HORIZON BANCORP INC /IN/ 10-Q

ITEM 1 – FINANCIAL STATEMENTS HORIZON BANCORP, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollar Amounts in Thousands) March 31, 2024 December 31, 2023 (Unaudited) Assets Cash and due from banks $ 271,088 $ 526,515 Interest earning time deposits 1,715 2,205 Investment securities, available for sale 535,319 547,251 Investment securities, held to maturity (fair value of $ 1,627,853 and $ 1,668,758 ) 1,925,725 1,945,638 Loans held for sale 922 1,418 Loans, net of allowance for credit losses of $ 50,387 and $ 50,029 4,567,788 4,367,601 Premises and equipment, net 94,303 94,583 Federal Home Loan Bank stock 53,826 34,509 Goodwill 155,211 155,211 Other intangible assets 12,754 13,626 Interest receivable 40,008 38,710 Cash value of life insurance 36,455 36,157 Other assets 160,593 177,061 Total assets $ 7,855,707 $ 7,940,485 Liabilities Deposits Non–interest bearing $ 1,093,076 $ 1,116,005 Interest bearing 4,486,794 4,548,888 Total deposits 5,579,870 5,664,893 Borrowings 1,359,121 1,353,050 Subordinated notes 55,634 55,543 Junior subordinated debentures issued to capital trusts 57,315 57,258 Interest payable 7,853 22,249 Other liabilities 74,664 68,680 Total liabilities 7,134,457 7,221,673 Commitments and contingent liabilities Stockholders’ Equity Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares — — Common stock, no par value, Authorized 99,000,000 shares Issued and Outstanding 44,115,840 and 44,106,174 shares — — Additional paid-in capital 356,599 356,400 Retained earnings 435,927 429,021 Accumulated other comprehensive loss ( 71,276 ) ( 66,609 ) Total stockholders’ equity 721,250 718,812 Total liabilities and stockholders’ equity $ 7,855,707 $ 7,940,485 See notes to condensed consolidated financial statements 3 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) (Dollar Amounts in Thousands, Except Per Share Data) Three Months Ended March 31, 2024 2023 Interest Income Loans receivable $ 66,954 $ 55,364 Investment securities – taxable 7,362 8,725 Investment securities – tax exempt 6,451 7,556 Other 4,497 153 Total interest income 85,264 71,798 Interest Expense Deposits 27,990 14,819 Borrowed funds 11,930 9,771 Subordinated notes 831 880 Junior subordinated debentures issued to capital trusts 1,225 1,091 Total interest expense 41,976 26,561 Net Interest Income 43,288 45,237 Credit loss expense 805 242 Net Interest Income after Credit Loss Expense 42,483 44,995 Non–interest Income Service charges on deposit accounts 3,214 3,028 Wire transfer fees 101 109 Interchange fees 3,109 2,867 Fiduciary activities 1,315 1,275 Gain (loss) on sale of investment securities — ( 500 ) Gain on sale of mortgage loans 626 785 Mortgage servicing income, net 439 713 Increase in cash value of bank owned life insurance 298 981 Other income 827 362 Total non–interest income 9,929 9,620 Non–interest Expense Salaries and employee benefits 20,268 18,712 Net occupancy expenses 3,546 3,563 Data processing 2,464 2,669 Professional fees 607 533 Outside services and consultants 3,359 2,717 Loan expense 719 1,118 FDIC insurance expense 1,320 540 Core deposit intangible amortization 872 903 Other losses 16 221 Other expense 3,936 3,548 Total non–interest expense 37,107 34,524 Income Before Income Taxes 15,305 20,091 Income tax expense 1,314 1,863 Net Income $ 13,991 $ 18,228 Basic Earnings Per Share $ 0.32 $ 0.42 Diluted Earnings Per Share 0.32 0.42 See notes to condensed consolidated financial statements 4 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Dollar Amounts in Thousands) Three Months Ended March 31 2024 2023 Net Income $ 13,991 $ 18,228 Other Comprehensive Income (Loss) Change in fair value of derivative instruments: Change in fair value of derivative instruments for the period — ( 558 ) Income tax effect — 116 Changes from derivative instruments — ( 442 ) Change in securities: Unrealized gain (loss) for the period on available for sale securities ( 5,748 ) 18,144 Accretion from transfer of securities from available for sale to held to maturity securities ( 160 ) ( 154 ) Reclassification adjustment for securities losses realized in income — 500 Income tax effect 1,241 ( 3,882 ) Unrealized gains (losses) on securities ( 4,667 ) 14,608 Other Comprehensive Income (Loss), Net of Tax ( 4,667 ) 14,166 Comprehensive Income $ 9,324 $ 32,394 See notes to condensed consolidated financial statements 5 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (Dollar Amounts in Thousands, Except Per Share Data) Three Months Ended Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balances, January 1, 2023 $ — $ — $ 354,188 $ 429,385 $ ( 106,198 ) $ 677,375 Net income — — — 18,228 — 18,228 Other comprehensive income, net of tax — — — — 14,166 14,166 Amortization of unearned compensation — — 758 — — 758 Net settlement of share awards — — ( 696 ) — — ( 696 ) Stock retirement plans — — ( 215 ) — — ( 215 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 7,057 ) — ( 7,057 ) Balances, March 31, 2023 $ — $ — $ 354,035 $ 440,556 $ ( 92,032 ) $ 702,559 Balances, January 1, 2024 $ — $ — $ 356,400 $ 429,021 $ ( 66,609 ) $ 718,812 Net income — — — 13,991 — 13,991 Other comprehensive loss, net of tax — — — — ( 4,667 ) ( 4,667 ) Amortization of unearned compensation — — 907 — — 907 Net settlement of share awards — — ( 708 ) — — ( 708 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 7,085 ) — ( 7,085 ) Balances, March 31, 2024 $ — $ — $ 356,599 $ 435,927 $ ( 71,276 ) $ 721,250 See notes to condensed consolidated financial statements 6 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollar Amounts in Thousands) Three Months Ended March 31 2024 2023 Operating Activities Net income $ 13,991 $ 18,228 Items not requiring (providing) cash Credit loss expense (recovery) 805 242 Depreciation and amortization 2,649 2,601 Share based compensation 907 758 Amortization of mortgage servicing rights 476 247 Premium amortization on securities, net 2,182 2,751 Loss on sale of investment securities — 500 Gain on sale of mortgage loans ( 626 ) ( 785 ) Proceeds from sales of loans 21,432 24,444 Loans originated for sale ( 20,517 ) ( 20,489 ) Gain on cash value life insurance ( 298 ) ( 981 ) Gain on sale of other real estate owned ( 64 ) ( 103 ) Net change in: Interest receivable ( 1,298 ) ( 1,134 ) Interest payable ( 14,396 ) 542 Other assets ( 4,548 ) 3,900 Other liabilities 5,849 ( 5,410 ) Net cash provided by operating activities 6,544 25,311 Investing Activities Purchases of securities available for sale — ( 817 ) Proceeds from sales of securities available for sale — 63,527 Proceeds from maturities, calls and principal repayments of securities available for sale 4,369 8,386 Purchases of securities held to maturity — ( 7,935 ) Proceeds from maturities, calls and principal repayments of securities held to maturity 18,233 13,406 Net change in interest earning time deposits 490 ( 286 ) Purchase of FHLB stock ( 19,317 ) ( 5,587 ) Purchase of loans ( 153,743 ) ( 62,489 ) Net change in loans ( 47,365 ) ( 27,865 ) Proceeds on the sale of OREO and repossessed assets 369 737 Premises and equipment expenditures ( 1,178 ) ( 567 ) Proceeds from bank owned life insurance 22,917 — Net cash used in investing activities ( 175,225 ) ( 19,490 ) Financing Activities Net change in deposits ( 85,023 ) ( 155,829 ) Proceeds from borrowings 403,026 522,548 Repayment of borrowings ( 400,235 ) ( 354,634 ) Net change in repurchase agreements 3,280 1,064 Net settlement of share awards ( 708 ) ( 696 ) Dividends paid on common stock ( 7,086 ) ( 7,057 ) Net cash provided by financing activities ( 86,746 ) 5,396 Net Change in Cash and Cash Equivalents ( 255,427 ) 11,217 Cash and Cash Equivalents, Beginning of Period 526,515 123,505 Cash and Cash Equivalents, End of Period $ 271,088 $ 134,722 Additional Supplemental Information Interest paid $ 56,372 $ 26,019 Income taxes paid — — 7 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollar Amounts in Thousands) Transfer of loans to other real estate and repossessed assets 253 868 Cash dividends declared, not paid 7,156 7,122 See notes to condensed consolidated financial statements 8 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 1 - Accounting Policies The accompanying unaudited condensed consolidated financial statements include the accounts of Horizon Bancorp, Inc. (“Horizon” or the “Company”) and its wholly-owned subsidiaries, including Horizon Bank (“Horizon Bank” or the “Bank”), which is an Indiana commercial bank. All inter–company balances and transactions have been eliminated. The results of operations for the periods ended March 31, 2024 and March 31, 2023 are not necessarily indicative of the operating results for the full year of 2024 or 2023. The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of Horizon’s management, necessary to fairly present the financial position, results of operations and cash flows of Horizon for the periods presented. Those adjustments consist only of normal recurring adjustments. Certain information and note disclosures normally included in Horizon’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Horizon’s Annual Report on Form 10–K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission on March 15, 2024 (the “2023 Annual Report on Form 10–K”). The condensed consolidated balance sheet of Horizon as of December 31, 2023 has been derived from the audited balance sheet as of that date. On July 16, 2019, the Board of Directors of the Company authorized a stock repurchase program for up to 2,250,000 shares of Horizon’s issued and outstanding common stock, no par value. As of March 31, 2024, Horizon had repurchased a total of 803,349 shares at an average price per share of $ 16.89 . Basic earnings per