HBNC 10-Q Quarterly Report June 30, 2024

HORIZON BANCORP INC /IN/

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hbnc-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________to

Commission file number 0-10792

HORIZON BANCORP, INC.

(Exact name of registrant as specified in its charter)


Indiana			35-1562417
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

515 Franklin Street , Michigan City , Indiana 46360

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: ( 219 ) 879-0211

Former name, former address and former fiscal year, if changed since last report: N/A

____________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common stock, no par value

HBNC

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☒
Non-accelerated Filer	☐	Smaller Reporting Company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 43,712,059 shares of Common Stock, no par value, at August 8, 2024.

Table of Contents

HORIZON BANCORP, INC.

FORM 10–Q

INDEX


PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	63
Item 4.	Controls and Procedures	63
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
Index to Exhibits		66
Signatures		67

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

HORIZON BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollar Amounts in Thousands)


	June 30, 2024		December 31, 2023
	(Unaudited)
Assets
Cash and due from banks	$	106,691	$	112,772
Interest earning deposits	4,957		12,071
Federal funds sold	34,453		401,672
Total cash and cash equivalents	146,101		526,515
Interest earning time deposits	1,715		2,205
Investment securities, available for sale	527,054		547,251
Investment securities, held to maturity (fair value of $ 1,596,987 and $ 1,668,758 )	1,904,281		1,945,638
Loans held for sale	2,440		1,418
Loans, net of allowance for credit losses of $ 52,215 and $ 50,029	4,770,625		4,367,601
Premises and equipment, net	93,695		94,583
Federal Home Loan Bank stock	53,826		34,509
Goodwill	155,211		155,211
Other intangible assets	11,910		13,626
Interest receivable	43,240		38,710
Cash value of life insurance	36,773		36,157
Other assets	165,656		177,061
Total assets	$	7,912,527	$	7,940,485
Liabilities
Deposits
Non–interest bearing	$	1,087,040	$	1,116,005
Interest bearing	4,543,114		4,548,888
Total deposits	5,630,154		5,664,893
Borrowings	1,357,335		1,353,050
Subordinated notes	55,668		55,543
Junior subordinated debentures issued to capital trusts	57,369		57,258
Interest payable	11,240		22,249
Other liabilities	74,096		68,680
Total liabilities	7,185,862		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
43,712,059 shares issued and outstanding at June 30, 2024 and 43,652,063 shares issued and outstanding at December 31, 2023	—		—
Additional paid-in capital	357,673		356,400
Retained earnings	442,977		429,021
Accumulated other comprehensive loss	( 73,985 )		( 66,609 )
Total stockholders’ equity	726,665		718,812
Total liabilities and stockholders’ equity	$	7,912,527	$	7,940,485

See notes to condensed consolidated financial statements

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			Six Months Ended
	June 30,			June 30,
		2024			2023		2024		2023
Interest Income
Loans receivable		$	71,880		$	60,594	$	138,834	$	115,958
Investment securities – taxable		7,986			8,740		15,348		17,465
Investment securities – tax exempt		6,377			7,059		12,828		14,615
Other		738			475		5,235		628
Total interest income		86,981			76,868		172,245		148,666
Interest Expense
Deposits		28,447			18,958		56,437		33,777
Borrowed funds		11,213			9,718		23,143		19,489
Subordinated notes		829			881		1,660		1,761
Junior subordinated debentures issued to capital trusts		1,213			1,151		2,438		2,242
Total interest expense		41,702			30,708		83,678		57,269
Net Interest Income		45,279			46,160		88,567		91,397
Credit loss expense		2,369			680		3,174		922
Net Interest Income after Credit Loss Expense		42,910			45,480		85,393		90,475
Non–interest Income
Service charges on deposit accounts		3,130			3,021		6,344		6,049
Wire transfer fees		113			116		214		225
Interchange fees		3,826			3,584		6,935		6,451
Fiduciary activities		1,372			1,247		2,687		2,522
Gain (loss) on sale of investment securities		—			20		—		( 480 )
Gain on sale of mortgage loans		896			1,005		1,522		1,790
Mortgage servicing income, net		450			640		889		1,353
Increase in cash value of bank owned life insurance		318			1,015		616		1,996

Other income		380			349		1,207		711
Total non–interest income		10,485			10,997		20,414		20,617
Non–interest Expense
Salaries and employee benefits		20,583			20,162		40,851		38,874
Net occupancy expenses		3,192			3,249		6,738		6,812
Data processing		2,579			3,016		5,043		5,685
Professional fees		714			633		1,321		1,166
Outside services and consultants		3,058			2,515		6,417		5,232
Loan expense		1,038			1,397		1,757		2,515
FDIC insurance expense		1,315			840		2,635		1,380
Core deposit intangible amortization		844			903		1,716		1,806
Other losses		515			134		531		355
Other expense		3,684			3,413		7,620		6,961
Total non–interest expense		37,522			36,262		74,629		70,786
Income Before Income Taxes		15,873			20,215		31,178		40,306
Income tax expense		1,733			1,452		3,047		3,315
Net Income		$	14,140		$	18,763	$	28,131	$	36,991
Basic Earnings Per Share		$	0.32		$	0.43	$	0.64	$	0.85
Diluted Earnings Per Share		0.32			0.43		0.64		0.85

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollar Amounts in Thousands)


	Three Months Ended			Six Months Ended
	June 30			June 30
		2024		2023		2024		2023
Net Income		$	14,140	$	18,763	$	28,131	$	36,991
Other Comprehensive Income (Loss)
Change in fair value of derivative instruments:
Change in fair value of derivative instruments for the period		—		35		—		( 523 )

Reclassification adjustment for swap termination gain realized in income		—		( 1,453 )		—		( 1,453 )
Income tax effect		—		299		—		415
Changes from derivative instruments		—		( 1,119 )		—		( 1,561 )
Change in securities:
Unrealized gain (loss) for the period on available for sale securities		( 3,262 )		( 5,795 )		( 9,010 )		12,349

Accretion from transfer of securities from available for sale to held to maturity securities		( 167 )		( 219 )		( 327 )		( 373 )
Reclassification adjustment for securities losses realized in income		—		( 20 )		—		480
Income tax effect		720		1,266		1,961		( 2,616 )
Unrealized gains (losses) on securities		( 2,709 )		( 4,768 )		( 7,376 )		9,840
Other Comprehensive Income (Loss), Net of Tax		( 2,709 )		( 5,887 )		( 7,376 )		8,279
Comprehensive Income		$	11,431	$	12,876	$	20,755	$	45,270

See notes to condensed consolidated financial statements

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, April 1, 2023	$	—	$	—	$	354,035	$	440,556	$	( 92,032 )	$	702,559
Net income	—		—		—		18,763		—		18,763
Other comprehensive income, net of tax	—		—		—		—		( 5,887 )		( 5,887 )

Amortization of unearned compensation	—		—		944		—		—		944



Net settlement of share awards	—		—		( 26 )		—		—		( 26 )


Cash dividends on common stock ($ 0.16 per share)	—		—		—		( 7,110 )		—		( 7,110 )
Balances, June 30, 2023	$	—	$	—	$	354,953	$	452,209	$	( 97,919 )	$	709,243

Balances, April 1, 2024	$	—	$	—	$	356,599	$	435,927	$	( 71,276 )	$	721,250
Net income	—		—		—		14,140		—		14,140
Other comprehensive loss, net of tax	—		—		—		—		( 2,709 )		( 2,709 )

Amortization of unearned compensation	—		—		1,134		—		—		1,134


Net settlement of share awards	—		—		( 60 )		—		—		( 60 )



Cash dividends on common stock ($ 0.16 per share)	—		—		—		( 7,090 )		—		( 7,090 )
Balances, June 30, 2024	$	—	$	—	$	357,673	$	442,977	$	( 73,985 )	$	726,665

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(Dollar Amounts in Thousands, Except Per Share Data)


	Six 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	—		—		—		36,991		—		36,991
Other comprehensive income, net of tax	—		—		—		—		8,279		8,279

Amortization of unearned compensation	—		—		1,703		—		—		1,703



Net settlement of share awards	—		—		( 723 )		—		—		( 723 )


Stock retirement plans	—		—		( 215 )		—		—		( 215 )
Cash dividends on common stock ($ 0.32 per share)	—		—		—		( 14,167 )		—		( 14,167 )
Balances, June 30, 2023	$	—	$	—	$	354,953	$	452,209	$	( 97,919 )	$	709,243

Balances, January 1, 2024	$	—	$	—	$	356,400	$	429,021	$	( 66,609 )	$	718,812
Net income	—		—		—		28,131		—		28,131
Other comprehensive loss, net of tax	—		—		—		—		( 7,376 )		( 7,376 )

Amortization of unearned compensation	—		—		2,041		—		—		2,041


Net settlement of share awards	—		—		( 768 )		—		—		( 768 )



Cash dividends on common stock ($ 0.32 per share)	—		—		—		( 14,175 )		—		( 14,175 )
Balances, June 30, 2024	$	—	$	—	$	357,673	$	442,977	$	( 73,985 )	$	726,665

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollar Amounts in Thousands)


	Six Months Ended
	June 30
	2024		2023
Operating Activities
Net income	$	28,131	$	36,991
Items not requiring (providing) cash
Credit loss expense	3,174		922
Depreciation and amortization	5,170		5,268
Share based compensation	2,041		1,703
Amortization of mortgage servicing rights	942		547

Premium amortization on securities, net	4,355		5,265
Loss on sale of investment securities	—		480
Gain on sale of mortgage loans	( 1,522 )		( 1,790 )
Proceeds from sales of loans	52,329		62,541
Loans originated for sale	( 52,396 )		( 62,312 )
Gain on cash value life insurance	( 616 )		( 1,996 )
Gain on sale of other real estate owned	( 74 )		( 121 )
Net change in:
Interest receivable	( 4,530 )		( 2,242 )
Interest payable	( 11,009 )		7,359
Other assets	( 8,855 )		( 299 )
Other liabilities	5,323		( 8,202 )
Net cash provided by operating activities	$	22,463	$	44,114
Investing Activities
Purchases of securities available for sale	$	—	$	( 1,385 )
Proceeds from sales of securities available for sale	—		88,194
Proceeds from maturities, calls and principal repayments of securities available for sale	8,704		15,170
Purchases of securities held to maturity	( 312 )		( 9,605 )
Proceeds from maturities, calls and principal repayments of securities held to maturity	38,317		45,334
Net change in interest earning time deposits	490		360
Purchase of FHLB stock	( 19,317 )		( 7,832 )

Purchase of loans	( 240,020 )		( 62,489 )
Net change in loans	( 166,999 )		( 48,049 )
Proceeds on the sale of OREO and repossessed assets	748		1,188
Premises and equipment expenditures	( 2,007 )		( 5,277 )

Proceeds from bank owned life insurance	22,917		—



Net cash used in investing activities	$	( 357,479 )	$	15,609
Financing Activities
Net change in deposits	( 34,738 )		( 148,442 )
Proceeds from borrowings	512,759		584,094
Repayment of borrowings	( 500,615 )		( 378,790 )

Net change in repurchase agreements	( 7,860 )		3,786
Net settlement of share awards	( 768 )		( 723 )



Dividends paid on common stock	( 14,176 )		( 14,167 )
Net cash provided by financing activities	$	( 45,398 )	$	45,758
Net Change in Cash and Cash Equivalents	( 380,414 )		105,481
Cash and Cash Equivalents, Beginning of Period	526,515		123,505
Cash and Cash Equivalents, End of Period	$	146,101	$	228,986
Additional Supplemental Information
Interest paid	$	94,687	$	49,910
Income taxes paid	8,000		1,554
Transfer of loans to other real estate and repossessed assets	915		1,452

See notes to condensed consolidated financial statements

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

Reclassifications

Certain reclassifications have been made to the 2023 condensed consolidated financial statements to be comparable to 2024. These reclassifications were not material and had no effect on net income.

Revisions to Previously Issued Financial Statements

During the second quarter of 2024 management corrected a prior computation of the Company’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets), and Tier 1 capital (to average assets) ratios for purposes of the Company’s consolidated financial statements for holding companies filed with the Federal Reserve (the “Regulatory Filings”), which involved an incorrect classification of the Company’s subordinated notes as Tier 1 capital. This incorrect classification affected the Company's regulatory capital disclosures in certain prior period filings with the SEC, as those disclosures were sourced from the Regulatory Filings. The Company evaluated the effects of the incorrect classification to its previously filed Regulatory Filings and previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon qualitative and quantitative factors, determined the errors were not material to the previously filed Regulatory Filings or the previously issued financial statements and disclosures included in our Annual Reports on Form 10-K for the years ended December 31, 2020, 2021, 2022 and 2023, or for any of the quarterly reports included therein or through our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024. The Company has amended its Regulatory Filings for the periods ended March 31, 2024 and December 31, 2023 to reclassify the subordinated notes balance from Tier 1 capital into Tier 2 capital. The correction of the classification had no effect on the Company’s consolidated balance sheets, statements of income, stockholders’ equity, or the amounts or disclosure of the regulatory capital ratios of the Bank as included in its call reports. The Company continues to exceed regulatory proxy ratios to be considered “well capitalized”, plus the capital conservation buffer, at June 30, 2024. See "Note 13 - Regulatory Capital" below for further information.

Nature of Business and Basis of Reporting

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 June 30, 2024 and June 30, 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 June 30, 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.

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 shows computation of basic and diluted earnings per share.


	Three Months Ended			Six Months Ended
	June 30,	June 30,		June 30,		June 30,
(dollars in thousands, except per share data)		2024		2023		2024		2023
Basic earnings per share
Net income		$	14,140	$	18,763	$	28,131	$	36,991
Weighted average common shares outstanding		43,712,059		43,639,987		43,686,576		43,611,926
Basic earnings per share		$	0.32	$	0.43	$	0.64	$	0.85

Diluted earnings per share
Net income		$	14,140	$	18,763	$	28,131	$	36,991
Weighted average common shares outstanding		43,712,059		43,639,987		43,686,576		43,611,926
Effect of dilutive securities:
Restricted stock		270,833		102,046		226,864		136,693
Stock options		4,295		555		4,850		8,702
Weighted average common shares outstanding		43,987,187		43,742,588		43,918,290		43,757,321
Diluted earnings per share		$	0.32	$	0.43	$	0.64	$	0.85

There were 167,943 and 257,773 shares for the three and six months ended June 30, 2024 which were not included in the computation of diluted earnings per share because they were non–dilutive. There were 484,650 and 415,455 shares for the three and six months ended June 30, 2023 which were not included in the computation of diluted earnings per share because they were non–dilutive.

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(Table Dollar Amounts in Thousands, Except Per Share Data)

Note 2 – Securities

The fair value of securities is as follows:


	June 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale
U.S. Treasury and federal agencies	$	71,419	$	—	$	( 8,754 )	$	62,665
State and municipal	352,223		2		( 57,389 )		294,836
Federal agency collateralized mortgage obligations	3,702		—		( 368 )		3,334
Federal agency mortgage-backed pools	154,479		—		( 24,161 )		130,318

Corporate notes	41,605		—		( 5,704 )		35,901
Total available for sale investment securities	$	623,428	$	2	$	( 96,376 )	$	527,054


	June 30, 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	$	284,114	$	—	$	( 41,917 )	$	242,197	$	—	$	284,114
State and municipal	1,064,638		160		( 178,390 )		886,408		( 21 )		1,064,617
Federal agency collateralized mortgage obligations	48,668		—		( 8,128 )		40,540		—		48,668
Federal agency mortgage-backed pools	314,069		—		( 49,255 )		264,814		—		314,069
Private labeled mortgage-backed pools	30,780		—		( 4,534 )		26,246		( 7 )		30,773
Corporate notes	162,170		—		( 25,388 )		136,782		( 130 )		162,040
Total held to maturity investment securities	$	1,904,439	$	160	$	( 307,612 )	$	1,596,987	$	( 158 )	$	1,904,281


	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

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(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 June 30, 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.


	June 30, 2024				December 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
Within one year	$	3,646	$	3,618	$	5,505	$	5,408
One to five years	105,358		93,966		100,301		89,650
Five to ten years	175,739		145,553		167,764		141,203
After ten years	180,504		150,265		195,984		170,113
	465,247		393,402		469,554		406,374
Federal agency collateralized mortgage obligations	3,702		3,334		3,931		3,580
Federal agency mortgage–backed pools	154,479		130,318		161,130		137,297

Total available for sale investment securities	$	623,428	$	527,054	$	634,615	$	547,251
Held to maturity
Within one year	$	22,563	$	22,312	$	33,483	$	33,169
One to five years	217,174		207,041		225,957		216,354
Five to ten years	357,082		305,973		350,843		304,067
After ten years	914,103		730,061		928,209		768,927
	1,510,922		1,265,387		1,538,492		1,322,517
Federal agency collateralized mortgage obligations	48,668		40,540		51,325		43,479
Federal agency mortgage–backed pools	314,069		264,814		323,649		275,028
Private labeled mortgage–backed pools	30,780		26,246		32,329		27,734
Total held to maturity investment securities	$	1,904,439	$	1,596,987	$	1,945,795	$	1,668,758

As of June 30, 2024, investment securities with a carrying value of $ 144.4 million were pledged as collateral against $ 1.2 billion of Federal Home Loan Bank (FHLB) borrowings.

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Notes to Condensed Consolidated Financial Statements

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(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.


	June 30, 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	$	—	$	—	$	62,665	$	( 8,754 )	$	62,665	$	( 8,754 )
State and municipal	1,664		( 291 )		292,505		( 57,098 )		294,169		( 57,389 )
Federal agency collateralized mortgage obligations	—		—		3,334		( 368 )		3,334		( 368 )
Federal agency mortgage–backed pools	—		—		130,319		( 24,161 )		130,319		( 24,161 )

Corporate notes	—		—		35,901		( 5,704 )		35,901		( 5,704 )
Total temporarily impaired securities	$	1,664	$	( 291 )	$	524,724	$	( 96,085 )	$	526,388	$	( 96,376 )


	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 June 30, 2024 and December 31, 2023, the Company had 2,314 and 2,290 securities, respectively, with market values below their cost basis. The total fair value of these investments at June 30, 2024 and December 31, 2023 was $ 2.1 billion and $ 2.1 billion, which is approximately 86.5 % 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 June 30, 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 Condensed 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

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(Table Dollar Amounts in Thousands, Except Per Share Data)

municipal, private 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 June 30, 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 June 30, 2024 and December 31, 2023, respectively.

On a quarterly basis, the Company refreshes the credit quality indicator of each held-to-maturity security. The Company applies ratings derived from Nationally Recognized Statistical Rating Organizations ("NRSRO"), specifically Moody's and Standard & Poor's. For state and municipal securities where no rating is available from the NRSROs, a consistent internally-assigned rating methodology is applied. The amortized cost of these securities in the following tables subject to this methodology totaled $ 131.9 million as of June 30, 2024, and $ 143.7 million as of December 31, 2023.

The following table summarizes credit ratings of our held-to-maturity securities at amortized cost for the periods indicated:


June 30, 2024	AAA		AA		A		BBB		BB		Not Rated		Total
U.S. Treasury and federal agencies	$	—	$	284,114	$	—	$	—	$	—	$	—	$	284,114
State and municipal	284,849		713,834		63,772		2,183		—		—		1,064,638
Federal agency collateralized mortgage obligations	48,668		—		—		—		—		—		48,668
Federal agency mortgage-backed pools	314,069		—		—		—		—		—		314,069
Private labeled mortgage-backed pools	30,780		—		—		—		—		—		30,780
Corporate notes	—		6,193		11,691		75,926		4,550		63,810		162,170
Total	$	678,366	$	1,004,141	$	75,463	$	78,109	$	4,550	$	63,810	$	1,904,439

December 31, 2023	AAA		AA		A		BBB		BB		Not Rated		Total
U.S. Treasury and federal agencies	$	—	$	287,259	$	—	$	—	$	—	$	—	$	287,259
State and municipal	285,748		730,907		69,658		2,186		—		—		1,088,499
Federal agency collateralized mortgage obligations	51,325		—		—		—		—		—		51,325
Federal agency mortgage-backed pools	323,649		—		—		—		—		—		323,649
Private labeled mortgage-backed pools	32,329		—		—		—		—		—		32,329
Corporate notes	—		4,260		11,831		78,197		4,556		63,890		162,734
Total	$	693,051	$	1,022,426	$	81,489	$	80,383	$	4,556	$	63,890	$	1,945,795

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Table Dollar Amounts in Thousands, Except Per Share Data)

The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and six months ended June 30, 2024 and 2023.


	Three Months Ended				Six Months Ended
	June 30				June 30
	2024		2023			2024		2023
Beginning balance	$	158	$	—		$	157	$	—
Credit loss expense (benefit)	—		—			1		—
Ending balance	$	158	$	—		$	158	$	—

Accrued interest receivable on available for sale debt securities and held to maturity securities totaled $ 14.4 million at June 30, 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, based on specific identification method, are presented below.


	Three Months Ended			Six Months Ended
	June 30			June 30
		2024		2023		2024		2023
Sales of securities available for sale
Proceeds		$	—	$	24,668	$	—	$	88,194
Gross gains		—		86		—		215
Gross losses		—		( 66 )		—		( 695 )

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Notes to Condensed Consolidated Financial Statements

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(Table Dollar Amounts in Thousands, Except Per Share Data)

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

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 June 30, 2024 and December 31, 2023:


	June 30, 2024		December 31, 2023
Commercial
Owner occupied real estate	$	632,200	$	640,731
Non–owner occupied real estate	1,439,509		1,273,838
Residential spec homes	12,479		13,489
Development & spec land	33,584		34,039
Commercial and industrial	786,788		712,863
Total commercial	2,904,560		2,674,960
Real estate
Residential mortgage	779,894		654,295
Residential construction	18,062		26,841
Mortgage warehouse	68,917		45,078
Total real estate	866,873		726,214
Consumer
Installment	106,028		52,366
Indirect auto	382,079		399,946
Home equity	563,300		564,144
Total consumer	1,051,407		1,016,456
Total loans	4,822,840		4,417,630
Allowance for credit losses	( 52,215 )		( 50,029 )
Net loans	$	4,770,625	$	4,367,601

Total loans include net deferred loan costs of $ 21.2 million at June 30, 2024 and $ 21.9 million at December 31, 2023, respectively.

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(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 June 30, 2024:


	June 30, 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	$	2,558	$	—	$	1,737
Non–owner occupied real estate	462		—		462
Residential spec homes	—		—		—
Development & spec land	593		—		593
Commercial and industrial	708		—		20
Total commercial	4,321		—		2,812
Real estate
Residential mortgage	8,489		133		—
Residential construction	—		—		—
Mortgage warehouse	—		—		—
Total real estate	8,489		133		—
Consumer
Installment	199		196		—
Indirect auto	1,218		212		—
Home equity	4,036		498		—
Total consumer	5,453		906		—
Total	$	18,263	$	1,039	$	2,812

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(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 and six months ended June 30, 2024 and 2023, respectively, while the loans were in non-accrual status.

The amount of accrued interest receivable written off by the Company by reversing interest income was not material for the three and six months ended June 30, 2024 and June 30, 2023, respectively.

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(Unaudited)

(Table Dollar Amounts in Thousands, Except Per Share Data)

The following table presents the payment status by class of loan at June 30, 2024:


	June 30, 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	$	630,034	$	723	$	1,342	$	101	$	2,166	$	632,200
Non–owner occupied real estate	1,439,186		323		—		—		323		1,439,509
Residential spec homes	12,479		—		—		—		—		12,479
Development & spec land	33,584		—		—		—		—		33,584
Commercial and industrial	784,821		449		1,436		82		1,967		786,788
Total commercial	2,900,104		1,495		2,778		183		4,456		2,904,560
Real estate
Residential mortgage	770,599		90		6,005		3,200		9,295		779,894
Residential construction	18,062		—		—		—		—		18,062
Mortgage warehouse	68,917		—		—		—		—		68,917
Total real estate	857,578		90		6,005		3,200		9,295		866,873
Consumer
Installment	104,388		1,166		178		296		1,640		106,028
Indirect auto	377,002		4,023		503		551		5,077		382,079
Home equity	554,712		4,520		1,221		2,847		8,588		563,300
Total consumer	1,036,102		9,709		1,902		3,694		15,305		1,051,407
Total	$	4,793,784	$	11,294	$	10,685	$	7,077	$	29,056	$	4,822,840

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(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.

For the three and six months ended June 30, 2024, the Company did not have material modifications of loans with borrowers experiencing financial difficulty. Similarly, the Company did not modify any loans with borrowers experiencing financial difficulty for the three and six months ended June 30, 2023.

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Notes to Condensed Consolidated Financial Statements

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(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 June 30, 2024 and December 31, 2023.


	June 30, 2024
	Real Estate		Accounts Receivable/Equipment		Other		Total (1)		ACL Allocation
Commercial
Owner occupied real estate	$	2,558	$	—	$	—	$	2,558	$	221
Non–owner occupied real estate	462		—		—		462		—

Residential spec homes	—		—		—		—		—
Development & spec land	593		—		—		593		—
Commercial and industrial	563		38		20		621		601
Total commercial	4,176		38		20		4,234		822










Total collateral dependent loans	$	4,176	$	38	$	20	$	4,234	$	822

(1) Collateral dependent loans had a collateral fair value of $ 5.1 million at June 30, 2024


	December 31, 2023
	Real Estate		Accounts Receivable/Equipment		Other		Total (1)		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	—		—		—		—		—
Development & spec land	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

(1) Collateral dependent loans had a collateral fair value of $ 6.3 million at December 31, 2023

As of June 30, 2024, the Company had a carrying value of $ 1.2 million of repossessed assets. As of June 30, 2024, the Company had a recorded net investment of $ 0.4 million of consumer mortgage loans in which foreclosure proceedings have commenced.

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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 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

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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 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.

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• 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.

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.

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The following tables present loans by credit grades and origination year at June 30, 2024.


June 30, 2024	2024		2023		2022		2021		2020		Prior		Revolving Term Loans		Revolving Loans		Total
Commercial
Owner occupied real estate
Pass	$	31,421	$	70,005	$	93,077	$	69,976	$	39,615	$	193,454	$	84,482	$	10,861	$	592,891
Special Mention	—		2,121		484		3,696		144		11,613		—		452		18,510
Substandard	—		4,282		1,060		6,394		—		9,063		—		—		20,799
Doubtful	—		—		—		—		—		—		—		—		—
Total owner occupied real estate	$	31,421	$	76,408	$	94,621	$	80,066	$	39,759	$	214,130	$	84,482	$	11,313	$	632,200
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Non–owner occupied real estate
Pass	$	108,271	$	115,778	$	204,319	$	138,375	$	103,251	$	370,579	$	326,424	$	9,776	$	1,376,773
Special Mention	—		1,351		19,120		1,292		—		37,749		—		—		59,512
Substandard	85		—		—		—		153		2,986		—		—		3,224
Doubtful	—		—		—		—		—		—		—		—		—
Total non–owner occupied real estate	$	108,356	$	117,129	$	223,439	$	139,667	$	103,404	$	411,314	$	326,424	$	9,776	$	1,439,509
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential spec homes
Pass	$	420	$	504	$	—	$	420	$	—	$	—	$	4,111	$	7,024	$	12,479
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total residential spec homes	$	420	$	504	$	—	$	420	$	—	$	—	$	4,111	$	7,024	$	12,479
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Development & spec land
Pass	$	722	$	4,244	$	804	$	492	$	359	$	2,027	$	22,727	$	302	$	31,677
Special Mention	—		—		—		—		—		322		145		—		467
Substandard	—		748		—		—		—		99		593		—		1,440
Doubtful	—		—		—		—		—		—		—		—		—
Total development & spec land	$	722	$	4,992	$	804	$	492	$	359	$	2,448	$	23,465	$	302	$	33,584
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial & industrial
Pass	$	101,833	$	118,032	$	137,913	$	83,188	$	9,762	$	68,583	$	58,796	$	168,230	$	746,337
Special Mention	1,046		1,409		1,170		28		1,252		1,628		10,179		12,962		29,674
Substandard	148		1,670		792		422		235		4,192		971		2,347		10,777
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial & industrial	$	103,027	$	121,111	$	139,875	$	83,638	$	11,249	$	74,403	$	69,946	$	183,539	$	786,788
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	108	$	—	$	108

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June 30, 2024	2024		2023		2022		2021		2020		Prior		Revolving Term Loans		Revolving Loans		Total
Real estate
Residential mortgage
Performing	$	32,178	$	149,276	$	166,810	$	148,059	$	81,155	$	193,794	$	—	$	—	$	771,272
Non–performing	—		582		1,886		1,137		249		4,768		—		—		8,622
Total residential mortgage	$	32,178	$	149,858	$	168,696	$	149,196	$	81,404	$	198,562	$	—	$	—	$	779,894
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	2
Residential construction
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	18,062	$	—	$	18,062
Non–performing	—		—		—		—		—		—		—		—		—
Total residential construction	$	—	$	—	$	—	$	—	$	—	$	—	$	18,062	$	—	$	18,062
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage warehouse
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	68,917	$	68,917
Non–performing	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	68,917	$	68,917
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30, 2024	2024		2023		2022		2021		2020		Prior		Revolving Term Loans		Revolving Loans		Total
Consumer
Installment
Performing	$	7,313	$	67,399	$	11,372	$	6,496	$	3,410	$	7,555	$	34	$	2,054	$	105,633
Non–performing	—		313		—		55		—		25		2		—		395
Total installment	$	7,313	$	67,712	$	11,372	$	6,551	$	3,410	$	7,580	$	36	$	2,054	$	106,028
Gross charge–offs for the six months ended June 30, 2024	$	61	$	32	$	124	$	1	$	17	$	21	$	—	$	—	$	256
Indirect auto
Performing	$	31,985	$	83,884	$	160,052	$	64,587	$	26,035	$	14,106	$	—	$	—	$	380,649
Non–performing	—		172		592		344		183		139		—		—		1,430
Total indirect auto	$	31,985	$	84,056	$	160,644	$	64,931	$	26,218	$	14,245	$	—	$	—	$	382,079
Gross charge–offs for the six months ended June 30, 2024	$	—	$	145	$	606	$	224	$	77	$	67	$	—	$	—	$	1,119
Home equity
Performing	$	6,882	$	24,730	$	18,674	$	2,784	$	2,146	$	11,205	$	17,990	$	474,355	$	558,766
Non–performing	—		27		331		—		50		392		3,734		—		4,534
Total home equity	$	6,882	$	24,757	$	19,005	$	2,784	$	2,196	$	11,597	$	21,724	$	474,355	$	563,300
Gross charge–offs for the six months ended June 30, 2024	$	—	$	—	$	52	$	88	$	—	$	38	$	—	$	11	$	189

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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 for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	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 for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	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 for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	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 for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
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 for the year ended December 31, 2023	$	—	$	33	$	—	$	123	$	25	$	72	$	344	$	—	$	597

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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 for the year ended December 31, 2023	$	—	$	28	$	—	$	—	$	—	$	20	$	—	$	—	$	48
Residential construction
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	26,841	$	—	$	26,841
Non–performing	—		—		—		—		—		—		—		—		—
Total residential construction	$	—	$	—	$	—	$	—	$	—	$	—	$	26,841	$	—	$	26,841
Gross charge–offs for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage warehouse
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	45,078	$	45,078
Non–performing	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	45,078	$	45,078
Gross charge–offs for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


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 for the year ended December 31, 2023	$	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 for the year ended December 31, 2023	$	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 for the year ended December 31, 2023	$	—	$	10	$	—	$	103	$	—	$	91	$	13	$	—	$	217

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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 and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30, 2024
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	30,514	$	2,655	$	659	$	16,559	$	50,387
Credit loss expense (reversal)	1,484		( 71 )		77		925		2,415
PCD loan charge–offs	( 3 )		—		—		—		( 3 )
Charge–offs	( 108 )		( 1 )		—		( 741 )		( 850 )
Recoveries	54		5		—		207		266
Balance, end of period	$	31,941	$	2,588	$	736	$	16,950	$	52,215


	Three Months Ended June 30, 2023
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	31,156	$	4,447	$	798	$	13,125	$	49,526
Credit loss expense (reversal)	( 684 )		( 809 )		95		2,139		741
PCD loan charge–offs	( 17 )		—		—		—		( 17 )
Charge–offs	( 196 )		—		—		( 472 )		( 668 )
Recoveries	95		10		—		289		394
Balance, end of period	$	30,354	$	3,648	$	893	$	15,081	$	49,976


	Six Months Ended June 30, 2024
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	29,736	$	2,503	$	481	$	17,309	$	50,029
Credit loss expense (reversal)	2,090		76		255		663		3,084
PCD loan charge–offs	112		—		—		—		112
Charge–offs	( 109 )		( 2 )		—		( 1,564 )		( 1,675 )
Recoveries	112		11		—		542		665
Balance, end of period	$	31,941	$	2,588	$	736	$	16,950	$	52,215


	Six Months Ended June 30, 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 (reversal)	( 1,715 )		( 1,945 )		( 127 )		4,123		336
PCD loan charge–offs	( 171 )		—		—		—		( 171 )
Charge–offs	( 333 )		( 4 )		—		( 1,014 )		( 1,351 )
Recoveries	128		20		—		550		698
Balance, end of period	$	30,354	$	3,648	$	893	$	15,081	$	49,976

The accrued interest receivable on our loan receivables is excluded from the allowance for credit loss estimate and is included in interest receivable on our consolidated balance sheets. As of June 30, 2024 and December 31, 2023, the accrued interest on our loan portfolio was $ 28.1 million and $ 23.7 million, respectively.

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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.

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Liability for Commitments to Extend Credit and Standby Letters of Credit

The following tables represent, by loan portfolio segment, a summary of changes in the activity in the liability for commitments to extend credit and standby letters of credit (please see note 14):



	Three Months Ended
	June 30, 2024							June 30, 2023
		Balance, beginning of period		Credit loss expense (reversal)		Ending balance		Balance, beginning of period		Credit loss expense (reversal)		Ending balance
Commercial		$	—	$	—	$	—	$	—	$	—	$	—
Real Estate		46		( 5 )		41		83		( 22 )		61
Mortgage Warehouse		—		—		—		—		—		—
Consumer		704		( 40 )		664		966		( 38 )		928
Total		$	750	$	( 45 )	$	705	$	1,049	$	( 60 )	$	989

		Six Months Ended
		June 30, 2024						June 30, 2023
		Balance, beginning of period		Credit loss expense (reversal)		Ending balance		Balance, beginning of period		Credit loss expense (reversal)		Ending balance
Commercial		$	—	$	—	$	—	$	—	$	—	$	—
Real Estate		64		( 23 )		41		161		( 100 )		61
Mortgage Warehouse		—		—		—		—		—		—
Consumer		551		113		664		242		686		928
Total		$	615	$	90	$	705	$	403	$	586	$	989

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 $ 1.451 billion and $ 1.479 billion at June 30, 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 June 30, 2024 and December 31, 2023.

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	Three Months Ended			Six Months Ended
		June 30,		June 30,		June 30,		June 30,
		2024		2023		2024		2023
Mortgage servicing rights
Balance, beginning of period		$	18,538	$	18,600	$	18,807	$	18,619
Servicing rights capitalized		359		207		567		435
Amortization of servicing rights		( 465 )		( 300 )		( 942 )		( 547 )
Balance, end of period		18,432		18,507		18,432		18,507
Impairment allowance
Balance, beginning of period		—		—		—		—
Additions		—		—		—		—
Reductions		—		—		—		—
Balance, end of period		—		—		—		—
Mortgage servicing rights, net		$	18,432	$	18,507	$	18,432	$	18,507

Fair value, beginning of period		$	19,149	$	18,600	$	19,891	$	18,619
Fair value, end of period		19,091		18,507		19,091		18,507

Note 6 – Goodwill

The carrying amount of goodwill was $ 155.2 million as of June 30, 2024 and December 31, 2023, respectively. There were no changes in the carrying amount of goodwill for the three and six months ended June 30, 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 and six months ended June 30, 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 June 30, 2024, it was more likely than not that the fair value of goodwill exceeded its carrying value.

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.

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The following tables show repurchase agreements accounted for as secured borrowings and the related securities, at fair value, pledged for repurchase agreements:


	June 30, 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	$	2,107	$	—	$	—	$	—	$	2,107
Federal agency mortgage–backed pools	118,723		—		—		—		118,723
Private labeled mortgage–backed pools	7,339		—		—		—		7,339
Total borrowings	$	128,169	$	—	$	—	$	—	$	128,169


	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 $ 144.0 million and $ 145.2 million at June 30, 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.

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

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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 $ 55.7 million and $ 55.5 million at June 30, 2024 and December 31, 2023, respectively.

Note 9 – Derivative Financial Instruments

Our hedging policy allows the use of interest rate derivative instruments to manage our exposure to interest rate risk or hedge specified assets and liabilities. All derivative instruments are carried on the balance sheet at their estimated fair value and are recorded in other assets or other liabilities, as appropriate.

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. Additionally, the Company entered into fair value hedges for certain of our fixed rate AFS municipal securities. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest 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. The change in fair value of both the hedge instruments and the underlying hedged item are recorded as gains or losses in non–interest income. At June 30, 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.

Other Derivative Instruments

From time to time, we may enter into certain interest rate swaps that are not designated as hedging instruments. These interest rate derivative contracts relate to transactions in which we enter into an interest rate swap with a customer while concurrently entering into an offsetting interest rate swap with a third-party financial institution. We agree to pay interest to the customer on a notional amount at a variable rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay a third-party financial institution the same fixed interest rate on the

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same notional amount and receive the same variable interest rate on the same notional amount. These interest rate derivative contracts allow our customers to effectively convert a variable rate loan to a fixed rate loan.

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 June 30, 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 our derivative financial instruments utilized by Horizon on a gross basis for the periods indicated.


	Asset Derivatives				Liability Derivatives
	June 30, 2024				June 30, 2024
	Notional Amount		Fair Value		Notional Amount		Fair Value



Derivatives designated as hedging instruments
Interest rate contracts – fair value hedges	$	52,097	$	3,364	$	—	$	—
Total derivatives designated as hedging instruments	52,097		3,364		—		—
Derivatives not designated as hedging instruments
Interest rate contracts – customer accommodation	529,613		30,986		529,613		30,986
Mortgage loan contracts	—		—		2,348		7
Commitments to originate mortgage loans	300		8		—		—
Total derivatives not designated as hedging instruments	529,913		30,994		531,961		30,993
Total derivatives	$	582,010	$	34,358	$	531,961	$	30,993
Total derivatives subject to enforceable master netting arrangements, gross	$	582,010	$	34,358	$	531,961	$	30,993
Less: Gross amounts offset	—		—		—		—
Total derivatives subject to enforceable master netting arrangements, net	$	582,010	$	34,358	$	531,961	$	30,993

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	Asset Derivatives				Liability Derivatives
	December 31, 2023				December 31, 2023
	Notional Amount		Fair Value		Notional Amount		Fair Value



Derivatives designated as hedging instruments
Interest rate contracts – fair value hedges	$	53,468	$	2,950	$	—	$	—
Total derivatives designated as hedging instruments	53,468		2,950		—		—
Derivatives not designated as hedging instruments
Interest rate contracts – customer accommodation	504,696		23,606		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	513,891		23,764		514,881		24,024
Total derivatives	$	567,359	$	26,714	$	514,881	$	24,024
Total derivatives subject to enforceable master netting arrangements, gross	$	567,359	$	26,714	$	514,881	$	24,024
Less: Gross amounts offset	—		—		—		—
Total derivatives subject to enforceable master netting arrangements, net	$	567,359	$	26,714	$	514,881	$	24,024

While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company has elected to not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. At June 30, 2024, the Company pledged marketable securities as collateral with a carrying value of $ 19.0 million.

The effect of the derivative instruments on the condensed consolidated statements of comprehensive income (loss) for the three and six month periods ended June 30 is as follows:


		Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative
	Three Months Ended			Six Months Ended
		June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Derivatives in cash flow hedging relationship
Interest rate contracts		$	—	$	( 1,119 )	$	—	$	( 1,561 )

The effect of the derivatives in cash flow hedging relationships on the condensed consolidated statements of income for three and six month periods ended June 30 is as follows:


	Location of gain (loss) recognized		Amount of Gain (Loss) Recognized
		Three Months Ended			Six Months Ended
			June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Derivatives in cash flow hedging relationship
Interest rate contracts – cash flow hedges	Interest expense – Borrowings		$	—	$	1,624	$	—	$	1,832

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The effect of the derivative and the hedged item in fair value hedging relationships on the condensed consolidated statements of income for three and six month periods ended June 30 is as follows:


	Location of gain (loss) recognized on derivative and hedged item	Amount of Gain (Loss) Recognized on Derivative and Hedged Item
		Three Months Ended				Six Months Ended
		June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Derivatives designated as hedging instruments
Interest rate contracts - fair value hedge	Interest income - loans receivable	$	330	$	314	$	665	$	434
Hedged item		( 330 )		( 314 )		( 665 )		( 434 )
Interest rate contracts - fair value hedge	Interest income - investment securities	21		61		92		110
Hedged item		( 21 )		( 61 )		( 92 )		( 110 )
Total		$	—	$	—	$	—	$	—

The effect of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three and six month periods ended June 30 is as follows:


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative
		Three Months Ended				Six Months Ended
		June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Derivatives not designated as hedging instruments
Mortgage loan contracts	Non-interest income - Gain on sale of loans	$	15	$	( 119 )	$	( 39 )	$	( 32 )
Commitments to originate mortgage loans	Non-interest income - Gain on sale of loans	( 49 )		( 88 )		( 76 )		( 153 )
Totals		$	( 34 )	$	( 207 )	$	( 115 )	$	( 185 )

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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 June 30, 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.

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.

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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:


	June 30, 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	$	62,665	$	—	$	62,665	$	—
State and municipal	294,836		—		294,836		—
Federal agency collateralized mortgage obligations	3,334		—		3,334		—
Federal agency mortgage–backed pools	130,318		—		130,318		—

Corporate notes	35,901		—		35,901		—
Total available for sale securities	527,054		—		527,054		—
Interest rate swap agreements asset	34,350		—		34,350		—
Commitments to originate mortgage loans	8		—		8		—
Mortgage loan contracts liability	( 7 )		—		( 7 )		—
Interest rate swap agreements liability	( 30,986 )		—		( 30,986 )		—


	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 )		—

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)
June 30, 2024
Collateral dependent loans	$	599	$	—	$	—	$	599

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.

June 30, 2024

Fair
Value

Valuation
Technique

Unobservable
Inputs

Range
(Weighted Average)

Collateral dependent loans

599

Collateral based measurement

Discount to reflect current market conditions and ultimate collectibility

15.4 %- 20.0 % ( 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.

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 June 30, 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 Cash Equivalents – Cash and cash equivalents are composed of: cash and due from banks, interest earning deposits, and federal funds sold. The carrying amounts approximate fair value.

Interest-Earning Time Deposits – The carrying amounts approximate fair value.

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 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.

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.


	June 30, 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	$	106,691	$	106,691	$	—	$	—
Interest earning deposits	4,957		4,957		—		—
Federal funds sold	34,453		34,453		—		—
Cash and cash equivalents	146,101		146,101		—
Interest earning time deposits	1,715		—		1,715		—
Investment securities, held to maturity	1,904,281		—		1,596,829		—
Loans held for sale	2,440		—		—		2,440
Loans, net	4,770,625		—		—		4,529,404
Stock in FHLB	53,826		—		53,826		—

Liabilities
Non–interest bearing deposits	$	1,087,040	$	1,087,040	$	—	$	—
Interest bearing deposits	4,543,114		3,364,726		1,170,682		—
Borrowings	1,357,335		—		1,347,888		—
Subordinated notes	55,668		—		53,408		—
Junior subordinated debentures issued to capital trusts	57,369		—		50,050		—
Interest payable	11,240		—		11,240		—

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
	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	$	112,772	$	112,772	$	—	$	—
Interest earning deposits	12,071		12,071		—		—
Federal funds sold	401,672		401,672		—		—
Cash and cash equivalents	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		—

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		—

Note 12 – Stockholders' Equity

On June 18, 2024, the Company declared a quarterly dividend to common shareholders of $ 0.16 per share, which was paid on July 19, 2024 to shareholders of record on July 5, 2024.

Dividends declared were $ 0.16 and $ 0.32 per share during the three and six months ended June 30, 2024 and $ 0.16 and $ 0.32 per share during the three and six months ended June 30, 2023.

Accumulated Other Comprehensive Income (Loss)


	June 30, 2024		December 31, 2023
Unrealized gain (loss) on securities available for sale, net of tax	$	( 76,136 )	$	( 69,018 )
Unamortized gain (loss) on securities held to maturity, previously transferred from AFS, net of tax	2,151		2,409


Total accumulated other comprehensive income (loss)	$	( 73,985 )	$	( 66,609 )

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 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 June 30, 2024, 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 second 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.

The following table presents Horizon and the Bank’s actual and required capital ratios as of June 30, 2024, March 31, 2024 and December 31, 2023, as well as the revisions to Horizon's regulatory capital ratios to reflect the correction of the capital computations for the foregoing periods:

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Table Dollar Amounts in Thousands, Except Per Share Data)


	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
June 30, 2024
Total capital (to risk-weighted assets) (1)
Consolidated	$	802,395	13.41	%	$	478,786	8.00	%	$	628,407	10.50	%	N/A		N/A
Bank	732,301		12.26		477,761		8.00		627,061		10.50		$	597,201	10.00	%
Tier 1 capital (to risk-weighted assets) (1)
Consolidated	693,807		11.59		359,090		6.00		508,711		8.50		N/A		N/A
Bank	679,381		11.38		358,321		6.00		507,621		8.50		477,761		8.00
Common equity tier 1 capital (to risk-weighted assets) (1)
Consolidated	636,438		10.63		269,317		4.50		418,938		7.00		N/A		N/A
Bank	679,381		11.38		268,741		4.50		418,041		7.00		388,181		6.50
Tier 1 capital (to total assets) (1)
Consolidated	693,807		9.02		307,743		4.00		307,743		4.00		N/A		N/A
Bank	679,381		8.84		307,335		4.00		307,335		4.00		384,168		5.00
March 31, 2024
Total capital (to risk-weighted assets) (1)
Consolidated (As Revised)*	$	789,786	13.75	%	$	459,485	8.00	%	$	603,074	10.50	%	N/A		N/A
Consolidated (As Reported)	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 (As Revised)*	683,015		11.89		344,614		6.00		488,203		8.50		N/A		N/A
Consolidated (As Reported)	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 total assets) (1)
Consolidated (As Revised)*	683,015		8.91		306,716		4.00		306,716		4.00		N/A		N/A
Consolidated (As Reported)	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
(1) As defined by regulatory agencies
*Prior periods have been revised (see disclosures above)

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Table Dollar Amounts in Thousands, Except Per Share Data)


	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
December 31, 2023
Total capital (to risk-weighted assets) (1)
Consolidated (As Revised)*	$	782,598	14.04	%	$	446,000	8.00	%	$	585,374	10.50	%	N/A		N/A
Consolidated (As Reported)	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 (As Revised)*	676,411		12.13		334,500		6.00		473,874		8.50		N/A		N/A
Consolidated (As Reported)	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 (As Revised)*	676,411		8.61		314,306		4.00		314,306		4.00		N/A		N/A
Consolidated (As Reported)	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
*Prior periods have been revised (see disclosures above)

Note 14 – Off-Balance Sheet Arrangements, Commitments, and Contingencies

Legal Proceedings

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 June 30, 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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its clients. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recorded in the consolidated balance sheets.

Commitments to extend credit are legally binding agreements to lend to a client, so long as there is no violation of any condition established in the commitment contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The credit risk involved in issuing letters of credit is essentially the same as the credit risk involved in extending loan facilities to clients. The Company’s policy for obtaining collateral, and determining the nature of such collateral, is essentially the same as in the Company’s policies for making commitments to extend credit. The methodology for estimating the liability for unfunded loan commitments is consistent with the allowance for credit losses on loans.

The following table represents the commitments to extend credit and standby letters of credit as of June 30, 2024 and December 31, 2023, respectively:


	June 30, 2024		December 31, 2023
Commitments to extend credit	$	1,103,746	$	1,118,417
Standby letters of credit	18,969		16,493
Total	$	1,122,715	$	1,134,910

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

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:

• 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;

• 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;

• loss of key Horizon personnel;

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

• 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;

• 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;

• volatility and disruption in financial markets;

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

• 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;

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 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;

• 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 potential influence on the U.S. financial markets and economy from the effects of climate change and social justice initiatives;

• 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 and Israel-Hamas conflicts, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, inflationary pressure and the overall U.S. and global financial markets.

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 2023 Annual Report on Form 10–K, in Item 1A of Part II of this Quarterly Report on Form 10–Q, and in the subsequent reports we file with the SEC.

Critical Accounting Estimates

The notes to the consolidated financial statements included in Item 8 of the Company’s 2023 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 December 31, 2023. There have been no material changes in the Company’s application of critical accounting estimates since December 31, 2023.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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

Results of Operations

Net Income

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.

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):

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 Six Months ended June 30, 2024 and 2023


	Average Balance Sheet
	(Dollars in Thousands, Unaudited)
	Three Months Ended
	June 30, 2024						June 30, 2023
	Average Balance		Interest (4)		Average Rate (4)		Average Balance		Interest (4)		Average Rate (4)
Assets
Interest earning assets
Federal funds sold	$	47,805	$	645	5.43	%	$	30,926	$	376	4.88	%
Interest earning deposits (7)	7,662		93		4.88	%	9,002		99		4.41	%
Federal Home Loan Bank stock (6)	53,827		1,521		11.36	%	33,322		508		6.11	%
Investment securities - taxable (1)	1,309,305		6,465		1.99	%	1,673,439		8,232		1.97	%
Investment securities - non-taxable (1)	1,132,065		8,072		2.87	%	1,240,931		8,935		2.89	%
Total investment securities	2,441,370		14,537		2.39	%	2,914,370		17,167		2.36	%
Loans receivable (2) (3)	4,662,124		72,208		6.23	%	4,225,020		60,843		5.78	%
Total interest earning assets	7,212,788		89,004		4.96	%	7,212,640		78,993		4.39	%
Non-interest earning assets
Cash and due from banks	108,319						102,935
Allowance for credit losses	(50,334)						(49,481)
Other assets	508,555						573,932
Total average assets	$	7,779,328					$	7,840,026

Liabilities and Stockholders' Equity
Interest bearing liabilities
Interest bearing deposits	$	3,334,490	$	16,814	2.03	%	$	3,329,899	$	10,388	1.25	%
Time deposits	1,134,590		11,633		4.12	%	1,115,175		8,570		3.08	%
Borrowings	1,184,172		10,278		3.49	%	1,176,702		9,035		3.08	%
Repurchase agreements	125,144		935		3.00	%	140,606		683		1.95	%
Subordinated notes	55,647		829		5.99	%	58,946		881		5.99	%
Junior subordinated debentures issued to capital trusts	57,335		1,213		8.51	%	57,110		1,151		8.08	%
Total interest bearing liabilities	5,891,378		41,702		2.85	%	5,878,438		30,708		2.10	%
Non-interest bearing liabilities
Demand deposits	1,080,676						1,186,520
Accrued interest payable and other liabilities	80,942						64,115
Stockholders' equity	726,332						710,953
Total average liabilities and stockholders' equity	$	7,779,328					$	7,840,026
Net FTE interest income (non-GAAP) (5)			$	47,302					$	48,285
Less FTE adjustments (4)			(2,023)						(2,125)
Net Interest Income			$	45,279					$	46,160
Net FTE interest margin (Non-GAAP) (4)(5)					2.64	%					2.69	%
(1) 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.
(2) 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.
(3) 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.
(4) 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) Dividends on FHLB stock.
(7) Includes interest earning deposits and interest earning time deposits.

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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 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):

2 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 Six Months ended June 30, 2024 and 2023


	Average Balance Sheet
	(Dollars in Thousands, Unaudited)
	Six Months Ended
	June 30, 2024						June 30, 2023
	Average Balance		Interest (4)		Average Rate (4)		Average Balance		Interest (4)(6)		Average Rate (4)
Assets
Interest earning assets
Federal funds sold	$	184,932	$	5,032	5.47	%	$	19,411	$	459	4.77	%
Interest earning deposits (7)	8,512		203		4.80	%	8,891		169		3.83	%
Federal Home Loan Bank stock (6)	45,888		2,304		10.10	%	32,096		912		5.73	%
Investment securities - taxable (1)	1,317,775		13,044		1.99	%	1,684,912		16,553		1.98	%
Investment securities - non-taxable (1)	1,141,011		16,238		2.86	%	1,277,328		18,500		2.92	%
Total investment securities	2,458,786		29,282		2.39	%	2,962,240		35,053		2.39	%
Loans receivable (2) (3)	4,555,224		139,515		6.16	%	4,184,347		116,443		5.61	%
Total interest earning assets	7,253,342		176,336		4.89	%	7,206,985		153,036		4.28	%
Non-interest earning assets
Cash and due from banks	107,057						103,247
Allowance for credit losses	(50,147)						(49,907)
Other assets	497,602						574,707
Total average assets	$	7,807,854					$	7,835,032

Liabilities and Stockholders' Equity
Interest bearing liabilities
Interest bearing deposits	$	3,328,858	$	32,703	1.98	%	$	3,409,970	$	18,536	1.10	%
Time deposits	1,155,756		23,734		4.13	%	1,062,549		15,241		2.89	%
Borrowings	1,192,450		21,182		3.57	%	1,115,350		18,303		3.31	%
Repurchase agreements	131,598		1,961		3.00	%	139,683		1,186		1.71	%
Subordinated notes	55,602		1,660		6.00	%	58,928		1,761		6.03	%
Junior subordinated debentures issued to capital trusts	57,307		2,438		8.56	%	57,079		2,242		7.92	%
Total interest bearing liabilities	5,921,571		83,678		2.84	%	5,843,559		57,269		1.98	%
Non-interest bearing liabilities
Demand deposits	1,078,929						1,220,917
Accrued interest payable and other liabilities	81,478						67,893
Stockholders' equity	725,876						702,663
Total average liabilities and stockholders' equity	$	7,807,854					$	7,835,032
Net FTE interest income (non-GAAP) (5)			$	92,658					$	95,767
Less FTE adjustments (4)			(4,091)						(4,370)
Net Interest Income			$	88,567					$	91,397
Net FTE interest margin (Non-GAAP) (4)(5)					2.57	%					2.68	%
(1) 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.
(2) 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.
(3) 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.
(4) 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) Dividends on FHLB stock.
(7) Includes interest earning deposits and interest earning time deposits.

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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 Six Months ended June 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
		Total Change		Change Due to Volume		Change Due to Rate		Total Change		Change Due to Volume		Change Due to Rate
Interest Income
Federal funds sold		$	269	$	224	$	45	$	4,573	$	4,494	$	79
Interest earning deposits (1)		(6)		(16)		10		34		(7)		41
Federal Home Loan Bank stock		1,013		425		588		1,392		500		892
Investment securities – taxable		(1,767)		(1,798)		31		(3,509)		(3,633)		124
Investment securities – non–taxable		(682)		(777)		95		(1,787)		(1,945)		158
Loans receivable		11,286		6,570		4,716		22,876		10,807		12,069
Total interest income		10,113		4,628		5,485		23,579		10,216		13,363

Interest Expense
Interest bearing deposits		$	6,426	$	14	$	6,412	$	14,167	$	(451)	$	14,618
Time Deposits		3,063		282		2,781		8,493		1,434		7,059
Borrowings		1,243		124		1,119		2,879		1,312		1,567
Repurchase agreements		252		(142)		394		775		(73)		848
Subordinated notes		(52)		(99)		47		(101)		(99)		(2)
Junior subordinated debentures issued to capital trusts		62		9		53		196		9		187
Total interest expense		10,994		188		10,806		26,409		2,132		24,277
Net Interest Income		$	(881)	$	4,440	$	(5,321)	$	(2,830)	$	8,084	$	(10,914)
(1) Includes time deposits.

Non-Interest Income


	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(Dollars in Thousands)	2024		2023		2024		2023
Non-interest Income
Service charges on deposit accounts	$	3,130	$	3,021	$	6,344	$	6,049
Wire transfer fees	113		116		214		225
Interchange fees	3,826		3,584		6,935		6,451
Fiduciary activities	1,372		1,247		2,687		2,522
Gains (losses) on sale of investment securities	—		20		—		(480)
Gain on sale of mortgage loans	896		1,005		1,522		1,790
Mortgage servicing income net of impairment	450		640		889		1,353
Increase in cash value of bank owned life insurance	318		1,015		616		1,996
Other income	380		349		1,207		711
Total non-interest income	$	10,485	$	10,997	$	20,414	$	20,617

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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 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. 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. 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. 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. 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.

Non-Interest Expense


	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(Dollars in Thousands)	2024		2023		2024		2023
Non-interest Expense
Salaries and employee benefits	$	20,583	$	20,162	$	40,851	$	38,874
Net occupancy expenses	3,192		3,249		6,738		6,812
Data processing	2,579		3,016		5,043		5,685
Professional fees	714		633		1,321		1,166
Outside services and consultants	3,058		2,515		6,417		5,232
Loan expense	1,038		1,397		1,757		2,515
FDIC insurance expense	1,315		840		2,635		1,380
Core deposit intangible amortization	844		903		1,716		1,806
Other losses	515		134		531		355
Other expense	3,684		3,413		7,620		6,961
Total non-interest expense	$	37,522	$	36,262	$	74,629	$	70,786

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

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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 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.

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
Allowance for Credit Losses on Loans
Balance at beginning of period	$	50,387	$	49,526	$	50,029	$	50,464
Provision for credit losses on loans	2,415		741		3,084		336
Net loan charge-offs (recoveries):
Commercial	57		118		$	(115)	376
Residential Real estate	(4)		(10)		$	(9)	(16)
Mortgage warehouse	—		—		—		—
Consumer	534		183		1,022		464
Total net loan charge-offs (recoveries)	$	587	$	291	$	898	$	824
Balance at end of period	$	52,215	$	49,976	$	52,215	$	49,976

Liability for Unfunded Lending Commitments
Balance at beginning of period	750		1,049		615		403
Provision for credit losses on unfunded lending commitments	(45)		(60)		90		586
Balance at end of period	$	705	$	989	$	705	$	989
Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments	$	52,920	$	50,965	$	52,920	$	50,965

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. .

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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 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.

Income Taxes

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.

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 $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. 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):

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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 Six Months ended June 30, 2024 and 2023


	June 30, 2024				December 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
U.S. Treasury and federal agencies	$	71,419	$	62,665	$	72,938	$	64,377
State and municipal	352,223		294,836		353,299		304,030
Federal agency collateralized mortgage obligations	3,702		3,334		3,931		3,580
Federal agency mortgage–backed pools	154,479		130,318		161,130		137,297

Corporate notes	41,605		35,901		43,317		37,967
Total available for sale investment securities	$	623,428	$	527,054	$	634,615	$	547,251
Held to maturity
U.S. Treasury and federal agencies	$	284,114	$	242,197	$	287,259	$	245,960
State and municipal	1,064,638		886,408		1,088,499		939,361
Federal agency collateralized mortgage obligations	48,668		40,540		51,325		43,479
Federal agency mortgage–backed pools	314,069		264,814		323,649		275,028
Private labeled mortgage–backed pools	30,780		26,246		32,329		27,734
Corporate notes	162,170		136,782		162,734		137,196
Total held to maturity investment securities	$	1,904,439	$	1,596,987	$	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.

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 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.

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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 Six Months ended June 30, 2024 and 2023


	Credit Quality
	(Dollars in Thousands Except Ratios, Unaudited)
	Quarter Ended
	June 30,			December 31,
	2024			2023
Non-accrual loans
Commercial	$	4,321		$	7,362
Residential Real estate	8,489			8,058
Mortgage warehouse	—			—
Consumer	5,453			4,290
Total non-accrual loans	$	18,263		$	19,710
90 days and greater delinquent - accruing interest	$	1,039		$	559
Total non-performing loans	$	19,302		$	20,269
Other real estate owned
Commercial	$	1,111		$	1,124
Residential Real estate	—			182
Mortgage warehouse	—			—
Consumer	57			205
Total other real estate owned	$	1,168		$	1,511

Total non-performing assets	$	20,470		$	21,780

Net charge-offs (recoveries)
Commercial	$	57		$	233
Residential Real estate	(4)			21
Mortgage warehouse	—			—
Consumer	534			531
Total net charge-offs	$	587		$	785

Allowance for credit losses
Commercial	$	31,941		$	29,736
Residential Real estate	2,588			2,503
Mortgage warehouse	736			481
Consumer	16,950			17,309
Total allowance for credit losses	$	52,215		$	50,029

Credit quality ratios
Non-accrual loans to HFI loans	0.38		%	0.45		%
Non-performing assets to total assets	0.26		%	0.27		%
Annualized net charge-offs of average total loans	0.05		%	0.07		%
Allowance for credit losses to HFI loans	1.08		%	1.13		%

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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 Six Months ended June 30, 2024 and 2023

Liquidity

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 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. Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $22.5 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.

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%. Book value per common share was $16.62, increasing $0.15 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 book value, which excludes intangible assets from total equity, per common share 1 was $12.80, increasing $0.20 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. For additional information regarding dividends, see Horizon’s 2023 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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HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 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. 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.


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,
		2024			2024			2023			2023			2023			2024			2023
Interest income (GAAP)	(A)	$	86,981		$	85,264		$	83,514		$	80,125		$	76,868		172,246			148,666
Taxable-equivalent adjustment:
Investment securities - tax exempt (1)		$	1,695		$	1,715		$	1,799		$	1,861		$	1,876		$	3,410		$	3,885
Loan receivable (2)		$	328		$	353		$	314		$	251		$	249		$	681		$	485
Interest income (non-GAAP)	(B)	$	89,004		$	87,332		$	85,627		$	82,237		$	78,993		$	176,337		$	153,036
Interest expense (GAAP)	(C)	$	41,702		$	41,976		$	41,257		$	38,035		$	30,708		$	83,678		$	57,269
Net interest income (GAAP)	(D) =(A) - (C)	$	45,279		$	43,288		$	42,257		$	42,090		$	46,160		$	88,568		$	91,397
Net FTE interest income (non-GAAP)	(E) = (B) - (C)	$	47,302		$	45,356		$	44,370		$	44,202		$	48,285		$	92,659		$	95,767
Average interest earning assets	(F)	7,212,788			7,293,559			7,239,034			7,286,611			7,212,640			7,253,342			7,206,985
Net FTE interest margin (non-GAAP)	(G) = (E*) / (F)	2.64		%	2.50		%	2.43		%	2.41		%	2.69		%	2.57		%	2.68		%

(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
*Annualized

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HORIZON BANCORP, INC. AND SUBSIDIARIES


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,
		2024			2024			2023			2023			2023			2024			2023

Net income (loss) (GAAP)	(A)	14,140			13,991			(25,215)			16,205			18,763			$	28,131		$	36,991
Average stockholders' equity	(B)	$	726,332		$	725,083		$	702,793		$	715,485		$	710,953		$	725,876		$	702,663
Average intangible assets	(C)	167,659			168,519			169,401			170,301			171,177			$	168,089		$	171,655
Average tangible equity (Non-GAAP)	(D) = (B) - (C)	$	558,673		$	556,564		$	533,392		$	545,184		$	539,776		$	557,787		$	531,008
Return on average tangible common equity ("ROACE") (non-GAAP)	(E) = (A*) / (D)	10.18		%	10.11		%	(18.76)		%	11.79		%	13.94		%	10.14		%	14.05		%
*Annualized


Non–GAAP Reconciliation of Tangible Common Equity to Tangible Assets
(Dollars in Thousands, Unaudited)
		Three Months Ended
		June 30,			March 31,			December 31,			September 30,			June 30,
		2024			2024			2023			2023			2023
Total stockholders' equity (GAAP)	(A)	$	726,665		$	721,250		$	718,812		$	693,369		$	709,243
Intangible assets (end of period)	(B)	167,121			167,965			168,837			169,741			170,644
Total tangible common equity (non-GAAP)	(C) = (A) - (B)	$	559,544		$	553,285		$	549,975		$	523,628		$	538,599

Total assets (GAAP)	(D)	7,912,527			7,855,707			7,940,485			7,959,434			7,963,353
Intangible assets (end of period)	(B)	167,121			167,965			168,837			169,741			170,644
Total tangible assets (non-GAAP)	(E) = (D) - (B)	$	7,745,406		$	7,687,742		$	7,771,648		$	7,789,693		$	7,792,709

Tangible common equity to tangible assets (Non-GAAP)	(G) = (C) / (E)	7.22		%	7.20		%	7.08		%	6.72		%	6.91		%


Non–GAAP Reconciliation of Tangible Book Value Per Share
(Dollars in Thousands, Unaudited)
		Three Months Ended
		June 30,		March 31,		December 31,		September 30,		June 30,
		2024		2024		2023		2023		2023
Total stockholders' equity (GAAP)	(A)	$	726,665	$	721,250	$	718,812	$	693,369	$	709,243
Intangible assets (end of period)	(B)	167,121		167,965		168,837		169,741		170,644
Total tangible common equity (non-GAAP)	(C) = (A) - (B)	$	559,544	$	553,285	$	549,975	$	523,628	$	538,599
Common shares outstanding	(D)	43,712,059		43,726,380		43,652,063		43,648,501		43,645,216

Tangible book value per common share (non-GAAP)	(E) = (C) / (D)	$	12.80	$	12.65	$	12.60	$	12.00	$	12.34

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HORIZON BANCORP, INC. AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk management focuses on monitoring and maintaining variances in the Company's net interest income profile due to changes in interests rates to within Board-approved policy limits. The Company primarily uses earnings simulation models to expose net interest income to 12- and 24- month sensitivities to various movements in rates. Simulations are modeled quarterly to include scenarios where market rates change instantaneously up or down in a parallel or non-parallel manner, which account for the periodic changes in the balance sheet composition. For further discussion of the Company’s market risk, see the Interest Rate Sensitivity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2023 Annual Report on Form 10-K.

The table below shows the modelled effects of an immediate and parallel shift in interest rates on the Company's net interest income profile over a one-year horizon versus the base case net interest income in a flat rate scenario. The simulation model assumes a static balance sheet over that twelve month period, and utilizes various non-maturity interest bearing deposit beta assumptions, based on the underlying products, ranging from 12% to 80% in the disclosed model outputs below. Deposit beta is an estimate for how quickly interest-bearing deposit pricing will change for a given change in interest rates. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results, but rather to provide insight into our current interest rate exposure and to assist in the execution of appropriate asset/liability management strategies. As shown below, the model output would indicate that as of June 30, 2024, the Company's interest-bearing liabilities are projected to reprice at a faster pace than interest-earning assets.


	June 30, 2024
(Dollars in millions)	$ Change in Net Interest Income		% Change in Net Interest Income
200 basis points rising	$	(18.6)	(10.4)	%
100 basis points rising	(9.2)		(5.2)
100 basis points falling	$	6.9	3.8	%
200 basis points falling	2.6		1.4

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on an evaluation of disclosure controls and procedures as of June 30, 2024, Horizon’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Horizon’s disclosure controls (as defined in Exchange Act Rule 13a–15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on such evaluation, such officers have concluded that, as of the evaluation date, Horizon's disclosure controls and procedures are effective to ensure that the information required to be disclosed by Horizon in the reports it files under the Exchange Act is recorded, processed, summarized and reported within the time specified in Securities and Exchange Commission's rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosures.

Changes in Internal Control Over Financial Reporting

Horizon’s management, including its Chief Executive Officer and Chief Financial Officer, also have concluded that during the fiscal quarter ended June 30, 2024, there have been no changes in Horizon’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Horizon’s internal control over financial reporting.

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Part II – Other Information

HORIZON BANCORP, INC. AND SUBSIDIARIES

Part II – Other Information

ITEM 1. LEGAL PROCEEDINGS

For information regarding the Company's legal proceedings, see "Part I. Item 1. Note 14 – General Litigation," which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

There have been no material changes from the factors previously disclosed under Item 1A of Horizon's Annual Report on Form 10–K for the fiscal year ended December 31, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Unregistered Sales of Equity Securities: Not Applicable

(b) Use of Proceeds: Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

Table of Contents

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibits


Exhibit No.	Description	Location
10.1	Employment Agreement (John R. Stewart), dated May 10, 2024	Incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 13, 2024
10.2	Change in Control Agreement (John R. Stewart), dated May 10, 2024	Incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed on May 13, 2024
10.3	Amendment to Employment Agreement (Mark E. Secor), dated May 10, 2024	Incorporated by reference to Exhibit 10.3 to Registrant’s Form 8-K filed on May 13, 2024
10.4	Amended and Restated Change in Control Agreement (Mark E. Secor), dated May 10, 2024	Incorporated by reference to Exhibit 10.4 to Registrant’s Form 8-K filed on May 13, 2024
31.1	Certification of Thomas M. Prame	Attached
31.2	Certification of John R. Stewart	Attached
32	Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Attached
101	Inline Interactive Data Files	Attached
104	The cover page from the Company’s Quarterly Report on Form 10–Q for the quarter ended June 30, 2024, has been formatted in Inline XBRL	Within the Inline XBRL document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						HORIZON BANCORP, INC.

August 9, 2024						/s/ Thomas M. Prame
Date						Thomas M. Prame
						Chief Executive Officer

August 9, 2024						/s/ John R. Stewart
Date						John R. Stewart
						Chief Financial Officer

TABLE OF CONTENTS

Part I Financial Information Item 1 Financial Statements Note 1 - Accounting Policies Note 2 Securities Note 3 Loans Note 4 Allowance For Credit and Loan Losses Note 5 Loan Servicing Note 6 Goodwill Note 7 Repurchase Agreements Note 8 Subordinated Notes Note 9 Derivative Financial Instruments Note 10 Disclosures About Fair Value Of Assets and Liabilities Note 11 Fair Value Of Financial Instruments Note 12 Stockholders' Equity Note 13 Regulatory Capital Note 14 Off-balance Sheet Arrangements, Commitments, and Contingencies Item 2 Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

31.1 Certification of Thomas M. Prame Attached 31.2 Certification of John R. Stewart Attached 32 Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 Attached

HBNC 10-Q Quarter ended June 30, 2024

Exhibits