What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-03 · 268 added, 236 removed, 560 unchanged (47% of the section changed)

16 unchanged sentences

• loss of key Horizon personnel;

• changes in federal or state government mandates regarding vaccination requirements which may impact our ability to retain or attract labor;

• our former role as a fiduciary trustee for corporate employee stock ownership plans (“ESOPs”) may expose us to increased risk of litigation due to heightened scrutiny of this role by the U.S.

Department of Labor and the plaintiff’s bar;

• increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks, which may have been accelerated by the pandemic;

6 unchanged sentences

• potential risk of environmental liability related to lending activities;

• changes in the competitive environment in Horizon’s market areas and among other financial service providers;

• legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its subsidiaries in particular;

• changes in regulatory supervision and oversight, including monetary policy and capital requirements;

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

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 30, 2021 and 2020

• changes in the competitive environment in Horizon’s market areas and among other financial service providers;

• legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its subsidiaries in particular;

• changes in regulatory supervision and oversight, including monetary policy and capital requirements;

• 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;

25 unchanged sentences

is a captive insurance company incorporated in Nevada and was formed as a wholly–owned subsidiary of Horizon.

Over the last 20 years, Horizon has expanded its geographic reach and experienced financial growth through a combination of both organic expansion and mergers and acquisitions.

Horizon's initial operations focused on northwest Indiana, but since then, the Company has developed a presence in new markets in southern and central Michigan and northeastern and central Indiana.

HORIZON BANCORP, INC.

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And Results of Operations

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

Second Quarter 2021 Highlights

For the Three and Nine Months ended September 30, 2021 and 2020

Over the last 20 years, Horizon has expanded its geographic reach and experienced financial growth through a combination of both organic expansion and mergers and acquisitions.

Horizon's initial operations focused on northwest Indiana, but since then, the Company has developed a presence in new markets in southern and central Michigan and northeastern and central Indiana.

Third Quarter 2021 Highlights

• On September 17, 2021, completed previously announced acquisition of 14 branches in 11 Michigan counties, approximately $206.8 million in loans and $846.4 million in deposits, in a transaction designed to further extend Horizon’s retail franchise and further enhance its low–cost core deposit and funding capability to support lending in its Midwestern growth markets.

• Net income grew to a record $23.1 million, up 4.0% from the linked quarter and 13.6% 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.

Diluted earnings per share (“EPS”) of $0.52 was up from $0.50 for the second quarter of 2021 and $0.46 for the third quarter of 2020.

• Pre–tax, pre–provision net income grew to a record $28.2 million, up 15.5% from the linked quarter and 5.8% 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).

• 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.

• Non–interest expense was $34.3 million in the quarter, or 2.09% of average assets on an annualized basis, compared to $33.4 million, or 2.18%, in the second quarter of 2021 and $33.4 million, or 2.30%, in the third quarter of 2020.

Acquisition–related expenses totaled approximately $799,000 in the third quarter of 2021 and $242,000 in the linked quarter.

• The efficiency ratio for the period was 54.88% compared to 57.73% for the second quarter of 2021 and 55.59% for the third quarter of 2020.

The adjusted efficiency ratio was 56.16% compared to 57.45% for the second quarter of 2021 and 56.64% for the third quarter of 2020.

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

• 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.

• A previously disclosed consolidation of 10 retail locations was completed on August 27 as part of Horizon’s rigorous annual branch performance review process, with employees reassigned to support other staffing needs and growth initiatives.

Operating cost saves are largely expected to be redeployed into continued digital banking and technology investments.

• Net interest income grew to a record $46.5 million for the quarter, up 9.2% from the second quarter of 2021 and 7.3% from the third quarter of 2020.

Reported net interest margin (“NIM”) was 3.17% and adjusted NIM was 3.12%, with reported NIM increasing by three basis points and adjusted NIM decreasing by one basis point from the second quarter of 2021.

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

During the third quarter, Horizon increased the average balance of its investment portfolio by $471.8 million to leverage capital and focus on increasing net interest income.

• Total non–interest income was $16.0 million, including the recovery of $876,000 from an acquired charged–off loan, as well as a $2.4 million gain from the sale of the Company’s ESOP trustee accounts at the end of the quarter.

The sale of these accounts is not expected to have any significant impact to the bottom line due to the related costs saves the Company will incur as it exited these account relationships.