share is computed by dividing net income available to common shareholders (net income less dividend requirements for preferred stock and accretion of preferred stock discount) by the weighted–average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The following table shows computation of basic and diluted earnings per share. Three Months Ended March 31 2024 2023 Basic earnings per share Net income $ 13,991 $ 18,228 Weighted average common shares outstanding 43,663,610 43,583,554 Basic earnings per share $ 0.32 $ 0.42 Diluted earnings per share Net income $ 13,991 $ 18,228 Weighted average common shares outstanding 43,663,610 43,583,554 Effect of dilutive securities: Restricted stock 205,054 142,318 Stock options 5,372 18,849 Weighted average common shares outstanding 43,874,036 43,744,721 Diluted earnings per share $ 0.32 $ 0.42 9 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) There were 86,353 shares for the three months ended March 31, 2024 which were not included in the computation of diluted earnings per share because they were non–dilutive. There were 601,685 shares for the three months ended March 31, 2023 which were not included in the computation of diluted earnings per share because they were non–dilutive. Adoption of New Accounting Standards FASB ASU No. 2023–02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method The FASB has issued ASU 2023–02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This guidance allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company adopted ASU 2023–02 on January 1, 2024 and it did not have a material impact on its accounting and disclosures. Accounting Guidance Issued But Not Yet Adopted FASB ASU No. 2023–09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures The FASB has issued ASU 2023–09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. These amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate.) The amendments also require that all entities disclose on an annual basis the following information about income taxes paid: (1) the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and (2) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received.) This guidance is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company is continuing to assess ASU 2023–09 and its impact on its accounting and disclosures. FASB ASU 2023–07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures The FASB has issued ASU 2023–07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. These amendments require, among other things, that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 208. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments retrospectively to all periods presented in the financial statements. The Company is continuing to assess ASU 2023–07 and its impact on its accounting and disclosures. 10 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 2 – Securities The fair value of securities is as follows: March 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. Treasury and federal agencies $ 71,943 $ — $ ( 9,017 ) $ 62,926 State and municipal 352,738 — ( 53,483 ) 299,255 Federal agency collateralized mortgage obligations 3,819 — ( 369 ) 3,450 Federal agency mortgage-backed pools 157,812 — ( 24,670 ) 133,142 Corporate notes 42,119 — ( 5,573 ) 36,546 Total available for sale investment securities $ 628,431 $ — $ ( 93,112 ) $ 535,319 March 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Net Carrying Amount Held to maturity U.S. Treasury and federal agencies $ 284,236 $ — $ ( 43,199 ) $ 241,037 $ — $ 284,236 State and municipal 1,078,388 543 ( 167,301 ) 911,630 ( 21 ) 1,078,367 Federal agency collateralized mortgage obligations 49,913 — ( 8,088 ) 41,825 — 49,913 Federal agency mortgage-backed pools 319,181 — ( 50,329 ) 268,852 — 319,181 Private labeled mortgage-backed pools 31,712 — ( 4,530 ) 27,182 ( 7 ) 31,705 Corporate notes 162,453 — ( 25,126 ) 137,327 ( 130 ) 162,323 Total held to maturity investment securities $ 1,925,883 $ 543 $ ( 298,573 ) $ 1,627,853 $ ( 158 ) $ 1,925,725 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. Treasury and federal agencies $ 72,938 $ — $ ( 8,561 ) $ 64,377 State and municipal 353,299 — ( 49,269 ) 304,030 Federal agency collateralized mortgage obligations 3,931 — ( 351 ) 3,580 Federal agency mortgage-backed pools 161,130 — ( 23,833 ) 137,297 Corporate notes 43,317 455 ( 5,805 ) 37,967 Total available for sale investment securities $ 634,615 $ 455 $ ( 87,819 ) $ 547,251 11 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Net Carrying Amount Held to maturity U.S. Treasury and federal agencies $ 287,259 $ — $ ( 41,299 ) $ 245,960 $ — $ 287,259 State and municipal 1,088,499 1,185 ( 150,323 ) 939,361 ( 20 ) 1,088,479 Federal agency collateralized mortgage obligations 51,325 — ( 7,846 ) 43,479 — 51,325 Federal agency mortgage-backed pools 323,649 — ( 48,621 ) 275,028 — 323,649 Private labeled mortgage-backed pools 32,329 — ( 4,595 ) 27,734 ( 7 ) 32,322 Corporate notes 162,734 — ( 25,538 ) 137,196 ( 130 ) 162,604 Total held to maturity investment securities $ 1,945,795 $ 1,185 $ ( 278,222 ) $ 1,668,758 $ ( 157 ) $ 1,945,638 The amortized cost and fair value of securities available for sale and held to maturity at March 31, 2024 and December 31, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. March 31, 2024 December 31, 2023 Amortized Cost Fair Value Amortized Cost Fair Value Available for sale Within one year $ 4,511 $ 4,451 $ 5,505 $ 5,408 One to five years 105,444 93,731 100,301 89,650 Five to ten years 175,871 146,861 167,764 141,203 After ten years 180,974 153,684 195,984 170,113 466,800 398,727 469,554 406,374 Federal agency collateralized mortgage obligations 3,819 3,450 3,931 3,580 Federal agency mortgage–backed pools 157,812 133,142 161,130 137,297 Total available for sale investment securities $ 628,431 $ 535,319 $ 634,615 $ 547,251 Held to maturity Within one year $ 31,450 $ 31,092 $ 33,483 $ 33,169 One to five years 220,119 209,813 225,957 216,354 Five to ten years 357,690 307,839 350,843 304,067 After ten years 915,818 741,250 928,209 768,927 1,525,077 1,289,994 1,538,492 1,322,517 Federal agency collateralized mortgage obligations 49,913 41,825 51,325 43,479 Federal agency mortgage–backed pools 319,181 268,852 323,649 275,028 Private labeled mortgage–backed pools 31,712 27,182 32,329 27,734 Total held to maturity investment securities $ 1,925,883 $ 1,627,853 $ 1,945,795 $ 1,668,758 12 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following tables show the gross unrealized losses and the fair value of the Company’s available for sale investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position. March 31, 2024 Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Investment Securities U.S. Treasury and federal agencies $ — $ — $ 62,926 $ ( 9,017 ) $ 62,926 $ ( 9,017 ) State and municipal 2,356 ( 267 ) 296,899 ( 53,216 ) 299,255 ( 53,483 ) Federal agency collateralized mortgage obligations — — 3,450 ( 369 ) 3,450 ( 369 ) Federal agency mortgage–backed pools — — 133,142 ( 24,670 ) 133,142 ( 24,670 ) Corporate notes — — 36,547 ( 5,573 ) 36,547 ( 5,573 ) Total temporarily impaired securities $ 2,356 $ ( 267 ) $ 532,964 $ ( 92,845 ) $ 535,320 $ ( 93,112 ) December 31, 2023 Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Investment Securities U.S. Treasury and federal agencies $ — $ — $ 64,377 $ ( 8,561 ) $ 64,377 $ ( 8,561 ) State and municipal 2,387 ( 236 ) 301,643 ( 49,033 ) 304,030 ( 49,269 ) Federal agency collateralized mortgage obligations — — 3,580 ( 351 ) 3,580 ( 351 ) Federal agency mortgage–backed pools — — 137,289 ( 23,833 ) 137,289 ( 23,833 ) Corporate notes — — 36,359 ( 5,805 ) 36,359 ( 5,805 ) Total temporarily impaired securities $ 2,387 $ ( 236 ) $ 543,248 $ ( 87,583 ) $ 545,635 $ ( 87,819 ) Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. As of March 31, 2024 and December 31, 2023, the Company had 2,320 and 2,290 securities, respectively, with market values below their cost basis. The total fair value of these investments at March 31, 2024 and December 31, 2023 was $ 2.1 billion and $ 2.1 billion, which is approximately 86.0 % and 85.1 %, respectively, of the Company's available for sale and held to maturity securities portfolio. These declines resulted primarily from fluctuations in market interest rates after purchase. Management believes the declines in fair value for these securities are temporary. No allowance for credit losses for available for sale debt securities was recorded at March 31, 2024 or December 31, 2023. The allowance for credit losses for held to maturity securities is a contra asset valuation account that is deducted from the carrying amount of held to maturity securities to present the net amount expected to be collected. Held to maturity securities are charged off against the allowance for credit loss when deemed uncollectible. Adjustments to the allowance for credit loss are reported in our Consolidated Statements of Income in credit loss expense. We measure expected credit losses on held to maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and consider historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Government-sponsored treasuries, agency and mortgage-backed securities, all these securities are issued by a U.S. government-sponsored entity and have an implicit or explicit government guarantee; therefore, no allowance for credit losses has been recorded for these securities. With regard to obligations of states and municipal, private 13 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) label mortgage-backed and corporate note held to maturity securities, we consider (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. Historical loss rates associated with securities having similar grades as those in our portfolio have been insignificant. As of March 31, 2024 and December 31, 2023, there were no past due principal and interest payments associated with these securities. An allowance for credit loss of $ 158,000 and $ 157,000 was recorded on these securities based on applying the long-term historical rating agency credit loss rate for similarly rated securities at March 31, 2024 and December 31, 2023, respectively. Accrued interest receivable on available for sale debt securities and held to maturity securities totaled $ 14.4 million at March 31, 2024 and $ 14.7 million at December 31, 2023 and is excluded from the estimate of credit losses. The U.S. government sponsored entities and agencies and mortgage–backed securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses. Based on an evaluation of available evidence, management believes the unrealized losses on state and municipal securities, private labeled mortgage–backed pools and corporate notes were due to changes in interest rates. Due to the contractual terms, the issuers of state and municipal securities are not allowed to settle for less than the amortized cost of the security. In addition, the Company does not intend to sell these securities prior to the recovery of the amortized cost, which may not occur until maturity. Information regarding security proceeds, gross gains and gross losses are presented below. Three Months Ended March 31 2024 2023 Sales of securities available for sale Proceeds $ — $ 63,526 Gross gains — 129 Gross losses — ( 629 ) Note 3 – Loans The table below identifies the Company’s loan portfolio segments and classes. Portfolio Segment Class of Financing Receivable Commercial Owner occupied real estate Non-owner occupied real estate Residential spec homes Development & spec land Commercial and industrial Real estate Residential mortgage Residential construction Mortgage warehouse Mortgage warehouse Consumer Installment Indirect auto Home equity 14 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Portfolio segment is defined as a level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Class of financing receivable is defined as a group of financing receivables determined on the basis of both of the following, 1) risk characteristics of the financing receivable, and 2) an entity’s method for monitoring and assessing credit risk. Generally, the Bank does not move loans from a revolving loan to a term loan other than construction loans. Construction loans are reviewed and rewritten prior to being originated as a term loan. The following table presents total loans outstanding by portfolio class, as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 Commercial Owner occupied real estate $ 653,144 $ 640,731 Non–owner occupied real estate 1,287,474 1,273,838 Residential spec homes 10,892 13,489 Development & spec land 33,213 34,039 Commercial and industrial 765,043 712,863 Total commercial 2,749,766 2,674,960 Real estate Residential mortgage 757,760 654,295 Residential construction 24,311 26,841 Mortgage warehouse 56,548 45,078 Total real estate 838,619 726,214 Consumer Installment 109,370 52,366 Indirect auto 360,835 399,946 Home equity 559,585 564,144 Total consumer 1,029,790 1,016,456 Total loans 4,618,175 4,417,630 Allowance for credit losses ( 50,387 ) ( 50,029 ) Net loans $ 4,567,788 $ 4,367,601 Total loans include net deferred loan costs of $ 22.9 million at March 31, 2024 and $ 21.9 million at December 31, 2023, respectively. The risk characteristics of each loan portfolio segment are as follows: Commercial Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves larger loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets, the general economy or fluctuations in interest rates. The properties securing the Company’s commercial real estate portfolio are diverse in terms of property type, and are monitored for concentrations of credit. Management monitors and evaluates commercial real estate loans based on collateral, cash flow and risk grade criteria. As a general rule, the Company avoids financing 15 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner occupied commercial real estate loans versus non-owner occupied loans. Real Estate and Consumer With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and may require private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Mortgage Warehousing Horizon’s mortgage warehouse lending has specific mortgage companies as customers of Horizon Bank. Individual mortgage loans originated by these mortgage companies are funded as a secured borrowing with a pledge of collateral under Horizon’s agreement with the mortgage company. Each mortgage loan funded by Horizon undergoes an underwriting review by Horizon to the end investor guidelines and is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. In addition, Horizon takes possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan. At the time a loan is transferred to the secondary market, the mortgage company reacquires the loan under its option within the agreement. Due to the reacquire feature contained in the agreement, the transaction does not qualify as a sale and therefore is accounted for as a secured borrowing with a pledge of collateral pursuant to the agreement with the mortgage company. When the individual loan is sold to the end investor by the mortgage company, the proceeds from the sale of the loan are received by Horizon and used to pay off the loan balance with Horizon along with any accrued interest and any related fees. The remaining balance from the sale is forwarded to the mortgage company. These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected at the time each loan is sold. Fee income for each loan sold is collected when the loan is sold, and no costs are deferred due to the term between each loan funding and related payoff, which is typically less than 30 days. Based on the agreements with each mortgage company, at any time a mortgage company can reacquire from Horizon its outstanding loan balance on an individual mortgage and regain possession of the original note. Horizon also has the option to request that the mortgage company reacquire an individual mortgage. Should this occur, Horizon would return the original note and reassign the assignment of the mortgage to the mortgage company. Also, in the event that the end investor would not be able to honor the purchase commitment and the mortgage company would not be able to reacquire its loan on an individual mortgage, Horizon would be able to exercise its rights under the agreement. 16 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Non–performing Loans The following table presents non–accrual loans and loans past due over 90 days still on accrual by class of loans at March 31, 2024: March 31, 2024 Non–accrual Loans Past Due Over 90 Days Still Accruing Non–accruing Loans with no Allowance for Credit Losses Commercial Owner occupied real estate $ 3,563 $ — $ 2,728 Non–owner occupied real estate 471 — 471 Residential spec homes — — — Development & spec land 619 — 619 Commercial and industrial 840 — 20 Total commercial 5,493 — 3,838 Real estate Residential mortgage 8,725 — — Residential construction — — — Mortgage warehouse — — — Total real estate 8,725 — — Consumer Installment 135 3 — Indirect auto 944 64 — Home equity 3,756 41 — Total consumer 4,835 108 — Total $ 19,053 $ 108 $ 3,838 17 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following table presents non–accrual loans and loans past due over 90 days still on accrual by class of loan at December 31, 2023: December 31, 2023 Non–accrual Loans Past Due Over 90 Days Still Accruing Non–accruing Loans with no Allowance for Credit Losses Commercial Owner occupied real estate $ 2,636 $ — $ 1,789 Non–owner occupied real estate 3,485 — 1,242 Residential spec homes — — — Development & spec land 617 — 617 Commercial and industrial 624 — 20 Total commercial 7,362 — 3,668 Real estate Residential mortgage 8,058 — — Residential construction — — — Mortgage warehouse — — — Total real estate 8,058 — — Consumer Installment 88 — — Indirect auto 899 299 — Home equity 3,303 260 — Total consumer 4,290 559 — Total $ 19,710 $ 559 $ 3,668 There was no interest income recognized on non–accrual loans during the three months ended March 31, 2024 and 2023, respectively, while the loans were in non–accrual status. 