What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-09 · 162 added, 417 removed, 433 unchanged (57% of the section changed)

10 unchanged sentences

Risks, uncertainties, and factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward–looking statement include but are not limited to:

• current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, liquidity levels, and responses by the Federal Reserve, Department of the Treasury, and the Federal Deposit Insurance Corporation to address these issues;

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

• economic conditions and their impact on Horizon and its customers, including continuing increases in inflation;

• the monetary, trade and other regulatory policies of the U.S.

government, including recent and anticipated interest rate increases;

• the increasing use of Bitcoin and other crypto currencies and/or stable coin and the possible impact these alternative currencies may have on deposit disintermediation and income derived from payment systems;

• the ability of the Company to remediate its material weaknesses in its internal control over financial reporting;

• continuing increases in inflation;

• loss of key Horizon personnel;

• 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;

• economic conditions and their impact on Horizon and its customers, including local and global economic recovery from the pandemic;

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

• increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks, which may have been accelerated by the COVID–19 pandemic;

• potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms (e.g., Apple Pay or Bitcoin) take a greater market share of the payment systems;

5 unchanged sentences

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

• continuing risks and uncertainties relating to the COVID–19 pandemic and government responses thereto;

• 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 Nine Months ended September 30, 2022 and 2021

For the Three Months ended March 31, 2023 and 2022

• 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;

17 unchanged sentences

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

For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward–looking statements, see “Risk Factors” in Item 1A of Part I of our 2021 Annual Report on Form 10–K and in the subsequent reports we file with the SEC.

For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward–looking statements, see “Risk Factors” in Item 1A of Part I of our 2022 Annual Report on Form 10–K, in Item 1A of Part II of this Quarterly Report on Form 10–Q, and in the subsequent reports we file with the SEC.

Horizon Bancorp, Inc.

11 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

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 2022 Highlights

• Return on average assets (“ROAA”) was 1.29% year–to–date and 1.24% for the third quarter.

• Return on average common equity (“ROACE”) was 13.97% year–to–date and 13.89% for the third quarter.

• Return on average tangible equity was 18.73% year–to–date and 18.71% for the third quarter.

• Total loans, excluding Federal Paycheck Protection Program (“PPP”) loans and sold commercial participation loans, grew by an annualized rate of 14.5% year–to–date and an annualized rate of 7.8% quarter over quarter.

• Commercial loans, excluding PPP loans and sold commercial participation loans, grew by an annualized rate of 13.8% year–to–date and an annualized rate of 7.2% quarter over quarter to a record $2.35 billion.

• Consumer loans grew by an annualized rate of 31.7% year–to–date and an annualized rate of 23.9% quarter over quarter to a record $899.9 million at period end.

• Asset quality remains solid with total loan delinquency at 0.12% of total loans, net charge–offs to average loans of 0.00% and a reversal of credit loss expense during the quarter.

• Net interest income increased by $387,000 to $53.4 million during the third quarter compared to $53.0 million for the previous quarter.

• Reported net interest margin (“NIM”) was 3.13% and adjusted NIM was 3.08%, with reported NIM decreasing by six basis points and adjusted NIM decreasing by four basis points from the second quarter of 2022.

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

• Non–interest income is down $2.2 million for the quarter due to lower residential mortgage loan volume, resulting in lower gain on sale income, and from lower wealth management fees related to year–to–date declines in equity and bond markets.

• Non-interest expense was $38.4 million in the quarter, or 1.99% of average assets on an annualized basis, compared to $36.4 million, or 1.95%, in the second quarter of 2022.

Year–to–date non–interest expense continues to be well managed at $111.3 million, or 1.99% of average assets on an annualized basis which is below our target of 2.00% of average assets.

• The effective tax rate for the third quarter dropped to 7.8% due to the recognition of solar tax credits as projects were put into service during the quarter.

• Net income totaled $23.8 million, down 4.2% from the prior quarter and up 3.3% from the prior year period.

Diluted earnings per share (“EPS”) of $0.55 was down from $0.57 for the second quarter of 2022 and up from $0.52 for the third quarter of 2021.

• Asset sensitivity decreased in the quarter compared to the previous quarter end, as deposit betas increased with rising rates.

Deposit beta is defined as the change in deposit costs as a percentage of the change in the federal funds rate over a particular period.

Current estimates for parallel rate shocks to the balance sheet, at 100 basis points and 200 basis points, decrease net interest income by approximately $3.3 million and $6.7 million, respectively.

First Quarter 2023 Highlights

• Deposits totaled $5.70 billion at period end, declining $155.8 million during the quarter, primarily due to a $122.2 million reduction in balances by municipal and other public depositors that have otherwise largely maintained their banking relationship with Horizon.

• Consumer and commercial deposits totaled $4.28 billion at period end, declining just $33.6 million during the quarter.

• 75% of total deposits at period end were FDIC insured, collateralized, or third–party insured, and the average tenure of all deposit accounts with Horizon exceeded 10 years.

• The average deposit account balance at period end was less than $25,000 for consumer and commercial depositors and less than $195,000 for all accounts including those of large public depositors.

• Horizon's loan–to–deposit ratio was 74.5% at period end, as total loans increased by an annualized rate of 8.3% year–to–date and a rate of 2.1% quarter over quarter, fueled by growth in commercial, consumer and residential balances.

• Asset quality remained solid with total loan delinquency at 0.33% of total loans and net charge–offs to average loans of 0.01% during the quarter.

• Non–interest expense of $34.5 million in the first quarter declined 3.3% from the linked quarter and 2.1% from the prior year period.

Non–interest expense in the first quarter represented 1.79% of average assets on an annualized basis, improving from 1.84%, in the linked quarter and 1.95% in the prior year period.

• Net income totaled $18.2 million, compared to $21.2 million in the fourth quarter of 2022 and $23.6 million in the prior year period.

Diluted earnings per share (“EPS”) of $0.42 compared to $0.48 for the fourth quarter of 2022 and $0.54 for the first quarter of 2022.

• Deposit betas increased to 51% on total interest bearing deposits in the first quarter compared to a 32% deposit beta during the previous quarter.

