UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

~~QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE~~

~~SECURITIES EXCHANGE ACT OF 1934~~

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

For the quarterly period ended ~~March 31,~~September 30, 2019

☐	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~~
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

☒

☐

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

☒

☐

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~~	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐

Emerging growth 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

☐

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~45,052,747~~44,969,771 shares of Common Stock, no par value, at ~~May 8,~~November

, 2019.

Table of Contents

HORIZON BANCORP, INC.

FORM

10-Q

INDEX


PART I. FINANCIAL INFORMATION

~~Item 1.~~
Item 1.	Financial Statements (Unaudited)

	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 Statement of Stockholders’ Equity~~	6

	Condensed Consolidated Statements of Cash Flows	7


	Notes to Condensed Consolidated Financial Statements	8

~~Item 2.~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47 46

~~Item 3.~~
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61 65

~~Item 4.~~	~~Controls and Procedures~~	61
Item 4.	Controls and Procedures	65

PART II. OTHER INFORMATION

~~Item 1.~~	~~Legal Proceedings~~	62

~~Item 1A.~~	~~Risk Factors~~	62

Item 2. 1.	Legal Proceedings	66

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62 66

~~Item 3.~~
Item 3.	Defaults Upon Senior Securities	62 66

~~Item 4.~~	~~Mine Safety Disclosures~~	62

~~Item 5.~~	~~Other Information~~	62

Item 6. 4.	~~Exhibits~~Mine Safety Disclosures	63 66

~~Index to Exhibits~~		63

~~Signatures~~		64
Item 5.	Other Information	6 6

Item 6.	Exhibits	6 7

Index to Exhibits		68

Signatures		69

Table of Contents

PART 1 — FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

HORIZON BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollar Amounts in Thousands)

   March 31
2019    December 31
2018
Assets

Cash and due from banks
   $ 86,131    $ 58,492
Interest-earning time deposits
   15,987    15,744
Investment securities, available for sale
   687,142    600,348
Investment securities, held to maturity (fair value of $210,106 and $208,273)
   206,327    210,112
Loans held for sale
   1,979    1,038
Loans, net of allowance for loan losses of $17,821 and $17,820
   3,603,236    2,995,512
Premises and equipment, net
   93,822    74,331
Federal Home Loan Bank stock
   22,447    18,073
Goodwill
   145,690    119,880
Other intangible assets
   31,174    10,390
Interest receivable
   17,423    14,239
Cash value of life insurance
   94,449    88,062
Other assets
   45,832    40,467




Total assets
   $ 5,051,639    $ 4,246,688




Liabilities

Deposits

Non-interest bearing
   $ 811,768    $ 642,129
Interest bearing
   3,076,255    2,497,247




Total deposits
   3,888,023    3,139,376
Borrowings
   457,788    550,384
Subordinated debentures
   55,310    37,837
Interest payable
   2,471    2,031
Other liabilities
   38,579    25,068




Total liabilities
   4,442,171    3,754,696




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 (Restated - See Note 1)

Issued 45,077,816 and 38,400,476 shares (Restated - See Note 1),

Outstanding 45,052,747 and 38,375,407 shares (Restated - See Note 1)
   —      —
Additionalpaid-in capital
   378,963    276,101
Retained earnings
   230,327    224,035
Accumulated other comprehensive income (loss)
   178    (8,144 )




Total stockholders’ equity
   609,468    491,992




Total liabilities and stockholders’ equity
   $ 5,051,639    $ 4,246,688


	September 30		December 31
	2019		2018
Assets
Cash and due from b a nks	$	91,279	$	58,492
Interest-earning time deposits		8,455		15,744
Investment securities, available for sale		767,230		600,348
Investment securities, held to maturity (fair value of $217,718 and $208,273)		210,306		210,112
Loans held for sale		1,060		1,038
Loans, net of allowance for loan losses of $17,956 and $17,820		3,648,669		2,995,512
Premises and equipment, net		92,800		74,331
Federal Home Loan Bank stock		22,447		18,073
Goodwill		151,238		119,880
Other intangible assets		27,658		10,390
Interest receivable		18,282		14,239
Cash value of life insurance		95,011		88,062
Other assets		52,279		40,467

Total assets	$	5,186,714	$	4,246,688

Liabilities
Deposits
Non-interest bearing	$	756,707	$	642,129
Interest bearing		3,159,250		2,497,247

Total deposits		3,915,957		3,139,376
Borrowings		516,591		550,384
Subordinated debentures		56,250		37,837
Interest payable		2,725		2,031
Other liabilities		52,480		25,068

Total liabilities		4,544,003		3,754,696

Commitments and contingent liabilities
Stockholders’ Equity
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares		—		—
Common stock, 0 par value, Authorized 99,000,000 shares
Issued 44,994,090 and 38,400,476 shares, Outstanding 44,969,021 and 38,375,407 shares		—		—
Additional paid-in capital		379,448		276,101
Retained earnings		256,617		224,035
Accumulated other comprehensive income (loss)		6,646		(8,144	)

Total stockholders’ equity		642,711		491,992

Total liabilities and stockholders’ equity	$	5,186,714	$	4,246,688

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
March 31

   2019    2018
Interest Income

Loans receivable
   $ 39,623    $ 35,131
Investment securities

Taxable
   3,122    2,430
Tax exempt
   2,628    1,865




Total interest income
   45,373    39,426




Interest Expense

Deposits
   6,876    2,871
Borrowed funds
   3,621    2,572
Subordinated debentures
   596    572




Total interest expense
   11,093    6,015




Net Interest Income
   34,280    33,411
Provision for loan losses
   364    567




Net Interest Income after Provision for Loan Losses
   33,916    32,844




Non-interest Income

Service charges on deposit accounts
   1,877    1,888
Wire transfer fees
   118    150
Interchange fees
   1,361    1,328
Fiduciary activities
   2,089    1,925
Gains on sale of investment securities (includes $15 and $11 for the three months ended March 31, 2019 and 2018, respectively, related to accumulated other comprehensive earnings
   15    11
Gain on sale of mortgage loans
   1,309    1,423
Mortgage servicing income net of impairment
   606    349
Increase in cash value of bank owned life insurance
   513    435
Other income
   824    809




Totalnon-interest income
   8,712    8,318




Non-interest Expense

Salaries and employee benefits
   14,466    14,373
Net occupancy expenses
   2,772    2,966
Data processing
   1,966    1,696
Professional fees
   493    501
Outside services and consultants
   3,530    1,264
Loan expense
   1,949    1,257
FDIC insurance expense
   160    310
Other losses
   104    146
Other expense
   4,298    3,324




Totalnon-interest expense
   29,738    25,837




Income Before Income Taxes
   12,890    15,325
Income tax expense (includes $3 and $2 for the three months ended March 31, 2019 and 2018, respectively, related to income tax expense from reclassification items)
   2,074    2,521




Net Income
   $ 10,816    $ 12,804




Basic Earnings Per Share (Restated - See Note 1)
   $ 0.28    $ 0.33
Diluted Earnings Per Share (Restated - See Note 1)
   0.28    0.33


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2019			2018			2019			2018
Interest Income
Loans receivable	$	49,455		$	37,522		$	136,862		$	108,961
Investment securities
Taxable		3,157			2,739			9,552			7,732
Tax exempt		3,099			2,010			8,520			5,745

Total interest income		55,711			42,271			154,934			122,438

Interest Expense
Deposits		9,109			5,023			24,923			11,814
Borrowed funds		2,275			2,876			8,391			8,127
Subordinated debentures		864			600			2,348			1,764

Total interest expense		12,248			8,499			35,662			21,705

Net Interest Income		43,463			33,772			119,272			100,733
Provision for loan losses		376			1,176			1,636			2,378

Net Interest Income after Provision for Loan Losses		43,087			32,596			117,636			98,355

Non-interest Income
Service charges on deposit accounts		2,836			2,009			7,193			5,804
Wire transfer fees		189			160			474			490
Interchange fees		2,138			1,410			5,659			4,293
Fiduciary activities		1,834			1,855			5,986			5,598
Gains (losses) on sale of investment securities (includes $0 and $(122) for the three months ended September 30, 2019 and 2018, respectively, and $(85) and $(111) for the nine months ended September 30, 2019 and nine months ended September 30, 2018 related to accumulated other comprehensive earnings reclassifications)		—			(122	)		(85	)		(111	)
Gain on sale of mortgage loans		2,702			1,839			6,089			5,158
Mortgage servicing income net of impairment		444			563			1,620			1,423
Increase in cash value of bank owned life insurance		556			503			1,624			1,380
Death benefit on bank owned life insurance		213			—			580			154
Other income		602			469			1,984			1,747

Total non-interest income		11,514			8,686			31,124			25,936

Non-interest Expense
Salaries and employee benefits		16,948			14,343			48,365			42,525
Net occupancy expenses		3,131			2,495			9,051			7,981
Data processing		2,140			1,759			6,245			5,062
Professional fees		335			437			1,426			1,314
Outside services and consultants		1,552			1,204			6,737			3,735
Loan expense		2,198			1,722			6,195			4,504
FDIC insurance expense		(273	)		396			252			1,051
Other losses		90			161			363			576
Other expense		3,939			3,103			12,748			9,651

Total non-interest expense		30,060			25,620			91,382			76,399

Income Before Income Taxes		24,541			15,662			57,378			47,892
Income tax expense (includes $0 and $(25) for the three months ended September 30, 2019 and 2018, respectively, and $(18) and $(23) for the nine months ended September 30, 2019 and nine months ended September 30, 2018 related to income tax expense (benefit) from reclassification items)		4,004			2,597			9,383			7,908

Net Income	$	20,537		$	13,065		$	47,995		$	39,984

Basic Earnings Per Share	$	0.46		$	0.34		$	1.12		$	1.04
Diluted Earnings Per Share		0.46			0.34			1.11			1.04

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
March 31
   2019 2018
Net Income
   $10,816 $ 12,804


Other Comprehensive Income (Loss)

Change in fair value of derivative instruments:

Change in fair value of derivative instruments for the period
   (1,106 ) 759
Income tax effect
   232 (159 )


Changes from derivative instruments
   (874 ) 600


Change in securities:

Unrealized appreciation (depreciation) for the period on AFS securities
   11,694 (8,114 )
Amortization from transfer of securities from available for sale to held to maturity securities
   (38 ) (52 )
Reclassification adjustment for securities (gains) losses realized in income
   (15 ) (11 )
Income tax effect
   (2,445 ) 1,716


Unrealized gains (losses) on securities
   9,196 (6,461 )


Other Comprehensive Income (Loss), Net of Tax
   8,322 (5,861 )


Comprehensive Income
   $ 19,138 $ 6,943


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2019			2018			2019			2018
Net Income	$	20,537		$	13,065		$	47,995		$	39,984

Other Comprehensive Income (Loss)
Change in fair value of derivative instruments:
Change in fair value of derivative instruments for the period		(864	)		639			(3,871	)		1,752
Income tax effect		182			(134	)		813			(368	)

Changes from derivative instruments		(682	)		505			(3,058	)		1,384

Change in securities:
Unrealized appreciation (depreciation) for the period on AFS securities		3,963			(3,712	)		22,591			(12,655	)
Amortization from transfer of securities from available for sale to held to maturity securities		(15	)		(55	)		(83	)		(153	)
Reclassification adjustment for securities (gains) losses realized in income		—			122			85			111
Income tax effect		(827	)		764			(4,745	)		2,667

Unrealized gains (losses) on securities		3,121			(2,881	)		17,848			(10,030	)

Other Comprehensive Income (Loss), Net of Tax		2,439			(2,376	)		14,790			(8,646	)

Comprehensive Income	$	22,976		$	10,689		$	62,785		$	31,338

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(Dollar Amounts in Thousands, Except Per Share Data)

         Accumulated
         Additional Other
   Preferred    Common    Paid-in Retained Comprehensive
   Stock    Stock    Capital Earnings Loss Total
Balances, January 1, 2018
   $ —      $ —      $ 275,059 $ 185,570 $ (3,551 ) $ 457,078
Net income
   —      —      —   12,804 —   12,804
Other comprehensive loss, net of tax
   —      —      —   —   (5,861 ) (5,861 )
Amortization of unearned compensation
   —      —      61 —   —   61
Exercise of stock options
   —      —      100 —   —   100
Stock option expense
   —      —      82 —   —   82
Reclassification of tax adjustment on accumulated other comprehensive loss
   —      —      —   766 (766 ) —
Cash dividends on common stock ($0.10 per share)
   —      —      —   (3,848 ) —   (3,848 )






Balances, March 31, 2018
   $ —      $ —      $ 275,302 $ 195,292 $ (10,178 ) $ 460,416






Balances, January 1, 2019
   $ —      $ —      $ 276,101 $ 224,035 $ (8,144 ) $ 491,992
Net income
   —      —      —   10,816 —   10,816
Other comprehensive income, net of tax
   —      —      —   —   8,322 8,322
Amortization of unearned compensation
   —      —      91 —   —   91
Exercise of stock options
   —      —      117 —   —   117
Stock option expense
   —      —      57 —   —   57
Stock issued stock plans
   —      —      (125 ) —   —   (125 )
Stock issued in Salin acquisition
   —      —      102,722 —   —   102,722
Cash dividends on common stock ($0.10 per share)
   —      —      —   (4,524 ) —   (4,524 )






Balances, March 31, 2019
   $ —      $ —      $ 378,963 $ 230,327 $ 178 $ 609,468


	Three Months Ended
	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances, July 1, 2018	$	—	$	—	$	275,587		$	205,535		$	(10,587	)	$	470,535
Net income		—		—		—			13,065			—			13,065
Other comprehensive loss, net of tax		—		—		—			—			(2,376	)		(2,376	)
Amortization of unearned compensation		—		—		124			—			—			124
Exercise of stock options		—		—		49			—			—			49
Stock option expense		—		—		44			—			—			44
Cash dividends on common stock ($0.10 per share)		—		—		—			(3,847	)		—			(3,847	)

Balances, September 30, 2018	$	—	$	—	$	275,804		$	214,753		$	(12,963	)	$	477,594

Balances, July 1, 2019	$	—	$	—	$	380,735		$	241,519		$	4,207		$	626,461
Net income		—		—		—			20,537			—			20,537
Other comprehensive income, net of tax		—		—		—			—			2,439			2,439
Amortization of unearned compensation		—		—		202			—			—			202
Exercise of stock options		—		—		7			—			—			7
Stock option expense		—		—		50			—			—			50
Stock issued stock plans		—		—		49			—			—			49
Repurchase of outstanding stock		—		—		(1,595	)		—			—			(1,595	)
Cash dividends on common stock ($0.12 per share)		—		—		—			(5,439	)		—			(5,439	)

Balances, September 30, 2019	$	—	$	—	$	379,448		$	256,617		$	6,646		$	642,711


	Nine Months Ended
	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances, January 1, 2018	$	—	$	—	$	275,059		$	185,570		$	(3,551	)	$	457,078
Net income		—		—		—			39,984			—			39,984
Other comprehensive loss, net of tax		—		—		—			—			(8,646	)		(8,646	)
Amortization of unearned compensation		—		—		45			—			—			45
Exercise of stock options		—		—		493			—			—			493
Stock option expense		—		—		207			—			—			207
Reclassification of tax adjustment on accumulated other comprehensive loss		—		—		—			766			(766	)		—
Cash dividends on common stock ($0.30 per share) (Restated - See Note 1)		—		—		—			(11,567	)		—			(11,567	)

Balances, September 30, 2018	$	—	$	—	$	275,804		$	214,753		$	(12,963	)	$	477,594

Balances, January 1, 2019	$	—	$	—	$	276,101		$	224,035		$	(8,144	)	$	491,992
Net income		—		—		—			47,995			—			47,995
Other comprehensive income, net of tax		—		—		—			—			14,790			14,790
Amortization of unearned compensation		—		—		503			—			—			503
Exercise of stock options		—		—		162			—			—			162
Stock option expense		—		—		165			—			—			165
Stock issued stock plans		—		—		1,390			—			—			1,390
Stock issued in Salin acquisition		—		—		102,722			—			—			102,722
Repurchase of outstanding stock		—		—		(1,595	)		—			—			(1,595	)
Cash dividends on common stock ($0.34 per share)		—		—		—			(15,413	)		—			(15,413	)

Balances, September 30, 2019	$	—	$	—	$	379,448		$	256,617		$	6,646		$	642,711

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)

   Three Months Ended
March 31
   2019 2018
Operating Activities

Net income
   $ 10,816 $ 12,804
Items not requiring (providing) cash

Provision for loan losses
   364 567
Depreciation and amortization
   1,549 1,814
Share based compensation
   57 82
Mortgage servicing rights, net impairment
   (14 ) 6
Premium amortization on securities, net
   1,285 1,476
Gain on sale of investment securities
   (15 ) (11 )
Gain on sale of mortgage loans
   (1,309 ) (1,423 )
Proceeds from sales of loans
   30,801 43,307
Loans originated for sale
   (30,433 ) (35,770 )
Change in cash value life insurance
   (513 ) (435 )
(Gain)/loss on sale of other real estate owned
   26 —
Net change in:

Interest receivable
   (696 ) 4,200
Interest payable
   (386 ) 330
Other assets
   97,788 6,595
Other liabilities
   2,246 (3,556 )


Net cash provided by operating activities
   111,566 29,986


Investing Activities

Purchases of securities available for sale
   (63,574 ) (36,389 )
Proceeds from sales, maturities, calls and principal repayments of securities available for sale
   42,715 30,415
Purchases of securities held to maturity
   —   (8,703 )
Proceeds from maturities of securities held to maturity
   2,927 721
Net change in interest-earning time deposits
   (243 ) (289 )
Change in Federal Reserve and FHLB stock
   (803 ) —
Net change in loans
   (37,028 ) (33,312 )
Proceeds on the sale of OREO and repossessed assets
   487 392
Change in premises and equipment, net
   3,260 (1,074 )
Net cash received in acquisition, Salin
   128,745 —


Net cash used in investing activities
   76,486 (48,239 )


Financing Activities

Net change in:

Deposits
   7,180 52,673
Borrowings
   (163,061 ) (43,811 )
Proceeds from issuance of stock
   (8 ) 100
Dividends paid on common stock
   (4,524 ) (3,848 )


Net cash provided by financing activities
   (160,413 ) 5,114


Net Change in Cash and Cash Equivalents
   27,639 (13,139 )
Cash and Cash Equivalents, Beginning of Period
   58,492 59,980


Cash and Cash Equivalents, End of Period
   $ 86,131 $ 46,841


Additional Supplemental Information

Interest paid
   $ 10,653 $ 5,685
Income taxes paid
   —   —
Transfer of loans to other real estate
   759 266
Right-of-use assets exchanged for lease obligations
   3,411 —


	Nine Months Ended
	September 30
	2019			2018
Operating Activities
Net income	$	47,995		$	39,984
Items not requiring (providing) cash
Provision for loan losses		1,636			2,378
Depreciation and amortization		7,064			5,045
Share based compensation		165			207
Mortgage servicing rights, net impairment		59			26
Premium amortization on securities, net		4,119			4,436
Loss on sale of investment securities		85			111
Gain on sale of mortgage loans		(6,089	)		(5,158	)
Proceeds from sales of loans		192,163			157,353
Loans originated for sale		(186,096	)		(146,088	)
Change in cash value life insurance		(1,624	)		(1,380	)
Death benefit on bank owned life insurance		580			154
Gain on sale of other real estate owned		(115	)		(167	)
Net change in:
Interest receivable		(1,555	)		2,245
Interest payable		(132	)		802
Other assets		95,457			(4,858	)
Other liabilities		11,413			9,549

Net cash provided by operating activities		165,125			64,639

Investing Activities
Purchases of securities available for sale		(301,426	)		(130,207	)
Proceeds from sales, maturities, calls and principal repayments of securities available for sale		200,067			79,188
Purchases of securities held to maturity		—			(28,374	)
Proceeds from maturities of securities held to maturity		6,990			6,109
Net change in interest-earning time deposits		7,289			(530	)
Change in FHLB stock		(803	)		32
Net change in loans		(87,905	)		(137,864	)
Proceeds on the sale of OREO and repossessed assets		2,935			3,298
Change in premises and equipment, net		(3,760	)		(3,292	)
Purchases of bank owned life insurance		—			(10,450	)
Repurchase of outstanding stock		(1,595	)		—
Net cash received in acquisition, Salin		128,745			—

Net cash used in investing activities		(49,463	)		(222,090	)

Financing Activities
Net change in:
Deposits		35,237			247,551
Borrowings		(104,251	)		(86,300	)
Proceeds from issuance of stock		1,552			493
Dividends paid on common stock		(15,413	)		(11,567	)

Net cash provided by (used in) financing activities		(82,875	)		150,177

Net Change in Cash and Cash Equivalents		32,787			(7,274	)
Cash and Cash Equivalents, Beginning of Period		58,492			59,980

Cash and Cash Equivalents, End of Period	$	91,279		$	52,706

Additional Supplemental Information
Interest paid	$	34,968		$	20,903
Income taxes paid		1,319			6,661
Transfer of loans to other real estate and repossessed assets		2,030			2,398
Transfer of premises to other real estate		1,705			—
Right-of-use assets exchanged for lease obligations		3,411			—

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

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”). Horizon Bank (formerly known as “Horizon Bank, N.A.”) was a national association until its conversion to an Indiana commercial bank effective June 23, 2017. All inter-company balances and transactions have been eliminated. The results of operations for the periods ended ~~March 31,~~September 30, 2019 and ~~March 31,~~September 30, 2018 are not necessarily indicative of the operating results for the full year of 2019 or 2018. 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 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 2018 filed with the Securities and Exchange Commission on February 28, 2019. The condensed consolidated balance sheet of Horizon as of December 31, 2018 has been derived from the audited balance sheet as of that date.

On May 15, 2018, the Board of Directors of the Company approved a

three-for-two

stock split of the Company’s authorized common stock, no

par value. All share and per share amounts in the condensed consolidated financial statements and notes thereto have been retroactively adjusted, where necessary, to reflect this

three-for-two

stock split. The effect of the

three-for-two

stock split on the outstanding common shares is that shareholders of record as of the close of business on May 31, 2018, the record date, received an additional half share for each share of common stock held, with shareholders receiving cash in lieu of any fractional shares. The additional shares issued in the stock split were payable and issued on June 15, 2018, and the common shares began trading on a split-adjusted basis on June 19, 2018.

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 September 30, 2019, Horizon had repurchased a total of 99,407 shares at an average price per share of $16.04.

Basic earnings per share is computed by dividing net income available to common shareholders ~~(net~~(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				Nine Months Ended
	September 30				September 30
	2019		2018		2019		2018
Basic earnings per share
Net income	$	20,537	$	13,065	$	47,995	$	39,984
Weighted average common shares outstanding (1)		45,038,021		38,365,379		42,995,082		38,340,012
Basic earnings per share	$	0.46	$	0.34	$	1.12	$	1.04

Diluted earnings per share
Net income available to common shareholders	$	20,537	$	13,065	$	47,995	$	39,984
Weighted average common shares outstanding (1)		45,038,021		38,365,379		42,995,082		38,340,012
Effect of dilutive securities:
Restricted stock		—		47,603		—		43,926
Stock options		75,709		121,988		75,013		119,465

Weighted average common shares outstanding		45,113,730		38,534,970		43,070,095		38,503,403
	$	0.46	$	0.34	$	1.11	$	1.04

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

   Three Months Ended
March 31
   2019    2018
Basic earnings per share

Net income
   $ 10,816    $ 12,804
Weighted average common shares outstanding⁽¹⁾
   38,822,543    38,306,395
Basic earnings per share
   $ 0.28    $ 0.33




Diluted earnings per share

Net income available to common shareholders
   $ 10,816    $ 12,804
Weighted average common shares outstanding⁽¹⁾
   38,822,543    38,306,395
Effect of dilutive securities:

Restricted stock
   —      35,356
Stock options
   83,629    127,059




Weighted average common shares outstanding
   38,906,172    38,468,810
   $ 0.28    $ 0.33

⁽¹⁾	Adjusted for 3:2 stock s split on June 15, 2018

There were ~~350,618 and 44,053~~340,540 shares for the three

and nine

months ended ~~March 31,~~September 30, 2019, ~~and 2018, respectively,~~ which were not included in the computation of diluted earnings per share because they were

non-dilutive.

There were

shares for the

three and

nine months ended September 30, 2018, which were not included in the computation of diluted earnings per share because they were

non-dilutive.

Horizon has share-based employee compensation plans, which are described in the notes to the financial statements included in the December 31, 2018 Annual Report on Form

10-K.

Adoption of New Accounting Standards

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)No.

2017-12,~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for~~~~Hedging Activities~~

~~The FASB has issued ASUNo. 2017-12,~~

Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities

The FASB has issued ASU No.
2017-12,

Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities.

The new guidance improves the financial reporting of hedging relationships to better portray the ~~economicresults~~economic results of an entity’s risk management activities in its financial statements. The amendments in this ASU also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. For public entities, this new guidance became effective in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early adoption was permitted in any interim period after issuance of the ASU. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption (that is, the initial application date). The Company adopted ASU

2017-12

on January 1, 2019 and there was no material impact to the 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)

FASB Accounting Standards UpdatesNo.

2016-02,

Leases ~~(Topic~~

(Topic 842)

The FASB has issued Accounting Standards Update (ASU)No.

2016-02,

Leases.

Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a ~~right-of-use~~

right-of-use

asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company adopted this ASU as of January 1, 2019 using the alternative transition method. In addition, the Company utilized the practical expedients provided by the ASU allowing it to retain the classifications of existing leases, not~~re-assess~~ ~~if existing leases have~~ reassess initial direct costs for any existing leases, and to use hindsight when determining the lease term and assessment of ~~impairment.~~impairment of the

right-of-use

assets. Upon adoption, the Company capitalized $3.5 million for~~right-of-~~ ~~use~~

right-of-use

assets and lease liabilities, net of existing straight-line lease liabilities. See Note 8, “Leases”.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Revenue Recognition

Accounting Standards Codification 606, “

Revenue from Contracts with Customers” ~~(ASC~~

(ASC 606) provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Revenue generated from financial instruments, including loans and investment securities, are not included in the scope of ASC 606. The adoption of ASC 606 did not result in a change to the accounting for any of the Company’s revenue streams that are within the scope of the amendments. Revenue-generating activities that are within the scope of ASC 606 and that are presented as

non-interest

income in the Company’s consolidated statements of income include:

Service charges and fees on deposit accounts – these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer or overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.

Fiduciary activities – this includes periodic fees due from trust and wealth management customers for managing the customers’ financial assets. Fees are charged based on a standard agreement and are recognized as they are earned.

Reclassifications

Certain reclassifications have been made to the 2018 condensed consolidated financial statements to be comparable to 2019. These reclassifications had no

effect on net income.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Note 2 – Acquisitions

Salin Bancshares, Inc.

On March 26, 2019, Horizon completed the acquisition of Salin Bancshares, Inc. (“Salin”), an Indiana corporation, and Horizon Bank’s acquisition of Salin Bank and Trust Company (“Salin Bank”), an Indiana commercial bank and wholly-owned subsidiary of Salin, through mergers effective March 26, 2019. Under the terms of the Merger Agreement, shareholders of Salin received 23,907.5 shares of Horizon common stock and $87,417.17 in cash for each outstanding share of Salin common stock. Salin shares outstanding at the closing to be exchanged were 275, and the shares of Horizon common stock issued to Salin shareholders totaled 6,563,697. The Salin shareholders received cash in lieu of fractional shares. Based upon the March 25, 2019 closing price of $15.65 per share of Horizon common stock immediately prior to the effectiveness of the merger the transaction has an implied valuation of approximately ~~$126.7~~

126.7

million. The Company incurred approximately ~~$4.6~~$

5.6

million in costs related to the acquisition. These expenses are classified in the

non-interest

expense section of the income statement and are primarily located in the data processing, professional fees, outside services and consultants and other expense line items. As a result of the acquisition, the Company was able to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the preliminary purchase price for the Salin acquisition is detailed in the following table. Final estimates of fair value on the date of acquisition have not been received yet. Prior to the end of the ~~one year~~

one-year

measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. ~~If any~~The measurement period adjustments ~~are made to the preliminary assumptions (provisional amounts), disclosures~~ will be ~~made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods~~calculated as if the ~~adjustments to the provisional amounts~~accounting had been ~~recognized~~completed as of the acquisition date.

Assets
Cash and due from banks
   $ 152,745
Investment securities, available for sale
   54,706
Loans

Commercial
   350,916
Residential mortgage
   136,089
Consumer
   84,814


Total loans
   571,819
Premises and equipment, net
   23,882
FRB and FHLB stock
   3,571
Goodwill
   25,810
Core deposit intangible
   21,111
Interest receivable
   2,488
Other assets
   107,611


Total assets purchased
   $ 963,743


Common shares issued
   $ 102,722
Cash paid
   24,000


Total purchase price
   $ 126,722

Liabilities
Deposits

Non-interest bearing
   $ 188,744
NOW accounts
   207,567
Savings and money market
   274,504
Certificates of deposit
   70,652


Total deposits
   741,467
Borrowings
   70,495
Subordinated debentures
   17,443
Interest payable
   826
Other liabilities
   6,790


Total liabilities assumed
   $ 837,021

As a result of updated

final

valuation estimates, acquired premises and equipment

creased approximately $799,000, goodwill increased approximately $127,000, other assets

creased approximately $932,000

and

total deposits decreased approximately $6,000 compared to

amounts

reported

at June 30, 2019

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


Assets
Cash and due from banks	$	152,745
Investment securities, available for sale		54,319
Loans
Commercial		352,798
Residential mortgage		131,008
Consumer		85,112

Total loans		568,918
Premises and equipment, net		20,425
FRB and FHLB stock		3,571
Goodwill		31,358
Core deposit intangible		19,818
Interest receivable		2,488
Other assets		112,880

Total assets purchased	$	966,522

Common shares issued	$	102,722
Cash paid		24,000

Total purchase price	$	126,722


Liabilities
Deposits
Non-interest bearing	$	188,744
NOW accounts		207,567
Savings and money market		274,504
Certificates of deposit		70,529

Total deposits		741,344
Borrowings		70,495
Subordinated debentures		18,376
Interest payable		826
Other liabilities		8,759

Total liabilities assumed	$	839,800

Of the total purchase price of $126.7 million, ~~$21.1~~$19.8 million has been allocated to core deposit intangible. Additionally, ~~$25.8~~$31.2 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible is being amortized over 10 years on a straight line basis.

The Company acquired various loans in the acquisition that had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as

past-due

and

non-accrual

status, borrower credit scores and recent

loan-to-value

percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC~~310-~~ ~~30)~~

310-30)

and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current assumptions, such as default rates, severity and prepayment speeds.

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 details an estimate of the acquired loans that are accounted for in accordance with ASC

310-30

as of March 26, 2019. Final valuation estimates have not yet been determined for acquired loans as of ~~March 31,~~

September

30, 2019. If information becomes available which would indicate ~~adjustment~~adjustments to the purchase price allocation, such adjustments would be made prospectively.

Contractually required principal and interest at acquisition
   $ 22,209
Contractual cash flows not expected to be collected (nonaccretable differences)
   8,632


Expected cash flows at acquisition
   13,577
Interest component of expected cash flows (accretable discount)
   1,333


Fair value of acquired loans accounted for under ASC310-30
   $ 12,244


Contractually required principal and interest at acquisition	$	22,672
Contractual cash flows not expected to be collected (nonaccretable differences)		6,694

Expected cash flows at acquisition		15,978
Interest component of expected cash flows (accretable discount)		735

Fair value of acquired loans accounted for under ASC 310-30	$	15,243

Estimates of certain loans, those for which specific credit-related deterioration has occurred since origination, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

The results of operations of Salin have been included in the Company’s consolidated financial statements since the acquisition date. The following schedule includespro-forma results for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018 as if the Salin acquisition had occurred as of the beginning of the comparable prior reporting periods.

   Three Months Ended
   March 31    March 31
   2019    2018
Summary of Operations:

Net Interest Income
   $ 42,182    $ 40,619
Provision for Loan Losses
   664    1,167




Net Interest Income after Provision for Loan Losses
   41,518    39,452
Non-interest Income
   9,126    9,999
Non-interest Expense
   42,152    33,169




Income before Income Taxes
   8,492    16,282
Income Tax Expense
   2,017    2,465




Net Income
   6,475    13,817




Net Income Available to Common Shareholders
   $ 6,475    $ 13,817




Basic Earnings per Share
   $ 0.17    $ 0.36
Diluted Earnings per Share
   $ 0.17    $ 0.36


	Three Months Ended				Nine Months Ended
	September 30		September 30		September 30
	2019		2018		2019		2018
Summary of Operations:
Net Interest Income	$	43,463	$	41,673	$	127,174	$	123,358
Provision for Loan Losses		376		1,176		1,936		3,178

Net Interest Income after Provision for Loan Losses		43,087		40,497		125,238		120,180
Non-interest Income		11,514		10,600		31,538		31,441
Non-interest Expense		30,060		32,978		103,796		98,557

Income before Income Taxes		24,541		18,119		52,980		53,064
Income Tax Expense		4,004		2,540		9,326		7,738

Net Income		20,537		15,579		43,654		45,326

Net Income Available to Common Shareholders	$	20,537	$	15,579	$	43,654	$	45,326

Basic Earnings per Share	$	0.46	$	0.41	$	0.97	$	1.18
Diluted Earnings per Share	$	0.46	$	0.40	$	0.97	$	1.18

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

The

pro-forma

information includes adjustments for interest income on loans, amortization of intangibles arising from the transaction, interest expense on deposits acquired, premises expense for the banking centers acquired and the related income tax effects.

The

pro-forma

financial information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

~~Note 3 – Securities~~

~~The fair value~~

Table of ~~securities is as follows:~~

   March 31, 2019
      Gross    Gross
   Amortized    Unrealized    Unrealized    Fair
   Cost    Gains    Losses    Value
Available for sale

U.S. Treasury and federal agencies
   $ 14,087    $ —      $ (92 )    $ 13,995
State and municipal
   245,577    5,266    (1,083 )    249,760
Federal agency collateralized mortgage obligations
   212,829    1,774    (1,560 )    213,043
Federal agency mortgage-backed pools
   193,932    294    (1,961 )    192,265
Corporate notes
   17,598    481    —      18,079








Total available for sale investment securities
   $ 684,023    $ 7,815    $ (4,696 )    $ 687,142








Held to maturity

State and municipal
   $ 187,847    $ 4,053    $ (330 )    $ 191,570
Federal agency collateralized mortgage obligations
   5,019    8    (48 )    4,979
Federal agency mortgage-backed pools
   13,461    152    (56 )    13,557
Total held to maturity investment securities









   $ 206,327    $ 4,213    $ (434 )    $ 210,106








   December 31, 2018
      Gross    Gross
   Amortized    Unrealized    Unrealized    Fair
   Cost    Gains    Losses    Value
Available for sale

U.S. Treasury and federal agencies
   $ 16,815    $ 1    $ (208 )    $ 16,608
State and municipal
   210,386    1,495    (2,578 )    209,303
Federal agency collateralized mortgage obligations
   187,563    625    (3,185 )    185,003
Federal agency mortgage-backed pools
   183,479    80    (4,823 )    178,736
Corporate notes
   10,666    107    (75 )    10,698








Total available for sale investment securities
   $ 608,909    $ 2,308    $ (10,869 )    $ 600,348








Held to maturity

State and municipal
   $ 191,269    $ 1,773    $ (3,366 )    $ 189,676
Federal agency collateralized mortgage obligations
   5,144    6    (120 )    5,030
Federal agency mortgage-backed pools
   13,699    74    (206 )    13,567








Total held to maturity investment securities
   $ 210,112    $ 1,853    $ (3,692 )    $ 208,273








Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Note 3 – Securities

The fair value of securities is as follows:


	September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies	$	9,915	$	2	$	(8	)	$	9,909
State and municipal		337,336		11,374		(1,609	)		347,101
Federal agency collateralized mortgage obligations		243,366		3,141		(424	)		246,083
Federal agency mortgage-backed pools		144,880		1,125		(408	)		145,597
Corporate notes		17,618		922		—			18,540

Total available for sale investment securities	$	753,115	$	16,564	$	(2,449	)	$	767,230

Held to maturity
State and municipal	$	192,736	$	7,335	$	(99	)	$	199,972
Federal agency collateralized mortgage obligations		4,714		11		(9	)		4,716
Federal agency mortgage-backed pools		12,856		200		(26	)		13,030

Total held to maturity investment securities	$	210,306	$	7,546	$	(134	)	$	217,718


	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies	$	16,815	$	1	$	(208	)	$	16,608
State and municipal		210,386		1,495		(2,578	)		209,303
Federal agency collateralized mortgage obligations		187,563		625		(3,185	)		185,003
Federal agency mortgage-backed pools		183,479		80		(4,823	)		178,736
Corporate notes		10,666		107		(75	)		10,698

Total available for sale investment securities	$	608,909	$	2,308	$	(10,869	)	$	600,348

Held to maturity
State and municipal	$	191,269	$	1,773	$	(3,366	)	$	189,676
Federal agency collateralized mortgage obligations		5,144		6		(120	)		5,030
Federal agency mortgage-backed pools		13,699		74		(206	)		13,567

Total held to maturity investment securities	$	210,112	$	1,853	$	(3,692	)	$	208,273

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information, and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. While these securities are held in the available for sale portfolio and

held-to-maturity,

Horizon intends, and has the ability, to hold them until the earlier of a recovery in fair value or maturity.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. At ~~March 31,~~September 30, 2019, no individual investment security had an unrealized loss that was determined to be other-than-temporary.

The unrealized losses on the Company’s investments in securities of state and municipal governmental agencies, U.S. Treasury and federal agencies, federal agency collateralized mortgage obligations, and federal agency mortgage-backed pools were caused by interest rate volatility and not a decline in credit quality. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company expects to recover the amortized cost basis over the term of the securities. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at ~~March 31,~~September 30, 2019.

The amortized cost and fair value of securities available for sale and held to maturity at ~~March 31,~~September 30, 2019 and December 31, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

   March 31, 2019    December 31, 2018
   Amortized    Fair    Amortized    Fair
   Cost    Value    Cost    Value
Available for sale

Within one year
   $ 29,589    $ 29,552    $ 20,532    $ 20,448
One to five years
   52,250    51,759    42,476    41,705
Five to ten years
   100,190    102,334    107,839    107,107
After ten years
   95,233    98,189    67,020    67,349








   277,262    281,834    237,867    236,609
Federal agency collateralized mortgage obligations
   212,829    213,043    187,563    185,003
Federal agency mortgage-backed pools
   193,932    192,265    183,479    178,736
Private labeled mortgage-backed pools
   —      —      —      —
Total available for sale investment securities









   $ 684,023    $ 687,142    $ 608,909    $ 600,348








Held to maturity

Within one year
   $ 150    $ 150    $ 70    $ 70
One to five years
   50,317    51,152    48,732    49,324
Five to ten years
   99,413    101,178    101,809    101,533
After ten years
   37,967    37,207    40,658    38,749








   187,847    189,687    191,269    189,676
Federal agency collateralized mortgage obligations
   5,019    4,979    5,144    5,030
Federal agency mortgage-backed pools
   13,461    13,557    13,699    13,567








Total held to maturity investment securities
   $ 206,327    $ 208,223    $ 210,112    $ 208,273


	September 30, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
Within one year	$	40,283	$	40,168	$	20,532	$	20,448
One to five years		41,593		41,671		42,476		41,705
Five to ten years		102,753		107,719		107,839		107,107
After ten years		180,240		185,992		67,020		67,349

		364,869		375,550		237,867		236,609
Federal agency collateralized mortgage obligations		243,366		246,083		187,563		185,003
Federal agency mortgage-backed pools		144,880		145,597		183,479		178,736

Total available for sale investment securities	$	753,115	$	767,230	$	608,909	$	600,348

Held to maturity
Within one year	$	6,413	$	6,479	$	70	$	70
One to five years		54,558		55,545		48,732		49,324
Five to ten years		98,134		101,776		101,809		101,533
After ten years		33,631		36,172		40,658		38,749

		192,736		199,972		191,269		189,676
Federal agency collateralized mortgage obligations		4,714		4,716		5,144		5,030
Federal agency mortgage-backed pools		12,856		13,030		13,699		13,567

Total held to maturity investment securities	$	210,306	$	217,718	$	210,112	$	208,273

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 the gross unrealized losses and the fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

   March 31, 2019
   Less than 12 Months 12 Months or More Total
   Fair    Unrealized Fair    Unrealized Fair    Unrealized
   Value    Losses Value    Losses Value    Losses
Investment Securities

U.S. Treasury and federal agencies
   $ —      $ —   $ 9,823    $ (92 ) $ 9,823    $ (92 )
State and municipal
   65,265    (697 ) 44,783    (2,500 ) 110,048    (3,197 )
Federal agency collateralized mortgage obligations
   431    (1 ) 100,886    (1,607 ) 101,317    (1,608 )
Federal agency mortgage-backed pools
   —      —   152,582    (2,017 ) 152,582    (2,017 )
Corporate notes
   —      —   —      —   —      —








Total temporarily impaired securities
   $ 65,696    $ (698 ) $ 308,074    $ (6,216 ) $ 373,770    $ (6,914 )








   December 31, 2018
   Less than 12 Months 12 Months or More Total
   Fair    Unrealized Fair    Unrealized Fair    Unrealized
   Value    Losses Value    Losses Value    Losses
Investment Securities

U.S. Treasury and federal agencies
   $ —      $ —   $ 9,707    $ (208 ) $ 9,707    $ (208 )
State and municipal
   75,163    (1,628 ) 106,335    (4,316 ) 181,498    (5,944 )
Federal agency collateralized mortgage obligations
   6,450    (25 ) 106,257    (3,280 ) 112,707    (3,305 )
Federal agency mortgage-backed pools
   5,739    (39 ) 175,865    (4,990 ) 181,604    (5,029 )
Corporate notes
   5,263    (75 ) —      —   5,263    (75 )








Total temporarily impaired securities
   $ 92,615    $ (1,767 ) $ 398,164    $ (12,794 ) $ 490,779    $ (14,561 )


	September 30, 2019
	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	$	4,407	$	(8	)	$	—	$	—		$	4,407	$	(8	)
State and municipal		109,512		(1,531	)		9,681		(177	)		119,193		(1,708	)
Federal agency collateralized mortgage obligations		42,097		(150	)		24,652		(283	)		66,749		(433	)
Federal agency mortgage-backed pools		25,463		(77	)		41,511		(357	)		66,974		(434	)

Total temporarily impaired securities	$	181,479	$	(1,766	)	$	75,844	$	(817	)	$	257,323	$	(2,583	)


	December 31, 2018
	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	$	—	$	—		$	9,707	$	(208	)	$	9,707	$	(208	)
State and municipal		75,163		(1,628	)		106,335		(4,316	)		181,498		(5,944	)
Federal agency collateralized mortgage obligations		6,450		(25	)		106,257		(3,280	)		112,707		(3,305	)
Federal agency mortgage-backed pools		5,739		(39	)		175,865		(4,990	)		181,604		(5,029	)
Corporate notes		5,263		(75	)		—		—			5,263		(75	)

Total temporarily impaired securities	$	92,615	$	(1,767	)	$	398,164	$	(12,794	)	$	490,779	$	(14,561	)

Information regarding security proceeds, gross gains and gross losses are presented below.

   Three Months Ended
   March 31
   2019    2018
Sales of securities available for sale

Proceeds
   $ 17,587    $ 9,836
Gross gains
   59    37
Gross losses
   (44 )    (26 )


	Three Months Ended					Nine Months Ended
	September 30					September 30
	2019		2018			2019			2018
Sales of securities available for sale
Proceeds	$	—	$	7,485		$	91,635		$	17,321
Gross gains		—		—			158			37
Gross losses		—		(122	)		(243	)		(148	)

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Note 4

–

Loans

   March 31    December 31
   2019    2018
Commercial

Working capital and equipment
   $ 924,435    $ 804,083
Real estate, including agriculture
   1,076,077    834,037
Tax exempt
   60,062    48,975
Other
   29,005    34,495




Total
   2,089,579    1,721,590
Real estate

1-4 family
   808,401    659,754
Other
   11,423    8,387




Total
   819,824    668,141
Consumer

Auto
   331,572    327,413
Recreation
   14,262    13,975
Real estate/home improvement
   40,998    39,587
Home equity
   245,940    163,209
Unsecured
   4,124    4,043
Other
   2,814    1,254




Total
   639,710    549,481
Mortgage warehouse
   71,944    74,120




Total loans
   3,621,057    3,013,332
Allowance for loan losses
   (17,821 )    (17,820 )
Loans, net





   $ 3,603,236    $ 2,995,512


	September 30			December 31
	2019			2018
Commercial
Working capital and equipment	$	915,449		$	804,083
Real estate, including agriculture		1,005,124			834,037
Tax exempt		59,620			48,975
Other		65,972			34,495

Total		2,046,165			1,721,590
Real estate
1-4 family		788,574			659,754
Other		7,923			8,387

Total		796,497			668,141
Consumer
Auto		358,792			327,413
Recreation		16,396			13,975
Real estate/home improvement		44,105			39,587
Home equity		239,041			163,209
Unsecured		6,986			4,043
Other		3,012			1,254

Total		668,332			549,481
Mortgage warehouse		155,631			74,120

Total loans		3,666,625			3,013,332
Allowance for loan losses		(17,956	)		(17,820	)

Loans, net	$	3,648,669		$	2,995,512

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are viewed primarily as cash flow loans and, secondarily, as loans secured by real estate. Commercial real estate lending typically involves larger loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets, the general economy, or fluctuations in interest rates. The properties securing the Company’s commercial real estate portfolio are diverse in terms of property type, and are monitored for concentrations of credit. Management monitors and evaluates commercial real estate loans based on collateral, cash flow, and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus

non-owner

occupied loans.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Real Estate and Consumer

With respect to residential loans that are secured by

1-4

family residences and are generally owner occupied, the Company generally establishes a maximum

loan-to-value

ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in

1-4

family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Mortgage Warehousing

Horizon’s mortgage warehouse lending has specific mortgage companies as customers of Horizon Bank. Individual mortgage loans originated by these mortgage companies are funded as a secured borrowing with a pledge of collateral under Horizon’s agreement with the mortgage company. Each mortgage loan funded by Horizon undergoes an underwriting review by Horizon to the end investor guidelines and is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. In addition, Horizon takes possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan. At the time a loan is transferred to the secondary market, the mortgage company reacquires the loan under its option within the agreement. Due to the reacquire feature contained in the agreement, the transaction does not qualify as a sale and therefore is accounted for as a secured borrowing with a pledge of collateral pursuant to the agreement with the mortgage company. When the individual loan is sold to the end investor by the mortgage company, the proceeds from the sale of the loan are received by Horizon and used to pay off the loan balance with Horizon along with any accrued interest and any related fees. The remaining balance from the sale is forwarded to the mortgage company. These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected at the time each loan is sold. Fee income for each loan sold is collected when the loan is sold, and no costs are deferred due to the term between each loan funding and related payoff, which is typically less than 30 days.

Based on the agreements with each mortgage company, at any time a mortgage company can reacquire from Horizon its outstanding loan balance on an individual mortgage and regain possession of the original note. Horizon also has the option to request that the mortgage company reacquire an individual mortgage. Should this occur, Horizon would return the original note and reassign the assignment of the mortgage to the mortgage company. Also, in the event that the end investor would not be able to honor the purchase commitment and the mortgage company would not be able to reacquire its loan on an individual mortgage, Horizon would be able to exercise its rights under the agreement.

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 the recorded investment of individual loan categories.

   March 31, 2019
   Loan    Interest    Deferred    Recorded
   Balance    Due    Costs/(Fees)    Investment
Owner occupied real estate
   $ 676,517    $ 975    $ (1,687 )    $ 675,805
Non-owner occupied real estate
   833,803    1,645    (1,666 )    833,782
Residential spec homes
   10,221    27    (3 )    10,245
Development & spec land
   75,079    249    (16 )    75,312
Commercial and industrial
   497,624    4,291    (293 )    501,622








Total commercial
   2,093,244    7,187    (3,665 )    2,096,766
Residential mortgage
   797,174    2,346    (1,943 )    797,577
Residential construction
   24,593    43    —      24,636
Mortgage warehouse
   71,944    480    —      72,424








Total real estate
   893,711    2,869    (1,943 )    894,637
Direct installment
   37,417    135    560    38,112
Indirect installment
   317,629    750    —      318,379
Home equity
   282,160    1,504    1,944    285,608








Total consumer
   637,206    2,389    2,504    642,099








Total loans
   3,624,161    12,445    (3,104 )    3,633,502
Allowance for loan losses
   (17,821 )    —      —      (17,821 )








Net loans
   $ 3,606,340    $ 12,445    $ (3,104 )    $ 3,615,681








   December 31, 2018
   Loan    Interest    Deferred    Recorded
   Balance    Due    Costs/(Fees)    Investment
Owner occupied real estate
   $ 561,463    $ 1,240    $ (1,629 )    $ 561,074
Non-owner occupied real estate
   717,814    1,063    (1,839 )    717,038
Residential spec homes
   5,199    13    (2 )    5,210
Development & spec land
   46,547    131    (12 )    46,666
Commercial and industrial
   394,346    3,149    (297 )    397,198








Total commercial
   1,725,369    5,596    (3,779 )    1,727,186
Residential mortgage
   646,136    1,861    (2,025 )    645,972
Residential construction
   24,030    42    —      24,072
Mortgage warehouse
   74,120    480    —      74,600








Total real estate
   744,286    2,383    (2,025 )    744,644
Direct installment
   38,173    103    566    38,842
Indirect installment
   314,177    738    —      314,915
Home equity
   194,766    973    1,799    197,538








Total consumer
   547,116    1,814    2,365    551,295








Total loans
   3,016,771    9,793    (3,439 )    3,023,125
Allowance for loan losses
   (17,820 )    —      —      (17,820 )








Net loans
   $ 2,998,951    $ 9,793    $ (3,439 )    $ 3,005,305


	September 30, 2019
	Loan Balance			Interest Due		Deferred Costs/(Fees)			Recorded Investment
Owner occupied real estate	$	723,218		$	1,735	$	(1,351	)	$	723,602
Non-owner occupied real estate		766,574			1,336		(390	)		767,520
Residential spec homes		10,813			20		(33	)		10,800
Development & spec land		37,115			104		(15	)		37,204
Commercial and industrial		510,315			4,333		(81	)		514,567

Total commercial		2,048,035			7,528		(1,870	)		2,053,693
Residential mortgage		773,444			2,377		12			775,833
Residential construction		23,041			50		—			23,091
Mortgage warehouse		155,631			194		—			155,825

Total real estate		952,116			2,621		12			954,749
Direct installment		42,048			137		678			42,863
Indirect installment		344,567			789		—			345,356
Home equity		278,577			1,407		2,462			282,446

Total consumer		665,192			2,333		3,140			670,665

Total loans		3,665,343			12,482		1,282			3,679,107
Allowance for loan losses		(17,956	)		—		—			(17,956	)

Net loans	$	3,647,387		$	12,482	$	1,282		$	3,661,151


	December 31, 2018
	Loan Balance			Interest Due		Deferred Costs/(Fees)			Recorded Investment
Owner occupied real estate	$	563,929		$	1,273	$	(1,368	)	$	563,834
Non-owner occupied real estate		714,136			1,069		(477	)		714,728
Residential spec homes		5,195			13		—			5,208
Development & spec land		46,523			131		(15	)		46,639
Commercial and industrial		393,752			3,110		(85	)		396,777

Total commercial		1,723,535			5,596		(1,945	)		1,727,186
Residential mortgage		644,094			1,861		17			645,972
Residential construction		24,030			42		—			24,072
Mortgage warehouse		74,120			132		—			74,252

Total real estate		742,244			2,035		17			744,296
Direct installment		34,233			103		593			34,929
Indirect installment		314,177			738		—			314,915
Home equity		198,364			973		2,114			201,451

Total consumer		546,774			1,814		2,707			551,295

Total loans		3,012,553			9,445		779			3,022,777
Allowance for loan losses		(17,820	)		—		—			(17,820	)

Net loans	$	2,994,733		$	9,445	$	779		$	3,004,957

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Note 5 – Accounting for Certain Loans Acquired in a Transfer

The Company has acquired loans in acquisitions, ~~and~~whereby the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

past-due

and

non-accrual

status, borrower credit scores and recent

loan-to-value

percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC~~310-~~ ~~30)~~

310-30)

and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The carrying amounts of those loans included in the balance sheet amounts of loans receivable are as follows:

   March 31, 2019
               Allowance
            Outstanding    for Loan    Carrying
   Commercial    Real Estate    Consumer    Balance    Losses    Amount
Heartland
   $ 229    $ 164    $ —      $ 393    $ —      $ 393
Summit
   220    535    —      755    —      755
Peoples
   260    44    —      304    —      304
Kosciusko
   712    163    —      875    296    579
LaPorte
   708    836    26    1,570    —      1,570
Lafayette
   2,204    —      —      2,204    —      2,204
Wolverine
   5,736    —      —      5,736    —      5,736
Salin
   10,329    1,986    1,262    13,577    —      13,577












Total
   $ 20,398    $ 3,728    $ 1,288    $ 25,414    $ 296    $ 25,118
























   December 31, 2018
               Allowance
            Outstanding    for Loan    Carrying
   Commercial    Real Estate    Consumer    Balance    Losses    Amount
Heartland
   $ 232    $ 175    $ —      $ 407    $ —      $ 407
Summit
   323    555    —      878    —      878
Peoples
   270    58    —      328    —      328
Kosciusko
   746    155    —      901    —      901
LaPorte
   753    947    27    1,727    60    1,667
Lafayette
   3,080    —      —      3,080    —      3,080
Wolverine
   7,841    —      —      7,841    —      7,841












Total
   $ 13,245    $ 1,890    $ 27    $ 15,162    $ 60    $ 15,102


	September 30, 2019
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	205	$	143	$	—	$	348	$	—	$	348
Summit		203		494		—		697		—		697
Peoples		240		38		—		278		—		278
Kosciusko		649		140		—		789		—		789
LaPorte		378		805		22		1,205		10		1,195
Lafayette		1,903		—		—		1,903		—		1,903
Wolverine		2,347		—		—		2,347		—		2,347
Salin		11,965		1,911		983		14,859		—		14,859

Total	$	17,890	$	3,531	$	1,005	$	22,426	$	10	$	22,416


	December 31, 2018
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	232	$	175	$	—	$	407	$	—	$	407
Summit		323		555		—		878		—		878
Peoples		270		58		—		328		—		328
Kosciusko		746		155		—		901		—		901
LaPorte		753		947		27		1,727		60		1,667
Lafayette		3,080		—		—		3,080		—		3,080
Wolverine		7,841		—		—		7,841		—		7,841

Total	$	13,245	$	1,890	$	27	$	15,162	$	60	$	15,102

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Accretable yield, or income expected to be collected for the ~~three~~nine months ended ~~March 31,~~September 30, is as follows:

   Three Months Ended March 31, 2019
         Reclassification
         from
   Beginning       nonaccretable    Ending
   balance    Additions    Accretion difference    Disposals balance
Heartland
   $ 174    $ —      $ (8 ) $ —      $ —   $ 166
Summit
   42    —      (3 ) —      (11 ) 28
Kosciusko
   300    —      (17 ) —      —   283
LaPorte
   829    —      (29 ) —      —   800
Lafayette
   609    —      (35 ) —      (171 ) 403
Wolverine
   698    —      (123 ) —      (8 ) 567
Salin
   —      3,368    —   —      —   3,368








Total
   $ 2,652    $ 3,368    $ (215 ) $ —      $ (190 ) $ 5,615








   Three Months Ended March 31, 2018
         Reclassification
         from
   Beginning       nonaccretable    Ending
   balance    Additions    Accretion difference    Disposals balance
Heartland
   $ 452    $ —      $ (59 ) $ —      $ —   $ 393
Summit
   147    —      (18 ) —      (2 ) 127
Kosciusko
   386    —      (20 ) —      —   366
LaPorte
   980    —      (40 ) —      (7 ) 933
Lafayette
   933    —      (118 ) —      (2 ) 813
Wolverine
   2,267    —      (387 ) —      (42 ) 1,838








Total
   $ 5,165    $ —      $ (642 ) $ —      $ (53 ) $ 4,470


	Nine Months Ended September 30, 2019
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	174	$	—	$	(24	)	$	—	$	—		$	150
Summit		42		—		(7	)		—		(11	)		24
Kosciusko		300		—		(49	)		—		(2	)		249
LaPorte		829		—		(85	)		—		4			748
Lafayette		609		—		(97	)		—		(193	)		319
Wolverine		698		—		(243	)		—		(306	)		149
Salin		—		2,002		(375	)		—		(30	)		1,597

Total	$	2,652	$	2,002	$	(880	)	$	—	$	(538	)	$	3,236


	Nine Months Ended September 30, 2018
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	452	$	—	$	(68	)	$	—	$	(193	)	$	191
Summit		147		—		(34	)		—		(6	)		107
Kosciusko		386		—		(40	)		—		—			346
LaPorte		980		—		(75	)		—		(7	)		898
Lafayette		933		—		(176	)		—		(2	)		755
Wolverine		2,267		—		(538	)		—		(680	)		1,049

Total	$	5,165	$	—	$	(931	)	$	—	$	(888	)	$	3,346

During the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of ~~$296,000~~$10,000 and ~~$0,~~$121,000, respectively.

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 6 – Allowance for Loan Losses

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior one to five years. Management believes using the highest of the one, two or five-year historical loss experience is an appropriate methodology in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed. The actual allowance for loan loss activity is provided below.

   Three Months Ended
March 31
   2019    2018
   (Unaudited)    (Unaudited)
Balance at beginning of the period
   $ 17,820    $ 16,394
Loanscharged-off:

Commercial

Owner occupied real estate
   1    13
Non-owner occupied real estate
   64    —
Residential spec homes
   —      —
Development & spec land
   —      —
Commercial and industrial
   12    —




Total commercial
   77    13
Real estate

Residential mortgage
   —      12
Residential construction
   —      —
Mortgage warehouse
   —      —




Total real estate
   —      12
Consumer

Direct installment
   28    55
Indirect installment
   540    505
Home equity
   16    131




Total consumer
   584    691




Total loanscharged-off
   661    716
Recoveries of loans previouslycharged-off:

Commercial

Owner occupied real estate
   —      12
Non-owner occupied real estate
   6    5
Residential spec homes
   2    2
Development & spec land
   —      —
Commercial and industrial
   8    32




Total commercial
   16    51
Real estate

Residential mortgage
   27    6
Residential construction
   —      —
Mortgage warehouse
   —      —




Total real estate
   27    6
Consumer

Direct installment
   11    11
Indirect installment
   201    139
Home equity
   43    22




Total consumer
   255    172




Total loan recoveries
   298    229




Net loanscharged-off
   363    487




Provision charged to operating expense

Commercial
   1,122    (1,291 )
Real estate
   (107 )    (252 )
Consumer
   (651 )    2,110




Total provision charged to operating expense
   364    567




Balance at the end of the period
   $ 17,821    $ 16,474


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2019			2018			2019			2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Balance at beginning of the period	$	18,305		$	17,071		$	17,820		$	16,394
Loans charged-off:
Commercial
Owner occupied real estate		9			97			346			110
Non-owner occupied real estate		—			—			64			—
Residential spec homes		—			—			3			—
Development & spec land		—			—			—			—
Commercial and industrial		215			109			227			109

Total commercial		224			206			640			219
Real estate
Residential mortgage		—			2			48			17
Residential construction		—			—			—			—
Mortgage warehouse		—			—			—			—

Total real estate		—			2			48			17
Consumer
Direct installment		69			20			134			124
Indirect installment		601			432			1,392			1,302
Home equity		88			11			143			142

Total consumer		758			463			1,669			1,568

Total loans charged-off		982			671			2,357			1,804
Recoveries of loans previously charged-off:
Commercial
Owner occupied real estate		9			7			9			19
Non-owner occupied real estate		5			5			15			22
Residential spec homes		2			2			5			6
Development & spec land		—			—			—			—
Commercial and industrial		16			13			93			71

Total commercial		32			27			122			118
Real estate
Residential mortgage		7			4			41			15
Residential construction		—			—			—			—
Mortgage warehouse		—			—			—			—

Total real estate		7			4			41			15
Consumer
Direct installment		24			10			47			42
Indirect installment		129			107			512			378
Home equity		65			74			135			277

Total consumer		218			191			694			697

Total loan recoveries		257			222			857			830

Net loans charged-off		725			449			1,500			974

Provision charged to operating expense
Commercial		393			1,895			2,105			1,589
Real estate		(289	)		(243	)		(185	)		(612	)
Consumer		272			(476	)		(284	)		1,401

Total provision charged to operating expense		376			1,176			1,636			2,378

Balance at the end of the period	$	17,956		$	17,798		$	17,956		$	17,798

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 loans are individually evaluated for impairment, and the Company’s general practice is to proactively charge down impaired loans to the fair value of the underlying collateral, which is the appraised value less estimated selling costs.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except

1-4

family residential properties and consumer, the Company promptly

charges-off

loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial

charge-off

is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company~~charges-off1-4~~

charges-off

1-4

family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down or specific allocation of1- 4

1-4

family first and junior lien mortgages to the net realizable value less costs to sell when the value is known but no later than when a loan is 180 days past due. Pursuant to such guidelines, the Company also

charges-off

unsecured

open-end

loans when the loan is contractually 90 days past due, and charges down to the net realizable value other secured loans when they are contractually 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection in full will occur regardless of delinquency status, are not charged off.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment analysis:

   March 31, 2019
         Mortgage
   Commercial    Real Estate    Warehousing    Consumer    Total
Allowance For Loan Losses

Ending allowance balance attributable to loans:

Individually evaluated for impairment
   $ 915    $ —      $ —      $ —      $ 915
Collectively evaluated for impairment
   10,641    1,588    1,014    3,663    16,906
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending allowance balance
   $ 11,556    $ 1,588    $ 1,014    $ 3,663    $ 17,821










Loans:

Individually evaluated for impairment
   $ 6,233    $ —      $ —      $ —      $ 6,233
Collectively evaluated for impairment
   2,087,011    821,767    71,944    637,206    3,617,928
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending loans balance
   $ 2,093,244    $ 821,767    $ 71,944    $ 637,206    $ 3,624,161


	September 30, 2019
	Commercial		Real Estate		Mortgage Warehousing		Consumer		Total
Allowance For Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	906	$	—	$	—	$	—	$	906
Collectively evaluated for impairment		11,176		1,449		1,041		3,384		17,050
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending allowance balance	$	12,082	$	1,449	$	1,041	$	3,384	$	17,956

Loans:
Individually evaluated for impairment	$	8,194	$	—	$	—	$	—	$	8,194
Collectively evaluated for impairment		2,039,841		796,485		155,631		665,192		3,657,149
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending loans balance	$	2,048,035	$	796,485	$	155,631	$	665,192	$	3,665,343

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, 2018
         Mortgage
   Commercial    Real Estate    Warehousing    Consumer    Total
Allowance For Loan Losses

Ending allowance balance attributable to loans:

Individually evaluated for impairment
   $ 1,035    $ —      $ —      $ —      $ 1,035
Collectively evaluated for impairment
   9,460    1,676    1,006    4,643    16,785
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending allowance balance
   $ 10,495    $ 1,676    $ 1,006    $ 4,643    $ 17,820










Loans:

Individually evaluated for impairment
   $ 6,708    $ —      $ —      $ —      $ 6,708
Collectively evaluated for impairment
   1,718,661    670,166    74,120    547,116    3,010,063
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending loans balance
   $ 1,725,369    $ 670,166    $ 74,120    $ 547,116    $ 3,016,771

December 31, 2018

Commercial

Real Estate

Mortgage
Warehousing

Consumer

Total

Allowance For Loan Losses

Ending allowance balance attributable to loans:

Individually evaluated for impairment
$
1,035
$
—
$
—
$
—
$
1,035

Collectively evaluated for impairment

9,460

1,676

1,006

4,643

16,785

Loans acquired with deteriorated credit quality

—

—

—

—

—

Total ending allowance balance
$
10,495
$
1,676
$
1,006
$
4,643
$
17,820

Loans:

Individually evaluated for impairment
$
6,695
$
—
$
—
$
—
$
6,695

Collectively evaluated for impairment

1,716,840

668,124

74,120

546,774

3,005,858

Loans acquired with deteriorated credit quality

—

—

—

—

—

Total ending loans balance
$
1,723,535
$
668,124
$
74,120
$
546,774
$
3,012,553

Note 7 –
Non-performing
Loans and Impaired Loans

The following table presents the

non-accrual,

loans past due over 90 days still on accrual, and troubled debt restructured (“TDRs”) by class of loans:

   March 31, 2019
      Loans Past
      Due Over 90          Total
      Days Still    Non-peforming    Performing    Non-performing
   Non-accrual    Accruing    TDRs    TDRs    Loans
Commercial

Owner occupied real estate
   $ 3,372    $ —      $ 389    $ 139    $ 3,900
Non-owner occupied real estate
   3,041    —      404    314    3,759
Residential spec homes
   261    —      —      —      261
Development & spec land
   177    —      —      —      177
Commercial and industrial
   1,653    —      —      —      1,653










Total commercial
   8,504    —      793    453    9,750
Real estate

Residential mortgage
   3,691    140    416    1,748    5,995
Residential construction
   —      —      —      —      —
Mortgage warehouse
   —      —      —      —      —










Total real estate
   3,691    140    416    1,748    5,995
Consumer

Direct installment
   55    17    —      —      72
Indirect installment
   986    30    —      —      1,016
Home equity
   2,077    5    140    331    2,553










Total consumer
   3,118    52    140    331    3,641










Total
   $ 15,313    $ 192    $ 1,349    $ 2,532    $ 19,386


	September 30, 2019
	Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non-peforming TDRs		Performing TDRs		Total Non-performing Loans
Commercial
Owner occupied real estate	$	3,320	$	—	$	629	$	139	$	4,088
Non-owner occupied real estate		168		—		385		—		553
Residential spec homes		—		—		—		—		—
Development & spec land		140		—		—		—		140
Commercial and industrial		1,989		—		—		1,423		3,412

Total commercial		5,617		—		1,014		1,562		8,193
Real estate
Residential mortgage		5,031		1		573		1,607		7,212
Residential construction		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—

Total real estate		5,031		1		573		1,607		7,212
Consumer
Direct installment		77		—		—		—		77
Indirect installment		1,121		33		—		—		1,154
Home equity		1,977		—		220		322		2,519

Total consumer		3,175		33		220		322		3,750

Total	$	13,823	$	34	$	1,807	$	3,491	$	19,155

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, 2018
      Loans Past
      Due Over 90          Total
      Days Still    Non-peforming    Performing    Non-performing
   Non-accrual    Accruing    TDRs    TDRs    Loans
Commercial

Owner occupied real estate
   $ 3,413    $ —      $ —      $ 109    $ 3,522
Non-owner occupied real estate
   554    —      492    —      1,046
Residential spec homes
   —      —      —      —      —
Development & spec land
   68    —      —      —      68
Commercial and industrial
   2,059    208    —      —      2,267










Total commercial
   6,094    208    492    109    6,903
Real estate

Residential mortgage
   2,846    180    423    1,558    5,007
Residential construction
   —      —      —      —      —
Mortgage warehouse
   —      —      —      —      —










Total real estate
   2,846    180    423    1,558    5,007
Consumer

Direct installment
   35    —      —      —      35
Indirect installment
   916    173    —      —      1,089
Home equity
   1,657    7    142    335    2,141










Total consumer
   2,608    180    142    335    3,265










Total
   $ 11,548    $ 568    $ 1,057    $ 2,002    $ 15,175


	December 31, 2018
	Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non-peforming TDRs		Performing TDRs		Total Non-performing Loans
Commercial
Owner occupied real estate	$	3,413	$	—	$	—	$	109	$	3,522
Non-owner occupied real estate		554		—		492		—		1,046
Residential spec homes		—		—		—		—		—
Development & spec land		68		—		—		—		68
Commercial and industrial		2,059		208		—		—		2,267

Total commercial		6,094		208		492		109		6,903
Real estate
Residential mortgage		2,846		180		423		1,558		5,007
Residential construction		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—

Total real estate		2,846		180		423		1,558		5,007
Consumer
Direct installment		35		—		—		—		35
Indirect installment		916		173		—		—		1,089
Home equity		1,657		7		142		335		2,141

Total consumer		2,608		180		142		335		3,265

Total	$	11,548	$	568	$	1,057	$	2,002	$	15,175

Included in the ~~$15.3~~$13.8 million of

non-accrual

loans and the ~~$1.3~~$1.8 million of

non-performing

TDRs at ~~March 31,~~September 30, 2019 were ~~$3.1~~$2.6 million and ~~$629,000,~~$735,000, respectively, of loans acquired for which accretable yield was recognized.

From time to time, the Bank obtains information that may lead management to believe that the collection of payments may be doubtful on a particular loan. In recognition of this, it is management’s policy to convert the loan from an “earning asset” to a

non-accruing

loan. 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. Further, it is management’s policy to generally place a loan on a

non-accrual

status when the payment is delinquent in excess of 90 days or the loan has had the accrual of interest discontinued by management. The officer responsible for the loan and the Chief Commercial Banking Officer and/or the Chief Operations Officer must review all loans placed on

non-accrual

status. Subsequent payments on

non-accrual

loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured.

Non-accrual

loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal in accordance with the loan terms. The Company requires a period of satisfactory performance of not less than

six months

before returning a

non-accrual

loan to accrual status.

A loan becomes impaired when, based on current information, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is classified as impaired, the degree of impairment must be recognized by estimating future cash flows from the debtor. The present value of these cash flows is computed at a discount rate based on the interest rate contained in the loan agreement. However, if a particular loan has a determinable market value for its collateral, the creditor may use that value. Also, if the loan is secured and considered collateral dependent, the creditor may use the fair value of the collateral. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by 1–4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicate that underlying cash flows of a borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved to

non-accrual

status when they are 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms, including TDRs, are measured for impairment. Allowable methods for determining the amount of impairment include the three methods described above.

The Company’s TDRs are considered impaired loans and included in the allowance methodology using the guidance for impaired loans. At ~~March 31,~~September 30, 2019, the type of concessions the Company has made on restructured loans has been temporary rate reductions and/or reductions in monthly payments and there have been no restructured loans with modified recorded balances. Any modification to a loan that is a concession and is not in the normal course of lending is considered a restructured loan. A restructured loan is returned to accruing status after ~~six~~

consecutive payments but is still reported as TDR unless the loan bears interest at a market rate. As of ~~March 31,~~September 30, 2019, the Company had ~~$3.9~~$5.3 million in TDRs and ~~$2.5~~$3.5 million were performing according to the restructured terms and ~~$315,000 in~~

TDRs were returned to accrual status during the first ~~three~~nine months of 2019. There were ~~$20,000~~$135,000 specific reserves allocated to TDRs at ~~March 31,~~September 30, 2019 based on the discounted cash flows or when appropriate the fair value of the collateral.

The following table presents commercial loans individually evaluated for impairment by class of loan:

   March 31, 2019
            Three Months Ended
   Unpaid       Allowance
for
Average
Balance in

Cash/Accrual
Interest

   Principal    Recorded    Loan Loss    Impaired    Income
   Balance    Investment    Allocated    Loans    Recognized
With no recorded allowance Commercial

Owner occupied real estate
   $ 3,275    $ 3,269    $ —      $ 3,650    $ 60
Non-owner occupied real estate
   840    869    —      875    32
Residential spec homes
   261    261    —      261    3
Development & spec land
   66    64    —      65    —
Commercial and industrial
   656    648    —      668    7










Total commercial
   5,098    5,111    —      5,519    102
With an allowance recorded

Commercial

Owner occupied real estate
   355    355    25    358    —
Non-owner occupied real estate
   135    135    40    135    —
Residential spec homes
   —      —      —      —      —
Development & spec land
   —      —      —      —      —
Commercial and industrial
   632    632    850    632    —










Total commercial
   1,122    1,122    915    1,125    —










Total
   $ 6,220    $ 6,233    $ 915    $ 6,644    $ 102


	September 30, 2019
							Three Months Ended				Nine Months Ended
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Loss Allocated		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized
With no recorded allowance
Commercial
Owner occupied real estate	$	3,718	$	3,719	$	—	$	5,854	$	83	$	5,895	$	259
Non-owner occupied real estate		427		427		—		459		8		504		15
Residential spec homes		—		—		—		—		—		—		—
Development & spec land		140		140		—		225		1		224		3
Commercial and industrial		1,876		1,879		—		2,419		71		2,429		83

Total commercial		6,161		6,165		—		8,957		163		9,052		360
With an allowance recorded
Commercial
Owner occupied real estate		370		370		3		371		4		367		14
Non-owner occupied real estate		126		126		35		130		—		133		—
Residential spec homes		—		—		—		—		—		—		—
Development & spec land		—		—		—		—		—		—		—
Commercial and industrial		1,537		1,537		868		1,563		30		1,589		51

Total commercial		2,033		2,033		906		2,064		34		2,089		65

Total	$	8,194	$	8,198	$	906	$	11,021	$	197	$	11,141	$	425

��

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

   March 31, 2018
            Three Months Ended
   Unpaid
Principal
Balance    Recorded
Investment    Allowance
for Loan
Loss
Allocated    Average
Balance
in
Impaired
Loans    Cash/Accrual
Interest
Income Rec
Recognized
With no recorded allowance

Commercial

Owner occupied real estate
   $ 4,038    $ 4,063    $ —      $ 4,590    $ 37
Non-owner occupied real estate
   1,033    1,049    —      975    5
Residential spec homes
   —      —      —      —      —
Development & spec land
   76    74    —      75    —
Commercial and industrial
   737    745    —      1,447    —










Total commercial
   5,884    5,931    —      7,087    42
With an allowance recorded

Commercial

Owner occupied real estate
   893    893    184    900    —
Non-owner occupied real estate
   —      —      —      —      —
Residential spec homes
   —      —      —      —      —
Development & spec land
   —      —      —      —      —
Commercial and industrial
   —      —      —      —      —










Total commercial
   893    893    184    900    —










Total
   $ 6,777    $ 6,824    $ 184    $ 7,987    $ 42


	September 30, 2018
							Three Months Ended					Nine Months Ended
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Loss Allocated		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized			Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized
With no recorded allowance
Commercial
Owner occupied real estate	$	4,496	$	4,490	$	—	$	5,014	$	(25	)	$	5,077	$	71
Non-owner occupied real estate		841		857		—		936		(5	)		1,119		5
Residential spec homes		—		—		—		—		—			—		—
Development & spec land		71		69		—		69		—			72		—
Commercial and industrial		1,165		1,160		—		1,418		5			1,241		12

Total commercial		6,573		6,576		—		7,437		(25	)		7,509		88
With an allowance recorded
Commercial
Owner occupied real estate		845		845		145		852		—			874		—
Non-owner occupied real estate		187		187		30		189		4			178		4
Residential spec homes		—		—		—		—		—			—		—
Development & spec land		—		—		—		—		—			—		—
Commercial and industrial		750		750		749		750		4			750		4

Total commercial		1,782		1,782		924		1,791		8			1,802		8

Total	$	8,355	$	8,358	$	924	$	9,228	$	(17	)	$	9,311	$	96

The following table presents the payment status by class of loan:

   March 31, 2019
   Current 30-59 Days
Past Due 60-89 Days
Past Due 90 Days or
Greater
Past Due Non-accrual Total Past
Due &
Non-accrual
Loans Total
Commercial

Owner occupied real estate
   $ 672,729 $ 27 $ —   $ —   $ 3,761 $ 3,788 $ 676,517
Non-owner occupied real estate
   827,610 2,386 362 —   3,445 6,193 833,803
Residential spec homes
   9,469 491 —   —   261 752 10,221
Development & spec land
   74,885 17 —   —   177 194 75,079
Commercial and industrial
   493,723 1,616 632 —   1,653 3,901 497,624


Total commercial
   2,078,416 4,537 994 —   9,297 14,828 2,093,244
Real estate

Residential mortgage
   790,848 1,910 169 140 4,107 6,326 797,174
Residential construction
   24,593 —   —   —   —   —   24,593
Mortgage warehouse
   71,944 —   —   —   —   —   71,944


Total real estate
   887,385 1,910 169 140 4,107 6,326 893,711
Consumer

Direct installment
   37,345 67 48 17 55 72 37,417
Indirect installment
   316,613 906 129 30 986 1,016 317,629
Home equity
   279,938 956 264 5 2,217 2,222 282,160


Total consumer
   633,896 1,929 441 52 3,258 3,310 637,206


Total
   $ 3,599,697 $ 8,376 $ 1,604 $ 192 $ 16,662 $ 24,464 $ 3,624,161


Percentage of total loans
   99.32 % 0.23 % 0.04 % 0.01 % 0.46 % 0.68 %


	September 30, 2019
	Current			30-59 Days Past Due			60-89 Days Past Due			90 Days or Greater Past Due			Non-accrual			Total Past Due & Non-accrual Loans			Total
Commercial
Owner occupied real estate	$	718,761		$	508		$	—		$	—		$	3,949		$	4,457		$	723,218
Non-owner occupied real estate		764,987			778			256			—			553			1,587			766,574
Residential spec homes		10,813			—			—			—			—			—			10,813
Development & spec land		36,055			920			—			—			140			1,060			37,115
Commercial and industrial		506,893			767			666			—			1,989			3,422			510,315

Total commercial		2,037,509			2,973			922			—			6,631			10,526			2,048,035
Real estate
Residential mortgage		764,308			3,531			—			1			5,604			9,136			773,444
Residential construction		23,041			—			—			—			—			—			23,041
Mortgage warehouse		155,631			—			—			—			—			—			155,631

Total real estate		942,980			3,531			—			1			5,604			9,136			952,116
Consumer
Direct installment		41,843			124			4			—			77			205			42,048
Indirect installment		341,554			1,427			432			33			1,121			3,013			344,567
Home equity		275,589			600			191			—			2,197			2,988			278,577

Total consumer		658,986			2,151			627			33			3,395			6,206			665,192

Total	$	3,639,475		$	8,655		$	1,549		$	34		$	15,630		$	25,868		$	3,665,343

Percentage of total loans		99.29	%		0.24	%		0.04	%		0.00	%		0.43	%		0.71	%		100.00	%

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, 2018
   Current 30-59 Days
Past Due 60-89 Days
Past Due 90 Days or
Greater
Past Due Non-accrual Total Past
Due &
Non-accrual
Loans Total
Commercial

Owner occupied real estate
   $ 556,516 $ 537 $ 997 $ —   $ 3,413 $ 4,947 $ 561,463
Non-owner occupied real estate
   716,574 175 19 —   1,046 1,240 717,814
Residential spec homes
   4,707 492 —   —   —   492 5,199
Development & spec land
   46,479 —   —   —   68 68 46,547
Commercial and industrial
   390,828 515 736 208 2,059 3,518 394,346


Total commercial
   1,715,104 1,719 1,752 208 6,586 10,265 1,725,369
Real estate

Residential mortgage
   641,500 1,131 56 180 3,269 4,636 646,136
Residential construction
   24,030 —   —   —   —   —   24,030
Mortgage warehouse
   74,120 —   —   —   —   —   74,120


Total real estate
   739,650 1,131 56 180 3,269 4,636 744,286
Consumer

Direct installment
   38,027 93 18 —   35 146 38,173
Indirect installment
   311,494 1,396 198 173 916 2,683 314,177
Home equity
   192,162 761 37 7 1,799 2,604 194,766


Total consumer
   541,794 2,250 253 180 2,750 5,433 547,116


Total
   $ 2,996,548 $ 5,100 $ 2,061 $ 568 $ 12,605 $ 20,334 $ 3,016,771


Percentage of total loans
   99.33 % 0.17 % 0.07 % 0.02 % 0.42 % 0.67 %


	December 31, 2018
	Current			30-59 Days Past Due			60-89 Days Past Due			90 Days or Greater Past Due			Non-accrual			Total Past Due & Non-accrual Loans			Total
Commercial
Owner occupied real estate	$	558,982		$	537		$	997		$	—		$	3,413		$	4,947		$	563,929
Non-owner occupied real estate		712,896			175			19			—			1,046			1,240			714,136
Residential spec homes		4,703			492			—			—			—			492			5,195
Development & spec land		46,455			—			—			—			68			68			46,523
Commercial and industrial		390,234			515			736			208			2,059			3,518			393,752

Total commercial		1,713,270			1,719			1,752			208			6,586			10,265			1,723,535
Real estate
Residential mortgage		639,458			1,131			56			180			3,269			4,636			644,094
Residential construction		24,030			—			—			—			—			—			24,030
Mortgage warehouse		74,120			—			—			—			—			—			74,120

Total real estate		737,608			1,131			56			180			3,269			4,636			742,244
Consumer
Direct installment		34,087			93			18			—			35			146			34,233
Indirect installment		311,494			1,396			198			173			916			2,683			314,177
Home equity		195,760			761			37			7			1,799			2,604			198,364

Total consumer		541,341			2,250			253			180			2,750			5,433			546,774

Total	$	2,992,219		$	5,100		$	2,061		$	568		$	12,605		$	20,334		$	3,012,553

Percentage of total loans		99.33	%		0.17	%		0.07	%		0.02	%		0.42	%		0.67	%		100.00	%

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.

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 loan 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 markets (ranging from ~~$1,000,000~~ $

1,000,000

to ~~$3,500,000)~~$

3,500,000

) 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 reporting any adverse material change to the CCBO or Loan Committee. When circumstances warrant a change in the credit quality grade, loan officers are required to notify the CCBO and the Credit Department of the change in the loan grade. Downgrades are accepted immediately by the CCBO, however, lenders must present their factual information to either the Loan Committee or the CCBO when recommending an upgrade.

The CCBO, or his designee, meets ~~weekly~~regularly 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 with 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, troubled debt restructures, 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 Loan and Lease Losses.

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 a TDR 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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Horizon 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; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

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 consecutive years of profits; loans supported by unaudited financial statements containing strong balance sheets, five consecutive years of profits, a ~~five-year~~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 where there is no impediment to liquidation; loans to individuals backed by liquid personal assets and unblemished credit history; or loans to publicly held companies with current long-term debt ratings of Baa or better.

Risk Grade 3: Satisfactory (Pass)

Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered. 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, didnot~~ ~~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 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.~~

•

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:

Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than Satisfactory loans. 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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Risk Grade 4W Management Watch:

Loans in this category are considered to be of acceptable quality, 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 unstablized, 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.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Risk Grade 5: Special Mention

Loans which possess some 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.

Risk Grade 6: Substandard

One or more of the following characteristics may be exhibited in loans classified Substandard:

Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

Loans are inadequately protected by the current net worth and paying capacity of the obligor.

The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

Unusual courses of action are needed to maintain a high probability of repayment.

The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

The lender is forced into a subordinated or unsecured position due to flaws in documentation.

Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Risk Grade 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.

The following table presents loans by credit grades.


	September 30, 2019
	Pass			Special Mention			Substandard			Doubtful			Total
Commercial
Owner occupied real estate	$	696,380		$	7,776		$	19,062		$	—		$	723,218
Non-owner occupied real estate		751,995			5,654			8,925			—			766,574
Residential spec homes		10,813			—			—			—			10,813
Development & spec land		33,957			—			3,158			—			37,115
Commercial and industrial		470,722			19,569			20,024			—			510,315

Total commercial		1,963,867			32,999			51,169			—			2,048,035
Real estate
Residential mortgage		766,233			—			7,211			—			773,444
Residential construction		23,041			—			—			—			23,041
Mortgage warehouse		155,631			—			—			—			155,631

Total real estate		944,905			—			7,211			—			952,116
Consumer
Direct installment		41,971			—			77			—			42,048
Indirect installment		343,413			—			1,154			—			344,567
Home equity		276,058			—			2,519			—			278,577

Total consumer		661,442			—			3,750			—			665,192

Total	$	3,570,214		$	32,999		$	62,130		$	—		$	3,665,343

Percentage of total loans		97.40	%		0.90	%		1.70	%		0.00	%		100.00	%

	December 31, 2018
	Pass			Special Mention			Substandard			Doubtful			Total
Commercial
Owner occupied real estate	$	540,643		$	6,618		$	16,668		$	—		$	563,929
Non-owner occupied real estate		698,591			9,682			5,863			—			714,136
Residential spec homes		5,195			—			—			—			5,195
Development & spec land		46,358			97			68			—			46,523
Commercial and industrial		379,013			6,655			8,084			—			393,752

Total commercial		1,669,800			23,052			30,683			—			1,723,535
Real estate
Residential mortgage		639,267			—			4,827			—			644,094
Residential construction		24,030			—			—			—			24,030
Mortgage warehouse		74,120			—			—			—			74,120

Total real estate		737,417			—			4,827			—			742,244
Consumer
Direct installment		34,198			—			35			—			34,233
Indirect installment		313,088			—			1,089			—			314,177
Home equity		196,223			—			2,141			—			198,364

Total consumer		543,509			—			3,265			—			546,774

Total	$	2,950,726		$	23,052		$	38,775		$	—		$	3,012,553

Percentage of total loans		97.95	%		0.77	%		1.29	%		0.00	%		100.00	%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

~~The following table presents loans by credit grades.~~

   March 31, 2019
   Pass Special
Mention Substandard Doubtful Total
Commercial

Owner occupied real estate
   $ 656,354 $ 5,046 $ 15,117 $ —   $ 676,517
Non-owner occupied real estate
   815,974 9,048 8,781 —   833,803
Residential spec homes
   9,960 —   261 —   10,221
Development & spec land
   74,805 97 177 —   75,079
Commercial and industrial
   482,091 7,074 8,459 —   497,624


Total commercial
   2,039,184 21,265 32,795 —   2,093,244
Real estate

Residential mortgage
   791,663 —   5,511 —   797,174
Residential construction
   24,593 —   —   —   24,593
Mortgage warehouse
   71,944 —   —   —   71,944


Total real estate
   888,200 —   5,511 —   893,711
Consumer

Direct installment
   37,345 —   72 —   37,417
Indirect installment
   316,613 —   1,016 —   317,629
Home equity
   279,826 —   2,334 —   282,160


Total consumer
   633,784 —   3,422 —   637,206


Total
   $ 3,561,168 $ 21,265 $ 41,728 $ —   $ 3,624,161


Percentage of total loans
   98.26 % 0.59 % 1.15 % 0.00 %

   December 31, 2018
   Pass Special
Mention Substandard Doubtful Total
Commercial

Owner occupied real estate
   $ 538,177 $ 6,618 $ 16,668 $ —   $ 561,463
Non-owner occupied real estate
   702,269 9,682 5,863 —   717,814
Residential spec homes
   5,199 —   —   —   5,199
Development & spec land
   46,382 97 68 —   46,547
Commercial and industrial
   379,607 6,655 8,084 —   394,346


Total commercial
   1,671,634 23,052 30,683 —   1,725,369
Real estate

Residential mortgage
   641,309 —   4,827 —   646,136
Residential construction
   24,030 —   —   —   24,030
Mortgage warehouse
   74,120 —   —   —   74,120


Total real estate
   739,459 —   4,827 —   744,286
Consumer

Direct installment
   38,138 —   35 —   38,173
Indirect installment
   313,088 —   1,089 —   314,177
Home equity
   192,625 —   2,141 —   194,766


Total consumer
   543,851 —   3,265 —   547,116


Total
   $ 2,954,944 $ 23,052 $ 38,775 $ —   $ 3,016,771


Percentage of total loans
   97.95 % 0.76 % 1.29 % 0.00 %

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Note 8 – Leases

Operating leases are recorded as a right-of-use (“ROU”) asset and operating lease liability, included in other assets and other liabilities, respectively, on the consolidated balance sheet beginning

As of January 1, 2019, when the Company adopted ASU

2016-02 ~~prospectively.~~

prospectively, the Company began recording operating leases as a

right-of-use

(“ROU”) asset in other assets and operating lease liability in other liabilities on the consolidated balance sheet. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating liability, is recognized on a straight-line basis over the lease term, and is recorded primarily in net occupancy expense in the consolidated statements of income.

~~The~~

When the Company adopted the guidance on January 1, 2019, ~~by electing~~it elected the optional alternative transition method permitted by ASU

2018-11

allowing for recognition of applicable leases as of January 1, 2019. Additionally, the Company elected the following accounting policies:

The practical expedient package that forgoes:

Reassessment of any expired or existing contracts for a lease

Reassessment of lease classification for expired or existing leases

Reassessment of initial direct costs for existing leases

The hindsight practical expedient to determine lease term and impairment of ROU assets

Other practical expedients regarding combination of lease and

non-lease

components and the exclusion of short-term leases

The Company did not elect to follow the practical ~~expedient~~expedients for land easements and the portfolio approach ~~were not elected~~

Operating leases relate primarily to bank branches and office space with remaining average lease terms of

seven ~~years.~~years

. The weighted average discount rate utilized to calculate the ROU asset and operating lease liability was approximately 2.57%, which represents the incremental borrowing rate. At inception, the Company recorded a ROU asset and operating lease liability of $3.5 million. At ~~March 31,~~September 30, 2019, a ROU asset of ~~$3.3~~$3.0 million is included in other assets and an operating lease liability of ~~$3.4~~$3.2 million is included in other ~~liabilities, respectively.~~liabilities. Options to extend a lease were considered in the remaining lease term determination. The lease expense for operating leases was ~~$148,000~~$150,000 for the three months ended ~~March 31,~~September 30, 2019 and $446,000 for the nine months ended September 30, 2019.

Future minimum operating lease payments under

non-cancellable

leases with initial or remaining lease terms at ~~March 31,~~September 30, 2019 were as follows:

Year
   Amount
2020
   $ 484
2021
   476
2022
   483
2023
   504
2024 and thereafter
   1,483


Total lease payments
   $ 3,430


Less: Interest
   (180 )


Present value of lease liabilities
   $ 3,250


Year	Amount
2019	$	119
2020		476
2021		476
2022		504
2023 and thereafter		1,609

Total lease payments	$	3,184

Less: Interest		(170	)

Present value of lease liabilities	$	3,014

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 9 – 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 Bank’s control.

The following table shows repurchase agreements accounted for as secured borrowings:

   March 31, 2019
   Remaining Contractual Maturity of the Agreements
   Overnight
and
Continuous    Up to
one year    One to three
years    Three to five
years    Five to ten
years    Beyond ten
years    Total
Repurchase Agreements andrepurchase-to-maturity transactions

Repurchase Agreements
   $ 90,885    $ —      $ —      $ —      $ —      $ —      $ 90,885
Securities pledged for Repurchase Agreements

Federal agency collateralized mortgage obligations
   $ 33,798    $ —      $ —      $ —      $ —      $ —      $ 33,798
Federal agency mortgage-backed pools
   87,795    —      —      —      —      —      87,795














Total
   $ 121,593    $ —      $ —      $ —      $ —      $ —      $ 121,593


	September 30, 2019
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to one year		One to three years		Three to five years		Five to ten years		Beyond ten years		Total
Repurchase Agreements and repurchase-to-maturity transactions
Repurchase Agreements	$	97,301	$	—	$	—	$	—	$	—	$	—	$	97,301
Securities pledged for Repurchase Agreements
Federal agency collateralized mortgage obligations	$	33,579	$	—	$	—	$	—	$	—	$	—	$	33,579
Federal agency mortgage-backed pools		76,002		—		—		—		—		—		76,002

Total	$	109,581	$	—	$	—	$	—	$	—	$	—	$	109,581

Note 10 – Derivative Financial Instruments

Cash Flow Hedges –

As a strategy to maintain acceptable levels of exposure to the risk of changes in future cashflow due to interest rate fluctuations, the Company entered into interest rate swap agreements for a portion of its floating rate debt. The agreements provide for the Company to receive interest from the counterparty at

three month

LIBOR and to pay interest to the counterparty at a weighted average fixed rate of 5.81% on a notional amount of $30.5 million at ~~March 31,~~September 30, 2019 and December 31, 2018. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

The Company assumed additional interest rate swap agreements as the result of the LaPorte acquisition in July 2016. The agreements provide for the Company to receive interest from the counterparty at

one month

LIBOR and to pay interest to the counterparty at a weighted average fixed rate of 2.31% on a notional amount of $30.0 million at ~~March 31,~~September 30, 2019 and December 31, 2018. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

On July 20, 2018, the Company entered into an interest rate swap agreement for an additional portion of its floating rate debt. 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 rate of 2.81% on a notional amount of $50.0 million at ~~March~~September 30, 2019 and December 31, ~~2019.~~2018. Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Management has designated the interest rate swap agreement as a cash flow hedging instrument. 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. At September 30, ~~2018,~~2019, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

Fair Value Hedges

Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item. The Company enters into fixed rate loan agreements as part of its lending policy. To mitigate the risk of changes in fair value based on fluctuations in interest rates, the Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. At ~~March 31,~~September 30, 2019, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

The change in fair value of both the hedge instruments and the underlying loan agreements are recorded as gains or losses in interest income. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. The notional amounts of the loan agreements being hedged were ~~$234.3~~$320.3 million at ~~March 31,~~September 30, 2019 and $209.2 million at December 31, 2018.

Other Derivative Instruments

The Company enters into

non-hedging

derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business. At ~~March 31,~~September 30, 2019, 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.

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 summarize the fair value of derivative financial instruments utilized by Horizon:

   Asset Derivatives
March 31, 2019    Liability Derivatives
March 31, 2019
   Balance Sheet
Location    Fair
Value    Balance Sheet
Location    Fair
Value
Derivatives designated as hedging instruments

Interest rate contracts
   Loans    $ —      Loans    $ 4,093
Interest rate contracts
   Other Assets    4,093    Other liabilities    2,866




Total derivatives desginated as hedging instruments
      4,093       6,959




Derivatives not designated as hedging instruments

Mortgage loan contracts
   Other assets    392    Other liabilities    —




Total derivatives not designated as hedging instruments
      392       —




Total derivatives
      $ 4,485       $ 6,959








   Asset Derivatives    Liability Derivatives
   December 31, 2018    December 31, 2018
   Balance Sheet    Fair    Balance Sheet    Fair
   Location    Value    Location    Value
Derivatives designated as hedging instruments

Interest rate contracts
   Loans    $ —      Loans    $ 42
Interest rate contracts
   Other Assets    42    Other liabilities    1,760




Total derivatives desginated as hedging instruments
      42       1,802




Derivatives not designated as hedging instruments

Mortgage loan contracts
   Other assets    135    Other liabilities    —




Total derivatives not designated as hedging instruments
      135       —




Total derivatives
      $ 177       $ 1,802


	Asset Derivatives				Liability Derivatives
	September 30, 2019				September 30, 2019
	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts		Loans	$	17,713		Loans	$	—
Interest rate contracts		Other Assets		—		Other liabilities		23,343

Total derivatives desginated as hedging instruments				17,713				23,343

Derivatives not designated as hedging instruments
Mortgage loan contracts		Other assets		266		Other liabilities		228

Total derivatives not designated as hedging instruments				266				228

Total derivatives			$	17,979			$	23,571


	Asset Derivatives				Liability Derivatives
	December 31, 2018				December 31, 2018
	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts		Loans	$	—		Loans	$	42
Interest rate contracts		Other Assets		42		Other liabilities		1,760

Total derivatives desginated as hedging instruments				42				1,802

Derivatives not designated as hedging instruments
Mortgage loan contracts		Other assets		135		Other liabilities		—

Total derivatives not designated as hedging instruments				135				—

Total derivatives			$	177			$	1,802

The effect of the derivative instruments on the condensed consolidated statements of income for the ~~three-month~~three and nine-month periods ending ~~March 31~~September 30 is as follows:

   Amount of Loss Recognized in Other
   Comprehensive Income on Derivative
   (Effective Portion)
   Three Months Ended
   March 31, 2019    March 31, 2018
Derivatives in cash flow hedging relationship

Interest rate contracts
   $ (874 )    $ 358


	Amount of Loss Recognized in Other Comprehensive Income on Derivative (Effective Portion)
	Three Months Ended					Nine Months Ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Derivatives in cash flow hedging relationship
Interest rate contracts	$	(682	)	$	505	$	(3,058	)	$	1,384

FASB Accounting Standards Codification (“ASC”) Topic

820-10-20

defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic

820-10-55

establishes a fair value hierarchy that emphasizes the use of observable inputs and minimizes the use of unobservable inputs when measuring 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)

   Location of gain
(loss) recognized on
derivative    Amount of Gain (Loss)
Recognized on Derivative
Three Months Ended
   March 31, 2019 March 31, 2018
Derivative in fair value hedging relationship

Interest rate contracts
   Interest income -loans    $ (4,051 ) $ 2,768
Interest rate contracts
   Interest income -loans    4,051 (2,768 )


Total
      $ —   $ —


   Location of gain
(loss) recognized on
derivative    Amount of Gain (Loss)
Recognized on Derivative
Three Months Ended
   March 31, 2019 March 31, 2018
Derivative not designated as hedging relationship

Mortgage contracts

Other income - gain
on sale of loans

   $ 257 $ 112


	Location of gain (loss)	Amount of Gain (Loss) Recognized on Derivative
	Location of gain (loss)	Three Months Ended						Nine Months Ended
	recognized on derivative	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Derivative in fair value hedging relationship
Interest rate contracts	Interest income - loans	$	(6,091	)	$	2,768		$	(17,671	)	$	574
Interest rate contracts	Interest income - loans		6,091			(2,768	)		17,671			(574	)

Total		$	—		$	—		$	—		$	—


	Location of gain (loss)	Amount of Gain (Loss) Recognized on Derivative
	Location of gain (loss)	Three Months Ended						Nine Months Ended
	recognized on derivative	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Derivative not designated as hedging relationship
Mortgage contracts	Other income - gain on sale of loans	$	(429	)	$	112		$	(97	)	$	195

Note 11 – 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~~


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 September 30, ~~2018.~~2019. 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

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands, Except Per Share Data)

Hedged loans

Certain fixed rate loans have been converted to variable rate loans by entering into interest rate swap agreements. The fair value of those fixed rate loans is based on discounting the estimated cash flows using interest rates determined by the respective interest rate swap agreement. Loans are classified within Level 2 of the valuation hierarchy based on the unobservable inputs used.

Interest rate swap agreements

The fair value of the Company’s interest rate swap agreements is estimated by a third party using inputs that are primarily unobservable including a yield curve, adjusted for liquidity and credit risk, contracted terms and discounted cash flow analysis, and therefore, are classified within Level 2 of the valuation hierarchy.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated financial statements measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at the following:

   March 31, 2019
   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
   $ 13,995 $ —      $ 13,995 $ —
State and municipal
   249,760 —      249,760 �� —
Federal agency collateralized mortgage obligations
   213,043 —      213,043 —
Federal agency mortgage-backed pools
   192,265 —      192,265 —
Corporate notes
   18,079 —      18,079 —




Total available for sale securities
   687,142 —      687,142 —
Hedged loans
   234,325 —      234,325 —
Forward sale commitments
   392 —      392 —
Interest rate swap agreements
   (6,958 ) —      (6,958 ) —
Commitments to originate loans
   —   —      —   —


	September 30, 2019
	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	$	9,909		$	—	$	9,909		$	—
State and municipal		347,101			—		347,101			—
Federal agency collateralized mortgage obligations		246,083			—		246,083			—
Federal agency mortgage-backed pools		145,597			—		145,597			—
Corporate notes		18,540			—		18,540			—

Total available for sale securities		767,230			—		767,230			—
Hedged loans		320,306			—		320,306			—
Forward sale commitments		266			—		266			—
Interest rate swap agreements		(23,343	)		—		(23,343	)		—
Commitments to originate loans		(228	)		—		(228	)		—

	December 31, 2018
	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	$	16,608		$	—	$	16,608		$	—
State and municipal		209,303			—		209,303			—
Federal agency collateralized mortgage obligations		185,003			—		185,003			—
Federal agency mortgage-backed pools		178,736			—		178,736			—
Corporate notes		10,698			—		10,698			—

Total available for sale securities		600,348			—		600,348			—
Hedged loans		209,161			—		209,161			—
Forward sale commitments		135			—		135			—
Interest rate swap agreements		(1,801	)		—		(1,801	)		—
Commitments to originate loans		—			—		—			—

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, 2018
      Quoted Prices in    Significant
      Active Markets    Other    Significant
      for Identical    Observable    Unobservable
      Assets    Inputs    Inputs
   Fair Value    (Level 1)    (Level 2)    (Level 3)
Available for sale securities

U.S. Treasury and federal agencies
   $ 16,608    $ —      $ 16,608    $ —
State and municipal
   209,303    —      209,303    —
Federal agency collateralized mortgage obligations
   185,003    —      185,003    —
Federal agency mortgage-backed pools
   178,736    —      178,736    —
Corporate notes
   10,698    —      10,698    —








Total available for sale securities
   600,348    —      600,348    —
Hedged loans
   209,161    —      209,161    —
Forward sale commitments
   135    —      135    —
Interest rate swap agreements
   (1,801 )    —      (1,801 )    —
Commitments to originate loans
   —      —      —      —

Realized gains and losses included in net income for the periods are reported in the condensed consolidated statements of income as follows:

Non-interest Income    Three Months Ended
Total gains and losses from:    March 31, 2019    March 31, 2018
Hedged loans
   $ (4,051 )    $ 2,768
Fair value interest rate swap agreements
   4,051    (2,768 )
Derivative loan commitments
   257    112




   $ 257    $ 112


	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Non-interest Income
Total gains and losses from:
Hedged loans	$	(6,091	)	$	364		$	(17,671	)	$	4,108
Fair value interest rate swap agreements		6,091			(364	)		17,671			(4,108	)
Derivative loan commitments		(429	)		(184	)		(97	)		(1	)

	$	(429	)	$	(184	)	$	(97	)	$	(1	)

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):

      Quoted Prices in    Significant
      Active Markets    Other    Significant
      for Identical    Observable    Unobservable
      Assets    Inputs    Inputs
   Fair Value    (Level 1)    (Level 2)    (Level 3)
March 31, 2019

Impaired loans
   $ 5,318    $ —      $ —      $ 5,318
Mortgage servicing rights
   13,366    —      —      13,366
December 31, 2018

Impaired loans
   $ 5,661    $ —      $ —      $ 5,661
Mortgage servicing rights
   12,349    —      —      12,349

Fair Value

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

September 30, 2019

Impaired loans
$
7,288
$
  —
$
  —
$
7,288

Mortgage servicing rights

14,114

—

—

14,114

December 31, 2018

Impaired loans
$
5,661
$
—
$
—
$
5,661

Mortgage servicing rights

12,349

—

—

12,349

Impaired (collateral dependent):

Loans for which it is probable that the Company will not collect all principal ~~andinterest~~and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

If the impaired loan is 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.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Mortgage Servicing Rights (MSRs):

MSRs do not trade in an active market with readily observable ~~prices.Accordingly,~~prices. Accordingly, the fair value of these assets is classified as Level 3. The Company determines the fair value of MSRs using an income approach model based upon the Company’s

month-end

interest rate curve and prepayment assumptions. The model utilizes assumptions to estimate future net servicing income cash flows, including estimates of time decay, payoffs and changes in valuation inputs and assumptions. The Company reviews the valuation assumptions against this market data for reasonableness and adjusts the assumptions if deemed appropriate. The carrying amount of the MSRs’ fair value due to impairment ~~increased~~decreased by ~~$14,000~~$59,000 during the first ~~three~~nine months of 2019 and decreased by ~~$6,000~~$75,000 during the first ~~three~~nine months of 2018.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

The following table presents qualitative information about unobservable inputs used in recurring and

non-recurring

Level 3 fair value measurements, other than goodwill.

   March 31, 2019
   Fair
Value
Valuation
Technique

Unobservable
Inputs
   Range (Weighted Average)
Impaired loans
   $ 5,318    Collateral based measurement
Discount to reflect current market
conditions and ultimate collectability
   0%-100% (14.7%)
         Discount rate,    9.7%-10.0% (9.7%),
Mortgage servicing rights
   13,366    Discounted cash flows    Constant prepayment rate,    8.9%-21.8% (9.0%),
         Probability of default    0.1%-3.1% (0.6%)
   December 31, 2018
   Fair    Valuation    Unobservable    Range
   Value
Technique

Inputs
   (Weighted Average)
Impaired loans
   $ 5,661    Collateral based measurement
Discount to reflect current market
conditions and ultimate
collectability
   0%-100% (15.5%)
Mortgage servicing rights
   12,349    Discounted cash flows
Discount rate,
Constant prepayment rate,
Probability of default
   10.2%-11.0% (10.3%),
9.1%-21.9% (9.3%),
0.1%-2.8% (0.6%)

September 30, 2019

Fair

Valuation

Unobservable

Range

Value

Technique

Inputs

(Weighted Average)

Impaired loans

7,288

Collateral based measurement

Discount to reflect current market
conditions

and

ultimate
collectability

0%-100%

(11.1%)

Mortgage servicing rights

14,114

Discounted cash flows

Discount rate,
Constant prepayment rate,
Probability of default

9.7%-10.0%

(9.8%),

10.0%-22.7%

(11.3%),

0.0%-1.5%

(0.6%)

December 31, 2018

Fair

Valuation

Unobservable

Range

Value

Technique

Inputs

(Weighted Average)

Impaired loans

5,661

Collateral based measurement

Discount to reflect current market
conditions and ultimate
collectability

0%-100%

(15.5%)

Mortgage servicing rights

12,349

Discounted cash flows

Discount rate,
Constant prepayment rate,
Probability of default

10.2%-11.0%

(10.3%),

9.1%-21.9%

(9.3%),

0.1%-2.8%

(0.6%)

Note 12 – 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.

The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or market value of Horizon taken as a whole. The disclosed fair value estimates are limited to Horizon’s significant financial instruments at ~~March 31,~~September 30, 2019 and December 31, 2018. These include financial instruments recognized as assets and liabilities on the condensed consolidated balance sheet 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.

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 methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and Due from Banks

— The carrying amounts approximate fair value.

~~Held-to-Maturity~~

Held-to-Maturity Securities

— For debt securities held to maturity, fair values are based on quoted market prices ~~ordealer~~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 ~~and FRB~~ Stock

— Fair value of FHLB ~~and FRB~~ stock is based on the price at which it may be resold to ~~theFHLB and FRB.~~

the FHLB.

Interest Receivable/Payable

— The carrying amounts approximate fair value.

Deposits

— The fair value of demand deposits, savings accounts, interest-bearing checking accounts and ~~moneymarket~~money market deposits is the amount payable on demand at the reporting date. 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.

Borrowings

— Rates currently available to Horizon for debt with similar terms and remaining maturities are used ~~toestimate~~to estimate fair values of existing borrowings.

Subordinated Debentures

— Rates currently available for debentures with similar terms and remaining ~~maturitiesare~~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 ~~estimatedusing~~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 table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall (unaudited).


	September 30, 2019
	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	$	91,279	$	91,279	$	—	$	—
Interest-earning time deposits		8,455		—		8,536		—
Investment securities, held to maturity		210,306		—		217,718		—
Loans held for sale		1,060		—		—		1,060
Loans (excluding loan level hedges), net		3,328,363		—		—		3,272,900
Stock in FHLB		22,447		—		22,447		—
Interest receivable		18,282		—		18,282		—
Liabilities
Non-interest bearing deposits	$	756,707	$	756,707	$	—	$	—
Interest bearing deposits		3,159,250		—		3,128,877		—
Borrowings		516,591		—		515,866		—
Subordinated debentures		56,250		—		50,938		—
Interest payable		2,725		—		2,725		—

	December 31, 2018
	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	$	58,492	$	58,492	$	—	$	—
Interest-earning time deposits		15,744		—		15,542		—
Investment securities, held to maturity		210,112		—		208,273		—
Loans held for sale		1,038		—		—		1,038
Loans (excluding loan level hedges), net		2,786,351		—		—		2,681,741
Stock in FHLB		18,073		—		18,073		—
Interest receivable		14,239		—		14,239		—
Liabilities
Non-interest bearing deposits	$	642,129	$	642,129	$	—	$	—
Interest bearing deposits		2,497,247		—		2,377,274		—
Borrowings		550,384		—		542,311		—
Subordinated debentures		37,837		—		35,711		—��
Interest payable		2,031		—		2,031		—

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

   March 31, 2019
      Quoted Prices in    Significant
      Active Markets    Other    Significant
      for Identical    Observable    Unobservable
   Carrying    Assets    Inputs    Inputs
   Amount    (Level 1)    (Level 2)    (Level 3)
Assets

Cash and due from banks
   $ 86,131    $ 86,131    $ —      $ —
Interest-earning time deposits
   15,987    —      —      —
Investment securities, held to maturity
   206,327    —      210,106    —
Loans held for sale
   1,979    —      —      1,979
Loans (excluding loan level hedges), net
   3,368,911    —      —      3,267,463
Stock in FHLB
   22,447    —      22,447    —
Interest receivable
   17,423    —      17,423    —
Liabilities

Non-interest bearing deposits
   $ 811,768    $ 811,768    $ —      $ —
Interest bearing deposits
   3,076,255    —      3,005,839    —
Borrowings
   457,788    —      412,884    —
Subordinated debentures
   55,310    —      49,568    —
Interest payable
   2,471    —      2,471    —
   December 31, 2018
      Quoted Prices in    Significant
      Active Markets    Other    Significant
      for Identical    Observable    Unobservable
   Carrying    Assets    Inputs    Inputs
   Amount    (Level 1)    (Level 2)    (Level 3)
Assets

Cash and due from banks
   $ 58,492    $ 58,492    $ —      $ —
Interest-earning time deposits
   15,744    —      15,542    —
Investment securities, held to maturity
   210,112    —      208,273    —
Loans held for sale
   1,038    —      —      1,038
Loans (excluding loan level hedges), net
   2,786,351    —      —      2,681,741
Stock in FHLB
   18,073    —      18,073    —
Interest receivable
   14,239    —      14,239    —
Liabilities

Non-interest bearing deposits
   $ 642,129    $ 642,129    $ —      $ —
Interest bearing deposits
   2,497,247    —      2,377,274    —
Borrowings
   550,384    —      542,311    —
Subordinated debentures
   37,837    —      35,711    —
Interest payable
   2,031    —      2,031    —

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Note 13 – Accumulated Other Comprehensive Income

   March 31    December 31
   2019    2018
Unrealized gain (loss) on securities available for sale
   $ 3,118    $ (8,561 )
Unamortized gain (loss) on securities held to maturity, previously transferred from AFS
   (28 )    10
Unrealized loss on derivative instruments
   (2,866 )    (1,760 )
Tax effect
   (46 )    2,167




Total accumulated other comprehensive income (loss)
   $ 178    $ (8,144 )


	September 30 2019			December 31 2018
Unrealized gain (loss) on securities available for sale	$	14,115		$	(8,561	)
Unamortized gain (loss) on securities held to maturity, previously transferred from AFS		(73	)		10
Unrealized loss on derivative instruments		(5,631	)		(1,760	)
Tax effect		(1,765	)		2,167

Total accumulated other comprehensive income (loss)	$	6,646		$	(8,144	)

Note 14 – Regulatory Capital

Horizon and the Bank are subject to various regulatory capital requirements administered by the federal banking ~~agencies~~agencies. These capital requirements implement changes arising from the Dodd-Frank Wall Street Reform and ~~are assigned to a~~Consumer Protection Act and the U.S. Basel Committee on Banking Supervision’s capital ~~category.~~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 ~~Bank’s~~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.

~~Quantitative measures established by regulation~~

The Company and Bank are subject to ~~ensure~~minimum regulatory capital ~~adequacy require~~requirements as defined and calculated in accordance with the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined), or leverage ratio. Basel ~~III rules require the Bank to maintain minimum amounts and ratios of common equity Tier I capital (as defined in the regulation) to risk-weighted assets (as defined). Additionally,~~

III-based

regulations. As allowed under Basel III rules, the Company made the decision ~~was made~~ to

opt-out

of including accumulated other comprehensive income in regulatory capital.

To 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 ~~minimum~~ Total risk-based, Tier I risk-based, common equity Tier I risk-based and Tier I leverage ratios as set forth in the table below. As of ~~March 31,~~September 30, 2019 and December 31, 2018, the Company and Bank met all capital adequacy requirements to be considered well capitalized. There have been no conditions or events since the end of the ~~first~~third quarter of 2019 that management believes have changed the Bank’s classification as well capitalized. There is no threshold for well-capitalized status for bank holding companies.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Horizon and the Bank’s actual and required capital ratios as of ~~March 31,~~September 30, 2019 and December 31, 2018 were as follows:

   Actual Required for Capital¹
Adequacy Purposes Required For Capital¹
Adequacy Purposes
with Capital Buffer Well Capitalized Under
Prompt¹
Corrective Action
Provisions
   Amount    Ratio Amount    Ratio Amount    Ratio Amount    Ratio
March 31, 2019

Total capital¹ (to risk-weighted assets)

Consolidated
   $ 509,214    13.25 % $ 307,362    8.00 % $ 403,412    10.50 % N/A    N/A
Bank
   472,621    12.30 % 307,361    8.00 % 403,411
10.50
%
$ 384,201    10.00 %
Tier 1 capital¹ (to risk-weighted assets)

Consolidated
   491,302    12.79 % 230,521    6.00 % 326,572    8.50 % N/A    N/A
Bank
   454,709    11.84 % 230,520    6.00 % 326,570    8.50 % 307,360    8.00 %
Common equity tier 1 capital¹ (to risk-weighted assets)

Consolidated
   433,809    11.29 % 172,890    4.50 % 268,941    7.00 % N/A    N/A
Bank
   454,709    11.84 % 172,890    4.50 % 268,940    7.00 % 249,730    6.50 %
Tier 1 capital¹ (to average assets)

Consolidated
   491,302    11.85 % 165,789    4.00 % 165,789    4.00 % N/A    N/A
Bank
   454,709    10.99 % 165,523    4.00 % 165,523    4.000 % 206,904    5.00 %
December 31, 2018

Total capital¹ (to risk-weighted assets)

Consolidated
   $ 427,616    13.39 % $ 255,419    8.00 % $ 315,283    9.875 % N/A    N/A
Bank
   396,755    12.43 % 255,419    8.00 % 315,283    9.875 % $ 319,274    10.00 %
Tier 1 capital¹ (to risk-weighted assets)

Consolidated
   409,760    12.83 % 191,565    6.00 % 251,429    7.875 % N/A    N/A
Bank
   378,899    11.87 % 191,565    6.00 % 251,429    7.875 % 255,420    8.00 %
Common equity tier 1 capital¹ (to risk-weighted assets)

Consolidated
   371,297    11.63 % 143,673    4.50 % 203,537    6.375 % N/A    N/A
Bank
   378,899    11.87 % 143,674    4.50 % 203,537    6.375 % 207,528    6.50 %
Tier 1 capital¹ (to average assets)

Consolidated
   409,760    10.12 % 162,033    4.00 % 162,033    4.000 % N/A    N/A
Bank
   378,899    9.34 % 162,327    4.00 % 162,327    4.000 % 202,908    5.00 %


	Actual					Required for Capital 1 Adequacy Purposes					Required For Capital 1 Adequacy Purposes with Capital Buffer					Well Capitalized Under Prompt 1 Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2019
Total capital 1 (to risk-weighted assets)
Consolidated	$	534,701		13.53	%		316,157		8.00	%		414,956		10.50	%		N/A		N/A
Bank		477,150		12.08	%		316,012		8.00	%		414,765		10.50	%	$	395,015		10.00	%
Tier 1 capital 1 (to risk-weighted assets)
Consolidated		516,692		13.07	%		237,196		6.00	%		336,028		8.50	%		N/A		N/A
Bank		459,140		11.62	%		237,010		6.00	%		335,764		8.50	%		316,014		8.00	%
Common equity tier 1 capital 1 (to risk-weighted assets)
Consolidated		459,162		11.61	%		177,970		4.50	%		276,842		7.00	%		N/A		N/A
Bank		459,140		11.62	%		177,758		4.50	%		276,512		7.00	%		256,761		6.50	%
Tier 1 capital 1 (to average assets)
Consolidated		516,692		10.51	%		196,648		4.00	%		196,648		4.00	%		N/A		N/A
Bank		459,140		9.35	%		196,489		4.00	%		196,489		4.00	%		245,611		5.00	%
December 31, 2018
Total capital 1 (to risk-weighted assets)
Consolidated	$	427,616		13.39	%	$	255,419		8.00	%	$	315,283		9.875	%		N/A		N/A
Bank		396,755		12.43	%		255,419		8.00	%		315,283		9.875	%	$	319,274		10.00	%
Tier 1 capital 1 (to risk-weighted assets)
Consolidated		409,760		12.83	%		191,565		6.00	%		251,429		7.875	%		N/A		N/A
Bank		378,899		11.87	%		191,565		6.00	%		251,429		7.875	%		255,420		8.00	%
Common equity tier 1 capital 1 (to risk-weighted assets)
Consolidated		371,297		11.63	%		143,673		4.50	%		203,537		6.375	%		N/A		N/A
Bank		378,899		11.87	%		143,674		4.50	%		203,537		6.375	%		207,528		6.50	%
Tier 1 capital 1 (to average assets)
Consolidated		409,760		10.12	%		162,033		4.00	%		162,033		4.000	%		N/A		N/A
Bank		378,899		9.34	%		162,327		4.00	%		162,327		4.000	%		202,908		5.00	%

In October 2019, the federal banking agencies finalized a new rule that will simplify capital requirements for qualified community banks that opt into the new community bank leverage ratio framework. The new framework will be available to use in March 31, 2020 Call Reports or Forms

FRY-9C

(as applicable) for depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets, among other qualifying criteria. Horizon is currently evaluating the impact of the new community bank leverage ratio framework.

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 15 – Future Accounting Matters

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)No.

2018-13,

Fair ValueMeasurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

The FASB has issued ASUNo.

2018-13,

Fair Value Measurement (Topic 820): Disclosure Framework – Changes to theDisclosure Requirements for Fair Value Measurement

. These amendments modify the disclosure requirements in Topic ~~820as~~820 as follows:

Removals

: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements.

Modifications

: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

Additions

: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should all be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASUNo.

2018-13

and delay adoption of the additional disclosures until their effective date. We are currently evaluating the impact of adoption of ASU

2018-13

and the impact on our accounting and disclosures.

FASB ASUNo.

2017-04,

Intangibles – Goodwill and Other ~~(Topic~~

(Topic 350):

Simplifying the Test for GoodwillImpairment

The FASB has issued ASUNo.

2017-04,

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for GoodwillImpairment.

The new guidance is intended to simplify the subsequent measurement of goodwill by eliminating Step ~~2from~~2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. The amendments in this update should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

FASB ASUNo.

2016-13,

Financial Instruments – Credit Losses ~~(Topic~~

(Topic 326):

Measurement of Credit Losseson Financial Instruments

The FASB has issued ASUNo.

2016-13,

Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses onFinancial Instruments.

The main objective of this amendment is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to enhance their credit loss estimates. The amendment requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on

available-for-sale

debt securities and purchased financial assets with credit deterioration. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. Early adoption will be permitted beginning after December 15, 2018.

Our CECL task force has been meeting on a monthly basis, at a minimum, to discuss implementation matters related to the completeness and accuracy of historical data, model development and corporate governance documentation. Specifically regarding model development, the task force has discussed results from parallel model runs for each portfolio segment and evaluated assumptions related to unfunded commitments, acquired performing loans, economic and forecast factors. Our task force is also reviewing new corporate governance documentation such as our new CECL Allowance for Credit Losses (ACL) policy, procedure manuals and internal control documentation. Results from a recently conducted model validation are currently being reviewed and we are addressing complexities identified.

We expect aone-time ~~cumulative-effect~~ cumulative effect adjustment to the ~~allowance for loan losses~~ACL will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency ~~guidance issued at the end~~guidance. We believe

that

an increase in our ACL

in line with industry expectations

will result upon adoption of ~~2016. We~~this new standard; however, we are ~~currently implementing third-party software that was purchased and are validating the data loaded into the solution. Our implementation team meets on a regular basis~~waiting to ~~oversee activities and monitor progress. Methodologies are still being evaluated at this time so the magnitude of any such adjustment or the overall impact~~provide an estimate of the ~~new standard on~~expected increase until the ~~financial condition or~~completion of the validation and analysis of the results by our CECL task force. We will continue to evaluate and refine our ACL estimates during the remainder of ~~operations cannot yet be determined.~~

2019 by considering changes in our portfolio composition, current economic conditions and the results identified by our task force.

Note 16 – General Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operation and cash flows of the Company.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended ~~March 31,~~September 30, 2019 and 2018

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:

economic conditions and their impact on Horizon and its customers;

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

rising interest rates and their impact on mortgage loan volumes and the outflow of deposits;

loss of key Horizon personnel;

increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks;

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 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, including the effects resulting from the reforms enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the adoption of regulations by regulatory bodies under the Dodd-Frank Act;

the impact of whole or partial dismantling of provisions of the Dodd-Frank Act under the current federal administration, including the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act;

the impact of the Basel III capital rules;

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

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended ~~March 31,~~September 30, 2019 and 2018

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

rapid technological developments and changes;

the risks presented by cyber terrorism and data security breaches;

containing costs and expenses;

the slowing or failure of economic recovery;

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 material changes outside the U.S. or in overseas relations, including changes in the U.S. trade relations related to imposition of tariffs, Brexit and the phase out in 2021 of the London Interbank Offered Rate (“LIBOR”); and

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.

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 2018 Annual Report on Form

10-K

and in the subsequent reports we file with the SEC.

Overview

Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in Northern and Central regions of Indiana and the Southern, Central and Great Lakes Bay regions of Michigan through its bank subsidiary. Horizon operates as a single segment, which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. The Bank was originally chartered as a national banking association in 1873 and has operated continuously since that time and converted to an Indiana state-chartered bank effective on June 23, 2017. The Bank is a full-service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services, and other services incident to banking. Upon approval of a name change by Horizon’s shareholders at the annual meeting on May 3, 2018, Horizon’s full corporate name became “Horizon Bancorp, Inc.”

On March 26, 2019, Horizon completed the acquisition of Salin Bancshares, Inc. (“Salin”), an Indiana corporation and Horizon Bank’s acquisition of Salin Bank and Trust Company (“Salin Bank”), an Indiana commercial bank and wholly-owned subsidiary of Salin, through mergers effective March 26, 2019. Under the terms of the Merger Agreement, shareholders of Salin received 23,907.5 shares of Horizon common stock and $87,417.17 in cash for each outstanding share of Salin common stock. Salin shares outstanding at the closing to be exchanged were 275, and the shares of Horizon common stock issued to Salin shareholders totaled 6,563,697. Based upon the March 25, 2019 closing price of $15.65 per share of Horizon common stock immediately prior to the effectiveness of the merger, the transaction has an implied valuation of approximately $126.7 million.

On October 17, 2017, Horizon completed the acquisition of Wolverine Bancorp, Inc., a Maryland corporation (“Wolverine”) and Horizon Bank’s acquisition of Wolverine Bank, a federally-chartered savings bank and wholly-owned subsidiary of Wolverine, through mergers effective October 17, 2017. Under the terms of the Merger Agreement, shareholders of Wolverine received 1.5228 shares of Horizon common stock and $14.00 in cash for each outstanding share of Wolverine common stock. Wolverine shares outstanding at the closing to be exchanged were 2,129,331 and the shares of Horizon common stock issued to Wolverine shareholders totaled 3,241,045. Based upon the October 16, 2017 closing price of $19.37 per share of Horizon common stock immediately prior to the effectiveness of the merger, less the consideration used to pay off Wolverine Bancorp’s ESOP loan receivable, the transaction has an implied valuation of approximately $93.8 million.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended ~~March 31,~~September 30, 2019 and 2018

On September 1, 2017, Horizon completed the acquisition of Lafayette Community Bancorp, an Indiana corporation (“Lafayette”) and Horizon Bank’s acquisition of Lafayette Community Bank, a state-chartered bank and wholly-owned subsidiary of Lafayette, through mergers effective September 1, 2017. Under the terms of the Merger Agreement, shareholders of Lafayette received 0.8817 shares of Horizon common stock and $1.73 in cash for each outstanding share of Lafayette common stock. Lafayette shareholders owning fewer than 100 shares of common stock received $17.25 in cash for each common share. Lafayette shares outstanding at the closing to be exchanged were 1,856,679, and the shares of Horizon common stock issued to Lafayette shareholders totaled 1,636,888. Based upon the August 31, 2017 closing price of $17.45 per share of Horizon common stock immediately prior to the effectiveness of the merger, the transaction has an implied valuation of approximately $34.5 million.

On February 3, 2017, Horizon completed the purchase and assumption of certain assets and liabilities of a single branch of First Farmers Bank & Trust Company, located in Bargersville, Indiana. Net cash of $11.0 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans acquired in the transaction and a premium on deposits assumed in the transaction.

Following is a summary of Horizon’s financial performance through the first ~~three~~nine months of 2019:

Net income for the quarter ended ~~March 31,~~September 30, 2019 ~~decreased 15.5% to $10.8~~was $20.5 million, or ~~$0.28~~$0.46 diluted earnings per share, compared to ~~$12.8~~$13.1 million, or ~~$0.33~~$0.34 diluted earnings per share, for the quarter ended ~~March 31,~~September 30, 2018.

This represents the highest quarterly net income and diluted earnings per share in the Company’s history.

Core net income for the quarter ended ~~March 31,~~September 30, 2019 increased ~~16.5%~~54.4% to ~~$13.0~~$20.3 million, or ~~$0.34~~$0.45 diluted earnings per share, compared to ~~$11.2~~$13.2 million, or ~~$0.29~~$0.34 diluted earnings per share, for the same period in 2018. This represents the highest~~quarter-to-date~~ quarterly core net income and core diluted earnings per share in the Company’s history. (Please refer to the section captioned “Use of

Non-GAAP

Financial Measures” within this Item 2 for a description of the elements of core net income and a table reconciling core net income to its most closely related GAAP measures.)

Net income for the first nine months of 2019 was $48.0 million, or $1.11 diluted earnings per share, compared to $40.0 million, or $1.04 diluted earnings per share, for the first nine months of 2018. This represents the highest

year-to-date

net income and diluted earnings per share as of September 30

in the Company’s history.

Core net income for the first nine months of 2019 was $52.1 million, or $1.21 diluted earnings per share, compared to $39.9 million, or $1.04 diluted earnings per share, for the first nine months of 2018. This represents the highest

year-to-date

core net income and core diluted earnings per share as of September 30

in the Company’s history. (Please refer to the section captioned “Use of

Non-GAAP

Financial Measures” within this Item 2 for a description of the elements of core net income and a table reconciling core net income to its most closely related GAAP measures.)

Net interest margin for the quarter ended September 30, 2019 was 3.82% compared to 3.73% and 3.67% for the quarters ended June 30, 2019 and September 30, 2018, respectively. The increase in net interest margin from the second quarter of 2019 and third quarter of 2018 reflects an increase in the yield of interest-earning assets as loans continue to reprice upwards and a decrease in cost of borrowings, along with a stabilization in deposit pricing.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Core net interest margin for the quarter ended September 30, 2019 was 3.67% compared to 3.61% and 3.59% for the quarters ended June 30, 2019 and September 30, 2018, respectively. (Please refer to the section captioned “Use of

Non-GAAP

Financial Measures” within this Item 2 for a description of the elements of core net interest margin and a table reconciling core net interest margin to its most closely related GAAP measures.)

Return on average assets was ~~1.02%~~1.60% for the third quarter of 2019 compared to 1.26% for the third quarter of 2018. Return on average assets was 1.33% for both the first nine months of 2019 and 2018.

Core return on average assets for the third quarter of 2019 was 1.58% compared to 1.27% for the third quarter of 2018. Core return on average assets was 1.44% for the first ~~quarter~~nine months of 2019 compared to 1.32% for the first ~~quarter of 2018.~~

~~Core return on average assets for the first quarter of 2019 was 1.23% compared to 1.15% for the first quarter~~nine months of 2018. (Please refer to the section captioned “Use of

Non-GAAP

Financial Measures” within this Item 2 for a description of the elements of core return on average assets and a table reconciling core return on average assets to ~~tis~~its most closely related GAAP measures.)

~~Total loans, excluding acquired loans, increased by an annualized rate of 5.0%, or $36.8 million, during the first quarter of 2019.~~

~~Net interest margin~~

Return on average equity was ~~3.62%~~12.72% for the ~~three months ended March 31,~~third quarter of 2019 compared to ~~3.60%~~10.87% for the ~~three months ended December 31, 2018 and 3.81%~~third quarter of 2018. Return on average equity was 10.88% for the ~~three~~first nine months ~~ended March 31, 2018.~~

~~Core net interest margin (defined as net interest margin excluding acquisition-related purchase accounting adjustments) was 3.46% for the three months ended March 31,~~of 2019 compared to ~~3.43%~~11.43% for the ~~three~~first nine months ~~ended December 31, 2018 and 3.55%~~of 2018.

Core return on average equity for the ~~three~~third quarter of 2019 was 12.59% compared to 10.95% for the third quarter of 2018. Core return on average equity was 11.83% for the first nine months ~~ended March 31,~~of 2019 compared to 11.41% for the first nine months of 2018.

(Please refer to the section captioned “Use of

Non-GAAP

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion~~Financial Measures” within this Item 2 for a description of the elements of core return on average equity and ~~Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31, 2019 and 2018~~

a table reconciling core return on average equity to its most closely related GAAP measures.)

Horizon’s tangible book value per share increased to ~~$9.60~~$10.31 at ~~March 31,~~September 30, 2019 compared to ~~$9.43~~$9.91 and ~~$8.57~~$9.04 at ~~December 31, 2018~~June 30, 2019 and ~~March 31,~~September 30, 2018, respectively. This represents the highest tangible book value per share in the Company’s history.

Critical Accounting Policies

The notes to the consolidated financial statements included in Item 8 of the Company’s Annual Report on Form

10-K

for 2018 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. Management has identified as critical accounting policies the allowance for loan losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.

Allowance for Loan Losses

An allowance for loan losses is maintained to absorb probable incurred loan losses inherent in the loan portfolio. The determination of the allowance for loan losses is a critical accounting policy that involves management’s ongoing quarterly assessments of the probable incurred losses inherent in the loan portfolio. The identification of loans that have probable incurred losses is subjective; therefore, a general reserve is maintained to cover all probable losses within the entire loan portfolio. Horizon utilizes a loan grading system that helps identify, monitor and address asset quality problems in an adequate and timely manner. Each quarter, various factors affecting the quality of the loan portfolio are reviewed. Large credits are reviewed on an individual basis for loss potential. Other loans are reviewed as a group based upon previous trends of loss experience. Horizon also reviews the current and anticipated economic conditions of its lending market as well as transaction risk to determine the effect they may have on the loss experience of the loan portfolio.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Goodwill and Intangible Assets

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. FASB ASC

350-10

establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At ~~March 31,~~September 30, 2019, Horizon had core deposit intangibles of ~~$31.2~~$27.7 million subject to amortization and ~~$145.7~~$151.2 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely affect earnings in future periods. FASB ASC

350-10

requires an annual evaluation of goodwill for impairment. The evaluation of goodwill for impairment requires the use of estimates and assumptions. Market price at the close of business on ~~March 29,~~September 30, 2019 was ~~$16.09~~$17.36 per share compared to a book value of ~~$13.53~~$14.29 per common share.

Horizon has concluded that, based on its own internal evaluation, the recorded value of goodwill is not impaired.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets on a servicing-retained basis. Capitalized servicing rights are amortized into

non-interest

income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. When the book value of an individual stratum exceeds its fair value, an

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31, 2019 and 2018~~

impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value. In periods of falling market interest rates, accelerated loan prepayment can adversely affect the fair value of these mortgage-servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or negatively.

Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, Horizon utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis. In addition, on a quarterly basis Horizon engages a third party to independently test the value of its servicing asset.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Derivative Instruments

As part of the Company’s asset/liability management program, Horizon utilizes, from

time-to-time,

interest rate floors, caps or swaps to reduce the Company’s sensitivity to interest rate fluctuations. These are derivative instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair values of derivatives are reported in the consolidated income statements or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

Horizon’s accounting policies related to derivatives reflect the guidance in FASB ASC

815-10.

Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized firm commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). For fair value hedges, the cumulative change in fair value of both the hedge instruments and the underlying loans is recorded in

non-interest

income. For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in OCI are reflected in the consolidated income statement in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, Horizon establishes the method it uses for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of income. Horizon excludes the time value expiration of the hedge when measuring ineffectiveness.

Valuation Measurements

Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities, residential mortgage loans held for sale and derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31, 2019 and 2018~~

value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other post-retirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent, to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s 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 Nine Months ended September 30, 2019 and 2018

Financial Condition

On ~~March 31,~~September 30, 2019, Horizon’s total assets were ~~$5.052~~$5.187 billion, an increase of approximately ~~$805.0~~$940.0 million compared to December 31, 2018. The increase was primarily in net loans of ~~$607.7~~$653.2 million, investment securities available for sale of ~~$86.8~~$166.9 million, cash and due from banks of ~~$27.6~~$32.8 million, goodwill of ~~$25.8~~$31.4 million, other intangible assets of ~~$20.8~~$17.3 million and premises and equipment of ~~$19.5~~$18.5 million primarily due to the acquisition of Salin Bancshares, Inc.

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

   March 31, 2019    December 31, 2018
   Amortized
Cost    Fair
Value    Amortized
Cost    Fair
Value
Available for sale

U.S. Treasury and federal agencies
   $ 14,087    $ 13,995    $ 16,815    $ 16,608
State and municipal
   245,577    249,760    210,386    209,303
Federal agency collateralized mortgage obligations
   212,829    213,043    187,563    185,003
Federal agency mortgage-backed pools
   193,932    192,265    183,479    178,736
Private labeled mortgage-backed pools
   —      —      —      —
Corporate notes
   17,598    18,079    10,666    10,698








Total available for sale investment securities
   $ 684,023    $ 687,142    $ 608,909    $ 600,348








Held to maturity

State and municipal
   $ 187,847    $ 191,570    $ 191,269    $ 189,676
Federal agency collateralized mortgage obligations
   5,019    4,979    5,144    5,030
Federal agency mortgage-backed pools
   13,461    13,557    13,699    13,567








Total held to maturity investment securities
   $ 206,327    $ 210,106    $ 210,112    $ 208,273


	September 30, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
U.S. Treasury and federal agencies	$	9,915	$	9,909	$	16,815	$	16,608
State and municipal		337,336		347,101		210,386		209,303
Federal agency collateralized mortgage obligations		243,366		246,083		187,563		185,003
Federal agency mortgage-backed pools		144,880		145,597		183,479		178,736
Private labeled mortgage-backed pools		—		—		—		—
Corporate notes		17,618		18,540		10,666		10,698

Total available for sale investment securities	$	753,115	$	767,230	$	608,909	$	600,348

Held to maturity
State and municipal	$	192,736	$	199,972	$	191,269	$	189,676
Federal agency collateralized mortgage obligations		4,714		4,716		5,144		5,030
Federal agency mortgage-backed pools		12,856		13,030		13,699		13,567

Total held to maturity investment securities	$	210,306	$	217,718	$	210,112	$	208,273

Investment securities available for sale increased ~~$86.8~~$166.9 million since December 31, 2018 to ~~$687.1~~$767.2 million as of ~~March 31,~~September 30, 2019. This increase was ~~primarily~~ due to securities acquired through the acquisition of Salin which totaled approximately ~~$54.7 million.~~

$54.3 million, growth in direct municipal program and the investment of excess cash.

Total gross loans increased ~~$608.7~~$653.3 million since December 31, 2018 to ~~$3.623~~$3.668 billion as of ~~March 31,~~September 30, 2019. This increase was primarily due to ~~$571.8~~$568.9 million in loans acquired through the acquisition of Salin. Total loans, excluding acquired loans, increased ~~$36.8~~$84.4 million due to increases in consumer loans of $33.7 million and mortgage warehouse loans of $81.5 million, offset by decreases in commercial loans of ~~$17.1~~$28.2 million and residential mortgage loans of ~~$15.6~~$2.6 million.

During the first nine months of 2019, the Bank originated approximately $299.5 million ~~and consumer~~of commercial loans, which is a 17% increase compared to the same period in 2018; however, only 56.5%, or $169.1 million, of ~~$5.4 million,~~these loan originations had been funded as of September 30, 2019. These originations were offset by ~~a decrease in mortgage warehouse loans of $2.2 million. The growth markets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo contributed total~~commercial loan ~~growth of $77.7~~payoffs totaling approximately $226.0 million during the first ~~three~~nine months of ~~2019. Management believes~~2019, which is a 69% increase in payoffs compared to the same period in 2018, as there was an increase in clients moving projects that ~~this growth is due to our seasoned lending team who live~~had reached stabilization into the long-term, fixed rate conduit financing market and ~~work within~~properties being sold. During the first nine months of 2018, the Bank originated approximately $256.5 million of commercial loans; however, only 56.2%, or $144.1 million, of these ~~expanding~~loan originations had been funded as of September 30, 2018. These originations were offset by commercial loan payoffs totaling approximately $134.1 million during the first nine months of 2018.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and ~~robust communities.~~

Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Total deposits increased ~~$748.6~~$776.6 million since December 31, 2018 to ~~$3.888~~$3.916 billion as of ~~March 31,~~September 30, 2019. This increase was primarily due to ~~$741.5~~$741.3 million in deposits through the acquisition of Salin.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31, 2019 and 2018~~

The Company decreased total borrowings from $550.4 million as of December 31, 2018 to ~~$457.8~~$516.6 million as of ~~March 31,~~September 30, 2019. At ~~March 31,~~September 30, 2019, the Company had ~~$272.9~~$309.3 million in short-term funds borrowed compared to $402.8 million at December 31, 2018. The decrease in borrowings was primarily due to ~~net cash~~liquidity received in the acquisition of Salin ~~totaling $128.7 million.~~

from the sale of its investments.

Stockholders’ equity totaled ~~$609.5~~$642.7 million at ~~March 31,~~September 30, 2019 compared to $492.0 million at December 31, 2018. The increase in stockholders’ equity during the period was due to the acquisition of Salin, generation of net income, net of dividends declared, and an increase in accumulated other comprehensive income. ~~At March 31, 2019, the ratio of average stockholders’ equity to average assets was 11.76% compared to 11.65% at December 31, 2018.~~ Book value per common share at ~~March 31,~~September 30, 2019 increased to ~~$13.53~~$14.29 compared to $12.82 at December 31, 2018.

Results of Operations

Overview

Consolidated net income for the three-month period ended ~~March 31,~~September 30, 2019 was ~~$10.8~~$20.5 million compared to ~~$12.8~~$13.1 million for the same period in 2018. Basic and diluted earnings per common share for the three months ended September 30, 2019 and 2018 were $0.46 and $0.34, respectively. The increase in net income from the previous year reflects an increase in net interest income of $9.7 million and

non-interest

income of $2.8 million, in addition to a decrease in provision for loan losses of $800,000. Offsetting these positive impacts to net income were increases in

non-interest

expense of $4.4 million and income tax expense of $1.4 million. Excluding merger expenses, loss on sale of investment securities and death benefit on bank owned life insurance (“core net income”), core net income for the third quarter of 2019 was $20.3 million, or $0.45 diluted earnings per share, compared to $13.2 million, or $0.34 diluted earnings per share, for the same period of 2018.

Consolidated net income for the nine-month period ended September 30, 2019 was $48.0 million compared to $40.0 million for the same period in 2018. Earnings per common share for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 were ~~$0.28~~$1.12 basic and $1.11 diluted, compared to ~~$0.33~~$1.04 basic and diluted for the same ~~three- month~~nine-month period in the ~~previous~~prior year. The ~~decrease~~increase in net income ~~and earnings per share from~~when comparing the ~~previous~~first nine months of 2019 to the prior year period reflects ~~an increase innon-interest~~ ~~expense of $3.9 million, primarily due to merger expenses totaling $4.1 million (before tax expense), offset by~~ increases in net interest income of ~~$869,000~~$18.5 million and~~non-~~ ~~interest~~

non-interest

income of ~~$394,000 in addition to decreases~~$5.2 million, along with a decrease in provision for loan losses of ~~$ 203,000~~$742,000. Offsetting these positive impacts to net income was an increase in

non-interest

expense of $15.0 million and income tax expense of ~~$447,000. Excluding merger expenses, loss on sale of investment securities and purchase accounting adjustments,~~$1.5 million. Core net income for the ~~first quarter of~~nine-month period ended September 30, 2019 was ~~$13.0~~$52.1 million, or ~~$0.34~~$1.21 diluted earnings per share, compared to ~~$11.2~~$39.9 million, or ~~$0.29~~$1.04 diluted earnings per share, infor the same period of 2018.

Net Interest Income

The largest component of net income is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on deposits and borrowings. Changes in the net interest income are the result of changes in volume and the net interest spread, which affects the net interest margin. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Net interest margin refers to net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended ~~March 31,~~September 30, 2019 and 2018

Net interest income during the three months ended September 30, 2019 was $43.5 million, an increase of $9.7 million from the $33.8 million earned during the same period in 2018. Yields on the Company’s interest-earning assets increased by 29 basis points to 4.87% for the three months ended September 30, 2019 from 4.58% for the three months ended September 30, 2018. Interest income increased $13.4 million from $42.3 million for the three months ended September 30, 2018 to $55.7 million for the same period in 2019. This was due to an increase in average interest-earning assets from the Salin acquisition and organic growth, in addition to an increase in yield and an increase in commercial loan fees of $1.2 million when comparing the third quarter of 2019 to the third quarter of 2018. Interest income from acquisition-related purchase accounting adjustments was $1.7 million for the three months ending September 30, 2019 compared to $789,000 for the same period of 2018.

Rates paid on interest-bearing liabilities increased by 22 basis points for the three-month period ended September 30, 2019 compared to the same period in 2018 due to an increase in the cost of interest-bearing deposits. Interest expense increased $3.7 million compared to the three-month period ended September 30, 2018 to $12.2 million for the same period in 2019. This increase was due to higher average balances of interest-bearing deposits and higher rates paid on these deposits. Average balances of interest-bearing deposits increased $694.4 million and were due to the acquisition of Salin. Average balances of borrowings decreased $82.2 million for the three-month period ended September 30, 2019 when compared to the same period in 2018 primarily from reducing short-term borrowings during the second quarter of 2019 with the liquidity obtained through the Salin acquisition. The cost of borrowings decreased 12 basis points for the three-month period ended September 30, 2019 when compared to the same period in 2018.

The net interest margin increased 15 basis points from 3.67% for the three-month period ended September 30, 2018 to 3.82% for the same period in 2019. The increase in the margin for the three-month period ended September 30, 2019 compared to the same period in 2018 was due to an increase in the yield of interest-earning assets, offset by an increase in the cost of interest-bearing liabilities. Excluding the interest income recognized from the acquisition-related purchase accounting adjustments (“core net interest margin”), the margin would have been 3.67% for the three-month period ending September 30, 2019 compared to 3.59% for the same period in 2018. The increase in the core net interest margin for the third quarter of 2019 was due to an increase in the yield on earning assets from higher mortgage warehouse lending balances, the addition of acquired Salin loans and the

pay-down

of higher cost short-term borrowings with the liquidity obtained through the acquisition of Salin.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

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

   Three Months Ended
March 31, 2019 Three Months Ended
March 31, 2018
   Average
Balance Interest    Average
Rate Average
Balance Interest    Average
Rate
Assets

Interest-earning assets

Federal funds sold
   $ 7,843 $ 57    2.95 % $ 3,714 $ 14    1.53 %
Interest-earning deposits
   26,355 155    2.39 % 22,962 90    1.59 %
Investment securities—taxable
   448,840 2,910    2.63 % 421,068 2,326    2.24 %
Investmentsecurities—non-taxable⁽¹⁾
   393,720 2,628    3.40 % 307,921 1,865    2.88 %
Loans receivable⁽²⁾⁽³⁾
   3,052,538 39,623    5.27 % 2,824,478 35,131    5.04 %





Total interest-earning assets⁽¹⁾
   3,929,296 45,373    4.76 % 3,580,143 39,426    4.50 %
Non-interest-earning assets

Cash and due from banks
   44,527    43,809
Allowance for loan losses
   (17,836 )    (16,342 )
Other assets
   351,202    335,227





Total average assets
   $ 4,307,189    $ 3,942,837





Liabilities and Stockholders’ Equity

Interest-bearing liabilities

Interest-bearing deposits
   $ 2,514,841 $ 6,876    1.11 % $ 2,304,829 $ 2,871    0.51 %
Borrowings
   577,199 3,621    2.54 % 528,066 2,572    1.98 %
Subordinated debentures
   39,236 596    6.16 % 36,477 572    6.36 %





Total interest-bearing liabilities
   3,131,276 11,093    1.44 % 2,869,372 6,015    0.85 %
Non-interest-bearing liabilities

Demand deposits
   643,601    595,644
Accrued interest payable and other liabilities
   25,863    17,745
Stockholders’ equity
   506,449    460,076





Total average liabilities and stockholders’ equity
   $ 4,307,189    $ 3,942,837










Net interest income/spread
   $34,280    3.32 % $33,411    3.65 %


Net interest income as a percent of average interest-earning assets⁽¹⁾
      3.62 %    3.81 %


	Three Months Ended								Three Months Ended
	September 30, 2019								September 30, 2018
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Assets
Interest-earning assets
Federal funds sold	$	18,133		$	115		2.52	%	$	3,840		$	24		2.48	%
Interest-earning deposits		17,823			93		2.07	%		24,494			104		1.68	%
Investment securities - taxable		478,764			2,949		2.44	%		421,681			2,611		2.46	%
Investment securities - non-taxable (1)		462,997			3,099		3.36	%		324,289			2,010		3.11	%
Loans receivable (2)(3)		3,646,268			49,455		5.41	%		2,942,835			37,522		5.07	%

Total interest-earning assets (1)		4,623,985			55,711		4.87	%		3,717,139			42,271		4.58	%
Non-interest-earning assets
Cash and due from banks		66,970								45,864
Allowance for loan losses		(18,277	)							(17,090	)
Other assets		434,581								359,183

Total average assets	$	5,107,259							$	4,105,096

Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	3,132,852		$	9,109		1.15	%	$	2,438,450		$	5,023		0.82	%
Borrowings		413,859			2,275		2.18	%		496,054			2,876		2.30	%
Subordinated debentures		54,433			864		6.30	%		36,570			600		6.51	%

Total interest-bearing liabilities		3,601,144			12,248		1.35	%		2,971,074			8,499		1.13	%
Non-interest-bearing liabilities
Demand deposits		818,164								640,983
Accrued interest payable and other liabilities		47,181								16,080
Stockholders’ equity		640,770								476,959

Total average liabilities and stockholders’ equity	$	5,107,259							$	4,105,096

Net interest income/spread				$	43,463		3.52	%				$	33,772		3.44	%

Net interest income as a percent of average interest-earning assets (1)							3.82	%							3.67	%

(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. The average rate is presented on a tax equivalent basis.

(2)	Includes fees on loans. 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 computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Net interest income ~~during~~for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~$34.3~~$119.3 million, an increase of ~~$869,000~~$18.5 million from the ~~$33.4~~$100.7 million earned during the same period in 2018. Yields on the Company’s interest-earning assets increased by 26 basis points to ~~4.76%~~4.81% for the ~~three~~nine months ending ~~March 31,~~September 30, 2019 from ~~4.50%~~4.55% for the ~~three~~nine months ended ~~March 31,~~September 30, 2018. Interest income increased ~~$ 5.9~~$32.5 million from ~~$39.4~~$122.4 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 to ~~$45.4~~$154.9 million for the same period in 2019. This was due to an increase in average interest-earning assets ~~through~~from the Salin acquisition and organic ~~and acquisition-related~~ growth, in addition to an increase in yield. Interest income from acquisition-related purchase accounting adjustments was ~~$1.5~~$4.5 million for both the ~~three~~nine months ending ~~March 31, 2019 compared to $2.0 million for the same period of 2018.~~

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31,~~September 30, 2019 and ~~2018~~

2018.

Rates paid on interest-bearing liabilities increased by 5940 basis points for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019 compared to the same period in ~~2018.~~2018 due to increases in the cost of interest-bearing deposits and borrowings. Interest expense increased ~~$ 5.1~~$14.0 million compared to the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2018 to ~~$11.1~~$35.7 million for the same period in 2019. This increase was due to higher average balances of interest-bearing deposits ~~and borrowings~~ in addition to the higher rates paid on ~~both.~~these deposits. Average balances of interest-bearing deposits increased ~~$ 210.0~~$541.6 million and was due to the acquisition of ~~Salin~~Salin. Average balances of borrowings decreased $41.8 million for the nine-month period ended September 30, 2019 when compared to the same period in 2018 primarily from reducing short-term borrowings during the ~~first~~second quarter of 2019 ~~as well as organic growth since March 31,~~with the liquidity obtained through the Salin acquisition. The cost of borrowings increased 28 basis points for the nine-month period ended September 30, 2019 when compared to the same period in 2018.

The net interest margin decreased 19two basis points from ~~3.81%~~3.74% for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2018 to ~~3.62%~~3.72% for the same period in 2019. The decrease in the margin for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019 compared to the same period in 2018 was due to an increase in the cost of interest-bearing liabilities, offset by an increase in the yield of ~~taxable~~ interest-earning assets. Excluding the interest income recognized from the acquisition-related purchase accounting adjustments (“core net interest margin”), the margin would have been ~~3.46%~~3.58% for both the nine-month periods ending September 30, 2019 and 2018.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

The following are the average balance sheets for the ~~three-month period~~nine months ending ~~March 31,~~(dollars in thousands):


	Nine Months Ended								Nine Months Ended
	September 30, 2019								September 30, 2018
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Assets
Interest-earning assets
Federal funds sold	$	14,778		$	339		3.07	%	$	2,845		$	53		2.49	%
Interest-earning deposits		21,938			284		1.73	%		25,411			300		1.58	%
Investment securities - taxable		469,330			8,929		2.54	%		413,617			7,379		2.39	%
Investment securities - non-taxable (1)		423,141			8,520		3.37	%		313,168			5,745		3.00	%
Loans receivable (2)(3)		3,447,654			136,862		5.32	%		2,855,236			108,961		5.06	%

Total interest-earning assets (1)		4,376,841			154,934		4.81	%		3,610,277			122,438		4.55	%
Non-interest-earning assets
Cash and due from banks		58,890								44,605
Allowance for loan losses		(18,053	)							(16,686	)
Other assets		405,923								383,615

Total average assets	$	4,823,601							$	4,021,811

Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	2,924,433		$	24,923		1.14	%	$	2,382,864		$	11,814		0.66	%
Borrowings		462,575			8,391		2.43	%		504,349			8,127		2.15	%
Subordinated debentures		48,666			2,348		6.45	%		36,524			1,764		6.46	%

Total interest-bearing liabilities		3,435,674			35,662		1.39	%		2,923,737			21,705		0.99	%
Non-interest-bearing liabilities
Demand deposits		760,717								613,866
Accrued interest payable and other liabilities		37,444								16,341
Stockholders’ equity		589,766								467,867

Total average liabilities and stockholders’ equity	$	4,823,601							$	4,021,811


Net interest income/spread				$	119,272		3.42	%				$	100,733		3.55	%

Net interest income as a percent of average interest-earning assets (1)							3.72	%							3.74	%

(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. The average rate is presented on a tax equivalent basis.

(2)	Includes fees on loans. 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 computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 ~~compared to 3.55% for the same period in 2018.~~

and 2018

Provision for Loan Losses

Horizon assesses the adequacy of its Allowance for Loan and Lease Losses (“ALLL”) by regularly reviewing the performance of its loan portfolio. During the three-month period ended ~~March 31,~~September 30, 2019, a provision of ~~$364,000~~$376,000 was required to adequately fund the ALLL compared to ~~$567,000~~$1.2 million for the same period of 2018. Commercial loan net charge-offs during the three-month period ended ~~March 31,~~September 30, 2019 were ~~$61,000,~~$192,000, residential mortgage ~~loans had a~~loan net ~~recovery of $27,000~~recoveries were $7,000 and consumer loan net charge-offs were $329,000. The decrease in the provision for loan losses in the first quarter of 2019 compared to the same period of 2018 was primarily due to improving credit trends and a continued low level of charge-offs.$540,000. The ALLL balance at ~~March 31,~~September 30, 2019 was ~~$17.8~~$18.0 million, or 0.49% of total loans. This compares to an ALLL balance of $17.8 million at December 31, 2018 or 0.59% of total loans.

For the nine-month period ended September 30, 2019, the provision for loan losses totaled $1.6 million compared to $2.4 million in the same period of 2018.

Horizon’s loan loss reserve ratio, excluding loans with credit-related purchase accounting adjustments, stood at ~~0.69%~~0.65% as of ~~March~~September 30, 2019 compared to 0.72% as of December 31, ~~2019.~~2018. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was ~~1.10%~~1.07% as of ~~March~~September 30, 2019 compared to 0.98% as of December 31, ~~2019.~~2018. The table below illustrates Horizon’s loan loss reserve ratio composition as of ~~March 31,~~September 30, 2019.

Non-GAAP

Allowance for Loan and Lease Loss Detail

As of ~~March 31,~~September 30, 2019

(Dollars in Thousands, Unaudited)

   Pre-discount
Loan
Balance    Allowance
for Loan
Losses
(ALLL)    Loan
Discount    ALLL
+
Loan
Discount    Loans, net    ALLL/
Pre-discount
Loan Balance Loan
Discount/
Pre-discount
Loan Balance ALLL+Loan
Discount/
Pre-discount
Loan Balance












Horizon Legacy
   $ 2,547,794    $ 17,525    N/A    $ 17,525    $ 2,530,269    0.69 % 0.00 % 0.69 %
Heartland
   7,202    —      641    641    6,561    0.00 % 8.90 % 8.90 %
Summit
   18,396    —      1,007    1,007    17,389    0.00 % 5.47 % 5.47 %
Peoples
   81,713    —      1,861    1,861    79,852    0.00 % 2.28 % 2.28 %
Kosciusko
   35,182    296    569    865    34,317    0.84 % 1.62 % 2.46 %
LaPorte
   84,230    —      2,838    2,838    81,392    0.00 % 3.37 % 3.37 %
CNB
   4,321    —      112    112    4,209    0.00 % 2.59 % 2.59 %
Lafayette
   82,448    —      1,008    1,008    81,440    0.00 % 1.22 % 1.22 %
Wolverine
   178,573    —      2,136    2,136    176,437    0.00 % 1.20 % 1.20 %
Salin
   583,177    —      11,918    11,918    571,259    0.00 % 2.04 % 2.04 %











Total
   $ 3,623,036    $ 17,821    $ 22,090    $ 39,911    $ 3,583,125    0.49 % 0.61 % 1.10 %


	Pre-discount Loan Balance		Allowance for Loan Losses (ALLL)		Loan Discount		ALLL + Loan Discount		Loans, net		ALLL/ Pre-discount Loan Balance			Loan Discount/ Pre-discount Loan Balance			ALLL+Loan Discount/ Pre-discount Loan Balance
Horizon Legacy	$	2,779,961	$	17,946		N/A	$	17,946	$	2,762,015		0.65	%		0.00	%		0.65	%
Heartland		5,244		—		589		589		4,655		0.00	%		11.23	%		11.23	%
Summit		16,191		—		987		987		15,204		0.00	%		6.10	%		6.10	%
Peoples		71,941		—		1,669		1,669		70,272		0.00	%		2.32	%		2.32	%
Kosciusko		30,580		—		528		528		30,052		0.00	%		1.73	%		1.73	%
LaPorte		70,442		10		2,461		2,471		67,971		0.01	%		3.49	%		3.50	%
CNB		3,498		—		88		88		3,410		0.00	%		2.52	%		2.52	%
Lafayette		63,805		—		519		519		63,286		0.00	%		0.81	%		0.81	%
Wolverine		136,829		—		729		729		136,100		0.00	%		0.53	%		0.53	%
Salin		489,194		—		13,797		13,797		475,397		0.00	%		2.82	%		2.82	%

Total	$	3,667,685	$	17,956	$	21,367	$	39,323	$	3,628,362		0.49	%		0.58	%		1.07	%

No assurance can be given that Horizon will not, in any particular period, sustain loan losses that are significant in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of factors then prevailing, including economic conditions and management’s ongoing quarterly assessments of the portfolio, will not require increases in the allowance for loan losses. Horizon considers the allowance for loan losses to be appropriate to cover probable incurred losses in the loan portfolio as of ~~March 31,~~September 30, 2019.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

As of ~~Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31,~~September 30, 2019, ~~and 2018~~

~~Non-performing~~

non-performing

loans totaled ~~$19.4~~$19.2 million, ~~as of March 31, 2019, up~~which reflects a two basis point increase in

non-performing

loans to total loans, or a $4.0 million increase from ~~$ 15.2~~$15.2 million in

non-performing

loans as of December 31, 2018.

Non-performing

commercial loans increased by ~~$2.8~~$1.3 million,

non-performing

real estate loans increased by ~~$988,000~~$2.2 million and

non-performing

consumer loans increased by ~~$376,000~~$485,000 at ~~March 31,~~September 30, 2019 compared to December 31, 2018. The increase in

non-performing

loans was primarily due to

non-performing

loans acquired from Salin.

Other Real Estate Owned (OREO) and repossessed assets totaled ~~$3.7~~$4.0 million at ~~March 31,~~September 30, 2019 compared to $2.1 million on December 31, 2018. The majority of this increase was due to other real estate owned properties acquired in the Salin transaction, including the closed branches, totaling ~~$1.6~~$1.7 million.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Non-interest

Income

The following is a summary of changes in

non-interest

income for the three months ending September 30, 2019 and 2018 (table dollar amounts in thousands):

   Three Months Ended
Non-interest Income    March 31
2019    March 31
2018    Amount
Change    Percent
Change
Service charges on deposit accounts
   $ 1,877    $ 1,888    $ (11 )    -0.6 %
Wire transfer fees
   118    150    (32 )    -21.3 %
Interchange fees
   1,361    1,328    33    2.5 %
Fiduciary activities
   2,089    1,925    164    8.5 %
Gain on sale of investment securities
   15    11    4    36.4 %
Gain on sale of mortgage loans
   1,309    1,423    (114 )    -8.0 %
Mortgage servicing net of impairment
   606    349    257    73.6 %
Increase in cash surrender value of bank owned life insurance
   513    435    78    17.9 %
Other income
   824    809    15    1.9 %







Totalnon-interest income
   $ 8,712    $ 8,318    $ 394    4.7 %


	Three Months Ended
	September 30 2019		September 30 2018			Amount Change			Percent Change
Non-interest Income
Service charges on deposit accounts	$	2,836	$	2,009		$	827			41.2	%
Wire transfer fees		189		160			29			18.1	%
Interchange fees		2,138		1,410			728			51.6	%
Fiduciary activities		1,834		1,855			(21	)		-1.1	%
Loss on sale of investment securities		—		(122	)		122			-100.0	%
Gain on sale of mortgage loans		2,702		1,839			863			46.9	%
Mortgage servicing net of impairment		444		563			(119	)		-21.1	%
Increase in cash surrender value of bank owned life insurance		556		503			53			10.5	%
Death benefit on bank owned life insurance		213		—			213			0.0	%
Other income		602		469			133			28.4	%

Total non-interest income	$	11,514	$	8,686		$	2,828			32.6	%

Total

non-interest

income was ~~$394,000~~$2.8 million higher during the ~~first~~third quarter of 2019 compared to the same period of 2018. ~~Income from mortgage servicing, net of impairment,~~Service charges on deposit accounts and ~~fiduciary activities~~interchange fees increased ~~$257,000~~$827,000 and ~~$164,000,~~$728,000, respectively, ~~during~~for the ~~first quarter of~~three-month period ended September 30, 2019 when compared to the ~~first quarter~~same period of ~~2018.~~2018 primarily due to the acquisition of Salin and organic growth. Residential mortgage loan activity during the ~~first~~third quarter of 2019 generated ~~$1.3~~$2.7 million of income from the gain on sale of mortgage loans, ~~down~~up from ~~$1.4~~$1.8 million for the same period in ~~2018.~~

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~2018 due to a higher volume of ~~Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31, 2019 and 2018~~

~~Non-interest~~ ~~Expense~~

loans sold.

The following is a summary of changes in

non-interest ~~expense~~

income for the nine months ending September 30, 2019 and 2018 (table dollar amounts in thousands):

   Three Months Ended
   March 31 2019    March 31 2018    Adjusted
      Merger       Merger       Amount Percent
Non-interest Expense    Actual    Expenses Adjusted    Actual    Expenses    Adjusted    Change Change
Salaries and employee benefits
   $ 14,466    $ (2 ) $ 14,464    $ 14,373    $ —      $ 14,373    $ 91 0.6 %
Net occupancy expenses
   2,772    —   2,772    2,966    —      2,966    (194 ) -6.5 %
Data processing
   1,966    (292 ) 1,674    1,696    —      1,696    (22 ) -1.3 %
Professional fees
   493    (239 ) 254    501    —      501    (247 ) -49.3 %
Outside services and consultants
   3,530    (2,290 ) 1,240    1,264    —      1,264    (24 ) -1.9 %
Loan expense
   1,949    —   1,949    1,257    —      1,257    692 55.1 %
FDIC deposit insurance
   160    —   160    310    —      310    (150 ) -48.4 %
Other losses
   104    (2 ) 102    146    —      146    (44 ) -30.1 %
Other expenses
   4,298    (1,293 ) 3,005    3,324    —      3,324    (319 ) -9.6 %












Totalnon-interest expense
   $ 29,738    $ (4,118 ) $ 25,620    $ 25,837    $ —      $ 25,837    $ (217 ) -0.8 %


	Nine Months Ended
	September 30 2019			September 30 2018			Amount Change			Percent Change
Non-interest Income
Service charges on deposit accounts	$	7,193		$	5,804		$	1,389			23.9	%
Wire transfer fees		474			490			(16	)		-3.3	%
Interchange fees		5,659			4,293			1,366			31.8	%
Fiduciary activities		5,986			5,598			388		��	6.9	%
Loss on sale of investment securities		(85	)		(111	)		26			-23.4	%
Gain on sale of mortgage loans		6,089			5,158			931			18.0	%
Mortgage servicing net of impairment		1,620			1,423			197			13.8	%
Increase in cash surrender value of bank owned life insurance		1,624			1,380			244			17.7	%
Death benefit on bank owned life insurance		580			154			426			276.6	%
Other income		1,984			1,747			237			13.6	%

Total non-interest income	$	31,124		$	25,936		$	5,188			20.0	%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Total

non-interest ~~expense~~

income was ~~$3.9~~$5.2 million higher induring the first ~~quarter~~nine months of 2019 compared to the same period of 2018. Service charges on deposit accounts and interchange fees both increased $1.4 million for the nine-month period ended September 30, 2019 when compared to the same period of 2018 primarily due to ~~merger expenses. Outside~~the acquisition of Salin and organic growth. Residential mortgage loan activity during the first nine months of 2019 generated $6.1 million of income from the gain on sale of mortgage loans, up from $5.2 million for the same period in 2018 due to a higher volume of loans sold during the first nine months of 2019.

Non-interest

Expense

The following is a summary of changes in

non-interest

expense for the three months ending September 30, 2019 and 2018 (table dollar amounts in thousands):


	Three Months Ended
	September 30								September 30
	2019								2018								Adjusted
	Actual			Merger Expenses		Adjusted			Actual			Merger Expenses		Adjusted			Amount Change			Percent Change
Non-interest Expense
Salaries and employee benefits	$	16,948		$	—	$	16,948		$	14,343		$	—	$	14,343		$	2,605			18.2	%
Net occupancy expenses		3,131			—		3,131			2,495			—		2,495			636			25.5	%
Data processing		2,140			—		2,140			1,759			—		1,759			381			21.7	%
Professional fees		335			—		335			437			—		437			(102	)		-23.3	%
Outside services and consultants		1,552			—		1,552			1,204			—		1,204			348			28.9	%
Loan expense		2,198			—		2,198			1,722			—		1,722			476			27.6	%
FDIC deposit insurance		(273	)		—		(273	)		396			—		396			(669	)		-168.9	%
Other losses		90			—		90			161			—		161			(71	)		-44.1	%
Other expenses		3,939			—		3,939			3,103			—		3,103			836			26.9	%

Total non-interest expense	$	30,060		$	—	$	30,060		$	25,620		$	—	$	25,620		$	4,440			17.3	%

Annualized Non-interest Exp. to Avg. Assets		2.34	%				2.34	%		2.48	%				2.48	%

Total

non-interest

expense was $4.4 million higher during the third quarter of 2019 compared to the same period of 2018. Salaries and employee benefits, other expense, net occupancy expense, loan expense, data processing and outside services and consultants increased $2.6 million, $836,000, $636,000, $476,000, $381,000 and $348,000, respectively, primarily due to the Salin acquisition and organic growth. These increases were offset by a decrease of $669,000 in FDIC insurance and $102,000 in professional fees. FDIC insurance decreased due to assessment credits the Bank received during the third quarter of 2019 as the FDIC reserve is currently overfunded. Annualized

non-interest

expense as a percentage of average assets were 2.34% and 2.48% for the three months ended September 30, 2019 and 2018, respectively.

The following is a summary of changes in

non-interest

expense for the nine months ending September 30, 2019 and 2018 (table dollar amounts in thousands):


	Nine Months Ended
	September 30									September 30
	2019									2018								Adjusted
	Actual			Merger Expenses			Adjusted			Actual			Merger Expenses		Adjusted			Amount Change			Percent Change
Non-interest Expense
Salaries and employee benefits	$	48,365		$	(484	)	$	47,881		$	42,525		$	—	$	42,525		$	5,356			12.6	%
Net occupancy expenses		9,051			(75	)		8,976			7,981			—		7,981			995			12.5	%
Data processing		6,245			(360	)		5,885			5,062			—		5,062			823			16.3	%
Professional fees		1,426			(392	)		1,034			1,314			—		1,314			(280	)		-21.3	%
Outside services and consultants		6,737			(2,466	)		4,271			3,735			—		3,735			536			14.4	%
Loan expense		6,195			(2	)		6,193			4,504			—		4,504			1,689			37.5	%
FDIC deposit insurance		252			—			252			1,051			—		1,051			(799	)		-76.0	%
Other losses		363			(71	)		292			576			—		576			(284	)		-49.3	%
Other expenses		12,748			(1,800	)		10,948			9,651			—		9,651			1,297			13.4	%

Total non-interest expense	$	91,382		$	(5,650	)	$	85,732		$	76,399		$	—	$	76,399		$	9,333			12.2	%

Annualized Non-interest Exp. to Avg. Assets		2.53	%					2.38	%		2.54	%				2.54	%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Total

non-interest

expense was $15.0 million higher during the first nine months of 2019 when compared to the first nine months of 2018. Salaries and employee benefits, other expense, outside services and consultants expense, loan expense, ~~and~~ data processing and net occupancy increased ~~$ 2.3~~$5.8 million, ~~$974,000, $692,000~~$3.1 million, $3.0 million, $1.7 million, $1.2 million and ~~$270,000,~~$1.1 million, respectively. Offsetting these increases was a decrease in ~~net occupancy expense of $194,000 and~~ FDIC insurance ~~expense~~ of ~~$150,000.~~$799,000 and other losses of $213,000. FDIC insurance decreased due to the assessment credits the Bank received during the third quarter of 2019 as the FDIC reserve is currently overfunded. Excluding merger expenses, total

non-interest

expense ~~decreased $217,000~~increased $9.3 million during the first ~~quarter~~nine months of 2019 when compared to the same period of 2018 primarily due to the Salin acquisition and organic growth. Annualized

non-interest

expense as a percentage of average assets were 2.53% and 2.54% for the first ~~quarter~~nine months of ~~2018.~~

2019 and 2018, respectively. Annualized

non-interest

expense, excluding merger expenses, as a percent of average assets declined to 2.38% for the first nine months of 2019 compared to 2.54% for the same period in 2018 as the Company has been able to leverage its expense base.

Income Taxes

Income tax expense totaled ~~$2.1~~$4.0 million for the ~~first~~third quarter of 2019, ~~a decrease~~an increase of ~~$447,000~~$1.4 million when compared to the ~~first~~third quarter of 2018. The ~~decrease~~increase was primarily due to ~~a decrease~~an increase in income before income tax of ~~$2.4~~$8.9 million when compared to the third quarter of 2018.

Income tax expense totaled $9.4 million for the first nine months of 2019, an increase of $1.5 million when compared to the same period in 2018. The increase was due to an increase in income before income tax of $9.5 million when compared to the first ~~quarter~~nine months of 2018.

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. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, cash and cash equivalents increased by approximately ~~$27.6~~$32.8 million. At ~~March 31,~~September 30, 2019, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately ~~$480.7~~$590.6 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $340.3 million at December 31, 2018 and ~~$161.6~~$405.1 million at ~~March 31,~~September 30, 2018. The Bank had approximately ~~$ 663.7~~$728.4 million of unpledged investment securities at ~~March 31,~~September 30, 2019 compared to $648.6 million at December 31, 2018 and ~~$518.2~~$600.5 million at ~~March 31,~~September 30, 2018.

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at ~~March 31,~~September 30, 2019. Stockholders’ equity totaled ~~$609.5~~$642.7 million as of ~~March 31,~~September 30, 2019, compared to $492.0 million as of December 31, 2018. For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the ratio of average stockholders’ equity to average assets was ~~11.76%~~12.23% compared to 11.65% for the twelve months ended December 31, 2018. The increase in stockholders’ equity during the period was the result of stock issued through the acquisition of Salin and the generation of net income, net of dividends declared.

~~HORIZON BANCORP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three Months ended March 31, 2019 and 2018~~

Horizon declared common stock dividends in the amount of ~~$0.10~~$0.34 per share during the first ~~three~~nine months of 2019 and $0.30 per share for the same period of 2018. The dividend payout ratio (dividends as a percent of basic earnings per share) was ~~35.7%~~24.1% and ~~30.0%~~28.8% for the first ~~three~~nine months of 2019 and 2018, respectively. For additional information regarding dividends, see Horizon’s Annual Report on Form

10-K

for 2018.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended September 30, 2019 and 2018

Use of
Non-GAAP
Financial Measures

Certain information set forth in this quarterly report on Form

10-Q

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, net interest margin, the allowance for loan and lease losses, tangible stockholders’ equity, tangible book value per share, the return on average assets and the return on average common equity. In each case, we have identified special circumstances that we consider to be

non-recurring

and have excluded them, to show the impact of such events as acquisition-related purchase accounting adjustments and the tax reform bill, among others we have identified in our reconciliations. Horizon believes that these

non-GAAP

financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and

one-time

costs of acquisitions and

non-core

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 Report on Form

10-Q

for reconciliations of the

non-GAAP

figures identified herein and their most comparable GAAP measures.

Non-GAAP

Reconciliation of Net Interest Margin

(Dollars in Thousands, Unaudited)

   Three Months Ended
   March 31
2019 December 31
2018 March 31
2018
Non-GAAP Reconciliation of Net Interest Margin

Net interest income as reported
   $ 34,280 $ 33,836 $ 33,411
Average interest-earning assets
   3,929,296 3,808,822 3,580,143
Net interest income as a percentage of average interest-earning assets (“Net Interest Margin”)
   3.62 % 3.60 % 3.81 %
Acquisition-related purchase accounting adjustments (“PAUs”)
   $ (1,510 ) $ (1,629 ) $ (2,037 )


Core net interest income
   $ 32,770 $ 32,207 $ 31,374


Core net interest margin
   3.46 % 3.43 % 3.55 %


	Three Months Ended									Nine Months Ended
	September 30			June 30			September 30			September 30			September 30
	2019			2019			2018			2019			2018
Non-GAAP Reconciliation of Net Interest Margin
Net interest income as reported	$	43,463		$	41,529		$	33,772		$	119,272		$	100,733
Average interest-earning assets		4,623,985			4,566,674			3,717,139			4,376,841			3,610,277
Net interest income as a percentage of average interest-earning assets (“Net Interest Margin”)		3.82	%		3.73	%		3.67	%		3.72	%		3.74	%
Acquisition-related purchase accounting adjustments (“PAUs”)	$	(1,739	)	$	(1,299	)	$	(789	)	$	(4,548	)	$	(4,460	)

Core net interest income	$	41,724		$	40,230		$	32,983		$	114,724		$	96,273

Core net interest margin		3.67	%		3.61	%		3.59	%		3.58	%		3.58	%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended ~~March 31,~~September 30, 2019 and 2018

Non-GAAP

Reconciliation of Net Income and Diluted Earnings per Share

(Dollars in Thousands, Except per Share Data, Unaudited)

   Three Months Ended
   March 31
2019    December 31
2018    March 31
2018
Non-GAAP Reconciliation of Net Income

Net income as reported
   $ 10,816    $ 13,133    $ 12,804
Merger expenses
   4,118    487    —
Tax effect
   (692 )    (102 )    —
Net income excluding merger expenses
   14,242    13,518    12,804
Loss (gain) on sale of investment securities
   (15 )    332    (11 )
Tax effect
   3    (70 )    2
Net income excluding gain on sale of investment securities
   14,230    13,780    12,795
Acquisition-related purchase accounting adjustments (“PAUs”)
   (1,510 )    (1,629 )    (2,037 )
Tax effect
   317    342    428
Core Net Income
   $ 13,037    $ 12,493    $ 11,186
Non-GAAP Reconciliation of Diluted Earnings per Share

Diluted earnings per share (“EPS”) as reported
   $ 0.28    $ 0.34    $ 0.33
Merger expenses
   0.11    0.01    —
Tax effect
   (0.02 )    —      —
Diluted EPS excluding merger expenses
   0.37    0.35    0.33
Loss (gain) on sale of investment securities
   —      0.01    —
Tax effect
   —      —      —
Diluted EPS excluding gain on sale of investment securities
   0.37    0.36    0.33
Acquisition-related PAUs
   (0.04 )    (0.04 )    (0.05 )
Tax effect
   0.01    0.01    0.01
Core Diluted EPS
   $ 0.34    $ 0.33    $ 0.29

~~Non-GAAP~~ ~~Reconciliation~~

Three Months Ended

Nine Months Ended

September 30

June 30

September 30

September 30

September 30

2019

2019

2018

2019

2018

Non-GAAP
Reconciliation of Net Income

Net income as reported
$
  20,537
$
  16,642
$
  13,065
$
  47,995
$
  39,984

Merger expenses

—

1,532

—

5,650

—

Tax effect

—

(295
)
—

(987
)
—

Net income excluding merger expenses

20,537

17,879

13,065

52,658

39,984

Loss on sale of investment securities

—

100

122

85

111

Tax effect

—

(21
)
(25
)
(18
)
(23
)

Net income excluding loss on sale of investment securities

20,537

17,958

13,162

52,725

40,072

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

(213
)
(367
)
—

(580
)
(154
)

Net income excluding death benefit on BOLI

20,324

17,591

13,162

52,145

39,918

Core Net Income
$
20,324
$
17,591
$
13,162
$
52,145
$
39,918

Non-GAAP
Reconciliation of Diluted Earnings per Share

Diluted earnings per share (“EPS”) as reported
$
0.46
$
0.37
$
0.34
$
1.11
$
1.04

Merger expenses

—

0.03

—

0.13

—

Tax effect

—

—

—

(0.02
)
—

Diluted EPS excluding merger expenses

0.46

0.40

0.34

1.22

1.04

Loss on sale of investment securities

—

—

—

—

—

Tax effect

—

—

—

—

—

Diluted EPS excluding loss on sale of investment securities

0.46

0.40

0.34

1.22

1.04

Death benefit on BOLI

(0.01
)
(0.01
)
—

(0.01
)
—

Diluted EPS excluding death benefit on BOLI

0.45

0.39

0.34

1.21

1.04

Core Diluted EPS
$
0.45
$
0.39
$
0.34
$
1.21
$
1.04

Table of ~~Tangible Stockholders’ Equity and Tangible Book Value per Share~~

~~(Dollars in Thousands, Except per Share Data, Unaudited)~~

   March 31
2019    December 31
2018    September 30
2018    June 30
2018    March 31
2018
Total stockholders’ equity
   $ 609,468    $ 491,992    $ 477,594    $ 470,535    $ 460,416
Less: Intangible assets
   176,864    130,270    130,755    131,239    131,724










Total tangible stockholders’ equity
   $ 432,604    $ 361,722    $ 346,839    $ 339,296    $ 328,692










Common shares outstanding
   45,052,747    38,375,407    38,367,890    38,362,640    38,332,853
Tangible book value per common share
   $ 9.60    $ 9.43    $ 9.04    $ 8.84    $ 8.57
Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Nine Months ended ~~March 31,~~September 30, 2019 and 2018

Non-GAAP

Reconciliation of Return on Average Assets and Return on Average Common Equity

(Dollars in Thousands, Unaudited)

   Three Months Ended
   March 31
2019 December 31
2018 March 31
2018
Non-GAAP Reconciliation of Return on Average Assets

Average assets
   $ 4,307,189 $ 4,179,140 $ 3,942,837
Return on average assets (“ROAA”) as reported
   1.02 % 1.25 % 1.32 %
Merger expenses
   0.39 % 0.05 % 0.00 %
Tax effect
   -0.07 % -0.01 % 0.00 %


ROAA excluding merger expenses
   1.34 % 1.29 % 1.32 %
Gain on sale of investment securities
   0.00 % 0.03 % 0.00 %
Tax effect
   0.00 % -0.01 % 0.00 %


ROAA excluding gain on sale of investment securities
   1.34 % 1.31 % 1.32 %
Acquisition-related purchase accounting adjustments (“PAUs”)
   -0.14 % -0.15 % -0.21 %
Tax effect
   0.03 % 0.03 % 0.04 %


Core ROAA
   1.23 % 1.19 % 1.15 %


Non-GAAP Reconciliation of Return on Average Common Equity

Average Common Equity
   $ 506,449 $ 485,662 $ 460,076
Return on average common equity (“ROACE”) as reported
   8.66 % 10.73 % 11.29 %
Merger expenses
   3.30 % 0.40 % 0.00 %
Tax effect
   -0.55 % -0.08 % 0.00 %


ROACE excluding merger expenses
   11.41 % 11.05 % 11.29 %
Gain on sale of investment securities
   -0.01 % 0.27 % -0.01 %
Tax effect
   0.00 % -0.06 % 0.00 %


ROACE excluding gain on sale of investment securities
   11.40 % 11.26 % 11.28 %
Acquisition-related purchase accounting adjustments (“PAUs”)
   -1.21 % -1.33 % -1.80 %
Tax effect
   0.25 % 0.28 % 0.38 %


Core ROACE
   10.44 % 10.21 % 9.86 %


	Three Months Ended									Nine Months Ended
	September 30			June 30			September 30			September 30			September 30
	2019			2019			2018			2019			2018
Non-GAAP Reconciliation of Return on Average Assets
Average assets	$	5,107,259		$	5,047,365		$	4,105,096		$	4,823,601		$	4,021,811
Return on average assets (“ROAA”) as reported		1.60	%		1.32	%		1.26	%		1.33	%		1.33	%
Merger expenses		0.00	%		0.12	%		0.00	%		0.16	%		0.00	%
Tax effect		0.00	%		-0.02	%		0.00	%		-0.03	%		0.00	%

ROAA excluding merger expenses		1.60	%		1.42	%		1.26	%		1.46	%		1.33	%
Loss on sale of investment securities		0.00	%		0.01	%		0.01	%		0.00	%		0.00	%
Tax effect		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%

ROAA excluding loss on sale of investment securities		1.60	%		1.43	%		1.27	%		1.46	%		1.33	%
Death benefit on bank owned life insurance (“BOLI”)		-0.02	%		-0.03	%		0.00	%		-0.02	%		-0.01	%

ROAA excluding death benefit on BOLI		1.58	%		1.40	%		1.27	%		1.44	%		1.32	%

Core ROAA		1.58	%		1.40	%		1.27	%		1.44	%		1.32	%

Non-GAAP Reconciliation of Return on Average Common Equity
Average Common Equity	$	640,770		$	622,028		$	476,959		$	589,766		$	467,867
Return on average common equity (“ROACE”) as reported		12.72	%		10.73	%		10.87	%		10.88	%		11.43	%
Merger expenses		0.00	%		0.99	%		0.00	%		1.28	%		0.00	%
Tax effect		0.00	%		-0.19	%		0.00	%		-0.22	%		0.00	%

ROACE excluding merger expenses		12.72	%		11.53	%		10.87	%		11.94	%		11.43	%
Loss on sale of investment securities		0.00	%		0.06	%		0.10	%		0.02	%		0.03	%
Tax effect		0.00	%		-0.01	%		-0.02	%		0.00	%		-0.01	%

ROACE excluding loss on sale of investment securities		12.72	%		11.58	%		10.95	%		11.96	%		11.45	%
Death benefit on bank owned life insurance (“BOLI”)		-0.13	%		-0.24	%		0.00	%		-0.13	%		-0.04	%

ROACE excluding death benefit on BOLI		12.59	%		11.34	%		10.95	%		11.83	%		11.41	%

Core ROACE		12.59	%		11.34	%		10.95	%		11.83	%		11.41	%

Non-GAAP

Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share

(Dollars in Thousands Except per Share Data, Unaudited)


	September 30		June 30		March 31		December 31		September 30
	2019		2019		2019		2018		2018
Total stockholders’ equity	$	642,711	$	626,461	$	609,468	$	491,992	$	477,594
Less: Intangible assets		178,896		179,776		176,864		130,270		130,755

Total tangible stockholders’ equity	$	463,815	$	446,685	$	432,604	$	361,722	$	346,839

Common shares outstanding		44,969,021		45,061,372		45,052,747		38,375,407		38,367,890
Tangible book value per common share	$	10.31	$	9.91	$	9.60	$	9.43	$	9.04

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES ~~Quantitative and~~

~~Qualitative Disclosures About Market Risk~~

~~For the Three ended March 31, 2019 and 2018~~

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We refer you to Horizon’s 2018 Annual Report on Form

10-K

for analysis of its interest rate sensitivity. Horizon believes there have been no significant changes in its interest rate sensitivity since it was reported in its 2018 Annual Report on Form

10-K.

~~ITEM 4. CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on an evaluation of disclosure controls and procedures as of ~~March 31,~~September 30, 2019, 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 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 disclosure.

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 ~~March 31,~~September 30, 2019, 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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Part II – Other Information

~~For the Three Months ended March 31, 2019 and 2018~~

ITEM 1.

LEGAL PROCEEDINGS

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.

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 2018.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None not previously reported on a Current Report on Form8-K.~~

(a)

Unregistered Sales of Equity Securities: Not Applicable

(b)

Use of Proceeds: Not Applicable

(c)

Repurchase of Our Equity Securities

The following table presents information relating to our purchases of equity securities during the three months ended September 30, 2019.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly announced Plans or Programs (1)		Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
July 16-31, 2019		—	$	—		—		2,250,000
August 1-31, 2019		49,908		16.01		49,908		2,200,092
September 1-30, 2019		49,499		16.08		49,499		2,150,593

Total		99,407	$	16.04		99,407		2,150,593

(1)

On July 16, 2019, the Board of Directors authorized a stock repurchase program for up to 2,250,000 shares of Horizon common stock, without par value. Horizon announced the program publicly on July 17, 2019. The program will continue until otherwise modified, suspended or terminated by the Board of Directors in its sole discretion and without notice.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Part II – Other Information

ITEM 5.

OTHER INFORMATION

Not Applicable

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Part II – Other Information

~~For the Three Months ended March 31, 2019 and 2018~~

ITEM 6.

EXHIBITS

(a) Exhibits

Exhibit Index


~~(a) Exhibits~~
~~Exhibit Index~~


~~Exhibit No.~~		~~Description~~
Exhibit No.			~~Location~~

~~31.1~~ Description		Location

	31.1			Certification of Craig M. Dwight	Attached

~~31.2~~
	31.2			Certification of Mark E. Secor	Attached

32
	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~~
	101			Inline Interactive Data Files	Attached

	104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, has been formatted in Inline XBRL

Table of Contents

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.

~~Dated:~~	~~May 9, 2019~~
Dated: November 7, 2019		/s/ Craig M. Dwight
		Craig M. Dwight
		Chief Executive Officer

Dated: November 7, 2019

~~Dated:~~	~~May 9, 2019~~	/s/ Mark E. Secor
		Mark E. Secor
		Chief Financial Officer


	March 31 2019		December 31 2018
Assets
Cash and due from banks	$	86,131	$	58,492
Interest-earning time deposits		15,987		15,744
Investment securities, available for sale		687,142		600,348
Investment securities, held to maturity (fair value of $210,106 and $208,273)		206,327		210,112
Loans held for sale		1,979		1,038
Loans, net of allowance for loan losses of $17,821 and $17,820		3,603,236		2,995,512
Premises and equipment, net		93,822		74,331
Federal Home Loan Bank stock		22,447		18,073
Goodwill		145,690		119,880
Other intangible assets		31,174		10,390
Interest receivable		17,423		14,239
Cash value of life insurance		94,449		88,062
Other assets		45,832		40,467

Total assets	$	5,051,639	$	4,246,688

Liabilities
Deposits
Non-interest bearing	$	811,768	$	642,129
Interest bearing		3,076,255		2,497,247

Total deposits		3,888,023		3,139,376
Borrowings		457,788		550,384
Subordinated debentures		55,310		37,837
Interest payable		2,471		2,031
Other liabilities		38,579		25,068

Total liabilities		4,442,171		3,754,696

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 (Restated - See Note 1)
Issued 45,077,816 and 38,400,476 shares (Restated - See Note 1),
Outstanding 45,052,747 and 38,375,407 shares (Restated - See Note 1)		—		—
Additionalpaid-in capital		378,963		276,101
Retained earnings		230,327		224,035
Accumulated other comprehensive income (loss)		178		(8,144	)

Total stockholders’ equity		609,468		491,992

Total liabilities and stockholders’ equity	$	5,051,639	$	4,246,688


	Three Months Ended March 31
	2019		2018
Interest Income
Loans receivable	$	39,623	$	35,131
Investment securities
Taxable		3,122		2,430
Tax exempt		2,628		1,865

Total interest income		45,373		39,426

Interest Expense
Deposits		6,876		2,871
Borrowed funds		3,621		2,572
Subordinated debentures		596		572

Total interest expense		11,093		6,015

Net Interest Income		34,280		33,411
Provision for loan losses		364		567

Net Interest Income after Provision for Loan Losses		33,916		32,844

Non-interest Income
Service charges on deposit accounts		1,877		1,888
Wire transfer fees		118		150
Interchange fees		1,361		1,328
Fiduciary activities		2,089		1,925
Gains on sale of investment securities (includes $15 and $11 for the three months ended March 31, 2019 and 2018, respectively, related to accumulated other comprehensive earnings		15		11
Gain on sale of mortgage loans		1,309		1,423
Mortgage servicing income net of impairment		606		349
Increase in cash value of bank owned life insurance		513		435
Other income		824		809

Totalnon-interest income		8,712		8,318

Non-interest Expense
Salaries and employee benefits		14,466		14,373
Net occupancy expenses		2,772		2,966
Data processing		1,966		1,696
Professional fees		493		501
Outside services and consultants		3,530		1,264
Loan expense		1,949		1,257
FDIC insurance expense		160		310
Other losses		104		146
Other expense		4,298		3,324

Totalnon-interest expense		29,738		25,837

Income Before Income Taxes		12,890		15,325
Income tax expense (includes $3 and $2 for the three months ended March 31, 2019 and 2018, respectively, related to income tax expense from reclassification items)		2,074		2,521

Net Income	$	10,816	$	12,804

Basic Earnings Per Share (Restated - See Note 1)	$	0.28	$	0.33
Diluted Earnings Per Share (Restated - See Note 1)		0.28		0.33


	Three Months Ended March 31
	2019			2018
Net Income		$10,816		$	12,804

Other Comprehensive Income (Loss)
Change in fair value of derivative instruments:
Change in fair value of derivative instruments for the period		(1,106	)		759
Income tax effect		232			(159	)

Changes from derivative instruments		(874	)		600

Change in securities:
Unrealized appreciation (depreciation) for the period on AFS securities		11,694			(8,114	)
Amortization from transfer of securities from available for sale to held to maturity securities		(38	)		(52	)
Reclassification adjustment for securities (gains) losses realized in income		(15	)		(11	)
Income tax effect		(2,445	)		1,716

Unrealized gains (losses) on securities		9,196			(6,461	)

Other Comprehensive Income (Loss), Net of Tax		8,322			(5,861	)

Comprehensive Income	$	19,138		$	6,943


											Accumulated
					Additional						Other
	Preferred		Common		Paid-in			Retained			Comprehensive
	Stock		Stock		Capital			Earnings			Loss			Total
Balances, January 1, 2018	$	—	$	—	$	275,059		$	185,570		$	(3,551	)	$	457,078
Net income		—		—		—			12,804			—			12,804
Other comprehensive loss, net of tax		—		—		—			—			(5,861	)		(5,861	)
Amortization of unearned compensation		—		—		61			—			—			61
Exercise of stock options		—		—		100			—			—			100
Stock option expense		—		—		82			—			—			82
Reclassification of tax adjustment on accumulated other comprehensive loss		—		—		—			766			(766	)		—
Cash dividends on common stock ($0.10 per share)		—		—		—			(3,848	)		—			(3,848	)
Cash dividends on common stock ($0.10 per share)
Balances, March 31, 2018	$	—	$	—	$	275,302		$	195,292		$	(10,178	)	$	460,416

Balances, January 1, 2019	$	—	$	—	$	276,101		$	224,035		$	(8,144	)	$	491,992
Net income		—		—		—			10,816			—			10,816
Other comprehensive income, net of tax		—		—		—			—			8,322			8,322
Amortization of unearned compensation		—		—		91			—			—			91
Exercise of stock options		—		—		117			—			—			117
Stock option expense		—		—		57			—			—			57
Stock issued stock plans		—		—		(125	)		—			—			(125	)
Stock issued in Salin acquisition		—		—		102,722			—			—			102,722
Cash dividends on common stock ($0.10 per share)		—		—		—			(4,524	)		—			(4,524	)

Balances, March 31, 2019	$	—	$	—	$	378,963		$	230,327		$	178		$	609,468


	Three Months Ended March 31
	2019		2018
Basic earnings per share
Net income	$	10,816	$	12,804
Weighted average common shares outstanding⁽¹⁾		38,822,543		38,306,395
Basic earnings per share	$	0.28	$	0.33

Diluted earnings per share
Net income available to common shareholders	$	10,816	$	12,804
Weighted average common shares outstanding⁽¹⁾		38,822,543		38,306,395
Effect of dilutive securities:
Restricted stock		—		35,356
Stock options		83,629		127,059

Weighted average common shares outstanding		38,906,172		38,468,810
	$	0.28	$	0.33


Contractually required principal and interest at acquisition	$	22,209
Contractual cash flows not expected to be collected (nonaccretable differences)		8,632

Expected cash flows at acquisition		13,577
Interest component of expected cash flows (accretable discount)		1,333

Fair value of acquired loans accounted for under ASC310-30	$	12,244


	March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale
U.S. Treasury and federal agencies	$	14,087	$	—	$	(92	)	$	13,995
State and municipal		245,577		5,266		(1,083	)		249,760
Federal agency collateralized mortgage obligations		212,829		1,774		(1,560	)		213,043
Federal agency mortgage-backed pools		193,932		294		(1,961	)		192,265
Corporate notes		17,598		481		—			18,079

Total available for sale investment securities	$	684,023	$	7,815	$	(4,696	)	$	687,142

Held to maturity
State and municipal	$	187,847	$	4,053	$	(330	)	$	191,570
Federal agency collateralized mortgage obligations		5,019		8		(48	)		4,979
Federal agency mortgage-backed pools		13,461		152		(56	)		13,557
Total held to maturity investment securities
Total held to maturity investment securities
	$	206,327	$	4,213	$	(434	)	$	210,106


	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale
U.S. Treasury and federal agencies	$	16,815	$	1	$	(208	)	$	16,608
State and municipal		210,386		1,495		(2,578	)		209,303
Federal agency collateralized mortgage obligations		187,563		625		(3,185	)		185,003
Federal agency mortgage-backed pools		183,479		80		(4,823	)		178,736
Corporate notes		10,666		107		(75	)		10,698

Total available for sale investment securities	$	608,909	$	2,308	$	(10,869	)	$	600,348

Held to maturity
State and municipal	$	191,269	$	1,773	$	(3,366	)	$	189,676
Federal agency collateralized mortgage obligations		5,144		6		(120	)		5,030
Federal agency mortgage-backed pools		13,699		74		(206	)		13,567

Total held to maturity investment securities	$	210,112	$	1,853	$	(3,692	)	$	208,273


	March 31, 2019
	Loan			Interest		Deferred			Recorded
	Balance			Due		Costs/(Fees)			Investment
Owner occupied real estate	$	676,517		$	975	$	(1,687	)	$	675,805
Non-owner occupied real estate		833,803			1,645		(1,666	)		833,782
Residential spec homes		10,221			27		(3	)		10,245
Development & spec land		75,079			249		(16	)		75,312
Commercial and industrial		497,624			4,291		(293	)		501,622

Total commercial		2,093,244			7,187		(3,665	)		2,096,766
Residential mortgage		797,174			2,346		(1,943	)		797,577
Residential construction		24,593			43		—			24,636
Mortgage warehouse		71,944			480		—			72,424

Total real estate		893,711			2,869		(1,943	)		894,637
Direct installment		37,417			135		560			38,112
Indirect installment		317,629			750		—			318,379
Home equity		282,160			1,504		1,944			285,608

Total consumer		637,206			2,389		2,504			642,099

Total loans		3,624,161			12,445		(3,104	)		3,633,502
Allowance for loan losses		(17,821	)		—		—			(17,821	)

Net loans	$	3,606,340		$	12,445	$	(3,104	)	$	3,615,681


	December 31, 2018
	Loan			Interest		Deferred			Recorded
	Balance			Due		Costs/(Fees)			Investment
Owner occupied real estate	$	561,463		$	1,240	$	(1,629	)	$	561,074
Non-owner occupied real estate		717,814			1,063		(1,839	)		717,038
Residential spec homes		5,199			13		(2	)		5,210
Development & spec land		46,547			131		(12	)		46,666
Commercial and industrial		394,346			3,149		(297	)		397,198

Total commercial		1,725,369			5,596		(3,779	)		1,727,186
Residential mortgage		646,136			1,861		(2,025	)		645,972
Residential construction		24,030			42		—			24,072
Mortgage warehouse		74,120			480		—			74,600

Total real estate		744,286			2,383		(2,025	)		744,644
Direct installment		38,173			103		566			38,842
Indirect installment		314,177			738		—			314,915
Home equity		194,766			973		1,799			197,538

Total consumer		547,116			1,814		2,365			551,295

Total loans		3,016,771			9,793		(3,439	)		3,023,125
Allowance for loan losses		(17,820	)		—		—			(17,820	)

Net loans	$	2,998,951		$	9,793	$	(3,439	)	$	3,005,305


	March 31, 2019
									Allowance
							Outstanding		for Loan		Carrying
	Commercial		Real Estate		Consumer		Balance		Losses		Amount
Heartland	$	229	$	164	$	—	$	393	$	—	$	393
Summit		220		535		—		755		—		755
Peoples		260		44		—		304		—		304
Kosciusko		712		163		—		875		296		579
LaPorte		708		836		26		1,570		—		1,570
Lafayette		2,204		—		—		2,204		—		2,204
Wolverine		5,736		—		—		5,736		—		5,736
Salin		10,329		1,986		1,262		13,577		—		13,577

Total	$	20,398	$	3,728	$	1,288	$	25,414	$	296	$	25,118



	December 31, 2018
									Allowance
							Outstanding		for Loan		Carrying
	Commercial		Real Estate		Consumer		Balance		Losses		Amount
Heartland	$	232	$	175	$	—	$	407	$	—	$	407
Summit		323		555		—		878		—		878
Peoples		270		58		—		328		—		328
Kosciusko		746		155		—		901		—		901
LaPorte		753		947		27		1,727		60		1,667
Lafayette		3,080		—		—		3,080		—		3,080
Wolverine		7,841		—		—		7,841		—		7,841

Total	$	13,245	$	1,890	$	27	$	15,162	$	60	$	15,102


	Three Months Ended March 31, 2019
								Reclassification
								from
	Beginning							nonaccretable					Ending
	balance		Additions		Accretion			difference		Disposals			balance
Heartland	$	174	$	—	$	(8	)	$	—	$	—		$	166
Summit		42		—		(3	)		—		(11	)		28
Kosciusko		300		—		(17	)		—		—			283
LaPorte		829		—		(29	)		—		—			800
Lafayette		609		—		(35	)		—		(171	)		403
Wolverine		698		—		(123	)		—		(8	)		567
Salin		—		3,368		—			—		—			3,368

Total	$	2,652	$	3,368	$	(215	)	$	—	$	(190	)	$	5,615


	Three Months Ended March 31, 2018
								Reclassification
								from
	Beginning							nonaccretable					Ending
	balance		Additions		Accretion			difference		Disposals			balance
Heartland	$	452	$	—	$	(59	)	$	—	$	—		$	393
Summit		147		—		(18	)		—		(2	)		127
Kosciusko		386		—		(20	)		—		—			366
LaPorte		980		—		(40	)		—		(7	)		933
Lafayette		933		—		(118	)		—		(2	)		813
Wolverine		2,267		—		(387	)		—		(42	)		1,838

Total	$	5,165	$	—	$	(642	)	$	—	$	(53	)	$	4,470


	March 31, 2019
					Mortgage
	Commercial		Real Estate		Warehousing		Consumer		Total
Allowance For Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	915	$	—	$	—	$	—	$	915
Collectively evaluated for impairment		10,641		1,588		1,014		3,663		16,906
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending allowance balance	$	11,556	$	1,588	$	1,014	$	3,663	$	17,821

Loans:
Individually evaluated for impairment	$	6,233	$	—	$	—	$	—	$	6,233
Collectively evaluated for impairment		2,087,011		821,767		71,944		637,206		3,617,928
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending loans balance	$	2,093,244	$	821,767	$	71,944	$	637,206	$	3,624,161


	March 31, 2019
			Loans Past
			Due Over 90						Total
			Days Still		Non-peforming		Performing		Non-performing
	Non-accrual		Accruing		TDRs		TDRs		Loans
Commercial
Owner occupied real estate	$	3,372	$	—	$	389	$	139	$	3,900
Non-owner occupied real estate		3,041		—		404		314		3,759
Residential spec homes		261		—		—		—		261
Development & spec land		177		—		—		—		177
Commercial and industrial		1,653		—		—		—		1,653

Total commercial		8,504		—		793		453		9,750
Real estate
Residential mortgage		3,691		140		416		1,748		5,995
Residential construction		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—

Total real estate		3,691		140		416		1,748		5,995
Consumer
Direct installment		55		17		—		—		72
Indirect installment		986		30		—		—		1,016
Home equity		2,077		5		140		331		2,553

Total consumer		3,118		52		140		331		3,641

Total	$	15,313	$	192	$	1,349	$	2,532	$	19,386


	March 31, 2019
							Three Months Ended
	Unpaid				Allowance for		Average Balance in		Cash/Accrual Interest
	Principal		Recorded		Loan Loss		Impaired		Income
	Balance		Investment		Allocated		Loans		Recognized
With no recorded allowance Commercial
Owner occupied real estate	$	3,275	$	3,269	$	—	$	3,650	$	60
Non-owner occupied real estate		840		869		—		875		32
Residential spec homes		261		261		—		261		3
Development & spec land		66		64		—		65		—
Commercial and industrial		656		648		—		668		7

Total commercial		5,098		5,111		—		5,519		102
With an allowance recorded
Commercial
Owner occupied real estate		355		355		25		358		—
Non-owner occupied real estate		135		135		40		135		—
Residential spec homes		—		—		—		—		—
Development & spec land		—		—		—		—		—
Commercial and industrial		632		632		850		632		—

Total commercial		1,122		1,122		915		1,125		—

Total	$	6,220	$	6,233	$	915	$	6,644	$	102


	March 31, 2018
							Three Months Ended
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Loss Allocated		Average Balance in Impaired Loans		Cash/Accrual Interest Income Rec Recognized
With no recorded allowance
Commercial
Owner occupied real estate	$	4,038	$	4,063	$	—	$	4,590	$	37
Non-owner occupied real estate		1,033		1,049		—		975		5
Residential spec homes		—		—		—		—		—
Development & spec land		76		74		—		75		—
Commercial and industrial		737		745		—		1,447		—

Total commercial		5,884		5,931		—		7,087		42
With an allowance recorded
Commercial
Owner occupied real estate		893		893		184		900		—
Non-owner occupied real estate		—		—		—		—		—
Residential spec homes		—		—		—		—		—
Development & spec land		—		—		—		—		—
Commercial and industrial		—		—		—		—		—

Total commercial		893		893		184		900		—

Total	$	6,777	$	6,824	$	184	$	7,987	$	42


	March 31, 2019
	Current			30-59 Days Past Due			60-89 Days Past Due			90 Days or Greater Past Due			Non-accrual			Total Past Due & Non-accrual Loans			Total
Commercial
Owner occupied real estate	$	672,729		$	27		$	—		$	—		$	3,761		$	3,788		$	676,517
Non-owner occupied real estate		827,610			2,386			362			—			3,445			6,193			833,803
Residential spec homes		9,469			491			—			—			261			752			10,221
Development & spec land		74,885			17			—			—			177			194			75,079
Commercial and industrial		493,723			1,616			632			—			1,653			3,901			497,624

Total commercial		2,078,416			4,537			994			—			9,297			14,828			2,093,244
Real estate
Residential mortgage		790,848			1,910			169			140			4,107			6,326			797,174
Residential construction		24,593			—			—			—			—			—			24,593
Mortgage warehouse		71,944			—			—			—			—			—			71,944

Total real estate		887,385			1,910			169			140			4,107			6,326			893,711
Consumer
Direct installment		37,345			67			48			17			55			72			37,417
Indirect installment		316,613			906			129			30			986			1,016			317,629
Home equity		279,938			956			264			5			2,217			2,222			282,160

Total consumer		633,896			1,929			441			52			3,258			3,310			637,206

Total	$	3,599,697		$	8,376		$	1,604		$	192		$	16,662		$	24,464		$	3,624,161

Percentage of total loans		99.32	%		0.23	%		0.04	%		0.01	%		0.46	%		0.68	%


	Asset Derivatives March 31, 2019				Liability Derivatives March 31, 2019
	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts		Loans	$	—		Loans	$	4,093
Interest rate contracts		Other Assets		4,093		Other liabilities		2,866

Total derivatives desginated as hedging instruments				4,093				6,959

Derivatives not designated as hedging instruments
Mortgage loan contracts		Other assets		392		Other liabilities		—

Total derivatives not designated as hedging instruments				392				—

Total derivatives			$	4,485			$	6,959



	Asset Derivatives				Liability Derivatives
	December 31, 2018				December 31, 2018
	Balance Sheet		Fair		Balance Sheet		Fair
	Location		Value		Location		Value
Derivatives designated as hedging instruments
Interest rate contracts		Loans	$	—		Loans	$	42
Interest rate contracts		Other Assets		42		Other liabilities		1,760

Total derivatives desginated as hedging instruments				42				1,802

Derivatives not designated as hedging instruments
Mortgage loan contracts		Other assets		135		Other liabilities		—

Total derivatives not designated as hedging instruments				135				—

Total derivatives			$	177			$	1,802


	Amount of Loss Recognized in Other
	Comprehensive Income on Derivative
	(Effective Portion)
	Three Months Ended
	March 31, 2019			March 31, 2018
Derivatives in cash flow hedging relationship
Interest rate contracts	$	(874	)	$	358


	Location of gain (loss) recognized on derivative		Amount of Gain (Loss) Recognized on Derivative Three Months Ended
	Location of gain (loss) recognized on derivative		March 31, 2019			March 31, 2018
Derivative in fair value hedging relationship
Interest rate contracts		Interest income -loans	$	(4,051	)	$	2,768
Interest rate contracts		Interest income -loans		4,051			(2,768	)

Total			$	—		$	—


	Location of gain (loss) recognized on derivative		Amount of Gain (Loss) Recognized on Derivative Three Months Ended
			March 31, 2019			March 31, 2018
Derivative not designated as hedging relationship
Mortgage contracts		Other income - gain on sale of loans	$	257		$	112


	December 31, 2018
				Quoted Prices in		Significant
				Active Markets		Other			Significant
				for Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Fair Value			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Treasury and federal agencies	$	16,608		$	—	$	16,608		$	—
State and municipal		209,303			—		209,303			—
Federal agency collateralized mortgage obligations		185,003			—		185,003			—
Federal agency mortgage-backed pools		178,736			—		178,736			—
Corporate notes		10,698			—		10,698			—

Total available for sale securities		600,348			—		600,348			—
Hedged loans		209,161			—		209,161			—
Forward sale commitments		135			—		135			—
Interest rate swap agreements		(1,801	)		—		(1,801	)		—
Commitments to originate loans		—			—		—			—


	March 31, 2019
	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	5,318	Collateral based measurement	Discount to reflect current market conditions and ultimate collectability	0%-100% (14.7%)
				Discount rate,	9.7%-10.0% (9.7%),
Mortgage servicing rights		13,366	Discounted cash flows	Constant prepayment rate,	8.9%-21.8% (9.0%),
				Probability of default	0.1%-3.1% (0.6%)

	December 31, 2018
	Fair		Valuation	Unobservable	Range
	Value		Technique	Inputs	(Weighted Average)
Impaired loans	$	5,661	Collateral based measurement	Discount to reflect current market conditions and ultimate collectability	0%-100% (15.5%)
Mortgage servicing rights		12,349	Discounted cash flows	Discount rate, Constant prepayment rate, Probability of default	10.2%-11.0% (10.3%), 9.1%-21.9% (9.3%), 0.1%-2.8% (0.6%)


	Actual					Required for Capital¹ Adequacy Purposes					Required For Capital¹ Adequacy Purposes with Capital Buffer					Well Capitalized Under Prompt¹ Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2019
Total capital¹ (to risk-weighted assets)
Consolidated	$	509,214		13.25	%	$	307,362		8.00	%	$	403,412		10.50	%		N/A		N/A
Bank		472,621		12.30	%		307,361		8.00	%		403,411		10.50	%	$	384,201		10.00	%
Tier 1 capital¹ (to risk-weighted assets)
Consolidated		491,302		12.79	%		230,521		6.00	%		326,572		8.50	%		N/A		N/A
Bank		454,709		11.84	%		230,520		6.00	%		326,570		8.50	%		307,360		8.00	%
Common equity tier 1 capital¹ (to risk-weighted assets)
Consolidated		433,809		11.29	%		172,890		4.50	%		268,941		7.00	%		N/A		N/A
Bank		454,709		11.84	%		172,890		4.50	%		268,940		7.00	%		249,730		6.50	%
Tier 1 capital¹ (to average assets)
Consolidated		491,302		11.85	%		165,789		4.00	%		165,789		4.00	%		N/A		N/A
Bank		454,709		10.99	%		165,523		4.00	%		165,523		4.000	%		206,904		5.00	%
December 31, 2018
Total capital¹ (to risk-weighted assets)
Consolidated	$	427,616		13.39	%	$	255,419		8.00	%	$	315,283		9.875	%		N/A		N/A
Bank		396,755		12.43	%		255,419		8.00	%		315,283		9.875	%	$	319,274		10.00	%
Tier 1 capital¹ (to risk-weighted assets)
Consolidated		409,760		12.83	%		191,565		6.00	%		251,429		7.875	%		N/A		N/A
Bank		378,899		11.87	%		191,565		6.00	%		251,429		7.875	%		255,420		8.00	%
Common equity tier 1 capital¹ (to risk-weighted assets)
Consolidated		371,297		11.63	%		143,673		4.50	%		203,537		6.375	%		N/A		N/A
Bank		378,899		11.87	%		143,674		4.50	%		203,537		6.375	%		207,528		6.50	%
Tier 1 capital¹ (to average assets)
Consolidated		409,760		10.12	%		162,033		4.00	%		162,033		4.000	%		N/A		N/A
Bank		378,899		9.34	%		162,327		4.00	%		162,327		4.000	%		202,908		5.00	%


	Three Months Ended March 31, 2019								Three Months Ended March 31, 2018
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Assets
Interest-earning assets
Federal funds sold	$	7,843		$	57		2.95	%	$	3,714		$	14		1.53	%
Interest-earning deposits		26,355			155		2.39	%		22,962			90		1.59	%
Investment securities—taxable		448,840			2,910		2.63	%		421,068			2,326		2.24	%
Investmentsecurities—non-taxable⁽¹⁾		393,720			2,628		3.40	%		307,921			1,865		2.88	%
Loans receivable⁽²⁾⁽³⁾		3,052,538			39,623		5.27	%		2,824,478			35,131		5.04	%

Total interest-earning assets⁽¹⁾		3,929,296			45,373		4.76	%		3,580,143			39,426		4.50	%
Non-interest-earning assets
Cash and due from banks		44,527								43,809
Allowance for loan losses		(17,836	)							(16,342	)
Other assets		351,202								335,227

Total average assets	$	4,307,189							$	3,942,837

Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	2,514,841		$	6,876		1.11	%	$	2,304,829		$	2,871		0.51	%
Borrowings		577,199			3,621		2.54	%		528,066			2,572		1.98	%
Subordinated debentures		39,236			596		6.16	%		36,477			572		6.36	%

Total interest-bearing liabilities		3,131,276			11,093		1.44	%		2,869,372			6,015		0.85	%
Non-interest-bearing liabilities
Demand deposits		643,601								595,644
Accrued interest payable and other liabilities		25,863								17,745
Stockholders’ equity		506,449								460,076

Total average liabilities and stockholders’ equity	$	4,307,189							$	3,942,837


Net interest income/spread					$34,280		3.32	%					$33,411		3.65	%
Net interest income/spread							3.32	%							3.65	%
Net interest income as a percent of average interest-earning assets⁽¹⁾							3.62	%							3.81	%


	Pre-discount Loan Balance		Allowance for Loan Losses (ALLL)		Loan Discount		ALLL + Loan Discount		Loans, net		ALLL/ Pre-discount Loan Balance			Loan Discount/ Pre-discount Loan Balance			ALLL+Loan Discount/ Pre-discount Loan Balance

Horizon Legacy	$	2,547,794	$	17,525		N/A	$	17,525	$	2,530,269		0.69	%		0.00	%		0.69	%
Heartland		7,202		—		641		641		6,561		0.00	%		8.90	%		8.90	%
Summit		18,396		—		1,007		1,007		17,389		0.00	%		5.47	%		5.47	%
Peoples		81,713		—		1,861		1,861		79,852		0.00	%		2.28	%		2.28	%
Kosciusko		35,182		296		569		865		34,317		0.84	%		1.62	%		2.46	%
LaPorte		84,230		—		2,838		2,838		81,392		0.00	%		3.37	%		3.37	%
CNB		4,321		—		112		112		4,209		0.00	%		2.59	%		2.59	%
Lafayette		82,448		—		1,008		1,008		81,440		0.00	%		1.22	%		1.22	%
Wolverine		178,573		—		2,136		2,136		176,437		0.00	%		1.20	%		1.20	%
Salin		583,177		—		11,918		11,918		571,259		0.00	%		2.04	%		2.04	%

Total	$	3,623,036	$	17,821	$	22,090	$	39,911	$	3,583,125		0.49	%		0.61	%		1.10	%


	Three Months Ended
	March 31 2019							March 31 2018						Adjusted
			Merger							Merger				Amount			Percent
Non-interest Expense	Actual		Expenses			Adjusted		Actual		Expenses		Adjusted		Change			Change
Salaries and employee benefits	$	14,466	$	(2	)	$	14,464	$	14,373	$	—	$	14,373	$	91			0.6	%
Net occupancy expenses		2,772		—			2,772		2,966		—		2,966		(194	)		-6.5	%
Data processing		1,966		(292	)		1,674		1,696		—		1,696		(22	)		-1.3	%
Professional fees		493		(239	)		254		501		—		501		(247	)		-49.3	%
Outside services and consultants		3,530		(2,290	)		1,240		1,264		—		1,264		(24	)		-1.9	%
Loan expense		1,949		—			1,949		1,257		—		1,257		692			55.1	%
FDIC deposit insurance		160		—			160		310		—		310		(150	)		-48.4	%
Other losses		104		(2	)		102		146		—		146		(44	)		-30.1	%
Other expenses		4,298		(1,293	)		3,005		3,324		—		3,324		(319	)		-9.6	%

Totalnon-interest expense	$	29,738	$	(4,118	)	$	25,620	$	25,837	$	—	$	25,837	$	(217	)		-0.8	%