What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-03-09 compared with 2021-02-26 · 154 added, 142 removed, 203 unchanged (59% of the section changed)

An investment in Horizon’s securities is subject to risks inherent to our business.

An investment in Horizon’s securities is subject to numerous risks and uncertainties related to our business.

The material risks and uncertainties that management believes currently affect Horizon are described below, categorized as risks related to our business, risks related to the banking industry generally, and risks related to our common stock.

Before making an investment decision, you should carefully consider these risks as well as information we include or incorporate by reference in this report and other filings we make with the SEC.

The risks and uncertainties we have described are not the only ones facing our company.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may affect our business operations.

Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair Horizon's business operations and its financial results.

This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.

If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.

As a result, before making an investment decision, you should carefully consider these risks as well as information we include or incorporate by reference in this report and other filings we make with the SEC.

Some statements in the following risk factors constitute forward–looking statements.

Please refer to "Forward–Looking Statements" beginning on page 3 of this Annual Report on Form 10–K.

Risks Related to Our Business

The COVID–19 pandemic has and will continue to impact our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID–19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world.

Table of Con tents

The COVID–19 pandemic has and may continue to impact our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID–19 pandemic has created and continues to create disruptions to the global economy and to the lives of individuals throughout the world.

Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID–19 and to mitigate its effects, including quarantines, travel bans, shelter–in–place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.

While the scope, duration, and full effects of COVID–19 are still rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.

If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in this Annual Report could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding operations, interest rate risk, human capital, self–insurance and financial results, as described in more detail below.

• Credit Risk – Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrowers' businesses.

Concern about the spread of COVID–19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, change in consumer and business spending and travel behaviors, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability, inability of property owners to make mortgage payments, and overall economic and financial market instability, all of which have already caused some of our customers to be unable to make scheduled loan payments.

If the continuing effects of COVID–19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure.

The future effects of COVID–19 on economic activity could negatively affect the collateral values associated with our existing loans, our ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending services, and the financial condition and credit risk profiles of our customers.

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.

While the scope, duration, and full effects of COVID–19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.

If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in this Annual Report could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding operations, interest rate risk, human capital and self–insurance, as described in more detail below.

• Credit Risk – Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower's business.

Concern about the spread of COVID–19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, change in consumer and business spending and travel behaviors, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which have already caused some of our customers to be unable to make scheduled loan payments.

If the effects of COVID–19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure.

The future effects of COVID–19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending services, and the financial condition and credit risk of our customers.

Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure.

1 unchanged sentence

During a challenging economic environment like now, our customers are more dependent on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity.

Furthermore, in an effort to support our communities during the pandemic, we are participating in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default.

If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise extended.

• Strategic Risk – Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various responses of governmental and nongovernmental authorities.

In many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses.

The future effects of COVID–19 on economic activity could negatively affect the future banking products we provide, including a decline in originating of loans.

Furthermore, in an effort to support our communities during the pandemic, we participated in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses were made and those loans are subject to regulatory requirements that require forbearance of loan payments for a specified time and that limit our ability to pursue all available remedies in the event of a loan default.

If a borrower under a PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to loans to customers that we would have otherwise extended credit to.

• Strategic Risk – Our success in effectively implementing our short–term and long–term strategic objectives and business plans may be negatively affected by the continuing impacts of the COVID–19 pandemic, including changes in the pricing marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to deteriorating economic conditions and the various responses of governmental and nongovernmental authorities.

In many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses from time to time during the COVID–19 pandemic.

• Operational Risk – Current and future restrictions on our workforce's access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations and financial results.

3 unchanged sentences

The continuation of these work–from–home measures also introduces additional operational risk, including increased cybersecurity risk.

These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.

Moreover, we rely on many third parties in our business operations, including the appraiser of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses.

In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services.

Moreover, we rely on many third parties in our business operations, including appraisers of real estate collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses.

In light of the developing measures responding to the pandemic, many of these entities may limit the availability of, and access to, their services and facilities.

For example, loan origination could be delayed due to the limited availability of real estate appraisers for the collateral.

2 unchanged sentences

• Interest Rate Risk – Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID–19.

In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of COVID–19 on markets and stress in the energy sector.

