What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-08 · 164 added, 161 removed, 574 unchanged (36% of the section changed)

31 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

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

33 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 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.

Second Quarter 2023 Highlights

• Increased net income to $18.8 million or $0.43 per diluted share, from $18.2 million or $0.42 in the first quarter of 2023.

• Net interest income of $46.2 million increased from $45.2 million in the linked quarter.

Second quarter 2023 net interest income benefited from average total loan and earning asset growth over the linked quarter, as well as a $1.5 million gain on swap termination that contributed approximately $0.02 to diluted earnings per share.

• Non–interest income expanded to $11.0 million from $9.6 million in the linked quarter.

• Continued to manage non–interest expense as a percentage of average assets to less than 1.90% on an annualized basis, totaling $36.3 million, or 1.86%, compared to $34.5 million, or 1.79% in the linked quarter.

• Deposits remained resilient during the quarter, totaling $5.71 billion at period end, compared to $5.70 billion on March 31, 2023.

• Loans grew to $4.27 billion at period end, increasing by 2.2% annualized during the quarter and 5.3% annualized since December 31, 2022.

• Maintained consistent and sound asset quality with 30 to 89 days delinquent loans representing 0.26% of total loans and non–performing loans representing 0.52% of total loans at period end, as well as net charge–offs representing 0.01% of average loans during the quarter.

• Tangible common equity continued to improve to 6.91% of tangible assets on June 30, 2023, an improvement of 4 basis points during the quarter and 35 basis points since December 31, 2022.

• The Bank’s capital position was strong with leverage and risk based capital ratios of 8.90% and 13.64%, respectively.

• Horizon's annualized dividend yield was robust at 6.15% as of June 30, 2023, with cash maintained at the holding company level representing approximately eight quarters of dividend payments and fixed costs.

Third Quarter 2023 Highlights

• Net income was $16.2 million or $0.37 per diluted share.

This compared to $18.8 million or $0.43 in the second quarter of 2023, which included an after–tax benefit of approximately $1.1 million, or $0.02 per share on a non–recurring swap termination fee.

• Loans totaled $4.36 billion at period end, increasing by 8.2% annualized during the quarter and 6.4% annualized since December 31, 2022.

Commercial loan growth totaled $83.0 million, increasing by 13.1% annualized during the quarter and 6.6% annualized since December 31, 2022.

• Deposits remained resilient, totaling $5.7 billion at period end, compared to $5.7 billion on June 30, 2023.

Brokered deposits and wholesale borrowing levels were consistent with second quarter balances.

• Net interest income was $42.1 million.

This compared to $46.2 million in the linked quarter, which benefited from the aforementioned non–recurring swap termination fee by $1.5 million.

• Non–interest income expanded to $11.8 million from $11.0 million in the linked quarter, primarily due to higher mortgage–related revenue.

• Well–managed non–interest expense was $36.2 million, or 1.81% of average assets annualized.

Results slightly improved from the second quarter, even with an additional $460,000 in FDIC insurance expense.

• Maintained sound asset quality, with 30 to 89 days delinquent loans representing 0.30% of total loans and non–performing loans representing 0.45% of total loans at period end, as well as net charge–offs representing 0.02% of average loans during the quarter.

• Horizon's dividend performance included a 5.99% yield as of September 30, 2023, with cash maintained at the holding company level representing approximately eight quarters of dividend payments and fixed costs.

Financial Summary

For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Net Interest Income and Net Interest Margin 2023 2023 2022

3 unchanged sentences

For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Asset Yields and Funding Costs 2023 2023 2022

5 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

For the Three Months Ended

Non–interest Income and

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

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

2023 2023 2022

3 unchanged sentences

For the Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

Non–interest Expense 2023 2023 2022

2 unchanged sentences

At or for the Three Months Ended

Credit Quality June 30, March 31, June 30,

Credit Quality September 30, June 30, September 30,

2023 2023 2022

2 unchanged sentences

Percent of net charge–offs to average loans outstanding for the period 0.02 % 0.01 % 0.00 %

Allowance for June 30, Net Reserve December 31,

Credit Losses 2023 2Q23 1Q23 2022

Allowance for September 30, Net Reserve December 31,

Credit Losses 2023 3Q23 2Q23 1Q23 2022

Commercial $ 29,472 $ (882) $ (802) $ (1,289) $ 32,445

20 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

when the borrower is experiencing financial difficulty such that repayment of the loan is expected to be made through the operation or sale of the collateral.