• During the first quarter of 2023, unrealized losses on available for sale investments declined to $121.5 million compared to unrealized losses of $140.1 million at December 31, 2022.

As a result, our tangible capital ratio increased from 6.56% at December 31, 2022 to 6.87% at March 31, 2023.

• Horizon's book value per share and tangible book value per share increased to $16.11 and $12.17 compared to $15.55 and $11.59 in the linked quarter and $15.55 and $11.54 in the first quarter of 2022, respectively.

• The Bank’s capital position was still robust with leverage and risk based capital ratios of 8.86% and 13.15%, respectively.

• Horizon's annualized dividend yield was 5.79% as of March 31, 2023.

• On January 17, 2023, Horizon's Board of Directors approved the appointment of Thomas M.

Prame to serve as the Chief Executive Officer of both Horizon and the Bank, effective June 1, 2023.

Dwight will retain the title of Chief Executive Officer until June 1, 2023 and retire as an employee from Horizon and the Bank effective July 3, 2023.

Dwight will continue as the Chairman of the Board of Directors of both Horizon and the Bank.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

• In a non–parallel rate model, the result is an estimated increase to net interest income of approximately $1.3 million, or 0.61%, at a 200 basis point move.

• When the entire balance sheet is valued in our models, the economic value of equity increased in the third quarter of 2022, when compared to the prior year quarter.

• Deposit betas increased to 23% on total interest bearing deposits in the third quarter compared to a 3% beta during the previous quarter.

• During the third quarter of 2022, the continued steepening of the yield curve resulted in unrealized losses on available for sale investments of $161.8 million compared to unrealized losses of $122.0 million at June 30, 2022.

The impact to the tangible capital ratio was a decrease of 3.55% from 6.48% at June 30, 2022 to 6.25% at September 30, 2022.

• The Bank’s capital position is still robust with leverage and risk based capital ratios of 9.31% and 14.23%, respectively.

The annualized dividend yield was 3.56% as of September 30, 2022.

For the Three Months ended March 31, 2023 and 2022

Financial Summary

For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Net Interest Income and Net Interest Margin 2023 2022 2022

3 unchanged sentences

For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Asset Yields and Funding Costs 2023 2022 2022

3 unchanged sentences

Non–interest Income and

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

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

2023 2022 2022

3 unchanged sentences

For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Non–interest Expense 2023 2022 2022

1 unchanged sentence

Annualized non–interest expense to average assets 1.79 % 1.84 % 1.95 %

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

At or for the Three Months Ended

Credit Quality September 30, June 30, September 30,

Credit Quality March 31, December 31, March 31,

2023 2022 2022

2 unchanged sentences

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

Allowance for September 30, Net Reserve December 31,

Credit Losses 2022 3Q22 2Q22 1Q22 2021

Allowance for March 31, Net Reserve December 31,

Credit Losses 2023 1Q22 2022

Commercial $ 31,156 $ (1,289) $ 32,445

5 unchanged sentences

ACL/Total Loans 1.17 % 1.21 %

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2023 and 2022

Critical Accounting Policies

The notes to the consolidated financial statements included in Item 8 of the Company’s Annual Report on Form 10–K for 2021 contain a summary of the Company’s significant accounting policies.

The notes to the consolidated financial statements included in Item 8 of the Company’s 2022 Annual Report on Form 10–K contain a summary of the Company’s significant accounting policies.

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

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

At September 30, 2022, Horizon had core deposit intangibles of $18.2 million subject to amortization and $155.2 million of goodwill, which is not subject to amortization.

At March 31, 2023, Horizon had core deposit intangibles of $16.3 million subject to amortization and $155.2 million of goodwill, which is not subject to amortization.

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

Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon

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

to provide quality, cost effective banking services in a competitive marketplace.

Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace.

The goodwill value is supported by revenue that is in part driven by the volume of business transacted.

2 unchanged sentences

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

Given the current economic uncertainty and volatility surrounding COVID–19, Horizon assessed whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.

Given the current economic uncertainty and volatility surrounding the interest rate environment, Horizon assessed whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.

Impairment indicators considered comprised the condition of the economy and banking industry;

3 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 September 30, 2022, 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.

At the conclusion of the most recent qualitative assessment, the Company determined that as of March 31, 2023, it was more likely than not that the fair value exceeded its carrying values.

Horizon will continue to monitor developments regarding the current banking environment, market capitalization, overall economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill in the future.

Mortgage Servicing Rights

1 unchanged sentence

Capitalized servicing rights are amortized into non–interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2023 and 2022

assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost.

Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages.

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Changes in the fair values of derivatives are reported in the consolidated income statements or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting.

The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the

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

hedged risk, both at inception of the hedge and on an ongoing basis.

The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

Horizon’s accounting policies related to derivatives reflect the guidance in FASB ASC 815–10.

12 unchanged sentences

In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other post–retirement benefit obligations.

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

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

Financial Condition

On September 30, 2022, Horizon’s total assets were $7.7 billion, an increase of approximately $306.8 million compared to December 31, 2021.

The increase in total assets was primarily in investments held to maturity of $479.1 million purchased and growth in net loans of $370.5 million.

These increases were offset by decreases in cash and due from banks of $483.8 million used to fund the growth and investments available for sale of $175.2 million primarily due to unrealized losses.

To determine the values of these

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

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

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

Financial Condition

On March 31, 2023, Horizon’s total assets were $7.9 billion, an increase of approximately $25.5 million compared to December 31, 2022.

The increase in total assets was primarily growth in net loans of $89.9 million and an increase in cash and due from banks of $11.2 million.

These increases were offset by decreases in investments available for sale of $54.1 million primarily due to sales during the first quarter and a decrease in other assets of $17.1 million.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Value Amortized

14 unchanged sentences

Total held to maturity investment securities $ 2,015,537 $ 1,709,392 $ 2,022,748 $ 1,681,309

Investment securities available for sale decreased $175.2 million since December 31, 2021 to $985.7 million as of September 30, 2022 primarily due to unrealized losses and investment securities held to maturity increased $479.1 million since December 31, 2021 to $2.0 billion as of September 30, 2022.