Non–interest income was $15.2 million in the second quarter of 2021 and $16.7 million, including a $1.1 million securities sale gain, in the third quarter of 2020.

HORIZON BANCORP, INC.

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And Results of Operations

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

The coronavirus (“COVID–19”) pandemic has placed significant health, economic and other major pressure throughout the communities we serve, in the states of Indiana and Michigan, the United States and the entire world.

We have implemented a number of procedures in response to the pandemic to support the safety and well–being of our employees, customers and shareholders that continue through the date of this report:

◦ Safety and well–being of employees and families is our first priority.

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

◦ Substantial reduction in percentage of employees working remotely.

◦ 100% of our branch locations are now open to lobby traffic.

◦ Payment relief

▪ 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.

▪ Provided mortgage loan education programs.

▪ Provided additional financial assistance in the form of fee waivers and a freeze on all debt collection activities.

◦ Preferred SBA Lender

▪ Active participant in all SBA loan programs (PPP, 7a, Express and 504).

◦ Payment Relief Programs

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

• Communities

◦ Increased volunteerism in support of local not–for–profit entities.

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

For the Three and Nine Months ended September 30, 2021 and 2020

• Horizon’s in–market consumer and commercial deposit relationships, including those on–boarded as part of its branch acquisition during the quarter, 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 0.38% in the quarter, compared to 0.45% in the second quarter of 2021 and 0.67% in the third quarter of 2020.

• Horizon recorded a quarterly provision expense of $1.1 million, reflecting a $2.0 million allocation for loans acquired in the Michigan branch acquisition, as well as, solid asset quality metrics at period end.

• Commercial loans, excluding PPP lending, grew by 2.3% organically and by 7.5% overall during the quarter to $2.1 billion at period end.

Total loans, excluding PPP lending, grew organically 0.3% and 6.4% overall to $3.57 billion.

• Horizon’s book value per share increased to an all–time high of $16.28 while tangible book value per share decreased to $12.05.

(See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table below.) The decrease in tangible book value was a result of the repurchase of shares for approximately $7.6 million and $12.4 million of goodwill and intangible assets recorded during the third quarter.

• Horizon announced an increase to cash dividends to be paid on October 22, 2021 of 15.4% to $0.15 per share.

As of September 30, 2021, in excess of $120.9 million in cash was maintained at the holding company, providing considerable future optionality to build shareholder value.

This is Horizon’s second dividend increase in 2021.

• During the quarter, the Company repurchased 430,026 shares at an average cost of $17.74 per share for a total cost of $7.6 million.

This resulted in a reduction in tangible book value of approximately $0.18 per share and an increase in EPS of $0.01 per share for the third quarter.

Impact of the COVID–19 Pandemic

We continue to monitor the impact of COVID–19 is having on the markets in which we operate in and the uncertainty of the long–term ramifications to our customers and operations.

Within our markets, vaccinations have become readily available, infection positivity rates are at moderate levels, and the restrictions on businesses have generally been fully lifted.

However, the lasting effects of government aid programs are uncertain as stimulus packages taper, and the ultimate long–term impact of the business shutdowns that occurred as a result of COVID–19 remains uncertain in many sectors of the economy.

In the third quarter of 2021, COVID–19 positivity rates and hospitalizations in our markets rose due to the impact of the Delta variant, but have now been falling for the last several weeks.

The Federal Reserve, in response to the economic risks resulting from the COVID–19 pandemic, returned to a zero–interest rate policy in March 2020.

This was after most broader market rates decreased significantly in response to evolving news about the COVID–19 pandemic.

Many areas of consumer and business spending have rebounded in recent months, but there remains uncertainty about the longer lasting impact on local businesses as well as the travel, hospitality and entertainment industries results from the COVID–19 pandemic.

This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain those recoveries in the long run.

Inflation and supply shortages also pose risks to the economic recovery.

While positive economic indicators exist, we recognize that some of our commercial and individual customers are continuing to experience varying degrees of financial distress, which we expect to continue, through a lesser degree, through the end of 2021 and into early 2022.

Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the COVID–19 pandemic, which may result in some customers’ inability to meet their loan obligations to us or seek deferrals on their obligations.

In addition, the economic pressures and uncertainties related to the COVID–19 pandemic have seemingly resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer.

Our borrowing base includes customers in industries such as hotel/lodging, restaurants, retail and commercial real estate, which have been significantly impacted by the COVID–19 pandemic.

We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the COVID–19 pandemic.

We continue to monitor these customers closely.

HORIZON BANCORP, INC.

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And Results of Operations

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.

For the Three and Nine Months ended September 30, 2021 and 2020

Financial Summary

For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Net Interest Income and Net Interest Margin 2021 2021 2020

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For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Asset Yields and Funding Costs 2021 2021 2020

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Non–interest Income and

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

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

2021 2021 2020

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For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Non–interest Expense 2021 2021 2020

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At or for the Three Months Ended

Credit Quality June 30, March 31, June 30,

Credit Quality September 30, June 30, September 30,

2021 2021 2020

2 unchanged sentences

Percent of net charge–offs to average loans outstanding for the period 0.00 % 0.00 % 0.02 %

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

Allowance for December 31, Net Reserve September 30,

Credit Losses 2020 1Q21 2Q21 3Q21 2021

Commercial $ 42,210 $ 770 $ (1,214) $ 1,355 $ 43,121

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ACL/Total Loans 1.47 % 1.55 %

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, 2021 and 2020

Critical Accounting Policies

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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, 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.

At September 30, 2021, Horizon had core deposit intangibles of $21.2 million subject to amortization and $162.8 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 June 30, 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 September 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 and Nine Months ended September 30, 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

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 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 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 and Nine Months ended September 30, 2021 and 2020

Valuation Measurements

5 unchanged sentences

Financial Condition

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.

On September 30, 2021, Horizon’s total assets were $7.5 billion, an increase of approximately $1.6 billion compared to December 31, 2020.

The increase in total assets was primarily in cash and due from banks of $722.1 million, investments held to maturity of $600.6 million and investments available for sale of $535.6 million.

These increases were offset by a decrease in net loans of $207.1 million.

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Value Amortized

12 unchanged sentences

Private labeled mortgage–backed pools 66,298 65,552 — —

Corporate notes 133,674 132,176 — —

Total held to maturity investment securities $ 769,240 $ 768,099 $ 168,676 $ 179,990

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.

Investment securities available for sale increased $535.6 million since December 31, 2020 to $1.7 billion as of September 30, 2021 and investment securities held to maturity increased $600.6 million since December 31, 2020 to $769.2 million as of September 30, 2021.

This increase was due to additional purchases to increase earning assets as the result of organic deposit growth and Horizon’s previously announced acquisition of 14 branches in 11 Michigan counties which increased deposits approximately $846.4 million on September 17, 2021.

HORIZON BANCORP, INC.

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And Results of Operations

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.

For the Three and Nine Months ended September 30, 2021 and 2020

Net loans decreased $207.1 million since December 31, 2020 to $3.7 billion as of September 30, 2021.

Mortgage warehouse, commercial, residential mortgage and loans held for sale decreased $225.7 million, $19.1 million, $20.7 million and $8.7 million, respectively.

These decreases were offset by an increase in consumer loans of $58.2 million.

PPP loans decreased $116.6 million since December 31, 2020 to $92.3 million as of September 30, 2021.

These decreases were offset by an increase in consumer loans of $58.2 million.

The net loans acquired in the acquisition of 14 branches in 11 Michigan counties of approximately $206.8 million helped to partially offset the decrease in loans.

Total deposits increased $1.4 billion since December 31, 2020 to $6.0 billion as of September 30, 2021.

This increase was primarily due to Federal stimulus payments to consumers, funds from the origination of PPP loans and approximately $846.4 million in deposits from the acquisition of 14 branches in 11 Michigan counties.

Total borrowings increased from $475.0 million as of December 31, 2020 to $670.8 million as of September 30, 2021.

At September 30, 2021, the Company had $195.2 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.

Stockholders’ equity totaled $708.5 million at September 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, stock repurchases and a decrease in accumulated other comprehensive income during the period.

Book value per common share at September 30, 2021 increased to $16.28 compared to $15.78 at December 31, 2020.

Results of Operations

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.

Consolidated net income for the three–month period ended September 30, 2021 was $23.1 million, or $0.52 diluted earnings per share, compared to $20.3 million, or $0.46 diluted earnings per share for the same period in 2020.

The increase in net income for the three–month period ended September 30, 2021 when compared to the same prior year period reflects an increase in net interest income of $3.1 million, a decrease in credit loss expense of $940,000 and a decrease in income tax expense of $270,000, offset by an increase in non–interest expense of $942,000 and a decrease in non–interest income of $656,000.

Excluding acquisition expenses, credit loss expense acquired loans, gain on sale of ESOP trustee accounts, gain on sale of investment securities and death benefit on bank owned life insurance (“adjusted net income”), adjusted net income for the third quarter of 2021 was $23.0 million, or $0.52 diluted earnings per share, compared to $19.4 million, or $0.45 diluted earnings per share for the third quarter of 2020.

Consolidated net income for the nine–month period ended September 30, 2021 was $65.7 million, or $1.49 diluted earnings per share, compared to $46.6 million, or $1.06 diluted earnings per share for the same period in 2020.

The increase in net income for the nine–month period ended September 30, 2021 when compared to the same prior year period reflects an increase in non–interest income of $5.2 million, an increase in net interest income of $4.4 million and a decrease in credit loss expense of $17.7 million, offset by increases in non–interest expense of $4.9 million and income tax expense of $3.4 million.

Excluding acquisition expenses, credit loss expense acquired loans, gain on sale of ESOP trustee account, 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 nine–month period ended September 30, 2021 was $64.9 million, or $1.46 diluted earnings per share, compared to $45.0 million, or $1.02 diluted earnings per share for the nine–month period ended September 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 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.

2 unchanged sentences

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 $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.

For the Three and Nine Months ended September 30, 2021 and 2020

Net interest income during the three months ended September 30, 2021 was $46.5 million, an increase of $3.1 million from the $43.4 million earned during the same period in 2020.

Yields on the Company’s interest earning assets decreased by 44 basis points to 3.46% for the three months ended September 30, 2021 from 3.90% for the three months ended September 30, 2020.

Interest income increased $722,000 from $50.1 million for the three months ended September 30, 2020 to $50.9 million for the same period in 2021.

The increase in interest income was due to an increase in average balances of interest earning assets of $781,000 during the three months ended September 30, 2021.

Interest income from acquisition–related purchase accounting adjustments was $875,000 for the three months ending September 30, 2021 compared to $1.5 million for the same period of 2020.

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

Interest expense decreased $2.4 million when compared to the three–month period ended September 30, 2020 to $4.3 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 24 basis points while the cost of average borrowings decreased 44 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.

Average balances of interest bearing deposits increased $497.2 million and average balances of borrowings increased $20.9 million for the three-month period ended September 30, 2021 when compared to the same period in 2020.

The net interest margin decreased 22 basis points from 3.39% for the three–month period ended September 30, 2020 to 3.17% for the same period in 2021.

The decrease in the margin for the three–month period ended September 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 (“adjusted net interest margin”), the margin would have been 3.12% for the three-month period ending September 30, 2021 compared to 3.27% for the same period in 2020.

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

Horizon estimates that the PPP loans increased the net interest margin by 16 basis points for the third 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.

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 third 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.

3 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 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

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

Balance Interest Average

41 unchanged sentences

And Results of Operations

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.

For the Three and Nine Months ended September 30, 2021 and 2020

Net interest income during the nine months ended September 30, 2021 was $131.7 million, an increase of $4.4 million from the $127.3 million earned during the same period in 2020.

Yields on the Company’s interest earning assets decreased by 60 basis points to 3.53% for the nine months ended September 30, 2021 from 4.13% for the nine months ended September 30, 2020.

Interest income decreased $6.3 million from $152.1 million for the nine months ended September 30, 2020 to $145.9 million for the same period in 2021.

Average interest earning assets during the nine months ended September 30, 2021 increased $675.3 million to $5.7 billion compared to $5.0 billion during the nine months ended September 30, 2020.

Interest income from acquisition–related purchase accounting adjustments was $2.7 million for the nine months ended September 30, 2021 compared to $4.5 million for the same period of 2020.

Rates paid on interest bearing liabilities decreased 40 basis points for the nine–month period ended September 30, 2021 compared to the same period in 2020.

Interest expense decreased $10.7 million when compared to the nine–month period ended September 30, 2020 to $14.2 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 41 basis points while the cost of average borrowings decreased 43 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.

Average balances of interest bearing deposits increased $393.3 million and average balances of borrowings decreased $66.0 million for the nine–month period ended September 30, 2021 when compared to the same period in 2020.

The net interest margin decreased 28 basis points from 3.48% for the nine–month period ended September 30, 2020 to 3.20% for the same period in 2021.