9 unchanged sentences

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

At June 30, 2023, Horizon had core deposit intangibles of $15.4 million subject to amortization and $155.2 million of goodwill, which is not subject to amortization.

At September 30, 2023, Horizon had core deposit intangibles of $14.5 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.

10 unchanged sentences

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

At the conclusion of the most recent qualitative assessment, the Company determined that as of June 30, 2023, it was more likely than not that the fair value exceeded its carrying values.

At the conclusion of the most recent qualitative assessment, the Company determined that as of September 30, 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.

16 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

result in significant earnings volatility.

24 unchanged sentences

Financial Condition

On June 30, 2023, Horizon’s total assets were $8.0 billion, an increase of approximately $90.8 million compared to December 31, 2022.

On September 30, 2023, Horizon’s total assets were $8.0 billion, an increase of approximately $86.9 million compared to December 31, 2022.

The increase in total assets was primarily growth in net loans of $201.8 million and an increase in cash and due from banks of $51.6 million.

These increases were offset by decreases in investments available for sale of $91.7 million primarily due to sales during the first six months of 2023 and a decrease in investments held to maturity of $39.3 million.

These increases were offset by decreases in investments available for sale of $132.4 million primarily due to principal repayments and sales during the first nine months of 2023 and a decrease in investments held to maturity of $56.3 million due to principal repayments.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Value Amortized

14 unchanged sentences

Total held to maturity investment securities $ 1,966,483 $ 1,556,845 $ 2,022,748 $ 1,681,309

Investment securities available for sale decreased $91.7 million since December 31, 2022 to $905.8 million as of June 30, 2023 primarily due to the sale of certain securities and investment securities held to maturity decreased $39.3 million since December 31, 2022 to $2.0 billion as of June 30, 2023.

This decrease in investments held to maturity was due to cash flows received during the first six months of 2023.

Net loans increased $108.8 million since December 31, 2022 to $4.3 billion as of June 30, 2023.

Commercial loans increased $38.9 million, consumer loans increased $35.1 million, residential mortgage loans increased $21.5 million and mortgage warehouse loans increased $12.8 million since December 31, 2022.

Total deposits decreased $148.4 million since December 31, 2022 to $5.7 billion as of June 30, 2023, primarily due to a reduction in consumer and commercial balances of $55.6 million and a $54.6 million, respectively, offset by an increase in balances by municipal and other public depositors of approximately $117.6 million during the first six months of 2023.

Total borrowings increased to $1.4 billion as of June 30, 2023 from $1.1 billion as of December 31, 2022, primarily due to the decrease in total deposits.

Stockholders’ equity totaled $709.2 million at June 30, 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 $8.3 million as unrealized losses on available for sale securities decreased to $127.3 million and the generation of net income, offset by the amount of dividends paid during the quarter.

Book value per common share at June 30, 2023 increased to $16.25 compared to $16.11 at December 31, 2022.

Investment securities available for sale decreased $132.4 million since December 31, 2022 to $865.2 million as of September 30, 2023 primarily due to principal repayments and the sale of certain securities and investment securities held to maturity decreased $56.3 million since December 31, 2022 to $2.0 billion as of September 30, 2023.

This decrease in investments held to maturity was due to cash flows received during the first nine months of 2023.

Net loans increased $201.8 million since December 31, 2022 to $4.4 billion as of September 30, 2023.

