What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-08 · 217 added, 339 removed, 489 unchanged (53% of the section changed)

14 unchanged sentences

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

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

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

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

• loss of key Horizon personnel;

• changes in federal or state government mandates regarding vaccination requirements which may impact our ability to retain or attract labor;

• our former 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 plaintiff’s bar;

• increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks, which may have been accelerated by the pandemic;

• 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;

• 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;

2 unchanged sentences

• sources of liquidity;

• potential risk of environmental liability related to lending activities;

• 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;

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

• 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;

For the Three Months ended March 31, 2022 and 2021

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

13 unchanged sentences

or in overseas relations, including changes in the U.S.

trade relations related to imposition of tariffs, Brexit and the phase out of the London Interbank Offered Rate (“LIBOR”), and the geopolitical risk related to the increasing tension with China, Taiwan, Russia, Iran and other countries which could lead to disruption in supply chains, logistics and overall markets;

trade relations related to imposition of tariffs, Brexit and the phase out of the London Interbank Offered Rate (“LIBOR”) according to regulatory guidance;

• 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;

• acts of terrorism, war and global conflicts, such as the Russia and Ukraine conflict, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, inflationary pressure and the overall U.S.

and global financial markets.

The foregoing list of important factors is not exclusive, and you are cautioned not to place undue reliance on these forward–looking statements, which speak only as of the date of this document or, in the case of documents incorporated by reference, the dates of those documents.

14 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Over the last 20 years, Horizon has expanded its geographic reach and experienced financial growth through a combination of both organic expansion and mergers and acquisitions.

Horizon's initial operations focused on northwest Indiana, but since then, the Company has developed a presence in new markets in southern and central Michigan and northeastern and central Indiana.

Third Quarter 2021 Highlights

• On September 17, 2021, completed previously announced acquisition of 14 branches in 11 Michigan counties, approximately $206.8 million in loans and $846.4 million in deposits, in a transaction designed to further extend Horizon’s retail franchise and further enhance its low–cost core deposit and funding capability to support lending in its Midwestern growth markets.

• Net income grew to a record $23.1 million, up 4.0% from the linked quarter and 13.6% from the year–ago period.

Diluted earnings per share (“EPS”) of $0.52 was up from $0.50 for the second quarter of 2021 and $0.46 for the third quarter of 2020.

• Pre–tax, pre–provision net income grew to a record $28.2 million, up 15.5% from the linked quarter and 5.8% from the year–ago period.

First Quarter 2022 Highlights

• Net income grew to a record $23.6 million, up 10.0% from the linked quarter and 15.4% from the prior year period.

Diluted earnings per share (“EPS”) of $0.54 was up from $0.49 for the fourth quarter of 2021 and $0.46 for the first quarter of 2021.

• Pre–tax, pre–provision net income grew to $25.7 million, up 9.7% from the linked quarter and 6.1% from the prior year period.

This non–GAAP financial measure is utilized by banks to provide a greater understanding of pre–tax profitability before giving effect to credit loss expense.

(See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income” table below).

• Non–interest expense was $34.3 million in the quarter, or 2.09% of average assets on an annualized basis, compared to $33.4 million, or 2.18%, in the second quarter of 2021 and $33.4 million, or 2.30%, in the third quarter of 2020.

Acquisition–related expenses totaled approximately $799,000 in the third quarter of 2021 and $242,000 in the linked quarter.

• The efficiency ratio for the period was 54.88% compared to 57.73% for the second quarter of 2021 and 55.59% for the third quarter of 2020.

The adjusted efficiency ratio was 56.16% compared to 57.45% for the second quarter of 2021 and 56.64% for the third quarter of 2020.

(See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below).

• A previously disclosed consolidation of 10 retail locations was completed on August 27 as part of Horizon’s rigorous annual branch performance review process, with employees reassigned to support other staffing needs and growth initiatives.

Operating cost saves are largely expected to be redeployed into continued digital banking and technology investments.

• Net interest income grew to a record $46.5 million for the quarter, up 9.2% from the second quarter of 2021 and 7.3% from the third quarter of 2020.

Reported net interest margin (“NIM”) was 3.17% and adjusted NIM was 3.12%, with reported NIM increasing by three basis points and adjusted NIM decreasing by one basis point from the second quarter of 2021.

(See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation of adjusted NIM.) Approximately 16 basis points of the NIM and adjusted NIM is attributed to Federal Paycheck Protection Program (“PPP”) lending, offset by an estimated 16 basis point compression attributed to excess liquidity during the quarter.

During the third quarter, Horizon increased the average balance of its investment portfolio by $471.8 million to leverage capital and focus on increasing net interest income.

• Total non–interest income was $16.0 million, including the recovery of $876,000 from an acquired charged–off loan, as well as a $2.4 million gain from the sale of the Company’s ESOP trustee accounts at the end of the quarter.

The sale of these accounts is not expected to have any significant impact to the bottom line due to the related costs saves the Company will incur as it exited these account relationships.

Non–interest income was $15.2 million in the second quarter of 2021 and $16.7 million, including a $1.1 million securities sale gain, in the third quarter of 2020.

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, 2021 and 2020

• Horizon’s in–market consumer and commercial deposit relationships, including those on–boarded as part of its branch acquisition during the quarter, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.38% in the quarter, compared to 0.45% in the second quarter of 2021 and 0.67% in the third quarter of 2020.

• Horizon recorded a quarterly provision expense of $1.1 million, reflecting a $2.0 million allocation for loans acquired in the Michigan branch acquisition, as well as, solid asset quality metrics at period end.

• Commercial loans, excluding PPP lending, grew by 2.3% organically and by 7.5% overall during the quarter to $2.1 billion at period end.

Total loans, excluding PPP lending, grew organically 0.3% and 6.4% overall to $3.57 billion.

• Horizon’s book value per share increased to an all–time high of $16.28 while tangible book value per share decreased to $12.05.

(See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table below.) The decrease in tangible book value was a result of the repurchase of shares for approximately $7.6 million and $12.4 million of goodwill and intangible assets recorded during the third quarter.

• Horizon announced an increase to cash dividends to be paid on October 22, 2021 of 15.4% to $0.15 per share.

As of September 30, 2021, in excess of $120.9 million in cash was maintained at the holding company, providing considerable future optionality to build shareholder value.

This is Horizon’s second dividend increase in 2021.

• During the quarter, the Company repurchased 430,026 shares at an average cost of $17.74 per share for a total cost of $7.6 million.

