What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 254 added, 386 removed, 1145 unchanged (36% of the section changed)

4 unchanged sentences

(Dollar Amounts in Thousands)

September 30,

2023 December 31,

31 unchanged sentences

Retained earnings 440,556 429,385

Accumulated other comprehensive income (loss) ( 123,121 ) 7,345

Accumulated other comprehensive loss ( 92,032 ) ( 106,198 )

Total stockholders’ equity 702,559 677,375

5 unchanged sentences

(Dollar Amounts in Thousands, Except Per Share Data)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Interest Income

2 unchanged sentences

Investment securities – tax exempt 7,556 6,697

Other 153 115

Total interest income 71,798 50,742

13 unchanged sentences

Fiduciary activities 1,275 1,503

Gains on sale of investment securities (includes $ 0 and $ 0 for the three months ended September 30, 2022 and 2021, respectively, and $ 0 and $ 914 for the nine months ended September 30, 2022 and 2021, respectively, related to accumulated other comprehensive earnings reclassifications)

Losses on sale of investment securities ( 500 ) —

Gain on sale of mortgage loans 785 2,027

1 unchanged sentence

Increase in cash value of bank owned life insurance 981 510

Death benefit on bank owned life insurance — 517 644 783

Other income 362 892

8 unchanged sentences

FDIC insurance expense 540 725

Core deposit intangible amortization 903 926

Other losses 221 168

2 unchanged sentences

Income Before Income Taxes 20,091 27,102

Income tax expense (includes $ 0 and $ 0 for the three months ended September 30, 2022 and 2021, respectively, and $ 0 and $ 192 for the nine months ended September 30, 2022 and 2021, respectively, related to income tax expense from reclassification items)

2,013 4,056 9,527 11,276

Income tax expense 1,863 3,539

Net Income $ 18,228 $ 23,563

6 unchanged sentences

(Dollar Amounts in Thousands)

Three Months Ended Nine Months Ended

September 30 September 30

2022 2021 2022 2021

Three Months Ended

Net Income $ 18,228 $ 23,563

5 unchanged sentences

Change in securities:

Unrealized depreciation for the period on AFS securities ( 39,856 ) ( 14,488 ) ( 169,013 ) ( 28,304 )

Accretion (amortization) from transfer of securities from available for sale to held to maturity securities ( 143 ) 19 ( 1,875 ) 50

Reclassification adjustment for securities gains realized in income — — — ( 914 )

Unrealized gain (loss) for the period on available for sale securities 18,144 ( 80,824 )

Reclassification of securities from available for sale to held to maturity — ( 794 )

Amortization (accretion) from transfer of securities from available for sale to held to maturity securities ( 154 ) 243

Reclassification adjustment for securities (gains) losses realized in income 500 —

Income tax effect ( 3,882 ) 17,089

Unrealized losses on securities ( 31,599 ) ( 11,431 ) ( 135,001 ) ( 23,043 )

Other Comprehensive Loss, Net of Tax ( 30,057 ) ( 10,993 ) ( 130,466 ) ( 20,207 )

Unrealized gains (losses) on securities 14,608 ( 64,286 )

Other Comprehensive Income (Loss), Net of Tax 14,166 ( 62,117 )

Comprehensive Income (Loss) $ 32,394 $ ( 38,554 )

10 unchanged sentences

Income (Loss) Total

Balances, July 1, 2021 $ — $ — $ 359,227 $ 332,509 $ 18,638 $ 710,374

Net income — — — 23,071 — 23,071

Other comprehensive loss, net of tax — — — — ( 10,993 ) ( 10,993 )

Amortization of unearned compensation — — 449 — — 449

Stock option expense — — 13 — — 13

Repurchase of outstanding stock — — ( 7,607 ) — — ( 7,607 )

Stock retirement plans — — ( 128 ) — — ( 128 )

Cash dividends on common stock ($ 0.15 per share)

— — — ( 6,637 ) — ( 6,637 )

Balances, September 30, 2021 $ — $ — $ 351,954 $ 348,943 $ 7,645 $ 708,542

Balances, July 1, 2022 $ — $ — $ 352,412 $ 398,517 $ ( 93,064 ) $ 657,865

Net income — — — 23,821 — 23,821

Other comprehensive loss, net of tax — — — — ( 30,057 ) ( 30,057 )

Amortization of unearned compensation — — 627 — — 627

Exercise of stock options — — 14 — — 14

Net settlement of share awards — — ( 89 ) — — ( 89 )

Stock retirement plans — — ( 127 ) — — ( 127 )

Cash dividends on common stock ($ 0.16 per share)

— — — ( 7,061 ) — ( 7,061 )

Balances, September 30, 2022 $ — $ — $ 352,837 $ 415,277 $ ( 123,121 ) $ 644,993

See notes to condensed consolidated financial statements

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(Dollar Amounts in Thousands, Except Per Share Data)

Nine Months Ended

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Balances, January 1, 2022 $ — $ — $ 352,122 $ 363,742 $ 7,345 $ 723,209

5 unchanged sentences

Net settlement of share awards — — ( 1,671 ) — — ( 1,671 )

Repurchase of outstanding stock — — ( 7,607 ) — — ( 7,607 )

Stock retirement plans — — 448 — — 448

1 unchanged sentence

— — — ( 6,605 ) — ( 6,605 )

Balances, September 30, 2021 $ — $ — $ 351,954 $ 348,943 $ 7,645 $ 708,542

Balances, March 31, 2022 $ — $ — $ 351,522 $ 380,700 $ ( 54,772 ) $ 677,450

Balances, January 1, 2023 $ — $ — $ 354,188 $ 429,385 $ ( 106,198 ) $ 677,375

Net income — — — 18,228 — 18,228

Other comprehensive loss, net of tax — — — — ( 130,466 ) ( 130,466 )

Other comprehensive income, net of tax — — — — 14,166 14,166

Amortization of unearned compensation — — 758 — — 758

Exercise of stock options — — 108 — — 108

Stock option expense — — 13 — — 13

Net settlement of share awards — — ( 696 ) — — ( 696 )

2 unchanged sentences

— — — ( 7,057 ) — ( 7,057 )