Commercial loans increased $121.8 million, consumer loans increased $60.7 million and residential mortgage loans increased $22.1 million, offset by a decrease in mortgage warehouse loans of $3.6 million since December 31, 2022.

Total deposits decreased $157.7 million since December 31, 2022 to $5.7 billion as of September 30, 2023, primarily due to a reduction in consumer and commercial balances of $65.5 million and a $105.3 million, respectively, offset by an increase in balances by municipal and other public depositors of approximately $13.1 million during the first nine months of 2023.

Total borrowings increased to $1.4 billion as of September 30, 2023 from $1.1 billion as of December 31, 2022, primarily due to the decrease in total deposits.

Stockholders’ equity totaled $693.4 million at September 30, 2023 compared to $677.4 million at December 31, 2022.

The increase in stockholders’ equity during the period was primarily due to the generation of net income, offset by an increase in accumulated other comprehensive loss of $17.2 million as unrealized losses on available for sale securities increased to $159.5 million and the amount of dividends paid during the quarter.

Book value per common share at September 30, 2023 decreased to $15.89 compared to $16.25 at December 31, 2022.

Results of Operations

Consolidated net income for the three–month period ended June 30, 2023 was $18.8 million, or $0.43 diluted earnings per share, compared to $24.9 million, or $0.57 diluted earnings per share for the same period in 2022.

The decrease in net income for the three–month period ended June 30, 2023 when compared to the same prior year period reflects a decrease in

Consolidated net income for the three–month period ended September 30, 2023 was $16.2 million, or $0.37 diluted earnings per share, compared to $23.8 million, or $0.55 diluted earnings per share for the same period in 2022.

The decrease in net income for the three–month period ended September 30, 2023 when compared to the same prior year period reflects a

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

net interest income of $5.9 million, an increase in credit loss expense of $440,000 a decrease in non–interest income of $1.4 million and an increase in non–interest expense of $858,000, offset by a decrease in income tax expense of $2.5 million.

Consolidated net income for the six–month period ended June 30, 2023 was $37.0 million, or $0.85 diluted earnings per share, compared to $48.4 million, or $1.11 diluted earnings per share for the same period in 2022.

The decrease in net income for the six–month period ended June 30, 2023 when compared to the same prior year period reflects a decrease in net interest income of $7.5 million, an increase in credit loss expense of $2.1 million and a decrease in non–interest income of $6.0 million and an increase in non–interest expense of $112,000, offset by a decrease in income tax expense of $4.2 million.

For the Three and Nine Months ended September 30, 2023 and 2022

decrease in net interest income of $9.8 million, an increase in credit loss expense of $864,000, offset by an increase in non–interest income of $1.6 million, a decrease in non–interest expense of $648,000 and a decrease in income tax expense of $729,000.

Consolidated net income for the nine–month period ended September 30, 2023 was $53.2 million, or $1.21 diluted earnings per share, compared to $72.2 million, or $1.65 diluted earnings per share for the same period in 2022.

The decrease in net income for the nine–month period ended September 30, 2023 when compared to the same prior year period reflects a decrease in net interest income of $17.2 million, an increase in credit loss expense of $2.9 million and a decrease in non–interest income of $4.3 million, offset by a decrease in non–interest expense of $536,000 and a decrease in income tax expense of $4.9 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 June 30, 2023 was $46.2 million, a decrease of $5.9 million from the $52.0 million earned during the same period in 2022.

Yields on the Company’s interest earning assets increased by 100 basis points to 4.39% for the three months ended June 30, 2023 from 3.39% for the three months ended June 30, 2022.

Interest income increased $20.3 million from $56.6 million for the three months ended June 30, 2022 to $76.9 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 $269.0 million during the three months ended June 30, 2023.

Interest income from acquisition–related purchase accounting adjustments was $651,000 for the three months ended June 30, 2023 compared to $1.2 million for the same period in 2022.

Rates paid on interest bearing liabilities increased by 176 basis points for the three–month period ended June 30, 2023 compared to the same period in 2022.