18 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following table presents the payment status by class of loan at March 31, 2024: March 31, 2024 Current 30–59 Days Past Due 60–89 Days Past Due 90 Days or Greater Past Due Total Past Due Loans Total Loans Commercial Owner occupied real estate $ 650,964 $ 1,214 $ — $ 966 $ 2,180 $ 653,144 Non–owner occupied real estate 1,286,367 — 1,107 — 1,107 1,287,474 Residential spec homes 10,892 — — — — 10,892 Development & spec land 33,213 — — — — 33,213 Commercial and industrial 762,590 1,743 690 20 2,453 765,043 Total commercial 2,744,026 2,957 1,797 986 5,740 2,749,766 Real estate Residential mortgage 751,197 3,261 809 2,493 6,563 757,760 Residential construction 24,311 — — — — 24,311 Mortgage warehouse 56,548 — — — — 56,548 Total real estate 832,056 3,261 809 2,493 6,563 838,619 Consumer Installment 108,964 118 214 74 406 109,370 Indirect auto 356,423 3,405 615 392 4,412 360,835 Home equity 553,731 3,747 497 1,610 5,854 559,585 Total consumer 1,019,118 7,270 1,326 2,076 10,672 1,029,790 Total $ 4,595,200 $ 13,488 $ 3,932 $ 5,555 $ 22,975 $ 4,618,175 19 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following table presents the payment status by class of loan at December 31, 2023: December 31, 2023 Current 30–59 Days Past Due 60–89 Days Past Due 90 Days or Greater Past Due Total Past Due Loans Total Commercial Owner occupied real estate $ 638,389 $ 2,342 $ — $ — $ 2,342 $ 640,731 Non–owner occupied real estate 1,273,791 — — 47 47 1,273,838 Residential spec homes 13,489 — — — — 13,489 Development & spec land 33,036 — 1,003 — 1,003 34,039 Commercial and industrial 710,567 1,659 54 583 2,296 712,863 Total commercial 2,669,272 4,001 1,057 630 5,688 2,674,960 Real estate Residential mortgage 646,984 2,823 2,353 2,135 7,311 654,295 Residential construction 26,841 — — — — 26,841 Mortgage warehouse 45,078 — — — — 45,078 Total real estate 718,903 2,823 2,353 2,135 7,311 726,214 Consumer Installment 52,001 304 10 51 365 52,366 Indirect auto 393,615 4,958 736 637 6,331 399,946 Home equity 558,062 3,748 1,217 1,117 6,082 564,144 Total consumer 1,003,678 9,010 1,963 1,805 12,778 1,016,456 Total $ 4,391,853 $ 15,834 $ 5,373 $ 4,570 $ 25,777 $ 4,417,630 The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. Modified Loans The Company adopted ASU 2022–02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, during the first quarter of 2023. These amendments eliminated the troubled debt restructured (“TDR”) recognition measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. During the three months ended March 31, 2024 and March 31, 2023, the Company did not modify any troubled loans. 20 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Collateral Dependent Financial Assets A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with the loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan may become collateral dependent. The tables below present the amortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to determine expected credit losses, at March 31, 2024 and December 31, 2023. March 31, 2024 Real Estate Accounts Receivable/Equipment Other Total ACL Allocation Commercial Owner occupied real estate $ 3,563 $ — $ — $ 3,563 $ 237 Non–owner occupied real estate 471 — — 471 — Development & spec land 619 — — 619 — Commercial and industrial 782 39 20 841 804 Total commercial 5,435 39 20 5,494 1,041 Total collateral dependent loans $ 5,435 $ 39 $ 20 $ 5,494 $ 1,041 December 31, 2023 Real Estate Accounts Receivable/Equipment Other Total ACL Allocation Commercial Owner occupied real estate $ 2,636 $ — $ — $ 2,636 $ 190 Non–owner occupied real estate 3,485 — — 3,485 699 Residential spec homes 617 — — 617 — Commercial and industrial 563 42 20 625 604 Total commercial 7,301 42 20 7,363 1,493 Total collateral dependent loans $ 7,301 $ 42 $ 20 $ 7,363 $ 1,493 Credit Quality Indicators Horizon Bank’s processes for determining credit quality differ slightly depending on whether a new loan or a renewed loan is being underwritten, or whether an existing loan is being re–evaluated for credit quality. The latter usually occurs upon receipt of current financial information or other pertinent data that would trigger a change in the credit quality grade. • For new and renewed commercial loans, the Bank’s Credit Department, which acts independently of the loan officer, assigns the credit quality grade to the loan. Loan grades for loans with an aggregate credit exposure that exceeds the authorities in the respective regions (ranging from $ 3,000,000 to $ 6,000,000 ) are validated by the Loan Committee, which is chaired by the Chief Commercial Banking Officer (“CCBO”). • Commercial loan officers are responsible for reviewing their loan portfolios and promptly assessing any adverse change in credit quality and revising the risk rating appropriately. When circumstances warrant a change in the credit quality grade, loan officers are required to notify the Credit Department of the change in the credit quality grade. Downgrades are accepted immediately, however, lenders must present their factual information to the Credit 21 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Department when recommending an upgrade. Downgrades to impaired status require the concurrence of the CCBO and the Senior Workout Loan Manager. • The CCBO, or a designee, meets periodically with loan officers to discuss the status of past due loans and classified loans. These meetings are also designed to give the loan officers an opportunity to identify an existing loan that should be downgraded to a classified grade. • Monthly, senior management meets as members of the Watch Committee, which reviews all of the past due, classified, and impaired loans and the relative trends of these assets. This committee also reviews the actions taken by management regarding foreclosure mitigation, loan extensions, loan modifications, other real estate owned and personal property repossessions. The information reviewed in this meeting acts as a precursor for developing management’s analysis of the adequacy of the Allowance for Credit Losses on Loans and Leases. For residential real estate and consumer loans, Horizon uses a grading system based on delinquency. Loans that are 90 days or more past due, on non–accrual, or are classified as modified loans are graded “Substandard.” After being 90 to 120 days delinquent a loan is charged off unless it is well secured and in the process of collection. If the latter case exists, the loan is placed on non–accrual. Occasionally a mortgage loan may be graded as “Special Mention.” When this situation arises, it is because the characteristics of the loan and the borrower fit the definition of a Risk Grade 5 described below, which is normally used for grading commercial loans. Loans not graded Substandard are considered Pass. Horizon Bank employs a nine–grade rating system to determine the credit quality of commercial loans. The first five grades represent acceptable quality, and the last four grades mirror the criticized and classified grades used by the bank regulatory agencies (special mention, substandard, doubtful, and loss). The loan grade definitions are detailed below. Risk Grade 1: Excellent (Pass) Loans secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash equivalents or loans to any publicly held company with a current long–term debt rating of A or better and meeting defined key financial metric ranges. Risk Grade 2: Good (Pass) Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three years consecutive years of profits; loans supported by unaudited financial statements containing strong balance sheets, five consecutive years of profits, a five year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities with required margins where there is no impediment to liquidation; loans to individuals backed by liquid personal assets and unblemished credit histories; or loans to publicly held companies with current long–term debt ratings of Baa or better and meeting defined key financial metric ranges. Risk Grade 3: Satisfactory (Pass) Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered and meeting defined key financial metric ranges. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply: • At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory; • At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss. • The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance. • During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan 22 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) covenants, or the borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted. Risk Grade 4: Satisfactory/Monitored (Pass) Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than Satisfactory rated loans and meet defined key financial metric ranges. Borrower displays acceptable liquidity, leverage, and earnings performance within the Bank’s minimum underwriting guidelines. The level of risk is acceptable but conditioned on the proper level of loan officer supervision. Loans that normally fall into this grade include acquisition, construction and development loans and income producing properties that have not reached stabilization. Risk Grade 4W: Management Watch (Pass) Loans in this category are considered to be of acceptable quality and meet defined key financial metric ranges, but with above normal risk. Borrower displays potential indicators of weakness in the primary source of repayment resulting in a higher reliance on secondary sources of repayment. Balance sheet may exhibit weak liquidity and/or high leverage. There is inconsistent earnings performance without the ability to sustain adverse economic conditions. Borrower may be operating in a declining industry or the property type, as for a commercial real estate loan, may be high risk or in decline. These loans require an increased level of loan officer supervision and monitoring to assure that any deterioration is addressed in a timely fashion. Commercial construction loans are graded as 4W Management Watch until the projects are completed and stabilized. Risk Grade 5: Special Mention Loans which possess some temporary (normally less than one year) credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered “potential,” not “defined,” impairments to the primary source of repayment. These loans may be to borrowers with adverse trends in financial performance, collateral value and/or marketability, or balance sheet strength and must meet defined key financial metric ranges. Risk Grade 6: Substandard One or more of the following characteristics may be exhibited in loans classified Substandard: • Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss. • Loans are inadequately protected by the current net worth and paying capacity of the obligor. • The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees. • Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected. • Unusual courses of action are needed to maintain a high probability of repayment. • The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments. • The lender is forced into a subordinated or unsecured position due to flaws in documentation. • Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms. • The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan. • There is a significant deterioration in market conditions to which the borrower is highly vulnerable. • The borrower meets defined key financial metric ranges. 23 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Risk Grade 7: Doubtful One or more of the following characteristics may be present in loans classified Doubtful: • Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable. • The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment. • The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known. • The borrower meets defined key financial metric ranges. Risk Grade 8: Loss Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future. 24 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following tables present loans by credit grades and origination year at March 31, 2024. March 31, 2024 2024 2023 2022 2021 2020 Prior Revolving Term Loans Revolving Loans Total Commercial Owner occupied real estate Pass $ 11,916 $ 70,435 $ 104,472 $ 77,316 $ 43,036 $ 206,256 $ 93,911 $ 9,176 $ 616,518 Special Mention — 2,143 487 3,738 — 11,756 — 452 18,576 Substandard — 1,453 — 6,443 966 8,698 490 — 18,050 Doubtful — — — — — — — — — Total owner occupied real estate $ 11,916 $ 74,031 $ 104,959 $ 87,497 $ 44,002 $ 226,710 $ 94,401 $ 9,628 $ 653,144 Gross charge–offs during period $ — $ — $ — $ — $ — $ 1 $ — $ — $ 1 Non–owner occupied real estate Pass $ 9,444 $ 116,007 $ 192,469 $ 134,643 $ 103,726 $ 374,887 $ 282,938 $ 9,170 $ 1,223,284 Special Mention — 1,359 18,768 1,313 — 38,012 — — 59,452 Substandard — — — — 169 4,569 — — 4,738 Doubtful — — — — — — — — — Total non–owner occupied real estate $ 9,444 $ 117,366 $ 211,237 $ 135,956 $ 103,895 $ 417,468 $ 282,938 $ 9,170 $ 1,287,474 Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential spec homes Pass $ — $ — $ — $ 498 $ — $ — $ 3,487 $ 6,907 $ 10,892 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total residential spec homes $ — $ — $ — $ 498 $ — $ — $ 3,487 $ 6,907 $ 10,892 Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — Development & spec land Pass $ — $ 4,269 $ 882 $ 505 $ 375 $ 2,065 $ 21,532 $ 170 $ 29,798 Special Mention — — — — — 322 1,624 — 1,946 Substandard — 748 — — — 102 619 — 1,469 Doubtful — — — — — — — — — Total development & spec land $ — $ 5,017 $ 882 $ 505 $ 375 $ 2,489 $ 23,775 $ 170 $ 33,213 Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial & industrial Pass $ 69,125 $ 116,433 $ 147,219 $ 87,982 $ 11,219 $ 76,964 $ 61,372 $ 155,096 $ 725,410 Special Mention 490 1,472 620 8 1,377 1,341 11,144 13,637 30,089 Substandard — 1,690 625 415 204 3,134 775 2,701 9,544 Doubtful — — — — — — — — — Total commercial & industrial $ 69,615 $ 119,595 $ 148,464 $ 88,405 $ 12,800 $ 81,439 $ 73,291 $ 171,434 $ 765,043 Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — 25 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) March 31, 2024 2024 2023 2022 2021 2020 Prior Revolving Term Loans Revolving Loans Total Real estate Residential mortgage Performing $ 16,245 $ 127,785 $ 167,014 $ 154,308 $ 82,838 $ 200,845 $ — $ — $ 749,035 Non–performing — 366 1,897 1,063 257 5,142 — — 8,725 Total residential mortgage $ 16,245 $ 128,151 $ 168,911 $ 155,371 $ 83,095 $ 205,987 $ — $ — $ 757,760 Gross charge–offs during period $ — $ — $ — $ — $ — $ 1 $ — $ — $ 1 Residential construction Performing $ — $ — $ — $ — $ — $ — $ 24,311 $ — $ 24,311 Non–performing — — — — — — — — — Total residential construction $ — $ — $ — $ — $ — $ — $ 24,311 $ — $ 24,311 Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — Mortgage warehouse Performing $ — $ — $ — $ — $ — $ — $ — $ 56,548 $ 56,548 Non–performing — — — — — — — — — Total mortgage warehouse $ — $ — $ — $ — $ — $ — $ — $ 56,548 $ 56,548 Gross charge–offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — March 31, 2024 2024 2023 2022 2021 2020 Prior Revolving Term Loans Revolving Loans Total Consumer Installment Performing $ 3,533 $ 71,835 $ 12,263 $ 7,167 $ 3,845 $ 8,532 $ 16 $ 2,041 $ 109,232 Non–performing — 8 44 55 — 31 — — 138 Total installment $ 3,533 $ 71,843 $ 12,307 $ 7,222 $ 3,845 $ 8,563 $ 16 $ 2,041 $ 109,370 Gross charge–offs during period $ — $ 18 $ 124 $ 1 $ 17 $ 21 $ — $ — $ 181 Indirect auto Performing $ 643 $ 60,833 $ 176,167 $ 72,595 $ 30,750 $ 18,839 $ — $ — $ 359,827 Non–performing — 74 366 227 196 145 — — 1,008 Total indirect auto $ 643 $ 60,907 $ 176,533 $ 72,822 $ 30,946 $ 18,984 $ — $ — $ 360,835 Gross charge–offs during period $ — $ 43 $ 222 $ 81 $ 77 $ 42 $ — $ — $ 465 Home equity Performing $ 2,300 $ 25,932 $ 20,432 $ 2,922 $ 2,314 $ 12,729 $ 17,051 $ 472,108 $ 555,788 Non–performing — — 309 — 52 389 3,047 — 3,797 Total home equity $ 2,300 $ 25,932 $ 20,741 $ 2,922 $ 2,366 $ 13,118 $ 20,098 $ 472,108 $ 559,585 Gross charge–offs during period $ — $ 52 $ 88 $ — $ 37 $ — $ — $ — $ 177 26 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following tables present loans by credit grades and origination year at December 31, 2023. December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Term Loans Revolving Loans Total Commercial Owner occupied real estate Pass $ 66,814 $ 101,620 $ 73,199 $ 44,067 $ 41,726 $ 173,913 $ 93,432 $ 8,226 $ 602,997 Special Mention 3,920 490 3,777 — 2,038 8,128 — 452 18,805 Substandard 1,376 — 6,490 966 228 9,339 530 — 18,929 Doubtful — — — — — — — — — Total owner occupied real estate $ 72,110 $ 102,110 $ 83,466 $ 45,033 $ 43,992 $ 191,380 $ 93,962 $ 8,678 $ 640,731 Gross charge-offs during period $ — $ — $ — $ — $ — $ 3 $ 401 $ — $ 404 Non–owner occupied real estate Pass $ 116,031 $ 197,702 $ 149,540 $ 104,591 $ 83,394 $ 303,191 $ 246,569 $ 9,878 $ 1,210,896 Special Mention 1,366 16,135 1,334 254 845 36,590 — — 56,524 Substandard — — — 185 — 6,233 — — 6,418 Doubtful — — — — — — — — — Total non–owner occupied real estate $ 117,397 $ 213,837 $ 150,874 $ 105,030 $ 84,239 $ 346,014 $ 246,569 $ 9,878 $ 1,273,838 Gross charge-offs during period $ — $ — $ — $ — $ — $ 9 $ — $ — $ 9 Residential spec homes Pass $ — $ — $ 498 $ — $ — $ — $ 5,852 $ 7,139 $ 13,489 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total residential spec homes $ — $ — $ 498 $ — $ — $ — $ 5,852 $ 7,139 $ 13,489 Gross charge-offs during period $ — $ — $ — $ — $ — $ — $ 29 $ — $ 29 Development & spec land Pass $ 5,133 $ 1,477 $ 990 $ 390 $ 247 $ 3,146 $ 20,236 $ 170 $ 31,789 Special Mention — — — — — — 1,529 — 1,529 Substandard — — — — — 104 617 — 721 Doubtful — — — — — — — — — Total development & spec land $ 5,133 $ 1,477 $ 990 $ 390 $ 247 $ 3,250 $ 22,382 $ 170 $ 34,039 Gross charge-offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial & industrial Pass $ 121,969 $ 151,847 $ 93,709 $ 12,154 $ 20,497 $ 59,041 $ 60,539 $ 147,773 $ 667,529 Special Mention 1,434 726 265 2,137 119 1,305 9,375 18,836 34,197 Substandard 1,595 703 223 211 768 2,404 2,863 2,370 11,137 Doubtful — — — — — — — — — Total commercial & industrial $ 124,998 $ 153,276 $ 94,197 $ 14,502 $ 21,384 $ 62,750 $ 72,777 $ 168,979 $ 712,863 Gross charge-offs during period $ — $ 33 $ — $ 123 $ 25 $ 72 $ 344 $ — $ 597 27 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Term Loans Revolving Loans Total Real estate Residential mortgage Performing $ 40,920 $ 154,803 $ 157,480 $ 85,159 $ 30,464 $ 177,411 $ — $ — $ 646,237 Non–performing 118 1,591 748 259 647 4,695 — — 8,058 Total residential mortgage $ 41,038 $ 156,394 $ 158,228 $ 85,418 $ 31,111 $ 182,106 $ — $ — $ 654,295 Gross charge-offs during period $ — $ 28 $ — $ — $ — $ 20 $ — $ — $ 48 Residential construction Performing $ — $ — $ — $ — $ — $ — $ 26,841 $ — $ 26,841 Non–performing — — — — — — — — — Total residential construction $ — $ — $ — $ — $ — $ — $ 26,841 $ — $ 26,841 Gross charge-offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — Mortgage warehouse Performing $ — $ — $ — $ — $ — $ — $ — $ 45,078 $ 45,078 Non–performing — — — — — — — — — Total mortgage warehouse $ — $ — $ — $ — $ — $ — $ — $ 45,078 $ 45,078 Gross charge-offs during period $ — $ — $ — $ — $ — $ — $ — $ — $ — December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Term Loans Revolving Loans Total Consumer Installment Performing $ 14,835 $ 13,447 $ 7,859 $ 4,246 $ 4,449 $ 5,074 $ 6 $ 2,362 $ 52,278 Non–performing — 44 10 — 27 7 — — 88 Total installment $ 14,835 $ 13,491 $ 7,869 $ 4,246 $ 4,476 $ 5,081 $ 6 $ 2,362 $ 52,366 Gross charge-offs during period $ 33 $ 28 $ 31 $ 10 $ 32 $ 27 $ 6 $ — $ 167 Indirect auto Performing $ 65,260 $ 191,871 $ 80,773 $ 35,995 $ 16,690 $ 8,159 $ — $ — $ 398,748 Non–performing 49 424 312 229 124 60 — — 1,198 Total indirect auto $ 65,309 $ 192,295 $ 81,085 $ 36,224 $ 16,814 $ 8,219 $ — $ — $ 399,946 Gross charge-offs during period $ 86 $ 1,388 $ 708 $ 137 $ 58 $ 74 $ — $ — $ 2,451 Home equity Performing $ 26,376 $ 21,379 $ 5,121 $ 2,447 $ 3,885 $ 9,987 $ 12,713 $ 478,673 $ 560,581 Non–performing — 212 — 54 177 260 2,860 — 3,563 Total home equity $ 26,376 $ 21,591 $ 5,121 $ 2,501 $ 4,062 $ 10,247 $ 15,573 $ 478,673 $ 564,144 Gross charge-offs during period $ — $ 10 $ — $ 103 $ — $ 91 $ 13 $ — $ 217 28 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 4 – Allowance for Credit and Loan Losses The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 Commercial Real Estate Mortgage Warehouse Consumer Total Balance, beginning of period $ 29,736 $ 2,503 $ 481 $ 17,309 $ 50,029 Credit loss expense (recovery) 606 147 178 ( 262 ) 669 PCD loan charge–offs 115 — — — 115 Charge–offs ( 1 ) ( 1 ) — ( 823 ) ( 825 ) Recoveries 58 6 — 335 399 Balance, end of period $ 30,514 $ 2,655 $ 659 $ 16,559 $ 50,387 Three Months Ended March 31, 2023 Commercial Real Estate Mortgage Warehouse Consumer Total Balance, beginning of period $ 32,445 $ 5,577 $ 1,020 $ 11,422 $ 50,464 Credit loss expense (recovery) ( 1,031 ) ( 1,136 ) ( 222 ) 1,984 ( 405 ) PCD loan charge–offs ( 154 ) — — — ( 154 ) Charge–offs ( 137 ) ( 4 ) — ( 542 ) ( 683 ) Recoveries 33 10 — 261 304 Balance, end of period $ 31,156 $ 4,447 $ 798 $ 13,125 $ 49,526 The Company utilized the Cumulative Loss Rate method in determining expected future credit losses. The loss rate method measures the amount of loan charge–offs, net of recoveries, (“loan losses”) recognized over the life of a closed pool and compares those loan losses to the outstanding loan balance of that pool as of a specific point in time (“pool date”). To estimate a CECL loss rate for the pool, management first identifies the loan losses recognized between the pool date and the reporting date for the pool and determines which loan losses were related to loans outstanding at the pool date. The loss rate method then divides the loan losses recognized on loans outstanding as of the pool date by the outstanding loan balance as of the pool date. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look–back period includes January 2009 through the current period, on a monthly basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data. The Company supplemented data for 2009 and 2010 with the use of adjusted Uniform Bank Performance Report peer group data. Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit–related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible. The Company’s CECL estimate applies to a forecast that incorporates macroeconomic trends and other environmental factors. Management utilized Moody's economic forecast scenarios including both National and Regional econometrics, as well as management judgment, as the basis for the forecast period. The historical loss rate was utilized as the base rate, and qualitative adjustments were utilized to reflect the forecast and other relevant factors. The Company segments the loan portfolio into pools based on the following risk characteristics: financial asset type, loan purpose, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of the borrower and concentrations, and historical or expected credit loss patterns. 29 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 5 – Loan Servicing Loans serviced for others are not included in the accompanying condensed consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled approximately $ 1.460 billion and $ 1.479 billion at March 31, 2024 and December 31, 2023. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type and interest rates were used to stratify the originated mortgage servicing rights. Mortgage servicing rights are included in other assets on the balance sheets as of March 31, 2024 and December 31, 2023. Three Months Ended March 31, March 31, 2024 2023 Mortgage servicing rights Balance, beginning of period $ 18,807 $ 18,619 Servicing rights capitalized 207 228 Amortization of servicing rights ( 476 ) ( 247 ) Balance, end of period 18,538 18,600 Impairment allowance Balance, beginning of period — — Additions — — Reductions — — Balance, end of period — — Mortgage servicing rights, net $ 18,538 $ 18,600 Fair value, beginning of period $ 19,891 $ 19,992 Fair value, end of period 19,149 19,336 Note 6 – Goodwill The carrying amount of goodwill was $ 155.2 million as of March 31, 2024 and December 31, 2023, respectively. There were no changes in the carrying amount of goodwill for the three months ended March 31, 2024 and 2023. Goodwill is assessed for impairment annually, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment. No goodwill impairment charges were recorded for the three months ended March 31, 2024 and 2023. During the first quarters of 2024 and 2023, Horizon considered the amount by which fair value exceeded book value by performing a quantitative analysis. The Company engaged a third-party valuation specialist in performing its quantitative impairment analysis during the third quarter of 2023, which included a combination of valuation approaches to determine the fair value of the Bank reporting unit. These valuation approaches required certain assumptions such as the discount rate, economic conditions impacting interest and growth rates, the control premium, and a relative weighting given to the fair value derived by each of the valuation approaches used. At the conclusion of the assessment, the Company determined that as of March 31, 2024, it was more likely than not that the fair value of goodwill exceeded its carrying value. 30 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 7 – Repurchase Agreements The Company transfers various securities to customers in exchange for cash at the end of each business day and agrees to acquire the securities at the end of the next business day for the cash exchanged plus interest. The process is repeated at the end of each business day until the agreement is terminated. The securities underlying the agreement remained under the Company’s control. The following tables show repurchase agreements accounted for as secured borrowings and the related securities, at fair value, pledged for repurchase agreements: March 31, 2024 Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 Days 30-90 Days Greater Than 90 Days Total Repurchase Agreements and repurchase-to-maturity transactions Federal agency collateralized mortgage obligations $ 2,159 $ — $ — $ — $ 2,159 Federal agency mortgage–backed pools 129,818 — — — 129,818 Private labeled mortgage–backed pools 7,332 — — — 7,332 Total borrowings $ 139,309 $ — $ — $ — $ 139,309 December 31, 2023 Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 Days 30-90 Days Greater Than 90 Days Total Repurchase Agreements and repurchase-to-maturity transactions Federal agency collateralized mortgage obligations $ 2,245 $ — $ — $ — $ 2,245 Federal agency mortgage–backed pools 126,349 — — — 126,349 Private labeled mortgage–backed pools 7,436 — — — 7,436 Total borrowings $ 136,030 $ — $ — $ — $ 136,030 Securities sold under agreements to repurchase are secured by securities with a carrying amount of $ 147.6 million and $ 145.2 million at March 31, 2024 and December 31, 2023, respectively. Note 8 – Subordinated Notes On June 24, 2020, Horizon issued $ 60.0 million in aggregate principal amount of 5.625 % fixed–to–floating rate subordinated notes (the “Notes”). The Notes were offered in denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Notes mature on July 1, 2030 (the “Maturity Date”). From and including the date of original issuance to, but excluding, July 1, 2025 or the date of earlier redemption (the “fixed rate period”), the Notes bear interest at an initial rate of 5.625 % per annum, payable semi–annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2021. The last interest payment date for the fixed rate period will be July 1, 2025. From and including July 1, 2025 to, but excluding, the Maturity Date or the date of earlier redemption (the “floating rate period”), the Notes bear interest at a floating rate per annum equal to the benchmark rate, which is expected to be Three–Month Term SOFR (the “Benchmark Rate”), plus 549 basis points, payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year, commencing on October 1, 2025. Notwithstanding the foregoing, in the event that the Benchmark Rate is less than zero, the Benchmark Rate shall be deemed to be zero. 31 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Horizon may, at its option, beginning with the interest payment date of July 1, 2025 and on any interest payment date thereafter, redeem the Notes, in whole or in part. The Notes will not otherwise be redeemable by Horizon prior to maturity, unless certain events occur. The redemption price for any redemption is 100 % of the principal amount of the Notes, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any early redemption of the Notes will be subject to the receipt of the approval of the Board of Governors of the Federal Reserve System to the extent then required under applicable laws or regulations, including capital regulations. The Notes are unsecured subordinated obligations, and rank pari passu, or equally, with all of Horizon's future unsecured subordinated debt and are junior to all existing and future senior debt. The Notes are structurally subordinated to all existing and future liabilities of Horizon's subsidiaries, including the deposit liabilities and claims of other creditors of Horizon Bank, and are effectively subordinated to Horizon’s existing and future secured indebtedness. There is no sinking fund for the Notes. The Notes are obligations of Horizon only and are not obligations of, and are not guaranteed by, any of Horizon’s subsidiaries. On December 8, 2023, Horizon cancelled $ 3.5 million of the $ 60.0 million in Notes at a price of 89.5 recording a gain of $ 368,000 . The balance net of unamortized issuance costs of the Notes was $ 55.6 million and $ 55.5 million at March 31, 2024 and December 31, 2023, respectively. Note 9 – Derivative Financial Instruments Cash Flow Hedges As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into an interest rate swap agreement for a portion of its floating rate debt on July 20, 2018. The agreement provides for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a fixed rate of 2.81 % on a notional amount of $ 50.0 million. Under the agreement, the Company paid or received the net interest amount monthly, with the monthly settlements included in interest expense. The Company terminated this interest rate swap agreement on May 23, 2023 and recorded a related gain of $ 1.5 million as a reduction of interest expense. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Fair Value Hedges Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item. The Company enters into fixed rate loan agreements as part of its lending policy. To mitigate the risk of changes in fair value based on fluctuations in interest rates, the Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. At March 31, 2024, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months. The change in fair value of both the hedge instruments and the underlying loan agreements are recorded as gains or losses in non–interest income. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. 32 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Other Derivative Instruments The Company enters into non–hedging derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business. At March 31, 2024, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income. The change in fair value of both the forward sale commitments and commitments to originate mortgage loans were recorded and the net gains or losses included in the Company’s gain on sale of loans. The following tables summarize the fair value of derivative financial instruments utilized by Horizon: Asset Derivatives Liability Derivatives March 31, 2024 March 31, 2024 Notional Amount Fair Value Notional Amount Fair Value Derivatives not designated as hedging instruments Interest rate contracts – fair value hedges 553,131 34,126 510,600 31,244 Mortgage loan contracts 7,906 9 — — Commitments to originate mortgage loans 3,172 88 — — Total derivatives not designated as hedging instruments 564,209 34,223 510,600 31,244 Total derivatives $ 564,209 $ 34,223 $ 510,600 $ 31,244 Asset Derivatives Liability Derivatives December 31, 2023 December 31, 2023 Notional Amount Fair Value Notional Amount Fair Value Derivatives not designated as hedging instruments Interest rate contracts – fair value hedges 558,164 26,556 514,881 24,024 Mortgage loan contracts 4,844 33 — — Commitments to originate mortgage loans 4,351 125 — — Total derivatives not designated as hedging instruments 567,359 26,714 514,881 24,024 Total derivatives $ 567,359 $ 26,714 $ 514,881 $ 24,024 33 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The effect of the derivative instruments on the condensed consolidated statements of comprehensive income (loss) for the three–month periods ended March 31 is as follows: Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative Three Months Ended March 31, 2024 March 31, 2023 Derivatives in cash flow hedging relationship Interest rate contracts $ — $ ( 442 ) The effect of the derivative designated as a hedging instrument on the condensed consolidated statements of income for the three–month periods ended March 31 is as follows: Location of gain (loss) recognized on derivative Amount of Gain (Loss) Recognized on Derivative Three Months Ended March 31, 2024 March 31, 2023 Derivative designated as hedging instruments Interest rate contracts – cash flow hedges Interest expense – Borrowings $ — $ 209 Total $ — $ 209 The effect of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three–month periods ended March 31 is as follows: Location of gain (loss) recognized on derivative Amount of Gain (Loss) Recognized on Derivative Three Months Ended March 31, 2024 March 31, 2023 Derivatives not designated as hedging instruments Interest rate contracts – fair value hedge Interest income – loans receivable $ 335 $ 166 Interest rate contracts – fair value hedge Interest income – investment securities 71 49 Mortgage loan contracts Non–interest income – Gain on sale of loans ( 24 ) 87 Commitments to originate mortgage loans Non–interest income – Gain on sale of loans ( 38 ) ( 17 ) Total $ 344 $ 285 34 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 10 – Disclosures about Fair Value of Assets and Liabilities The Fair Value Measurements topic of the FASB ASC defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. There are three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated financial statements, as well as the general classification of such instruments pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2024. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Available for sale securities When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Treasury and federal agency securities, state and municipal securities, federal agency collateralized mortgage obligations and mortgage–backed pools and corporate notes. Level 2 securities are valued by a third party pricing service commonly used in the banking industry utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury yield curve, trade execution data, market consensus prepayment spreads and available credit information and the bond’s terms and conditions. The pricing provider utilizes evaluated pricing models that vary based on asset class. These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed–income securities do not trade on a daily basis, apply available information through processes such as benchmark curves, benchmarking of like securities, sector grouping, and matrix pricing. In addition, model processes, such as an option adjusted spread model, is used to develop prepayment and interest rate scenarios for securities with prepayment features. Hedged loans Certain fixed rate loans have been converted to variable rate loans by entering into interest rate swap agreements. The fair value of those fixed rate loans is based on discounting the estimated cash flows using interest rates determined by the respective interest rate swap agreement. Loans are classified within Level 2 of the valuation hierarchy based on the unobservable inputs used. Interest rate swap agreements The fair value of the Company’s interest rate swap agreements is estimated by a third party using inputs that are primarily unobservable including a yield curve, adjusted for liquidity and credit risk, contracted terms and discounted cash flow analysis, and therefore, are classified within Level 2 of the valuation hierarchy. 35 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated financial statements measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at the following: March 31, 2024 Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Available for sale securities U.S. Treasury and federal agencies $ 62,926 $ — $ 62,926 $ — State and municipal 299,255 — 299,255 — Federal agency collateralized mortgage obligations 3,450 — 3,450 — Federal agency mortgage–backed pools 133,142 — 133,142 — Corporate notes 36,546 — 36,546 — Total available for sale securities 535,319 — 535,319 — Interest rate swap agreements asset 34,126 — 34,126 — Commitments to originate mortgage loans 88 — 88 — Mortgage loan contracts 9 — 9 — Interest rate swap agreements liability ( 31,244 ) — ( 31,244 ) — December 31, 2023 Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Available for sale securities U.S. Treasury and federal agencies $ 64,377 $ — $ 64,377 $ — State and municipal 304,030 — 304,030 — Federal agency collateralized mortgage obligations 3,580 — 3,580 — Federal agency mortgage–backed pools 137,297 — 137,297 — Corporate notes 37,967 — 37,967 — Total available for sale securities 547,251 — 547,251 — Interest rate swap agreements asset 26,556 — 26,556 — Commitments to originate mortgage loans 125 — 125 — Mortgage loan contracts 33 — 33 — Interest rate swap agreements liability ( 24,024 ) — ( 24,024 ) — 36 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Certain other assets are measured at fair value on a non-recurring basis in the ordinary course of business and are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment): Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024 Collateral dependent loans $ 622 $ — $ — $ 622 December 31, 2023 Collateral dependent loans $ 2,918 $ — $ — $ 2,918 Collateral Dependent Loans: For loans identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Collateral dependent loans are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method. The following table presents qualitative information about unobservable inputs used in recurring and non–recurring Level 3 fair value measurements, other than goodwill. March 31, 2024 Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average) Collateral dependent loans $ 622 Collateral based measurement Discount to reflect current market conditions and ultimate collectibility 15.4 %- 15.4 % ( 15.4 %) December 31, 2023 Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average) Collateral dependent loans $ 2,918 Collateral based measurement Discount to reflect current market conditions and ultimate collectibility 16.9 %- 34.2 %( 21.5 %) Note 11 – Fair Value of Financial Instruments The estimated fair value amounts of the Company’s financial instruments were determined using available market information, current pricing information applicable to Horizon and various valuation methodologies. Where market quotations were not available, considerable management judgment was involved in the determination of estimated fair values. Therefore, the estimated fair value of financial instruments shown below may not be representative of the amounts at which they could be exchanged in a current or future transaction. Due to the inherent uncertainties of expected cash flows of financial instruments, the use of alternate valuation assumptions and methods could have a significant effect on the estimated fair value amounts. 37 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or market value of Horizon taken as a whole. The disclosed fair value estimates are limited to Horizon’s significant financial instruments at March 31, 2024 and December 31, 2023. These include financial instruments recognized as assets and liabilities on the condensed consolidated balance sheets as well as certain off–balance sheet financial instruments. The estimated fair values shown below do not include any valuation of assets and liabilities, which are not financial instruments as defined by the FASB ASC fair value hierarchy. The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and Due from Banks – The carrying amounts approximate fair value. Interest-earning time deposits – The fair values of the Company’s interest–earning time deposits are estimated using discounted cash flow analyses based on current rates for similar types of interest–earning time deposits. Held–to–Maturity Securities – For debt securities held to maturity, fair values are based on quoted market prices or dealer quotes. For those securities where a quoted market price is not available, carrying amount is a reasonable estimate of fair value based upon comparison with similar securities. Loans Held for Sale – The carrying amounts approximate fair value. Net Loans – The fair value of net loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. FHLB Stock – Fair value of FHLB stock is based on the price at which it may be resold to the FHLB. Interest Receivable/Payable – The carrying amounts approximate fair value. Deposits – The fair value of demand deposits, savings accounts, interest bearing checking accounts and money market deposits is the amount payable on demand at the reporting date and are classified within Level 1. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturity and are classified within Level 2. Borrowings – Rates currently available to Horizon for debt with similar terms and remaining maturities are used to estimate fair values of existing borrowings. Subordinated Notes – The fair value of subordinated notes is based on discounted cash flows based on current borrowing rates for similar types of instruments. Junior Subordinated Debentures Issued to Capital Trusts – Rates currently available for debentures with similar terms and remaining maturities are used to estimate fair values of existing debentures. Commitments to Extend Credit and Standby Letters of Credit – The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed–rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. Due to the short–term nature of these agreements, carrying amounts approximate fair value. 38 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) The following tables present estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall. March 31, 2024 Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Cash and due from banks $ 271,088 $ 271,088 $ — $ — Interest–earning time deposits 1,715 — 1,704 — Investment securities, held to maturity 1,925,725 — 1,627,853 — Loans held for sale 922 — — 922 Loans, net 4,567,788 — — 4,296,425 Stock in FHLB 53,826 — 53,826 — Interest receivable 40,008 — 40,008 — Liabilities Non–interest bearing deposits $ 1,093,076 $ 1,093,076 $ — $ — Interest bearing deposits 4,486,794 3,350,673 1,129,271 — Borrowings 1,359,121 — 1,347,385 — Subordinated notes 55,634 — 53,374 — Junior subordinated debentures issued to capital trusts 57,315 — 50,018 — Interest payable 7,853 — 7,853 — December 31, 2023 Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Cash and due from banks $ 526,515 $ 526,515 $ — $ — Interest–earning time deposits 2,205 — 2,190 — Investment securities, held to maturity 1,945,638 — 1,668,601 — Loans held for sale 1,418 — — 1,418 Loans, net 4,367,601 — — 4,072,568 Stock in FHLB 34,509 — 34,509 — Interest receivable 38,710 — 38,710 — Liabilities Non–interest bearing deposits $ 1,116,005 $ 1,116,005 $ — $ — Interest bearing deposits 4,548,888 3,369,149 1,171,452 — Borrowings 1,353,050 — 1,347,129 — Subordinated notes 55,543 — 53,283 — Junior subordinated debentures issued to capital trusts 57,258 — 50,063 — Interest payable 22,249 — 22,249 — 39 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 12 – Accumulated Other Comprehensive Income (Loss) March 31, 2024 December 31, 2023 Unrealized gain (loss) on securities available for sale, net of tax $ ( 73,559 ) $ ( 69,018 ) Unamortized gain (loss) on securities held to maturity, previously transferred from AFS, net of tax 2,283 2,409 Total accumulated other comprehensive income (loss) $ ( 71,276 ) $ ( 66,609 ) Note 13 – Regulatory Capital Horizon and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. These capital requirements implement changes arising from the Dodd–Frank Wall Street Reform and Consumer Protection Act and the U.S. Basel Committee on Banking Supervision’s capital framework (known as “Basel III”). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Company and Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off–balance–sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Company and Bank are subject to minimum regulatory capital requirements as defined and calculated in accordance with the Basel III–based regulations. As allowed under Basel III rules, the Company made the decision to opt–out of including accumulated other comprehensive income in regulatory capital. The minimum regulatory capital requirements are set forth in the table below. In addition, to be categorized as well capitalized, the Company and Bank must maintain Total risk–based, Tier I risk–based, common equity Tier I risk–based and Tier I leverage ratios as set forth in the table below. As of March 31, 2024 and December 31, 2023, the Company and Bank met all capital adequacy requirements to be considered well capitalized. There have been no conditions or events since the end of the first quarter of 2024 that management believes have changed the Bank’s classification as well capitalized. There is no threshold for well capitalized status for bank holding companies. 40 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Horizon and the Bank’s actual and required capital ratios as of March 31, 2024 and December 31, 2023 were as follows: Actual Required for Capital Adequacy Purposes (1) Required For Capital Adequacy Purposes with Capital Buffer (1) Well Capitalized Under Prompt Corrective Action Provisions (1) Amount Ratio Amount Ratio Amount Ratio Amount Ratio March 31, 2024 Total capital (to risk–weighted assets) (1) Consolidated $ 793,567 13.82 % $ 459,485 8.00 % $ 603,074 10.50 % N/A N/A Bank 721,018 12.59 % 458,163 8.00 % 601,338 10.50 % $ 572,703 10.00 % Tier 1 capital (to risk–weighted assets) (1) Consolidated 742,430 12.93 % 344,614 6.00 % 488,203 8.50 % N/A N/A Bank 669,881 11.70 % 343,622 6.00 % 486,798 8.50 % 458,163 8.00 % Common equity tier 1 capital (to risk–weighted assets) (1) Consolidated 625,700 10.89 % 258,460 4.50 % 402,049 7.00 % N/A N/A Bank 669,881 11.70 % 257,716 4.50 % 400,892 7.00 % 372,257 6.50 % Tier 1 capital (to average assets) (1) Consolidated 742,430 9.68 % 306,716 4.00 % 306,716 4.00 % N/A N/A Bank 669,881 8.63 % 310,592 4.00 % 310,592 4.00 % 388,240 5.00 % December 31, 2023 Total capital (to risk–weighted assets) (1) Consolidated $ 786,436 14.11 % $ 446,000 8.00 % $ 585,374 10.50 % N/A N/A Bank 714,402 12.87 % 444,147 8.00 % 582,943 10.50 % $ 555,184 10.00 % Tier 1 capital (to risk–weighted assets) (1) Consolidated 735,792 13.20 % 334,500 6.00 % 473,874 8.50 % N/A N/A Bank 663,758 11.96 % 333,111 6.00 % 471,907 8.50 % 444,147 8.00 % Common equity tier 1 capital (to risk–weighted assets) (1) Consolidated 619,153 11.11 % 250,875 4.50 % 390,250 7.00 % N/A N/A Bank 663,758 11.96 % 249,833 4.50 % 388,629 7.00 % 360,870 6.50 % Tier 1 capital (to average assets) (1) Consolidated 735,792 9.36 % 314,306 4.00 % 314,306 4.00 % N/A N/A Bank 663,758 8.41 % 315,550 4.00 % 315,550 4.00 % 394,438 5.00 % (1) As defined by regulatory agencies 41 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Data) Note 14 – General Litigation As of April 20, 2023, a putative class action lawsuit entitled Chad Key, et al. v. Horizon Bancorp, Inc., et al., Case No. 1:23-cv-02961 (”Securities Action”) was filed against the Company and two of its officers in the U.S. District Court for the Eastern District of New York. The Securities Action asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 9, 2022 and March 10, 2023. As of (1) August 28, 2023, a lawsuit related to the Securities Action was filed by Sally Hundley, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors and (2) August 31, 2023, a lawsuit also related to the Securities Action was filed by Aziz Chowdhury, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors (the “Derivatives Actions”) in the U.S. District Court for the Eastern District of New York. The Derivative Actions allege, among other things, breach of the officers and directors' fiduciary duties. The Derivative Actions have been consolidated and stayed pending resolution of any motion to dismiss in the Securities Action. Based on our initial review of these actions, management believes that the Company has strong defenses to the claims and intends to vigorously defend against them. As of March 31, 2024, no liabilities related to the above matters were recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable. In addition to the matters described above, from time to time, Horizon and its subsidiaries are involved in various legal proceedings incidental to the conduct of their business. Management does not expect that the outcome of any such proceedings will have a material adverse effect on our consolidated financial position or results of operations. 42 Table of Contents HORIZON BANCORP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition And Results of Operations For the Three Months ended March 31, 2024 and 2023