A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies.

A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect our market risk mitigation strategies.

Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets.

Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest earning assets and interest bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Fluctuations in interest rates will also impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest earning assets and

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

interest bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or overall financial condition.

In addition, the United States Government and its related entities are incurring unprecedented debt levels in support of the United States economy.

This level of debt may not be sustainable, may cause inflationary pressures and increases risks to fund the balance sheet if international investors elect to no longer purchase United States Treasuries.

Because there have been no recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID–19's effects on our business, operations, or the global economy as a whole.

Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers' ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the pandemic.

This level of debt may not be sustainable, may cause further inflationary pressures and poses increased risks to the United States economy if international investors elect to no longer purchase United States Treasuries.

Because there have been no recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID–19's effects on our business, operations, and customers, or the global economy as a whole.

Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers' ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic.

The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

5 unchanged sentences

• an increase in loans charged off;

• an increase in the Company’s expense to fund loan loss reserves;

• an increase in expense to fund loan loss reserves;

• an increase in collection costs;

1 unchanged sentence

• an increase in non–accrual loans and other real estate owned.

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

We face intense competition in all phases of our business from other banks, financial institutions and non–banks.

The banking and financial services business in most of our markets is highly competitive.

Our competitors include large regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, neo–banks (a digital or mobile–only bank that exists without any physical bank branches), and other non–bank financial and digital service providers, many of which have greater financial, marketing and technological resources than us.

Our competitors include large banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, neo–banks (a digital or mobile–only bank that exists without any physical bank branches), and other non–bank financial and digital service providers, many of which have greater financial, marketing and technological resources than we do.

Many of these competitors are not subject to the same regulatory restrictions that we are and may be able to compete more effectively as a result.

Also, technology and other changes have lowered barriers to entry and made it possible for customers to complete financial transactions using neo–banks, non–banks and financial technology (“FinTech”) companies that historically have involved banks at one or both ends of the transaction.

These entities now offer products and services traditionally provided by community banks and often at lower costs.

The wide acceptance of Internet–based commerce has resulted in a number of alternative payment processing systems, deposit and lending platforms in which banks play only minor roles.

These entities now offer products and services traditionally provided by banks and often at lower costs.

The wide acceptance of Internet–based commerce has resulted in a number of alternative payment processing systems, and deposit and lending platforms in which banks play only minor roles.

For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.

1 unchanged sentence

Use of emerging alternative payment platforms, such as Apple Pay or Bitcoin or other cryptocurrencies, can alter consumer credit card behavior and consequently impact our interchange fee income.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The effects of disintermediation can also impact the lending business because of the fast growing body of FinTech companies that use software to deliver mortgage lending and other financial services.

The continuing process of eliminating banks as intermediaries, known as “disintermediation,” will likely result in the loss of additional fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The effects of disintermediation are also likely to continue to negatively impact the lending activities of traditional banks because of the fast growing number of FinTech companies that use software and technology to deliver mortgage lending and other financial services with fewer employees.

A related risk is the migration of bank personnel away from the traditional bank environments into neo–banks, FinTech companies and other non–banks.

Increased competition in our market may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower.

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

Increased competition in our markets may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower.

Any of these results could have a material adverse effect on our ability to maintain our earnings record, grow our loan portfolios and obtain low–cost funds.

If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted.

If increased competition causes us to relax our underwriting standards, we could be exposed to higher losses from lending activities.

Additionally, many of our competitors are larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than we can offer.

Annually, the number of banks and the number of bank branches continues to decrease, which decreases the opportunities to expand through acquisitions.

If increased competition causes us to change our underwriting standards, we could be exposed to higher losses from lending activities.

Additionally, many of our competitors are larger in total assets and capitalization and have greater access to capital markets.

Horizon is also experiencing an increase in competition to acquire other banks, due to the overall strength of financial institutions and their high capital levels.

In addition, credit unions and FinTech companies are now actively pursuing small bank acquisitions.

In addition, credit unions, private equity groups, and FinTech companies are now actively pursuing small bank acquisitions.

Increased competition for bank acquisitions may slow Horizon’s ability to grow earning assets at comparable historical growth rates.

