What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2023-11-09 · 163 added, 264 removed, 474 unchanged (47% of the section changed)

31 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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

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financial markets and economy from the effects of climate change and social justice initiatives;

• the potential influence on the U.S.

financial markets and economy from material changes outside the U.S.

or in overseas relations, including changes in the U.S.

trade relations related to imposition of tariffs, Brexit and the phase out of the London Interbank Offered Rate (“LIBOR”) according to regulatory guidance;

• the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with acquired loans, difficulty integrating acquired operations and material differences in the actual financial results of such transactions compared with Horizon’s initial expectations, including the full realization of anticipated cost savings;

• acts of terrorism, war and global conflicts, such as the Russia and Ukraine conflict, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, inflationary pressure and the overall U.S.

• acts of terrorism, war and global conflicts, such as the Russia-Ukraine and Israel-Hamas conflicts, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, inflationary pressure and the overall U.S.

and global financial markets.

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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 2023 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.

(“Horizon” or the “Company”) is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana.

Horizon provides a broad range of banking services in northern and central Indiana and southern and central Michigan through its bank subsidiary, Horizon Bank (“Horizon Bank” or the “Bank”), and other affiliated entities and Horizon Risk Management, Inc.

Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana.

Horizon provides a broad range of banking services in northern and central Indiana and southern and central Michigan through its bank subsidiary, Horizon Bank, and other affiliated entities.

Horizon operates as a single segment, which is commercial banking.

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And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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 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.

First Quarter 2024 Highlights

• Net interest margin increased to 2.50% compared to 2.43% in the linked quarter.

Net interest income was $43.3 million compared to $42.3 million in the linked quarter.

The net interest margin for the month ended March 31, 2024 was 2.53%.

• Commercial loans grew 11.2% annualized in the quarter, including $22.8 million in new equipment finance production and a $52.0 million increase in other commercial loans.

• Total loans were $4.62 billion at period end, increasing by 18.2% annualized during the quarter.

Balances included the strategic deployment of excess liquidity into higher yielding and excellent credit quality residential mortgages of $94.7 million and consumer loans with credit protection of $59.1 million.

• Cash totaled $271.1 million at period end, providing significant flexibility to drive future net interest margin growth through deployment into higher yielding assets throughout 2024.

• Excellent asset quality with net charge-offs representing only 0.01% of average loans, as well as delinquent and non-performing loans representing 0.33% and 0.41%, respectively, at period end.

The Company's first quarter credit loss expense of $805,000 was primarily attributable to loan growth and replacement of net charge-offs.

• Stable deposit base with continued pricing discipline.

Deposits totaled $5.58 billion at quarter end, compared to $5.66 billion on December 31, 2023.

Modest outflows were primarily attributed to public fund certificates of deposits.

• Solid fee income results, even with backdrop of lower BOLI income and mortgage seasonality.

Expenses were well-managed in the quarter and at the lower end of guidance.

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 2024 2023 2023

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For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Asset Yields and Funding Costs 2024 2023 2023

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And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

For the Three Months Ended

Non–interest Income and

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

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

2024 2023 2023

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For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Non–interest Expense 2024 2023 2023

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At or for the Three Months Ended

Credit Quality September 30, June 30, September 30,

Credit Quality March 31, December 31, March 31,

2024 2023 2023

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

Allowance for September 30, Net Reserve December 31,

Credit Losses 2023 3Q23 2Q23 1Q23 2022

Allowance for March 31, Net Reserve December 31,

Credit Losses 2024 1Q24 2023

Commercial $ 30,514 $ 778 $ 29,736

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The allowance is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast.

Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or

Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan is expected to be made through the

HORIZON BANCORP, INC.

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And Results of Operations

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.

For the Three Months ended March 31, 2024 and 2023

operation or sale of the collateral.

Loan balances considered uncollectible are charged–off against the ACL.

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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, 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.

At March 31, 2024, Horizon had core deposit intangibles of $12.8 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.