Interest expense increased $26.1 million when compared to the three–month period ended June 30, 2022 to $30.7 million for the same period in 2023.

Net interest income during the three months ended September 30, 2023 was $42.1 million, a decrease of $9.8 million from the $51.9 million earned during the same period in 2022.

Yields on the Company’s interest earning assets increased by 90 basis points to 4.48% for the three months ended September 30, 2023 from 3.58% for the three months ended September 30, 2022.

Interest income increased $18.6 million from $61.5 million for the three months ended September 30, 2022 to $80.1 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 $230.4 million during the three months ended September 30, 2023.

Interest income from acquisition–related purchase accounting adjustments was $435,000 for the three months ended September 30, 2023 compared to $906,000 for the same period in 2022.

Rates paid on interest bearing liabilities increased by 184 basis points for the three–month period ended September 30, 2023 compared to the same period in 2022.

Interest expense increased $28.4 million when compared to the three–month period ended September 30, 2022 to $38.0 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 180 basis points while the cost of average borrowings increased 167 basis points.

Average balances of interest bearing deposits decreased $95.9 million and average balances of borrowings increased $563.4 million for the three-month period ended June 30, 2023 when compared to the same period in 2022.

The net interest margin decreased 44 basis points from 3.13% for the three–month period ended June 30, 2022 to 2.69% for the same period in 2023.

The decrease in the margin for the three–month period ended June 30, 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 and the gain on swap termination recorded in interest expense (“adjusted net interest margin”), the margin would have been 2.57% for the three-month period ended June 30, 2023 compared to 3.06% for the same period in 2022.

Average balances of interest bearing deposits increased $60.0 million and average balances of borrowings increased $366.6 million for the three-month period ended September 30, 2023 when compared to the same period in 2022.

The net interest margin decreased 63 basis points from 3.04% for the three–month period ended September 30, 2022 to 2.41% for the same period in 2023.

The decrease in the margin for the three–month period ended September 30, 2023 compared to the same period in 2022 was due to an increase in the cost of interest bearing liabilities, offset by an 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 2.38% for the three-month period ended September 30, 2023 compared to 2.99% for the same period in 2022.

(See the “Non–GAAP Reconciliation of Net Interest Margin” table below.)

3 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 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

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Balance Interest Average

42 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

Net interest income during the six months ended June 30, 2023 was $91.4 million, a decrease of $7.5 million from the $98.9 million earned during the same period in 2022.

Yields on the Company’s interest earning assets increased by 101 basis points to 4.28% for the six months ended June 30, 2023 from 3.27% for the six months ended June 30, 2022.

Interest income increased $41.3 million from $107.4 million for the six months ended June 30, 2022 to $148.7 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 $327.4 million during the six months ended June 30, 2023.

Interest income from acquisition–related purchase accounting adjustments was $1.0 million for the six months ended June 30, 2023 compared to $2.1 million for the same period in 2022.

Rates paid on interest bearing liabilities increased by 166 basis points for the six–month period ended June 30, 2023 compared to the same period in 2022.

Interest expense increased $48.8 million when compared to the six–month period ended June 30, 2022 to $57.3 million for the same period in 2023.

For the Three and Nine Months ended September 30, 2023 and 2022

Net interest income during the nine months ended September 30, 2023 was $133.5 million, a decrease of $17.2 million from the $150.7 million earned during the same period in 2022.

Yields on the Company’s interest earning assets increased by 98 basis points to 4.35% for the nine months ended September 30, 2023 from 3.37% for the nine months ended September 30, 2022.

Interest income increased $59.9 million from $168.8 million for the nine months ended September 30, 2022 to $228.8 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 $294.2 million during the nine months ended September 30, 2023.

Interest income from acquisition–related purchase accounting adjustments was $1.5 million for the nine months ended September 30, 2023 compared to $3.0 million for the same period in 2022.

