What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-04-30 · 351 added, 156 removed, 445 unchanged (53% of the section changed)

14 unchanged sentences

• changes in the level and volatility of interest rates, spreads on earning assets and interest bearing liabilities, and interest rate sensitivity;

• the effect of low interest rates on net interest rate margin and their impact on mortgage loan volumes and the outflow of deposits;

• the effect of low or negative interest rates on net interest rate margin and their impact on mortgage loan volumes and the outflow of deposits;

• loss of key Horizon personnel;

15 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

For the Three and Six Months ended June 30, 2021 and 2020

• 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;

31 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

First Quarter 2021 Highlights

• Generated return on average assets (“ROAA”) of 1.40% and return on average common equity (“ROACE”) of 11.88% in the quarter, as well as adjusted ROAA of 1.35% and adjusted ROACE of 11.46%, excluding the impact of gains on sale of investment securities, net of tax.

(See the “Non–GAAP Reconciliation of Return on Average Assets” and the “Non–GAAP Reconciliation of Return on Average Common Equity” tables below.)

• Earned net income of $20.4 million, or $0.46 diluted earnings per share, compared to $21.9 million, or $0.50 diluted earnings per share, for the fourth quarter of 2020 and $11.7 million, or $0.26 diluted earnings per share, for the first quarter of 2020.

• Pre–tax, pre–provision net income totaled a first–quarter record $24.2 million, compared to $26.9 million for the fourth quarter of 2020 and $21.8 million for the first three months of 2020.

For the Three and Six Months ended June 30, 2021 and 2020

Second Quarter 2021 Highlights

• Net income grew to a record $22.2 million, up 8.6% from the linked quarter and 51.5% from the year–ago period.

Diluted earnings per share (“EPS”) of $0.50 includes the $0.01 after–tax impact of expenses associated with Horizon’s agreement to acquire 14 TCF National Bank branches, approximately $976 million in deposits and approximately $278 million in loans in a financially and strategically attractive extension of Horizon’s low–cost deposit franchise in Michigan, announced in the quarter.

EPS was $0.46 for the first quarter of 2021 and $0.33 for the second quarter of 2020.

• Pre–tax, pre–provision net income grew to a second–quarter record $24.5 million, up 0.9% from the linked quarter and 3.2% from the year–ago period.

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 Income” table below.)

• Non–interest expense was $32.2 million in the quarter, or 2.20% of average assets on an annualized basis, compared to $36.5 million, or 2.47%, in the fourth quarter of 2020 and $31.1 million, or 2.38%, in the first quarter of 2020.

• The efficiency ratio for the period was 57.03% compared to 57.54% for the fourth quarter of 2020 and 58.79% for the first quarter of 2020.

The adjusted efficiency ratio was 57.97% compared to 56.48% for the fourth quarter of 2020 and 59.43% for the first quarter of 2020.

• Net interest income was $42.6 million for the quarter, compared to $42.5 million for the first quarter of 2021 and $43.0 million for the second quarter of 2020.

Reported net interest margin (“NIM”) was 3.14% and adjusted NIM was 3.13%, with reported NIM declining by 15 basis points and adjusted NIM decreasing by four basis points from the first quarter of 2021.

(See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation of adjusted NIM.) An estimated seven basis points attributed to Federal Paycheck Protection Program (“PPP”) lending improved the margin, offset by an estimated 21 basis point compression attributed to excess liquidity held during the quarter, for both NIM and adjusted NIM.

• Horizon’s in–market consumer and commercial deposit relationships, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.45% in the quarter, compared to 0.50% in the first quarter of 2021 and 0.74% in the second quarter of 2020.

• Non–interest expense was $33.4 million in the quarter, or 2.18% of average assets on an annualized basis, compared to $32.2 million, or 2.20%, in the first quarter of 2021 and $30.4 million, or 2.18%, in the second quarter of 2020.

• The efficiency ratio for the period was 57.73% compared to 57.03% for the first quarter of 2021 and 56.23% for the second quarter of 2020.

The adjusted efficiency ratio was 57.45% compared to 57.97% for the first quarter of 2021 and 56.49% for the second quarter of 2020.

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

• Following record residential lending last year and during what has historically been its seasonally lightest volume quarter, mortgage–related non–interest income remained strong in the first three months of 2021, with gain on mortgage loan sales of $5.3 million and net mortgage servicing income of $213,000.

The bank originated $155.6 million in mortgage loans during the quarter, with 65% of volume from refinances, as Horizon continued to focus residential lending on prime borrowers in Indiana and Michigan markets.

• Net interest income was $42.5 million for the quarter, compared to $43.6 million for the fourth quarter of 2020 and $40.9 million for the first quarter of 2020.

First quarter 2021 net interest income remained relatively stable in the current environment, given previously disclosed initiatives to optimize returns on earning assets, including increasing investment securities to 23.5% of assets from 22.1% in the fourth quarter of 2020 and 20.6% in the first quarter of 2020.

• Reported net interest margin (“NIM”) of 3.29% and adjusted NIM of 3.17%, with reported NIM declining by 5 basis points and adjusted NIM decreasing by 27 basis points from the fourth quarter of 2020.

(See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation.) An estimated 10 basis points attributed to Federal Paycheck Protection Program (“PPP”) lending improved the margin, offset by an estimated 16 basis point compression attributed to excess liquidity held during the quarter, for both NIM and adjusted NIM.

• Horizon’s in–market consumer and commercial deposit relationships, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.50% in the quarter, compared to 0.94% in the fourth quarter of 2020 and 1.13% in the first quarter of 2020.

• Increased the allowance for credit losses (“ACL”) 0.3% year–to–date to $57.2 million at period end, representing 1.56% of total loans, reflecting implementation of the Current Expected Credit Losses (“CECL”) accounting method and prudent increases in the Company’s general reserves.

• COVID–19 deferral levels improved to 2.5% of total loans at period end, compared to 3.3% on December 31, 2020, and the bank experienced no material specific loan losses attributable to COVID–19 closures.

• Horizon experienced an increased return on average assets (“ROAA”) of 1.45% and return on average common equity (“ROACE”) of 12.59% in the quarter, as well as adjusted ROAA of 1.46% and adjusted ROACE of 12.61%, excluding the impact of acquisition expenses and prepayment penalties, net of tax, and death benefits on bank owned life insurance.