This resulted in a reduction in tangible book value of approximately $0.18 per share and an increase in EPS of $0.01 per share for the third quarter.

Impact of the COVID–19 Pandemic

We continue to monitor the impact of COVID–19 is having on the markets in which we operate in and the uncertainty of the long–term ramifications to our customers and operations.

Within our markets, vaccinations have become readily available, infection positivity rates are at moderate levels, and the restrictions on businesses have generally been fully lifted.

However, the lasting effects of government aid programs are uncertain as stimulus packages taper, and the ultimate long–term impact of the business shutdowns that occurred as a result of COVID–19 remains uncertain in many sectors of the economy.

In the third quarter of 2021, COVID–19 positivity rates and hospitalizations in our markets rose due to the impact of the Delta variant, but have now been falling for the last several weeks.

The Federal Reserve, in response to the economic risks resulting from the COVID–19 pandemic, returned to a zero–interest rate policy in March 2020.

This was after most broader market rates decreased significantly in response to evolving news about the COVID–19 pandemic.

Many areas of consumer and business spending have rebounded in recent months, but there remains uncertainty about the longer lasting impact on local businesses as well as the travel, hospitality and entertainment industries results from the COVID–19 pandemic.

This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain those recoveries in the long run.

Inflation and supply shortages also pose risks to the economic recovery.

While positive economic indicators exist, we recognize that some of our commercial and individual customers are continuing to experience varying degrees of financial distress, which we expect to continue, through a lesser degree, through the end of 2021 and into early 2022.

Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the COVID–19 pandemic, which may result in some customers’ inability to meet their loan obligations to us or seek deferrals on their obligations.

In addition, the economic pressures and uncertainties related to the COVID–19 pandemic have seemingly resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer.

Our borrowing base includes customers in industries such as hotel/lodging, restaurants, retail and commercial real estate, which have been significantly impacted by the COVID–19 pandemic.

We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the COVID–19 pandemic.

We continue to monitor these customers closely.

(See the “Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income” table below.) Horizon recorded a provision release of $1.4 million in the quarter and $2.1 million in the linked quarter, as well as provision expense of $367,000 in the prior year period.

• Reported net interest margin (“NIM”) was 2.99% and adjusted NIM was 2.93%, with reported NIM increasing by two basis points and adjusted NIM increasing by seven basis points from the fourth quarter of 2021.

(See the “Non-GAAP Reconciliation of Net Interest Margin” table below for the definition of this non–GAAP calculation of adjusted NIM.)

• The Company was asset sensitive as of March 31, 2022 but less than the previous quarter as additional cash was deployed to higher yielding assets.

Due to the deployment of cash the base case estimate increased over $10.0 million from last quarter and reduced estimates for parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock, to net interest income increases of approximately $2.5 million and $3.8 million, respectively.

• The steepening of the yield curve during the first quarter resulted in unrealized losses on available for sale investments of $73.6 million compared to unrealized gains of $7.2 million at December 31, 2021.

The impact to the tangible capital ratio was a decrease of 67 basis points from 7.61% at December 31, 2021 to 6.94% at March 31, 2022, an 8.8% decrease.

• The Bank's capital is still robust with leverage and risk based capital ratios of 9.7% and 15.21%, respectively.

• Total loans, excluding Federal Paycheck Protection Program (“PPP”) loans and sold commercial participation loans, grew by 2.3%, or 9.5% annualized, during the first quarter to $3.66 billion at period end from $3.57 billion on December 31, 2021.

• Commercial loans, excluding PPP loans and sold commercial participation loans, grew by 3.3%, or 13.5% annualized, during the first quarter to a record $2.20 billion from $2.13 billion on December 31, 2021.

• Consumer loans grew by 3.7%, or 14.9% annualized, during the first quarter to a record $753.9 million at period end.

• The decline in residential mortgage loans slowed during the first quarter with a 0.2% reduction to $593.4 million at period end, as refinancing activity decreased and we experienced movement to adjustable rate products which are held on the balance sheet.

Gain on sale of mortgage loans and mortgage warehouse income only constituted 4.7% of total revenue in the first quarter of 2022.

• Non–interest expense was $36.6 million in the quarter, or 2.03% of average assets on an annualized basis, compared to $39.4 million, or 2.09%, in the fourth quarter of 2021 and $32.2 million, or 2.20%, in the first quarter of 2021.

As previously disclosed, acquisition–related and non–recurring Department of Labor (“DOL”) Employee Stock Ownership Plan (“ESOP“) settlement expenses totaled $2.8 million in the fourth quarter of 2021.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

• The efficiency ratio for the period was 58.74% compared to 62.69% for the fourth quarter of 2021 and 57.03% for the first quarter of 2021.

The adjusted efficiency ratio was 58.74% compared to 58.25% for the fourth quarter of 2021 and 57.97% for the first quarter of 2021.

(See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)

• As part of the Company’s annual branch performance review of the Bank's retail network, Horizon’s Board of Directors approved the permanent closure of seven branch locations in the second half of 2022.

We expect to incur a one–time charge of approximately $432,000 with an earn–back period of approximately six months.

• Horizon’s in–market consumer and commercial deposit relationships, including those on–boarded as part of its branch acquisition near the end of the third quarter of 2021, combined with strategic pricing moves to manage deposit growth and runoff of higher–priced time deposits, contributed to continued improvement in the cost of interest bearing liabilities, which declined to 0.30% in the quarter, compared to 0.31% in the fourth quarter of 2021 and 0.50% in the first quarter of 2021.

• Asset quality remains favorable as evidenced by non–performing loans at 0.54% of total loans at period end and net charge–offs to average loans represented 0.00% for the first quarter of 2022.