Rates paid on interest bearing liabilities increased by 171 basis points for the nine–month period ended September 30, 2023 compared to the same period in 2022.

Interest expense increased $77.2 million when compared to the nine–month period ended September 30, 2022 to $95.3 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 152 basis points while the cost of average borrowings increased 208 basis points.

Average balances of interest bearing deposits decreased $37.4 million and average balances of borrowings increased $556.5 million for the six–month period ended June 30, 2023 when compared to the same period in 2022.

The net interest margin decreased 34 basis points from 3.02% for the six–month period ended June 30, 2022 to 2.68% for the same period in 2023.

The decrease in the margin for the six–month period ended June 30, 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 and the gain on swap termination recorded in interest expense (“adjusted net interest margin”), the margin would have been 2.61% for the six–month period ended June 30, 2023 compared to 2.96%for the same period in 2022.

Average balances of interest bearing deposits decreased $4.6 million and average balances of borrowings increased $492.5 million for the nine–month period ended September 30, 2023 when compared to the same period in 2022.

The net interest margin decreased 34 basis points from 3.02% for the nine–month period ended September 30, 2022 to 2.59% for the same period in 2023.

The decrease in the margin for the nine–month period ended September 30, 2023 compared to the same period in 2022 was due to an increase in the cost of interest bearing liabilities, offset by an increase in the yield on interest earning assets.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments and the gain on swap termination recorded in interest expense (“adjusted net interest margin”), the margin would have been 2.53% for the nine–month period ended September 30, 2023 compared to 2.96% for the same period in 2022.

(See the “Non–GAAP Reconciliation of Net Interest Margin” table below.)

3 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

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

For the Three and Nine Months ended September 30, 2023 and 2022

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

Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)

Six Months Ended Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended Nine Months Ended

September 30, 2023 September 30, 2022

Balance Interest Average

42 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 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 June 30, 2023 vs.

Three Months Ended June 30, 2022 Six Months Ended June 30, 2023 vs.

Six Months Ended June 30, 2022

Three Months Ended September 30, 2023 vs.

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2023 vs.

Nine Months Ended September 30, 2022

Change Change

19 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 June 30, 2023, credit loss expense for loans totaled $741,000 compared to $240,000 for the same period in 2022.

During the three–month period ended June 30, 2023, commercial loan net charge–offs were $101,000, residential mortgage loan net recoveries were $10,000 and consumer loan net charge–offs were $183,000.

During the six–month period ended June 30, 2023, credit loss expense for loans totaled $336,000 compared to a credit loss recovery of $1.1 million for the same period of 2022.

During the six–month period ended June 30, 2023, commercial loan net charge–offs were $205,000, residential mortgage loan net recoveries were $16,000 and consumer loan net charge–offs were $464,000.

The ACL balance at June 30, 2023 was $50.0 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 0.52% of total loans at period end and net charge–offs to average loans represented 0.01% for the second quarter of 2023.

As of June 30, 2023, non–performing loans totaled $22.1 million, reflecting a $269,000 increase from $21.8 million in non–performing loans as of December 31, 2022.

Non–performing commercial loans decreased by $1.1 million, non–performing real estate loans increased by $45,000 and non–performing consumer loans increased by $1.3 million at June 30, 2023 compared to December 31, 2022.

During the three–month period ended September 30, 2023, credit loss expense for loans totaled $520,000 compared to $601,000 for the same period in 2022.

During the three–month period ended September 30, 2023, commercial loan net charge–offs were $142,000, residential mortgage loan net recoveries were $39,000 and consumer loan net charge–offs were $619,000.

During the nine–month period ended September 30, 2023, credit loss expense for loans totaled $856,000 compared to a credit loss recovery of $1.7 million for the same period of 2022.

During the nine–month period ended September 30, 2023, commercial loan net charge–offs were $347,000, residential mortgage loan net recoveries were $55,000 and consumer loan net charge–offs were $1.1 million.