(See the “Non–GAAP Reconciliation of Return on Average Assets” and the “Non–GAAP Reconciliation of Return on Average Common Equity” tables below.)

• Horizon recorded a provision release of $1.5 million and maintained solid asset quality metrics at period end, including non–performing loans declining 10.9% during the quarter to $22.3 million, or 0.63% of total loans, substandard loans declining 4.6% to $82.5 million, or 2.3% of total loans, net charge–offs declining 81.3% to $39,000, or 0.00% of average loans for the period, and COVID–19 deferrals declining 42.7% to $52.5 million, or 1.5% of total loans.

• Total non–interest income grew to $15.2 million, up 9.6% from the linked quarter and 36.7% from the year–ago period, due to favorable impact of mortgage production, bank owned life insurance, banking fees and fiduciary activities.

Following record residential lending in 2020, mortgage–related non–interest income remained strong in the second three months of 2021, with gain on mortgage loan sales of $5.6 million and net mortgage servicing income of $1.5 million.

The Horizon Bank (the “Bank”) originated $173.0 million in mortgage loans during the quarter, with 61% of volume from purchases, as Horizon continued to focus residential lending on prime borrowers in Indiana and Michigan markets.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

• Maintained solid asset quality metrics at period end, including non–performing loans declining 6.5% during the quarter to $25.1 million, or 0.68% of total loans, and substandard loans declining 12.5% to $86.5 million, or 2.4% of total loans, while net charge–offs remained unchanged at 0.01% of average loans for the period.

• Loans excluding PPP lending totaled $3.42 billion on March 31, 2021, reflecting Horizon’s successful efforts to secure payoffs of loans previously classified as substandard, as well as cash reserves maintained by many current and prospective commercial borrowers and retail households through the quarter.

Loans excluding PPP lending totaled $3.67 billion on December 31, 2020 and $3.71 billion on March 31, 2020.

• Horizon announced an 8.3% increase in its quarterly cash dividend in March to $0.13 per share, paying uninterrupted dividends for over 30 years.

As of March 31, 2021, in excess of $127 million in cash was maintained at the holding company, providing considerable future optionality to build shareholder value.

• Horizon opened a new full–service branch on March 31, 2021 in Gary to improve access to financial services in this Northwest Indiana community.

For the Three and Six Months ended June 30, 2021 and 2020

• Loans, excluding PPP lending, totaled $3.36 billion on June 30, 2021, were lower reflecting cash reserves maintained by many current and prospective commercial borrowers and retail households through the quarter.

Loans, excluding PPP lending, totaled $3.42 billion on March 31, 2021 and $3.69 billion on June 30, 2020.

• Horizon’s book value per share and tangible book value per share increased to all–time highs of $16.16 and $12.24, respectively.

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

• As part of the Company's annual branch performance review and a third–party analysis of the Bank's retail network, Horizon's Board of Directors approved the permanent closure of nine Indiana branch locations and one in Michigan to occur on August 27, 2021.

Access to Horizon branch that provides the same products and services will be in close proximity of the consolidated branch in addition to alternative delivery channels are available, including online banking and mobile banking.

Any impairment to fixed assets is not estimated to be material.

• Horizon increased cash dividends paid in the quarter by 8.3% to $0.13 per share, as previously announced.

As of June 30, 2021, in excess of $129 million in cash was maintained at the holding company, providing considerable future optionality to build shareholder value.

Coronavirus Update/Status

6 unchanged sentences

◦ Payment relief

▪ Approximately $2 million consumer and mortgage loans have been modified as of March 31, 2021, down from $6 million as of December 31, 2020 and $63 million as of June 30, 2020.

▪ Approximately $2 million consumer and mortgage loans have been modified as of June 30, 2021, down from $6 million as of December 31, 2020 and $63 million as of June 30, 2020.

▪ Continued to provide new loans to qualified applicants.

4 unchanged sentences

◦ Payment Relief Programs

▪ Approximately $89 million in commercial loans with payment extensions as of March 31, 2021, down from $121 million as of December 31, 2020 and $470 million as of June 30, 2020.

▪ Approximately $51 million in commercial loans with payment extensions as of June 30, 2021, down from $121 million as of December 31, 2020 and $470 million as of June 30, 2020.

▪ Processed and received approval for 4,003 PPP loans, funding approximately $450.1 million.

▪ As of March 31, 2021, $185.7 million of PPP loans had been forgiven.

▪ As of June 30, 2021, $276.5 million of PPP loans had been forgiven.

• Communities

1 unchanged sentence

◦ Contributed over $300,000 during 2020 to COVID–19 related not–for–profit efforts (local food banks, United Way, housing).

◦ Participated in community conference calls related to COVID–19.

◦ Partnered with local neighborhood housing partnerships to provide funding for low to moderate income families.

◦ Partnered with local Certified Development Corporations to provide capital to small businesses.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

For the Three and Six Months ended June 30, 2021 and 2020

◦ Participated in community conference calls related to COVID–19.

◦ Partnered with local neighborhood housing partnerships to provide funding for low to moderate income families.

◦ Partnered with local Certified Development Corporations to provide capital to small businesses.

Financial Summary

For the Three Months Ended

March 31, December 31, March 31,

June 30, March 31, June 30,

Net Interest Income and Net Interest Margin 2021 2021 2020

3 unchanged sentences

For the Three Months Ended

March 31, December 31, March 31,

June 30, March 31, June 30,

Asset Yields and Funding Costs 2021 2021 2020

3 unchanged sentences

Non–interest Income and

Mortgage Banking Income March 31, December 31, March 31,

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

2021 2021 2020

3 unchanged sentences

For the Three Months Ended

March 31, December 31, March 31,

June 30, March 31, June 30,

Non–interest Expense 2021 2021 2020

2 unchanged sentences

At or for the Three Months Ended

Credit Quality March 31, December 31, March 31,

Credit Quality June 30, March 31, June 30,

2021 2021 2020

2 unchanged sentences

Percent of net charge–offs to average loans outstanding for the period 0.00 % 0.01 % 0.01 %

Allowance for December 31, Net Reserve Build March 31,

Credit Losses 2020 1Q20 2021

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, 2021 and 2020

Allowance for December 31, Net Reserve June 30,

Credit Losses 2020 1Q20 2Q20 2021

Commercial $ 42,210 $ 770 $ (1,214) $ 41,766

5 unchanged sentences

ACL/Total Loans 1.47 % 1.58 %

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

Critical Accounting Policies

20 unchanged sentences

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

At March 31, 2021, Horizon had core deposit intangibles of $22.1 million subject to amortization and $151.2 million of goodwill, which is not subject to amortization.

