HORIZON BANCORP INC /IN/ (HBNC)

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward–Looking Statements

This report contains certain forward–looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to Horizon Bancorp, Inc. (“Horizon” or the “Company”) and Horizon Bank (the “Bank”). Horizon intends such forward–looking statements to be covered by the safe harbor provisions for forward–looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for the purposes of these safe harbor provisions. Statements in this report should be considered in conjunction with the other information available about Horizon, including the information in the other filings we make with the Securities and Exchange Commission. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “expect,” “estimate,” “project,” “intend,” “plan,” “believe,” “could,” “will” and similar expressions in connection with any discussion of future operating or financial performance. Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.

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

•effects on Horizon’s business resulting from new U.S. domestic or foreign governmental trade measures, including but not limited to tariffs, import and export controls, foreign exchange intervention accomplished to offset the effects of trade policy or in response to currency volatility, and other restrictions on free trade;

•uncertain conditions within the domestic and international macroeconomic environment, including trade policy, monetary and fiscal policy, and conditions in the investment, credit, interest rate, and derivatives markets, and their impact on Horizon and its customers;

•current financial conditions within the banking industry;

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

•the aggregate effects of elevated inflation levels in recent years, and continued inflation levels remaining above the Federal Reserve's 2% target;

•loss of key Horizon personnel;

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

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

•risks related to the development and use of artificial intelligence (AI);

•the effect of interest rates on net interest rate margin and their impact on mortgage loan volumes and the outflow of deposits;

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

•potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms (e.g., Apple Pay or Bitcoin) take a greater market share of the payment systems;

•estimates of fair value of certain of Horizon’s assets and liabilities;

•volatility and disruption in financial markets;

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six months ended June 30, 2026 and 2025

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

•changes in sources of liquidity;

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

•changes in the competitive environment in Horizon’s market areas and among other financial service providers;

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

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

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

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

•the effects and costs of governmental investigations or related actions by third parties;

•rapid technological developments and changes;

•the risks presented by cyber terrorism and data security breaches;

•the rising costs of effective cybersecurity;

•containing costs and expenses;

•the ability of the U.S. federal government to manage federal debt limits;

•the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with acquired loans, difficulty integrating acquired operations and material differences in the actual financial results of such transactions compared with Horizon’s initial expectations, including the full realization of anticipated cost savings; and

•acts of terrorism, war and global conflicts, such as the Russia-Ukraine conflict and continued unrest in the Middle East, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, and the overall U.S. and global financial markets.

The foregoing list of important factors is not exclusive, and you are cautioned not to place undue reliance on these forward–looking statements, which speak only as of the date of this document or, in the case of documents incorporated by reference, the dates of those documents. We do not undertake to update any forward–looking statements, whether written or oral, that may be made from time to time by us or on our behalf. For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward–looking statements, see “Risk Factors” in Item 1A of Part I of our 2025 Annual Report on Form 10–K, in Item 1A of Part II of this Quarterly Report on Form 10–Q, and in the subsequent reports we file with the SEC.

Critical Accounting Estimates

The Notes to the Consolidated Financial Statements included in Item 8 of the Company’s 2025 Annual Report on Form 10–K contain a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The Company considers these policies to be its critical accounting estimates. Management has identified as critical accounting estimates as the allowance for credit losses, income taxes, and valuation measurements.

For additional information regarding critical accounting estimates, see Note 1 – Nature of Operations and Summary of Significant Accounting Policies included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes in the Company’s application of critical accounting estimates since December 31, 2025.

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six months ended June 30, 2026 and 2025

Results of Operations

Net Income

Net Income increased $4.3 million, to $24.9 million, or $0.49 per diluted share, during the three months ended June 30, 2026 when compared to net income of $20.6 million, or $0.47 per diluted share, for the same period in 2025. The increase in net income when compared with the prior year period is the primary driven by an increase in net interest income of $8.1 million, a decrease in provision expense of $1.5 million and an increase in non-interest income of $1.1 million. The increase was partially offset by an increase in non-interest expense of $4.4 million, driven primarily by the $3.1 million legal charge in the current period, and an increase in tax expense of $2.1 million.

Net income increased $6.5 million to $51.1 million, or $1.00 per diluted share, during the six months ended June 30, 2026 when compared to $44.6 million, or $1.01 per share, for the same period in 2025. The increase from the year ago period was primarily a result of an increase in net interest income of $18.1 million and a decrease in provision expense of $2.5 million. The increase was partially offset by an increase in non-interest expense of $5.9 million, a decrease in non-interest income of $4.2 million and an increase in tax expense of $4.1 million.

Net Interest Income

Net interest income increased $8.1 million, or 14.7% during the three months ended June 30, 2026, to $63.5 million, when compared to the same period in 2025. While average earning assets decreased, owed to the balance sheet repositioning and deleveraging efforts in the third quarter of 2025, the reported net FTE interest margin1 increased by 114 basis points, to 4.37% for the three months ended June 30, 2026 compared to the prior year period, driven by the favorable mix shift toward higher-yielding average interest earning assets, and the funding mix toward lower cost deposit liabilities. Additionally, securities yields have expanded while deposit costs have declined when compared with the comparable year ago period.

Net interest income increased $18.1 million during the six months ended June 30, 2026, to $125.7 million when compared to the same period in 2025. While average earning asset balances decreased, owed to the balance sheet repositioning and deleveraging efforts in the third quarter of 2025, the reported net FTE interest margin1 increased by 119 basis points, to 4.33% for the six months ended June 30, 2026 when compared to the prior year period. The primary driver of the increase in net interest income compared with the prior year period is attributable to the favorable mix shift in both higher-yielding average interest earning assets, and the funding mix toward lower cost deposit liabilities. Additionally, loan and security yields have expanded while deposit costs have declined when compared with the comparable year ago period.

1Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six months ended June 30, 2026 and 2025

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

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ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2025. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. All of such forward-looking statements are expressly qualified by reference to the cautionary statements provided under the caption “Forward-Looking Statements” included on page 3 of this report. Furthermore, a number of known and unknown factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. Therefore, you are encouraged to read in its entirety the information provided under the caption “Risk Factors” included under Item 1A in Part I of this report for a discussion of risk factors that may negatively impact our expected results, performance, or achievements discussed below.

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 Indiana and southern and central Michigan through its bank subsidiary, Horizon Bank. 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 founded in 1873 as a national association, and it remained a national association until its conversion to an Indiana commercial bank effective 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.

Fourth Quarter and Full Year 2025 Highlights

Fourth Quarter Highlights

•Strong performance of the core community banking model, combined with the successful completion of the balance sheet repositioning efforts, resulted in significant performance improvement for the quarter. The Company's return on average assets and return on average equity improved to 1.63% and 15.71%, respectively.

•Net interest income of $63.5 million for the three months ended December 31, 2025 increased 8.7% compared with $58.4 million for the three months ended September 30, 2025, and 19.5% compared with $53.1 million in the year ago period. The net interest margin, on a fully taxable equivalent ("FTE") basis1, expanded for the ninth consecutive quarter, to 4.29% for the three months ended December 31, 2025, compared with 3.52% for the three months ended September 30, 2025 and 2.97% for the three months ended December 31, 2024.

•Total loans held for investment ("HFI") increased 4.4% as of December 31, 2025 compared to the linked quarter annualized, with strong organic commercial loan growth of $75.8 million, or 9.1% annualized.

•Funding costs continued to trend favorably. Non-interest bearing deposits balances remained relatively flat, while declines in interest-bearing balances largely reflected the communicated planned exit of high-cost, transactional deposits. Total interest-bearing liability costs decreased by another 34 bps during the quarter.

•Credit quality remained strong, with annualized net charge offs of 0.08% of average loans during the fourth quarter. Non-performing assets remain well within expected ranges, with non-performing assets to total assets of 63 bps for the fourth quarter.

•Expenses were comparable to the third quarter when considering a select few items related to the balance sheet activities, displaying management's continued commitment to generate positive operating leverage through a more efficient expense base.

1 Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(Table dollars in thousands except per share data)

Full Year Highlights

•Net interest income increased to $229.5 million for the year ended December 31, 2025, compared to $188.6 million for the year ended December 31, 2024, driven by net interest margin expansion, as average earning asset balances declined year-over-year as a result of the balance sheet repositioning efforts during Q3 2025. The net interest margin, on a fully taxable equivalent ("FTE")1 basis, expanded to 3.49% compared with 2.68% for the year ended December 31, 2024.

•The increase in FTE net interest margin was also driven by the Company's balance sheet repositioning in Q3 2025, which resulted in a shift of the Company's earning asset mix towards higher yielding commercial loans and funding mix toward relationship-based deposit funding, in addition to favorable trends loan yields and interest-bearing deposit costs. The asset mix shift was a result of an increase in its overall average loan balances of $226.5 million or 4.8%, from $4.7 billion for the year ended December 31, 2024 to $4.9 billion for the year ended December 31, 2025, while average balances of investment securities declined by $779.4 million, or 32.1%, to $1.6 billion from $2.4 billion in the same period a year ago.

•As discussed above, the Company repositioned the investment securities portfolio during Q3 2025. The Company reclassified its held-to-maturity investment portfolio, with a carrying value of $1.8 billion and unrealized loss of $282.6 million, to the available-for-sale portfolio as part of the Company's balance sheet repositioning. Following the reclassification, the Company sold securities with a fair value of $1.4 billion, recognizing a pre-tax loss of $299.5 million, with a portion of the net proceeds reallocated back into the securities portfolio. As a result, the yield of the Company's investment portfolio increased 52 bps to 2.87% for the year ended December 31, 2025, compared to 2.35% for the year ended December 31, 2024.

•Total loans, including loans held-for-sale, were $4.89 billion at December 31, 2025, down $28.3 million from December 31, 2024 balances, or (0.6)% year over year. Strong commercial loan growth of $354.3 million, or 11.5%, was offset by the sale of the mortgage warehouse portfolio in Q1 2025 and the indirect auto portfolio of $284.2 million during the Q3 2025.

•Credit quality remains strong, with net charge offs of 0.06% of average loans for the year ended December 31, 2025. The provision for credit losses decreased by $3.5 million from prior year. This was mainly due to the release of the allowance related to the indirect auto portfolio, which was sold in Q3 2025. Allowance to total loans decreased from 1.07% to 1.05% during the period.

Critical Accounting Estimates

The Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10–K for 2025 contain a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The Company considers these policies to be its critical accounting estimates. Management has identified as critical accounting estimates as the allowance for credit losses, income taxes, and valuation measurements.

Allowance for Credit Losses on Loans

The allowance for credit losses represents management’s best estimate of current expected credit losses over the life of the portfolio of loans and leases. Estimating credit losses requires judgment in determining loan specific attributes impacting the borrower’s ability to repay contractual obligations. Other factors such as economic forecasts used to determine a reasonable and supportable forecast, prepayment assumptions, the value of underlying collateral, and changes in size composition and risks within the portfolio are also considered.

The allowance for credit losses is assessed at each balance sheet date and adjustments are recorded in the provision for credit losses. The allowance is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast. Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan

1 Non-GAAP financial metric. See non-GAAP reconciliation included herein for the most directly comparable GAAP measure.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(Table dollars in thousands except per share data)

is expected to be made through the operation or sale of the collateral. Loan balances considered uncollectible are charged–off against the ACL. Assets purchased with credit deterioration (“PCD”) represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance for credit losses on PCD assets is booked directly to the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses. Management believes that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans and leases as of the balance sheet date. Actual losses incurred may differ materially from our estimates.

Income Taxes

The Company is subject to the income tax laws of the U.S. its states and municipalities in which the Company operates. The tax laws are subject to potentially different interpretations by the taxpayer and the applicable taxing authorities. In determining the provision for income taxes, the Company makes judgments about the application of tax laws as well as estimates related to timing of when certain items when affect taxable income . Additionally, in the process of preparing tax returns, the Company’s management makes reasonable interpretations of the tax laws. Management’s interpretations are subject to review during examination by taxing authorities and disputes may arise over the respective tax positions.

Management reviews income tax expense and the carrying value of deferred tax assets quarterly; and as if business events or circumstances warrant. US GAAP prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements.

Although the Company believes that its tax judgments, estimates, and interpretations are reasonable, actual results could differ and the Company may be exposed to losses or gains that could be material. For example. Company’s effective income tax rate could be materially affected when the Company prevails in matters for which reserves have been established or when the Company is required to pay amounts in excess of reserves.

See Note 16 - Income Taxes to the Consolidated Financial Statements for a further discussion of income taxes.

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(Table dollars in thousands except per share data)

Results of Operations

Net Income

Consolidated net loss was $150.5 million, or $(3.24) per diluted share, in 2025, compared to net income of $35.4 million or $0.80 per diluted share in 2024, and $28.0 million or $0.64 per diluted share in 2023. The decrease in net income when compared with the prior year period reflects a decrease in non-interest income of $259.4 million, of which $299.5 million related to a reali

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