This increase in investments held to maturity was due to additional purchases to increase earning assets.

Net loans increased $370.5 million since December 31, 2021 to $4.0 billion as of September 30, 2022.

Commercial loans, excluding PPP loans and sold commercial participation loans, increased $220.8 million, consumer loans increased $172.6 million and residential mortgage loans increased $40.5 million since December 31, 2021.

These increases were offset by decreases in mortgage warehouse loans of $35.3 million, PPP loans of $25.5 million, loans held for sale of $10.7 million and sold commercial participation loans of $5.5 million since December 31, 2021.

Other assets increased $77.6 million since December 31, 2021 to $158.4 million as of September 30, 2022.

This increase was primarily due to an increase in deferred tax assets related to the level of unrealized losses on available for sale securities of approximately $35.4 million and an increase in the unrealized gain of fair value hedges of approximately $31.1 million.

Total deposits increased $27.8 million since December 31, 2021 to $5.8 billion as of September 30, 2022, from organic growth.

Total borrowings increased to $1.0 billion as of September 30, 2022 from $712.7 million as of December 31, 2021.

At September 30, 2022, the Company had $871.6 million in short–term funds borrowed compared to $180.8 million at December 31, 2021.

Stockholders’ equity totaled $645.0 million at September 30, 2022 compared to $723.2 million at December 31, 2021.

The decrease in stockholders’ equity during the period was primarily due to a decrease in accumulated other comprehensive income of $130.5 million as unrealized losses on available for sale securities totaled $161.8 million and the amount of dividends paid during the quarter, offset by the generation of net income.

Book value per common share at September 30, 2022 decreased to $14.80 compared to $15.10 at December 31, 2021.

Investment securities available for sale decreased $54.1 million since December 31, 2022 to $943.4 million as of March 31, 2023 primarily due to the sale of certain securities and investment securities held to maturity decreased $7.2 million since December 31, 2022 to $2.0 billion as of March 31, 2023.

This decrease in investments held to maturity was due to cash flows received during the first quarter.

Net loans increased $89.9 million since December 31, 2022 to $4.2 billion as of March 31, 2023.

Commercial loans increased $38.0 million, consumer loans increased $58.3 million and residential mortgage loans increased $9.2 million since December 31, 2022.

These increases were offset by decreases in mortgage warehouse loans of $16.6 million since December 31, 2022.

Other assets decreased $17.1 million since December 31, 2022 to $122.2 million as of March 31, 2023.

This decrease was primarily due to a decrease in deferred tax assets related to the level of unrealized losses on available for sale securities of approximately $4.0 million and a decrease in the unrealized gain of fair value hedges of approximately $9.5 million.

Total deposits decreased $155.8 million since December 31, 2022 to $5.7 billion as of March 31, 2023, primarily due to a $122.2 million reduction in balances by municipal and other public depositors that have largely maintained banking relationships with Horizon and a reduction in consumer and commercial balances of $33.6 million during the quarter.

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

Total borrowings increased to $1.3 billion as of March 31, 2023 from $1.1 billion as of December 31, 2022, primarily due to the decrease in total deposits.

Stockholders’ equity totaled $702.6 million at March 31, 2023 compared to $677.4 million at December 31, 2022.

The increase in stockholders’ equity during the period was primarily due to a decrease in accumulated other comprehensive loss of $14.2 million as unrealized losses on available for sale securities decreased to $121.5 million and the generation of net income, offset by the amount of dividends paid during the quarter.

Book value per common share at March 31, 2023 increased to $16.11 compared to $15.55 at December 31, 2022.

Results of Operations

Consolidated net income for the three–month period ended September 30, 2022 was $23.8 million, or $0.55 diluted earnings per share, compared to $23.1 million, or $0.52 diluted earnings per share for the same period in 2021.

The increase in net income for the three–month period ended September 30, 2022 when compared to the same prior year period reflects an increase in net interest income of $6.9 million, a decrease in credit loss expense of $1.7 million and a decrease in income tax expense of $2.0 million, offset by an increase in non–interest expense of $4.0 million and a decrease in non–interest income of $5.9 million.

Consolidated net income for the nine–month period ended September 30, 2022 was $72.2 million, or $1.65 diluted earnings per share, compared to $65.7 million, or $1.49 diluted earnings per share for the same period in 2021.

The increase in net income for the nine–month period ended September 30, 2022 when compared to the same prior year period reflects an increase in net interest income of $22.9 million, a decrease in credit loss expense of $1.7 million and a decrease in income tax expense of $1.7 million, offset by an increase in non–interest expense of $11.4 million and a decrease in non–interest income of $8.3 million.

Consolidated net income for the three–month period ended March 31, 2023 was $18.2 million, or $0.42 diluted earnings per share, compared to $23.6 million, or $0.54 diluted earnings per share for the same period in 2022.

The decrease in net income for the three–month period ended March 31, 2023 when compared to the same prior year period reflects a decrease in net interest income of $1.6 million, an increase in credit loss expense of $1.6 million and a decrease in non–interest income of $4.5 million, offset by a decrease in non–interest expense of $746,000 and a decrease in income tax expense of $1.7 million.

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 September 30, 2022 was $53.4 million, an increase of $6.9 million from the $46.5 million earned during the same period in 2021.

Yields on the Company’s interest earning assets increased by 22 basis points to 3.68% for the three months ended September 30, 2022 from 3.46% for the three months ended September 30, 2021.

Interest income increased $12.2 million from $50.9 million for the three months ended September 30, 2021 to $63.0 million for the same period in 2022.

The increase in interest income was due to an increase in average balances of interest earning assets of $1.0 billion during the three months ended September 30, 2022.

Interest income from acquisition–related purchase accounting adjustments was $906,000 for the three months ended September 30, 2022 compared to $875,000 for the same period of 2021.

Rates paid on interest bearing liabilities increased by 31 basis points for the three–month period ended September 30, 2022 compared to the same period in 2021.

Interest expense increased $5.3 million when compared to the three–month period ended September 30, 2021 to $9.6 million for the same period in 2022.

This increase was due to higher rates paid on deposits and borrowings.

