What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-02 compared with 2020-08-04 · 208 added, 219 removed, 562 unchanged (43% of the section changed)

11 unchanged sentences

• economic conditions and their impact on Horizon and its customers;

• COVID-19 related impact on Horizon and its customers (See Item 1A.

• COVID–19 related impact on Horizon and its customers (See Part II, Item 1A.

Risk Factors within this Report on Form 10–Q for additional details)

19 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

• changes in accounting policies or procedures as may be adopted and required by regulatory agencies;

• litigation, regulatory enforcement, tax, and legal compliance risk and costs, as applicable generally and specifically to the financial and fiduciary (generally and as an ESOP fiduciary) environment, especially if materially different from the amount we expect to incur or have accrued for, and any disruptions caused by the same;

• the effects and costs of governmental investigations or related actions by third parties;

• changes in the legal and regulatory and enforcement environment including financial, fiduciary (generally and as an ESOP fiduciary), and taxes and tariffs;

• rapid technological developments and changes;

11 unchanged sentences

We do not undertake to update any forward–looking statements, whether written or oral, that may be made from time to time by us or on our behalf.

For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward-looking statements, see “Risk Factors” in Item 1A of Part I of our 2019 Annual Report on Form 10-K, in Item 1A of this Report on Form 10-Q, and in the subsequent reports we file with the SEC.

For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward-looking statements, see “Risk Factors” in Item 1A of Part I of our 2019 Annual Report on Form 10-K, in Part II, Item 1A of this Report on Form 10-Q, and in the subsequent reports we file with the SEC.

Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana.

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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.

Second Quarter 2020 Highlights

• Earned net income of $14.6 million, or $0.33 diluted earnings per share, compared to $11.7 million, or $0.26 diluted earnings per share, for the first quarter of 2020 and $16.6 million, or $0.37 diluted earnings per share, for the second quarter of 2019.

• Grew pre–tax, pre–provision net income to $23.7 million for the quarter, compared to $21.8 million for the first quarter of 2020 and $20.8 million for the second quarter of 2019.

This non–GAAP financial measure is utilized by banks to provide a greater understanding of pre–tax profitability before giving effect to credit loss expense.

(See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income” table below.)

HORIZON BANCORP, INC.

2 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

Third Quarter 2020 Highlights

• Earned net income of $20.3 million, or $0.46 diluted earnings per share, compared to $14.6 million, or $0.33 diluted earnings per share, for the second quarter of 2020 and $20.5 million, or $0.46 diluted earnings per share, for the third quarter of 2019.

• Grew pre–tax, pre–provision net income to $26.7 million for the quarter, compared to $23.7 million for the second quarter of 2020 and $24.9 million for the third quarter of 2019.

This non–GAAP financial measure is utilized by banks to provide a greater understanding of pre–tax profitability before giving effect to credit loss expense.

(See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income” table below.)

• Reported return on average assets (“ROAA”) of 1.40% and return on average common equity (“ROACE”) of 12.08% in the quarter, as well as adjusted ROAA of 1.34% and adjusted ROACE of 11.55%, excluding the impact of gains on sale of investment securities, net of tax.

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• Increased the allowance for credit losses (“ACL”) 2.2% during the quarter and 218.8% year–to–date to $56.3 million at period end, representing 1.39% of total loans, reflecting implementation of the Current Expected Credit Losses (“CECL”) accounting method and prudent increases in the Company’s general reserves.

ACL at period end also represented 1.49% of loans excluding Federal Paycheck Protection Program (“PPP”) loans, and 196.4% of non–performing loans excluding those which have been modified under the CARES Act.

• Maintained solid asset quality metrics, including non–performing and delinquent loans representing 0.70% and 0.10% of total loans, respectively, at June 30, 2020, while net charge–offs were unchanged at 0.01% of average loans for the period.

• Granted payment deferrals to loans representing 14.3% of the total portfolio at period end, compared to 10.4% as previously reported.

• Secured approval for 2,340 PPP loans during the quarter, providing approximately $308.1 million in funding for local employers in the communities Horizon serves, with $1.1 million in deferred salary expense associated with origination costs that will be amortized to interest income as PPP loans are forgiven or paid off.

Accreted PPP loans fees, net of amortized origination costs, of $869,000 were recognized as interest income in the second quarter, with the balance of approximately $9.1 million expected to be accreted to interest income over the life of these loans.

• Reported non–interest expense of $30.4 million, representing 2.18% of average assets on an annualized basis compared to 2.38% for the first quarter of 2020 and 2.51% for the second quarter of 2019.

• Improved the efficiency ratio in the period to 56.23% compared to 58.79% for the first quarter of 2020.

ACL at period end also represented 1.51% of loans excluding $310.8 million in Federal Paycheck Protection Program (“PPP”) loans, and 192.1% of non–performing loans.

• Maintained solid asset quality metrics, including non–performing and delinquent loans representing 0.72% and 0.15% of total loans, respectively, at September 30, 2020, while net charge–offs were 0.02% of average loans for the period.

• COVID–19 deferral levels improved to 4.1% of total loans at period end, from 14.3% on June 30, 2020.

• Reported non–interest expense of $33.4 million, representing 2.30% of average assets on an annualized basis compared to 2.18% for the second quarter of 2020 and 2.34% for the third quarter of 2019.

• Improved the efficiency ratio in the period to 55.59% compared to 56.23% for the second quarter of 2020.

(See the “Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” tables below.)

• Originated a record $252.8 million in mortgage loans during the quarter, up 128.1% from the first quarter of 2020 and 127.0% from the second quarter of 2019, and generated record gain on mortgage loan sales of $6.6 million, up 90.6% from the linked quarter and 218.6% from the year–ago period.

• Reported net interest margin of 3.47% and adjusted net interest margin of 3.35%, with each declining by 9 basis points from the first quarter of 2020.

• Generated record gain on mortgage loan sales of $8.8 million, up 33.1% from the linked quarter and 226.2% from the prior year period, and originated $207.1 million in mortgage loans during the quarter, down 18.1% from the record second quarter of 2020 and up 71.0% from the third quarter of 2019.

• Reported net interest margin of 3.39% and adjusted net interest margin of 3.27%, with each declining by 8 basis points from the second quarter of 2020.

(See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this Non–GAAP calculation).

An estimated 3 basis points of compression is attributed to PPP lending in the quarter, for both net interest margin and adjusted net interest margin.

• Horizon's book value per share increased from $14.59 at December 31, 2019 to $14.88 at June 30, 2020.

Horizon’s tangible book value per share increased from $10.63 at December 31, 2019 to $10.87 at June 30, 2020, which includes the accounting adjustment for CECL as of January 1, 2020.

An estimated 4 basis points of compression is attributed to PPP lending and an estimated 8 basis points of compression is attributed to subordinated notes during the quarter, for both net interest margin and adjusted net interest margin.

• Horizon's book value per share increased from $14.29 at December 31, 2019 to $15.28 at September 30, 2020.

• Horizon’s tangible book value per share increased from $10.63 at December 31, 2019 to $11.29 at September 30, 2020, which includes the accounting adjustment for CECL as of January 1, 2020.

This represents the highest tangible book value per share in the Company’s history.

(See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” tables below.)

• Maintained strong liquidity position including approximately $1.3 billion in cash and investment securities, which is approximately 22.6% of total assets, and approximately $910.7 million in unused availability on lines of credit, at June 30, 2020.

• Maintained strong liquidity position including approximately $1.3 billion in cash and investment securities, which is approximately 22.4% of total assets, and approximately $928.0 million in unused availability on lines of credit, at September 30, 2020.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

Coronavirus Update/Status

4 unchanged sentences

◦ Installed sneeze guards, customer directional signage, implemented mask requirements, and continuing with sanitizing and social distancing protocols.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

◦ Steadily reducing percentage of employees working remotely from early second quarter peak.

1 unchanged sentence

◦ 100% of our branch locations are now open for walk–in traffic.

◦ Two locations still serving customers by appointment only and through alternative delivery channels and are scheduled to open by July 31, 2020.

◦ Installed nine additional Interactive Teller Machines (“ITMs”) staffed by remote video tellers.

1 unchanged sentence

◦ Payment relief

▪ Approximately $63 million consumer and mortgage loans have been modified as of June 30, 2020.

▪ Approximately $8 million consumer and mortgage loans have been modified as of September 30, 2020, down from $63 million as of June 30, 2020.

▪ Continued to provide new loans to qualified applicants.

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◦ Payment Relief Programs

▪ Approximately $470 million in commercial loans with payment extensions as of June 30, 2020.

▪ Approximately $152 million in commercial loans with payment extensions as of September 30, 2020, down from $470 million as of June 30, 2020.

▪ Processed and received approval for 2,438 PPP loans, funding approximately $310.9 million.

▪ Continued to provide new loans to qualified applicants.

▪ Began accepting PPP forgiveness applications on September 1, 2020.

• Communities

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For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Net Interest Income and Net Interest Margin 2020 2020 2019

2 unchanged sentences

Adjusted net interest margin 3.27 % 3.35 % 3.67 %

For the Three Months Ended

June 30, March 31, June 30,

Asset Yields and Funding Costs 2020 2020 2019

Interest earning assets 4.05 % 4.47 % 4.81 %

Interest bearing liabilities 0.74 % 1.13 % 1.38 %

HORIZON BANCORP, INC.

2 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

For the Three Months Ended

September 30, June 30, September 30,

Asset Yields and Funding Costs 2020 2020 2019

Interest earning assets 3.90 % 4.05 % 4.87 %

Interest bearing liabilities 0.67 % 0.74 % 1.35 %

For the Three Months Ended

Non–interest Income and

Mortgage Banking Income June 30, March 31, June 30,

Mortgage Banking Income September 30, June 30, September 30,

2020 2020 2019

3 unchanged sentences

For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Non–interest Expense 2020 2020 2019

2 unchanged sentences

At or for the Three Months Ended

Credit Quality June 30, March 31, June 30,

Credit Quality September 30, June 30, September 30,

2020 2020 2019

3 unchanged sentences

CECL Adoption

December 31, January 1, Net Reserve

Build Net Reserve

Build June 30,

Allowance for Credit Losses 2019 Impact 2020 1Q20 2Q20 2020

Allowance for December 31, January 1, Net Reserve Build September 30,

Credit Losses 2019 Impact 2020 1Q20 2Q20 3Q20 2020

Commercial $ 11,996 $ 13,618 $ 25,614 $ 6,936 $ 6,597 $ 648 $ 39,795

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Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.

Management has identified as critical accounting policies the allowance for loan losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.

Allowance for Credit Losses

The allowance for credit losses on loans and leases replaces the allowance for loan and leases losses as a critical accounting estimate, as of January 1, 2020 with the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Management has identified as critical

HORIZON BANCORP, INC.

2 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

accounting policies the allowance for loan losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.

Allowance for Credit Losses

The allowance for credit losses on loans and leases replaces the allowance for loan and leases losses as a critical accounting estimate, as of January 1, 2020 with the adoption of ASU 2016–13, Financial Instruments–Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

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FASB ASC 350–10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill.

At June 30, 2020, Horizon had core deposit intangibles of $24.8 million subject to amortization and $151.2 million of goodwill, which is not subject to amortization.

At September 30, 2020, Horizon had core deposit intangibles of $23.9 million subject to amortization and $151.2 million of goodwill, which is not subject to amortization.

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired.

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performance of the Company's stock and other relevant events.

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 June 30, 2020 it was more likely than not that the fair value exceeded its carrying values.