The ACL balance at September 30, 2023 was $49.7 million, or 1.14% 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 0.45% of total loans at period end and net charge–offs to average loans represented 0.02% for the third quarter of 2023.

As of September 30, 2023, non–performing loans totaled $19.4 million, reflecting a $2.4 million decrease from $21.8 million in non–performing loans as of December 31, 2022.

Non–performing commercial loans decreased by $2.4 million, non–performing real estate loans decreased by $346,000 and non–performing consumer loans increased by $315,000 at September 30, 2023 compared to December 31, 2022.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

Other Real Estate Owned (“OREO”) and repossessed assets totaled $1.7 million at June 30, 2023 compared to $2.1 million at December 31, 2022.

For the Three and Nine Months ended September 30, 2023 and 2022

Other Real Estate Owned (“OREO”) and repossessed assets totaled $1.4 million at September 30, 2023 compared to $1.8 million at December 31, 2022.

Non–interest Income

The following is a summary of changes in non–interest income for the three months ended June 30, 2023 and 2022 (table dollar amounts in thousands):

The following is a summary of changes in non–interest income for the three months ended September 30, 2023 and 2022 (table dollar amounts in thousands):

Three Months Ended

June 30, Amount Percent

September 30, Amount Percent

2023 2022 Change Change

4 unchanged sentences

Fiduciary activities 1,206 1,203 3 0.2 %

Gain on sale of investment securities 20 — 20 100.0 %

Gain on sale of mortgage loans 1,582 1,441 141 9.8 %

1 unchanged sentence

Increase in cash surrender value of bank owned life insurance 1,055 814 241 29.6 %

Death benefit on bank owned life insurance — 644 (644) 0.0 %

Other income 964 115 849 738.3 %

Total non–interest income $ 11,830 $ 10,188 $ 1,642 16.1 %

Total non–interest income was $1.4 million lower during the second quarter of 2023 compared to the same period in 2022.

The sale of $24.7 million of available for sale investments generated a $20,000 gain during the second quarter of 2023.

Residential mortgage loan activity during the second quarter of 2023 generated $1.0 million of income from the gain on sale of mortgage loans, down from $2.5 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.

The cash surrender value of bank owned life insurance increased $496,000 during the second quarter of 2023 compared to the same period in 2022, primarily due to the purchase of $50.0 million in additional life insurance during the third quarter of 2022.

Mortgage servicing income, net of impairment or recovery, increased $321,000 during the second quarter of 2023 compared to the same period in 2022.

Fiduciary activities income was $158,000 lower during the first quarter of 2023 compared to the same period in 2022.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

The following is a summary of changes in non–interest income for the six months ended June 30, 2023 and 2022 (table dollar amounts in thousands):

Six Months Ended

June 30, Amount Percent

Total non–interest income was $1.6 million higher during the third quarter of 2023 compared to the same period in 2022.

Other income was $849,000 higher during the third quarter of 2023 compared to the same period of 2022 due to the sale of other assets.

Residential mortgage loan activity during the third quarter of 2023 generated $1.6 million of income from the gain on sale of mortgage loans, up from $1.4 million for the same period in 2022.

The cash surrender value of bank owned life insurance increased $241,000 during the third quarter of 2023 compared to the same period in 2022, primarily due to the purchase of $50.0 million in additional life insurance during the third quarter of 2022.

Mortgage servicing income, net of impairment or recovery, increased $276,000 during the third quarter of 2023 compared to the same period in 2022.

The following is a summary of changes in non–interest income for the nine months ended September 30, 2023 and 2022 (table dollar amounts in thousands):

Nine Months Ended

September 30, Amount Percent

2023 2022 Change Change

11 unchanged sentences

Total non–interest income $ 32,447 $ 36,777 $ (4,330) (11.8) %

Total non–interest income was $6.0 million lower during the six months ended June 30, 2023 compared to the same period in 2022.

The sale of $88.2 million of available for sale investments generated a $480,000 net loss during the first six months of 2023.

Residential mortgage loan activity generated $1.8 million of income from the gain on sale of mortgage loans, down from $4.5 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 $2.5 million during the first six months 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 $642,000 lower during the second 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 $386,000 lower during the first six months of 2023 compared to the same period in 2022.

The cash surrender value of bank owned life insurance increased $967,000 during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to the purchase of $50.0 million in additional life insurance during the third quarter of 2022.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

Total non–interest income was $4.3 million lower during the nine months ended September 30, 2023 compared to the same period in 2022.

The sale of $88.2 million of available for sale investments generated a $480,000 net loss during the first nine months of 2023.

Residential mortgage loan activity generated $3.4 million of income from the gain on sale of mortgage loans, down from $6.0 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 $2.2 million during the first nine months 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.

Fiduciary activities income was $383,000 lower during the first nine months of 2023 compared to the same period in 2022.

The cash surrender value of bank owned life insurance increased $1.2 million during the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to the purchase of $50.0 million in additional life insurance during the third quarter of 2022.

Non–interest Expense

The following is a summary of changes in non–interest expense for the three months ended June 30, 2023 and 2022 (table dollar amounts in thousands):

The following is a summary of changes in non–interest expense for the three months ended September 30, 2023 and 2022 (table dollar amounts in thousands):

Three Months Ended

June 30, June 30, QTD QTD

September 30, September 30, QTD QTD

2023 2022 $ Change % Change

13 unchanged sentences

Assets 1.81 % 1.91 %

Total non–interest expense was $858,000 higher during the second quarter of 2023 when compared to the second quarter of 2022 primarily due to increases in data processing of $409,000, professional fees of $350,000 and salaries and employee benefits expense of $205,000, offset by decreases of $228,000 in other losses and $136,000 in loan expense.

Annualized non–interest expense to average assets decreased to 1.86% for the three months ended June 30, 2023 compared to 1.90% for the same period in 2022 as expense reductions from branch acquisitions were realized and investments in technology are being leveraged, resulting in this improvement.

Total non–interest expense was $648,000 lower during the third quarter of 2023 when compared to the third quarter of 2022 primarily due to decreases in salaries and employee benefits expense of $555,000, outside services and consultants expense of $539,000, other expenses of $284,000, loan expense of $272,000 and other losses of $210,000, offset by increases in FDIC deposit insurance of $630,000 and data processing of $460,000.

Annualized non–interest expense to average assets decreased to 1.81% for the three months ended September 30, 2023 compared to 1.91% for the same period in 2022 as expense reductions from branch acquisitions were realized and investments in technology are being leveraged, resulting in this improvement.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

The following is a summary of changes in non–interest expense for the six months ended June 30, 2023 and 2022 (table dollar amounts in thousands):

Six Months Ended

June 30, June 30, YTD YTD

For the Three and Nine Months ended September 30, 2023 and 2022

The following is a summary of changes in non–interest expense for the nine months ended September 30, 2023 and 2022 (table dollar amounts in thousands):

Nine Months Ended

September 30, September 30, YTD YTD

2023 2022 $ Change % Change

13 unchanged sentences

Assets 1.82 % 1.99 %

Total non–interest expense was $112,000 higher during the first six months of 2023 when compared to the same period of 2022 primarily due to increases of $569,000 in professional fees and $541,000 in data processing expense, offset by decreases in salaries and employee benefits expense of $818,000 and loan expense of $223,000.

Annualized non–interest expense to average assets decreased to 1.82% during the first six months of 2023 compared to 1.99% for the same period in 2022 as expense reductions from branch consolidations were realized and investments in technology are being leveraged, resulting in this improvement.

Income tax expense totaled $1.5 million for the second quarter of 2023, a decrease of $2.5 million when compared to the second quarter of 2022 due to a decrease in income before taxes of $8.6 million.

Income tax expense totaled $3.3 million for the first six months of 2023, a decrease of $4.2 million when compared to the same period of 2022 due to a decrease in income before taxes of $15.6 million.