Financial Summary

For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Net Interest Income and Net Interest Margin 2022 2021 2021

3 unchanged sentences

For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Asset Yields and Funding Costs 2022 2021 2021

3 unchanged sentences

Non–interest Income and

Mortgage Banking Income September 30, June 30, September 30,

Mortgage Banking Income March 31, December 31, March 31,

2022 2021 2021

1 unchanged sentence

Gain on sale of mortgage loans 2,027 4,167 5,296

Mortgage servicing income net of impairment 336 1,503 (1,308)

Mortgage servicing income net of impairment or recovery 3,489 300 213

For the Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

Non–interest Expense 2022 2021 2021

1 unchanged sentence

Annualized non–interest expense to average assets 2.03 % 2.09 % 2.20 %

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2022 and 2021

At or for the Three Months Ended

Credit Quality September 30, June 30, September 30,

Credit Quality March 31, December 31, March 31,

2022 2021 2021

2 unchanged sentences

Percent of net charge–offs to average loans outstanding for the period 0.00 % 0.04 % 0.01 %

Allowance for December 31, Net Reserve September 30,

Credit Losses 2020 1Q21 2Q21 3Q21 2021

Allowance for December 31, Net Reserve March 31,

Credit Losses 2021 1Q21 2022

Commercial $ 40,775 $ (2,986) $ 37,789

5 unchanged sentences

ACL/Total Loans 1.51 % 1.41 %

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, 2021 and 2020

Critical Accounting Policies

20 unchanged sentences

FASB ASC 350–10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill.

At September 30, 2021, Horizon had core deposit intangibles of $21.2 million subject to amortization and $162.8 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.

At March 31, 2022, Horizon had core deposit intangibles of $20.0 million subject to amortization and $154.6 million of goodwill, which is not subject to amortization.

Goodwill arising from

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2022 and 2021

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.

9 unchanged sentences

Horizon further considered the amount by which fair value exceeded book value in the most recent quantitative analysis and stress testing performed.

At the conclusion of the most recent qualitative assessment, the Company determined that as of September 30, 2021, it was more likely than not that the fair value exceeded its carrying values.

At the conclusion of the most recent qualitative assessment, the Company determined that as of March 31, 2022, it was more likely than not that the fair value exceeded its carrying values.

Horizon will continue to monitor developments regarding the COVID–19 pandemic and measures implemented in response to the pandemic, market capitalization, overall economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill in the future.

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, 2021 and 2020

Mortgage Servicing Rights

18 unchanged sentences

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.

The key criterion for the hedge accounting is that the

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2022 and 2021

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.

8 unchanged sentences

Horizon excludes the time value expiration of the hedge when measuring ineffectiveness.

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, 2021 and 2020

Valuation Measurements

5 unchanged sentences

Financial Condition

On September 30, 2021, Horizon’s total assets were $7.5 billion, an increase of approximately $1.6 billion compared to December 31, 2020.

The increase in total assets was primarily in cash and due from banks of $722.1 million, investments held to maturity of $600.6 million and investments available for sale of $535.6 million.

These increases were offset by a decrease in net loans of $207.1 million.

On March 31, 2022, Horizon’s total assets were $7.4 billion, an increase of approximately $8.4 million compared to December 31, 2021.

The increase in total assets was primarily in investments held to maturity of $453.7 million and net loans of $68.9 million.

These increases were offset by decreases in cash and due from banks of $472.6 million and investments available for sale of $48.3 million.

HORIZON BANCORP, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2022 and 2021

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Value Amortized

8 unchanged sentences

Held to maturity

Treasury and federal agencies $ 292,459 $ 272,497 $ 195,429 $ 194,226

State and municipal 1,091,037 980,443 862,461 878,917

4 unchanged sentences

Total held to maturity investment securities $ 2,006,129 $ 1,827,845 $ 1,552,443 $ 1,559,991

Investment securities available for sale increased $535.6 million since December 31, 2020 to $1.7 billion as of September 30, 2021 and investment securities held to maturity increased $600.6 million since December 31, 2020 to $769.2 million as of September 30, 2021.

This increase was due to additional purchases to increase earning assets as the result of organic deposit growth and Horizon’s previously announced acquisition of 14 branches in 11 Michigan counties which increased deposits approximately $846.4 million on September 17, 2021.

Investment securities available for sale decreased $48.3 million since December 31, 2021 to $1.1 billion as of March 31, 2022 and investment securities held to maturity increased $453.7 million since December 31, 2021 to $2.0 billion as of March 31, 2022.

This increase in investments held to maturity was due to additional purchases to increase earning assets as the result of organic deposit growth.

Net loans increased $68.9 million since December 31, 2021 to $3.7 billion as of March 31, 2022.

Commercial loans, excluding PPP loans and sold commercial participation loans, increased $70.9 million and consumer loans increased $26.6 million since December 31, 2021.

These increases were offset by decreases in PPP loans of $19.1 million, loans held for sale of $8.8 million, sold commercial participation loans of $6.4 million, mortgage warehouse loans of $3.9 million and residential mortgage loans of $1.0 million since December 31, 2021.

Total deposits increased $48.5 million since December 31, 2021 to $5.9 billion as of March 31, 2022, from organic growth.

Total borrowings increased from $712.7 million as of December 31, 2021 to $728.7 million as of March 31, 2022.

At March 31, 2022, the Company had $428.1 million in short-term funds borrowed compared to $180.8 million at December 31, 2021.

Stockholders’ equity totaled $677.5 million at March 31, 2022 compared to $723.2 million at December 31, 2021.

The decrease in stockholders’ equity during the period was primarily due to a decrease in accumulated other comprehensive income of $62.1 million as unrealized losses on available for sale securities totaled $73.6 million and the amount of dividends paid during the quarter, offset by the generation of net income.

Book value per common share at March 31, 2022 decreased to $15.55 compared to $16.61 at December 31, 2021.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

Net loans decreased $207.1 million since December 31, 2020 to $3.7 billion as of September 30, 2021.

Mortgage warehouse, commercial, residential mortgage and loans held for sale decreased $225.7 million, $19.1 million, $20.7 million and $8.7 million, respectively.

These decreases were offset by an increase in consumer loans of $58.2 million.

PPP loans decreased $116.6 million since December 31, 2020 to $92.3 million as of September 30, 2021.

These decreases were offset by an increase in consumer loans of $58.2 million.

The net loans acquired in the acquisition of 14 branches in 11 Michigan counties of approximately $206.8 million helped to partially offset the decrease in loans.

Total deposits increased $1.4 billion since December 31, 2020 to $6.0 billion as of September 30, 2021.

This increase was primarily due to Federal stimulus payments to consumers, funds from the origination of PPP loans and approximately $846.4 million in deposits from the acquisition of 14 branches in 11 Michigan counties.

Total borrowings increased from $475.0 million as of December 31, 2020 to $670.8 million as of September 30, 2021.

At September 30, 2021, the Company had $195.2 million in short-term funds borrowed compared to $315.5 million at December 31, 2020.

During the second quarter of 2021, the Bank paid–off $50.0 million in long–term Federal Home Loan Bank of Indianapolis advances which resulted in a prepayment penalty of $125,000.