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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, 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 March 31, 2024, 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.

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When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights.

To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could

To estimate prepayment speeds, Horizon utilizes a third-party prepayment model,

HORIZON BANCORP, INC.

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And Results of Operations

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

result in significant earnings volatility.

To estimate prepayment speeds, Horizon utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment experience.

For the Three Months ended March 31, 2024 and 2023

which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment experience.

For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis.

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Financial Condition

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 $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.

On March 31, 2024, Horizon’s total assets were $7.9 billion, a decrease of approximately $84.8 million compared to December 31, 2023.

The decrease in total assets was primarily due to decreases in cash and due from banks of $255.4 million, investments held to maturity of $19.9 million and investments available for sale of $11.9 million offset by growth in net loans of $200.2 million.

HORIZON BANCORP, INC.

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And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Value Amortized

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Total held to maturity investment securities $ 1,925,883 $ 1,627,853 $ 1,945,795 $ 1,668,758

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 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

Investment securities available for sale decreased $11.9 million since December 31, 2023 to $535.3 million as of March 31, 2024 primarily due to principal repayments and the sale of certain securities and investment securities held to maturity decreased $19.9 million since December 31, 2023 to $1.9 billion as of March 31, 2024.

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

Net loans increased $200.2 million since December 31, 2023 to $4.6 billion as of March 31, 2024.

Commercial loans increased $74.8 million, consumer loans increased $13.3 million, residential mortgage loans increased $100.9 million and mortgage warehouse loans increased $11.5 million since December 31, 2023.

Total deposits decreased $85.0 million since December 31, 2023 to $5.6 billion as of March 31, 2024, primarily due to a reduction municipal and other public depositors of approximately $148.8 million, offset by an increase in consumer and commercial balances of $61.2 million and $2.6 million, respectively during the first three months of 2023.

Total borrowings increased slightly by $6.1 million to $1.4 billion as of March 31, 2024.

Stockholders’ equity totaled $721.3 million at March 31, 2024 compared to $718.8 million at December 31, 2023.

The increase in stockholders’ equity during the period was primarily due to the generation of net income, offset by a decrease in accumulated other comprehensive loss of $4.7 million as unrealized losses on available for sale securities increased to $93.1 million and the amount of dividends paid during the quarter.

Book value per common share at March 31, 2024 increased to $16.49 compared to $16.47 at December 31, 2023.

HORIZON BANCORP, INC.

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And Results of Operations

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.

For the Three Months ended March 31, 2024 and 2023

Results of Operations

Consolidated net income for the three–month period ended March 31, 2024 was $14.0 million, or $0.32 diluted earnings per share, compared to $18.2 million, or $0.42 diluted earnings per share for the same period in 2023.

The decrease in net income for the three–month period ended March 31, 2024 when compared to the same prior year period reflects a decrease in net interest income of $1.9 million, an increase in credit loss expense of $563,000 and an increase in non–interest expense of $2.6 million, offset by an increase in non–interest income of $309,000 and a decrease in income tax expense of $549,000.

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, 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.

Net interest income during the three months ended March 31, 2024 was $43.3 million, a decrease of $1.9 million from the $45.2 million earned during the same period in 2023.

Yields on the Company’s interest earning assets increased by 65 basis points to 4.82% for the three months ended March 31, 2024 from 4.17% for the three months ended March 31, 2023.

Interest income increased $13.5 million from $71.8 million for the three months ended March 31, 2023 to $85.3 million for the same period in 2024.

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 $92.3 million during the three months ended March 31, 2024.

Interest income from acquisition–related purchase accounting adjustments was $13,000 for the three months ended March 31, 2024 compared to $367,000 for the same period in 2023.

Rates paid on interest bearing liabilities increased by 99 basis points for the three–month period ended March 31, 2024 compared to the same period in 2023.

Interest expense increased $15.4 million when compared to the three–month period ended March 31, 2023 to $42.0 million for the same period in 2024.

