatives surrounding automation of internal processes resulting in enhanced productivity. In addition, Horizon has implemented and is leveraging its proprietary CRM platform to manage business development and pipeline management. As we enter 2023, the bank will be expanding its capabilities for digital small business and commercial loan applications. The bank has also kicked off a due diligence and selection process for an enhanced loan origination system, further supporting the customer and the advisor experience, productivity, as well as streamlined operational and compliance support.
In summary, we continue to invest in our commercial banking capabilities and are excited to continue to grow this segment of our business. It is my pleasure to introduce Horizon's Executive Vice President and Senior Retail and Mortgage Lending Officer, Noe Najera.
Thank you, Lynn. Our diverse retail consumer lending platform has proven to be vital for the ongoing success here at Horizon Bank. Our historic focus on prime, secure lending in our footprint of Indiana and Michigan has contributed to strong asset quality metrics. The emphasis on this type of lending remains unchanged as we look at 2023 strategies during the rising interest rate environment. Our primary focus is achieving growth in retail consumer lending. Horizon Bank's retail branch network is located in attractive markets, which provide an opportunity to capitalize on and service our customers' needs. The recent expansion into Gary, Indiana, and later this year into Marion County, Indiana, will open up the ability to capitalize on more opportunities in mortgage, direct, and indirect lending. During this past year, the retail team produced over $983 million in loan originations.
We believe with a broader lending spectrum in mortgage and consumer products, we will remain strong in existing markets where we have established Horizon as a top prime lender. Our focus is to establish specific strategies for each region, tailoring our products, lending within our parameters, and remaining competitive in each market. To accomplish our loan growth objectives, we will continue to focus on operational efficiencies, leveraging technology with a goal of reducing any friction with loan closings, resulting in an unsurpassed experience for customers. The five-year growth trend in the retail loan balances has remained strong, and we expect 2023 will be no different. Horizon's originated volume during the past 12 months has met expectations, in large part due to consistencies in our underwriting and processing standards.
Across our auto, HELOC, and other prime consumer products, we believe we have the right products, advisors, technology, and responsive decision-making needed to achieve our performance goals for these offerings. For 2023, our goals include annual growth in total consumer lending in the 4%-6% range. While also increasing our yield during the process and providing a best-in-class experience for all customers. Leading the way will be our direct lending platform with flexible and diverse loan offerings. Our goal remains to increase HELOC production and expect that line utilizations and balances will increase as consumers use this as an alternative to refinancing their first mortgage in this rising rate environment. Direct consumer loans account for 41% of our total consumer loans and are predominantly comprised of home equity lines of credit.
Due to the ever-changing market conditions, we are consistently reevaluating Horizon's lending products, focusing on yields, adjusting parameters accordingly, while maintaining historic lending standards. We are committed to increasing yields for the long term. We believe we will achieve this with consistent buying of home equity products in this rising rate environment, which will positively impact loan balances. This will allow us to grow balances at a much higher rate than in previous years due to the record low mortgage rates over the past several years. Now on to the consumer indirect portfolio. While analyzing the performance of the portfolio, we believe there is potential in all markets to originate higher-yielding loans. We plan to continue with prudent underwriting in our indirect channel.
To accomplish this task, we recognize it is sensible to give some of the focus on efficiencies, leveraging technology to close loans with less friction, which in turn, we believe, can increase volume exponentially. We have remained selective in our dealer network partners, aligning with those with excellent reputations, sharing the same values of best-in-class experience for the customer. Horizon Bank has a respected indirect leadership team that leverages their experience and relationships, delivering a consistent and competitive message. We are anticipating this portfolio to remain relatively flat in 2023, with our focus on higher new origination yields while not compromising existing credit standards. I would like to provide some insight on what we expect with retail mortgages in 2023, with tactics on how we plan to recover from the rising interest rates we experienced during this past year.
We believe the retail mortgage team has a best-in-class reputation from customers and vendors. As interest rates stabilize or reset to a new normal, we are prepared and have developed strategies to capture new business. Our sales team is well embedded in the communities they live in and serve. We believe that this, along with new electronic delivery methods for our various products, will allow us to maintain a competitive advantage in those communities. We continue to have a solid partnership with internal stakeholders and a strong camaraderie between sales and operations staff, which further supports our success with staff retention. We have also added investors to better diversify our pool, which expands our ability to offer competitive pricing while managing spread and product mix. We feel the Northern and Central Michigan markets have potential for growth. Additional MLOs will be recruited to help support these growth areas.
These markets provide great opportunities for second home, construction, and jumbo loans, which are strong portfolio products we offer. We are poised for modest growth in mortgage balances in the 2%-4% range in 2023, with a return to pre-pandemic levels. I now turn it over to Craig Dwight to lead our question and answer session.
We appreciate this opportunity to provide an update on key financial highlights, balance sheet strength, capital planning and 2023 objectives. Beginning with key financial highlights, the banking industry is facing a unique economic environment with many uncertainties, which in turn affects Horizon. In previous economic cycles, we have navigated successfully through these challenges, including rising rates, with the core structure of the company remaining stable. In four years of the last five years, Horizon's net income growth has outperformed the peer median of banks with between $5 billion and $10 billion in assets. Through these challenges of the pandemic and economic slowdown, Horizon's return on average assets has continued to show strength and outperform the peer median as earnings growth has kept pace with asset growth.
For 2022, return on average equity has grown to 13.66%, also outperforming peers while continuing to maintain strong regulatory capital ratios as we have deployed capital for bank transactions, stock buybacks and an increasing shareholder dividend. Continued discipline on expense control has lowered the percentage of non-interest expense to average assets to less than 2% and contributed to earnings growth. Over the last few years, stimulus money, PPP loans, and our branch acquisition in 2021 resulted in deposits growing faster than loans. Though funding costs declined during this time, lower yielding cash and investments and the increase in borrowings to fund loan growth has negatively impacted the net interest margin. However, due to the growth in earning assets, net interest income has increased.
As the transitory inflation has shifted to real inflation and interest rates have rapidly increased, the margin has continued to decline. As earning asset growth slows to a more moderate pace over the prior year, we expect net interest income will decline slightly in 2023. In the previous two rising rate environments, the full cycle betas for our interest-bearing deposit pricing was 28%. For the current rate cycle, we are at a beta of 24%, but expect to be in the range of 28% again for this full cycle. Betas in a rising rate environment are not linear and increase deeper into the cycle. This is true of the current rising rate environment, and we anticipate betas for the remaining rate increases to run in the 35%-45% range.
The current view of the impact on net interest margin for 2023 is an 8 basis point-18 basis point decline for the year compared to 2022. Going into 2023, we have added adjustable rate assets and have increased term CDs to aid in offsetting higher funding costs and manage the balance sheet during the shift in the market. We expect rates to stabilize or start to decline during the H2 of 2023. If they do, we expect that to have a positive impact on our balance sheet and net interest income. In addition to help drive net interest income in 2023 and continue over the next several years, our goal is to increase our loan to deposit ratio with loan growth and using our investment portfolio cash flows to fund higher yielding loans.
As competition for funding has increased and is expected to continue into 2023, there is an increased focus on balance sheet liquidity. Due to the structure of our balance sheet, which includes the majority of our investment portfolio unpledged, we have approximately $2.7 billion of available liquidity from borrowings, brokered CDs and unpledged investments. In this time of uncertainty, safe and sound liquidity provides an additional strength to our balance sheet. Strong capital levels also provide strength as we expect to see the percentage growth of capital increasing at a faster pace than total assets over the next year. The current focus for the use of capital is organic growth as opportunities and market conditions make it less likely for M&A activity.
We would like to continue to diversify by adding a more robust leasing platform through an opportunistic acquisition of an existing leasing company or a potential talent lift out. We expect to continue our targeted dividend payout ratio of 30%-40%, continuing our 30+ years of uninterrupted cash dividends. Based on our current stock price, our dividend provides a strong dividend yield. In addition, the six months of cash held at the holding company to cover fixed costs, including the shareholder dividend, helps provide additional stability in uncertain times. To summarize our current expectations for 2023, beginning with loan growth, we expect the growth to come from commercial loans in the range of 6%-9% and consumer loans growth in the range of 4%-6%.
As we work to shift lower yielding assets into higher yielding assets and see an increase in average earning assets, we expect net interest income to be in the range of $185 million-$195 million in 2023. We also expect to continue to manage core expenses to less than 1.9% of average assets. We estimate these objectives will provide a return on average assets greater than 1.1% and a return on average equity greater than 11.7%. Thank you again for joining us today. Now we will open the line for a question and answer session.
What is the target duration of the securities portfolio? Has it changed with the rise in interest rates?
Mark, do you want to take that?
Thank you, Daniel. The, within the last quarter, the duration portfolio around 6.7 years. It actually has gone down from the previous quarter, about 6.9 years. Mainly attributed to the nature of our portfolio falling in the middle of the yield curve as rates have changed.
Okay. Our next question is from Damon: What is the expected effective tax rate for the year?
Thank you, Damon. It's going to be similar to last year. I would put it in a range of 12%-14% is what we would expect to see our effective tax rate for 2023.
A follow-up question from Damon regarding the outlook for margin. Does this range still hold if the Fed holds rates through the end of 2023 and into 2024?
Yes. because we're slightly asset or liability sensitive, it would benefit us if the Fed starts to hold rates through the end of 2023 into 2024 any potential decrease. I think the range would be there. It would be on the moving toward the higher end of that range than the lower end if that was to be the outcome of the Fed rate increases.
I can add to that, Mark. We have $2.1 billion in adjustable rate loans, of which $900 million is reprice immediately. $400 million years of prices in 90 days. There's a little bit of a lag when rates rise. We have another $400 million-$600 million price over time. In addition to that, we have about $1.2 billion in cash flows that was the medium test. Roughly 1/2 our balance sheet is repriced within 12 months. When the Fed hits their peak or terminal rate, it'll benefit margin going forward. Thank you for the question.
Our next question comes from Nancy. What is your off-book exposure, off-balance sheet exposure?
Nancy, thank you for the question. Horizon has very little off-balance sheet exposure except for an unused line of credit, which we actually account for in our credit loss reserve calculation. It would be letters of credit, which are to third parties and are also a very nominal part of our total balance sheet. Thank you for the question.
Our next question is from Terry. How should we think about the recapture of AOCI on a quarterly basis? What should accelerate tangible book value growth?
Thank you, Terry. I think the, as you saw last quarter, with the, with the rate increase over the rate increases, but the yield curve stayed inverted, we saw AOCI improve slightly. I think as we see the stabilization of rates, I think we should continue to see that stabilize, and the recapture would just be as the portfolio rolls off or when it starts to come down. The, the acceleration of tangible book value would be any change in the AOCI, but also in the earnings. The earnings we expect earnings to continue to drive equity increase. That would also help to accelerate tangible book value growth.
If we look at the history of our rate increases here, we typically stop at least a 12 months time period to hit a terminal rate. Once the Fed hits that terminal rate, you'll see AOCI coming back into the TCR or tangible value of our balance sheet. At least over the next 2 years-3 years, you should see some significant increases in tangible value. Thank you.
Our next question comes from Nathan. Can you speak to the overall core deposit growth expectations for 2023?
As we looked at the budget and we looked at the planning, we anticipated some slight core deposit growth over 2023. We don't anticipate any significant growth. We anticipate most of our liquidity from repricing of other assets. The loans that the investor portfolio run off would help fund any of the asset growth that we have coming into our.
Mark, with also on the, on core deposit growth. We will see some of that liquidity move between classes because managers are paying interest during CD because clients react in a different interest rate environment. Overall, as we spoke to versus earlier, the diversity of our franchise, both having the retail core deposit, which is very granular and low cost, combined with our commercial relationship banking and our inroads into the church and ministry space have made, gives us a lot of ability to fund the balance sheet, kind of in various ways and also manage our costs.
Our next question is from Terry McEvoy. Have you evaluated restructuring the securities portfolio, and how would you think about the capital impact?
Hey, Terry. Thanks for the question. We do look at this on a periodic basis, and Thomas has done some research on this recently. Do you want to talk about other banks that have done that as part of the testing?
Sure. Thank you, Craig. We have part of the interesting remark, of course, we've seen several banks do a series of portfolio restructuring, either taking one-time losses or perhaps combining with another institution bank to create a new organization. Clearly, that's had some mixed reactions, I think, out in the marketplace, depending on what the long-term objective is and how long it'll take to earn back that loss. For us, we're always actively managing our balance sheet and looking for different opportunities to create stakeholder value. Without prompting, this is something we will continue to manage and look at on a frequent basis. When the opportunity is right for ourselves, our shareholders and all of our stakeholders, we would look forward to moving forward with that.
Our next question is from Brian Martin. Can you update us on mortgage fee outlook in 2023 and the new market talents?
Can you take that one?
Brian.
Brian, thank you for the question. As we look at our mortgage deal, we're anticipating a normal year in the market. In the first part of the year, we did see a little bit of softness. Again, we're starting to see a little bit more comfort level. The market's coming alive here, just beginning through the spring. Anticipating, again, a normal year in the market as far as the trends. We're seeing the outlook for us remain valid. As always with the good Horizon Bank has been a preferred provider as far as originators. If they want to do a loan, they start their fear of us. Also, we also mortgage warehouse lending, which does have some volatility in that business where you broadly see rates move.
As we see the market continue opening, we anticipate that that'll come more back in line with historical balances.
We did do a reduction in workforce in the mortgage side. The balance of loan volume that was put in place in December 23rd of this year. We are managing it to mitigate overextensive in this cycle. The first quarter will be slower before we wind down. We hope we'll pick up in the second H2. Thank you for the question. That concludes our question and answers for this segment and our final segment. Now it's my privilege to have the closing comments and introduce to you our President and next Chief Executive Officer, Thomas M. Prame. Thomas.
Thank you, Craig. We truly appreciate your participation in Horizon Bank's Investor Day. We're very positive about our 2023 outlook. We believe Horizon is a value stock. We're currently trading at discounts with peers with considerable upside potential as future cash flows are invested in higher yielding assets. This component is combined with our current dividend rate exceeding 4%. Additionally, we're a company on the move. With historical annual growth rate of 13% over the last 21 years through recruiting top talent and also successfully acquiring other organizations. We have a history of managing our capital efficiently with a consistent long-term view of maximizing shareholder value. Our diversified business model and balance sheet provides multiple income drivers and has delivered current results, proving to outperform the market during economic cycles.
Lastly, we have a highly engaged and talented team of advisors that are located in some of the most attractive Midwest markets. Our markets are experiencing considerable economic investment and activity, which can drive our growth expectations for many years. On behalf of the entire management team, thank you for participating in Investor Day, and we look forward to keeping you updated on our progress throughout 2023. Thank you.