Balances, September 30, 2022 $ — $ — $ 352,837 $ 415,277 $ ( 123,121 ) $ 644,993

Balances, March 31, 2023 $ — $ — $ 354,035 $ 440,556 $ ( 92,032 ) $ 702,559

See notes to condensed consolidated financial statements

3 unchanged sentences

(Dollar Amounts in Thousands)

Nine Months Ended

Three Months Ended

Operating Activities

1 unchanged sentence

Items not requiring (providing) cash

Provision for (recovery of) credit losses ( 1,747 ) ( 13 )

Credit loss expense (recovery) 242 ( 1,386 )

Depreciation and amortization 2,601 2,742

1 unchanged sentence

Amortization of mortgage servicing rights 247 750

Mortgage servicing rights net impairment ( 2,942 ) ( 2,142 )

Impairment (recovery) of mortgage servicing rights — ( 2,594 )

Premium amortization on securities, net 2,751 3,068

Gain on sale of investment securities — ( 914 )

Loss on sale of investment securities 500 —

Gain on sale of mortgage loans ( 785 ) ( 2,027 )

11 unchanged sentences

Purchases of securities available for sale ( 817 ) ( 180,260 )

Proceeds from sales, maturities, calls and principal repayments of securities available for sale 54,022 250,808

Proceeds from sales of securities available for sale 63,527 —

Proceeds from maturities, calls and principal repayments of securities available for sale 8,386 23,089

Purchases of securities held to maturity ( 7,935 ) ( 345,794 )

Proceeds from maturities of securities held to maturity 65,720 23,368

Proceeds from maturities, calls and principal repayments of securities held to maturity 13,406 13,136

Net change in interest earning time deposits ( 286 ) 736

1 unchanged sentence

Redemption of FHLB stock — 198

Purchase of loans ( 62,489 ) —

Net change in loans ( 27,865 ) ( 68,629 )

1 unchanged sentence

Premises and equipment expenditures ( 567 ) ( 1,078 )

Purchases of bank owned life insurance ( 50,000 ) —

Proceeds from bank owned life insurance 2,910 —

Death benefit on bank owned life insurance 644 783

Net cash received in branch acquisition — 616,832

Net cash used in investing activities ( 19,490 ) ( 556,996 )

6 unchanged sentences

Exercise of stock options — 94

Repurchase of outstanding stock — ( 7,607 )

Dividends paid on common stock ( 7,057 ) ( 6,605 )

2 unchanged sentences

Cash and Cash Equivalents, Beginning of Period 123,505 593,508

Cash and Cash Equivalents, End of Period $ 134,722 $ 120,954

Additional Supplemental Information

Interest paid $ 26,019 $ 4,726

HORIZON BANCORP, INC.

2 unchanged sentences

(Dollar Amounts in Thousands)

Cash and Cash Equivalents, End of Period $ 109,659 $ 971,817

Additional Supplemental Information

Interest paid $ 18,384 $ 15,448

Income taxes paid — —

Transfer of loans to other real estate and repossessed assets 868 100

Transfer of premises to other real estate 1,479 1,753

Transfer of available for sale securities to held to maturity securities — 120,881

See notes to condensed consolidated financial statements

7 unchanged sentences

All inter–company balances and transactions have been eliminated.

The results of operations for the periods ended September 30, 2022 and September 30, 2021 are not necessarily indicative of the operating results for the full year of 2022 or 2021.

The results of operations for the periods ended March 31, 2023 and March 31, 2022 are not necessarily indicative of the operating results for the full year of 2023 or 2022.

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

1 unchanged sentence

Certain information and note disclosures normally included in Horizon’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Horizon’s Annual Report on Form 10–K for 2021 filed with the Securities and Exchange Commission on March 9, 2022.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Horizon’s Annual Report on Form 10–K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission on March 15, 2023 (the “2022 Annual Report on Form 10–K”).

The condensed consolidated balance sheet of Horizon as of December 31, 2022 has been derived from the audited balance sheet as of that date.

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

As of September 30, 2022, Horizon had repurchased a total of 803,349 shares at an average price per share of $ 16.89 .

As of March 31, 2023, Horizon had repurchased a total of 803,349 shares at an average price per share of $ 16.89 .

Basic earnings per share is computed by dividing net income available to common shareholders (net income less dividend requirements for preferred stock and accretion of preferred stock discount) by the weighted–average number of common shares outstanding.

1 unchanged sentence

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

Three Months Ended Nine Months Ended

September 30 September 30

2022 2021 2022 2021

Three Months Ended

Basic earnings per share

14 unchanged sentences

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

There were 316,760 shares for the three and nine months ended September 30, 2022 which were not included in the computation of diluted earnings per share because they were non–dilutive.

There were 142,705 and 153,582 shares for the three and nine months ended September 30, 2021, respectively, which were not included in the computation of diluted earnings per share because they were non–dilutive.

Horizon has share–based employee compensation plans, which are described in the notes to the financial statements included in the December 31, 2021 Annual Report on Form 10–K.

Also, the Company's shareholders approved the 2021 Omnibus Equity Incentive Plan at its Annual Meeting on May 6, 2021, adding 1.4 million additional shares to the plan and with no other significant changes from the Company's previous plan.

There were 601,685 shares for the three months ended March 31, 2023 which were not included in the computation of diluted earnings per share because they were non–dilutive.

There were 1,000 shares for the three months ended March 31, 2022 which were not included in the computation of diluted earnings per share because they were non–dilutive.

Revision of Previously Issued Financial Statements

We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10–Q related to immaterial errors.

The errors relate to sold commercial loan participation balances which do not qualify under accounting guidance as sales transactions under Accounting Standards Codification Topic 860 – Transfers and Servicing .

The correction of this error resulted in an increase in loans, net of allowance for credit losses and borrowings on the Company's condensed consolidated balance sheet.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No.

108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our Annual Report on Form 10–K for the year ended December 31, 2021, or for any quarterly periods included therein.

The following tables present the revisions to the line items of our previously issued financial statements to reflect the correction of the errors:

Consolidated Balance Sheet

As of December 31, 2021 As Reported Adjustment As Revised

Loans, net of allowance for credit losses $ 3,553,345 $ 36,986 $ 3,590,331

Total assets 7,374,903 36,986 7,411,889

Borrowings 675,753 36,986 712,739

Total liabilities 6,651,694 36,986 6,688,680

Total liabilities and stockholders' equity 7,374,903 36,986 7,411,889

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2021 As Reported Adjustment As Revised

Net change in loans $ 412,873 $ ( 2,156 ) $ 410,717

Net cash provided by investing activities ( 138,780 ) ( 2,156 ) ( 140,936 )

Proceeds from borrowings 225,375 2,156 227,531

Net cash provided by financing activities 772,067 2,156 774,223

Net Change in Cash and Cash Equivalents 54,460 — 54,460

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10–Q related to immaterial errors.

The errors relate to the classification of certain available for sale (“AFS“) and held to maturity (“HTM”) securities.

The correction of this error resulted in an increase in AFS and HTM federal agency mortgage–backed pool securities and a decrease in AFS and HTM private labeled mortgage–backed pool securities in Note 3 – Securities.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

The errors relate to the amortization expense of the indirect loan dealer reserve asset not being reported as a reduction in interest income on loans and the non–cash transfer of available for sale securities to held to maturity securities.

The correction of these errors resulted in a reduction in interest income on loans receivable and a reduction in non–interest loan expense on the Company's consolidated income statement and the disclosure of the transfer of available for sale securities to held to maturity securities in the statements of cash flows.

This revision does not impact the Company's net income.

We evaluated the aggregate effects of these errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No.

108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our Quarterly Report on Form 10–Q for the three months ended March 31, 2022.

The following tables present the revisions to the line items of our previously issued financial statements to reflect the correction of the errors:

Note 3 – Securities

As of December 31, 2021 Amortized Cost

As Reported Adjustment As Revised

Federal agency mortgage–backed pools $ 225,329 31,856 257,185

Private labeled mortgage–backed pools 31,856 ( 31,856 ) —

Total available for sale investment securities $ 257,185 — 257,185

Federal agency mortgage–backed pools $ 188,426 59,511 247,937

Private labeled mortgage–backed pools 99,958 ( 59,511 ) 40,447

Total held to maturity investment securities $ 288,384 — 288,384

Gross Unrealized Gains

As Reported Adjustment As Revised

Federal agency mortgage–backed pools $ 1,777 137 1,914

Private labeled mortgage–backed pools 137 ( 137 ) —

Total available for sale investment securities $ 1,914 — 1,914

Federal agency mortgage–backed pools $ 151 58 209

Private labeled mortgage–backed pools 58 ( 58 ) —

Total held to maturity investment securities $ 209 — 209

Gross Unrealized Losses

As Reported Adjustment As Revised

Federal agency mortgage–backed pools $ ( 1,032 ) ( 376 ) ( 1,408 )

Private labeled mortgage–backed pools ( 376 ) 376 —

Total available for sale investment securities $ ( 1,408 ) — ( 1,408 )

Federal agency mortgage–backed pools $ ( 2,612 ) ( 1,398 ) ( 4,010 )

Private labeled mortgage–backed pools ( 1,840 ) 1,398 ( 442 )

Total held to maturity investment securities $ ( 4,452 ) — ( 4,452 )

As Reported Adjustment As Revised

Federal agency mortgage–backed pools $ 226,074 31,617 257,691

Private labeled mortgage–backed pools 31,617 ( 31,617 ) —

Total available for sale investment securities $ 257,691 — 257,691

Federal agency mortgage–backed pools $ 185,965 58,171 244,136

Private labeled mortgage–backed pools 98,176 ( 58,171 ) 40,005

Total held to maturity investment securities $ 284,141 — 284,141

Consolidated Statements of Income

Three Months Ended March 31, 2022

As Reported Indirect Loan Dealer Reserve Adjustment As Revised

Interest income

Loans receivable $ 37,879 $ ( 1,340 ) $ 36,539

Total interest income 52,082 ( 1,340 ) 50,742

Net interest income 48,171 ( 1,340 ) 46,831

Net interest income after credit loss expense (recovery) 49,557 ( 1,340 ) 48,217

Non–interest expense

Loan expense 2,545 ( 1,340 ) 1,205

Total non–interest expense 36,610 ( 1,340 ) 35,270

Net income 23,563 — 23,563

HORIZON BANCORP, INC.

2 unchanged sentences

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

Accounting Guidance Issued But Not Yet Adopted

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2022

As Reported Indirect Loan Dealer Reserve Adjustment Transfer of AFS Securities to HTM Securities As Revised

Operating Activities

Net change in other assets $ 4,730 $ 1,037 $ — $ 5,767

Net cash provided by operating activities 27,055 1,037 — 28,092

Investing activities

Net change in loans ( 67,592 ) ( 1,037 ) — ( 68,629 )

Net cash used in investing activities ( 555,959 ) ( 1,037 ) — ( 556,996 )

Net Change in Cash and Cash Equivalents 120,954 — — 120,954

Additional Supplemental Information

Transfer of available for sale securities to held to maturity securities — — 120,881 120,881

Adoption of New Accounting Standards

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No.

10 unchanged sentences

An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

The Company is assessing ASU 2022–02 and its impact on its accounting and disclosures.

The Company adopted this standard during the first quarter of 2023 and it did not have a material impact on the consolidated financial statements.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Accounting Guidance Issued But Not Yet Adopted

2020–04, Reference Rate Reform (Topic 848):

12 unchanged sentences

For current elections in effect regarding the assertion of the probability of forecasted transactions, the Company elects the expedient to assert the probability of the hedged interest payments and receipts regardless of any expected modification in terms related to reference rate reform.

The Company conducted monthly meetings to address contracts and hedge accounting relationships that reference LIBOR.

All contracts referencing LIBOR as an interest rate have been identified and have been rewritten or refinanced as of March 31, 2022, except for commercial loan interest rate swaps.

Hedge accounting relationships referencing LIBOR will be modified by the counter parties.

The Company believes the adoption of this guidance on activities subsequent to December 31, 2020 through December 31, 2022 will not have a material impact on the consolidated financial statements.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Note 2 – Acquisitions

On September 17, 2021, Horizon Bank completed the purchase and assumption of certain assets and liabilities of 14 former TCF National Bank (“TCF”) branches in 11 Michigan counties.