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

The cost of average interest bearing deposits increased 117 basis points while the cost of average borrowings increased 8 basis points.

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.

Average balances of interest bearing deposits decreased $2.1 million and average balances of borrowings increased $147.4 million for the three-month period ended March 31, 2024 when compared to the same period in 2023.

The net interest margin decreased 17 basis points from 2.67% for the three–month period ended March 31, 2023 to 2.50% for the same period in 2024.

The decrease in the margin for the three–month period ended March 31, 2024 compared to the same period in 2023 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 2.50% for the three-month period ended March 31, 2024 compared to 2.65% for the same period in 2023.

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

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And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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

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Three Months Ended Three Months Ended

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

Balance Interest Average

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And Results of Operations

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 $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.)

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

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, 2023 September 30, 2022

Balance Interest Average

Interest earning assets

Federal funds sold $ 43,976 $ 1,706 5.19 % $ 82,667 $ 131 0.21 %

Interest earning deposits 8,597 254 3.95 % 15,404 93 0.81 %

Investment securities – taxable 1,706,083 26,253 2.06 % 1,715,478 24,499 1.91 %

Investment securities – non–taxable (1)

1,258,345 21,617 2.91 % 1,346,173 21,482 2.70 %

Loans receivable (2) (3)

4,216,817 178,961 5.70 % 3,779,921 122,641 4.36 %

Total interest earning assets 7,233,818 228,791 4.35 % 6,939,643 168,846 3.37 %

Non–interest earning assets

Cash and due from banks 102,264 100,067

Allowance for credit losses (49,839) (53,038)

Other assets 579,203 486,862

Total average assets $ 7,865,446 $ 7,473,534

Liabilities and Stockholders’ Equity

Interest bearing liabilities

Interest bearing deposits $ 4,494,821 $ 58,481 1.74 % $ 4,499,441 $ 7,289 0.22 %

Borrowings 1,137,289 28,702 3.37 % 644,803 6,209 1.29 %

Repurchase agreements 138,706 2,011 1.94 % 140,837 216 0.21 %

Subordinated notes 58,947 2,641 5.99 % 58,800 2,641 6.01 %

Junior subordinated debentures issued to capital trusts 57,108 3,469 8.12 % 56,869 1,755 4.13 %

Total interest bearing liabilities 5,886,871 95,304 2.16 % 5,400,750 18,110 0.45 %

Non–interest bearing liabilities

Demand deposits 1,200,133 1,336,912

Accrued interest payable and other liabilities 71,280 44,343

Stockholders’ equity 707,162 691,529

Total average liabilities and stockholders’ equity $ 7,865,446 $ 7,473,534

Net interest income/spread $ 133,487 2.19 % $ 150,736 2.92 %

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

2.59 % 3.02 %

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.

For the Three Months ended March 31, 2024 and 2023

HORIZON BANCORP, INC.

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And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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, 2023 vs.

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

Nine Months Ended September 30, 2022

Change Change

Volume Change

Three Months Ended March 31, 2024 vs.

Three Months Ended March 31, 2023

Change Change

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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, 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.

During the three–month period ended March 31, 2024, credit loss expense for loans totaled $669,000 compared to $242,000 for the same period in 2023.

During the three–month period ended March 31, 2024, commercial loan net recoveries were $57,000, residential mortgage loan net recoveries were $5,000 and consumer loan net charge–offs were $488,000.

The ACL balance at March 31, 2024 was $50.4 million, or 1.09% of total loans compared to an ACL balance of $50.0 million at December 31, 2023 or 1.13% of total loans.

The decrease in the ACL to total loans ratio was primarily due to the decrease in indirect consumer loans and continued favorable asset quality with non–performing loans at 0.41% of total loans at period end and net charge–offs to average loans represented 0.01% for the first quarter of 2024.

As of March 31, 2024, non–performing loans totaled $19.2 million, reflecting a $1.1 million decrease from $20.3 million in non–performing loans as of December 31, 2023.

Non–performing commercial loans decreased by $1.9 million, non–performing real estate loans increased by $667,000 and non–performing consumer loans increased by $94,000 at March 31, 2024 compared to December 31, 2023.

Other Real Estate Owned (“OREO”) and repossessed assets totaled $1.2 million at March 31, 2024 compared to $1.4 million at December 31, 2023.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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.

For the Three Months ended March 31, 2024 and 2023

Non–interest Income

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):

The following is a summary of changes in non–interest income for the three months ended March 31, 2024 and 2023 (table dollar amounts in thousands):

Three Months Ended

September 30, Amount Percent

2023 2022 Change Change

Non–interest Income

Service charges on deposit accounts $ 3,086 $ 3,023 $ 63 2.1 %

Wire transfer fees 120 148 (28) (18.9) %

Interchange fees 3,186 3,089 97 3.1 %

Fiduciary activities 1,206 1,203 3 0.2 %

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

Mortgage servicing net of impairment 631 355 276 77.7 %

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

Other income 964 115 849 738.3 %

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

Total non–interest income was $1.6 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

March 31, Amount Percent

2024 2023 Change Change

4 unchanged sentences

Fiduciary activities 1,315 1,275 40 3.1 %

Gain on sale of investment securities (480) — (480) #DIV/0!

Gain on sale of investment securities — (500) 500 (100.0) %

Gain on sale of mortgage loans 626 785 (159) (20.3) %

1 unchanged sentence

Increase in cash surrender value of bank owned life insurance 298 981 (683) (69.6) %

Death benefit on bank owned life insurance — 644 (644) (100.0) %

Other income 827 362 465 128.5 %

Total non–interest income $ 9,929 $ 9,620 $ 309 3.2 %

Total non–interest income was $309,000 higher during the first quarter of 2024 compared to the same period in 2023.

Other income was $465,000 higher during the first quarter of 2024 compared to the same period of 2023.

Interchange fees were $242,000 higher during the first quarter of 2024 when compared to the prior year period.

The cash surrender value of bank owned life insurance decreased $683,000 during the first quarter of 2024 when compared to the same period in 2023 due to the surrender of several policies during the fourth quarter of 2023.

Residential mortgage loan activity during the first quarter of 2024 generated $626,000 of income from the gain on sale of mortgage loans, down from $785,000 for the same period in 2023.

Mortgage servicing income, net of impairment, decreased $274,000 during the first quarter of 2024 compared to the same period in 2023.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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.

For the Three Months ended March 31, 2024 and 2023

Non–interest Expense

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):

The following is a summary of changes in non–interest expense for the three months ended March 31, 2024 and 2023 (table dollar amounts in thousands):

Three Months Ended

September 30, September 30, QTD QTD

2023 2022 $ Change % Change

Non–interest Expense

Salaries and employee benefits $ 20,058 $ 20,613 $ (555) (2.7) %

Net occupancy expenses 3,283 3,293 (10) (0.3) %

Data processing 2,999 2,539 460 18.1 %

Professional fees 707 552 155 28.1 %

Outside services and consultants 2,316 2,855 (539) (18.9) %

Loan expense 1,120 1,392 (272) (19.5) %

FDIC deposit insurance 1,300 670 630 94.0 %

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

Other losses 188 398 (210) (52.8) %

Other expenses 3,294 3,578 (284) (7.9) %

Total non–interest expense $ 36,168 $ 36,816 $ (648) (1.8) %

Annualized Non–interest Exp.

Assets 1.81 % 1.91 %

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.

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

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

March 31, March 31, QTD QTD

2024 2023 $ Change % Change

13 unchanged sentences

Assets 1.90 % 1.79 %

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.

Total non–interest expense was $2.6 million higher during the first quarter of 2024 when compared to the first quarter of 2023 primarily due to increases in salaries and employee benefits expense of $1.6 million, FDIC deposit insurance of $780,000, outside services and consultants expense of $642,000 and other expenses of $388,000, offset by decreases in loan expense of $399,000, data processing of $205,000 and other losses of $205,000.

Annualized non–interest expense to average assets was 1.90% for the three months ended March 31, 2024 compared to 1.79% for the same period in 2022.

Income tax expense totaled $1.3 million for the first quarter of 2024, a decrease of $549,000 when compared to the first quarter of 2023 due to a decrease in income before taxes of $4.8 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 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.

At March 31, 2024, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.56 billion in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.41 billion at December 31, 2023.

The Bank had approximately $581.1 million of unpledged investment securities at March 31, 2024 compared to $601.7 million at December 31, 2023.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

Capital Resources

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 capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at March 31, 2024.

Stockholders’ equity totaled $721.3 million as of March 31, 2024, compared to $718.8 million as of December 31, 2023.

For the three months ended March 31, 2024, the ratio of average stockholders’ equity to average assets was 9.25% compared to 8.97% for the twelve months ended December 31, 2023.

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 $4.7 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.

Horizon declared common stock dividends in the amount of $0.16 per share during the first three months of 2024 and $0.16 per share for the same period in 2023.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 50.0% and 38.1% for the first three months of 2024 and 2023, respectively.

For additional information regarding dividends, see Horizon’s 2023 Annual Report on Form 10–K.

10 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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,

2024 2023 2023 2023 2023

6 unchanged sentences

Tax effect — (6,630) — 4 (105)

Tax valuation reserve — 5,201 — — —

Net income excluding (gain)/loss on sale of investment securities 13,991 4,928 16,205 17,599 18,623

Death benefit on bank owned life insurance (“BOLI”) — — — — — — (644)

Net income excluding death benefit on BOLI 16,205 17,599 18,623 21,165 23,821 52,427 71,599

Extraordinary expenses — 705 — — —

Tax effect — (148) — — —

Net income excluding extraordinary expenses 13,991 5,485 16,205 17,599 18,623

BOLI tax expense and excise tax — 8,597 — — —

Net income excluding BOLI tax expense and excise tax 13,991 14,082 16,205 17,599 18,623

Adjusted net income $ 13,991 $ 14,082 $ 16,205 $ 17,599 $ 18,623

3 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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,

2024 2023 2023 2023 2023

5 unchanged sentences

Tax effect — (0.15) — — —

Tax valuation reserve — 0.12 — — —

Diluted EPS excluding (gain)/loss on investment securities 0.32 0.11 0.37 0.41 0.43

Death benefit on BOLI — — — — — — (0.01)

Diluted EPS excluding death benefit on BOLI 0.37 0.41 0.43 0.48 0.55 1.20 1.64

Extraordinary expenses — 0.02 — — —

Tax effect — — — — —

Diluted EPS excluding extraordinary expenses 0.32 0.13 0.37 0.41 0.43

BOLI tax expense and excise tax — 0.20 — — —

Diluted EPS excluding BOLI tax expense and excise tax 0.32 0.33 0.37 0.41 0.43

Adjusted Diluted EPS $ 0.32 $ 0.33 $ 0.37 $ 0.41 $ 0.43

1 unchanged sentence

(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,

2024 2023 2023 2023 2023

5 unchanged sentences

(Gain)/loss on sale of investment securities — 31,572 — (20) 500

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

Extraordinary expenses — 705 — — —

Adjusted pre–tax, pre–provision net income $ 16,110 $ 14,755 $ 17,752 $ 19,422 $ 20,833

3 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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,

2024 2023 2023 2023 2023

7 unchanged sentences

Gain on swap termination — — — (1,453) —

Prepayment penalties on borrowings — — — — —

Adjusted net interest income $ 43,275 $ 42,082 $ 41,655 $ 44,056 $ 44,870

2 unchanged sentences

(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,

2024 2023 2023 2023 2023

9 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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,

2024 2023 2023 2023 2023

5 unchanged sentences

Non–interest expense as reported $ 37,107 $ 39,330 $ 36,168 $ 36,262 $ 34,524

Extraordinary expenses — (705) — — —

Non–interest expense excluding acquisition expenses and DOL ESOP settlement expenses 37,107 38,625 36,168 36,262 34,524

Net interest income as reported 43,288 42,257 42,090 46,160 45,237

3 unchanged sentences

(Gain)/loss on sale of investment securities — 31,572 — (20) 500

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

Non–interest income excluding (gain)/loss on sale of investment securities and death benefit on BOLI $ 11,830 $ 10,977 $ 10,120 $ 10,674 $ 10,188 $ 32,927 $ 36,133

Non–interest income excluding (gain)/loss on sale of investment securities $ 9,929 $ 11,123 $ 11,830 $ 10,977 $ 10,120

Adjusted efficiency ratio 69.73 % 72.36 % 67.08 % 65.12 % 62.37 %

3 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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,

2024 2023 2023 2023 2023

6 unchanged sentences

Tax effect — (0.33) — — (0.01)

Tax valuation reserve — 0.26 — — —

ROAA excluding (gain)/loss on sale of investment securities 0.72 0.25 0.81 0.91 0.96

Death benefit on bank owned life insurance ("BOLI") — — — — — — (0.01)

ROAA excluding death benefit on BOLI 0.81 0.91 0.96 1.09 1.24 0.90 1.28

Extraordinary expenses — 0.04 — — —

Tax effect — (0.01) — — —

ROAA excluding extraordinary expenses 0.72 0.28 0.81 0.91 0.96

BOLI tax expense and excise tax — 0.43 — — —

ROAA excluding BOLI tax expense and excise tax 0.72 0.71 0.81 0.91 0.96

Adjusted ROAA 0.72 % 0.71 % 0.81 % 0.91 % 0.96 %

3 unchanged sentences

And Results of Operations

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

For the Three Months ended March 31, 2024 and 2023

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,

2024 2023 2023 2023 2023

6 unchanged sentences

Tax effect — (3.74) — — (0.06)

Tax valuation reserve — 2.94 — — —

ROACE excluding (gain)/loss on sale of investment securities 7.76 2.79 8.99 9.93 10.89

Death benefit on bank owned life insurance ("BOLI") — — — — — — (0.12)

ROACE excluding death benefit on BOLI 8.99 9.93 10.89 12.72 13.89 9.92 13.85

Extraordinary expenses — 0.40 — — —

Tax effect — (0.08) — — —

ROACE excluding extraordinary expenses 7.76 3.11 8.99 9.93 10.89

BOLI tax expense and excise tax — 4.85 — — —

ROACE excluding BOLI tax expense and excise tax 7.76 7.96 8.99 9.93 10.89

Adjusted ROACE 7.76 % 7.96 % 8.99 % 9.93 % 10.89 %

1 unchanged sentence

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 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,

2024 2023 2023 2023 2023

8 unchanged sentences

Tax effect — (4.93) — — (0.08)

Tax valuation reserve — 3.87 — — —

ROATE excluding (gain)/loss on sale of investment securities 10.11 3.66 11.79 13.08 14.49

Death benefit on bank owned life insurance ("BOLI") — — — — — — (0.17)

ROATE excluding death benefit on BOLI 11.79 13.08 14.49 17.24 18.65 13.08 18.51

Extraordinary expenses — 0.52 — — —

Tax effect — (0.11) — — —

ROATE excluding extraordinary expenses 10.11 4.07 11.79 13.08 14.49

BOLI tax expense and excise tax — 6.39 — — —

ROATE excluding BOLI tax expense and excise tax 10.11 10.46 11.79 13.08 14.49

Adjusted ROATE 10.11 % 10.46 % 11.79 % 13.08 % 14.49 %

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We refer you to Horizon's 2023 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 2023 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