Net interest income during the three months ended March 31, 2023 was $45.2 million, a decrease of $1.6 million from the $46.8 million earned during the same period in 2022.

Yields on the Company’s interest earning assets increased by 104 basis points to 4.17% for the three months ended March 31, 2023 from 3.13% for the three months ended March 31, 2022.

Interest income increased $21.1 million from $50.7 million for the three months ended March 31, 2022 to $71.8 million for the same period in 2023.

The increase in interest income was due to higher yields earned on interest earning assets and an increase in average balances of interest earning assets of $386.5 million during the three months ended March 31, 2023.

Interest income from acquisition–related purchase accounting adjustments was $367,000 for the three months ended March 31, 2023 compared to $916,000 for the same period in 2022.

Rates paid on interest bearing liabilities increased by 155 basis points for the three–month period ended March 31, 2023 compared to the same period in 2022.

Interest expense increased $22.7 million when compared to the three–month period ended March 31, 2022 to $26.6 million for the same period in 2023.

This increase was due to higher rates paid on interest bearing liabilities.

The cost of average interest bearing deposits increased 119 basis points while the cost of average borrowings increased 273 basis points.

Average balances of interest bearing deposits increased $647.1 million and average balances of borrowings increased $341.3 million for the three-month period ended September 30, 2022 when compared to the same period in 2021.

The net interest margin decreased four basis points from 3.17% for the three–month period ended September 30, 2021 to 3.13% for the same period in 2022.

The decrease in the margin for the three–month period ended September 30, 2022 compared to the same period in 2021 was due to an increase in the cost of interest bearing liabilities, offset by a increase in the yield on interest earning assets.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 3.08% for the three-month period ended September 30, 2022 compared to 3.12% for the same period in 2021.

Average balances of interest bearing deposits increased $23.6 million and average balances of borrowings increased $549.5 million for the three-month period ended March 31, 2023 when compared to the same period in 2022.

The net interest margin decreased 23 basis points from 2.90% for the three–month period ended March 31, 2022 to 2.67% for the same period in 2023.

The decrease in the margin for the three–month period ended March 31, 2023 compared to the same period in 2022 was due to an increase in the cost of interest bearing liabilities, offset by a increase in the yield on interest earning assets.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 2.65% for the three-month period ended March 31, 2023 compared to 2.85% for the same period in 2022.

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

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

2 unchanged sentences

Three Months Ended Three Months Ended

September 30, 2022 September 30, 2021

Balance Interest Average

Interest earning assets

Federal funds sold $ 4,201 $ 24 2.27 % $ 310,180 $ 119 0.15 %

Interest earning deposits 9,994 41 1.63 % 26,352 39 0.59 %

Investment securities – taxable 1,728,197 8,436 1.94 % 1,063,177 4,407 1.64 %

Investment securities – non–taxable (1)

1,384,249 7,478 2.71 % 1,108,503 5,911 2.68 %

Loans receivable (2) (3)

3,910,889 47,051 4.79 % 3,524,876 40,392 4.56 %

Total interest earning assets 7,037,530 63,030 3.68 % 6,033,088 50,868 3.46 %

Non–interest earning assets

Cash and due from banks 99,221 87,799

Allowance for credit losses (52,303) (55,703)

Other assets 550,654 442,489

Total average assets $ 7,635,102 $ 6,507,673

Liabilities and Stockholders’ Equity

Interest bearing liabilities

Interest bearing deposits $ 4,478,741 $ 4,116 0.36 % $ 3,831,632 $ 1,808 0.19 %

Borrowings 813,873 3,756 1.83 % 472,551 1,035 0.87 %

Repurchase agreements 141,283 139 0.39 % 125,776 40 0.13 %

Subordinated notes 58,836 880 5.93 % 58,689 880 5.95 %

Junior subordinated debentures issued to capital trusts 56,928 744 5.19 % 56,684 561 3.93 %

Total interest bearing liabilities 5,549,661 9,635 0.69 % 4,545,332 4,324 0.38 %

Non–interest bearing liabilities

Demand deposits 1,351,857 1,180,890

Accrued interest payable and other liabilities 53,208 57,039

Stockholders’ equity 680,376 724,412

Total average liabilities and stockholders’ equity $ 7,635,102 $ 6,507,673

Net interest income/spread $ 53,395 2.99 % $ 46,544 3.08 %

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

3.13 % 3.17 %

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

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

The average rate is presented on a tax equivalent basis.

Includes fees on loans.

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

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

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

The average rate is presented on a tax equivalent basis.

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

Net interest income during the nine months ended September 30, 2022 was $154.6 million, an increase of $22.9 million from the $131.7 million earned during the same period in 2021.

Yields on the Company’s interest earning assets decreased by 8 basis points to 3.45% for the nine months ended September 30, 2022 from 3.53% for the nine months ended September 30, 2021.

Interest income increased $26.8 million from $145.9 million for the nine months ended September 30, 2021 to $172.7 million for the same period in 2022.

The increase in interest income was due to an increase in average balances of interest earning assets of $1.2 billion during the nine months ended September 30, 2022.

Interest income from acquisition–related purchase accounting adjustments was $3.0 million for the nine months ended September 30, 2022 compared to $2.7 million for the same period of 2021.

Rates paid on interest bearing liabilities increased by one basis points for the nine–month period ended September 30, 2022 compared to the same period in 2021.

Interest expense increased $3.9 million when compared to the nine–month period ended September 30, 2021 to $18.1 million for the same period in 2022.

This increase was due to higher rates paid on borrowings.

The cost of average borrowings increased 9 basis points.

Average balances of interest bearing deposits increased $819.5 million and average balances of borrowings increased $253.4 million for the nine-month period ended September 30, 2022 when compared to the same period in 2021.

The net interest margin decreased 17 basis points from 3.20% for the nine–month period ended September 30, 2021 to 3.03% for the same period in 2022.

The decrease in the margin for the nine–month period ended September 30, 2022 compared to the same period in 2021 was due to a decrease in the yield on interest earning assets in addition to a slight increase 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 2.97% for the nine-month period ended September 30, 2022 compared to 3.14% for the same period in 2021.

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

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

Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)

Nine Months Ended Nine Months Ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

Balance Interest Average

42 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

Rate/Volume Analysis

The following table illustrates the impact of changes in the volume of interest earning assets and interest bearing liabilities and interest rates on net interest income for the periods indicated.

Three Months Ended September 30, 2022 vs.

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2022 vs.

Nine Months Ended September 30, 2021

Change Change

Volume Change

Three Months Ended March 31, 2023 vs.

Three Months Ended March 31, 2022

Change Change

17 unchanged sentences

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, 2022, credit loss recovery totaled $601,000 compared to a credit loss expense of $1.1 million for the same period of 2021.

During the three–month period ended September 30, 2022, commercial loan net charge–offs were $51,000, residential mortgage loan net recoveries were $75,000 and consumer loan net charge–offs were $162,000.

During the nine–month period ended September 30, 2022, credit loss expense totaled a recovery of $1.7 million compared to a credit loss recovery of $13,000 for the same period of 2021.

During the nine–month period ended September 30, 2022, commercial loan net charge–offs were $14,000, residential mortgage loan net recoveries were $45,000 and consumer loan net charge–offs were $589,000.

The ACL balance at September 30, 2022 was $51.4 million, or 1.28% of total loans compared to an ACL balance of $54.3 million at December 31, 2021 or 1.51% of total loans.

The decrease in the ACL to total loans ratio was primarily due to favorable asset quality with non–performing loans at 0.48% of total loans at period end and net charge–offs to average loans represented 0.00% for the third quarter of 2022.

As of September 30, 2022, non–performing loans totaled $19.2 million, reflecting a $139,000 increase from $19.0 million in non–performing loans as of December 31, 2021.

Non–performing commercial loans decreased by $310,000, non–performing real estate loans increased by $42,000 and non–performing consumer loans increased by $407,000 at September 30, 2022 compared to December 31, 2021.

During the three–month period ended March 31, 2023, credit loss expense totaled $242,000 compared to a credit loss recovery of $1.4 million for the same period in 2022.

During the three–month period ended March 31, 2023, commercial loan net charge–offs were $104,000, residential mortgage loan net recoveries were $6,000 and consumer loan net charge–offs were $281,000.

The ACL balance at March 31, 2023 was $49.5 million, or 1.17% of total loans compared to an ACL balance of $50.5 million at December 31, 2022 or 1.21% of total loans.

The decrease in the ACL to total loans ratio was primarily due to favorable asset quality with non–performing loans at 0.47% of total loans at period end and net charge–offs to average loans represented 0.01% for the first quarter of 2023.

As of March 31, 2023, non–performing loans totaled $19.8 million, reflecting a $2.0 million decrease from $21.8 million in non–performing loans as of December 31, 2022.

Non–performing commercial loans decreased by $807,000, non–performing real estate loans decreased by $1.2 million and non–performing consumer loans decreased by $39,000 at March 31, 2023 compared to December 31, 2022.

Other Real Estate Owned (“OREO”) and repossessed assets totaled $1.8 million at March 31, 2023 compared to $2.1 million at December 31, 2022.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

Other Real Estate Owned (“OREO”) and repossessed assets totaled $3.2 million at September 30, 2022 compared to $1.5 million at December 31, 2021.

The increase was primarily due to several former branch locations totaling $1.5 million being moved to OREO during the third quarter after being closed.

For the Three Months ended March 31, 2023 and 2022

Non–interest Income

The following is a summary of changes in non–interest income for the three months ended September 30, 2022 and 2021 (table dollar amounts in thousands):

The following is a summary of changes in non–interest income for the three months ended March 31, 2023 and 2022 (table dollar amounts in thousands):

Three Months Ended

September 30, Amount Percent

2022 2021 Change Change

Non–interest Income

Service charges on deposit accounts $ 3,023 $ 2,291 $ 732 32.0 %

Wire transfer fees 148 210 (62) (29.5) %

Interchange fees 3,089 2,587 502 19.4 %

Fiduciary activities 1,203 2,124 (921) (43.4) %

Gain on sale of mortgage loans 1,441 4,088 (2,647) (64.8) %

Mortgage servicing net of impairment 355 336 19 5.7 %

Increase in cash surrender value of bank owned life insurance 814 534 280 52.4 %

Death benefit on bank owned life insurance — 517 (517) 0.0 %

Other income 115 3,357 (3,242) (96.6) %

Total non–interest income $ 10,188 $ 16,044 $ (5,856) (36.5) %

Total non–interest income was $5.9 million lower during the third quarter of 2022 compared to the same period of 2021.

Residential mortgage loan activity during the third quarter of 2022 generated $1.4 million of income from the gain on sale of mortgage loans, down from $4.1 million for the same period in 2021 due to a lower volume of loans sold and a decrease in the percentage gain on loans sold.

Other income was $3.2 million lower during the third quarter of 2022 compared to the same period of 2021.

This decrease was 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 recorded during the third quarter of 2021.

Fiduciary activities income was $921,000 lower during the third quarter of 2022 compared to the same period of 2021 primarily due to rapidly rising interest rates during the most recent quarter.

Service charges on deposit accounts and interchange fees increased $732,000 and $502,000, respectively, when comparing the third quarter of 2022 to the same period of 2021 primarily due to the deposits acquired with the branch acquisition completed during the third quarter of 2021.

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

Nine Months Ended

September 30, Amount Percent

March 31, Amount Percent

2023 2022 Change Change

8 unchanged sentences

Increase in cash surrender value of bank owned life insurance 981 510 471 92.4 %

Death benefit on bank owned life insurance 644 783 (139) (17.8) %

Other income 362 892 (530) (59.4) %

Total non–interest income $ 9,620 $ 14,155 $ (4,535) (32.0) %

Total non–interest income was $8.3 million lower for the nine–month period ended September 30, 2022 compared to the same period of 2021.

Residential mortgage loan activity for the nine–month period ended September 30, 2022 generated $6.0 million of income from the gain on sale of mortgage loans, down from $15.0 million for the same period in 2021 due to a lower volume of loans sold and a decrease in the percentage gain on loans sold.

