UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

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

~~OF THE SECURITIES EXCHANGE ACT OF 1934~~

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

For the quarterly period ended ~~September~~June 30, ~~2017~~

2021


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

For the transition period from________to

Commission file number0-10792

HORIZON BANCORP,

INC.

(Exact name of registrant as specified in its charter)

515 Franklin Street, Michigan City, Indiana 46360

(Address of principal executive offices)(Zip Code)

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

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

____________________________

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

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common stock, no par value

HBNC

The NASDAQ Stock Market, LLC

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging growth company

☐

~~Non-accelerated Filer~~

~~☐ (Do not check if smaller reporting company)~~

~~Smaller Reporting Company~~

☐

~~Emerging growth company~~

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~25,482,438~~43,950,720 shares of Common Stock, no par value, at ~~November 7, 2017.~~

August 2, 2021.

Table of Contents

HORIZON BANCORP,

INC.

FORM~~10-Q~~

10–Q

INDEX


PART I. FINANCIAL INFORMATION

Item 1.			Financial Statements (Unaudited)						3

	Condensed Consolidated Balance Sheets					3

	Condensed Consolidated Statements of Income					4

	Condensed Consolidated Statements of Comprehensive Income					5
		Condensed Consolidated Statements of Stockholders’ Equity			6
					~~Condensed Consolidated Statement of Stockholders’ Equity~~			6

	Condensed Consolidated Statements of Cash Flows					7	8

	Notes to Condensed Consolidated Financial Statements					9	10

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations					50	44

Item 3.			Quantitative and Qualitative Disclosures about Market Risk					69	68

Item 4.			Controls and Procedures					69	68

PART II. OTHER INFORMATION				70

Item 1.					Legal Proceedings					70	69

Item 1A.			Risk Factors					70	69

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds					70	69

Item 3.			Defaults Upon Senior Securities					70	69

Item 4.			Mine Safety Disclosures					70	69

Item 5.			Other Information					70	69
Item 6.		Exhibits			69
~~Item 6.~~ Index to Exhibits								~~Exhibits~~69			71

Signatures						72	71

Table of Contents

PART ~~1 —~~I – FINANCIAL INFORMATION

ITEM 1.1 – FINANCIAL STATEMENTS

HORIZON BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollar Amounts in Thousands)

   September 30 December 31
   2017 2016
   (Unaudited)
Assets

Cash and due from banks
   $ 72,662 $ 70,832
Investment securities, available for sale
   509,844 439,831
Investment securities, held to maturity (fair value of $202,222 and $194,086)
   198,605 193,194
Loans held for sale
   3,616 8,087
Loans, net of allowance for loan losses of $15,586 and $14,837
   2,410,239 2,121,149
Premises and equipment, net
   73,743 66,357
Federal Reserve and Federal Home Loan Bank stock
   15,340 23,932
Goodwill
   93,750 76,941
Other intangible assets
   9,494 9,366
Interest receivable
   14,880 12,713
Cash value of life insurance
   75,480 74,134
Other assets
   41,848 44,620


Total assets
   $ 3,519,501 $ 3,141,156


Liabilities

Deposits

Non-interest bearing
   $ 563,536 $ 496,248
Interest bearing
   2,044,739 1,974,962


Total deposits
   2,608,275 2,471,210
Borrowings
   458,152 267,489
Subordinated debentures
   37,607 37,456
Interest payable
   700 472
Other liabilities
   22,712 23,674


Total liabilities
   3,127,446 2,800,301


Commitments and contingent liabilities

Stockholders’ Equity

Preferred stock, Authorized, 1,000,000 shares

Issued 0 and 0 shares
   —   —
Common stock, no par value

Authorized 66,000,000 shares⁽¹⁾

Issued, 23,344,709 and 22,192,530 shares⁽¹⁾

Outstanding, 23,325,459 and 22,171,596 shares⁽¹⁾
   —   —
Additionalpaid-in capital
   212,436 182,326
Retained earnings
   181,396 164,173
Accumulated other comprehensive loss
   (1,777 ) (5,644 )


Total stockholders’ equity
   392,055 340,855


Total liabilities and stockholders’ equity
   $ 3,519,501 $ 3,141,156

⁽¹⁾	~~Adjusted for 3:2 stock split on November 14, 2016~~

June 30,
2021 December 31,
2020
(Unaudited)
Assets
Cash and due from banks $ 304,171 $ 249,711
Interest earning time deposits 6,994 8,965
Investment securities, available for sale 1,691,186 1,134,025
Investment securities, held to maturity (fair value of $162,651 and $179,990) 153,284 168,676
Loans held for sale 7,228 13,538
Loans, net of allowance for credit losses of $55,649 and $57,027 3,463,870 3,810,356
Premises and equipment, net 88,604 92,416
Federal Home Loan Bank stock 23,023 23,023
Goodwill 151,238 151,238
Other intangible assets 21,160 22,955
Interest receivable 21,702 21,396
Cash value of life insurance 97,071 96,751
Other assets 79,696 93,564
Total assets $ 6,109,227 $ 5,886,614
Liabilities
Deposits
Non–interest bearing $ 1,102,950 $ 1,053,242
Interest bearing 3,678,676 3,477,891
Total deposits 4,781,626 4,531,133
Borrowings 439,094 475,000
Subordinated notes 58,676 58,603
Junior subordinated debentures issued to capital trusts 56,662 56,548
Interest payable 2,430 2,712
Other liabilities 60,365 70,402
Total liabilities 5,398,853 5,194,398
Commitments and contingent liabilities 0 0
Stockholders’ Equity
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares 0 0
Common stock, no par value, Authorized 99,000,000 shares
Issued 44,039,562 and 43,905,631 shares, Outstanding 43,950,720 and 43,880,562 shares 0 0
Additional paid-in capital 359,227 362,945
Retained earnings 332,509 301,419
Accumulated other comprehensive income 18,638 27,852
Total stockholders’ equity 710,374 692,216
Total liabilities and stockholders’ equity $ 6,109,227 $ 5,886,614

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

(Dollar Amounts in Thousands, Except Per Share Data)

   Three Months Ended    Nine Months Ended
   September 30    September 30
   2017    2016    2017    2016
Interest Income

Loans receivable
   $ 28,113    $ 25,313    $ 79,699    $ 65,854
Investment securities

Taxable
   2,167    2,498    6,817    7,703
Tax exempt
   1,790    1,151    5,193    3,583








Total interest income
   32,070    28,962    91,709    77,140








Interest Expense

Deposits
   1,841    1,875    5,315    4,923
Borrowed funds
   1,753    2,128    4,028    5,608
Subordinated debentures
   597    549    1,721    1,556








Total interest expense
   4,191    4,552    11,064    12,087








Net Interest Income
   27,879    24,410    80,645    65,053
Provision for loan losses
   710    455    1,370    1,219








Net Interest Income after Provision for Loan Losses
   27,169    23,955    79,275    63,834








Non-interest Income

Service charges on deposit accounts
   1,672    1,605    4,638    4,310
Wire transfer fees
   175    292    503    588
Interchange fees
   1,251    1,156    3,809    3,065
Fiduciary activities
   1,887    1,653    5,752    4,753
Gains (losses) on sale of investment securities (includes $6 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $38 and $875 for the nine months ended September 30, 2017 and 2016, respectively, related to accumulated other comprehensive earnings reclassifications)
   6    —      38    875
Gain on sale of mortgage loans
   1,950    3,528    5,918    9,171
Mortgage servicing income net of impairment
   369    409    1,175    1,356
Increase in cash value of bank owned life insurance
   474    449    1,346    1,145
Other income
   237    226    613    708








Totalnon-interest income
   8,021    9,318    23,792    25,971








Non-interest Expense

Salaries and employee benefits
   12,911    12,210    37,086    32,592
Net occupancy expenses
   2,400    2,174    7,048    6,011
Data processing
   1,502    1,616    4,311    3,855
Professional fees
   649    612    1,797    2,190
Outside services and consultants
   2,504    2,686    4,991    5,983
Loan expense
   1,215    1,482    3,572    4,086
FDIC insurance expense
   270    465    776    1,279
Other losses
   58    107    186    510
Other expense
   3,004    2,730    8,755    7,798








Totalnon-interest expense
   24,513    24,082    68,522    64,304








Income Before Income Tax
   10,677    9,191    34,545    25,501
Income tax expense (includes $2 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $13 and $306 for the nine months ended September 30, 2017 and 2016, respectively, related to income tax expense from reclassification items)
   2,506    2,589    9,078    7,192








Net Income
   8,171    6,602    25,467    18,309
Preferred stock dividend
   —      —      —      (42 )








Net Income Available to Common Shareholders
   $ 8,171    $ 6,602    $ 25,467    $ 18,267








Basic Earnings Per Share
   $ 0.36    $ 0.31    $ 1.14    $ 0.95
Diluted Earnings Per Share
   0.36    0.30    1.13    0.94


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Interest Income
Loans receivable	$	39,236	$	43,918	$	80,054	$	88,876
Investment securities – taxable	2,528		2,321		4,076		5,219
Investment securities – tax exempt	5,656		4,105		10,879		7,903
Total interest income	47,420		50,344		95,009		101,998
Interest Expense
Deposits	2,053		4,506		4,396		12,222
Borrowed funds	1,296		2,074		2,565		4,312
Subordinated notes	881		58		1,761		58
Junior subordinated debentures issued to capital trusts	558		710		1,117		1,485
Total interest expense	4,788		7,348		9,839		18,077
Net Interest Income	42,632		42,996		85,170		83,921
Credit loss expense (recovery)	(1,492)		7,057		(1,125)		15,657
Net Interest Income after Credit Loss Expense (Recovery)	44,124		35,939		86,295		68,264
Non–interest Income
Service charges on deposit accounts	2,157		1,888		4,391		4,334
Wire transfer fees	222		230		477		401
Interchange fees	2,892		2,327		5,232		4,223
Fiduciary activities	1,961		1,765		3,704		4,293
Gains on sale of investment securities (includes $0 and $248 for the three months ended June 30, 2021 and 2020, respectively, and $914 and $587 for the six months ended June 30, 2021 and 2020, respectively, related to accumulated other comprehensive earnings reclassifications)	0		248		914		587
Gain on sale of mortgage loans	5,612		6,620		10,908		10,093
Mortgage servicing income net of impairment	1,503		(2,760)		1,716		(2,735)
Increase in cash value of bank owned life insurance	502		557		1,013		1,111
Death benefit on bank owned life insurance	266		0		266		233
Other income	92		250		459		648
Total non–interest income	15,207		11,125		29,080		23,188
Non–interest Expense
Salaries and employee benefits	17,730		15,629		34,601		32,220
Net occupancy expenses	3,084		3,190		6,402		6,442
Data processing	2,388		2,432		4,764		4,837
Professional fees	588		518		1,132		1,054
Outside services and consultants	2,220		1,759		3,922		3,674
Loan expense	3,107		2,692		5,929		4,791
FDIC insurance expense	500		235		1,300		385
Other losses	6		193		289		313
Other expense	3,765		3,784		7,221		7,865
Total non–interest expense	33,388		30,432		65,560		61,581
Income Before Income Taxes	25,943		16,632		49,815		29,871
Income tax expense (includes $0 and $52 for the three months ended June 30, 2021 and 2020, respectively, and $192 and $123 for the six months ended June 30, 2021 and 2020, respectively, related to income tax expense from reclassification items)	3,770		1,993		7,220		3,577
Net Income	$	22,173	$	14,639	$	42,595	$	26,294
Basic Earnings Per Share	$	0.50	$	0.33	$	0.97	$	0.59
Diluted Earnings Per Share	0.50		0.33		0.97		0.59

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollar Amounts in Thousands)

   Three Months Ended September 30 Nine Months Ended September 30
   2017 2016 2017 2016
   (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Income
   $ 8,171 $ 6,602 $ 25,467 $ 18,309


Other Comprehensive Income (Loss)

Change in fair value of derivative instruments:

Change in fair value of derivative instruments for the period
   297 803 743 158
Income tax effect
   (104 ) (281 ) (260 ) (55 )


Changes from derivative instruments
   193 522 483 103


Change in securities:

Unrealized appreciation (depreciation) for the period on AFS securities
   (791 ) (1,927 ) 5,444 6,712
Amortization from transfer of securities from available for sale to held to maturity securities
   (54 ) (83 ) (200 ) (560 )
Reclassification adjustment for securities (gains) losses realized in income
   (6 ) —   (38 ) (875 )
Income tax effect
   297 704 (1,822 ) (1,848 )


Unrealized gains (losses) on securities
   (554 ) (1,306 ) 3,384 3,429


Other Comprehensive Income (Loss), Net of Tax
   (361 ) (784 ) 3,867 3,532


Comprehensive Income
   $ 7,810 $ 5,818 $ 29,334 $ 21,841


	Three Months Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020
Net Income	$	22,173	$	14,639	$	42,595	$	26,294
Other Comprehensive Income
Change in fair value of derivative instruments:
Change in fair value of derivative instruments for the period	(18)		(135)		3,035		(4,100)
Income tax effect	4		28		(637)		861
Changes from derivative instruments	(14)		(107)		2,398		(3,239)
Change in securities:
Unrealized appreciation (depreciation) for the period on AFS securities	10,069		15,507		(13,816)		23,499
Accretion (amortization) from transfer of securities from available for sale to held to maturity securities	14		1		31		(29)
Reclassification adjustment for securities gains realized in income	0		(248)		(914)		(587)
Income tax effect	(2,117)		(3,205)		3,087		(4,806)
Unrealized gains (losses) on securities	7,966		12,055		(11,612)		18,077
Other Comprehensive Income (Loss), Net of Tax	7,952		11,948		(9,214)		14,838
Comprehensive Income	$	30,125	$	26,587	$	33,381	$	41,132

See notes to condensed consolidated financial statements

H~~ORIZON~~ B~~ANCORP~~

Table of Contents

HORIZON BANCORP, INC AND S~~UBSIDIARIES~~

SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(Dollar Amounts in Thousands, Except Per Share Data)

         Accumulated
      Additional    Other
   Preferred    Paid-in    Retained Comprehensive
   Stock    Capital    Earnings Income (Loss) Total
Balances, January 1, 2017
   $ —      $ 182,326    $ 164,173 $ (5,644 ) $ 340,855
Net income
         25,467 25,467
Other comprehensive income, net of tax
         3,867 3,867
Amortization of unearned compensation
      103    103
Exercise of stock options
      616    616
Stock option expense
      238    238
Stock issued in Lafayette acquisition
      29,153    29,153
Cash dividends on common stock ($0.37 per share)
         (8,244 ) (8,244 )






Balances, September 30, 2017
   $ —      $ 212,436    $ 181,396 $ (1,777 ) $ 392,055


	Three Months Ended
	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balances, April 1, 2020	$	—	$	—	$	361,019	$	260,501	$	9,322	$	630,842
Net income	—		—		—		14,639		—		14,639
Other comprehensive income, net of tax	—		—		—		—		11,948		11,948
Amortization of unearned compensation	—		—		(79)		—		—		(79)
Exercise of stock options	—		—		(98)		—		—		(98)
Stock option expense	—		—		27		—		—		27
Stock issued stock plans	—		—		218		—		—		218


Cash dividends on common stock ($0.12 per share)	—		—		—		(5,291)		—		(5,291)
Balances, June 30, 2020	$	—	$	—	$	361,087	$	269,849	$	21,270	$	652,206

Balances, April 1, 2021	$	—	$	—	$	362,613	$	316,080	$	10,686	$	689,379
Net income	—		—		—		22,173		—		22,173
Other comprehensive loss, net of tax	—		—		—		—		7,952		7,952

Amortization of unearned compensation	—		—		449		—		—		449
Exercise of stock options	—		—		116		—		—		116
Stock option expense	—		—		15		—		—		15


Stock retirement plans	—		—		(3,966)		—		—		(3,966)
Cash dividends on common stock ($0.13 per share)	—		—		—		(5,744)		—		(5,744)
Balances, June 30, 2021	$	—	$	—	$	359,227	$	332,509	$	18,638	$	710,374

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(Dollar Amounts in Thousands, Except Per Share Data)


	Six Months Ended
	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balances, January 1, 2020	$	—	$	—	$	379,853	$	269,738	$	6,432	$	656,023
Net income	—		—		—		26,294		—		26,294
Other comprehensive income, net of tax	—		—		—		—		14,838		14,838
Impact of adoption of ASU No. 2016–13	—		—		—		(15,635)		—		(15,635)
Amortization of unearned compensation	—		—		122		—		—		122
Exercise of stock options	—		—		157		—		—		157
Stock option expense	—		—		77		—		—		77

Stock issued stock plans	—		—		514		—		—		514

Repurchase of outstanding stock	—		—		(19,636)		—		—		(19,636)
Cash dividends on common stock ($0.24 per share)	—		—		—		(10,548)		—		(10,548)
Balances, June 30, 2020	$	—	$	—	$	361,087	$	269,849	$	21,270	$	652,206

Balances, January 1, 2021	$	—	$	—	$	362,945	$	301,419	$	27,852	$	692,216
Net income	—		—		—		42,595		—		42,595
Other comprehensive loss, net of tax	—		—		—		—		(9,214)		(9,214)

Amortization of unearned compensation	—		—		784		—		—		784
Exercise of stock options	—		—		769		—		—		769
Stock option expense	—		—		42		—		—		42
Stock awards vested	—		—		(1,347)		—		—		(1,347)


Stock retirement plans	—		—		(3,966)		—		—		(3,966)
Cash dividends on common stock($0.25 per share)	—		—		—		(11,505)		—		(11,505)
Balances, June 30, 2021	$	—	$	—	$	359,227	$	332,509	$	18,638	$	710,374

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollar Amounts in Thousands)

   Nine Months Ended September 30
   2017 2016
   (Unaudited) (Unaudited)
Operating Activities

Net income
   $ 25,467 $ 18,309
Items not requiring (providing) cash

Provision for loan losses
   1,370 1,219
Depreciation and amortization
   4,303 3,790
Share based compensation
   238 247
Mortgage servicing rights net impairment
   75 840
Premium amortization on securities available for sale, net
   4,476 4,389
Gain on sale of investment securities
   (38 ) (875 )
Gain on sale of mortgage loans
   (5,918 ) (9,171 )
Proceeds from sales of loans
   174,271 246,435
Loans originated for sale
   (163,882 ) (236,719 )
Change in cash value of life insurance
   (1,346 ) (1,145 )
Gain on sale of other real estate owned
   12 118
Net change in

Interest receivable
   (1,811 ) (687 )
Interest payable
   180 275
Other assets
   2,215 (16,641 )
Other liabilities
   (2,335 ) 1,015


Net cash provided by operating activities
   37,277 11,399


Investing Activities

Purchases of securities available for sale
   (127,752 ) (152,283 )
Proceeds from sales, maturities, calls, and principal repayments of securities available for sale
   67,416 88,330
Purchases of securities held to maturity
   (20,152 ) (35,598 )
Proceeds from maturities of securities held to maturity
   4,883 14,654
Change in Federal Reserve and FHLB stock
   8,987 (2,443 )
Net change in loans
   (154,038 ) (26,920 )
Proceeds on the sale of OREO and repossessed assets
   2,125 1,524
Change in premises and equipment, net
   (2,667 ) (1,719 )
Acquisition of Kosciusko, net of cash received
   —   30,437
Acquisition of LaPorte, net of cash received
   —   116,521
Acquisition of branch, net of cash received
   11,000 —
Acquisition of Lafayette, net of cash received
   20,425 —


Net cash provided by (used in) investing activities
   (189,773 ) 32,503


Financing Activities

Net change in

Deposits
   (28,860 ) (37,495 )
Borrowings
   190,814 46,846
Redemption of preferred stock
   —   (12,500 )
Proceeds from issuance of stock
   616 286
Dividends paid on common shares
   (8,244 ) (5,926 )
Dividends paid on preferred shares
   —   (42 )


Net cash provided by financing activities
   154,326 (8,831 )


Net Change in Cash and Cash Equivalents
   1,830 35,071
Cash and Cash Equivalents, Beginning of Period
   70,832 48,650


Cash and Cash Equivalents, End of Period
   $ 72,662 $ 83,721

~~(continued)~~


	Six Months Ended
	June 30
	2021		2020
Operating Activities
Net income	$	42,595	$	26,294
Items not requiring (providing) cash
Provision for (recovery of) credit losses	(1,125)		15,657
Depreciation and amortization	5,394		4,909
Share based compensation	42		77
Mortgage servicing rights income	340		(466)
Mortgage servicing rights net impairment	(1,843)		3,201
Premium amortization on securities, net	4,573		4,266
Gain on sale of investment securities	(914)		(587)
Gain on sale of mortgage loans	(10,908)		(10,093)
Proceeds from sales of loans	256,395		258,207
Loans originated for sale	(239,177)		(259,939)
Change in cash value life insurance	(1,013)		(1,111)
Gain on sale of other real estate owned	19		7
Net change in:
Interest receivable	(306)		(1,357)
Interest payable	(282)		(709)
Other assets	11,569		1,811
Other liabilities	(4,581)		661
Net cash provided by operating activities	60,778		40,828
Investing Activities
Purchases of securities available for sale	(700,359)		(207,160)
Proceeds from sales, maturities, calls and principal repayments of securities available for sale	125,616		126,826

Proceeds from maturities of securities held to maturity	14,617		16,138
Net change in interest earning time deposits	1,971		(792)
Change in FHLB stock	0		(1,161)
Net change in loans	347,010		(340,505)
Proceeds on the sale of OREO and repossessed assets	873		444
Change in premises and equipment, net	997		(2,913)

Death benefit on bank owned life insurance	266		233
Repurchase of outstanding stock	0		(19,636)

Net cash used in investing activities	(209,009)		(428,526)
Financing Activities
Net change in:
Deposits	250,493		376,597
Borrowings	(35,719)		33,458
Net change from issuance of stock	(578)		671
Net proceeds from issuance of subordinated notes	0		58,824
Dividends paid on common stock	(11,505)		(10,548)
Net cash provided by financing activities	202,691		459,002
Net Change in Cash and Cash Equivalents	54,460		71,304
Cash and Cash Equivalents, Beginning of Period	249,711		98,831

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollar Amounts in Thousands)


Cash and Cash Equivalents, End of Period	$	304,171	$	170,135
Additional Supplemental Information
Interest paid	$	10,121	$	18,786
Income taxes paid	725		0
Transfer of loans to other real estate and repossessed assets	601		939

See notes to condensed consolidated financial statements

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

~~Condensed Consolidated Statements of Cash Flows (Continued)~~

~~(Dollar Amounts in Thousands)~~

Additional Supplemental Information

Interest paid
   $ 10,836    $ 11,579
Income taxes paid
   10,350    7,310
Transfer of loans to other real estate owned
   1,717    3,035
The Company purchased all of the capital stock of Lafayette for $34,529 on September 1, 2017. In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired
   186,659    —
Less: common stock issued
   30,108    —
Cash paid for the capital stock
   4,421    —
Liabilities assumed
   152,130    —
Acquisition of LaPorte, measurement period adjustments
   703
The Company purchased all of the capital stock of LaPorte Bancorp for $98,634 on July 18, 2016. In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired
   —      546,770
Less: common stock issued
   —      60,306
Cash paid for the capital stock
   —      38,328
Liabilities assumed
   —      448,136
The Company purchased all of the capital stock of Kosciusko for $22,983 on June 1, 2016. In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired
   —      155,873
Less: common stock issued
   —      14,470
Cash paid for the capital stock
   —      8,513
Liabilities assumed
   —      132,890

~~See notes to condensed consolidated financial statements~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Note 1 - Accounting Policies

The accompanying unaudited condensed consolidated financial statements include the accounts of Horizon Bancorp, (“Inc. (��Horizon” or the “Company”) and its wholly-owned subsidiaries, including Horizon Bank (“Horizon Bank” or the “Bank”). Horizon Bank (formerly known as “Horizon Bank, N.A.”) was a national association until its conversion to an Indiana commercial bank effective June 23, 2017. All ~~inter-company~~inter–company balances and transactions have been eliminated. The results of operations for the periods ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016~~2020 are not necessarily indicative of the operating results for the full year of ~~2017~~2021 or ~~2016.~~2020. The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of Horizon’s management, necessary to fairly present the financial position, results of operations and cash flows of Horizon for the periods presented. Those adjustments consist only of normal recurring adjustments.

Certain information and note disclosures normally included in Horizon’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Horizon’s Annual Report on Form~~10-K~~ 10–K for ~~2016~~2020 filed with the Securities and Exchange Commission on February ~~28, 2017.~~26, 2021. The condensed consolidated balance sheet of Horizon as of December 31, ~~2016~~2020 has been derived from the audited balance sheet as of that date.

On ~~October 18, 2016,~~July 16, 2019, the Board of Directors of the Company ~~approved~~authorized a~~three-for-two~~ stock ~~split~~repurchase program for up to 2,250,000 shares of ~~the Company’s authorized~~Horizon’s issued and outstanding common stock, no par value. ~~All share and~~As of June 30, 2021, Horizon had repurchased a total of 373,323 shares at an average price per share ~~amounts in~~of $15.86. In addition to the ~~condensed consolidated financial statements and notes thereto have been retroactively adjusted, where necessary,~~stock repurchase program, Horizon agreed to ~~reflect thisthree-for-two~~ ~~stock split. The effect of thethree-for-two~~ ~~stock split on the outstanding common~~repurchase 1,000,000 shares ~~is that shareholders of record as of the close of business on October 31, 2016, the record date, received an additional half~~at a price per share of ~~common stock held, with shareholders receiving cash in lieu of any fractional shares. The additional shares issued in the stock split were issued~~$15.19 from an individual shareholder on ~~November 14, 2016, and the common shares began trading on a split-adjusted basis on or about November 15, 2016.~~

March 6, 2020.

Basic earnings per share is computed by dividing net income available to common shareholders (net income less dividend requirements for preferred stock and accretion of preferred stock discount) by the ~~weighted-average~~weighted–average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

The following table shows computation of basic and diluted earnings per share.

Three Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Basic earnings per share

Net income
$ 8,171 $ 6,602 $ 25,467 $ 18,309
Less: Preferred stock dividends
— — — 42

Net income available to common shareholders
$ 8,171 $ 6,602 $ 25,467 $ 18,267
Weighted average common shares outstanding⁽¹⁾
22,580,160 21,538,752 22,326,454 19,252,295
Basic earnings per share
$ 0.36 $ 0.31 $ 1.14 $ 0.95

Diluted earnings per share

Net income available to common shareholders
$ 8,171 $ 6,602 $ 25,467 $ 18,267
Weighted average common shares outstanding⁽¹⁾
22,580,160 21,538,752 22,326,454 19,252,295
Effect of dilutive securities:

Restricted stock
36,749 33,650 33,791 27,590
Stock options
98,364 79,551 95,553 66,491

Weighted average shares outstanding
22,715,273 21,651,953 22,455,798 19,346,376
Diluted earnings per share
$ 0.36 $ 0.30 $ 1.13 $ 0.94

⁽¹⁾	~~Adjusted for 3:2 stock split on November 14, 2016~~


	Three Months Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020
Basic earnings per share
Net income	$	22,173	$	14,639	$	42,595	$	26,294
Weighted average common shares outstanding	43,950,501		43,781,249		43,935,111		44,219,880
Basic earnings per share	$	0.50	$	0.33	$	0.97	$	0.59

Diluted earnings per share
Net income	$	22,173	$	14,639	$	42,595	$	26,294
Weighted average common shares outstanding	43,950,501		43,781,249		43,935,111		44,219,880
Effect of dilutive securities:
Restricted stock	106,175		7,614		104,421		40,017
Stock options	54,427		13,931		53,045		26,967
Weighted average common shares outstanding	44,111,103		43,802,794		44,092,577		44,286,864
Diluted earnings per share	$	0.50	$	0.33	$	0.97	$	0.59

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

There were ~~zero~~137,705 and 137,705 shares for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016~~2021, which were not included in the computation of diluted earnings per share because they were~~non-dilutive.~~

non–dilutive. There were 504,085 and 285,588 shares for the three and six months ended June 30, 2020, which were not included in the computation of diluted earnings per share because they were non–dilutive.

Horizon has ~~share-based~~share–based employee compensation plans, which are described in the notes to the financial statements included in the December 31, ~~2016~~2020 Annual Report on Form~~10-K.~~

~~Reclassifications~~

~~Certain reclassifications~~ 10–K. Also, the Company's shareholders approved the 2021 Omnibus Equity Incentive Plan at its Annual Meeting on May 6, 2021, adding 1.4 million additional shares to the plan and with no other significant changes from the Company's previous plan.

Accounting Guidance Issued But Not Yet Adopted

FASB ASU No. 2020–04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

The FASB has issued ASU 2020–04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rates on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include:

•A change in a contract's reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debt, leases, and other arrangements, that meet specific criteria.

•When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.

The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this ASU are effective March 12, 2020 through December 31, 2022.

ASU 2020–04 permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity. Accordingly, the Company is evaluating and reassessing the elections on a quarterly basis. For current elections in effect regarding the assertion of the probability of forecasted transactions, the Company elects the expedient to assert the probability of the hedged interest payments and receipts regardless of any expected modification in terms related to reference rate reform.

The Company has been conducting monthly meetings to address contracts and hedge accounting relationships that reference LIBOR. All contracts referencing LIBOR as an interest rate have been ~~made~~identified and are in the process of being rewritten or refinanced by December 31, 2021, except for commercial loan interest rate swaps. Hedge accounting relationships referencing LIBOR will be modified by the counter parties. The Company believes the adoption of this guidance on activities subsequent to December 31, 2020 through December 31, 2022 will not have a material impact on the ~~2016 condensed~~ consolidated financial ~~statements~~statements.

Note 2 – Acquisitions

On May, 25, 2021, Horizon Bank entered into a definitive purchase and assumption agreement to acquire 14 TCF National Bank (“TCF”) branches in 11 Michigan counties with approximately $976 million in deposits and $278 million in associated loans, which are being divested by TCF Financial Corporation in connection with its merger with Huntington Bancshares Incorporated. The transaction, which is expected to be ~~comparable~~completed by the end of the third quarter of 2021, is subject to ~~2017. These reclassifications had no effect on net income.~~

regulatory approval and other customary closing conditions and adjustments.

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

~~Note 2 – Acquisitions~~

~~Kosciusko Financial, Inc.~~

On June 1, 2016, Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (“Kosciusko”) and Horizon Bank’s acquisition of Farmers State Bank, a state-chartered bank and wholly owned subsidiary of Kosciusko, through mergers effective June 1, 2016. Under the terms of the Merger Agreement, shareholders of Kosciusko had the option to receive $81.75 per share in cash or 4.5183 shares of Horizon common stock for each share of Kosciusko’s common stock, subject to allocation provisions to assure that in aggregate, Kosciusko shareholders received total consideration that consisted of 65% stock and 35% cash. Kosciusko shareholders owning fewer than 100 shares of common stock received $81.75 in cash for each common share. As a result of Kosciusko stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 873,430 shares of its common stock in the merger. Based upon the June 1, 2016 closing price of $16.57 per share of Horizon common stock, the transaction has an implied valuation of approximately $23.0 million. The Company has had approximately $1.6 million in costs related to the acquisition. These expenses are classified in the~~non-interest~~ expense section of the income statement and primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company was able to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the purchase price for the Kosciusko acquisition is detailed in the following table. The final valuation numbers were received in September 2016 which changed the goodwill estimate from $6.9 million to $6.4 million.

ASSETS
      LIABILITIES
Cash and due from banks
   $ 38,950    Deposits
Investment securities, available for sale
   1,191    Non-interest bearing    $ 27,871
      NOW accounts    35,213
Commercial
   70,006    Savings and money market    26,953
Residential mortgage
   26,244    Certificates of deposits    32,771


Consumer
   6,319
Total deposits
   122,808



Total loans
   102,569
      Borrowings    9,038
Premises and equipment, net
   1,466    Interest payable    55
FRB and FHLB stock
   582    Other liabilities    989
Goodwill
   6,443
Core deposit intangible
   526
Interest receivable
   636
Cash value of life insurance
   2,745
Other assets
   765




Total assets purchased
   $ 155,873    Total liabilities assumed    $ 132,890




Common shares issued
   $ 14,470
Cash paid
   8,513



Total estimated purchase price
   $ 22,983

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

Of the total estimated purchase price of $23.0 million, $526,000 has been allocated to core deposit intangible. Additionally, $6.4 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over ten years on a straight line basis.

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

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as~~past-due~~ ~~andnon-accrual~~ ~~status, borrower credit scores and recentloan-to-value~~ ~~percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30)~~ and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

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

~~The following table details the acquired loans that are accounted for in accordance with ASC310-30~~ ~~as of June 1, 2016.~~

Contractually required principal and interest at acquisition
   $ 2,682
Contractual cash flows not expected to be collected (nonaccretable differences)
   25


Expected cash flows at acquisition
   2,657
Interest component of expected cash flows (accretable discount)
   634


Fair value of acquired loans accounted for under ASC310-30
   $ 2,023

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

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~LaPorte Bancorp, Inc.~~

On July 18, 2016, Horizon completed the acquisition of LaPorte Bancorp, Inc., a Maryland corporation (“LaPorte Bancorp”) and Horizon Bank’s acquisition of The LaPorte Savings Bank, a state-chartered savings bank and wholly owned subsidiary of LaPorte Bancorp, through mergers effective July 18, 2016. Under the terms of the Merger Agreement, shareholders of LaPorte Bancorp had the option to receive $17.50 per share in cash or 0.9435 shares of Horizon common stock for each share of LaPorte Bancorp’s common stock, subject to allocation provisions to assure that in aggregate, LaPorte Bancorp shareholders received total consideration that consisted of 65% stock and 35% cash. As a result of LaPorte Bancorp stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 3,421,488 shares of its common stock in the merger. Based upon the July 18, 2016 closing price of $18.36 per share of Horizon common stock, less the consideration used to pay off LaPorte’s ESOP loan receivable, the transaction has an implied valuation of approximately $98.6 million. The Company has had approximately $4.0 million in costs related to the acquisition. These expenses are classified in the~~non-interest~~ expense section of the income statement and primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company was able to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the purchase price for the LaPorte Bancorp acquisition is detailed in the following table.

