HORIZON BANCORP INC /IN/ MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)


Overview

Horizon is a registered bank holding company incorporated in Indiana and
headquartered in Michigan City, Indiana. Horizon provides a broad range of
banking services in northern and central Indiana and southern and central
Michigan through its bank subsidiary, Horizon Bank. Horizon operates as a single
segment, which is commercial banking. Horizon's common stock is traded on the
NASDAQ Global Select Market under the symbol HBNC. The Bank was founded in 1873
as a national association, and it remained a national association until its
conversion to an Indiana commercial bank effective June 23, 2017. The Bank is a
full-service commercial bank offering commercial and retail banking services,
corporate and individual trust and agency services, and other services incident
to banking.

Fourth Quarter and Full Year 2021 Highlights

•Net income totaled a record $87.1 million, or $1.98 diluted earnings per share
for the year ended December 31, 2021 compared to $68.5 million, or $1.55 diluted
earnings per share for the year ended December 31, 2020.

•Net interest income grew to a record $181.7 million for the year ended December
31, 2021, up 6.3% from the year ended December 31, 2020. Reported net interest
margin ("NIM") was 3.13% and adjusted NIM was 3.06%, with reported NIM
decreasing by 31 basis points and adjusted NIM decreasing by 32 basis points
from the year ended December 31, 2020. (See the "Non-GAAP Reconciliation of Net
Interest Margin" table for the definition of this non-GAAP calculation of
adjusted NIM.) Approximately 10 basis points of the NIM and adjusted NIM is
attributed to Federal Paycheck Protection Program ("PPP") lending, offset by an
estimated 23 basis point compression attributed to excess liquidity during 2021.
During 2021, Horizon increased the average balance of its investment portfolio
by $805.5 million to leverage capital and focus on increasing net interest
income.

•The Company was asset sensitive as of December 31, 2021, resulting from the
liquidity on the balance sheet, adjustable rate assets and the low betas on
deposit pricing based on expected deposit rates. Based on parallel rate shocks
to the balance sheet, at a 100 basis point shock and 200 basis point shock, net
interest income would increase approximately $10.0 million and $20.0 million,
respectively.

• Commercial loans, excluding PPP and acquired loans, increased by 3.3% in 2021 to reach a record $2.15 billionnet of PPPs and acquired loans, at the end of the period.

• Consumer loans, excluding acquired loans, increased by 2.7% in 2021 to reach a record
$727.3 million at the end of the period, with record production of $397.1 million.

•Residential mortgage loans, excluding acquired loans, declined in-line with
expectations by 13.8% during 2021 to $594.4 million at period end, as the
addition of new producers and the launch of a new jumbo mortgage product aimed
at second home buyers in Horizon's attractive second-home markets began to
mitigate the impact of the industry-wide slowdown in mortgage lending from
recent historic levels. Mortgage loan revenues only constituted 10.8% of total
revenue in 2021.

•Non-interest expense was $139.3 million in 2021, including ongoing operating
expenses associated with the Michigan branch acquisition that closed on
September 17, 2021. Excluding acquisition-related expenses and non-recurring
Employee Stock Ownership Plan ("ESOP") settlement expense accrual, non-interest
expense was $135.5 million, representing 2.08% of average assets for 2021,
compared to $131.4 million, or 2.34%, for 2020. Acquisition-related expenses
totaled approximately $1.9 million in 2021. (See the "Non-GAAP Reconciliation of
Non-Interest Expense" table for the definition of this non-GAAP calculation of
adjusted non-interest expense.)

•Horizon accrued $1.9 million of expense in December for a mediation settlement
related to a dispute with the U.S. Department of Labor ("DOL") concerning
valuations and sale transactions related to Horizon's ESOP trustee business.
Horizon is no longer in the ESOP trustee business and sold all accounts to a
third party on September 30, 2021 and recorded a $2.3 million gain on the sale
in the third quarter.
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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

•The efficiency ratio for 2021 was 58.12% compared to 57.01% for 2020. The
adjusted efficiency ratio, excluding acquisition-related expense and
non-recurring ESOP settlement expense, was 57.46% for 2021 compared to 57.20%
for 2020. (See the "Non-GAAP Calculation and Reconciliation of Efficiency Ratio
and Adjusted Efficiency Ratio" table below.)

•Horizon's in-market consumer and commercial deposit relationships, including
those on-boarded as part of its branch acquisition near the end of the third
quarter, 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 0.40% in 2021,
compared to 0.87% in 2020.

•Horizon recorded a provision release of $2.1 million in 2021, compared to a
provision expense of $20.8 million in 2020, as non-performing loans declined to
$19.0 million, or 0.53% of total loans, on December 31, 2021.

•Horizon's book value and tangible book value per share increased to $16.61 and
$12.58. (See the "Non-GAAP Reconciliation of Tangible Stockholders' Equity and
Tangible Book Value per Share" table below.) Held to Maturity ("HTM") securities
were increased in the fourth quarter through a transfer from Available for Sale
("AFS") securities and purchases to 57.2% of the investment portfolio. This
increase in HTM securities will help manage the impact of unrealized losses to
tangible capital in a rising rate environment.

•The integration of 14 branches purchase from TCF National Bank that closed on
September 17, 2021 is complete and was very successful. The deposit runoff has
stabilized at approximately 8% with the plan to begin to rebuild this runoff as
we enter into 2022. The financial impact of this transaction to date is in line
with management's projections.

Critical accounting policies

The Notes to the Consolidated Financial Statements included in Item 8 of this
Annual Report on Form 10-K for 2021 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 the allowance
for loan losses, goodwill and intangible assets, mortgage servicing rights,
derivative instruments and valuation measurements as critical accounting
policies.

Provision for credit losses

Allowance for Loan and Lease Losses (“ACL”) replaces Allowance for Loan and Lease Losses as the accounting estimate of credit, effective
January 1, 2020 with the adoption of ASU 2016-13, Financial Instruments-Credit Loss (Topic 326): Measurement of Credit Loss on Financial Instruments.

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


The allowance for credit losses is assessed at each balance sheet date and
adjustments are recorded in the provision for credit losses. The allowance is
estimated based on loan level characteristics using historical loss rates, a
reasonable and supportable economic forecast. Loan losses are estimated using
the fair value of collateral for collateral-dependent loans, or when the
borrower is experiencing financial difficulty such that repayment of the loan is
expected to be made through the operation or sale of the collateral. Loan
balances considered uncollectible are charged-off against the ACL. Assets
purchased with credit deterioration ("PCD") represent assets that are acquired
with evidence of more than insignificant credit quality deterioration since
origination at the acquisition date. At acquisition, the allowance for credit
losses on PCD assets is booked directly to the ACL. Any subsequent changes in
the ACL on PCD assets is recorded through the provision for credit losses.
Management believes that the ACL is adequate to absorb the expected life of loan
credit losses on the portfolio of loans and leases as of the balance sheet date.
Actual losses incurred may differ materially from our estimates. Particularly,
the impact of COVID-19 on
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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)
both borrower credit and the greater macroeconomic environment is uncertain and
changes in the duration, spread and severity of the virus will affect our loss
experience.

Allowance for credit losses on off-balance sheet credit positions

The Company estimates expected credit losses over the contractual period in
which the Company is exposed to credit risk via a contractual obligation to
extend credit, unless that obligation is unconditionally cancellable by the
Company. The Company determines the estimated amount of expected credit
extensions based on historical usage to calculate the amount of exposure for a
loss estimate. After review of the expected credit losses on off-balance sheet
exposures, the Company determined the amount not being recorded as immaterial at
this time.

Provision for credit losses on Available for Sales Titles

For available for sale debt securities in an unrealized loss position, the
Company first assesses whether it intends to sell, or it is more likely than not
that it will be required to sell, the security before recovery of its amortized
cost basis. If either of the criteria regarding intent or requirement to sell is
met, the security's amortized cost basis is written down to fair value through
income. For debt securities available for sale that do not meet the
aforementioned criteria, the Company evaluates whether the decline in fair value
has resulted from credit losses or other factors. In making this assessment,
management considers the extent to which fair value is less than amortized cost,
any changes to the rating of the security by a rating agency, and adverse
conditions specifically related to the security, among other factors. If this
assessment indicates that a credit loss exists, the present value of cash flows
expected to be collected from the security are compared to the amortized cost
basis of the security. If the present value of cash flows expected to be
collected is less than the amortized cost basis, a credit loss exists and an ACL
is recorded for the credit loss, limited by the amount that the fair value is
less than the amortized cost basis. Any impairment that has not been recorded
through an ACL is recorded in other comprehensive income.

Changes in the ACL are recorded as provision for, or reversal of, credit loss
expense. Losses are charged against the allowance when management believes the
uncollectibility of an available for sale security is confirmed or when either
of the criteria regarding intent or requirement to sell is met.

Allowance for credit losses on Maturity securities

For held to maturity securities, the Company conducts an assessment of its held
to maturity securities at the time of purchase and on at least an annual basis
to ensure such investment securities remain within appropriate levels of risk
and continue to perform satisfactorily in fulfilling its obligations. The
Company considers, among other factors, the nature of the securities and credit
ratings or financial condition of the issuer. If available, the Company obtains
a credit rating for issuers from the Nationally Recognized Statistical Rating
Organization ("NRSRO") for consideration. If this assessment indicates that a
material credit loss exists, the present value of cash flows expected to be
collected from the security are compared to the amortized cost basis of the
security. If the present value of cash flows expected to be collected is less
than the amortized cost basis, a credit loss exists and an ACL is recorded for
the credit loss. After completing this assessment, management determined any
credit losses as of December 31, 2020 were not material to the consolidated
financial statements.

Good will and intangible assets

Management believes that the accounting for goodwill and other intangible assets
also involves a higher degree of judgment than most other significant accounting
policies. FASB ASC 350-10 establishes standards for the amortization of acquired
intangible assets and impairment assessment of goodwill. At December 31, 2021,
Horizon had core deposit intangibles of $20.9 million subject to amortization
and $154.6 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
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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

to deliver cost effective services over sustained periods can lead to impairment
of goodwill that could adversely affect earnings in future periods. FASB ASC
350-10 requires an annual evaluation of goodwill for impairment.


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
assessment, the Company determined that as of December 31, 2021, it was more
likely than not that the fair value exceeded its carrying value. Horizon will
continue to monitor developments regarding the COVID-19 pandemic and measures
implemented in response to the pandemic, market capitalization, overall economic
conditions and any other triggering events or circumstances that may indicate an
impairment of goodwill in the future.

Mortgage service fees

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

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

Derivatives

As part of the Company's asset/liability management program, Horizon utilizes,
from time-to-time, interest rate floors, caps or swaps to reduce the Company's
sensitivity to interest rate fluctuations. These are derivative instruments,
which are recorded as assets or liabilities in the consolidated balance sheets
at fair value. Changes in
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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

the fair values of derivatives are reported in the consolidated income
statements or other comprehensive income ("OCI") depending on the use of the
derivative and whether the instrument qualifies for hedge accounting. The key
criterion for the hedge accounting is that the hedged relationship must be
highly effective in achieving offsetting changes in those cash flows that are
attributable to the hedged risk, both at inception of the hedge and on an
ongoing basis.

Horizon's accounting policies related to derivatives reflect the guidance in
FASB ASC 815-10. Derivatives that qualify for the hedge accounting treatment are
designated as either: a hedge of the fair value of the recognized asset or
liability or of an unrecognized firm commitment (a fair value hedge) or a hedge
of a forecasted transaction or the variability of cash flows to be received or
paid related to a recognized asset or liability (a cash flow hedge). For fair
value hedges, the cumulative change in fair value of both the hedge instruments
and the underlying loans is recorded in non-interest income. For cash flow
hedges, changes in the fair values of the derivative instruments are reported in
OCI to the extent the hedge is effective. The gains and losses on derivative
instruments that are reported in OCI are reflected in the consolidated income
statement in the periods in which the results of operations are impacted by the
variability of the cash flows of the hedged item. Generally, net interest income
is increased or decreased by amounts receivable or payable with respect to the
derivatives, which qualify for hedge accounting. At inception of the hedge,
Horizon establishes the method it uses for assessing the effectiveness of the
hedging derivative and the measurement approach for determining the ineffective
aspect of the hedge. The ineffective portion of the hedge, if any, is recognized
currently in the consolidated statements of income. Horizon excludes the time
value expiration of the hedge when measuring ineffectiveness.

Evaluation measures

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 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.


Analysis of the financial situation

Horizon's total assets were $7.4 billion as of December 31, 2021, an increase of
$1.5 billion from December 31, 2020. The increase was primarily in investment
securities of $1.4 billion, and cash and due from banks of $343.8 million,
offset by decreases in net loans of $257.0 million, and other assets of $12.8
million.

Investment Securities

Investment securities carrying values totaled $2.7 billion at December 31, 2021,
and consisted of Treasury and federal agency securities of $311.2 million
(11.5%); state and municipal securities of $1.5 billion (55.4%); federal agency
mortgage-backed pools of $414.5 million and federal agency collateralized
mortgage obligations of $110.1 million (24.2%); private labeled mortgage-backed
pools of $131.6 million (4.9%); and corporate securities of $242.5 million
(8.9%).

As indicated above, 24.2% of the investment portfolio consists of
mortgage-backed securities and collateralized mortgage obligations. These
instruments are secured by residential mortgages of varying maturities.
Principal and interest payments are received monthly as the underlying mortgages
are repaid. These payments also include prepayments of mortgage balances as
borrowers either sell their homes or refinance their mortgages. Therefore,
mortgage-backed securities and collateralized mortgage obligations have
maturities that are stated in terms of average life. The average life is the
average amount of time that each dollar of principal is expected to be
outstanding. As of December 31, 2021, the mortgage-backed securities and
collateralized mortgage obligations in
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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

the investment portfolio had an average duration of 5.8 years. Securities with interest rates above current market rates are purchased at a premium.

Municipal titles available for sale are priced by a third party using a pricing grid that estimates prices based on recent sales of similar titles. All municipal securities are good quality securities or unrated local issues. A credit review is performed annually on the portfolio of municipal securities.

At December 31, 2021 and 2020, 42.8% and 87.1%, respectively, of investment
securities were classified as available for sale. Securities classified as
available for sale are carried at their fair value, with both unrealized gains
and losses recorded, net of tax, directly to stockholders' equity. Net
appreciation on these securities totaled $7.2 million, which resulted in a
balance of $5.7 million, net of tax, included in stockholders' equity at
December 31, 2021. This compared to net appreciation on securities which totaled
$34.4 million, net of tax, included in stockholders' equity at December 31,
2020.

Fair value is defined 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. A fair value hierarchy is also established
which requires an entity to maximize the use of observable and minimize the use
of unobservable inputs. There are three levels of inputs that may be used to
measure fair value:

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

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

Level 3 Unobservable inputs that rely on little or no market activity and that are significant to the fair value of assets or liabilities.

When quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. There are no Level 1
securities. 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, Federal agency mortgage-backed pools
and corporate notes. For Level 2 securities, Horizon uses a third party service
to determine fair value. In performing the valuations, the pricing service
relies on models that consider security-specific details as well as relevant
industry and economic factors. The most significant of these inputs are quoted
market prices, interest rate spreads on relevant benchmark securities and
certain prepayment assumptions. To verify the reasonableness of the fair value
determination by the service, Horizon has a portion of the Level 2 securities
priced by an independent securities broker-dealer.

Unrealized gains and losses on available for sale securities, deemed temporary,
are recorded, net of income tax, in a separate component of other comprehensive
income on the balance sheet.


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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

The following is a schedule of maturities of each categories of available for
sale and held to maturity debt securities and the related weighted-average yield
of such securities as of December 31, 2021:

                                          One Year                            After One Year                         After Five Years
                                           or Less                          Through Five Years                       Through Ten Years                          After Ten Years
(dollars in thousands)           Amount              Yield              Amount               Yield              Amount               Yield                 Amount                 Yield
Available for sale
U.S. Treasury and federal
agencies(1)                    $    501                0.13  %       $   45,754                0.80  %       $   67,723                1.54  %       $         3,001                1.67  %
State and municipal              22,482                1.43  %           64,974                1.97  %          209,906                2.53  %               342,384                2.74  %
Federal agency collateralized
mortgage obligations(2)               -                   -  %            5,556                2.77  %           13,701                2.86  %                42,320                3.23  %
Federal agency mortgage-backed
pools(2)                              -                   -  %              833                2.72  %           43,387                2.67  %               181,854                1.84  %
Private labeled
mortgage-backed pools(2)              -                   -  %            2,932                2.80  %           18,541                3.18  %                10,144                2.08  %
Corporate notes                       -                   -  %           45,670                2.73  %           38,496                3.01  %                   653                   -  %
Total available for sale         22,983                1.40  %          165,719                1.90  %          391,754                2.47  %               580,356                2.47  %
Held to maturity
U.S. Treasury and federal
agencies(1)                           -                   -  %           20,993                1.40  %           43,305                1.85  %               129,928                2.18  %
State and municipal               5,265                3.36  %           45,989                3.62  %           76,761                3.77  %               750,902                2.44  %
Federal agency collateralized
mortgage obligations(2)               -                   -  %                -                   -  %                -                   -  %                47,465                1.85  %
Federal agency mortgage-backed
pools(2)                              -                   -  %                -                   -  %           98,116                1.75  %                87,849                1.77  %
Private labeled
mortgage-backed pools(2)            596                2.72  %                -                   -  %           56,500                2.46  %                41,080                2.53  %
Corporate notes                       -                   -  %                -                   -  %          155,242                3.77  %                     -                   -  %
Total held to maturity            5,861                3.30  %           66,982                2.92  %          429,924                2.94  %             1,057,224                2.33  %
Total investment securities    $ 28,844                1.78  %       $  232,701                2.19  %       $  821,678                2.72  %       $     1,637,580                2.38  %

(1) Fair value is based on contractual maturity or purchase date when a call option exists (2) Maturity is based on final maturity date


The weighted-average interest rates are based on coupon rates for securities
purchased at par value an on effective interest rates considering amortization
or accretion if the securities were purchased at a premium or discount. Yields
are not presented on a tax-equivalent basis.

As a member of the Federal Home Loan Bank system, Horizon is required to
maintain an investment in the common stock of the Federal Home Loan Bank. The
investment in common stock is based on a predetermined formula. At December 31,
2021 and 2020, Horizon had investments in the common stock of the Federal Home
Loan Bank totaling $24.4 million and $23.0 million, respectively.

AT December 31, 2021Horizon did not maintain a trading account.

For more information on securities, see Note 4 – Securities to the consolidated financial statements in Item 8.

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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Total Loans

Total loans, net of deferred fees/costs, the principal earning asset of the
Bank, were $3.6 billion at December 31, 2021. The current level of total loans
decreased 6.7% from the December 31, 2020, level of $3.8 billion primarily due
to a decrease in mortgage warehouse loans and PPP loans originated during the
year. The table below provides comparative detail on the loan categories.

                                  December 31,      December 31,        Dollar        Percent
                                      2021              2020            Change        Change
Commercial
Owner occupied real estate       $    549,014      $    496,306      $   52,708        10.6  %
Non-owner occupied real estate      1,066,131           999,636          66,495         6.7  %
Residential spec homes                  9,907            10,070            (163)       (1.6) %
Development & spec land                22,712            26,372          (3,660)      (13.9) %
Commercial and industrial             529,195           659,887        (130,692)      (19.8) %
Total commercial                    2,176,959         2,192,271         (15,312)       (0.7) %
Real estate
Residential mortgage                  563,811           598,700         (34,889)       (5.8) %
Residential construction               30,571            25,586           4,985        19.5  %
Mortgage warehouse                    109,031           395,626        (286,595)      (72.4) %
Total real estate                     703,413         1,019,912        (316,499)      (31.0) %
Consumer
Direct installment                     63,714            38,046          25,668        67.5  %
Indirect installment                  372,575           357,511          15,064         4.2  %
Home equity                           290,970           259,643          31,327        12.1  %
Total consumer                        727,259           655,200          72,059        11.0  %
Total loans                         3,607,631         3,867,383        (259,752)       (6.7) %
Allowance for loan losses             (54,286)          (57,027)          2,741        (4.8) %
Loans, net                       $  3,553,345      $  3,810,356      $ (257,011)       (6.7) %


The acceptance and management of credit risk is an integral part of the Bank's
business as a financial intermediary. The Bank has established underwriting
standards including a policy that monitors the lending function through strict
administrative and reporting requirements as well as an internal loan review of
consumer and small business loans. The Bank also uses an independent third-party
loan review function that regularly reviews asset quality.

Changes in the mix of the loan portfolio averages are shown in the following
table.

                       December 31,      December 31,      December 31,
                           2021              2020              2019
Commercial            $  2,155,018      $  2,218,812      $  1,980,948
Real estate                591,395           725,168           778,844
Mortgage warehouse         206,932           259,727           107,259
Consumer                   666,291           663,405           633,598
Total average loans   $  3,619,636      $  3,867,112      $  3,500,649


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                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Loan maturities and sensitivities to changes in interest rates

The following table presents the maturity distribution of our loan portfolio as
December 31, 2021. The table also presents the portion of loans that have fixed
interest rates or variable interest rates that fluctuate over the life of the
loans in accordance with changes in an interest rate index.

                              Due in             After One,            After Five,
                             One Year            but Within            but Within                 After
                              or Less            Five Years           Fifteen Years           Fifteen Years             Total
Commercial                 $  270,815          $   942,259          $      880,945          $       82,940          $ 2,176,959
Real estate                     2,452                7,193                  71,218                 513,519              594,382
Mortgage warehouse            109,031                    -                       -                       -              109,031
Consumer                       13,882              265,700                 251,616                 196,061              727,259
Total                      $  396,180          $ 1,215,152          $    1,203,779          $      792,520          $ 3,607,631
Loans with fixed interest
rates:
Commercial                 $  111,051          $   567,554          $      240,027          $       28,345          $   946,977
Real estate                     2,406                6,126                  46,473                 226,097              281,102
Mortgage warehouse                  -                    -                       -                       -                    -
Consumer                        7,212              243,534                 218,036                   7,140              475,922
Total                      $  120,669          $   817,214          $      504,536          $      261,582          $ 1,704,001
Loans with variable
interest rates:
Commercial                 $  159,764          $   374,705          $      640,918          $       54,595          $ 1,229,982
Real estate                        46                1,067                  24,745                 287,422              313,280
Mortgage warehouse            109,031                    -                       -                       -              109,031
Consumer                        6,670               22,166                  33,580                 188,921              251,337
Total                      $  275,511          $   397,938          $      699,243          $      530,938          $ 1,903,630


Commercial Loans

Commercial loans totaled $2.18 billion, or 60.3% of total loans as of
December 31, 2021, compared to $2.19 billion, or 56.7% as of December 31, 2020.
The decrease during 2021 was primarily due to a decrease in PPP loans of $183.0
million to $25.8 million at December 31, 2021 compared to $208.9 million at
December 31, 2020.

Commercial loans included the following types of loans at the 31st of December:

                                                             December 31, 2021                                                    December 31, 2020
                                                                                       Percent of                                                           Percent of
                                            Number                Amount               Portfolio                 Number                Amount               Portfolio
SBA guaranteed                                  491           $    79,458                      3.6  %              1,985           $   264,727                     12.1  %
Municipal government                             75                67,029                      3.1  %                 66                59,932                      2.7  %
Lines of credit                               1,494               418,632                     19.2  %              1,334               437,487                     20.0  %
Real estate and equipment                     4,896             1,611,840                     74.1  %              4,121             1,430,124                     65.2  %
Total                                         6,956           $ 2,176,959                    100.0  %              7,506           $ 2,192,270                    100.0  %


Fixed rate term loans with a book value of $478.8 million and a fair value of
$492.4 million have been swapped to a variable rate using derivative
instruments. The loans are carried at fair value in the financial statements and
the related swap is carried at fair value and is included with other liabilities
in the balance sheet. The recognition of the loan and swap fair values are
recorded in the income statement and for 2021 equally offset each other. Fair
values
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                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

are determined by the counterparty using a proprietary model that uses live
market inputs to value interest rate swaps. The model is subject to daily market
tests as current and future positions are priced and valued. These are Level 3
inputs under the fair value hierarchy as described above.

At December 31, 2021, the commercial loan portfolio held $321.5 million of
adjustable rate loans that had interest rate floors in the terms of the note. Of
the commercial loans with interest rate floors, loans totaling $250.6 million
were at their floor at December 31, 2021.

Residential real estate loans

Residential real estate loans totaled $594.4 million, or 16.5% of total loans as
of December 31, 2021, compared to $624.3 million, or 16.1% of total loans as of
December 31, 2020. This category consists of home mortgages that generally
require a loan to value of no more than 80%. Some special guaranteed or insured
real estate loan programs do permit a higher loan to collateral value ratio. The
decrease during 2021 was primarily due to continued refinance activity during
the year as a result of historically low interest rates.

In addition to the customary real estate loans described above, the Bank also
had outstanding on December 31, 2021, $248.7 million in home equity lines of
credit compared to $226.6 million at December 31, 2020. Credit lines normally
limit the loan to collateral value to no more than 89%. Home equity credit lines
are primarily not combined with a first mortgage and are therefore evaluated in
the allowance for loan losses as a separate pool. These loans are classified as
consumer loans in the Loans table above and in Note 5 of the Consolidated
Financial Statements at Item 8.

Residential real estate lending is a highly competitive business. As of
December 31, 2021, the real estate loan portfolio reflected a wide range of
interest rates and repayment patterns, but could generally be categorized as
follows:

                                                             December 31, 2021                                                      December 31, 2020
                                                                   Percent of                                                             Percent of
                                            Amount                 Portfolio                Yield                  Amount                 Portfolio                Yield
Fixed rate
Monthly payment                       $       283,145                     47.6  %              3.63  %       $       189,197                     30.3  %              4.03  %
Biweekly payment                                    -                        -  %                 -  %                     -                        -  %                 -  %
Adjustable rate
Monthly payment                               311,237                     52.4  %              3.73  %               435,089                     69.7  %              3.83  %
Biweekly payment                                    -                        -  %                 -  %                     -                        -  %                 -  %
Subtotal                                      594,382                    100.0  %              3.67  %               624,286                    100.0  %              3.92  %
Loans held for sale                            12,579                                                                 13,538
Total real estate loans               $       606,961                                                        $       637,824


The decrease in adjustable rate residential mortgage loans and increase in fixed
rate residential mortgage loans during 2021 was primarily due customers moved to
fixed rate products during the low interest rate environment. In addition to the
real estate loan portfolio, the Bank originates and sells real estate loans and
retains the servicing rights. During 2021 and 2020, approximately $438.1 million
and $584.1 million, respectively, of residential mortgages were sold into the
secondary market. Loans serviced for others are not included in the consolidated
balance sheets. The unpaid principal balances of loans serviced for others
totaled approximately $1.5 billion and $1.5 billion at December 31, 2021 and
2020.


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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

The aggregate fair value of capitalized mortgage servicing rights at
December 31, 2021, totaled approximately $15.2 million compared to the carrying
value of $15.2 million. 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.

                                    December 31,       December 31,       December 31,
                                        2021               2020               2019
Mortgage servicing rights
Balances, January 1                $      17,644      $      15,046      $      12,876
Servicing rights capitalized               4,209              5,530         

3,547

Amortization of servicing rights          (4,073)            (2,932)            (1,377)
Balances, December 31                     17,780             17,644             15,046
Impairment allowance
Balances, January 1                       (5,172)              (719)              (527)
Additions                                      -             (5,106)              (234)
Reductions                                 2,578                653                 42
Balances, December 31                     (2,594)            (5,172)              (719)

Mortgage service fees, net $15,186 $12,472 $

    14,327


Mortgage Warehouse Loans

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

Based on the agreements with each mortgage company, at any time a mortgage
company can reacquire from Horizon its outstanding loan balance on an individual
mortgage and regain possession of the original note. Horizon also has the option
to request that the mortgage company reacquire an individual mortgage. Should
this occur, Horizon would return the original note and reassign the assignment
of the mortgage to the mortgage company. Also, in the event that the end
investor would not be able to honor the purchase commitment and the mortgage
company would not be able to reacquire its loan on an individual mortgage,
Horizon would be able to exercise its rights under the agreement. The greatest
risk related to these loans is transaction and fraud risk. During 2021, Horizon
processed approximately $4.9 billion in mortgage warehouse loans.

AT December 31, 2021the warehouse mortgage balance was $109.0 million
compared to $395.6 million from December 31, 2020.

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                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Consumer loans

Consumer loans total $727.3 millioni.e. 20.2% of total loans at
December 31, 2021compared to $655.2 millioni.e. 16.9% at December 31, 2020. The increase in 2021 was due to record production during the year of approximately $397.1 million and loans purchased as part of the branch acquisition completed in the third quarter of 2021.

Allowance and Provision for Credit Losses

The table below provides an allocation of the year-end allowance for credit
losses on loans by loan portfolio segment; however, allocation of a portion of
the allowance to one segment does not preclude its availability to absorb losses
in other segments.

                                      Amount of             Percent of Loans in                                Ratio of Allowance
                                      Allowance              Each Category to                                Allocated to Loans in
                                      Allocated                 Total Loans              Total Loans             Each Category
December 31, 2021
Commercial                        $        40,775                        60.3  %       $  2,176,959                         1.87  %
Real estate                                 3,856                        16.5  %            594,382                         0.65  %
Mortgage warehouse                          1,059                         3.0  %            109,031                         0.97  %
Consumer                                    8,596                        20.2  %            727,259                         1.18  %
Total                             $        54,286                       100.0  %       $  3,607,631                         1.50  %
Excluding PPP loans               $        54,286                                      $  3,581,787                         1.52  %
December 31, 2020
Commercial                        $        42,210                        56.8  %       $  2,192,271                         1.93  %
Real estate                                 4,620                        16.1  %            624,286                         0.74  %
Mortgage warehouse                          1,267                        10.2  %            395,626                         0.32  %
Consumer                                    8,930                        16.9  %            655,200                         1.36  %
Total                             $        57,027                       100.0  %       $  3,867,383                         1.47  %
Excluding PPP loans               $        57,027                                      $  3,658,501                         1.56  %


At December 31, 2021, the allowance for credit losses was $54.3 million, or
1.50% of total loans outstanding, compared to $57.0 million, or 1.47%, at
December 31, 2020. During 2021, a release of provision for credit losses was
recorded totaling $2.1 million compared to a provision expense of $20.8 million
in 2020. The credit loss expense recorded during 2020 reflects our January 2020
implementation of the CECL accounting method and prudent increases in the
allocation for the Company's identified stressed portfolios.

Horizon assesses the adequacy of its Allowance for Credit Losses ("ACL") by
regularly reviewing the performance of all of its loan portfolios. As a result
of its quarterly reviews, a provision for credit losses is determined to bring
the total ACL to a level called for by the analysis. In addition to the adoption
of the CECL accounting method, Horizon's reserve build during 2020 includes
allocations for potential future loan losses related to economic factors and the
nature and characteristics of its loan portfolios, primarily related to the
impact on non-essential businesses caused by COVID-19 closures and the slow pace
of reopening and economic recovery. Through December 31, 2021, Horizon has not
recorded any material specific loan losses attributed to COVID-19 closures.

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
credit losses. Horizon considers the allowance for credit losses to be adequate
to cover losses inherent in the loan portfolio as of December 31, 2021.


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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Non-performing loans

Non-performing loans are defined as loans that are greater than 90 days
delinquent or have had the accrual of interest discontinued by management. From
time to time, the Bank obtains information which may lead management to believe
that the collection of payments may be doubtful on a particular loan. In
recognition of such, it is management's policy to convert the loan from an
"earning asset" to a non-accruing loan. Further, it is management's policy to
place a commercial loan on non-accrual status when delinquent in excess of 90
days or management has determined that the borrower's ability to continue to
make payments is in doubt. The officer responsible for the loan, Executive Vice
President and Chief Commercial Banking Officer and the senior commercial loan
workout officer must review all loans placed on non-accrual status. Management
continues to work diligently toward returning non-performing loans to an earning
asset basis.

Non-performing loans for the last three years ending the 31st of December are the following:

                                                      December 31,           December 31,           December 31,
(dollars in thousands)                                    2021                   2020                   2019
Non-performing loans
Commercial
More than 90 days past due                          $           -          $           -          $           -
Non-accrual                                                 6,621                 12,714                  4,782
Trouble debt restructuring - accruing                         603                    168                  1,484
Trouble debt restructuring - non-accrual                      285                  1,466                  1,081
Real estate
More than 90 days past due                                     66                     17                      1
Non-accrual                                                 5,626                  5,674                  7,614
Trouble debt restructuring - accruing                       1,421                  1,381                  1,561
Trouble debt restructuring - non-accrual                      892                    922                    708
Mortgage warehouse
More than 90 days past due                                      -                      -                      -
Non-accrual                                                     -                      -                      -
Trouble debt restructuring - accruing                           -                      -                      -
Trouble debt restructuring - non-accrual                        -                      -                      -

Consumer

More than 90 days past due                                     79                    245                    145
Non-accrual                                                 2,715                  3,754                  3,283
Trouble debt restructuring - accruing                         367                    244                    309
Trouble debt restructuring - non-accrual                      344                    222                    217
Total non-performing loans                                 19,019                 26,807                 21,185
Other real estate owned and repossessed collateral
Commercial                                                  2,861                  1,908                  3,698
Real estate                                                   695                      -                     28
Mortgage warehouse                                              -                      -                      -
Consumer                                                        5                      -                      -
Total other real estate owned and repossessed
collateral                                                  3,561                  1,908                  3,726
Total non-performing assets                         $      22,580          $      28,715          $      24,911


Non-performing loans total 35.0%, 47.0% and 119.9% of the allowance for credit
losses at December 31, 2021, 2020 and 2019, respectively. Non-performing loans
at December 31, 2021 totaled $19.0 million, a decrease from a balance of $26.8
million as of December 31, 2020 and from a balance of $21.2 million as of
December 31, 2019.

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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

The decrease in non-performing loans in 2021 was primarily due to the upgrade of
a two previously non-performing commercial relationships to performing status
during the year. Non-performing loans as a percentage of total loans was 0.53%
as of December 31, 2021, a decrease from 0.69% as of December 31, 2020 and 0.58%
from December 31, 2019.

                                                                       

Percentage of non-performers

Loans in each category to

                                         Non-Performing Loans                 Total Loans                   Total Loans
December 31, 2021
Commercial                              $             7,509                                0.34  %       $    2,176,959
Real estate                                           8,005                                1.35  %              594,382
Mortgage warehouse                                        -                                0.00  %              109,031
Consumer                                              3,505                                0.48  %              727,259
Total                                   $            19,019                                0.53  %       $    3,607,631
Excluding PPP loans                     $            19,019                                0.53  %       $    3,581,787
Allowance for credit losses on loans    $            54,286
Ratio of allowance for credit losses on
loans to non-performing loans                        285.43  %
December 31, 2020
Commercial                              $            14,348                                0.65  %       $    2,192,271
Real estate                                           7,994                                1.28  %              624,286
Mortgage warehouse                                        -                                0.00  %              395,626
Consumer                                              4,465                                0.68  %              655,200
Total                                   $            26,807                                0.69  %       $    3,867,383
Excluding PPP loans                     $            26,807                                0.73  %       $    3,658,501
Allowance for credit losses on loans    $            57,027
Ratio of allowance for credit losses on
loans to non-performing loans                        212.73  %


COVID-19 related loan deferrals decreased to $10.8 million, or 0.3% of total
loans at December 31, 2021, compared to $126.7 million, or 3.3% of total loans
at December 31, 2020.

Other Real Estate Owned ("OREO") totaled $3.6 million on December 31, 2021, an
increase of $1.7 million from December 31, 2020 and a decrease of $165,000 from
December 31, 2019. On December 31, 2021, OREO was comprised of 12 properties,
seven of these properties were bank owned properties from branch closures, four
properties were residential and one of these properties was commercial real
estate.

No warehouse mortgages were non-performing or OREOs at December 31, 20212020 or 2019.

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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Deferred tax

Horizon had a net deferred tax asset totaling $3.3 million from December 31, 2021 and a net deferred tax asset of $188,000 from December 31, 2020. The following table presents the main components of deferred taxes:

                                                                 December 31,           December 31,
                                                                     2021                   2020
Assets
Allowance for loan losses                                      $      13,707          $      13,966
Net operating loss and tax credits (from acquisitions)                     -                      3
Director and employee benefits                                         2,094                  2,035

Other                                                                  1,785                  3,139
Total assets                                                          17,586                 19,143
Liabilities
Depreciation                                                          (4,540)                (4,374)
State tax                                                               (261)                  (315)
Federal Home Loan Bank stock dividends                                  (371)                  (363)
Difference in basis of intangible assets                              (3,476)                (2,921)
Fair value adjustment on acquisitions                                 (3,435)                (3,284)
Unrealized gain on AFS securities and fair value hedge                (1,953)                (7,404)
Other                                                                   (222)                  (294)
Total liabilities                                                    (14,258)               (18,955)

Net deferred tax asset/(liability)                             $       3,328          $         188


Deposits

The primary source of funds for the Bank comes from the acceptance of demand and
time deposits. However, at times the Bank will use its ability to borrow funds
from the Federal Home Loan Bank and other sources when it can do so at interest
rates and terms that are more favorable than those required for deposited funds
or loan demand is greater than the ability to grow deposits. Total deposits were
$5.8 billion at December 31, 2021, compared to $4.5 billion at December 31,
2020. Average deposits and rates by category for the three years ended December
31 are as follows:

                                          Average Balance Outstanding for the                                   Average Rate Paid for the
                                                Years Ended December 31                                          Years Ended December 31
                                     2021                  2020                 2019                  2021                  2020                 2019
Non-interest bearing demand
deposits                       $   1,188,275          $   919,449          $   757,389
Interest bearing demand
deposits                           1,651,060            1,267,617            1,024,099                   0.09  %              0.19  %              0.68  %
Savings deposits                     779,325              625,842              552,101                   0.05  %              0.12  %              0.32  %
Money market                         815,081              615,722              483,187                   0.15  %              0.38  %              1.09  %
Time deposits                        652,284              818,736              948,550                   0.75  %              1.60  %              2.07  %
Total deposits                 $   5,086,025          $ 4,247,366          $ 3,765,326


The $838.7 million increase in average deposits during 2021 was primarily due to
the acquisition of 14 branches on September 17. The transactional accounts
average balances, as the lower cost funding sources, increased $1.0 billion and
the average balances for higher cost time deposits decreased $166.5 million.
Horizon continually enhances its interest bearing consumer and commercial demand
deposit products based on local market conditions and its need for funding to
support various types of assets.
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                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

As of December 31, 2021 and 2020, approximately $2.4 billion and $1.9 billion,
respectively, or our deposit portfolio was uninsured. The uninsured amounts are
estimates based on the methodologies and assumptions used for Horizon Bank's
regulatory reporting requirements.

Certificates of deposit of $250,000 or more, which are considered to be rate
sensitive and are not considered a part of core deposits, mature as follows as
of December 31, 2021:

Due in three months or less                  $  43,662

Due between three months and six months 39,999 Due between six months and one year 100,838 Due after one year

                             115,038
                                             $ 299,537


Interest expense on time certificates of $100,000 or more was approximately $2.4
million, $5.0 million, and $10.7 million for 2021, 2020 and 2019. Interest
expense on time certificates of $250,000 or more was approximately $1.4 million,
$2.9 million and $7.4 million for 2021, 2020 and 2019.

Off-balance sheet arrangements

As of December 31, 2021, Horizon did not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on the
Company's financial condition, change in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. The term "off-balance sheet
arrangement" generally means any transaction, agreement, or other contractual
arrangement to which an entity unconsolidated with the Company is a party and
under which the Company has (i) any obligation arising under a guarantee
contract, derivative instrument or variable interest; or (ii) a retained or
contingent interest in assets transferred to such entity or similar arrangement
that serves as credit, liquidity or market risk support for such assets.

Capital resources

Horizon has no material commitments for capital expenditures in December 31, 2021. Horizon’s sources of funds and liquidity are described below in the section entitled “Liquidity” in this Section 7.

Operating results

Net revenue

Consolidated net income was $87.1 million, or $1.98 per diluted share, in 2021,
$68.5 million or $1.55 per diluted share in 2020, and $66.5 million or $1.53 per
diluted share in 2019. The increase in net income from the previous year
reflects a decrease in credit loss expense of $22.8 million and an increase in
net interest income of $10.8 million, offset by an increase in non-interest
expense of $7.8 million, an increase in income tax expense of $5.5 million and a
decrease in non-interest income of $1.7 million. The increase in diluted
earnings per share compared to the previous year reflects an increase in net
income and a decrease in diluted shares. Adjusted net income for the year ended
December 31, 2021 was $88.6 million, or $2.00 diluted earnings per share,
compared to $67.8 million, or $1.53 diluted earnings per share, for the year
ended December 31, 2020. (See the "Non-GAAP Reconciliation of Net Income and
Diluted Earnings per Share" table under the heading "Use of Non-GAAP Financial
Measures" below for the definition of adjusted net income.)


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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Net interest income

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

Net interest income during 2021 was $181.7 million, an increase of $10.8
million, or 6.3%, over the $170.9 million earned in 2020. Yields on the
Company's interest earning assets decreased by 68 basis points to 3.43% during
2021 from 4.11% in 2020. Interest income decreased $5.4 million to $200.0
million for 2021 from $205.4 million in 2020. This decrease was due to the
overall decrease in interest rates during 2021 and a decrease in the recognition
of interest income from the acquisition-related purchase accounting adjustments
of approximately $2.4 million from $6.9 million in 2020 to $4.5 million in 2021,
offset by an increase in the average balance of interest earning assets of
$901.6 million.

Interest expense decreased $16.1 million from $34.4 million in 2020 to $18.3
million in 2021. This decrease was due to the overall decrease in interest rates
during 2021 and $3.8 million in prepayment penalties on borrowings paid during
2020. The prepayment penalties on borrowings were incurred as part of a
deleverage strategy in which $83.0 million in FHLB advances with an average cost
of 2.61% were paid off during the 4th quarter of 2020. The decrease in rates
paid on interest bearing liabilities in addition to the decrease in the yield on
the Company's interest earning assets resulted in a decrease in the net interest
margin of 31 basis points from 3.44% for 2020 to 3.13% in 2021. Excluding
interest income recognized from acquisition-related purchase accounting
adjustments and prepayment penalties on borrowings, the margin would have been
3.06% for 2021 compared to 3.38% for 2020. Management believes that the current
level of interest rates is driven by external factors and therefore impacts the
results of the Company's net interest margin.




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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

The following table presents the average balances of our assets, liabilities,
and stockholders' equity, and the related weighted average yields and rates on
our interest earning assets and interest bearing liabilities for the periods
indicated.
                                                   Twelve Months Ended                                              Twelve Months Ended                                           Twelve Months Ended
                                                    December 31, 2021                                                December 31, 2020                                             December 31, 2019
                                     Average                                    Average              Average                                  Average              Average                                  Average
                                     Balance               Interest              Rate                Balance             Interest              Rate                Balance             Interest              Rate
Assets
Interest earning assets
Federal funds sold             $        398,528          $     535                  0.13  %       $    61,408          $     154                  0.25  %       $    21,301          $     511                  2.40  %
Interest earning deposits                25,993                160                  0.62  %            25,943                268                  1.03  %            19,601                342                  1.74  %
Investment securities -
taxable                                 884,244             14,437                  1.63  %           459,551              8,071                  1.76  %           474,833             11,753                  2.48  %
Investment securities -
non-taxable(1)                        1,086,942             23,246                  2.71  %           706,092             17,213                  3.09  %           454,066             12,095                  3.34  %
Loans receivable(2)(3)(4)             3,626,033            161,617                  4.47  %         3,867,112            179,672                  4.66  %         3,500,649            183,631                  5.27  %
Total interest earning
assets(1)                             6,021,740            199,995                  3.43  %         5,120,106            205,378                  4.11  %         4,470,450            208,332                  4.75  %
Non-interest earning assets
Cash and due from banks                  89,993                                                        84,065                                                        62,920
Allowance for loan losses               (56,798)                                                      (46,329)                                                      (18,019)
Other assets                            459,316                                                       470,941                                                       417,707
Total average assets           $      6,514,251                                                   $ 5,628,783                                                   $ 4,933,058
Liabilities and Stockholders'
Equity
Interest bearing liabilities
Interest bearing deposits      $      3,897,750          $   7,867                  0.20  %       $ 3,327,917          $  18,556                  0.56  %       $ 3,007,937          $  33,690                  1.12  %
Borrowings                              425,214              4,546                  1.07  %           459,752             11,160                  2.43  %           386,895              9,991                  2.58  %
Repurchase agreements                   123,675                155                  0.13  %           100,201                270                  0.27  %            81,264                681                  0.84  %
Subordinated notes                       58,672              3,522                  6.00  %            30,610              1,824                  5.96  %                 -                  -                     -  %
Junior subordinated debentures
issued to capital trusts                 56,657              2,215                  3.91  %            56,427              2,628                  4.66  %            50,134              3,179                  6.34  %
Total interest bearing
liabilities                           4,561,968             18,305                  0.40  %         3,974,907             34,438                  0.87  %         3,526,230             47,541                  1.35  %
Non-interest bearing
liabilities
Demand deposits                       1,188,275                                                       919,449                                                       757,389
Accrued interest payable and
other liabilities                        51,886                                                        68,961                                                        43,720
Stockholders' equity                    712,122                                                       665,466                                                       605,719
Total average liabilities and
stockholders' equity           $      6,514,251                                                   $ 5,628,783                                                   $ 4,933,058
Net interest income/spread                               $ 181,690                  3.03  %                            $ 170,940                  3.24  %                            $ 160,791                  3.40  %
Net interest income as a
percent of average interest
earning assets(1)                                                                   3.13  %                                                       3.44  %                                                       3.69  %

(1) Horizon has no overseas office and therefore no assets or liabilities to overseas operations. Horizon’s subsidiary bank had no funds invested in Eurodollar certificates of deposit at December 31, 2021. (2) Yields are presented in tax equivalent. (3) For the purposes of the above calculations, non-accumulated loans are included in the average daily loans outstanding. Loan totals are shown net of unearned income and deferred loan fees. (4) Loan fees and late fees included in aggregate loan interest $19.8 million, $16.6 million and $9.8 million in 2021, 2020 and 2019, respectively.

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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Net interest income during 2020 was $170.9 million, an increase of $10.1
million, or 6.3%, over the $160.8 million earned in 2019. Yields on the
Company's interest earning assets decreased by 64 basis points to 4.11% during
2020 from 4.75% in 2019. Interest income decreased $3.0 million to $205.4
million for 2020 from $208.3 million in 2019. This decrease was due to the
overall decrease in interest rates during 2020, offset by an increase in the
recognition of interest income from the acquisition-related purchase accounting
adjustments of approximately $1.3 million from $5.6 million in 2019 to $6.9
million in 2020.

Interest expense decreased $13.1 million from $47.5 million in 2019 to $34.4
million in 2020. This decrease was due to the overall decrease in interest rates
during 2020 and was partially offset by $3.8 million in prepayment penalties on
borrowings. The prepayment penalties on borrowings were incurred as part of a
deleverage strategy in $83.0 million in FHLB advances with an average cost of
2.61% were paid off during the 4th quarter of 2020. The decrease in rates paid
on interest bearing liabilities in addition to the decrease in the yield on the
Company's interest earning assets resulted in a decrease in the net interest
margin of 25 basis points from 3.69% for 2019 to 3.44% in 2020. Excluding
interest income recognized from acquisition-related purchase accounting
adjustments and prepayment penalties on borrowings, the margin would have been
3.38% for 2020 compared to 3.57% for 2019. Management believes that the current
level of interest rates is driven by external factors and therefore impacts the
results of the Company's net interest margin.

                                                       2021 - 2020                                           2020 - 2019
                                                         Change            Change                              Change            Change
                                        Total            Due To            Due To             Total            Due To            Due To
                                       Change            Volume             Rate             Change            Volume             Rate
Interest Income
Federal funds sold                   $    381          $    483          $   (102)         $   (357)         $    379          $   (736)
Interest earning deposits                (108)                1              (109)              (74)               90              (164)
Investment securities - taxable         6,366             6,971              (605)           (3,682)             (368)           (3,314)
Investment securities - non-taxable     6,033            10,577            (4,544)            5,118             7,854            (2,736)
Loans receivable                      (18,055)          (10,964)           (7,091)           (3,959)           18,253           (22,212)
Total interest income                  (5,383)            7,068           (12,451)           (2,954)           26,208           (29,162)
Interest Expense
Interest bearing deposits             (10,689)            2,748           (13,437)          (15,134)            3,269           (18,403)
Borrowings                             (6,614)             (783)           (5,831)            1,169             1,797              (628)
Repurchase agreements                    (115)               53              (168)             (411)              131              (542)
Subordinated notes                      1,698             1,684                14             1,824             1,824                 -
Junior subordinated debentures
issued to capital trusts                 (413)               11              (424)             (551)              365              (916)
Total interest expense                (16,133)            3,713           (19,846)          (13,103)            7,386           (20,489)
Net interest income                  $ 10,750          $  3,355          $  7,395          $ 10,149          $ 18,822          $ (8,673)


Credit Loss Expense

Horizon assesses the adequacy of its ACL by regularly reviewing the performance
of its loan portfolios. Credit loss expense totaled a recovery of $2.1 million
in 2021 compared to an expense of $20.8 million in 2020. Total loan net
charge-offs were $1.6 million, which included commercial loan net charge-offs of
$1.1 million, residential mortgage loan net charge-offs of $9,000 and consumer
loan net charge-offs of $533,000 for the year ending December 31, 2021. The
higher level of credit loss expense for 2020 was due to the adoption of CECL at
the beginning of 2020 increasing credit loss expense for economic factors due to
the economic shutdown and exposures to loans with nature and characteristics
that have greater loss exposure due to economic uncertainty brought on by
COVID-19.


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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Credit loss expense totaled $20.8 million in 2020 compared to $2.0 million in
2019. Total loan net charge-offs were $1.9 million, which included commercial
loan net charge-offs of $497,000, residential mortgage loan net charge-offs of
$167,000 and consumer loan net charge-offs of $1.2 million for the year ending
December 31, 2020. The higher level of credit loss expense for 2020 was due to
the adoption of CECL at the beginning of 2020 increasing credit loss expense for
economic factors due to the economic shutdown and exposures to loans with nature
and characteristics that have greater loss exposure due to economic uncertainty
brought on by COVID-19.

Additional information relating to net credit losses (recoveries) and write-offs (recoveries) is presented in the table below. See also Note 6 – Allowance for credit and loan losses in the notes to the consolidated financial statements included elsewhere in this report.

                                     Credit Loss                                                             Ratio of Annualized Net
                                       Expense             Net (Charge-Offs)                                (Charge-Offs) Recoveries
                                     (Recovery)               Recoveries              Average Loans             to Average Loans
Twelve Months Ended December 31,
2021
Commercial                        $       (1,320)         $         (1,099)         $    2,155,018                           (0.05) %
Real estate                                 (755)                       (9)                591,395                            0.00  %
Mortgage warehouse                          (208)                        -                 206,932                            0.00  %
Consumer                                     199                      (533)                666,291                           (0.08) %
Total                                     (2,084)                   (1,641)              3,619,636                           (0.05) %
Excluding PPP loans               $       (2,084)         $         (1,641)         $    3,453,491                           (0.05) %
Twelve Months Ended December 31,
2020
Commercial                        $       19,198          $           (497)         $    2,218,812                           (0.02) %
Real estate                                 (184)                     (167)                725,168                           (0.02) %
Mortgage warehouse                           190                         -                 259,727                            0.00  %
Consumer                                   1,547                    (1,199)                663,405                           (0.18) %
Total                                     20,751                    (1,863)              3,867,112                           (0.05) %
Excluding PPP loans               $       20,751          $         (1,863)         $    3,668,729                           (0.05) %
Twelve Months Ended December 31,
2019
Commercial                        $        2,165          $           (664)         $    1,980,948                           (0.03) %
Real estate                                 (635)                      (47)                778,844                           (0.01) %
Mortgage warehouse                             -                         -                 107,259                            0.00  %
Consumer                                     446                    (1,418)                633,598                           (0.22) %
Total                                      1,976                    (2,129)              3,500,649                           (0.06) %
Excluding PPP loans               $        1,976          $         (2,129)         $    3,500,649                           (0.06) %



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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Non-interest income

Here is a summary of the changes in non-interest income:

                              Twelve Months Ended                                                                  Twelve Months Ended
                                  December 31                                2020 - 2021                               December 31                                   2019 - 2020
Non-interest Income          2021               2020             Amount Change         Percent Change             2020               2019             Amount Change            Percent Change
Service charges on
deposit accounts        $     9,192          $  8,848          $          344                   3.9  %       $     8,848          $  9,959          $       (1,111)                      (11.2) %
Wire transfer fees              892             1,000                    (108)                (10.8) %             1,000               653                     347                        53.1  %
Interchange fees             10,901             9,306                   1,595                  17.1  %             9,306             7,655                   1,651                        21.6  %
Fiduciary activities          7,419             9,145                  (1,726)                (18.9) %             9,145             8,580                     565                         6.6  %
Gain (loss) on sale of
investment securities           914             4,297                  (3,383)                (78.7) %             4,297               (75)                  4,372                    (5,829.3) %
Gain on sale of
mortgage loans               19,163            26,721                  (7,558)                (28.3) %            26,721             9,208                  17,513                       190.2  %
Mortgage servicing net
of impairment                 2,352            (3,716)                  6,068                (163.3) %            (3,716)            1,914                  (5,630)                     (294.1) %
Increase in cash
surrender value of bank
owned life insurance          2,094             2,243                    (149)                 (6.6) %             2,243             2,190                      53                         2.4  %
Death benefit on
officer life insurance          783               264                     519                 196.6  %               264               580                    (316)                      (54.5) %
Other income                  4,242             1,513                   2,729                 180.4  %             1,513             2,394                    (881)                      (36.8) %
Total non-interest
income                  $    57,952          $ 59,621          $       (1,669)                 (2.8) %       $    59,621          $ 43,058          $       16,563                        38.5  %


During 2021, the Company originated approximately $438.1 million of mortgage
loans to be sold on the secondary market, compared to $584.1 million in 2020 as
long-term interest rates began to increase during 2021. This decrease in volume
in addition to a slight decrease in the percentage earned on the sale of
mortgage loans, resulted in a decrease in the overall gain on sale of mortgage
loans of $7.6 million compared to the prior year. Gain on the sale of investment
securities decreased $3.4 million in 2021 due to the deleverage strategy
executed in 2020. Fiduciary activities income decreased $1.7 million during 2021
primarily due to the sale of ESOP trustee accounts which was completed during
the third quarter. Mortgage servicing net of impairment increased by $6.1
million during 2021 compared to 2020 primarily due to the recovery net
impairment charges of $2.6 million recorded during 2021. Other income increased
$2.7 million during 2021 primarily due to the gain on sale of ESOP trustee
accounts of $2.3 million. The increase in interchange fee income in 2021
compared to 2020 was the result of organic growth in transactional deposit
accounts and volume during 2021.

During 2020, the Company originated approximately $584.1 million of mortgage
loans to be sold on the secondary market, compared to $269.7 million in 2019
primarily due to the decrease in long-term interest rates. This increase in
volume in addition to an increase in the percentage earned on the sale of
mortgage loans, resulted in an increase in the overall gain on sale of mortgage
loans of $17.5 million compared to the prior year. Gain on the sale of
investment securities increased $4.4 million in 2020 due to the deleverage
strategy executed during the year. Mortgage servicing net of impairment
decreased by $5.6 million during 2020 compared to 2019 primarily due to net
impairment charges of $4.5 million recorded during 2020. The increase in
interchange fee income in 2020 compared to 2019 was the result of organic growth
in transactional deposit accounts and volume during 2020. The decrease in
service charges on deposit accounts income in 2020 was due to an increase in
digital transactions and stimulus funds resulting in a decrease in
non-sufficient funds fee income.


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  Table of Contents
                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Non-interest expenses

Here is a summary of the changes in non-interest expenses:

                              Twelve Months Ended                                                              Twelve Months Ended
                                  December 31                              2020 - 2021                             December 31                              2019 - 2020
                                                                   Amount              Percent                                                      Amount              Percent
Non-interest Expense        2021                2020               Change               Change               2020                2019               Change               Change
Salaries                $   49,463          $  47,024          $     2,439                  5.2  %       $   47,024          $  44,671          $     2,353                  5.3  %
Commission and bonuses      11,089             10,428                  661                  6.3  %           10,428              6,861                3,567                 52.0  %
Employee benefits           13,499             13,630                 (131)                (1.0) %           13,630             13,673                  (43)                (0.3) %
Net occupancy expenses      12,541             12,811                 (270)                (2.1) %           12,811             12,157                  654                  5.4  %
Data processing              9,962              9,200                  762                  8.3  %            9,200              8,480                  720                  8.5  %
Professional fees            2,216              2,433                 (217)                (8.9) %            2,433              1,946                  487                 25.0  %
Outside services and
consultants                  8,449              7,318                1,131                 15.5  %            7,318              8,152                 (834)               -10.2  %
Loan expense                11,377             10,628                  749                  7.0  %           10,628              8,633                1,995                 23.1  %
FDIC deposit insurance       2,377              1,855                  522                 28.1  %            1,855                252                1,603                636.1  %
Other losses                 2,283              1,162                1,121                 96.5  %            1,162                740                  422                 57.0  %
Other expenses              16,023             14,952                1,071                  7.2  %           14,952             16,466               (1,514)                (9.2) %
Total non-interest
expense                 $  139,279          $ 131,441          $     7,838                  6.0  %       $  131,441          $ 122,031          $     9,410                  7.7  %


For the twelve months ended December 31, 2021, salaries increased $2.4 million
reflecting annual merit increases and the additional employees from the branch
acquisition completed during the third quarter. Outside services and consultants
and other expenses each increased by $1.1 million during 2021. This was
partially due to acquisition-related expenses of $671,000 in outside services
and consultants and $674,000 in other expenses. Other losses increased $1.1
million primarily due to $1.9 million in ESOP settlement expenses recorded
during the fourth quarter of 2021.

For the twelve months ended December 31, 2020, commission and bonuses increased
by $3.6 million reflecting record mortgage origination volume and related
commission expense. Salaries increased $2.4 million reflecting a full year of
additional employees from the Salin acquisition and annual merit increases. Loan
expense increased $2.0 million primarily due to the increased volume in
commercial and mortgage lending. The increase of $1.6 million in FDIC deposit
insurance was due to the assessment credits the Bank received during the third
quarter of 2019 as the FDIC reserve was overfunded at that time. Offsetting
these increases was a decrease of $1.5 million in other expenses.

Income taxes

Income tax expense totaled $15.4 million for the year ended December 31, 2021,
an increase of $5.5 million when compared to the year ended December 31, 2020.
The increase was primarily due to an increase in income before income taxes of
$24.1 million in 2021 and fewer tax credits recognized due to delays in projects
the Company has invested in offset by an increase in tax exempt municipal
investments.

Income tax expense totaled $9.9 million for the year ended December 31, 2020, a
decrease of $3.4 million when compared to the year ended December 31, 2019. The
decrease was primarily due to the ability to recognize solar tax credits from
completed projects the Company has invested in along with an increase in tax
exempt municipal investments.


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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Planned Replacement of the London Interbank Offered Rate

The ARRC continues its work to the goal of finding suitable replacements for
LIBOR. It is expected that a transition away from the widespread use of LIBOR to
alternative reference rates and other potential interest rate benchmark reforms
will occur beginning potentially in 2022. Although the full impact of such
reforms and actions, together with any transition away from LIBOR remains
unclear, we are preparing to transition from the LIBOR to an alternative
reference rate.

Our transition plan includes a number of key steps, including continued
engagement with central bank and industry working groups and regulators, active
client engagement, internal operational readiness, and risk management, among
other things, to promote the transition to alternative reference rates. We are
identifying on-balance sheet and off-balance sheet references to LIBOR,
determining appropriate language to replace the LIBOR index language, and
determining disclosures necessary for customers, with appropriate procedures and
schedules to complete the LIBOR transition.

There remain, however, a number of unknown factors regarding the transition from
LIBOR or interest rate benchmark reforms that could impact our business,
including, for example, the pace of the transition to replacement or reformed
rates, the specific terms and parameters for and market acceptance of the
alternative reference rates, prices of and the liquidity of trading markets for
products based on the alternative reference rates, and our ability to transition
to and develop appropriate systems and analytics for one or more alternative
reference rates. For a further discussion of the various risks we face in
connection with the expected replacement of LIBOR and reform of interest rate
benchmarks on our operations, see "Risk Factors - Risks Related to Our
Business."

Use of Non-GAAP Financial Measures

Certain information set forth in this report on Form 10-K refers to financial
measures determined by methods other than in accordance with GAAP. Specifically,
we have included non-GAAP financial measures relating to net income, diluted
earnings per share, net interest margin, the allowance for credit losses,
tangible stockholders' equity, tangible book value per share, the return on
average assets, the return on average common equity and pre-tax pre-provision
net income. In each case, we have identified special circumstances that we
consider to be adjustments and have excluded them, in order to show the impact
of such events as acquisition-related purchase accounting adjustments,
prepayment penalties on borrowings and the Tax Cuts and Jobs Act, among other
matters we have identified in our reconciliations. Horizon believes these
non-GAAP financial measures are helpful to investors and provide a greater
understanding of our business without giving effect to the purchase accounting
impacts and 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. See the
following tables for reconciliations of the non-GAAP measures identified in this
Form 10-K to their most comparable GAAP measures.

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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

                                Non-GAAP Reconciliation of Net Income
                                  (Dollars in Thousands, Unaudited)
                                                                   Years Ended December 31
                                                          2021              2020              2019
Net income as reported                                 $ 87,091          $ 68,499          $ 66,538
Acquisition expenses                                      1,925                 -             5,650
Tax effect                                                 (401)                -              (987)
Net income excluding acquisition expenses                88,615            68,499            71,201
Credit loss expense on acquired loans                     2,034                 -                 -
Tax effect                                                 (427)                -                 -

Net income excluding charge for credit loss on acquired loans

                                                    90,222            68,499            71,201
Gain on sale of ESOP trustee accounts                    (2,329)                -                 -
Tax effect                                                  489                 -                 -
Net income excluding gain on sale of ESOP trustee
accounts                                                 88,382            68,499            71,201
ESOP settlement expenses                                  1,900                 -                 -
Tax effect                                                 (315)                -                 -
Net income excluding ESOP settlement expenses            89,967            68,499            71,201
(Gain) / loss on sale of investment securities             (914)           (4,297)               75
Tax effect                                                  192               902               (16)
Net income excluding (gain) / loss on sale of
investment securities                                    89,245            65,104            71,260
Death benefit on bank owned life insurance ("BOLI")        (783)             (264)             (580)
Net income excluding death benefit on BOLI               88,462            64,840            70,680
Prepayment penalties on borrowings                          125             3,804                 -
Tax effect                                                  (26)             (799)                -
Net income excluding prepayment penalties on
borrowings                                               88,561            67,845            70,680
Adjusted net income                                    $ 88,561          $ 67,845          $ 70,680


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                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

                           Non-GAAP Reconciliation of Diluted Earnings per Share
                                     (Dollars in Thousands, Unaudited)
                                                                     Years Ended December 31
                                                             2021                2020              2019
Diluted earnings per share ("EPS") as reported         $    1.98              $   1.55          $   1.53
Acquisition expenses                                        0.04                     -              0.13
Tax effect                                                     -                     -             (0.02)
Diluted EPS excluding acquisition expenses                  2.02                  1.55              1.64
Credit loss expense on acquired loans                       0.05                     -                 -
Tax effect                                                 (0.01)                    -                 -

Diluted EPS excluding charge for credit loss on acquired loans

                                                       2.06                  1.55              1.64
Gain on sale of ESOP trustee accounts                      (0.05)                    -                 -
Tax effect                                                  0.01                     -                 -

Diluted EPS excluding capital gain on disposal of ESOP fiduciary accounts

                                                    2.02                  1.55              1.64
ESOP settlement expenses                                    0.04                     -                 -
Tax effect                                                 (0.01)                    -                 -
Diluted EPS excluding ESOP settlement expenses              2.05                  1.55              1.64
(Gain) / loss on sale of investment securities             (0.02)                (0.10)                -
Tax effect                                                     -                  0.02                 -
Diluted EPS excluding (gain) / loss on sale of
investment securities                                       2.03                  1.47              1.64

Death benefit on bank-owned life insurance (“BOLI”) (0.03)

      (0.01)            (0.01)
Diluted EPS excluding death benefit on BOLI                 2.00                  1.46              1.63
Prepayment penalties on borrowings                             -                  0.09                 -
Tax effect                                                     -                 (0.02)                -
Diluted EPS excluding prepayment penalties on
borrowings                                                  2.00                  1.53              1.63
Adjusted diluted EPS                                   $    2.00              $   1.53          $   1.63


                    Non-GAAP Reconciliation of Pre-Tax, Pre-Provision Income
                               (Dollars in Thousands, Unaudited)
                                                             Years Ended December 31
                                                        2021           2020          2019
    Pre-tax income                                   $ 102,447      $ 78,369      $ 79,841
    Credit loss expense                                 (2,084)       20,751         1,976
    Pre-tax, pre-provision income                    $ 100,363      $ 

99 120 $81,817

    Pre-tax, pre-provision income                    $ 100,363      $ 

99 120 $81,817

    Acquisition expenses                                 1,925             -         5,650
    Gain on sale of ESOP trustee accounts               (2,329)            -             -
    ESOP settlement expenses                             1,900             -             -

(Gain)/loss on sale of investment securities (914) (4,297)

           75
    Death benefit on bank owned life insurance            (783)         

(264) (580)

    Prepayment penalties on borrowings                     125         3,804             -
    Adjusted pre-tax, pre-provision income           $ 100,287      $ 

98,363 $86,962

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  Table of Contents
                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

                                  Non-GAAP Reconciliation of Net Interest Margin
                                         (Dollars in Thousands, Unaudited)
                                                                             Years Ended December 31
                                                                  2021                2020                2019
Net interest income as reported                               $  181,690          $  170,940          $  160,791
Average interest earning assets                                6,021,740           5,120,106           4,470,450

Net interest income as a percentage of average interest-earning assets (“net interest margin”)

                                             3.13  %             3.44  %             3.69  %

Net interest income as reported                               $  181,690          $  170,940          $  160,791
Acquisition-related purchase accounting adjustments ("PAUs")      (4,503)             (6,936)             (5,590)
Prepayment penalties on borrowings                                   125               3,804                   -
Adjusted net interest income                                  $  177,312          $  167,808          $  155,201
Adjusted net interest margin                                        3.06  %             3.38  %             3.57  %


                              Non-GAAP Reconciliation of Return on Average Assets
                                       (Dollars in Thousands, Unaudited)
                                                                       Years Ended December 31
                                                            2021                 2020                 2019
Average assets                                         $ 6,514,251          $ 5,628,783          $ 4,933,058
Return on average assets ("ROAA") as reported                 1.34  %              1.22  %              1.35  %
Acquisition expenses                                          0.03  %                 -  %              0.11  %
Tax effect                                                   (0.01) %                 -  %             (0.02) %
ROAA excluding acquisition expenses                           1.36  %              1.22  %              1.44  %
Credit loss expense on acquired loans                         0.03  %                 -  %                 -  %
Tax effect                                                   (0.01) %                 -  %                 -  %

ROAA excluding credit loss charge on acquired loans 1.38%

        1.22  %              1.44  %
Gain on sale of ESOP trustee accounts                        (0.04) %                 -  %                 -  %
Tax effect                                                    0.01  %                 -  %                 -  %

ROAA excluding capital gain on disposal of ESOP fiduciary accounts 1.35%

       1.22  %              1.44  %
ESOP settlement expenses                                      0.03  %                 -  %                 -  %
Tax effect                                                       -  %                 -  %                 -  %
ROAA excluding ESOP settlement expenses                       1.38  %              1.22  %              1.44  %
(Gain) / loss on sale of investment securities               (0.01) %             (0.08) %                 -  %
Tax effect                                                       -  %              0.02  %                 -  %

ROAA excluding (gain) / loss on sale of investment securities

                                                    1.37  %              1.16  %              1.44  %
Death benefit on bank owned life insurance                   (0.01) %                 -  %             (0.01) %
ROAA excluding death benefit on bank owned life
insurance                                                     1.36  %              1.16  %              1.43  %
Prepayment penalties on borrowings                               -  %              0.07  %                 -  %
Tax effect                                                       -  %             (0.01) %                 -  %
ROAA excluding prepayment penalties on borrowings             1.36  %              1.22  %              1.43  %
Adjusted ROAA                                                 1.36  %              1.22  %              1.43  %


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  Table of Contents
                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

                       Non-GAAP Reconciliation of Return on Average Common Equity
                                    (Dollars in Thousands, Unaudited)
                                                                    Years Ended December 31
                                                           2021               2020               2019
Average common equity                                  $ 712,122          $ 665,466          $ 605,719
Return on average common equity ("ROACE") as reported      12.23  %           10.29  %           10.98  %
Acquisition expenses                                        0.27  %               -  %            0.93  %
Tax effect                                                 (0.06) %               -  %           (0.16) %
ROACE excluding acquisition expenses                       12.44  %           10.29  %           11.75  %
Credit loss expense on acquired loans                       0.29  %               -  %               -  %
Tax effect                                                 (0.06) %               -  %               -  %

ROACE excluding credit loss charge on purchased loans 12.67%

   10.29  %           11.75  %
Gain on sale of ESOP trustee accounts                      (0.33) %               -  %               -  %
Tax effect                                                  0.07  %               -  %               -  %

ROACE excluding capital gain on disposal of ESOP fiduciary accounts 12.41%

  10.29  %           11.75  %
ESOP settlement expenses                                    0.27  %               -  %               -  %
Tax effect                                                 (0.04) %               -  %               -  %
ROACE excluding ESOP settlement expenses                   12.64  %           10.29  %           11.75  %
(Gain) / loss on sale of investment securities             (0.13) %           (0.65) %            0.01  %
Tax effect                                                  0.03  %            0.14  %               -  %

ROACE excluding (gain)/loss on disposal of investment securities

                                                 12.54  %            9.78  %           11.76  %
Death benefit on bank owned life insurance                 (0.11) %           (0.04) %           (0.10) %
ROACE excluding death benefit on bank owned life
insurance                                                  12.43  %            9.74  %           11.66  %
Prepayment penalties on borrowings                          0.02  %            0.57  %               -  %
Tax effect                                                     -  %           (0.12) %               -  %

ROACE excluding prepayment penalties on borrowings 12.45%

  10.19  %           11.66  %
Adjusted ROACE                                             12.45  %           10.19  %           11.66  %


                          Non-GAAP Reconciliation of Tangible Stockholders'

Equity and tangible book value per share

                                           (Dollars in Thousands Except per Share Data, Unaudited)

                                     December 31,           September 30,            June 30,              March 31,            December 31,
                                         2021                   2021                   2021                  2021                   2020
Total stockholders' equity         $     723,209          $      708,542          $    710,374          $    689,379          $     692,216
Less: Intangible assets                  175,513                 183,938               172,398               173,296                174,193
Total tangible stockholders'
equity                             $     547,696          $      524,604          $    537,976          $    516,083          $     518,023

Common shares outstanding             43,547,942              43,520,694            43,950,720            43,949,189             43,880,562

Book value per common share $16.61 $16.28

       $      16.16          $      15.69          $       15.78
Tangible book value per common
share                              $       12.58          $        12.05          $      12.24          $      11.74          $       11.81


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  Table of Contents
                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

        Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
                                    (Dollars in Thousands, Unaudited)
                                                                     Years Ended December 31
                                                            2021               2020               2019
Non-interest expense as reported                        $ 139,279          $ 131,441          $ 122,032
Net interest income as reported                           181,690            170,940            160,791
Non-interest income as reported                         $  57,952          

$59,621 $43,058

Non-interest expense / (Net interest income +
Non-interest income)
("Efficiency Ratio")                                        58.12  %           57.01  %           59.86  %

Non-interest expense as reported                        $ 139,279          $ 131,441          $ 122,032
Acquisition expenses                                       (1,925)                 -             (5,650)
ESOP settlement expenses                                   (1,900)                 -                  -

Non-interest expenses excluding acquisition fees and ESOP settlement fees

                                  135,454            131,441            116,382
Net interest income as reported                           181,690            170,940            160,791
Prepayment penalties on borrowings                            125              3,804                  -

Net interest income excluding prepayment penalties on borrowings

                                                181,815            174,744            160,791
Non-interest income as reported                            57,952             59,621             43,058
Gain on sale of ESOP trustee accounts                      (2,329)                 -                  -
(Gain) / loss on sale of investment securities               (914)            (4,297)                75
Death benefit on bank owned life insurance                   (783)              (264)              (580)

Non-interest income excluding gain on sale of ESOP trust accounts, (gain)/loss on sale of investment securities and death benefit on bank-owned life insurance

                                               $  53,926          

$55,060 $42,553

Adjusted efficiency ratio                                   57.46  %           57.20  %           57.23  %





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  Table of Contents
                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

Management of liquidity and rate sensitivity

Management and the Board of Directors meet regularly to review both the
liquidity and rate sensitivity position of Horizon. Effective asset and
liability management ensures Horizon's ability to monitor the cash flow
requirements of depositors along with the demands of borrowers and to measure
and manage interest rate risk. Horizon utilizes an interest rate risk assessment
model designed to highlight sources of existing interest rate risk and consider
the effect of these risks on strategic planning. Management maintains (within
certain parameters) an essentially balanced ratio of interest sensitive assets
to liabilities in order to protect against the effects of wide interest rate
fluctuations.

Liquidity

The Bank maintains a stable base of core deposits provided by long standing
relationships with consumers and local businesses. These deposits are the
principal source of liquidity for Horizon. Other sources of liquidity for
Horizon include earnings, loan repayments, investment security sales, cashflows
and maturities, sale of real estate loans and borrowing relationships with
correspondent banks, including the FHLB and the Federal Reserve Bank ("FRB"). At
December 31, 2021, Horizon had available approximately $672.7 million in
available credit from various money center banks, including the FHLB and the FRB
Discount Window. The following factors could impact Horizon's funding needs in
the future:

•Horizon had outstanding borrowings of approximately $525.5 million with the
FHLB and total borrowing capacity with the FHLB of $549.2 million. Generally,
the loan terms from the FHLB are better than the terms Horizon can receive from
other sources, making it less expensive to borrow money from the FHLB. Financial
difficulties at the FHLB could reduce or eliminate Horizon's additional
borrowing capacity with the FHLB or the FHLB could change collateral
requirements, which could lower the Company's borrowing availability.

•If residential mortgage rates remain low, Horizon’s warehouse mortgages may create a need for additional financing.

•Horizon had a total of $180.0 million of unused Federal Fund lines from various
money center banks. These are uncommitted lines and could be withdrawn at any
time by the correspondent banks.

•Horizon had a total of $459.0 million collateral available at the FRB backed by municipal securities. These securities could mature, be redeemed or be sold, which would reduce the collateral available.

• Horizon had approximately $2.0 billion investment securities not pledged to the
December 31, 2021.

• Impairment of Horizon’s ability to obtain credit due to factors such as a deterioration in asset quality, a significant stress on earnings, a decline in profitability or other financial measures, or a merger or significant acquisition could affect the availability of financing sources.

•An act of terrorism or war, natural disasters, political events, or the default
or bankruptcy of a major corporation, mutual fund, hedge fund or a government
agency could affect the cost and availability of funding sources.

•Market speculation or rumors about Horizon or the banking industry generally may adversely affect the cost and availability of normal sources of funding.

If any of these events occur, they could force Horizon to borrow money from
other sources including negotiable certificates of deposit. Such other monies
may only be available at higher interest rates and on less advantageous terms,
which will impact our net income and could impact our ability to grow.
Management believes Horizon has adequate funding sources to meet short and long
term needs.

Horizon maintains a liquidity contingency plan that outlines the process for
addressing a liquidity crisis. The plan provides for an evaluation of funding
sources under various market conditions. It also assigns specific roles and
responsibilities for effectively managing liquidity through a problem period.
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  Table of Contents
                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)

During 2021, cash flows were generated primarily from net cash received from the
branch acquisition totaling $622.2 million, the sales, maturities, and
prepayments of investment securities of $318.3 million, a net decrease in loans
of $488.9 million and an increase in deposits of $425.4 million. Cash flows were
primarily used to purchase investments totaling $1.8 billion. The net cash and
cash equivalent position increased by $94.1 million during 2021.

At December 31, 2021, the Bank had $1.3 billion in commitments to extend credit
outstanding, excluding interest rate lock commitments for residential mortgage
loans intended for sale in the secondary market that meet the definition of a
derivative. Time deposits due within one year of December 31, 2021 totaled
$511.7 million, or 70.0% of time deposits. We believe the large percentage of
time deposits that mature within one year reflects customers' hesitancy to
invest their funds for long periods due to the recent low interest rate
environment and local competitive pressure. The balance also includes $15.3
million in brokered time deposits at December 31, 2021. If these maturing time
deposits do not remain with us, we will be required to seek other sources of
funds, including other certificates of deposit and borrowings. Depending on
market conditions, we may be required to pay higher rates on such deposits or
other borrowings than we currently pay on the time deposits due on or before
December 31, 2022. We believe, however, based on past experience that a
significant portion of our time deposits will remain with us. We have the
ability to attract and retain deposits by adjusting the interest rates offered.

Sensitivity to interest rates

The degree by which net interest income may fluctuate due to changes in interest
rates is monitored by Horizon using computer simulation models, incorporating
not only the current GAP position but the effect of expected repricing of
specific financial assets and liabilities. When repricing opportunities are not
properly aligned, net interest income may be affected when interest rates
change. Forecasting results of the possible outcomes determines the exposure to
interest rate risk inherent in Horizon's balance sheet. The goal is to manage
imbalanced positions that arise when the total amount of assets that reprice or
mature in a given time period differs significantly from liabilities that
reprice or mature in the same time period. The theory behind managing the
difference between repricing assets and liabilities is to have more assets
repricing in a rising rate environment and more liabilities repricing in a
declining rate environment.

Based on a model that assumes a lag in repricing, at December 31, 2021, the
amount of assets that reprice within one year was 197% of liabilities that
reprice within one year. At December 31, 2020, this same model reported that the
amount of assets that reprice within one year was approximately 257% of the
amount of liabilities that reprice within the same time period. During the year
2021, the decrease in the yield of interest-earning assets outpaced the decrease
in the cost of funding resulting in a decrease in net interest margin.
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  Table of Contents
                     HORIZON BANCORP, INC. AND SUBSIDIARIES
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
               (Table dollars in thousands except per share data)
                                                         > 3 Months            > 6 Months             Greater
                                     3 Months                 &                    &                   Than
                                     or Less            $ 1,497,584          $    241,787          $   426,441          $  1,454,398          $ 3,620,210
Federal funds sold                    485,194                     -                    -                     -              485,194
Interest earning balances with
banks                                  20,823                     -                    -                     -               20,823
Investment securities and FHLB
stock                                 111,012                64,282              129,378             2,433,023            2,737,695
Other assets                                -                     -                    -               510,981              510,981
Total assets                      $ 2,114,613          $    306,069          $   555,819          $  4,398,402          $ 7,374,903

Non-interest bearing deposits $32,172 $32,172

$64,344 $1,231,650 $1,360,338
Interest-bearing deposits

             289,020               242,284              502,229             3,409,120            4,442,653
Borrowed funds                        286,628                53,959                7,903               423,327              771,817
Other liabilities                           -                     -                    -                57,415               57,415
Stockholders' equity                        -                     -                    -               723,209              723,209
Total liabilities and
stockholders' equity              $   607,820          $    328,415        
 $   574,476          $  5,844,721          $ 7,355,432
GAP                               $ 1,506,793          $    (22,346)         $   (18,657)         $ (1,446,319)
Cumulative GAP                    $ 1,506,793          $  1,484,447          $ 1,465,790


The Company was asset sensitive as of December 31, 2021, resulting from the
liquidity on the balance sheet, adjustable rate assets and the low beta's on
deposit pricing based on expected deposit rates. Based on parallel rate shocks
to the balance sheet, at a 100 basis point shock and 200 basis point shock, net
interest income increases approximately $10.0 million and $20.0 million,
respectively.

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