Net cash of $ 618.2 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans of $ 212.0 million, fixed assets of $ 6.9 million, cash of $ 4.0 million and a 1.75 % premium on deposits.

Customer deposit balances were recorded at $ 846.4 million and a core deposit intangible of $ 1.6 million was recorded in the transaction, which will be amortized over 10 years on a straight line basis.

Goodwill of $ 4.0 million was generated in the transaction.

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

Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the purchase price for the TCF branches is detailed in the following table.

Prior to the end of the one year measurement period Horizon Bank recorded an adjustment of $ 639,000 which increased goodwill and decreased other assets acquired in the transaction.

Assets Liabilities

Cash and due from banks $ 4,012 Deposits

Loans Non-interest bearing $ 181,403

Commercial 101,327 NOW accounts 303,050

Residential mortgage 56,499 Savings and money market 262,488

Consumer 54,212 Certificates of deposit 99,468

Total loans 212,038 Total deposits 846,409

Premises and equipment, net 6,901 Interest payable 16

Goodwill 3,973 Other liabilities 1,278

Core deposit intangible 1,630

Interest receivable 519

Other assets 463

Total assets purchased $ 229,536 Total liabilities assumed $ 847,703

Net cash received $ ( 618,167 )

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

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

2023–02, Investments Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

The FASB has issued ASU 2023–02, Investments Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.

This guidance allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted in any interim period.

The Company is assessing ASU 2023–02 and its impact on its accounting and disclosures.

HORIZON BANCORP, INC.

4 unchanged sentences

The fair value of securities is as follows:

September 30, 2022

March 31, 2023

Available for sale

33 unchanged sentences

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

The amortized cost and fair value of securities available for sale and held to maturity at September 30, 2022 and December 31, 2021, by contractual maturity, are shown below.

The Company elected to transfer 793 AFS securities with an aggregate fair value of $ 120.9 million to a classification of HTM on March 31, 2022.

In accordance with FASB ASC 320–10–55–24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer.

The net unrealized holding loss of $ 814,000 , net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre–tax amount retained in the carrying value of the HTM securities.

Such amounts will be accreted to comprehensive income over the remaining life of the securities.

The fair value of the transferred AFS securities became the book value of the HTM securities at March 31, 2022.

The amortized cost and fair value of securities available for sale and held to maturity at March 31, 2023 and December 31, 2022, by contractual maturity, are shown below.

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

September 30, 2022 December 31, 2021

Value Amortized

March 31, 2023

Available for sale

17 unchanged sentences

Total held to maturity investment securities $ 2,015,537 $ 1,709,392

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

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

September 30, 2022

March 31, 2023

Less than 12 Months 12 Months or More Total

10 unchanged sentences

Total temporarily impaired securities $ 169,405 $ ( 10,269 ) $ 2,368,061 $ ( 418,801 ) $ 2,537,466 $ ( 429,070 )

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

December 31, 2022

11 unchanged sentences

Total temporarily impaired securities $ 880,068 $ ( 75,452 ) $ 1,719,396 $ ( 406,840 ) $ 2,599,464 $ ( 482,292 )

No allowance for credit losses for available for sale debt securities or held to maturity securities was needed at September 30, 2022 or December 31, 2021.

Accrued interest receivable on available for sale debt securities and held to maturity securities totaled $ 17.4 million at September 30, 2022 and $ 14.6 million at December 31, 2021 and is excluded from the estimate of credit losses.

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost.

As of March 31, 2023 and December 31, 2022, the Company had 2,647 and 2,828 securities, respectively, with market values below their cost basis.

The total fair value of these investments at March 31, 2023 and December 31, 2022 was $ 2.5 billion and $ 2.6 billion, which is approximately 95.7 % and 97.0 %, respectively, of the Company's available for sale and held to maturity securities portfolio.

These declines resulted primarily from fluctuations in market interest rates after purchase.

Management believes the declines in fair value for these securities are temporary.

No allowance for credit losses for available for sale debt securities or held to maturity securities was recorded at March 31, 2023 or December 31, 2022.

Accrued interest receivable on available for sale debt securities and held to maturity securities totaled $ 17.0 million at March 31, 2023 and $ 17.8 million at December 31, 2022 and is excluded from the estimate of credit losses.

government sponsored entities and agencies and mortgage–backed securities are either explicitly or implicitly guaranteed by the U.S.

1 unchanged sentence

Therefore, for those securities, we do not record expected credit losses.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Based on an evaluation of available evidence, management believes the unrealized losses on state and municipal securities, private labeled mortgage–backed pools and corporate notes were due to changes in interest rates.

2 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30 September 30

2022 2021 2022 2021

Three Months Ended

Sales of securities available for sale

2 unchanged sentences

Gross losses ( 629 ) —

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Note 3 – Loans

13 unchanged sentences

Class of financing receivable is defined as a group of financing receivables determined on the basis of both of the following, 1) risk characteristics of the financing receivable, and 2) an entity’s method for monitoring and assessing credit risk.

Generally, the Bank does not move loans from a revolving loan to a term loan other than residential construction loans.

Generally, the Bank does not move loans from a revolving loan to a term loan other than construction loans.

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

The following table presents total loans outstanding by portfolio class, as of September 30, 2022 and December 31, 2021:

September 30,

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

The following table presents total loans outstanding by portfolio class, as of March 31, 2023 and December 31, 2022:

2023 December 31,

16 unchanged sentences

Net loans $ 4,197,425 $ 4,107,534

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

As of September 30, 2022 and December 31, 2021, Federal Paycheck Protection Program (“PPP”) loans totaled approximately $ 315,000 and $ 25.8 million, respectively, and are included with commercial loans.

Total loans include net deferred loan costs of $ 2.6 million at September 30, 2022 and $ 1.9 million at December 31, 2021, respectively.

Total loans include net deferred loan costs of $ 24.6 million at March 31, 2023 and $ 22.7 million at December 31, 2022, respectively.

The risk characteristics of each loan portfolio segment are as follows:

11 unchanged sentences

In addition, management tracks the level of owner–occupied commercial real estate loans versus non–owner occupied loans.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Real Estate and Consumer

17 unchanged sentences

Fee income for each loan sold is collected when the loan is sold, and no costs are deferred due to the term between each loan funding and related payoff, which is typically less than 30 days.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Based on these agreements with each mortgage company, at any time a mortgage company can reacquire from Horizon its outstanding loan balance on an individual mortgage and regain possession of the original note.

2 unchanged sentences

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

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Non–performing Loans

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

September 30, 2022

The following table presents non–accrual loans and loans past due over 90 days still on accrual by class of loans at March 31, 2023:

March 31, 2023

Non–accrual Loans Past

Accruing Non–performing

TDRs Performing

Accruing Total

Non–performing

20 unchanged sentences

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

The following table presents non–accrual loans, loans past due over 90 days still on accrual, and troubled debt restructurings (“TDRs”) by class of loan at December 31, 2022:

December 31, 2022

20 unchanged sentences

Total $ 17,630 $ 92 $ 1,548 $ 2,570 $ 21,840 $ 18,980

There was no interest income recognized on non–accrual loans during the nine months ended September 30, 2022 and 2021, respectively, while the loans were in non–accrual status.

Included in the $ 14.8 million of non–accrual loans and the $ 1.7 million of non–performing TDRs at September 30, 2022 were $ 1.7 million and $ 157,000 , respectively, of loans acquired for which there were accretable yields recognized.

There was no interest income recognized on non–accrual loans during the three months ended March 31, 2023 and 2022, respectively, while the loans were in non–accrual status.

HORIZON BANCORP, INC.

2 unchanged sentences

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

The following table presents the payment status by class of loan, excluding non–accrual loans of $ 14.8 million and non–performing TDRs of $ 1.7 million at September 30, 2022:

September 30, 2022

The following table presents the payment status by class of loan, excluding non–accrual loans of $ 19.7 million at March 31, 2023:

March 31, 2023

Current 30–59 Days

43 unchanged sentences

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

Troubled Debt Restructurings

Loans modified as TDRs generally consist of allowing borrowers to defer scheduled principal payments and make interest only payments for a specified period of time at the stated interest rate of the original loan agreement or lower payments due to a modification of the loans' contractual terms.

Modified Loans

The Company adopted ASU 2022–02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures, during the first quarter of 2023.

This amendment eliminated the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

During the first quarter of 2023, the Company did not modify any loans.

Prior to the adoption of ASU 2022–02, loans modified as TDRs generally consist of allowing borrowers to defer scheduled principal payments and make interest only payments for a specified period of time at the stated interest rate of the original loan agreement or lower payments due to a modification of the loans' contractual terms.

TDRs that continue to accrue interest are individually monitored on a monthly basis and evaluated for impairment annually and transferred to non–accrual status when it is probable that any remaining principal and interest payments due on the loan will not be collected in accordance with the contractual terms of the loan.

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

At September 30, 2022, the types of concessions the Company has made on restructured loans have been temporary rate reductions and/or reductions in monthly payments, and there have been no restructured loans with modified recorded balances.

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

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

As of September 30, 2022, the Company had $ 4.2 million in TDRs and $ 2.5 million were performing according to the restructured terms and two TDRs were returned to accrual status during 2022.

There were no specific reserves allocated to TDRs at September 30, 2022 based on the discounted cash flows or, when appropriate, the fair value of the collateral.

These TDRs are exclusive of loans modified under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

HORIZON BANCORP, INC.

2 unchanged sentences

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

The following table presents TDRs by class of loan:

September 30, 2022 December 31, 2021

Non–accrual Accruing Total Non–accrual Accruing Total

The following table presents TDRs by class of loan at December 31, 2022:

December 31, 2022

Non–accrual Accruing Total

Owner occupied real estate $ — $ 568 $ 568

13 unchanged sentences

Total $ 1,548 $ 2,570 $ 4,118

Loans Modified under the CARES Act

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 September 30, 2022 and December 31, 2021, the Bank modified loans totaling $ 1,000 and $ 10.9 million, respectively, which qualified for treatment under the CARES Act.

Collateral Dependent Financial Assets

9 unchanged sentences

The table below presents the amortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to determine expected credit losses.

September 30, 2022

March 31, 2023

Real Estate Accounts Receivable/Equipment Other Total ACL

33 unchanged sentences

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

Loans that are 90 days or more past due, on non–accrual, or are classified as a TDR are graded “Substandard.” After being 90 to 120 days delinquent a loan is charged off unless it is well secured and in the process of collection.

Loans that are 90 days or more past due, on non–accrual, or are classified as modified loans are graded “Substandard.” After being 90 to 120 days delinquent a loan is charged off unless it is well secured and in the process of collection.

If the latter case exists, the loan is placed on non–accrual.

84 unchanged sentences

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

The following tables present loans by credit grades and origination year at September 30, 2022.

September 30, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Total

The following tables present loans by credit grades and origination year at March 31, 2023.

March 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Total

Owner occupied real estate

4 unchanged sentences

Total owner occupied real estate $ 21,899 $ 104,881 $ 85,386 $ 50,433 $ 50,327 $ 212,185 $ 84,439 $ 609,550

Gross charge–offs during period $ — $ 54 $ 53 $ — $ — $ 1 $ — $ 108

Non–owner occupied real estate

4 unchanged sentences

Total non–owner occupied real estate $ 20,791 $ 180,019 $ 175,943 $ 134,630 $ 96,024 $ 390,336 $ 220,088 $ 1,217,831

Gross charge–offs during period $ — $ — $ — $ — $ — $ 9 $ — $ 9

Residential spec homes

4 unchanged sentences

Total residential spec homes $ — $ 1,353 $ 3,478 $ 4 $ — $ 1,862 $ 5,144 $ 11,841

Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ —

Development & spec land

4 unchanged sentences

Total development & spec land $ 126 $ 1,581 $ 1,173 $ 435 $ 265 $ 9,429 $ 17,150 $ 30,159

Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ —

Commercial & industrial

4 unchanged sentences

Total commercial & industrial $ 27,039 $ 206,209 $ 128,565 $ 31,079 $ 32,601 $ 158,375 $ 52,210 $ 636,078

Total commercial $ 384,983 $ 418,032 $ 222,488 $ 199,289 $ 199,849 $ 654,469 $ 324,633 $ 2,403,743

Gross charge–offs during period $ — $ — $ — $ — $ — $ 20 $ — $ 20

HORIZON BANCORP, INC.

2 unchanged sentences

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

September 30, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Total

March 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Total

Residential mortgage

2 unchanged sentences

Total residential mortgage $ 7,241 $ 114,176 $ 166,714 $ 89,212 $ 33,342 $ 212,949 $ — $ 623,634

Gross charge–offs during period $ — $ — $ — $ — $ — $ 4 $ — $ 4

Residential construction

2 unchanged sentences

Total residential construction $ — $ 805 $ — $ — $ — $ — $ 38,020 $ 38,825

Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ —

Mortgage warehouse

2 unchanged sentences

Total mortgage warehouse $ — $ — $ — $ — $ — $ — $ 52,957 $ 52,957

Total real estate $ 85,907 $ 151,369 $ 95,124 $ 34,965 $ 38,531 $ 192,362 $ 110,333 $ 708,591

September 30, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Total

Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ —

March 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Total

Direct installment

2 unchanged sentences

Total direct installment $ 4,423 $ 18,442 $ 11,428 $ 6,402 $ 6,819 $ 7,839 $ 90 $ 55,443

Gross charge–offs during period $ — $ 6 $ 4 $ 6 $ — $ 9 $ — $ 25

Indirect installment

2 unchanged sentences

Total indirect installment $ 47,543 $ 244,026 $ 108,927 $ 53,313 $ 29,225 $ 20,173 $ — $ 503,207

Gross charge–offs during period $ — $ 310 $ 159 $ 22 $ 14 $ 12 $ — $ 517

Performing $ 31,042 $ 201,796 $ 80,890 $ 37,038 $ 25,132 $ 79,547 $ 8,621 $ 464,066

1 unchanged sentence

Total home equity $ 31,042 $ 201,904 $ 80,906 $ 37,100 $ 25,270 $ 80,562 $ 10,642 $ 467,426

Total consumer $ 346,011 $ 218,518 $ 115,525 $ 75,897 $ 50,623 $ 85,152 $ 8,155 $ 899,881

Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ —

HORIZON BANCORP, INC.

71 unchanged sentences

Note 4 – Allowance for Credit and Loan Losses

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the nine months ended September 30, 2022 and 2021:

Three Months Ended September 30, 2022

Commercial Real Estate Mortgage Warehouse Consumer Total

Balance, beginning of period $ 34,802 $ 4,422 $ 1,067 $ 12,059 $ 52,350

Provision for credit losses on loans ( 703 ) 640 ( 43 ) ( 495 ) ( 601 )

PCD loan charge–offs ( 242 ) — — — ( 242 )

Charge–offs ( 103 ) ( 27 ) — ( 592 ) ( 722 )

Recoveries 52 102 — 430 584

Balance, end of period $ 33,806 $ 5,137 $ 1,024 $ 11,402 $ 51,369

Three Months Ended September 30, 2021

Commercial Real Estate Mortgage Warehouse Consumer Total

Balance, beginning of period $ 41,766 $ 4,108 $ 1,155 $ 8,620 $ 55,649

Provision for credit losses on loans 1,330 ( 400 ) ( 101 ) 283 1,112

Charge–offs ( 10 ) — — ( 189 ) ( 199 )

Recoveries 35 29 — 153 217

Balance, end of period $ 43,121 $ 3,737 $ 1,054 $ 8,867 $ 56,779

Nine Months Ended September 30, 2022

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31, 2023

Commercial Real Estate Mortgage Warehouse Consumer Total

Balance, beginning of period $ 32,445 $ 5,577 $ 1,020 $ 11,422 $ 50,464

Provision for credit losses on loans ( 6,343 ) 1,236 ( 35 ) 3,395 ( 1,747 )

Credit loss expense (recovery) ( 1,031 ) ( 1,136 ) ( 222 ) 1,984 ( 405 )

PCD loan charge–offs ( 154 ) — — — ( 154 )

2 unchanged sentences

Balance, end of period $ 31,156 $ 4,447 $ 798 $ 13,125 $ 49,526

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Commercial Real Estate Mortgage Warehouse Consumer Total

Balance, beginning of period $ 40,775 $ 3,856 $ 1,059 $ 8,596 $ 54,286

Provision for credit losses on loans 1,090 ( 1,000 ) ( 213 ) 110 ( 13 )

Credit loss expense (recovery) ( 2,692 ) 485 ( 4 ) 825 ( 1,386 )

PCD loan charge–offs ( 256 ) — — — ( 256 )

4 unchanged sentences

The loss rate method measures the amount of loan charge–offs, net of recoveries, (“loan losses”) recognized over the life of a pool and compares those loan losses to the outstanding loan balance of that pool as of a specific point in time (“pool date”).

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

To estimate a CECL loss rate for the pool, management first identifies the loan losses recognized between the pool date and the reporting date for the pool and determines which loan losses were related to loans outstanding at the pool date.

1 unchanged sentence

The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data.

The Company's historical look–back period includes January 2012 through the current period, on a monthly basis.

The Company's historical look–back period includes January 2008 through the economic cycle, on a quarterly basis.

When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data.

3 unchanged sentences

The Company’s CECL estimate applies to a forecast that incorporates macroeconomic trends and other environmental factors.

Management utilized National, Regional and Local Leading Economic Indexes, as well as management judgment, as the basis for the forecast period.

The historical loss rate was utilized as the base rate, and qualitative adjustments were utilized to reflect the forecast and other relevant factors.

Management utilized National, Regional and Local Leading econometrics, as well as management judgment, as the basis for the forecast period.

The historical loss rate was utilized as the base rate, and quantitative adjustments were utilized to reflect the forecast and other relevant factors.

The forecasted loss rate then reverts to the historical base rate on a straight–line methodology for the remaining life of loan for each pool.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

The Company segments the loan portfolio into pools based on the following risk characteristics:

2 unchanged sentences

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

The unpaid principal balances of loans serviced for others totaled approximately $ 1.6 billion and $ 1.5 billion at September 30, 2022 and December 31, 2021.

The aggregate fair value and carrying value of capitalized mortgage servicing rights was approximately $ 18.7 million and $ 15.2 million at September 30, 2022 and December 31, 2021, respectively.

The unpaid principal balances of loans serviced for others totaled approximately $ 1.514 billion and $ 1.532 billion at March 31, 2023 and December 31, 2022.

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

For purposes of measuring impairment, risk characteristics including product type, investor type and interest rates were used to stratify the originated mortgage servicing rights.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended Nine Months Ended

September 30, September 30, September 30, September 30,

2022 2021 2022 2021

Mortgage servicing rights are included in other assets on the balance sheets as of March 31, 2023 and December 31, 2022.

Three Months Ended

March 31, March 31,

Mortgage servicing rights

9 unchanged sentences

Mortgage servicing rights, net $ 18,600 $ 18,592

The Bank reduced impairment by approximately $ 299,000 for the three months ended September 30, 2021, $ 2.6 million for the nine months ended September 30, 2022 and $ 2.1 million for the nine months ended September 30, 2021.

Note 6 – Goodwill

The carrying amount of goodwill was $ 155.2 million as of September 30, 2022 and $ 154.6 million as of December 31, 2021.

During the three and nine months ended September 30, 2022 and prior to the end of the one year measurement period related to the purchase and assumption of certain assets and liabilities from TCF, Horizon Bank recorded an adjustment of $ 639,000 which increased goodwill and decreased other assets acquired in the transaction.

There were no changes in the carrying amount of goodwill for the three and nine months ended September 30, 2021.

The carrying amount of goodwill was $ 155.2 million as of March 31, 2023 and December 31, 2022, respectively.

There were no changes in the carrying amount of goodwill for the three months ended March 31, 2023 and 2022.

Goodwill is assessed for impairment annually, or more frequently if events occur or circumstances change that indicate an impairment may exist.

2 unchanged sentences

Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was assessed for impairment using a qualitative analysis as of September 30, 2022 which resulted in no goodwill impairment charges for the nine months ended September 30, 2022.

Note 8 – Repurchase Agreements

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

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

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

Goodwill was assessed for impairment using a qualitative analysis as of March 31, 2023 which resulted in no goodwill impairment charges for the three months ended March 31, 2023.

HORIZON BANCORP, INC.

2 unchanged sentences

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

Note 7 – Repurchase Agreements

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

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

The following tables show repurchase agreements accounted for as secured borrowings and the related securities, at fair value, pledged for repurchase agreements:

September 30, 2022

March 31, 2023

Remaining Contractual Maturity of the Agreements

25 unchanged sentences

Total $ 160,517 $ — $ — $ — $ — $ — $ 160,517

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Note 8 – Subordinated Notes

4 unchanged sentences

The last interest payment date for the fixed rate period will be July 1, 2025.

From and including July 1, 2025 to, but excluding, the Maturity Date or the date of earlier redemption (the “floating rate period”), the Notes bear interest at a floating rate per annum equal to the benchmark rate, which is expected to be Three–Month Term SOFR (the “Benchmark Rate”), plus 549 basis

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

points, payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year, commencing on October 1, 2025.

Notwithstanding the foregoing, in the event that the Benchmark Rate is less than zero, the Benchmark Rate shall be deemed to be zero.

8 unchanged sentences

Note 9 – Derivative Financial Instruments

Cash Flow Hedges – As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into an interest rate swap agreement for a portion of its floating rate debt which matured on December 16, 2021.

The agreement provided for the Company to receive interest from the counterparty at three months LIBOR and to pay interest to the counterparty at a fixed rate of 4.20 % on a notional amount of $ 12.0 million.

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

The Company assumed an additional interest rate swap agreement as the result of the LaPorte acquisition in July 2016 which matured on March 15, 2021.

The agreement provided for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a fixed rate of 2.62 % on a notional amount of $ 10.0 million.

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

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

The agreement provides for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a fixed rate of 2.81 % on a notional amount of $ 50.0 million at September 30, 2022 and December 31, 2021.

Cash Flow Hedges

As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into an interest rate swap agreement for a portion of its floating rate debt on July 20, 2018.

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

3 unchanged sentences

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

At September 30, 2022, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

At March 31, 2023, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

Fair Value Hedges

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

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

To mitigate the risk of changes in fair value based on fluctuations in interest rates, the Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate.

For derivative instruments that are designated and qualify as a fair value hedge, the gain or

HORIZON BANCORP, INC.

2 unchanged sentences

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

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

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

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

At September 30, 2022, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings.

At March 31, 2023, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

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

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

The notional amounts of the loan and security agreements being hedged were $ 524.4 million at September 30, 2022 and $ 489.0 million at December 31, 2021.

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

At September 30, 2022, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

Other Derivative Instruments

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

At March 31, 2023, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

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

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

The following tables summarize the fair value of derivative financial instruments utilized by Horizon:

Asset Derivatives Liability Derivatives

September 30, 2022 September 30, 2022

March 31, 2023 March 31, 2023

Value Notional

20 unchanged sentences

Total derivatives $ 576,730 $ 44,879 $ 528,351 $ 42,669

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

Amount of Gain Recognized in Other Comprehensive Income on Derivative

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Derivatives in cash flow hedging relationship

Interest rate contracts $ 1,542 $ 438 $ 4,535 $ 2,836

HORIZON BANCORP, INC.

2 unchanged sentences

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

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

The effect of the derivative instruments on the condensed consolidated statements of comprehensive income for the three–month periods ended March 31 is as follows:

Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative

Three Months Ended

March 31, 2023 March 31, 2022

Derivatives in cash flow hedging relationship

Interest rate contracts $ ( 442 ) $ 2,169

The effect of the derivative designated as a hedging instrument on the condensed consolidated statements of income for the three–month periods ended March 31 is as follows:

Location of gain

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

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

March 31, 2023 March 31, 2022

Derivative designated as hedging instruments

1 unchanged sentence

Total $ 209 $ ( 340 )

Location of loss

The effect of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three–month periods ended March 31 is as follows:

Location of gain (loss)

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

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Derivative not designated as hedging instruments

Three Months Ended

March 31, 2023 March 31, 2022

Derivatives not designated as hedging instruments

Interest rate contracts – fair value hedge Interest income – loans receivable $ 120 $ ( 112 )

Interest rate contracts – fair value hedge Interest income – investment securities 49 ( 65 )

Mortgage loan contracts Non–interest income – Gain on sale of loans 87 ( 348 )

1 unchanged sentence

Total $ 191 $ ( 1,200 )

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Note 10 – Disclosures about Fair Value of Assets and Liabilities

7 unchanged sentences

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

There have been no significant changes in the valuation techniques during the period ended September 30, 2022.

There have been no significant changes in the valuation techniques during the period ended March 31, 2023.

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

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Available for sale securities

14 unchanged sentences

The fair value of the Company’s interest rate swap agreements is estimated by a third party using inputs that are primarily unobservable including a yield curve, adjusted for liquidity and credit risk, contracted terms and discounted cash flow analysis, and therefore, are classified within Level 2 of the valuation hierarchy.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

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

September 30, 2022

March 31, 2023

Fair Value Quoted Prices in Active Markets

11 unchanged sentences

Commitments to originate mortgage loans 219 — 219 —

Interest rate swap agreements liability ( 45,379 ) — ( 45,379 ) —

Mortgage loan contracts 37 — 37 —

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Interest rate swap agreements liability ( 33,446 ) — ( 33,446 ) —

December 31, 2022

14 unchanged sentences

Mortgage loan contracts ( 50 ) — ( 50 ) —

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

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

3 unchanged sentences

(Level 2) Significant

September 30, 2022

March 31, 2023

Collateral dependent loans $ 7,261 $ — $ — $ 7,261

Mortgage servicing rights 18,704 — — 18,704

December 31, 2022

Collateral dependent loans $ 8,091 $ — $ — $ 8,091

Mortgage servicing rights 15,186 — — 15,186

Collateral Dependent Loans:

2 unchanged sentences

Collateral dependent loans are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Mortgage Servicing Rights (MSRs):

MSRs do not trade in an active market with readily observable prices.

Accordingly, the fair value of these assets is classified as Level 3.

The Company determines the fair value of MSRs using an income approach model based upon the Company’s month–end interest rate curve and prepayment assumptions.

The model utilizes assumptions to estimate future net servicing income cash flows, including estimates of time decay, payoffs and changes in valuation inputs and assumptions.

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

The carrying amount of the MSRs’ fair value due to impairment increased by $ 2.6 million during the first nine months of 2022 and increased by $ 2.1 million during the first nine months of 2021.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

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

September 30, 2022

March 31, 2023

Value Valuation

2 unchanged sentences

Collateral dependent loans $ 7,261 Collateral based measurement Discount to reflect current market conditions and ultimate collectibility 0.0 %- 78.9 % ( 14.8 %)

Mortgage servicing rights 18,704 Discounted cash flows Discount rate,

Constant prepayment rate,

Probability of default

10.0 %- 10.0 % ( 10.0 %),

6.9 %- 13.3 % ( 7.8 %),

0.0 %- 0.7 %( 0.5 %)

December 31, 2022

3 unchanged sentences

Collateral dependent loans $ 8,091 Collateral based measurement Discount to reflect current market conditions and ultimate collectibility 0.0 %- 100.0 %( 13.3 %)

Mortgage servicing rights 15,186 Discounted cash flows Discount rate,

Constant prepayment rate,

Probability of default 8.0 %- 8.0 % ( 8.0 %),

8.4 %- 14.6 %( 11.6 %),

0.0 %- 2.0 %( 0.4 %)

Note 11 – Fair Value of Financial Instruments

3 unchanged sentences

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

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

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

The disclosed fair value estimates are limited to Horizon’s significant financial instruments at September 30, 2022 and December 31, 2021.

The disclosed fair value estimates are limited to Horizon’s significant financial instruments at March 31, 2023 and December 31, 2022.

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

6 unchanged sentences

Loans Held for Sale – The carrying amounts approximate fair value.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Net Loans – The fair value of net loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

15 unchanged sentences

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

September 30, 2022

March 31, 2023

Amount Quoted Prices in Active Markets

40 unchanged sentences

Note 12 – Accumulated Other Comprehensive Income (Loss)

September 30,

2023 December 31,

Unrealized gain (loss) on securities available for sale $ ( 121,500 ) $ ( 140,144 )

Unamortized loss on securities held to maturity, previously transferred from AFS 3,895 5,770

Unamortized gain (loss) on securities held to maturity, previously transferred from AFS 3,586 3,740

Unrealized gain (loss) on derivative instruments 1,418 1,976

16 unchanged sentences

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

As of September 30, 2022 and December 31, 2021, the Company and Bank met all capital adequacy requirements to be considered well capitalized.

There have been no conditions or events since the end of the third quarter of 2022 that management believes have changed the Bank’s classification as well capitalized.

As of March 31, 2023 and December 31, 2022, the Company and Bank met all capital adequacy requirements to be considered well capitalized.

There have been no conditions or events since the end of the first quarter of 2023 that management believes have changed the Bank’s classification as well capitalized.

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

As of March 31, 2020, the Company and Bank elected the transition option of the 2019 CECL Rule which allows banking organizations to phase in over a three–year period the day–one adverse effects of CECL on their regulatory capital ratios.

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, 2022 and 2021

Horizon and the Bank’s actual and required capital ratios as of September 30, 2022 and December 31, 2021 were as follows:

Notes to Condensed Consolidated Financial Statements

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

Horizon and the Bank’s actual and required capital ratios as of March 31, 2023 and December 31, 2022 were as follows:

Actual Required for Capital

7 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio Amount Ratio

September 30, 2022

March 31, 2023

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

24 unchanged sentences

(1) As defined by regulatory agencies

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Note 14 – General Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business.

It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operation and cash flows of the Company.

As of April 20, 2023, a putative class action lawsuit entitled Chad Key, et al.

Horizon Bancorp, Inc., et al., Case No.

1:23-cv-02961 (”Securities Action”) was filed against the Company and two of its officers in the U.S.

District Court for the Eastern District of New York.

The Securities Action asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 9, 2022 and March 10, 2023.

We are still evaluating the complaint, which is subject to amendment, but based on current knowledge we believe that the claims are without merit.

We believe the likelihood of loss is remote.

Accordingly, no accrual has been made.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2022 and 2021

For the Three Months ended March 31, 2023 and 2022

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

What changed 10-Q

Item 1. Financial Statements