At June 30, 2021, Horizon had core deposit intangibles of $21.2 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.

3 unchanged sentences

FASB ASC 350–10 requires an annual evaluation of goodwill for impairment.

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, 2021 and 2020

At each reporting date between annual goodwill impairment tests, Horizon considers potential indicators of impairment.

5 unchanged sentences

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 most recent qualitative assessment, the Company determined that as of March 31, 2021, it was more likely than not that the fair value exceeded its carrying values.

At the conclusion of the most recent qualitative assessment, the Company determined that as of June 30, 2021, 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 Months ended March 31, 2021 and 2020

Mortgage Servicing Rights

22 unchanged sentences

a hedge of the fair value of the recognized asset or liability or of an unrecognized firm commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge).

For fair value hedges, the cumulative change in fair value of both the hedge instruments and the underlying loans is recorded in non–interest income.

For fair value hedges, the cumulative

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, 2021 and 2020

change in fair value of both the hedge instruments and the underlying loans is recorded in non–interest income.

For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective.

4 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 Months ended March 31, 2021 and 2020

Valuation Measurements

5 unchanged sentences

Financial Condition

On March 31, 2021, Horizon’s total assets were $6.1 billion, an increase of approximately $168.9 million compared to December 31, 2020.

The increase was primarily in cash and due from banks of $279.6 million and investment securities available for sale of $128.2 million.

These increases were offset by a decrease in net loans of $203.1 million and other assets of $20.9 million.

On June 30, 2021, Horizon’s total assets were $6.1 billion, an increase of approximately $222.6 million compared to December 31, 2020.

The increase was primarily in investment securities available for sale of $557.2 million and cash and due from banks of $54.5 million.

These increases were offset by a decrease in net loans of $346.5 million, investments held to maturity of $15.4 million and other assets of $13.9 million.

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Value Amortized

4 unchanged sentences

Federal agency mortgage–backed pools 165,016 167,510 114,484 118,799

Private labeled mortgage–backed pools 33,074 33,568 — —

Corporate notes 85,637 86,892 9,007 10,215

4 unchanged sentences

Federal agency mortgage–backed pools 3,733 3,908 8,594 8,837

Private labeled mortgage–backed pools 4,114 4,114 — —

Total held to maturity investment securities $ 153,284 $ 162,651 $ 168,676 $ 179,990

Investment securities available for sale increased $128.2 million since December 31, 2020 to $1.3 billion as of March 31, 2021.

Investment securities available for sale increased $557.2 million since December 31, 2020 to $1.7 billion as of June 30, 2021.

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

Gross loans decreased $208.7 million since December 31, 2020 to $3.7 billion as of March 31, 2021.

Mortgage warehouse, residential mortgage, consumer, commercial and loans held for sale decreased $129.4 million, $42.4 million, $16.8 million, $14.4 million and $5.7 million.

PPP loans increased $43.4 million since December 31, 2020 to $252.3 million as of March 31, 2021.

Total deposits increased $190.7 million since December 31, 2020 to $4.7 billion as of March 31, 2021.

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

Total borrowings increased from $475.0 million as of December 31, 2020 to $481.5 million as of March 31, 2021.

At March 31, 2021, the Company had $166.0 million in short-term funds borrowed compared to $315.5 million at December 31, 2020.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

Stockholders’ equity totaled $689.4 million at March 31, 2021 compared to $692.2 million at December 31, 2020.

The decrease in stockholders’ equity during the period was due to a decrease in accumulated other comprehensive income during the period, offset by the generation of net income.

Book value per common share at March 31, 2021 decreased to $15.69 compared to $15.78 at December 31, 2020 as a result of the decrease in accumulated other comprehensive income during the period.

For the Three and Six Months ended June 30, 2021 and 2020

Gross loans decreased $354.2 million since December 31, 2020 to $3.5 billion as of June 30, 2021.

Mortgage warehouse, commercial, residential mortgage, loans held for sale and consumer decreased $190.3 million, $87.6 million, $64.8 million, $6.3 million and $5.1 million, respectively.

PPP loans decreased $39.4 million since December 31, 2020 to $169.4 million as of June 30, 2021.

Total deposits increased $250.5 million since December 31, 2020 to $4.8 billion as of June 30, 2021.

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

Total borrowings decreased from $475.0 million as of December 31, 2020 to $439.1 million as of June 30, 2021.

At June 30, 2021, the Company had $178.5 million in short-term funds borrowed compared to $315.5 million at December 31, 2020.

During the second quarter of 2021, the Bank paid–off $50.0 million in long–term Federal Home Loan Bank of Indianapolis advances which resulted in a prepayment penalty of $125,000.

Stockholders’ equity totaled $710.4 million at June 30, 2021 compared to $692.2 million at December 31, 2020.

The increase in stockholders’ equity during the period was due to the generation of net income, offset by dividends paid and a decrease in accumulated other comprehensive income during the period.

Book value per common share at June 30, 2021 increased to $16.16 compared to $15.78 at December 31, 2020.

Results of Operations

Consolidated net income for the three–month period ended March 31, 2021 was $20.4 million, or $0.46 diluted earnings per share, compared to $11.7 million, or $0.26 diluted earnings per share for the same period in 2020.

The increase in net income for the three–month period ended March 31, 2021 when compared to the same prior year period reflects an increase in net interest income of $1.6 million, an increase in non–interest income of $1.8 million and a decrease in credit loss expense of $8.2 million, offset by increases in non–interest expense of $1.0 million and income tax expense of $1.9 million.

Excluding gain on sale of investment securities and death benefit on bank owned life insurance (“adjusted net income”), adjusted net income for the first quarter of 2021 was $19.7 million, or $0.44 diluted earnings per share, compared to $11.2 million, or $0.24 diluted earnings per share for the first quarter of 2020.

Consolidated net income for the three–month period ended June 30, 2021 was $22.2 million, or $0.50 diluted earnings per share, compared to $14.6 million, or $0.33 diluted earnings per share for the same period in 2020.

The increase in net income for the three–month period ended June 30, 2021 when compared to the same prior year period reflects an increase in non–interest income of $4.1 million and a decrease in credit loss expense of $8.5 million, offset by an increase in non–interest expense of $3.0 million, an increase in income tax expense of $1.8 million and a decrease in net interest income of $364,000.

Excluding acquisition expenses, gain on sale of investment securities, death benefit on bank owned life insurance and prepayment penalties on borrowings (“adjusted net income”), adjusted net income for the second quarter of 2021 was $22.2 million, or $0.50 diluted earnings per share, compared to $14.4 million, or $0.32 diluted earnings per share for the second quarter of 2020.

Consolidated net income for the six–month period ended June 30, 2021 was $42.6 million, or $0.97 diluted earnings per share, compared to $26.3 million, or $0.59 diluted earnings per share for the same period in 2020.

The increase in net income for the six–month period ended June 30, 2021 when compared to the same prior year period reflects an increase in non–interest income of $5.9 million, an increase in net interest income of $1.2 million and a decrease in credit loss expense of $16.8 million, offset by increases in non–interest expense of $4.0 million and income tax expense of $3.6 million.

Excluding acquisition expenses, gain on sale of investment securities, death benefits on bank owned life insurance and prepayment penalties on borrowings (“adjusted net income”), adjusted net income for the six–month period ended June 30, 2021 was $41.9 million, or $0.95 diluted earnings per share, compared to $25.6 million, or $0.57 diluted earnings per share for the six–month period ended June 30, 2020.

Net Interest Income

5 unchanged sentences

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 March 31, 2021 was $42.5 million, an increase of $1.6 million from the $40.9 million earned during the same period in 2020.

Yields on the Company’s interest earning assets decreased by 81 basis points to 3.66% for the three months ended March 31, 2021 from 4.47% for the three months ended March 31, 2020.

Interest income decreased $4.1 million from $51.7 million for the three months ended March 31, 2020 to $47.6 million for the same period in 2021.

Net interest income during the three months ended June 30, 2021 was $42.6 million, a decrease of $364,000 from the $43.0 million earned during the same period in 2020.

Yields on the Company’s interest earning assets decreased by 57 basis points to 3.48% for the three months ended June 30, 2021 from 4.05% for the three months ended June 30, 2020.

Interest income decreased $2.9 million from $50.3 million for the three months ended June 30, 2020 to $47.4 million for the same

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, 2021 and 2020

period in 2021.

The decrease in interest income was due to a decrease in yield as interest earning assets reprice during the current low rate environment.

Interest income from acquisition–related purchase accounting adjustments was $1.6 million for the three months ending March 31, 2021 compared to $1.4 million for the same period of 2020.

Rates paid on interest bearing liabilities decreased by 63 basis points for the three–month period ended March 31, 2021 compared to the same period in 2020.

Interest expense decreased $5.7 million when compared to the three–month period ended March 31, 2020 to $5.1 million for the same period in 2021.

Interest income from acquisition–related purchase accounting adjustments was $230,000 for the three months ending June 30, 2021 compared to $1.6 million for the same period of 2020.

Rates paid on interest bearing liabilities decreased by 29 basis points for the three–month period ended June 30, 2021 compared to the same period in 2020.

Interest expense decreased $2.6 million when compared to the three–month period ended June 30, 2020 to $4.8 million for the same period in 2021.

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

The cost on average interest bearing deposits decreased 69 basis points while the cost of average borrowings decreased 61 basis points.

Average balances of interest bearing deposits increased $298.8 million and average balances of borrowings decreased $55.9 million for the three-month period ended March 31, 2021 when compared to the same period in 2020.

The net interest margin decreased 27 basis points from 3.56% for the three–month period ended March 31, 2020 to 3.29% for the same period in 2021.

The decrease in the margin for the three–month period ended March 31, 2021 compared to the same period in 2020 was due to a decrease in the yield on 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 3.17% for the three-month period ending March 31, 2021 compared to 3.44% for the same period in 2020.

The cost of average interest bearing deposits decreased 33 basis points while the cost of average borrowings decreased 20 basis points.

Average balances of interest bearing deposits increased $381.1 million and average balances of borrowings decreased $164.4 million for the three-month period ended June 30, 2021 when compared to the same period in 2020.

The net interest margin decreased 33 basis points from 3.47% for the three–month period ended June 30, 2020 to 3.14% for the same period in 2021.

The decrease in the margin for the three–month period ended June 30, 2021 compared to the same period in 2020 was due to a decrease in the yield on 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 and prepayment penalties on borrowings (“adjusted net interest margin”), the margin would have been 3.13% for the three-month period ending June 30, 2021 compared to 3.35% for the same period in 2020.

The net interest margin was impacted due to PPP lending and high level of cash held during the second quarter of 2021.

Horizon estimates that the PPP loans increased the net interest margin by seven basis points for the second quarter of 2021.

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.

In addition, Horizon estimates that the high level of cash held on the balance sheet compressed the net interest margin by 21 basis points for the second quarter of 2021.

This assumes that the high level of cash was not included in average interest earning assets or interest income and was excluded from non–interest bearing deposits.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

For the Three and Six Months ended June 30, 2021 and 2020

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

2 unchanged sentences

Three Months Ended Three Months Ended

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020

Balance Interest Average

41 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

The net interest margin was impacted due to PPP lending and excess liquidity held during the first quarter of 2021.

Horizon estimates that the PPP loans increased the net interest margin by 10 basis points for the first quarter of 2021.

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.

In addition, Horizon estimates that the high level of cash held on the balance sheet compressed the net interest margin by 16 basis points for the first quarter of 2021.

This assumes that the high level of cash was not included in average interest earning assets or interest income and was excluded from non–interest bearing deposits.

For the Three and Six Months ended June 30, 2021 and 2020

Net interest income during the six months ended June 30, 2021 was $85.2 million, an increase of $1.2 million from the $83.9 million earned during the same period in 2020.

Yields on the Company’s interest earning assets decreased by 68 basis points to 3.57% for the six months ended June 30, 2021 from 4.25% for the six months ended June 30, 2020.

Interest income decreased $7.0 million from $102.0 million for the six months ended June 30, 2020 to $95.0 million for the same period in 2021.

Average interest earning assets during the six months ended June 30, 2021 increased $620.7 million to $5.6 billion compared to $4.9 billion during the six months ended June 30, 2020.

Interest income from acquisition–related purchase accounting adjustments was $1.8 million for the six months ended June 30, 2021 compared to $3.0 million for the same period of 2020.

Rates paid on interest bearing liabilities decreased 46 basis points for the six–month period ended June 30, 2021 compared to the same period in 2020.

Interest expense decreased $8.2 million when compared to the six–month period ended June 30, 2020 to $9.8 million for the same period in 2021.

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

The cost of average interest bearing deposits decreased 50 basis points while the cost of average borrowings decreased 40 basis points.

Average balances of interest bearing deposits increased $340.4 million and average balances of borrowings decreased $110.2 million for the six–month period ended June 30, 2021 when compared to the same period in 2020.

The net interest margin decreased 30 basis points from 3.51% for the six–month period ended June 30, 2020 to 3.21% for the same period in 2021.

The decrease in the margin for the six–month period ended June 30, 2021 compared to the same period in 2020 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 and prepayment penalties on borrowings (“adjusted net interest margin”), the margin would have been 3.15% for the six–month period ended June 30, 2021 compared to 3.39% for the same period in 2020.

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, 2021 and 2020

Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)

Six Months Ended Six Months Ended

June 30, 2021 June 30, 2020

Balance Interest Average

Interest earning assets

Federal funds sold $ 313,467 $ 164 0.11 % $ 43,903 $ 113 0.52 %

Interest earning deposits 27,567 90 0.66 % 23,391 163 1.40 %

Investment securities – taxable 528,250 3,822 1.46 % 491,360 4,943 2.02 %

Investment securities – non–taxable (1)

1,005,855 10,879 2.76 % 618,080 7,903 3.16 %

Loans receivable (2) (3)

3,674,977 80,054 4.41 % 3,752,654 88,876 4.78 %

Total interest earning assets 5,550,116 95,009 3.57 % 4,929,388 101,998 4.25 %

Non–interest earning assets

Cash and due from banks 84,866 81,203

Allowance for credit losses (57,486) (36,588)

Other assets 462,401 459,184

Total average assets $ 6,039,897 $ 5,433,187

Liabilities and Stockholders’ Equity

Interest bearing liabilities

Interest bearing deposits $ 3,602,882 $ 4,396 0.25 % $ 3,262,492 $ 12,222 0.75 %

Borrowings 465,502 2,565 1.11 % 575,702 4,312 1.51 %

Subordinated debentures 58,635 1,761 6.06 % 2,264 58 5.15 %

Junior subordinated debentures issued to capital trusts 56,599 1,117 3.98 % 52,801 1,485 5.66 %

Total interest bearing liabilities 4,183,618 9,839 0.47 % 3,893,259 18,077 0.93 %

Non–interest bearing liabilities

Demand deposits 1,101,377 820,997

Accrued interest payable and other liabilities 52,850 63,393

Stockholders’ equity 702,052 655,538

Total average liabilities and stockholders’ equity $ 6,039,897 $ 5,433,187

Net interest income/spread $ 85,170 3.10 % $ 83,921 3.32 %

Net interest income as a percent of average interest earning assets (1)

3.21 % 3.51 %

Securities balances represent daily average balances for the fair value of securities.

The average rate is calculated based on the daily average balance for the amortized cost of securities.

The average rate is presented on a tax equivalent basis.

Includes fees on loans.

The inclusion of loan fees does not have a material effect on the average interest rate.

Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding.

Loan totals are shown net of unearned income and deferred loan fees.

The average rate is presented on a tax equivalent basis.

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 March 31, 2021, a provision of $367,000 was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to $8.6 million for the same period of 2020.

During the three–month period ended March 31, 2021, commercial loan net charge–offs were $158,000, residential mortgage loan net recoveries were $65,000 and consumer loan net charge–offs were $115,000.

The ACL balance at March 31, 2021 was $57.2 million, or 1.56% of total loans compared to an ACL balance of $57.0 million at December 31, 2020 or 1.47% of total loans.

The increase in the ACL to total loans ratio was primarily due to a decrease in loans from December 31, 2020 and was primarily driven by allocations for sectors of loans with potentially higher risk of loss due to the nature and characteristics of these portfolios.

As of March 31, 2021, non–performing loans totaled $25.1 million, which reflects a 1 basis point decrease in non–performing loans to total loans, or a $1.7 million decrease from $26.8 million in non–performing loans as of December 31, 2020.

Non–performing commercial loans decreased by $1.5 million, non–performing real estate loans decreased by $78,000 and non–performing consumer loans decreased by $117,000 at March 31, 2021 compared to December 31, 2020.

During the three–month period ended June 30, 2021, a provision reversal of $1.5 million was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to a provision expense of $7.1 million for the same period of 2020.

During the three–month period ended June 30, 2021, commercial loan net charge–offs were $46,000, residential mortgage loan net recoveries were $23,000 and consumer loan net charge–offs were $22,000.

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, 2021 and 2020

During the six–month period ended June 30, 2021, a provision reversal of $1.1 million was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to a provision expense of $15.7 million for the same period of 2020.

During the six–month period ended June 30, 2021, commercial loan net charge–offs were $204,000, residential mortgage loan net recoveries were $88,000 and consumer net charge–offs were $137,000.

The ACL balance at June 30, 2021 was $55.6 million, or 1.58% of total loans compared to an ACL balance of $57.0 million at December 31, 2020 or 1.47% of total loans.

The increase in the ACL to total loans ratio was primarily due to a decrease in loans from December 31, 2020, including a decrease in PPP loans of $39.4 million which do not require a related ACL balance.

As of June 30, 2021, non–performing loans totaled $22.3 million, which reflects a 6 basis point decrease in non–performing loans to total loans, or a $4.5 million decrease from $26.8 million in non–performing loans as of December 31, 2020.

Non–performing commercial loans decreased by $4.0 million, non–performing real estate loans decreased by $153,000 and non–performing consumer loans decreased by $329,000 at June 30, 2021 compared to December 31, 2020.

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 March 31, 2021, the Bank modified loans totaling $91.6 million which qualify for treatment under the CARES Act.

At June 30, 2021, the Bank modified loans totaling $52.5 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.

8 unchanged sentences

Mortgage (Serviced Only) 27

Other Real Estate Owned (“OREO”) and repossessed assets totaled $1.7 million at March 31, 2021 compared to $1.9 million at December 31, 2020.

Other Real Estate Owned (“OREO”) and repossessed assets totaled $1.5 million at June 30, 2021 compared to $1.9 million at December 31, 2020.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

For the Three and Six Months ended June 30, 2021 and 2020

Non–interest Income

The following is a summary of changes in non–interest income for the three months ending March 31, 2021 and 2020 (table dollar amounts in thousands):

The following is a summary of changes in non–interest income for the three months ending June 30, 2021 and 2020 (table dollar amounts in thousands):

Three Months Ended

March 31, Amount Percent

June 30, Amount Percent

2021 2020 Change Change

11 unchanged sentences

Total non–interest income $ 15,207 $ 11,125 $ 4,082 36.7 %

Total non–interest income was $1.8 million higher during the first quarter of 2021 compared to the same period of 2020.

Residential mortgage loan activity during the first quarter of 2021 generated $5.3 million of income from the gain on sale of mortgage loans, up from $3.5 million for the same period in 2020 due to a higher volume of loans sold and an increase in the percentage gain on loans sold.

Mortgage servicing rights, net of impairment, increased $188,000 during the first quarter of 2021 compared to the same period of 2020.

Fiduciary income decreased $785,000 during the first quarter of 2021 compared to the same period of 2020 due to the timing of the recognition of ESOP related fee income.

Service charges on deposit accounts, death benefit on bank owned life insurance and other income decreased $212,000, $233,000, and $31,000, respectively, when comparing the first quarter of 2021 to the same period of 2020.

Total non–interest income was $4.1 million higher during the second quarter of 2021 compared to the same period of 2020.

Residential mortgage loan activity during the second quarter of 2021 generated $5.6 million of income from the gain on sale of mortgage loans, down from $6.6 million for the same period in 2020 due to a lower volume of loans sold, offset by an increase in the percentage gain on loans sold.

Mortgage servicing rights, net of impairment, increased $4.3 million during the second quarter of 2021 compared to the same period of 2020 primarily due to the reversal of $1.6 million in impairment charges during the second quarter of 2021.

Interchange fees, service charges on deposit accounts and death benefit on bank owned life insurance increased $565,000, $269,000, $266,000, respectively, when comparing the second quarter of 2021 to the same period of 2020.

The following is a summary of changes in non–interest income for the six months ending June 30, 2021 and 2020 (table dollar amounts in thousands):

Six Months Ended

June 30, Amount Percent

2021 2020 Change Change

Non–interest Income

Service charges on deposit accounts $ 4,391 $ 4,334 $ 57 1.3 %

Wire transfer fees 477 401 76 19.0 %

Interchange fees 5,232 4,223 1,009 23.9 %

Fiduciary activities 3,704 4,293 (589) (13.7) %

Gain on sale of investment securities 914 587 327 55.7 %

Gain on sale of mortgage loans 10,908 10,093 815 8.1 %

Mortgage servicing net of impairment 1,716 (2,735) 4,451 (162.7) %

Increase in cash surrender value of bank owned life insurance 1,013 1,111 (98) (8.8) %

Death benefit on bank owned life insurance 266 233 33 14.2 %

Other income 459 648 (189) (29.2) %

Total non–interest income $ 29,080 $ 23,188 $ 5,892 25.4 %

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, 2021 and 2020

Total non–interest income was $5.9 million higher for the six–month period ended June 30, 2021 compared to the same period of 2020.

Residential mortgage loan activity during the six–month period ended June 30, 2021 generated $10.9 million of income from the gain on sale of mortgage loans, up from $10.1 million for the same period in 2020 due to an increase in the percentage gain on loans sold.

Mortgage servicing rights, net of impairment, increased $4.5 million during the six–month period ended June 30, 2021 compared to the same period of 2020 due to the reversal of $1.8 million in impairment charges during the six–month period ended June 30, 2021 compared to impairment charges of $3.2 million during the same period in 2020.

Interchange fees increased $1.0 million during the six–month period ended June 30, 2021 compared to the same period of 2020.

Non–interest Expense

The following is a summary of changes in non–interest expense for the three months ending March 31, 2021 and 2020 (table dollar amounts in thousands):

The following is a summary of changes in non–interest expense for the three months ending June 30, 2021 and 2020 (table dollar amounts in thousands):

Three Months Ended

March 31, March 31, Amount Percent

Non–interest Expense 2021 2020 Change Change

June 30, June 30,

2021 2020 Adjusted

Actual Acquisition

Expenses Adjusted Actual Acquisition

Expenses Adjusted Amount

Change Percent

Non–interest Expense

Salaries and employee benefits $ 17,730 $ — $ 17,730 $ 15,629 $ — $ 15,629 $ 2,101 13.4 %

8 unchanged sentences

Total non–interest expense $ 33,388 $ (242) $ 33,146 $ 30,432 $ — $ 30,432 $ 2,714 8.9 %

Annualized Non–interest Exp.

Non–interest Exp.

Assets 2.18 % 2.16 % 2.18 % 2.18 %

Total non–interest expense was $3.0 million higher for the second quarter of 2021 when compared to the second quarter of 2020.

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

Salaries and benefits expense for the three months ended June 30, 2020 did not include accruals related to annual bonus payments, while a normalized level of annual bonus accruals were recorded for the three months ended June 30, 2021.

Excluding acquisition expenses, total non–interest expense increased by $2.7 million in the second quarter when compared to the same period in 2020.

Annualized non–interest expense as a percent of average assets was 2.18% for the three months ended June 30, 2021 and 2020, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.16% and 2.18% for the three months ended June 30, 2021 and 2020, respectively.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

Total non–interest expense was $1.0 million higher for the first quarter of 2021 when compared to the first quarter of 2020.

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

Annualized non–interest expense as a percent of average assets were 2.20% and 2.38% for the three months ended March 31, 2021 and 2020, respectively.

Income tax expense totaled $3.5 million for the first quarter of 2021 an increase of $1.9 million when compared to the first quarter of 2020.

The increase in income tax expense in the first quarter of 2021 compared to the first quarter of 2020 was primarily due to a increase in income before taxes of $10.6 million.

For the Three and Six Months ended June 30, 2021 and 2020

The following is a summary of changes in non–interest expense for the six months ending June 30, 2021 and 2020 (table dollar amounts in thousands):

Six Months Ended

June 30, June 30,

2021 2020 Adjusted

Actual Acquisition

Expenses Adjusted Actual Acquisition

Expenses Adjusted Amount

Change Percent

Non–interest Expense

Salaries and employee benefits $ 34,601 $ — $ 34,601 $ 32,220 $ — $ 32,220 $ 2,381 7.4 %

Net occupancy expenses 6,402 — 6,402 6,442 — 6,442 (40) (0.6) %

Data processing 4,764 — 4,764 4,837 — 4,837 (73) (1.5) %

Professional fees 1,132 (51) 1,081 1,054 — 1,054 27 2.6 %

Outside services and consultants 3,922 (187) 3,735 3,674 — 3,674 61 1.7 %

Loan expense 5,929 — 5,929 4,791 — 4,791 1,138 23.8 %

FDIC deposit insurance 1,300 — 1,300 385 — 385 915 237.7 %

Other losses 289 — 289 313 — 313 (24) (7.7) %

Other expenses 7,221 (4) 7,217 7,865 — 7,865 (648) (8.2) %

Total non–interest expense $ 65,560 $ (242) $ 65,318 $ 61,581 $ — $ 61,581 $ 3,737 6.1 %

Non–interest Exp.

Assets 2.19 % 2.18 % 2.28 % 2.28 %

Total non–interest expense was $4.0 million higher for the six–month period ended June 30, 2021 compared to the same period of 2020.

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

Salaries and benefits expense for the six–month period ended June 30, 2020 did not include accruals related to annual bonus payments, while a normalized level of annual bonus accruals were recorded for the six–month period ended June 30, 2021.

Excluding acquisition expenses, total non–interest expense increased $3.7 million for the six–month period ended June 30, 2021 compared to the same period of 2020.

Annualized non–interest expense as a percent of average assets was 2.19% and 2.28% for the six–month period ended June 30, 2021 and 2020, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.18% and 2.28% for the six–month period ended June 30, 2021 and 2020, respectively.

Income tax expense totaled $3.8 million for the second quarter of 2021, an increase of $1.8 million when compared to the second quarter of 2020.

The increase in income tax expense in the second quarter of 2021 compared to the second quarter of 2020 was primarily due to an increase in income before taxes of $9.3 million.

Income tax expense totaled $7.2 million for the six–month period ended June 30, 2021, an increase of $3.6 million when compared to the same period of 2020.

The increase in income tax expense was primarily due to an increase in income before taxes of $19.9 million.

The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses.

These deposits are the principal source of liquidity for Horizon.

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 March 31, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $946.1 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.04 billion at December 31, 2020.

The Bank had approximately $772.8 million of unpledged investment securities at March 31, 2021 compared to $632.4 million at December 31, 2020.

Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans,

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, 2021 and 2020

unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB.

At June 30, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $890.6 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.04 billion at December 31, 2020.

The Bank had approximately $1.2 billion of unpledged investment securities at June 30, 2021 compared to $632.4 million at December 31, 2020.

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at March 31, 2021.

Stockholders’ equity totaled $689.4 million as of March 31, 2021, compared to $692.2 million as of December 31, 2020.

For the three months ended March 31, 2021, the ratio of average stockholders’ equity to average assets was 11.75% compared to 11.82% for the twelve months ended December 31, 2020.

The decrease in stockholders’ equity during the period was the result of a decrease in accumulated other comprehensive income and dividends declared, offset by net income recorded during the period.

Horizon paid common stock dividends in the amount of $0.12 per share during the first three months of 2021 and $0.12 per share for the same period of 2020.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 26.1% and 46.2% for the first three months of 2021 and 2020, respectively.

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2021.

Stockholders’ equity totaled $710.4 million as of June 30, 2021, compared to $692.2 million as of December 31, 2020.

For the six months ended June 30, 2021, the ratio of average stockholders’ equity to average assets was 11.62% compared to 11.82% for the twelve months ended December 31, 2020.

The increase in stockholders’ equity during the period was the result of net income recorded during the period offset in part by a decrease in accumulated other comprehensive income and dividends declared.

Horizon paid common stock dividends in the amount of $0.25 per share during the first six months of 2021 and $0.24 per share for the same period of 2020.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 25.8% and 40.7% for the first six months of 2021 and 2020, respectively.

For additional information regarding dividends, see Horizon’s Annual Report on Form 10-K for 2020.

3 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

For the Three and Six Months ended June 30, 2021 and 2020

Use of Non–GAAP Financial Measures

7 unchanged sentences

(Dollars in Thousands, Unaudited)

Three Months Ended

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

Three Months Ended Six Months Ended

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

2021 2021 2020 2020 2020 2021 2020

Net income as reported $ 22,173 $ 20,422 $ 21,893 $ 20,312 $ 14,639 $ 42,595 $ 26,294

Acquisition expenses 242 — — — — 242 —

Tax effect (51) — — — — (51) —

Net income excluding acquisition expenses 22,364 20,422 21,893 20,312 14,639 42,786 26,294

(Gain)/loss on sale of investment

4 unchanged sentences

Net income excluding death benefit on BOLI 22,098 19,700 19,822 19,421 14,443 41,798 25,597

Prepayment penalties on borrowings 125 — 3,804 — — 125 —

Tax effect (26) — (799) — — (26) —

Net income excluding prepayment penalties on borrowings 22,197 19,700 22,827 19,421 14,443 41,897 25,597

Adjusted net income $ 22,197 $ 19,700 $ 22,827 $ 19,421 $ 14,443 $ 41,897 $ 25,597

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, 2021 and 2020

Non–GAAP Reconciliation of Diluted Earnings per Share

Three Months Ended

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

Three Months Ended Six Months Ended

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

2021 2021 2020 2020 2020 2021 2020

Diluted earnings per share (“EPS”) as reported $ 0.50 $ 0.46 $ 0.50 $ 0.46 $ 0.33 $ 0.97 $ 0.59

Acquisition expenses 0.01 — — — — 0.01 —

Tax effect — — — — — — —

Diluted EPS excluding acquisition expenses 0.51 0.46 0.50 0.46 0.33 0.98 0.59

(Gain)/loss on sale of investment securities — (0.02) (0.06) (0.02) (0.01) (0.02) (0.01)

3 unchanged sentences

Diluted EPS excluding death benefit on BOLI 0.50 0.44 0.45 0.45 0.32 0.95 0.57

Prepayment penalties on borrowings — — 0.09 — — — —

Tax effect — — (0.02) — — — —

Diluted EPS excluding prepayment penalties on borrowings 0.50 0.44 0.52 0.45 0.32 0.95 0.57

Adjusted Diluted EPS $ 0.50 $ 0.44 $ 0.52 $ 0.45 $ 0.32 $ 0.95 $ 0.57

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income

(Dollars in Thousands, Unaudited)

Three Months Ended

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

Three Months Ended Six Months Ended

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

2021 2021 2020 2020 2020 2021 2020

Pre–tax income $ 25,943 $ 23,872 $ 23,860 $ 24,638 $ 16,632 $ 49,815 $ 29,871

Credit loss expense 367 3,042 2,052 7,057 8,600

Credit loss expense (reversal) (1,492) 367 3,042 2,052 7,057 (1,125) 15,657

Pre–tax, pre–provision net income $ 24,451 $ 24,239 $ 26,902 $ 26,690 $ 23,689 $ 48,690 $ 45,528

Acquisition expenses 242 — — — — 242 —

(Gain)/loss on sale of investment securities — (914) (2,622) (1,088) (248) (914) (587)

Death benefit on bank owned life insurance (266) — — (31) — (266) (233)

Prepayment penalties on borrowings 125 — 3,804 — — 125 —

Adjusted pre–tax, pre–provision net income $ 24,552 $ 23,325 $ 28,084 $ 25,571 $ 23,441 $ 47,877 $ 44,708

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, 2021 and 2020

Non–GAAP Reconciliation of Net Interest Margin

(Dollars in Thousands, Unaudited)

Three Months Ended

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

Three Months Ended Six Months Ended

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

2021 2021 2020 2020 2020 2021 2020

11 unchanged sentences

(Dollars in Thousands Except per Share Data, Unaudited)

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

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

2021 2021 2020 2020 2020

10 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

For the Three and Six Months ended June 30, 2021 and 2020

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

(Dollars in Thousands, Unaudited)

Three Months Ended

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

Three Months Ended Six Months Ended

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

2021 2021 2020 2020 2020 2021 2020

5 unchanged sentences

Non–interest expense as reported $ 33,388 $ 32,172 $ 36,453 $ 33,407 $ 30,432 $ 65,560 $ 61,581

Acquisition expenses (242) — — — — (242) —

Non–interest expense excluding acquisition expenses 33,146 32,172 36,453 33,407 30,432 65,318 61,581

Net interest income as reported 42,632 42,538 43,622 43,397 42,996 85,170 83,921

6 unchanged sentences

Adjusted efficiency ratio 57.45 % 57.97 % 56.48 % 56.64 % 56.49 % 57.70 % 57.94 %

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, 2021 and 2020

Non–GAAP Reconciliation of Return on Average Assets

(Dollars in Thousands, Unaudited)

Three Months Ended

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

Three Months Ended Six Months Ended

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

2021 2021 2020 2020 2020 2021 2020

1 unchanged sentence

Return on average assets ("ROAA") as reported 1.45 % 1.40 % 1.49 % 1.40 % 1.05 % 1.42 % 0.97 %

Acquisition expenses 0.02 — — — — 0.01 —

Tax effect — — — — — — —

ROAA excluding acquisition expenses 1.47 1.40 1.49 1.40 1.05 1.43 0.97

(Gain)/loss on sale of investment securities — (0.06) (0.18) (0.08) (0.02) (0.03) (0.02)

3 unchanged sentences

ROAA excluding death benefit on BOLI 1.45 1.35 1.35 1.34 1.03 1.40 0.94

Prepayment penalties on borrowings 0.01 — 0.26 — — — —

Tax effect — — (0.05) — — — —

ROAA excluding prepayment penalties on borrowings 1.46 1.35 1.56 1.34 1.03 1.40 0.94

Adjusted ROAA 1.46 % 1.35 % 1.56 % 1.34 % 1.03 % 1.40 % 0.94 %

3 unchanged sentences

And Results of Operations

For the Three Months ended March 31, 2021 and 2020

For the Three and Six Months ended June 30, 2021 and 2020

Non–GAAP Reconciliation of Return on Average Common Equity

(Dollars in Thousands, Unaudited)

Three Months Ended

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

Three Months Ended Six Months Ended

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

2021 2021 2020 2020 2020 2021 2020

1 unchanged sentence

Return on average common equity ("ROACE") as reported 12.59 % 11.88 % 12.79 % 12.08 % 9.07 % 12.23 % 8.07 %

Merger expenses 0.14 — — — — 0.07 —

Tax effect (0.03) — — — — (0.01) —

ROACE excluding merger expenses 12.70 11.88 12.79 12.08 9.07 12.29 8.07

(Gain)/loss on sale of investment securities — (0.53) (1.53) (0.65) (0.15) (0.26) (0.18)

3 unchanged sentences

ROACE excluding death benefit on BOLI 12.55 11.46 11.58 11.55 8.95 12.01 7.86

Prepayment penalties on borrowings 0.07 — 2.22 — — 0.04 —

Tax effect (0.01) — (0.47) — — (0.01) —

ROACE excluding prepayment penalties on borrowings 12.61 11.46 13.33 11.55 8.95 12.04 7.86

Adjusted ROACE 12.61 % 11.46 % 13.33 % 11.55 % 8.95 % 12.04 % 7.86 %

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, 2021 and 2020

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

2 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