Stockholders’ equity totaled $708.5 million at September 30, 2021 compared to $692.2 million at December 31, 2020.

The increase in stockholders’ equity during the period was due to the generation of net income, offset by dividends paid, stock repurchases and a decrease in accumulated other comprehensive income during the period.

Book value per common share at September 30, 2021 increased to $16.28 compared to $15.78 at December 31, 2020.

For the Three Months ended March 31, 2022 and 2021

Results of Operations

Consolidated net income for the three–month period ended September 30, 2021 was $23.1 million, or $0.52 diluted earnings per share, compared to $20.3 million, or $0.46 diluted earnings per share for the same period in 2020.

The increase in net income for the three–month period ended September 30, 2021 when compared to the same prior year period reflects an increase in net interest income of $3.1 million, a decrease in credit loss expense of $940,000 and a decrease in income tax expense of $270,000, offset by an increase in non–interest expense of $942,000 and a decrease in non–interest income of $656,000.

Excluding acquisition expenses, credit loss expense acquired loans, gain on sale of ESOP trustee accounts, gain on sale of investment securities and death benefit on bank owned life insurance (“adjusted net income”), adjusted net income for the third quarter of 2021 was $23.0 million, or $0.52 diluted earnings per share, compared to $19.4 million, or $0.45 diluted earnings per share for the third quarter of 2020.

Consolidated net income for the nine–month period ended September 30, 2021 was $65.7 million, or $1.49 diluted earnings per share, compared to $46.6 million, or $1.06 diluted earnings per share for the same period in 2020.

The increase in net income for the nine–month period ended September 30, 2021 when compared to the same prior year period reflects an increase in non–interest income of $5.2 million, an increase in net interest income of $4.4 million and a decrease in credit loss expense of $17.7 million, offset by increases in non–interest expense of $4.9 million and income tax expense of $3.4 million.

Excluding acquisition expenses, credit loss expense acquired loans, gain on sale of ESOP trustee account, gain on sale of investment securities, death benefits on bank owned life insurance and prepayment penalties on borrowings (“adjusted net income”), adjusted net income for the nine–month period ended September 30, 2021 was $64.9 million, or $1.46 diluted earnings per share, compared to $45.0 million, or $1.02 diluted earnings per share for the nine–month period ended September 30, 2020.

Consolidated net income for the three–month period ended March 31, 2022 was $23.6 million, or $0.54 diluted earnings per share, compared to $20.4 million, or $0.46 diluted earnings per share for the same period in 2021.

The increase in net income for the three–month period ended March 31, 2022 when compared to the same prior year period reflects an increase in net interest income of $5.6 million, a decrease in credit loss expense of $1.8 million, an increase in non–interest income of $282,000 and a decrease in income tax expense of $89,000, offset by an increase in non–interest expense of $4.4 million.

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.

Net interest income is the difference between interest income, principally from loans and investment securities, less 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.

2 unchanged sentences

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.

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, 2021 and 2020

Net interest income during the three months ended September 30, 2021 was $46.5 million, an increase of $3.1 million from the $43.4 million earned during the same period in 2020.

Yields on the Company’s interest earning assets decreased by 44 basis points to 3.46% for the three months ended September 30, 2021 from 3.90% for the three months ended September 30, 2020.

Interest income increased $722,000 from $50.1 million for the three months ended September 30, 2020 to $50.9 million for the same period in 2021.

The increase in interest income was due to an increase in average balances of interest earning assets of $781,000 during the three months ended September 30, 2021.

Interest income from acquisition–related purchase accounting adjustments was $875,000 for the three months ending September 30, 2021 compared to $1.5 million for the same period of 2020.

Rates paid on interest bearing liabilities decreased by 29 basis points for the three–month period ended September 30, 2021 compared to the same period in 2020.

Interest expense decreased $2.4 million when compared to the three–month period ended September 30, 2020 to $4.3 million for the same period in 2021.

Net interest income during the three months ended March 31, 2022 was $48.2 million, an increase of $5.6 million from the $42.5 million earned during the same period in 2021.

Yields on the Company’s interest earning assets decreased by 44 basis points to 3.22% for the three months ended March 31, 2022 from 3.66% for the three months ended March 31, 2021.

Interest income increased $4.5 million from $47.6 million for the three months ended March 31, 2021 to $52.1 million for the same period in 2022.

The increase in interest income was due to an increase in average balances of interest earning assets of $1.36 billion during the three months ended March 31, 2022.

Interest income from acquisition–related purchase accounting adjustments was $916,000 for the three months ending March 31, 2022 compared to $1.6 million for the same period of 2021.

Rates paid on interest bearing liabilities decreased by 20 basis points for the three–month period ended March 31, 2022 compared to the same period in 2021.

Interest expense decreased $1.1 million when compared to the three–month period ended March 31, 2021 to $3.9 million for the same period in 2022.

This decrease was due to lower rates paid on deposits and borrowings.

The cost of average interest bearing deposits decreased 13 basis points while the cost of average borrowings decreased 53 basis points.

Average balances of interest bearing deposits increased $497.2 million and average balances of borrowings increased $20.9 million for the three-month period ended September 30, 2021 when compared to the same period in 2020.

The net interest margin decreased 22 basis points from 3.39% for the three–month period ended September 30, 2020 to 3.17% for the same period in 2021.

The decrease in the margin for the three–month period ended September 30, 2021 compared to the same period in 2020 was due to a decrease in the yield on interest earning assets, offset by a decrease in the cost of interest bearing liabilities.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 3.12% for the three-month period ending September 30, 2021 compared to 3.27% for the same period in 2020.

The net interest margin was impacted due to PPP lending and high level of cash held during the third quarter of 2021.

Horizon estimates that the PPP loans increased the net interest margin by 16 basis points for the third quarter of 2021.

Average balances of interest bearing deposits increased $954.5 million and average balances of borrowings increased $138.3 million for the three-month period ended March 31, 2022 when compared to the same period in 2021.

The net interest margin decreased 30 basis points from 3.29% for the three–month period ended March 31, 2021 to 2.99% for the same period in 2022.

The decrease in the margin for the three–month period ended March 31, 2022 compared to the same period in 2021 was due to a decrease in the yield on interest earning assets, offset by a decrease in the cost of interest bearing liabilities.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments (“adjusted net interest margin”), the margin would have been 2.93% for the three-month period ending March 31, 2022 compared to 3.17% for the same period in 2021.

The net interest margin was impacted due to PPP lending and the high level of cash held during the first quarter of 2022.

Horizon estimates that the PPP loans increased the net interest margin by 2 basis points for the first quarter of 2022.

This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in non–interest bearing deposits.

In addition, Horizon estimates that the high level of cash held on the balance sheet compressed the net interest margin by 16 basis points for the third quarter of 2021.

In addition, Horizon estimates that the high level of cash held on the balance sheet compressed the net interest margin by 11 basis points for the first quarter of 2021.

This assumes that the high level of cash was not included in average interest earning assets or interest income and was excluded from non–interest bearing deposits.

3 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

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

2 unchanged sentences

Three Months Ended Three Months Ended

September 30, 2021 September 30, 2020

March 31, 2022 March 31, 2021

Balance Interest Average

18 unchanged sentences

Borrowings 503,846 1,043 0.84 % 365,586 1,231 1.37 %

Repurchase agreements 139,742 37 0.11 % 111,692 38 0.14 %

Subordinated notes 58,763 880 6.07 % 58,616 880 6.09 %

21 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

Net interest income during the nine months ended September 30, 2021 was $131.7 million, an increase of $4.4 million from the $127.3 million earned during the same period in 2020.

Yields on the Company’s interest earning assets decreased by 60 basis points to 3.53% for the nine months ended September 30, 2021 from 4.13% for the nine months ended September 30, 2020.

Interest income decreased $6.3 million from $152.1 million for the nine months ended September 30, 2020 to $145.9 million for the same period in 2021.

Average interest earning assets during the nine months ended September 30, 2021 increased $675.3 million to $5.7 billion compared to $5.0 billion during the nine months ended September 30, 2020.

Interest income from acquisition–related purchase accounting adjustments was $2.7 million for the nine months ended September 30, 2021 compared to $4.5 million for the same period of 2020.

Rates paid on interest bearing liabilities decreased 40 basis points for the nine–month period ended September 30, 2021 compared to the same period in 2020.

Interest expense decreased $10.7 million when compared to the nine–month period ended September 30, 2020 to $14.2 million for the same period in 2021.

This decrease was due to lower rates paid on deposits and borrowings.

The cost of average interest bearing deposits decreased 41 basis points while the cost of average borrowings decreased 43 basis points.

Average balances of interest bearing deposits increased $393.3 million and average balances of borrowings decreased $66.0 million for the nine–month period ended September 30, 2021 when compared to the same period in 2020.

The net interest margin decreased 28 basis points from 3.48% for the nine–month period ended September 30, 2020 to 3.20% for the same period in 2021.

The decrease in the margin for the nine–month period ended September 30, 2021 compared to the same period in 2020 was due to a decrease in the yield of interest earning assets, offset by a decrease in the cost of interest bearing liabilities.

Excluding the interest income recognized from the acquisition–related purchase accounting adjustments and prepayment penalties on borrowings (“adjusted net interest margin”), the margin would have been 3.14% for the nine–month period ended September 30, 2021 compared to 3.36% for the same period in 2020.

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, 2021 and 2020

Average Balance Sheets

(Dollar Amount in Thousands, Unaudited)

Nine Months Ended Nine Months Ended

September 30, 2021 September 30, 2020

Balance Interest Average

Interest earning assets

Federal funds sold $ 312,359 $ 284 0.12 % $ 44,375 $ 125 0.38 %

Interest earning deposits 27,157 128 0.63 % 25,083 216 1.15 %

Investment securities – taxable 708,519 8,229 1.55 % 476,735 6,582 1.84 %

Investment securities – non–taxable (1)

1,040,447 16,790 2.73 % 652,339 12,294 3.19 %

Loans receivable (2) (3)

3,624,393 120,446 4.46 % 3,839,008 132,927 4.64 %

Total interest earning assets 5,712,875 145,877 3.53 % 5,037,540 152,144 4.13 %

Non–interest earning assets

Cash and due from banks 85,855 85,511

Allowance for credit losses (56,885) (42,864)

Other assets 455,181 469,509

Total average assets $ 6,197,026 $ 5,549,696

Liabilities and Stockholders’ Equity

Interest bearing liabilities

Interest bearing deposits $ 3,679,970 $ 6,204 0.23 % $ 3,286,648 $ 15,838 0.64 %

Borrowings 510,264 3,640 0.95 % 576,288 5,974 1.38 %

Subordinated debentures 58,653 2,641 6.02 % 21,218 953 6.00 %

Junior subordinated debentures issued to capital trusts 56,628 1,678 3.96 % 56,398 2,061 4.88 %

Total interest bearing liabilities 4,305,515 14,163 0.44 % 3,940,552 24,826 0.84 %

Non–interest bearing liabilities

Demand deposits 1,128,173 879,840

Accrued interest payable and other liabilities 53,751 69,026

Stockholders’ equity 709,587 660,278

Total average liabilities and stockholders’ equity $ 6,197,026 $ 5,549,696

Net interest income/spread $ 131,714 3.09 % $ 127,318 3.29 %

Net interest income as a percent of average interest earning assets (1)

3.20 % 3.48 %

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.

Includes fees on loans.

The inclusion of loan fees does not have a material effect on the average interest rate.

Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding.

Loan totals are shown net of unearned income and deferred loan fees.

The average rate is presented on a tax equivalent basis.

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, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Credit Loss Expense

Horizon assesses the adequacy of its Allowance for Credit Losses (“ACL”) by regularly reviewing the performance of its loan portfolio.

During the three–month period ended September 30, 2021, a provision expense of $1.1 million was required to reflect a $2.0 million allocation for loans acquired in the Michigan branch acquisition and the nature of our loan portfolios and general characteristics of certain loan pools compared to a provision expense of $2.1 million for the same period of 2020.

During the three–month period ended September 30, 2021, commercial loan net recoveries were $25,000, residential mortgage loan net recoveries were $29,000 and consumer loan net charge–offs were $36,000.

During the nine–month period ended September 30, 2021, a provision reversal of $13,000 was required which includes a $2.0 million allocation for loans acquired in the Michigan branch acquisition and the nature of our loan portfolios and general characteristics of certain loan pools compared to a provision expense of $17.7 million for the same period of 2020.

During the nine–month period ended September 30, 2021, commercial loan net charge–offs were $179,000, residential mortgage loan net recoveries were $117,000 and consumer net charge–offs were $173,000.

The ACL balance at September 30, 2021 was $56.8 million, or 1.55% of total loans compared to an ACL balance of $57.0 million at December 31, 2020 or 1.47% of total loans.

The increase in the ACL to total loans ratio was primarily due to a decrease in loans from December 31, 2020, including a decrease in PPP loans of $116.6 million which do not require a related ACL balance.

As of September 30, 2021, non–performing loans totaled $29.4 million, including approximately $7.3 million acquired in the Michigan branch acquisition, which reflects a $2.6 million increase from $26.8 million in non–performing loans as of December 31, 2020.

Non–performing commercial loans increased by $1.8 million, non–performing real estate loans increased by $647,000 and non–performing consumer loans increased by $147,000 at September 30, 2021 compared to December 31, 2020.

During the three–month period ended March 31, 2022, a credit loss expense totaled a recovery of $1.4 million compared to a credit loss expense of $367,000 for the same period of 2021.

During the three–month period ended March 31, 2022, commercial loan net charge–offs were $38,000, residential mortgage loan net recoveries were $10,000 and consumer loan net charge–offs were $108,000.

The ACL balance at March 31, 2022 was $52.5 million, or 1.41% of total loans compared to an ACL balance of $54.3 million at December 31, 2021 or 1.51% of total loans.

The decrease in the ACL to total loans ratio was primarily due to favorable asset quality with non–performing loans at 0.54% of total loans at period end and net charge–offs to average loans represented 0.00% for the first quarter of 2022.

As of March 31, 2022, non–performing loans totaled $20.1 million, reflecting a $1.1 million increase from $19.0 million in non–performing loans as of December 31, 2021.

Non–performing commercial loans increased by $335,000, non–performing real estate loans increased by $579,000 and non–performing consumer loans increased by $180,000 at March 31, 2022 compared to December 31, 2021.

The Bank has elected (i) to suspend the requirements under GAAP for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a TDR;

and (ii) to suspend any determination of a loan modified as a result of the effects of COVID–19 pandemic as being a TDR, including impairment for accounting purposes.

At September 30, 2021, the Bank modified loans totaling $29.2 million which qualify for treatment under the CARES Act.

At March 31, 2022, the Bank modified loans totaling $1.2 million which qualify for treatment under the CARES Act.

The following is a summary of loan modifications related to the COVID–19 pandemic by type of loan.

8 unchanged sentences

Mortgage (Serviced Only) 7

Other Real Estate Owned (“OREO”) and repossessed assets totaled $3.0 million at September 30, 2021 compared to $1.9 million at December 31, 2020.

The increase was primarily due to several former branch locations totaling $1.8 million being moved to OREO during the third quarter after being closed.

Other Real Estate Owned (“OREO”) and repossessed assets totaled $2.4 million at March 31, 2022 compared to $3.6 million at December 31, 2021.

The decrease was primarily due to the sale of five properties during the first quarter of 2022.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–interest Income

The following is a summary of changes in non–interest income for the three months ending September 30, 2021 and 2020 (table dollar amounts in thousands):

The following is a summary of changes in non–interest income for the three months ending March 31, 2022 and 2021 (table dollar amounts in thousands):

Three Months Ended

September 30, Amount Percent

2021 2020 Change Change

Non–interest Income

Service charges on deposit accounts $ 2,291 $ 2,154 $ 137 6.4 %

Wire transfer fees 210 298 (88) (29.5) %

Interchange fees 2,587 2,438 149 6.1 %

Fiduciary activities 2,124 2,105 19 0.9 %

Gain on sale of investment securities — 1,088 (1,088) (100.0) %

Gain on sale of mortgage loans 4,088 8,813 (4,725) (53.6) %

Mortgage servicing net of impairment 336 (1,308) 1,644 (125.7) %

Increase in cash surrender value of bank owned life insurance 534 566 (32) (5.7) %

Death benefit on bank owned life insurance 517 31 486 0.0 %

Other income 3,357 515 2,842 551.8 %

Total non–interest income $ 16,044 $ 16,700 $ (656) (3.9) %

Total non–interest income was $656,000 lower during the third quarter of 2021 compared to the same period of 2020.

Residential mortgage loan activity during the third quarter of 2021 generated $4.1 million of income from the gain on sale of mortgage loans, down from $8.8 million for the same period in 2020 due to a lower volume of loans sold and a decrease in the percentage gain on loans sold.

Mortgage servicing income, net of impairment, increased $1.6 million during the third quarter of 2021 compared to the same period of 2020 due to an impairment charge of $1.5 million recorded during the third quarter of 2020 offset by a reversal of $299,000 in impairment charges during the third quarter of 2021.

Other income increased $2.8 million during the third quarter of 2021 primarily due to the gain on sale of ESOP trustee accounts totaling $2.3 million and the recovery of $876,000 from an acquired charged–off loan.

Interchange fees, service charges on deposit accounts and death benefit on bank owned life insurance increased $149,000, $137,000, $486,000, respectively, when comparing the third quarter of 2021 to the same period of 2020.

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, 2021 and 2020

The following is a summary of changes in non–interest income for the nine months ending September 30, 2021 and 2020 (table dollar amounts in thousands):

Nine Months Ended

September 30, Amount Percent

March 31, Amount Percent

2022 2021 Change Change

8 unchanged sentences

Increase in cash surrender value of bank owned life insurance 510 511 (1) (0.2) %

Death benefit on bank owned life insurance 783 264 519 196.6 %

Other income 892 367 525 143.1 %

Total non–interest income $ 14,155 $ 13,873 $ 282 2.0 %

Total non–interest income was $5.2 million higher for the nine–month period ended September 30, 2021 compared to the same period of 2020.

Residential mortgage loan activity during the nine–month period ended September 30, 2021 generated $15.0 million of income from the gain on sale of mortgage loans, down from $18.9 million for the same period in 2020 due to a decrease in the volume of loans sold.

Mortgage servicing income, net of impairment, increased $6.1 million during the nine–month period ended September 30, 2021 compared to the same period of 2020 due to the reversal of $2.1 million in impairment charges during the nine–month period ended September 30, 2021 compared to impairment charges of $4.7 million during the same period in 2020.

Other income increased $2.7 million during the nine–month period ended September 30, 2021 compared to the same period in 2020 primarily due to the gain on sale of ESOP trustee accounts totaling $2.3 million.

Interchange fees increased $1.2 million during the nine–month period ended September 30, 2021 compared to the same period of 2020.

Total non–interest income was $282,000 higher during the first quarter of 2022 compared to the same period of 2021.

Residential mortgage loan activity during the first quarter of 2022 generated $2.0 million of income from the gain on sale of mortgage loans, down from $5.3 million for the same period in 2021 due to a lower volume of loans sold and a decrease in the percentage gain on loans sold.

Mortgage servicing income, net of impairment or recovery, increased $3.3 million during the first quarter of 2022 compared to the same period of 2021 due to an impairment recovery of $2.6 million recorded during the first quarter of 2022 as mortgage pre–payment speeds have slowed.

Service charges on deposit accounts and interchange fees increased $561,000 and $440,000, respectively, when comparing the first quarter of 2022 to the same period of 2021 primarily due to the deposits acquired with the branch acquisition completed during the third quarter of 2021.

Gain on sale of investment securities decreased $914,000 when comparing the first quarter of 2022 to the same period of 2021.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–interest Expense

The following is a summary of changes in non–interest expense for the three months ending September 30, 2021 and 2020 (table dollar amounts in thousands):

The following is a summary of changes in non–interest expense for the three months ending March 31, 2022 and 2021 (table dollar amounts in thousands):

Three Months Ended

September 30, September 30,

2021 2020 Adjusted

Actual Acquisition

Expenses Adjusted Actual Acquisition

Expenses Adjusted Amount

Change Percent

Non–interest Expense

Salaries and employee benefits $ 18,901 $ (25) $ 18,876 $ 18,832 $ — $ 18,832 $ 44 0.2 %

Net occupancy expenses 2,935 (13) 2,922 3,107 — 3,107 (185) (6.0) %

Data processing 2,526 (17) 2,509 2,237 — 2,237 272 12.2 %

Professional fees 522 (53) 469 688 — 688 (219) (31.8) %

Outside services and consultants 2,330 (401) 1,929 1,561 — 1,561 368 23.6 %

Loan expense 2,645 — 2,645 2,876 — 2,876 (231) (8.0) %

FDIC deposit insurance 279 — 279 570 — 570 (291) (51.1) %

Other losses 69 (1) 68 114 — 114 (46) (40.4) %

Other expenses 4,142 (289) 3,853 3,422 — 3,422 431 12.6 %

Total non–interest expense $ 34,349 $ (799) $ 33,550 $ 33,407 $ — $ 33,407 $ 143 0.4 %

Non–interest Exp.

Assets 2.09 % 2.05 % 2.30 % 2.30 %

Total non–interest expense was $942,000 higher for the third quarter of 2021 when compared to the third quarter of 2020.

Increases in outside services and consultants, other expense and data processing were offset in part by decreases in FDIC deposit insurance and loan expense.

Excluding acquisition expenses, total non–interest expense increased by $143,000 in the third quarter of 2021 when compared to the same period in 2020.

Annualized non–interest expense as a percent of average assets was 2.09% and 2.30% for the three months ended September 30, 2021 and 2020, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.05% and 2.30% for the three months ended September 30, 2021 and 2020, respectively.

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, 2021 and 2020

The following is a summary of changes in non–interest expense for the nine months ending September 30, 2021 and 2020 (table dollar amounts in thousands):

Nine Months Ended

September 30, September 30,

2021 2020 Adjusted

Actual Acquisition

Expenses Adjusted Actual Acquisition

Expenses Adjusted Amount

March 31, 2022 March 31, 2021 Amount

Change Percent

10 unchanged sentences

Total non–interest expense $ 36,610 $ 32,172 $ 4,438 13.8 %

Non–interest Exp.

Annualized Non–interest Exp.

Assets 2.03 % 2.20 %

Total non–interest expense was $4.9 million higher for the nine–month period ended September 30, 2021 compared to the same period of 2020.

Increases in salaries and employee benefits, outside services and consultants, loan expense, FDIC insurance expense and data processing were offset in part by a decrease in net occupancy expense.

Excluding acquisition expenses, total non–interest expense increased $3.9 million for the nine–month period ended September 30, 2021 compared to the same period of 2020.

Annualized non–interest expense as a percent of average assets was 2.16% and 2.29% for the nine–month period ended September 30, 2021 and 2020, respectively.

Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.13% and 2.29% for the nine–month period ended September 30, 2021 and 2020, respectively.

Income tax expense totaled $4.1 million for the third quarter of 2021, a decrease of $270,000 when compared to the third quarter of 2020.

Income tax expense totaled $11.3 million for the nine–month period ended September 30, 2021, an increase of $3.4 million when compared to the same period of 2020.

The increase in income tax expense was primarily due to an increase in income before taxes of $22.4 million.

Total non–interest expense was $4.4 million higher for the first quarter of 2022 when compared to the first quarter of 2021.

The increases in expenses was primarily due to an increase in salaries and employee benefits of $2.9 million, an increase in other expense of $1.0 million, an increase in outside services and consultants of $823,000 and an increase in net occupancy expenses of $243,000 primarily due to the 14 branches acquired in September 2021, wage increases, higher health care costs and continued investments in technology.

These increases were partially offset by decreases of $277,000 in loan expense and $230,000 in professional fees.

Annualized non–interest expense as a percent of average assets was 2.03% and 2.20% for the three months ended March 31, 2022 and 2021, respectively.

Income tax expense totaled $3.5 million for the first quarter of 2022, a decrease of $89,000 when compared to the first quarter of 2021.

The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses.

1 unchanged sentence

Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB.

At September 30, 2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon,

At March 31, 2022, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $575.3 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $672.7 million at December 31, 2021.

The Bank had approximately $2.3 billion of unpledged investment securities at March 31, 2022 compared to $2.0 billion at December 31, 2021.

HORIZON BANCORP, INC.

2 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

the Bank had approximately $651.7 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to $1.04 billion at December 31, 2020.

The Bank had approximately $1.7 billion of unpledged investment securities at September 30, 2021 compared to $632.4 million at December 31, 2020.

For the Three Months ended March 31, 2022 and 2021

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2021.

Stockholders’ equity totaled $708.5 million as of September 30, 2021, compared to $692.2 million as of December 31, 2020.

For the nine months ended September 30, 2021, the ratio of average stockholders’ equity to average assets was 11.45% compared to 11.82% for the twelve months ended December 31, 2020.

The increase in stockholders’ equity during the period was the result of net income recorded during the period offset in part by a decrease in accumulated other comprehensive income, stock repurchases and dividends declared.

Horizon declared common stock dividends in the amount of $0.41 per share during the first nine months of 2021 and $0.36 per share for the same period of 2020.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 27.3% and 34.0% for the first nine months of 2021 and 2020, respectively.

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at March 31, 2022.

Stockholders’ equity totaled $677.5 million as of March 31, 2022, compared to $723.2 million as of December 31, 2021.

For the three months ended March 31, 2022, the ratio of average stockholders’ equity to average assets was 9.79% compared to 10.93% for the twelve months ended December 31, 2021.

The decrease in stockholders’ equity during the period was due to an decrease in accumulated other comprehensive income of $62.1 million and the amount of dividends paid, offset by net income recorded during the period.

Horizon declared common stock dividends in the amount of $0.15 per share during the first three months of 2022 and $0.13 per share for the same period of 2021.

The dividend payout ratio (dividends as a percent of basic earnings per share) was 27.8% and 26.1% for the first three months of 2022 and 2021, respectively.

For additional information regarding dividends, see Horizon’s Annual Report on Form 10-K for 2021.

1 unchanged sentence

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 credit losses, tangible stockholders’ equity, tangible book value per share, the return on average assets, the return on average common equity, and pre–tax pre–provision net income.

Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average common equity, the return on average tangible equity and pre–tax pre–provision net income.

In each case, we have identified special circumstances that we consider to be adjustments and have excluded them, to show the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations.

6 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–GAAP Reconciliation of Net Income

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

9 unchanged sentences

Net income excluding gain on sale of ESOP trustee accounts 23,563 22,125 23,471 22,364 20,422

DOL ESOP settlement expenses — 1,900 — — —

Tax effect — (315) — — —

Net income excluding DOL ESOP settlement expenses 23,563 23,710 23,471 22,364 20,422

(Gain)/loss on sale of investment

12 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–GAAP Reconciliation of Diluted Earnings per Share

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

9 unchanged sentences

Diluted EPS excluding gain on sale of ESOP trustee accounts 0.54 0.51 0.54 0.51 0.46

DOL ESOP settlement expenses — 0.04 — — —

Tax effect — (0.01) — — —

Diluted EPS excluding DOL ESOP settlement expenses 0.54 0.54 0.54 0.51 0.46

(Gain)/loss on sale of investment securities — — — — (0.02)

11 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

5 unchanged sentences

Gain on sale of ESOP trustee accounts — — (2,329) — —

DOL ESOP settlement expenses — 1,900 — — —

(Gain)/loss on sale of investment securities — — — — (914)

4 unchanged sentences

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

9 unchanged sentences

Adjusted net interest margin 2.93 % 2.86 % 3.12 % 3.13 % 3.17 %

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, 2021 and 2020

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,

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

10 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

6 unchanged sentences

Acquisition expenses — (884) (799) (242) —

Non–interest expense excluding acquisition expenses 33,550 33,146 32,172 36,453 33,407 98,868 94,988

DOL ESOP settlement expenses — (1,900) — — —

Non–interest expense excluding acquisition expenses and DOL ESOP settlement expenses 36,610 36,586 33,550 33,146 32,172

Net interest income as reported 48,171 49,976 46,544 42,632 42,538

11 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–GAAP Reconciliation of Return on Average Assets

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

10 unchanged sentences

ROAA excluding gain on sale of ESOP trustee accounts 1.31 1.18 1.43 1.47 1.40

DOL ESOP settlement expenses — 0.10 — — —

Tax effect — (0.02) — — —

ROAA excluding DOL ESOP settlement expenses 1.31 1.26 1.43 1.47 1.40

(Gain)/loss on sale of investment securities — — — — (0.06)

11 unchanged sentences

And Results of Operations

For the Three and Nine Months ended September 30, 2021 and 2020

For the Three Months ended March 31, 2022 and 2021

Non–GAAP Reconciliation of Return on Average Common Equity

(Dollars in Thousands, Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, March 31, December 31, September 30, September 30, September 30,

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

10 unchanged sentences

ROACE excluding gain on sale of ESOP trustee accounts 13.34 12.20 12.86 12.70 11.88

DOL ESOP settlement expenses — 1.05 — — —

Tax effect — (0.17) — — —

ROACE DOL ESOP settlement expenses 13.34 13.08 12.86 12.70 11.88

(Gain)/loss on sale of investment securities — — — — (0.53)

9 unchanged sentences

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three Months ended March 31, 2022 and 2021

Non–GAAP Reconciliation of Return on Average Tangible Equity

(Dollars in Thousands, Unaudited)

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

2022 2021 2021 2021 2021

Average common equity $ 716,341 $ 719,643 $ 724,412 $ 706,652 $ 697,401

Average intangible assets 176,356 179,594 174,920 173,905 174,785

Average tangible equity $ 539,985 $ 540,049 $ 549,492 $ 532,747 $ 522,616

Return on average common equity ("ROATE") 17.70 % 15.74 % 16.66 % 16.69 % 15.85 %

Acquisition expenses — 0.65 0.58 0.18 —

Tax effect — (0.14) (0.12) (0.04) —

ROATE excluding acquisition expenses 17.70 16.25 17.12 16.83 15.85

Credit loss expense acquired loans — — 1.47 — —

Tax effect — — (0.31) — —

ROATE excluding credit loss expense acquired loans 17.70 16.25 18.28 16.83 15.85

Gain on sale of ESOP trustee accounts — — (1.68) — —

Tax effect — — 0.35 — —

ROATE excluding gain on sale of ESOP trustee accounts 17.70 16.25 16.95 16.83 15.85

DOL ESOP settlement expenses — 1.40 — — —

Tax effect — (0.23) — — —

ROATE DOL ESOP settlement expenses 17.70 17.42 16.95 16.83 15.85

(Gain)/loss on sale of investment securities — — — — (0.71)

Tax effect — — — — 0.15

ROATE excluding (gain)/loss on sale of investment securities 17.70 17.42 16.95 16.83 15.29

Death benefit on bank owned life insurance ("BOLI") — — (0.37) (0.20) —

ROATE excluding death benefit on BOLI 17.70 17.42 16.58 16.63 15.29

Prepayment penalties on borrowings — — — 0.09 —

Tax effect — — — (0.02) —

ROATE excluding prepayment penalties on borrowings 17.70 17.42 16.58 16.70 15.29

Adjusted ROATE 17.70 % 17.42 % 16.58 % 16.70 % 15.29 %

HORIZON BANCORP, INC.

AND SUBSIDIARIES

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

2 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis