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annual
annual
report
report
.......
.......
2021
2021
Dear Shareholder,
In 2021, Horizon Bancorp, Inc.’s (“Horizon”) strategic execution and accomplishments included record
earnings, strong commercial and consumer loan growth, the extension of our low-cost deposit
franchise in Michigan, and the maintenance of strong asset quality metrics. These resulted from our
continued emphasis on building shareholder value, and we are very pleased to report that Horizon
provided a total return to shareholders of 35% last year.
Horizon’s reported net income of $87.1 million, represented a 27.2% increase over the prior year’s
$68.5 million. And, adjusted net income for the year ended December 31, 2021 increased to $88.6
million, up 30.7% over the prior year’s $67.8 million. This increase in 2021 earnings reflects Horizon’s
successful execution of its ongoing strategy to build mass and scale through both organic and
acquisitive growth, on-going investment in technology, and focus on operational leverage.
Achieving record earnings is truly a testament to the quality of our employees and their ability to focus
on new ways to conduct business to enhance our customers’ experience, expand our franchise and
reduce costs, all during the ongoing pandemic. As we enter the 24th month of this pandemic, our team
is comfortable working within the new operating norms, which include: continuing to provide high levels
of service even when local Covid-19 trends limit and change office-access rules, transitioning to
sustainable increases in our digital banking platforms, and meeting with customers, vendors,
shareholders and employees through new means, including video conferencing. Fortunately, Horizon
was well prepared to operate in the new norm due to investments in technology, retaining our
philosophy of maintaining a long-time standard of having the fastest-available branch connectivity
and expanding our digital banking platform well before the pandemic hit. We are very proud of how
our advisors have dealt with this pandemic, adopted the new norms and moved the Company forward.
This speaks well to Horizon’s values, work ethic and willingness to serve our customers and
communities beyond the call of duty.
Balance Sheet Growth
Horizon’s total assets at year-end 2021 were
acquisition, organic growth, and the relatively
$7.35 billion, representing a 24.8% increase
high cash balances maintained by municipal,
over 2020’s year-end total assets of $5.89 billion.
consumer and business customers that received
This increase is attributed to the 14-branch
federal emergency stimulus funds distributed by
acquisition we completed in September 2021
various government programs in response to the
to enhance our Michigan footprint, a larger
pandemic. As a result of this excess liquidity,
investment portfolio, and organic commercial
Horizon has substantially increased its investment
and consumer loan growth during the last half of
portfolio and leveraged its capital to focus on
the year, all of which have built considerable
growing net interest income. As municipalities,
momentum going into 2022.
consumers and businesses spend down cash
reserves through 2023 and possibly into 2024,
Total deposits at year-end 2021 were $5.80
we expect to take advantage of further demand
billion, increasing 28.0% over prior year-end
for financing and move Horizon’s excess liquidity
deposits of $4.53 billion. The increase in
from our investment portfolio into higher-yielding
deposits is primarily due to the Michigan branch
loans.
We believe the banking industry will continue to
consolidate due to increased competition, the
escalating costs of doing business, increased
regulatory burdens, low interest rates, and the
required investment in technology to remain
competitive. We believe Horizon’s strong balance
sheet, acquisition experience, reputation for
executing smooth post-acquisition integrations,
capacity of our internal systems, commitment to
investing in technology and ability to retain local
people, will continue to make our bank a very
attractive partner for potential sellers.
As we evaluate acquisition opportunities, we will
also be focused on driving organic growth in the
markets where we believe we can gain
meaningful market share or capitalize on
expanding local economies and populations.
These markets include major urban areas,
governmental seats and university or college
towns, most of which project population growth
faster than the United States average and
Horizon’s legacy service areas. In addition, these
identified markets have strong local economies
and are dominated by large out-of-state banks.
As a local and regional community bank, we
believe organic growth will be achieved primarily
by taking market share from larger banks by
focusing on the best possible customer
experience through less bureaucracy, faster
decisions and competitive products and services.
Another key component in Horizon’s strategic
plan is to consistently focus on our four primary
and diverse revenue streams: business and
agricultural banking, retail banking, mortgage
lending, and wealth and investment management.
These four revenue streams provide the bank with
stability to weather varying economic cycles and
diversification of Horizon’s capital at risk, the
combination of which provides for stable and
consistent returns to shareholders over time.
Focused Growth Outlook
Horizon’s future growth and earnings power is
bright, given our recent branch acquisition, recent
investment in commercial lenders and technology
focus to better serve our customers. In addition,
our organizational structure differentiates us from
the large out of state bank competition, who
dominate most markets we serve, by maintaining
local Horizon leadership who are familiar with the
markets, local advisory boards to provide
invaluable market insight and local decision
making that provides for both authority and
accountability to better serve our customers. This
combination of local people with local knowledge
and best-in-class delivery channels creates
strong brand loyalty, as evidenced by our high
net promoter scores and ability to deliver upon
our customer service guarantees.
Milestones Achieved Across
the Company
Horizon achieved the following milestones in 2021:
• Record earnings of $87.1 million
• Surpassed $7.0 billion in total assets
• Successful acquisition and integration of
14 new branch locations
• Continued to improve upon operational
leverage by increasing mass and scale
through the branch acquisition and with
reported tangible book value earn back less
than one year
• Good asset quality as measured by low
non-performing loans to total loans and net
charge-offs to average loans ratios of 0.53%
and 0.04%, respectively
• Improved efficiency and allocation of our
resources by closing ten branch locations in
2021, two in 2020 and nine in 2019
• Increased our deposits per branch location
from $46 million to $74 million from 2017 to
2021, respectively
• Increased the number of commercial lenders
by approximately 20%
Horizon’s Investments in Technology
continue to benefit economically from the
Asset quality remains strong, evidenced by low
non-performing loans to total loans at year-end at
0.53%, down from the third quarter’s 0.80% and
low net credit losses for the year at .04 of 1%.
Horizon’s favorable asset quality metrics and
generally improving economic conditions
nationally and in our Midwest markets enabled us
to begin normalizing our reserve for credit losses,
which contributed to earnings in 2021.
Horizon’s technology investments in 2021
continued our ongoing commitment to providing
an exceptional customer experience, while
improving operational efficiency and maximizing
our data management capabilities. As a result of
last year’s and prior investments in systems and
people, we increased our utilization in digital
channels to 75% in 2021, up from 44% in 2018,
increased on-line chats in excess of 300% over
the prior year’s volume, with 86% of all chats
answered by our bots, and we increased online
checking account opening to 12% of all accounts
with an expectation to continue to increase online
account opening. As a result of our investment in
technology, three independent call centers that
provide branch support and 46 interactive teller
machines, Horizon’s customers are well served
through our multiple delivery channels.
Customers continue to migrate towards higher
utilization of our mobile and internet banking
platforms and rely less on physical bank
branches to handle their transactions. As a result
of these technology and call center investments,
Horizon was able to consolidate 10 under-utilized
office locations in August 2021. Over the past six
years, Horizon has closed a total of 27 branches,
maintaining high levels of customer service while
achieving significant productivity gains.
Building for the Future
Horizon is a company on the move, and we will
continue to look for opportunities in the markets
we serve to build shareholder value. In 2022,
Horizon will continue to look for growth
opportunities, improve customer experience,
recruit and retain top talent, and build an efficient
operation. Horizon believes that the best options
for future growth are in Indiana, Michigan and
northwest Ohio. A number of our communities
outbound migration from Illinois and the Greater
Chicago area by individuals, families and
businesses seeking lower housing costs and
taxes, business-friendly policies, and more open
spaces. These trends were only magnified during
this pandemic. We believe Indiana, Michigan and
Ohio are fiscally responsible states, with pockets
of strong economic growth and community banks
with similar philosophies. Horizon will continue to
capitalize on these opportunities through organic
and acquisitive growth initiatives, focusing first on
asset generators and secondarily on in–market
bank transactions.
Horizon’s strategic plan calls for acquisitive
growth, which we anticipate will account for
approximately 50% of our total growth over the
long term. Horizon’s acquisition strategy is to
partner with like-minded community banks,
leasing companies, or unique commercial
product entities with similar values located
primarily in Indiana, Michigan and Ohio. These
states have favorable economic environments for
business and are well known to Horizon’s senior
leadership team.
Creating Shareholder Value
Since 2003, Horizon has been guided by a
• Continuation of our uninterrupted payment of
written shareholder value plan which outlines
quarterly cash dividends for more than 30
how our core values, business discipline, and
years
focus on strategic objectives will create long-term
• Maintained consistent shareholder liquidity
value to shareholders. During 2021, this was
with Horizon’s average shares of common
demonstrated through several key actions and
stock traded per day at 118,000, 142,600, and
events, including:
84,800 for the years 2021, 2020 and 2019,
respectively
• A 32% increase in our common share price
• As of 2021, 2020 and 2019 year-end,
to $20.85 per share on December 31, 2021,
Horizon’s tangible book value per share was
providing a 35% total return to stockholders
$12.58, $11.81 and $10.63, respectively,
• Return on average common equity of 12.23%
representing three consecutive years of
• Return on average assets of 1.34%, an
record tangible book value per share
increase over 2020’s ROAA of 1.22%
• Continued our enrollment in the Russell 2000
• Two increases to our quarterly common
and 3000 indices, which supports purchases
dividend during the year, bringing it from
of Horizon’s common stock in index funds tied
12 cents per share to 15 cents and reflecting
to these widely used small-cap benchmarks
a 25% total increase
Horizon’s commitment to people first, investment in technology, a disciplined approach to expansion,
and ability to maintain a diverse number of revenue streams give us confidence in our ability to weather
future economic fluctuations and continue stable growth while delivering shareholder value.
On a Personal Note: On March 31, 2022, Horizon’s President James D. Neff will retire after 22 years of
service to our Company. Jim served Horizon well throughout his tenure and during a time that Horizon
experienced unprecedented growth. We wish Jim the best in his retirement years and thank him for his
years of loyal and dedicated service.
On behalf of the entire Horizon Bancorp family, thank you for your continued support and investment in
Horizon.
Craig M. Dwight
Chairman & Chief Executive Officer
message to the
shareholders
Dear Shareholder,
In 2021, Horizon Bancorp, Inc.’s (“Horizon”) strategic execution and accomplishments included record
earnings, strong commercial and consumer loan growth, the extension of our low-cost deposit
franchise in Michigan, and the maintenance of strong asset quality metrics. These resulted from our
continued emphasis on building shareholder value, and we are very pleased to report that Horizon
provided a total return to shareholders of 35% last year.
Horizon’s reported net income of $87.1 million, represented a 27.2% increase over the prior year’s
$68.5 million. And, adjusted net income for the year ended December 31, 2021 increased to $88.6
million, up 30.7% over the prior year’s $67.8 million. This increase in 2021 earnings reflects Horizon’s
successful execution of its ongoing strategy to build mass and scale through both organic and
acquisitive growth, on-going investment in technology, and focus on operational leverage.
Achieving record earnings is truly a testament to the quality of our employees and their ability to focus
on new ways to conduct business to enhance our customers’ experience, expand our franchise and
reduce costs, all during the ongoing pandemic. As we enter the 24th month of this pandemic, our team
is comfortable working within the new operating norms, which include: continuing to provide high levels
of service even when local Covid-19 trends limit and change office-access rules, transitioning to
sustainable increases in our digital banking platforms, and meeting with customers, vendors,
shareholders and employees through new means, including video conferencing. Fortunately, Horizon
was well prepared to operate in the new norm due to investments in technology, retaining our
philosophy of maintaining a long-time standard of having the fastest-available branch connectivity
and expanding our digital banking platform well before the pandemic hit. We are very proud of how
our advisors have dealt with this pandemic, adopted the new norms and moved the Company forward.
This speaks well to Horizon’s values, work ethic and willingness to serve our customers and
communities beyond the call of duty.
Balance Sheet Growth
Horizon’s total assets at year-end 2021 were
$7.35 billion, representing a 24.8% increase
over 2020’s year-end total assets of $5.89 billion.
This increase is attributed to the 14-branch
acquisition we completed in September 2021
to enhance our Michigan footprint, a larger
investment portfolio, and organic commercial
and consumer loan growth during the last half of
the year, all of which have built considerable
momentum going into 2022.
Total deposits at year-end 2021 were $5.80
billion, increasing 28.0% over prior year-end
deposits of $4.53 billion. The increase in
deposits is primarily due to the Michigan branch
acquisition, organic growth, and the relatively
high cash balances maintained by municipal,
consumer and business customers that received
federal emergency stimulus funds distributed by
various government programs in response to the
pandemic. As a result of this excess liquidity,
Horizon has substantially increased its investment
portfolio and leveraged its capital to focus on
growing net interest income. As municipalities,
consumers and businesses spend down cash
reserves through 2023 and possibly into 2024,
we expect to take advantage of further demand
for financing and move Horizon’s excess liquidity
from our investment portfolio into higher-yielding
loans.
1
We believe the banking industry will continue to
consolidate due to increased competition, the
escalating costs of doing business, increased
regulatory burdens, low interest rates, and the
required investment in technology to remain
competitive. We believe Horizon’s strong balance
sheet, acquisition experience, reputation for
executing smooth post-acquisition integrations,
capacity of our internal systems, commitment to
investing in technology and ability to retain local
people, will continue to make our bank a very
attractive partner for potential sellers.
As we evaluate acquisition opportunities, we will
also be focused on driving organic growth in the
markets where we believe we can gain
meaningful market share or capitalize on
expanding local economies and populations.
These markets include major urban areas,
governmental seats and university or college
towns, most of which project population growth
faster than the United States average and
Horizon’s legacy service areas. In addition, these
identified markets have strong local economies
and are dominated by large out-of-state banks.
As a local and regional community bank, we
believe organic growth will be achieved primarily
by taking market share from larger banks by
focusing on the best possible customer
experience through less bureaucracy, faster
decisions and competitive products and services.
Another key component in Horizon’s strategic
plan is to consistently focus on our four primary
and diverse revenue streams: business and
agricultural banking, retail banking, mortgage
lending, and wealth and investment management.
These four revenue streams provide the bank with
stability to weather varying economic cycles and
diversification of Horizon’s capital at risk, the
combination of which provides for stable and
consistent returns to shareholders over time.
Focused Growth Outlook
Horizon’s future growth and earnings power is
bright, given our recent branch acquisition, recent
investment in commercial lenders and technology
focus to better serve our customers. In addition,
our organizational structure differentiates us from
the large out of state bank competition, who
dominate most markets we serve, by maintaining
local Horizon leadership who are familiar with the
markets, local advisory boards to provide
invaluable market insight and local decision
making that provides for both authority and
accountability to better serve our customers. This
combination of local people with local knowledge
and best-in-class delivery channels creates
strong brand loyalty, as evidenced by our high
net promoter scores and ability to deliver upon
our customer service guarantees.
Milestones Achieved Across
the Company
Horizon achieved the following milestones in 2021:
• Record earnings of $87.1 million
• Surpassed $7.0 billion in total assets
• Successful acquisition and integration of
14 new branch locations
• Continued to improve upon operational
leverage by increasing mass and scale
through the branch acquisition and with
reported tangible book value earn back less
than one year
• Good asset quality as measured by low
non-performing loans to total loans and net
charge-offs to average loans ratios of 0.53%
and 0.04%, respectively
• Improved efficiency and allocation of our
resources by closing ten branch locations in
2021, two in 2020 and nine in 2019
• Increased our deposits per branch location
from $46 million to $74 million from 2017 to
2021, respectively
• Increased the number of commercial lenders
by approximately 20%
Horizon’s Investments in Technology
continue to benefit economically from the
Asset quality remains strong, evidenced by low
non-performing loans to total loans at year-end at
0.53%, down from the third quarter’s 0.80% and
low net credit losses for the year at .04 of 1%.
Horizon’s favorable asset quality metrics and
generally improving economic conditions
nationally and in our Midwest markets enabled us
to begin normalizing our reserve for credit losses,
which contributed to earnings in 2021.
Horizon’s technology investments in 2021
continued our ongoing commitment to providing
an exceptional customer experience, while
improving operational efficiency and maximizing
our data management capabilities. As a result of
last year’s and prior investments in systems and
people, we increased our utilization in digital
channels to 75% in 2021, up from 44% in 2018,
increased on-line chats in excess of 300% over
the prior year’s volume, with 86% of all chats
answered by our bots, and we increased online
checking account opening to 12% of all accounts
with an expectation to continue to increase online
account opening. As a result of our investment in
technology, three independent call centers that
provide branch support and 46 interactive teller
machines, Horizon’s customers are well served
through our multiple delivery channels.
Customers continue to migrate towards higher
utilization of our mobile and internet banking
platforms and rely less on physical bank
branches to handle their transactions. As a result
of these technology and call center investments,
Horizon was able to consolidate 10 under-utilized
office locations in August 2021. Over the past six
years, Horizon has closed a total of 27 branches,
maintaining high levels of customer service while
achieving significant productivity gains.
Building for the Future
Horizon is a company on the move, and we will
continue to look for opportunities in the markets
we serve to build shareholder value. In 2022,
Horizon will continue to look for growth
opportunities, improve customer experience,
recruit and retain top talent, and build an efficient
operation. Horizon believes that the best options
for future growth are in Indiana, Michigan and
northwest Ohio. A number of our communities
outbound migration from Illinois and the Greater
Chicago area by individuals, families and
businesses seeking lower housing costs and
taxes, business-friendly policies, and more open
spaces. These trends were only magnified during
this pandemic. We believe Indiana, Michigan and
Ohio are fiscally responsible states, with pockets
of strong economic growth and community banks
with similar philosophies. Horizon will continue to
capitalize on these opportunities through organic
and acquisitive growth initiatives, focusing first on
asset generators and secondarily on in–market
bank transactions.
Horizon’s strategic plan calls for acquisitive
growth, which we anticipate will account for
approximately 50% of our total growth over the
long term. Horizon’s acquisition strategy is to
partner with like-minded community banks,
leasing companies, or unique commercial
product entities with similar values located
primarily in Indiana, Michigan and Ohio. These
states have favorable economic environments for
business and are well known to Horizon’s senior
leadership team.
Creating Shareholder Value
Since 2003, Horizon has been guided by a
• Continuation of our uninterrupted payment of
written shareholder value plan which outlines
quarterly cash dividends for more than 30
how our core values, business discipline, and
years
focus on strategic objectives will create long-term
• Maintained consistent shareholder liquidity
value to shareholders. During 2021, this was
with Horizon’s average shares of common
demonstrated through several key actions and
stock traded per day at 118,000, 142,600, and
events, including:
84,800 for the years 2021, 2020 and 2019,
respectively
• A 32% increase in our common share price
• As of 2021, 2020 and 2019 year-end,
to $20.85 per share on December 31, 2021,
Horizon’s tangible book value per share was
providing a 35% total return to stockholders
$12.58, $11.81 and $10.63, respectively,
• Return on average common equity of 12.23%
representing three consecutive years of
• Return on average assets of 1.34%, an
record tangible book value per share
increase over 2020’s ROAA of 1.22%
• Continued our enrollment in the Russell 2000
• Two increases to our quarterly common
and 3000 indices, which supports purchases
dividend during the year, bringing it from
of Horizon’s common stock in index funds tied
12 cents per share to 15 cents and reflecting
to these widely used small-cap benchmarks
a 25% total increase
Horizon’s commitment to people first, investment in technology, a disciplined approach to expansion,
and ability to maintain a diverse number of revenue streams give us confidence in our ability to weather
future economic fluctuations and continue stable growth while delivering shareholder value.
On a Personal Note: On March 31, 2022, Horizon’s President James D. Neff will retire after 22 years of
service to our Company. Jim served Horizon well throughout his tenure and during a time that Horizon
experienced unprecedented growth. We wish Jim the best in his retirement years and thank him for his
years of loyal and dedicated service.
On behalf of the entire Horizon Bancorp family, thank you for your continued support and investment in
Horizon.
Craig M. Dwight
Chairman & Chief Executive Officer
Dear Shareholder,
In 2021, Horizon Bancorp, Inc.’s (“Horizon”) strategic execution and accomplishments included record
earnings, strong commercial and consumer loan growth, the extension of our low-cost deposit
franchise in Michigan, and the maintenance of strong asset quality metrics. These resulted from our
continued emphasis on building shareholder value, and we are very pleased to report that Horizon
provided a total return to shareholders of 35% last year.
Horizon’s reported net income of $87.1 million, represented a 27.2% increase over the prior year’s
$68.5 million. And, adjusted net income for the year ended December 31, 2021 increased to $88.6
million, up 30.7% over the prior year’s $67.8 million. This increase in 2021 earnings reflects Horizon’s
successful execution of its ongoing strategy to build mass and scale through both organic and
acquisitive growth, on-going investment in technology, and focus on operational leverage.
Achieving record earnings is truly a testament to the quality of our employees and their ability to focus
on new ways to conduct business to enhance our customers’ experience, expand our franchise and
reduce costs, all during the ongoing pandemic. As we enter the 24th month of this pandemic, our team
is comfortable working within the new operating norms, which include: continuing to provide high levels
of service even when local Covid-19 trends limit and change office-access rules, transitioning to
sustainable increases in our digital banking platforms, and meeting with customers, vendors,
shareholders and employees through new means, including video conferencing. Fortunately, Horizon
was well prepared to operate in the new norm due to investments in technology, retaining our
philosophy of maintaining a long-time standard of having the fastest-available branch connectivity
and expanding our digital banking platform well before the pandemic hit. We are very proud of how
our advisors have dealt with this pandemic, adopted the new norms and moved the Company forward.
This speaks well to Horizon’s values, work ethic and willingness to serve our customers and
communities beyond the call of duty.
Balance Sheet Growth
Horizon’s total assets at year-end 2021 were
acquisition, organic growth, and the relatively
$7.35 billion, representing a 24.8% increase
high cash balances maintained by municipal,
over 2020’s year-end total assets of $5.89 billion.
consumer and business customers that received
This increase is attributed to the 14-branch
federal emergency stimulus funds distributed by
acquisition we completed in September 2021
various government programs in response to the
to enhance our Michigan footprint, a larger
pandemic. As a result of this excess liquidity,
investment portfolio, and organic commercial
Horizon has substantially increased its investment
and consumer loan growth during the last half of
portfolio and leveraged its capital to focus on
the year, all of which have built considerable
growing net interest income. As municipalities,
momentum going into 2022.
consumers and businesses spend down cash
reserves through 2023 and possibly into 2024,
Total deposits at year-end 2021 were $5.80
we expect to take advantage of further demand
billion, increasing 28.0% over prior year-end
for financing and move Horizon’s excess liquidity
deposits of $4.53 billion. The increase in
from our investment portfolio into higher-yielding
deposits is primarily due to the Michigan branch
loans.
We believe the banking industry will continue to
consolidate due to increased competition, the
escalating costs of doing business, increased
regulatory burdens, low interest rates, and the
required investment in technology to remain
competitive. We believe Horizon’s strong balance
sheet, acquisition experience, reputation for
executing smooth post-acquisition integrations,
capacity of our internal systems, commitment to
investing in technology and ability to retain local
people, will continue to make our bank a very
attractive partner for potential sellers.
As we evaluate acquisition opportunities, we will
also be focused on driving organic growth in the
markets where we believe we can gain
meaningful market share or capitalize on
expanding local economies and populations.
These markets include major urban areas,
governmental seats and university or college
towns, most of which project population growth
faster than the United States average and
Horizon’s legacy service areas. In addition, these
identified markets have strong local economies
and are dominated by large out-of-state banks.
As a local and regional community bank, we
believe organic growth will be achieved primarily
by taking market share from larger banks by
focusing on the best possible customer
experience through less bureaucracy, faster
decisions and competitive products and services.
Another key component in Horizon’s strategic
plan is to consistently focus on our four primary
and diverse revenue streams: business and
agricultural banking, retail banking, mortgage
lending, and wealth and investment management.
These four revenue streams provide the bank with
stability to weather varying economic cycles and
diversification of Horizon’s capital at risk, the
combination of which provides for stable and
consistent returns to shareholders over time.
Focused Growth Outlook
Horizon’s future growth and earnings power is
bright, given our recent branch acquisition, recent
investment in commercial lenders and technology
focus to better serve our customers. In addition,
our organizational structure differentiates us from
the large out of state bank competition, who
dominate most markets we serve, by maintaining
local Horizon leadership who are familiar with the
markets, local advisory boards to provide
invaluable market insight and local decision
making that provides for both authority and
accountability to better serve our customers. This
combination of local people with local knowledge
and best-in-class delivery channels creates
strong brand loyalty, as evidenced by our high
net promoter scores and ability to deliver upon
our customer service guarantees.
Milestones Achieved Across
the Company
Horizon achieved the following milestones in 2021:
• Record earnings of $87.1 million
• Surpassed $7.0 billion in total assets
• Successful acquisition and integration of
14 new branch locations
• Continued to improve upon operational
leverage by increasing mass and scale
through the branch acquisition and with
reported tangible book value earn back less
than one year
• Good asset quality as measured by low
non-performing loans to total loans and net
charge-offs to average loans ratios of 0.53%
and 0.04%, respectively
• Improved efficiency and allocation of our
resources by closing ten branch locations in
2021, two in 2020 and nine in 2019
• Increased our deposits per branch location
from $46 million to $74 million from 2017 to
2021, respectively
• Increased the number of commercial lenders
by approximately 20%
message to the
shareholders
Asset quality remains strong, evidenced by low
non-performing loans to total loans at year-end at
0.53%, down from the third quarter’s 0.80% and
low net credit losses for the year at .04 of 1%.
Horizon’s favorable asset quality metrics and
generally improving economic conditions
nationally and in our Midwest markets enabled us
to begin normalizing our reserve for credit losses,
which contributed to earnings in 2021.
Horizon’s Investments in Technology
Horizon’s technology investments in 2021
continued our ongoing commitment to providing
an exceptional customer experience, while
improving operational efficiency and maximizing
our data management capabilities. As a result of
last year’s and prior investments in systems and
people, we increased our utilization in digital
channels to 75% in 2021, up from 44% in 2018,
increased on-line chats in excess of 300% over
the prior year’s volume, with 86% of all chats
answered by our bots, and we increased online
checking account opening to 12% of all accounts
with an expectation to continue to increase online
account opening. As a result of our investment in
technology, three independent call centers that
provide branch support and 46 interactive teller
machines, Horizon’s customers are well served
through our multiple delivery channels.
Customers continue to migrate towards higher
utilization of our mobile and internet banking
platforms and rely less on physical bank
branches to handle their transactions. As a result
of these technology and call center investments,
Horizon was able to consolidate 10 under-utilized
office locations in August 2021. Over the past six
years, Horizon has closed a total of 27 branches,
maintaining high levels of customer service while
achieving significant productivity gains.
Building for the Future
Horizon is a company on the move, and we will
continue to look for opportunities in the markets
we serve to build shareholder value. In 2022,
Horizon will continue to look for growth
opportunities, improve customer experience,
recruit and retain top talent, and build an efficient
operation. Horizon believes that the best options
for future growth are in Indiana, Michigan and
northwest Ohio. A number of our communities
continue to benefit economically from the
outbound migration from Illinois and the Greater
Chicago area by individuals, families and
businesses seeking lower housing costs and
taxes, business-friendly policies, and more open
spaces. These trends were only magnified during
this pandemic. We believe Indiana, Michigan and
Ohio are fiscally responsible states, with pockets
of strong economic growth and community banks
with similar philosophies. Horizon will continue to
capitalize on these opportunities through organic
and acquisitive growth initiatives, focusing first on
asset generators and secondarily on in–market
bank transactions.
Horizon’s strategic plan calls for acquisitive
growth, which we anticipate will account for
approximately 50% of our total growth over the
long term. Horizon’s acquisition strategy is to
partner with like-minded community banks,
leasing companies, or unique commercial
product entities with similar values located
primarily in Indiana, Michigan and Ohio. These
states have favorable economic environments for
business and are well known to Horizon’s senior
leadership team.
2
Creating Shareholder Value
Since 2003, Horizon has been guided by a
• Continuation of our uninterrupted payment of
written shareholder value plan which outlines
quarterly cash dividends for more than 30
how our core values, business discipline, and
years
focus on strategic objectives will create long-term
• Maintained consistent shareholder liquidity
value to shareholders. During 2021, this was
with Horizon’s average shares of common
demonstrated through several key actions and
stock traded per day at 118,000, 142,600, and
events, including:
84,800 for the years 2021, 2020 and 2019,
respectively
• A 32% increase in our common share price
• As of 2021, 2020 and 2019 year-end,
to $20.85 per share on December 31, 2021,
Horizon’s tangible book value per share was
providing a 35% total return to stockholders
$12.58, $11.81 and $10.63, respectively,
• Return on average common equity of 12.23%
representing three consecutive years of
• Return on average assets of 1.34%, an
record tangible book value per share
increase over 2020’s ROAA of 1.22%
• Continued our enrollment in the Russell 2000
• Two increases to our quarterly common
and 3000 indices, which supports purchases
dividend during the year, bringing it from
of Horizon’s common stock in index funds tied
12 cents per share to 15 cents and reflecting
to these widely used small-cap benchmarks
a 25% total increase
Horizon’s commitment to people first, investment in technology, a disciplined approach to expansion,
and ability to maintain a diverse number of revenue streams give us confidence in our ability to weather
future economic fluctuations and continue stable growth while delivering shareholder value.
On a Personal Note: On March 31, 2022, Horizon’s President James D. Neff will retire after 22 years of
service to our Company. Jim served Horizon well throughout his tenure and during a time that Horizon
experienced unprecedented growth. We wish Jim the best in his retirement years and thank him for his
years of loyal and dedicated service.
On behalf of the entire Horizon Bancorp family, thank you for your continued support and investment in
Horizon.
Craig M. Dwight
Chairman & Chief Executive Officer
Dear Shareholder,
In 2021, Horizon Bancorp, Inc.’s (“Horizon”) strategic execution and accomplishments included record
earnings, strong commercial and consumer loan growth, the extension of our low-cost deposit
franchise in Michigan, and the maintenance of strong asset quality metrics. These resulted from our
continued emphasis on building shareholder value, and we are very pleased to report that Horizon
provided a total return to shareholders of 35% last year.
Horizon’s reported net income of $87.1 million, represented a 27.2% increase over the prior year’s
$68.5 million. And, adjusted net income for the year ended December 31, 2021 increased to $88.6
million, up 30.7% over the prior year’s $67.8 million. This increase in 2021 earnings reflects Horizon’s
successful execution of its ongoing strategy to build mass and scale through both organic and
acquisitive growth, on-going investment in technology, and focus on operational leverage.
Achieving record earnings is truly a testament to the quality of our employees and their ability to focus
on new ways to conduct business to enhance our customers’ experience, expand our franchise and
reduce costs, all during the ongoing pandemic. As we enter the 24th month of this pandemic, our team
is comfortable working within the new operating norms, which include: continuing to provide high levels
of service even when local Covid-19 trends limit and change office-access rules, transitioning to
sustainable increases in our digital banking platforms, and meeting with customers, vendors,
shareholders and employees through new means, including video conferencing. Fortunately, Horizon
was well prepared to operate in the new norm due to investments in technology, retaining our
philosophy of maintaining a long-time standard of having the fastest-available branch connectivity
and expanding our digital banking platform well before the pandemic hit. We are very proud of how
our advisors have dealt with this pandemic, adopted the new norms and moved the Company forward.
This speaks well to Horizon’s values, work ethic and willingness to serve our customers and
communities beyond the call of duty.
Balance Sheet Growth
Horizon’s total assets at year-end 2021 were
acquisition, organic growth, and the relatively
$7.35 billion, representing a 24.8% increase
high cash balances maintained by municipal,
over 2020’s year-end total assets of $5.89 billion.
consumer and business customers that received
This increase is attributed to the 14-branch
federal emergency stimulus funds distributed by
acquisition we completed in September 2021
various government programs in response to the
to enhance our Michigan footprint, a larger
pandemic. As a result of this excess liquidity,
investment portfolio, and organic commercial
Horizon has substantially increased its investment
and consumer loan growth during the last half of
portfolio and leveraged its capital to focus on
the year, all of which have built considerable
growing net interest income. As municipalities,
momentum going into 2022.
consumers and businesses spend down cash
reserves through 2023 and possibly into 2024,
Total deposits at year-end 2021 were $5.80
we expect to take advantage of further demand
billion, increasing 28.0% over prior year-end
for financing and move Horizon’s excess liquidity
deposits of $4.53 billion. The increase in
from our investment portfolio into higher-yielding
deposits is primarily due to the Michigan branch
loans.
message to the
shareholders
We believe the banking industry will continue to
consolidate due to increased competition, the
escalating costs of doing business, increased
regulatory burdens, low interest rates, and the
required investment in technology to remain
competitive. We believe Horizon’s strong balance
sheet, acquisition experience, reputation for
executing smooth post-acquisition integrations,
capacity of our internal systems, commitment to
investing in technology and ability to retain local
people, will continue to make our bank a very
attractive partner for potential sellers.
As we evaluate acquisition opportunities, we will
also be focused on driving organic growth in the
markets where we believe we can gain
meaningful market share or capitalize on
expanding local economies and populations.
These markets include major urban areas,
governmental seats and university or college
towns, most of which project population growth
faster than the United States average and
Horizon’s legacy service areas. In addition, these
identified markets have strong local economies
and are dominated by large out-of-state banks.
As a local and regional community bank, we
believe organic growth will be achieved primarily
by taking market share from larger banks by
focusing on the best possible customer
experience through less bureaucracy, faster
decisions and competitive products and services.
Another key component in Horizon’s strategic
plan is to consistently focus on our four primary
and diverse revenue streams: business and
agricultural banking, retail banking, mortgage
lending, and wealth and investment management.
These four revenue streams provide the bank with
stability to weather varying economic cycles and
diversification of Horizon’s capital at risk, the
combination of which provides for stable and
consistent returns to shareholders over time.
Focused Growth Outlook
Horizon’s future growth and earnings power is
bright, given our recent branch acquisition, recent
investment in commercial lenders and technology
focus to better serve our customers. In addition,
our organizational structure differentiates us from
the large out of state bank competition, who
dominate most markets we serve, by maintaining
local Horizon leadership who are familiar with the
markets, local advisory boards to provide
invaluable market insight and local decision
making that provides for both authority and
accountability to better serve our customers. This
combination of local people with local knowledge
and best-in-class delivery channels creates
strong brand loyalty, as evidenced by our high
net promoter scores and ability to deliver upon
our customer service guarantees.
Milestones Achieved Across
the Company
Horizon achieved the following milestones in 2021:
• Record earnings of $87.1 million
• Surpassed $7.0 billion in total assets
• Successful acquisition and integration of
14 new branch locations
• Continued to improve upon operational
leverage by increasing mass and scale
through the branch acquisition and with
reported tangible book value earn back less
than one year
• Good asset quality as measured by low
non-performing loans to total loans and net
charge-offs to average loans ratios of 0.53%
and 0.04%, respectively
• Improved efficiency and allocation of our
resources by closing ten branch locations in
2021, two in 2020 and nine in 2019
• Increased our deposits per branch location
from $46 million to $74 million from 2017 to
2021, respectively
• Increased the number of commercial lenders
by approximately 20%
3
Horizon’s Investments in Technology
continue to benefit economically from the
Asset quality remains strong, evidenced by low
non-performing loans to total loans at year-end at
0.53%, down from the third quarter’s 0.80% and
low net credit losses for the year at .04 of 1%.
Horizon’s favorable asset quality metrics and
generally improving economic conditions
nationally and in our Midwest markets enabled us
to begin normalizing our reserve for credit losses,
which contributed to earnings in 2021.
Horizon’s technology investments in 2021
continued our ongoing commitment to providing
an exceptional customer experience, while
improving operational efficiency and maximizing
our data management capabilities. As a result of
last year’s and prior investments in systems and
people, we increased our utilization in digital
channels to 75% in 2021, up from 44% in 2018,
increased on-line chats in excess of 300% over
the prior year’s volume, with 86% of all chats
answered by our bots, and we increased online
checking account opening to 12% of all accounts
with an expectation to continue to increase online
account opening. As a result of our investment in
technology, three independent call centers that
provide branch support and 46 interactive teller
machines, Horizon’s customers are well served
through our multiple delivery channels.
Customers continue to migrate towards higher
utilization of our mobile and internet banking
platforms and rely less on physical bank
branches to handle their transactions. As a result
of these technology and call center investments,
Horizon was able to consolidate 10 under-utilized
office locations in August 2021. Over the past six
years, Horizon has closed a total of 27 branches,
maintaining high levels of customer service while
achieving significant productivity gains.
Building for the Future
Horizon is a company on the move, and we will
continue to look for opportunities in the markets
we serve to build shareholder value. In 2022,
Horizon will continue to look for growth
opportunities, improve customer experience,
recruit and retain top talent, and build an efficient
operation. Horizon believes that the best options
for future growth are in Indiana, Michigan and
northwest Ohio. A number of our communities
outbound migration from Illinois and the Greater
Chicago area by individuals, families and
businesses seeking lower housing costs and
taxes, business-friendly policies, and more open
spaces. These trends were only magnified during
this pandemic. We believe Indiana, Michigan and
Ohio are fiscally responsible states, with pockets
of strong economic growth and community banks
with similar philosophies. Horizon will continue to
capitalize on these opportunities through organic
and acquisitive growth initiatives, focusing first on
asset generators and secondarily on in–market
bank transactions.
Horizon’s strategic plan calls for acquisitive
growth, which we anticipate will account for
approximately 50% of our total growth over the
long term. Horizon’s acquisition strategy is to
partner with like-minded community banks,
leasing companies, or unique commercial
product entities with similar values located
primarily in Indiana, Michigan and Ohio. These
states have favorable economic environments for
business and are well known to Horizon’s senior
leadership team.
Creating Shareholder Value
Since 2003, Horizon has been guided by a
• Continuation of our uninterrupted payment of
written shareholder value plan which outlines
quarterly cash dividends for more than 30
how our core values, business discipline, and
years
focus on strategic objectives will create long-term
• Maintained consistent shareholder liquidity
value to shareholders. During 2021, this was
with Horizon’s average shares of common
demonstrated through several key actions and
stock traded per day at 118,000, 142,600, and
events, including:
84,800 for the years 2021, 2020 and 2019,
respectively
• A 32% increase in our common share price
• As of 2021, 2020 and 2019 year-end,
to $20.85 per share on December 31, 2021,
Horizon’s tangible book value per share was
providing a 35% total return to stockholders
$12.58, $11.81 and $10.63, respectively,
• Return on average common equity of 12.23%
representing three consecutive years of
• Return on average assets of 1.34%, an
record tangible book value per share
increase over 2020’s ROAA of 1.22%
• Continued our enrollment in the Russell 2000
• Two increases to our quarterly common
and 3000 indices, which supports purchases
dividend during the year, bringing it from
of Horizon’s common stock in index funds tied
12 cents per share to 15 cents and reflecting
to these widely used small-cap benchmarks
a 25% total increase
Horizon’s commitment to people first, investment in technology, a disciplined approach to expansion,
and ability to maintain a diverse number of revenue streams give us confidence in our ability to weather
future economic fluctuations and continue stable growth while delivering shareholder value.
On a Personal Note: On March 31, 2022, Horizon’s President James D. Neff will retire after 22 years of
service to our Company. Jim served Horizon well throughout his tenure and during a time that Horizon
experienced unprecedented growth. We wish Jim the best in his retirement years and thank him for his
years of loyal and dedicated service.
On behalf of the entire Horizon Bancorp family, thank you for your continued support and investment in
Horizon.
Craig M. Dwight
Chairman & Chief Executive Officer
Dear Shareholder,
In 2021, Horizon Bancorp, Inc.’s (“Horizon”) strategic execution and accomplishments included record
earnings, strong commercial and consumer loan growth, the extension of our low-cost deposit
franchise in Michigan, and the maintenance of strong asset quality metrics. These resulted from our
continued emphasis on building shareholder value, and we are very pleased to report that Horizon
provided a total return to shareholders of 35% last year.
Horizon’s reported net income of $87.1 million, represented a 27.2% increase over the prior year’s
$68.5 million. And, adjusted net income for the year ended December 31, 2021 increased to $88.6
million, up 30.7% over the prior year’s $67.8 million. This increase in 2021 earnings reflects Horizon’s
successful execution of its ongoing strategy to build mass and scale through both organic and
acquisitive growth, on-going investment in technology, and focus on operational leverage.
Achieving record earnings is truly a testament to the quality of our employees and their ability to focus
on new ways to conduct business to enhance our customers’ experience, expand our franchise and
reduce costs, all during the ongoing pandemic. As we enter the 24th month of this pandemic, our team
is comfortable working within the new operating norms, which include: continuing to provide high levels
of service even when local Covid-19 trends limit and change office-access rules, transitioning to
sustainable increases in our digital banking platforms, and meeting with customers, vendors,
shareholders and employees through new means, including video conferencing. Fortunately, Horizon
was well prepared to operate in the new norm due to investments in technology, retaining our
philosophy of maintaining a long-time standard of having the fastest-available branch connectivity
and expanding our digital banking platform well before the pandemic hit. We are very proud of how
our advisors have dealt with this pandemic, adopted the new norms and moved the Company forward.
This speaks well to Horizon’s values, work ethic and willingness to serve our customers and
communities beyond the call of duty.
Balance Sheet Growth
Horizon’s total assets at year-end 2021 were
acquisition, organic growth, and the relatively
$7.35 billion, representing a 24.8% increase
high cash balances maintained by municipal,
over 2020’s year-end total assets of $5.89 billion.
consumer and business customers that received
This increase is attributed to the 14-branch
federal emergency stimulus funds distributed by
acquisition we completed in September 2021
various government programs in response to the
to enhance our Michigan footprint, a larger
pandemic. As a result of this excess liquidity,
investment portfolio, and organic commercial
Horizon has substantially increased its investment
and consumer loan growth during the last half of
portfolio and leveraged its capital to focus on
the year, all of which have built considerable
growing net interest income. As municipalities,
momentum going into 2022.
consumers and businesses spend down cash
reserves through 2023 and possibly into 2024,
Total deposits at year-end 2021 were $5.80
we expect to take advantage of further demand
billion, increasing 28.0% over prior year-end
for financing and move Horizon’s excess liquidity
deposits of $4.53 billion. The increase in
from our investment portfolio into higher-yielding
deposits is primarily due to the Michigan branch
loans.
We believe the banking industry will continue to
consolidate due to increased competition, the
escalating costs of doing business, increased
regulatory burdens, low interest rates, and the
required investment in technology to remain
competitive. We believe Horizon’s strong balance
sheet, acquisition experience, reputation for
executing smooth post-acquisition integrations,
capacity of our internal systems, commitment to
investing in technology and ability to retain local
people, will continue to make our bank a very
attractive partner for potential sellers.
As we evaluate acquisition opportunities, we will
also be focused on driving organic growth in the
markets where we believe we can gain
meaningful market share or capitalize on
expanding local economies and populations.
These markets include major urban areas,
governmental seats and university or college
towns, most of which project population growth
faster than the United States average and
Horizon’s legacy service areas. In addition, these
identified markets have strong local economies
and are dominated by large out-of-state banks.
As a local and regional community bank, we
believe organic growth will be achieved primarily
by taking market share from larger banks by
focusing on the best possible customer
experience through less bureaucracy, faster
decisions and competitive products and services.
Another key component in Horizon’s strategic
plan is to consistently focus on our four primary
and diverse revenue streams: business and
agricultural banking, retail banking, mortgage
lending, and wealth and investment management.
These four revenue streams provide the bank with
stability to weather varying economic cycles and
diversification of Horizon’s capital at risk, the
combination of which provides for stable and
consistent returns to shareholders over time.
Focused Growth Outlook
Horizon’s future growth and earnings power is
bright, given our recent branch acquisition, recent
investment in commercial lenders and technology
focus to better serve our customers. In addition,
our organizational structure differentiates us from
the large out of state bank competition, who
dominate most markets we serve, by maintaining
local Horizon leadership who are familiar with the
markets, local advisory boards to provide
invaluable market insight and local decision
making that provides for both authority and
accountability to better serve our customers. This
combination of local people with local knowledge
and best-in-class delivery channels creates
strong brand loyalty, as evidenced by our high
net promoter scores and ability to deliver upon
our customer service guarantees.
Milestones Achieved Across
the Company
Horizon achieved the following milestones in 2021:
• Record earnings of $87.1 million
• Surpassed $7.0 billion in total assets
• Successful acquisition and integration of
14 new branch locations
• Continued to improve upon operational
leverage by increasing mass and scale
through the branch acquisition and with
reported tangible book value earn back less
than one year
• Good asset quality as measured by low
non-performing loans to total loans and net
charge-offs to average loans ratios of 0.53%
and 0.04%, respectively
• Improved efficiency and allocation of our
resources by closing ten branch locations in
2021, two in 2020 and nine in 2019
• Increased our deposits per branch location
from $46 million to $74 million from 2017 to
2021, respectively
• Increased the number of commercial lenders
by approximately 20%
Horizon’s Investments in Technology
continue to benefit economically from the
Asset quality remains strong, evidenced by low
non-performing loans to total loans at year-end at
0.53%, down from the third quarter’s 0.80% and
low net credit losses for the year at .04 of 1%.
Horizon’s favorable asset quality metrics and
generally improving economic conditions
nationally and in our Midwest markets enabled us
to begin normalizing our reserve for credit losses,
which contributed to earnings in 2021.
Horizon’s technology investments in 2021
continued our ongoing commitment to providing
an exceptional customer experience, while
improving operational efficiency and maximizing
our data management capabilities. As a result of
last year’s and prior investments in systems and
people, we increased our utilization in digital
channels to 75% in 2021, up from 44% in 2018,
increased on-line chats in excess of 300% over
the prior year’s volume, with 86% of all chats
answered by our bots, and we increased online
checking account opening to 12% of all accounts
with an expectation to continue to increase online
account opening. As a result of our investment in
technology, three independent call centers that
provide branch support and 46 interactive teller
machines, Horizon’s customers are well served
through our multiple delivery channels.
Customers continue to migrate towards higher
utilization of our mobile and internet banking
platforms and rely less on physical bank
branches to handle their transactions. As a result
of these technology and call center investments,
Horizon was able to consolidate 10 under-utilized
office locations in August 2021. Over the past six
years, Horizon has closed a total of 27 branches,
maintaining high levels of customer service while
achieving significant productivity gains.
Building for the Future
Horizon is a company on the move, and we will
continue to look for opportunities in the markets
we serve to build shareholder value. In 2022,
Horizon will continue to look for growth
opportunities, improve customer experience,
recruit and retain top talent, and build an efficient
operation. Horizon believes that the best options
for future growth are in Indiana, Michigan and
northwest Ohio. A number of our communities
outbound migration from Illinois and the Greater
Chicago area by individuals, families and
businesses seeking lower housing costs and
taxes, business-friendly policies, and more open
spaces. These trends were only magnified during
this pandemic. We believe Indiana, Michigan and
Ohio are fiscally responsible states, with pockets
of strong economic growth and community banks
with similar philosophies. Horizon will continue to
capitalize on these opportunities through organic
and acquisitive growth initiatives, focusing first on
asset generators and secondarily on in–market
bank transactions.
Horizon’s strategic plan calls for acquisitive
growth, which we anticipate will account for
approximately 50% of our total growth over the
long term. Horizon’s acquisition strategy is to
partner with like-minded community banks,
leasing companies, or unique commercial
product entities with similar values located
primarily in Indiana, Michigan and Ohio. These
states have favorable economic environments for
business and are well known to Horizon’s senior
leadership team.
message to the
shareholders
Creating Shareholder Value
Since 2003, Horizon has been guided by a
written shareholder value plan which outlines
how our core values, business discipline, and
focus on strategic objectives will create long-term
value to shareholders. During 2021, this was
demonstrated through several key actions and
events, including:
• A 32% increase in our common share price
to $20.85 per share on December 31, 2021,
providing a 35% total return to stockholders
• Return on average common equity of 12.23%
• Return on average assets of 1.34%, an
increase over 2020’s ROAA of 1.22%
• Two increases to our quarterly common
dividend during the year, bringing it from
12 cents per share to 15 cents and reflecting
a 25% total increase
• Continuation of our uninterrupted payment of
quarterly cash dividends for more than 30
years
• Maintained consistent shareholder liquidity
with Horizon’s average shares of common
stock traded per day at 118,000, 142,600, and
84,800 for the years 2021, 2020 and 2019,
respectively
• As of 2021, 2020 and 2019 year-end,
Horizon’s tangible book value per share was
$12.58, $11.81 and $10.63, respectively,
representing three consecutive years of
record tangible book value per share
• Continued our enrollment in the Russell 2000
and 3000 indices, which supports purchases
of Horizon’s common stock in index funds tied
to these widely used small-cap benchmarks
Horizon’s commitment to people first, investment in technology, a disciplined approach to expansion,
and ability to maintain a diverse number of revenue streams give us confidence in our ability to weather
future economic fluctuations and continue stable growth while delivering shareholder value.
On a Personal Note: On March 31, 2022, Horizon’s President James D. Neff will retire after 22 years of
service to our Company. Jim served Horizon well throughout his tenure and during a time that Horizon
experienced unprecedented growth. We wish Jim the best in his retirement years and thank him for his
years of loyal and dedicated service.
On behalf of the entire Horizon Bancorp family, thank you for your continued support and investment in
Horizon.
Craig M. Dwight
Chairman & Chief Executive Officer
4
Dear Shareholder,
In 2021, Horizon Bancorp, Inc.’s (“Horizon”) strategic execution and accomplishments included record
earnings, strong commercial and consumer loan growth, the extension of our low-cost deposit
franchise in Michigan, and the maintenance of strong asset quality metrics. These resulted from our
continued emphasis on building shareholder value, and we are very pleased to report that Horizon
provided a total return to shareholders of 35% last year.
Horizon’s reported net income of $87.1 million, represented a 27.2% increase over the prior year’s
$68.5 million. And, adjusted net income for the year ended December 31, 2021 increased to $88.6
million, up 30.7% over the prior year’s $67.8 million. This increase in 2021 earnings reflects Horizon’s
successful execution of its ongoing strategy to build mass and scale through both organic and
acquisitive growth, on-going investment in technology, and focus on operational leverage.
Achieving record earnings is truly a testament to the quality of our employees and their ability to focus
on new ways to conduct business to enhance our customers’ experience, expand our franchise and
reduce costs, all during the ongoing pandemic. As we enter the 24th month of this pandemic, our team
is comfortable working within the new operating norms, which include: continuing to provide high levels
of service even when local Covid-19 trends limit and change office-access rules, transitioning to
sustainable increases in our digital banking platforms, and meeting with customers, vendors,
shareholders and employees through new means, including video conferencing. Fortunately, Horizon
was well prepared to operate in the new norm due to investments in technology, retaining our
philosophy of maintaining a long-time standard of having the fastest-available branch connectivity
and expanding our digital banking platform well before the pandemic hit. We are very proud of how
our advisors have dealt with this pandemic, adopted the new norms and moved the Company forward.
This speaks well to Horizon’s values, work ethic and willingness to serve our customers and
communities beyond the call of duty.
Balance Sheet Growth
Horizon’s total assets at year-end 2021 were
acquisition, organic growth, and the relatively
$7.35 billion, representing a 24.8% increase
high cash balances maintained by municipal,
over 2020’s year-end total assets of $5.89 billion.
consumer and business customers that received
This increase is attributed to the 14-branch
federal emergency stimulus funds distributed by
acquisition we completed in September 2021
various government programs in response to the
to enhance our Michigan footprint, a larger
pandemic. As a result of this excess liquidity,
investment portfolio, and organic commercial
Horizon has substantially increased its investment
and consumer loan growth during the last half of
portfolio and leveraged its capital to focus on
the year, all of which have built considerable
growing net interest income. As municipalities,
momentum going into 2022.
consumers and businesses spend down cash
reserves through 2023 and possibly into 2024,
Total deposits at year-end 2021 were $5.80
we expect to take advantage of further demand
billion, increasing 28.0% over prior year-end
for financing and move Horizon’s excess liquidity
deposits of $4.53 billion. The increase in
from our investment portfolio into higher-yielding
deposits is primarily due to the Michigan branch
loans.
We believe the banking industry will continue to
consolidate due to increased competition, the
escalating costs of doing business, increased
regulatory burdens, low interest rates, and the
required investment in technology to remain
competitive. We believe Horizon’s strong balance
sheet, acquisition experience, reputation for
executing smooth post-acquisition integrations,
capacity of our internal systems, commitment to
investing in technology and ability to retain local
people, will continue to make our bank a very
attractive partner for potential sellers.
As we evaluate acquisition opportunities, we will
also be focused on driving organic growth in the
markets where we believe we can gain
meaningful market share or capitalize on
expanding local economies and populations.
These markets include major urban areas,
governmental seats and university or college
towns, most of which project population growth
faster than the United States average and
Horizon’s legacy service areas. In addition, these
identified markets have strong local economies
and are dominated by large out-of-state banks.
As a local and regional community bank, we
believe organic growth will be achieved primarily
by taking market share from larger banks by
focusing on the best possible customer
experience through less bureaucracy, faster
decisions and competitive products and services.
Another key component in Horizon’s strategic
plan is to consistently focus on our four primary
and diverse revenue streams: business and
agricultural banking, retail banking, mortgage
lending, and wealth and investment management.
These four revenue streams provide the bank with
stability to weather varying economic cycles and
diversification of Horizon’s capital at risk, the
combination of which provides for stable and
consistent returns to shareholders over time.
Focused Growth Outlook
Horizon’s future growth and earnings power is
bright, given our recent branch acquisition, recent
investment in commercial lenders and technology
focus to better serve our customers. In addition,
our organizational structure differentiates us from
the large out of state bank competition, who
dominate most markets we serve, by maintaining
local Horizon leadership who are familiar with the
markets, local advisory boards to provide
invaluable market insight and local decision
making that provides for both authority and
accountability to better serve our customers. This
combination of local people with local knowledge
and best-in-class delivery channels creates
strong brand loyalty, as evidenced by our high
net promoter scores and ability to deliver upon
our customer service guarantees.
Milestones Achieved Across
the Company
Horizon achieved the following milestones in 2021:
• Record earnings of $87.1 million
• Surpassed $7.0 billion in total assets
• Successful acquisition and integration of
14 new branch locations
• Continued to improve upon operational
leverage by increasing mass and scale
through the branch acquisition and with
reported tangible book value earn back less
than one year
• Good asset quality as measured by low
non-performing loans to total loans and net
charge-offs to average loans ratios of 0.53%
and 0.04%, respectively
• Improved efficiency and allocation of our
resources by closing ten branch locations in
2021, two in 2020 and nine in 2019
• Increased our deposits per branch location
from $46 million to $74 million from 2017 to
2021, respectively
• Increased the number of commercial lenders
by approximately 20%
(Dollar amounts in thousands except per share data and ratios)
summary of selected
financial data
Earnings
Net interest income
Credit loss expense
Non-interest income
Non-interest expenses
Income tax expense
Net income available to common shareholders
2021
2020
2019
2018
2017
$181,690
$170,940
$160,791
$134,569
$112,100
(2,084)
57,952
139,279
15,356
$87,091
20,751
59,621
1,976
43,058
2,906
34,413
131,441
122,032
102,516
9,870
13,303
10,443
2,470
33,136
94,813
14,836
$68,499
$66,538
$53,117
$33,117
Cash dividends
$24,768
$21,183
$20,835
$15,418
$11,720
Per Share Data
Basic earnings per share¹
Diluted earnings per share¹
Cash dividends declared per common share¹
Book value per common share¹
Tangible book value per common share¹
Weighted-average shares outstanding
Basic¹
Diluted¹
Period End Totals
Loans, net of deferred loan fees and unearned income
Allowance for credit losses
Total assets
Total deposits
Total borrowings
Ratios
Loan to deposit
Loan to total funding
Return on average assets
$1.99
1.98
0.56
16.61
12.58
$1.56
1.55
0.48
15.78
11.81
$1.53
1.53
0.46
14.59
10.63
$1.39
1.38
0.40
12.82
9.43
$0.96
0.95
0.33
11.93
8.48
43,802,733
43,955,280
44,044,737
43,493,316
38,347,059
34,553,736
44,123,208
43,597,595
38,495,231
34,760,439
$3,607,631
$3,867,383
$3,636,841
$3,013,332
$2,831,995
54,286
7,374,903
5,802,991
791,288
57,027
17,667
17,820
16,394
5,886,614
5,246,829
4,246,688
3,964,303
4,531,133
3,931,022
3,139,376
2,881,003
590,151
606,052
588,221
601,810
62.17%
54.71%
1.34%
10.93%
12.23%
28.14%
125.53%
10.53x
85.65%
75.78%
1.22%
11.82%
10.29%
30.77%
92.62%
80.25%
1.35%
12.28%
10.98%
31.31%
96.02%
80.87%
1.31%
11.65%
11.22%
29.03%
98.30%
81.31%
0.97%
11.15%
8.74%
34.78%
100.51%
130.27%
123.09%
155.28%
10.23x
12.42x
11.35x
19.45x
5
Craig M. Dwight
Chairman & Chief Executive Officer
Average stockholders’ equity to average total assets
Return on average stockholders’ equity
Dividend payout ratio (dividends divided by basic earnings per share)
Price to book value ratio
Price to earnings ratio
1Adjusted for 3:2 stock splits on June 15, 2018.
Horizon’s Investments in Technology
continue to benefit economically from the
Asset quality remains strong, evidenced by low
non-performing loans to total loans at year-end at
0.53%, down from the third quarter’s 0.80% and
low net credit losses for the year at .04 of 1%.
Horizon’s favorable asset quality metrics and
generally improving economic conditions
nationally and in our Midwest markets enabled us
to begin normalizing our reserve for credit losses,
which contributed to earnings in 2021.
Horizon’s technology investments in 2021
continued our ongoing commitment to providing
an exceptional customer experience, while
improving operational efficiency and maximizing
our data management capabilities. As a result of
last year’s and prior investments in systems and
people, we increased our utilization in digital
channels to 75% in 2021, up from 44% in 2018,
increased on-line chats in excess of 300% over
the prior year’s volume, with 86% of all chats
answered by our bots, and we increased online
checking account opening to 12% of all accounts
with an expectation to continue to increase online
account opening. As a result of our investment in
technology, three independent call centers that
provide branch support and 46 interactive teller
machines, Horizon’s customers are well served
through our multiple delivery channels.
Customers continue to migrate towards higher
utilization of our mobile and internet banking
platforms and rely less on physical bank
branches to handle their transactions. As a result
of these technology and call center investments,
Horizon was able to consolidate 10 under-utilized
office locations in August 2021. Over the past six
years, Horizon has closed a total of 27 branches,
maintaining high levels of customer service while
achieving significant productivity gains.
Building for the Future
Horizon is a company on the move, and we will
continue to look for opportunities in the markets
we serve to build shareholder value. In 2022,
Horizon will continue to look for growth
opportunities, improve customer experience,
recruit and retain top talent, and build an efficient
operation. Horizon believes that the best options
for future growth are in Indiana, Michigan and
northwest Ohio. A number of our communities
outbound migration from Illinois and the Greater
Chicago area by individuals, families and
businesses seeking lower housing costs and
taxes, business-friendly policies, and more open
spaces. These trends were only magnified during
this pandemic. We believe Indiana, Michigan and
Ohio are fiscally responsible states, with pockets
of strong economic growth and community banks
with similar philosophies. Horizon will continue to
capitalize on these opportunities through organic
and acquisitive growth initiatives, focusing first on
asset generators and secondarily on in–market
bank transactions.
Horizon’s strategic plan calls for acquisitive
growth, which we anticipate will account for
approximately 50% of our total growth over the
long term. Horizon’s acquisition strategy is to
partner with like-minded community banks,
leasing companies, or unique commercial
product entities with similar values located
primarily in Indiana, Michigan and Ohio. These
states have favorable economic environments for
business and are well known to Horizon’s senior
leadership team.
Creating Shareholder Value
Since 2003, Horizon has been guided by a
• Continuation of our uninterrupted payment of
written shareholder value plan which outlines
quarterly cash dividends for more than 30
how our core values, business discipline, and
years
focus on strategic objectives will create long-term
• Maintained consistent shareholder liquidity
value to shareholders. During 2021, this was
with Horizon’s average shares of common
demonstrated through several key actions and
stock traded per day at 118,000, 142,600, and
events, including:
84,800 for the years 2021, 2020 and 2019,
respectively
• A 32% increase in our common share price
• As of 2021, 2020 and 2019 year-end,
to $20.85 per share on December 31, 2021,
Horizon’s tangible book value per share was
providing a 35% total return to stockholders
$12.58, $11.81 and $10.63, respectively,
• Return on average common equity of 12.23%
representing three consecutive years of
• Return on average assets of 1.34%, an
record tangible book value per share
increase over 2020’s ROAA of 1.22%
• Continued our enrollment in the Russell 2000
• Two increases to our quarterly common
and 3000 indices, which supports purchases
dividend during the year, bringing it from
of Horizon’s common stock in index funds tied
12 cents per share to 15 cents and reflecting
to these widely used small-cap benchmarks
a 25% total increase
Horizon’s commitment to people first, investment in technology, a disciplined approach to expansion,
and ability to maintain a diverse number of revenue streams give us confidence in our ability to weather
future economic fluctuations and continue stable growth while delivering shareholder value.
On a Personal Note: On March 31, 2022, Horizon’s President James D. Neff will retire after 22 years of
service to our Company. Jim served Horizon well throughout his tenure and during a time that Horizon
experienced unprecedented growth. We wish Jim the best in his retirement years and thank him for his
years of loyal and dedicated service.
On behalf of the entire Horizon Bancorp family, thank you for your continued support and investment in
Horizon.
(This page intentionally left blank)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
Commission file number 0000-10792
Horizon Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Indiana
35-1562417
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
515 Franklin Street, Michigan City, Indiana 46360
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 219-879-0211
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, no par value
HBNC
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well–known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
Emerging Growth Company
☐
☐
☐
Accelerated Filer
Smaller Reporting Company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes–Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non–affiliates of the registrant, based on the last sale price of
such stock as of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, was
approximately $684.2 million.
As of March 8, 2022, the registrant had 43,563,462 shares of common stock outstanding.
Documents Incorporated by Reference
Document
Part of Form 10–K into which portion of document is incorporated
Portions of the Registrant’s Proxy Statement to be filed for
its May 5, 2022 annual meeting of shareholders
Part III
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
TABLE OF CONTENTS
FORWARD–LOOKING STATEMENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Special
Information about our Executive Officers
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10–K Summary
SIGNATURES
Page
3
5
18
29
30
30
30
31
32
33
34
64
66
143
143
143
144
144
144
145
145
146
149
150
2
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
FORWARD–LOOKING STATEMENTS
A cautionary note about forward-looking statements: In addition to historical information, information included
and incorporated by reference in this Annual Report on Form 10–K contains certain “forward–looking statements”
within the meaning of the federal securities laws. Horizon Bancorp, Inc. (“Horizon”) intends such forward–looking
statements to be covered by the safe harbor provisions for forward–looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this statement for purposes of invoking those safe–harbor
provisions. Forward–looking statements can include statements about estimated cost savings, plans and objectives
for future operations and expectations about Horizon’s financial and business performance as well as economic
and market conditions. They often can be identified by the use of words such as “expect,” “may,” “likely,” “could,”
“should,” “will,” “intend,” “project,” “estimate,” “believe,” “anticipate,” “seek,” “plan,” “goals,” “strategy,” “future” and
variations of such words and similar expressions.
Horizon may include forward-looking statements in filings it makes with the Securities and Exchange Commission
(“SEC”), such as this Form 10–K, in other written materials, and in oral statements made by senior management to
analysts, investors, representatives of the media and others. Horizon intends that these forward–looking statements
speak only as of the date they are made, and Horizon undertakes no obligation to update any forward–looking
statement to reflect events or circumstances after the date on which the forward–looking statement is made or to
reflect the occurrence of unanticipated events.
Although management believes that the expectations reflected in forward–looking statements are reasonable,
actual results may differ materially, whether adversely or positively, from the expectations of Horizon that are
expressed or implied by any forward–looking statement. Risks, uncertainties, and factors that could cause Horizon’s
actual results to vary materially from those expressed or implied by any forward–looking statement include but are
not limited to the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
COVID–19 related impact on Horizon and its customers, employees and vendors, which may depend on
several factors, including the scope and continued duration of the pandemic, its influence on the financial
markets, long–term and post–pandemic changes in the banking preferences and behaviors of customers,
supply chain risks to the bank and its customers and actions taken by governmental authorities and other
third parties in response to the pandemic;
economic conditions and their impact on Horizon and its customers, including local and global economic
recovery from the pandemic;
changes to government regulations, including the CARES Act on the accounting for modified loans;
changes in the level and volatility of interest rates, spreads on earning assets and interest bearing liabilities,
and interest rate sensitivity;
the increasing use of Bitcoin and other crypto currencies and/or stable coin and the possible impact these
alternative currencies may have on deposit disintermediation and income derived from payment systems;
the effect of low interest rates on net interest rate margin and their impact on mortgage loan volumes and
the outflow of deposits;
loss of key Horizon personnel;
increases in disintermediation, as new technologies allow consumers to complete financial transactions
without the assistance of banks, which may have been accelerated by the pandemic;
potential loss of fee income, including interchange fees, as new and emerging alternative payment
platforms (e.g., Apple Pay or Bitcoin) take a greater market share of the payment systems;
estimates of fair value of certain of Horizon’s assets and liabilities;
volatility and disruption in financial markets;
prepayment speeds, loan originations, credit losses and market values, collateral securing loans and other
assets;
sources of liquidity;
potential risk of environmental liability related to lending and acquisition activities;
3
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
changes in the competitive environment in Horizon’s market areas and among other financial service
providers;
legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its
subsidiaries in particular;
changes in regulatory supervision and oversight, including monetary policy and capital requirements;
changes in accounting policies or procedures as may be adopted and required by regulatory agencies;
litigation, regulatory enforcement, tax, and legal compliance risk and costs, as applicable generally and
specifically to the financial and fiduciary (generally and as an ESOP fiduciary) environment, especially if
materially different from the amount we expect to incur or have accrued for, and any disruptions caused by
the same;
the effects and costs of governmental investigations or related actions by third parties;
rapid technological developments and changes;
the risks presented by cyber terrorism and data security breaches;
the rising costs of effective cybersecurity;
containing costs and expenses;
the ability of the U.S. federal government to manage federal debt limits;
the potential influence on the U.S. financial markets and economy from the effects of climate change and
social justice initiatives;
the potential influence on the U.S. financial markets and economy from material changes outside the U.S.
or in overseas relations, including changes in U.S. trade relations related to imposition of tariffs, Brexit, and
the phase out of the London Interbank Offered Rate (“LIBOR”) according to regulatory guidance;
the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with
acquired loans, difficulty integrating acquired operations and material differences in the actual financial
results of such transactions compared with Horizon’s initial expectations, including the full realization of
anticipated cost savings;
acts of terrorism, ware and global conflicts, such as the Russia and Ukraine conflict, and the potential
impact they may have on supply chains, the availability of commodities, commodity prices, inflationary
pressure and the overall U.S. and global financial markets.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
You are cautioned that actual results may differ materially from those contained in the forward–looking statements.
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this
Form 10–K lists some of the factors that could cause Horizon’s actual results to vary materially from those
expressed in or implied by any forward–looking statements. We direct your attention to this discussion.
Other risks and uncertainties that could affect Horizon’s future performance are set forth below in Item 1A, “Risk
Factors.”
4
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
PART I
ITEM1. BUSINESS
The disclosures in this Item 1 are qualified by the disclosures below in Item 1A, “Risk Factors,” and Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other cautionary
statements set forth elsewhere in this Annual Report on Form 10–K.
General
Horizon Bancorp, Inc. (“Horizon” or the “Company”) is a registered bank holding company incorporated in Indiana
and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in northern and
central Indiana and southern and central Michigan through its bank subsidiary, Horizon Bank (“Horizon Bank” or the
“Bank”) and other affiliated entities and Horizon Risk Management, Inc. Horizon operates as a single segment,
which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the
symbol HBNC. Horizon Bank (formerly known as “Horizon Bank, N.A.”) 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. Horizon Risk Management, Inc. is a
captive insurance company incorporated in Nevada and was formed as a wholly–owned subsidiary of Horizon.
Over the last 20 years, Horizon has expanded its geographic reach and experienced financial growth through a
combination of both organic expansion and mergers and acquisitions. Horizon’s initial operations focused on
northwest Indiana, but since then, the Company has developed a presence in new markets in southern and central
Michigan and northeastern and central Indiana. The most recent material expansions through acquisitions are
described below.
On September 17, 2021, Horizon Bank completed the purchase and assumption of certain assets and liabilities of
14 former TCF National Bank (“TCF”) branches in 11 Michigan counties. Net cash of $618.2 million was received in
the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans of $212.0
million, fixed assets of $6.9 million, cash of $4.0 million and a 1.75% premium on deposits. Customer deposit
balances were recorded at $846.4 million and a core deposit intangible of $1.6 million was recorded in the
transaction, which will be amortized over 10 years on a straight line basis. Goodwill of $3.3 million was generated in
the transaction.
On March 26, 2019, Horizon completed the acquisition of Salin Bancshares, Inc. (“Salin”), an Indiana corporation,
and Horizon Bank’s acquisition of Salin Bank and Trust Company (“Salin Bank”), an Indiana commercial bank and
wholly–owned subsidiary of Salin, through mergers effective March 26, 2019. Under the terms of the Merger
Agreement, shareholders of Salin received 23,907.5 shares of Horizon common stock and $87,417.17 in cash for
each outstanding share of Salin common stock. Salin shares outstanding at the closing to be exchanged were 275,
and the shares of Horizon common stock issued to Salin shareholders totaled 6,563,697. The Salin shareholders
received cash in lieu of fractional shares. Based upon the March 25, 2019 closing price of $15.65 per share of
Horizon common stock immediately prior to the effectiveness of the merger, the transaction had an implied valuation
of approximately $126.7 million. As a result of the acquisition, the Company was able to increase its loan and
deposit base and reduce costs through economies of scale. This acquisition brought Horizon a greater presence in
central Indiana, including Indianapolis and Columbus, and northeastern Indiana, including Fort Wayne.
The Bank maintains 78 full service offices. At December 31, 2021, the Bank had total assets of $7.4 billion and total
deposits of $5.8 billion. The Bank has wholly–owned direct and indirect subsidiaries: Horizon Investments, Inc.
(“Horizon Investments”), Horizon Properties, Inc. (“Horizon Properties”), Horizon Insurance Services, Inc. (“Horizon
Insurance”), Horizon Grantor Trust and Wolverine Commercial Holdings, LLC. Horizon Investments manages the
investment portfolio of the Bank. Horizon Properties manages the real estate investment trust. Horizon Insurance is
used by the Company’s Wealth Management to sell certain life insurance products through a third party. Horizon
Grantor Trust holds title to certain company owned life insurance policies. Wolverine Commercial Holdings, LLC
currently holds one piece of property but does not otherwise engage in significant business activities.
5
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
Horizon formed Horizon Bancorp Capital Trust II in 2004 (“Trust II”) and Horizon Bancorp Capital Trust III in 2006
(“Trust III”) for the purpose of participating in pooled trust preferred securities offerings. The Company assumed
additional debentures as the result of the acquisition of Alliance Financial Corporation in 2005, which formed
Alliance Financial Statutory Trust I (“Alliance Trust”). The Company also assumed additional debentures as the
result of the acquisition of American Trust & Savings Bank (“American”) in 2010, which formed Am Tru Statutory
Trust I (“Am Tru Trust”). The Company also assumed additional debentures as the result of the Heartland
transaction, which formed Heartland (IN) Statutory Trust II (“Heartland Trust”). In 2016, the Company also assumed
additional debentures as the result of the LaPorte Bancorp transaction. LaPorte Bancorp acquired City Savings
Financial Corporation in 2007. City Savings Financial Corporation issued the debentures and formed City Savings
Statutory Trust I (“City Savings”) in 2003. The Company also assumed additional debentures as the result of the
Salin transaction, which formed Salin Statutory Trust I (“Salin Trust”) in 2003. See Note 15 of the Consolidated
Financial Statements included at Item 8 for further discussion regarding these previously consolidated entities that
are now reported separately.
The business of Horizon is not seasonal to any material degree. No material part of Horizon’s business is
dependent upon a single or small group of customers, the loss of any one or more of which would have a materially
adverse effect on the business of Horizon. In 2021, revenues from loans accounted for 62.7% of the total
consolidated revenue, and revenues from investment securities accounted for 14.9% of total consolidated revenue.
Available Information
The Company’s Internet address is www.horizonbank.com. The Company makes available, free of charge through
the “About Us – Investor Relations – Documents – SEC Filings” section of its Internet website, copies of the
Company’s Annual Report on Form 10–K, Quarterly Reports on Form 10–Q, Current Reports on Form 8–K and any
amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after those reports are filed with or furnished to the SEC.
Employees and Human Capital Resources
We believe that the foundation of our success in the banking business lies with the quality of our employees, the
development of our employees' skills and career goals, and our ability to provide a comprehensive rewarding
experience and work environment. We encourage and support the development of our employees and, wherever
possible, strive to fill positions from within the organization. As of December 31, 2021, the Bank had 843 full–time
and 69 part–time employees.
Competition
Horizon faces a high degree of competition in all of its primary markets. The Bank’s primary market consists of
areas throughout the northern and central regions of the state of Indiana along with the southern and central regions
of the state of Michigan. The Bank’s primary market is further defined by the Indiana and Michigan counties
identified below. The Bank competes with other commercial banks, savings and loan associations, consumer
finance companies, credit unions and other non–bank and digital financial service providers. In addition, Financial
Technology, or FinTech, start–ups are emerging in key banking areas. To a more moderate extent, the Bank
competes with Chicago money center banks, mortgage banking companies, insurance companies, brokerage
houses, other institutions engaged in money market financial services and certain government agencies. Many
non–financial institution competitors face fewer regulatory restrictions and have greater capital.
6
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
The following table estimates the number of financial institution competitors in Horizon’s primary market areas,
along with Horizon’s competitive position in these areas, based on the June 30, 2021 Federal Deposit Insurance
Corporation (“FDIC”) Deposit Market Share Report (available at www.fdic.gov ):
County
Allen
Bartholomew
Carroll
Cass
DeKalb
Elkhart
Fountain
Grant
Hamilton
Howard
Johnson
Kosciusko
LaPorte
LaGrange
Lake
Marion
Noble
Porter
St. Joseph
Tippecanoe
Whitley
INDIANA
MICHIGAN
Number of
Institutions
Horizon
Market
Share
County
Number of
Institutions
Horizon
Market
Share
8
5
19
14
24
7
29
14
12
9
13.10 %
6.17 %
2.11 %
2.14 %
0.48 %
11.68 %
0.21 %
0.42 %
0.81 %
6.38 %
20
9
6
6
12
16
4
7
26
9
20
10
8
4
16
24
6
11
14
15
7
0.57 % Berrien
6.09 % Cass
25.56 % Ingham
18.17 % Kalamazoo
15.14 % Kent
0.32 % Midland
8.58 % Oakland
6.76 % Ottawa
0.17 % Saginaw
3.23 % St. Joseph
11.74 %
5.28 %
59.96 %
4.05 %
1.62 %
0.67 %
5.67 %
9.92 %
0.26 %
6.33 %
6.90 %
At the time of the FDIC report, Horizon was the largest of the eight bank and thrift institutions in La Porte County, the
largest of the six institutions in Carroll County, the second largest of the 20 institutions in Johnson County, the third
largest of the 12 institutions in DeKalb County, the third largest of the six institutions in Cass County, the fifth largest
of the 15 institutions in Tippecanoe County, and the fifth largest of the 11 institutions in Porter County.
In Michigan, Horizon was the second largest of the seven bank and thrift institutions in Midland County and the
fourth largest of the institutions in Berrien County.
Regulation and Supervision
General
As a bank holding company and a financial holding company, the Company is subject to extensive regulation,
supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve
Board” or “Federal Reserve”) as its primary federal regulator under the Bank Holding Company Act of 1956, as
amended (“BHC Act”). The Company is required to file annual reports with the Federal Reserve and provide other
information that the Federal Reserve may require. The Federal Reserve may also make examinations and
inspections of the Company.
7
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
The Bank, as an Indiana–state chartered bank, is subject to extensive regulation, supervision and examination by
the Indiana Department of Financial Institutions (“DFI”) as its primary state regulator. Also, as to certain matters, the
Bank is under the supervision of, and subject to examination by, the Federal Deposit Insurance Corporation
(“FDIC”) because the FDIC provides deposit insurance to the Bank and is the Bank’s primary federal regulator.
The supervision, regulation and examination of Horizon and the Bank by the bank regulatory agencies are intended
primarily for the protection of depositors rather than for the benefit of Horizon’s shareholders.
Horizon is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, as administered by the SEC. Horizon’s common stock is
listed on the NASDAQ Global Select Market under the trading symbol “HBNC,” and Horizon is subject to the
NASDAQ rules applicable to listed companies.
Included below is a brief summary of significant aspects of the laws, regulations and policies applicable to Horizon
and the Bank. This summary is qualified in its entirety by reference to the full text of the statutes, regulations and
policies that are referenced and is not intended to be an exhaustive description of the statutes, regulations and
policies applicable to the business of Horizon and the Bank. Also, such statutes, regulations and policies are
continually under review by Congress and state legislatures and by federal and state regulatory agencies. A change
in statutes, regulations or regulatory policies applicable to Horizon and the Bank could have a material effect on
Horizon’s business, financial condition and results of operations.
The Bank Holding Company Act
The BHC Act generally limits the business in which a bank holding company and its subsidiaries may engage to
banking or managing or controlling banks and those activities that the Federal Reserve Board has determined to be
so closely related to banking as to be a proper incident thereto. Those closely related activities currently can include
such activities as consumer finance, mortgage banking and securities brokerage. Certain well–managed and well–
capitalized bank holding companies may elect to be treated as a “financial holding company” and, as a result, will be
permitted to engage in a broader range of activities that are financial in nature and in activities that are determined
to be incidental or complementary to activities that are financial in nature. Horizon has both qualified as, and elected
to be, a financial holding company. Activities that are considered financial in nature include securities underwriting
and dealing, insurance underwriting and making merchant banking investments.
To commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity
permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have
received a rating of at least “satisfactory” in its most recent examination under the Community Reinvestment Act.
The Federal Reserve Board has the power to order any bank holding company or its subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when the Federal Reserve Board has reasonable
grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the
financial soundness, safety or stability of any bank subsidiary of the bank holding company.
Federal Reserve Board policy has historically required bank holding companies to act as a source of financial and
managerial strength for their subsidiary banks. The Dodd–Frank Wall Street Reform and Consumer Protection Act
(the “Dodd–Frank Act”), which was signed into law on July 21, 2010, codified this policy. Under this requirement,
Horizon is required to act as a source of financial strength to the Bank and to commit resources to support the Bank
in circumstances in which Horizon might not otherwise do so. For this purpose, “source of financial strength” means
Horizon’s ability to provide financial assistance to the Bank in the event of the Bank’s financial distress.
The BHC Act, the Bank Merger Act (which is the popular name for Section 18(c) of the Federal Deposit Insurance
Act) and other federal and state statutes regulate acquisitions of banks and bank holding companies. The BHC Act
requires the prior approval of the Federal Reserve before a bank holding company may acquire more than a 5%
voting interest or substantially all the assets of any bank or bank holding company. Banks must also seek prior
approval from their primary state and federal regulators for any such acquisitions. In reviewing applications seeking
approval for mergers and other acquisition transactions, the bank regulatory authorities will consider, among other
things, the competitive effect and public benefits of the transactions, the capital position of the combined
organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record
under the Community Reinvestment Act and the effectiveness of the subject organizations in combating money
laundering activities.
8
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a bank holding company is
required to guarantee the compliance of any insured depository institution subsidiary that may become
“undercapitalized” (as defined in FDICIA), with the terms of any capital restoration plan filed by such subsidiary with
its appropriate federal bank regulatory agency.
Bank holding companies, such as Horizon, and their insured depository institutions, such as the Bank, are subject to
various regulatory capital requirements administered by the federal and state regulators. The guidelines establish a
systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Risk–based capital ratios are determined by allocating assets and specified
off–balance sheet commitments to four risk weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk. Recently, the Federal bank regulatory agencies, working jointly,
adopted a rule designed to simplify capital requirements for community banks, allowing qualifying community banks
to adopt a simple community bank leverage ratio. For an additional discussion of the Company’s regulatory capital
ratios and regulatory requirements as of December 31, 2021, please refer to the subsection titled “Capital
Regulation” in this “Regulation and Supervision” section.
Branching and Acquisitions
Indiana law, the BHC Act and the Bank Merger Act restrict certain types of expansion by the Company and the
Bank. The Company and the Bank may be required to apply for prior approval from (or give prior notice and an
opportunity for review to) the Federal Reserve, the DFI and the FDIC, and or other regulatory agencies as a
condition to the acquisition or establishment of new offices, or the acquisition by merger, purchase or otherwise of
the stock, business or assets of other banks or companies.
Under current law, Indiana chartered banks may establish branches throughout the state and in other states, subject
to certain limitations. Indiana law also authorizes an Indiana bank to establish one or more branches in states other
than Indiana through interstate merger transactions and to establish one or more interstate branches through de
novo branching or the acquisition of a branch. The Dodd–Frank Act permits the establishment of de novo branches
in states where such branches could be opened by a state bank chartered by that state. The consent of the state in
which the new branch will be opened is no longer required.
Deposit Insurance and Assessments
The Bank’s deposits are insured to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC. Generally,
deposits are insured up to the statutory limit of $250,000. Banks are subject to deposit insurance premiums and
assessments to maintain the DIF. The FDIC has authority to raise or lower assessment rates on insured banks in
order to achieve statutorily required reserve ratios in the DIF and to impose special additional assessments.
The Dodd–Frank Act resulted in significant changes to the FDIC’s deposit insurance system. Under the Dodd–Frank
Act, the FDIC is authorized to set the reserve ratio for the DIF at no less than 1.35%, and must achieve the 1.35%
designated reserve ratio by September 30, 2020. The FDIC must offset the effect of the increase in the minimum
designated reserve ratio from 1.15% to 1.35% on insured depository institutions of less than $10 billion and may
declare dividends to depository institutions when the reserve ratio at the end of a calendar quarter is at least 1.50%,
although the FDIC has the authority to suspend or limit such permitted dividend declarations. The FDIC has set the
long term goal for the designated reserve ratio of the deposit insurance fund at 2% of estimated insured deposits.
Also as a consequence of the Dodd–Frank Act, the assessment base for deposit insurance premiums was changed
in 2011 from adjusted domestic deposits to average consolidated total assets minus average tangible equity.
Tangible equity for this purpose means Tier 1 capital. The initial base assessment rates ranged from 5 to 35 basis
points. For small Risk Category I banks, such as Horizon Bank, the rates ranged from 5 to 9 basis points.
Adjustments are made to the initial assessment rates based on long–term unsecured debt, depository institution
debt, and brokered deposits.
Effective as of June 30, 2016, the reserve ratio reached 1.15% and a new assessment rate schedule became
effective July 1, 2016, with rates ranging from 3 to 30 basis points instead of 5 to 35 basis points. Assessment rates
for all established smaller banks will be determined using financial measures and supervisory ratings derived from a
statistical model estimating the probability of failure over three years. The new pricing system eliminates risk
9
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
categories, but establishes minimum and maximum assessment rates for established small banks based on a
bank’s CAMELS composite ratings (i.e., capital adequacy, asset quality, management, earnings, liquidity and
sensitivity). By September 2018, the statutory minimum was exceeded, with the reserve ratio reaching 1.36%.
By September 2020, the FDIC had announced that the ratio had declined to 1.30% due largely to the effects of the
COVID–19 pandemic and a surge in deposits. The FDIC adopted a plan to restore the fund to the 1.35% ratio within
eight years but did not change its assessment schedule.
The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a
hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe and unsound
condition to continue operations or has violated any applicable law, regulation, order or any condition imposed in
writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution has no tangible capital.
FDIC–insured institutions have also been subject to the requirement to pay assessments to the FDIC to fund
interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government
established to recapitalize the insolvent Federal Savings and Loan Insurance Corporation, an early predecessor of
the DIF. The FICO bonds were scheduled to be repaid between 2017 and 2019, and the last FICO assessment on
institutions like Horizon Bank was collected on the March 29, 2019, FDIC Quarterly Certified Statement Invoice.
Transactions with Affiliates and Insiders
Horizon and the Bank are subject to the Federal Reserve Act, which restricts financial transactions between banks,
affiliated companies and their executive officers, including limits on credit transactions between these parties. The
statute prescribes terms and conditions in order for bank affiliate transactions to be deemed to be consistent with
safe and sound banking practices, and it also restricts the types of collateral security permitted in connection with a
bank’s extension of credit to an affiliate. In general, extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, and subject to credit underwriting procedures that are at least as
stringent as those prevailing at the time for comparable transactions with non–affiliates, and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
Capital Regulation
The federal bank regulatory authorities have adopted risk–based capital guidelines for banks and bank holding
companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies and account for off–balance sheet items. Generally, to satisfy the capital
requirements, the Company must maintain capital sufficient to meet both risk–based asset ratio tests and a
leverage ratio test on a consolidated basis. Risk–based capital ratios are determined by allocating assets and
specified off–balance sheet commitments into various risk–weighted categories, with higher weighting assigned to
categories perceived as representing greater risk. A risk–based ratio represents the applicable measure of capital
divided by total risk–weighted assets. The leverage ratio is a measure of the Company’s core capital divided by total
assets adjusted as specified in the guidelines.
The capital guidelines divide a bank holding company’s or bank’s capital into two tiers. The first tier (“Tier I”)
includes common equity, certain non–cumulative perpetual preferred stock and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and certain other intangible assets (except mortgage servicing rights and
purchased credit card relationships, subject to certain limitations). Supplementary capital (“Tier II”) includes, among
other items, cumulative perpetual and long–term limited–life preferred stock, mandatory convertible securities,
certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to
certain limitations, less required deductions. The regulations also require the maintenance of a leverage ratio
designed to supplement the risk–based capital guidelines. This ratio is computed by dividing Tier I capital, net of all
intangibles, by the quarterly average of total assets. Pursuant to the regulations, banks must maintain capital levels
commensurate with the level of risk, including the volume and severity of problem loans to which they are exposed.
Effective January 1, 2015 (subject to certain phase–in provisions through January 1, 2019), the Company became
subject to federal banking rules implementing changes arising from Dodd–Frank and the U.S. Basel Committee on
Banking Supervision, providing a capital framework for all U.S. banks and bank holding companies (“Basel III”).
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HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
Basel III increased the minimum requirements for both the quantity and quality of capital held by Horizon and the
Bank. The rules include a common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital ratio of 6.0%
(increased from 4.0%), a total capital ratio of 8.0% (unchanged from prior rules) and a minimum leverage ratio of
4.0%. The rules also require a common equity Tier 1 capital conservation buffer of 2.5% of risk–weighted assets,
which is in addition to the other minimum risk–based capital standards in the rule. Institutions that do not maintain
the required capital conservation buffer will become subject to progressively more stringent limitations on the
percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of
certain bonuses to senior executive management. The capital conservation buffer requirement was phased in over
three years beginning in 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented at
2.5% on January 1, 2019. The capital conservation buffer requirement effectively raises the minimum required
common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5% and the total capital ratio to 10.5%.
Basel III also introduced other changes, including an increase in the capital required for certain categories of assets,
including higher–risk construction real estate loans and certain exposures related to securitizations. Banking
organizations with less than $15 billion in assets as of December 31, 2010, such as Horizon, are permitted to retain
non–qualifying Tier 1 capital trust preferred securities issued prior to May 19, 2010, subject generally to a limit of
25% of Tier 1 capital.
In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Regulatory Relief Act”)
was enacted, to modify or remove certain financial reform rules and regulations, including some implemented under
the Dodd–Frank Act. As directed by the Regulatory Relief Act, in October 2019, federal banking regulators
established a “Community Bank Leverage Ratio” to replace the leverage and risk–based regulatory capital ratios for
qualifying community banking organizations that choose to opt in to the new framework. Any qualifying depository
institution or its holding company that exceeds the “Community Bank Leverage Ratio” of 9% will be considered to
have met generally applicable leverage and risk–based regulatory capital ratios, and any qualifying depository
institution that exceeds the new ratio will be considered to be “well–capitalized” under the prompt correction action
rules.
The federal banking regulators also adopted additional capital simplification rules effective for 2020. The capital
simplifications rules increase the individual regulatory limit for mortgage servicing assets and certain deferred tax
assets, remove the aggregate 15% common equity Tier 1 capital threshold deduction, streamline the treatment for
investments in the capital of unconsolidated financial institutions, and simplify the calculation for minority interest
limitations for non-advanced approaches banking organizations.
Horizon’s management believes that, as of December 31, 2021, Horizon and the Bank met all capital adequacy
requirements under the Basel III capital rules currently in effect.
11
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
The following is a summary of Horizon’s and the Bank’s regulatory capital and capital requirements at December 31,
2021.
Actual
Amount
Ratio
Required for Capital
Adequacy Purposes(1)
Amount
Ratio
Required For Capital
Adequacy Purposes
with Capital Buffer(1)
Amount
Ratio
Well Capitalized
Under Prompt
Corrective Action
Provisions(1)
Amount
Ratio
Total capital (to risk-
weighted assets)(1)
Consolidated
Bank
Tier 1 capital (to risk-
weighted assets)(1)
Consolidated
Bank
Common equity tier 1
capital (to risk-weighted
assets)(1)
Consolidated
Bank
Tier 1 capital (to
average assets)(1)
Consolidated
Bank
$ 708,198
15.71 % $ 360,737
8.00 % $ 473,468
10.50 %
N/A
N/A
664,061
14.72 % 361,015
8.00 % 473,832
10.50 % $ 451,269
10.00 %
661,729
14.68 % 270,553
6.00 % 383,284
8.50 %
N/A
N/A
617,592
13.69 % 270,761
6.00 % 383,578
8.50 % 361,015
8.00 %
541,920
12.02 % 202,915
4.50 % 315,645
7.00 %
N/A
N/A
617,592
13.69 % 203,071
4.50 % 315,888
7.00 % 293,325
6.50 %
661,729
9.05 % 292,335
4.00 % 292,335
4.00 %
N/A
N/A
617,592
8.50 % 290,646
4.00 % 290,646
4.00 % 363,307
5.00 %
(1) As defined by regulatory agencies
The Dodd–Frank Act also requires the Federal Reserve to set minimum capital levels for bank holding companies
that are as stringent as those required for insured depository subsidiaries, except that bank holding companies with
less than $1 billion in assets are exempt from these capital requirements.
Dividends
Horizon is a legal entity separate and distinct from the Bank. The primary source of Horizon’s cash flow, including
cash flow to pay dividends on its common stock, is the payment of dividends to Horizon by the Bank. Under Indiana
law, the Bank may pay dividends of so much of its undivided profits (generally, earnings less losses, bad debts,
taxes and other operating expenses) as is considered appropriate by the Bank’s Board of Directors. However, the
Bank must obtain the approval of the DFI for the payment of a dividend if the total of all dividends declared by the
Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the
year to date plus its retained net income for the previous two years. For this purpose, “retained net income” means
net income as calculated for call report purposes, less all dividends declared for the applicable period. The Bank is
generally exempt from this DFI pre–approval process for dividends if (i) the Bank has been assigned a composite
uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; (ii) the
proposed dividend will not result in a Tier 1 leverage ratio below 7.5%; and (iii) the Bank is not subject to any
corrective action, supervisory order, supervisory agreement or board approved operating agreement.
The FDIC has the authority to prohibit the Bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice in light of the financial condition of the Bank.
In addition, under Federal Reserve supervisory policy, a bank holding company generally should not maintain its
existing rate of cash dividends on common shares unless (i) the organization’s net income available to common
shareholders over the past year has been sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the organization’s capital needs, assets, quality and overall financial
condition. The Federal Reserve issued a letter dated February 24, 2009, to bank holding companies informing them
that it expects bank holding companies to consult with it in advance of declaring dividends that could raise safety
and soundness concerns (i.e., such as when the dividend is not supported by earnings or involves a material
12
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
increase in the dividend rate) and in advance of repurchasing shares of common stock or preferred stock. Although
the effect of this letter was revised in December 2015 to become inapplicable to certain large U.S. bank holding
companies (generally, those with at least $50 billion in average total consolidated assets), the guidance remains
effective for bank holding companies like Horizon.
Prompt Corrective Regulatory Action
“adequately
capitalized,”
“undercapitalized,”
Under FDICIA, federal banking regulatory authorities are required to take regulatory enforcement actions known as
“prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements.
The extent of the regulators’ powers depends on whether the institution in question is categorized as “well
“critically
capitalized,”
undercapitalized,” as defined by regulation. Depending upon the capital category to which an institution is assigned,
the regulators’ corrective powers include: (i) requiring the submission of a capital restoration plan; (ii) placing limits
on asset growth and restrictions on activities; (iii) requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; (iv) restricting transactions with affiliates; (v) restricting the interest rate
the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that
senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from
correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of
principal or interest on subordinated debt; and (xi) ultimately, for critically undercapitalized institutions, appointing a
receiver for the institution.
“significantly undercapitalized,” or
New prompt corrective action requirements that became effective January 1, 2015, increased the capital level
requirements necessary to qualify as “well capitalized.” At December 31, 2021, the Bank was categorized as “well
capitalized,” meaning that the Bank’s total risk–based capital ratio exceeded 10%, the Bank’s Tier 1 risk–based
capital ratio exceeded 8%, the Bank’s common equity Tier 1 risk–based capital ratio exceeded 6.5%, the Bank’s
leverage ratio exceeded 5%, and the Bank was not subject to a regulatory order, agreement or directive to meet and
maintain a specific capital level for any capital measure.
Banking regulators may change these capital requirements from time to time, depending on the economic outlook
generally and the outlook for the banking industry. The Company is unable to predict whether and when any such
further capital requirements would be imposed and, if so, to what levels and on what schedule.
Anti–Money Laundering — The USA Patriot Act and the Bank Secrecy Act
Horizon is subject to the provisions of the USA PATRIOT Act of 2001, which contains anti–money laundering and
financial transparency laws and requires financial institutions to implement additional policies and procedures to
address money laundering, suspicious activities and currency transaction reporting, and currency crimes. The
regulations promulgated under the USA PATRIOT Act of 2001 require financial institutions such as the Bank to
adopt controls to detect, prevent and report money laundering and terrorist financing and to verify the identities of
their customers.
The Bank Secrecy Act of 1970, which was amended to incorporate certain provisions of the USA PATRIOT Act of
2001, also focuses on combating money laundering and terrorist financing and requires financial institutions to
develop policies, procedures and practices to prevent, detect and deter these activities, including customer
identification programs and procedures for filing suspicious activity reports. Banks had until May 2018 at the latest
to update their policies with respect to new customer due diligence regulations adopted by the U.S. Department of
the Treasury under the Bank Secrecy Act. During 2018, Horizon Bank implemented the Fifth Pillar of the Bank
Secrecy Act (“BSA”) which focuses on identifying beneficial ownership. The BSA officer and BSA analysts
incorporated these enhanced due diligence requirements into the Bank’s policies, procedures and training programs
in 2018.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing, or to
comply with all of the relevant laws or regulations relating thereto, could have serious legal and reputational
consequences for Horizon and the Bank.
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HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
Federal Securities Law and NASDAQ
The shares of common stock of Horizon have been registered with the SEC under the Securities Exchange Act (the
“1934 Act”). Horizon is subject to the information, proxy solicitation, insider trading restrictions and other
requirements of the 1934 Act and the rules of the SEC promulgated thereunder.
Shares of common stock held by persons who are affiliates of Horizon may not be resold without registration unless
sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933. If Horizon meets the
current public information requirements under Rule 144, each affiliate of Horizon who complies with the other
conditions of Rule 144 (including those that require the affiliate’s sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of (i) 1% of the outstanding shares of Horizon or (ii) the average weekly volume of
trading in such shares during the preceding four calendar weeks.
Under the Dodd–Frank Act, Horizon is required to provide its shareholders an opportunity to vote on the executive
compensation payable to its named executive officers and on golden parachute payments in connection with
mergers and acquisitions. These votes are non-binding and advisory. At least once every six years, Horizon must
also permit shareholders to determine, on an advisory basis, whether such votes on executive compensation (called
“say on pay” votes) should be held every one, two, or three years. In both 2012 and 2018, Horizon’s shareholders
voted in favor of presenting the executive compensation “say on pay” question every year.
Shares of common stock of Horizon are listed on The NASDAQ Global Select Market under the trading symbol
“HBNC,” and Horizon is subject to the rules of NASDAQ for listed companies.
Sarbanes–Oxley Act of 2002
Horizon is subject to the Sarbanes–Oxley Act of 2002 (the “Sarbanes–Oxley Act”), which revised the laws affecting
corporate governance, accounting obligations and corporate reporting. The Sarbanes–Oxley Act applies to all
companies with equity or debt securities registered under the 1934 Act. In particular, the Sarbanes–Oxley Act
established: (i) new requirements for audit committees, including independence, expertise and responsibilities; (i)
additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer
of the reporting company; (ii) new standards for auditors and regulation of audits; (iv) increased disclosure and
reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased
civil and criminal penalties for violation of the securities laws.
Pursuant to the final rules adopted by the SEC to implement Section 404 of the Sarbanes–Oxley Act, Horizon is
required to include in each Form 10–K it files a report of management on Horizon’s internal control over financial
reporting. The internal control report must include a statement of management’s responsibility for establishing and
maintaining adequate control over financial reporting of Horizon, identify the framework used by management to
evaluate the effectiveness of Horizon’s internal control over financial reporting and provide management’s
assessment of the effectiveness of Horizon’s internal control over financial reporting. This Annual Report on Form
10–K also includes an attestation report issued by Horizon’s registered public accounting firm on Horizon’s internal
control over financial reporting.
Financial System Reform — The Dodd–Frank Act, the CFPB and the 2018 Regulatory Relief Act
The Dodd–Frank Act, which was signed into law in 2010, significantly changed the regulation of financial institutions
and the financial services industry. The Dodd–Frank Act includes provisions affecting large and small financial
institutions alike, including several provisions that have profoundly affected how community banks, thrifts, and small
bank and thrift holding companies are regulated. Among other things, these provisions eliminated the Office of Thrift
Supervision and transferred its functions to the other federal banking agencies, relaxed rules regarding interstate
branching, allowed financial institutions to pay interest on business checking accounts, changed the scope of
federal deposit insurance coverage and imposed new capital requirements on bank and thrift holding companies.
The Dodd–Frank Act created the Consumer Financial Protection Bureau (“CFPB”) as an independent bureau within
the Federal Reserve System with broad rulemaking, supervisory and enforcement powers under various federal
consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate
Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the Consumer Financial
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HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
Privacy provisions of the Gramm–Leach–Bliley Act and certain other statutes. In July 2011, many of the consumer
financial protection functions formerly assigned to the federal banking and other designated agencies were
transferred to the CFBP. The CFBP has a large budget and staff, and has the authority to implement regulations
under federal consumer protection laws and enforce those laws against financial institutions. The CFPB has
examination and primary enforcement authority over depository institutions with $10 billion or more in assets.
Smaller institutions are subject to rules promulgated by the CFPB but continue to be examined and supervised by
the federal banking regulators for consumer compliance purposes. The CFPB also has authority to prevent unfair,
deceptive or abusive practices in connection with offering consumer financial products. Additionally, the CFPB is
authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial
education, track consumer complaints, request data, and promote the availability of financial services to
underserved consumers and communities.
The CFPB has indicated that mortgage lending is an area of supervisory focus. The CFPB has published several
final regulations impacting the mortgage industry, including rules related to ability–to–repay, mortgage servicing,
escrow accounts, and mortgage loan originator compensation. The ability–to–repay rule makes lenders liable if they
fail to assess a borrower’s ability to repay under a prescribed test, but also creates a safe harbor for so called
“qualified mortgages.” Failure to comply with the ability–to–repay rule may result in possible CFPB enforcement
action and special statutory damages plus actual, class action, and attorneys’ fees damages, all of which a borrower
may claim in defense of a foreclosure action at any time.
The CFPB also amended Regulation C to implement amendments to the Home Mortgage Disclosure Act made by
the Dodd–Frank Act. The amendment added a significant number of new information collecting and reporting
requirements for financial institutions, most of which became effective as of January 1, 2018.
The Dodd–Frank Act contains numerous other provisions affecting financial institutions of all types, many of which
may have an impact on the operating environment of Horizon in substantial and unpredictable ways. Horizon has
incurred higher operating costs in complying with the Dodd–Frank Act, and expects these higher costs to continue
for the foreseeable future.
In May 2018, the Regulatory Relief Act was enacted to modify or remove certain financial reform rules and
regulations, including some of those implemented under the Dodd–Frank Act. While the Regulatory Relief Act
maintains most of the regulatory structure established by the Dodd–Frank Act, it amends certain aspects of the
regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with
assets of more than $50 billion.
Rules promulgated in 2019 pursuant to the Regulatory Relief Act have simplified the regulatory capital calculation
and have established a “Community Bank Leverage Ratio” to replace the leverage and risk–based regulatory capital
ratios for those banks choosing to adopt it. In addition, the Regulatory Relief Act includes regulatory relief for
community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading
prohibitions), mortgage disclosures and risk weights for certain high–risk commercial real estate loans.
Horizon’s management will continue to review the status of the rules and regulations adopted pursuant to the Dodd–
Frank Act and the Regulatory Relief Act, particularly the Community Bank Leverage Ratio framework, and to assess
their probable impact on the business, financial condition and results of operations of Horizon. At this point, Horizon
Bank has not elected to opt into the Community Bank Leverage Ratio framework.
Federal Home Loan Bank (“FHLB”) System
The Bank is a member of the FHLB of Indianapolis, which is one of twelve regional FHLBs. Each FHLB serves as a
reserve or central bank for its members within its assigned region. The FHLB is funded primarily from funds
deposited by banks and savings associations and proceeds derived from the sale of consolidated obligations of the
FHLB system. It makes loans to members (i.e., advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. The Federal Housing Finance Board (“FHFB”), an independent agency, controls the FHLB
System, including the FHLB of Indianapolis.
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HORIZON BANCORP, INC.
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The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate
related collateral to 30% of a member’s capital and limiting total advances to a member. Interest rates charged for
advances vary depending upon maturity, the cost of funds to the FHLB of Indianapolis and the purpose of the
borrowing.
The FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to
affordable housing programs through direct loans or interest subsidies on advances targeted for community
investment and low and moderate income housing projects.
As a member of the FHLB, the Bank is required to purchase and maintain stock in the FHLB of Indianapolis in an
amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts, or similar
obligations at the beginning of each year. At December 31, 2021, the Bank’s investment in stock of the FHLB of
Indianapolis was $24.4 million. For the year ended December 31, 2021, dividends paid by the FHLB of Indianapolis
to the Bank on the FHLB stock totaled approximately $657,000, for an annualized rate paid in dividends of 2.8%.
Limitations on Rates Paid for Deposits; Restrictions on Brokered Deposits
FDIC regulations restrict the interest rates that less than well–capitalized insured depository institutions may pay on
deposits and also restrict the ability of such institutions to accept brokered deposits. These regulations permit a
“well capitalized” depository institution to accept, renew or roll over brokered deposits without restriction, and an
“adequately capitalized” depository institution to accept, renew or roll over brokered deposits with a waiver from the
FDIC (subject to certain restrictions on payments of rates). The regulations prohibit an “undercapitalized” depository
institution from accepting, renewing or rolling over brokered deposits. These regulations contemplate that the
definitions of “well capitalized,” “adequately capitalized” and “undercapitalized” will be the same as the definitions
adopted by the agencies to implement the prompt corrective action provisions of FDICIA. The Bank is a well–
capitalized institution, and management does not believe that these regulations have a materially adverse effect on
the Bank’s current operations.
Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”), the Bank has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes
are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC in connection with
its examination of the Bank, to assess its record of meeting the credit needs of its community and to take that record
into account in its evaluation of certain applications by the Bank. For example, the regulations specify that a bank’s
CRA performance will be considered in its expansion proposals (e.g., branching and acquisitions of other financial
institutions) and may be the basis for approving, denying or conditioning the approval of an application. As of the
date of its most recent regulatory examination, the Bank was rated “satisfactory” with respect to its CRA compliance.
Gramm–Leach–Bliley Act, Financial Privacy
The Gramm–Leach–Bliley Act adopted in 1999 (“Gramm–Leach”) was intended to modernize the banking industry
by removing barriers to affiliation among banks, insurance companies, the securities industry and other financial
service providers. Gramm–Leach was responsible for establishing a distinct type of bank holding company, known
as a financial holding company, which is allowed to engage in an expanded range of financial services, including
banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. As previously
discussed, Horizon has qualified as, and elected to become, a financial holding company under the Gramm–Leach
amendments to the BHC Act.
Under Gramm–Leach, federal banking regulators adopted rules limiting the ability of banks and other financial
institutions to disclose non–public information about consumers to non–affiliated third parties. The rules require
disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of
certain personal information to non–affiliated third parties. The privacy provisions of Gramm–Leach affect how
consumer information is transmitted through diversified financial services companies and conveyed to outside
vendors.
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As a financial institution, the Bank handles a significant amount of sensitive data, including personal information.
The Company does not disclose any non–public information about any current or former customers to anyone
except as permitted by law and subject to contractual confidentiality provisions which restrict the release and use of
such information.
We are also subject to guidance from the Federal Financial Institutions Examination Council (“FFIEC”), an
interagency body for five federal banking regulators, with respect to such matters as data privacy, disaster recovery
and cybersecurity.
Horizon continues to monitor existing and new privacy and data security laws for their impact on Horizon’s business
operations and its customers, including the applicability and effect of laws such as the European Union’s
comprehensive 2018 General Data Privacy Regulation and the California Consumer Privacy Act that went into effect
on January 1, 2020.
Interchange Fees for Debit Cards
Under the Dodd–Frank Act, interchange fees for bank card transactions must be reasonable and proportional to the
issuer’s incremental cost incurred with respect to the transaction plus certain fraud related costs. Interchange fees
are transaction fees between banks for each bank card transaction, designed to reimburse the card-issuing bank for
the costs of handling and credit risk inherent in a bank credit or debit card transaction. Although institutions with total
assets of less than $10 billion, like the Bank, are exempt from this requirement, competitive pressures are likely to
require smaller depository institutions to reduce fees with respect to these bank card transactions.
Other Regulation
In addition to the matters discussed above, the Bank is subject to additional regulation of its activities, including a
variety of consumer protection regulations affecting its lending, deposit and debt collection activities and regulations
affecting secondary mortgage market activities. Both federal and state law extensively regulate various aspects of
the banking business, such as reserve requirements, truth-in-lending and truth-in-savings disclosures, equal credit
opportunity, fair credit reporting, trading in securities and other aspects of banking operations.
Accounting Standards With Regulatory Effect
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, “Financial
Instruments–Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces
the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the
Current Expected Credit Loss (“CECL”) model. Under the CECL model, Horizon will be required to present certain
financial assets carried at amortized cost, such as loans held for investment and held to maturity debt securities, at
the net amount expected to be collected. The measurement of expected credit losses is to be based on information
about past events, including historical experience, current conditions, and reasonable and supportable forecasts
that affect the collectability of the reported amount. On December 21, 2018, the federal banking agencies approved
a final rule modifying their regulatory capital rules and providing an option to phase in over a period of three years
the day–one regulatory capital effects of the CECL model. The final rule also revises the agencies' other rules to
reflect the update to the accounting standards. The final rule took effect April 1, 2019. Horizon adopted the new
CECL standard effective as of January 1, 2020, the effects of which are shown and discussed in the financial
statements and related notes included in this Annual Report.
Effect of Governmental Monetary Policies
The Bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the
United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies
of the Federal Reserve have major effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to
predict the nature or impact of future changes in monetary and fiscal policies.
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Legislative Initiatives
Additional legislative and administrative actions affecting the banking industry may be considered by the United
States Congress, state legislatures and various regulatory agencies. Horizon cannot predict with certainty whether
such legislative or administrative action will be enacted or the extent to which the banking industry in general or
Horizon and its affiliates in particular will be affected.
ITEM 1A. RISK FACTORS
An investment in Horizon’s securities is subject to numerous risks and uncertainties related to our business. The
material risks and uncertainties that management believes currently affect Horizon are described below, categorized
as risks related to our business, risks related to the banking industry generally, and risks related to our common
stock. Additional risks and uncertainties that management is not aware of or that management currently deems
immaterial may also impair Horizon's business operations and its financial results. This report is qualified in its
entirety by these risk factors. If any of the following risks actually occur, our business, financial condition and results
of operations could be materially and adversely affected. If this were to happen, the value of our securities could
decline significantly, and you could lose all or part of your investment. As a result, before making an investment
decision, you should carefully consider these risks as well as information we include or incorporate by reference in
this report and other filings we make with the SEC.
Some statements in the following risk factors constitute forward–looking statements. Please refer to "Forward–
Looking Statements" beginning on page 3 of this Annual Report on Form 10–K.
Risks Related to Our Business
The COVID–19 pandemic has and may continue to impact our business and financial results, and the
ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted,
including the scope and duration of the pandemic and actions taken by governmental authorities in
response to the pandemic.
The COVID–19 pandemic has created and continues to create disruptions to the global economy and to the lives of
individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to
contain the spread of COVID–19 and to mitigate its effects, including quarantines, travel bans, shelter–in–place
orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and
other relief. While the scope, duration, and full effects of COVID–19 are still rapidly evolving and not fully known, the
pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning
of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and
supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession,
many of the risk factors identified in this Annual Report could be exacerbated and such effects could have a material
adverse impact on us in a number of ways related to credit, collateral, customer demand, funding operations,
interest rate risk, human capital, self–insurance and financial results, as described in more detail below.
•
Credit Risk – Our risks of timely loan repayment and the value of collateral supporting the loans are affected
by the strength of our borrowers' businesses. Concern about the spread of COVID–19 has caused and is
likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions,
labor shortages, change in consumer and business spending and travel behaviors, supply chain
interruptions, increased unemployment and commercial property vacancy rates, reduced profitability, inability
of property owners to make mortgage payments, and overall economic and financial market instability, all of
which have already caused some of our customers to be unable to make scheduled loan payments. If the
continuing effects of COVID–19 result in widespread and sustained repayment shortfalls on loans in our
portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available
collateral is insufficient to cover our exposure. The future effects of COVID–19 on economic activity could
negatively affect the collateral values associated with our existing loans, our ability to liquidate the real estate
collateral securing our residential and commercial real estate loans, our ability to maintain loan origination
volume and to obtain additional financing, the future demand for or profitability of our lending services, and
the financial condition and credit risk profiles of our customers.
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Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may
slow or prevent us from making our business decisions or may result in a delay in our taking certain
remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to
customers. During a challenging economic environment like now, our customers are more dependent on our
credit commitments and increased borrowings under these commitments could adversely impact our liquidity.
Furthermore, in an effort to support our communities during the pandemic, we participated in the Paycheck
Protection Program (“PPP”) under the CARES Act whereby loans to small businesses were made and those
loans are subject to regulatory requirements that require forbearance of loan payments for a specified time
and that limit our ability to pursue all available remedies in the event of a loan default. If a borrower under a
PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at
unfavorable interest rates as compared to loans to customers that we would have otherwise extended credit
to.
Strategic Risk – Our success in effectively implementing our short–term and long–term strategic objectives
and business plans may be negatively affected by the continuing impacts of the COVID–19 pandemic,
including changes in the pricing marketability of our products and services, changes in interest rates that
may increase our funding costs, reduced demand for our financial products due to deteriorating economic
conditions and the various responses of governmental and nongovernmental authorities. In many of our
markets, local governments have acted to temporarily close or restrict the operations of most businesses
from time to time during the COVID–19 pandemic.
Operational Risk – Current and future restrictions on our workforce's access to our facilities could limit our
ability to meet customer servicing expectations and have a material adverse effect on our operations and
financial results. We rely on business processes and branch activity that largely depend on people and
technology, including access to information technology systems as well as information, applications, payment
systems and other services provided by third parties. In response to COVID–19, we have modified our
business practices with a portion of our employees working remotely from other locations and their homes to
have our operations uninterrupted as much as possible. Further, technology in employees' homes may not
be as robust as in our offices and could cause the networks, information systems, applications, and other
tools available to employees to be more limited or less reliable than in our offices. The continuation of these
work–from–home measures also introduces additional operational risk, including increased cybersecurity
risk. These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to
disruptions of our information technology infrastructure and telecommunications systems for remote
operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore
the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in
destruction or misuse of valuable information, and potential impairment of our ability to perform critical
functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and
liability and could seriously disrupt our operations and the operations of any impacted customers.
Moreover, we rely on many third parties in our business operations, including appraisers of real estate
collateral, vendors that supply essential services such as loan servicers, providers of financial information,
systems and analytical tools and providers of electronic payment and settlement systems, and local and
federal government agencies, offices, and courthouses. In light of the developing measures responding to
the pandemic, many of these entities may limit the availability of, and access to, their services and facilities.
For example, loan origination could be delayed due to the limited availability of real estate appraisers for the
collateral. Loan closings could be delayed related to reductions in available staff in recording offices or the
closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings
in those counties. If the third–party service providers continue to have limited capacities for a prolonged
period or if additional limitations or potential disruptions in these services materialize, it may negatively affect
our operations and financial results.
Interest Rate Risk – Our net interest income, lending activities, deposits and profitability could be negatively
affected by volatility in interest rates caused by uncertainties stemming from COVID–19. A prolonged period
of extremely volatile and unstable market conditions would likely increase our funding costs and negatively
affect our market risk mitigation strategies. Higher income volatility from changes in interest rates and
spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair
market values of our assets. Fluctuations in interest rates will also impact both the level of income and
expense recorded on most of our assets and liabilities and the market value of all interest earning assets and
•
•
•
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2021 Annual Report on Form 10–K
interest bearing liabilities, which in turn could have a material adverse effect on our net income, operating
results, or overall financial condition.
In addition, the United States Government and its related entities are incurring unprecedented debt levels in support
of the United States economy. This level of debt may not be sustainable, may cause further inflationary pressures
and poses increased risks to the United States economy if international investors elect to no longer purchase United
States Treasuries.
Because there have been no recent global pandemics that resulted in similar global impact, we do not yet know the
full extent of COVID–19's effects on our business, operations, and customers, or the global economy as a whole.
Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the
pandemic, the effectiveness of our work from home arrangements, third party providers' ability to support our
operations, and any actions taken by governmental authorities and other third parties in response to the pandemic.
The uncertain future development of this crisis could materially and adversely affect our business, operations,
operating results, financial condition, liquidity or capital levels.
An economic slowdown in our primary market areas could affect our business.
Our primary market area for deposits and loans consists of northern and central Indiana and southern and central
Michigan. An economic slowdown could hurt our business and the possible consequences of such a downturn could
include the following:
•
•
•
•
•
•
•
increases in loan delinquencies and foreclosures;
declines in the value of real estate and other collateral securing loans;
an increase in loans charged off;
an increase in expense to fund loan loss reserves;
an increase in collection costs;
a decline in the demand for our products and services; and
an increase in non–accrual loans and other real estate owned.
We face intense competition in all phases of our business from other banks, financial institutions and non–
banks.
The banking and financial services business in most of our markets is highly competitive. Our competitors include
large banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage
companies, insurance companies, finance companies, money market mutual funds, credit unions, neo–banks (a
digital or mobile–only bank that exists without any physical bank branches), and other non–bank financial and digital
service providers, many of which have greater financial, marketing and technological resources than we do. Many of
these competitors are not subject to the same regulatory restrictions that we are and may be able to compete more
effectively as a result.
Also, technology and other changes have lowered barriers to entry and made it possible for customers to complete
financial transactions using neo–banks, non–banks and financial technology (“FinTech”) companies that historically
have involved banks at one or both ends of the transaction. These entities now offer products and services
traditionally provided by banks and often at lower costs. The wide acceptance of Internet–based commerce has
resulted in a number of alternative payment processing systems, and deposit and lending platforms in which banks
play only minor roles. For example, consumers can maintain funds that would have historically been held as bank
deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills
and/or transferring funds directly without the assistance of banks. Use of emerging alternative payment platforms,
such as Apple Pay or Bitcoin or other cryptocurrencies, can alter consumer credit card behavior and consequently
impact our interchange fee income.
The continuing process of eliminating banks as intermediaries, known as “disintermediation,” will likely result in the
loss of additional fee income, as well as the loss of customer deposits and the related income generated from those
deposits. The effects of disintermediation are also likely to continue to negatively impact the lending activities of
traditional banks because of the fast growing number of FinTech companies that use software and technology to
deliver mortgage lending and other financial services with fewer employees. A related risk is the migration of bank
personnel away from the traditional bank environments into neo–banks, FinTech companies and other non–banks.
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Increased competition in our markets may result in a decrease in the amounts of our loans and deposits, reduced
spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower. Any of these
results could have a material adverse effect on our ability to maintain our earnings record, grow our loan portfolios
and obtain low–cost funds. If increased competition causes us to significantly discount the interest rates we offer on
loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased
competition causes us to change our underwriting standards, we could be exposed to higher losses from lending
activities. Additionally, many of our competitors are larger in total assets and capitalization and have greater access
to capital markets.
Horizon is also experiencing an increase in competition to acquire other banks, due to the overall strength of
financial institutions and their high capital levels. In addition, credit unions, private equity groups, and FinTech
companies are now actively pursuing small bank acquisitions. Increased competition for bank acquisitions may slow
Horizon’s ability to grow earning assets at comparable historical growth rates.
Changes in interest rates could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in interest rates. We can
neither predict with certainty nor control changes in interest rates. These changes can occur at any time and are
affected by many factors, including international, national, regional and local economic conditions, competitive
pressures and monetary policies of the Federal Reserve.
Our results of operations depend substantially on our net interest income, which is the difference between the
interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest
bearing liabilities. Our profitability depends on our ability to manage our assets and liabilities during periods of
changing interest rates. If rates increase rapidly, we may have to increase the rates paid on our deposits and
borrowed funds more quickly than loans and investments re–price, resulting in a negative impact on interest
spreads and net interest income. The impact of rising rates could be compounded if deposit customers funds away
from us into direct investments, such as U.S. Government bonds, corporate securities and other investments,
including mutual funds, which, because of the absence of federal deposit insurance premiums and reserve
requirements, generally pay higher rates of return than those offered by financial institutions.
We also expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and
liabilities, meaning that either our interest bearing liabilities will be more sensitive to changes in market interest rates
than our interest earning assets, or vice versa. In either event, if market interest rates should move contrary to our
position, this “gap” will negatively impact our earnings. The impact on earnings is more adverse when the slope of
the yield curve flattens, that is, when short–term interest rates increase more than long–term interest rates or when
long–term interest rates decrease more than short–term interest rates.
Changes in interest rates also could affect loan volume. For instance, an increase in interest rates could cause a
decrease in the demand for mortgage loans (and other loans), which could result in a significant decline in our
revenues.
Conversely, should market interest rates fall below current levels, our net interest margin could also be negatively
affected, as competitive pressures could keep us from further reducing rates on our deposits, and prepayments on
loans may continue. Such movements may cause a decrease in our interest rate spread and net interest margin,
and therefore, decrease our profitability.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may
affect the average life of loans and mortgage–related securities. Increases in interest rates may decrease loan
demand and/or may make it more difficult for borrowers to repay adjustable rate loans, which increases the potential
for default. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest
on may also lead to an increase in non–performing assets and a reduction of income recognized, which could have
a material adverse effect on our results of operations and cash flows. Further, when we place a loan on non–accrual
status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time,
we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to
offset the associated funding expense.
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Decreases in interest rates often result in increased prepayments of loans and mortgage–related securities, as
borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to
reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or
other investments that have interest rates that are comparable to the interest rates on existing loans and securities.
We may need to raise additional capital in the future, and such capital may not be available when needed or
at all.
We may need to raise additional capital in the future to fund acquisitions and to provide us with sufficient capital
resources and liquidity to meet our commitments, regulatory capital requirements and business needs, particularly if
our asset quality or earnings were to deteriorate significantly. Although we are currently, and have historically been,
“well capitalized” for regulatory purposes, in the past we have been required to maintain increased levels of capital
in connection with certain acquisitions. Additionally, we periodically explore acquisition opportunities with other
financial institutions, some of which are in distressed financial condition. Any future acquisition, particularly the
acquisition of a significantly troubled institution or an institution of comparable size to us, may require us to raise
additional capital in order to obtain regulatory approval and/or to remain well capitalized.
Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets
at that time, which are outside of our control, and our financial performance. Economic conditions and the loss of
confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of
capital, including inter–bank borrowings, repurchase agreements and borrowings from the discount window of the
Federal Reserve.
We cannot guarantee that such capital will be available on acceptable terms or at all. Any occurrence that may limit
our access to the capital markets, such as a decline in the confidence of debt purchasers, our depositors or
counterparties participating in the capital markets, may adversely affect our capital costs and our ability to raise
capital and, in turn, our liquidity. Moreover, if we need to raise capital in the future, we may have to do so when
many other financial institutions are also seeking to raise capital and would have to compete with those institutions
for investors. An inability to raise additional capital on acceptable terms when needed could have a materially
adverse effect on our business, financial condition and results of operations and may restrict our ability to grow.
Our commercial, residential mortgage and consumer loans expose us to increased credit risks.
We have a large percentage of commercial, residential mortgage and consumer loans. Commercial loans generally
have greater credit risk than residential mortgage loans because repayment of these loans often depends on the
successful business operations of the borrowers. Commercial real estate loans generally have greater risk than
residential mortgage loans because repayment of these loans is often dependent upon income being generated in
amounts sufficient to cover operating costs and debt service. Both types of commercial loans also typically have
much larger loan balances than residential mortgage loans. Consumer loans generally involve greater risk than
residential mortgage loans because they are unsecured or secured by assets that depreciate in value. Although we
undertake a variety of underwriting, monitoring and reserving protections with respect to these types of loans, there
can be no guarantee that we will not suffer unexpected losses. Residential mortgage loans and consumer loans are
at risk due to the continuing volatility of unemployment rates caused by COVID–19 and increasing interest rates,
which may adversely affect the underlying real estate and other collateral values and the ability of our borrowers to
repay their loans on scheduled terms.
Our holdings of construction, land and home equity loans may pose more credit risk than other types of
mortgage loans.
Construction loans, loans secured by commercial real estate and home equity loans generally entail more risk than
other types of mortgage loans. When real estate values decrease, the developers to whom we lend are likely to
experience a decline in sales of new homes from their projects. Land and construction loans are more likely to
become non–performing as developers are unable to build and sell homes in volumes large enough for orderly
repayment of loans and as other owners of such real estate (including homeowners) are unable to keep up with
their payments. We strive to establish what we believe are adequate reserves on our financial statements to cover
the credit risk of these loan portfolios. However, there can be no assurance that losses will not exceed our reserves,
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and ultimately result in a material level of charge–offs, which would adversely impact our results of operations,
liquidity and capital.
The allowance for credit losses on loans may prove inadequate or be negatively affected by credit risk
exposures.
Our business depends on the creditworthiness of our customers. We periodically review the allowance for credit
losses for adequacy considering economic conditions and trends, collateral values, and credit quality indicators,
including past charge–off experience and levels of past due loans and non–performing assets. There is no certainty
that the allowance for credit losses will be adequate over time to cover credit losses in the portfolio because of
unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers,
industries or markets. If the credit quality of our customer base materially decreases, if the risk profile of a market,
industry or group of customers changes materially, or if the allowance for credit losses is not adequate, our
business, financial condition, liquidity, capital, and results of operations could be materially adversely affected.
Our mortgage warehouse and indirect lending operations are subject to a higher fraud risk than our other
lending operations.
We buy loans originated by mortgage bankers and automobile dealers. Because we must rely on the mortgage
bankers and automobile dealers in making and documenting these loans, there is an increased risk of fraud to us on
the part of the third–party originators and the underlying borrowers. In order to guard against this increased risk, we
perform investigations on the mortgage companies and other third parties who originate loans we purchase, and we
review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance.
However, there is no guarantee that our procedures will detect all cases of fraud or legal noncompliance.
Our mortgage lending profitability could be significantly reduced if we are not able to resell mortgages at a
reasonable gain on sale or experience other problems with the secondary market process.
Currently, we sell a substantial portion of the mortgage loans we originate. The profitability of our mortgage banking
operations depends in large part upon our ability to aggregate a high volume of loans and to sell them in the
secondary market at a gain. Thus, we are dependent upon the existence of an active secondary market and our
ability to profitably sell loans into that market.
Our ability to sell mortgage loans readily is dependent upon the availability of an active secondary market for
single–family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by
Fannie Mae, Freddie Mac and Ginnie Mae (the “Agencies”) and other institutional and non–institutional investors.
These entities account for a substantial portion of the secondary market in residential mortgage loans. Some of the
largest participants in the secondary market, including the Agencies, are government–sponsored enterprises whose
activities are governed by federal law. Any future changes in laws that significantly affect the activity of such
government–sponsored enterprises could, in turn, adversely affect our operations.
Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our
operations. Further, the criteria for loans to be accepted under such programs may be changed from time–to–time
by the sponsoring entity which could result in a lower volume of corresponding loan originations. The profitability of
participating in specific programs may vary depending on a number of factors, including our administrative costs of
originating and purchasing qualifying loans and our costs of meeting such criteria.
Our mortgage lending profitability could be significantly reduced as changes in interest rates could affect
mortgage origination volume and pricing for selling mortgages on the secondary market.
Currently, we sell a substantial portion of the mortgage loans we originate. The profitability of our mortgage banking
operations depends in large part upon our ability to originate and sell mortgages to the secondary market at a gain.
A higher interest rate environment can negatively affect the volume of loan originations and refinanced loans
reducing the dollar amount of loans available to be sold to the secondary market. Higher interest rates can also
negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate
loans can reduce pricing.
23
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
We may be exposed to risk of environmental liabilities with respect to real property to which we take title.
In the course of our business, we may own or foreclose and take title to real estate, and could be subject to
environmental liabilities with respect to these properties (including liabilities for property damage, personal injury,
investigation and clean-up costs incurred by these parties in connection with environmental contamination), or may
be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property.
We are exposed to intangible asset risk in that our goodwill may become impaired.
As of December 31, 2021, we had $175.5 million of goodwill and other intangible assets. A significant and sustained
decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a
significant adverse change in the business climate, or slower growth rates could result in impairment of goodwill. If
we were to conclude that a future write-down of our goodwill is necessary, then we would record the appropriate
charge, which could be materially adverse to our operating results and financial position. For further discussion, see
Notes 1 and 9, “Nature of Operations and Summary of Significant Accounting Policies” and “Goodwill and Intangible
Assets,” to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10–K for the
year ended December 31, 2021.
Our prior role as a trustee for employee stock ownership plans (“ESOPs”) may expose us to increased risk
of litigation due to heightened scrutiny of this role by the U.S. Department of Labor and the plaintiffs’ bar.
Prior to September 30, 2021, we acted as an independent trustee for corporate ESOP plans throughout the U.S.
Over the last several years, the U.S. Department of Labor and the plaintiffs’ bar have been aggressively targeting
ESOP trustees and transactions on a variety of fronts, including valuations and the amount that ESOP trustees pay
to buy back stock from selling shareholders, as well as the indemnity agreements commonly used by ESOP
companies to protect ESOP trustees from undue risk and liability exposure. In December 2021, Horizon reached a
mediation settlement with the U.S. Department of Labor concerning ESOP valuations and sale transactions relating
to ESOPs for which we acted as trustee. On September 30, 2021, we sold our ESOP trustee business to a third
party. Despite exiting this line of business and our settlement with the U.S. Department of Labor with respect to
many of our prior engagement, we may still be exposed to an increased risk of litigation from the U.S. Department
of Labor and the plaintiffs’ bar for these historical activities.
We may be adversely impacted by the discontinuance of LIBOR as a short–term interest rate utilized for
loans and other financing agreements.
In 2017, the United Kingdom's Financial Conduct Authority (the authority that regulates LIBOR) (the “FCA”)
announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London
Interbank Offered Rate (“LIBOR”). Subsequently in November 2020 the FCA proposed end dates immediately
following the December 31, 2021 publication for the one week and two month LIBOR settings, and the June 30,
2023 publication for other LIBOR tenors.
These announcements indicate that the continuation of LIBOR on the current basis cannot and will not be
guaranteed after December 31, 2021 or June 30, 2023, as applicable. Consequently, at this time, it is not possible
to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR.
Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark,
what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or
alternatives may be on the markets for LIBOR–indexed financial instruments.
In particular, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee)
have, among other things, published recommended fall–back language for LIBOR–linked financial instruments,
identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the
recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in
floating rate instruments. At this time, it is not possible to predict whether these specific recommendations and
proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation
may be on the markets for floating–rate financial instruments.
We have loans, borrowings and other financial instruments with attributes that are either directly or indirectly
dependent on LIBOR. The transition from LIBOR could create additional costs and risks. Since proposed alternative
rates are calculated differently, payments under contracts referencing new rates will differ from those referencing
24
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation
tools, and product design. Furthermore, failure to adequately manage this transition process with our customers
could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the
transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on
our business, financial condition and results of operations.
The preparation of our financial statements requires the use of estimates that may vary from actual results.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States requires management to make significant estimates that affect the financial statements. One of
our most critical estimates is the level of the allowance for credit losses. Due to the inherent nature of these
estimates, we cannot provide absolute assurance that we will not have to increase the allowance for loan losses
and/or sustain loan losses that are significantly higher than the provided allowance.
Our information systems may experience cyber–attacks or an interruption or breach in security. Our
cybersecurity systems could be inadequate or fail.
We rely heavily on internal and outsourced technologies, communications, and information systems to conduct our
business. Additionally, in the normal course of business, we collect, process and retain sensitive and confidential
information regarding our customers. As our reliance on technology has increased, so have the potential risks of a
technology–related operational interruption (such as disruptions in our customer relationship management, general
ledger, deposit, loan, or other systems) or the occurrence of cyber–attacks (such as unauthorized access to our
systems, computer viruses, ransom ware, or other malicious code). These risks have increased for all financial
institutions as new technologies, including the use of the Internet and telecommunications technologies (including
mobile devices), have become commonly used to conduct financial and other business transactions, during a time
of increased technological sophistication of organized crime, perpetrators of fraud, hackers, terrorists and others. In
addition to cyber–attacks or other security breaches involving the theft of sensitive and confidential information,
hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks,
which are designed to disrupt key business services, such as customer–facing web sites. Although we have
programs in place related to business continuity, disaster recovery and information security to maintain the
confidentiality, integrity, and availability of our systems, business applications and customer information, we are not
able to anticipate or implement effective preventive measures against all cyber–security threats, especially because
the techniques used change frequently and because attacks can originate from a wide variety of sources, both
domestic and foreign.
We also face risks related to cyber–attacks and other security breaches in connection with credit card and debit
card transactions that typically involve the transmission of sensitive information regarding our customers through
various third parties, including merchant acquiring banks, payment processors, payment card networks and our
processors. Some of these parties have in the past been the target of security breaches and cyber–attacks, and
because the transactions involve third parties and environments such as the point of sale that we do not control or
secure, future security breaches or cyber–attacks affecting any of these third parties could impact us through no
fault of our own, and in some cases, we may have exposure and suffer losses for breaches or attacks relating to
them. Further cyber–attacks or other breaches in the future, whether affecting us or others, could intensify
consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of
which could have a material adverse effect on our business.
To the extent we are involved in any future cyber–attacks or other breaches, we may be required to expend
significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or
other exposures, and we may be subject to litigation and financial losses that are either not insured against or not
fully covered through any insurance we maintain. We could also suffer significant damage to our reputation.
Although we are insured against many of these risks, including privacy breach response costs, notification
expenses, breach support and credit monitoring expenses, cyber extortion and cyber terrorism, there can be no
assurances that such insurance will be sufficient to cover all costs arising from a data or information technology
breach and our exposure may exceed our coverage.
25
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
We continually encounter technological changes.
The financial services industry is continually undergoing rapid technological change with frequent introductions of
new technology–driven products and services. The effective use of technology increases efficiency and enables
financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our
ability to address the needs of our customers by using technology to provide products and services that will satisfy
customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have
substantially greater resources to invest in technological improvements, and we may not be able to effectively
implement new technology–driven products and services at the same speed at which our competitors do (or not at
all) or be successful in marketing these products and services to our customers. Failure to successfully keep pace
with technological change affecting the financial services industry could have a material adverse impact on our
business and, in turn, our financial condition and results of operations.
We rely on other companies to provide key components of our business infrastructure.
Third–party vendors provide key components of our business infrastructure, including Internet connections, mobile
and internet banking, statement processing, loan document preparation, network access and transaction and other
processing services. Although we have selected these third–party vendors carefully, we do not control their actions.
Any problems caused by these third parties, including as a result of inadequate or interrupted service or breach of
customer information, could adversely affect our ability to deliver products and services to our customers and
otherwise to conduct our business. In addition, any breach in customer information could affect our reputation and
cause legal liability and a loss of business. Replacing these third–party vendors also could result in significant delay
and expense.
The loss of key members of our senior management team and our lending teams could affect our ability to
operate effectively.
We depend heavily on the services of our existing senior management team to carry out our business and
investment strategies. As we continue to grow and expand our business and our locations, products and services,
we will increasingly need to rely on our senior management team's experience, judgment and expertise. We also
depend heavily on our experienced and effective lending teams and their respective special market insights,
including, for example, our agricultural lending specialists. In addition to the importance of retaining our lending
team, we will also need to continue to attract and retain qualified banking personnel at all levels. Competition for
such personnel is intense in our geographic market areas. If we are unable to attract and retain an effective lending
team and other talented people, our business could suffer. The loss of the services of any senior management
personnel or the inability to recruit and retain qualified lending and other personnel in the future, could have a
material adverse effect on our consolidated results of operations, financial condition and prospects.
Potential acquisitions may disrupt our business and dilute stockholder value.
We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to
possible transactions with other financial institutions and financial services companies. We generally seek merger or
acquisition partners that are culturally similar and possess either significant market presence or have potential for
improved profitability through financial management, economies of scale or expanded services. Acquiring other
banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among
other things:
•
•
•
•
•
•
•
potential exposure to unknown or contingent liabilities of the target company;
exposure to potential asset quality issues of the target company;
potential disruption to our business;
potential diversion of our management’s time and attention away from day–to–day operations;
the possible loss of key employees, business and customers of the target company;
difficulty in estimating the value of the target company; and
potential problems in integrating the target company’s data processing and ancillary systems,
customers and employees with ours.
As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers
or acquisitions involving the payment of cash or the issuance of our debt or equity securities may occur at any time.
Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution
26
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
of our tangible book value and net income per common share may occur in connection with any future transaction.
To the extent we were to issue additional shares of common stock in any such transaction, our current shareholders
would be diluted and such an issuance may have the effect of decreasing our stock price, perhaps significantly.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product
presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial
condition and results of operations.
In addition, merger and acquisition costs incurred by Horizon may temporarily increase operating expenses.
Risks Related to the Banking Industry Generally
We are subject to extensive regulation and changes in laws and regulatory policies could adversely affect
our business.
Our operations are subject to extensive regulation by federal and state agencies. See “Regulation and Supervision”
in the description of our Business in Item 1 of Part I of this report for detailed information on the laws and
regulations to which we are subject. Many of these regulations are intended to protect depositors, the public or the
FDIC insurance funds, not shareholders. Regulatory requirements affect our lending practices, capital structure,
investment practices, dividend policy and many other aspects of our business. Changes in applicable laws,
regulations or regulator policies can materially affect our business. The likelihood of any major changes in the future
and their effects are impossible to predict. As an example, the Bank could experience higher credit losses because
of federal or state legislation or by regulatory or bankruptcy court action that reduces the amount the Bank's
borrowers are otherwise contractually required to pay under existing loan contracts. Also, the Bank could
experience higher credit losses because of federal or state legislation or regulatory action that limits its ability to
foreclose on property or other collateral or makes foreclosure less economically feasible.
We face other risks from recent actions of the U.S. Treasury and the Internal Revenue Service. In November 2016,
these agencies issued a Notice making captive insurance company activities “transactions of interest” due to the
potential for tax avoidance or evasion. We have a captive insurance company and it is not certain at this point how
the Notice may impact us on our operation of the captive insurance company as a risk management tool.
Legislation enacted in recent years, together with additional actions announced by the U.S. Treasury and other
regulatory agencies, continue to develop. It is not clear at this time what impact legislation and liquidity and funding
initiatives of the U.S. Treasury and other bank regulatory agencies, and additional programs that may be initiated in
the future, will have on the financial markets and the financial services industry.
We may also face compliance risks arising from the new and growing body of privacy and data security laws
enacted by foreign governments, such as the European Union's comprehensive 2018 General Data Privacy
Regulation, and by U.S. state governments, such as the California Consumer Privacy Act that went into effect on
January 1, 2020.
The soundness of other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We
have exposure to many different industries and counterparties, and we routinely execute transactions with
counterparties in the financial services industry, including brokers and dealers, commercial banks, investment
banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in
the event of default by our counterparty or client. In addition, our credit risk may be exacerbated when the collateral
held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or
derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect
our results of operations or earnings.
Our inability to continue to process large volumes of transactions accurately could adversely impact our
business and financial results.
We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk.
Operational risk resulting from inadequate or failed internal processes, people and systems includes the risk of
fraud by persons inside or outside Horizon, the execution of unauthorized transactions by employees, errors relating
to transaction processing and systems, and breaches of the internal control system and compliance requirements.
27
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or
as a result of noncompliance with applicable regulatory standards. Accordingly, if systems of internal control should
fail to work as expected, if systems are used in an unauthorized manner, or if employees subvert the system of
internal controls, significant losses could result.
We establish and maintain systems of internal operational controls that are designed to provide us with y and
accurate information about our level of operational risk. While not foolproof, these systems have been designed to
manage operational risk at appropriate, cost–effective levels. Procedures also exist that are designed to ensure that
policies relating to conduct, ethics and business practices are followed. If these systems fail, significant losses could
result.
While we continually monitor and improve the system of internal controls, data processing systems and corporate–
wide processes and procedures, there can be no assurance that future losses will not occur.
Acts of terrorism or war, as well as the threat of terrorism or war, may adversely affect our results of
operations, financial condition, and liquidity.
Any act of terror, sustained military campaign, or war (threat of any of the foregoing) may cause general economic
decline and instability, volatility and/or weakness of U.S. and global financial markets. Historically, U.S. and global
markets have been adversely impacted by political and civil unrest occurring in the Middle East, Eastern Europe,
Russia, Venezuela and Asia. The current Russia and Ukraine conflict has raised similar economic and financial
market concerns causing uncertainty and disruption in financial markets globally and further straining an already
struggling global supply chain. Furthermore, such events have the potential to adversely impact the availability of
commodities, commodity prices, and create global inflationary pressures.
As a result of any such events, the demand for our products and services may be significantly impacted and could
influence the recognition of credit losses in our loan portfolio and increase our allowance for credit losses as both
businesses and consumers are negatively impacted by such events and the economic uncertainty and volatility
related thereto. They may also cause significant decreases in value in our investment portfolio, cause us to have to
raise capital, or take other unforeseen actions to offset such effects.
The extent to which such actions may impact our business, results of operations, and financial condition, as well as
our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including
the scope and duration of such conflicts and actions taken by governmental authorities and other third parties in
response thereto. Even after such conflicts subside, the U.S. and global economies often require some time to
recover, the length of which is unknown.
Any continued or further negative impact on economic conditions and global markets from these developments
could adversely affect our business, financial condition and liquidity.
Risks Related to our Common Stock
The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell
our common stock at times or at prices you find attractive.
Although our common stock is listed on the NASDAQ Global Select Market, our stock price constantly changes, and
we expect our stock price to continue to fluctuate in the future. Our stock price is impacted by a variety of factors,
some of which are beyond our control.
These factors include:
•
•
•
•
•
•
•
•
variations in our operating results or the quality of our assets;
operating results that vary from the expectations of management, securities analysts and investors;
increases in loan losses, non–performing loans and other real estate owned;
changes in the U.S. corporate tax rates;
changes in expectations as to our future financial performance;
announcements of new products, strategic developments, new technology, acquisitions and other
material events by us or our competitors;
ability to fund Horizon’s assets through core deposits and/or wholesale funding;
the operating and securities price performance of other companies that investors believe are
comparable to us;
28
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
•
•
•
•
•
•
•
•
our inclusion on the Russell 3000 or other indices;
actual or anticipated sales of our equity or equity–related securities;
our past and future dividend practice;
our creditworthiness;
interest rates;
the credit, mortgage and housing markets, and the markets for securities relating to mortgages or
housing;
developments with respect to financial institutions generally; and
economic, financial, geopolitical, regulatory, congressional or judicial events that affect us or the
financial markets.
In addition, the stock market in general has experienced price and volume fluctuations. This volatility has had a
significant effect on the market price of securities issued by many companies and particularly those in the financial
services and banking sector, including for reasons unrelated to their operating performance. These broad market
fluctuations may adversely affect our stock price, notwithstanding our operating results.
Because our stock is moderately traded, it may be more difficult for you to sell your shares or buy
additional shares when you desire to do so and the price may be volatile.
Although our common stock has been listed on the NASDAQ stock market since December 2001, our common
stock is moderately traded. The prices of moderately traded stocks, such as ours, can be more volatile than stocks
traded in a large, active public market and can be more easily impacted by sales or purchases of large blocks of
stock. Moderately traded stocks are also less liquid, and because of the low volume of trades, you may be unable to
sell your shares when you desire to do so.
Provisions in our articles of incorporation, our by–laws, and Indiana law may delay or prevent an
acquisition of us by a third party.
Our articles of incorporation and by–laws and Indiana law contain provisions that have certain anti–takeover effects.
While the purpose of these provisions is to strengthen the negotiating position of the board of directors in the event
of a hostile takeover attempt, the overall effects of these provisions may be to render more difficult or discourage a
merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our shares, and the
removal of incumbent directors and key management.
Our articles of incorporation provide for a staggered board, which means that only one–third of our board can be
replaced by shareholders at any annual meeting. Our articles also provide that our directors may only be removed
without cause by shareholders owning 70% or more of our outstanding common stock.
Our articles also preempt Indiana law with respect to business combinations with a person who acquires 10% or
more of our common stock and provide that such transactions are subject to independent and super–majority
shareholder approval requirements unless certain pricing and board pre–approval requirements are satisfied.
Our by–laws do not permit cumulative voting of shareholders in the election of directors, allowing the holders of a
majority of our outstanding shares to control the election of all our directors, and our directors are elected by
plurality (not majority) voting. Our by–laws also establish detailed procedures that shareholders must follow if they
desire to nominate directors for election or otherwise present issues for consideration at a shareholders’ meeting.
We also have a maximum age for new directors and a mandatory retirement age for directors.
These and other provisions of our governing documents and Indiana law are intended to provide the board of
directors with the negotiating leverage to achieve a more favorable outcome for our shareholders in the event of an
offer for the Company. However, there is no assurance that these same anti–takeover provisions could not have the
effect of delaying, deferring or preventing a transaction or a change in control that shareholders might believe to be
in their best interests.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
29
HORIZON BANCORP, INC.
2021 Annual Report on Form 10–K
ITEM 2. PROPERTIES
The main office and full service branch of Horizon and the Bank is located at 515 Franklin Street, Michigan City,
Indiana. The building located across the street from the main office of Horizon and the Bank, at 502 Franklin Street,
houses the credit administration, operations, facilities and purchasing, and information technology departments of
the Bank. In addition to these principal facilities, the Bank has 77 sales offices located in various cities and towns in
northern and central Indiana and southern and central Michigan. Horizon maintains such branches and offices as it
believes are necessary for the convenience of its customers and the community, and Horizon frequently assesses
the suitability of all its business locations.
Horizon owns all of its facilities except for leased offices in East Lansing, Michigan and Grand Rapids, Michigan.
ITEM 3. LEGAL PROCEEDINGS
Horizon and its subsidiaries are involved in various legal proceedings incidental to the conduct of their business.
Management does not expect that the outcome of any such proceedings will have a material adverse effect on our
consolidated financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
30
SPECIAL ITEM: INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Craig M. Dwight
65 Chairman of Horizon since July 2014; Chairman and Chief Executive Officer of the
Bank since January 2003; Chief Executive Officer of Horizon and the Bank since July
2001; President of the Bank from 1998 to January 2003.
James D. Neff
Mark E. Secor
62 President of Horizon and the Bank since January 2018; Executive Vice President –
Consumer and Mortgage Banking of the Bank from 2016 to January 2018; Executive
Vice President – Mortgage Banking of the Bank from January 2004 to 2016; Senior
Vice President of the Bank from October 1999 to January 2004; Corporate Secretary of
Horizon from 2007 to 2017.
55 Executive Vice President of Horizon since January 2014; Chief Financial Officer and
Executive Vice President of Horizon and the Bank since January 2009; Vice President,
Chief Investment and Asset Liability Manager from June 2007 to January 2009; Chief
Financial Officer of St. Joseph Capital Corp., Mishawaka, Indiana from 2004 to 2007.
Kathie A. DeRuiter
60 Executive Vice President of Horizon and Senior Bank Operations Officer since January
2014; Senior Vice President, Senior Bank Operations Officer from January 2003 to
January 2014; Vice President, Senior Bank Operations Officer from January 2000 to
January 2003.
Dennis J. Kuhn
62 Executive Vice President and Chief Commercial Banking Officer since October 2017;
Regional Market President for Michigan and Northeast Indiana from February 2014 to
October 2017; Chair of the Regional Loan Committee; Market President for
Kalamazoo, Michigan from May 2010 to October 2017.
Todd A. Etzler
55 Executive Vice President and General Counsel since January 2021; Senior Vice
President and General Counsel from July 2018 to December 2020; Vice President and
General Counsel from March 2017 to July 2018; Corporate Secretary since January
2018. General Counsel of Family Express Corporation from July 2011 to March 2017.
Lynn M. Kerber
53 Executive Vice President and Senior Commercial Credit Officer since January 2021;
Senior Vice President and Senior Commercial Credit Officer from May 2018 to
December 2020; Executive Vice President and Chief Risk Officer, Chemical Financial
Corporation June 2015 to August 2017; President of the Chemical Bank Foundation
2013 to 2017.
All officers are appointed annually by the Board of Directors of Horizon and the Bank, as applicable.
31
HORIZON BANCORP, INC.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock and Related Stockholder Matters
Horizon common stock is traded on the NASDAQ Global Select Market under the symbol “HBNC.”
The approximate number of holders of record of Horizon’s outstanding common stock as of March 8, 2022 was
1,489.
The Equity Compensation Plan Information table appears under the caption “Equity Compensation Plan
Information” in Item 12 below and is incorporated herein by reference.
Repurchases of Securities
There were no purchases by the Company of its common stock during the fourth quarter of 2021.
Performance Graph
The SEC requires Horizon to include a line graph comparing Horizon’s cumulative five–year total shareholder
returns on the common shares with market and industry returns over the past five years. S&P Global Market
Intelligence prepared the following graph. The return represented in the graph assumes the investment of $100 on
December 31, 2016, and further assumes reinvestment of all dividends. The Company’s common stock began
trading on the NASDAQ Global Market on February 1, 2007, and on the NASDAQ Global Select Market on January
2, 2014. Prior to that date, the common stock was traded on the NASDAQ Capital Market.
Index
Horizon Bancorp, Inc.
Russell 2000 Index
S&P U.S. SmallCap Banks
Index
December 31 December 31 December 31 December 31 December 31 December 31
2016
2017
2018
2019
2020
2021
100.00
100.00
101.06
114.65
87.78
102.02
108.57
128.06
94.61
153.62
128.13
176.39
100.00
104.33
87.06
109.22
99.19
138.09
Source: S&P Global Market Intelligence
© 2022
32
Index ValueTotal Return PerformanceHorizon Bancorp, Inc.Russell 2000 IndexS&P U.S. SmallCap Banks Index12/31/1612/31/1712/31/1812/31/1912/31/2012/31/2150100150200250
HORIZON BANCORP, INC.
The following chart compares the change in market price of Horizon’s common stock since December 31, 2016 to
that of publicly traded banks in Indiana and Michigan with assets greater than $500 million, excluding the
reinvestment of dividends.
Index
Horizon Bancorp, Inc.
Indiana Banks (1)
Michigan Banks (1)
December 31 December 31 December 31 December 31 December 31 December 31
2016
2017
2018
2019
2020
2021
100.00
100.00
100.00
101.06
116.30
114.04
87.78
117.14
111.61
108.57
126.30
127.47
94.61
138.08
122.66
128.13
158.64
164.14
(1) Excludes merger targets
Source: S&P Global Market Intelligence
© 2022
ITEM 6. RESERVED
33
Index ValueRelative Price PerformanceHorizon Bancorp, Inc.Indiana BanksMichigan Banks12/31/1612/31/1712/31/1812/31/1912/31/2012/31/2150100150200250
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)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Fully 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, grew by 3.3% during 2021 to a record $2.15 billion,
net of PPP and acquired loans, at period end.
Consumer loans, excluding acquired loans, grew by 2.7% during 2021 to a record $727.3 million at period
end, 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.
34
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.
Allowance for Credit Losses
The allowance for credit losses on loans and leases (“ACL”) replaces the allowance for loan and lease losses as a
credit accounting estimate, as of January 1, 2020 with the adoption of ASU 2016–13, Financial Instruments–Credit
Losses (Topic 326): Measurement of Credit Losses 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
35
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 Exposures
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.
Allowance for Credit Losses on Available for Sale Securities
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 Held to 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.
Goodwill and Intangible Assets
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of
judgment than most other significant accounting policies. FASB ASC 350–10 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
36
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 Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale
of financial assets on a servicing–retained 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.
Derivative Instruments
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
37
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.
Valuation Measurements
Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable
active markets for the items being valued. Investment securities, residential mortgage loans held for sale and
derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair
value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on
the carrying amounts of goodwill, mortgage servicing rights, and pension and other post–retirement 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 Financial Condition
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
38
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 that have interest rates above current
market rates are purchased at a premium.
Available for sale municipal securities are priced by a third party using a pricing grid which estimates prices based
on recent sales of similar securities. All municipal securities are investment grade or local non–rated issues. A credit
review is performed annually on the municipal securities portfolio.
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 are supported by little or no market activity and that are significant to the
fair value of the 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.
39
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
or Less
After One Year
Through Five Years
After 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)
State and municipal
Federal agency
collateralized mortgage
obligations(2)
Federal agency mortgage-
backed pools(2)
Private labeled mortgage-
backed pools(2)
Corporate notes
$
501
0.13 % $ 45,754
0.80 % $ 67,723
1.54 % $
3,001
22,482
1.43 % 64,974
1.97 % 209,906
2.53 % 342,384
1.67 %
2.74 %
—
—
—
—
— %
5,556
2.77 % 13,701
2.86 %
42,320
3.23 %
— %
833
2.72 % 43,387
2.67 % 181,854
1.84 %
— %
2,932
2.80 % 18,541
3.18 %
10,144
2.08 %
— % 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)
State and municipal
Federal agency
collateralized mortgage
obligations(2)
Federal agency mortgage-
backed pools(2)
Private labeled mortgage-
backed pools(2)
Corporate notes
—
— % 20,993
1.40 % 43,305
1.85 % 129,928
5,265
3.36 % 45,989
3.62 % 76,761
3.77 % 750,902
2.18 %
2.44 %
—
—
596
—
— %
— %
2.72 %
— %
—
—
—
—
— %
—
— %
47,465
1.85 %
— % 98,116
1.75 %
87,849
1.77 %
— % 56,500
2.46 %
41,080
2.53 %
— % 155,242
3.77 %
—
Total held to maturity
5,861
3.30 % 66,982
2.92 % 429,924
2.94 % 1,057,224
Total investment securities
$ 28,844
1.78 % $ 232,701
2.19 % $ 821,678
2.72 % $ 1,637,580
(1) Fair value is based on contractual maturity or call date where a call option exists
(2) Maturity based upon final maturity date
— %
2.33 %
2.38 %
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, 2021, Horizon did not maintain a trading account.
For more information about securities, see Note 4 – Securities to the Consolidated Financial Statements at Item 8.
40
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.
Commercial
Owner occupied real estate
Non–owner occupied real estate
Residential spec homes
Development & spec land
Commercial and industrial
Total commercial
Real estate
Residential mortgage
Residential construction
Mortgage warehouse
Total real estate
Consumer
Direct installment
Indirect installment
Home equity
Total consumer
Total loans
Allowance for loan losses
Loans, net
December 31,
December 31,
2021
2020
Dollar
Change
Percent
Change
$
549,014 $
496,306 $
1,066,131
9,907
22,712
529,195
999,636
10,070
26,372
659,887
2,176,959
2,192,271
563,811
30,571
109,031
703,413
63,714
372,575
290,970
727,259
598,700
25,586
395,626
1,019,912
38,046
357,511
259,643
655,200
52,708
66,495
(163)
(3,660)
(130,692)
(15,312)
(34,889)
4,985
(286,595)
(316,499)
25,668
15,064
31,327
72,059
3,607,631
3,867,383
(259,752)
(54,286)
(57,027)
2,741
$
3,553,345 $
3,810,356 $
(257,011)
10.6 %
6.7 %
(1.6) %
(13.9) %
(19.8) %
(0.7) %
(5.8) %
19.5 %
(72.4) %
(31.0) %
67.5 %
4.2 %
12.1 %
11.0 %
(6.7) %
(4.8) %
(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.
Commercial
Real estate
Mortgage warehouse
Consumer
Total average loans
December 31,
December 31,
December 31,
2021
2020
2019
$
2,155,018 $
2,218,812 $
1,980,948
591,395
206,932
666,291
725,168
259,727
663,405
778,844
107,259
633,598
$
3,619,636 $
3,867,112 $
3,500,649
41
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)
Maturities and Sensitivities of Loans 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
One Year
or Less
After One,
but Within
Five Years
After Five,
but Within
Fifteen Years
After
Fifteen Years
Total
$
270,815 $
942,259 $
880,945 $
82,940 $
2,176,959
$
$
$
$
2,452
109,031
13,882
7,193
—
265,700
71,218
—
251,616
513,519
—
196,061
594,382
109,031
727,259
396,180 $
1,215,152 $
1,203,779 $
792,520 $
3,607,631
111,051 $
567,554 $
240,027 $
28,345 $
2,406
—
7,212
6,126
—
243,534
46,473
—
218,036
226,097
—
7,140
946,977
281,102
—
475,922
120,669 $
817,214 $
504,536 $
261,582 $
1,704,001
159,764 $
374,705 $
640,918 $
54,595 $
1,229,982
46
109,031
6,670
1,067
—
22,166
24,745
—
33,580
287,422
—
188,921
313,280
109,031
251,337
$
275,511 $
397,938 $
699,243 $
530,938 $
1,903,630
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Loans with fixed interest
rates:
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Loans with variable interest
rates:
Commercial
Real estate
Mortgage warehouse
Consumer
Total
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 consisted of the following types of loans at December 31:
December 31, 2021
December 31, 2020
Number
Amount
Percent of
Portfolio
Number
Amount
Percent of
Portfolio
SBA guaranteed
Municipal government
Lines of credit
491 $
79,458
75
67,029
3.6 %
3.1 %
1,985 $ 264,727
66
59,932
1,494
418,632
19.2 %
1,334
437,487
Real estate and equipment
4,896
1,611,840
74.1 %
4,121
1,430,124
12.1 %
2.7 %
20.0 %
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
42
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)
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:
Fixed rate
Monthly payment
Biweekly payment
Adjustable rate
Monthly payment
Biweekly payment
Subtotal
Loans held for sale
Total real estate loans
December 31, 2021
December 31, 2020
Amount
Percent of
Portfolio
Yield
Amount
Percent of
Portfolio
Yield
$ 283,145
—
311,237
—
47.6 %
— %
52.4 %
— %
3.63 % $ 189,197
— %
—
3.73 %
435,089
— %
—
30.3 %
— %
69.7 %
— %
594,382
100.0 %
3.67 %
624,286
100.0 %
4.03 %
— %
3.83 %
— %
3.92 %
12,579
$ 606,961
13,538
$ 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.
43
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.
Mortgage servicing rights
Balances, January 1
Servicing rights capitalized
Amortization of servicing rights
Balances, December 31
Impairment allowance
Balances, January 1
Additions
Reductions
Balances, December 31
Mortgage servicing rights, net
Mortgage Warehouse Loans
December 31,
December 31,
December 31,
2021
2020
2019
$
17,644 $
15,046 $
4,209
5,530
(4,073)
(2,932)
17,780
17,644
(5,172)
—
2,578
(719)
(5,106)
653
(2,594)
(5,172)
12,876
3,547
(1,377)
15,046
(527)
(234)
42
(719)
$
15,186 $
12,472 $
14,327
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, 2021, the mortgage warehouse loan balance was $109.0 million compared to $395.6 million as of
December 31, 2020.
44
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)
Consumer Loans
Consumer loans totaled $727.3 million, or 20.2% of total loans as of December 31, 2021, compared to $655.2
million, or 16.9% as of December 31, 2020. The increase during 2021 was due to record production during the year
of approximately $397.1 million and the loans purchased through the branch acquisition completed during 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
Allowance
Allocated
Percent of Loans in
Each Category to
Total Loans
Total Loans
Ratio of Allowance
Allocated to Loans
in Each Category
December 31, 2021
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
December 31, 2020
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
$
$
$
$
$
$
40,775
3,856
1,059
8,596
54,286
54,286
42,210
4,620
1,267
8,930
57,027
57,027
60.3 % $
2,176,959
16.5 %
3.0 %
20.2 %
100.0 % $
$
594,382
109,031
727,259
3,607,631
3,581,787
56.8 % $
2,192,271
16.1 %
10.2 %
16.9 %
100.0 % $
$
624,286
395,626
655,200
3,867,383
3,658,501
1.87 %
0.65 %
0.97 %
1.18 %
1.50 %
1.52 %
1.93 %
0.74 %
0.32 %
1.36 %
1.47 %
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.
45
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 previous three years ending December 31 are as follows:
(dollars in thousands)
Non–performing loans
Commercial
More than 90 days past due
Non–accrual
Trouble debt restructuring – accruing
Trouble debt restructuring – non–accrual
Real estate
More than 90 days past due
Non–accrual
Trouble debt restructuring – accruing
Trouble debt restructuring – non–accrual
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
Non–accrual
Trouble debt restructuring – accruing
Trouble debt restructuring – non–accrual
December 31, December 31, December 31,
2021
2020
2019
$
— $
— $
6,621
603
285
66
5,626
1,421
892
—
—
—
—
79
2,715
367
344
12,714
168
1,466
17
5,674
1,381
922
—
—
—
—
245
3,754
244
222
—
4,782
1,484
1,081
1
7,614
1,561
708
—
—
—
—
145
3,283
309
217
Total non–performing loans
19,019
26,807
21,185
Other real estate owned and repossessed collateral
Commercial
Real estate
Mortgage warehouse
Consumer
2,861
695
—
5
1,908
3,698
—
—
—
28
—
—
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.
46
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.
Non–Performing
Loans
Percent of Non–
Performing Loans in
Each Category to
Total Loans
Total Loans
December 31, 2021
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
Allowance for credit losses on loans
Ratio of allowance for credit losses on loans to
non–performing loans
December 31, 2020
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
Allowance for credit losses on loans
Ratio of allowance for credit losses on loans to
non–performing loans
$
$
$
$
$
$
$
$
7,509
8,005
—
3,505
19,019
19,019
54,286
285.43 %
14,348
7,994
—
4,465
26,807
26,807
57,027
212.73 %
0.34 % $
2,176,959
1.35 %
0.00 %
0.48 %
0.53 % $
0.53 % $
594,382
109,031
727,259
3,607,631
3,581,787
0.65 % $
2,192,271
1.28 %
0.00 %
0.68 %
0.69 % $
0.73 % $
624,286
395,626
655,200
3,867,383
3,658,501
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 mortgage warehouse loans were non–performing or OREO as of December 31, 2021, 2020 or 2019.
47
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 as of December 31, 2021 and a net deferred tax asset of
$188,000 as of December 31, 2020. The following table shows the major components of deferred tax:
Assets
Allowance for loan losses
Net operating loss and tax credits (from acquisitions)
Director and employee benefits
Other
Total assets
Liabilities
Depreciation
State tax
Federal Home Loan Bank stock dividends
Difference in basis of intangible assets
Fair value adjustment on acquisitions
Unrealized gain on AFS securities and fair value hedge
Other
Total liabilities
Net deferred tax asset/(liability)
Deposits
December 31,
December 31,
2021
2020
$
13,707 $
13,966
—
2,094
1,785
17,586
(4,540)
(261)
(371)
(3,476)
(3,435)
(1,953)
(222)
3
2,035
3,139
19,143
(4,374)
(315)
(363)
(2,921)
(3,284)
(7,404)
(294)
(14,258)
(18,955)
$
3,328 $
188
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
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
Savings deposits
Money market
Time deposits
Total deposits
779,325
815,081
652,284
625,842
615,722
818,736
552,101
483,187
948,550
$ 5,086,025 $ 4,247,366 $ 3,765,326
Years Ended December 31
2020
2019
2021
0.09 %
0.05 %
0.15 %
0.75 %
0.19 %
0.12 %
0.38 %
1.60 %
0.68 %
0.32 %
1.09 %
2.07 %
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.
48
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)
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
Due after three months through six months
Due after six months through one year
Due after one year
$
43,662
39,999
100,838
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 as of December 31, 2021. Horizon’s sources of funds
and liquidity are discussed below in the section captioned “Liquidity” in this Item 7.
Results of Operations
Net Income
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.)
49
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.
50
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
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Assets
Interest earning assets
Federal funds sold
Interest earning deposits
Investment securities –
taxable
Investment securities – non–
taxable(1)
Loans receivable(2)(3)(4)
Total interest earning
assets(1)
Non–interest earning assets
Cash and due from banks
Allowance for loan losses
Other assets
Total average assets
Liabilities and Stockholders’
Equity
Interest bearing liabilities
Interest bearing deposits
Borrowings
Repurchase agreements
Subordinated notes
Junior subordinated
debentures issued to capital
trusts
Total interest bearing
liabilities
Non–interest bearing liabilities
Demand deposits
Accrued interest payable and
other liabilities
Stockholders’ equity
Total average liabilities and
stockholders’ equity
Net interest income/spread
Net interest income as a
percent of average interest
earning assets(1)
$ 398,528 $
535
0.13 % $ 61,408 $
154
0.25 % $ 21,301 $
511
25,993
160
0.62 %
25,943
268
1.03 %
19,601
342
2.40 %
1.74 %
884,244
14,437
1.63 % 459,551
8,071
1.76 % 474,833
11,753
2.48 %
1,086,942
23,246
2.71 % 706,092
17,213
3.09 % 454,066
12,095
3,626,033
161,617
4.47 % 3,867,112
179,672
4.66 % 3,500,649
183,631
3.34 %
5.27 %
6,021,740
199,995
3.43 % 5,120,106
205,378
4.11 % 4,470,450
208,332
4.75 %
89,993
(56,798)
459,316
$ 6,514,251
84,065
(46,329)
470,941
$ 5,628,783
62,920
(18,019)
417,707
$ 4,933,058
$ 3,897,750 $ 7,867
0.20 % $ 3,327,917 $ 18,556
0.56 % $ 3,007,937 $ 33,690
425,214
4,546
1.07 % 459,752
11,160
2.43 % 386,895
9,991
123,675
155
0.13 % 100,201
270
0.27 %
81,264
58,672
3,522
6.00 %
30,610
1,824
5.96 %
—
681
—
1.12 %
2.58 %
0.84 %
— %
56,657
2,215
3.91 %
56,427
2,628
4.66 %
50,134
3,179
6.34 %
4,561,968
18,305
0.40 % 3,974,907
34,438
0.87 % 3,526,230
47,541
1.35 %
1,188,275
51,886
712,122
$ 6,514,251
919,449
68,961
665,466
$ 5,628,783
757,389
43,720
605,719
$ 4,933,058
$ 181,690
3.03 %
$ 170,940
3.24 %
$ 160,791
3.40 %
3.13 %
3.44 %
3.69 %
(1) Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations. Horizon's subsidiary bank had no funds invested
in Eurodollar Certificates of Deposit at December 31, 2021.
(2) Yields are presented on a tax–equivalent basis.
(3) Non–accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are
shown net of unearned income and deferred loan fees.
(4) Loan fees and late fees included in interest on loans aggregated $19.8 million, $16.6 million and $9.8 million in 2021, 2020 and 2019,
respectively.
51
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
Total
Change
Change
Due To
Volume
Change
Due To
Rate
Total
Change
Change
Due To
Volume
Change
Due To
Rate
$
381 $
483 $
(102) $
(357) $
379 $
(108)
1
(109)
(74)
90
(736)
(164)
6,366
6,033
6,971
10,577
(605)
(3,682)
(368)
(3,314)
(4,544)
5,118
7,854
(2,736)
(18,055)
(10,964)
(7,091)
(3,959)
18,253
(22,212)
(5,383)
7,068
(12,451)
(2,954)
26,208
(29,162)
(10,689)
2,748
(13,437)
(15,134)
(6,614)
(783)
(5,831)
1,169
(115)
53
(168)
(411)
1,698
1,684
14
1,824
3,269
1,797
131
1,824
(18,403)
(628)
(542)
—
(413)
11
(424)
(551)
365
(916)
(16,133)
3,713
(19,846)
(13,103)
7,386
(20,489)
$ 10,750 $
3,355 $
7,395 $ 10,149 $ 18,822 $
(8,673)
Interest Income
Federal funds sold
Interest earning deposits
Investment securities – taxable
Investment securities – non–taxable
Loans receivable
Total interest income
Interest Expense
Interest bearing deposits
Borrowings
Repurchase agreements
Subordinated notes
Junior subordinated debentures issued to
capital trusts
Total interest expense
Net interest income
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.
52
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 related to credit loss expense (recovery) and net charge–offs (recoveries) is presented in the
table below. Also see Note 6 – Allowance for Credit and Loan Losses in the accompanying notes to consolidated
financial statements included elsewhere in this report.
Credit Loss
Expense
(Recovery)
Net (Charge–
Offs) Recoveries
Average Loans
Ratio of
Annualized Net
(Charge–Offs)
Recoveries to
Average Loans
Twelve Months Ended December 31,
2021
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
Twelve Months Ended December 31,
2020
Commercial
Real estate
Mortgage warehouse
Consumer
Total
Excluding PPP loans
Twelve Months Ended December 31,
2019
Commercial
Real estate
Mortgage warehouse
Consumer
Total
$
(1,320) $
(1,099) $
2,155,018
$
$
$
$
(755)
(208)
199
(2,084)
(2,084) $
19,198 $
(184)
190
1,547
20,751
(9)
—
(533)
591,395
206,932
666,291
(1,641)
3,619,636
(1,641) $
3,453,491
(497) $
2,218,812
(167)
—
(1,199)
(1,863)
725,168
259,727
663,405
3,867,112
20,751 $
(1,863) $
3,668,729
2,165 $
(635)
—
446
1,976
(664) $
1,980,948
(47)
—
(1,418)
(2,129)
778,844
107,259
633,598
3,500,649
Excluding PPP loans
$
1,976 $
(2,129) $
3,500,649
(0.05) %
0.00 %
0.00 %
(0.08) %
(0.05) %
(0.05) %
(0.02) %
(0.02) %
0.00 %
(0.18) %
(0.05) %
(0.05) %
(0.03) %
(0.01) %
0.00 %
(0.22) %
(0.06) %
(0.06) %
53
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
The following is a summary of changes in non–interest income:
Twelve Months Ended
December 31
Non–interest Income
2021
2020
2020 - 2021
Amount
Change
Percent
Change
Twelve Months Ended
December 31
2020
2019
2019 - 2020
Amount
Change
Percent
Change
Service charges on deposit
accounts
Wire transfer fees
Interchange fees
Fiduciary activities
Gain (loss) on sale of
investment securities
Gain on sale of mortgage
loans
Mortgage servicing net of
impairment
Increase in cash surrender
value of bank owned life
insurance
Death benefit on officer life
insurance
Other income
Total non–interest
income
$
9,192 $
8,848 $
344
3.9 % $
8,848 $
9,959 $ (1,111)
(11.2) %
892
10,901
7,419
1,000
9,306
9,145
(108)
(10.8) %
1,595
17.1 %
(1,726)
(18.9) %
1,000
9,306
9,145
653
7,655
8,580
347
1,651
565
53.1 %
21.6 %
6.6 %
914
4,297
(3,383)
(78.7) %
4,297
(75)
4,372
(5,829.3) %
19,163
26,721
(7,558)
(28.3) %
26,721
9,208
17,513
190.2 %
2,352
(3,716)
6,068
(163.3) %
(3,716)
1,914
(5,630)
(294.1) %
2,094
2,243
(149)
(6.6) %
2,243
2,190
53
2.4 %
783
4,242
264
1,513
519
196.6 %
264
2,729
180.4 %
1,513
580
2,394
(316)
(881)
(54.5) %
(36.8) %
$ 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.
54
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 Expense
The following is a summary of changes in non–interest expense:
Twelve Months Ended
December 31
Non–interest Expense
2021
2020
2020 - 2021
Amount
Change
Percent
Change
Twelve Months Ended
December 31
2020
2019
2019 - 2020
Amount
Change
Percent
Change
$ 49,463 $ 47,024 $ 2,439
5.2 % $ 47,024 $ 44,671 $ 2,353
5.3 %
6.3 %
10,428
6,861
3,567
52.0 %
Salaries
Commission and bonuses
Employee benefits
Net occupancy expenses
Data processing
Professional fees
Outside services and
consultants
Loan expense
FDIC deposit insurance
Other losses
Other expenses
Total non–interest
expense
11,089
13,499
12,541
9,962
2,216
10,428
13,630
12,811
9,200
2,433
661
(131)
(270)
762
(1.0) %
13,630
(2.1) %
12,811
8.3 %
9,200
(217)
(8.9) %
2,433
8,449
7,318
1,131
15.5 %
7,318
11,377
10,628
2,377
2,283
1,855
1,162
16,023
14,952
749
522
1,121
1,071
7.0 %
10,628
28.1 %
1,855
96.5 %
1,162
13,673
12,157
8,480
1,946
8,152
8,633
252
740
(43)
(0.3) %
654
720
487
5.4 %
8.5 %
25.0 %
(834)
-10.2 %
1,995
23.1 %
1,603
636.1 %
422
57.0 %
7.2 %
14,952
16,466
(1,514)
(9.2) %
$ 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.
55
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)
Expected Replacement of 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.
56
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
2020
2019
2021
Net income as reported
Acquisition expenses
Tax effect
Net income excluding acquisition expenses
Credit loss expense on acquired loans
Tax effect
$
87,091 $
68,499 $
66,538
1,925
(401)
88,615
2,034
(427)
—
—
5,650
(987)
68,499
71,201
—
—
—
—
Net income excluding credit loss expense on acquired loans
90,222
68,499
71,201
Gain on sale of ESOP trustee accounts
Tax effect
Net income excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
Net income excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
Net income excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance (“BOLI”)
Net income excluding death benefit on BOLI
Prepayment penalties on borrowings
Tax effect
Net income excluding prepayment penalties on borrowings
(2,329)
489
88,382
1,900
(315)
—
—
—
—
68,499
71,201
—
—
—
—
89,967
68,499
71,201
(914)
(4,297)
192
89,245
902
65,104
75
(16)
71,260
(783)
(264)
(580)
88,462
125
(26)
64,840
3,804
(799)
70,680
—
—
88,561
67,845
70,680
Adjusted net income
$
88,561 $
67,845 $
70,680
57
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
2020
2019
2021
Diluted earnings per share (“EPS”) as reported
$
1.98 $
1.55 $
Acquisition expenses
Tax effect
Diluted EPS excluding acquisition expenses
Credit loss expense on acquired loans
Tax effect
Diluted EPS excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
Diluted EPS excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
Diluted EPS excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
Diluted EPS excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance (“BOLI”)
Diluted EPS excluding death benefit on BOLI
Prepayment penalties on borrowings
Tax effect
Diluted EPS excluding prepayment penalties on borrowings
0.04
—
2.02
0.05
(0.01)
2.06
(0.05)
0.01
2.02
0.04
(0.01)
2.05
—
—
1.55
—
—
1.55
—
—
1.55
—
—
1.55
(0.02)
(0.10)
—
2.03
0.02
1.47
(0.03)
(0.01)
2.00
—
—
2.00
1.46
0.09
(0.02)
1.53
Adjusted diluted EPS
$
2.00 $
1.53 $
Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income
(Dollars in Thousands, Unaudited)
1.53
0.13
(0.02)
1.64
—
—
1.64
—
—
1.64
—
—
1.64
—
—
1.64
(0.01)
1.63
—
—
1.63
1.63
Years Ended December 31
2020
2019
2021
Pre–tax income
Credit loss expense
Pre–tax, pre–provision income
Pre–tax, pre–provision income
Acquisition expenses
Gain on sale of ESOP trustee accounts
ESOP settlement expenses
(Gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
Prepayment penalties on borrowings
Adjusted pre–tax, pre–provision income
$
102,447 $
78,369 $
79,841
(2,084)
20,751
1,976
$
100,363 $
99,120 $
81,817
$
100,363 $
99,120 $
81,817
1,925
(2,329)
1,900
(914)
(783)
125
—
—
—
(4,297)
(264)
3,804
5,650
—
—
75
(580)
—
$
100,287 $
98,363 $
86,962
58
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
2020
2019
2021
Net interest income as reported
Average interest earning assets
$ 181,690
$ 170,940
$ 160,791
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
Acquisition–related purchase accounting adjustments (“PAUs”)
Prepayment penalties on borrowings
Adjusted net interest income
Adjusted net interest margin
$ 181,690
$ 170,940
$ 160,791
(4,503)
125
(6,936)
3,804
(5,590)
—
$ 177,312
$ 167,808
$ 155,201
3.06 %
3.38 %
3.57 %
Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
Years Ended December 31
2020
2019
2021
Average assets
Return on average assets (“ROAA”) as reported
Acquisition expenses
Tax effect
ROAA excluding acquisition expenses
Credit loss expense on acquired loans
Tax effect
ROAA excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
ROAA excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
ROAA excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
ROAA excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
ROAA excluding death benefit on bank owned life insurance
Prepayment penalties on borrowings
Tax effect
ROAA excluding prepayment penalties on borrowings
Adjusted ROAA
$ 6,514,251
$ 5,628,783
$ 4,933,058
1.34 %
0.03 %
(0.01) %
1.36 %
0.03 %
(0.01) %
1.38 %
(0.04) %
0.01 %
1.35 %
0.03 %
— %
1.38 %
(0.01) %
— %
1.37 %
(0.01) %
1.36 %
— %
— %
1.36 %
1.36 %
1.22 %
— %
— %
1.22 %
— %
— %
1.35 %
0.11 %
(0.02) %
1.44 %
— %
— %
1.22 %
1.44 %
— %
— %
— %
— %
1.22 %
1.44 %
— %
— %
1.22 %
(0.08) %
0.02 %
1.16 %
— %
1.16 %
0.07 %
(0.01) %
1.22 %
1.22 %
— %
— %
1.44 %
— %
— %
1.44 %
(0.01) %
1.43 %
— %
— %
1.43 %
1.43 %
59
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
2020
2019
2021
Average common equity
Return on average common equity (“ROACE”) as reported
Acquisition expenses
Tax effect
ROACE excluding acquisition expenses
Credit loss expense on acquired loans
Tax effect
ROACE excluding credit loss expense on acquired loans
Gain on sale of ESOP trustee accounts
Tax effect
ROACE excluding gain on sale of ESOP trustee accounts
ESOP settlement expenses
Tax effect
ROACE excluding ESOP settlement expenses
(Gain) / loss on sale of investment securities
Tax effect
ROACE excluding (gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
ROACE excluding death benefit on bank owned life insurance
Prepayment penalties on borrowings
Tax effect
ROACE excluding prepayment penalties on borrowings
Adjusted ROACE
$ 712,122
$ 665,466
$ 605,719
12.23 %
0.27 %
(0.06) %
12.44 %
0.29 %
(0.06) %
12.67 %
(0.33) %
0.07 %
12.41 %
0.27 %
(0.04) %
12.64 %
(0.13) %
0.03 %
12.54 %
(0.11) %
12.43 %
0.02 %
— %
12.45 %
12.45 %
10.29 %
— %
— %
10.29 %
— %
— %
10.98 %
0.93 %
(0.16) %
11.75 %
— %
— %
10.29 %
11.75 %
— %
— %
— %
— %
10.29 %
11.75 %
— %
— %
10.29 %
(0.65) %
0.14 %
9.78 %
(0.04) %
9.74 %
0.57 %
(0.12) %
10.19 %
10.19 %
— %
— %
11.75 %
0.01 %
— %
11.76 %
(0.10) %
11.66 %
— %
— %
11.66 %
11.66 %
Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands Except per Share Data, Unaudited)
Total stockholders’ equity
Less: Intangible assets
December 31, September 30,
June 30,
March 31,
December 31,
2021
2021
2021
2021
2020
$
723,209 $
708,542 $
710,374 $
689,379 $
692,216
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
Tangible book value per common share
$
$
16.61 $
12.58 $
16.28 $
12.05 $
16.16 $
12.24 $
15.69 $
11.74 $
15.78
11.81
60
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)
Non–interest expense as reported
Net interest income as reported
Non–interest income as reported
Years Ended December 31
2021
2020
2019
$ 139,279
$ 131,441
$ 122,032
181,690
170,940
160,791
$
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
Acquisition expenses
ESOP settlement expenses
Non–interest expense excluding acquisition expenses and ESOP settlement
expenses
Net interest income as reported
Prepayment penalties on borrowings
Net interest income excluding prepayment penalties on borrowings
Non–interest income as reported
Gain on sale of ESOP trustee accounts
(Gain) / loss on sale of investment securities
Death benefit on bank owned life insurance
Non–interest income excluding gain on sale of ESOP trustee accounts,
(gain) / loss on sale of investment securities and death benefit on bank
owned life insurance
$ 139,279
$ 131,441
$ 122,032
(1,925)
(1,900)
135,454
181,690
125
181,815
57,952
(2,329)
(914)
(783)
—
—
(5,650)
—
131,441
170,940
3,804
174,744
59,621
—
(4,297)
(264)
116,382
160,791
—
160,791
43,058
—
75
(580)
$
53,926
$
55,060
$
42,553
Adjusted efficiency ratio
57.46 %
57.20 %
57.23 %
61
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)
Liquidity and Rate Sensitivity Management
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 loan rates remain low, Horizon’s mortgage warehouse loans could create an
additional need for funding.
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 of available collateral at the FRB secured by municipal securities.
These securities may mature, call, or be sold, which would reduce the available collateral.
Horizon had approximately $2.0 billion of unpledged investment securities at December 31, 2021.
A downgrade in Horizon’s ability to obtain credit due to factors such as deterioration in asset quality, a
large charge to earnings, a decline in profitability or other financial measures, or a significant merger or
acquisition could impact the availability of funding 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 in general may adversely affect the
cost and availability of normal funding sources.
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.
62
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.
Interest Rate Sensitivity
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.
63
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)
Loans
Federal funds sold
Interest earning balances with banks
Investment securities and FHLB stock
Other assets
Total assets
3 Months
or Less
> 3 Months
&
6 Months
&