Changes in market interest rates could adversely affect our financial condition and results of operations.

Our financial condition and results of operations are significantly affected by changes in market interest rates.

Changes in interest rates could adversely affect our financial condition and results of operations.

Our financial condition and results of operations are significantly affected by changes in interest rates.

We can neither predict with certainty nor control changes in interest rates.

1 unchanged sentence

Our results of operations depend substantially on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest bearing liabilities.

Our profitability depends on our ability to manage our assets and liabilities during periods of changing market interest rates.

If rates increase rapidly as a result of an improving economy, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments re–price, resulting in a negative impact on interest spreads and net interest income.

The impact of rising rates could be compounded if deposit customers flow funds away from us into direct investments, such as U.S.

Government bonds, corporate securities and other investment vehicles, including mutual funds, which, because of the absence

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

of federal insurance premiums and reserve requirements, generally pay higher rates of return than those offered by financial institutions such as ours.

Our profitability depends on our ability to manage our assets and liabilities during periods of changing interest rates.

If rates increase rapidly, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments re–price, resulting in a negative impact on interest spreads and net interest income.

The impact of rising rates could be compounded if deposit customers funds away from us into direct investments, such as U.S.

Government bonds, corporate securities and other investments, including mutual funds, which, because of the absence of federal deposit insurance premiums and reserve requirements, generally pay higher rates of return than those offered by financial institutions.

We also expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa.

In either event, if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings.

The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short–term interest rates increase more than long–term interest rates or when long–term interest rates decrease more than short–term interest rates.

Changes in interest rates also could affect loan volume.

For instance, an increase in interest rates could cause a decrease in the demand for mortgage loans (and other loans), which could result in a significant decline in our revenue stream.

Conversely, should market interest rates fall below current levels, our net interest margin could also be negatively affected, as competitive pressures could keep us from further reducing rates on our deposits, and prepayments and curtailments on assets may continue.

For instance, an increase in interest rates could cause a decrease in the demand for mortgage loans (and other loans), which could result in a significant decline in our revenues.

Such movements may cause a decrease in our interest rate spread and net interest margin, and therefore, decrease our profitability.

1 unchanged sentence

Changes in interest rates may affect the average life of loans and mortgage–related securities.

Increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans.

Increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans, which increases the potential for default.

An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on may also lead to an increase in non–performing assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows.

Further, when we place a loan on non–accrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income.

At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

Decreases in interest rates often result in increased prepayments of loans and mortgage–related securities, as borrowers refinance their loans to reduce borrowing costs.

11 unchanged sentences

An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition and results of operations and may restrict our ability to grow.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.

We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients.

Many of these transactions expose us to credit risk in the event of default by our counterparty or client.

In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us.

There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

Our commercial, residential mortgage and consumer loans expose us to increased credit risks.

1 unchanged sentence

Commercial loans generally have greater credit risk than residential mortgage loans because repayment of these loans often depends on the successful business operations of the borrowers.

These loans also typically have much larger loan balances than residential mortgage loans.

Commercial real estate loans generally have greater risk than residential mortgage loans because repayment of these loans is often dependent upon income being generated in amounts sufficient to cover operating costs and debt service.

Both types of commercial loans also typically have much larger loan balances than residential mortgage loans.

Consumer loans generally involve greater risk than residential mortgage loans because they are unsecured or secured by assets that depreciate in value.

Although we undertake a variety of underwriting, monitoring and reserving protections with respect to these types of loans, there can be no guarantee that we will not suffer unexpected losses.

Residential mortgage loans are at risk due to rising unemployment rates and increasing interest rates, which may adversely affect the underlying real estate value.

Residential mortgage loans and consumer loans are at risk due to the continuing volatility of unemployment rates caused by COVID–19 and increasing interest rates, which may adversely affect the underlying real estate and other collateral values and the ability of our borrowers to repay their loans on scheduled terms.

Our holdings of construction, land and home equity loans may pose more credit risk than other types of mortgage loans.

3 unchanged sentences

We strive to establish what we believe are adequate reserves on our financial statements to cover the credit risk of these loan portfolios.

However, there can be no assurance that losses will not exceed our reserves, and ultimately result in a material level of charge–offs, which would adversely impact our results of operations, liquidity and capital.

However, there can be no assurance that losses will not exceed our reserves,

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

and ultimately result in a material level of charge–offs, which would adversely impact our results of operations, liquidity and capital.

The allowance for credit losses on loans may prove inadequate or be negatively affected by credit risk exposures.

2 unchanged sentences

There is no certainty that the allowance for credit losses will be adequate over time to cover credit losses in the portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets.

If the credit quality of the customer base materially decreases, if the risk profile of a market, industry or group of customers changes materially, or if the allowance for credit losses is not adequate, our business, financial condition, liquidity, capital, and results of operations could be materially adversely affected.

In addition, Horizon adopted FASB’s new current expected credit loss (“CECL”) accounting standard, effective January 1, 2020, which changed the process by which we account for our Allowance for Credit Loss Reserve.

As a new standard, it is subject to possible change and uncertainty about how the new process may impact Horizon’s financial statements.

See Item 8 for a detailed discussion of our adoption of CECL.

If the credit quality of our customer base materially decreases, if the risk profile of a market, industry or group of customers changes materially, or if the allowance for credit losses is not adequate, our business, financial condition, liquidity, capital, and results of operations could be materially adversely affected.

Our mortgage warehouse and indirect lending operations are subject to a higher fraud risk than our other lending operations.

1 unchanged sentence

Because we must rely on the mortgage bankers and automobile dealers in making and documenting these loans, there is an increased risk of fraud to us on the part of the third–party originators and the underlying borrowers.

In order to guard against this increased risk, we perform investigations on the mortgage companies with whom we do business, and we review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance.

In order to guard against this increased risk, we perform investigations on the mortgage companies and other third parties who originate loans we purchase, and we review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance.

However, there is no guarantee that our procedures will detect all cases of fraud or legal noncompliance.

Our mortgage lending profitability could be significantly reduced if we are not able to resell mortgages at a reasonable gain on sale or experience other problems with the secondary market process or we are unable to retain our mortgage loan sales force due to regulatory changes.

Our mortgage lending profitability could be significantly reduced if we are not able to resell mortgages at a reasonable gain on sale or experience other problems with the secondary market process.

Currently, we sell a substantial portion of the mortgage loans we originate.

The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and to sell them in the

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

secondary market at a gain.

The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and to sell them in the secondary market at a gain.

Thus, we are dependent upon the existence of an active secondary market and our ability to profitably sell loans into that market.

11 unchanged sentences

Higher interest rates can also negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate loans can reduce pricing.

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

We may be exposed to risk of environmental liabilities with respect to real property to which we take title.

5 unchanged sentences

For further discussion, see Notes 1 and 9, “Nature of Operations and Summary of Significant Accounting Policies” and “Goodwill and Intangible Assets,” to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10–K for the year ended December 31, 2021.

Our role as a fiduciary trustee for corporate employee stock ownership plans (“ESOPs”) may expose us to increased risk of litigation due to heightened scrutiny of this role by the U.S.

Department of Labor and the plaintiffs’ bar.

Department of Labor and the plaintiffs’ bar have been aggressively targeting ESOP trustees and transactions on a variety of fronts, including valuations and the amount that ESOP trustees pay to buy back stock from selling shareholders, as well as the indemnity agreements commonly used by ESOP companies to protect ESOP fiduciaries from undue risk and exposure.

We act as an independent trustee for corporate ESOP plans throughout the U.S., which may expose us to an increased risk of litigation from the U.S.

Our prior role as a trustee for employee stock ownership plans (“ESOPs”) may expose us to increased risk of litigation due to heightened scrutiny of this role by the U.S.

Department of Labor and the plaintiffs’ bar.

Table of Con tents

Prior to September 30, 2021, we acted as an independent trustee for corporate ESOP plans throughout the U.S.

Over the last several years, the U.S.

In December 2021, Horizon reached a mediation settlement with the U.S.

Department of Labor concerning ESOP valuations and sale transactions relating to ESOPs for which we acted as trustee.

On September 30, 2021, we sold our ESOP trustee business to a third party.

Despite exiting this line of business and our settlement with the U.S.

Department of Labor with respect to many of our prior engagement, we may still be exposed to an increased risk of litigation from the U.S.

Department of Labor and the plaintiffs’ bar for these historical activities.

We may be adversely impacted by the discontinuance of LIBOR as a short–term interest rate utilized for loans and other financing agreements.

In 2017, the United Kingdom's Financial Conduct Authority (the authority that regulates LIBOR) (the “FCA”) announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”).

Subsequently in November 2020 the FCA proposed end dates immediately following the December 31, 2021 publication for the one week and two month LIBOR settings, and the June 30, 2023 publication for other LIBOR tenors.

These announcements indicate that the continuation of LIBOR on the current basis cannot and will not be guaranteed after December 31, 2021 or June 30, 2023, as applicable.

Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR.

Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR–indexed financial instruments.

In particular, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall–back language for LIBOR–linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S.

Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments.

At this time, it is not possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating–rate financial instruments.

We have loans, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.

The transition from LIBOR could create additional costs and risks.

Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

We may be adversely impacted by the discontinuance of LIBOR as a short–term interest rate utilized for loans and other financing agreements.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD–LIBOR for use in derivatives and other financial contracts that are currently indexed to USD–LIBOR.

ARRC has proposed a paced market transition plan to SOFR from USD–LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD–LIBOR.

The Company has material contracts that are indexed to USD–LIBOR and is monitoring this activity and evaluating the related risks.

The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, and product design.

Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.

Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

The preparation of our financial statements requires the use of estimates that may vary from actual results.

2 unchanged sentences

Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not have to increase the allowance for loan losses and/or sustain loan losses that are significantly higher than the provided allowance.

Our inability to continue to process large volumes of transactions accurately could adversely impact our business and financial results.

We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk.

Operational risk resulting from inadequate or failed internal processes, people and systems includes the risk of fraud by persons inside or outside Horizon, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements.

This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.

Accordingly, if systems of internal control should fail to work as expected, if systems are used in an unauthorized manner, or if employees subvert the system of internal controls, significant losses could result.

We establish and maintain systems of internal operational controls that are designed to provide us with timely and accurate information about our level of operational risk.

While not foolproof, these systems have been designed to manage operational risk at appropriate, cost–effective levels.

Procedures also exist that are designed to ensure that policies relating to conduct, ethics and business practices are followed.

If these systems fail, significant losses could result.

While we continually monitor and improve the system of internal controls, data processing systems and corporate–wide processes and procedures, there can be no assurance that future losses will not occur.

Our information systems may experience cyber–attacks or an interruption or breach in security.

2 unchanged sentences

Additionally, in the normal course of business, we collect, process and retain sensitive and confidential information regarding our customers.

As our reliance on technology has increased, so have the potential risks of a technology–related operation interruption (such as disruptions in our customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of cyber–attacks (such as unauthorized access to our systems, computer viruses or other malicious code).

As our reliance on technology has increased, so have the potential risks of a technology–related operational interruption (such as disruptions in our customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of cyber–attacks (such as unauthorized access to our systems, computer viruses, ransom ware, or other malicious code).

These risks have increased for all financial institutions as new technologies, including the use of the Internet and telecommunications technologies (including mobile devices), have become commonly used to conduct financial and other business transactions, during a time of increased technological sophistication of organized crime, perpetrators of fraud, hackers, terrorists and others.

In addition to cyber–attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks, which are designed to disrupt key business services, such as customer–facing web sites.

We are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources, both domestic

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

However, we have analyzed and will continue to analyze security related to device–specific considerations, user access topics, transaction–processing and network integrity.

Although we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity, and availability of our systems, business applications and customer information, we are not able to anticipate or implement effective preventive measures against all cyber–security threats, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources, both domestic and foreign.

We also face risks related to cyber–attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and our processors.

4 unchanged sentences

Although we are insured against many of these risks, including privacy breach response costs, notification expenses, breach support and credit monitoring expenses, cyber extortion and cyber terrorism, there can be no assurances that such insurance will be sufficient to cover all costs arising from a data or information technology breach and our exposure may exceed our coverage.

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

We continually encounter technological changes.

2 unchanged sentences

Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

Many of our competitors have substantially greater resources to invest in technological improvements, and we may not be able to effectively implement new technology–driven products and services or be successful in marketing these products and services to our customers.

Many of our competitors have substantially greater resources to invest in technological improvements, and we may not be able to effectively implement new technology–driven products and services at the same speed at which our competitors do (or not at all) or be successful in marketing these products and services to our customers.

Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

3 unchanged sentences

Any problems caused by these third parties, including as a result of inadequate or interrupted service or breach of customer information, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business.

In addition, any breach in customer information could affect our reputation and cause a loss of business.

In addition, any breach in customer information could affect our reputation and cause legal liability and a loss of business.

Replacing these third–party vendors also could result in significant delay and expense.

Damage to our reputation could damage our business.

Our business depends upon earning and maintaining the trust and confidence of our customers, investors and employees.

Damage to our reputation could cause significant harm to our business and prospects.

Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, compliance failures, litigation or regulatory outcomes or governmental investigations.

In addition, a failure to deliver appropriate standards of service and quality, or a failure or perceived failure to treat customers and clients fairly, can result in customer dissatisfaction, litigation, privacy breach and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and harm to our reputation.

Adverse publicity about Horizon, whether or not true, may result in harm to our existing business, customer relationships and prospects.

Should any events or factors that can undermine our reputation occur, there is no assurance that the additional costs and expenses that we may need

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

to incur to address the issues giving rise to the reputational harm would not adversely affect our earnings and results of operations.

The loss of key members of our senior management team and our lending teams could affect our ability to operate effectively.

We depend heavily on the services of our existing senior management team, particularly our CEO Craig M.

Dwight, to carry out our business and investment strategies.

As we continue to grow and expand our business and our locations, products and services, we will increasingly need to rely on Mr.

Dwight’s experience, judgment and expertise as well as that of the other members of our senior management team.

We depend heavily on the services of our existing senior management team to carry out our business and investment strategies.

As we continue to grow and expand our business and our locations, products and services, we will increasingly need to rely on our senior management team's experience, judgment and expertise.

We also depend heavily on our experienced and effective lending teams and their respective special market insights, including, for example, our agricultural lending specialists.

2 unchanged sentences

If we are unable to attract and retain an effective lending team and other talented people, our business could suffer.

The loss of the services of any senior management personnel, particularly Mr.

Dwight, or the inability to recruit and retain qualified lending and other personnel in the future, could have a material adverse effect on our consolidated results of operations, financial condition and prospects.

The loss of the services of any senior management personnel or the inability to recruit and retain qualified lending and other personnel in the future, could have a material adverse effect on our consolidated results of operations, financial condition and prospects.

Potential acquisitions may disrupt our business and dilute stockholder value.

10 unchanged sentences

As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving the payment of cash or the issuance of our debt or equity securities may occur at any time.

Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction.

Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

of our tangible book value and net income per common share may occur in connection with any future transaction.

To the extent we were to issue additional shares of common stock in any such transaction, our current shareholders would be diluted and such an issuance may have the effect of decreasing our stock price, perhaps significantly.

3 unchanged sentences

We are subject to extensive regulation and changes in laws and regulatory policies could adversely affect our business.

Our operations are subject to extensive regulation by federal agencies.

Our operations are subject to extensive regulation by federal and state agencies.

See “Regulation and Supervision” in the description of our Business in Item 1 of Part I of this report for detailed information on the laws and regulations to which we are subject.

Many of these regulations are intended to protect depositors, the public or the FDIC insurance funds, not shareholders.

Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and many other aspects of our business.

Changes in applicable laws, regulations or regulator policies can materially affect our business.

The likelihood of any major changes in the future and their effects are impossible to determine.

As an example, the Bank could experience higher credit losses because of federal or state legislation or by regulatory or bankruptcy court action that reduces the amount the Bank's borrowers are otherwise contractually required to pay

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

under existing loan contracts.

The likelihood of any major changes in the future and their effects are impossible to predict.

Also, the Bank could experience higher credit losses because of federal or state legislation or regulatory action that limits its ability to foreclose on property or other collateral or makes foreclosure less economically feasible.

7 unchanged sentences

Treasury and other bank regulatory agencies, and additional programs that may be initiated in the future, will have on the financial markets and the financial services industry.

Further, we cannot predict the impact on legislation, tax and other policies affecting our industry that may arise under a new Federal administration taking office in 2021.

We may also face compliance risks arising from the new and growing body of privacy and data security laws enacted by foreign governments, such as the European Union's comprehensive 2018 General Data Privacy Regulation, and by U.S.

state governments, such as the California Consumer Privacy Act that went into effect on January 1, 2020.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.

Many of these transactions expose us to credit risk in the event of default by our counterparty or client.

There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.

Our inability to continue to process large volumes of transactions accurately could adversely impact our business and financial results.

We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk.

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.

We establish and maintain systems of internal operational controls that are designed to provide us with y and accurate information about our level of operational risk.

While not foolproof, these systems have been designed to manage operational risk at appropriate, cost–effective levels.

Procedures also exist that are designed to ensure that policies relating to conduct, ethics and business practices are followed.

If these systems fail, significant losses could result.

Acts of terrorism or war, as well as the threat of terrorism or war, may adversely affect our results of operations, financial condition, and liquidity.

Any act of terror, sustained military campaign, or war (threat of any of the foregoing) may cause general economic decline and instability, volatility and/or weakness of U.S.

and global financial markets.

Historically, U.S.

and global markets have been adversely impacted by political and civil unrest occurring in the Middle East, Eastern Europe, Russia, Venezuela and Asia.

The current Russia and Ukraine conflict has raised similar economic and financial market concerns causing uncertainty and disruption in financial markets globally and further straining an already struggling global supply chain.

Furthermore, such events have the potential to adversely impact the availability of commodities, commodity prices, and create global inflationary pressures.

As a result of any such events, the demand for our products and services may be significantly impacted and could influence the recognition of credit losses in our loan portfolio and increase our allowance for credit losses as both businesses and consumers are negatively impacted by such events and the economic uncertainty and volatility related thereto.

They may also cause significant decreases in value in our investment portfolio, cause us to have to raise capital, or take other unforeseen actions to offset such effects.

The extent to which such actions may impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of such conflicts and actions taken by governmental authorities and other third parties in response thereto.

Even after such conflicts subside, the U.S.

and global economies often require some time to recover, the length of which is unknown.

Any continued or further negative impact on economic conditions and global markets from these developments could adversely affect our business, financial condition and liquidity.

Risks Related to our Common Stock

12 unchanged sentences

• the operating and securities price performance of other companies that investors believe are comparable to us;

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

• our inclusion on the Russell 3000 or other indices;

9 unchanged sentences

These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results.

Table of Con tents

HORIZON BANCORP, INC.

2020 Annual Report on Form 10–K

Because our stock is moderately traded, it may be more difficult for you to sell your shares or buy additional shares when you desire to do so and the price may be volatile.

4 unchanged sentences

Our articles of incorporation and by–laws and Indiana law contain provisions that have certain anti–takeover effects.

While the purpose of these provisions is to strengthen the negotiating position of the board of directors in the event of a hostile takeover attempt, the overall effects of these provisions may be to render more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a larger block of our shares, and the removal of incumbent directors and key management.

While the purpose of these provisions is to strengthen the negotiating position of the board of directors in the event of a hostile takeover attempt, the overall effects of these provisions may be to render more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our shares, and the removal of incumbent directors and key management.

Our articles of incorporation provide for a staggered board, which means that only one–third of our board can be replaced by shareholders at any annual meeting.

5 unchanged sentences

These and other provisions of our governing documents and Indiana law are intended to provide the board of directors with the negotiating leverage to achieve a more favorable outcome for our shareholders in the event of an offer for the Company.

However, there is no assurance that these same anti–takeover provisions could not have the effect of delaying, deferring or preventing a transaction or a change in control that might be in the best interest of our shareholders.

However, there is no assurance that these same anti–takeover provisions could not have the effect of delaying, deferring or preventing a transaction or a change in control that shareholders might believe to be in their best interests.

UNRESOLVED STAFF COMMENTS

Not applicable.

HORIZON BANCORP, INC.

2021 Annual Report on Form 10–K

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

What changed 10-K

Item 1A. Risk Factors