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

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.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

Mortgage Servicing Rights

4 unchanged sentences

Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market–based assumptions.

When the book value of an individual stratum

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value.

When the book value of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value.

In periods of falling market interest rates, accelerated loan prepayment can adversely affect the fair value of these mortgage–servicing rights relative to their book value.

22 unchanged sentences

Horizon excludes the time value expiration of the hedge when measuring ineffectiveness.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

Valuation Measurements

3 unchanged sentences

To determine the values of these assets and liabilities, as well as the extent, to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors.

The use of different discount rates or other valuation

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

assumptions could produce significantly different results, which could affect Horizon’s results of operations.

The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations.

Financial Condition

On June 30, 2020, Horizon’s total assets were $5.7 billion, an increase of approximately $492.4 million compared to December 31, 2019.

The increase was primarily in net loans of $304.1 million, investment securities available for sale of $100.4 million, cash and due from banks of $71.3 million and other assets of $20.2 million.

On September 30, 2020, Horizon’s total assets were $5.8 billion, an increase of approximately $543.3 million compared to December 31, 2019.

The increase was primarily in net loans of $354.9 million, investment securities available for sale of $180.6 million and other assets of $25.5 million.

These increases were offset by a decrease in investment securities held to maturity of $27.6 million.

Investment securities were comprised of the following as of (dollars in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Value Amortized

Available for sale

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Total held to maturity investment securities $ 180,270 $ 191,612 $ 207,899 $ 215,147

Investment securities available for sale increased $100.4 million since December 31, 2019 to $935.1 million as of June 30, 2020.

Investment securities available for sale increased $180.6 million since December 31, 2019 to $1.0 billion as of September 30, 2020.

This increase was due to additional purchases to increase earning assets.

Gross loans increased $353.4 million since December 31, 2019 to $4.0 billion as of June 30, 2020.

Gross loans increased $402.5 million since December 31, 2019 to $4.0 billion as of September 30, 2020.

Commercial, mortgage warehouse and loans held for sale increased $275.0 million, $224.4 million and $9.0 million, respectively, offset by a decrease in residential mortgage and consumer loans of $95.5 million and $10.3 million, respectively.

The majority of the increase in gross loans was due to the origination of approximately $310.8 million in PPP loans which are included in the commercial loan category.

Total deposits increased $376.6 million since December 31, 2019 to $4.3 billion as of June 30, 2020.

Total deposits increased $405.3 million since December 31, 2019 to $4.3 billion as of September 30, 2020.

This increase was primarily due to Federal stimulus payments to consumers and funds from the origination of PPP loans.

Total borrowings increased from $549.7 million as of December 31, 2019 to $583.1 million as of June 30, 2020.

At June 30, 2020, the Company had $179.2 million in short-term funds borrowed compared to $267.9 million at December 31, 2019 as long-term funding provided opportunities to extend borrowings at lower rates.

Total borrowings increased from $549.7 million as of December 31, 2019 to $587.5 million as of September 30, 2020.

At September 30, 2020, the Company had $188.7 million in short-term funds borrowed compared to $398.8 million at December 31, 2019 as long–term funding provided opportunities to extend borrowings at lower rates.

The Company also issued $60.0 million in subordinated notes during the second quarter of 2020.

Stockholders’ equity totaled $652.2 million at June 30, 2020 compared to $656.0 million at December 31, 2019.

The decrease in stockholders’ equity during the period was due to the repurchase of outstanding stock, the impact of the adoption of ASU 2016-13 and dividends declared, offset by the generation of net income and an increase in accumulated other comprehensive income during the period.

Book value per common share at June 30, 2020 increased to $14.88 compared to $14.59 at December 31, 2019.

HORIZON BANCORP, INC.

2 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

Stockholders’ equity totaled $670.3 million at September 30, 2020 compared to $656.0 million at December 31, 2019.

The increase in stockholders’ equity during the period was due to the generation of net income and an increase in accumulated other comprehensive income during the period, offset by the repurchase of outstanding stock, the impact of the adoption of ASU 2016–13 and dividends declared during the period.

Book value per common share at September 30, 2020 increased to $15.28 compared to $14.59 at December 31, 2019.

Results of Operations

Consolidated net income for the three-month period ended June 30, 2020 was $14.6 million, or $0.33 diluted earnings per share, compared to $16.6 million, or $0.37 diluted earnings per share for the same period in 2019.

The decrease in net income for the three-month period ended June 30, 2020 when compared to the same prior year period reflects an increase in credit loss expense of $6.2 million, offset by an increase in net interest income of $1.5 million and an increase in non-interest income of $227,000, along with decreases in non-interest expense and income tax expense of $1.2 million and $1.3 million, respectively.

Excluding merger expenses, gain/loss on sale of investment securities and death benefit on bank owned life insurance (“adjusted net income”), adjusted net income for the second quarter of 2020 was $14.4 million, or $0.32 diluted earnings per share, compared to $17.6 million, or $0.39 diluted earnings per share for the second quarter of 2019.

Consolidated net income for the six-month period ended June 30, 2020 was $26.3 million, or $0.59 diluted earnings per share, compared to $27.5 million, or $0.65 diluted earnings per share for the same period in 2019.

The decrease in net income for the six-month period ended June 30, 2020 when compared to the same prior year period reflects an increase in credit loss expense and non-interest expense of $14.4 million and $259,000, respectively.

Increases in net interest income and non-interest income of $8.1 million and $3.6 million, respectively, along with a decrease in income tax expense of $1.8 million, partially offset the increase in credit loss expense and non-interest expense.

Adjusted net income for the six-month period ended June 30, 2020 was $25.6 million, or $0.57 diluted earnings per share, compared to $31.8 million, or $0.75 diluted earnings per share for the same period in 2019.

Consolidated net income for the three–month period ended September 30, 2020 was $20.3 million, or $0.46 diluted earnings per share, compared to $20.5 million, or $0.46 diluted earnings per share for the same period in 2019.

The decrease in net income for the three–month period ended September 30, 2020 when compared to the same prior year period reflects an increase in non–interest expense of $3.3 million, an increase in credit loss expense of $1.7 million and an increase in income tax expense of $322,000, offset by an increase in non–interest income of $5.2 million.

Excluding gain/loss on sale of investment securities and death benefit on bank owned life insurance (“adjusted net income”), adjusted net income for the third quarter of 2020 was $19.4 million, or $0.45 diluted earnings per share, compared to $20.3 million, or $0.45 diluted earnings per share for the third quarter of 2019.

Consolidated net income for the nine–month period ended September 30, 2020 was $46.6 million, or $1.06 diluted earnings per share, compared to $48.0 million, or $1.11 diluted earnings per share for the same period in 2019.

The decrease in net income for the nine–month period ended September 30, 2020 when compared to the same prior year period reflects an increase in credit loss expense of $16.1 million and an increase in non–interest expense of $3.6 million, offset by an increase in net interest income of $8.0 million, an increase in non–interest income of $8.8 million and a decrease in tax expense of $1.5 million.

Adjusted net income for the nine–month period ended September 30, 2020 was $45.0 million, or $1.02 diluted earnings per share, compared to $52.1 million, or $1.21 diluted earnings per share for the same period in 2019.

Net Interest Income

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Net interest margin refers to net interest income divided by average interest–earning assets and is influenced by the level and relative mix of interest–earning assets and interest–bearing liabilities.

Net interest income during the three months ended June 30, 2020 was $43.0 million, an increase of $1.5 million from the $41.5 million earned during the same period in 2019.

Yields on the Company’s interest-earning assets decreased by 76 basis points to 4.05% for the three months ended June 30, 2020 from 4.81% for the three months ended June 30, 2019.

Interest income decreased $3.5 million from $53.8 million for the three months ended June 30, 2019 to $50.3 million for the same period in 2020.

The decrease in interest income was due to a decrease in interest rates during the second quarter of 2020.

Interest income from acquisition-related purchase accounting adjustments was $1.6 million for the three months ending June 30, 2020 compared to $1.3 million for the same period of 2019.

Rates paid on interest-bearing liabilities decreased by 64 basis points for the three-month period ended June 30, 2020 compared to the same period in 2019.

Interest expense decreased $5.0 million when compared to the three-month period ended June 30, 2019 to $7.3 million for the same period in 2020.

Net interest income during the three months ended September 30, 2020 was $43.4 million, a decrease of $66,000 from the $43.5 million earned during the same period in 2019.

Yields on the Company’s interest–earning assets decreased by 97 basis points to 3.90% for the three months ended September 30, 2020 from 4.87% for the three months ended September 30, 2019.

Interest income decreased $5.6 million from $55.7 million for the three months ended September 30, 2019 to $50.1 million for the same period in 2020.

The decrease in interest income was due to a decrease in interest rates during the third quarter of 2020.

Interest income from acquisition–related purchase accounting adjustments was $1.5 million for the three months ending September 30, 2020 compared to $1.7 million for the same period of 2019.

Rates paid on interest–bearing liabilities decreased by 68 basis points for the three–month period ended September 30, 2020 compared to the same period in 2019.

Interest expense decreased $5.5 million when compared to the three–month period ended September 30, 2019 to $6.7 million for the same period in 2020.

This decrease was due to lower rates paid on deposits and borrowings.

The cost on average interest–bearing deposits decreased 72 basis points while the cost of average borrowings decreased 103 basis points.

Average balances of interest-bearing deposits increased $180.8 million and average balances of borrowings increased $220.0 million for the three-month period ended June 30, 2020 when compared to the same period in 2019.

The net interest margin decreased 26 basis points from 3.73% for the three-month period ended June 30, 2019 to 3.47% for the same period in 2020.

The decrease in the margin for the three-month period ended June 30, 2020 compared to the same period in 2019 was due to a decrease in the yield of interest-earning assets, offset by a decrease in the cost of interest-bearing liabilities.

Excluding the interest income recognized from the acquisition-related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 3.35% for the three-month period ending June 30, 2020 compared to 3.61% for the same period in 2019.

Average balances of interest–bearing deposits increased $201.6 million and average balances of borrowings increased $163.6 million for the three-month period ended September 30, 2020 when compared to the same period in 2019.

The net interest margin decreased 43 basis points from 3.82% for the three–month period ended September 30, 2019 to 3.39% for the same period in 2020.

The decrease in the margin for the three–month period ended September 30, 2020

HORIZON BANCORP, INC.

2 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 to the same period in 2019 was due to a decrease in the yield of interest–earning assets, offset by a decrease in the cost of interest–bearing liabilities.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 3.27% for the three-month period ending September 30, 2020 compared to 3.67% for the same period in 2019.

The following are the average balance sheets for the three months ending (dollars in thousands):

2 unchanged sentences

Three Months Ended Three Months Ended

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

Balance Interest Average

41 unchanged sentences

And Results of Operations

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

The net interest margin was impacted during the second quarter of 2020 due to the PPP loans that were originated.

Horizon estimates that the PPP loans compressed the net interest margin by 3 basis points for the quarter.

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

The net interest margin was impacted during the second and third quarters of 2020 due to the PPP loans that were originated.

Horizon estimates that the PPP loans compressed the net interest margin by 3 and 4 basis points for the second and third quarters, respectively.

This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in non–interest bearing deposits.

The compression to the net interest margin for the first six months of 2020 using the same assumptions was estimated to be 2 basis points.

Net interest income during the six months ended June 30, 2020 was $83.9 million, an increase of $8.1 million from the $75.8 million earned during the same period in 2019.

Yields on the Company’s interest-earning assets decreased by 54 basis points to 4.25% for the six months ended June 30, 2020 from 4.79% for the six months ended June 30, 2019.

Interest income increased $2.8 million from $99.2 million for the six months ended June 30, 2019 to $102.0 million for the same period in 2020.

Average interest earning assets during the six months ended June 30, 2020 increased $679.7 million to $4.9 billion compared to $4.2 billion during the six months ended June 30, 2019.

Interest income from acquisition-related purchase accounting adjustments was $3.0 million for the six months ending June 30, 2020 compared to $2.8 million for the same period of 2019.

Rates paid on interest-bearing liabilities decreased by 48 basis points for the six-month period ended June 30, 2020 compared to the same period in 2019.

Interest expense decreased $5.3 million when compared to the six-month period ended June 30, 2019 to $18.1 million for the same period in 2020.

The compression to the net interest margin for the first nine months of 2020 using the same assumptions was estimated to be 3 basis points.

The net interest margin was also impacted during the second and third quarters of 2020 due to the issuance of $60.0 million in subordinated notes in June 2020.

Horizon estimates that the subordinated notes compressed the net interest margin by 1 and 10 basis points for the second and third quarters, respectively.

This assumes the subordinated notes were not included in average interest bearing liabilities or interest expense and were primarily offset by a reduction in cash.

The compression to the net interest margin for the first nine months of 2020 using the same assumptions was estimated to be 4 basis points.

Net interest income during the nine months ended September 30, 2020 was $127.3 million, an increase of $8.0 million from the $119.3 million earned during the same period in 2019.

Yields on the Company’s interest–earning assets decreased by 68 basis points to 4.13% for the nine months ended September 30, 2020 from 4.81% for the nine months ended September 30, 2019.

Interest income decreased $2.8 million from $154.9 million for the nine months ended September 30, 2019 to $152.1 million for the same period in 2020.

Average interest earning assets during the nine months ended September 30, 2020 increased $660.7 million to $5.0 billion compared to $4.4 billion during the nine months ended September 30, 2019.

Interest income from acquisition–related purchase accounting adjustments was $4.5 million for both the nine months ending September 30, 2020 and 2019.

Rates paid on interest–bearing liabilities decreased by 55 basis points for the nine–month period ended September 30, 2020 compared to the same period in 2019.

Interest expense decreased $10.8 million when compared to the nine–month period ended September 30, 2019 to $24.8 million for the same period in 2020.

This decrease was due to lower rates paid on deposits and borrowings.

The cost on average interest–bearing deposits decreased 50 basis points while the cost of average borrowings decreased 105 basis points.

Average balances of interest-bearing deposits increased $444.0 million and average balances of borrowings increased $88.4 million for the six-month period ended June 30, 2020 when compared to the same period in 2019.

The net interest margin decreased 17 basis points from 3.68% for the six-month period ended June 30, 2019 to 3.51% for the same period in 2020.

The decrease in the margin for the six-month period ended June 30, 2020 compared to the same period in 2019 was due to a decrease in the yield of interest-earning assets, offset by a decrease in the cost of interest-bearing liabilities.

Excluding the interest income recognized from the acquisition-related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 3.39% for the six-month period ending June 30, 2020 compared to 3.55% for the same period in 2019.

Average balances of interest–bearing deposits increased $362.2 million and average balances of borrowings increased $113.7 million for the nine–month period ended September 30, 2020 when compared to the same period in 2019.

The net interest margin decreased 24 basis points from 3.72% for the nine–month period ended September 30, 2019 to 3.48% for the same period in 2020.

The decrease in the margin for the nine–month period ended September 30, 2020 compared to the same period in 2019 was due to a decrease in the yield of interest–earning assets, offset by a decrease in the cost of interest–bearing liabilities.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 3.36% for the nine–month period ending September 30, 2020 compared to 3.58% for the same period in 2019.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

The following are the average balance sheets for the six months ending (dollars in thousands):

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

The following are the average balance sheets for the nine months ending (dollars in thousands):

Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)

Six Months Ended Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended Nine Months Ended

September 30, 2020 September 30, 2019

Balance Interest Average

41 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

Credit Loss Expense

Horizon assesses the adequacy of its Allowance for Credit Losses (“ACL”) by regularly reviewing the performance of its loan portfolio.

During the three-month period ended June 30, 2020, a provision of $7.1 million was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to $896,000 for the same period of 2019.

During the three-month period ended June 30, 2020, commercial loan net charge-offs were $6,000, residential mortgage loan net charge-offs were $24,000 and consumer loan net charge-offs were $377,000.

During the six-month period ended June 30, 2020, a provision of $15.7 million was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to $1.3 million for the same period of 2019.

During the six-month period ended June 30, 2020, commercial loan net recoveries were $14,000, residential mortgage loan net charge-offs were $41,000 and consumer loan net charge-offs were $784,000.

The ACL balance at June 30, 2020 was $55.1 million, or 1.38% of total loans.

During the three–month period ended September 30, 2020, a provision of $2.1 million was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to $376,000 for the same period of 2019.

During the three–month period ended September 30, 2020, commercial loan net charge–offs were $488,000, residential mortgage loan net charge–offs were $136,000 and consumer loan net charge–offs were $199,000.

During the nine–month period ended September 30, 2020, a provision of $17.7 million was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to $1.6 million for the same period of 2019.

During the nine–month period ended September 30, 2020, commercial loan net charge–offs were $474,000, residential mortgage loan net charge–offs were $177,000 and consumer loan net charge–offs were $983,000.

The ACL balance at September 30, 2020 was $56.3 million, or 1.39% of total loans.

This compares to an ACL balance of $17.7 million at December 31, 2019 or 0.49% of total loans.

The $7.1 million ACL provision included $6.4 million in 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).

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.

As of June 30, 2020, non-performing loans totaled $28.1 million, which reflects a 12 basis point increase in non-performing loans to total loans, or a $6.9 million increase from $21.2 million in non-performing loans as of December 31, 2019.

Non-performing commercial loans increased by $6.9 million, non-performing real estate loans increased by $61,000 and non-performing consumer loans decreased by $81,000 at June 30, 2020 compared to December 31, 2019.

As of September 30, 2020, non–performing loans totaled $29.3 million, which reflects a 14 basis point increase in non–performing loans to total loans, or an $8.1 million increase from $21.2 million in non–performing loans as of December 31, 2019.

Non–performing commercial loans increased by $8.8 million, non–performing real estate loans decreased by $675,000 and non–performing consumer loans decreased by $18,000 at September 30, 2020 compared to December 31, 2019.

The Bank has elected (i) to suspend the requirements under GAAP for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a TDR;

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.

The following is a summary of loan modifications related to the COVID–19 pandemic by type of loan.

Type of Loan # Net

Balance Interest

Modifications % of

6 unchanged sentences

Mortgage (Serviced Only) 162

Other Real Estate Owned (OREO) and repossessed assets totaled $2.6 million at June 30, 2020 compared to $3.7 million at December 31, 2019.

Other Real Estate Owned (“OREO”) and repossessed assets totaled $2.3 million at September 30, 2020 compared to $3.7 million at December 31, 2019.

HORIZON BANCORP, INC.

2 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

Non–interest Income

The following is a summary of changes in non-interest income for the three months ending June 30, 2020 and 2019 (table dollar amounts in thousands):

The following is a summary of changes in non–interest income for the three months ending September 30, 2020 and 2019 (table dollar amounts in thousands):

Three Months Ended

2020 June 30,

Change Percent

September 30, Amount Percent

2020 2019 Change Change

Non–interest Income

10 unchanged sentences

Total non–interest income $ 16,700 $ 11,514 $ 5,186 45.0 %

$ 11,125 $ 10,898 $ 227 2.1 %

Total non-interest income was $227,000 higher during the second quarter of 2020 compared to the same period of 2019.

Residential mortgage loan activity during the second quarter of 2020 generated $6.6 million of income from the gain on sale of mortgage loans, up from $2.1 million for the same period in 2019 due to a higher volume of loans sold and an increase in the percentage gain on loans sold.

Mortgage servicing rights, net of impairment, decreased $3.3 million during the second quarter of 2020 compared to the same period of 2019 primarily due to an impairment charge of $2.9 million recorded during the second quarter of 2020.

Service charges on deposit accounts, death benefit on bank owned life insurance, other income and fiduciary activities decreased $592,000, $367,000, $308,000 and $298,000, respectively, when comparing the second quarter of 2020 to the same period of 2019.

The following is a summary of changes in non-interest income for the six months ending June 30, 2020 and 2019 (table dollar amounts in thousands):

Six Months Ended

2020 June 30,

Change Percent

Total non–interest income was $5.2 million higher during the third quarter of 2020 compared to the same period of 2019.

Residential mortgage loan activity during the third quarter of 2020 generated $8.8 million of income from the gain on sale of mortgage loans, up from $2.7 million for the same period in 2019 due to a higher volume of loans sold and an increase in the percentage gain on loans sold.

Mortgage servicing rights, net of impairment, decreased $1.8 million during the third quarter of 2020 compared to the same period of 2019 primarily due to an impairment charge of $1.5 million recorded during the third quarter of 2020.

Service charges on deposit accounts, death benefit on bank owned life insurance and other income decreased $682,000, $182,000, and $87,000, respectively, when comparing the third quarter of 2020 to the same period of 2019.

The following is a summary of changes in non–interest income for the nine months ending September 30, 2020 and 2019 (table dollar amounts in thousands):

Nine Months Ended

September 30, Amount Percent

2020 2019 Change Change

Non–interest Income

10 unchanged sentences

Total non–interest income $ 39,888 $ 31,124 $ 8,764 28.2 %

$ 23,188 $ 19,610 $ 3,578 18.2 %

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

Total non-interest income was $3.6 million higher for the six-month period ended June 30, 2020 compared to the same period of 2019.

Residential mortgage loan activity during the six-month period ended June 30, 2020 generated $10.1 million of income from the gain on sale of mortgage loans, up from $3.4 million for the same period in 2019 due to a higher volume of loans sold and an increase in the percentage gain on loans sold.

Mortgage servicing rights, net of impairment, decreased $3.9 million during the six-month period ended June 30, 2020 compared to the same period of 2019 primarily due to an impairment charge of $2.9 million recorded during the second quarter of 2020.

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

Total non–interest income was $8.8 million higher for the nine–month period ended September 30, 2020 compared to the same period of 2019.

Residential mortgage loan activity during the nine–month period ended September 30, 2020 generated $18.9 million of income from the gain on sale of mortgage loans, up from $6.1 million for the same period in 2019 due to a higher volume of loans sold and an increase in the percentage gain on loans sold.

Mortgage servicing rights, net of impairment, decreased $5.7 million during the nine–month period ended September 30, 2020 compared to the same period of 2019 primarily due to an impairment charge of $4.7 million recorded during 2020.

Non–interest Expense

The following is a summary of changes in non-interest expense for the three months ending June 30, 2020 and 2019 (table dollar amounts in thousands):

The following is a summary of changes in non–interest expense for the three months ending September 30, 2020 and 2019 (table dollar amounts in thousands):

Three Months Ended

September 30, September 30,

2020 2019 Adjusted

Actual Merger

Expenses Adjusted Actual Merger

Expenses Adjusted Amount

Change Percent

Non–interest Expense

Salaries and employee benefits $ 18,832 $ — $ 18,832 $ 16,948 $ — $ 16,948 $ 1,884 11.1 %

$ 15,629 $ — $ 15,629 $ 16,951 $ (482) $ 16,469 $ (840) (5.1) %

Net occupancy expenses 3,107 — 3,107 3,131 — 3,131 (24) (0.8) %

3,190 — 3,190 3,148 (75) 3,073 117 3.8 %

Data processing 2,237 — 2,237 2,140 — 2,140 97 4.5 %

2,432 — 2,432 2,139 (68) 2,071 361 17.4 %

Professional fees 688 — 688 335 — 335 353 105.4 %

518 — 518 598 (153) 445 73 16.4 %

Outside services and consultants 1,561 — 1,561 1,552 — 1,552 9 0.6 %

1,759 — 1,759 1,655 (176) 1,479 280 18.9 %

2,692 — 2,692 2,048 (2) 2,046 646 31.6 %

Loan expense 2,876 — 2,876 2,198 — 2,198 678 30.8 %

FDIC deposit insurance 570 — 570 (273) — (273) 843 -308.8 %

235 — 235 365 — 365 (130) -35.6 %

193 — 193 169 (69) 100 93 93.0 %

Other losses 114 — 114 90 — 90 24 26.7 %

Other expenses 3,422 — 3,422 3,939 — 3,939 (517) (13.1) %

3,784 — 3,784 4,511 (507) 4,004 (220) (5.5) %

Total non–interest expense $ 33,407 $ — $ 33,407 $ 30,060 $ — $ 30,060 $ 3,347 11.1 %

$ 30,432 $ — $ 30,432 $ 31,584 $ (1,532) $ 30,052 $ 380 1.3 %

Annualized Non–interest Exp.

2.18 % 2.18 % 2.51 % 2.39 %

Total non-interest expense was $1.1 million lower for the second quarter of 2020 when compared to the second quarter of 2019.

Decreases in salaries and employee benefits and other expense were offset in part by increases in loan expense and data processing.

Excluding merger expenses, total non-interest expense increased by $380,000 in the second quarter of 2020 when compared to the first quarter of 2019.

Annualized non-interest expense as a percent of average assets were 2.18% and 2.51% for the three months ended June 30, 2020 and 2019, respectively.

Annualized non-interest expense, excluding merger expenses, as a percent of average assets were 2.18% and 2.39% for the three months ended June 30, 2020 and 2019, respectively.

Assets 2.30 % 2.30 % 2.34 % 2.34 %

Total non–interest expense was $3.3 million higher for the third quarter of 2020 when compared to the third quarter of 2019.

Increases in salaries and employee benefits, FDIC deposit insurance, loan expense and professional fees were offset in part by a decrease in other expense.

Annualized non–interest expense as a percent of average assets were 2.30% and 2.34% for the three months ended September 30, 2020 and 2019, respectively.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

The following is a summary of changes in non-interest expense for the six months ending June 30, 2020 and 2019 (table dollar amounts in thousands):

Six Months Ended

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

The following is a summary of changes in non–interest expense for the nine months ending September 30, 2020 and 2019 (table dollar amounts in thousands):

Nine Months Ended

September 30, September 30,

2020 2019 Adjusted

Actual Merger

Expenses Adjusted Actual Merger

Expenses Adjusted Amount

Change Percent

Non–interest Expense

Salaries and employee benefits $ 51,052 $ — $ 51,052 $ 48,365 $ (484) $ 47,881 $ 3,171 6.6 %

$ 32,220 $ — $ 32,220 $ 31,417 $ (484) $ 30,933 $ 1,287 4.2 %

Net occupancy expenses 9,549 — 9,549 9,051 (75) 8,976 573 6.4 %

6,442 — 6,442 5,920 (75) 5,845 597 10.2 %

Data processing 7,074 — 7,074 6,245 (360) 5,885 1,189 20.2 %

4,837 — 4,837 4,105 (360) 3,745 1,092 29.2 %

Professional fees 1,742 — 1,742 1,426 (392) 1,034 708 68.5 %

1,054 — 1,054 1,091 (392) 699 355 50.8 %

Outside services and consultants 5,235 — 5,235 6,737 (2,466) 4,271 964 22.6 %

3,674 — 3,674 5,185 (2,466) 2,719 955 35.1 %

4,791 — 4,791 3,997 (2) 3,995 796 19.9 %

Loan expense 7,667 — 7,667 6,195 (2) 6,193 1,474 23.8 %

FDIC deposit insurance 955 — 955 252 — 252 703 279.0 %

385 — 385 525 — 525 (140) -26.7 %

313 — 313 273 (71) 202 111 55.0 %

Other losses 427 — 427 363 (71) 292 135 46.2 %

Other expenses 11,287 — 11,287 12,748 (1,800) 10,948 339 3.1 %

7,865 — 7,865 8,809 (1,800) 7,009 856 12.2 %

Total non–interest expense $ 94,988 $ — $ 94,988 $ 91,382 $ (5,650) $ 85,732 $ 9,256 10.8 %

$ 61,581 $ — $ 61,581 $ 61,322 $ (5,650) $ 55,672 $ 5,909 10.6 %

Annualized Non–interest Exp.

2.28 % 2.28 % 2.64 % 2.40 %

Total non-interest expense was $259,000 higher for the six-month period ended June 30, 2020 when compared to the same period of 2019.

Increases in salaries and employee benefits, loan expense, data processing and net occupancy expenses were offset in part by decreases in outside services and consultants and other expense.

Excluding merger expenses, total non-interest expense increased by $5.9 million for the six-month period ended June 30, 2020 when compared to the same period of 2019.

Assets 2.29 % 2.29 % 2.53 % 2.38 %

Total non–interest expense was $3.6 million higher for the nine-month period ended September 30, 2020 when compared to the same period of 2019.

Increases in salaries and employee benefits, loan expense, data processing FDIC deposit insurance and net occupancy expenses were offset in part by decreases in outside services and consultants and other expense.

Excluding merger expenses, total non–interest expense increased by $9.3 million for the nine-month period ended September 30, 2020 when compared to the same period of 2019.

This increase was primarily related to the closing of the Salin Bancshares, Inc.

merger on March 26, 2019 and the related increase in costs.

Income tax expense totaled $2.0 million for the second quarter of 2020 a decrease of $1.3 million when compared to the second quarter of 2019.

The decrease in income tax expense in the second quarter of 2020 compared to the second quarter of 2019 was primarily due to a decrease in income before taxes of $3.3 million in addition to an increase in tax-exempt municipal interest income.

Income tax expense totaled $3.6 million for the six-month period ended June 30, 2020, a decrease of $1.8 million when compared to the same period of 2019.

Income tax expense totaled $4.3 million for the third quarter of 2020 an increase of $322,000 when compared to the third quarter of 2019.

The decrease in income tax expense in the third quarter of 2020 compared to the third quarter of 2019 was primarily due to a decrease in income before taxes of $97,000.

Income tax expense totaled $7.9 million for the nine-month period ended September 30, 2020, a decrease of $1.5 million when compared to the same period of 2019.

The decrease in income tax expense was due to a decrease in income before taxes of $2.9 million in addition to an increase in tax–exempt municipal interest income.

2 unchanged sentences

Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB.

At June 30, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $910.7 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $517.1 million at December 31, 2019.

The Bank had approximately $453.6 million of

At September 30, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $928.0 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $517.1 million at December 31, 2019.

The Bank had approximately $517.2 million of unpledged investment securities at September 30, 2020 compared to $807.4 million at December 31, 2019.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

unpledged investment securities at June 30, 2020 compared to $807.4 million at December 31, 2019.

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

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2020.

Stockholders’ equity totaled $652.2 million as of June 30, 2020, compared to $656.0 million as of December 31, 2019.

For the six months ended June 30, 2020, the ratio of average stockholders’ equity to average assets was 12.07% compared to 12.28% for the twelve months ended December 31, 2019.

The decrease in stockholders’ equity during the period was the result of the repurchase of outstanding stock, the impact of the adoption of ASU 2016-13 and dividends declared, offset by net income and the increase in accumulated other comprehensive income.

Horizon declared common stock dividends in the amount of $0.24 per share during the first six months of 2020 and $0.22 per share for the same period of 2019.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 40.7% and 33.8% for the first six months of 2020 and 2019, respectively.

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2020.

Stockholders’ equity totaled $670.3 million as of September 30, 2020, compared to $656.0 million as of December 31, 2019.

For the nine months ended September 30, 2020, the ratio of average stockholders’ equity to average assets was 11.90% compared to 12.28% for the twelve months ended December 31, 2019.

The increase in stockholders’ equity during the period was the result of the net income and the increase in accumulated other comprehensive income, offset by the repurchase of outstanding stock, the impact of the adoption of ASU 2016–13 and dividends declared.

Horizon declared common stock dividends in the amount of $0.36 per share during the first nine months of 2020 and $0.34 per share for the same period of 2019.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 34.0% and 30.5% for the first nine months of 2020 and 2019, respectively.

For additional information regarding dividends, see Horizon’s Annual Report on Form 10-K for 2019.

2 unchanged sentences

Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, the allowance for credit losses, tangible stockholders’ equity, tangible book value per share, the return on average assets, the return on average common equity, and pre–tax pre–provision net income.

In each case, we have identified special circumstances that we consider to be adjustments and have excluded them, to show the impact of such events as acquisition-related purchase accounting adjustments and the tax reform bill, among others we have identified in our reconciliations.

In each case, we have identified special circumstances that we consider to be adjustments and have excluded them, to show the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations.

Horizon believes that these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and other adjustments.

5 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

Non–GAAP Reconciliation of Net Income

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

June 30, March 31, December 31, September 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

2020 2020 2020 2019 2019 2020 2019

14 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

Non–GAAP Reconciliation of Diluted Earnings per Share

Three Months Ended Six Months Ended

June 30, March 31, December 31, September 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

2020 2020 2020 2019 2019 2020 2019

11 unchanged sentences

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

June 30, March 31, December 31, September 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

2020 2020 2020 2019 2019 2020 2019

11 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

Non–GAAP Reconciliation of Net Interest Margin

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

June 30, March 31, December 31, September 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

2020 2020 2020 2019 2019 2020 2019

10 unchanged sentences

(Dollars in Thousands Except per Share Data, Unaudited)

June 30, March 31, December 31, September 30, June 30,

September 30, June 30, March 31, December 31, September 30,

2020 2020 2020 2019 2019

10 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

Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

June 30, March 31, December 31, September 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

2020 2020 2020 2019 2019 2020 2019

Non-GAAP Calculation of Efficiency Ratio

Non–interest expense as reported $ 33,407 $ 30,432 $ 31,149 $ 30,650 $ 30,060 $ 94,988 $ 91,382

2 unchanged sentences

Non–interest expense/(Net interest income + Non–interest income)

("Efficiency Ratio") 56.23 % 58.79 % 57.34 % 54.68 % 60.24 % 57.49 % 64.27 %

Non-GAAP Reconciliation of Adjusted Efficiency Ratio

Ratio") 55.59 % 56.23 % 58.79 % 57.34 % 54.68 % 56.81 % 60.76 %

Non–interest expense as reported $ 33,407 $ 30,432 $ 31,149 $ 30,650 $ 30,060 $ 94,988 $ 91,382

11 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

Non–GAAP Reconciliation of Return on Average Assets

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

Non-GAAP Reconciliation of Return on Average Assets June 30, March 31, December 31, September 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

2020 2020 2020 2019 2019 2020 2019

14 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

Non–GAAP Reconciliation of Return on Average Common Equity

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

Non-GAAP Reconciliation of Return on Average Common Equity June 30, March 31, December 31, September 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

2020 2020 2020 2019 2019 2020 2019

14 unchanged sentences

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 2. Management’s Discussion and Analysis