Other income was $2.3 million lower during the nine–month period ended September 30, 2022 compared to the same period of 2021.

This decrease was primarily due to the gain on sale of ESOP trustee accounts totaling $2.3 million recorded during 2021.

Fiduciary activities income was $1.7 million lower during the nine–month period ended September 30, 2022 compared to the same period of 2021 primarily due to rapidly rising interest rates during the current year.

Mortgage servicing income, net of impairment or recovery, increased $2.1 million for the nine–month period ended September 30, 2022 compared to the same period of 2021 due to an impairment recovery of $2.6 million recorded for the nine–month period ended September 30, 2022 as mortgage pre–payment speeds slowed.

Service charges on deposit accounts and interchange fees increased $2.0 million and $1.6 million, respectively, when comparing the nine–month period ended September 30, 2022 to the same period of 2021 primarily due to the deposits acquired with the branch acquisition completed during the third quarter of 2021.

Total non–interest income was $4.5 million lower during the first quarter of 2023 compared to the same period in 2022.

The sale of $64.0 million of available for sale investments generated a $500,000 loss during the first quarter of 2023.

Residential mortgage loan activity during the first quarter of 2023 generated $785,000 of income from the gain on sale of mortgage loans, down from $2.0 million for the same period in 2022 due to a lower volume of loans sold and a decrease in the percentage gain on loans sold.

Mortgage servicing income, net of impairment or recovery, decreased $2.8 million during the first quarter of 2023 compared to the same period in 2022 due to an impairment recovery of $2.6 million recorded during the first quarter of 2022.

Other income was $530,000 lower during the first quarter of 2023 compared to the same period in 2022 due to the gains from the sale of other real estate owned during the first quarter of 2022.

Fiduciary activities income was $228,000 lower during the first quarter of 2023 compared to the same period in 2022.

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

Non–interest Expense

The following is a summary of changes in non–interest expense for the three months ended September 30, 2022 and 2021 (table dollar amounts in thousands):

The following is a summary of changes in non–interest expense for the three months ended March 31, 2023 and 2022 (table dollar amounts in thousands):

Three Months Ended

September 30, September 30,

2022 2021 Adjusted

Actual Acquisition

Expenses Adjusted Actual Acquisition

Expenses Adjusted Amount

Change Percent

March 31, March 31, QTD QTD

2023 2022 $ Change % Change

Non–interest Expense

6 unchanged sentences

FDIC deposit insurance 540 725 (185) (25.5) %

Core deposit intangible amortization 903 926 (23) (2.5) %

Other losses 221 168 53 31.5 %

3 unchanged sentences

Assets 1.79 % 1.95 %

Total non–interest expense was $4.0 million higher for the third quarter of 2022 when compared to the third quarter of 2021.

The increases in expenses was primarily due to an increase in salaries and employee benefits of $1.7 million and an increase in outside services and consultants expense of $525,000, as well as increases in net occupancy expenses due to additional employees hired and branch locations acquired as a result of the 2021 branch acquisition, FDIC insurance expense, other expense due to the amortization of the intangible assets from the solar tax credits and other losses.

Annualized non–interest expense as a percent of average assets was 1.99% and 2.09% for the three months ended September 30, 2022 and 2021, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percentage of average assets was 1.99% and 2.05% for the three months ended September 30, 2022 and 2021, respectively.

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

The following is a summary of changes in non–interest expense for the nine months ended September 30, 2022 and 2021 (table dollar amounts in thousands):

Nine Months Ended

September 30, September 30,

2022 2021 Adjusted

Actual Acquisition

Expenses Adjusted Actual Acquisition

Expenses Adjusted Amount

Change Percent

Non–interest Expense

Salaries and employee benefits $ 60,305 $ — $ 60,305 $ 53,502 $ (25) $ 53,477 $ 6,828 12.8 %

Net occupancy expenses 10,044 — 10,044 9,337 (13) 9,324 720 7.7 %

Data processing 7,683 — 7,683 7,290 (17) 7,273 410 5.6 %

Professional fees 1,149 — 1,149 1,654 (104) 1,550 (401) (25.9) %

Outside services and consultants 7,865 — 7,865 6,252 (588) 5,664 2,201 38.9 %

Loan expense 7,968 — 7,968 8,574 — 8,574 (606) (7.1) %

FDIC deposit insurance 2,170 — 2,170 1,579 — 1,579 591 37.4 %

Other losses 928 — 928 358 (1) 357 571 159.9 %

Other expenses 13,216 — 13,216 11,363 (293) 11,070 2,146 19.4 %

Total non–interest expense $ 111,328 $ — $ 111,328 $ 99,909 $ (1,041) $ 98,868 $ 12,460 12.6 %

Non–interest Exp.

Assets 1.99 % 1.99 % 2.16 % 2.13 %

Total non–interest expense was $11.4 million higher in the first nine months of 2022 when compared to the first nine months of 2021.

The increase was primarily due to higher salaries and employee benefits of $6.8 million due to additional employees hired as a result of the 2021 branch acquisition, higher other expense of $1.9 million, higher outside services and consultants expense of $1.6 million, and was partially offset by a decrease of $606,000 in loan expense and a decrease of $505,000 in professional fees.

Annualized non–interest expense as a percent of average assets was 1.99% and 2.16% for the nine months ended September 30, 2022 and 2021, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percentage of average assets was 1.99% and 2.13% for the nine months ended September 30, 2022 and 2021, respectively.

Income tax expense totaled $2.0 million for the third quarter of 2022, a decrease of $2.0 million when compared to the second quarter of 2022 and a decrease of $2.0 million when compared to the third quarter of 2021 due to the recognition of solar tax credits as projects were put into service during the quarter, which reduced the effective tax rate to 7.8%.

Income tax expense totaled $9.5 million for the nine months ended September 30, 2022, a decrease of $1.7 million when compared to the nine months ended September 30, 2021.

Total non–interest expense was $746,000 lower during the first quarter of 2023 when compared to the first quarter of 2022 primarily due to a decrease in salaries and employee benefits expense of $1.0 million from lower salary and incentive compensation expense and a decrease in FDIC insurance expense of $185,000, offset by increases of $219,000 in professional fees and $192,000 in outside services and consultants expense.

Annualized non–interest expense as a percent of average assets was 1.79% and 1.95% for the three months ended March 31, 2023 and 2022, respectively.

Income tax expense totaled $1.9 million for the first quarter of 2023, a decrease of $1.7 million when compared to the first quarter of 2022 due to a decrease in income before taxes of $7.0 million.

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

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

1 unchanged sentence

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, 2022, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $917.6 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $672.7 million at December 31, 2021.

The Bank had approximately $2.2 billion of unpledged investment securities at September 30, 2022 compared to $2.0 billion at December 31, 2021.

At March 31, 2023, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.65 billion in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $438.0 million at December 31, 2022.

The Bank had approximately $666.3 million of unpledged investment securities at March 31, 2023 compared to $2.1 billion at December 31, 2022.

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2022.

Stockholders’ equity totaled $645.0 million as of September 30, 2022, compared to $723.2 million as of December 31, 2021.

For the nine months ended September 30, 2022, the ratio of average stockholders’ equity to average assets was 8.91% compared to 10.93% for the twelve months ended December 31, 2021.

The decrease in stockholders’ equity during the period was due to a decrease in accumulated other comprehensive income of $30.1 million and the amount of dividends paid, offset by net income recorded during the period.

Horizon declared common stock dividends in the amount of $0.47 per share during the first nine months of 2022 and $0.41 per share for the same period of 2021.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 28.3% and 27.3% for the first nine months of 2022 and 2021, respectively.

For additional information regarding dividends, see Horizon’s Annual Report on Form 10-K for 2021.

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at March 31, 2023.

Stockholders’ equity totaled $702.6 million as of March 31, 2023, compared to $677.4 million as of December 31, 2022.

For the three months ended March 31, 2023, the ratio of average stockholders’ equity to average assets was 8.86% compared to 9.07% for the twelve months ended December 31, 2022.

The increase in stockholders’ equity during the period was due to an increase in accumulated other comprehensive income of $14.2 million and net income during the period, offset by the amount of dividends paid.

Horizon declared common stock dividends in the amount of $0.16 per share during the first three months of 2023 and $0.15 per share for the same period in 2022.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 38.1% and 27.8% for the first three months of 2023 and 2022, respectively.

For additional information regarding dividends, see Horizon’s 2022 Annual Report on Form 10–K.

Use of Non–GAAP Financial Measures

Certain information set forth in this quarterly report on Form 10–Q refers to financial measures determined by methods other than in accordance with GAAP.

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

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

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.

6 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

Non–GAAP Reconciliation of Net Income

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

Net income as reported $ 18,228 $ 21,165 $ 23,821 $ 24,859 $ 23,563

Acquisition expenses — — — 884 799 — 1,041

Tax effect — — — (184) (166) — (217)

Net income excluding acquisition expenses 23,821 24,859 23,563 22,125 23,704 72,243 66,490

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

Tax effect — — — — (427) — (427)

Net income excluding credit loss expense acquired loans 23,821 24,859 23,563 22,125 25,311 72,243 68,097

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 23,821 24,859 23,563 22,125 23,471 72,243 66,257

DOL ESOP settlement expenses — — — 1,900 — — —

Tax effect — — — (315) — — —

Net income excluding DOL ESOP settlement expenses 23,821 24,859 23,563 23,710 23,471 72,243 66,257

(Gain)/loss on sale of investment

4 unchanged sentences

Net income excluding death benefit on BOLI 18,623 21,165 23,821 24,215 23,563

Prepayment penalties on borrowings — — — — — — 125

Tax effect — — — — — — (26)

Net income excluding prepayment penalties on borrowings 23,821 24,215 23,563 23,710 22,954 71,599 64,851

Adjusted net income $ 18,623 $ 21,165 $ 23,821 $ 24,215 $ 23,563

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

Non–GAAP Reconciliation of Diluted Earnings per Share

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

Diluted earnings per share (“EPS”) as reported $ 0.42 $ 0.48 $ 0.55 $ 0.57 $ 0.54

Acquisition expenses — — — 0.02 0.02 — 0.02

Tax effect — — — — — — —

Diluted EPS excluding acquisition expenses 0.55 0.57 0.54 0.51 0.54 1.65 1.51

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

Tax effect — — — — (0.01) — (0.01)

Diluted EPS excluding credit loss expense acquired loans 0.55 0.57 0.54 0.51 0.58 1.65 1.55

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 0.55 0.57 0.54 0.51 0.54 1.65 1.51

DOL ESOP settlement expenses — — — 0.04 — — —

Tax effect — — — (0.01) — — —

Diluted EPS excluding DOL ESOP settlement expenses 0.55 0.57 0.54 0.54 0.54 1.65 1.51

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

3 unchanged sentences

Diluted EPS excluding death benefit on BOLI 0.43 0.48 0.55 0.56 0.54

Prepayment penalties on borrowings — — — — — — —

Tax effect — — — — — — —

Diluted EPS excluding prepayment penalties on borrowings 0.55 0.56 0.54 0.54 0.52 1.64 1.46

Adjusted Diluted EPS $ 0.43 $ 0.48 $ 0.55 $ 0.56 $ 0.54

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

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

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

Pre–tax income $ 20,091 $ 23,814 $ 25,834 $ 28,834 $ 27,102

Credit loss expense (reversal) (601) 240 (1,386) (2,071) 1,112 (1,747) (13)

Credit loss expense (recovery) 242 (69) (601) 240 (1,386)

Pre–tax, pre–provision net income $ 20,333 $ 23,745 $ 25,233 $ 29,074 $ 25,716

Acquisition expenses — — — 884 799 — 1,041

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

DOL ESOP settlement expenses — — — 1,900 — — —

(Gain)/loss on sale of investment securities 500 — — — —

Death benefit on bank owned life insurance — — — (644) —

Prepayment penalties on borrowings — — — — — — 125

Adjusted pre–tax, pre–provision net income $ 20,833 $ 23,745 $ 25,233 $ 28,430 $ 25,716

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2023 and 2022

Non–GAAP Reconciliation of Net Interest Margin

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

6 unchanged sentences

(“PAUs”) (367) (431) (906) (1,223) (916)

Prepayment penalties on borrowings — — — — — — 125

Adjusted net interest income $ 44,870 $ 48,351 $ 50,955 $ 50,821 $ 45,915

Adjusted net interest margin 2.65 % 2.83 % 2.99 % 3.06 % 2.85 %

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

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

(Dollars in Thousands Except per Share Data, Unaudited)

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

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

2023 2022 2022 2022 2022

10 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

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

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

5 unchanged sentences

Non–interest expense as reported $ 34,524 $ 35,711 $ 36,816 $ 35,404 $ 35,270

Acquisition expenses — — — (884) (799) — (1,041)

DOL ESOP settlement expenses — — — (1,900) — — —

Non–interest expense excluding acquisition expenses and DOL ESOP settlement expenses 38,350 36,368 36,610 36,586 33,550 111,328 98,868

Net interest income as reported 45,237 48,782 51,861 52,044 46,831

Prepayment penalties on borrowings — — — — — — 125

Net interest income excluding prepayment penalties on borrowings 53,395 53,008 48,171 49,976 46,544 154,574 131,839

Non–interest income as reported 9,620 10,674 10,188 12,434 14,155

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

(Gain)/loss on sale of investment securities 500 — — — —

6 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

Non–GAAP Reconciliation of Return on Average Assets

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

1 unchanged sentence

Return on average assets ("ROAA") as reported 0.94 % 1.09 % 1.24 % 1.33 % 1.31 %

Acquisition expenses — — — 0.05 0.05 — 0.02

Tax effect — — — (0.01) (0.01) — —

ROAA excluding acquisition expenses 1.24 1.33 1.31 1.18 1.45 1.29 1.44

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

Tax effect — — — — (0.03) — (0.01)

ROAA excluding credit loss expense acquired loans 1.24 1.33 1.31 1.18 1.54 1.29 1.47

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 1.24 1.33 1.31 1.18 1.43 1.29 1.43

DOL ESOP settlement expenses — — — 0.10 — — —

Tax effect — — — (0.02) — — —

ROAA excluding DOL ESOP settlement expenses 1.24 1.33 1.31 1.26 1.43 1.29 1.43

(Gain)/loss on sale of investment securities 0.03 — — — —

3 unchanged sentences

ROAA excluding death benefit on BOLI 0.96 1.09 1.24 1.30 1.31

Prepayment penalties on borrowings — — — — — — —

Tax effect — — — — — — —

ROAA excluding prepayment penalties on borrowings 1.24 1.30 1.31 1.26 1.40 1.28 1.39

Adjusted ROAA 0.96 % 1.09 % 1.24 % 1.30 % 1.31 %

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

Non–GAAP Reconciliation of Return on Average Common Equity

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

1 unchanged sentence

Return on average common equity ("ROACE") as reported 10.66 % 12.72 % 13.89 % 14.72 % 13.34 %

Acquisition expenses — — — 0.49 0.44 — 0.20

Tax effect — — — (0.10) (0.09) — (0.04)

ROACE excluding acquisition expenses 13.89 14.72 13.34 12.20 12.99 13.97 12.53

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

Tax effect — — — — (0.23) — (0.08)

ROACE excluding credit loss expense acquired loans 13.89 14.72 13.34 12.20 13.87 13.97 12.83

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 13.89 14.72 13.34 12.20 12.86 13.97 12.48

DOL ESOP settlement expenses — — — 1.05 — — —

Tax effect — — — (0.17) — — —

ROACE DOL ESOP settlement expenses 13.89 14.72 13.34 13.08 12.86 13.97 12.48

(Gain)/loss on sale of investment securities 0.29 — — — —

3 unchanged sentences

ROACE excluding death benefit on BOLI 10.89 12.72 13.89 14.34 13.34

Prepayment penalties on borrowings — — — — — — 0.02

Tax effect — — — — — — —

ROACE excluding prepayment penalties on borrowings 13.89 14.34 13.34 13.08 12.58 13.85 12.22

Adjusted ROACE 10.89 % 12.72 % 13.89 % 14.34 % 13.34 %

3 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

Non–GAAP Reconciliation of Return on Average Tangible Equity

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

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

Three Months Ended

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

2023 2022 2022 2022 2022

3 unchanged sentences

Return on average common equity ("ROATE") 14.18 % 17.24 % 18.65 % 19.86 % 17.70 %

Acquisition expenses — — — 0.65 0.58 — 0.26

Tax effect — — — (0.14) (0.12) — (0.06)

ROATE excluding acquisition expenses 18.71 19.86 17.70 16.25 17.12 18.73 16.61

Credit loss expense acquired loans — — — — 1.47 — 0.51

Tax effect — — — — (0.31) — (0.11)

ROATE excluding credit loss expense acquired loans 18.71 19.86 17.70 16.25 18.28 18.73 17.01

Gain on sale of ESOP trustee accounts — — — — (1.68) — (0.58)

Tax effect — — — — 0.35 — 0.13

ROATE excluding gain on sale of ESOP trustee accounts 18.71 19.86 17.70 16.25 16.95 18.73 16.56

DOL ESOP settlement expenses — — — 1.40 — — —

Tax effect — — — (0.23) — — —

ROATE DOL ESOP settlement expenses 18.71 19.86 17.70 17.42 16.95 18.73 16.56

(Gain)/loss on sale of investment securities 0.39 — — — —

3 unchanged sentences

ROATE excluding death benefit on BOLI 14.49 17.24 18.65 19.35 17.70

Prepayment penalties on borrowings — — — — — — 0.03

Tax effect — — — — — — (0.01)

ROATE excluding prepayment penalties on borrowings 18.71 19.35 17.70 17.42 16.58 18.56 16.20

Adjusted ROATE 14.49 % 17.24 % 18.65 % 19.35 % 17.70 %

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We refer you to Horizon's 2021 Annual Report on Form 10–K for analysis of its interest rate sensitivity.

Horizon believes there have been no significant changes in its interest rate sensitivity since it was reported in its 2021 Annual Report on Form 10–K.

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