Total non–interest expense was $536,000 lower during the first nine months of 2023 when compared to the same period of 2022 primarily due to decreases in salaries and employee benefits expense of $1.4 million, loan expense of $495,000 and other losses of $385,000, offset by increases of $1.0 million in data processing expense, $724,000 in professional fees and $510,000 in FDIC deposit insurance.

Annualized non–interest expense to average assets decreased to 1.82% during the first nine months of 2023 compared to 1.99% for the same period in 2022 as expense reductions from branch consolidations were realized and investments in technology are being leveraged, resulting in this improvement.

Income tax expense totaled $1.3 million for the third quarter of 2023, a decrease of $729,000 when compared to the third quarter of 2022 due to a decrease in income before taxes of $8.3 million.

Income tax expense totaled $4.6 million for the first nine months of 2023, a decrease of $4.9 million when compared to the same period of 2022 due to a decrease in income before taxes of $24.0 million.

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 June 30, 2023, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.71 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 $650.7 million of unpledged investment securities at June 30, 2023 compared to $2.1 billion at December 31, 2022.

At September 30, 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 $622.9 million of unpledged investment securities at September 30, 2023 compared to $2.1 billion at December 31, 2022.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2023.

Stockholders’ equity totaled $709.2 million as of June 30, 2023, compared to $677.4 million as of December 31, 2022.

For the six months ended June 30, 2023, the ratio of average stockholders’ equity to average assets was 8.97% 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 $8.3 million and net income during the period, offset by the amount of dividends paid.

Horizon declared common stock dividends in the amount of $0.32 per share during the first six months of 2023 and $0.31 per share for the same period in 2022.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 37.7% and 27.9% for the first six months of 2023 and 2022, respectively.

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2023.

Stockholders’ equity totaled $693.4 million as of September 30, 2023, compared to $677.4 million as of December 31, 2022.

For the nine months ended September 30, 2023, the ratio of average stockholders’ equity to average assets was 9.03% compared to 9.07% for the twelve months ended December 31, 2022.

The increase in stockholders’ equity during the period was due to net income generated during the period, offset by a decrease in accumulated other comprehensive income of $17.2 million and the amount of dividends paid.

Horizon declared common stock dividends in the amount of $0.48 per share during the first nine months of 2023 and $0.47 per share for the same period in 2022.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 39.3% and 28.3% for the first nine months of 2023 and 2022, respectively.

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

10 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

Non–GAAP Reconciliation of Net Income

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

10 unchanged sentences

Adjusted net income $ 16,205 $ 17,599 $ 18,623 $ 21,165 $ 23,821 $ 52,427 $ 71,599

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, 2023 and 2022

Non–GAAP Reconciliation of Diluted Earnings per Share

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

9 unchanged sentences

Adjusted Diluted EPS $ 0.37 $ 0.41 $ 0.43 $ 0.48 $ 0.55 $ 1.20 $ 1.64

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

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

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

7 unchanged sentences

Adjusted pre–tax, pre–provision net income $ 17,752 $ 19,422 $ 20,833 $ 23,745 $ 25,233 $ 58,007 $ 79,379

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, 2023 and 2022

Non–GAAP Reconciliation of Net Interest Margin

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

11 unchanged sentences

(Dollars in Thousands Except per Share Data, Unaudited)

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

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

2023 2023 2023 2022 2022

9 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

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

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

17 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

Non–GAAP Reconciliation of Return on Average Assets

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

10 unchanged sentences

Adjusted ROAA 0.81 % 0.91 % 0.96 % 1.09 % 1.24 % 0.90 % 1.28 %

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, 2023 and 2022

Non–GAAP Reconciliation of Return on Average Common Equity

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

14 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2023 and 2022

For the Three and Nine Months ended September 30, 2023 and 2022

Non–GAAP Reconciliation of Return on Average Tangible Equity

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2023 2023 2023 2022 2022 2023 2022

13 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis