Chief Financial Officer

Phone: (219) 873-2611

Fax: (219) 874-9280

Date: January 24, 2018

FOR IMMEDIATE RELEASE

Horizon Bancorp Announces Record Net Income for 2017

Michigan City, Indiana (NASDAQ GS: HBNC) – Horizon Bancorp (“Horizon”) today announced its unaudited financial results for the three-month and twelve-month periods ended December 31, 2017.  All share data has been adjusted to reflect Horizon’s three-for-two stock split effective November 14, 2016.

SUMMARY:

·

Net income for the year ended December 31, 2017 was $33.1 million, or $1.43 diluted earnings per share, compared to $23.9 million, or $1.19 diluted earnings per share, for the year ended December 31, 2016.

·

Net income, excluding acquisition-related expenses, gain on sale of investment securities, prepayment penalties on borrowings, gain on the accounting for Horizon’s equity interest in Lafayette Community Bancorp (“Lafayette”), tax reform bill impact and purchase accounting adjustments (“core net income”) for the year ended December 31, 2017 increased 21.4% to $35.5 million or $1.53 diluted earnings per share compared to $29.2 million or $1.45 diluted earnings per share for the year of 2016.

·

Net income for the fourth quarter of 2017 was $7.6 million, or $0.30 diluted earnings per share, compared to $8.2 million, or $0.36 diluted earnings per share, for the third quarter of 2017 and $5.6 million, or $0.25 diluted earnings per share, for the fourth quarter of 2016.

·

Core net income for the fourth quarter of 2017 was $10.1 million, or $0.40 diluted earnings per share, compared to $9.2 million, or $0.41 diluted earnings per share, for the third quarter of 2017 and $8.5 million, or $0.38 diluted earnings per share, for the fourth quarter of 2016.

·

Return on average assets was 0.97% for the year ended December 31, 2017 compared to 0.81% for the year ended December 31, 2016.

·

Return on average assets, excluding acquisition-related expenses, gain on sale of investment securities, prepayment penalties on borrowings, gain on the accounting for Horizon’s equity interest in Lafayette, tax reform bill impact and purchase accounting adjustments (“core return on average assets”), for the year ended December 31, 2017 was 1.04% compared to 0.99% for the year ended December 31, 2016.

·

Total loans increased by a rate of 32.2%, or $691.0 million, during 2017. Total loans, excluding acquired loans, increased by a rate of 11.3%, or $242.7 million, during 2017.

·

Commercial loans increased by a rate of 51.2%, or $547.9 million, during 2017. Commercial loans, excluding acquired commercial loans, increased by a rate of 14.3%, or $152.7 million, during 2017.

·

Consumer loans increased by a rate of 28.7%, or $114.4 million, during 2017. Consumer loans, excluding acquired consumer loans, increased by a rate of 26.3%, or $104.7 million, during 2017.

·

Net interest income increased $26.1 million, or 30.4%, to $112.1 million for the year ended December 31, 2017 compared to $86.0 million for the year ended December 31, 2016.

Pg. 2 cont. Horizon Bancorp Announces Record Net Income for 2017

·

Net interest margin was 3.75% for the year ended December 31, 2017 compared to 3.29% for the year ended December 31, 2016. The improvement in net interest margin from the prior year was due to Horizon executing a strategy to reduce expensive funding costs in the fourth quarter of 2016, an increase in average interest-earning assets, an increase in loan yields and the increase in interest rates during 2017.

·

Net interest margin, excluding the impact of prepayment penalties on borrowings and purchase accounting adjustments (“core net interest margin”), was 3.64% for the year ended December 31, 2017 compared to 3.38% for the year ended December 31, 2016.

·

Horizon’s tangible book value per share increased following the acquisitions of Lafayette and Wolverine Bancorp, Inc. (“Wolverine”) to $12.72 at December 31, 2017, compared to $12.38 and $11.48 at September 30, 2017 and December 31, 2016, respectively.

·

On October 17, 2017, Horizon closed on the merger with Wolverine and its wholly-owned subsidiary, Wolverine Bank, headquartered in Midland, Michigan. The related system integration was successfully completed on November 10, 2017.

Craig Dwight, Chairman and CEO, commented: “I am very pleased to announce Horizon Bancorp’s 2017 results and the incredible effort put forth by our entire team. Horizon’s performance for the year required an incredible team effort, based on the fact that we reported solid organic loan growth and successfully closed on a single branch acquisition and two whole-banks mergers. In addition, we were able to improve our net interest margin as a result of changes we made to our balance sheet in the fourth quarter of 2016 and therefore realized the benefits of said changes in 2017. Horizon’s core net income of $10.1 million for the fourth quarter and $35.5 million for the year is an increase of 19.0% and 21.4%, respectively, when compared to the prior year. Core diluted earnings per share increased 5.3%, to $0.40, for the fourth quarter and 5.5%, to $1.53, for 2017 when compared to the prior year.”

Dwight continued, “We continued to follow our balanced strategy of well-executed acquisitions and organic growth throughout 2017. During the first quarter of 2017, Horizon completed the acquisition of a single branch of First Farmers Bank & Trust Company located in Bargersville, Indiana which added $3.4 million in loans and $14.8 million in deposits and enhanced our presence in this attractive and rapidly growing central Indiana market. During the third quarter of 2017, we completed the acquisition of Lafayette Community Bancorp adding an experienced team of bankers to capitalize on future opportunities in the growth market of Lafayette, Indiana. Horizon also completed the acquisition of Wolverine Bancorp, Inc. during the fourth quarter of 2017 adding another experienced team of bankers located at three full-service locations in the Great Lakes Bay Region of Michigan and a loan production office in Troy, Michigan. The acquisitions of Lafayette and Wolverine increased total loans by $445.0 million.”

Mr. Dwight concluded, “In addition to these acquisitions, we continued to execute our organic growth strategy and experienced solid loan growth in 2017. Total loans, excluding acquired loans, loans held for sale and mortgage warehouse loans increased by 14.4%, or $288.9 million, primarily due to commercial and consumer loan growth. Horizon’s growth markets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo, grew by $109.1 million, or 27.5%, during the year. The addition of a seasoned consumer loan portfolio manager during the third quarter of 2016 and an increased focus on the management of direct consumer loans resulted in an increase of 26.3% in consumer loans during 2017.”

Pg. 3 cont. Horizon Bancorp Announces Record Net Income for 2017

Income Statement Highlights

Net income for the fourth quarter of 2017 was $7.6 million, or $0.30 diluted earnings per share, compared to $8.2 million, or $0.36 diluted earnings per share, for the third quarter of 2017 and $5.6 million, or $0.25 diluted earnings per share, for the fourth quarter of 2016. Excluding acquisition-related expenses, gain on sale of investment securities, prepayment penalties on borrowings, gain on the accounting for Horizon’s equity interest in Lafayette, tax reform bill impact and purchase accounting adjustments (“core net income”), net income for the fourth quarter of 2017 was $10.1 million, or $0.40 diluted earnings per share, compared to $9.2 million, or $0.41 diluted earnings per share, for the third quarter of 2017 and $8.5 million, or $0.38 diluted earnings per share, for the fourth quarter of 2016.

The decrease in net income from the third quarter of 2017 to the fourth quarter of 2017 reflects increases in income tax expense of $3.3 million, non-interest expense of $1.8 million and provision for loan losses of $390,000, partially offset by increases in net interest income of $3.6 million and non-interest income of $1.3 million. In addition to the decrease in net income, diluted earnings per share decreased due to the stock issued in the Lafayette and Wolverine acquisitions. The increase in income tax expense was primarily due to the $2.4 million adjustment of Horizon’s net deferred tax assets to the new corporate tax rate. The increase in non-interest income reflects the finalized entries of the Lafayette acquisition which resulted in a gain on the accounting for Horizon’s previous equity interest in Lafayette of $530,000. Also, fiduciary activities income increased $255,000 from the third quarter to the fourth quarter.

The increase in net income and diluted earnings per share from the fourth quarter of 2016 to the same 2017 period reflects an increase in net interest income of $10.5 million, partially offset by increases in income tax expense of $4.1 million, non-interest expense of $3.7 million, provision for loan losses of $477,000 and average diluted shares outstanding. The majority of the increase in income tax expense was due to the $2.4 million adjustment of Horizon’s net deferred tax assets to the new corporate tax rate. Gains on the sale of investment securities decreased $961,000 from the fourth quarter of 2016 to the same period in 2017, partially offset by the gain on the accounting for Horizon’s previous equity interest in Lafayette of $530,000.

Net income for the year ended December 31, 2017 was $33.1 million, or $1.43 diluted earnings per share, compared to $23.9 million, or $1.19 diluted earnings per share, for the year ended December 31, 2016. The increase in net income and diluted earnings per share from 2016 to 2017 reflects an increase in net interest income of $26.1 million offset by a decrease in non-interest income of $2.3 million and increases in non-interest expense of $7.9 million, income tax expense of $6.0 million and provision for loan losses of $628,000. Core net income for the year ended December 31, 2017 was $35.5 million, or $1.53 diluted earnings per share, compared to $29.2 million, or $1.45 diluted earnings per share, for the year ended December 31, 2016.

Pg. 4 cont. Horizon Bancorp Announces Record Net Income for 2017

 

Non-GAAP Reconciliation of Net Income and Diluted Earnings per Share

(Dollars in Thousands Except per Share Data)

		Three Months Ended								Twelve Months Ended
		December 31								December 31
Non-GAAP Reconciliation of Net Income		2017				2016				2017				2016
		(Unaudited)								(Unaudited)
Net income as reported		$	7,650			$	5,603			$	33,117			$	23,912
Merger expenses			1,444				1,354				3,656				6,827
Tax effect			(418	)			(416	)			(1,003	)			(1,998	)
Net income excluding merger expenses			8,676				6,541				35,770				28,741
Gain on sale of investment securities			-				(961	)			(38	)			(1,836	)
Tax effect			-				336				13				643
Net income excluding gain on sale of investment securities			8,676				5,916				35,745				27,548
Prepayment penalties on borrowings			-				4,839				-				4,839
Tax effect			-				(1,694	)			-				(1,694	)
Net income excluding prepayment penalties on borrowings			8,676				9,061				35,745				30,693
Gain on remeasurement of equity interest in Lafayette			(530	)			-				(530	)			-
Tax effect			78				-				78				-
Net income excluding gain on remeasurement of equity interest in Lafayette			8,224				9,061				35,293				30,693
Tax reform bill impact			2,426				-				2,426				-
Net income excluding tax reform bill impact			10,650				9,061				37,719				30,693
Acquisition-related purchase accounting adjustments ("PAUs")			(868	)			(900	)			(3,484	)			(2,304	)
Tax effect			304				315				1,219				807
Net income excluding (PAUs)		$	10,086			$	8,476			$	35,454			$	29,196
Non-GAAP Reconciliation of Diluted Earnings per Share
Diluted earnings per share as reported		$	0.30			$	0.25			$	1.43			$	1.19
Merger expenses			0.06				0.06				0.16				0.34
Tax effect			(0.02	)			(0.02	)			(0.04	)			(0.10	)
Diluted earnings per share excluding merger expenses			0.34				0.29				1.55				1.43
Gain on sale of investment securities			-				(0.04	)			-				(0.09	)
Tax effect			-				0.02				-				0.03
Diluted earnings per share excluding gain on sale of investment securities			0.34				0.27				1.55				1.37
Prepayment penalties on borrowings			-				0.22				-				0.24
Tax effect			-				(0.08	)			-				(0.08	)
Diluted earnings per share excluding prepayment penalties on borrowings			0.34				0.41				1.55				1.53
Gain on remeasurement of equity interest in Lafayette			(0.02	)			-				(0.02	)			-
Tax effect			-				-				-				-
Diluted earnings per share excluding gain on remeasurement of equity interest in Lafayette			0.32				0.41				1.53				1.53
Tax reform bill impact			0.10				-				0.10				-
Diluted earnings per share excluding tax reform bill impact			0.42				0.41				1.63				1.53
Acquisition-related PAUs			(0.03	)			(0.04	)			(0.15	)			(0.11	)
Tax effect			0.01				0.01				0.05				0.03
Diluted earnings per share excluding PAUs		$	0.40			$	0.38			$	1.53			$	1.45

Pg. 5 cont. Horizon Bancorp Announces Record Net Income for 2017

Horizon’s net interest margin remained at 3.71% for the fourth quarter of 2017 when compared to the prior quarter and increased from 2.92% for the fourth quarter of 2016. The increase in net interest margin reflects a decrease in the cost of interest-bearing liabilities of 66 basis points and an increase in the yield of interest-earning assets of 25 basis points. The decrease in the cost of interest-bearing liabilities was primarily due to prepayment penalties incurred on high fixed-rate borrowings as part of Horizon’s balance sheet restructuring transaction in the fourth quarter of 2016. The increase in the yield of interest-earning assets was due to an increase in the yield on taxable investment securities and loans receivable of 28 and 6 basis points, respectively. Excluding prepayment penalties on borrowings and acquisition-related purchase accounting adjustments (“core net interest margin”), the margin was 3.61% for the fourth quarter of 2017 compared to 3.63% for the prior quarter and 3.45% for the fourth quarter of 2016. Interest expense from the prepayment penalties on borrowings was $4.8 million during the three months ended December 31, 2016. Interest income from acquisition-related purchase accounting adjustments was $868,000, $661,000 and $900,000 for the three months ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively.

Horizon’s net interest margin increased to 3.75% for the year ended December 31, 2017 compared to 3.29% for the year ended December 31, 2016. The increase in net interest margin reflects a decrease in the cost of interest-bearing liabilities of 26 basis points and an increase in the yield of interest-earning assets of 24 basis points. The decrease in the cost of interest-bearing liabilities was primarily due to Horizon’s balance sheet restructuring transaction completed in the fourth quarter of 2016 resulting in a decrease of 116 basis points in the cost of borrowings when comparing 2017 to 2016. The increase in the yield on interest-earning assets was due to a 12 basis point increase in the yield on loans receivable and an 11 basis point increase on taxable investment securities. Core net interest margin increased to 3.64% for the year ended December 31, 2017 compared to 3.38% for the year ended December 31, 2016. Interest expense from the prepayment penalties on borrowings was $4.8 million during 2016. Interest income from acquisition-related purchase accounting adjustments was $3.5 million and $2.3 million for the year ended December 31, 2017 and 2016, respectively.

Non-GAAP Reconciliation of Net Interest Margin (Dollars in Thousands, Unaudited)
		Three Months Ended												Twelve Months Ended
		December 31				September 30				December 31				December 31				December 31
Net Interest Margin As Reported		2017				2017				2016				2017				2016
Net interest income		$	31,455			$	27,879			$	20,939			$	112,100			$	85,992
Average interest-earning assets			3,471,169				3,078,611				2,932,145				3,074,464				2,683,383
Net interest income as a percent of average interest-earning assets ("Net Interest Margin")			3.71	%			3.71	%			2.92	%			3.75	%			3.29	%
Impact of Prepayment Penalties on Borrowings
Interest expense from prepayment penalties on borrowings		$	-			$	-			$	4,839			$	-			$	4,839
Impact of Acquisitions
Interest income from acquisition-related purchase accounting adjustments		$	(868	)		$	(661	)		$	(900	)		$	(3,484	)		$	(2,304	)
Excluding Impact of Prepayment Penalties and Acquisitions
Net interest income		$	30,587			$	27,218			$	24,878			$	108,616			$	88,527
Average interest-earning assets			3,471,169				3,078,611				2,932,145				3,074,464				2,683,383
Core Net Interest Margin			3.61	%			3.63	%			3.45	%			3.64	%			3.38	%

Pg. 6 cont. Horizon Bancorp Announces Record Net Income for 2017

Lending Activity

Total loans increased $405.6 million from $2.429 billion as of September 30, 2017 to $2.835 billion as of December 31, 2017 as commercial loans increased by $344.1 million, residential mortgage loans increased by $35.7 million and consumer loans increased by $27.4 million. Total loans, excluding acquired loans, mortgage warehouse loans and loans held for sale increased by $96.5 million when compared to September 30, 2017.

																		Excluding Acquired Loans
		December 31				September 30				Amount				Acquired				Amount				Percent
		2017				2017				Change				Loans				Change				Change
		(Unaudited)				(Unaudited)
Commercial loans		$	1,617,870			$	1,273,790			$	344,080			$	(276,167	)		$	67,913				5.3	%
Residential mortgage loans			606,760				571,062				35,698				(30,603	)			5,095				0.9	%
Consumer loans			512,857				485,490				27,367				(3,897	)			23,470				4.8	%
Subtotal			2,737,487				2,330,342				407,145				(310,667	)			96,478				4.1	%
Held for sale loans			3,094				3,616				(522	)			-				(522	)			-14.4	%
Mortgage warehouse loans			94,508				95,483				(975	)			-				(975	)			-1.0	%
Total loans		$	2,835,089			$	2,429,441			$	405,648			$	(310,667	)		$	94,981				3.9	%

Total loans increased $691.0 million to $2.835 billion at December 31, 2017 from $2.144 billion at December 31, 2016 as commercial loans increased by $547.9 million, consumer loans increased by $114.4 million and residential mortgage loans increased by $74.9 million, partially offset by a decrease in mortgage warehouse loans of $41.2 million and loans held for sale of $5.0 million. Total loans, excluding acquired loans, mortgage warehouse loans and loans held for sale, increased by a rate of 14.4%, or $288.9 million, during 2017.

 

Loan Growth by Type, Excluding Acquired Loans

Twelve Months Ended December 31, 2017

(Dollars in Thousands)

 

																		Excluding Acquired Loans
		December 31				December 31				Amount				Acquired				Amount				Percent
		2017				2016				Change				Loans				Change				Change
		(Unaudited)
Commercial loans		$	1,617,870			$	1,069,956			$	547,914			$	(395,167	)		$	152,747				14.3	%
Residential mortgage loans			606,760				531,874				74,886				(43,423	)			31,463				5.9	%
Consumer loans			512,857				398,429				114,428				(9,739	)			104,689				26.3	%
Subtotal			2,737,487				2,000,259				737,228				(448,329	)			288,899				14.4	%
Held for sale loans			3,094				8,087				(4,993	)			-				(4,993	)			-61.7	%
Mortgage warehouse loans			94,508				135,727				(41,219	)			-				(41,219	)			-30.4	%
Total loans		$	2,835,089			$	2,144,073			$	691,016			$	(448,329	)		$	242,687				11.3	%

Residential mortgage lending activity for the three months ended December 31, 2017 generated $2.0 million in income from the gain on sale of mortgage loans, an increase of $37,000 from the previous quarter and a decrease of $612,000 from the same period in 2016. Total origination volume for the fourth quarter of 2017, including loans placed into portfolio, totaled $90.1 million, representing a decrease of 5.3% from the previous quarter and a decrease of 24.0% from the same period in 2016.

Pg. 7 cont. Horizon Bancorp Announces Record Net Income for 2017

Residential mortgage lending activity for the year ended December 31, 2017 generated $7.9 million in income from the gain on sale of mortgage loans, a decrease of $3.4 million when compared to the year ended December 31, 2016. Total origination volume for the year ended December 31, 2017, including loans placed into portfolio, totaled $361.5 million, a decrease of 21.4% compared to the year ended December 31, 2016.

The decrease in mortgage loan origination volume was primarily due to a decrease in mortgage loan refinance activity when comparing 2017 to 2016. Purchase money mortgage originations during the fourth quarter of 2017 represented 73.7% of total originations compared to 80.2% of originations during the previous quarter and 65.7% during the fourth quarter of 2016. Purchase money mortgage originations for the year ended December 31, 2017 represented 76.1% of originations compared to 69.5% for the year ended December 31, 2016.

The provision for loan losses totaled $1.1 million for the fourth quarter of 2017 compared to $710,000 for the third quarter of 2017 and $623,000 for the fourth quarter of 2016. The provision for loan losses totaled $2.5 million and $1.8 million for the years ended December 31, 2017 and 2016, respectively. The increase in the provision for loan losses in 2017 was due to additional allocations for loan growth in new markets and an increase in allocation for agricultural economic factors.

The ratio of the allowance for loan losses to total loans decreased to 0.58% as of December 31, 2017 from 0.69% as of December 31, 2016 due to an increase in gross loans. The ratio of the allowance for loan losses to total loans, excluding loans with credit-related purchase accounting adjustments, was 0.81% as of December 31, 2017 compared to 0.91% as of December 31, 2016. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was 1.23% as of December 31, 2017 compared to 1.39% as of December 31, 2016.

 

Non-GAAP Allowance for Loan and Leasse Loss Detail

		Horizon Legacy				Heartland				Summit				Peoples				Kosciusko				LaPorte				CNB				Lafayette				Wolverine				Total
Pre-discount loan balance		$	2,019,194			$	11,646			$	40,995			$	113,171			$	60,497			$	142,824			$	6,583			$	144,444			$	311,313			$	2,850,667
Allowance for loan losses (ALLL)			16,394				-				-				-				-				-				-				-				-				16,394
Loan discount			N/A				800				2,241				2,754				758				3,796				167				3,226				4,930				18,672
ALLL + loan discount			16,394				800				2,241				2,754				758				3,796				167				3,226				4,930				35,066
Loans, net		$	2,002,800			$	10,846			$	38,754			$	110,417			$	59,739			$	139,028			$	6,416			$	141,218			$	306,383			$	2,815,601
ALLL/pre-discount loan balance			0.81	%			0.00	%			0.00	%			0.00	%			0.00	%			0.00	%			0.00	%			0.00	%			0.00	%			0.58	%
Loan discount/pre-discount loan balance			N/A				6.87	%			5.47	%			2.43	%			1.25	%			2.66	%			2.54	%			2.23	%			1.58	%			0.66	%
ALLL+loan discount/pre-discount loan balance			0.81	%			6.87	%			5.47	%			2.43	%			1.25	%			2.66	%			2.54	%			2.23	%			1.58	%			1.23	%

Non-performing loans to total loans increased 8 basis points to 0.58% at December 31, 2017 from 0.50% at December 31, 2016. Non-performing loans totaled $16.4 million as of December 31, 2017, an increase of $5.7 million from $10.7 million as of December 31, 2016. Compared to December 31, 2016, non-performing commercial loans increased by $4.7 million, non-performing real estate loans increased by $694,000 and non-performing consumer loans increased by $328,000. The increase in non-performing loans was driven primarily by loans acquired from Lafayette Community Bank and Wolverine Bank.

Pg. 8 cont. Horizon Bancorp Announces Record Net Income for 2017

Expense Management

Total non-interest expense was $1.8 million higher in the fourth quarter of 2017 when compared to the previous quarter. Excluding merger-related expenses of $1.4 million and $2.0 million during the three months ended December 31, 2017 and September 30, 2017, respectively, total non-interest expense increased $2.3 million, or 10.4%. The increase was primarily due to an increase in salaries and employee benefits of $1.4 million due to additional compensation expenses related to performance based incentive plans and the recent Wolverine acquisition. Other expense increased $338,000 reflecting overall company growth, market expansion and recent acquisitions. Outside services and consultant expense decreased $447,000 due to a lower amount of merger-related expenses incurred during the fourth quarter of 2017 when compared to the previous quarter. In addition, the cost savings anticipated from the Lafayette and Wolverine acquisitions were not yet fully realized during the fourth quarter of 2017. We expect the cost savings from these acquisitions will start to be fully realized in the first quarter of 2018.

Total non-interest expense was $3.7 million higher in the fourth quarter of 2017 compared to the same period of 2016.  Excluding merger-related expenses of $1.4 million recorded in both quarters ended December 31, 2017 and 2016, total non-interest expense increased $3.6 million, or 17.0%. The increase was primarily due to an increase in salaries and employee benefits of $2.9 million, other expenses of $390,000, net occupancy expenses of $176,000, outside services and consultants expense of $147,000 and professional fees of $131,000. The increase in salaries and employee benefits reflects additional compensation expense related to performance based incentive plans, overall company growth and recent acquisitions. Other expenses and net occupancy expenses increased as a result of market expansions and acquisitions. The increase in outside services and consultants expense and professional fees was due to a higher amount of merger-related expenses during the fourth quarter of 2017 when compared to the same period of 2016. Finally, the cost savings anticipated from the Lafayette and Wolverine acquisitions were not yet fully realized during the fourth quarter of 2017. We expect the cost savings from these acquisitions will start to be fully realized in the first quarter of 2018.

Total non-interest expense for the year ended December 31, 2017 increased $7.9 million when compared to the year ended December 31, 2016. Excluding merger-related expenses of $3.7 million and $6.8 million recorded during the year ended December 31, 2017 and 2016, respectively, total non-interest expense increased $11.1 million. The increase was primarily due to increases in salaries and employee benefits of $7.4 million, net occupancy expenses of $1.2 million, other expenses of $1.3 million and data processing expenses of $547,000, partially offset by decreases in outside services and consultants expense of $845,000, loan expense of $612,000, FDIC insurance expense of $513,000, other losses of $316,000 and professional fees of $262,000. The increase in salaries and employee benefits expense reflects additional compensation expense related to performance based incentive plans, overall company growth and recent acquisitions. Net occupancy expenses, other expenses and data processing expenses increased primarily due to overall company growth, market expansions and acquisitions. Outside services and consultants expense and professional fees decreased due to a lower amount of merger-related expenses in 2017 compared to 2016. The decrease in loan expense reflects a decrease in loan collection expenses when comparing 2017 to 2016. The reduced assessment rate schedule implemented by the FDIC in the fourth quarter of 2016 resulted in the decrease of FDIC insurance expense in 2017. Other losses decreased primarily due to lower debit card fraud-related expenses in 2017.

Pg. 9 cont. Horizon Bancorp Announces Record Net Income for 2017

Income tax expense totaled $5.8 million for the fourth quarter of 2017, an increase of $3.3 million and $4.1 million when compared to the third quarter of 2017 and fourth quarter of 2016, respectively. The increase was primarily due to the impact of the new corporate tax rate which was signed into law at the end of 2017. An adjustment to Horizon’s net deferred tax asset of $2.4 million ($1.7 million of net deferred tax assets and $766,000 of net deferred tax assets related to accumulated other comprehensive income) was recorded to income tax expense during the fourth quarter of 2017 to reflect the new corporate tax rate. Also reflected in this increase in income tax expense is an increase of $2.7 million and $6.2 million in income before income taxes when comparing the fourth quarter of 2017 to the previous quarter and the fourth quarter of 2016, respectively.

Income tax expense increased $6.0 million for the year ended December 31, 2017 compared to the year ended December 31, 2016. The majority of this increase was due to an increase in income before taxes of $15.2 million during 2017. Also reflected in this increase is the adjustment to Horizon’s net deferred tax asset of $2.4 million recorded during the fourth quarter of 2017.

Use of Non-GAAP Financial Measures

Certain information set forth in this press release 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, total loans and loan growth, the allowance for loan and lease losses, tangible stockholders’ equity, tangible book value per share and the return on average assets. In each case, we have identified special circumstances that we consider to be non-recurring and have excluded them, to show the impact of such events as acquisition-related purchase accounting adjustments, prepayment penalties on borrowings and the tax reform bill, among others we have identified in our reconciliations. Horizon believes that 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 one-time costs of acquisitions and non-core items. 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 tables and other information below and contained elsewhere in this press release for reconciliations of the non-GAAP figures identified herein and their most comparable GAAP measures.

Non-GAAP Reconciliation of Tangible Stockholders' Equity and Tangible Book Value per Share (Dollars in Thousands Except per Share Data, Unaudited)
		December 31				September 30				June 30				March 31				December 31
		2017				2017				2017				2017				2016
Total stockholders' equity		$	457,078			$	392,055			$	357,259			$	348,575			$	340,855
Less: Intangible assets			132,282				103,244				86,726				87,094				86,307
Total tangible stockholders' equity		$	324,796			$	288,811			$	270,533			$	261,481			$	254,548
Common shares outstanding			25,529,819				23,325,459				22,176,465				22,176,465				22,171,596
Tangible book value per common share		$	12.72			$	12.38			$	12.20			$	11.79			$	11.48

Pg. 10 cont. Horizon Bancorp Announces Record Net Income for 2017

Non-GAAP Reconciliation of Return on Average Assets (Dollars in Thousands, Unaudited)
		Three Months Ended								Twelve Months Ended
		December 31								December 31
Non-GAAP Reconciliation of Net Income		2017				2016				2017				2016
Average Assets		$	3,841,551			$	3,241,750			$	3,396,873			$	2,961,622
Net income as reported			7,650				5,603				33,117				23,912
Merger expenses			1,444				1,354				3,656				6,827
Tax effect			(418	)			(416	)			(1,003	)			(1,998	)
Net income excluding merger expenses			8,676				6,541				35,770				28,741
Gain on sale of investment securities			-				(961	)			(38	)			(1,836	)
Tax effect			-				336				13				643
Net income excluding gain on sale of investment securities			8,676				5,916				35,745				27,548
Prepayment penalties on borrowings			-				4,839				-				4,839
Tax effect			-				(1,694	)			-				(1,694	)
Net income excluding prepayment penalties on borrowings			8,676				9,061				35,745				30,693
Gain on remeasurement of equity interest in Lafayette			(530	)			-				(530	)			-
Tax effect			78				-				78				-
Net income excluding gain on remeasurement of equity interest in Lafayette			8,224				9,061				35,293				30,693
Tax reform bill impact			2,426				-				2,426				-
Net income excluding tax reform bill impact			10,650				9,061				37,719				30,693
Acquisition-related purchase accounting adjustments (PAUs)			(868	)			(900	)			(3,484	)			(2,304	)
Tax effect			304				315				1,219				807
Net income excluding PAUs		$	10,086			$	8,476			$	35,454			$	29,196
Non-GAAP Reconciliation of Return on Average Assets
Return on average assets as reported			0.79	%			0.69	%			0.97	%			0.81	%
Merger expenses			0.15	%			0.17	%			0.11	%			0.23	%
Tax effect			-0.04	%			-0.05	%			-0.03	%			-0.07	%
Return on average assets excluding merger expenses			0.90	%			0.81	%			1.05	%			0.97	%
Gain on sale of investment securities			0.00	%			-0.12	%			0.00	%			-0.06	%
Tax effect			0.00	%			0.04	%			0.00	%			0.02	%
Return on average assets excluding gain on sale of investment securities			0.90	%			0.73	%			1.05	%			0.93	%
Prepayment penalties on borrowings			0.00	%			0.60	%			0.00	%			0.17	%
Tax effect			0.00	%			-0.21	%			0.00	%			-0.06	%
Return on average assets excluding prepayment penalties on borrowings			0.90	%			1.12	%			1.05	%			1.04	%
Gain on remeasurement of equity interest in Lafayette			-0.05	%			0.00	%			-0.02	%			0.00	%
Tax effect			0.01	%			0.00	%			0.00	%			0.00	%
Return on average assets excluding gain on remeasurement of equity interest in Lafayette			0.86	%			1.12	%			1.03	%			1.04	%
Tax reform bill impact			0.25	%			0.00	%			0.07	%			0.00	%
Return on average assets excluding tax reform bill impact			1.11	%			1.12	%			1.10	%			1.04	%
Acquisition-related PAUs			-0.09	%			-0.11	%			-0.10	%			-0.08	%
Tax effect			0.03	%			0.04	%			0.04	%			0.03	%
Return on average assets excluding PAUs			1.05	%			1.05	%			1.04	%			0.99	%

Pg. 11 cont. Horizon Bancorp Announces Record Net Income for 2017

About Horizon

Horizon Bancorp is an independent, commercial bank holding company serving northern and central Indiana, and southern, central and the Great Lakes Bay regions of Michigan through its commercial banking subsidiary Horizon Bank. Horizon also offers mortgage-banking services throughout the Midwest. Horizon Bancorp may be reached online at www.horizonbank.com.  Its common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.

Forward Looking Statements

This press release may contain forward-looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon.  For these statements, Horizon claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission.  Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance.  The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties.  We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance.

Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.  Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Horizon’s reports filed with the Securities and Exchange Commission, including those described in its Form 10-K.  Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

#  #  #

HORIZON BANCORP

Financial Highlights

(Dollars in thousands except share and per share data and ratios, Unaudited)

		December 31				September 30				June 30				March 31				December 31
		2017				2017				2017				2017				2016
Balance sheet:
Total assets		$	3,964,303			$	3,519,501			$	3,321,178			$	3,169,643			$	3,141,156
Investment securities			710,113				708,449				704,525				673,090				633,025
Commercial loans			1,617,870				1,273,790				1,143,761				1,106,471				1,069,956
Mortgage warehouse loans			94,508				95,483				123,757				89,360				135,727
Residential mortgage loans			606,760				571,062				549,997				533,646				531,874
Consumer loans			512,857				485,490				450,209				417,476				398,429
Earnings assets			3,563,307				3,153,230				2,990,924				2,845,922				2,801,030
Non-interest bearing deposit accounts			601,805				563,536				508,305				502,400				496,248
Interest bearing transaction accounts			1,712,246				1,536,169				1,401,407				1,432,228				1,499,120
Time deposits			566,952				508,570				452,208				509,071				475,842
Borrowings			564,157				458,152				485,304				319,993				267,489
Subordinated debentures			37,653				37,607				37,562				37,516				37,456
Total stockholders' equity			457,078				392,055				357,259				348,575				340,855
Income statement:		Three months ended
Net interest income		$	31,455			$	27,879			$	27,198			$	25,568			$	20,939
Provision for loan losses			1,100				710				330				330				623
Non-interest income			9,344				8,021				8,212				7,559				9,484
Non-interest expenses			26,291				24,513				22,488				21,521				22,588
Income tax expense			5,758				2,506				3,520				3,052				1,609
Net income			7,650				8,171				9,072				8,224				5,603
Preferred stock dividend			-				-				-				-				-
Net income available to common shareholders		$	7,650			$	8,171			$	9,072			$	8,224			$	5,603
Per share data:
Basic earnings per share (1)		$	0.30			$	0.36			$	0.41			$	0.37			$	0.25
Diluted earnings per share (1)			0.30				0.36				0.41				0.37				0.25
Cash dividends declared per common share (1)			0.13				0.13				0.13				0.11				0.11
Book value per common share (1)			17.90				16.81				16.11				15.72				15.37
Tangible book value per common share (1)			12.72				12.38				12.20				11.79				11.48
Market value - high			29.21				29.17				27.50				28.09				28.41
Market value - low		$	25.99			$	25.30			$	24.73			$	24.91			$	17.84
Weighted average shares outstanding - Basic			25,140,800				22,580,160				22,176,465				22,175,526				22,155,549
Weighted average shares outstanding - Diluted			25,264,675				22,715,273				22,322,390				22,326,071				22,283,722
Key ratios:
Return on average assets			0.79	%			0.96	%			1.12	%			1.07	%			0.69	%
Return on average common stockholders' equity			6.75				8.92				10.24				9.66				6.49
Net interest margin			3.71				3.71				3.84				3.80				2.92
Loan loss reserve to total loans			0.58				0.64				0.66				0.70				0.69
Non-performing loans to loans			0.58				0.51				0.51				0.46				0.50
Average equity to average assets			11.70				10.74				10.94				11.12				10.59
Bank only capital ratios:
Tier 1 capital to average assets			9.94				9.90				9.87				10.26				9.93
Tier 1 capital to risk weighted assets			12.18				12.33				12.82				13.40				13.33
Total capital to risk weighted assets			12.72				12.93				13.44				14.05				13.98
Loan data:
Substandard loans		$	46,162			$	36,883			$	34,870			$	30,865			$	30,361
30 to 89 days delinquent			9,329				6,284				4,555				5,476				6,315
90 days and greater delinquent - accruing interest		$	167			$	162			$	160			$	245			$	241
Trouble debt restructures - accruing interest			1,958				2,015				1,924				1,647				1,492
Trouble debt restructures - non-accrual			1,013				1,192				668				998				1,014
Non-accural loans			13,276				9,065				8,811				6,944				7,936
Total non-performing loans		$	16,414			$	12,434			$	11,563			$	9,834			$	10,683
(1) Adjusted for 3:2 stock split on November 14, 2016

HORIZON BANCORP

Financial Highlights

(Dollars in thousands except share and per share data and ratios, Unaudited)

		December 31				December 31
		2017				2016
Balance sheet:
Total assets		$	3,964,303			$	3,141,156
Investment securities			710,113				633,025
Commercial loans			1,617,870				1,069,956
Mortgage warehouse loans			94,508				135,727
Residential mortgage loans			606,760				531,874
Consumer loans			512,857				398,429
Earnings assets			3,563,307				2,801,030
Non-interest bearing deposit accounts			601,805				496,248
Interest bearing transaction accounts			1,712,246				1,499,120
Time deposits			566,952				475,842
Borrowings			564,157				267,489
Subordinated debentures			37,653				37,456
Total stockholders' equity			457078				340855
Income statement:		Twelve months ended
Net interest income		$	112,100			$	85,992
Provision for loan losses			2,470				1,842
Non-interest income			33,136				35,455
Non-interest expenses			94,813				86,892
Income tax expense			14,836				8,801
Net income			33,117				23,912
Preferred stock dividend			-				(42	)
Net income available to common shareholders		$	33,117			$	23,870
Per share data:
Basic earnings per share (1)		$	1.44			$	1.19
Diluted earnings per share (1)			1.43				1.19
Cash dividends declared per common share (1)			0.50				0.41
Book value per common share (1)			17.90				15.37
Tangible book value per common share (1)			12.72				11.48
Market value - high			29.21				28.41
Market value - low		$	24.73			$	15.41
Weighted average shares outstanding - Basic			23,035,824				19,987,728
Weighted average shares outstanding - Diluted			23,183,287				20,082,410
Key ratios:
Return on average assets			0.97	%			0.81	%
Return on average common stockholders' equity			8.74				7.92
Net interest margin			3.75				3.29
Loan loss reserve to total loans			0.58				0.69
Non-performing loans to loans			0.58				0.50
Average equity to average assets			11.15				10.22
Bank only capital ratios:
Tier 1 capital to average assets			9.94				9.93
Tier 1 capital to risk weighted assets			12.18				13.33
Total capital to risk weighted assets			12.72				13.98
Loan data:
Substandard loans		$	46,162			$	30,361
30 to 89 days delinquent			9,329				6,315
90 days and greater delinquent - accruing interest		$	167			$	241
Trouble debt restructures - accruing interest			1,958				1,492
Trouble debt restructures - non-accrual			1,013				1,014
Non-accural loans			13,276				7,936
Total non-performing loans		$	16,414			$	10,683
(1) Adjusted for 3:2 stock split on November 14, 2016

Allocation of the Allowance for Loan and Lease Losses

(Dollars in Thousands, Unaudited)

		December 31				September 30				June 30				March 31				December 31
		2017				2017				2017				2017				2016
Commercial		$	8,634			$	7,877			$	7,617			$	7,600			$	6,579
Real estate			2,188				2,129				1,750				1,697				2,090
Mortgage warehousing			1,030				1,048				1,090				1,042				1,254
Consumer			4,542				4,532				4,570				4,715				4,914
Total		$	16,394			$	15,586			$	15,027			$	15,054			$	14,837

Net Charge-offs (Recoveries)

(Dollars in Thousands, Unaudited)

		Three Months Ended
		December 31				September 30				June 30				March 31				December 31
		2017				2017				2017				2017				2016
Commercial		$	50			$	169			$	24			$	(134	)		$	49
Real estate			(9	)			24				(8	)			38				64
Mortgage warehousing			-				-				-				-				-
Consumer			251				(42	)			341				209				197
Total		$	292			$	151			$	357			$	113			$	310

Total Non-performing Loans

(Dollars in Thousands, Unaudited)

		December 31				September 30				June 30				March 31				December 31
		2017				2017				2017				2017				2016
Commercial		$	7,141			$	3,869			$	2,794			$	1,530			$	2,432
Real estate			5,716				5,545				5,285				5,057				5,022
Mortgage warehousing			-				-				-				-				-
Consumer			3,557				3,456				3,484				3,247				3,229
Total		$	16,414			$	12,870			$	11,563			$	9,834			$	10,683