Item 2. Management’s Discussion and Analysis
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward–Looking Statements
This report contains certain forward–looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to Horizon Bancorp, Inc. (“Horizon” or the “Company”) and Horizon Bank (the “Bank”). Horizon intends such forward–looking statements to be covered by the safe harbor provisions for forward–looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for the purposes of these safe harbor provisions. Statements in this report should be considered in conjunction with the other information available about Horizon, including the information in the other filings we make with the Securities and Exchange Commission. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “expect,” “estimate,” “project,” “intend,” “plan,” “believe,” “could,” “will” and similar expressions in connection with any discussion of future operating or financial performance. Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.
Actual results may differ materially, adversely or positively, from the expectations of the Company that are expressed or implied by any forward–looking statement. 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:
• effects on Horizon’s business resulting from new U.S. domestic or foreign governmental trade measures, including but not limited to tariffs, import and export controls, foreign exchange intervention accomplished to offset the effects of trade policy or in response to currency volatility, and other restrictions on free trade;
• uncertain conditions within the domestic and international macroeconomic environment, including trade policy, monetary and fiscal policy, and conditions in the investment, credit, interest rate, and derivatives markets, and their impact on Horizon and its customers;
• current financial conditions within the banking industry;
• the impact of continued partial shutdown of the U.S. government;
• changes in the level and volatility of interest rates, spreads on earning assets and interest bearing liabilities, and interest rate sensitivity;
• the aggregate effects of elevated inflation levels in recent years;
• loss of key Horizon personnel;
• 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;
• risks related to the development and use of artificial intelligence (AI);
• the effect of interest rates on net interest rate margin and their impact on mortgage loan volumes and the outflow of deposits;
• increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks;
• potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms (e.g., Apple Pay or Bitcoin) take a greater market share of the payment systems;
• estimates of fair value of certain of Horizon’s assets and liabilities;
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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, 2025 and 2024
• volatility and disruption in financial markets;
• 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;
• changes in the competitive environment in Horizon’s market areas and among other financial service providers;
• 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;
• 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;
• the effects and costs of governmental investigations or related actions by third parties;
• rapid technological developments and changes;
• the risks presented by cyber terrorism and data security breaches;
• the rising costs of effective cybersecurity;
• containing costs and expenses;
• the ability of the U.S. federal government to manage federal debt limits;
• the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with acquired loans, difficulty integrating acquired operations and material differences in the actual financial results of such transactions compared with Horizon’s initial expectations, including the full realization of anticipated cost savings; and
• acts of terrorism, war and global conflicts, such as the Russia-Ukraine conflict and continued unrest in the Middle East, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, and the overall U.S. and global financial markets.
The foregoing list of important factors is not exclusive, and you are cautioned not to place undue reliance on these forward–looking statements, which speak only as of the date of this document or, in the case of documents incorporated by reference, the dates of those documents. We do not undertake to update any forward–looking statements, whether written or oral, that may be made from time to time by us or on our behalf. For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward–looking statements, see “Risk Factors” in Item 1A of Part I of our 2024 Annual Report on Form 10–K, in Item 1A of Part II of this Quarterly Report on Form 10–Q, and in the subsequent reports we file with the SEC.
Critical Accounting Estimates
The notes to the consolidated financial statements included in Item 8 of the Company’s 2024 Annual Report on Form 10–K contain a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The Company considers these policies to be its critical accounting estimates. Management has identified as critical accounting policies the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.
For additional information regarding critical accounting estimates, see Note 1 – Nature of Operations and Summary of Significant Accounting Policies included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended
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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, 2025 and 2024
December 31, 2024. There have been no material changes in the Company’s application of critical accounting estimates since December 31, 2024.
Results of Operations
Net Income
Net Income decreased $240.2 million, to a net loss of $222.0 million, or $(4.69) per diluted share, during the three months ended September 30, 2025 when compared to net income of $18.2 million, or $0.41 per diluted share, for the s ame period in 2024. The decrease in net income when compared with the prior year period reflects a decrease in non-interest income of $306.8 million, of which $299.1 million related to a loss on sale of investment securities, and an increase in non-interest expense of $13.7 million, primarily owed to prepayment penalties on the redemption of borrowings. The decrease was partially offset by an increase in interest income of $1.9 million, a decrease of in interest expense of $9.5 million and an decrease in tax expense of $64.3 million.
Net Income decreased $223.7 million, to a net loss of $177.4 million, or $(3.94) per diluted share, during the nine months ended September 30, 2025, compared to net income of $46.3 million, or $1.05 per share, for the same period in 2024 . The decrease from the year ago period was primarily a result of a decrease in non-interest income of $299.8 million, of which $299.5 million related to a loss on sale of investment securities, and an increase in non-interest expense of $17.8 million primarily related to the prepayment penalties, partially offset by a decrease in interest expense of $20.2 million, an increase in interest income of $10.4 million and a decrease in tax expense of $59.4 million, to a net credit of $56.4 million.
Net Interest Income
Net interest income increased $11.5 million, or 24.5% during the three months ended September 30, 2025 , to $58.4 million, when compared to the same period in 2024. While average earning assets decreased, the reported net FTE interest margin 1 increased by 86 basis points, to 3.52% for the three months ended September 30, 2025 compared to the prior year 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. Additionally, loan and securities yields have expanded while deposit costs have declined when compared with the comparable year ago period. Interest accretion from the fair value of acquired loans did not contribute significantly to net interest income, or net FTE interest margin 1 , in either comparable period.
Net interest income increased $30.5 million during the nine months ended September 30, 2025 , to $166.0 million when compared to the same period in 2024. While average earning asset balances declined, the reported net FTE interest margin 1 increased by 66 basis points, to 3.26% for the nine months ended September 30, 2025 when compared to the prior year period. The primary driver of the increase in net interest income compared with the prior year period is 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. Additionally, loan and securities yields have expanded while deposit costs have declined when compared with the comparable year ago period.
1 Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.
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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, 2025 and 2024
Following are the average balance sheets for the three months ended (dollars in thousands):
Average Balance Sheet
(Dollars in Thousands, Unaudited)
Three Months Ended
September 30, 2025 September 30, 2024
Average
Balance (6)
Interest (5)
Average
Rate Average
Balance (6)
Interest (5)
Average
Rate
Assets
Interest earning assets
Interest earning deposits (incl. Fed Funds Sold) $ 185,665 $ 2,062 4.41 % $ 73,524 $ 957 5.18 %
Federal Home Loan Bank stock (1)
45,549 862 7.51 % 53,826 1,607 11.88 %
Investment securities - taxable (2)
792,829 5,769 2.89 % 1,301,830 6,526 1.99 %
Investment securities - non-taxable (2)
763,488 5,799 3.01 % 1,125,295 7,987 2.82 %
Total investment securities 1,556,317 11,568 2.95 % 2,427,125 14,513 2.38 %
Loans receivable (3) (4)
4,979,211 79,941 6.37 % 4,775,788 75,828 6.32 %
Total interest earning assets $ 6,766,742 94,433 5.54 % $ 7,330,263 92,905 5.04 %
Non-interest earning assets
Cash and due from banks 83,616 108,609
Allowance for credit losses (54,072) (52,111)
Other assets 501,590 471,259
Total average assets $ 7,297,876 $ 7,858,020
Liabilities and Stockholders' Equity
Interest bearing liabilities
Interest bearing demand deposits $ 1,708,446 $ 6,687 1.55 % $ 1,656,576 $ 7,370 1.77 %
Saving and money market deposits 1,636,428 8,204 1.99 % 1,729,601 10,986 2.53 %
Time deposits 1,198,279 10,835 3.59 % 1,189,148 12,431 4.16 %
Total Deposits 4,543,153 25,726 2.25 % 4,575,325 30,787 2.68 %
Borrowings 601,889 5,535 3.65 % 1,149,952 10,221 3.54 %
Repurchase agreements 88,721 389 1.74 % 123,524 910 2.93 %
Subordinated notes 91,032 1,731 7.54 % 55,681 830 5.93 %
Junior subordinated debentures issued to capital trusts 57,602 1,069 7.36 % 57,389 1,230 8.53 %
Total interest bearing liabilities 5,382,397 34,450 2.54 % 5,961,871 43,978 2.93 %
Non-interest bearing liabilities
Demand deposits 1,120,719 1,083,214
Accrued interest payable and other liabilities 63,103 74,563
Stockholders' equity 731,657 738,372
Total average liabilities and stockholders' equity $ 7,297,876 $ 7,858,020
Net FTE interest income (Non-GAAP) (5)
$ 59,983 $ 48,927
Less FTE adjustments (5)
1,597 2,017
Net Interest Income $ 58,386 $ 46,910
Net FTE interest margin (Non-GAAP) (5)
3.52 % 2.66 %
(1) Includes dividend income on FHLB stock.
(2) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities.
(3) Includes fees on loans held for sale and held for investment. The inclusion of loan fees does not have a material effect on the average interest rate.
(4) Non-accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees.
(5) 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 and average rates for tax-exempt loans and securities to an FTE basis utilizing a 21% tax rate
(5) Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.
(6) Average balances are calculated on a daily average basis
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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, 2025 and 2024
Following are the average balance sheets for the six months ended (dollars in thousands):
Average Balance Sheet
(Dollars in Thousands, Unaudited)
Nine Months Ended
September 30, 2025 September 30, 2024
Average
Balance (6)
Interest (5)
Average
Rate Average
Balance (6)
Interest (5)
Average
Rate
Assets
Interest earning assets
Interest earning deposits (incl. Fed Funds Sold) 160,465 5,380 4.48 % 153,178 6,192 10.10 %
Federal Home Loan Bank stock (1)
47,554 2,948 8.29 % 48,553 3,911 10.76 %
Investment securities - taxable (2)
908,061 15,663 2.31 % 1,312,421 19,570 1.99 %
Investment securities - non-taxable (2)
993,516 21,343 2.87 % 1,135,734 24,225 2.85 %
Total investment securities 1,901,577 37,006 2.60 % 2,448,155 43,795 2.39 %
Loans receivable (3) (4)
4,938,985 233,781 6.33 % 4,629,363 215,343 6.21 %
Total interest earning assets 7,048,581 279,115 5.29 % 7,279,249 269,241 4.94 %
Non-interest earning assets
Cash and due from banks 86,162 107,578
Allowance for credit losses (52,840) (50,806)
Other assets 486,091 485,693
Total average assets $ 7,567,994 $ 7,821,714
Liabilities and Stockholders' Equity
Interest bearing liabilities
Interest bearing demand deposits 1,728,715 19,982 1.55 % 1,657,267 21,078 1.70 %
Saving and money market deposits 1,654,155 24,667 1.99 % 1,690,837 30,245 2.39 %
Time deposits 1,214,697 32,730 3.60 % 1,166,968 35,901 4.11 %
Total Deposits 4,597,567 77,379 2.25 % 4,515,072 87,224 2.58 %
Borrowings 813,713 22,085 3.63 % 1,178,180 31,403 3.56 %
Repurchase agreements 88,417 1,198 1.81 % 128,887 2,871 2.98 %
Subordinated notes 67,652 3,389 6.70 % 55,629 2,490 5.98 %
Junior subordinated debentures issued to capital trusts 57,550 3,429 7.97 % 57,334 3,668 8.55 %
Total interest bearing liabilities 5,624,899 107,480 2.55 % 5,935,102 127,656 2.87 %
Non-interest bearing liabilities
Demand deposits 1,107,304 1,080,367
Accrued interest payable and other liabilities 68,813 79,154
Stockholders' equity 766,978 727,091
Total average liabilities and stockholders' equity $ 7,567,994 $ 7,821,714
Net FTE interest income (Non-GAAP) (5)
171,635 141,585
Less FTE adjustments (5)
5,626 6,108
Net Interest Income $ 166,009 $ 135,477
Net FTE interest margin (Non-GAAP) (5)
3.26 % 2.60 %
(1) Includes dividend income on FHLB stock.
(2) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities.
(3) Includes fees on loans held for sale and held for investment. The inclusion of loan fees does not have a material effect on the average interest rate.
(4) Non-accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees.
(5) 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 and average rates for tax-exempt loans and securities to an FTE basis utilizing a 21% tax rate
(5) Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.
(6) Average balances are calculated on a daily average basis
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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, 2025 and 2024
The following table illustrates the impact of changes in the volume of interest earning assets and interest bearing liabilities and interest rates on net interest income for the periods indicated.
Three Months Ended September 30, 2025 vs.
Three Months Ended September 30, 2024 Nine Months Ended September 30, 2025 vs.
Nine Months Ended September 30, 2024
Total
Change Change
Due To
Volume Change
Due To
Rate Total
Change Change
Due To
Volume Change
Due To
Rate
Interest Income
Interest-bearing deposits in banks $ 1,105 $ 1,265 $ (160) $ (812) $ 528 $ (1,340)
Federal Home Loan Bank stock (745) (221) (524) (963) (79) (884)
Investment securities - taxable (757) (3,088) 2,331 (3,907) (6,662) 2,755
Investment securities - non-taxable (2,188) (2,717) 529 (2,882) (3,055) 173
Loans receivable 4,113 3,262 851 18,438 14,614 3,824
Total interest income 1,528 (1,499) 3,027 9,874 5,346 4,528
Interest Expense
Interest-bearing demand deposits (683) 226 (909) (1,096) 885 (1,981)
Savings and money market savings deposits (2,782) (569) (2,213) (5,578) (645) (4,933)
Time deposits (1,596) 95 (1,691) (3,171) 1,427 (4,598)
Borrowings (4,686) (5,031) 345 (9,318) (9,885) 567
Repurchase agreements (521) (214) (307) (1,673) (747) (926)
Subordinated notes 901 629 272 899 580 319
Junior subordinated debentures issued to capital trusts (161) 5 (166) (239) 14 (253)
Total interest expense (9,528) (4,859) (4,669) (20,176) (8,371) (11,805)
Net FTE interest income (Non-GAAP) 11,056 3,360 7,696 30,050 13,717 16,333
Less change in FTE adjustments (420) (482)
Net Interest Income $ 11,476 $ 30,532
Non-Interest Income
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
(Dollars in Thousands) 2025 2024 $ Change % Change 2025 2024 $ Change % Change
Non-interest (Loss) Income
Service charges on deposit accounts $ 3,474 $ 3,320 $ 154 5 % $ 9,890 $ 9,664 $ 226 2 %
Wire transfer fees 71 123 (52) (42) % 211 337 (126) (37) %
Interchange fees 3,510 3,511 (1) — % 10,154 10,446 (292) (3) %
Fiduciary activities 1,363 1,394 (31) (2) % 3,940 4,081 (141) (4) %
Loss on sale of investment securities (299,132) — (299,132) — % (299,538) — (299,538) — %
Gain on sale of mortgage loans 1,208 1,622 (414) (26) % 3,503 3,144 359 11 %
Mortgage servicing income net of impairment 351 412 (61) (15) % 1,111 1,301 (190) (15) %
Increase in cash value of bank owned life insurance 379 349 30 9 % 1,060 965 95 10 %
Other income (loss) (6,558) 780 (7,338) (941) % 1,756 1,987 (231) (12) %
Total non-interest (loss) income $ (295,334) $ 11,511 $ (306,845) (2666) % $ (267,913) $ 31,925 $ (299,838) (939) %
Total non-interest income decreased $306.8 million, to a net loss of $295.3 million for the three months ended September 30, 2025 compared to the same period in 2024 and decreased $299.8 million, to a net loss of $267.9 million for the nine
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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, 2025 and 2024
months ended September 30, 2025 compared to the same period in 2024. The primary components of the change were as follows:
Loss on sale of investment securities increased by $299.1 million for the three months ended September 30, 2025 compared to zero in the comparable period in 2024, and a increased by $299.5 million for the nine months ended September 30, 2025 compared to zero in the comparable period in 2024. The increase was primarily due to the sale of investment securities during the third quarter of 2025 related to the Company's balance sheet repositioning efforts.
Other income, which includes various miscellaneous income items as well as fair market value adjustments to certain other assets, decreased by $7.3 million, to a loss of $6.6 million for the three months ended September 30, 2025, compared to the same period in 2024. The decrease was primarily related to the pre-tax loss of $7.7 million on the sale of the Company's Indirect Auto portfolio related to the balance sheet repositioning efforts. Other income for the nine months ended September 30, 2025 included the pre-tax gain of $7.0 million on the sale of the Company's mortgage warehouse business in the first quarter of 2025.
Gain on sale of mortgage loans decreased by $0.4 million for the three months ended September 30, 2025 compared to the same period in 2024, driven lower realized gain-on-sale margins, and increased by $0.4 million for the nine months ended September 30, 2025, as compared to the same periods in 2024, driven by the increased volume of sold loans.
Non-Interest Expense
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
(Dollars in Thousands) 2025 2024 $ Change % Change 2025 2024 $ Change % Change
Non-interest Expense
Salaries and employee benefits $ 22,698 $ 21,829 $ 869 4 % $ 67,843 $ 62,680 $ 5,163 8 %
Net occupancy expenses 3,321 3,207 114 4 % 10,149 9,945 204 2 %
Data processing 2,933 2,977 (44) (2) % 8,757 8,020 737 9 %
Professional fees 808 676 132 20 % 2,369 1,997 372 19 %
Outside services and consultants 3,844 3,677 167 5 % 10,387 10,094 293 3 %
Loan expense 1,237 1,034 203 20 % 3,157 2,791 366 13 %
FDIC insurance expense 1,345 1,204 141 12 % 3,849 3,839 10 — %
Core deposit intangible amortization 706 844 (138) (16) % 2,338 2,560 (222) (9) %
Merger related expense — — — — % 305 — 305 100 %
Prepayment penalties 12,680 — 12,680 100 % 12,680 — 12,680 100 %
Other losses 131 297 (166) (56) % 605 828 (223) (27) %
Other expense 3,249 3,527 (278) (8) % 9,239 11,147 (1,908) (17) %
Total non-interest expense $ 52,952 $ 39,272 $ 13,680 35 % $ 131,678 $ 113,901 $ 17,777 16 %
Non-interest expense increased $13.7 million for the three months ended September 30, 2025 compared to the same period in 2024. Non-interest expense increased $17.8 million for the nine months ended September 30, 2025 compared to the same period in 2024, the primary components of the change were as follows:
Prepayment penalties increased $12.7 million for the three and nine months ended September 30, 2025 when compared to the same period in 2024. The increase was driven by a $12.7 million prepayment penalty related to the payoff of $700 million in FHLB advances during the quarter as part of the Company's balance sheet repositioning.
Salaries and employee benefits expense increased by $0.9 million for the three months ended September 30, 2025 when compared to the same period a year ago. Salaries and employee benefits expense increased by $5.2 million for the nine
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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, 2025 and 2024
months ended September 30, 2025 compared to the same period in 2024. T he increase 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, and higher incentive compensation accruals. Additionally, the prior comparable period benefited from a favorable expense adjustment on a legacy compensation program that was terminated in the fourth quarter of 2024.
Other expenses, which includes corporate and other service expenses, decreased by $0.3 million for the three months ended September 30, 2025 when compared to the same period a year ago and $1.9 million for the nine months ended September 30, 2025 compared to the same period in 2024. This decrease was partially due to decreases in marketing and advertising expenses.
Provision and Allowance for Credit Losses
Three Months Ended Nine Months Ended
September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024
Allowance for Credit Losses on Loans
Balance at beginning of period $ 54,399 $ 52,215 $ 51,980 $ 50,029
Provision for credit losses on loans (3,390) 1,044 152 4,128
Net loan (charge-offs) recoveries:
Commercial $ (294) $ 52 $ (331) $ 167
Residential Real estate (20) 9 (26) 18
Mortgage warehouse — — — —
Consumer (517) (439) (1,597) (1,461)
Total net loan (charge-offs) recoveries $ (831) $ (378) $ (1,954) $ (1,276)
Balance at end of period $ 50,178 $ 52,881 $ 50,178 $ 52,881
Liability for Unfunded Lending Commitments
Balance at beginning of period $ 2,312 $ 705 $ 2,149 $ 615
Provision (reversal) for credit losses on unfunded lending commitments (41) — 705 90
Balance at end of period $ 2,271 $ 705 $ 2,854 $ 705
Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments $ 52,449 $ 53,586 $ 53,032 $ 53,586
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 three months ended September 30, 2025, the Company recorded a benefit for credit losses on loans of $3.4 million. This compares to a provision for credit losses on loans of $1.0 million compared to the same period in 2024. The decrease in the provision for credit losses on loans when compared to the year ago period was primarily attributable to the release of approximately $3.1 million in total Allowance against the sold portion of the indirect auto portfolio, and well as the continued improvement in the Company's historical loss metrics. The benefit for credit losses in total was $3.6 million for three months ended September 30, 2025 compared to a provision for credit losses of $1.0 million for the same period in 2024. The total provision, other than loans, benefitted from the release of the $0.2 million reserve against the previous Held-To-Maturity investment portfolio for three months ended September 30, 2025.
For the three months ended September 30, 2025, net loan charge-offs increased by $0.5 million to $0.8 million, compared to $0.4 million during the same period in 2024. The increase in charge-offs was primarily due to increases in charge-offs in the commercial portfolio.
The Company’s allowance for credit losses as a percentage of period-end loans HFI was 1.04% at September 30, 2025, compared to 1.10% at September 30, 2024.
As of September 30, 2025, the liability for unfunded lending commitments was $2.3 million compared to $0.7 million as of September 30, 2024.
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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, 2025 and 2024
Income Taxes
The Company’s income tax benefit for the three months ended September 30, 2025 was $64.3 million compared to $0.1 million for the same period in 2024. The Company’s income tax benefit for the nine months ended September 30, 2025 was $56.4 million compared to a tax expense of $3.0 million for the same period in 2024. The net credit position for the three and nine months ended September 30, 2025 is attributable to the pre-tax loss generated from the Company's balance sheet repositioning efforts in the third quarter of 2025.
The effective income tax rates differed from the U.S. statutory federal income tax rates of 21% during the comparable periods primarily due to the effect of tax exempt income from securities, loans, and life insurance policies, and net tax benefits from tax credit investments.
Financial Condition
Total assets decreased by $1.1 billion, or 14.0%, as of September 30, 2025, from $7.8 billion as of December 31, 2024. The decrease in total assets is primarily due to the Company's balance sheet repositioning efforts, which resulted in a decrease in total investment securities of $1.2 billion and a decrease in loans held for investment of $21.6 million. Additionally, the decrease is related to a decrease in loans held for sale of $65.7 million, to $1.9 million as a result of the Company's sale of its mortgage warehouse business in the first quarter of 2025. The decrease was partially offset by an increase in cash and cash equivalents of $164.8 million, or 56.2%, to $458.3 million as of September 30, 2025.
Total investment securities decreased $1.2 billion, or 58.0%, to $0.9 billion as of September 30, 2025 when compared to balances as of December 31, 2024. During the quarter, the Company moved its entire held to maturity securities portfolio to available for sale, sold approximately $1.7 billion in book value and reinvested approximately $580 million of the proceeds in the available for sale portfolio, resulting in a net increase in available for sale securities of $649.6 million as of September 30, 2025.
Total loans HFI decreased $23.4 million to $4.8 billion as of September 30, 2025 compared to balances as of December 31, 2024, due to the continued run-off of consumer balances and the sale of approximately $176 million of the Company's indirect auto portfolio during the third quarter of 2025. The decrease was partially offset by organic commercial loan growth of $278.4 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 $79.8 million, or 1.4%, to $5.5 billion as of September 30, 2025 when compared to balances as of December 31, 2024. The decrease was driven by the ongoing balance sheet repositioning efforts, which led to a decline of approximately $275 million in high-cost transactional deposit balances during the third quarter of 2025, which were partially offset by growth non-interest bearing balances, commercial interest-bearing balances and time deposit balances. The Company maintains a granular and tenured deposit base, with a continued focus on core commercial and consumer deposit gathering.
Total borrowings decreased by $985.1 million, or 79.9%, to $247.2 million as of September 30, 2025 when compared to balances as of December 31, 2024. The decrease is due to the payoff of $700 million in FHLB advances related to the balance sheet repositioning and additional de-leveraging activities during the first quarter of 2025.
Subordinated notes balances increased by $98.3 million to $154.0 million as of September 30, 2025 when compared to balances as of December 31, 2024. The increase is due to the Company's $100.0 million offering, which closed on August 29, 2025. Subsequent to quarter end, on October 1, 2025, the Company redeemed the remaining $56.5 million subordinated note issuance previously outstanding (See Note 15 - Subsequent events).
Other assets balances increased by $73.6 million to $226.2 million as of September 30, 2025, when compared to balances as of December 31, 2024. The increase is due to a $66.4 million increase in taxes receivable, due to the net loss generated
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Management’s Discussion and Analysis of Financial Condition
And Results of Operations
For the Three and Nine months ended September 30, 2025 and 2024
by the balance sheet repositioning activities in the third quarter, and an increase of $9.8 million in security receivables, related to the timing of the settlements of the security sales during the third quarter. The increase was partially offset by fluctuations in the remaining other assets balances.
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Management’s Discussion and Analysis of Financial Condition
And Results of Operations
For the Three and Nine months ended September 30, 2025 and 2024
Investment securities are comprised of the following as of (dollars in thousands):
September 30, 2025 December 31, 2024
Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Available for sale
U.S. Treasury, federal agencies, and government sponsored agencies $ 31,836 $ 31,836 $ 2,258 $ 1,801
State and municipal 354,290 315,328 243,521 201,834
U.S. government agency mortgage-backed securities 491,207 493,902 17,984 14,543
Private labeled mortgage-backed pools — — — —
Corporate notes 48,750 42,176 18,259 15,499
Total available for sale investment securities $ 926,083 $ 883,242 $ 282,022 $ 233,677
Held to maturity
U.S. Treasury, federal agencies, and government sponsored agencies $ — $ — $ 278,383 $ 239,130
State and municipal — — 1,048,862 866,706
U.S. government agency mortgage-backed securities — — 349,726 294,822
Private labeled mortgage–backed pools — — 29,278 25,320
Corporate notes — — 161,599 140,290
Total held to maturity investment securities $ — $ — $ 1,867,848 $ 1,566,268
Investment securities available for sale increased $649.6 million since December 31, 2024 to $883.2 million and securities held to maturity, net of the allowance for credit losses, decreased $1.9 billion when compared to balances as of December 31, 2024 to zero as of September 30, 2025. During the quarter, the Company moved its entire held to maturity securities portfolio to available for sale, sold approximately $1.7 billion in book value and reinvested approximately $580 million of the proceeds in the available for sale portfolio as of September 30, 2025.
Credit Quality
The ACL balance at September 30, 2025 was $50.2 million, or 1.04% of period-end loans HFI compared to an ACL balance of $52.0 million at December 31, 2024 or 1.07% of loans HFI. The decrease in the ACL was primarily attributable to the release of approximately $3.1 million in total Allowance against the sold portion of the Indirect Auto portfolio. Additionally, the Provision benefitted from continued improvement in the Company's historical loss metrics. These favorable items were partially offset by net growth in Commercial Loans HFI and a modest increase in specific reserves.
As of September 30, 2025, total non-accrual loans increased by $3.6 million, or 13.8%, from December 31, 2024 , to 0.61% of total loans HFI. Total non-performing assets increased $8.3 million, or 30%, from December 31, 2024 , to 0.53% of total asset s.
During the nine months ended September 30, 2025, net charge-offs were $2.0 million , or 5 basis points annualized of average loans in the period, a change from $0.9 million , or 4 basis point annualized of average loans in the year ago comparable period.
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Management’s Discussion and Analysis of Financial Condition
And Results of Operations
For the Three and Nine months ended September 30, 2025 and 2024
Credit Quality
(Dollars in Thousands Except Ratios, Unaudited)
Quarter Ended
September 30, December 31,
2025 2024
Non-accrual loans
Commercial $ 12,303 $ 5,658
Residential Real estate 9,256 11,215
Consumer 7,799 8,919
Total non-accrual loans $ 29,358 $ 25,792
90 days and greater delinquent - accruing interest $ 1,608 $ 1,166
Total non-performing loans $ 30,966 $ 26,958
Other real estate owned
Commercial $ 272 $ 407
Residential Real estate 769 —
Consumer 480 17
Total other real estate owned $ 1,521 $ 424
Other non-performing assets (1)
$ 3,228 $ —
Total non-performing assets $ 35,715 $ 27,382
Net charge-offs (recoveries)
Commercial $ 294 $ (32)
Residential Real estate 19 (10)
Consumer 518 668
Total net charge-offs $ 831 $ 626
Allowance for credit losses
Commercial $ 34,390 $ 30,953
Residential Real estate 3,082 2,715
Consumer 12,706 18,312
Total allowance for credit losses $ 50,178 $ 51,980
Credit quality ratios
Non-accrual loans to HFI loans 0.61 % 0.53 %
Non-performing assets to total assets 0.53 % 0.35 %
Annualized net charge-offs of average total loans 0.07 % 0.05 %
Allowance for credit losses to HFI loans 1.04 % 1.07 %
Allowance for credit losses to non-performing loans 162.04 % 192.82 %
(1) Other non-performing assets consist of a single available for sale security placed on non-accrual status in the third quarter of 2025.
Liquidity
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Management’s Discussion and Analysis of Financial Condition
And Results of Operations
For the Three and Nine months ended September 30, 2025 and 2024
The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB. At September 30, 2025, 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 $1.70 billion at December 31, 2024.
The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash equivalents and restricted cash of $164.8 million during the nine months ended September 30, 2025, as reported in the consolidated statements of cash flows in this report. Operating activities, consisting mainly of net loss adjusted for certain non-cash items, provided cash flow of $45.7 million and have historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of $1.0 billion mainly due to the balance sheet repositioning of the securities portfolio, which provided proceeds from sales of AFS securities of $1.4 billion, partially offset by purchases of AFS securities of $583.5 million. Financing activities used cash of $906.6 million, largely resulting from the repayment of long-term borrowings of $1.1 billion and $21.3 million in dividends paid on common stock, partially offset by proceeds from issuance of common stock of $98.0 million and proceeds from issuance of subordinated debt of $95.8 million during the nine months ended September 30, 2025.
Capital Resources
The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2025. Stockholders’ equity totaled $660.8 million as of September 30, 2025, compared to $763.6 million as of December 31, 2024. The decrease in stockholders’ equity during the period was due to a decrease in retained earnings related to the third quarter balance sheet repositioning activities and cash dividend payments on outstanding common stock, partially offset by an increase in additional paid-in-capital from the proceeds of the Company's third quarter common stock offering.
As of September 30, 2025, the ratio of total stockholders’ equity to total assets is 9.84%. Book value per common share was $12.96, decreasing $4.50 compared to December 31, 2024 .
Tangible common equity 1 totaled $497.7 million at September 30, 2025, and the ratio of tangible common equity to tangible assets 1 was 7.60% at September 30, 2025. Tangible book value, which excludes intangible assets from total equity, per common share 1 was $9.76, decreasing $3.92 compared to December 31, 2024 .
Horizon declared common stock dividends in the amount of $0.16 per share during the three months ended September 30, 2025 and $0.16 per share for the same period in 2024. The dividend payout ratio (dividends as a percent of basic earnings per share) was (12.18)% and 38.47% for the nine months ended September 30, 2025 and 2024, respectively. For additional information regarding dividends, see Horizon’s 2024 Annual Report on Form 10–K.
1 N on-GAAP financial metric. See Non-GAAP reconciliation included herein for the most directly comparable GAAP measure.
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Management’s Discussion and Analysis of Financial Condition
And Results of Operations
For the nine months ended September 30, 2025 and 2024
Use of Non-GAAP Financial Measures
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 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 Nine Months Ended
September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024
Interest income (GAAP) (A) $ 92,836 $ 90,888 $ 273,489 $ 172,246
Taxable-equivalent adjustment:
Investment securities - tax exempt (1)
$ 1,218 $ 1,677 $ 4,482 $ 3,410
Loan receivable (2)
379 340 1,144 681
Total taxable-equivalent adjustment (3)
$ 1,597 $ 2,017 $ 5,626 $ 4,091
Interest income (non-GAAP) (B) $ 94,433 $ 92,905 $ 279,115 $ 176,337
Interest expense (GAAP) (C) $ 34,450 $ 43,978 $ 107,480 $ 83,678
Net interest income (GAAP) (D) =(A) - (C) $ 58,386 $ 46,910 $ 166,009 $ 88,568
Net FTE interest income (non-GAAP) (E) = (B) - (C) $ 59,983 $ 48,927 $ 171,635 $ 92,659
Average interest earning assets (F) $ 6,766,742 $ 7,330,263 $ 7,048,581 $ 7,253,342
Net FTE interest margin (non-GAAP) (G) = (E*) / (F) 3.52 % 2.66 % 3.26 % 2.57 %
(1) The following represents municipal securities interest income for investment securities classified as available-for-sale and held-to-maturity
(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
*Annualized
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Management’s Discussion and Analysis of Financial Condition
And Results of Operations
For the nine months ended September 30, 2025 and 2024
Non–GAAP Reconciliation of Tangible Common Equity to Tangible Assets
(Dollars in Thousands, Unaudited)
Three Months Ended
September 30, 2025 September 30, 2024
Total stockholders' equity (GAAP) (A) $ 660,771 $ 754,822
Intangible assets (end of period) (B) 163,097 166,278
Total tangible common equity (non-GAAP) (C) = (A) - (B) $ 497,674 $ 588,544
Total assets (GAAP) (D) 6,712,497 7,927,457
Intangible assets (end of period) (B) 163,097 166,278
Total tangible assets (non-GAAP) (E) = (D) - (B) $ 6,549,400 $ 7,761,179
Tangible common equity to tangible assets (Non-GAAP) (G) = (C) / (E) 7.60 % 7.58 %
Non–GAAP Reconciliation of Tangible Book Value Per Share
(Dollars in Thousands, Unaudited)
Three Months Ended
September 30, 2025 September 30, 2024
Total stockholders' equity (GAAP) (A) $ 660,771 $ 754,822
Intangible assets (end of period) (B) 163,097 166,278
Total tangible common equity (non-GAAP) (C) = (A) - (B) $ 497,674 $ 588,544
Common shares outstanding (D) 50,970,530 43,712,059
Tangible book value per common share (non-GAAP) (E) = (C) / (D) $ 9.76 $ 13.46
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.