The decrease in the margin for the nine–month period ended September 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 3.14% for the nine–month period ended September 30, 2021 compared to 3.36% for the same period in 2020.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 30, 2021 and 2020

Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)

Six Months Ended Six Months Ended

June 30, 2021 June 30, 2020

Nine Months Ended Nine Months Ended

September 30, 2021 September 30, 2020

Balance Interest Average

37 unchanged sentences

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 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.

2 unchanged sentences

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.

For the Three and Nine Months ended September 30, 2021 and 2020

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 September 30, 2021, a provision expense of $1.1 million was required to reflect a $2.0 million allocation for loans acquired in the Michigan branch acquisition and the nature of our loan portfolios and general characteristics of certain loan pools compared to a provision expense of $2.1 million for the same period of 2020.

During the three–month period ended September 30, 2021, commercial loan net recoveries were $25,000, residential mortgage loan net recoveries were $29,000 and consumer loan net charge–offs were $36,000.

During the nine–month period ended September 30, 2021, a provision reversal of $13,000 was required which includes a $2.0 million allocation for loans acquired in the Michigan branch acquisition and the nature of our loan portfolios and general characteristics of certain loan pools compared to a provision expense of $17.7 million for the same period of 2020.

During the nine–month period ended September 30, 2021, commercial loan net charge–offs were $179,000, residential mortgage loan net recoveries were $117,000 and consumer net charge–offs were $173,000.

The ACL balance at September 30, 2021 was $56.8 million, or 1.55% 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 $116.6 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.

As of September 30, 2021, non–performing loans totaled $29.4 million, including approximately $7.3 million acquired in the Michigan branch acquisition, which reflects a $2.6 million increase from $26.8 million in non–performing loans as of December 31, 2020.

Non–performing commercial loans increased by $1.8 million, non–performing real estate loans increased by $647,000 and non–performing consumer loans increased by $147,000 at September 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 June 30, 2021, the Bank modified loans totaling $52.5 million which qualify for treatment under the CARES Act.

At September 30, 2021, the Bank modified loans totaling $29.2 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.

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Mortgage (Serviced Only) 14

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.

Other Real Estate Owned (“OREO”) and repossessed assets totaled $3.0 million at September 30, 2021 compared to $1.9 million at December 31, 2020.

The increase was primarily due to several former branch locations totaling $1.8 million being moved to OREO during the third quarter after being closed.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 30, 2021 and 2020

Non–interest Income

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):

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

Three Months Ended

June 30, Amount Percent

September 30, Amount Percent

2021 2020 Change Change

11 unchanged sentences

Total non–interest income $ 16,044 $ 16,700 $ (656) (3.9) %

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

Total non–interest income was $656,000 lower during the third quarter of 2021 compared to the same period of 2020.

Residential mortgage loan activity during the third quarter of 2021 generated $4.1 million of income from the gain on sale of mortgage loans, down from $8.8 million for the same period in 2020 due to a lower volume of loans sold and a decrease in the percentage gain on loans sold.

Mortgage servicing income, net of impairment, increased $1.6 million during the third quarter of 2021 compared to the same period of 2020 due to an impairment charge of $1.5 million recorded during the third quarter of 2020 offset by a reversal of $299,000 in impairment charges during the third quarter of 2021.

Other income increased $2.8 million during the third quarter of 2021 primarily due to the gain on sale of ESOP trustee accounts totaling $2.3 million and the recovery of $876,000 from an acquired charged–off loan.

Interchange fees, service charges on deposit accounts and death benefit on bank owned life insurance increased $149,000, $137,000, $486,000, respectively, when comparing the third quarter of 2021 to the same period of 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, 2021 and 2020

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

Nine Months Ended

September 30, Amount Percent

2021 2020 Change Change

11 unchanged sentences

Total non–interest income $ 45,124 $ 39,888 $ 5,236 13.1 %

Total non–interest income was $5.2 million higher for the nine–month period ended September 30, 2021 compared to the same period of 2020.

Residential mortgage loan activity during the nine–month period ended September 30, 2021 generated $15.0 million of income from the gain on sale of mortgage loans, down from $18.9 million for the same period in 2020 due to a decrease in the volume of loans sold.

Mortgage servicing income, net of impairment, increased $6.1 million during the nine–month period ended September 30, 2021 compared to the same period of 2020 due to the reversal of $2.1 million in impairment charges during the nine–month period ended September 30, 2021 compared to impairment charges of $4.7 million during the same period in 2020.

Other income increased $2.7 million during the nine–month period ended September 30, 2021 compared to the same period in 2020 primarily due to the gain on sale of ESOP trustee accounts totaling $2.3 million.

Interchange fees increased $1.2 million during the nine–month period ended September 30, 2021 compared to the same period of 2020.

HORIZON BANCORP, INC.

2 unchanged sentences

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.

For the Three and Nine Months ended September 30, 2021 and 2020

Non–interest Expense

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):

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

Three Months Ended

June 30, June 30,

September 30, September 30,

2021 2020 Adjusted

16 unchanged sentences

Assets 2.09 % 2.05 % 2.30 % 2.30 %

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.

Total non–interest expense was $942,000 higher for the third quarter of 2021 when compared to the third quarter of 2020.

Increases in outside services and consultants, other expense and data processing were offset in part by decreases in FDIC deposit insurance and loan expense.

Excluding acquisition expenses, total non–interest expense increased by $143,000 in the third quarter of 2021 when compared to the same period in 2020.

Annualized non–interest expense as a percent of average assets was 2.09% and 2.30% for the three months ended September 30, 2021 and 2020, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.05% and 2.30% for the three months ended September 30, 2021 and 2020, respectively.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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,

For the Three and Nine Months ended September 30, 2021 and 2020

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

Nine Months Ended

September 30, September 30,

2021 2020 Adjusted

16 unchanged sentences

Assets 2.16 % 2.13 % 2.29 % 2.29 %

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.

Total non–interest expense was $4.9 million higher for the nine–month period ended September 30, 2021 compared to the same period of 2020.

Increases in salaries and employee benefits, outside services and consultants, loan expense, FDIC insurance expense and data processing were offset in part by a decrease in net occupancy expense.

Excluding acquisition expenses, total non–interest expense increased $3.9 million for the nine–month period ended September 30, 2021 compared to the same period of 2020.

Annualized non–interest expense as a percent of average assets was 2.16% and 2.29% for the nine–month period ended September 30, 2021 and 2020, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.13% and 2.29% for the nine–month period ended September 30, 2021 and 2020, respectively.

Income tax expense totaled $4.1 million for the third quarter of 2021, a decrease of $270,000 when compared to the third quarter of 2020.

Income tax expense totaled $11.3 million for the nine–month period ended September 30, 2021, an increase of $3.4 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 $22.4 million.

1 unchanged sentence

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,

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 September 30, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon,

HORIZON BANCORP, INC.

2 unchanged sentences

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.

For the Three and Nine Months ended September 30, 2021 and 2020

the Bank had approximately $651.7 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 $1.7 billion of unpledged investment securities at September 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 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.

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

Stockholders’ equity totaled $708.5 million as of September 30, 2021, compared to $692.2 million as of December 31, 2020.

For the nine months ended September 30, 2021, the ratio of average stockholders’ equity to average assets was 11.45% compared to 11.82% for the twelve months ended December 31, 2020.

Horizon declared common stock dividends in the amount of $0.41 per share during the first nine months of 2021 and $0.36 per share for the same period of 2020.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 27.3% and 34.0% for the first nine months of 2021 and 2020, respectively.

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

Use of Non–GAAP Financial Measures

2 unchanged sentences

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.

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

These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure.

See the tables and other information below and contained elsewhere in this Report on Form 10–Q for reconciliations of the non–GAAP figures identified herein and their most comparable GAAP measures.

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, 2021 and 2020

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,

2021 2021 2021 2020 2020 2021 2020

3 unchanged sentences

Net income excluding acquisition expenses 23,704 22,364 20,422 21,893 20,312 66,490 46,606

Credit loss expense acquired loans 2,034 — — — — 2,034 —

Tax effect (427) — — — — (427) —

Net income excluding credit loss expense acquired loans 25,311 22,364 20,422 21,893 20,312 68,097 46,606

Gain on sale of ESOP trustee accounts (2,329) — — — — (2,329) —

Tax effect 489 — — — — 489 —

Net income excluding gain on sale of ESOP trustee accounts 23,471 22,364 20,422 21,893 20,312 66,257 46,606

(Gain)/loss on sale of investment

12 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 30, 2021 and 2020

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,

2021 2021 2021 2020 2020 2021 2020

3 unchanged sentences

Diluted EPS excluding acquisition expenses 0.54 0.51 0.46 0.50 0.46 1.51 1.06

Credit loss expense acquired loans 0.05 — — — — 0.05 —

Tax effect (0.01) — — — — (0.01) —

Diluted EPS excluding credit loss expense acquired loans 0.58 0.51 0.46 0.50 0.46 1.55 1.06

Gain on sale of ESOP trustee accounts (0.05) — — — — (0.05) —

Tax effect 0.01 — — — — 0.01 —

Diluted EPS excluding gain on sale of ESOP trustee accounts 0.54 0.51 0.46 0.50 0.46 1.51 1.06

(Gain)/loss on sale of investment securities — — (0.02) (0.06) (0.02) (0.02) (0.04)

7 unchanged sentences

Adjusted Diluted EPS $ 0.52 $ 0.50 $ 0.44 $ 0.52 $ 0.45 $ 1.46 $ 1.02

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, 2021 and 2020

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

2021 2021 2021 2020 2020 2021 2020

4 unchanged sentences

Acquisition expenses 799 242 — — — 1,041 —

Gain on sale of ESOP trustee accounts (2,329) — — — — (2,329) —

(Gain)/loss on sale of investment securities — — (914) (2,622) (1,088) (914) (1,675)

2 unchanged sentences

Adjusted pre–tax, pre–provision net income $ 26,192 $ 24,552 $ 23,325 $ 28,084 $ 25,571 $ 74,069 $ 70,279

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 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,

2021 2021 2021 2020 2020 2021 2020

9 unchanged sentences

Adjusted net interest margin 3.12 % 3.13 % 3.17 % 3.44 % 3.27 % 3.14 % 3.36 %

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, 2021 and 2020

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share

(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,

2021 2021 2021 2020 2020

10 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 30, 2021 and 2020

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,

2021 2021 2021 2020 2020 2021 2020

11 unchanged sentences

Non–interest income as reported 16,044 15,207 13,873 19,733 16,700 45,124 39,888

Gain on sale of ESOP trustee accounts (2,329) — — — — (2,329) —

(Gain)/loss on sale of investment securities — — (914) (2,622) (1,088) (914) (1,675)

6 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 30, 2021 and 2020

Non–GAAP Reconciliation of Return on Average Assets

(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,

2021 2021 2021 2020 2020 2021 2020

4 unchanged sentences

ROAA excluding acquisition expenses 1.45 1.47 1.40 1.49 1.40 1.44 1.12

Credit loss expense acquired loans 0.12 — — — — 0.04 —

Tax effect (0.03) — — — — (0.01) —

ROAA excluding credit loss expense acquired loans 1.54 1.47 1.40 1.49 1.40 1.47 1.12

Gain on sale of ESOP trustee accounts (0.14) — — — — (0.05) —

Tax effect 0.03 — — — — 0.01 —

ROAA excluding gain on sale of ESOP trustee accounts 1.43 1.47 1.40 1.49 1.40 1.43 1.12

(Gain)/loss on sale of investment securities — — (0.06) (0.18) (0.08) (0.02) (0.04)

11 unchanged sentences

And Results of Operations

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

For the Three and Nine Months ended September 30, 2021 and 2020

Non–GAAP Reconciliation of Return on Average Common Equity

(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,

2021 2021 2021 2020 2020 2021 2020

1 unchanged sentence

Return on average common equity ("ROACE") as reported 12.64 % 12.59 % 11.88 % 12.79 % 12.08 % 12.37 % 9.43 %

Merger expenses 0.14 — — — — 0.07 —

Acquisition expenses 0.44 0.14 — — — 0.20 —

Tax effect (0.09) (0.03) — — — (0.04) —

ROACE excluding merger expenses 12.70 11.88 12.79 12.08 9.07 12.29 8.07

ROACE excluding acquisition expenses 12.99 12.70 11.88 12.79 12.08 12.53 9.43

Credit loss expense acquired loans 1.11 — — — — 0.38 —

Tax effect (0.23) — — — — (0.08) —

ROACE excluding credit loss expense acquired loans 13.87 12.70 11.88 12.79 12.08 12.83 9.43

Gain on sale of ESOP trustee accounts (1.28) — — — — (0.44) —

Tax effect 0.27 — — — — 0.09 —

ROACE excluding gain on sale of ESOP trustee accounts 12.86 12.70 11.88 12.79 12.08 12.48 9.43

(Gain)/loss on sale of investment securities — — (0.53) (1.53) (0.65) (0.17) (0.34)

9 unchanged sentences

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