ASSETS
      LIABILITIES
Cash and due from banks
   $ 154,849    Deposits
Investment securities, available for sale
   23,779    Non-interest bearing    $ 66,733
      NOW accounts    99,346
Commercial
   153,750    Savings and money market    117,688
Residential mortgage
   42,603    Certificates of deposits    87,605


Consumer
   16,801
Total deposits
   371,372
Mortgage Warehousing
   99,752



Total loans
   312,906
      Borrowings    64,793
Premises and equipment, net
   6,022    Interest payable    178
FHLB stock
   4,029    Subordinated debt    4,504
Goodwill
   20,993    Other liabilities    10,056
Core deposit intangible
   2,514
Interest receivable
   844
Cash value of life insurance
   15,267
Other assets
   8,334




Total assets purchased
   $ 549,537    Total liabilities assumed    $ 450,903




Common shares issued
   $ 60,306
Cash paid
   38,328



Total estimated purchase price
   $ 98,634

Of the total estimated purchase price of $98.6 million, $2.5 million has been allocated to core deposit intangible. Additionally, $21.0 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over ten years on a straight line basis.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~The following table details an estimate of the acquired loans that are accounted for in accordance with ASC310-30~~ ~~as of July 18, 2016.~~

Contractually required principal and interest at acquisition
   $ 12,545
Contractual cash flows not expected to be collected (nonaccretable differences)
   4,492


Expected cash flows at acquisition
   8,053
Interest component of expected cash flows (accretable discount)
   1,258


Fair value of acquired loans accounted for under ASC310-30
   $ 6,795

~~CNB Bancorp~~

On November 7, 2016, Horizon completed the acquisition of CNB Bancorp, an Indiana corporation headquartered in Attica, Indiana (“CNB”) and the Bank’s acquisition of The Central National Bank and Trust Company (“Central National Bank & Trust”), through mergers effective November 7, 2016. Under terms of the acquisition, shareholders of CNB received merger consideration in the form of cash. The total value of the consideration for the acquisition was $5.3 million.

Under the acquisition method of accounting, the total estimated purchase price is allocated to CNB’s net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on management’s preliminary valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the CNB acquisition is allocated as follows:

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

ASSETS
      LIABILITIES
Cash and due from banks
   $ 27,860    Deposits
Investment securities, available for sale
   16,393    Non-interest bearing    $ 24,079
      NOW accounts    9,038
Commercial
   2,267    Savings and money market    13,829


Residential mortgage
   6,624    Certificates of deposits    3,342
Consumer
   1,579
Total deposits
   50,288



Total loans
   10,470
      Borrowings    459
Premises and equipment, net
   444    Interest payable    7
FHLB stock
   50    Other liabilities    154
Goodwill
   609
Core deposit intangible
   190
Interest receivable
   154
Other assets
   49




Total assets purchased
   $ 56,219    Total liabilities assumed    $ 50,908




Cash paid
   5,311



Total estimated purchase price
   $ 5,311

Of the total purchase price of $5.3 million, $190,000 has been allocated to core deposit intangible. Additionally, $609,000 has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over 10 years on a straight line basis.

The Company acquired the $10.8 million performing loan portfolio with an estimated fair value of $10.5 million. No loans were purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected or which are considered to be credit impaired.

~~Bargersville Branch Purchase~~

On February 3, 2017, Horizon completed the purchase and assumption of certain assets and liabilities of a single branch of First Farmers Bank & Trust Company, in Bargersville, Indiana. Net cash of $11.0 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans acquired in the transaction of $3.4 million and a 3.0% premium on deposits. Customer deposit balances were recorded at $14.8 million and a core deposit intangible of $463,000 was recorded in the transaction, which will be amortized over ten years on a straight line basis. There was no goodwill generated in the transaction.

~~Lafayette Community Bancorp~~

On September 1, 2017, Horizon completed the acquisition of Lafayette Community Bancorp, an Indiana corporation (“Lafayette”) and Horizon Bank’s acquisition of Lafayette Community Bank, a state-chartered bank and wholly-owned subsidiary of Lafayette, through mergers effective September 1, 2017. Under the terms of the Merger Agreement, shareholders of Lafayette received 0.5878 shares of Horizon common stock and $1.73 in cash for each outstanding share of Lafayette common stock. Lafayette shareholders owning fewer than 100 shares of common stock received $17.25 in cash for each common share. Lafayette shares outstanding at the closing to be exchanged were 1,856,679, and the shares of Horizon common stock issued to Lafayette shareholders totaled 1,091,259. Based upon the August 31, 2017 closing price of $26.17 per share of Horizon common stock immediately prior to the effectiveness of the merger, the transaction has an implied valuation of approximately $34.5 million. The Company has had approximately $1.5 million in costs

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~related to the acquisition. These expenses are classified in thenon-interest~~ expense section of the income statement and are primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce cost through economies of scale.

Horizon held a 5% ownership in Lafayette immediately preceding the merger date. In accordance with ASC 805-10 – Business Combinations, Horizon was required to remeasure the equity interest in Lafayette’s common stock and recognize the resulting gain or loss, if any, in earnings. Since Lafayette was traded in the OTC market, the remeasurement was based on the closing price of Lafayette’s common stock immediately prior to the acquisition announcement and immediately prior to Horizon taking control of Lafayette. A control premium was calculated which is not indicative of the fair value of Horizon’s equity ownership interest immediately preceding the acquisition announcement. The control premium was immaterial to the financial statements taken as a whole.

The purchase price allocated to net tangible and intangible assets was made based upon provisional amounts as the initial accounting was not complete as of September 30, 2017. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the purchase price for the Lafayette acquisition is detailed in the following table. Prior to the end of the one year measurement period for finalizing the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. If any adjustments are made to the preliminary assumptions (provisional amounts), disclosures will be made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date.

ASSETS
   LIABILITIES
Cash and due from banks
   $ 24,846 Deposits
Investment securities, available for sale
   6 Non-interest bearing    $ 34,990
   NOW accounts    30,174
Commercial
   98,011 Savings and money market    53,663
Residential mortgage
   30,997 Certificates of deposits    32,271


Consumer
   5,345
Total deposits
   151,098



Total loans
   134,353
   Borrowings    —
Premises and equipment, net
   7,818 Interest payable    42
FHLB stock
   395 Other liabilities    990
Goodwill
   16,106
Core deposit intangible
   777
Interest receivable
   338
Other assets
   2,020




Total assets purchased
   $ 186,659 Total liabilities assumed    $ 152,130




Common shares issued
   $ 30,108 ⁽¹⁾
Cash paid
   4,421



Total estimated purchase price
   $ 34,529

⁽¹⁾	~~This includes $955,000 of common shares previously held by Horizon.~~

Of the total estimated purchase price of $34.5 million, $777,000 has been allocated to core deposit intangible. Additionally, $16.1 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over ten years on a straight-line basis.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~310-30)~~ and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The Company acquired the $134.4 million loan portfolio at an estimated fair value discount of $3.4 million. The accounting for the business combination is not yet complete and therefore all required disclosures for a business combination have not been provided. When completed, the excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC~~310-30.~~

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

The results of operations of Lafayette, CNB, LaPorte Bancorp and Kosciusko have been included in the Company’s consolidated financial statements since the acquisition dates. The following schedule includes~~pro-forma~~ results for the three and nine months ended September 30, 2017 and 2016 as if the Lafayette, CNB, LaPorte Bancorp and Kosciusko acquisitions had occurred as of the beginning of the comparable prior reporting periods.

Three Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016
Summary of Operations:

Net Interest Income
$ 28,856 $ 26,628 $ 84,471 $ 80,515
Provision for Loan Losses
725 455 1,438 1,219
Net Interest Income after Provision for Loan Losses
28,131 $ 26,173 83,033 79,296
Non-interest Income
8,077 10,534 24,175 32,547
Non-Interest Expense
26,523 32,400 73,003 86,781
Income before Income Taxes
9,685 4,307 34,205 25,062
Income Tax Expense
2,394 1,997 9,260 8,328
Net Income
7,291 2,310 24,945 16,734
Net Income Available to Common Shareholders
$ 7,291 $ 2,310 $ 24,945 $ 16,692
Basic Earnings Per Share
$ 0.32 $ 0.11 $ 1.12 $ 0.87
Diluted Earnings Per Share
$ 0.32 $ 0.11 $ 1.11 $ 0.86
22,580,160 21,538,752 22,326,454 19,252,295
22,715,273 21,651,953 22,455,798 19,346,376

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

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

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~Wolverine Bancorp, Inc.~~

On October 17, 2017, Horizon completed the acquisition of Wolverine Bancorp, Inc., a Maryland corporation (“Wolverine”) and Horizon Bank’s acquisition of Wolverine Bank, a federally-chartered savings bank and wholly-owned subsidiary of Wolverine, through mergers effective October 17, 2017. Under the terms of the Merger Agreement, shareholders of Wolverine received 1.0152 shares of Horizon common stock and $14.00 in cash for each outstanding share of Wolverine common stock. Wolverine shares outstanding at the closing to be exchanged were 2,129,331, and the shares of Horizon common stock issued to Wolverine shareholders totaled 2,161,610. Based upon the October 16, 2017 closing price of $29.06 per share of Horizon common stock immediately prior to the effectiveness of the merger, the transaction has an implied valuation of approximately $95.1 million.

~~As of October 17, 2017, Wolverine had total assets of approximately $363.2 million, total deposits of approximately $256.5 million and total net loans of approximately $308.1 million.~~

Utilizing September 30, 2017 financials for both Horizon and Wolverine and an estimate of the fair market value adjustments associated with the merger, Horizon would have total assets of approximately $3.9 billion, total deposits of approximately $2.9 billion and total net loans of approximately $2.7 billion on a pro forma basis. The accounting for the business combination is not yet complete and therefore all required disclosures for a business combination have not been provided.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

Note 3 – Securities

The fair value of securities is as follows:

      Gross    Gross
September 30, 2017    Amortized    Unrealized    Unrealized    Fair
   Cost    Gains    Losses    Value
Available for sale

U.S. Treasury and federal agencies
   $ 17,996    $ 3    $ (114 )    $ 17,885
State and municipal
   141,751    2,288    (556 )    143,483
Federal agency collateralized mortgage obligations
   135,511    131    (1,440 )    134,202
Federal agency mortgage-backed pools
   213,071    496    (1,516 )    212,051
Private labeled mortgage-backed pools
   1,841    —      (11 )    1,830
Corporate notes
   275    118    —      393








Total available for sale investment securities
   $ 510,445    $ 3,036    $ (3,637 )    $ 509,844








Held to maturity

State and municipal
   $ 177,473    $ 4,249    $ (862 )    $ 180,860
Federal agency collateralized mortgage obligations
   5,902    25    (31 )    5,896
Federal agency mortgage-backed pools
   15,230    307    (71 )    15,466








Total held to maturity investment securities
   $ 198,605    $ 4,581    $ (964 )    $ 202,222








      Gross    Gross
December 31, 2016    Amortized    Unrealized    Unrealized    Fair
   Cost    Gains    Losses    Value
Available for sale

U.S. Treasury and federal agencies
   $ 8,051    $ 2    $ (64 )    $ 7,989
State and municipal
   117,327    324    (1,059 )    116,592
Federal agency collateralized mortgage obligations
   139,040    254    (2,099 )    137,195
Federal agency mortgage-backed pools
   180,183    251    (3,707 )    176,726
Corporate notes
   1,238    91    —      1,329








Total available for sale investment securities
   $ 445,839    $ 922    $ (6,929 )    $ 439,831








Held to maturity

State and municipal
   $ 165,607    $ 2,700    $ (2,485 )    $ 165,822
Federal agency collateralized mortgage obligations
   6,530    31    (71 )    6,490
Federal agency mortgage-backed pools
   21,057    897    (180 )    21,774








Total held to maturity investment securities
   $ 193,194    $ 3,628    $ (2,736 )    $ 194,086

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information, and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. While these securities are held in the available for sale portfolio and~~held-to-maturity,~~ ~~Horizon intends, and has the ability, to hold them until the earlier of a recovery in fair value or maturity.~~

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. At September 30, 2017, no individual investment security had an unrealized loss that was determined to be other-than-temporary.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

The unrealized losses on the Company’s investments in securities of state and municipal governmental agencies, U.S. Treasury and federal agencies, federal agency collateralized mortgage obligations, and federal agency mortgage-backed pools were caused by interest rate volatility and not a decline in credit quality. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company expects to recover the amortized cost basis over the term of the securities. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at September 30, 2017.


	June 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale
U.S. Treasury and federal agencies	$	191,490	$	228	$	(617)	$	191,101
State and municipal	1,090,693		27,993		(5,193)		1,113,493
Federal agency collateralized mortgage obligations	96,344		2,280		(2)		98,622
Federal agency mortgage-backed pools	165,016		2,641		(147)		167,510
Private labeled mortgage-backed pools	33,074		508		(14)		33,568
Corporate notes	85,637		1,318		(63)		86,892
Total available for sale investment securities	$	1,662,254	$	34,968	$	(6,036)	$	1,691,186
Held to maturity
State and municipal	$	144,430	$	9,176	$	0	$	153,606
Federal agency collateralized mortgage obligations	1,007		16		0		1,023
Federal agency mortgage-backed pools	3,733		175		0		3,908
Private labeled mortgage-backed pools	4,114		0		0		4,114
Total held to maturity investment securities	$	153,284	$	9,367	$	0	$	162,651


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale
U.S. Treasury and federal agencies	$	19,750	$	0	$	(35)	$	19,715
State and municipal	803,100		35,014		(271)		837,843
Federal agency collateralized mortgage obligations	144,022		3,448		(17)		147,453
Federal agency mortgage-backed pools	114,484		4,315		0		118,799
Corporate notes	9,007		1,208		0		10,215
Total available for sale investment securities	$	1,090,363	$	43,985	$	(323)	$	1,134,025
Held to maturity
State and municipal	$	157,421	$	11,035	$	0	$	168,456
Federal agency collateralized mortgage obligations	2,661		36		0		2,697
Federal agency mortgage-backed pools	8,594		243		0		8,837
Total held to maturity investment securities	$	168,676	$	11,314	$	0	$	179,990

The amortized cost and fair value of securities available for sale and held to maturity at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

   September 30, 2017    December 31, 2016
   Amortized    Fair    Amortized    Fair
   Cost    Value    Cost    Value
Available for sale

Within one year
   $ 9,772    $ 9,784    $ 7,455    $ 7,480
One to five years
   44,771    44,811    37,483    37,479
Five to ten years
   44,163    44,851    21,112    20,984
After ten years
   61,316    62,315    60,566    59,967








   160,022    161,761    126,616    125,910
Federal agency collateralized mortgage obligations
   135,511    134,202    139,040    137,195
Federal agency mortgage-backed pools
   213,071    212,051    180,183    176,726
Private labeled mortgage-backed pools
   1,841    1,830    —      —








Total available for sale investment securities
   $ 510,445    $ 509,844    $ 445,839    $ 439,831








Held to maturity

Within one year
   $ 7,383    $ 7,373    $ —      $ —
One to five years
   37,402    38,645    24,594    25,271
Five to ten years
   88,399    90,371    87,645    88,805
After ten years
   44,289    44,471    53,368    51,746








   177,473    180,860    165,607    165,822
Federal agency collateralized mortgage obligations
   5,902    5,896    6,530    6,490
Federal agency mortgage-backed pools
   15,230    15,466    21,057    21,774








Total held to maturity investment securities
   $ 198,605    $ 202,222    $ 193,194    $ 194,086

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	June 30, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
Within one year	$	46,747	$	46,784	$	44,206	$	44,192
One to five years	156,088		157,620		61,594		63,006
Five to ten years	362,439		366,313		136,857		145,102
After ten years	802,546		820,769		589,200		615,473
	1,367,820		1,391,486		831,857		867,773
Federal agency collateralized mortgage obligations	96,344		98,622		144,022		147,453
Federal agency mortgage–backed pools	165,016		167,510		114,484		118,799
Private labeled mortgage–backed pools	$	33,074	$	33,568	$	0	$	0
Total available for sale investment securities	$	1,662,254	$	1,691,186	$	1,090,363	$	1,134,025
Held to maturity
Within one year	$	4,314	$	4,349	$	7,302	$	7,327
One to five years	43,418		44,942		42,742		44,358
Five to ten years	73,870		78,956		82,087		88,300
After ten years	22,828		25,359		25,290		28,471
	144,430		153,606		157,421		168,456
Federal agency collateralized mortgage obligations	1,007		1,023		2,661		2,697
Federal agency mortgage–backed pools	3,733		3,908		8,594		8,837
Private labeled mortgage–backed pools	4,114		4,114		0		0
Total held to maturity investment securities	$	153,284	$	162,651	$	168,676	$	179,990

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

   Less than 12 Months 12 Months or More Total
   Fair    Unrealized Fair    Unrealized Fair    Unrealized
September 30, 2017    Value    Losses Value    Losses Value    Losses
U.S. Treasury and federal agencies
   $ 15,233    $ (71 ) $ 1,372    $ (43 ) $ 16,605    $ (114 )
State and municipal
   41,995    (483 ) 28,127    (935 ) 70,122    (1,418 )
Federal agency collateralized mortgage obligations
   61,135    (480 ) 47,213    (991 ) 108,348    (1,471 )
Federal agency mortgage-backed pools
   81,397    (567 ) 61,624    (1,020 ) 143,021    (1,587 )
Private labeled mortgage-backed pools
   1,830    (11 ) —      —   1,830    (11 )








Total temporarily impaired securities
   $ 201,590    $ (1,612 ) $ 138,336    $ (2,989 ) $ 339,926    $ (4,601 )








   Less than 12 Months 12 Months or More Total
   Fair    Unrealized Fair    Unrealized Fair    Unrealized
December 31, 2016    Value    Losses Value    Losses Value    Losses
U.S. Treasury and federal agencies
   $ 6,987    $ (64 ) $ —      $ —   $ 6,987    $ (64 )
State and municipal
   142,466    (3,544 ) —      —   142,466    (3,544 )
Federal agency collateralized mortgage obligations
   112,414    (1,918 ) 10,199    (252 ) 122,613    (2,170 )
Federal agency mortgage-backed pools
   163,768    (3,887 ) —      —   163,768    (3,887 )








Total temporarily impaired securities
   $ 425,635    $ (9,413 ) $ 10,199    $ (252 ) $ 435,834    $ (9,665 )


	June 30, 2021
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment Securities
U.S. Treasury and federal agencies	$	96,033	$	(617)	$	0	$	0	$	96,033	$	(617)
State and municipal	346,889		(5,103)		1,435		(90)		348,324		(5,193)
Federal agency collateralized mortgage obligations	412		(2)		0		0		412		(2)
Federal agency mortgage–backed pools	77,091		(147)		0		0		77,091		(147)
Private labeled mortgage–backed pools	9,510		(14)		0		0		9,510		(14)
Corporate notes	22,169		(63)		0		0		22,169		(63)
Total temporarily impaired securities	$	552,104	$	(5,946)	$	1,435	$	(90)	$	553,539	$	(6,036)

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	December 31, 2020
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment Securities
U.S. Treasury and federal agencies	$	17,215	$	(35)	$	0	$	0	$	17,215	$	(35)
State and municipal	56,287		(242)		1,245		(29)		57,532		(271)
Federal agency collateralized mortgage obligations	6,358		(17)		0		0		6,358		(17)


Total temporarily impaired securities	$	79,860	$	(294)	$	1,245	$	(29)	$	81,105	$	(323)

NaN allowance for credit losses for available for sale debt securities or held to maturity securities was needed at June 30, 2021 or December 31, 2020. Accrued interest receivable on available for sale debt securities and held to maturity securities totaled $10.3 million at June 30, 2021 and $8.1 million at December 31, 2020 and is excluded from the estimate of credit losses.

The U.S. government sponsored entities and agencies and mortgage–backed securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses.

Based on an evaluation of available evidence, management believes the unrealized losses on state and municipal securities were due to changes in interest rates. Due to the contractual terms, the issuers of state and municipal securities are not allowed to settle for less than the amortized cost of the security. In addition, the Company does not intend to sell these securities prior to the recovery of the amortized cost, which may not occur until maturity.

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

   Three Months Ended September 30    Nine Months Ended September 30
   2017    2016    2017    2016
Sales of securities available for sale (Unaudited)

Proceeds
   $ 387    $ —      $ 5,490    $ 25,077
Gross gains
   6    —      151    1,060
Gross losses
   —      —      (113 )    (185 )


	Three Months Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020
Sales of securities available for sale
Proceeds	$	0	$	5,146	$	27,514	$	37,182
Gross gains	0		248		914		637
Gross losses	0		0		0		(50)

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Note 4 – Loans

   September 30
2017    December 31
2016
Commercial

Working capital and equipment
   $ 599,427    $ 539,403
Real estate, including agriculture
   624,009    485,620
Tax exempt
   20,987    15,486
Other
   29,367    29,447




Total
   1,273,790    1,069,956
Real estate

1–4 family
   563,993    526,024
Other
   7,069    5,850




Total
   571,062    531,874
Consumer

Auto
   230,976    174,773
Recreation
   8,969    5,669
Real estate/home improvement
   59,641    53,898
Home equity
   163,205    144,508
Unsecured
   3,614    3,875
Other
   19,085    15,706




Total
   485,490    398,429
Mortgage warehouse
   95,483    135,727




Total loans
   2,425,825    2,135,986
Allowance for loan losses
   (15,586 )    (14,837 )




Loans, net
   $ 2,410,239    $ 2,121,149

The table below identifies the Company’s loan portfolio segments and classes.


Portfolio Segment						Class of Financing Receivable
Commercial						Owner occupied real estate
						Non-owner occupied real estate
						Residential spec homes
						Development & spec land
						Commercial and industrial
Real estate						Residential mortgage
						Residential construction
Mortgage warehouse						Mortgage warehouse
Consumer						Direct installment
						Indirect installment
						Home equity

Portfolio segment is defined as a level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Class of financing receivable is defined as a group of financing receivables determined on the basis of both of the following, 1) risk characteristics of the financing receivable, and 2) an entity’s method for monitoring and assessing credit risk. Generally, the Bank does not move loans from a revolving loan to a term loan other than construction loans. Construction loans are reviewed and rewritten prior to being originated as a term loan.

The following table presents total loans outstanding by portfolio class, as of June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
Commercial
Owner occupied real estate	$	475,908	$	496,306
Non–owner occupied real estate	995,314		999,636
Residential spec homes	9,215		10,070
Development & spec land	23,188		26,372
Commercial and industrial	601,002		659,887
Total commercial	2,104,627		2,192,271
Real estate
Residential mortgage	537,259		598,700
Residential construction	22,178		25,586
Mortgage warehouse	205,311		395,626
Total real estate	764,748		1,019,912
Consumer
Direct installment	36,189		38,046
Indirect installment	358,161		357,511
Home equity	255,794		259,643
Total consumer	650,144		655,200
Total loans	3,519,519		3,867,383
Allowance for credit losses	(55,649)		(57,027)
Net loans	$	3,463,870	$	3,810,356

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

As of June 30, 2021 and December 31, 2020, Federal Paycheck Protection Program (“PPP”) loans totaled approximately $169.4 million and $208.9 million, respectively, and are included with commercial loans. Total loans include net deferred loan fees of $3.2 million and $1.7 million at June 30, 2021 and December 31, 2020, respectively.

The risk characteristics of each loan portfolio segment are as follows:

Commercial

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

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves larger loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets, the general economy or fluctuations in interest rates. The

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

properties securing the ~~Company’s~~Company's commercial real estate portfolio are diverse in terms of property type, and are monitored for concentrations of credit. Management monitors and evaluates commercial real estate loans based on collateral, cash flow and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of ~~owner-occupied~~owner–occupied commercial real estate loans versus~~non-owner~~ non–owner occupied loans.

Real Estate and Consumer

With respect to residential loans that are secured by~~1-4~~ 1–4 family residences and are generally owner occupied, the Company generally establishes a maximum~~loan-to-value~~ loan–to–value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in~~1-4~~ 1–4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Mortgage Warehousing

~~Horizon’s~~

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

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~The following table shows the recorded investment of individual loan categories.~~

September 30, 2017    Loan
Balance    Interest Due    Deferred
Fees / (Costs)    Recorded
Investment
Owner occupied real estate
   $ 403,184    $ 1,371    $ 880    $ 405,435
Non owner occupied real estate
   531,560    656    2,202    534,418
Residential spec homes
   4,031    11    —      4,042
Development & spec land loans
   43,299    100    84    43,483
Commercial and industrial
   288,086    2,475    464    291,025








Total commercial
   1,270,160    4,613    3,630    1,278,403
Residential mortgage
   553,451    1,814    2,786    558,051
Residential construction
   14,825    29    —      14,854
Mortgage warehouse
   95,483    480    —      95,963








Total real estate
   663,759    2,323    2,786    668,868
Direct installment
   85,726    249    (566 )    85,409
Direct installment purchased
   88    —      —      88
Indirect installment
   207,293    437    173    207,903
Home equity
   194,050    795    (1,274 )    193,571








Total consumer
   487,157    1,481    (1,667 )    486,971








Total loans
   2,421,076    8,417    4,749    2,434,242
Allowance for loan losses
   (15,586 )    —      —      (15,586 )








Net loans
   $ 2,405,490    $ 8,417    $ 4,749    $ 2,418,656








December 31, 2016    Loan
Balance    Interest Due    Deferred
Fees / (Costs)    Recorded
Investment
Owner occupied real estate
   $ 337,548    $ 899    $ 1,022    $ 339,469
Non owner occupied real estate
   461,897    624    2,176    464,697
Residential spec homes
   5,006    8    (2 )    5,012
Development & spec land loans
   31,228    56    119    31,403
Commercial and industrial
   230,520    1,906    442    232,868








Total commercial
   1,066,199    3,493    3,757    1,073,449
Residential mortgage
   508,233    1,492    3,030    512,755
Residential construction
   20,611    33    —      20,644
Mortgage warehouse
   135,727    480    —      136,207








Total real estate
   664,571    2,005    3,030    669,606
Direct installment
   71,150    199    (385 )    70,964
Direct installment purchased
   119    —      —      119
Indirect installment
   153,204    345    —      153,549
Home equity
   175,126    703    (785 )    175,044








Total consumer
   399,599    1,247    (1,170 )    399,676








Total loans
   2,130,369    6,745    5,617    2,142,731
Allowance for loan losses
   (14,837 )    —      —      (14,837 )








Net loans
   $ 2,115,532    $ 6,745    $ 5,617    $ 2,127,894

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~Note 5 – Accounting for Certain~~

Non–performing Loans ~~Acquired in a Transfer~~

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

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

September 30 September 30 September 30 September 30 September 30 September 30
2017 2017 2017 2017 2017 2017
Heartland Summit Peoples Kosciusko LaPorte Total
Commercial
$ 521 $ 4,657 $ 398 $ 962 $ 1,086 $ 7,624
Real estate
241 895 139 411 1,017 2,703
Consumer
— — — — 35 35

Outstanding balance
$ 762 $ 5,552 $ 537 $ 1,373 $ 2,138 $ 10,362

Carrying amount, net of allowance of $71
$ 10,291

December 31 December 31 December 31 December 31 December 31 December 31
2016 2016 2016 2016 2016 2016
Heartland Summit Peoples Kosciusko LaPorte Total
Commercial
$ 774 $ 5,245 $ 692 $ 1,652 $ 3,200 $ 11,563
Real estate
534 967 165 457 1,114 3,237
Consumer
2 — — — 41 43

Outstanding balance
$ 1,310 $ 6,213 $ 856 $ 2,109 $ 4,355 $ 14,843

Carrying amount, net of allowance of $0
$ 14,843

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

   Nine Months Ended September 30, 2017
   Heartland Summit Peoples Kosciusko LaPorte Total
Balance at January 1
   $ 557 $ 502 $ 389 $ 530 $ 1,479 $ 3,457
Additions
   —   —   —   —   —   —
Accretion
   (99 ) (268 ) (388 ) (80 ) (194 ) (1,029 )
Reclassification from nonaccretable difference
   —   —   —   —   —   —
Disposals
   (6 ) (2 ) (1 ) (42 ) (264 ) (315 )


Balance at September 30
   $ 452 $ 232 $ —   $ 408 $ 1,021 $ 2,113


   Nine Months Ended September 30, 2016
   Heartland Summit Peoples Kosciusko LaPorte Total
Balance at January 1
   $ 795 $ 708 $ 555 $ —   $ —   $ 2,058
Additions
   —   —   —   634 1,736 2,370
Accretion
   (127 ) (139 ) (92 ) (38 ) —   (396 )
Reclassification from nonaccretable difference
   —   —   —   —   —   —
Disposals
   (74 ) (35 ) (59 ) (23 ) —   (191 )


Balance at September 30
   $ 594 $ 534 $ 404 $ 573 $ —   $ 3,841

~~During the nine months ended September 30, 2017 and 2016, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $71,000 and $0, respectively.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~Note 6 – Allowance for Loan Losses~~

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

   Three Months Ended
September 30    Nine Months Ended
September 30
   2017    2016    2017    2016
   (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
Balance at beginning of the period
   $ 15,027    $ 14,226    $ 14,837    $ 14,534
Loanscharged-off:

Commercial

Owner occupied real estate
   12    4    12    182
Non owner occupied real estate
   20    (1 )    20    471
Residential development
   —      —      —      —
Development & Spec Land Loans
   —      —      1    —
Commercial and industrial
   232    8    273    47








Total commercial
   264    11    306    700
Real estate

Residential mortgage
   37    12    89    127
Residential construction
   —      —      —      —
Mortgage warehouse
   —      —      —      —








Total real estate
   37    12    89    127
Consumer

Direct Installment
   84    55    331    159
Direct Installment Purchased
   —      —      —      —
Indirect Installment
   254    296    862    851
Home Equity
   24    32    95    271








Total consumer
   362    383    1,288    1,281








Total loanscharged-off
   663    406    1,683    2,108
Recoveries of loans previouslycharged-off:

Commercial

Owner occupied real estate
   7    2    8    31
Non owner occupied real estate
   4    1    29    55
Residential development
   2    2    6    6
Development & Spec Land Loans
   —      —      —      —
Commercial and industrial
   82    12    204    107








Total commercial
   95    17    247    199
Real estate

Residential mortgage
   13    12    35    75
Residential construction
   —      —      —      —
Mortgage warehouse
   —      —      —      —








Total real estate
   13    12    35    75
Consumer

Direct Installment
   260    26    311    70
Direct Installment Purchased
   —      —      —      —
Indirect Installment
   119    160    384    400
Home Equity
   25    34    85    135








Total consumer
   404    220    780    605








Total loan recoveries
   512    249    1,062    879








Net loanscharged-off (recovered)
   151    157    621    1,229








Provision charged to operating expense

Commercial
   429    165    1,357    (471 )
Real estate
   361    102    (113 )    (147 )
Consumer
   (80 )    188    126    1,837








Total provision charged to operating expense
   710    455    1,370    1,219








Balance at the end of the period
   $ 15,586    $ 14,524    $ 15,586    $ 14,524

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

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

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

~~For all loan portfolio segments except1-4~~ ~~family residential properties and consumer, the Company promptlycharges-off~~ loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial~~charge-off~~ ~~is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.~~

~~The Companycharges-off1-4~~ family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down or specific allocation of~~1-4~~ family first and junior lien mortgages to the net realizable value less costs to sell when the value is known but no later than when a loan is 180 days past due. Pursuant to such guidelines, the Company also~~charges-off~~ ~~unsecuredopen-end~~ loans when the loan is contractually 90 days past due, and charges down to the net realizable value other secured loans when they are contractually 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection in full will occur regardless of delinquency status, are not charged off.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

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

         Mortgage
September 30, 2017    Commercial    Real Estate    Warehousing    Consumer    Total
Allowance For Loan Losses

Ending allowance balance attributable to loans:

Individually evaluated for impairment
   $ —      $ —      $ —      $ —      $ —
Collectively evaluated for impairment
   7,877    2,129    1,048    4,532    15,586
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending allowance balance
   $ 7,877    $ 2,129    $ 1,048    $ 4,532    $ 15,586










Loans:

Individually evaluated for impairment
   $ 3,451    $ —      $ —      $ —      $ 3,451
Collectively evaluated for impairment
   1,274,952    572,905    95,963    486,971    2,430,791
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending loans balance
   $ 1,278,403    $ 572,905    $ 95,963    $ 486,971    $ 2,434,242










         Mortgage
December 31, 2016    Commercial    Real Estate    Warehousing    Consumer    Total
Allowance For Loan Losses

Ending allowance balance attributable to loans:

Individually evaluated for impairment
   $ 4    $ —      $ —      $ —      $ 4
Collectively evaluated for impairment
   6,575    2,090    1,254    4,914    14,833
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending allowance balance
   $ 6,579    $ 2,090    $ 1,254    $ 4,914    $ 14,837










Loans:

Individually evaluated for impairment
   $ 2,250    $ —      $ —      $ —      $ 2,250
Collectively evaluated for impairment
   1,071,199    533,399    136,207    399,676    2,140,481
Loans acquired with deteriorated credit quality
   —      —      —      —      —










Total ending loans balance
   $ 1,073,449    $ 533,399    $ 136,207    $ 399,676    $ 2,142,731

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~Note 7 –Non-performing~~ ~~Loans and Impaired Loans~~

~~The following table presents thenon-accrual,~~ loans past due over 90 days still on accrual, and troubled debt ~~restructured~~restructurings (“TDRs”) by class of loans:

September 30, 2017    Non-accrual    Loans Past
Due Over 90
Days Still
Accruing    Non-
Performing
TDRs    Performing
TDRs    Total Non-
Performing
Loans
Commercial

Owner occupied real estate
   $ 894    $ —      $ 29    $ —      $ 923
Non owner occupied real estate
   218    —      483    —      701
Residential development
   —      —      —      —      —
Development & Spec Land Loans
   102    —      —      —      102
Commercial and industrial
   1,707    —      —      —      1,707










Total commercial
   2,921    —      512    —      3,433
Real estate

Residential mortgage
   3,269    119    460    1,473    5,321
Residential construction
   —      —      —      224    224
Mortgage warehouse
   —      —      —      —      —










Total real estate
   3,269    119    460    1,697    5,545
Consumer

Direct Installment
   310    —      —      —      310
Direct Installment Purchased
   —      —      —      —      —
Indirect Installment
   1,019    15    —      —      1,034
Home Equity
   1,546    28    220    318    2,112










Total Consumer
   2,875    43    220    318    3,456










Total
   $ 9,065    $ 162    $ 1,192    $ 2,015    $ 12,434










December 31, 2016    Non-accrual    Loans Past
Due Over 90
Days Still
Accruing    Non-Performing
TDRs    Performing
TDRs    Total Non-
Performing
Loans
Commercial

Owner occupied real estate
   $ 1,532    $ 183    $ —      $ —      $ 1,715
Non owner occupied real estate
   440    —      —      —      440
Residential development
   —      —      —      —      —
Development & Spec Land Loans
   118    —      —      —      118
Commercial and industrial
   159    —      —      —      159










Total commercial
   2,249    183    —      —      2,432
Real estate

Residential mortgage
   2,959    —      576    1,254    4,789
Residential construction
   —      —      233    —      233
Mortgage warehouse
   —      —      —      —      —










Total real estate
   2,959    —      809    1,254    5,022
Consumer

Direct Installment
   512    —      —      —      512
Direct Installment Purchased
   —      —      —      —      —
Indirect Installment
   659    49    —      —      708
Home Equity
   1,557    9    205    238    2,009










Total Consumer
   2,728    58    205    238    3,229










Total
   $ 7,936    $ 241    $ 1,014    $ 1,492    $ 10,683


	June 30, 2021
	Non–accrual		Loans Past Due Over 90 Days Still Accruing		Non–performing TDRs		Performing TDRs		Total Non–performing Loans		Non–accrual with no Allowance for Credit Losses
Commercial
Owner occupied real estate	$	6,847	$	0	$	603	$	0	$	7,450	$	2,378
Non–owner occupied real estate	1,020		0		303		0		1,323		1,323
Residential spec homes	0		0		0		0		0		0
Development & spec land	820		0		0		0		820		820
Commercial and industrial	694		0		58		0		752		510
Total commercial	9,381		0		964		0		10,345		5,031
Real estate
Residential mortgage	5,458		0		924		1,459		7,841		6,263
Residential construction	0		0		0		0		0		0
Mortgage warehouse	0		0		0		0		0		0
Total real estate	5,458		0		924		1,459		7,841		6,263
Consumer
Direct installment	18		0		0		0		18		18
Indirect installment	828		0		0		0		828		828
Home equity	2,490		0		406		394		3,290		2,896
Total consumer	3,336		0		406		394		4,136		3,742
Total	$	18,175	$	0	$	2,294	$	1,853	$	22,322	$	15,036

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	December 31, 2020
	Non–accrual		Loans Past Due Over 90 Days Still Accruing		Non–performing TDRs		Performing TDRs		Total Non–performing Loans		Non–accrual with no Allowance for Credit Losses
Commercial
Owner occupied real estate	$	10,581	$	0	$	630	$	168	$	11,379	$	6,305
Non–owner occupied real estate	237		0		330		0		567		567
Residential spec homes	0		0		0		0		0		0
Development & spec land	70		0		0		0		70		70
Commercial and industrial	1,826		0		506		0		2,332		1,847
Total commercial	12,714		0		1,466		168		14,348		8,789
Real estate
Residential mortgage	5,674		17		922		1,381		7,994		7,097
Residential construction	0		0		0		0		0		0
Mortgage warehouse	0		0		0		0		0		0
Total real estate	5,674		17		922		1,381		7,994		7,097
Consumer
Direct installment	12		1		0		0		13		13
Indirect installment	1,174		120		0		0		1,294		1,294
Home equity	2,568		124		222		244		3,158		2,628
Total consumer	3,754		245		222		244		4,465		3,935
Total	$	22,142	$	262	$	2,610	$	1,793	$	26,807	$	19,821

There was 0 interest income recognized on non–accrual loans during the three and six months ended June 30, 2021 and 2020, respectively, while the loans were in non–accrual status. Included in the ~~$9.1~~$18.2 million of~~non-accrual~~ non–accrual loans and the ~~$1.2~~$2.3 million of~~non-performing~~ non–performing TDRs at ~~September~~June 30, ~~2017~~2021 were ~~$4.3~~$2.5 million and ~~$339,000,~~$902,000, respectively, of loans acquired for which there were accretable ~~yield was~~yields recognized.

~~From time~~

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to ~~time,~~Condensed Consolidated Financial Statements

(Unaudited)

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

The following table presents the ~~Bank obtains information that may lead management~~payment status by class of loan, excluding non–accrual loans of $18.2 million and non–performing TDRs of $2.3 million at June 30, 2021:


	June 30, 2021
	Current			30–59 Days Past Due			60–89 Days Past Due			90 Days or Greater Past Due			Total Past Due Loans			Total Loans
Commercial
Owner occupied real estate	$	468,458		$	0		$	0		$	0		$	0		$	468,458
Non–owner occupied real estate	993,914			0			77			0			77			993,991
Residential spec homes	9,215			0			0			0			0			9,215
Development & spec land	22,368			0			0			0			0			22,368
Commercial and industrial	599,623			445			182			0			627			600,250
Total commercial	2,093,578			445			259			0			704			2,094,282
Real estate
Residential mortgage	529,780			865			232			0			1,097			530,877
Residential construction	22,178			0			0			0			0			22,178
Mortgage warehouse	205,311			0			0			0			0			205,311
Total real estate	757,269			865			232			0			1,097			758,366
Consumer
Direct installment	36,162			2			7			0			9			36,171
Indirect installment	356,485			709			139			0			848			357,333
Home equity	252,220			500			178			0			678			252,898
Total consumer	644,867			1,211			324			0			1,535			646,402
Total	$	3,495,714		$	2,521		$	815		$	0		$	3,336		$	3,499,050
Percentage of total loans	99.90		%	0.07		%	0.02		%	0.00		%	0.10		%	100.00		%

Table of Contents

HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to ~~believe that~~Condensed Consolidated Financial Statements

(Unaudited)

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

The following table presents the ~~collection~~payment status by class of ~~payments may be doubtful on a particular loan. In recognition~~loan, excluding non–accrual loans of ~~this, it is management’s policy to convert the loan from an “earning asset” to anon-accruing~~ ~~loan.~~ $22.1 million and non–performing TDRs of $2.6 million at December 31, 2020:


	December 31, 2020
	Current			30–59 Days Past Due			60–89 Days Past Due			90 Days or Greater Past Due			Total Past Due Loans			Total
Commercial
Owner occupied real estate	$	484,282		$	683		$	130		$	0		$	813		$	485,095
Non–owner occupied real estate	997,816			599			654			0			1,253			999,069
Residential spec homes	10,070			0			0			0			0			10,070
Development & spec land	25,552			0			750			0			750			26,302
Commercial and industrial	657,027			249			279			0			528			657,555
Total commercial	2,174,747			1,531			1,813			0			3,344			2,178,091
Real estate
Residential mortgage	590,944			905			238			17			1,160			592,104
Residential construction	25,586			0			0			0			0			25,586
Mortgage warehouse	395,626			0			0			0			0			395,626
Total real estate	1,012,156			905			238			17			1,160			1,013,316
Consumer
Direct installment	37,965			69			0			0			69			38,034
Indirect installment	354,655			1,356			206			120			1,682			356,337
Home equity	255,908			554			266			125			945			256,853
Total consumer	648,528			1,979			472			245			2,696			651,224
Total	$	3,835,431		$	4,415		$	2,523		$	262		$	7,200		$	3,842,631
Percentage of total loans	99.81		%	0.11		%	0.07		%	0.01		%	0.19		%	100.00		%

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. ~~Further, it is management’s policy~~

Troubled Debt Restructurings

Loans modified as TDRs generally consist of allowing borrowers to ~~generally place~~defer scheduled principal payments and make interest only payments for a specified period of time at the stated interest rate of the original loan agreement or lower payments due to a modification of the loans' contractual terms. TDRs that continue to accrue interest are individually monitored on a~~non-accrual~~ ~~status when the payment is delinquent in excess of 90 days or the loan has had the accrual of interest discontinued by management. The officer responsible~~ monthly basis and evaluated for ~~the loan~~impairment annually and ~~the Chief Credit Officer and/or the Chief Operations Officer must review all loans placed onnon-accrual~~ ~~status. Subsequent payments onnon-accrual~~ ~~loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured.Non-accrual~~ ~~loans are returned~~transferred to non–accrual status when in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal in accordance with the loan terms. The Company requires a period of satisfactory performance of not less than six months before returning a~~non-accrual~~ ~~loan to accrual status.~~

~~A loan becomes impaired when, based on current information,~~ it is probable that ~~a creditor~~any remaining principal and interest payments due on the loan will not be ~~unable to collect all amounts due according to~~collected in accordance with the contractual terms of the loan agreement. When a loan is classified as impaired, the degree of impairment must be recognized by estimating future cash flows from the debtor. The present value of these cash flows is computed at a discount rate based on the interest rate contained in the loan agreement. However, if a particular loan has a determinable market value for its collateral, the creditor may useloan. TDRs that ~~value. Also, if the loan is secured and considered collateral dependent, the creditor may use the fair value of the collateral. Interest income on loans~~subsequently default are individually ~~classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.~~

~~Smaller-balance, homogeneous loans are~~ evaluated for impairment in total. Such loans include residential first mortgage loans secured by 1–4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysisat the time of ~~borrower operating results and financial condition indicate that underlying cash flows of a borrower’s business are not adequate to meet its debt service requirements,~~default.

At June 30, 2021, the ~~loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved tonon-accrual~~ ~~status when they are 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.~~

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

~~The Company’s TDRs are considered impaired loans and included in the allowance methodology using the guidance for impaired loans. At September 30, 2017, the type~~types of concessions the Company has made on restructured loans ~~has~~have been temporary rate reductions and/or reductions in monthly payments, and there have been no restructured loans with modified recorded balances. Any modification to a loan that is a concession and is not in the normal course of lending is considered a restructured loan. A restructured loan is returned to accruing status after ~~six~~6 consecutive payments but is still reported as a TDR unless the loan bears interest at a market rate. As of ~~September~~June 30, ~~2017,~~2021, the Company had ~~$3.2~~$4.1 million in TDRs and ~~$2.0~~$1.9 million were performing according to the restructured terms and ~~$298,000 in~~$93,000 TDRs were returned to accrual status during ~~the first nine months of 2017.~~2021. There were ~~zero~~0 specific reserves allocated to TDRs at ~~September~~June 30, ~~2017~~2021 based on the discounted cash flows or, when appropriate, the fair value of the collateral.

These TDRs are exclusive of loans modified under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

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HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

            Three Months Ending    Nine Months Ending
September 30, 2017    Unpaid
Principal
Balance    Recorded
Investment    Allowance For
Loan Loss
Allocated    Average
Balance in
Impaired
Loans    Cash/Accrual
Interest
Income
Recognized    Average
Balance in
Impaired
Loans    Cash/Accrual
Interest
Income
Recognized
With no recorded allowance

Commercial

Owner occupied real estate
   $ 923    $ 934    $ —      $ 1,167    $ 4    $ 1,033    $ 4
Non owner occupied real estate
   701    701    —      468    —      308    2
Residential development
   —      —      —      —      —      —      —
Development & Spec Land Loans
   102    102    —      222    —      230    —
Commercial and industrial
   1,707    1,714    —      2,066    3    1,071    19














Total commercial
   3,433    3,451    —      3,923    7    2,642    25
With an allowance recorded

Commercial

Owner occupied real estate
   —      —      —      —      —      —      —
Non owner occupied real estate
   —      —      —      —      —      —      —
Residential development
   —      —      —      —      —      —      —
Development & Spec Land Loans
   —      —      —      —      —      —      —
Commercial and industrial
   —      —      —      —      —      —      —














Total commercial
   —      —      —      —      —      —      —














Total
   $ 3,433    $ 3,451    $ —      $ 3,923    $ 7 $    2,642    $ 25














            Three Months Ending    Nine Months Ending
September 30, 2016    Unpaid
Principal
Balance    Recorded
Investment    Allowance For
Loan Loss
Allocated    Average
Balance in
Impaired
Loans    Cash/Accrual
Interest
Income
Recognized    Average
Balance in
Impaired
Loans    Cash/Accrual
Interest
Income
Recognized
With no recorded allowance

Commercial

Owner occupied real estate
   $ 994    $ 995    $ —      $ 1,029    $ —      $ 1,062    $ —
Non owner occupied real estate
   3,106    3,120    —      3,150    1    3,776    3
Residential development
   —      —      —      —      —      —      —
Development & Spec Land Loans
   —      —      —      —      —      —      —
Commercial and industrial
   1,740    1,740    —      1,984    —      878    —














Total commercial
   5,840    5,855    —      6,163    1    5,716    3
With an allowance recorded

Commercial

Owner occupied real estate
   —      —      —      —      —      —      —
Non owner occupied real estate
   —      —      —      —      —      —      —
Residential development
   —      —      —      —      —      —      —
Development & Spec Land Loans
   —      —      —      —      —      —      —
Commercial and industrial
   —      —      —      —      —      —      —














Total commercial
   —      —      —      —      —      —      —














Total
   $ 5,840    $ 5,855    $ —      $ 6,163    $ 1    $ 5,716    $ 3


	June 30, 2021						December 31, 2020
	Non–accrual		Accruing		Total		Non–accrual		Accruing		Total
Commercial
Owner occupied real estate	$	603	$	0	$	603	$	630	$	168	$	798
Non–owner occupied real estate	303		0		303		330		0		330
Residential spec homes	0		0		0		0		0		0
Development & spec land	0		0		0		0		0		0
Commercial and industrial	58		0		58		506		0		506
Total commercial	964		0		964		1,466		168		1,634
Real estate
Residential mortgage	924		1,459		2,383		922		1,381		2,303
Residential construction	0		0		0		0		0		0
Mortgage warehouse	0		0		0		0		0		0
Total real estate	924		1,459		2,383		922		1,381		2,303
Consumer
Direct installment	0		0		0		0		0		0
Indirect installment	0		0		0		0		0		0
Home equity	406		394		800		222		244		466
Total consumer	406		394		800		222		244		466
Total	$	2,294	$	1,853	$	4,147	$	2,610	$	1,793	$	4,403

Loans Modified under the CARES Act

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 June 30, 2021 and December 31, 2020, the Bank modified loans totaling $52.5 million and $126.7 million, respectively, which qualify for treatment under the CARES Act.

Collateral Dependent Financial Assets

A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with the loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan may become collateral dependent.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

   90 Days or
   30-59 Days 60-89 Days Greater Past Total Past Loans Not
September 30, 2017    Past Due Past Due Due Due Past Due Total
Commercial

Owner occupied real estate
   $ 2,282 $ —   $ —   $ 2,282 $ 400,902 $ 403,184
Non owner occupied real estate
   132 —   —   132 531,428 531,560
Residential development
   135 —   —   135 3,896 4,031
Development & Spec Land Loans
   —   —   —   —   43,299 43,299
Commercial and industrial
   255 166 —   421 287,665 288,086


Total commercial
   2,804 166 —   2,970 1,267,190 1,270,160
Real estate

Residential mortgage
   1,012 167 119 1,298 552,153 553,451
Residential construction
   —   —   —   —   14,825 14,825
Mortgage warehouse
   —   —   —   —   95,483 95,483


Total real estate
   1,012 167 119 1,298 662,461 663,759
Consumer

Direct Installment
   67 —   —   67 85,659 85,726
Direct Installment Purchased
   —   —   —   —   88 88
Indirect Installment
   1,192 181 15 1,388 205,905 207,293
Home Equity
   611 84 28 723 193,327 194,050


Total consumer
   1,870 265 43 2,178 484,979 487,157


Total
   $ 5,686 $ 598 $ 162 $ 6,446 $ 2,414,630 $ 2,421,076


Percentage of total loans
   0.23 % 0.02 % 0.01 % 0.27 % 99.73 %
   90 Days or
   30-59 Days 60-89 Days Greater Past Total Past Loans Not
December 31, 2016    Past Due Past Due Due Due Past Due Total
Commercial

Owner occupied real estate
   $ 1,068 $ —   $ 183 $ 1,251 $ 336,297 $ 337,548
Non owner occupied real estate
   357 —   —   357 461,540 461,897
Residential development
   —   —   —   —   5,006 5,006
Development & Spec Land Loans
   1 —   —   1 31,227 31,228
Commercial and industrial
   982 —   —   982 229,538 230,520


Total commercial
   2,408 —   183 2,591 1,063,608 1,066,199
Real estate

Residential mortgage
   886 123 —   1,009 507,224 508,233
Residential construction
   —   —   —   —   20,611 20,611
Mortgage warehouse
   —   —   —   —   135,727 135,727


Total real estate
   886 123 —   1,009 663,562 664,571
Consumer

Direct Installment
   139 4 —   143 71,007 71,150
Direct Installment Purchased
   —   —   —   —   119 119
Indirect Installment
   1,339 237 49 1,625 151,579 153,204
Home Equity
   912 267 9 1,188 173,938 175,126


Total consumer
   2,390 508 58 2,956 396,643 399,599


Total
   $ 5,684 $ 631 $ 241 $ 6,556 $ 2,123,813 $ 2,130,369


Percentage of total loans
   0.27 % 0.03 % 0.01 % 0.31 % 99.69 %

~~The entire balance of a loan is considered delinquent if the minimum payment contractually required~~amortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to ~~be made is not received by the specified due date.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

determine expected credit losses.


	June 30, 2021
	Real Estate		Accounts Receivable/Equipment		Other		Total		ACL Allocation
Commercial
Owner occupied real estate	$	7,341	$	109	$	0	$	7,450	$	1,267
Non–owner occupied real estate	1,323		0		0		1,323		0
Residential spec homes	0		0		0		0		0
Development & spec land	820		0		0		820		0
Commercial and industrial	0		752		0		752		160
Total commercial	9,484		861		0		10,345		1,427










Total collateral dependent loans	$	9,484	$	861	$	0	$	10,345	$	1,427


	December 31, 2020
	Real Estate		Accounts Receivable/Equipment		Other		Total		ACL Allocation
Commercial
Owner occupied real estate	$	11,309	$	114	$	0	$	11,423	$	1,605
Non–owner occupied real estate	1,032		0		0		1,032		0
Residential spec homes	0		0		0		0		0
Development & spec land	70		0		0		70		0
Commercial and industrial	2,245		210		0		2,455		252
Total commercial	14,656		324		0		14,980		1,857










Total collateral dependent loans	$	14,656	$	324	$	0	$	14,980	$	1,857

Credit Quality Indicators

Horizon ~~Bank’s~~Bank's processes for determining credit quality differ slightly depending on whether a new loan or a renewed loan is being underwritten, or whether an existing loan is being~~re-evaluated~~ re–evaluated for credit quality. The latter usually occurs upon receipt of current financial information or other pertinent data that would trigger a change in the loan grade.

•For new and renewed commercial loans, the ~~Bank’s~~Bank's Credit Department, which acts independently of the loan officer, assigns the credit quality grade toof the ~~loan.~~loans. Loan grades for loans with an aggregate credit exposure that exceeds the authorities in the respective ~~markets~~regions (ranging from $1,000,000 to $3,500,000) are validated by the Loan Committee, which is chaired by the Chief ~~Credit~~Commercial Banking Officer ~~(CCO)~~(“CCBO”).

•Commercial loan officers are responsible for reviewing their loan portfolios and ~~report~~reporting any adverse material change to the ~~CCO~~CCBO, Senior Commercial Credit Officer (“SCCO”) or Loan Committee. When circumstances warrant a change in the credit quality grade, loan officers are required to notify the ~~CCO~~CCBO, SCCO and the Credit Department of the change in the loan grade. Downgrades are accepted immediately by the ~~CCO,~~CCBO or SCCO, however, lenders must present their factual information to either the Loan Committee, CCBO or ~~the CCO~~SCCO when recommending an upgrade.

•The ~~CCO,~~CCBO, or ~~his~~a designee, meets ~~weekly~~periodically with loan officers to discuss the status of~~past-due~~ past due loans and classified loans. These meetings are also designed to give the loan officers an opportunity to identify an existing loan that should be downgraded to a classified grade.

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HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

•Monthly, senior management meets ~~with~~as members of the Watch Committee, which reviews all of the past due, classified, and impaired loans and the relative trends of these assets. This committee also reviews the actions taken by management regarding foreclosure mitigation, loan extensions, troubled debt restructures, other real estate owned and personal property repossessions. The information reviewed in this meeting acts as a precursor for developing ~~management’s~~management's analysis of the adequacy of the Allowance for ~~Loan and Lease~~Credit Losses.

For residential real estate and consumer loans, Horizon uses a grading system based on delinquency. Loans that are 90 days or more past due, on~~non-accrual,~~ non–accrual, or are classified as a TDR are graded “Substandard.” After being 90 to 120 days delinquent a loan is charged off unless it is well secured and in the process of collection. If the latter case exists, the loan is placed on~~non-accrual.~~ non–accrual. Occasionally a mortgage loan may be graded as “Special Mention.” When this situation arises, it is because the characteristics of the loan and the borrower fit the definition of a Risk Grade 5 described below, which is normally used for grading commercial loans. Loans not graded Substandard are considered Pass.

Horizon Bank employs a ~~nine-grade~~nine–grade rating system to determine the credit quality of commercial loans. The first five grades represent acceptable quality, and the last four grades mirror the criticized and classified grades used by the bank regulatory agencies (special mention, substandard, doubtful, and loss). The loan grade definitions are detailed below.

Risk Grade 1: Excellent (Pass)

Loans secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash ~~equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration;~~equivalents or loans to any publicly held company with a current ~~long-term~~long–term debt rating of A or ~~better.~~

better and meeting defined key financial metric ranges.

Risk Grade 2: Good (Pass)

Loans to businesses that have strong financial statements containing an ~~unqualified~~unmodified opinion from a CPA firm and at least three years consecutive years of profits; loans supported by unaudited financial statements containing strong balance sheets, five years consecutive years of profits, a ~~five-year~~five years satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities with required margins where there is no impediment to liquidation; loans to individuals backed by liquid personal assets and unblemished credit ~~history;~~histories; or loans to publicly held companies with current ~~long-term~~long–term debt ratings of Baa or ~~better.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

better and meeting defined key financial metric ranges.

Risk Grade 3: Satisfactory (Pass)

Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are ~~encountered.~~encountered and meeting defined key financial metric ranges. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

•

~~At inception, the loan was properly underwritten, didnot~~ ~~possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory;~~

•At inception, the loan was properly underwritten, did not possess an unwanted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory.

•At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

•The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

•During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or the borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

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HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Risk Grade 44: Satisfactory/~~Monitored:~~

Monitored (Pass)

Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than Satisfactory ~~loans.~~rated loans and meet defined key financial metric ranges. Borrower displays acceptable liquidity, leverage, and earnings performance within the ~~Bank’s~~Bank's minimum underwriting guidelines. The level of risk is acceptable but conditioned on the proper level of loan officer supervision. Loans that normally fall into this grade include acquisition, construction and development loans and income producing properties that have not reached stabilization.

Risk Grade 4W4W: Management ~~Watch:~~

Watch (Pass)

Loans in this category are considered to be of acceptable quality and meet defined key financial metric ranges, but with above normal risk. Borrower displays potential indicators of weakness in the primary source of repayment resulting in a higher reliance on secondary sources of repayment. Balance sheet may exhibit weak liquidity and/or high leverage. There is inconsistent earnings performance without the ability to sustain adverse economic conditions. Borrower may be operating in a declining industry or the property type, as for a commercial real estate loan, may be high risk or in decline. These loans require an increased level of loan officer supervision and monitoring to assure that any deterioration is addressed in a timely fashion.

Commercial construction loans are graded as 4W Management Watch until the projects are completed and stabilized.

Risk Grade 5: Special Mention

Loans which possess some temporary (normally less than one year) credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered “potential,” not “defined,”“ impairments to the primary source of repayment. These loans may be to borrowers with adverse trends in financial performance, collateral value and/or marketability, or balance sheet ~~strength.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

strength and must meet defined key financial metric ranges.

Risk Grade 6: Substandard

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

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

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

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

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

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

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

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

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

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

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

•The borrower meets defined key financial metric ranges.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Risk Grade 7: Doubtful

One or more of the following characteristics may be present in loans classified Doubtful:

•Loans have all of the weaknesses of those classified as ~~Substandard. However,~~Substandard; however, based on existing conditions, these weaknesses make full collection of principal highly improbable.

•The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

•The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

•The borrower meets defined key financial metric ranges.

Risk Grade 8: Loss

Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all orof a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

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HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

   Special
September 30, 2017    Pass Mention Substandard Doubtful Total
Commercial

Owner occupied real estate
   $ 386,856 $ 5,776 $ 10,552 $ —   $ 403,184
Non owner occupied real estate
   523,831 1,008 6,721 —   531,560
Residential development
   4,031 —   —   —   4,031
Development & Spec Land Loans
   43,066 —   233 —   43,299
Commercial and industrial
   272,622 4,969 10,495 —   288,086


Total commercial
   1,230,406 11,753 28,001 —   1,270,160
Real estate

Residential mortgage
   548,249 —   5,202 —   553,451
Residential construction
   14,601 —   224 —   14,825
Mortgage warehouse
   95,483 —   —   —   95,483


Total real estate
   658,333 —   5,426 —   663,759
Consumer

Direct Installment
   85,416 —   310 —   85,726
Direct Installment Purchased
   88 —   —   —   88
Indirect Installment
   206,259 —   1,034 —   207,293
Home Equity
   191,938 —   2,112 —   194,050


Total Consumer
   483,701 —   3,456 —   487,157


Total
   $ 2,372,439 $ 11,753 $ 36,883 $ —   $ 2,421,076


Percentage of total loans
   97.99 % 0.49 % 1.52 % 0.00 %
   Special
December 31, 2016    Pass Mention Substandard Doubtful Total
Commercial

Owner occupied real estate
   $ 322,924 $ 4,960 $ 9,664 $ —   $ 337,548
Non owner occupied real estate
   455,648 341 5,908 —   461,897
Residential development
   5,006 —   —   —   5,006
Development & Spec Land Loans
   31,057 —   171 —   31,228
Commercial and industrial
   220,424 3,728 6,368 —   230,520


Total commercial
   1,035,059 9,029 22,111 —   1,066,199
Real estate

Residential mortgage
   503,444 —   4,789 —   508,233
Residential construction
   20,378 —   233 —   20,611
Mortgage warehouse
   135,727 —   —   —   135,727


Total real estate
   659,549 —   5,022 —   664,571
Consumer

Direct Installment
   70,638 —   512 —   71,150
Direct Installment Purchased
   119 —   —   —   119
Indirect Installment
   152,496 —   708 —   153,204
Home Equity
   173,117 —   2,009 —   175,126


Total Consumer
   396,370 —   3,229 —   399,599


Total
   $ 2,090,978 $ 9,029 $ 30,362 $ —   $ 2,130,369


Percentage of total loans
   98.15 % 0.42 % 1.43 % 0.00 %

grades and origination year at June 30, 2021.


June 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Commercial
Owner occupied real estate
Pass	$	29,263	$	56,383	$	56,495	$	48,945	$	43,937	$	153,980	$	39,681	$	428,684
Special Mention	0		0		1,023		1,129		8,852		11,638		0		22,642
Substandard	0		1,012		1,005		3,919		1,568		13,275		3,803		24,582
Doubtful	0		0		0		0		0		0		0		0
Total owner occupied real estate	$	29,263	$	57,395	$	58,523	$	53,993	$	54,357	$	178,893	$	43,484	$	475,908

Non–owner occupied real estate
Pass	$	69,815	$	111,666	$	109,816	$	60,224	$	133,171	$	267,245	$	166,989	$	918,926
Special Mention	0		851		1,214		29,438		4,512		12,111		303		48,429
Substandard	0		0		15,417		1,155		94		8,921		2,372		27,959
Doubtful	0		0		0		0		0		0		0		0
Total non–owner occupied real estate	$	69,815	$	112,517	$	126,447	$	90,817	$	137,777	$	288,277	$	169,664	$	995,314

Residential spec homes
Pass	$	500	$	368	$	606	$	0	$	0	$	841	$	6,900	$	9,215
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0
Total residential spec homes	$	500	$	368	$	606	$	0	$	0	$	841	$	6,900	$	9,215

Development & spec land
Pass	$	1,445	$	563	$	563	$	1,480	$	2,169	$	12,177	$	3,247	$	21,644
Special Mention	0		0		0		0		0		190		200		390
Substandard	0		0		0		0		0		404		750		1,154
Doubtful	0		0		0		0		0		0		0		0
Total development & spec land	$	1,445	$	563	$	563	$	1,480	$	2,169	$	12,771	$	4,197	$	23,188

Commercial & industrial
Pass	$	205,256	$	85,641	$	55,244	$	50,770	$	68,524	$	63,323	$	32,927	$	561,685
Special Mention	3,152		3,455		1,086		2,394		6,996		4,508		910		22,501
Substandard	2,689		570		2,213		3,001		1,717		4,321		2,305		16,816
Doubtful	0		0		0		0		0		0		0		0
Total commercial & industrial	$	211,097	$	89,666	$	58,543	$	56,165	$	77,237	$	72,152	$	36,142	$	601,002
Total commercial	$	312,120	$	260,509	$	244,682	$	202,455	$	271,540	$	552,934	$	260,387	$	2,104,627

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HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


June 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Real estate
Residential mortgage
Performing	$	52,716	$	103,892	$	48,617	$	61,616	$	68,983	$	193,594	$	0	$	529,418
Non–performing	0		0		377		634		0		6,830		0		7,841
Total residential mortgage	$	52,716	$	103,892	$	48,994	$	62,250	$	68,983	$	200,424	$	0	$	537,259

Residential construction
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	22,178	$	22,178
Non–performing	0		0		0		0		0		0		0		0
Total residential construction	$	0	$	0	$	0	$	0	$	0	$	0	$	22,178	$	22,178

Mortgage warehouse
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	205,311	$	205,311
Non–performing	0		0		0		0		0		0		0		0
Total mortgage warehouse	$	0	$	0	$	0	$	0	$	0	$	0	$	205,311	$	205,311
Total real estate	$	52,716	$	103,892	$	48,994	$	62,250	$	68,983	$	200,424	$	227,489	$	764,748


June 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Consumer
Direct installment
Performing	$	7,408	$	9,665	$	7,494	$	4,271	$	4,174	$	3,151	$	8	$	36,171
Non–performing	0		0		0		0		15		3		0		18
Total direct installment	$	7,408	$	9,665	$	7,494	$	4,271	$	4,189	$	3,154	$	8	$	36,189

Indirect installment
Performing	$	78,798	$	113,258	$	77,097	$	54,691	$	25,441	$	8,048	$	0	$	357,333
Non–performing	0		83		177		204		229		135		0		828
Total indirect installment	$	78,798	$	113,341	$	77,274	$	54,895	$	25,670	$	8,183	$	0	$	358,161

Home equity
Performing	$	30,630	$	60,376	$	36,093	$	28,389	$	23,158	$	68,575	$	5,283	$	252,504
Non–performing	10		38		10		84		73		1,296		1,779		3,290
Total home equity	$	30,640	$	60,414	$	36,103	$	28,473	$	23,231	$	69,871	$	7,062	$	255,794
Total consumer	$	116,846	$	183,420	$	120,871	$	87,639	$	53,090	$	81,208	$	7,070	$	650,144

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

The following tables present loans by credit grades and origination year at December 31, 2020.


December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Commercial
Owner occupied real estate
Pass	$	57,726	$	65,558	$	49,455	$	49,032	$	47,480	$	127,373	$	40,027	$	436,651
Special Mention	0		1,081		5,928		10,205		4,207		12,787		325		34,533
Substandard	1,021		1,231		4,012		2,504		2,839		9,673		3,842		25,122
Doubtful	0		0		0		0		0		0		0		0
Total owner occupied real estate	$	58,747	$	67,870	$	59,395	$	61,741	$	54,526	$	149,833	$	44,194	$	496,306

Non–owner occupied real estate
Pass	$	115,667	$	120,023	$	73,669	$	133,396	$	99,674	$	208,649	$	166,986	$	918,064
Special Mention	862		1,236		28,723		1,298		2,548		13,182		4,072		51,921
Substandard	0		15,552		1,477		107		6,422		4,521		1,572		29,651
Doubtful	0		0		0		0		0		0		0		0
Total non–owner occupied real estate	$	116,529	$	136,811	$	103,869	$	134,801	$	108,644	$	226,352	$	172,630	$	999,636

Residential spec homes
Pass	$	737	$	237	$	0	$	298	$	368	$	1,177	$	7,253	$	10,070
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0
Total residential spec homes	$	737	$	237	$	0	$	298	$	368	$	1,177	$	7,253	$	10,070

Development & spec land
Pass	$	573	$	736	$	1,522	$	2,461	$	672	$	11,971	$	6,907	$	24,842
Special Mention	0		0		0		0		0		274		0		274
Substandard	0		0		0		0		0		506		750		1,256
Doubtful	0		0		0		0		0		0		0		0
Total development & spec land	$	573	$	736	$	1,522	$	2,461	$	672	$	12,751	$	7,657	$	26,372

Commercial & industrial
Pass	$	253,953	$	63,772	$	58,978	$	88,121	$	26,044	$	70,706	$	30,845	$	592,419
Special Mention	8,779		1,164		1,088		9,306		1,835		11,870		3,040		37,082
Substandard	4,233		7,079		11,072		1,660		636		3,322		2,384		30,386
Doubtful	0		0		0		0		0		0		0		0
Total commercial & industrial	$	266,965	$	72,015	$	71,138	$	99,087	$	28,515	$	85,898	$	36,269	$	659,887
Total commercial	$	443,551	$	277,669	$	235,924	$	298,388	$	192,725	$	476,011	$	268,003	$	2,192,271

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Real estate
Residential mortgage
Performing	$	109,487	$	68,556	$	86,572	$	89,051	$	65,718	$	171,322	$	0	$	590,706
Non–performing	0		296		636		39		300		6,723		0		7,994
Total residential mortgage	$	109,487	$	68,852	$	87,208	$	89,090	$	66,018	$	178,045	$	0	$	598,700

Residential construction
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	25,586	$	25,586
Non–performing	0		0		0		0		0		0		0		0
Total residential construction	$	0	$	0	$	0	$	0	$	0	$	0	$	25,586	$	25,586

Mortgage warehouse
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	395,626	$	395,626
Non–performing	0		0		0		0		0		0		0		0
Total mortgage warehouse	$	0	$	0	$	0	$	0	$	0	$	0	$	395,626	$	395,626
Total real estate	$	109,487	$	68,852	$	87,208	$	89,090	$	66,018	$	178,045	$	421,212	$	1,019,912


December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Consumer
Direct installment
Performing	$	12,552	$	9,552	$	5,828	$	5,946	$	2,124	$	2,019	$	12	$	38,033
Non–performing	0		0		0		5		3		5		0		13
Total direct installment	$	12,552	$	9,552	$	5,828	$	5,951	$	2,127	$	2,024	$	12	$	38,046

Indirect installment
Performing	$	134,394	$	97,408	$	74,215	$	36,763	$	8,636	$	4,801	$	0	$	356,217
Non–performing	84		223		392		361		80		154		0		1,294
Total indirect installment	$	134,478	$	97,631	$	74,607	$	37,124	$	8,716	$	4,955	$	0	$	357,511

Home equity
Performing	$	63,946	$	42,762	$	34,807	$	27,553	$	22,450	$	59,503	$	5,464	$	256,485
Non–performing	0		9		111		74		121		1,237		1,606		3,158
Total home equity	$	63,946	$	42,771	$	34,918	$	27,627	$	22,571	$	60,740	$	7,070	$	259,643
Total consumer	$	210,976	$	149,954	$	115,353	$	70,702	$	33,414	$	67,719	$	7,082	$	655,200

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HORIZON BANCORP, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Note 5 – Allowance for Credit and Loan Losses

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30, 2021
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	42,980	$	4,229	$	1,163	$	8,814	$	57,186
Provision for credit losses on loans	(1,168)		(144)		(8)		(172)		(1,492)
PCD loan charge–offs	(6)		0		0		0		(6)
Charge–offs	(67)		0		0		(237)		(304)
Recoveries	27		23		0		215		265
Balance, end of period	$	41,766	$	4,108	$	1,155	$	8,620	$	55,649


	Three Months Ended June 30, 2020
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	32,550	$	5,654	$	1,055	$	9,181	$	48,440

Provision for credit losses on loans	6,603		202		135		117		7,057
Charge–offs	(15)		(34)		0		(526)		(575)
Recoveries	9		10		0		149		168
Balance, end of period	$	39,147	$	5,832	$	1,190	$	8,921	$	55,090


	Six Months Ended June 30, 2021
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	42,210	$	4,620	$	1,267	$	8,930	$	57,027


Provision for credit losses on loans	(240)		(600)		(112)		(173)		(1,125)
PCD loan charge–offs	(6)		0		0		0		(6)
Charge–offs	(263)		0		0		(472)		(735)
Recoveries	65		88		0		335		488
Balance, end of period	$	41,766	$	4,108	$	1,155	$	8,620	$	55,649


	Six Months Ended June 30, 2020
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	11,996	$	923	$	1,077	$	3,671	$	17,667
Impact of adopting ASC 326	13,618		4,048		0		4,911		22,577
Provision for credit losses on loans	13,519		902		113		1,123		15,657
Charge–offs	(84)		(60)		0		(1,144)		(1,288)
Recoveries	98		19		0		360		477
Balance, end of period	$	39,147	$	5,832	$	1,190	$	8,921	$	55,090

The Company utilized the Cumulative Loss Rate method in determining expected future credit losses. The loss rate method measures the amount of loan charge–offs, net of recoveries, (“loan losses”) recognized over the life of a pool and compares those loan losses to the outstanding loan balance of that pool as of a specific point in time (“pool date”).

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

To estimate a CECL loss rate for the pool, management first identifies the loan losses recognized between the pool date and the reporting date for the pool and determines which loan losses were related to loans outstanding at the pool date. The loss rate method then divides the loan losses recognized on loans outstanding as of the pool date by the outstanding loan balance as of the pool date.

The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company's historical look–back period includes January 2012 through the current period, on a monthly basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data.

Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit–related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible.

The Company’s CECL estimate applies to a forecast that incorporates macroeconomic trends and other environmental factors. Management utilized National, Regional and Local Leading Economic Indexes, as well as management judgment, as the basis for the forecast period. The historical loss rate was utilized as the base rate, and qualitative adjustments were utilized to reflect the forecast and other relevant factors.

The Company segments the loan portfolio into pools based on the following risk characteristics: financial asset type, loan purpose, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of the borrower and concentrations, and historical or expected credit loss patterns.

Note 6 – Loan Servicing

Loans serviced for others are not included in the accompanying condensed consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled approximately $1.5 billion and $1.5 billion at June 30, 2021 and December 31, 2020.

The aggregate fair value of capitalized mortgage servicing rights was approximately $14.5 million and $12.5 million at June 30, 2021 and December 31, 2020, compared to the carrying values of $14.5 million and $12.5 million at June 30, 2021 and December 31, 2020, respectively. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type and interest rates, were used to stratify the originated mortgage servicing rights.


	June 30,		December 31,
	2021		2020
Mortgage servicing rights
Balance, beginning of period	$	17,644	$	15,046
Servicing rights capitalized	2,161		5,530
Amortization of servicing rights	(2,014)		(2,932)
Balance, end of period	17,791		17,644
Impairment allowance
Balance, beginning of period	(5,172)		(719)
Additions	0		(5,106)
Reductions	1,843		653
Balance, end of period	(3,329)		(5,172)
Mortgage servicing rights, net	$	14,462	$	12,472

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

The Bank reduced impairment by approximately $1.8 million for the six months ended June 30, 2021. The Bank recorded additional impairment of approximately $4.5 million for the year ended December 31, 2020.

Note 7 – Goodwill

The following table presents the Company’s carrying amount of goodwill as of June 30, 2021 and December 31, 2020.


	June 30,		December 31,
	2021		2020
Balance, beginning of period	$	151,238	$	151,238
Goodwill acquired during the period	0		0

Balance, end of period	$	151,238	$	151,238

In accordance with ASC 350–20, the Company conducts a goodwill impairment test at least annually, or more frequently as events occur or circumstances change that would more–likely–than–not reduce the fair value below its carrying amount. In the second quarter of 2020, the onset of the COVID–19 pandemic prompted the Company to assess qualitative and quantitative factors to determine whether it was more–likely–than–not the fair value of the Company was less than the carrying amount. The Company assessed relevant events and circumstances, including macroeconomic conditions, industry and market considerations, overall financial performance, changes in the composition or carrying amount of assets and liabilities, the market price of the Company’s common stock and other relevant facts. The Company performed both a market capitalization approach and a discounted cash flow approach to determine the fair value of the Company during the second quarter of 2020 which resulted in 0 goodwill impairment.

The Company updated their analysis above during the second quarter of 2021 which resulted in 0 goodwill impairment charges for the six months ended June 30, 2021.

Note 8 – Repurchase Agreements

The Company transfers various securities to customers in exchange for cash at the end of each business day and agrees to acquire the securities at the end of the next business day for the cash exchanged plus interest. The process is repeated at the end of each business day until the agreement is terminated. The securities underlying the agreement remained under the ~~Bank’s~~Company’s control.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

September 30, 2017
   Remaining Contractual Maturity of the Agreements
   Overnight and
Continuous    Up to one
year    One to three
years    Three to
five years    Five to ten
years    Beyond ten
years    Total
Repurchase Agreements andrepurchase-to-maturity transactions

Repurchase Agreements
   $ 63,081    $ —      $ —      $ —      $ —      $ —      $ 63,081














Securities pledged for Repurchase Agreements

U.S. Treasury and federal agencies
   —      —      —      —      —      —      —
Federal agency collateralized mortgage obligations
   40,740    —      —      —      —      —      40,740
Federal agency mortgage-backed pools
   38,476    —      —      —      —      —      38,476














Total
   $ 79,216    $ —      $ —      $ —      $ —      $ —      $ 79,216














borrowings and the related securities, at fair value, pledged for repurchase agreements:


	June 30, 2021
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to one year		One to three years		Three to five years		Five to ten years		Beyond ten years		Total
Repurchase Agreements and repurchase-to-maturity transactions
Repurchase Agreements	$	128,453	$	0	$	0	$	0	$	0	$	0	$	128,453
Securities pledged for Repurchase Agreements
Federal agency collateralized mortgage obligations	$	47,460	$	0	$	0	$	0	$	0	$	0	$	47,460
Federal agency mortgage–backed pools	82,188		0		0		0		0		0		82,188
Total	$	129,648	$	0	$	0	$	0	$	0	$	0	$	129,648

Note 9 – Subordinated Notes

On June 24, 2020, Horizon issued $60.0 million in aggregate principal amount of 5.625% fixed–to–floating rate subordinated notes (the “Notes”). The Notes were offered in denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Notes mature on July 1, 2030 (the “Maturity Date”). From and including the date of original issuance to, but excluding, July 1, 2025 or the date of earlier redemption (the “fixed rate period”), the Notes bear interest at an initial rate of 5.625% per annum, payable semi–annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2021. The last interest payment date for the fixed rate period will be July 1, 2025. From and including July 1, 2025 to, but excluding, the Maturity Date or the date of earlier redemption (the “floating rate period”), the Notes bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three–Month Term SOFR), plus 549 basis points, payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year, commencing on October 1, 2025. Notwithstanding the foregoing, in the event that the Benchmark rate is less than zero, the Benchmark rate shall be deemed to be zero.

Horizon may, at its option, beginning with the interest payment date of July 1, 2025 and on any interest payment date thereafter, redeem the Notes, in whole or in part. The Notes will not otherwise be redeemable by Horizon prior to maturity, unless certain events occur. The redemption price for any redemption is 100% of the principal amount of the Notes, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any early redemption of the Notes will be subject to the receipt of the approval of the Board of Governors of the Federal Reserve System to the extent then required under applicable laws or regulations, including capital regulations.

The Notes are unsecured subordinated obligations, and rank pari passu, or equally, with all of Horizon's future unsecured subordinated debt and are junior to all existing and future senior debt. The Notes are structurally subordinated to all existing and future liabilities of Horizon's subsidiaries, including the deposit liabilities and claims of other creditors of Horizon Bank, and are effectively subordinated to Horizon’s existing and future secured indebtedness. There is no sinking fund for the Notes. The Notes are obligations of Horizon only and are not obligations of, and are not guaranteed by, any of Horizon’s subsidiaries.

Note 910 – Derivative Financial Instruments

Cash Flow Hedges

– As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into interest rate swap agreements for a portion of its floating rate debt. The agreements provide for the Company to receive interest from the counterparty at three ~~month~~months LIBOR and to pay interest to the counterparty at a ~~weighted average~~ fixed rate of ~~6.14%~~4.20% on a notional amount of ~~$30.5~~$12.0 million at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

2020, respectively. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

The Company assumed additional interest rate swap agreements as the result of the LaPorte acquisition in July 2016. The agreements provide for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a ~~weighted average~~ fixed rate of ~~2.31%~~2.62% on a notional amount of ~~$30.0~~$10.0 million at ~~September 30, 2017 and~~ December 31, ~~2016.~~2020. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

On July 20, 2018, the Company entered into an interest rate swap agreement for an additional portion of its floating rate debt. The agreement provides for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a fixed rate of 2.81% on a notional amount of $50.0 million at June 30, 2021 and December 31, 2020. Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

Management has designated the interest rate swap agreement as a cash flow hedging instrument. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. At ~~September~~June 30, ~~2017,~~2021, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

Fair Value Hedges

– Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item. The Company enters into fixed rate loan agreements as part of its lending policy. To mitigate the risk of changes in fair value based on fluctuations in interest rates, the Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. At ~~September~~June 30, ~~2017,~~2021, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

The change in fair value of both the hedge instruments and the underlying loan agreements are recorded as gains or losses in interest income. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. The notional amounts of the loan and security agreements being hedged were ~~$152.2~~$459.6 million at ~~September~~June 30, ~~2017~~2021 and ~~$122.4~~$442.7 million at December 31, ~~2016.~~

2020.

Other Derivative Instruments

– The Company enters into~~non-hedging~~ non–hedging derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business. At ~~September~~June 30, ~~2017,~~2021, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

The change in fair value of both the forward sale commitments and commitments to originate mortgage loans were recorded and the net gains or losses included in the Company’s gain on sale of loans.

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

   Asset Derivatives    Liability Derivatives
   September 30, 2017    September 30, 2017
Derivatives designated as hedging instruments (Unaudited)    Balance Sheet
Location    Fair Value    Balance Sheet
Location    Fair Value
Interest rate contracts
   Loans    $ —      Other liabilities    $ 429
Interest rate contracts
   Other Assets    429    Other liabilities    2,390




Total derivatives designated as hedging instruments
      429       2,819




Derivatives not designated as hedging instruments

Mortgage loan contracts
   Other assets    286    Other liabilities    31




Total derivatives not designated as hedging instruments
      286       31




Total derivatives
      $ 715       $ 2,850




   Asset Derivatives    Liability Derivatives
   December 31, 2016    December 31, 2016
Derivatives designated as hedging instruments    Balance Sheet
Location    Fair Value    Balance Sheet
Location    Fair Value
Interest rate contracts
   Loans    $ —      Other liabilities    $ 6
Interest rate contracts
   Other Assets    6    Other liabilities    3,132




Total derivatives designated as hedging instruments
      6       3,138




Derivatives not designated as hedging instruments

Mortgage loan contracts
   Other assets    602    Other liabilities    22




Total derivatives not designated as hedging instruments
      602       22




Total derivatives
      $ 608       $ 3,160

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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


	Asset Derivatives			Liability Derivatives
	June 30, 2021			June 30, 2021
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest rate contracts	Other assets	$	22,693	Other liabilities	$	27,901
Total derivatives designated as hedging instruments		22,693			27,901
Derivatives not designated as hedging instruments
Mortgage loan contracts	Other assets	499		Other liabilities	0
Total derivatives not designated as hedging instruments		499			0
Total derivatives		$	23,192		$	27,901


	Asset Derivatives			Liability Derivatives
	December 31, 2020			December 31, 2020
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest rate contracts	Other assets	$	35,388	Other liabilities	$	43,631
Total derivatives designated as hedging instruments		35,388			43,631
Derivatives not designated as hedging instruments
Mortgage loan contracts	Other assets	1,045		Other liabilities	0
Total derivatives not designated as hedging instruments		1,045			0
Total derivatives		$	36,433		$	43,631

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

   Comprehensive Income on Derivative    Comprehensive Income on Derivative
   (Effective Portion)    (Effective Portion)
   Three Months Ended September 30    Nine Months Ended September 30
Derivative in cash flow    2017    2016    2017    2016
hedging relationship
   (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
Interest rate contracts
   $ 193    $ 522    $ 483    $ 103


	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)
	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Derivatives in cash flow hedging relationship
Interest rate contracts	$	(14)	$	(107)	$	2,398	$	(3,239)

FASB Accounting Standards Codification (“ASC”) Topic~~820-10-20~~ 820–10–20 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic~~820-10-55~~ 820–10–55 establishes a fair value hierarchy that emphasizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

      Amount of Gain (Loss) Recognized on Derivative
      Three Months Ended September 30 Nine Months Ended September 30
Derivative in fair value    Location of gain (loss)    2017 2016 2017 2016
hedging relationship

recognized on derivative
   (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest rate contracts
   Interest income-loans    $ (4 ) $ (830 ) $ 423 $ 2,781
Interest rate contracts
   Interest income-loans    4 830 (423 ) (2,781 )


Total
      $ —   $ —   $ —   $ —


      Amount of Gain (Loss) Recognized on Derivative
      Three Months Ended September 30 Nine Months Ended September 30
Derivative not designated    Location of gain (loss)    2017 2016 2017 2016
as hedging relationship

recognized on derivative
   (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Mortgage contracts
   Other income-gain on sale of loans    $ (112 ) $ (324 ) $ (324 ) $ 145

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative
		Three Months Ended				Six Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Derivative in fair value hedging relationship
Interest rate contracts	Interest income - loans	$	(4,830)	$	(3,162)	$	12,695	$	(29,492)
Interest rate contracts	Interest income - loans	4,830		3,162		(12,695)		29,492
Total		$	0	$	0	$	0	$	0


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative
		Three Months Ended				Six Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Derivative not designated as hedging relationship
Mortgage contracts	Other income - gain on sale of loans	$	696	$	(679)	$	(545)	$	364

Note 1011 – Disclosures about Fair Value of Assets and Liabilities

The Fair Value Measurements topic of the FASB ASC defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. There are three levels of inputs that may be used to measure fair value:


~~Level 1~~		~~Quoted prices in active markets for identical assets or liabilities~~

~~Level 2~~		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

~~Level 3~~		Level 1 –Quoted prices in active markets for identical assets or liabilities Level 2 –Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 –Unobservable inputs that are supported by little or no market activity and that are significant ~~to the fair value of the assets or liabilities~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes~~ to ~~Condensed Consolidated Financial Statements~~

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

the fair value of the assets or liabilities

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated financial statements, as well as the general classification of such instruments pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended ~~September~~June 30, ~~2017.~~2021. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available for sale securities

When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Treasury and federal agency securities, state and municipal securities, federal agency collateralized mortgage obligations and ~~mortgage-backed~~mortgage–backed pools and corporate notes. Level 2 securities are valued by a third party pricing service commonly used in the banking industry utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury yield curve, trade execution data, market consensus prepayment spreads and available credit information and the bond’s terms and conditions. The pricing provider utilizes evaluated pricing models that vary based on asset class. These models incorporate available market information including quoted prices of securities with similar characteristics and, because many ~~fixed-income~~fixed–income securities do not trade on a daily basis, apply available information through processes such as benchmark

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

curves, benchmarking of like securities, sector grouping, and matrix pricing. In addition, model processes, such as an option adjusted spread model, is used to develop prepayment and interest rate scenarios for securities with prepayment features.

Hedged loans

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

Interest rate swap agreements

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

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

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

      Quoted Prices in    Significant
      Active Markets    Other    Significant
      for Identical    Observable    Unobservable
      Assets    Inputs    Inputs
   Fair Value    (Level 1)    (Level 2)    (Level 3)
September 30, 2017

Available-for-sale securities

U.S. Treasury and federal agencies
   $ 17,885    $ —      $ 17,885    $ —
State and municipal
   143,483    —      143,483    —
Federal agency collateralized mortgage obligations
   134,202    —      134,202    —
Federal agency mortgage-backed pools
   212,051    —      212,051    —
Private labeled mortgage-backed pools
   1,830    —      1,830    —
Corporate notes
   393    —      393    —








Totalavailable-for-sale securities
   509,844    —      509,844    —
Hedged loans
   152,216    —      152,216    —
Forward sale commitments
   286    —      286    —
Interest rate swap agreements
   (2,819 )    —      (2,819 )    —
Commitments to originate loans
   (31 )    —      (31 )    —
December 31, 2016

Available-for-sale securities

U.S. Treasury and federal agencies
   $ 7,989    $ —      $ 7,989    $ —
State and municipal
   116,592    —      116,592    —
Federal agency collateralized mortgage obligations
   137,195    —      137,195    —
Federal agency mortgage-backed pools
   176,726    —      176,726    —
Corporate notes
   1,329    —      1,329    —








Totalavailable-for-sale securities
   439,831    —      439,831    —
Hedged loans
   122,345    —      122,345    —
Forward sale commitments
   602    —      602    —
Interest rate swap agreements
   (3,138 )    —      (3,138 )    —
Commitments to originate loans
   (22 )    —      (22 )    —


	June 30, 2021
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Treasury and federal agencies	$	191,101	$	0	$	191,101	$	0
State and municipal	1,113,493		0		1,113,493		0
Federal agency collateralized mortgage obligations	98,622		0		98,622		0
Federal agency mortgage–backed pools	167,510		0		167,510		0
Private labeled mortgage–backed pools	33,568		0		33,568		0
Corporate notes	86,892		0		86,892		0
Total available for sale securities	1,691,186		0		1,691,186		0
Interest rate swap agreements asset	22,693		0		22,693		0
Forward sale commitments	499		0		499		0
Interest rate swap agreements liability	(27,901)		0		(27,901)		0

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	December 31, 2020
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Treasury and federal agencies	$	19,715	$	0	$	19,715	$	0
State and municipal	837,843		0		837,843		0
Federal agency collateralized mortgage obligations	147,453		0		147,453		0
Federal agency mortgage–backed pools	118,799		0		118,799		0
Corporate notes	10,215		0		10,215		0
Total available for sale securities	1,134,025		0		1,134,025		0
Interest rate swap agreements asset	35,388		0		35,388		0
Forward sale commitments	1,045		0		1,045		0
Interest rate swap agreements liability	(43,631)		0		(43,631)		0

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

   Three Months Ended September 30    Nine Months Ended September 30
Non Interest Income    2017    2016    2017    2016
Total gains and losses from:    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
Hedged loans
   $ (4 )    $ (830 )    $ 423    $ 2,781
Fair value interest rate swap agreements
   4    830    (423 )    (2,781 )
Derivative loan commitments
   (112 )    (324 )    (324 )    145








   $ (112 )    $ (324 )    $ (324 )    $ 145

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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


	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Non-interest Income
Total gains and losses from:
Hedged loans	$	(4,830)	$	(3,162)	$	12,695	$	(29,492)
Fair value interest rate swap agreements	4,830		3,162		(12,695)		29,492
Derivative loan commitments	696		(679)		(545)		364
	$	696	$	(679)	$	(545)	$	364

Certain other assets are measured at fair value on anon-recurring basis in the ordinary course of business and are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment):

      Quoted Prices in    Significant
      Active Markets    Other    Significant
      for Identical    Observable    Unobservable
      Assets    Inputs    Inputs
   Fair Value    (Level 1)    (Level 2)    (Level 3)
September 30, 2017

Impaired loans
   $ 3,433    $ —      $ —      $ 3,433
Mortgage servicing rights
   11,485    —      —      11,485
December 31, 2016

Impaired loans
   $ 2,246    $ —      $ —      $ 2,246
Mortgage servicing rights
   11,174    —      —      11,174

~~Impaired (collateral dependent):~~ ~~Loans for which it is probable that the Company will not collect all principal and interest due according~~


	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2021
Collateral dependent loans	$	8,918	$	0	$	0	$	8,918
Mortgage servicing rights	14,462		0		0		14,462
December 31, 2020
Collateral dependent loans	$	13,123	$	0	$	0	$	13,123
Mortgage servicing rights	12,472		0		0		12,472

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

~~If the impaired loan is~~Condensed Consolidated Financial Statements

(Unaudited)

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

Collateral Dependent Loans: For loans identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

~~Impaired~~

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

Mortgage Servicing Rights (MSRs):MSRs do not trade in an active market with readily observable prices. Accordingly, the fair value of these assets is classified as Level 3. The Company determines the fair value of MSRs using an income approach model based upon the Company’s~~month-end~~ month–end interest rate curve and prepayment assumptions. The model utilizes assumptions to estimate future net servicing income cash flows, including estimates of time decay, payoffs and changes in valuation inputs and assumptions. The Company reviews the valuation assumptions against this market data for reasonableness and adjusts the assumptions if deemed appropriate. The carrying amount of the MSRs’ fair value due to impairment ~~decreased~~increased by ~~$75,000~~$1.8 million during the first ~~nine~~six months of ~~2017~~2021 and decreased by ~~$193,000~~$3.2 million during the first ~~nine~~six months of ~~2016.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

2020.

The following table presents qualitative information about unobservable inputs used in recurring and~~non-recurring~~ non–recurring Level 3 fair value measurements, other than goodwill.

Fair Value at Valuation Range (Weighted
September 30, 2017
Technique

Unobservable Inputs
Average)

Discount to reflect current market
conditions and ultimate

Impaired loans
$ 3,433 Collateral based measurement collectability 11% - 17% (14% )
Discount rate, Constant 11% - 17% (14% ),
prepayment rate, Probability of 4% - 8% (5.1% ),
Mortgage servicing rights
$ 11,485 Discounted cashflows default 1% - 11% (5.0% )
Fair Value at Valuation Range (Weighted
December 31, 2016
Technique

Unobservable Inputs
Average)
Discount to reflect current
market conditions and ultimate
Impaired loans
$ 2,246 Collateral based measurement collectability 10% - 16% (13% )
Discount rate, Constant 10% - 16% (13% ),
prepayment rate, Probability of 4% - 7% (4.6% ),
Mortgage servicing rights
$ 11,174 Discounted cashflows default 1% - 10% (4.5% )

June 30, 2021

Fair
Value

Valuation
Technique

Unobservable
Inputs

Range
(Weighted Average)

Collateral dependent loans

8,918

Collateral based measurement

Discount to reflect current market conditions and ultimate collectibility

0.0%-66.0% (13.8%)

Mortgage servicing rights

14,462

Discounted cash flows

Discount rate,

Constant prepayment rate,

Probability of default

8.0%-8.0% (8.0%),

9.9%-28.5% (13.6%),

0.0%-4.5%(0.5%)

December 31, 2020

Fair
Value

Valuation
Technique

Unobservable
Inputs

Range
(Weighted Average)

Collateral dependent loans

13,123

Collateral based measurement

Discount to reflect current market conditions and ultimate collectibility

0.0%-72.0%(12.4%)

Mortgage servicing rights

12,472

Discounted cash flows

Discount rate,
Constant prepayment rate,
Probability of default

7.8%-7.8% (7.8%),

11.5%-20.9%(17.5%),

0.0%-1.0%(0.8%)

Note 1112 – Fair Value of Financial Instruments

The estimated fair value amounts of the Company’s financial instruments were determined using available market information, current pricing information applicable to Horizon and various valuation methodologies. Where market quotations were not available, considerable management judgment was involved in the determination of estimated fair values. Therefore, the estimated fair value of financial instruments shown below may not be representative of the amounts at which they could be exchanged in a current or future transaction. Due to the inherent uncertainties of expected cash flows of financial instruments, the use of alternate valuation assumptions and methods could have a significant effect on the estimated fair value amounts.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or market value of Horizon taken as a whole. The disclosed fair value estimates are limited to Horizon’s significant financial instruments at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020. These include financial instruments recognized as assets and liabilities on the condensed consolidated balance sheet as well as certain~~off-balance~~ off–balance sheet financial instruments. The estimated fair values shown below do not include any valuation of assets and liabilities, which are not financial instruments as defined by the FASB ASC fair value hierarchy.

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

Cash and Due from Banks — – The carrying amounts approximate fair value.

~~Held-to-Maturity~~

Interest-earning time deposits – The fair values of the Company’s interest–earning time deposits are estimated using discounted cash flow analyses based on current rates for similar types of interest–earning time deposits.

Held–to–Maturity Securities — – For debt securities held to maturity, fair values are based on quoted market prices or dealer quotes. For those securities where a quoted market price is not available, carrying amount is a reasonable estimate of fair value based upon comparison with similar securities.

Loans Held for Sale — – The carrying amounts approximate fair value.

Net Loans — – The fair value of ~~portfolio~~net loans isare estimated ~~by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar~~on an exit price basis incorporating discounts for credit, ~~ratings~~liquidity and ~~for the same remaining maturities. The carrying amounts of loans held for sale approximate fair value.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

marketability factors.

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

FHLB.

Interest Receivable/Payable — – The carrying amounts approximate fair value.

Deposits — – The fair value of demand deposits, savings accounts, ~~interest-bearing~~interest–bearing checking accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturity.

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

Subordinated Notes – The fair value of subordinated notes is based on discounted cash flows based on current borrowing rates for similar types of instruments.

Junior Subordinated Debentures — Issued to Capital Trusts – Rates currently available for debentures with similar terms and remaining maturities are used to estimate fair values of existing debentures.

Commitments to Extend Credit and Standby Letters of Credit — – The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For ~~fixed-rate~~fixed–rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. Due to the ~~short-term~~short–term nature of these agreements, carrying amounts approximate fair value.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements ~~fall (unaudited).~~

   September 30, 2017
      Quoted Prices
      in Active    Significant
      Markets for    Other    Significant
      Identical    Observable    Unobservable
   Carrying    Assets    Inputs    Inputs
   Amount    (Level 1)    (Level 2)    (Level 3)
Assets

Cash and due from banks
   $ 72,662    $ 72,662    $ —      $ —
Investment securities, held to maturity
   198,605    —      202,222    —
Loans held for sale
   3,616    —      —      3,616
Loans excluding loan level hedges, net
   2,258,023    —      —      2,205,681
Stock in FHLB and FRB
   15,340    —      15,340    —
Interest receivable
   14,880    —      14,880    —
Liabilities

Non-interest bearing deposits
   $ 563,536    $ 563,536    $ —      $ —
Interest-bearing deposits
   2,044,739    —      1,948,765    —
Borrowings
   458,152    —      453,303    —
Subordinated debentures
   37,607    —      36,241    —
Interest payable
   700    —      700    —

fall.


	June 30, 2021
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and due from banks	$	304,171	$	304,171	$	0	$	0
Interest–earning time deposits	6,994		0		7,107		0
Investment securities, held to maturity	153,284		0		162,651		0
Loans held for sale	7,228		0		0		7,228
Loans (excluding loan level hedges), net	3,463,870		0		0		3,389,962
Stock in FHLB	23,023		0		23,023		0
Interest receivable	21,702		0		21,702		0
Liabilities
Non–interest bearing deposits	$	1,102,950	$	1,102,950	$	0	$	0
Interest bearing deposits	3,678,676		0		3,658,436		0
Borrowings	439,094		0		439,763		0
Subordinated notes	58,676		0		58,033		0
Junior subordinated debentures issued to capital trusts	56,662		0		53,163		0
Interest payable	2,430		0		2,430		0


	December 31, 2020
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and due from banks	$	249,711	$	249,711	$	0	$	0
Interest–earning time deposits	8,965		0		9,136		0
Investment securities, held to maturity	168,676		0		179,990		0
Loans held for sale	13,538		0		0		13,538
Loans (excluding loan level hedges), net	3,810,356		0		0		3,767,348
Stock in FHLB	23,023		0		23,023		0
Interest receivable	21,396		0		21,396		0
Liabilities
Non–interest bearing deposits	$	1,053,242	$	1,053,242	$	0	$	0
Interest bearing deposits	3,477,891		0		3,466,522		0
Borrowings	475,000		0		483,245		0
Subordinated notes	58,603		0		57,626		0
Junior subordinated debentures issued to capital trusts	56,548		0		52,676		0
Interest payable	2,712		0		2,712		0

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

   December 31, 2016
      Quoted Prices
      in Active    Significant
      Markets for    Other    Significant
      Identical    Observable    Unobservable
   Carrying    Assets    Inputs    Inputs
   Amount    (Level 1)    (Level 2)    (Level 3)
Assets

Cash and due from banks
   $ 70,832    $ 70,832    $ —      $ —
Investment securities, held to maturity
   193,194    —      194,086    —
Loans held for sale
   8,087    —      —      8,087
Loans excluding loan level hedges, net
   1,998,804    —      —      1,965,928
Stock in FHLB and FRB
   23,932    —      23,932    —
Interest receivable
   12,713    —      12,713    —
Liabilities

Non-interest bearing deposits
   $ 496,248    $ 496,248    $ —      $ —
Interest-bearing deposits
   1,974,962    —      1,839,167    —
Borrowings
   267,489    —      261,141    —
Subordinated debentures
   37,456    —      36,371    —
Interest payable
   472    —      472    —

Note 1213 – Accumulated Other Comprehensive Income

   September 30    December 31
   2017    2016
   (Unaudited)
Unrealized gain (loss) on securities available for sale
   $ (601 )    $ (6,007 )
Unamortized gain on securities held to maturity, previously transferred from AFS
   256    456
Unrealized loss on derivative instruments
   (2,390 )    (3,132 )
Tax effect
   958    3,039




Total accumulated other comprehensive income (loss)
   $ (1,777 )    $ (5,644 )


	June 30, 2021		December 31, 2020
Unrealized gain on securities available for sale	$	28,932	$	43,662
Unamortized loss on securities held to maturity, previously transferred from AFS	(134)		(165)
Unrealized loss on derivative instruments	(5,208)		(8,243)
Tax effect	(4,952)		(7,402)
Total accumulated other comprehensive income	$	18,638	$	27,852

Note 1314 – Regulatory Capital

Horizon and the Bank are subject to various regulatory capital requirements administered by the federal banking ~~agencies~~agencies. These capital requirements implement changes arising from the Dodd–Frank Wall Street Reform and ~~are assigned to a~~Consumer Protection Act and the U.S. Basel Committee on Banking Supervision’s capital ~~category.~~framework (known as “Basel III”). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the ~~Bank’s~~Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Company and Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain~~off-balance-sheet~~ off–balance–sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

~~Quantitative measures established by regulation~~

The Company and Bank are subject to ~~ensure~~minimum regulatory capital ~~adequacy require~~requirements as defined and calculated in accordance with the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined), or leverage ratio. For September 30, 2017, Basel ~~III rules require the Bank to maintain minimum amounts and ratios of common equity Tier I capital (as defined in the regulation) to risk-weighted assets (as defined). Additionally,~~III–based regulations. As allowed under Basel III rules, the Company made the decision ~~was made~~ to~~opt-out~~ opt–out of including accumulated other comprehensive income in regulatory capital.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes~~ The minimum regulatory capital requirements are set forth in the table below.

In addition, to ~~Condensed Consolidated Financial Statements~~

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

To be categorized as well capitalized, the Company and Bank must maintain ~~minimum~~ Total ~~risk-based,~~risk–based, Tier I ~~risk-based,~~risk–based, common equity Tier I ~~risk-based (September 30, 2017)~~risk–based and Tier I leverage ratios as set forth in the table below. As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company and Bank met all capital adequacy requirements to be considered well capitalized. There have been no conditions or events since the end of the ~~third~~second quarter of ~~2017~~2021 that management believes have changed the Bank’s classification as well capitalized. There is no threshold for ~~well-capitalized~~well capitalized status for bank holding companies.

In October 2019, the federal banking agencies finalized a new rule that will simplify capital requirements for qualified community banks that opt into the new community bank leverage ratio framework. The new framework was available to use in March 31, 2020 Call Reports or Forms FRY-9C (as applicable) for depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets, among other qualifying criteria. Horizon did not elect the new community bank leverage ratio framework.

As of March 31, 2020, the Company and Bank elected the transition option of the 2019 CECL Rule which allows banking organizations to phase in over a three–year period the day–one adverse effects of CECL on their regulatory capital ratios.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Horizon and the Bank’s actual and required capital ratios as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 were as follows:

   Actual Required For Capital¹
Adequacy Purposes Required For Capital¹
Adequacy Purposes
with Capital Buffer Well Capitalized Under Prompt¹
Corrective Action Provisions
   Amount    Ratio Amount    Ratio Amount    Ratio Amount    Ratio
As of September 30, 2017

Total capital¹(to risk-weighted assets)

Consolidated
   $ 347,601    13.22 % 210,274    8.00 % 226,833    8.63 % N/ A    N/ A
Bank
   339,596    12.93 % 210,162    8.00 % 226,713    8.63 % $ 262,703    10.00 %
Tier 1 capital¹(to risk-weighted assets)

Consolidated
   331,962    12.63 % 157,705    6.00 % 174,264    6.63 % N/ A    N/ A
Bank
   323,957    12.33 % 157,622    6.00 % 174,172    6.63 % 210,162    8.00 %
Common equity tier 1 capital¹(to risk-weighted assets)

Consolidated
   293,499    11.17 % 118,279    4.50 % 134,838    5.13 % N/ A    N/ A
Bank
   323,957    12.33 % 118,216    4.50 % 134,766    5.13 % 170,757    6.50 %
Tier 1 capital¹(to average assets)

Consolidated
   331,962    10.11 % 131,319    4.00 % 131,319    4.00 % N/ A    N/ A
Bank
   323,957    9.90 % 130,877    4.00 % 130,877    4.00 % 163,596    5.00 %
As of December 31, 2016

Total capital¹(to risk-weighted assets)

Consolidated
   $ 316,576    13.87 % $ 182,596    8.00 % $ 196,976    8.63 % N/ A    N/ A
Bank
   319,013    13.98 % 182,541    8.00 % 196,916    8.63 % $ 228,176    10.00 %
Tier 1 capital¹(to risk-weighted assets)

Consolidated
   301,739    13.22 % 136,947    6.00 % 151,326    6.63 % N/ A    N/ A
Bank
   304,176    13.33 % 136,905    6.00 % 151,280    6.63 % 182,540    8.00 %
Common equity tier 1 capital¹(to risk-weighted assets)

Consolidated
   263,313    11.50 % 103,036    4.50 % 117,460    5.13 % N/ A    N/ A
Bank
   304,176    13.33 % 102,679    4.50 % 117,054    5.13 % 148,314    6.50 %
Tier 1 capital¹(to average assets)

Consolidated
   301,739    10.44 % 115,609    4.00 % 115,609    4.00 % N/ A    N/ A
Bank
   304,176    9.93 % 122,521    4.00 % 122,521    4.00 % 153,151    5.00 %

¹	~~As defined by regulatory agencies~~

~~Note 14 – Preferred Stock Redemption~~

~~On February 1, 2016, Horizon completed the redemption (the “Redemption”) of all 12,500 outstanding shares of SeniorNon-Cumulative~~ Perpetual Preferred Stock, Series B (the “SBLF Preferred Stock”) which were held by the U.S. Department of Treasury and issued pursuant to its Small Business Lending Fund (“SBLF”). The SBLF Preferred Stock was redeemed at its liquidation value of $1,000 per share, plus accrued dividends, for a total Redemption price of $12,510,416.67. Horizon funded the Redemption using cash on hand without borrowing and without a special dividend from the Bank. Following the Redemption, Horizon does not have any shares of its Senior~~Non-Cumulative~~ ~~Perpetual Preferred Stock, Series B outstanding. The Redemption terminates Horizon’s participation in the SBLF.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~Note 15 – Future Accounting Matters~~

~~Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)No. 2017-12,~~~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities~~

~~The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU)No. 2017-12,~~~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities~~. The new guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this ASU also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. For public entities, the new guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any interim period after issuance of the ASU. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption (that is, the initial application date).

~~FASB Accounting Standards UpdateNo. 2017-08,~~~~Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20),~~ ~~Premium Amortization on Purchased Callable Debt Securities~~

~~The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)No. 2017-08,~~~~Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20),~~ ~~Premium Amortization on Purchased Callable Debt Securities.~~ These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The amendments in this update were adopted on January 1, 2017 and did not have a material impact on the consolidated financial statements.

~~FASB Accounting Standards UpdatesNo. 2017-04,~~~~Intangibles – Goodwill and Other~~~~(Topic 350):~~~~Simplifying the Test for Goodwill Impairment~~

~~The FASB has issued Accounting Standards Update (ASU)No. 2017-04,~~~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.~~ The new guidance is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. The amendments in this update should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~FASB Accounting Standards UpdatesNo. 2017-01,~~~~Business Combinations~~~~(Topic 805):~~~~Clarifying the Definition of a Business~~

~~The FASB has issued Accounting Standards Update (ASU)No. 2017-01,~~~~Business Combinations (Topic 805): Clarifying the Definition of a Business.~~ The amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The amendments in this update became effective on January 1, 2017 and did not have a material impact on the consolidated financial statements.

~~FASB Accounting Standards UpdatesNo. 2016-13,~~~~Financial Instruments – Credit Losses~~ ~~(Topic 326):~~~~Measurement of Credit Losses on Financial Instruments~~

~~The FASB has issued Accounting Standards Update (ASU)No. 2016-13,~~~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ The main objective of this amendment is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to enhance their credit loss estimates. The amendment requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on~~available-for-sale~~ debt securities and purchased financial assets with credit deterioration. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. Early adoption will be permitted beginning after December 15, 2018. We have formed a cross functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a~~one-time~~ cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such~~one-time~~ ~~adjustment or the overall impact of the new guidance on the consolidated financial statements.~~

~~FASB Accounting Standards UpdatesNo. 2016-09,~~~~Compensation – Stock Compensation~~~~(Topic 718):~~~~Improvements to Employee Share-Based Payment Acounting~~

~~The FASB has issued Accounting Standards Update (ASU)No. 2016-09,~~~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~The amendments are intended to improve the accounting for employee share-based payments and affects all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including the income tax consequences, the classification of awards as either equity or liabilities and the classification on the statement of cash flows. The amendments in this update became effective on January 1, 2017 and resulted in a tax benefit of $208,000 and $227,000 for the three and nine months ended September 30, 2017, respectively.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~FASB Accounting Standards UpdatesNo. 2016-02,~~~~Leases~~~~(Topic 842)~~

~~The FASB has issued Accounting Standards Update (ASU)No. 2016-02,~~~~Leases.~~Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a~~right-of-use~~ asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. Based on leases outstanding as of December 31, 2016, we do not expect the new standard to have a material impact on our balance sheet or income statement.

~~FASB Accounting Standards UpdatesNo. 2016-01,~~~~Financial Instruments – Overall~~ ~~(Subtopic825-10):~~~~Recognition and Measurement of Financial Assets and Financial Liabilities~~

~~The FASB has issued Accounting Standards Update (ASU)No. 2016-01,~~~~Financial Instruments – Overall (Subtopic825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities.~~ ~~The new guidance is intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies,not-for-profit~~ ~~organizations, and employee benefit plans that hold financial assets or owe financial liabilities.~~

~~The new guidance makes targeted improvements to existing U.S. GAAP by:~~


	Actual				Required for Capital Adequacy Purposes(1)				Required For Capital Adequacy Purposes with Capital Buffer(1)				Well Capitalized Under Prompt Corrective Action Provisions(1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2021
Total capital (to risk–weighted assets)(1)
Consolidated	$	687,957	16.65	%	$	330,550	8.00	%	$	433,847	10.50	%	N/A		N/A
Bank	573,430		14.09	%	325,581		8.00	%	427,325		10.50	%	$	406,977	10.00	%
Tier 1 capital (to risk–weighted assets)(1)
Consolidated	634,359		15.35	%	247,958		6.00	%	351,274		8.50	%	N/A		N/A
Bank	520,873		12.80	%	244,159		6.00	%	345,892		8.50	%	325,546		8.00	%
Common equity tier 1 capital (to risk–weighted assets)(1)
Consolidated	519,058		12.56	%	185,968		4.50	%	289,284		7.00	%	N/A		N/A
Bank	520,873		12.80	%	183,119		4.50	%	284,852		7.00	%	264,506		6.50	%
Tier 1 capital (to average assets)(1)
Consolidated	634,359		10.76	%	235,821		4.00	%	235,821		4.00	%	N/A		N/A
Bank	520,873		8.79	%	237,030		4.00	%	237,030		4.00	%	296,287		5.00	%
December 31, 2020
Total capital (to risk–weighted assets)(1)
Consolidated	$	648,804	14.91	%	$	348,024	8.00	%	$	456,782	10.50	%	N/A		N/A
Bank	532,315		12.21	%	348,810		8.00	%	457,813		10.50	%	$	436,013	10.00	%
Tier 1 capital (to risk–weighted assets)(1)
Consolidated	607,340		13.96	%	261,018		6.00	%	369,775		8.50	%	N/A		N/A
Bank	492,221		11.29	%	261,606		6.00	%	370,609		8.50	%	348,808		8.00	%
Common equity tier 1 capital (to risk–weighted assets)(1)
Consolidated	491,281		11.29	%	195,764		4.50	%	304,522		7.00	%	N/A		N/A
Bank	492,221		11.29	%	196,205		4.50	%	305,207		7.00	%	283,407		6.50	%
Tier 1 capital (to average assets)(1)
Consolidated	607,340		10.68	%	227,507		4.00	%	227,507		4.00	%	N/A		N/A
Bank	492,221		8.71	%	226,158		4.00	%	226,158		4.00	%	282,697		5.00	%
(1) As defined by regulatory agencies

Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;

~~Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;~~

Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements;

~~Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities;~~

Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and

Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies and~~not-for-profit~~ organizations from having to disclose fair value information about financial instruments measured at amortized cost. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

~~FASB Accounting Standards Updates No. 2014-09,~~~~Revenue from Contracts with Customers~~ ~~(Topic 606)~~

~~The FASB has issued Accounting Standards Update (ASU) No. 2014-09 creating,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. We do not expect the new standard, or any of the amendments detailed below, to result in a material change from our current accounting for revenue, as recognition of interest income and the larger sources of non-interest income from Horizon’s current financial instruments would not be impacted by the guidance. Additional disclosures regarding the composition of Horizon’s revenue sources will be required.

~~In May 2016, the FASB issued ASU No. 2016-12,~~~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.~~ ~~The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and some practical expedients.~~

~~In December 2016, the FASB issued ASU No. 2016-20,~~~~Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements.~~ The FASB board decided to issue a separate update for technical corrections and improvements to Topic 606 and other Topics amended by ASU No. 2014-09 to increase awareness of the proposals and to expedite improvements to ASU No. 2014-09. The amendment affects narrow aspects of the guidance issued in ASU No. 2014-09.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

Note 1615 – General Litigation

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

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

2020

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

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

Forward–Looking Statements

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

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

•COVID–19 related impact on Horizon and its customers, employees and vendors, which may depend on several factors, including the scope and continued duration of the pandemic, its influence on the financial markets, long–term and post–pandemic changes in the banking preferences and behaviors of customers, supply chain risks to the bank and its customers and actions taken by governmental authorities and other third parties in response to the pandemic;

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

•changes to government regulations, including the CARES Act, on the accounting for modified loans;

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

~~rising~~•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;

•loss of key Horizon personnel;

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

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

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

•volatility and disruption in financial markets;

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

•sources of liquidity;

•potential risk of environmental liability related to lending activities;

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

•legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its subsidiaries in particular, including the effects resulting from the reforms enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the adoption of regulations by regulatory bodies under the Dodd-Frank Act;particular;

~~the possible impact of whole or partial dismantling of provisions of the Dodd-Frank Act under the administration of President Donald J. Trump;~~

the potential for changes in tax laws, particularly corporate income tax reform, that may affect current returns, Horizon’s deferred tax assets and liabilities, the ability to utilize federal and state net operating loss carryforwards, and the market’s perception on overall value;

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

~~the impact of the Basel III capital rules;~~

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

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

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

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

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

•rapid technological developments and changes;

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

•the rising costs of effective cybersecurity;

•containing costs and expenses;

•

��

~~the slowing or failure of economic recovery;~~

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

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

•the potential influence on the U.S. financial markets and economy from material changes outside the U.S. or in overseas relations, including changes in the U.S. trade relations related to imposition of tariffs, Brexit and the phase out 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; and

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

The foregoing list of important factors is not exclusive, and you are cautioned not to place undue reliance on these ~~forward-looking~~forward–looking statements, which speak only as of the date of this document or, in the case of documents incorporated by reference, the dates of those documents. We do not undertake to update any ~~forward-looking~~forward–looking statements, whether written or oral, that may be made from time to time by us or on our behalf. For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by ~~forward-looking~~forward–looking statements, see “Risk Factors” in Item 1A of Part I of our ~~2016~~2020 Annual Report on Form~~10-K~~ 10–K and in the subsequent reports we file with the SEC.

Overview

Horizon Bancorp, Inc. (“Horizon” or the “Company”) is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in ~~Northern~~northern and ~~Central~~central Indiana ~~Southwestern~~ and ~~Central~~southern and central Michigan ~~and Central Ohio~~ through its bank ~~subsidiary.~~subsidiary, Horizon Bank (“Horizon Bank” or the “Bank”) and other affiliated entities and Horizon Risk Management, Inc. Horizon operates as a single segment, which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. ~~The~~Horizon Bank (formerly known as “Horizon Bank, N.A.”) was ~~originally chartered~~founded in 1873 as a national ~~banking~~ association, ~~in 1873~~ and ~~has operated continuously since that time and converted~~it remained a national association until its conversion to an Indiana ~~state-chartered~~commercial bank effective on June 23, 2017. The Bank is a ~~full-service~~full–service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services, and other services incident to banking.

~~On October 17, 2017,~~ Horizon ~~completed the acquisition of Wolverine Bancorp,~~Risk Management, Inc., is a ~~Maryland corporation (“Wolverine”)~~captive insurance company incorporated in Nevada and ~~Horizon Bank’s acquisition of Wolverine Bank,~~was formed as a ~~federally-chartered savings bank and wholly-owned~~wholly–owned subsidiary of ~~Wolverine,~~Horizon.

Over the last 20 years, Horizon has expanded its geographic reach and experienced financial growth through a combination of both organic expansion and mergers ~~effective October 17, 2017. Under~~and acquisitions. Horizon's initial operations focused on northwest Indiana, but since then, the ~~terms~~Company has developed a presence in new markets in southern and central Michigan and northeastern and central Indiana.

Table of the Merger Agreement, shareholders of Wolverine received 1.0152 shares of Horizon common stock and $14.00 in cash for each outstanding share of Wolverine common stock. Wolverine shares outstanding at the closing to be exchanged were 2,129,331 and the shares of Horizon common stock issued to Wolverine shareholders totaled 2,161,610. Based upon the October 16, 2017 closing price of $29.06 per share of Horizon common stock immediately prior to the effectiveness of the merger, the transaction has an implied valuation of approximately $95.1 million.

Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

fewer than 100 shares of common stock received $17.25 in cash for each common share. Lafayette shares outstanding at the closing to be exchanged were 1,856,679, and the shares of Horizon common stock issued to Lafayette shareholders totaled 1,091,259. Based upon the August 31, 2017 closing price of $26.17 per share of Horizon common stock immediately prior to the effectiveness of the merger, the transaction has an implied valuation of approximately $34.5 million.

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

On November 7, 2016, Horizon completed the acquisition of CNB Bancorp, an Indiana corporation headquartered in Attica, Indiana (“CNB”) and the Bank’s acquisition of The Central National Bank and Trust Company (“Central National Bank & Trust”), through mergers effective November 7, 2016. Under the terms of the acquisition, shareholders of CNB received merger consideration in the form of cash. The total value of the consideration for the acquisition was $5.3 million.

On June 1, 2016, Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (“Kosciusko”) and Horizon Bank’s acquisition of Farmers State Bank, a state-chartered bank and wholly owned subsidiary of Kosciusko, through mergers effective June 1, 2016. Under the terms of the Merger Agreement, shareholders of Kosciusko had the option to receive $81.75 per share in cash or 4.5183 shares of Horizon common stock, or a combination of both, for each share of Kosciusko’s common stock, subject to allocation provisions to assure that in aggregate, Kosciusko shareholders received total consideration that consisted of 65% stock and 35% cash. Kosciusko shareholders owning fewer than 100 shares of common stock received $81.75 in cash for each common share. As a result of Kosciusko stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 873,430 shares of its common stock in the merger. Based upon the June 1, 2016 closing price of $16.57 per share of Horizon common stock, the transaction has an implied valuation of approximately $23.0 million.

~~Following are some highlights of Horizon’s financial performance through the third quarter of 2017:~~

2020

Second Quarter 2021 Highlights

•Net income ~~for~~grew to a record $22.2 million, up 8.6% from the ~~third~~linked quarter ~~of 2017 increased 23.8% to $8.2 million or $0.36 diluted~~and 51.5% from the year–ago period. Diluted earnings per share ~~compared~~(“EPS”) of $0.50 includes the $0.01 after–tax impact of expenses associated with Horizon’s agreement to ~~$6.6~~acquire 14 TCF National Bank branches, approximately $976 million ~~or $0.30 diluted earnings per share for~~in deposits and approximately $278 million in loans in a financially and strategically attractive extension of Horizon’s low–cost deposit franchise in Michigan, announced in the ~~third quarter of 2016.~~

Net income, excluding acquisition-related expenses, gain on sale of investment securities and purchase accounting adjustments (“core net income”), for the third quarter of 2017 increased 10.3% to $9.2 million or $0.41 diluted earnings per share compared to $8.4 million or $0.39 diluted earnings per share for the same period of 2016.

~~Net income~~quarter. EPS was $0.46 for the first ~~nine~~quarter of 2021 and $0.33 for the second quarter of 2020.

•Pre–tax, pre–provision net income grew to a second–quarter record $24.5 million, up 0.9% from the linked quarter and 3.2% from the year–ago 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.)

•Net interest income was $42.6 million for the quarter, compared to $42.5 million for the first quarter of 2021 and $43.0 million for the second quarter of 2020. Reported net interest margin (“NIM”) was 3.14% and adjusted NIM was 3.13%, with reported NIM declining by 15 basis points and adjusted NIM decreasing by four basis points from the first quarter of 2021. (See the “Non–GAAP Reconciliation of Net Interest Margin” table for the definition of this non–GAAP calculation of adjusted NIM.) An estimated seven basis points attributed to Federal Paycheck Protection Program (“PPP”) lending improved the margin, offset by an estimated 21 basis point compression attributed to excess liquidity held during the quarter, for both NIM and adjusted NIM.

•Horizon’s in–market consumer and commercial deposit relationships, 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 0.45% in the quarter, compared to 0.50% in the first quarter of 2021 and 0.74% in the second quarter of 2020.

•Non–interest expense was $33.4 million in the quarter, or 2.18% of average assets on an annualized basis, compared to $32.2 million, or 2.20%, in the first quarter of 2021 and $30.4 million, or 2.18%, in the second quarter of 2020.

•The efficiency ratio for the period was 57.73% compared to 57.03% for the first quarter of 2021 and 56.23% for the second quarter of 2020. The adjusted efficiency ratio was 57.45% compared to 57.97% for the first quarter of 2021 and 56.49% for the second quarter of 2020. (See the “Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio” table below.)

•Horizon experienced an increased return on average assets (“ROAA”) of 1.45% and return on average common equity (“ROACE”) of 12.59% in the quarter, as well as adjusted ROAA of 1.46% and adjusted ROACE of 12.61%, excluding the impact of acquisition expenses and prepayment penalties, net of tax, and death benefits on bank owned life insurance. (See the “Non–GAAP Reconciliation of Return on Average Assets” and the “Non–GAAP Reconciliation of Return on Average Common Equity” tables below.)

•Horizon recorded a provision release of $1.5 million and maintained solid asset quality metrics at period end, including non–performing loans declining 10.9% during the quarter to $22.3 million, or 0.63% of total loans, substandard loans declining 4.6% to $82.5 million, or 2.3% of total loans, net charge–offs declining 81.3% to $39,000, or 0.00% of average loans for the period, and COVID–19 deferrals declining 42.7% to $52.5 million, or 1.5% of total loans.

•Total non–interest income grew to $15.2 million, up 9.6% from the linked quarter and 36.7% from the year–ago period, due to favorable impact of mortgage production, bank owned life insurance, banking fees and fiduciary activities. Following record residential lending in 2020, mortgage–related non–interest income remained strong in the second three months of ~~2017 was $25.5~~2021, with gain on mortgage loan sales of $5.6 million ~~or $1.13 diluted earnings per share compared~~and net mortgage servicing income of $1.5 million. The Horizon Bank (the “Bank”) originated $173.0 million in mortgage loans during the quarter, with 61% of volume from purchases, as Horizon continued to ~~$18.3 million or $0.94 diluted earnings per share for the same period~~focus residential lending on prime borrowers in ~~2016.~~Indiana and Michigan markets.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

2020

~~Core net income for~~

•Loans, excluding PPP lending, totaled $3.36 billion on June 30, 2021, were lower reflecting cash reserves maintained by many current and prospective commercial borrowers and retail households through the ~~first nine months of 2017 increased 22.5% to $25.4 million or $1.13 diluted earnings~~quarter. Loans, excluding PPP lending, totaled $3.42 billion on March 31, 2021 and $3.69 billion on June 30, 2020.

•Horizon’s book value per share ~~compared to $20.7 million or $1.07 diluted earnings per share for the same period of 2016.~~

~~Return on average assets was 0.96% for the third quarter of 2017 compared to 0.80% for the same period in 2016.~~

~~Return on average assets, excluding acquisition-related expenses, gain on sale of investment securities~~ and ~~purchase accounting adjustments (“core return on average assets”), for the third quarter of 2017 was 1.09% compared to 1.02% for the same period of 2016.~~

~~Commercial loans, excluding acquired commercial loans, increased by an annualized rate of 12.8%, or $103.1 million, during the first nine months of 2017.~~

~~Consumer loans, excluding acquired consumer loans, increased by an annualized rate of 27.2%, or $81.2 million, during the first nine months of 2017.~~

~~Total loans, excluding acquired loans, increased by an annualized rate of 9.2%, or $147.7 million, during the first nine months of 2017.~~

~~Net interest income for the third quarter of 2017 increased $3.5 million, or 14.2%, compared to the same period in 2016.~~

Net interest margin was 3.71% for the third quarter of 2017 compared to 3.84% for the prior quarter and 3.37% for the third quarter of 2016. The improvement in net interest margin from the prior year was due to Horizon executing a strategy to reduce expensive funding costs in the fourth quarter of 2016, an increase in average interest-earning assets and an increase in loan yields.

Net interest margin, excluding the impact of purchase accounting adjustments (“core net interest margin”), was 3.63% for the third quarter of 2017 compared to 3.71% for the prior quarter and 3.31% for the same period in 2016.

~~Horizon’s~~ tangible book value per share ~~rose~~increased to ~~$12.38~~all–time highs of $16.16 and $12.24, respectively. (See the “Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share” table below.)

•As part of the Company's annual branch performance review and a third–party analysis of the Bank's retail network, Horizon's Board of Directors approved the permanent closure of nine Indiana branch locations and one in Michigan to occur on August 27, 2021. Access to Horizon branch that provides the same products and services will be in close proximity of the consolidated branch in addition to alternative delivery channels are available, including online banking and mobile banking. Any impairment to fixed assets is not estimated to be material.

•Horizon increased cash dividends paid in the quarter by 8.3% to $0.13 per share, as previously announced. As of June 30, 2021, in excess of $129 million in cash was maintained at ~~September~~the holding company, providing considerable future optionality to build shareholder value.

Coronavirus Update/Status

The coronavirus (“COVID–19”) pandemic has placed significant health, economic and other major pressure throughout the communities we serve, in the states of Indiana and Michigan, the United States and the entire world. We have implemented a number of procedures in response to the pandemic to support the safety and well–being of our employees, customers and shareholders that continue through the date of this report:

•Employees

◦Safety and well–being of employees and families is our first priority.

◦Installed sneeze guards, customer directional signage, implemented mask requirements, and continuing with sanitizing and social distancing protocols.

◦Substantial reduction in percentage of employees working remotely.

•Consumers

◦100% of our branch locations are now open to lobby traffic.

◦Payment relief

▪Approximately $2 million consumer and mortgage loans have been modified as of June 30, ~~2017, compared to $11.48 at~~2021, down from $6 million as of December 31, ~~2016.~~2020 and $63 million as of June 30, 2020.

~~On September 1, 2017, Horizon closed~~▪Continued to provide new loans to qualified applicants.

▪Provided mortgage loan education programs.

▪Provided additional financial assistance in the ~~acquisition~~form of ~~Lafayette Community Bancorp (“Lafayette”)~~fee waivers and ~~its wholly-owned subsidiary, Lafayette Community Bank, headquartered~~a freeze on all debt collection activities.

•Businesses

◦Preferred SBA Lender

▪Active participant in ~~Lafayette, Indiana. The system integration~~all SBA loan programs (PPP, 7a, Express and 504).

◦Payment Relief Programs

▪Approximately $51 million in commercial loans with payment extensions as of ~~Lafayette was successfully completed on September 22, 2017.~~June 30, 2021, down from $121 million as of December 31, 2020 and $470 million as of June 30, 2020.

~~On October 17, 2017, Horizon closed~~▪Processed and received approval for 4,003 PPP loans, funding approximately $450.1 million.

▪As of June 30, 2021, $276.5 million of PPP loans had been forgiven.

•Communities

◦Increased volunteerism in support of local not–for–profit entities.

◦Contributed over $300,000 during 2020 to COVID–19 related not–for–profit efforts (local food banks, United Way, housing).

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HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the ~~acquisition~~Three and Six Months ended June 30, 2021 and 2020

◦Participated in community conference calls related to COVID–19.

◦Partnered with local neighborhood housing partnerships to provide funding for low to moderate income families.

◦Partnered with local Certified Development Corporations to provide capital to small businesses.

Financial Summary


	For the Three Months Ended
	June 30,			March 31,			June 30,
Net Interest Income and Net Interest Margin	2021			2021			2020
Net interest income	$	42,632		$	42,538		$	42,996
Net interest margin	3.14		%	3.29		%	3.47		%
Adjusted net interest margin	3.13		%	3.17		%	3.35		%


	For the Three Months Ended
	June 30,		March 31,		June 30,
Asset Yields and Funding Costs	2021		2021		2020
Interest earning assets	3.48	%	3.66	%	4.05	%
Interest bearing liabilities	0.45	%	0.50	%	0.74	%


	For the Three Months Ended
Non–interest Income and Mortgage Banking Income	June 30,		March 31,		June 30,
	2021		2021		2020
Total non–interest income	$	15,207	$	13,873	$	11,125
Gain on sale of mortgage loans	5,612		5,296		6,620
Mortgage servicing income net of impairment	1,503		213		(2,760)


	For the Three Months Ended
	June 30,			March 31,			June 30,
Non–interest Expense	2021			2021			2020
Total non–interest expense	$	33,388		$	32,172		$	30,432
Annualized non–interest expense to average assets	2.18		%	2.20		%	2.18		%


	At or for the Three Months Ended
Credit Quality	June 30,		March 31,		June 30,
	2021		2021		2020
Allowance for credit losses to total loans	1.58	%	1.56	%	1.38	%
Non–performing loans to total loans	0.63	%	0.68	%	0.70	%
Percent of net charge–offs to average loans outstanding for the period	0.00	%	0.01	%	0.01	%

Table of ~~Wolverine Bancorp, Inc. (“Wolverine”)~~Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and ~~its wholly-owned subsidiary, Wolverine Bank, headquartered in Midland, Michigan. The system integration~~Analysis of ~~Wolverine is scheduled for November 2017.~~Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

Allowance for December 31, Net Reserve June 30,
Credit Losses 2020 1Q20 2Q20 2021
Commercial $ 42,210 $ 770 $ (1,214) $ 41,766
Retail Mortgage 4,620 (391) (121) 4,108
Warehouse 1,267 (104) (8) 1,155
Consumer 8,930 (116) (194) 8,620
Allowance for Credit Losses (“ACL”) $ 57,027 $ 159 $ (1,537) $ 55,649
ACL/Total Loans 1.47 % 1.58 %

Critical Accounting Policies

The notes to the consolidated financial statements included in Item 8 of the Company’s Annual Report on Form~~10-K~~ 10–K for ~~2016~~2020 contain a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management has identified as critical accounting policies the allowance for ~~loan~~credit losses, goodwill and intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.

Allowance for ~~Loan~~Credit Losses

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

The allowance for credit losses is ~~maintained to absorb probable incurred loan losses inherent~~assessed at each balance sheet date and adjustments are recorded in the provision for credit losses. The allowance is estimated based on loan ~~portfolio. The determination~~level characteristics using historical loss rates, a reasonable and supportable economic forecast. Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan is expected to be made through the operation or sale of the collateral. Loan balances considered uncollectible are charged–off against the ACL. Recoveries of amounts previously charged–off are credited to the ACL. Assets purchased with credit deterioration (“PCD”) assets represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance for credit losses on PCD assets is booked directly the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses. Management believes that the ACL is adequate to absorb the expected life of loan credit losses ~~is a critical accounting policy that involves management’s ongoing quarterly assessments~~on the portfolio of loans and leases as of the ~~probable~~balance sheet date. Actual losses incurred ~~losses inherent~~may differ materially from our estimates. Particularly, the impact of COVID–19 on both borrower credit and the greater macroeconomic environment is uncertain and changes in the loan portfolio. The identification of loans that have probable incurred losses is subjective; therefore, a general reserve is maintained to cover all probable losses within the entire loan portfolio. Horizon utilizes a loan grading system that helps identify, monitorduration, spread and ~~address asset quality problems in an adequate and timely manner. Each quarter, various factors affecting the quality~~severity of the ~~loan portfolio are reviewed. Large credits are reviewed on~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

~~an individual basis for~~virus will affect our loss ~~potential. Other loans are reviewed as a group based upon previous trends of loss~~ experience. Horizon also reviews the current and anticipated economic conditions of its lending market as well as transaction risk to determine the effect they may have on the loss experience of the loan portfolio.

Goodwill and Intangible Assets

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. FASB ASC~~350-10~~ 350–10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At ~~September~~June 30, ~~2017,~~2021, Horizon had core deposit intangibles of ~~$9.5~~$21.2 million subject to amortization and ~~$93.8~~$151.2 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely affect earnings in future periods. FASB ASC~~350-10~~ 350–10 requires an annual evaluation of goodwill for impairment. ~~The evaluation~~

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

At each reporting date between annual goodwill impairment tests, Horizon considers potential indicators of impairment. Given the current economic uncertainty and volatility surrounding COVID–19, Horizon assessed whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value. Impairment indicators considered comprised the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of the Company's stock and other relevant events. 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 June 30, 2021, 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 ~~for impairment requires~~in the ~~use of estimates and assumptions. Market price at the close of business on September 30, 2017 was $29.17 per share compared to a book value of $16.81 per common share.~~

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

future.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets on a ~~servicing-retained~~servicing–retained basis. Capitalized servicing rights are amortized into~~non-interest~~ non–interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using ~~market-based~~market–based assumptions. When the book value of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value. In periods of falling market interest rates, accelerated loan prepayment can adversely affect the fair value of these ~~mortgage-servicing~~mortgage–servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or negatively.

Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, Horizon utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis. In addition, on a quarterly basis Horizon engages a third party to independently test the value of its servicing asset.

Derivative Instruments

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

Horizon’s accounting policies related to derivatives reflect the guidance in FASB ASC~~815-10.~~ 815–10. Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized firm commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). For fair value hedges, the cumulative

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

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

Valuation Measurements

Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities, residential mortgage loans held for sale and derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other ~~post-retirement~~post–retirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent, to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations.

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of~~

Financial Condition

~~And Results of Operations~~

~~For the Three and Nine Months ended September~~

On June 30, ~~2017 and 2016~~

~~Financial Condition~~

~~On September 30, 2017,~~2021, Horizon’s total assets were ~~$3.5~~$6.1 billion, an increase of approximately ~~$378.3~~$222.6 million compared to December 31, ~~2016.~~2020. The increase was primarily in ~~net loans of $289.1 million,~~ investment securities available for sale of ~~$70.0 million, goodwill of $16.8~~$557.2 million and ~~investment securities~~cash and due from banks of $54.5 million. These increases were offset by a decrease in net loans of $346.5 million, investments held to maturity of ~~$5.4~~$15.4 million ~~which were offset by decreases in Federal Reserve Bank stock of $8.6 million,~~and other assets of ~~$2.8 million and loans held for sale of $4.5~~$13.9 million.

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

   September 30, 2017    December 31, 2016
   Amortized    Fair    Amortized    Fair
   Cost    Value    Cost    Value
Available for sale

U.S. Treasury and federal agencies
   $ 17,996    $ 17,885    $ 8,051    $ 7,989
State and municipal
   141,751    143,483    117,327    116,592
Federal agency collateralized mortgage obligations
   135,511    134,202    139,040    137,195
Federal agency mortgage-backed pools
   213,071    212,051    180,183    176,726
Private labeled mortgage-backed pools
   1,841    1,830    —      —
Corporate notes
   275    393    1,238    1,329








Total available for sale investment securities
   $ 510,445    $ 509,844    $ 445,839    $ 439,831








Held to maturity

State and municipal
   $ 177,473    $ 180,860    $ 165,607    $ 165,822
Federal agency collateralized mortgage obligations
   5,902    5,896    6,530    6,490
Federal agency mortgage-backed pools
   15,230    15,466    21,057    21,774








Total held to maturity investment securities
   $ 198,605    $ 202,222    $ 193,194    $ 194,086

~~Total investment~~


	June 30, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
U.S. Treasury and federal agencies	$	191,490	$	191,101	$	19,750	$	19,715
State and municipal	1,090,693		1,113,493		803,100		837,843
Federal agency collateralized mortgage obligations	96,344		98,622		144,022		147,453
Federal agency mortgage–backed pools	165,016		167,510		114,484		118,799
Private labeled mortgage–backed pools	33,074		33,568		—		—
Corporate notes	85,637		86,892		9,007		10,215
Total available for sale investment securities	$	1,662,254	$	1,691,186	$	1,090,363	$	1,134,025
Held to maturity
State and municipal	$	144,430	$	153,606	$	157,421	$	168,456
Federal agency collateralized mortgage obligations	1,007		1,023		2,661		2,697
Federal agency mortgage–backed pools	3,733		3,908		8,594		8,837
Private labeled mortgage–backed pools	4,114		4,114		—		—
Total held to maturity investment securities	$	153,284	$	162,651	$	168,676	$	179,990

Investment securities available for sale increased by approximately $75.4 million at September 30, 2017 compared to December 31, 2016, primarily due to the investing of cash received from the Bargersville branch purchase and the CNB merger and increasing earning assets due to lower mortgage warehouse balances.

~~Total loans increased $285.4~~$557.2 million since December 31, ~~2016~~2020 to ~~$2.4~~$1.7 billion as of ~~September~~June 30, ~~2017.~~2021. This increase was due to additional purchases to increase earning assets.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the ~~result~~Three and Six Months ended June 30, 2021 and 2020

Gross loans decreased $354.2 million since December 31, 2020 to $3.5 billion as of ~~an increase in~~June 30, 2021. Mortgage warehouse, commercial, ~~loans of $203.8 million, consumer loans of $87.1 million and~~ residential mortgage, ~~loans of $39.2 million, offset by a decrease in mortgage warehouse loans of $40.2 million and a decrease in~~ loans held for sale ~~of $4.5 million. Total~~and consumer decreased $190.3 million, $87.6 million, $64.8 million, $6.3 million and $5.1 million, respectively. PPP loans increased $134.4 million as a result of the acquisition of Lafayette during the third quarter of 2017. The growth markets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo contributed total loan growth of $120.1 million during the first nine months of 2017 leading to the increase in commercial loans. The addition of a seasoned consumer loan portfolio manager during the fourth quarter of 2016 and an increased focus on the management of direct consumer loans are the main drivers for the increase in consumer loans.

~~Total deposits increased $137.1~~decreased $39.4 million since December 31, ~~2016~~2020 to ~~$2.6~~$169.4 million as of June 30, 2021.

Total deposits increased $250.5 million since December 31, 2020 to $4.8 billion as of ~~September~~June 30, ~~2017.Non-interest~~ ~~bearing transaction accounts, interest bearing transaction accounts~~2021. This increase was primarily due to Federal stimulus payments to consumers and ~~time deposits increased $67.3 million, $37.0 million and $32.7 million, respectively, during~~funds from the ~~nine months ended September 30, 2017. The increase in deposits is primarily attributable to the acquisition~~origination of ~~$151.1 million in deposits~~PPP loans.

Total borrowings decreased from ~~Lafayette during the third quarter of 2017.~~

~~The Company’s borrowings increased $190.7 million from December 31, 2016 to $458.2~~$475.0 million as of ~~September~~December 31, 2020 to $439.1 million as of June 30, ~~2017.~~2021. At ~~September~~June 30, ~~2017,~~2021, the Company had ~~$320.3~~$178.5 million in short-term funds borrowed compared to ~~$189.0~~$315.5 million at December 31, ~~2016. The increase~~2020. During the second quarter of 2021, the Bank paid–off $50.0 million in ~~borrowings was utilized to fund loan growth~~long–term Federal Home Loan Bank of ~~$285.4 million since December 31, 2016.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~Indianapolis advances which resulted in a prepayment penalty of ~~Financial Condition~~

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

$125,000.

Stockholders’ equity totaled ~~$392.1~~$710.4 million at ~~September~~June 30, ~~2017~~2021 compared to ~~$340.9~~$692.2 million at December 31, ~~2016.~~2020. The increase in stockholders’ equity during the period was due to the ~~result of the acquisition of Lafayette,~~ generation of net income, ~~net of~~offset by dividends ~~declared. At September 30, 2017,~~paid and a decrease in accumulated other comprehensive income during the ~~ratio of average stockholders’ equity to average assets was 10.74% compared to 10.59% at December 31, 2016.~~period. Book value per common share at ~~September~~June 30, ~~2017~~2021 increased to ~~$16.81~~$16.16 compared to ~~$15.37~~$15.78 at December 31, ~~2016.~~

2020.

Results of Operations

Overview

Consolidated net income for the ~~three-month~~three–month period ended ~~September~~June 30, ~~2017~~2021 was ~~$8.2~~$22.2 million, or $0.50 diluted earnings per share, compared to ~~$6.6~~$14.6 million, or $0.33 diluted earnings per share for the same period in 2016. Earnings per common share for the three months ended September 30, 2017 were $0.36 basic and diluted, compared to $0.31 basic and $0.30 diluted for the same three-month period in the previous year.2020. The increase in net income for the three–month period ended June 30, 2021 when compared to the same prior year period reflects an increase in non–interest income of $4.1 million and a decrease in credit loss expense of $8.5 million, offset by an increase in non–interest expense of $3.0 million, an increase in income tax expense of $1.8 million and a decrease in net interest income of $364,000. Excluding acquisition expenses, gain on sale of investment securities, death benefit on bank owned life insurance and prepayment penalties on borrowings (“adjusted net income”), adjusted net income for the second quarter of 2021 was $22.2 million, or $0.50 diluted earnings per share, ~~from~~compared to $14.4 million, or $0.32 diluted earnings per share for the ~~previous~~second quarter of 2020.

Consolidated net income for the six–month period ended June 30, 2021 was $42.6 million, or $0.97 diluted earnings per share, compared to $26.3 million, or $0.59 diluted earnings per share for the same period in 2020. The increase in net income for the six–month period ended June 30, 2021 when compared to the same prior year period reflects an increase in non–interest income of $5.9 million, an increase in net interest income of ~~$3.5~~$1.2 million ~~partially~~and a decrease in credit loss expense of $16.8 million, offset by ~~a decrease~~increases in~~non-interest~~ ~~income~~ non–interest expense of ~~$1.3~~$4.0 million and ~~increases in provision for loan losses of $255,000,non-interest~~income tax expense of ~~$431,000 and the diluted shares outstanding primarily due to the stock issued in the Kosciusko and LaPorte Bancorp acquisitions.Non-interest~~ ~~expense increased primarily due to an increase in salaries, employee benefits, net occupancy~~$3.6 million. Excluding acquisition expenses, ~~and other expense. Excluding acquisition-related expenses, gain/losses~~gain on sale of investment securities, death benefits on bank owned life insurance and ~~purchase accounting adjustments,~~prepayment penalties on borrowings (“adjusted net income”), adjusted net income for the ~~third quarter of 2017~~six–month period ended June 30, 2021 was ~~$9.2~~$41.9 million, or ~~$0.41~~$0.95 diluted earnings per share, compared to ~~$8.4~~$25.6 million, or ~~$0.39~~$0.57 diluted earnings per share ~~in the same period of 2016.~~

~~Consolidated net income~~ for the ~~nine-month~~six–month period ended ~~September~~June 30, 2017 was $25.5 million compared to $18.3 million for the same period in 2016. Earnings per common share for the nine months ended September 30, 2017 were $1.14 basic and $1.13 diluted, compared to $0.95 basic and $0.94 diluted for the same nine-month period in the previous year. The increase in net income and earnings per share from the previous year reflects an increase in net interest income of $15.6 million, partially offset by a decrease in~~non-interest~~ ~~income of $2.2 million and increases innon-interest~~ ~~expense of $4.2 million, income tax expense of $1.9 million and the diluted shares outstanding primarily due to the stock issued in the Kosciusko and LaPorte Bancorp acquisitions.Non-interest~~ expense increased primarily due to an increase in salaries, employee benefits, net occupancy expenses, data processing expense and other expense. Excluding acquisition-related expenses, gains/losses on sale of investment securities and purchase accounting adjustments, net income for the nine months ended September 30, 2017 was $25.4 million or $1.13 diluted earnings per share compared to $20.7 million or $1.07 diluted earnings per share in the same period of 2016.

2020.

Net Interest Income

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

Net interest income during the three months ended ~~September~~June 30, ~~2017~~2021 was ~~$27.9~~$42.6 million, ~~an increase~~a decrease of ~~$3.5 million~~$364,000 from the ~~$24.4~~$43.0 million earned during the same period in ~~2016.~~2020. Yields on the Company’s ~~interest-earning~~interest earning assets ~~increased~~decreased by 3457 basis points to ~~3.71% for the three months ending September 30, 2017 from 3.37%~~3.48% for the three months ended ~~September~~June 30, ~~2016.~~2021 from 4.05% for the three months ended June 30, 2020. Interest income ~~increased $3.1~~decreased $2.9 million from ~~$29.0~~$50.3 million for the three months ended ~~September~~June 30, ~~2016~~2020 to ~~$32.1~~$47.4 million for the same

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

period in 2021. The decrease in interest income was due to a decrease in yield as interest earning assets reprice during the current low rate environment. Interest income from acquisition–related purchase accounting adjustments was $230,000 for the three months ending June 30, 2021 compared to $1.6 million for the same period of 2020.

Rates paid on interest bearing liabilities decreased by 29 basis points for the three–month period ended June 30, 2021 compared to the same period in 2020. Interest expense decreased $2.6 million when compared to the three–month period ended June 30, 2020 to $4.8 million for the same period in ~~2017.~~2021. This decrease was due to an increase in average interest-earning assets through organic and acquisition-related growth. Interest income from acquisition-related purchase accounting adjustments was $661,000 for the three months ending September 30, 2017 compared to $459,000 for the same period of 2016.

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

~~Rates~~lower rates paid on ~~interest-bearing liabilities~~deposits and borrowings. The cost of average interest bearing deposits decreased ~~by 6~~33 basis points while the cost of average borrowings decreased 20 basis points. Average balances of interest bearing deposits increased $381.1 million and average balances of borrowings decreased $164.4 million for the three-month period ended ~~September~~June 30, ~~2017~~2021 when compared to the same period in ~~2016 due to~~2020.

The net interest margin decreased 33 basis points from 3.47% for the ~~continued low interest rate environment and shift in mix on interest-bearing liabilities. Interest expense decreased $361,000 compared to the three-month~~three–month period ended ~~September~~June 30, ~~2016~~2020 to ~~$4.2 million~~3.14% for the same period in ~~2017. This~~2021. The decrease was due to lower average balances of borrowings in addition to lower rates paid on borrowings, partially offset by higher average balances of interest-bearing deposits. The rates paid on borrowings decreased as a result of Horizon executing a strategy to reduce expensive funding costs in the fourth quarter of 2016.

~~The net interest margin increased 34 basis points from 3.37% for the three-month period ended September 30, 2016 to 3.71% for the same period in 2017. The increase~~ in the margin for the ~~three-month~~three–month period ended ~~September~~June 30, ~~2017~~2021 compared to the same period in ~~2016~~2020 was due to ~~an increase~~a decrease in the yield on ~~interest-earning~~interest earning assets, ~~and~~offset by a ~~reduction~~decrease in the cost ~~on interest-bearing~~of interest bearing liabilities. Excluding the interest income recognized from the ~~acquisition-related~~acquisition–related purchase accounting adjustments and prepayment penalties on borrowings (“adjusted net interest margin”), the margin would have been ~~3.63%~~3.13% for the three-month period ending ~~September~~June 30, ~~2017~~2021 compared to ~~3.31%~~3.35% for the same period in ~~2016.~~

2020.

The net interest margin was impacted due to PPP lending and high level of cash held during the second quarter of 2021. Horizon estimates that the PPP loans increased the net interest margin by seven basis points for the second quarter of 2021. 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 21 basis points for the second 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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

2020

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

   Three Months Ended Three Months Ended
   September 30, 2017 September 30, 2016
   Average    Average Average    Average
   Balance Interest    Rate Balance Interest    Rate
ASSETS

Interest-earning assets

Federal funds sold
   $ 6,770 $ 24    1.41 % $ 35,492 $ 20    0.22 %
Interest-earning deposits
   20,157 49    0.96 % 55,047 32    0.23 %
Investment securities - taxable
   426,145 2,094    1.95 % 530,228 2,446    1.84 %
Investment securities -non-taxable (1)
   296,716 1,790    3.36 % 186,074 1,151    3.73 %
Loans receivable (2)(3)
   2,328,823 28,113    4.82 % 2,151,103 25,313    4.69 %





Total interest-earning assets (1)
   3,078,611 32,070    4.25 % 2,957,944 28,962    3.98 %
Non-interest-earning assets

Cash and due from banks
   41,465    39,875
Allowance for loan losses
   (15,135 )    (14,301 )
Other assets
   278,721    290,100





   $ 3,383,662    $ 3,273,618





LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities

Interest-bearing deposits
   $ 1,961,998 $ 1,841    0.37 % $ 1,896,156 $ 1,875    0.39 %
Borrowings
   460,878 1,753    1.51 % 510,738 2,128    1.66 %
Subordinated debentures
   36,386 597    6.51 % 37,092 549    5.89 %





Total interest-bearing liabilities
   2,459,262 4,191    0.68 % 2,443,986 4,552    0.74 %
Non-interest-bearing liabilities

Demand deposits
   540,109    462,253
Accrued interest payable and other liabilities
   20,915    34,144
Stockholders’ equity
   363,376    333,235





   $ 3,383,662    $ 3,273,618





Net interest income/ spread
   $ 27,879    3.58 % $ 24,410    3.24 %





Net interest income as a percent of average interest earning
assets (1)
      3.71 %    3.37 %

~~(1)~~

Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. Interest rate is presented on a tax equivalent basis.

~~(2)~~

~~Includes loan fees and late fees. The inclusion of these fees does not have a material effect on the average interest rate.~~

~~(3)~~

~~Non-accruing~~ ~~loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loans fees.~~

Average Balance Sheets
(Dollar Amount in Thousands, Unaudited)
Three Months Ended Three Months Ended
June 30, 2021 June 30, 2020
Average
Balance Interest Average
Rate Average
Balance Interest Average
Rate
Assets
Interest earning assets
Federal funds sold $ 359,184 $ 98 0.11 % $ 62,832 $ 17 0.11 %
Interest earning deposits 29,584 44 0.60 % 20,278 61 1.21 %
Investment securities – taxable 645,139 2,386 1.48 % 481,552 2,243 1.87 %
Investment securities – non–taxable (1)
1,054,703 5,656 2.72 % 647,375 4,105 3.15 %
Loans receivable (2) (3)
3,570,774 39,236 4.43 % 3,900,599 43,918 4.54 %
Total interest earning assets 5,659,384 47,420 3.48 % 5,112,636 50,344 4.05 %
Non–interest earning assets
Cash and due from banks 84,469 84,297
Allowance for credit losses (57,196) (48,611)
Other assets 455,850 472,373
Total average assets $ 6,142,507 $ 5,620,695
Liabilities and Stockholders’ Equity
Interest bearing liabilities
Interest bearing deposits $ 3,680,796 $ 2,053 0.22 % $ 3,299,661 $ 4,506 0.55 %
Borrowings 453,856 1,296 1.15 % 618,274 2,074 1.35 %
Subordinated notes 58,653 881 6.02 % 4,527 58 5.15 %
Junior subordinated debentures issued to capital trusts 56,627 558 3.95 % 52,835 710 5.40 %
Total interest bearing liabilities 4,249,932 4,788 0.45 % 3,975,297 7,348 0.74 %
Non–interest bearing liabilities
Demand deposits 1,139,068 924,890
Accrued interest payable and other liabilities 46,855 71,018
Stockholders’ equity 706,652 649,490
Total average liabilities and stockholders’ equity $ 6,142,507 $ 5,620,695
Net interest income/spread $ 42,632 3.03 % $ 42,996 3.31 %
Net interest income as a percent of average interest earning assets (1)
3.14 % 3.47 %
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the 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.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

Net interest income during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 was ~~$80.6~~$85.2 million, an increase of ~~$15.6~~$1.2 million from the ~~$65.1~~$83.9 million earned during the same period in ~~2016.~~2020. Yields on the Company’s ~~interest-earning~~interest earning assets ~~increased~~decreased by 3468 basis points to ~~3.77%~~3.57% for the ~~nine~~six months ~~ending September~~ended June 30, ~~2017~~2021 from ~~3.43%~~4.25% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. Interest income ~~increased $14.6~~decreased $7.0 million from ~~$77.1~~$102.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 to ~~$91.7~~$95.0 million for the same period in ~~2017. This was due~~2021. Average interest earning assets during the six months ended June 30, 2021 increased $620.7 million to ~~an increase in average interest-earning assets through organic and acquisition-related growth.~~$5.6 billion compared to $4.9 billion during the six months ended June 30, 2020. Interest income from ~~acquisition-related~~acquisition–related purchase accounting adjustments was ~~$2.6~~$1.8 million for the ~~nine~~six months ~~ending September~~ended June 30, ~~2017~~2021 compared to ~~$1.4~~$3.0 million for the same period of ~~2016.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

2020.

Rates paid on ~~interest-bearing~~interest bearing liabilities decreased ~~by 12~~46 basis points for the ~~nine-month~~six–month period ended ~~September~~June 30, ~~2017~~2021 compared to the same period in ~~2016 due to the continued low interest rate environment and shift in mix on interest-bearing liabilities.~~2020. Interest expense decreased ~~$1.0~~$8.2 million when compared to the ~~nine-month~~six–month period ended ~~September~~June 30, ~~2016~~2020 to ~~$11.1~~$9.8 million for the same period in ~~2017.~~2021. This decrease was due to lower rates paid on deposits and borrowings. The cost of average interest bearing deposits decreased 50 basis points while the cost of average borrowings decreased 40 basis points. Average balances of interest bearing deposits increased $340.4 million and average balances of borrowings ~~in addition to lower rates paid on borrowings, partially offset by higher average balances of interest-bearing deposits. The rates paid on borrowings~~ decreased ~~as a result of Horizon executing a strategy to reduce expensive funding costs in the fourth quarter of 2016.~~

~~The net interest margin increased 34 basis points from 3.43%~~$110.2 million for the ~~nine-month~~six–month period ended ~~September~~June 30, ~~2016 to 3.77% for the same period in 2017. The increase in the margin for the nine-month period ended September 30, 2017~~2021 when compared to the same period in ~~2016~~2020.

The net interest margin decreased 30 basis points from 3.51% for the six–month period ended June 30, 2020 to 3.21% for the same period in 2021. The decrease in the margin for the six–month period ended June 30, 2021 compared to the same period in 2020 was due to ~~an increase~~a decrease in the yield ~~on interest-earning~~of interest earning assets, ~~and~~offset by a ~~reduction~~decrease in the cost ~~on interest-bearing~~of interest bearing liabilities. Excluding the interest income recognized from the ~~acquisition-related~~acquisition–related purchase accounting adjustments and prepayment penalties on borrowings (“adjusted net interest margin”), the margin would have been ~~3.65%~~3.15% for the ~~nine-month~~six–month period ~~ending September~~ended June 30, ~~2017~~2021 compared to ~~3.36%~~3.39% for the same period in ~~2016.~~

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

   Nine Months Ended Nine Months Ended
   September 30, 2017 September 30, 2016
   Average    Average Average    Average
   Balance Interest    Rate Balance Interest    Rate
ASSETS

Interest-earning assets

Federal funds sold
   $ 3,857 $ 35    1.21 % $ 13,812 $ 23    0.22 %
Interest-earning deposits
   24,177 201    1.11 % 34,624 59    0.23 %
Investment securities - taxable
   416,323 6,581    2.11 % 486,374 7,621    2.09 %
Investment securities -non-taxable (1)
   286,007 5,193    3.39 % 183,142 3,583    3.63 %
Loans receivable (2)(3)
   2,210,295 79,699    4.83 % 1,873,614 65,854    4.70 %





Total interest-earning assets (1)
   2,940,659 91,709    4.27 % 2,591,566 77,140    4.05 %
Non-interest-earning assets

Cash and due from banks
   42,004    36,220
Allowance for loan losses
   (15,069 )    (14,334 )
Other assets
   279,706    243,021





   $ 3,247,300    $ 2,856,473





LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities

Interest-bearing deposits
   $ 1,967,457 $ 5,315    0.36 % $ 1,680,560 $ 4,923    0.39 %
Borrowings
   357,932 4,028    1.50 % 438,324 5,608    1.71 %
Subordinated debentures
   36,339 1,721    6.33 % 34,144 1,556    6.09 %





Total interest-bearing liabilities
   2,361,728 11,064    0.63 % 2,153,028 12,087    0.75 %
Non-interest-bearing liabilities

Demand deposits
   510,230    387,768
Accrued interest payable and other liabilities
   20,220    26,397
Stockholders’ equity
   355,121    289,280





   $ 3,247,299    $ 2,856,473





Net interest income/spread
   $ 80,645    3.64 % $ 65,053    3.30 %





Net interest income as a percent of average interest earning
assets (1)
      3.77 %    3.43 %

~~(1)~~

~~(2)~~

~~Includes loan fees and late fees. The inclusion of these fees does not have a material effect on the average interest rate.~~

~~(3)~~

~~Non-accruing~~ ~~loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loans fees.~~

2020.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

~~Provision for Loan Losses~~

2020


	Average Balance Sheets
	(Dollar Amount in Thousands, Unaudited)
		Six Months Ended						Six Months Ended
		June 30, 2021						June 30, 2020
		Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
	Assets
	Interest earning assets
	Federal funds sold	$	313,467	$	164	0.11	%	$	43,903	$	113	0.52	%
	Interest earning deposits	27,567		90		0.66	%	23,391		163		1.40	%
	Investment securities – taxable	528,250		3,822		1.46	%	491,360		4,943		2.02	%
	Investment securities – non–taxable (1)	1,005,855		10,879		2.76	%	618,080		7,903		3.16	%
	Loans receivable (2) (3)	3,674,977		80,054		4.41	%	3,752,654		88,876		4.78	%
	Total interest earning assets	5,550,116		95,009		3.57	%	4,929,388		101,998		4.25	%
	Non–interest earning assets
	Cash and due from banks	84,866						81,203
	Allowance for credit losses	(57,486)						(36,588)
	Other assets	462,401						459,184
	Total average assets	$	6,039,897					$	5,433,187
	Liabilities and Stockholders’ Equity
	Interest bearing liabilities
	Interest bearing deposits	$	3,602,882	$	4,396	0.25	%	$	3,262,492	$	12,222	0.75	%
	Borrowings	465,502		2,565		1.11	%	575,702		4,312		1.51	%
	Subordinated debentures	58,635		1,761		6.06	%	2,264		58		5.15	%
	Junior subordinated debentures issued to capital trusts	56,599		1,117		3.98	%	52,801		1,485		5.66	%
	Total interest bearing liabilities	4,183,618		9,839		0.47	%	3,893,259		18,077		0.93	%
	Non–interest bearing liabilities
	Demand deposits	1,101,377						820,997
	Accrued interest payable and other liabilities	52,850						63,393
	Stockholders’ equity	702,052						655,538
	Total average liabilities and stockholders’ equity	$	6,039,897					$	5,433,187
	Net interest income/spread			$	85,170	3.10	%			$	83,921	3.32	%
	Net interest income as a percent of average interest earning assets (1)					3.21	%					3.51	%

(1)	Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2)	Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3)	Non–accruing loans for the purpose of the 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.

Credit Loss Expense

Horizon assesses the adequacy of its Allowance for ~~Loan and Lease~~Credit Losses (“~~ALLL”~~ACL”) by regularly reviewing the performance of its loan portfolio. During the ~~three-month~~three–month period ended ~~September~~June 30, ~~2017,~~2021, a provision reversal of ~~$710,000~~$1.5 million was required to ~~adequately fund~~reflect the ~~ALLL~~nature of our loan portfolios and general characteristics of certain loan pools compared to ~~$455,000~~a provision expense of $7.1 million for the same period of ~~2016. Commercial~~2020. During the three–month period ended June 30, 2021, commercial loan net ~~charge-offs during the three-month period ended September 30, 2017~~charge–offs were ~~$169,000,~~$46,000, residential mortgage loan net ~~charge-offs~~recoveries were ~~$24,000~~$23,000 and consumer loan net ~~charge-offs~~charge–offs were ~~negative $42,000. The increase in the provision for loan losses in the third quarter~~$22,000.

Table of 2017 compared to the same period of 2016 was due to increased additional allocations to loans originated in new markets and an increase in allocation for agricultural economic factors. The ALLL balance at September 30, 2017 was $15.6 million or 0.64% of total loans. This compares to an ALLL balance of $14.8 million at December 31, 2016 or 0.69% of total loans. The decrease in the ratio at September 30, 2017 compared to December 31, 2016 was due to an increase in loan balances, excluding acquired loans and loans held for sale, of $187.9 million.

For the nine-month period ended September 30, 2017, the provision for loan losses totaled $1.4 million compared to $1.2 million in the same period of 2016. The higher provision for loan losses for the nine months ended September 30, 2017 compared to the same period of 2016 was due to an increase in loan balances, along with additional allocations to loans originated in new markets and an increase in allocation for agricultural economic factors.

Horizon’s loan loss reserve ratio, excluding loans with credit-related purchase accounting adjustments, stood at 0.82% as of September 30, 2017. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was 1.24% as of September 30, 2017. The table below illustrates Horizon’s loan loss reserve ratio composition as of September 30, 2017.

~~Non-GAAP Allowance for Loan and Lease Loss Detail~~

~~As of September 30, 2017~~

~~(Dollars in Thousands, Unaudited)~~

   Horizon
   Legacy Heartland Summit Peoples Kosciusko LaPorte CNB Lafayette Total
Pre-discount loan balance
   $ 1,903,322 $ 12,861 $ 44,649 $ 123,332 $ 64,450 $ 158,099 $ 7,694 $ 125,981 $ 2,440,388
Allowance for loan losses (ALLL)
   15,515 71 —   —   —   —   —   —   15,586
Loan discount
   N/A 846 2,365 2,944 810 4,036 206 3,356 14,563


ALLL+ loan discount
   15,515 917 2,365 2,944 810 4,036 206 3,356 30,149


Loans, net
   $ 1,887,807 $ 11,944 $ 42,284 $ 120,388 $ 63,640 $ 154,063 $ 7,488 $ 122,625 $ 2,410,239


ALLL/pre-discount loan balance
   0.82 % 0.55 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.64 %
Loan discount/pre-discount loan balance
   N/A 6.58 % 5.30 % 2.39 % 1.26 % 2.55 % 2.68 % 2.66 % 0.60 %
ALLL+ loan discount/pre-discount loan balance
   0.82 % 7.13 % 5.30 % 2.39 % 1.26 % 2.55 % 2.68 % 2.66 % 1.24 %

No assurance can be given that Horizon will not, in any particular period, sustain loan losses that are significant in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of factors then prevailing, including economic conditions and management’s ongoing quarterly assessments of the portfolio, will not require increases in the allowance for loan losses. Horizon considers the allowance for loan losses to be appropriate to cover probable incurred losses in the loan portfolio as of September 30, 2017.

~~Non-performing~~ ~~loans totaled $12.4 million as of September 30, 2017, up from $10.7 million as of December 31, 2016.Non-performing~~ ~~commercial, real estate and consumer loans increased by $1.0 million, $523,000 and $227,000, respectively, at September 30, 2017 compared to December 31, 2016.~~

~~Other Real Estate Owned (OREO) totaled $1.8 million at September 30, 2017 compared to $3.2 million on December 31, 2016 and $3.7 million on September 30, 2016.~~

Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

~~Non-interest~~2020

During the six–month period ended June 30, 2021, a provision reversal of $1.1 million was required to reflect the nature of our loan portfolios and general characteristics of certain loan pools compared to a provision expense of $15.7 million for the same period of 2020. During the six–month period ended June 30, 2021, commercial loan net charge–offs were $204,000, residential mortgage loan net recoveries were $88,000 and consumer net charge–offs were $137,000.

The ACL balance at June 30, 2021 was $55.6 million, or 1.58% 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 $39.4 million which do not require a related ACL balance.

As of June 30, 2021, non–performing loans totaled $22.3 million, which reflects a 6 basis point decrease in non–performing loans to total loans, or a $4.5 million decrease from $26.8 million in non–performing loans as of December 31, 2020. Non–performing commercial loans decreased by $4.0 million, non–performing real estate loans decreased by $153,000 and non–performing consumer loans decreased by $329,000 at June 30, 2021 compared to December 31, 2020.

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 June 30, 2021, the Bank modified loans totaling $52.5 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.


Type of Loan	#	Net Balance	% of Total Modifications		% of Portfolio
Commercial	20	$50.8	96.8	%	2.4	%
Mortgage (Retained Only)	10	$1.1	2.1	%	0.2	%
Indirect Auto	4	$0.0	0.0	%	0.0	%
Consumer Direct	4	$0.5	1.0	%	0.0	%
Consumer Revolving	2	$0.1	0.1	%	0.8	%
Total	40	$52.5	100.0	%	1.6	%

Mortgage (Serviced Only)	27

Other Real Estate Owned (“OREO”) and repossessed assets totaled $1.5 million at June 30, 2021 compared to $1.9 million at December 31, 2020.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

Non–interest Income

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

   Three Months Ended
   September 30    September 30    Amount    Percent
   2017    2016    Change    Change
Non-interest Income

Service charges on deposit accounts
   $ 1,672    $ 1,605    $ 67    4.2 %
Wire transfer fees
   175    292    (117 )    -40.1 %
Interchange fees
   1,251    1,156    95    8.2 %
Fiduciary activities
   1,887    1,653    234    14.2 %
Gain on sale of investment securities
   6    —      6    NM
Gain on sale of mortgage loans
   1,950    3,528    (1,578 )    -44.7 %
Mortgage servicing net of impairment
   369    409    (40 )    -9.8 %
Increase in cash surrender value of bank owned life insurance
   474    449    25    5.6 %
Other income
   237    226    11    4.9 %







Totalnon-interest income
   $ 8,021    $ 9,318    $ (1,297 )    -13.9 %


	Three Months Ended
	June 30,				Amount		Percent
	2021		2020		Change		Change
Non–interest Income
Service charges on deposit accounts	$	2,157	$	1,888	$	269	14.2	%
Wire transfer fees	222		230		(8)		(3.5)	%
Interchange fees	2,892		2,327		565		24.3	%
Fiduciary activities	1,961		1,765		196		11.1	%
Gain on sale of investment securities	—		248		(248)		(100.0)	%
Gain on sale of mortgage loans	5,612		6,620		(1,008)		(15.2)	%
Mortgage servicing net of impairment	1,503		(2,760)		4,263		(154.5)	%
Increase in cash surrender value of bank owned life insurance	502		557		(55)		(9.9)	%
Death benefit on bank owned life insurance	266		—		266		0.0	%
Other income	92		250		(158)		(63.2)	%
Total non–interest income	$	15,207	$	11,125	$	4,082	36.7	%

Total~~non-interest~~ non–interest income was ~~$1.3~~$4.1 million ~~lower~~higher during the ~~third~~second quarter of ~~2017~~2021 compared to the same period of 2016. Service charges on deposit accounts increased $67,000, interchange fees increased by $95,000, and fiduciary activities increased $234,000 primarily due to overall company growth and increased volume.2020. Residential mortgage loan activity during the ~~third~~second quarter of ~~2017~~2021 generated ~~$1.9~~$5.6 million of income from the gain on sale of mortgage loans, down ~~$1.6~~from $6.6 million ~~from~~for the same period in ~~2016. The decrease in the gain on sale of mortgage loans was~~2020 due to a ~~decrease~~lower volume of loans sold, offset by an increase in the ~~volume~~percentage gain on loans sold. Mortgage servicing rights, net of ~~mortgage loans sold from $98.3~~impairment, increased $4.3 million induring the ~~third~~second quarter of ~~2016 to $56.4 million in the same period of 2017. Wire transfer fee income decreased $117,000 during the third quarter of 2017 when~~2021 compared to the same period of ~~2016~~2020 primarily due to ~~a decrease~~the reversal of $1.6 million in ~~mortgage warehouse activity~~impairment charges during the second quarter of 2021. Interchange fees, service charges on deposit accounts and ~~related wire transfer fees.~~

death benefit on bank owned life insurance increased $565,000, $269,000, $266,000, respectively, when comparing the second quarter of 2021 to the same period of 2020.

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

   Nine Months Ended
   September 30    September 30    Amount    Percent
   2017    2016    Change    Change
Non-interest Income

Service charges on deposit accounts
   $ 4,638    $ 4,310    $ 328    7.6 %
Wire transfer fees
   503    588    (85 )    -14.5 %
Interchange fees
   3,809    3,065    744    24.3 %
Fiduciary activities
   5,752    4,753    999    21.0 %
Gain on sale of investment securities
   38    875    (837 )    -95.7 %
Gain on sale of mortgage loans
   5,918    9,171    (3,253 )    -35.5 %
Mortgage servicing net of impairment
   1,175    1,356    (181 )    -13.3 %
Increase in cash surrender value of bank owned life insurance
   1,346    1,145    201    17.6 %
Other income
   613    708    (95 )    -13.4 %







Totalnon-interest income
   $ 23,792    $ 25,971    $ (2,179 )    -8.4 %


	Six Months Ended
	June 30,				Amount		Percent
	2021		2020		Change		Change
Non–interest Income
Service charges on deposit accounts	$	4,391	$	4,334	$	57	1.3	%
Wire transfer fees	477		401		76		19.0	%
Interchange fees	5,232		4,223		1,009		23.9	%
Fiduciary activities	3,704		4,293		(589)		(13.7)	%
Gain on sale of investment securities	914		587		327		55.7	%
Gain on sale of mortgage loans	10,908		10,093		815		8.1	%
Mortgage servicing net of impairment	1,716		(2,735)		4,451		(162.7)	%
Increase in cash surrender value of bank owned life insurance	1,013		1,111		(98)		(8.8)	%
Death benefit on bank owned life insurance	266		233		33		14.2	%
Other income	459		648		(189)		(29.2)	%
Total non–interest income	$	29,080	$	23,188	$	5,892	25.4	%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

Total~~non-interest~~ non–interest income was ~~$2.2~~$5.9 million ~~lower in~~higher for the ~~first nine months of 2017 when~~six–month period ended June 30, 2021 compared to the same period of 2016. Service charges on deposit accounts increased $328,000, interchange fees increased $744,000 and fiduciary activities increased $999,000, primarily due to overall company growth and increased volume. Gain on sale of investment securities decreased $837,000 due to gains realized in the first nine months of 2016 as a result of an analysis that determined market conditions provided the opportunity to add

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

~~gains to capital without negatively impacting loan-term earnings.~~2020. Residential mortgage loan activity during the ~~first nine months~~six–month period ended June 30, 2021 generated $10.9 million of ~~2017 generated $5.9 million~~income from the gain on sale of mortgage loans, ~~down $3.3~~up from $10.1 million ~~from~~for the same period in ~~2016. The decrease~~2020 due to an increase in the percentage gain on ~~sale~~loans sold. Mortgage servicing rights, net of ~~mortgage loans was due~~impairment, increased $4.5 million during the six–month period ended June 30, 2021 compared to ~~a decrease in the volume of mortgage loans sold from $236.7 million in the first nine months of 2016 to $163.9 million in~~ the same period of ~~2017.~~

~~Non-interest~~2020 due to the reversal of $1.8 million in impairment charges during the six–month period ended June 30, 2021 compared to impairment charges of $3.2 million during the same period in 2020. Interchange fees increased $1.0 million during the six–month period ended June 30, 2021 compared to the same period of 2020.

Non–interest Expense

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

   Three Months Ended
   September 30    September 30    Amount    Percent
   2017    2016    Change    Change
Non-interest expense

Salaries
   $ 9,245    $ 8,349    $ 896    10.7 %
Commission and bonuses
   1,413    1,799    (386 )    -21.5 %
Employee benefits
   2,253    2,062    191    9.3 %
Net occupancy expenses
   2,400    2,174    226    10.4 %
Data processing
   1,502    1,616    (114 )    -7.1 %
Professional fees
   649    612    37    6.0 %
Outside services and consultants
   2,504    2,686    (182 )    -6.8 %
Loan expense
   1,215    1,482    (267 )    -18.0 %
FDIC deposit insurance
   270    465    (195 )    -41.9 %
Other losses
   58    107    (49 )    -45.8 %
Other expense
   3,004    2,730    274    10.0 %







Totalnon-interest expense
   $ 24,513    $ 24,082    $ 431    1.8 %


	Three Months Ended
	June 30,								June 30,
	2021								2020								Adjusted
	Actual			Acquisition Expenses		Adjusted			Actual			Acquisition Expenses		Adjusted			Amount Change		Percent Change
Non–interest Expense
Salaries and employee benefits	$	17,730		$	—	$	17,730		$	15,629		$	—	$	15,629		$	2,101	13.4	%
Net occupancy expenses	3,084			—		3,084			3,190			—		3,190			(106)		(3.3)	%
Data processing	2,388			—		2,388			2,432			—		2,432			(44)		(1.8)	%
Professional fees	588			(51)		537			518			—		518			19		3.7	%
Outside services and consultants	2,220			(187)		2,033			1,759			—		1,759			274		15.6	%
Loan expense	3,107			—		3,107			2,692			—		2,692			415		15.4	%
FDIC deposit insurance	500			—		500			235			—		235			265		112.8	%
Other losses	6			—		6			193			—		193			(187)		(96.9)	%
Other expenses	3,765			(4)		3,761			3,784			—		3,784			(23)		(0.6)	%
Total non–interest expense	$	33,388		$	(242)	$	33,146		$	30,432		$	—	$	30,432		$	2,714	8.9	%
Annualized Non–interest Exp. to Avg. Assets	2.18		%			2.16		%	2.18		%			2.18		%

Total~~non-interest~~ non–interest expense was ~~$431,000~~$3.0 million higher for the second quarter of 2021 when compared to the second quarter of 2020. Increases in salaries and employee benefits, outside services and consultants, loan expense and FDIC insurance expense were offset in part by decreases in other losses and net occupancy expenses. Salaries and benefits expense for the three months ended June 30, 2020 did not include accruals related to annual bonus payments, while a normalized level of annual bonus accruals were recorded for the three months ended June 30, 2021. Excluding acquisition expenses, total non–interest expense increased by $2.7 million in the ~~third~~second quarter when compared to the same period in 2020.

Annualized non–interest expense as a percent of ~~2017~~average assets was 2.18% for the three months ended June 30, 2021 and 2020, respectively. Annualized non–interest expense, excluding acquisition expenses, as a percent of average assets was 2.16% and 2.18% for the three months ended June 30, 2021 and 2020, respectively.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

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


	Six Months Ended
	June 30,								June 30,
	2021								2020								Adjusted
	Actual			Acquisition Expenses		Adjusted			Actual			Acquisition Expenses		Adjusted			Amount Change		Percent Change
Non–interest Expense
Salaries and employee benefits	$	34,601		$	—	$	34,601		$	32,220		$	—	$	32,220		$	2,381	7.4	%
Net occupancy expenses	6,402			—		6,402			6,442			—		6,442			(40)		(0.6)	%
Data processing	4,764			—		4,764			4,837			—		4,837			(73)		(1.5)	%
Professional fees	1,132			(51)		1,081			1,054			—		1,054			27		2.6	%
Outside services and consultants	3,922			(187)		3,735			3,674			—		3,674			61		1.7	%
Loan expense	5,929			—		5,929			4,791			—		4,791			1,138		23.8	%
FDIC deposit insurance	1,300			—		1,300			385			—		385			915		237.7	%
Other losses	289			—		289			313			—		313			(24)		(7.7)	%
Other expenses	7,221			(4)		7,217			7,865			—		7,865			(648)		(8.2)	%
Total non–interest expense	$	65,560		$	(242)	$	65,318		$	61,581		$	—	$	61,581		$	3,737	6.1	%
Annualized Non–interest Exp. to Avg. Assets	2.19		%			2.18		%	2.28		%			2.28		%

Total non–interest expense was $4.0 million higher for the six–month period ended June 30, 2021 compared to the same period of ~~2016.~~2020. Increases in salaries and employee benefits, loan expenses and FDIC insurance expense were offset in part by a decrease in other expense. Salaries and benefits expense for the six–month period ended June 30, 2020 did not include accruals related to annual bonus payments, while a normalized level of annual bonus accruals were recorded for the six–month period ended June 30, 2021. Excluding ~~merger-related~~acquisition expenses, ~~of $2.0 million and $3.0 million recorded during the three months ended September 30, 2017 and 2016, respectively,~~ total~~non-interest~~ non–interest expense increased ~~$1.4~~$3.7 million ~~or 6.5%. Salaries increased by $896,000 due~~for the six–month period ended June 30, 2021 compared to the same period of 2020.

Annualized non–interest expense as a ~~larger employee base. Net occupancy~~percent of average assets was 2.19% and 2.28% for the six–month period ended June 30, 2021 and 2020, respectively. Annualized non–interest expense, ~~increased $226,000 due~~excluding acquisition expenses, as a percent of average assets was 2.18% and 2.28% for the six–month period ended June 30, 2021 and 2020, respectively.

Income Taxes

Income tax expense totaled $3.8 million for the second quarter of 2021, an increase of $1.8 million when compared to ~~Horizon’s investment~~the second quarter of 2020. The increase in ~~growth markets and~~income tax expense in the ~~LaPorte Bancorp, CNB and Lafayette acquisitions. Other expense increased $274,000~~second quarter of 2021 compared to the second quarter of 2020 was primarily due to ~~higher amortization~~an increase in income before taxes of $9.3 million.

Income tax expense ~~related to core deposit intangibles. Outside service and consultant, professional fees and other expense decreased $182,000 in~~totaled $7.2 million for the ~~third quarter~~six–month period ended June 30, 2021, an increase of ~~2017~~$3.6 million when compared to the same period of ~~2016 primarily due to lower merger-related expenses. FDIC insurance expense was $195,000 lower~~2020. The increase in the third quarter of 2017 when compared to the same period of 2016 as the assessment rate schedule was reduced effective for assessment payments due in the fourth quarter of 2016 and during 2017. Loan expenses decreased $267,000 primarily due to a decrease in loan collection expenses. Data processing expense decreased $114,000 in the third quarter of 2017 when compared to the same period in 2016.

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

~~The following is a summary of changes innon-interest~~ ~~expense (table dollar amounts in thousands):~~

   Nine Months Ended
   September 30    September 30    Amount    Percent
   2017    2016    Change    Change
Non-interest Expense

Salaries
   $ 26,867    $ 22,485    $ 4,382    19.5 %
Commission and bonuses
   3,863    4,064    (201 )    -4.9 %
Employee benefits
   6,356    6,043    313    5.2 %
Net occupancy expenses
   7,048    6,011    1,037    17.3 %
Data processing
   4,311    3,855    456    11.8 %
Professional fees
   1,797    2,190    (393 )    -17.9 %
Outside services and consultants
   4,991    5,983    (992 )    -16.6 %
Loan expense
   3,572    4,086    (514 )    -12.6 %
FDIC deposit insurance
   776    1,279    (503 )    -39.3 %
Other losses
   186    510    (324 )    -63.5 %
Other expense
   8,755    9,616    (861 )    -9.0 %







Totalnon-interest expense
   $ 68,522    $ 66,122    $ 2,400    3.6 %

~~Totalnon-interest~~ expense was $2.4 million higher for the nine months ended September 30, 2017 compared to the same period of 2016. Excluding merger-related expenses of $2.2 million and $5.5 million recorded during the nine months of September 30, 2017 and 2016, respectively, total~~non-interest~~ expense increased $5.7 million, or 9.3%. Salaries increased by $4.4 million due to a larger employee base. Net occupancy expenses increased $1.0 million due to Horizon’s investment in growth markets and the Kosciusko, LaPorte Bancorp, CNB and Lafayette acquisitions. Data processing expenses increased $456,000 primarily due to company growth. Outside services and consultants, professional fees and other expenses decreased $992,000, $393,000 and $861,000, respectively, for the nine months ended September 30, 2017 compared to the same period of 2016 primarily due to~~one-time~~ expenses related to the Kosciusko and LaPorte Bancorp acquisitions. FDIC deposit insurance expense was $503,000 lower for the first nine months of 2017 when compared to the same period in 2016 as the assessment rate schedule was reduced effective for assessment payments due in the fourth quarter of 2016 and in 2017. Other losses decreased $324,000 for the nine months ended September 30, 2017 when compared to the same period in 2016, primarily due to a decrease in debit card related expense. Loan expense decreased $514,000 as loan collection expenses were lower during the first nine months of 2017 when compared to the same period of 2016.

~~Income Taxes~~

~~Income~~income tax expense for the third quarter of 2017 was $2.5 million compared to $2.6 million for the same period of 2016. The effective tax rate for the third quarter of 2017 was 23.5% compared to 28.2% in the same period of 2016. The decrease in the effective tax rate for the third quarter of 2017 was primarily due to ~~tax benefits related to the exercise~~an increase in income before taxes of ~~stock options.~~

Income tax expense for the nine months ended September 30, 2017 was $9.1 million compared to $7.2 million for the same period of 2016. The effective tax rate for the first nine months of 2017 was 26.3% compared to 28.2% in the same period of 2016. The decrease in the effective tax rate for the nine months ended September 30, 2017 was primarily due to tax benefits related to the exercise of stock options.

~~HORIZON BANCORP AND SUBSIDIARIES~~

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

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

$19.9 million.

Liquidity

The Bank maintains a stable base of core deposits provided by ~~long-standing~~long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans,

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

unpledged investment securities and borrowing relationships with correspondent banks, including the FHLB. ~~During the nine months ended September~~At June 30, ~~2017, cash and cash equivalents increased by approximately $1.8 million. At September 30, 2017,~~2021, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately ~~$236.3~~$890.6 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to ~~$453.9~~$1.04 billion at December 31, 2020. The Bank had approximately $1.2 billion of unpledged investment securities at June 30, 2021 compared to $632.4 million at December 31, ~~2016 and $278.2 million at September 30, 2016.~~

2020.

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at ~~September~~June 30, ~~2017.~~2021. Stockholders’ equity totaled ~~$392.1~~$710.4 million as of ~~September~~June 30, ~~2017,~~2021, compared to ~~$340.9~~$692.2 million as of December 31, ~~2016.~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, the ratio of average stockholders’ equity to average assets was ~~10.94%~~11.62% compared to ~~10.22%~~11.82% for the twelve months ended December 31, ~~2016.~~2020. The increase in stockholders’ equity during the period was the result of ~~the generation of~~ net income ~~net of~~recorded during the period offset in part by a decrease in accumulated other comprehensive income and dividends ~~declared, as well as the stock issued in the Lafayette acquisition.~~

~~On February 1, 2016, the Company~~declared.

Horizon paid off the $12.5 million in funds received through the Small Business Lending Fund with cash from the holding company, thereby ending its participation in the program, pursuant to which it issued preferred stock to the US Treasury. The funds were paid off due to an increase in the dividend cost that would have gone in effect at the end of February 2016.

~~Horizon declared~~ common stock dividends in the amount of ~~$0.37~~$0.25 per share during the first ~~nine~~six months of ~~2017~~2021 and ~~$0.30~~$0.24 per share for the same period of ~~2016.~~2020. The dividend payout ratio (dividends as a percent of basic earnings per share) was ~~32.4%~~25.8% and ~~31.6%~~40.7% for the first ~~nine~~six months of ~~2017~~2021 and ~~2016,~~2020, respectively. For additional information regarding dividends, see Horizon’s Annual Report on Form10-K for ~~2016.~~

2020.

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

2020

Use of~~Non-GAAP~~ Non–GAAP Financial Measures

Certain information set forth in this quarterly report on Form~~10-Q~~ 10–Q refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included~~non-GAAP~~ non–GAAP financial measures ~~of the~~relating to net ~~interest margin and the allowance for loan and lease losses excluding the impact of acquisition-related purchase accounting adjustments and net~~ income, ~~and~~ diluted earnings per share, ~~excluding~~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. In each case, we have identified special circumstances that we consider to be adjustments and have excluded them, to show the impact of~~one-time~~ ~~costs~~ such events as acquisition–related ~~to acquisitions, acquisition-related~~ purchase accounting adjustments, ~~and other events that are considered to benon-recurring.~~among others we have identified in our reconciliations. Horizon believes that these~~non-GAAP~~ non–GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and~~one-time~~ ~~costs of acquisitions andnon-core~~ ~~items, although these~~ other adjustments. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure.

~~Non-GAAP~~ ~~Reconciliation~~ See the tables and other information below and contained elsewhere in this Report on Form 10–Q for reconciliations of ~~Net Interest Margin~~

~~(Dollars in Thousands, Unaudited)~~

   Three Months Ended Nine Months Ended
   September 30 June 30 September 30 September 30
   2017 2017 2016 2017 2016
Net Interest Margin As Reported

Net interest income
   $ 27,879 $ 27,198 $ 24,410 $ 80,645 $ 65,053
Average interest-earning assets
   3,078,611 2,943,627 2,957,944 2,940,659 2,591,566
Net interest income as a percent of average interest-earning assets (“Net Interest Margin”)
   3.71 % 3.84 % 3.37 % 3.77 % 3.43 %
Impact of Acquisitions

Interest income from acquisition-related purchase accounting adjustments
   $ (661 ) $ (939 ) $ (459 ) $ (2,616 ) $ (1,404 )
Excluding Impact of Prepayment Penalties and Acquisitions

Net interest income
   $ 27,218 $ 26,259 $ 23,951 $ 78,029 $ 63,649
Average interest-earning assets
   3,078,611 2,943,627 2,957,944 2,940,659 2,591,566
Core Net Interest Margin
   3.63 % 3.71 % 3.31 % 3.65 % 3.36 %

the non–GAAP figures identified herein and their most comparable GAAP measures.


Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
	Three Months Ended										Six Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,		June 30,		June 30,
	2021		2021		2020		2020		2020		2021		2020
Net income as reported	$	22,173	$	20,422	$	21,893	$	20,312	$	14,639	$	42,595	$	26,294
Acquisition expenses	242		—		—		—		—		242		—
Tax effect	(51)		—		—		—		—		(51)		—
Net income excluding acquisition expenses	22,364		20,422		21,893		20,312		14,639		42,786		26,294
(Gain)/loss on sale of investment securities	—		(914)		(2,622)		(1,088)		(248)		(914)		(587)
Tax effect	—		192		551		228		52		192		123
Net income excluding (gain)/loss on sale of investment securities	22,364		19,700		19,822		19,452		14,443		42,064		25,830
Death benefit on bank owned life insurance (“BOLI”)	(266)		—		—		(31)		—		(266)		(233)
Net income excluding death benefit on BOLI	22,098		19,700		19,822		19,421		14,443		41,798		25,597
Prepayment penalties on borrowings	125		—		3,804		—		—		125		—
Tax effect	(26)		—		(799)		—		—		(26)		—
Net income excluding prepayment penalties on borrowings	22,197		19,700		22,827		19,421		14,443		41,897		25,597
Adjusted net income	$	22,197	$	19,700	$	22,827	$	19,421	$	14,443	$	41,897	$	25,597

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

~~Non-GAAP~~ ~~Reconciliation~~2020

Non–GAAP Reconciliation of Diluted Earnings per Share
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, December 31, September 30, June 30, June 30, June 30,
2021 2021 2020 2020 2020 2021 2020
Diluted earnings per share (“EPS”) as reported $ 0.50 $ 0.46 $ 0.50 $ 0.46 $ 0.33 $ 0.97 $ 0.59
Acquisition expenses 0.01 — — — — 0.01 —
Tax effect — — — — — — —
Diluted EPS excluding acquisition expenses 0.51 0.46 0.50 0.46 0.33 0.98 0.59
(Gain)/loss on sale of investment securities — (0.02) (0.06) (0.02) (0.01) (0.02) (0.01)
Tax effect — — 0.01 0.01 — — —
Diluted EPS excluding (gain)/loss on investment securities 0.51 0.44 0.45 0.45 0.32 0.96 0.58
Death benefit on BOLI (0.01) — — — — (0.01) (0.01)
Diluted EPS excluding death benefit on BOLI 0.50 0.44 0.45 0.45 0.32 0.95 0.57
Prepayment penalties on borrowings — — 0.09 — — — —
Tax effect — — (0.02) — — — —
Diluted EPS excluding prepayment penalties on borrowings 0.50 0.44 0.52 0.45 0.32 0.95 0.57
Adjusted Diluted EPS $ 0.50 $ 0.44 $ 0.52 $ 0.45 $ 0.32 $ 0.95 $ 0.57

Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income
(Dollars in Thousands, Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, December 31, September 30, June 30, June 30, June 30,
2021 2021 2020 2020 2020 2021 2020
Pre–tax income $ 25,943 $ 23,872 $ 23,860 $ 24,638 $ 16,632 $ 49,815 $ 29,871
Credit loss expense (reversal) (1,492) 367 3,042 2,052 7,057 (1,125) 15,657
Pre–tax, pre–provision net income $ 24,451 $ 24,239 $ 26,902 $ 26,690 $ 23,689 $ 48,690 $ 45,528
Pre–tax, pre–provision net income $ 24,451 $ 24,239 $ 26,902 $ 26,690 $ 23,689 $ 48,690 $ 45,528
Acquisition expenses 242 — — — — 242 —
(Gain)/loss on sale of investment securities — (914) (2,622) (1,088) (248) (914) (587)
Death benefit on bank owned life insurance (266) — — (31) — (266) (233)
Prepayment penalties on borrowings 125 — 3,804 — — 125 —
Adjusted pre–tax, pre–provision net income $ 24,552 $ 23,325 $ 28,084 $ 25,571 $ 23,441 $ 47,877 $ 44,708

Table of ~~Net Income and Diluted Earnings per Share~~

~~(Dollars in Thousands Except per Share Data)~~

   Three Months Ended    Nine Months Ended
   September 30    September 30
   2017    2016    2017    2016
   (Unaudited)    (Unaudited)
Non-GAAP Reconciliation of Net Income

Net income as reported
   $ 8,171    $ 6,602    $ 25,467    $ 18,309
Merger expenses
   2,013    2,953    2,213    5,472
Tax effect
   (516 )    (886 )    (586 )    (1,582 )








Net income excluding merger expenses
   9,668    8,669    27,094    22,199
Gain on sale of investment securities
   (6 )    —      (38 )    (875 )
Tax effect
   2    —      13    306








Net income excluding gain on sale of investment securities
   9,664    8,669    27,069    21,630
Acquisition-related purchase accounting adjustments (“PAUs”)
   (661 )    (459 )    (2,616 )    (1,404 )
Tax effect
   231    161    916    491








Net income excluding PAUs
   $ 9,234    $ 8,371    $ 25,369    $ 20,717








Non-GAAP Reconciliation of Diluted Earnings per Share

Diluted earnings per share as reported
   $ 0.36    $ 0.30    $ 1.13    $ 0.94
Merger expenses
   0.09    0.14    0.10    0.28
Tax effect
   (0.02 )    (0.04 )    (0.02 )    (0.08 )








Diluted earnings per share excluding merger expenses
   0.43    0.40    1.21    1.14
Gain on sale of investment securities
   (0.00 )    —      (0.00 )    (0.05 )
Tax effect
   0.00    —      0.00    0.02








Net income excluding gain on sale of investment securities
   0.43    0.40    1.21    1.11
Acquisition-related PAUs
   (0.03 )    (0.02 )    (0.12 )    (0.07 )
Tax effect
   0.01    0.01    0.04    0.03








Diluted earnings per share excluding PAUs
   $ 0.41    $ 0.39    $ 1.13    $ 1.07

~~Non-GAAP~~ ~~Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share~~

~~(Dollars in Thousands Except per Share Data)~~

   September 30    June 30    March 31    December 31    September 30
   2017    2017    2017    2016    2016
   (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
Total stockholders’ equity
   $ 392,055    $ 357,259    $ 348,575    $ 340,855    $ 345,736
Less: Intangible assets
   103,244    86,726    87,094    86,307    83,891










Total tangible stockholders’ equity
   $ 288,811    $ 270,533    $ 261,481    $ 254,548    $ 261,845










Common shares outstanding
   23,325,459    22,176,465    22,176,465    22,171,596    22,143,228
Tangible book value per common share
   $ 12.38    $ 12.20    $ 11.79    $ 11.48    $ 11.83

Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

~~Non-GAAP~~ ~~Reconciliation~~2020

Non–GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, December 31, September 30, June 30, June 30, June 30,
2021 2021 2020 2020 2020 2021 2020
Net interest income as reported $ 42,632 $ 42,538 $ 43,622 $ 43,397 $ 42,996 $ 85,170 $ 83,921
Average interest earning assets 5,659,384 5,439,634 5,365,888 5,251,611 5,112,636 5,550,116 4,929,388
Net interest income as a percentage of average interest earning assets
(“Net Interest Margin”) 3.14 % 3.29 % 3.34 % 3.39 % 3.47 % 3.21 % 3.51 %
Net interest income as reported $ 42,632 $ 42,538 $ 43,622 $ 43,397 $ 42,996 $ 85,170 $ 83,921
Acquisition–related purchase accounting adjustments
(“PAUs”) (230) (1,579) (2,461) (1,488) (1,553) (1,809) (2,987)
Prepayment penalties on borrowings 125 — 3,804 — — 125 —
Adjusted net interest income $ 42,527 $ 40,959 $ 44,965 $ 41,909 $ 41,443 $ 83,486 $ 80,934
Adjusted net interest margin 3.13 % 3.17 % 3.44 % 3.27 % 3.35 % 3.15 % 3.39 %

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands Except per Share Data, Unaudited)
June 30, March 31, December 31, September 30, June 30,
2021 2021 2020 2020 2020
Total stockholders’ equity $ 710,374 $ 689,379 $ 692,216 $ 670,293 $ 652,206
Less: Intangible assets 172,398 173,296 174,193 175,107 176,020
Total tangible stockholders’ equity $ 537,976 $ 516,083 $ 518,023 $ 495,186 $ 476,186
Common shares outstanding 43,950,720 43,949,189 43,880,562 43,874,353 43,821,878
Book value per common share $ 16.16 $ 15.69 $ 15.78 $ 15.28 $ 14.88
Tangible book value per common
share $ 12.24 $ 11.74 $ 11.81 $ 11.29 $ 10.87

Table of ~~Return on Average Assets~~

~~(Dollars in Thousands)~~

   Three Months Ended Nine Months Ended
   September 30 September 30
   2017 2016 2017 2016
   (Unaudited) (Unaudited)
Non-GAAP Reconciliation of Net Income

Average Assets
   $ 3,383,662 $ 3,273,618 $ 3,247,300 $ 2,856,473
Net income as reported
   8,171 6,602 25,467 18,309
Merger expenses
   2,013 2,953 2,213 5,472
Tax effect
   (516 ) (886 ) (586 ) (1,582 )


Net income excluding merger expenses
   9,668 8,669 27,094 22,199
Gain on sale of investment securities
   (6 ) —   (38 ) (875 )
Tax effect
   2 —   13 306


Net income excluding gain on sale of investment securities
   9,664 8,669 27,069 21,630
Acquisition-related purchase accounting adjustments (“PAUs”)
   (661 ) (459 ) (2,616 ) (1,404 )
Tax effect
   231 161 916 491


Net income excluding PAUs
   $ 9,234 $ 8,371 $ 25,369 $ 20,717


Non-GAAP Reconciliation Return on Average Assets

Return on average assets as reported
   0.96 % 0.80 % 1.05 % 0.86 %
Merger expenses
   0.24 % 0.37 % 0.09 % 0.25 %
Tax effect
   -0.06 % -0.11 % -0.03 % -0.07 %


Return on average assets excluding merger expenses
   1.14 % 1.06 % 1.11 % 1.04 %
Gain on sale of investment securities
   0.00 % 0.00 % 0.00 % -0.04 %
Tax effect
   0.00 % 0.00 % 0.00 % 0.01 %


Return on average assets excluding gain on sale of investment securities
   1.14 % 1.06 % 1.11 % 1.01 %
Acquisition-related PAUs
   -0.08 % -0.06 % -0.11 % -0.06 %
Tax effect
   0.03 % 0.02 % 0.04 % 0.02 %


Return on average assets excluding PAUs
   1.09 % 1.02 % 1.04 % 0.97 %

Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

~~Quantitative~~

Management’s Discussion and ~~Qualitative Disclosures About Market Risk~~

Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~

2020


Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2021			2021			2020			2020			2020			2021			2020
Non–interest expense as reported	$	33,388		$	32,172		$	36,453		$	33,407		$	30,432		$	65,560		$	61,581
Net interest income as reported	42,632			42,538			43,622			43,397			42,996			85,170			83,921
Non–interest income as reported	$	15,207		$	13,873		$	19,733		$	16,700		$	11,125		$	29,080		$	23,188
Non–interest expense/(Net interest income + Non–interest income) ("Efficiency Ratio")	57.73		%	57.03		%	57.54		%	55.59		%	56.23		%	57.38		%	57.49		%

Non–interest expense as reported	$	33,388		$	32,172		$	36,453		$	33,407		$	30,432		$	65,560		$	61,581
Acquisition expenses	(242)			—			—			—			—			(242)			—
Non–interest expense excluding acquisition expenses	33,146			32,172			36,453			33,407			30,432			65,318			61,581
Net interest income as reported	42,632			42,538			43,622			43,397			42,996			85,170			83,921
Prepayment penalties on borrowings	125			—			3,804			—			—			125			—
Net interest income excluding prepayment penalties on borrowings	42,757			42,538			47,426			43,397			42,996			85,295			83,921
Non–interest income as reported	15,207			13,873			19,733			16,700			11,125			29,080			23,188
(Gain)/loss on sale of investment securities	—			(914)			(2,622)			(1,088)			(248)			(914)			(587)
Death benefit on bank owned life insurance ("BOLI")	(266)			—			—			(31)			—			(266)			(233)
Non–interest income excluding (gain)/loss on sale of investment securities and death benefit on BOLI	$	14,941		$	12,959		$	17,111		$	15,581		$	10,877		$	27,900		$	22,368
Adjusted efficiency ratio	57.45		%	57.97		%	56.48		%	56.64		%	56.49		%	57.70		%	57.94		%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020


Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2021			2021			2020			2020			2020			2021			2020
Average assets	$	6,142,507		$	5,936,149		$	5,864,086		$	5,768,691		$	5,620,695		$	6,039,897		$	5,433,187
Return on average assets ("ROAA") as reported	1.45		%	1.40		%	1.49		%	1.40		%	1.05		%	1.42		%	0.97		%
Acquisition expenses	0.02			—			—			—			—			0.01			—
Tax effect	—			—			—			—			—			—			—
ROAA excluding acquisition expenses	1.47			1.40			1.49			1.40			1.05			1.43			0.97
(Gain)/loss on sale of investment securities	—			(0.06)			(0.18)			(0.08)			(0.02)			(0.03)			(0.02)
Tax effect	—			0.01			0.04			0.02			—			0.01			—
ROAA excluding (gain)/loss on sale of investment securities	1.47			1.35			1.35			1.34			1.03			1.41			0.95
Death benefit on bank owned life insurance ("BOLI")	(0.02)			—			—			—			—			(0.01)			(0.01)
ROAA excluding death benefit on BOLI	1.45			1.35			1.35			1.34			1.03			1.40			0.94
Prepayment penalties on borrowings	0.01			—			0.26			—			—			—			—
Tax effect	—			—			(0.05)			—			—			—			—
ROAA excluding prepayment penalties on borrowings	1.46			1.35			1.56			1.34			1.03			1.40			0.94
Adjusted ROAA	1.46		%	1.35		%	1.56		%	1.34		%	1.03		%	1.40		%	0.94		%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020


Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2021			2021			2020			2020			2020			2021			2020
Average common equity	$	706,652		$	697,401		$	680,857		$	668,797		$	649,490		$	702,052		$	655,538
Return on average common equity ("ROACE") as reported	12.59		%	11.88		%	12.79		%	12.08		%	9.07		%	12.23		%	8.07		%
Merger expenses	0.14			—			—			—			—			0.07			—
Tax effect	(0.03)			—			—			—			—			(0.01)			—
ROACE excluding merger expenses	12.70			11.88			12.79			12.08			9.07			12.29			8.07
(Gain)/loss on sale of investment securities	—			(0.53)			(1.53)			(0.65)			(0.15)			(0.26)			(0.18)
Tax effect	—			0.11			0.32			0.14			0.03			0.06			0.04
ROACE excluding (gain)/loss on sale of investment securities	12.70			11.46			11.58			11.57			8.95			12.09			7.93
Death benefit on bank owned life insurance ("BOLI")	(0.15)			—			—			(0.02)			—			(0.08)			(0.07)
ROACE excluding death benefit on BOLI	12.55			11.46			11.58			11.55			8.95			12.01			7.86
Prepayment penalties on borrowings	0.07			—			2.22			—			—			0.04			—
Tax effect	(0.01)			—			(0.47)			—			—			(0.01)			—
ROACE excluding prepayment penalties on borrowings	12.61			11.46			13.33			11.55			8.95			12.04			7.86
Adjusted ROACE	12.61		%	11.46		%	13.33		%	11.55		%	8.95		%	12.04		%	7.86		%

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2021 and 2020

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We refer you to Horizon’s ~~2016~~2020 Annual Report on Form~~10-K~~ 10–K for analysis of its interest rate sensitivity. Horizon believes there have been no significant changes in its interest rate sensitivity since it was reported in its ~~2016~~2020 Annual Report on Form~~10-K.~~

10–K.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation Ofof Disclosure Controls ~~And~~and Procedures

Based on an evaluation of disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2021, Horizon’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Horizon’s disclosure controls (as defined in Exchange Act Rule~~13a-15(e)~~ 13a–15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on such evaluation, such officers have concluded that, as of the evaluation date, Horizon’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by Horizon in the reports it files under the Exchange Act is recorded, processed, summarized and reported within the time specified in Securities and Exchange Commission rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.

Changes Inin Internal Control Over Financial Reporting

Horizon’s management, including its Chief Executive Officer and Chief Financial Officer, also have concluded that during the fiscal quarter ended ~~September~~June 30, ~~2017,~~2021, there have been no changes in Horizon’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Horizon’s internal control over financial reporting.

HORIZON BANCORP, INC. AND SUBSIDIARIES

Part II – Other Information

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

Horizon and its subsidiaries are involved in various legal proceedings incidental to the conduct of their business. Management does not expect that the outcome of any such proceedings will have a material adverse effect on our consolidated financial position or results of operations.

~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

There have been no material changes from the factors previously disclosed under Item 1A of Horizon’s Annual Report on Form~~10-K~~ 10–K for ~~2016.~~

the fiscal year ended December 31, 2020.

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

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

(a)Unregistered Sales of Equity Securities: Not Applicable

(b)Use of Proceeds: Not Applicable

(c)Repurchase of Our Equity Securities: Not Applicable

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

~~ITEM 5.~~

~~OTHER INFORMATION~~

ITEM 5. OTHER INFORMATION

Not Applicable

Table of Contents

HORIZON BANCORP, INC. AND SUBSIDIARIES

Part II – Other Information

~~For the Three and Nine Months ended September 30, 2017 and 2016~~

ITEM 6. EXHIBITS

(a) Exhibits

~~ITEM 6.~~

~~EXHIBITS~~

~~(a) Exhibits~~


Exhibit No.		Description	~~Description~~Location
~~31.1~~10.1		2021 Omnibus Equity Incentive Plan	Incorporated by reference to Appendix A to Registrant's definitive proxy statement for 2021 Annual Meeting of Shareholders
10.2		Form of Restricted Stock Award Agreement (time–based)	Incorporated by reference to Exhibit 10.2 to Registrant's Form 8–K filed on May 11, 2021
10.3		Form of Restricted Stock Award Agreement (performance–based)	Incorporated by reference to Exhibit 10.3 to Registrant's Form 8–K filed on May 11, 2021
10.4		Form of Restricted Stock Unit Award Agreement (time–based)	Incorporated by reference to Exhibit 10.4 to Registrant's Form 8–K filed on May 11, 2021
10.5		Form of Restricted Stock Unit Award Agreement (performance–based)	Incorporated by reference to Exhibit 10.5 to Registrant's Form 8–K filed on May 11, 2021
10.6		Form of Stock Option Award Agreement (time–based)	Incorporated by reference to Exhibit 10.6 to Registrant's Form 8–K filed on May 11, 2021
31.1		Certification of Craig M. Dwight	Attached
31.2
~~31.2~~	Certification of Mark E. Secor	Attached
32
32	Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Attached
101
~~101~~	Inline Interactive Data Files	Attached
104		The cover page from the Company’s Quarterly Report on Form 10–Q for the quarter ended June 30, 2021, has been formatted in Inline XBRL	Within the Inline XBRL document

Table of Contents

SIGNATURES

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

~~HORIZON BANCORP~~

~~Dated:~~

~~November 8, 2017~~

~~/s/ Craig M. Dwight~~

~~Craig M. Dwight~~

~~Chief Executive Officer~~

HORIZON BANCORP, INC.

August 3, 2021

/s/ Craig M. Dwight

Date

Craig M. Dwight

Chief Executive Officer

~~Dated:~~August 3, 2021

~~November 8, 2017~~

/s/ Mark E. Secor

Date

Mark E. Secor

~~Mark E. Secor~~

Chief Financial Officer


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


	September 30			December 31
	2017			2016
	(Unaudited)
Assets
Cash and due from banks	$	72,662		$	70,832
Investment securities, available for sale		509,844			439,831
Investment securities, held to maturity (fair value of $202,222 and $194,086)		198,605			193,194
Loans held for sale		3,616			8,087
Loans, net of allowance for loan losses of $15,586 and $14,837		2,410,239			2,121,149
Premises and equipment, net		73,743			66,357
Federal Reserve and Federal Home Loan Bank stock		15,340			23,932
Goodwill		93,750			76,941
Other intangible assets		9,494			9,366
Interest receivable		14,880			12,713
Cash value of life insurance		75,480			74,134
Other assets		41,848			44,620

Total assets	$	3,519,501		$	3,141,156

Liabilities
Deposits
Non-interest bearing	$	563,536		$	496,248
Interest bearing		2,044,739			1,974,962

Total deposits		2,608,275			2,471,210
Borrowings		458,152			267,489
Subordinated debentures		37,607			37,456
Interest payable		700			472
Other liabilities		22,712			23,674

Total liabilities		3,127,446			2,800,301

Commitments and contingent liabilities
Stockholders’ Equity
Preferred stock, Authorized, 1,000,000 shares
Issued 0 and 0 shares		—			—
Common stock, no par value
Authorized 66,000,000 shares⁽¹⁾
Issued, 23,344,709 and 22,192,530 shares⁽¹⁾
Outstanding, 23,325,459 and 22,171,596 shares⁽¹⁾		—			—
Additionalpaid-in capital		212,436			182,326
Retained earnings		181,396			164,173
Accumulated other comprehensive loss		(1,777	)		(5,644	)

Total stockholders’ equity		392,055			340,855

Total liabilities and stockholders’ equity	$	3,519,501		$	3,141,156


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2017		2016		2017		2016
Interest Income
Loans receivable	$	28,113	$	25,313	$	79,699	$	65,854
Investment securities
Taxable		2,167		2,498		6,817		7,703
Tax exempt		1,790		1,151		5,193		3,583

Total interest income		32,070		28,962		91,709		77,140

Interest Expense
Deposits		1,841		1,875		5,315		4,923
Borrowed funds		1,753		2,128		4,028		5,608
Subordinated debentures		597		549		1,721		1,556

Total interest expense		4,191		4,552		11,064		12,087

Net Interest Income		27,879		24,410		80,645		65,053
Provision for loan losses		710		455		1,370		1,219

Net Interest Income after Provision for Loan Losses		27,169		23,955		79,275		63,834

Non-interest Income
Service charges on deposit accounts		1,672		1,605		4,638		4,310
Wire transfer fees		175		292		503		588
Interchange fees		1,251		1,156		3,809		3,065
Fiduciary activities		1,887		1,653		5,752		4,753
Gains (losses) on sale of investment securities (includes $6 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $38 and $875 for the nine months ended September 30, 2017 and 2016, respectively, related to accumulated other comprehensive earnings reclassifications)		6		—		38		875
Gain on sale of mortgage loans		1,950		3,528		5,918		9,171
Mortgage servicing income net of impairment		369		409		1,175		1,356
Increase in cash value of bank owned life insurance		474		449		1,346		1,145
Other income		237		226		613		708

Totalnon-interest income		8,021		9,318		23,792		25,971

Non-interest Expense
Salaries and employee benefits		12,911		12,210		37,086		32,592
Net occupancy expenses		2,400		2,174		7,048		6,011
Data processing		1,502		1,616		4,311		3,855
Professional fees		649		612		1,797		2,190
Outside services and consultants		2,504		2,686		4,991		5,983
Loan expense		1,215		1,482		3,572		4,086
FDIC insurance expense		270		465		776		1,279
Other losses		58		107		186		510
Other expense		3,004		2,730		8,755		7,798

Totalnon-interest expense		24,513		24,082		68,522		64,304

Income Before Income Tax		10,677		9,191		34,545		25,501
Income tax expense (includes $2 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $13 and $306 for the nine months ended September 30, 2017 and 2016, respectively, related to income tax expense from reclassification items)		2,506		2,589		9,078		7,192

Net Income		8,171		6,602		25,467		18,309
Preferred stock dividend		—		—		—		(42	)

Net Income Available to Common Shareholders	$	8,171	$	6,602	$	25,467	$	18,267

Basic Earnings Per Share	$	0.36	$	0.31	$	1.14	$	0.95
Diluted Earnings Per Share		0.36		0.30		1.13		0.94


	Three Months Ended September 30						Nine Months Ended September 30
	2017			2016			2017			2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net Income	$	8,171		$	6,602		$	25,467		$	18,309

Other Comprehensive Income (Loss)
Change in fair value of derivative instruments:
Change in fair value of derivative instruments for the period		297			803			743			158
Income tax effect		(104	)		(281	)		(260	)		(55	)

Changes from derivative instruments		193			522			483			103

Change in securities:
Unrealized appreciation (depreciation) for the period on AFS securities		(791	)		(1,927	)		5,444			6,712
Amortization from transfer of securities from available for sale to held to maturity securities		(54	)		(83	)		(200	)		(560	)
Reclassification adjustment for securities (gains) losses realized in income		(6	)		—			(38	)		(875	)
Income tax effect		297			704			(1,822	)		(1,848	)

Unrealized gains (losses) on securities		(554	)		(1,306	)		3,384			3,429

Other Comprehensive Income (Loss), Net of Tax		(361	)		(784	)		3,867			3,532

Comprehensive Income	$	7,810		$	5,818		$	29,334		$	21,841


								Accumulated
			Additional					Other
	Preferred		Paid-in		Retained			Comprehensive
	Stock		Capital		Earnings			Income (Loss)			Total
Balances, January 1, 2017	$	—	$	182,326	$	164,173		$	(5,644	)	$	340,855
Net income						25,467						25,467
Other comprehensive income, net of tax									3,867			3,867
Amortization of unearned compensation				103								103
Exercise of stock options				616								616
Stock option expense				238								238
Stock issued in Lafayette acquisition				29,153								29,153
Cash dividends on common stock ($0.37 per share)						(8,244	)					(8,244	)

Balances, September 30, 2017	$	—	$	212,436	$	181,396		$	(1,777	)	$	392,055


Additional Supplemental Information
Interest paid	$	10,836	$	11,579
Income taxes paid		10,350		7,310
Transfer of loans to other real estate owned		1,717		3,035
The Company purchased all of the capital stock of Lafayette for $34,529 on September 1, 2017. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired		186,659		—
Less: common stock issued		30,108		—
Cash paid for the capital stock		4,421		—
Liabilities assumed		152,130		—
Acquisition of LaPorte, measurement period adjustments		703
The Company purchased all of the capital stock of LaPorte Bancorp for $98,634 on July 18, 2016. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired		—		546,770
Less: common stock issued		—		60,306
Cash paid for the capital stock		—		38,328
Liabilities assumed		—		448,136
The Company purchased all of the capital stock of Kosciusko for $22,983 on June 1, 2016. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired		—		155,873
Less: common stock issued		—		14,470
Cash paid for the capital stock		—		8,513
Liabilities assumed		—		132,890


Contractually required principal and interest at acquisition	$	2,682
Contractual cash flows not expected to be collected (nonaccretable differences)		25

Expected cash flows at acquisition		2,657
Interest component of expected cash flows (accretable discount)		634

Fair value of acquired loans accounted for under ASC310-30	$	2,023


Contractually required principal and interest at acquisition	$	12,545
Contractual cash flows not expected to be collected (nonaccretable differences)		4,492

Expected cash flows at acquisition		8,053
Interest component of expected cash flows (accretable discount)		1,258

Fair value of acquired loans accounted for under ASC310-30	$	6,795


			Gross		Gross
September 30, 2017	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale
U.S. Treasury and federal agencies	$	17,996	$	3	$	(114	)	$	17,885
State and municipal		141,751		2,288		(556	)		143,483
Federal agency collateralized mortgage obligations		135,511		131		(1,440	)		134,202
Federal agency mortgage-backed pools		213,071		496		(1,516	)		212,051
Private labeled mortgage-backed pools		1,841		—		(11	)		1,830
Corporate notes		275		118		—			393

Total available for sale investment securities	$	510,445	$	3,036	$	(3,637	)	$	509,844

Held to maturity
State and municipal	$	177,473	$	4,249	$	(862	)	$	180,860
Federal agency collateralized mortgage obligations		5,902		25		(31	)		5,896
Federal agency mortgage-backed pools		15,230		307		(71	)		15,466

Total held to maturity investment securities	$	198,605	$	4,581	$	(964	)	$	202,222


			Gross		Gross
December 31, 2016	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale
U.S. Treasury and federal agencies	$	8,051	$	2	$	(64	)	$	7,989
State and municipal		117,327		324		(1,059	)		116,592
Federal agency collateralized mortgage obligations		139,040		254		(2,099	)		137,195
Federal agency mortgage-backed pools		180,183		251		(3,707	)		176,726
Corporate notes		1,238		91		—			1,329

Total available for sale investment securities	$	445,839	$	922	$	(6,929	)	$	439,831

Held to maturity
State and municipal	$	165,607	$	2,700	$	(2,485	)	$	165,822
Federal agency collateralized mortgage obligations		6,530		31		(71	)		6,490
Federal agency mortgage-backed pools		21,057		897		(180	)		21,774

Total held to maturity investment securities	$	193,194	$	3,628	$	(2,736	)	$	194,086


	September 30 2017			December 31 2016
Commercial
Working capital and equipment	$	599,427		$	539,403
Real estate, including agriculture		624,009			485,620
Tax exempt		20,987			15,486
Other		29,367			29,447

Total		1,273,790			1,069,956
Real estate
1–4 family		563,993			526,024
Other		7,069			5,850

Total		571,062			531,874
Consumer
Auto		230,976			174,773
Recreation		8,969			5,669
Real estate/home improvement		59,641			53,898
Home equity		163,205			144,508
Unsecured		3,614			3,875
Other		19,085			15,706

Total		485,490			398,429
Mortgage warehouse		95,483			135,727

Total loans		2,425,825			2,135,986
Allowance for loan losses		(15,586	)		(14,837	)

Loans, net	$	2,410,239		$	2,121,149


September 30, 2017	Loan Balance			Interest Due		Deferred Fees / (Costs)			Recorded Investment
Owner occupied real estate	$	403,184		$	1,371	$	880		$	405,435
Non owner occupied real estate		531,560			656		2,202			534,418
Residential spec homes		4,031			11		—			4,042
Development & spec land loans		43,299			100		84			43,483
Commercial and industrial		288,086			2,475		464			291,025

Total commercial		1,270,160			4,613		3,630			1,278,403
Residential mortgage		553,451			1,814		2,786			558,051
Residential construction		14,825			29		—			14,854
Mortgage warehouse		95,483			480		—			95,963

Total real estate		663,759			2,323		2,786			668,868
Direct installment		85,726			249		(566	)		85,409
Direct installment purchased		88			—		—			88
Indirect installment		207,293			437		173			207,903
Home equity		194,050			795		(1,274	)		193,571

Total consumer		487,157			1,481		(1,667	)		486,971

Total loans		2,421,076			8,417		4,749			2,434,242
Allowance for loan losses		(15,586	)		—		—			(15,586	)

Net loans	$	2,405,490		$	8,417	$	4,749		$	2,418,656


December 31, 2016	Loan Balance			Interest Due		Deferred Fees / (Costs)			Recorded Investment
Owner occupied real estate	$	337,548		$	899	$	1,022		$	339,469
Non owner occupied real estate		461,897			624		2,176			464,697
Residential spec homes		5,006			8		(2	)		5,012
Development & spec land loans		31,228			56		119			31,403
Commercial and industrial		230,520			1,906		442			232,868

Total commercial		1,066,199			3,493		3,757			1,073,449
Residential mortgage		508,233			1,492		3,030			512,755
Residential construction		20,611			33		—			20,644
Mortgage warehouse		135,727			480		—			136,207

Total real estate		664,571			2,005		3,030			669,606
Direct installment		71,150			199		(385	)		70,964
Direct installment purchased		119			—		—			119
Indirect installment		153,204			345		—			153,549
Home equity		175,126			703		(785	)		175,044

Total consumer		399,599			1,247		(1,170	)		399,676

Total loans		2,130,369			6,745		5,617			2,142,731
Allowance for loan losses		(14,837	)		—		—			(14,837	)

Net loans	$	2,115,532		$	6,745	$	5,617		$	2,127,894


	Nine Months Ended September 30, 2017
	Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	557		$	502		$	389		$	530		$	1,479		$	3,457
Additions		—			—			—			—			—			—
Accretion		(99	)		(268	)		(388	)		(80	)		(194	)		(1,029	)
Reclassification from nonaccretable difference		—			—			—			—			—			—
Disposals		(6	)		(2	)		(1	)		(42	)		(264	)		(315	)

Balance at September 30	$	452		$	232		$	—		$	408		$	1,021		$	2,113


	Nine Months Ended September 30, 2016
	Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	795		$	708		$	555		$	—		$	—		$	2,058
Additions		—			—			—			634			1,736			2,370
Accretion		(127	)		(139	)		(92	)		(38	)		—			(396	)
Reclassification from nonaccretable difference		—			—			—			—			—			—
Disposals		(74	)		(35	)		(59	)		(23	)		—			(191	)

Balance at September 30	$	594		$	534		$	404		$	573		$	—		$	3,841


	Three Months Ended September 30						Nine Months Ended September 30
	2017			2016			2017			2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Balance at beginning of the period	$	15,027		$	14,226		$	14,837		$	14,534
Loanscharged-off:
Commercial
Owner occupied real estate		12			4			12			182
Non owner occupied real estate		20			(1	)		20			471
Residential development		—			—			—			—
Development & Spec Land Loans		—			—			1			—
Commercial and industrial		232			8			273			47

Total commercial		264			11			306			700
Real estate
Residential mortgage		37			12			89			127
Residential construction		—			—			—			—
Mortgage warehouse		—			—			—			—

Total real estate		37			12			89			127
Consumer
Direct Installment		84			55			331			159
Direct Installment Purchased		—			—			—			—
Indirect Installment		254			296			862			851
Home Equity		24			32			95			271

Total consumer		362			383			1,288			1,281

Total loanscharged-off		663			406			1,683			2,108
Recoveries of loans previouslycharged-off:
Commercial
Owner occupied real estate		7			2			8			31
Non owner occupied real estate		4			1			29			55
Residential development		2			2			6			6
Development & Spec Land Loans		—			—			—			—
Commercial and industrial		82			12			204			107

Total commercial		95			17			247			199
Real estate
Residential mortgage		13			12			35			75
Residential construction		—			—			—			—
Mortgage warehouse		—			—			—			—

Total real estate		13			12			35			75
Consumer
Direct Installment		260			26			311			70
Direct Installment Purchased		—			—			—			—
Indirect Installment		119			160			384			400
Home Equity		25			34			85			135

Total consumer		404			220			780			605

Total loan recoveries		512			249			1,062			879

Net loanscharged-off (recovered)		151			157			621			1,229

Provision charged to operating expense
Commercial		429			165			1,357			(471	)
Real estate		361			102			(113	)		(147	)
Consumer		(80	)		188			126			1,837

Total provision charged to operating expense		710			455			1,370			1,219

Balance at the end of the period	$	15,586		$	14,524		$	15,586		$	14,524


					Mortgage
September 30, 2017	Commercial		Real Estate		Warehousing		Consumer		Total
Allowance For Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		7,877		2,129		1,048		4,532		15,586
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending allowance balance	$	7,877	$	2,129	$	1,048	$	4,532	$	15,586

Loans:
Individually evaluated for impairment	$	3,451	$	—	$	—	$	—	$	3,451
Collectively evaluated for impairment		1,274,952		572,905		95,963		486,971		2,430,791
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending loans balance	$	1,278,403	$	572,905	$	95,963	$	486,971	$	2,434,242


					Mortgage
December 31, 2016	Commercial		Real Estate		Warehousing		Consumer		Total
Allowance For Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4	$	—	$	—	$	—	$	4
Collectively evaluated for impairment		6,575		2,090		1,254		4,914		14,833
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending allowance balance	$	6,579	$	2,090	$	1,254	$	4,914	$	14,837

Loans:
Individually evaluated for impairment	$	2,250	$	—	$	—	$	—	$	2,250
Collectively evaluated for impairment		1,071,199		533,399		136,207		399,676		2,140,481
Loans acquired with deteriorated credit quality		—		—		—		—		—

Total ending loans balance	$	1,073,449	$	533,399	$	136,207	$	399,676	$	2,142,731


September 30, 2017	Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non- Performing TDRs		Performing TDRs		Total Non- Performing Loans
Commercial
Owner occupied real estate	$	894	$	—	$	29	$	—	$	923
Non owner occupied real estate		218		—		483		—		701
Residential development		—		—		—		—		—
Development & Spec Land Loans		102		—		—		—		102
Commercial and industrial		1,707		—		—		—		1,707

Total commercial		2,921		—		512		—		3,433
Real estate
Residential mortgage		3,269		119		460		1,473		5,321
Residential construction		—		—		—		224		224
Mortgage warehouse		—		—		—		—		—

Total real estate		3,269		119		460		1,697		5,545
Consumer
Direct Installment		310		—		—		—		310
Direct Installment Purchased		—		—		—		—		—
Indirect Installment		1,019		15		—		—		1,034
Home Equity		1,546		28		220		318		2,112

Total Consumer		2,875		43		220		318		3,456

Total	$	9,065	$	162	$	1,192	$	2,015	$	12,434


December 31, 2016	Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non-Performing TDRs		Performing TDRs		Total Non- Performing Loans
Commercial
Owner occupied real estate	$	1,532	$	183	$	—	$	—	$	1,715
Non owner occupied real estate		440		—		—		—		440
Residential development		—		—		—		—		—
Development & Spec Land Loans		118		—		—		—		118
Commercial and industrial		159		—		—		—		159

Total commercial		2,249		183		—		—		2,432
Real estate
Residential mortgage		2,959		—		576		1,254		4,789
Residential construction		—		—		233		—		233
Mortgage warehouse		—		—		—		—		—

Total real estate		2,959		—		809		1,254		5,022
Consumer
Direct Installment		512		—		—		—		512
Direct Installment Purchased		—		—		—		—		—
Indirect Installment		659		49		—		—		708
Home Equity		1,557		9		205		238		2,009

Total Consumer		2,728		58		205		238		3,229

Total	$	7,936	$	241	$	1,014	$	1,492	$	10,683


							Three Months Ending				Nine Months Ending
September 30, 2017	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Loss Allocated		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized
With no recorded allowance
Commercial
Owner occupied real estate	$	923	$	934	$	—	$	1,167	$	4	$	1,033	$	4
Non owner occupied real estate		701		701		—		468		—		308		2
Residential development		—		—		—		—		—		—		—
Development & Spec Land Loans		102		102		—		222		—		230		—
Commercial and industrial		1,707		1,714		—		2,066		3		1,071		19

Total commercial		3,433		3,451		—		3,923		7		2,642		25
With an allowance recorded
Commercial
Owner occupied real estate		—		—		—		—		—		—		—
Non owner occupied real estate		—		—		—		—		—		—		—
Residential development		—		—		—		—		—		—		—
Development & Spec Land Loans		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—

Total commercial		—		—		—		—		—		—		—

Total	$	3,433	$	3,451	$	—	$	3,923	$	7 $		2,642	$	25


							Three Months Ending				Nine Months Ending
September 30, 2016	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Loss Allocated		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized
With no recorded allowance
Commercial
Owner occupied real estate	$	994	$	995	$	—	$	1,029	$	—	$	1,062	$	—
Non owner occupied real estate		3,106		3,120		—		3,150		1		3,776		3
Residential development		—		—		—		—		—		—		—
Development & Spec Land Loans		—		—		—		—		—		—		—
Commercial and industrial		1,740		1,740		—		1,984		—		878		—

Total commercial		5,840		5,855		—		6,163		1		5,716		3
With an allowance recorded
Commercial
Owner occupied real estate		—		—		—		—		—		—		—
Non owner occupied real estate		—		—		—		—		—		—		—
Residential development		—		—		—		—		—		—		—
Development & Spec Land Loans		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—

Total commercial		—		—		—		—		—		—		—

Total	$	5,840	$	5,855	$	—	$	6,163	$	1	$	5,716	$	3


							90 Days or
	30-59 Days			60-89 Days			Greater Past			Total Past			Loans Not
September 30, 2017	Past Due			Past Due			Due			Due			Past Due			Total
Commercial
Owner occupied real estate	$	2,282		$	—		$	—		$	2,282		$	400,902		$	403,184
Non owner occupied real estate		132			—			—			132			531,428			531,560
Residential development		135			—			—			135			3,896			4,031
Development & Spec Land Loans		—			—			—			—			43,299			43,299
Commercial and industrial		255			166			—			421			287,665			288,086

Total commercial		2,804			166			—			2,970			1,267,190			1,270,160
Real estate
Residential mortgage		1,012			167			119			1,298			552,153			553,451
Residential construction		—			—			—			—			14,825			14,825
Mortgage warehouse		—			—			—			—			95,483			95,483

Total real estate		1,012			167			119			1,298			662,461			663,759
Consumer
Direct Installment		67			—			—			67			85,659			85,726
Direct Installment Purchased		—			—			—			—			88			88
Indirect Installment		1,192			181			15			1,388			205,905			207,293
Home Equity		611			84			28			723			193,327			194,050

Total consumer		1,870			265			43			2,178			484,979			487,157

Total	$	5,686		$	598		$	162		$	6,446		$	2,414,630		$	2,421,076

Percentage of total loans		0.23	%		0.02	%		0.01	%		0.27	%		99.73	%

							90 Days or
	30-59 Days			60-89 Days			Greater Past			Total Past			Loans Not
December 31, 2016	Past Due			Past Due			Due			Due			Past Due			Total
Commercial
Owner occupied real estate	$	1,068		$	—		$	183		$	1,251		$	336,297		$	337,548
Non owner occupied real estate		357			—			—			357			461,540			461,897
Residential development		—			—			—			—			5,006			5,006
Development & Spec Land Loans		1			—			—			1			31,227			31,228
Commercial and industrial		982			—			—			982			229,538			230,520

Total commercial		2,408			—			183			2,591			1,063,608			1,066,199
Real estate
Residential mortgage		886			123			—			1,009			507,224			508,233
Residential construction		—			—			—			—			20,611			20,611
Mortgage warehouse		—			—			—			—			135,727			135,727

Total real estate		886			123			—			1,009			663,562			664,571
Consumer
Direct Installment		139			4			—			143			71,007			71,150
Direct Installment Purchased		—			—			—			—			119			119
Indirect Installment		1,339			237			49			1,625			151,579			153,204
Home Equity		912			267			9			1,188			173,938			175,126

Total consumer		2,390			508			58			2,956			396,643			399,599

Total	$	5,684		$	631		$	241		$	6,556		$	2,123,813		$	2,130,369

Percentage of total loans		0.27	%		0.03	%		0.01	%		0.31	%		99.69	%


				Special
September 30, 2017	Pass			Mention			Substandard			Doubtful			Total
Commercial
Owner occupied real estate	$	386,856		$	5,776		$	10,552		$	—		$	403,184
Non owner occupied real estate		523,831			1,008			6,721			—			531,560
Residential development		4,031			—			—			—			4,031
Development & Spec Land Loans		43,066			—			233			—			43,299
Commercial and industrial		272,622			4,969			10,495			—			288,086

Total commercial		1,230,406			11,753			28,001			—			1,270,160
Real estate
Residential mortgage		548,249			—			5,202			—			553,451
Residential construction		14,601			—			224			—			14,825
Mortgage warehouse		95,483			—			—			—			95,483

Total real estate		658,333			—			5,426			—			663,759
Consumer
Direct Installment		85,416			—			310			—			85,726
Direct Installment Purchased		88			—			—			—			88
Indirect Installment		206,259			—			1,034			—			207,293
Home Equity		191,938			—			2,112			—			194,050

Total Consumer		483,701			—			3,456			—			487,157

Total	$	2,372,439		$	11,753		$	36,883		$	—		$	2,421,076

Percentage of total loans		97.99	%		0.49	%		1.52	%		0.00	%

				Special
December 31, 2016	Pass			Mention			Substandard			Doubtful			Total
Commercial
Owner occupied real estate	$	322,924		$	4,960		$	9,664		$	—		$	337,548
Non owner occupied real estate		455,648			341			5,908			—			461,897
Residential development		5,006			—			—			—			5,006
Development & Spec Land Loans		31,057			—			171			—			31,228
Commercial and industrial		220,424			3,728			6,368			—			230,520

Total commercial		1,035,059			9,029			22,111			—			1,066,199
Real estate
Residential mortgage		503,444			—			4,789			—			508,233
Residential construction		20,378			—			233			—			20,611
Mortgage warehouse		135,727			—			—			—			135,727

Total real estate		659,549			—			5,022			—			664,571
Consumer
Direct Installment		70,638			—			512			—			71,150
Direct Installment Purchased		119			—			—			—			119
Indirect Installment		152,496			—			708			—			153,204
Home Equity		173,117			—			2,009			—			175,126

Total Consumer		396,370			—			3,229			—			399,599

Total	$	2,090,978		$	9,029		$	30,362		$	—		$	2,130,369

Percentage of total loans		98.15	%		0.42	%		1.43	%		0.00	%


September 30, 2017	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to one year		One to three years		Three to five years		Five to ten years		Beyond ten years		Total
Repurchase Agreements andrepurchase-to-maturity transactions
Repurchase Agreements	$	63,081	$	—	$	—	$	—	$	—	$	—	$	63,081

Securities pledged for Repurchase Agreements
U.S. Treasury and federal agencies		—		—		—		—		—		—		—
Federal agency collateralized mortgage obligations		40,740		—		—		—		—		—		40,740
Federal agency mortgage-backed pools		38,476		—		—		—		—		—		38,476

Total	$	79,216	$	—	$	—	$	—	$	—	$	—	$	79,216


	Comprehensive Income on Derivative				Comprehensive Income on Derivative
	(Effective Portion)				(Effective Portion)
	Three Months Ended September 30				Nine Months Ended September 30
Derivative in cash flow	2017		2016		2017		2016
hedging relationship	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest rate contracts	$	193	$	522	$	483	$	103


				Quoted Prices in		Significant
				Active Markets		Other			Significant
				for Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Fair Value			(Level 1)		(Level 2)			(Level 3)
September 30, 2017
Available-for-sale securities
U.S. Treasury and federal agencies	$	17,885		$	—	$	17,885		$	—
State and municipal		143,483			—		143,483			—
Federal agency collateralized mortgage obligations		134,202			—		134,202			—
Federal agency mortgage-backed pools		212,051			—		212,051			—
Private labeled mortgage-backed pools		1,830			—		1,830			—
Corporate notes		393			—		393			—

Totalavailable-for-sale securities		509,844			—		509,844			—
Hedged loans		152,216			—		152,216			—
Forward sale commitments		286			—		286			—
Interest rate swap agreements		(2,819	)		—		(2,819	)		—
Commitments to originate loans		(31	)		—		(31	)		—
December 31, 2016
Available-for-sale securities
U.S. Treasury and federal agencies	$	7,989		$	—	$	7,989		$	—
State and municipal		116,592			—		116,592			—
Federal agency collateralized mortgage obligations		137,195			—		137,195			—
Federal agency mortgage-backed pools		176,726			—		176,726			—
Corporate notes		1,329			—		1,329			—

Totalavailable-for-sale securities		439,831			—		439,831			—
Hedged loans		122,345			—		122,345			—
Forward sale commitments		602			—		602			—
Interest rate swap agreements		(3,138	)		—		(3,138	)		—
Commitments to originate loans		(22	)		—		(22	)		—


	Three Months Ended September 30						Nine Months Ended September 30
Non Interest Income	2017			2016			2017			2016
Total gains and losses from:	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Hedged loans	$	(4	)	$	(830	)	$	423		$	2,781
Fair value interest rate swap agreements		4			830			(423	)		(2,781	)
Derivative loan commitments		(112	)		(324	)		(324	)		145

	$	(112	)	$	(324	)	$	(324	)	$	145


	Fair Value at		Valuation		Range (Weighted
	September 30, 2017		Technique	Unobservable Inputs	Average)
				Discount to reflect current market conditions and ultimate
Impaired loans	$	3,433	Collateral based measurement	collectability		11% - 17% (14%	)
				Discount rate, Constant		11% - 17% (14%	),
				prepayment rate, Probability of		4% - 8% (5.1%	),
Mortgage servicing rights	$	11,485	Discounted cashflows	default		1% - 11% (5.0%	)

	Fair Value at		Valuation		Range (Weighted
	December 31, 2016		Technique	Unobservable Inputs	Average)
				Discount to reflect current
				market conditions and ultimate
Impaired loans	$	2,246	Collateral based measurement	collectability		10% - 16% (13%	)
				Discount rate, Constant		10% - 16% (13%	),
				prepayment rate, Probability of		4% - 7% (4.6%	),
Mortgage servicing rights	$	11,174	Discounted cashflows	default		1% - 10% (4.5%	)


	September 30, 2017
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
Assets
Cash and due from banks	$	72,662	$	72,662	$	—	$	—
Investment securities, held to maturity		198,605		—		202,222		—
Loans held for sale		3,616		—		—		3,616
Loans excluding loan level hedges, net		2,258,023		—		—		2,205,681
Stock in FHLB and FRB		15,340		—		15,340		—
Interest receivable		14,880		—		14,880		—
Liabilities
Non-interest bearing deposits	$	563,536	$	563,536	$	—	$	—
Interest-bearing deposits		2,044,739		—		1,948,765		—
Borrowings		458,152		—		453,303		—
Subordinated debentures		37,607		—		36,241		—
Interest payable		700		—		700		—


	Actual					Required For Capital¹ Adequacy Purposes					Required For Capital¹ Adequacy Purposes with Capital Buffer					Well Capitalized Under Prompt¹ Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2017
Total capital¹(to risk-weighted assets)
Consolidated	$	347,601		13.22	%		210,274		8.00	%		226,833		8.63	%		N/ A		N/ A
Bank		339,596		12.93	%		210,162		8.00	%		226,713		8.63	%	$	262,703		10.00	%
Tier 1 capital¹(to risk-weighted assets)
Consolidated		331,962		12.63	%		157,705		6.00	%		174,264		6.63	%		N/ A		N/ A
Bank		323,957		12.33	%		157,622		6.00	%		174,172		6.63	%		210,162		8.00	%
Common equity tier 1 capital¹(to risk-weighted assets)
Consolidated		293,499		11.17	%		118,279		4.50	%		134,838		5.13	%		N/ A		N/ A
Bank		323,957		12.33	%		118,216		4.50	%		134,766		5.13	%		170,757		6.50	%
Tier 1 capital¹(to average assets)
Consolidated		331,962		10.11	%		131,319		4.00	%		131,319		4.00	%		N/ A		N/ A
Bank		323,957		9.90	%		130,877		4.00	%		130,877		4.00	%		163,596		5.00	%
As of December 31, 2016
Total capital¹(to risk-weighted assets)
Consolidated	$	316,576		13.87	%	$	182,596		8.00	%	$	196,976		8.63	%		N/ A		N/ A
Bank		319,013		13.98	%		182,541		8.00	%		196,916		8.63	%	$	228,176		10.00	%
Tier 1 capital¹(to risk-weighted assets)
Consolidated		301,739		13.22	%		136,947		6.00	%		151,326		6.63	%		N/ A		N/ A
Bank		304,176		13.33	%		136,905		6.00	%		151,280		6.63	%		182,540		8.00	%
Common equity tier 1 capital¹(to risk-weighted assets)
Consolidated		263,313		11.50	%		103,036		4.50	%		117,460		5.13	%		N/ A		N/ A
Bank		304,176		13.33	%		102,679		4.50	%		117,054		5.13	%		148,314		6.50	%
Tier 1 capital¹(to average assets)
Consolidated		301,739		10.44	%		115,609		4.00	%		115,609		4.00	%		N/ A		N/ A
Bank		304,176		9.93	%		122,521		4.00	%		122,521		4.00	%		153,151		5.00	%


Allowance for	December 31,			Net Reserve				June 30,
Credit Losses	2020			1Q20		2Q20			2021
Commercial	$	42,210		$	770	$	(1,214)		$	41,766
Retail Mortgage	4,620			(391)		(121)			4,108
Warehouse	1,267			(104)		(8)			1,155
Consumer	8,930			(116)		(194)			8,620
Allowance for Credit Losses (“ACL”)	$	57,027		$	159	$	(1,537)		$	55,649
ACL/Total Loans	1.47		%						1.58		%


	Horizon
	Legacy			Heartland			Summit			Peoples			Kosciusko			LaPorte			CNB			Lafayette			Total
Pre-discount loan balance	$	1,903,322		$	12,861		$	44,649		$	123,332		$	64,450		$	158,099		$	7,694		$	125,981		$	2,440,388
Allowance for loan losses (ALLL)		15,515			71			—			—			—			—			—			—			15,586
Loan discount		N/A			846			2,365			2,944			810			4,036			206			3,356			14,563

ALLL+ loan discount		15,515			917			2,365			2,944			810			4,036			206			3,356			30,149

Loans, net	$	1,887,807		$	11,944		$	42,284		$	120,388		$	63,640		$	154,063		$	7,488		$	122,625		$	2,410,239

ALLL/pre-discount loan balance		0.82	%		0.55	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.64	%
Loan discount/pre-discount loan balance		N/A			6.58	%		5.30	%		2.39	%		1.26	%		2.55	%		2.68	%		2.66	%		0.60	%
ALLL+ loan discount/pre-discount loan balance		0.82	%		7.13	%		5.30	%		2.39	%		1.26	%		2.55	%		2.68	%		2.66	%		1.24	%


	September 30		June 30		March 31		December 31		September 30
	2017		2017		2017		2016		2016
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Total stockholders’ equity	$	392,055	$	357,259	$	348,575	$	340,855	$	345,736
Less: Intangible assets		103,244		86,726		87,094		86,307		83,891

Total tangible stockholders’ equity	$	288,811	$	270,533	$	261,481	$	254,548	$	261,845

Common shares outstanding		23,325,459		22,176,465		22,176,465		22,171,596		22,143,228
Tangible book value per common share	$	12.38	$	12.20	$	11.79	$	11.48	$	11.83


Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands Except per Share Data, Unaudited)
	June 30,		March 31,		December 31,		September 30,		June 30,
	2021		2021		2020		2020		2020
Total stockholders’ equity	$	710,374	$	689,379	$	692,216	$	670,293	$	652,206
Less: Intangible assets	172,398		173,296		174,193		175,107		176,020
Total tangible stockholders’ equity	$	537,976	$	516,083	$	518,023	$	495,186	$	476,186
Common shares outstanding	43,950,720		43,949,189		43,880,562		43,874,353		43,821,878
Book value per common share	$	16.16	$	15.69	$	15.78	$	15.28	$	14.88
Tangible book value per common share	$	12.24	$	11.74	$	11.81	$	11.29	$	10.87

35-1562417

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~515 Franklin Square, Michigan City, Indiana~~

~~(Address of principal executive offices)~~

~~(Zip Code)~~