What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-02 compared with 2020-08-04 · 286 added, 346 removed, 1367 unchanged (32% of the section changed)

4 unchanged sentences

(Dollar Amounts in Thousands)

September 30,

2020 December 31,

39 unchanged sentences

(Dollar Amounts in Thousands, Except Per Share Data)

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

7 unchanged sentences

Borrowed funds 1,662 2,275 5,974 8,391

Subordinated debentures 58 — 58 —

Subordinated notes 895 — 953 —

Junior subordinated debentures issued to capital trusts 576 864 2,061 2,348

8 unchanged sentences

Fiduciary activities 2,105 1,834 6,398 5,986

Gains on sale of investment securities (includes $ 248 and $( 100 ) for the three months ended June 30, 2020 and 2019, respectively, and $ 587 and $( 85 ) for the six months ended June 30, 2020 and 2019, respectively, related to accumulated other comprehensive earnings reclassifications)

Gains on sale of investment securities (includes $ 1,088 and $ — for the three months ended September 30, 2020 and 2019, respectively, and $ 1,675 and $( 85 ) for the nine months ended September 30, 2020 and 2019, respectively, related to accumulated other comprehensive earnings reclassifications)

1,088 — 1,675 ( 85 )

17 unchanged sentences

Income Before Income Taxes 24,638 24,541 54,509 57,378

Income tax expense (includes $ 52 and $( 21 ) for the three months ended June 30, 2020 and 2019, respectively, and $ 123 and $( 18 ) for the six months ended June 30, 2020 and 2019, respectively, related to income tax expense from reclassification items)

Income tax expense (includes $ 228 and $ — for the three months ended September 30, 2020 and 2019, respectively, and $ 352 and $( 18 ) for the nine months ended September 30, 2020 and 2019, respectively, related to income tax expense from reclassification items)

4,326 4,004 7,903 9,383

7 unchanged sentences

(Dollar Amounts in Thousands)

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended Nine Months Ended

September 30 September 30

2020 2019 2020 2019

3 unchanged sentences

Change in fair value of derivative instruments for the period ( 359 ) ( 864 ) ( 4,459 ) ( 3,871 )

( 135 ) ( 1,901 ) ( 4,100 ) ( 3,007 )

Income tax effect 75 182 936 813

2 unchanged sentences

Unrealized appreciation for the period on AFS securities 4,019 3,963 27,518 22,591

15,507 6,933 23,499 18,627

Amortization from transfer of securities from available for sale to held to maturity securities ( 31 ) ( 15 ) ( 60 ) ( 83 )

1 ( 30 ) ( 29 ) ( 68 )

Reclassification adjustment for securities gains realized in income ( 1,088 ) — ( 1,675 ) 85

( 248 ) 100 ( 587 ) 85

Income tax effect ( 608 ) ( 827 ) ( 5,414 ) ( 4,745 )

12 unchanged sentences

Comprehensive

Balances, April 1, 2019 $ — $ — $ 378,963 $ 230,327 $ 178 $ 609,468

Balances, July 1, 2019 $ — $ — $ 380,735 $ 241,519 $ 4,207 $ 626,461

Net income — — — 20,537 — 20,537

4 unchanged sentences

Stock issued stock plans — — 49 — — 49

Repurchase of outstanding stock — — ( 1,595 ) — — ( 1,595 )

Cash dividends on common stock ($ 0.12 per share)

— — — ( 5,439 ) — ( 5,439 )

Balances, June 30, 2019 $ — $ — $ 380,735 $ 241,519 $ 4,207 $ 626,461

Balances, April 1, 2020 $ — $ — $ 361,019 $ 260,501 $ 9,322 $ 630,842

Balances, September 30, 2019 $ — $ — $ 379,448 $ 256,617 $ 6,646 $ 642,711

Balances, July 1, 2020 $ — $ — $ 361,087 $ 269,849 $ 21,270 $ 652,206

Net income — — — 20,312 — 20,312

6 unchanged sentences

— — — ( 5,326 ) — ( 5,326 )

Balances, June 30, 2020 $ — $ — $ 361,087 $ 269,849 $ 21,270 $ 652,206

Balances, September 30, 2020 $ — $ — $ 362,180 $ 284,835 $ 23,278 $ 670,293

See notes to condensed consolidated financial statements

Six Months Ended

Nine Months Ended

Stock Additional

11 unchanged sentences

Stock issued in Salin acquisition — — 102,722 — — 102,722

Repurchase of outstanding stock — — ( 1,595 ) — — ( 1,595 )

Cash dividends on common stock ($ 0.34 per share)

— — — ( 15,413 ) — ( 15,413 )

Balances, June 30, 2019 $ — $ — $ 380,735 $ 241,519 $ 4,207 $ 626,461

Balances, September 30, 2019 $ — $ — $ 379,448 $ 256,617 $ 6,646 $ 642,711

Balances, January 1, 2020 $ — $ — $ 379,853 $ 269,738 $ 6,432 $ 656,023

1 unchanged sentence

Other comprehensive income, net of tax — — — — 16,846 16,846

— — — — 14,838 14,838

Impact of adoption of ASU No.

1 unchanged sentence

Amortization of unearned compensation — — 457 — — 457

— — 122 — — 122

Exercise of stock options — — 157 — — 157

4 unchanged sentences

— — — ( 15,874 ) — ( 15,874 )

Balances, June 30, 2020 $ — $ — $ 361,087 $ 269,849 $ 21,270 $ 652,206

Balances, September 30, 2020 $ — $ — $ 362,180 $ 284,835 $ 23,278 $ 670,293

See notes to condensed consolidated financial statements

3 unchanged sentences

(Dollar Amounts in Thousands)

Six Months Ended June 30

Nine Months Ended

Operating Activities

31 unchanged sentences

Net cash received in acquisition, Salin — 128,745

Net cash provided by (used in) investing activities ( 428,526 ) 44,839

Net cash used in investing activities ( 549,828 ) ( 48,883 )

Financing Activities

25 unchanged sentences

All inter–company balances and transactions have been eliminated.

The results of operations for the periods ended June 30, 2020 and June 30, 2019 are not necessarily indicative of the operating results for the full year of 2020 or 2019.

The results of operations for the periods ended September 30, 2020 and September 30, 2019 are not necessarily indicative of the operating results for the full year of 2020 or 2019.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of Horizon’s management, necessary to fairly present the financial position, results of operations and cash flows of Horizon for the periods presented.

4 unchanged sentences

On July 16, 2019, the Board of Directors of the Company authorized a stock repurchase program for up to 2,250,000 shares of Horizon’s issued and outstanding common stock, no par value.

As of June 30, 2020, Horizon had repurchased a total of 373,323 shares at an average price per share of $ 15.86 .

As of September 30, 2020, Horizon had repurchased a total of 373,323 shares at an average price per share of $ 15.86 .

In addition to the stock repurchase program, Horizon agreed to repurchase 1,000,000 shares at a price per share of $ 15.19 from an individual shareholder on March 6, 2020.

2 unchanged sentences

The following table shows computation of basic and diluted earnings per share.

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended Nine Months Ended

September 30 September 30

2020 2019 2020 2019

Basic earnings per share

$ 14,639 $ 16,642 $ 26,294 $ 27,458

Net income $ 20,312 $ 20,537 $ 46,606 $ 47,995

Weighted average common shares outstanding 43,862,435 45,038,021 44,099,862 42,995,082

5 unchanged sentences

Restricted stock 8,246 — 32,574 —

7,614 — 40,017 —

Stock options 33,200 75,709 33,214 75,013

13,931 75,291 26,967 76,924

Weighted average common shares outstanding 43,903,881 45,113,730 44,165,650 43,070,095

43,802,794 45,130,408 44,286,864 42,032,971

Diluted earnings per share $ 0.46 $ 0.46 $ 1.06 $ 1.11

There were 504,085 and 285,588 shares for the three and six months ended June 30, 2020, which were not included in the computation of diluted earnings per share because they were non-dilutive.

There were 341,394 and 341,394 shares for the three and six months ended June 30, 2019, which were not included in the computation of diluted earnings per share because they were non-dilutive.

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

There were 492,273 and 273,776 shares for the three and nine months ended September 30, 2020, which were not included in the computation of diluted earnings per share because they were non–dilutive.

There were 340,540 shares for the three and nine months ended September 30, 2019, which were not included in the computation of diluted earnings per share because they were non–dilutive.

Horizon has share-based employee compensation plans, which are described in the notes to the financial statements included in the December 31, 2019 Annual Report on Form 10–K.

17 unchanged sentences

January 1, 2020

(dollars in thousands) As Reported

ASC 326 Pre-ASC 326

5 unchanged sentences

Allowance for credit losses on loans $ 40,244 $ 17,667 $ 22,577

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, and deferred loan fees and costs.

Accrued interest receivable totaling $ 12.8 million at June 30, 2020 was excluded from the ACL calculation and was reported in accrued interest receivable on the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

using the effective yield method without anticipating prepayments.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, and deferred loan fees and costs.

Accrued interest receivable totaling $ 13.4 million at September 30, 2020 was excluded from the ACL calculation and was reported in accrued interest receivable on the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the effective yield method without anticipating prepayments.

From time to time, the Bank obtains information that may lead management to believe that the collection of payments may be doubtful on a particular loan.

23 unchanged sentences

Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment.

When analysis of borrower operating results and financial condition indicate that underlying cash flows of a borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment.

When analysis of borrower operating results and financial condition indicate that underlying cash flows of a

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment.

Often this is associated with a delay or shortfall in payments of 30 days or more.

4 unchanged sentences

Allowable methods for determining the amount of impairment include the three methods described above.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

Purchased Credit Deteriorated Loans

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

The Company has purchased loans, some of which have experienced credit deterioration since origination.

PCD loans are recorded at the amount paid.

25 unchanged sentences

As appropriate, newer credit products or portfolios with limited historical loss may use applicable external data for determining the ACL until experience justifies that sufficient product maturity supports the estimate of expected credit losses.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

Pursuant to ASC 326–20–30–9, an entity shall not rely solely on past events to estimate expected credit losses, and should consider adjustments to historical information to reflect the extent to which management expects current conditions and forecasted conditions to differ from the periods utilized for the historical loss rate calculation.

3 unchanged sentences

The qualitative adjustment is calculated based on current and forecasted conditions and evaluated each quarter by management, and therefore is dynamic in nature.

As a result of the forecast being applied as a qualitative factor and adjusted quarterly, no reversion to the historical loss rate is necessary, as

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

the historical base loss rate is preserved in the calculation of “all in” loss rate.

As a result of the forecast being applied as a qualitative factor and adjusted quarterly, no reversion to the historical loss rate is necessary, as the historical base loss rate is preserved in the calculation of “all in” loss rate.

Specific reserves reflect impairment on loans identified for evaluation or individually considered non–performing, including troubled debt restructurings and receivables where the Company has determined foreclosure is probable.

23 unchanged sentences

Construction loans are reviewed and rewritten prior to being originated as a term loan.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

Commercial loans are primarily based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower.

3 unchanged sentences

In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

Commercial real estate loans are viewed primarily as cash flow loans and, secondarily, as loans secured by real estate.

28 unchanged sentences

Also, in the event that the end investor would not be able to honor the purchase commitment and the mortgage company would not be able to reacquire its loan on an individual mortgage, Horizon would be able to exercise its rights under the agreement.

Determining the Contractual Term

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

Determining the Contractual Term

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals and modifications unless either of the following applies:

Troubled Debt Restructurings (“TDR”)

18 unchanged sentences

Any impairment that has not been recorded through an ACL is recorded in other comprehensive income.

Changes in the ACL are recorded as provision for, or reversal of, credit loss expense.

Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Allowance for Credit Losses on Held to Maturity Securities

For held to maturity securities, the Company conducts an assessment of its held to maturity securities at the time of purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

perform satisfactorily in fulfilling its obligations.

Changes in the ACL are recorded as provision for, or reversal of, credit loss expense.

Allowance for Credit Losses on Held to Maturity Securities

The Company considers, among other factors, the nature of the securities and credit ratings or financial condition of the issuer.

If available, the Company obtains a credit rating for issuers from Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration.

If this assessment indicates that a material credit loss exists, the present value of cash flows expected to be collected form the security are compared to the amortized cost basis of the security.

If available, the Company obtains a credit rating for issuers from the Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration.

If this assessment indicates that a material credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss.

After completing this assessment, management determined any credit losses as of June 30, 2020 were not material to the consolidated financial statements.

After completing this assessment, management determined any credit losses as of September 30, 2020 were not material to the consolidated financial statements.

2017–04, Intangibles – Goodwill and Other (Topic 350):

15 unchanged sentences

Horizon further considered the amount by which fair value exceeded book value in the most recent quantitative analysis and sensitivities performed.

At the conclusion of the assessment, the Company determined that as of March 31, 2020 it was more likely than not that the fair value exceeded its carrying values.

At the conclusion of the assessment, the Company determined that as of September 30, 2020 it was more likely than not that the fair value exceeded its carrying values.

Horizon will continue to monitor developments regarding the COVID–19 pandemic and measures implemented in response to the pandemic, market capitalization, overall economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill in the future.

8 unchanged sentences

The adoption of this new guidance did not have a material impact on our consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the 2019 condensed consolidated financial statements to be comparable to 2020.

These reclassifications had no effect on net income.

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

Reclassifications

Certain reclassifications have been made to the 2019 condensed consolidated financial statements to be comparable to 2020.

These reclassifications had no effect on net income.

Note 2 – Acquisitions

5 unchanged sentences

The Salin shareholders received cash in lieu of fractional shares.

Based upon the March 25, 2019 closing price of $ 15.65 per share of Horizon common stock immediately prior to the effectiveness of the merger the transaction has an implied valuation of approximately $ 126.7 million.

Based upon the March 25, 2019 closing price of $ 15.65 per share of Horizon common stock immediately prior to the effectiveness of the merger the transaction had an implied valuation of approximately $ 126.7 million.

The Company incurred approximately $ 5.6 million in costs related to the acquisition.

3 unchanged sentences

Under the acquisition method of accounting, the total purchase price was allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition.

Cash and due from banks

$ 152,745 Deposits

Investment securities, available for sale

54,319 Non-interest bearing

352,798 Savings and money market

Residential mortgage

131,008 Certificates of deposit

85,112 Total deposits

568,918 Borrowings

Premises and equipment, net

20,425 Subordinated debentures

FRB and FHLB stock

3,571 Interest payable

31,358 Other liabilities

Core deposit intangible

19,818 Total liabilities assumed

Assets Liabilities

Cash and due from banks $ 152,745 Deposits

Investment securities, available for sale 54,319 Non–interest bearing $ 188,744

Loans NOW accounts 207,567

Commercial 352,798 Savings and money market 274,504

Residential mortgage 131,008 Certificates of deposit 70,529

Consumer 85,112 Total deposits 741,344

Total loans 568,918 Borrowings 70,495

Premises and equipment, net 20,425 Subordinated debentures 18,376

FRB and FHLB stock 3,571 Interest payable 826

Goodwill 31,358 Other liabilities 8,759

Core deposit intangible 19,818 Total liabilities assumed $ 839,800

Interest receivable 2,488

Other assets 112,880

Total assets purchased $ 966,522

Common shares issued $ 102,722

Cash paid 24,000

Total purchase price $ 126,722

Of the total purchase price of $ 126.7 million, $ 19.8 million has been allocated to core deposit intangible.

Additionally, $ 31.4 million has been allocated to goodwill and none of the purchase price is deductible.

Of the total purchase price of $ 126.7 million, $ 19.8 million was allocated to core deposit intangible.

Additionally, $ 31.4 million was allocated to goodwill and none of the purchase price is deductible.

The core deposit intangible is being amortized over 10 years on a straight–line basis.

The Company acquired various loans in the acquisition that had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired.

Evidence of credit quality deterioration as of the purchase date may include information such as past-due and non-accrual status, borrower credit scores and recent loan-to-value percentages.

Purchased credit-impaired loans at the acquisition date, were accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which

The Company acquired various loans in the acquisition that had evidence of deterioration of credit quality since origination

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

includes estimated future credit losses expected to be incurred over the life of the loan.

and it was probable, at acquisition, that all contractually required payments would not be collected.

Evidence of credit quality deterioration as of the purchase date may include information such as past–due and non–accrual status, borrower credit scores and recent loan–to–value percentages.

Purchased credit–impaired loans at the acquisition date, were accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310–30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan.

Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date.

Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporated the estimate of current assumptions, such as default rates, severity and prepayment speeds.

The following table details an estimate of the acquired loans that are accounted for in accordance with ASC 310-30 as of March 26, 2019.

The following table details the acquired loans that are accounted for in accordance with ASC 310–30 as of March 26, 2019.

Contractually required principal and interest at acquisition $ 22,672

6 unchanged sentences

The results of operations of Salin have been included in the Company’s consolidated financial statements since the acquisition date.

The following schedule includes pro-forma results for the three and six months ended June 30, 2019 as if the Salin acquisition had occurred as of the beginning of the comparable prior reporting period.

Three Months Ended

Six Months Ended

June 30 June 30

The following schedule includes pro–forma results for the three and nine months ended September 30, 2019 as if the Salin acquisition had occurred as of the beginning of the comparable prior reporting period.

Three Months Ended Nine Months Ended

September 30 September 30

Summary of Operations:

Net Interest Income $ 43,463 $ 127,174

$ 41,529 $ 83,711

Provision for Loan Losses 376 1,936

Net Interest Income after Provision for Loan Losses 43,087 125,238

40,633 82,151

Non-interest Income 11,514 31,538

10,898 20,024

Non-interest Expense 30,060 103,796

31,584 73,736

Income before Income Taxes 24,541 52,980

19,947 28,439

Income Tax Expense 4,004 9,326

16,642 23,117

Net Income 20,537 43,654

Net Income Available to Common Shareholders $ 20,537 $ 43,654

$ 16,642 $ 23,117

Basic Earnings per Share $ 0.46 $ 0.97

$ 0.37 $ 0.51

Diluted Earnings per Share $ 0.46 $ 0.97

$ 0.37 $ 0.51

The pro–forma information includes adjustments for interest income on loans, amortization of intangibles arising from the transaction, interest expense on deposits acquired, premises expense for the banking centers acquired and the related income tax effects.

The pro-forma financial information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

The pro–forma financial information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Note 3 – Securities

The fair value of securities is as follows:

June 30, 2020

September 30, 2020

Available for sale

Treasury and federal agencies $ 6,250 $ — $ ( 11 ) $ 6,239

State and municipal 651,256 27,978 ( 775 ) 678,459

11 unchanged sentences

Treasury and federal agencies $ 1,415 $ — $ ( 2 ) $ 1,413

$ 1,415 $ — $ ( 2 ) $ 1,413

State and municipal 396,931 11,288 ( 2,451 ) 405,768

396,931 11,288 ( 2,451 ) 405,768

Federal agency collateralized mortgage obligations 267,272 2,543 ( 563 ) 269,252

267,272 2,543 ( 563 ) 269,252

Federal agency mortgage-backed pools 145,623 1,207 ( 258 ) 146,572

145,623 1,207 ( 258 ) 146,572

Corporate notes 10,848 923 — 11,771

10,848 923 — 11,771

Total available for sale investment securities $ 822,089 $ 15,961 $ ( 3,274 ) $ 834,776

$ 822,089 $ 15,961 $ ( 3,274 ) $ 834,776

Held to maturity

State and municipal $ 190,767 $ 7,129 $ ( 54 ) $ 197,842

$ 190,767 $ 7,129 $ ( 54 ) $ 197,842

Federal agency collateralized mortgage obligations 4,560 13 ( 5 ) 4,568

4,560 13 ( 5 ) 4,568

Federal agency mortgage-backed pools 12,572 194 ( 29 ) 12,737

12,572 194 ( 29 ) 12,737

Total held to maturity investment securities $ 207,899 $ 7,336 $ ( 88 ) $ 215,147

$ 207,899 $ 7,336 $ ( 88 ) $ 215,147

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information, and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

4 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

The amortized cost and fair value of securities available for sale and held to maturity at June 30, 2020 and December 31, 2019, by contractual maturity, are shown below.

The amortized cost and fair value of securities available for sale and held to maturity at September 30, 2020 and December 31, 2019, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Value Amortized

18 unchanged sentences

The following table shows the gross unrealized losses and the fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

June 30, 2020

September 30, 2020

Less than 12 Months 12 Months or More Total

3 unchanged sentences

Investment Securities

Treasury and federal agencies $ 5,239 $ ( 11 ) $ — $ — $ 5,239 $ ( 11 )

State and municipal 105,976 ( 733 ) 1,307 ( 42 ) 107,283 ( 775 )

15 unchanged sentences

Federal agency mortgage–backed pools 24,740 ( 104 ) 37,822 ( 183 ) 62,562 ( 287 )

Corporate notes — — — — — —

Total temporarily impaired securities $ 224,138 $ ( 2,788 ) $ 67,402 $ ( 574 ) $ 291,540 $ ( 3,362 )

Information regarding security proceeds, gross gains and gross losses are presented below.

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended Nine Months Ended

September 30 September 30

2020 2019 2020 2019

8 unchanged sentences

Note 4 – Loans

The following table presents total loans outstanding by portfolio class, as of June 30, 2020:

The following table presents total loans outstanding by portfolio class, as of September 30, 2020:

September 30,

Owner occupied real estate $ 503,127

15 unchanged sentences

Net loans $ 3,974,046

As of June 30, 2020, loans originated under the Federal Paycheck Protection Program ("PPP") totaled approximately $ 308.1 million.

Total loans include net deferred loan fees of $ 7.1 million at June 30, 2020.

As of September 30, 2020, loans originated under the Federal Paycheck Protection Program (“PPP”) totaled approximately $ 310.8 million.

Total loans include net deferred loan fees of $ 5.7 million at September 30, 2020.

HORIZON BANCORP, INC.

5 unchanged sentences

Real estate, including agriculture 978,891

Tax exempt 63,571

Total 2,046,651

1–4 family 762,571

Total 770,717

Recreation 16,262

Real estate/home improvement 43,585

Home equity 237,979

Unsecured 7,286

Total 669,180

16 unchanged sentences

December 31, 2019

$ 197 $ 99 $ — $ 296 $ — $ 296

88 473 — 561 — 561

229 35 — 264 — 264

244 131 — 375 — 375

353 793 20 1,166 — 1,166

1,867 — — 1,867 — 1,867

2,289 — — 2,289 — 2,289

Commercial Real Estate Consumer Outstanding

Balance Allowance

Losses Carrying

Heartland $ 197 $ 99 $ — $ 296 $ — $ 296

Summit 88 473 — 561 — 561

Peoples 229 35 — 264 — 264

Kosciusko 244 131 — 375 — 375

LaPorte 353 793 20 1,166 — 1,166

Lafayette 1,867 — — 1,867 — 1,867

Wolverine 2,289 — — 2,289 — 2,289

Salin 4,938 1,912 962 7,812 133 7,679

$ 10,205 $ 3,443 $ 982 $ 14,630 $ 133 $ 14,497

Accretable yield, or income expected to be collected for the six months ended June 30, 2019 is as follows:

Six Months Ended June 30, 2019

Reclassification

Total $ 10,205 $ 3,443 $ 982 $ 14,630 $ 133 $ 14,497

Accretable yield, or income expected to be collected for the nine months ended September 30, 2019 is as follows:

Nine Months Ended September 30, 2019

balance Additions Accretion Reclassification

nonaccretable

$ 174 $ — $ ( 16 ) $ — $ — $ 158

42 — ( 5 ) — ( 11 ) 26

300 — ( 33 ) — ( 1 ) 266

829 — ( 59 ) — — 770

609 — ( 67 ) — ( 180 ) 362

698 — ( 212 ) — ( 120 ) 366

difference Disposals Ending

Heartland $ 174 $ — $ ( 24 ) $ — $ — $ 150

Summit 42 — ( 7 ) — ( 11 ) 24

Kosciusko 300 — ( 49 ) — ( 2 ) 249

LaPorte 829 — ( 85 ) — 4 748

Lafayette 609 — ( 97 ) — ( 193 ) 319

Wolverine 698 — ( 243 ) — ( 306 ) 149

Salin — 2,002 ( 375 ) — ( 30 ) 1,597

$ 2,652 $ 735 $ ( 392 ) $ — $ ( 312 ) $ 2,683

During the six months ended June 30, 2019, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $ 154,000 .

Total $ 2,652 $ 2,002 $ ( 880 ) $ — $ ( 538 ) $ 3,236

During the nine months ended September 30, 2019, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $ 10,000 .

HORIZON BANCORP, INC.

3 unchanged sentences

Note 6 – Allowance for Credit and Loan Losses

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the three months ended June 30, 2020 and 2019:

Three Months Ended June 30, 2020

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the three months ended September 30, 2020 and 2019:

Three Months Ended September 30, 2020

Commercial Real Estate Mortgage Warehouse Consumer Total

4 unchanged sentences

Balance, end of period $ 39,795 $ 5,464 $ 1,250 $ 9,810 $ 56,319

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Commercial Real Estate Mortgage Warehouse Consumer Total

4 unchanged sentences

Balance, end of period $ 12,082 $ 1,449 $ 1,041 $ 3,384 $ 17,956

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30, 2020

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30, 2020

Commercial Real Estate Mortgage Warehouse Consumer Total

6 unchanged sentences

Balance, end of period $ 39,795 $ 5,464 $ 1,250 $ 9,810 $ 56,319

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Commercial Real Estate Mortgage Warehouse Consumer Total

4 unchanged sentences

Balance, end of period $ 12,082 $ 1,449 $ 1,041 $ 3,384 $ 17,956

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Table Dollar Amounts in Thousands, Except Per Share Data)

The Company utilized the Cumulative Loss Rate method in determining expected future credit losses.

13 unchanged sentences

financial asset type, loan purpose, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of the borrower and concentrations, and historical or expected credit loss patterns.

The $ 15.7 million ACL provision included special allocations related to the potential impact on three portfolios, non-owner occupied retail, leisure and hospitality, and unstabilized commercial real estate while continuing allocations for hotels and restaurants, as a result of the COVID-19 measures implemented by the states in which Horizon operates (Indiana and Michigan).

The $17.7 million ACL provision included special allocations related to the potential impact due to the nature and characteristics on certain loan types including, non–owner occupied retail, leisure and hospitality, and unstabilized commercial real estate while continuing allocations for hotels and restaurants, as a result of the COVID–19 business restrictions implemented by the Federal Government and the states in which Horizon operates (Indiana and Michigan).

Extensive analysis and monitoring of these portfolios has been undertaken and, while no loss has been specifically identified, the risks to certain borrowers are elevated and, therefore, the special allocation was deemed prudent.

5 unchanged sentences

December 31, 2019

Commercial Real Estate Mortgage

Warehousing Consumer Total

Allowance For Loan Losses

1 unchanged sentence

Individually evaluated for impairment $ 541 $ — $ — $ — $ 541

$ 541 $ — $ — $ — $ 541

Collectively evaluated for impairment 11,455 923 1,077 3,671 17,126

11,455 923 1,077 3,671 17,126

Loans acquired with deteriorated credit quality — — — — —

Total ending allowance balance $ 11,996 $ 923 $ 1,077 $ 3,671 $ 17,667

$ 11,996 $ 923 $ 1,077 $ 3,671 $ 17,667

Individually evaluated for impairment $ 7,347 $ — $ — $ — $ 7,347

$ 7,347 $ — $ — $ — $ 7,347

Collectively evaluated for impairment 2,040,299 770,705 150,293 665,952 3,627,249

2,040,299 770,705 150,293 665,952 3,627,249

Loans acquired with deteriorated credit quality — — — — —

Total ending loans balance $ 2,047,646 $ 770,705 $ 150,293 $ 665,952 $ 3,634,596

$ 2,047,646 $ 770,705 $ 150,293 $ 665,952 $ 3,634,596

HORIZON BANCORP, INC.

4 unchanged sentences

The following table presents the non–accrual, loans past due over 90 days still on accrual, and troubled debt restructured (“TDRs”) by class of loans:

June 30, 2020

Non-performing

September 30, 2020

Non–accrual Loans Past

Accruing Non–performing

TDRs Performing

Non–performing

Loans Non–accrual

with no Allowance for Credit Losses

Owner occupied real estate $ 11,105 $ — $ 629 $ 169 $ 11,903 $ 8,715

$ 8,547 $ — $ 629 $ 167 $ 9,343 $ 6,158

Non–owner occupied real estate 1,181 — 340 — 1,521 1,033

1 unchanged sentence

Development & spec land 70 — — — 70 70

70 — — — 70 70

Commercial and industrial 2,152 — 523 — 2,675 1,921

2,049 — 1,184 — 3,233 2,363

Total commercial 14,508 — 1,492 169 16,169 11,739

11,908 — 2,163 167 14,238 9,677

Residential mortgage 6,606 205 988 1,410 9,209 7,594

7,354 — 1,054 1,537 9,945 8,408

Residential construction — — — — — —

1 unchanged sentence

Total real estate 6,606 205 988 1,410 9,209 7,594

7,354 — 1,054 1,537 9,945 8,408

Direct installment 23 — — — 23 23

27 40 — — 67 27

Indirect installment 1,122 69 — — 1,191 1,122

1,237 83 — — 1,320 1,237

1,925 — 226 335 2,486 2,151

Home equity 2,195 57 224 246 2,722 2,419

Total consumer 3,340 126 224 246 3,936 3,564

3,189 123 226 335 3,873 3,415

$ 22,451 $ 123 $ 3,443 $ 2,039 $ 28,056 $ 21,500

There was no interest income recognized on non-accrual loans during the three and six months ended June 30, 2020 and 2019 while the loans were in non-accrual status.

Total $ 24,454 $ 331 $ 2,704 $ 1,825 $ 29,314 $ 22,897

There was no interest income recognized on non–accrual loans during the three and nine months ended September 30, 2020 and 2019 while the loans were in non–accrual status.

Included in the $ 24.5 million of non–accrual loans and the $ 2.7 million of non–performing TDRs at September 30, 2020 were $ 3.5 million and $ 993,000 , respectively, of loans acquired for which accretable yield was recognized.

HORIZON BANCORP, INC.

3 unchanged sentences

December 31, 2019

Non-performing

Non–accrual Loans Past

Accruing Non–performing

TDRs Performing

Non–performing

Loans Non–accrual

with no Allowance for Credit Losses

Owner occupied real estate $ 2,424 $ — $ 629 $ 139 $ 3,192 $ 2,563

$ 2,424 $ — $ 629 $ 139 $ 3,192 $ 2,563

Non–owner occupied real estate 682 — 374 — 1,056 937

682 — 374 — 1,056 937

Residential spec homes — — — — — —

Development & spec land 73 — — — 73 73

73 — — — 73 73

Commercial and industrial 1,603 — 78 1,345 3,026 514

1,603 — 78 1,345 3,026 514

Total commercial 4,782 — 1,081 1,484 7,347 4,087

4,782 — 1,081 1,484 7,347 4,087

Residential mortgage 7,614 1 708 1,561 9,884 8,322

7,614 1 708 1,561 9,884 8,322

Residential construction — — — — — —

1 unchanged sentence

Total real estate 7,614 1 708 1,561 9,884 8,322

7,614 1 708 1,561 9,884 8,322

Direct installment 30 5 — — 35 30

30 5 — — 35 30

Indirect installment 1,234 135 — — 1,369 1,234

1,234 135 — — 1,369 1,234

2,019 5 217 309 2,550 2,236

Home equity 2,019 5 217 309 2,550 2,236

Total consumer 3,283 145 217 309 3,954 3,500

3,283 145 217 309 3,954 3,500

$ 15,679 $ 146 $ 2,006 $ 3,354 $ 21,185 $ 15,909

Included in the $ 22.5 million of non-accrual loans and the $ 3.4 million of non-performing TDRs at June 30, 2020 were $ 3.3 million and $ 960,000 , respectively, of loans acquired for which accretable yield was recognized.

Total $ 15,679 $ 146 $ 2,006 $ 3,354 $ 21,185 $ 15,909

Troubled Debt Restructurings

2 unchanged sentences

TDRs that subsequently default are individually evaluated for impairment at the time of default.

At June 30, 2020, the type of concessions the Company has made on restructured loans has been temporary rate reductions and/or reductions in monthly payments, and there have been no restructured loans with modified recorded balances.

At September 30, 2020, the type of concessions the Company has made on restructured loans has been temporary rate reductions and/or reductions in monthly payments, and there have been no restructured loans with modified recorded balances.

Any modification to a loan that is a concession and is not in the normal course of lending is considered a restructured loan.

A restructured loan is returned to accruing status after six consecutive payments but is still reported as TDR unless the loan bears interest at a market rate.

As of June 30, 2020, the Company had $ 5.5 million in TDRs, $ 2.0 million were performing according to the restructured terms, and one TDR was returned to accrual status during the first six months of 2020.

There were $ 435,000 of specific reserves allocated to TDRs at June 30, 2020 based on the discounted cash flows or, when appropriate, the fair value of the collateral.

These TDRs are exclusive of loans modified under the CARES Act during the six months of 2020.

As of September 30, 2020, the Company had $ 4.5 million in TDRs, $ 1.8 million were performing according to the restructured terms, and one TDR was returned to accrual status during the first nine months of 2020.

There were $ 117,000 of specific reserves allocated to TDRs at September 30, 2020 based on the discounted cash flows or, when appropriate, the fair value of the collateral.

These TDRs are exclusive of loans modified under the CARES Act during the first nine months of 2020.

HORIZON BANCORP, INC.

3 unchanged sentences

The following table presents TDRs by loan portfolio:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Non–accrual Accruing Total Non–accrual Accruing Total

Owner occupied real estate $ 629 $ 169 $ 798 $ 629 $ 139 $ 768

$ 629 $ 167 $ 796 $ 629 $ 139 $ 768

Non–owner occupied real estate 340 — 340 374 — 374

2 unchanged sentences

Commercial and industrial 523 — 523 78 1,345 1,423

1,184 — 1,184 78 1,345 1,423

Total commercial 1,492 169 1,661 1,081 1,484 2,565

2,163 167 2,330 1,081 1,484 2,565

Residential mortgage 988 1,410 2,398 708 1,561 2,269

1,054 1,537 2,591 708 1,561 2,269

Residential construction — — — — — —

1 unchanged sentence

Total real estate 988 1,410 2,398 708 1,561 2,269

1,054 1,537 2,591 708 1,561 2,269

Direct installment — — — — — —

Indirect installment — — — — — —

226 335 561 217 309 526

Home equity 224 246 470 217 309 526

Total consumer 224 246 470 217 309 526

226 335 561 217 309 526

$ 3,443 $ 2,039 $ 5,482 $ 2,006 $ 3,354 $ 5,360

Total $ 2,704 $ 1,825 $ 4,529 $ 2,006 $ 3,354 $ 5,360

Loans Modified under the CARES Act

1 unchanged sentence

and (ii) to suspend any determination of a loan modified as a result of the effects of COVID–19 pandemic as being a TDR, including impairment for accounting purposes.

At June 30, 2020, the Bank modified loans totaling $ 533.9 million which qualify for treatment under the CARES Act.

At September 30, 2020, the Bank modified loans totaling $ 160.1 million which qualify for treatment under the CARES Act.

Collateral Dependent Financial Assets

8 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

The table below presents the value of collateral dependent loans by loan class as of June 30, 2020:

June 30, 2020

The table below presents the value of collateral dependent loans by loan class as of September 30, 2020:

September 30, 2020

Owner occupied real estate $ 3,018

3 unchanged sentences

Total collateral dependent loans $ 4,260

The following table presents the payment status by class of loan, excluding non-accrual loans of $ 22.5 million and non-performing TDRs of $ 3.4 million at June 30, 2020:

June 30, 2020

The following table presents the payment status by class of loan, excluding non–accrual loans of $ 24.5 million and non–performing TDRs of $ 2.7 million at September 30, 2020:

September 30, 2020

Current 30–59 Days

55 unchanged sentences

• Monthly, senior management meets with the Watch Committee, which reviews all of the past due, classified, and impaired loans and the relative trends of these assets.

This committee also reviews the actions taken by management regarding foreclosure mitigation, loan extensions, troubled debt restructures, other real estate owned and personal

This committee also reviews the actions taken by management regarding foreclosure mitigation, loan extensions, troubled debt restructures, other real estate owned and personal property repossessions.

The information reviewed in this meeting acts as a precursor for developing management’s analysis of the adequacy of the Allowance for Credit Losses for loans.

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

property repossessions.

The information reviewed in this meeting acts as a precursor for developing management’s analysis of the adequacy of the Allowance for Credit Losses for loans.

For residential real estate and consumer loans, Horizon uses a grading system based on delinquency.

5 unchanged sentences

The first five grades represent acceptable quality, and the last four grades mirror the criticized and classified grades used by the bank regulatory agencies (special mention, substandard, doubtful, and loss).

Loan grade definitions are reviewed annually via the approval of the overall loan policy.

The most recent review and approval of the loan policy was in October 2020.

The loan grade definitions are detailed below.

25 unchanged sentences

Loans that normally fall into this grade include acquisition, construction and development loans and income producing properties that have not reached stabilization.

Risk Grade 4W Management Watch:

Loans in this category are considered to be of acceptable quality and meet defined key financial metric ranges, but with above normal risk.

Borrower displays potential indicators of weakness in the primary source of repayment resulting in a

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

Risk Grade 4W Management Watch:

Loans in this category are considered to be of acceptable quality and meet defined key financial metric ranges, but with above normal risk.

Borrower displays potential indicators of weakness in the primary source of repayment resulting in a higher reliance on secondary sources of repayment.

higher reliance on secondary sources of repayment.

Balance sheet may exhibit weak liquidity and/or high leverage.

40 unchanged sentences

The following tables present loans by credit grades and origination year.

June 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Total

September 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Total

Owner occupied real estate

33 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

June 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Total

September 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Total

Residential mortgage

11 unchanged sentences

Total real estate $ 104,560 $ 66,015 $ 102,700 $ 101,674 $ 76,793 $ 198,145 $ 399,986 $ 1,049,873

June 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Total

September 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Total

Direct installment

18 unchanged sentences

Non–owner occupied real estate 957,990 7,824 7,517 — 973,331

957,990 7,824 7,517 — 973,331

Residential spec homes 12,925 — — — 12,925

12 unchanged sentences

Percentage of total loans 97.43 % 0.96 % 1.61 % 0.00 % 100.00 %

Commercial loans modified due to the impact of the COVID-19 pandemic were immediately downgraded one level resulting in the increase of Special Mention commercial loans from December 31, 2019 to June 30, 2020.

Commercial loans modified due to the impact of the COVID–19 pandemic were immediately downgraded one level resulting in the increase of Special Mention commercial loans from December 31, 2019 to September 30, 2020.

Note 8 – Loan Servicing

Loans serviced for others are not included in the accompanying condensed consolidated balance sheets.

The unpaid principal balances of loans serviced for others totaled approximately $ 1.5 billiom and $ 1.4 billion at June 30, 2020 and December 31, 2019.

The aggregate fair value of capitalized mortgage servicing rights was approximately $ 12.1 million and $ 14.4 million at June 30, 2020 and December 31, 2019, compared to the carrying values of $ 12.4 million and $ 14.3 million at June 30, 2020 and December 31, 2019, respectively.

The unpaid principal balances of loans serviced for others totaled approximately $ 1.5 billion and $ 1.4 billion at September 30, 2020 and December 31, 2019.

The aggregate fair value of capitalized mortgage servicing rights was approximately $ 11.7 million and $ 14.4 million at September 30, 2020 and December 31, 2019, compared to the carrying values of $ 11.7 million and $ 14.3 million at September 30, 2020 and December 31, 2019, respectively.

Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value.

4 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

June 30, December 31,

September 30, December 31,

Mortgage servicing rights

9 unchanged sentences

Mortgage servicing rights, net $ 11,705 $ 14,327

The Bank recorded additional impairment of approximately $ 3.2 million and $ 192,000 for the six months ended June 30, 2020 and December 31, 2019, respectively.

The Bank recorded additional impairment of approximately $ 1.5 million and $ 4.7 million for the three and nine months ended September 30, 2020, respectively.

The Bank recorded additional impairment of approximately $ 192,000 for the year ended December 31, 2019.

Note 9 – Goodwill

The following table presents the Company’s carrying amount of goodwill as of June 30, 2020 and December 31, 2019.

June 30, December 31,

The following table presents the Company’s carrying amount of goodwill as of September 30, 2020 and December 31, 2019.

September 30, December 31,

Balance, beginning of period $ 151,238 $ 119,880

4 unchanged sentences

The Company assessed relevant events and circumstances, including macroeconomic conditions, industry and market considerations, overall financial performance, changes in the composition or carrying amount of assets and liabilities, the market price of the Company’s common stock and other relevant facts.

The Company performed both a market capitalization approach and a discounted cash flow approach to determine the fair value of the Company.

As a result, no goodwill impairment charge was recognized during the three and six months ended June 30, 2020.

Note 10 – Repurchase Agreements

The Company transfers various securities to customers in exchange for cash at the end of each business day and agrees to acquire the securities at the end of the next business day for the cash exchanged plus interest.

The process is repeated at the end of each business day until the agreement is terminated.

The securities underlying the agreement remained under the Bank’s control.

The Company performed both a market capitalization approach and a discounted cash flow approach to determine the fair value of the Company during the second quarter of 2020 which resulted in no goodwill impairment.

The Company updated the analysis above during the third quarter of 2020 which resulted with no goodwill impairment charges for the three and nine months ended September 30, 2020.

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

Note 10 – Repurchase Agreements

The process is repeated at the end of each business day until the agreement is terminated.

The securities underlying the agreement remained under the Bank’s control.

The following table shows repurchase agreements accounted for as secured borrowings:

June 30, 2020

September 30, 2020

Remaining Contractual Maturity of the Agreements

8 unchanged sentences

Federal agency collateralized mortgage obligations $ 55,336 $ — $ — $ — $ — $ — $ 55,336

$ 46,073 $ — $ — $ — $ — $ — $ 46,073

Federal agency mortgage–backed pools 61,595 — — — — — 61,595

65,039 — — — — — 65,039

Total $ 116,931 $ — $ — $ — $ — $ — $ 116,931

21 unchanged sentences

Cash Flow Hedges – As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into interest rate swap agreements for a portion of its floating rate debt.

The agreements provide for the Company to receive interest from the counterparty at three months LIBOR and to pay interest to the counterparty at a fixed rate of 4.20 % on a notional amount of $ 12.0 million at June 30, 2020 and a weighted average fixed rate of 4.03 % on a notional amount of $ 15.5 million December 31, 2019.

The agreements provide for the Company to receive interest from the counterparty at three months LIBOR and to pay interest to the counterparty at a fixed rate of 4.20 % on a notional amount of $ 12.0 million at September 30, 2020 and a weighted average fixed rate of 4.03 % on a notional amount of $ 15.5 million at December 31, 2019.

Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

The Company assumed additional interest rate swap agreements as the result of the LaPorte acquisition in July 2016.

The agreements provide for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a fixed rate of 2.62 % on a notional amount of $ 10.0 million at June 30, 2020 and at a weighted average fixed rate of 2.31 % on a notional amount of $ 30.0 million at December 31, 2019.

The agreements provide for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a fixed rate of 2.62 % on a notional amount of $ 10.0 million at September 30, 2020 and at a weighted average fixed rate of 2.31 % on a notional amount of $ 30.0 million at December 31, 2019.

Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

On July 20, 2018, the Company entered into an interest rate swap agreement for an additional portion of its floating rate debt.

The agreement provides for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a rate of 2.81 % on a notional amount of $ 50.0 million at June 30, 2020 and December 31, 2019.

Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

2 unchanged sentences

Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

At June 30, 2020, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

Fair Value Hedges

Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item.

At September 30, 2020, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

Fair Value Hedges – Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item.

The Company enters into fixed rate loan agreements as part of its lending policy.

1 unchanged sentence

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings.

At June 30, 2020, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

At September 30, 2020, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

The change in fair value of both the hedge instruments and the underlying loan agreements are recorded as gains or losses in interest income.

The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material.

The notional amounts of the loan and security agreements being hedged were $ 425.8 million at June 30, 2020 and $ 361.0 million at December 31, 2019.

Other Derivative Instruments

The Company enters into non-hedging derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business.

At June 30, 2020, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

The notional amounts of the loan and security agreements being hedged were $ 425.8 million at September 30, 2020 and $ 361.0 million at December 31, 2019.

Other Derivative Instruments – The Company enters into non–hedging derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business.

At September 30, 2020, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

The change in fair value of both the forward sale commitments and commitments to originate mortgage loans were recorded and the net gains or losses included in the Company’s gain on sale of loans.

5 unchanged sentences

Asset Derivatives Liability Derivatives

June 30, 2020 June 30, 2020

Balance Sheet

September 30, 2020 September 30, 2020

Balance Sheet

Location Fair

Value Balance Sheet

Location Fair

Derivatives designated as hedging instruments

16 unchanged sentences

Total derivatives $ 11,686 $ 15,899

The effect of the derivative instruments on the condensed consolidated statements of income for the three-month and six-month periods ending June 30 is as follows:

The effect of the derivative instruments on the condensed consolidated statements of income for the three–month and nine–month periods ending September 30 is as follows:

Amount of Loss Recognized in Other Comprehensive Income on Derivative

(Effective Portion)

Three Months Ended

Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Derivatives in cash flow hedging relationship

Interest rate contracts $ ( 284 ) $ ( 682 ) $ ( 3,523 ) $ ( 3,058 )

$ ( 107 ) $ ( 1,502 ) $ ( 3,239 ) $ ( 2,376 )

FASB Accounting Standards Codification (“ASC”) Topic 820–10–20 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

6 unchanged sentences

recognized on derivative Amount of Gain (Loss) Recognized on Derivative

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Derivative in fair value hedging relationship

Interest rate contracts

Interest income - loans $ ( 3,162 ) $ ( 7,529 ) $ ( 29,492 ) $ ( 11,580 )

Interest rate contracts

Interest income - loans 3,162 7,529 29,492 11,580

Interest rate contracts Interest income - loans $ 1,944 $ ( 6,091 ) $ ( 27,548 ) $ ( 17,671 )

Interest rate contracts Interest income - loans ( 1,944 ) 6,091 27,548 17,671

Total $ — $ — $ — $ —

1 unchanged sentence

recognized on derivative Amount of Gain (Loss) Recognized on Derivative

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Derivative not designated as hedging relationship

9 unchanged sentences

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated financial statements, as well as the general classification of such instruments pursuant to the valuation hierarchy.

There have been no significant changes in the valuation techniques during the period ended June 30, 2020.

There have been no significant changes in the valuation techniques during the period ended September 30, 2020.

For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

7 unchanged sentences

Treasury yield curve, trade execution data, market consensus prepayment spreads and available credit information and the bond’s terms and conditions.

The pricing provider utilizes evaluated pricing models that vary based on asset class.

These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed–income securities do not trade on a daily basis, apply available information through processes such as benchmark

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

provider utilizes evaluated pricing models that vary based on asset class.

These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed-income securities do not trade on a daily basis, apply available information through processes such as benchmark curves, benchmarking of like securities, sector grouping, and matrix pricing.

curves, benchmarking of like securities, sector grouping, and matrix pricing.

In addition, model processes, such as an option adjusted spread model, is used to develop prepayment and interest rate scenarios for securities with prepayment features.

5 unchanged sentences

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated financial statements measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at the following:

June 30, 2020

Quoted Prices in

Active Markets

September 30, 2020

Fair Value Quoted Prices in Active Markets

for Identical

(Level 1) Significant

(Level 2) Significant

Available for sale securities

Treasury and federal agencies $ 6,239 $ — $ 6,239 $ —

State and municipal 678,459 — 678,459 —

11 unchanged sentences

December 31, 2019

Quoted Prices in

Active Markets

Fair Value Quoted Prices in Active Markets

for Identical

(Level 1) Significant

(Level 2) Significant

Available for sale securities

Treasury and federal agencies $ 1,413 $ — $ 1,413 $ —

$ 1,413 $ — $ 1,413 $ —

State and municipal 405,768 — 405,768 —

405,768 — 405,768 —

Federal agency collateralized mortgage obligations 269,252 — 269,252 —

269,252 — 269,252 —

Federal agency mortgage–backed pools 146,572 — 146,572 —

146,572 — 146,572 —

Corporate notes 11,771 — 11,771 —

11,771 — 11,771 —

Total available for sale securities 834,776 — 834,776 —

834,776 — 834,776 —

Interest rate swap agreements asset 11,422 — 11,422 —

2 unchanged sentences

Commitments to originate loans ( 38 ) — ( 38 ) —

( 38 ) — ( 38 ) —

Realized gains and losses included in net income for the periods are reported in the condensed consolidated statements of income as follows:

Three Months Ended

Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Non-interest Income

Total gains and losses from:

$ ( 3,162 ) $ ( 7,529 ) $ ( 29,492 ) $ ( 11,580 )

Hedged loans $ 1,944 $ ( 6,091 ) $ ( 27,548 ) $ ( 17,671 )

Fair value interest rate swap agreements ( 1,944 ) 6,091 27,548 17,671

3,162 7,529 29,492 11,580

Derivative loan commitments 994 ( 429 ) 1,358 ( 97 )

$ 994 $ ( 429 ) $ 1,358 $ ( 97 )

$ ( 679 ) $ 75 $ 364 $ 332

Certain other assets are measured at fair value on a non-recurring basis in the ordinary course of business and are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment):

Quoted Prices in

Active Markets

Fair Value Quoted Prices in Active Markets

for Identical

June 30, 2020

(Level 1) Significant

(Level 2) Significant

September 30, 2020

Collateral dependent loans $ 14,781 $ — $ — $ 14,781

Mortgage servicing rights 11,705 — — 11,705

12,389 — — 12,389

December 31, 2019

Impaired loans $ 6,806 $ — $ — $ 6,806

$ 6,806 $ — $ — $ 6,806

Mortgage servicing rights 14,327 — — 14,327

14,327 — — 14,327

Collateral Dependent Loans:

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment.

Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

Collateral Dependent Loans:

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment.

Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized.

This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

6 unchanged sentences

The Company reviews the valuation assumptions against this market data for reasonableness and adjusts the assumptions if deemed appropriate.

The carrying amount of the MSRs’ fair value due to impairment decreased by $ 3.2 million during the first six months of 2020 and increased by $ 11,000 during the first six months of 2019.

The carrying amount of the MSRs’ fair value due to impairment decreased by $ 4.7 million during the first nine months of 2020 and increased by $ 59,000 during the first nine months of 2019.

The following table presents qualitative information about unobservable inputs used in recurring and non–recurring Level 3 fair value measurements, other than goodwill.

June 30, 2020

September 30, 2020

Value Valuation

Technique Unobservable

(Weighted Average)

Collateral dependent loans $ 12,389 Collateral based measurement

Discount to reflect current market conditions and ultimate collectibility 0.0 %- 100.0 % ( 13.0 %)

Mortgage servicing rights

12,389 Discounted cash flows

Discount rate,

Collateral dependent loans $ 14,781 Collateral based measurement Discount to reflect current market conditions and ultimate collectibility 0.0 %- 76.0 % ( 8.6 %)

Mortgage servicing rights 11,705 Discounted cash flows Discount rate,

Constant prepayment rate,

18 unchanged sentences

Due to the inherent uncertainties of expected cash flows of financial instruments, the use of alternate valuation assumptions and methods could have a significant effect on the estimated fair value amounts.

The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or market value of Horizon taken as a whole.

The disclosed fair value estimates are limited to Horizon’s significant financial instruments at June 30, 2020 and December 31, 2019.

These include financial instruments recognized as assets and liabilities on the condensed consolidated balance sheet as well as certain off-balance sheet financial instruments.

The estimated fair values shown below do not include any valuation of assets and liabilities, which are not financial instruments as defined by the FASB ASC fair value hierarchy.

The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or

HORIZON BANCORP, INC.

2 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

market value of Horizon taken as a whole.

The disclosed fair value estimates are limited to Horizon’s significant financial instruments at September 30, 2020 and December 31, 2019.

These include financial instruments recognized as assets and liabilities on the condensed consolidated balance sheet as well as certain off–balance sheet financial instruments.

The estimated fair values shown below do not include any valuation of assets and liabilities, which are not financial instruments as defined by the FASB ASC fair value hierarchy.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

20 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall (unaudited).

June 30, 2020

Quoted Prices in

Active Markets

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall.

September 30, 2020

Amount Quoted Prices in Active Markets

for Identical

(Level 1) Significant

(Level 2) Significant

Cash and due from banks $ 99,126 $ 99,126 $ — $ —

12 unchanged sentences

December 31, 2019

Quoted Prices in

Active Markets

Amount Quoted Prices in Active Markets

for Identical

(Level 1) Significant

(Level 2) Significant

Cash and due from banks $ 98,831 $ 98,831 $ — $ —

$ 98,831 $ 98,831 $ — $ —

Interest–earning time deposits 8,455 — 8,537 —

8,455 — 8,537 —

Investment securities, held to maturity 207,899 — 215,147 —

207,899 — 215,147 —

Loans held for sale 4,088 — — 4,088

4,088 — — 4,088

Loans (excluding loan level hedges), net 3,619,174 — — 3,554,951

3,619,174 — — 3,554,951

Stock in FHLB 22,447 — 22,447 —

22,447 — 22,447 —

Interest receivable 18,828 — 18,828 —

18,828 — 18,828 —

Non–interest bearing deposits $ 709,760 $ 709,760 $ — $ —

$ 709,760 $ 709,760 $ — $ —

Interest bearing deposits 3,221,242 — 3,180,768 —

3,221,242 — 3,180,768 —

549,741 — 546,995 —

Borrowings 549,741 — 546,995 —

Junior subordinated debentures issued to capital trusts 56,311 — 51,809 —

Interest payable 3,062 — 3,062 —

3,062 — 3,062 —

HORIZON BANCORP, INC.

3 unchanged sentences

Note 15 – Accumulated Other Comprehensive Income

September 30,

2020 December 31,

1 unchanged sentence

Unamortized loss on securities held to maturity, previously transferred from AFS ( 167 ) ( 107 )

( 136 ) ( 107 )

Unrealized loss on derivative instruments ( 8,899 ) ( 4,440 )

( 8,540 ) ( 4,440 )

( 5,653 ) ( 1,708 )

Tax effect ( 6,186 ) ( 1,708 )

Total accumulated other comprehensive income $ 23,278 $ 6,432

10 unchanged sentences

In addition, to be categorized as well capitalized, the Company and Bank must maintain Total risk–based, Tier I risk–based, common equity Tier I risk–based and Tier I leverage ratios as set forth in the table below.

As of June 30, 2020 and December 31, 2019, the Company and Bank met all capital adequacy requirements to be considered well capitalized.

There have been no conditions or events since the end of the second quarter of 2020 that management believes have changed the Bank’s classification as well capitalized.

As of September 30, 2020 and December 31, 2019, the Company and Bank met all capital adequacy requirements to be considered well capitalized.

There have been no conditions or events since the end of the third quarter of 2020 that management believes have changed the Bank’s classification as well capitalized.

There is no threshold for well capitalized status for bank holding companies.

7 unchanged sentences

(Table Dollar Amounts in Thousands, Except Per Share Data)

Horizon and the Bank’s actual and required capital ratios as of June 30, 2020 and December 31, 2019 were as follows:

Required for Capital 1

Horizon and the Bank’s actual and required capital ratios as of September 30, 2020 and December 31, 2019 were as follows:

Actual Required for Capital

Adequacy Purposes (1)

3 unchanged sentences

Well Capitalized

Under Prompt 1

Corrective Action

June 30, 2020

Under Prompt Corrective Action

Provisions (1)

Amount Ratio Amount Ratio Amount Ratio Amount Ratio

September 30, 2020

Total capital (to risk–weighted assets) (1)

$ 628,750 14.37 % $ 350,035 8.00 % $ 459,421 10.50 % N/A N/A

514,371 11.74 % 350,508 8.00 % 460,042 10.50 % $ 438,135 10.00 %

Consolidated $ 640,728 14.38 % $ 356,455 8.00 % $ 467,847 10.50 % N/A N/A

Bank 514,974 11.56 % 356,383 8.00 % 467,753 10.50 % $ 445,479 10.00 %

Tier 1 capital (to risk–weighted assets) (1)

585,386 13.38 % 262,505 6.00 % 371,882 8.50 % N/A N/A

459,621 10.49 % 262,891 6.00 % 372,429 8.50 % 350,521 8.00 %

Consolidated 601,331 13.49 % 267,456 6.00 % 378,896 8.50 % N/A N/A

Bank 475,588 10.67 % 267,435 6.00 % 378,866 8.50 % 356,580 8.00 %

Common equity tier 1 capital (to risk–weighted assets) (1)

469,069 10.72 % 196,904 4.50 % 306,295 7.00 % N/A N/A

459,621 10.49 % 197,168 4.50 % 306,706 7.00 % 284,799 6.50 %

Consolidated 485,235 10.89 % 200,510 4.50 % 311,905 7.00 % N/A N/A

Bank 475,588 10.67 % 200,576 4.50 % 312,007 7.00 % 289,721 6.50 %

Tier 1 capital (to average assets) (1)

585,386 10.75 % 217,818 4.00 % 217,818 4.00 % N/A N/A

459,621 8.48 % 216,802 4.00 % 216,802 4.00 % 271,003 5.00 %

Consolidated 601,331 10.82 % 222,304 4.00 % 222,304 4.00 % N/A N/A

Bank 475,588 8.57 % 221,978 4.00 % 221,978 4.00 % 277,473 5.00 %

December 31, 2019

Total capital (to risk–weighted assets) (1)

$ 548,364 13.95 % $ 314,395 8.00 % $ 412,644 10.500 % N/A N/A

497,227 12.65 % 314,452 8.00 % 412,718 10.500 % $ 393,065 10.00 %

Consolidated $ 548,364 13.95 % $ 314,395 8.00 % $ 412,644 10.500 % N/A N/A

Bank 497,227 12.65 % 314,452 8.00 % 412,718 10.500 % $ 393,065 10.00 %

Tier 1 capital (to risk–weighted assets) (1)

530,643 13.50 % 235,796 6.00 % 334,044 8.500 % N/A N/A

479,506 12.20 % 235,823 6.00 % 334,082 8.500 % 314,430 8.00 %

Consolidated 530,643 13.50 % 235,796 6.00 % 334,044 8.500 % N/A N/A

Bank 479,506 12.20 % 235,823 6.00 % 334,082 8.500 % 314,430 8.00 %

Common equity tier 1 capital (to risk–weighted assets) (1)

473,150 12.04 % 176,846 4.50 % 275,094 7.000 % N/A N/A

479,506 12.20 % 176,867 4.50 % 275,126 7.000 % 255,475 6.50 %

Consolidated 473,150 12.04 % 176,846 4.50 % 275,094 7.000 % N/A N/A

Bank 479,506 12.20 % 176,867 4.50 % 275,126 7.000 % 255,475 6.50 %

Tier 1 capital (to average assets) (1)

530,643 10.50 % 202,111 4.00 % 202,111 4.000 % N/A N/A

479,506 9.49 % 202,110 4.00 % 202,110 4.000 % 252,638 5.00 %

Consolidated 530,643 10.50 % 202,111 4.00 % 202,111 4.000 % N/A N/A

Bank 479,506 9.49 % 202,110 4.00 % 202,110 4.000 % 252,638 5.00 %

(1) As defined by regulatory agencies

21 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2020 and 2019

For the Three and Nine Months ended September 30, 2020 and 2019

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements