Contact: Mark E. Secor

Chief Financial Officer

Phone: (219) 873-2611

Fax: (219) 874-9280

Date: April 25, 2018

FOR IMMEDIATE RELEASE

Horizon Bancorp Announces Record Quarterly Earnings

Michigan City, Indiana (NASDAQ GS: HBNC) – Horizon Bancorp (“Horizon” or the “Company”) today announced its unaudited financial results for the three-month period ended March 31, 2018.

SUMMARY:

·

Net income for the quarter ended March 31, 2018 was $12.8 million, or $0.50 diluted earnings per share, compared to $8.2 million, or $0.37 diluted earnings per share, for the quarter ended March 31, 2017. This represents the highest quarterly net income and diluted earnings per share in the Company’s 145-year history.

·	Return on average assets was 1.32% for the first quarter of 2018 compared to 1.07% for the first quarter of 2017.

·	Return on average equity was 11.29% for the first quarter of 2018 compared to 9.66% for the first quarter of 2017.

·	Total loans increased by an annualized rate of 3.4%, or $23.7 million, during the first quarter of 2018.

·	Consumer loans increased by an annualized rate of 17.6%, or $20.0 million, during the first quarter of 2018.

·	Residential mortgage loans increased by an annualized rate of 7.6%, or $11.4 million, during the first quarter of 2018.

·	Net interest income increased $7.8 million, or 30.7%, to $33.4 million for the three months ended March 31, 2018 compared to $25.6 million for the three months ended March 31, 2017.

·	Net interest margin was 3.81% for the three months ended March 31, 2018 compared to 3.80% for the three months ended March 31, 2017.

·	Horizon’s tangible book value per share increased to $12.86 compared to $12.72 and $11.79 at December 31, 2017 and March 31, 2017, respectively. This represents the highest tangible book value per share in the Company’s 145-year history.

Craig Dwight, Chairman and CEO, commented: “We are pleased to announce record 2018 first quarter earnings of $0.50 diluted earnings per share. Horizon’s net income of $12.8 million was an increase of $4.6 million, or 55.7%, when compared to the prior year. Diluted earnings per share increased $0.13 per share, or 35.1%, to $0.50, for the first quarter of 2018 when compared to the prior year.”

Pg. 2 cont. Horizon Bancorp Announces Record Quarterly Earnings

Dwight continued, “Horizon’s total loans increased at an annualized rate of 3.4% for the first quarter led by consumer and mortgage loan annualized growth of 17.6% and 7.6%, respectively. Our organic loan growth was somewhat tempered during the first quarter of 2018 due to approximately $64.7 million of commercial loan payoffs, the majority of which were expected or requested by Horizon Bank. The Bank originated approximately $116.0 million in commercial loans during the first quarter of 2018; however, only $41.2 million of these loan originations had been funded as of March 31, 2018. Horizon’s growth markets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo, grew loans by $14.8 million, for an annualized rate of 11.8%, during the first quarter of 2018.”

Mr. Dwight concluded, “As expected, Horizon started to fully realize the cost savings from our 2017 acquisitions of Lafayette Community Bancorp and Wolverine Bancorp, Inc. during the first quarter of 2018. Increases in net interest income and non-interest income of $7.6 million and $759,000, respectively, more than offset an increase in non-interest expense of $4.3 million when compared to the prior year helping to improve our efficiency ratio to 61.92% for the first quarter of 2018 compared to 64.97% for the same period in the prior year. Given that the first quarter is typically Horizon’s seasonally slow period, we expect continued growth and further improvement in our efficiency during the year.”

Income Statement Highlights

Net income for the first quarter of 2018 was $12.8 million, or $0.50 diluted earnings per share, compared to $7.6 million, or $0.30 diluted earnings per share, for the fourth quarter of 2017 and $8.2 million, or $0.37 diluted earnings per share, for the first quarter of 2017. Excluding acquisition-related expenses, gain on sale of investment securities, gain on the accounting for Horizon’s equity interest in Lafayette Community Bancorp, tax reform bill impact and purchase accounting adjustments (“core net income”), net income for the first quarter of 2018 was $11.2 million, or $0.44 diluted earnings per share, compared to $10.1 million, or $0.40 diluted earnings per share, for the fourth quarter of 2017 and $7.5 million, or $0.34 diluted earnings per share, for the first quarter of 2017.

The increase in net income and diluted earnings per share from the fourth quarter of 2017 to the first quarter of 2018 reflects an increase in net interest income of $2.0 million and decreases in income tax expense of $3.2 million, provision for loan losses of $533,000 and non-interest expense of $454,000, partially offset by a decrease in non-interest income of $1.0 million.

The decrease in non-interest income from the fourth quarter of 2017 to the first quarter of 2018 was due to lower fiduciary fees as ESOP fees were lower during the first quarter of 2018, lower gain on sale of mortgage loans and lower other income as the previous quarter included $530,000 gain on the accounting for Horizon’s equity interest in Lafayette Community Bancorp prior to the 2017 merger.

The increase in net income and diluted earnings per share from the first quarter of 2017 to the same 2018 period reflects an increase in net interest income of $7.8 million, an increase in non-interest income of $759,000 and a decrease in income tax expense of $531,000, partially offset by increases in non-interest expense of $4.3 million and provision for loan losses of $237,000. The increase in diluted earnings per share was due to an increase in net income of $4.6 million when compared to the prior year, offset by an increase in average diluted shares outstanding  as a result of issuing shares as part of the consideration for the acquisitions of Lafayette Community Bancorp and Wolverine Bancorp, Inc.

Pg. 3 cont. Horizon Bancorp Announces Record Quarterly Earnings

Pg. 4 cont. Horizon Bancorp Announces Record Quarterly Earnings

Horizon’s net interest margin increased to 3.81% for the first quarter of 2018 when compared to 3.71% for the fourth quarter of 2017 and 3.80% for the first quarter of 2017. The increase in net interest margin from the fourth quarter of 2017 reflects an increase in the yield of interest-earning assets of 18 basis points, offset by an increase in the cost of interest-bearing liabilities of nine basis points. The increase in the yield of interest-earning assets was due to an increase in the yield on loans receivable and non-taxable investment securities of 22 and 18 basis points, respectively. The increase in the cost of interest-bearing liabilities was due to an increase in the cost of interest-bearing deposits and borrowings of six and nine basis points, respectively.

The increase in net interest margin from the first quarter of 2017 reflects an increase in the yield of interest-earning assets of 22 basis points, offset by an increase in the cost of interest-bearing liabilities of 26 basis points. The increase in yield of interest-earning assets was due to an increase in the yield on loans receivable of 25 basis points. The increase in cost of interest-bearing liabilities was due to increases in the cost of interest-bearing deposits and borrowings of 15 and 46 basis points, respectively.

Excluding acquisition-related purchase accounting adjustments (“core net interest margin”), the margin was 3.55% for the first quarter of 2018 compared to 3.61% for the prior quarter and 3.66% for the first quarter of 2017. The decrease in core net interest margin was due to an increased cost of funding when comparing the periods. Interest income from acquisition-related purchase accounting adjustments was $2.0 million, $868,000 and $1.0 million for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively.

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Lending Activity

Total loans increased $23.7 million from $2.835 billion as of December 31, 2017 to $2.859 billion as of March 31, 2018 as consumer loans increased by $20.0 million, residential mortgage loans increased by $11.4 million and mortgage warehouse loans increased by $6.8 million. These increases were offset by a decrease in commercial loans of $13.4 million from December 31, 2017. During the first quarter of 2018, $64.7 million in commercial loan payoffs occurred, the majority of which were either expected or requested by the Bank. The Bank originated approximately $116.0 million in commercial loans during the first quarter of 2018; however, only $41.2 million of these loans funded as of March 31, 2018.

Residential mortgage lending activity for the three months ended March 31, 2018 generated $1.4 million in income from the gain on sale of mortgage loans, a decrease of $565,000 from the fourth quarter of 2017 and a decrease of $491,000 from the first quarter of 2017. Total origination volume for the first quarter of 2018, including loans placed into portfolio, totaled $72.3 million, representing a decrease of 19.8% from the fourth quarter of 2017 and an increase of 9.7% from the first quarter of 2017. Revenue derived from Horizon’s residential mortgage lending activities was only 5.4% of Horizon’s total revenue for the first quarter of 2018.

Purchase money mortgage originations during the first quarter of 2018 represented 76.6% of total originations compared to 73.7% of total originations during the fourth quarter of 2017 and 69.8% during the first quarter of 2017.

The provision for loan losses totaled $567,000 for the first quarter of 2018 compared to $1.1 million for the fourth quarter of 2017 and $330,000 for the first quarter of 2017. The decrease in the provision for loan losses from the fourth quarter of 2017 to the first quarter of 2018 was due to the reduction in total commercial loans and good credit quality. The increase in the provision for loan losses from the first quarter of 2017 to the first quarter of 2018 was due to additional general and non-specific allocations for loan growth in new markets and an increase in allocation for other economic factors during 2018.

The ratio of the allowance for loan losses to total loans remained at 0.58% as of March 31, 2018 when compared to December 31, 2017 and decreased from 0.70% as of March 31, 2017 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 0.77% as of March 31, 2018 compared to 0.81% as of December 31, 2017. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was 1.15% as of March 31, 2018 compared to 1.23% as of December 31, 2017.

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Non-GAAP Allowance for Loan and Lease Loss Detail
As of March 31, 2018
(Dollars in Thousands, Unaudited)
		Pre-discount Loan Balance				Allowance for Loan Losses (ALLL)				Loan Discount				ALLL + Loan Discount				Loans, net				ALLL/ Pre-discount Loan Balance				Loan Discount/ Pre-discount Loan Balance				ALLL+Loan Discount/ Pre-discount Loan Balance
Horizon Legacy		$	2,152,002			$	16,474				N/A			$	16,474			$	2,135,528				0.77	%			0.00	%			0.77	%
Heartland			10,848				-				742				742				10,106				0.00	%			6.84	%			6.84	%
Summit			35,397				-				2,147				2,147				33,250				0.00	%			6.07	%			6.07	%
Peoples			105,363				-				2,609				2,609				102,754				0.00	%			2.48	%			2.48	%
Kosciusko			52,298				-				664				664				51,634				0.00	%			1.27	%			1.27	%
LaPorte			121,265				-				3,445				3,445				117,820				0.00	%			2.84	%			2.84	%
CNB			5,561				-				152				152				5,409				0.00	%			2.73	%			2.73	%
Lafayette			118,829				-				2,170				2,170				116,659				0.00	%			1.83	%			1.83	%
Wolverine			257,203				-				4,346				4,346				252,857				0.00	%			1.69	%			1.69	%
Total		$	2,858,766			$	16,474			$	16,275			$	32,749			$	2,826,017				0.58	%			0.57	%			1.15	%

 

As of March 31, 2018, non-performing loans totaled $15.1 million, which reflects a five basis point decrease in non-performing loans to total loans, or a $1.3 million decline from $16.4 million in non-performing loans as of December 31, 2017. Compared to December 31, 2017, non-performing commercial loans decreased by $576,000, non-performing real estate loans decreased by $440,000 and non-performing consumer loans decreased by $317,000.

Expense Management

Total non-interest expense was $454,000 lower in the first quarter of 2018 when compared to the fourth quarter of 2017; however, excluding merger-related expenses of $1.4 million for the three months ended December 31, 2017, total non-interest expense increased $990,000, or 4.0%. The increase in non-interest expense, after excluding merger-related expenses, was due to increases in salaries and employee benefits, net occupancy, data processing and other expense.

Salaries and employee benefits expense was $284,000 higher during the first quarter of 2018 when compared to the fourth quarter of 2017, when adjusted for merger-related expenses, due to higher employment and unemployment taxes, health insurance, 401K and supplemental employee retirement plan match expenses. Employment and unemployment taxes and health insurance expense is typically higher during the first quarter of the year due to the nature of these expenses. Expenses related to the Company’s match on 401K and supplemental employee retirement plans were higher during the first quarter as a result of the 2017 bonuses paid in March 2018. Net occupancy expense, adjusted for merger-related expenses, was $499,000 higher during the first quarter of 2018 when compared to the fourth quarter of 2017 due to an increase in snow removal costs and market expansions. Data processing and other expense increased $124,000 and $177,000, respectively, when adjusted for merger-related expenses, due to market expansions and recent acquisitions. These increases were offset by a decrease in loan expense of $141,000 due to a decrease in collection-related expenses when comparing the first quarter of 2018 to the fourth quarter of 2017.

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Total non-interest expense was $4.3 million higher in the first quarter of 2018 compared to the same period of 2017. The increase was primarily due to an increase in salaries and employee benefits of $2.7 million, other expenses of $526,000, net occupancy expenses of $514,000, data processing expenses of $389,000 and loan expense of $150,000. The increase in salaries and employee benefits reflects overall company growth and recent acquisitions. Other expense and data processing increased as a result of market expansions and acquisitions. Net occupancy expense increased due to increased snow removal costs incurred in 2018, along with market expansions and acquisitions. Loan expense increased due to a higher level of loan originations in the first quarter of 2018 when compared to the same period of 2017.

Income tax expense totaled $2.5 million for the first quarter of 2018, a decrease of $3.2 million and $531,000 when compared to the fourth quarter and first quarter of 2017, respectively. The decrease 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.

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, the return on average assets and the return on average equity. 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.

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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.

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HORIZON BANCORP

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HORIZON BANCORP

 

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HORIZON BANCORP AND SUBSIDIARIES

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