What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-09 · 129 added, 133 removed, 391 unchanged (40% of the section changed)

10 unchanged sentences

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

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

• current financial conditions within the banking industry;

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

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

• continuing increases in inflation;

• the aggregate effects of elevated inflation levels in recent years;

• loss of key Horizon personnel;

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

• macroeconomic conditions and their impact on Horizon and its customers;

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

4 unchanged sentences

• volatility and disruption in financial markets;

• prepayment speeds, loan originations, credit losses and market values, collateral securing loans and other assets;

• sources of liquidity;

• changes in prepayment speeds, loan originations, credit losses and market values, collateral securing loans and other assets;

• changes in sources of liquidity;

• potential risk of environmental liability related to lending and acquisition activities;

1 unchanged sentence

• legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its subsidiaries in particular;

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

• changes in accounting policies or procedures as may be adopted and required by regulatory agencies;

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

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

• changes in accounting policies or procedures as may be adopted and required by regulatory agencies;

For the Three and Nine Months ended September 30, 2024 and 2023

• litigation, regulatory enforcement, tax, and legal compliance risk and costs, as applicable generally and specifically to the financial and fiduciary (generally and as an ESOP fiduciary) environment, especially if materially different from the amount we expect to incur or have accrued for, and any disruptions caused by the same;

21 unchanged sentences

There have been no material changes in the Company’s application of critical accounting estimates since December 31, 2023.

Results of Operations

Net income increased $2.0 million to $18.2 million, or $0.42 per share, during the three months ended September 30, 2024 when compared to $16.2 million, or $0.37 per share, for the same period in 2023.

The increase from the year ago period was primarily driven by an increase in net interest income and a reduction in the effective tax rate in the current period, partially offset by an increase in non-interest expense when compared to the year ago period.

Net interest income

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

Results of Operations

Net income declined $4.6 million to $14.1 million, or $0.32 per share, during the three months ended June 30, 2024 when compared to $18.8 million, or $0.43 per share, for the same period in 2023.

The decrease from the year ago period was primarily driven by the increased provision for loan loss related to loan growth in the current period and non-interest expense growth compared to the year ago period.

Additionally, net interest income, compared to the second quarter of last year, decreased by $0.9 million, or 1.9%, mainly due to an increase in interest expense on interest bearing deposits of $9 million and borrowings of $1.5 million.

This increase in interest expense was mainly offset by an increase in interest income on loans receivable of $11.3 million.

Net income declined $8.9 million to $28.1 million, or $0.64 per share, during the six months ended June 30, 2024 when compared to $37.0 million, or $0.85 per share, for the same period in 2023.

The decrease from the year ago period was primarily a result of growth in non-interest expense, a decline in the net interest income and increased provision for loan loss related to loan growth in the current period.

For the Three and Nine Months ended September 30, 2024 and 2023

increased by $4.8 million, or 11.5% when compared with the year ago period, driven by a modest increase in average earning assets and a 25 basis point increase in the net FTE interest margin 1 , to 2.66% in the current period.

Net income declined $6.9 million to $46.3 million, or $1.06 per share, during the nine months ended September 30, 2024 when compared to $53.2 million, or $1.22 per share, for the same period in 2023.

The decrease from the year ago period was primarily a result of growth in non-interest expense, a decline in non-interest income and increased provision for loan loss related to loan growth in the current period.

Net Interest Income

Net interest income decreased $0.9 million during the three months ended June 30, 2024, to $45.3 million, when compared to the same period in 2023.

While average earning asset balances were relatively unchanged, the reported net FTE interest margin 1 decreased by 5 basis points, to 2.64% for the three months ended June 30, 2024 compared to the year ago period, which included a $1.5 million swap termination gain that did not recur.

Additionally, the contribution from interest accretion on acquired loans declined by $0.7 million when compared to the year ago period, to an insignificant amount for the three months ended June 30, 2024.

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

Net interest income increased $4.8 million during the three months ended September 30, 2024, to $46.9 million, when compared to the same period in 2023.

While average earning asset growth was modest, the reported net FTE interest margin 1 increased by 25 basis points, to 2.66% for the three months ended September 30, 2024 compared to the year ago period, attributable to the favorable mix shift in both average interest earning assets toward higher-yielding loans and the funding mix toward lower cost deposit liabilities, in addition to a higher contribution to the net FTE interest margin 1 from interest-free funds.

Interest accretion from the fair value of acquired loans did not contribute significantly to the third quarter net interest income, or net FTE interest margin 1 .

1 Non-GAAP financial metric.

4 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

For the Three and Nine Months ended September 30, 2024 and 2023

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

Average Balance Sheet

1 unchanged sentence

Three Months Ended

June 30, 2024 June 30, 2023

Balance Interest (4)

September 30, 2024 September 30, 2023

Interest earning assets

34 unchanged sentences

Less FTE adjustments (4)

(2,023) (2,125)

Net Interest Income $ 46,910 $ 42,090

13 unchanged sentences

(7) Includes interest earning deposits and interest earning time deposits.

(8) Average balances are calculated on a daily average basis

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

Net interest income decreased $2.8 million during the six months ended June 30, 2024, to $88.6 million, when compared to the same period in 2023.

While average earning asset balances grew modestly, the reported net FTE interest margin 2 decreased by 11 basis points, to 2.57% for the six months ended June 30, 2024 compared to the year ago period.

The primary driver of the decline in net interest income compared with the year ago period was the $1.5 million swap termination gain and $1.1 million of additional contribution from interest accretion on acquired loans in the year ago period.

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

For the Three and Nine Months ended September 30, 2024 and 2023

Net interest income increased $2.0 million during the nine months ended September 30, 2024, to $135.5 million, when compared to the same period in 2023.

Growth in average earning asset balances and a 1 basis point increase in the reported net FTE interest margin 2 , to 2.60% for the nine months ended September 30, 2024 compared to the year ago period drove the net interest income growth versus the year ago comparable period.

The net FTE interest margin expansion over the nine months ended September 30, 2024 was modest, as the increased contribution from interest-free funds was largely offset by the contraction in the net spread between the yield on earning assets and interest-bearing liabilities.

2 Non-GAAP financial metric.

4 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

For the Three and Nine Months ended September 30, 2024 and 2023

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

Average Balance Sheet

(Dollars in Thousands, Unaudited)

Six Months Ended

June 30, 2024 June 30, 2023

Balance Interest (4)

Balance Interest (4)(6)

Nine months ended

September 30, 2024 September 30, 2023

Interest earning assets

34 unchanged sentences

Less FTE adjustments (4)

(4,091) (4,370)

Net Interest Income $ 135,477 $ 133,487

13 unchanged sentences

(7) Includes interest earning deposits and interest earning time deposits.

(8) Average balances are calculated on a daily average basis

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

For the Three and Nine Months ended September 30, 2024 and 2023

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

Three Months Ended June 30, 2024 vs.

Three Months Ended June 30, 2023 Six Months Ended June 30, 2024 vs.

Six Months Ended June 30, 2023

Three Months Ended September 30, 2024 vs.

Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 vs.

Nine Months Ended September 30, 2023

Change Change

Volume Change

Due to Volume Change

Change Change

Volume Change

Due to Volume Change

Interest Income

1 unchanged sentence

Interest earning deposits 12 8 4 46 — $ 46

(6) (16) 10 34 (7) 41

Federal Home Loan Bank stock 989 451 538 2,380 938 $ 1,442

12 unchanged sentences

Net interest income $ 4,820 $ 7,972 $ (3,152) $ 1,990 $ 13,961 $ (11,971)

(1) Includes time deposits.

Non-Interest Income

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

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

(Dollars in Thousands) 2024 2023 2024 2023

14 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

Total non-interest income declined $0.5 million for the three months ended June 30, 2024 compared to the same period in 2023, and declined $0.2 million for the six months ended June 30, 2024 compared to the same period in 2023.

For the Three and Nine Months ended September 30, 2024 and 2023

Total non-interest income declined $0.3 million for the three months ended September 30, 2024 compared to the same period in 2023, and declined $0.5 million for the nine months ended September 30, 2024 compared to the same period in 2023.

Primary drivers of the periodic changes are noted below.

Service charges on deposit accounts increased $0.1 million for the three months ended June 30, 2024 and $0.3 million for the six months ended June 30, 2024, as compared to the same periods in 2023.

Service charges on deposit accounts increased $0.2 million for the three months ended September 30, 2024 and $0.5 million for the nine months ended September 30, 2024, as compared to the same periods in 2023.

The increases compared to the year ago periods were primarily a result of higher transaction-based fee activity in the current period.

Interchange fees, which include fees earned on qualified debit card volume and merchant processing fees, increased $0.2 million for the three months ended June 30, 2024 and $0.5 million for the six months ended June 30, 2024, as compared to the same periods in 2023.

Interchange fees, which include fees earned on qualified debit card volume and merchant processing fees, increased $0.3 million for the three months ended September 30, 2024 and $0.8 million for the nine months ended September 30, 2024, as compared to the same periods in 2023.

The increases were primarily driven by growth in qualified debit card volume for both periods.

Gain on sale of mortgage loans decreased $0.1 million for the three months ended June 30, 2024 and $0.3 million for the six months ended June 30, 2024, as compared to the same periods in 2023.

The decrease was primarily driven by lower volumes of sold loans in both periods compared to the year ago periods.

Cash value of bank owned life insurance decreased $0.7 million for the three months ended June 30, 2024 and $1.4 million for the six months ended June 30, 2024, as compared to the same periods in 2023.

Mortgage servicing income decreased $0.2 million for the three months ended September 30, 2024 and $0.7 million for the nine months ended September 30, 2024, as compared to the same periods in 2023.

The decrease was primarily driven by higher levels of amortization expense of mortgage servicing rights in the current period.

Cash value of bank owned life insurance decreased $0.7 million for the three months ended September 30, 2024 and $2.1 million for the nine months ended September 30, 2024, as compared to the same periods in 2023.

The declines were due to the surrender of several policies during the fourth quarter of 2023.

Other income, which includes various miscellaneous income items as well as fair market value adjustments to certain other assets, increased by $0.5 million during the six months ended June 30, 2024 primarily related to positive fair market value adjustments on certain marketable securities.

Other income, which includes various miscellaneous income items as well as fair market value adjustments to certain other assets, increased by $0.3 million during the nine months ended September 30, 2024 primarily related to positive fair market value adjustments on certain marketable securities.

Non-Interest Expense

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

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

(Dollars in Thousands) 2024 2023 2024 2023

11 unchanged sentences

Total non-interest expense $ 39,272 $ 36,168 $ 113,901 $ 106,954

Non-interest expense increased $ 1.3 million for the three months ended June 30, 2024 compared to the same period in 2023, primarily the result of higher expenses related to outside services and consultants, FDIC insurance, salaries and employee benefits and other losses, which was partially mitigated by lower expenses related to data processing and loan expense.

Non-interest expense increased $ 3.8 million for the six months ended June 30, 2024 compared to the same period in 2023, primarily the result of higher expenses related to salaries and benefits, FDIC insurance, outside services and consulting and other expense.

Salaries and employee benefits expense increased by $ 0.4 million for the three months ended June 30, 2024, and $ 2.0 million for the six months ended June 30, 2024, when compared to the same periods a year ago.

The increase in both

Non-interest expense increased $3.1 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily the result of higher expenses related to outside services and consultants, salaries and employee benefits, and other expenses, which was partially mitigated by lower expenses related to FDIC insurance expense and net occupancy expense.

Non-interest expense increased $6.9 million for the nine months ended September 30, 2024 compared to the same period in 2023, primarily the result of higher expenses related to salaries and employee benefits, outside services and consultants, FDIC insurance, and other expense.

Salaries and employee benefits expense increased by $1.8 million for the three months ended September 30, 2024 , and $3.7 million for the nine months ended September 30, 2024 , when compared to the same periods a year ago.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

periods is primarily attributable to growth in salary expense related to ongoing hiring efforts in revenue generating roles in commercial lending, equipment finance and treasury management.

Outside services and consultant expense increased by $ 0.5 million for the three months ended June 30, 2024, and $ 1.2 million for the six months ended June 30, 2024, when compared to the same periods a year ago.

The increase in both periods is partly attributable to hiring-related expense and other business development efforts.

FDIC insurance expense increased by $ 0.5 million for the three months ended June 30, 2024 when compared to the same period in 2023, and increased by $ 1.3 million in the six months ended June 30, 2024 compared to the year ago period.

The increase in both periods related to higher incurred assessment rates.

Other expenses, which includes corporate and other service expenses, increased by $ 0.3 million for the three months ended June 30, 2024 when compared to the same period in 2023, and increased by $ 0.7 million for the six months ended June 30, 2024 when compared to the same period in 2023.

For the Three and Nine Months ended September 30, 2024 and 2023

in both periods is partially attributable to growth in salary expense related to ongoing hiring efforts in revenue generating roles in commercial lending, equipment finance and treasury management.

In addition, the current period was unfavorably impacted by an expense related to a legacy benefits program and additional compensation-related accrual relative to the prior periods.

Outside services and consultant expense increased by $1.4 million for the three months ended September 30, 2024 , and $2.5 million for the nine months ended September 30, 2024 , when compared to the same periods a year ago.

The increase in both periods is related to ongoing strategic initiatives .

FDIC insurance expense increased by $1.2 million in the nine months ended September 30, 2024 compared to the year ago period.

The increase in the period related to higher incurred assessment rates.

Other expenses, which includes corporate and other service expenses, increased by $0.2 million for the three months ended September 30, 2024 when compared to the same period in 2023, and increased by $0.9 million for the nine months ended September 30, 2024 when compared to the same period in 2023.

Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Three Months Ended Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Allowance for Credit Losses on Loans

6 unchanged sentences

Consumer (439) (619) (1,461) (1,083)

Total net loan charge-offs (recoveries) $ 587 $ 291 $ 898 $ 824

Total net loan charge-offs $ (378) $ (797) $ (1,276) $ (1,621)

Balance at end of period $ 52,881 $ 49,699 $ 52,881 $ 49,699

1 unchanged sentence

Balance at beginning of period $ 705 $ 989 $ 615 $ 403

Provision for credit losses on unfunded lending commitments (45) (60) 90 586

Provision (reversal) for credit losses on unfunded lending commitments — (257) 90 329

Balance at end of period $ 705 $ 732 $ 705 $ 732

1 unchanged sentence

Horizon assesses the adequacy of its Allowance for Credit Losses (“ACL”) by regularly reviewing the performance of its loan portfolio against various economic backdrops, which periodically change.

During the second quarter of 2024, the Company recorded a provision for credit losses on loans of $2.4 million.

This compares to a provision for credit losses on loans of $0.7 million during the second quarter of 2023.

The increase in the provision for credit losses when compared to the year ago period was primarily attributable to loan growth during the quarter.

For the three months ended June 30, 2024, net loan charge-offs increased by $0.3 million to $0.6 million, compared to $0.3 million in the second quarter of last year.

The provision for credit losses on loans of $3.1 million for the six months ended June 30, 2024 increased by $2.7 million when compared to the prior year period, which is primarily attributable to loan growth

For the six months ended June 30, 2024, net loan charge-offs increased by $0.1 million to $0.9 million compared to $0.8 million in the prior year period.

During the third quarter of 2024, the Company recorded a provision for credit losses on loans of $1.0 million.

This compares to a provision for credit losses on loans of $0.3 million during the third quarter of 2023.

The increase in the provision for credit losses when compared to the year ago period was primarily attributable to changes in loan mix and in the economic forecast.

For the three months ended September 30, 2024, net loan charge-offs decreased by $0.4 million to $0.4 million, compared to $0.8 million in the third quarter of last year.

The provision for credit losses on loans of $4.2 million for the nine months ended September 30, 2024 increased by $3.0 million when compared to the prior year period, which is primarily attributable to loan growth and the change in loan mix.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

The Company’s allowance for credit losses as a percentage of period-end loans HFI was 1.08% at June 30, 2024, compared to 1.17% at June 30, 2023.

As of June 30, 2024, the allowance on unfunded lending commitments decreased by $0.3 million to $0.7 million, compared to $1.0 million in the second quarter of last year.

The Company’s income tax expense for the second quarter of 2024 was $1.7 million compared to $1.5 million for the second quarter of 2023, resulting in effective tax rates of 10.9% and 7.2%, respectively.

The increase in the effective tax rate for the second quarter 2024 is primarily due to the increase in the tax provision for the second quarter of 2024 to bring the year-to-date tax rate in line with the current estimated annual effective tax rate for the full year 2024, less tax-advantaged BOLI income related to the policies surrendered in the fourth quarter of 2023 and the impact of the adoption of ASU 2023-02, partially offset by a decrease in pre-tax income.

The Company’s income tax expense for the first six months of 2024 was $3.0 million compared to $3.3 million for the same period in 2023, resulting in effective tax rates of 9.8% and 8.2%, respectively.

The increase in the effective tax rate for the first six months 2024 is primarily due to less tax-advantaged BOLI income related to the policies surrendered in the fourth quarter of 2023 and the impact of the adoption of ASU 2023-02, partially offset by a decrease in pre-tax income.

For the Three and Nine Months ended September 30, 2024 and 2023

For the nine months ended September 30, 2024, net loan charge-offs decreased by $0.3 million to $1.3 million compared to $1.6 million in the prior year period.

The Company’s allowance for credit losses as a percentage of period-end loans HFI was 1.10% at September 30, 2024, compared to 1.14% at September 30, 2023.

As of September 30, 2024, the liability for unfunded lending commitments was relatively unchanged at $0.7 million when compared to the third quarter of last year.

The Company’s income tax expense for the third quarter of 2024 was $0.1 million c ompared to $1.3 million for the third quarter of 2023, resulting in effective tax rates of 0.4% and 7.3%, respectively.

The decrease in the effective tax rate for the third quarter 2024 is primarily due to the increase in the net realizable tax credits for the current year .

The Company’s income tax expense for the first nine months of 2024 was $3.0 million compared to $4.6 million for the same period in 2023, resulting in effective tax rates of 6.0% and 8.0%, respectively.

The decrease in the effective tax rate for the first nine months 2024 is primarily due to the increase in net realizable tax credits in the current period.

The effective income tax rates differed from the U.S.

1 unchanged sentence

Financial Condition

Total assets decreased by $28.0 million, or 0.4%, as of June 30, 2024, from $7.9 billion as of December 31, 2023.

The decrease in total assets is primarily due to decreases in cash and cash equivalents of $380.4 million over the period, or 72.3%, to $146.1 million as of June 30, 2024, and a decrease in total securities balances of $61.6 million, to $2.4 billion, partially offset by growth in loans HFI of $403.0 million, or 9.2%, to $4.8 billion as of June 30, 2024.

Total investment securities decreased $61.6 million, or 2.5%, to $2.4 billion as of June 30, 2024 from $2.5 billion as of December 31, 2023, primarily as a result of scheduled amortization and maturities.

There were no purchases of investment securities during the first six months of 2024.

Total loans HFI increased to $4.8 billion as of June 30, 2024 compared to $4.4 billion as of December 31, 2023, led by organic commercial loan growth of $229.6 million.

Total assets decreased by $13.0 million, or 0.2%, as of September 30, 2024, from $7.9 billion as of December 31, 2023.

The decrease in total assets is primarily due to decreases in cash and cash equivalents of $291.7 million over the period, or 55.4%, to $234.8 million as of September 30, 2024, and a decrease in total securities balances of $63.3 million, to $2.4 billion, partially offset by growth in loans HFI of $383.5 million, or 8.8%, to $4.8 billion as of September 30, 2024.

Total investment securities decreased $63.3 million, or 2.5%, to $2.4 billion as of September 30, 2024 from $2.5 billion as of December 31, 2023, primarily as a result of amortization and maturities.

There were no purchases of investment securities during the first nine months of 2024.

Total loans HFI increased to $4.8 billion as of September 30, 2024 compared to $4.4 billion as of December 31, 2023, led by organic commercial loan growth of $239.1 million.

The company continues to maintain a balanced growth profile across various geographies, products and industries, and holds a diverse lending portfolio consisting primarily of commercial real estate, consumer, residential and commercial and industrial portfolios.

Total deposit balances decreased by $34.7 million, or 0.6%, to $5.6 billion on June 30, 2024 when compared to balances as of December 31, 2023.

The Company maintains a granular and tenured deposit base, with over 81% of balances insured or collateralized, with a continued focus on core commercial and consumer deposit gathering.

All other interest bearing liabilities at June 30, 2024, primarily comprised of Federal Home Loan Bank of Indianapolis advances, remained relatively stable when compared to balances as of December 31, 2023.

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

Total deposit balances increased by $62.1 million, or 1.1%, to $5.7 billion on September 30, 2024 when compared to balances as of December 31, 2023.

The Company maintains a granular and tenured deposit base, with a continued focus on core commercial and consumer deposit gathering.

Total borrowings decreased by $87.9 million, or 6.5%, to $1.3 billion as of September 30, 2024 when compared to balances as of December 31, 2023, primarily related to repayment of a portion of Federal Home Loan Bank advances in August.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

June 30, 2024 December 31, 2023

For the Three and Nine Months ended September 30, 2024 and 2023

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

September 30, 2024 December 31, 2023

Value Amortized

14 unchanged sentences

Total held to maturity investment securities $ 1,888,537 $ 1,640,447 $ 1,945,795 $ 1,668,758

Investment securities available for sale decreased $20.2 million since December 31, 2023 to $527.1 million as of June 30, 2024 primarily due to principal repayments and maturities.

Investment securities held to maturity decreased $41.4 million since December 31, 2023 to $1.9 billion as of June 30, 2024.

This decrease in investments held to maturity was due to cash flows received during the first six months of 2024.

Investment securities available for sale decreased $6.1 million since December 31, 2023 to $541.2 million as of September 30, 2024, and securities held to maturity decreased $57.3 million since December 31, 2023 to $1.9 billion as of September 30, 2024.

The decrease in total investments was due to principal amortization and maturities, and there were no purchases of investment securities through the first nine months of 2024.

Credit Quality

The ACL balance at June 30, 2024 was $52.2 million, or 1.08% of period-end loans HFI compared to an ACL balance of $50.0 million at December 31, 2023 or 1.13% of loans HFI.

The ACL balance at September 30, 2024 was $52.9 million, or 1.10% of period-end loans HFI compared to an ACL balance of $50.0 million at December 31, 2023 or 1.09% of loans HFI.

The increase in the ACL was primarily due to the growth in commercial loans.

As of June 30, 2024, total non-accrual loans decreased by $1.4 million, or 7.3%, from December 31, 2023, to 0.38% of total loans HFI.

Total non-performing assets decreased $1.3 million, or 6.0%, to $20.5 million, compared to $21.8 million as of December 31, 2023.

The ratio of non-performing assets to total assets decreased slightly compared to December 31, 2023.

As of June 30, 2024, net charge-offs decreased by $0.2 million to $0.6 million, compared to $0.8 million as of December 31, 2023, while remaining low at 0.05% annualized of average loan balances.

Total non–performing loans decreased $1.0 million, or 4.8%, compared to $20.3 million as of December 31, 2023.

As of September 30, 2024, total non-accrual loans increased by $3.9 million, or 19.6%, from December 31, 2023, to 0.49% of total loans HFI.

Total non-performing assets increased $3.8 million, or 17.4%, from December 31, 2023, to 0.32% of total assets.

During the three months ended September 30, 2024, net charge-offs were $0.4 million, or 3 basis points annualized of average loans in the period, down from $0.7 million, or 7 basis point annualized of average loans in the year ago comparable period.

During the nine months ended September 30, 2024, net charge-offs were $1.3 million, or 4 basis points annualized of average loans in the period, compared with $1.6 million, or 4 basis point annualized of average loans in the year ago comparable period.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

For the Three and Nine Months ended September 30, 2024 and 2023

Credit Quality

1 unchanged sentence

Quarter Ended

June 30, December 31,

September 30, December 31,

Non-accrual loans

34 unchanged sentences

And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

For the Three and Nine Months ended September 30, 2024 and 2023

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

1 unchanged sentence

Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB.

At June 30, 2024, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.76 billion in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.41 billion at December 31, 2023.

The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash equivalents and restricted cash of $380.4 million during the first six months of 2024, as reported in the consolidated statements of cash flows in this report.

At September 30, 2024, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $1.52 billion in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.41 billion at December 31, 2023.

The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash equivalents and restricted cash of $291.7 million during the first nine months of 2024, as reported in the consolidated statements of cash flows in this report.

Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $54.7 million and have historically been a stable source of funds.

Investing activities, which occur mainly in the loan and investment securities portfolios, used cash of $357.5 million due growth in the loan portfolio, which used cash of $407.0 million.

Financing activities used cash of $45.4 million, largely resulting from net decreases in deposits of $34.7 million and $14.2 million in dividends paid on common stock during the first six months of 2024.

Investing activities, which occur mainly in the loan and investment securities portfolios, used cash of $322.4 million mainly due to growth in the loan portfolio, which used cash of $413.4 million.

Financing activities used cash of $24.0 million, largely resulting from the repayment of long-term borrowings of $563.1 million and $21.3 million in dividends paid on common stock during the first nine months of 2024.

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at June 30, 2024.

Stockholders’ equity totaled $726.7 million as of June 30, 2024, compared to $718.8 million as of December 31, 2023.

For the six months ended June 30, 2024, the ratio of average stockholders’ equity to average assets was 9.30% compared to 8.97% for the twelve months ended December 31, 2023.

The increase in stockholders’ equity during the period was due to net income generated during the period, offset by a decrease in accumulated other comprehensive income of $7.4 million and cash dividends paid to common shareholders.

As of June 30, 2024, the ratio of total stockholders’ equity to total assets is 9.18%.

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2024.

Stockholders’ equity totaled $754.8 million as of September 30, 2024, compared to $718.8 million as of December 31, 2023.

For the nine months ended September 30, 2024, the ratio of average stockholders’ equity to average assets was 9.30% compared to 8.97% for the twelve months ended December 31, 2023.

The increase in stockholders’ equity during the period was due to net income generated during the period and the improved market value of securities available for sale, offset by cash dividends paid to common shareholders.

As of September 30, 2024, the ratio of total stockholders’ equity to total assets is 9.52%.

Book value per common share was $17.27, increasing $0.80 compared to December 31, 2023.

Tangible common equity 1 totaled $559.5 million at June 30, 2024, and the ratio of tangible common equity to tangible assets 1 was 7.22% at June 30, 2024.

Tangible common equity 1 totaled $588.5 million at September 30, 2024, and the ratio of tangible common equity to tangible assets 1 was 7.58% at September 30, 2024.

Tangible book value, which excludes intangible assets from total equity, per common share 1 was $13.46, increasing $0.87 compared to December 31, 2023.

Horizon declared common stock dividends in the amount of $0.32 per share during the first six months of 2024 and $0.32 per share for the same period in 2023.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 50.0% and 37.7% for the first six months of 2024 and 2023, respectively.

Horizon declared common stock dividends in the amount of $0.48 per share during the first nine months of 2024 and $0.48 per share for the same period in 2023.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 45.3% and 39.3% for the first nine months of 2024 and 2023, respectively.

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

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And Results of Operations

For the Three and Six Months ended June 30, 2024 and 2023

For the Three and Nine Months ended September 30, 2024 and 2023

Use of Non-GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP.

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

In each case, we have identified special circumstances that we consider to be non-recurring and have excluded them.

We believe that this shows the impact of such events as acquisition-related purchase accounting adjustments and swap termination fees, among others we have identified in our reconciliations.

Horizon believes these non-GAAP financial measures are helpful to investors and provide a greater understanding of our business and financial results without giving effect to the purchase accounting impacts and one-time costs of acquisitions and non–recurring items.

In addition to financial measures presented in accordance with GAAP, this document refers to non-GAAP financial measures, which Horizon believes are helpful to investors and provide a greater understanding of our business and financial results without the impact of items or events that may obscure trends in the Company’s underlying performance.

These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure.

See the tables and other information below and contained elsewhere in this press release for reconciliations of the non-GAAP information identified herein and its most comparable GAAP measures.

See the tables and other information below and contained elsewhere in this document for reconciliations of the non-GAAP information identified herein and its most comparable GAAP measures.

Non–GAAP Reconciliation of Net Fully-Taxable Equivalent ("FTE") Interest Margin

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2024 2024 2024 2023 2023 2024 2023

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Investment securities - tax exempt (1)

$ 1,677 $ 1,695 $ 1,715 $ 1,799 $ 1,861 5,087 5,746

Loan receivable (2)

340 328 353 314 251 1,021 736

Total taxable-equivalent adjustment (3)

$ 2,017 $ 2,023 $ 2,068 $ 2,113 $ 2,112 $ 6,108 $ 6,482

Interest income (non-GAAP) (B) $ 92,905 $ 89,004 $ 87,332 $ 85,627 $ 82,237 $ 269,241 $ 235,273

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(2) The following represents municipal loan interest income for loan receivables classified as held for sale and held for investment

(3) Management believes fully taxable equivalent, or FTE, interest income is useful to investors in evaluating the Company's performance as a comparison of the returns between a tax-free investment and a taxable alternative.

The Company adjusts interest income for tax-exempt loans and securities to an FTE basis utilizing a 21% tax rate

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2024 and 2023

Non–GAAP Reconciliation of Return on Average Tangible Common Equity

(Dollars in Thousands, Unaudited)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

2024 2024 2024 2023 2023 2024 2023

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Three Months Ended

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

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

2024 2024 2024 2023 2023

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Three Months Ended

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

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

2024 2024 2024 2023 2023

7 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis