Market Overview

Horizon Bancorp Announces Record 2016 Net Income

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MICHIGAN CITY, Ind.--(BUSINESS WIRE)--

(NASDAQ: HBNC) – Horizon Bancorp today announced its unaudited financial results for the three and twelve-month periods ended December 31, 2016. All share data has been adjusted to reflect Horizon's three-for-two stock split announced on October 19, 2016 and issued on November 14, 2016.

SUMMARY:

  • Net income for the year ended December 31, 2016 was $23.9 million or $1.19 diluted earnings per share compared to $20.5 million or $1.26 diluted earnings per share for the year ended December 31, 2015.
  • Excluding acquisition-related expenses, gain on sale of investment securities, the death benefit on bank owned life insurance, prepayment penalties on borrowings and purchase accounting adjustments, net income for the year ended December 31, 2016 increased 34.5% to $29.2 million or $1.45 diluted earnings per share compared to $21.7 million or $1.33 diluted earnings per share for the year ended December 31, 2015.
  • Total loans increased 22.0% or $387.0 million during the year ended December 31, 2016.
  • Total loans, excluding acquired loans, mortgage warehouse loans and loans held for sale, increased 4.3% or $69.6 million during the year ended December 31, 2016.
  • Net interest income for the year ended December 31, 2016 increased 15.1% or $11.3 million compared to the year ended December 31, 2015.
  • Net interest margin was 2.92% for the fourth quarter of 2016 compared to 3.37% for the prior quarter and 3.50% for the same period in 2015.
  • Net interest margin, excluding the impact of the prepayment penalties on borrowings and purchase accounting adjustments ("core net interest margin"), was 3.45% for the fourth quarter of 2016 compared to 3.31% for the prior quarter and 3.38% for the same period in 2015.
  • Non-interest income for the year ended December 31, 2016 increased 24.9% or $7.6 million compared to the year ended December 31, 2015.
  • Horizon's tangible book value per share rose to $11.48 at December 31, 2016, compared to $11.02 at December 31, 2015.
  • Horizon opened its first loan and deposit production office in Grand Rapids, Michigan during the fourth quarter of 2016 led by David Quade, Horizon's Grand Rapids Market President. In February 2017, we anticipate moving into our permanent downtown location with a total of 10 professionals where we will provide our full array of products and services including retail, commercial, private banking, treasury management, wealth management and mortgage services to customers throughout the Grand Rapids region.
  • During the fourth quarter of 2016, Horizon began a series of balance sheet restructuring transactions to improve its overall financial position, including an increase in net interest margin, return on average assets and return on average equity. The transactions included the prepayment of $106.0 million in high fixed-rate borrowings funded from the sale of available-for-sale investment securities totaling $168.0 million. Horizon realized a loss of $4.8 million from the early redemption of the debt which was partially offset by net gains on the sale of the investment securities.
  • On November 7, 2016, Horizon completed the acquisition of CNB Bancorp and its wholly-owned subsidiary, The Central National Bank and Trust Company, headquartered in Attica, Indiana and executed the system conversion on December 3, 2016.
  • On December 23, 2016, the Office of the Comptroller of the Currency approved Horizon's purchase and assumption of certain assets and liabilities of a single branch of First Farmers Bank & Trust Co. located in Bargersville, Indiana. This transaction is expected to be completed on February 3, 2017.

Craig Dwight, Chairman and CEO, commented: "I am very pleased with Horizon's 2016 results as evidenced by our organic loan growth; our ability to complete and integrate three bank acquisitions and our expansion into two new markets. Horizon's results for 2016 are a true testament of the quality of the Horizon team, their work ethic and ability to move the Company forward. As a result of all the hard work put forth in 2016, Horizon is positioned well for the coming year. Horizon's balanced strategy of organic growth, expansion into new markets and well-executed acquisitions contributed to record net income for the year. Core net income was $8.5 million for the fourth quarter and $29.2 million for the year 2016, an increase of 40.7% and 34.5%, respectively, over 2015. Core diluted earnings per share were $0.38 for the fourth quarter and $1.45 for the year 2016, an increase of 14.4% and 9.0%, respectively, over 2015."

Mr. Dwight continued, "We continued to experience strong growth in our Kalamazoo and Indianapolis markets where total loans increased $61.6 million during 2016. Also during 2016, Horizon opened loan and deposit production offices in Fort Wayne, Indiana and Grand Rapids, Michigan. Consistent with our People First philosophy, Greg Haney, Fort Wayne Market President, and David Quade, Grand Rapids Market President, bring significant experience and knowledge to the table. We look forward to providing exceptional service and sensible advice to our customers in these dynamic growth markets."

Dwight added, "In addition to organic growth and expansion in 2016, we completed the acquisitions of Kosciusko Financial, Inc. ("Kosciusko") and LaPorte Bancorp, Inc. ("LaPorte") during the third quarter and the acquisition of CNB Bancorp during the fourth quarter. Each of these acquisitions was consistent with our philosophy of partnering with banks that hold similar core values and are committed to serving their local communities. Finally, we received regulatory approval for the purchase of certain assets and assumption of deposits from First Farmers Bank & Trust Co.'s Bargersville, Indiana branch which we anticipate to close on February 3, 2017, enhancing our presence in this attractive and growing central Indiana market."

Dwight concluded, "Along with organic growth and acquisitions, we continue to review our balance sheet to improve the Bank's overall financial position." During the fourth quarter, Horizon began a series of balance sheet restructuring transactions with the intent of improving net interest margin, return on average assets and return on average equity. The transactions included the prepayment of approximately $106.0 million of high fixed-rate borrowings with contractual maturities ranging from June 2017 through September 2020 and repositioning the investment securities portfolio to replace certain lower yielding short-term investments consistent with a more normalized strategy and maturity periods. "This deleveraging strategy strengthens Horizon's balance sheet by lowering outstanding debt and improves key financial metrics for the benefit of our shareholders," Dwight commented.

Income Statement Highlights

Net income for the fourth quarter of 2016 was $5.6 million or $0.25 diluted earnings per share compared to $6.2 million or $0.34 diluted earnings per share for the fourth quarter of 2015. The decrease in net income and diluted earnings per share from the same period of 2015 reflects an increase in non-interest expense of $4.0 million, partially offset by an increase in net interest income and non-interest income of $717,000 and $2.4 million, respectively, and a decrease in income tax expense of $606,000. The decrease in diluted earnings per share was due to a decrease in lower net income and an increase in dilutive shares outstanding as a result of the stock issued in the Kosciusko and LaPorte Bancorp acquisitions. Excluding acquisition-related expenses, gain on sale of investment securities, prepayment penalties on borrowings and purchase accounting adjustments, net income for the fourth quarter of 2016 was $8.5 million or $0.38 diluted earnings per share compared to $6.0 million or $0.33 diluted earnings per share in the fourth quarter of 2015.

 
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

2016   2015   2016   2015
(Unaudited)   (Unaudited)
Net income as reported $ 5,603 $ 6,175 $ 23,912 $ 20,549
Merger expenses 1,354 525 6,827 4,889
Tax effect   (416 )     (182 )     (1,998 )     (1,585 )
Net income excluding merger expenses 6,541 6,518 28,741 23,853
 
Gain on sale of investment securities (961 ) (65 ) (1,836 ) (189 )
Tax effect   336       23       643       66  
Net income excluding gain on sale of investment securities 5,916 6,476 27,548 23,730
 
Death benefit on bank owned life insurance ("BOLI") - - - (145 )
Tax effect   -       -       -       51  
Net income excluding death benefit on BOLI 5,916 6,476 27,548 23,636
 
Prepayment penalties on borrowings 4,839 - 4,839 -
Tax effect   (1,694 )     -       (1,694 )     -  
Net income excluding prepayment penalties on borrowings 9,061 6,476 30,693 23,636
 
Acquisition-related purchase accounting adjustments ("PAUs") (900 ) (695 ) (2,304 ) (2,977 )
Tax effect   315       243       807       1,042  
Net income excluding PAUs $ 8,476     $ 6,024     $ 29,196     $ 21,701  
 

Non-GAAP Reconciliation of Diluted Earnings per Share

Diluted earnings per share as reported $ 0.25 $ 0.34 $ 1.19 $ 1.26
Merger expenses 0.06 0.03 0.34 0.30
Tax effect   (0.02 )     (0.01 )     (0.10 )     (0.10 )
Diluted earnings per share excluding merger expenses 0.29 0.36 1.43 1.46
 
Gain on sale of investment securities (0.04 ) (0.00 ) (0.09 ) (0.01 )
Tax effect   0.02       0.00       0.03       0.00  
Net income excluding gain on sale of investment securities 0.27 0.36 1.37 1.46
 
Death benefit on BOLI - - - (0.01 )
Tax effect   -       -       -       0.00  
Net income excluding death benefit on BOLI 0.27 0.36 1.37 1.45
 
Prepayment penalties on borrowings 0.22 - 0.24 -
Tax effect   (0.08 )     -       (0.08 )     -  
Net income excluding prepayment penalties on borrowings 0.41 0.36 1.53 1.45
 
Acquisition-related PAUs (0.04 ) (0.04 ) (0.11 ) (0.18 )
Tax effect   0.01       0.01       0.03       0.06  
Diluted earnings per share excluding PAUs $ 0.38     $ 0.33     $ 1.45     $ 1.33  
 

Net income for the year ended December 31, 2016 was $23.9 million or $1.19 diluted earnings per share compared to $20.5 million or $1.26 diluted earnings per share for the year ended December 31, 2015. The increase in net income from the previous year reflects an increase in net interest income and non-interest income of $11.3 million and $7.6 million, respectively, and a decrease in the provision for loan losses of $1.3 million, partially offset by increases in non-interest expense of $15.2 million and income tax expense of $1.6 million. The decrease in diluted earnings per share from the previous year reflects an increase in diluted shares outstanding from the stock issued in the Kosciusko and LaPorte Bancorp acquisitions. Excluding acquisition-related expenses, gain on sale of investment securities, the death benefit on bank owned life insurance, prepayment penalties on borrowings and purchase accounting adjustments, net income for the year ended December 31, 2016 was $29.2 million or $1.45 diluted earnings per share compared to $21.7 million or $1.33 diluted earnings per share for the year ended December 31, 2015.

Horizon's net interest margin was 2.92% during the fourth quarter of 2016, down from 3.37% for the prior quarter and 3.50% for same period of 2015. The decrease in the net interest margin compared to the prior quarter and the same period of 2015 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. Offsetting this decrease in net interest margin was an increase in the yield on average loans and a decrease in the cost on average interest-bearing deposits when comparing the fourth quarter of 2016 to the same period of 2015. Excluding prepayment penalties on borrowings and acquisition-related purchase accounting adjustments, the margin would have been 3.45% for the fourth quarter of 2016 compared to 3.31% for the prior quarter and 3.38% for the same period of 2015. Interest expense from the prepayment penalties on borrowings was $4.8 million for the three months ended December 31, 2016. Interest income from acquisition-related purchase accounting adjustments was $900,000, $459,000 and $695,000 for the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

Horizon's net interest margin was 3.29% for the year ended December 31, 2016, down from 3.56% for year ended December 31, 2015. Excluding prepayment penalties on borrowings and acquisition-related purchase accounting adjustments, the margin would have been 3.38% for the year ended December 31, 2016 compared to 3.42% for the year ended December 31, 2015. Interest expense from the prepayment penalties on borrowings was $4.8 million for the year ended December 31, 2016. Interest income from acquisition-related purchase accounting adjustments was $2.3 million and $3.0 million for the years ended December 31, 2016 and 2015, 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

Net Interest Margin As Reported

2016   2016   2015   2016   2015
Net interest income $ 20,939 $ 24,410 $ 20,222 $ 85,992 $ 74,734
Average interest-earning assets 2,932,145 2,957,944 2,369,301 2,683,383 2,166,006
Net interest income as a percent of average interest-
earning assets ("Net Interest Margin") 2.92 % 3.37 % 3.50 % 3.29 % 3.56 %
 

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 $ (900 ) $ (459 ) $ (695 ) $ (2,304 ) $ (2,977 )
 

Excluding Impact of Prepayment Penalties and Acquisitions

Net interest income $ 24,878 $ 23,951 $ 19,527 $ 88,527 $ 71,757
Average interest-earning assets 2,932,145 2,957,944 2,369,301 2,683,383 2,166,006
Core Net Interest Margin 3.45 % 3.31 % 3.38 % 3.38 % 3.42 %
 

Lending Activity

Total loans increased $387.0 million from $1.8 billion as of December 31, 2015 to $2.1 billion as of December 31, 2016 as commercial loans increased by $265.0 million, residential mortgage loans increased by $94.7 million and consumer loans increased by $36.1 million. Offsetting these increases was a decrease in mortgage warehouse loans of $9.0 million as of December 31, 2016. Total loans, excluding acquired loans, mortgage warehouse loans and loans held for sale, increased 4.3% for the year ended December 31, 2016. Excluding the mortgage warehouse relationships acquired through the LaPorte Bancorp merger, Horizon mortgage warehouse loans decreased by $41.9 million to $102.8 million at December 31, 2016 compared to $144.7 million at December 31, 2015.

Residential mortgage lending activity during the year ended December 31, 2016 generated $11.7 million in income from the gain on sale of mortgage loans, an increase of $1.6 million from the same period of 2015. Total origination volume for the year ended December 31, 2016, including loans placed into portfolio, totaled $459.8 million, representing an increase of 8.7% from the same period of 2015. Purchase money mortgage originations during the fourth quarter of 2016 represented 65.7% of total originations compared to 66.5% of originations during the previous quarter and 68.7% during the fourth quarter of 2015.

Loan balances in the Kalamazoo and Indianapolis markets totaled $185.9 million and $206.9 million, respectively, as of December 31, 2016. Combined, these markets contributed $61.6 million, or 18.6%, in loan growth during the year ended December 31, 2016.

 
Loan Growth by Type, Excluding Acquired Loans
Three Months Ended December 31, 2016
(Dollars in Thousands)
         
Excluding Acquired Loans
Acquired  
December 31 September 30 Amount CNB Amount Percent
    2016   2016   Change   Loans   Change   Change
    (Unaudited)   (Unaudited)                
Commercial loans $ 1,069,957 $ 1,047,450 $ 22,507 $ (2,267 ) $ 20,240 1.9 %
Residential mortgage loans 531,874 530,162 1,712 (6,624 ) (4,912 ) -0.9 %
Consumer loans   398,428     386,031     12,397       (1,579 )     10,818   2.8 %
Subtotal 2,000,259 1,963,643 36,616 (10,470 ) 26,146 1.3 %
Held for sale loans 8,087 7,369 718 - 718 9.7 %
Mortgage warehouse loans   135,727     226,876     (91,149 )     -       (91,149 ) -40.2 %
Total loans $ 2,144,073   $ 2,197,888   $ (53,815 )   $ (10,470 )   $ (64,285 ) -2.9 %
 
Loan Growth by Type, Excluding Acquired Loans
Twelve Months Ended December 31, 2016
(Dollars in Thousands)
 
Acquired Excluding Acquired Loans
Kosciusko,
December 31 December 31 Amount LaPorte and Amount Percent
    2016   2015   Change   CNB Loans   Change   Change
    (Unaudited)                    
Commercial loans $ 1,069,957 $ 804,995 $ 264,962 $ (226,023 ) $ 38,939 4.8 %
Residential mortgage loans 531,874 437,144 94,730 (75,471 ) 19,259 4.4 %
Consumer loans   398,428     362,300     36,128       (24,699 )     11,429   3.2 %
Subtotal 2,000,259 1,604,439 395,820 (326,193 ) 69,627 4.3 %
Held for sale loans 8,087 7,917 170 - 170 2.1 %
Mortgage warehouse loans   135,727     144,692     (8,965 )     (99,752 )     (108,717 ) -75.1 %
Total loans $ 2,144,073   $ 1,757,048   $ 387,025     $ (425,945 )   $ (38,920 ) -2.2 %
 

The provision for loan losses was $623,000 for the fourth quarter of 2016 compared to $342,000 for the same period of 2015. The increase in the provision for loan losses during the fourth quarter of 2016 was due to continued loan growth. The provision for loan losses for the year ended December 31, 2016 was $1.8 million compared to $3.2 million for the same period of 2015. The decrease in the provision for loan losses for the year ended December 31, 2016 was due to lower charge-offs, stable delinquency trends and a decrease in non-performing loans.

The ratio of the allowance for loan losses to total loans decreased to 0.69% as of December 31, 2016 from 0.83% as of December 31, 2015 due to an increase in total loans. The ratio of the allowance for loan losses to total loans, excluding loans with credit-related purchase accounting adjustments, was 0.91% as of December 31, 2016 compared to 0.99% as of December 31, 2015. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was 1.39% as of December 31, 2016 compared to 1.32% as of December 31, 2015.

Non-performing loans to total loans declined 45 basis points to 0.50% at December 31, 2016 from 0.95% at December 31, 2015. Non-performing loans totaled $10.7 million as of December 31, 2016 a decrease of $6.0 million from $16.7 million as of December 31, 2015. Compared to December 31, 2015, non-performing commercial loans decreased by $4.6 million, non-performing real estate loans decreased by $1.2 million and non-performing consumer loans decreased $209,000.

 
Non- GAAP Allowance for Loan and Lease Loss Detail
As of December 31, 2016
(Dollars in Thousands, Unaudited)
               
Horizon
Legacy   Heartland   Summit   Peoples   Kosciusko   LaPorte   CNB   Total
Pre-discount loan balance $ 1,636,945 $ 16,046 $ 55,042 $ 148,467 $ 81,946 $ 202,407 $ 10,303 $ 2,151,156
 
Allowance for loan losses (ALLL) 14,833 4 - - - - - 14,837
Loan discount   N/A       1,083       2,475       3,323       997       6,971       321       15,170  
ALLL+loan discount 14,833 1,087 2,475 3,323 997 6,971 321 30,007
                             
Loans, net $ 1,622,112     $ 14,959     $ 52,567     $ 145,144     $ 80,949     $ 195,436     $ 9,982     $ 2,121,149  
 
ALLL/ pre-discount loan balance 0.91 % 0.02 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.69 %
Loan discount/ pre-discount loan balance N/A 6.75 % 4.50 % 2.24 % 1.22 % 3.44 % 3.12 % 0.71 %
ALLL+loan discount/ pre-discount loan balance 0.91 % 6.77 % 4.50 % 2.24 % 1.22 % 3.44 % 3.12 % 1.39 %
 

Expense Management

Total non-interest expense was $4.0 million higher in the fourth quarter of 2016 compared to the same period of 2015. The increase was primarily due to an increase in salaries, net occupancy expenses, data processing, professional fees, loan expense, and other expense reflecting overall company growth. Outside services and consultants expense increased primarily due to the expense associated with the LaPorte and CNB Bancorp acquisitions. Non-interest expense for the fourth quarter of 2016 included $1.4 million of one- time merger-related expenses due to the LaPorte Bancorp and CNB Bancorp acquisitions compared to $525,000 in one-time merger-related expenses during the same period of 2015 due to the Peoples Bancorp acquisition. Employee benefits expense decreased $685,000 in the fourth quarter of 2016 compared to the same period in 2015 due to a decrease in a pension liability as a result of the rise in interest rates and a decrease in the number of participants. FDIC insurance expense decreased $120,000 in the fourth quarter of 2016 when compared to the same period of 2015 as the assessment rate schedule was reduced effective for assessment payments due in the fourth quarter of 2016.

Total non-interest expense was $15.2 million higher for the year ended December 31, 2016 compared to the same period of 2015. The increase in non-interest expense was due to an increase in salaries expense of $5.6 million, employee benefits of $664,000, net occupancy expenses of $1.9 million, data processing expense of $1.1 million, professional fees of $682,000, loan expense of $203,000, other losses of $252,000 and other expense of $2.6 million due to overall company growth. Outside services and consultants expense increased $2.1 million primarily due to the expense associated with the Kosciusko, LaPorte and CNB Bancorp acquisitions. Non-interest expense for the year ended December 31, 2016 included $6.8 million of one-time merger-related expenses due to the Kosciusko, LaPorte Bancorp and CNB Bancorp acquisitions compared to $4.9 million in one-time merger-related expenses in the same period of 2015 due to the Peoples Bancorp acquisition.

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 of the net interest margin and the allowance for loan and lease losses excluding the impact of acquisition-related purchase accounting adjustments, total loans and loan growth, and net income and diluted earnings per share excluding the impact of one-time costs related to acquisitions, acquisition-related purchase accounting adjustments and other events that are considered to be non-recurring. 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, although 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 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)
         
December 31 September 30 June 30 March 31 December 31
2016 2016 2016 2016 2015
(Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Total stockholders' equity $ 340,855 $ 345,736 $ 281,002 $ 261,417 $ 266,832
Less: Preferred stock - - - - 12,500
Less: Intangible assets   86,247   83,891   65,144   56,695   56,971
Total tangible stockholder's equity $ 254,608 $ 261,845 $ 215,858 $ 204,722 $ 197,361
 
Common shares outstanding 22,171,596 22,143,228 18,857,301 17,974,970 17,909,831
 
Tangible book value per common share $ 11.48 $ 11.83 $ 11.45 $ 11.39 $ 11.02
 

About Horizon

Horizon Bancorp is an independent, commercial bank holding company serving northern and central Indiana and southwest and central Michigan through its commercial banking subsidiary Horizon Bank, NA. 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
2016   2016   2016   2016   2015
Balance sheet:
Total assets $ 3,141,156 $ 3,325,650 $ 2,918,080 $ 2,627,918 $ 2,652,401
Investment securities 633,025 744,240 628,935 642,767 632,611
Commercial loans 1,069,957 1,047,450 874,580 797,754 804,995
Mortgage warehouse loans 135,727 226,876 205,699 119,876 144,692
Residential mortgage loans 531,874 530,162 493,626 442,806 437,144
Consumer loans 398,428 386,031 363,920 359,636 362,300
Earning assets 2,801,030 2,963,005 2,591,208 2,379,830 2,403,482
Non-interest bearing deposit accounts 496,248 479,771 397,412 343,025 335,955
Interest bearing transaction accounts 1,499,120 1,367,285 1,213,659 1,118,617 1,177,651
Time deposits 475,842 489,106 471,190 416,837 366,547
Borrowings 267,489 569,908 492,883 430,507 449,347
Subordinated debentures 37,456 37,418 32,874 32,836 32,797
Common stockholders' equity 340,855 345,736 281,002 261,417 254,332
Total stockholders' equity 340,855 345,736 281,002 261,417 266,832
 
Income statement: Three months ended
Net interest income $ 20,939 $ 24,410 $ 20,869 $ 19,774 $ 20,222
Provision for loan losses 623 455 232 532 342
Non-interest income 10,185 10,056 9,869 7,864 7,750
Non-interest expenses 23,289 24,820 21,555 19,747 19,240
Income tax expense   1,609       2,589       2,625       1,978       2,215  
Net income 5,603 6,602 6,326 5,381 6,175
Preferred stock dividend   -       -       -       (42 )     (31 )
Net income available to common shareholders $ 5,603     $ 6,602     $ 6,326     $ 5,339     $ 6,144  
 
Per share data:
Basic earnings per share $ 0.25 $ 0.31 $ 0.35 $ 0.30 $ 0.34
Diluted earnings per share 0.25 0.30 0.34 0.30 0.34
Cash dividends declared per common share 0.11 0.10 0.10 0.10 0.10
Book value per common share 15.37 15.61 14.90 14.54 14.20
Tangible book value per common share 11.48 11.83 11.45 11.39 11.02
Market value - high 28.41 20.01 16.76 18.59 18.77
Market value - low $ 17.84 $ 16.61 $ 15.87 $ 15.41 $ 15.72
Weighted average shares outstanding - Basic 22,155,549 21,538,752 18,268,880 17,924,124 17,905,871
Weighted average shares outstanding - Diluted 22,283,722 21,651,953 18,364,167 18,012,726 18,020,615
 
Key ratios:
Return on average assets 0.69 % 0.80 % 0.94 % 0.83 % 0.94 %
Return on average common stockholders' equity 6.49 7.88 9.43 8.26 9.53
Net interest margin 2.92 3.37 3.48 3.45 3.50
Loan loss reserve to total loans 0.69 0.66 0.73 0.83 0.83
Non-performing loans to loans 0.50 0.58 0.68 0.87 0.95
Average equity to average assets 10.59 10.18 9.94 10.16 10.32
Bank only capital ratios:
Tier 1 capital to average assets 10.14 9.65 9.39 8.98 8.77
Tier 1 capital to risk weighted assets 13.77 12.73 12.51 12.33 11.80
Total capital to risk weighted assets 14.41 13.34 13.23 13.10 12.57
 
Loan data:
Substandard loans $ 30,361 $ 33,914 $ 28,629 $ 23,600 $ 25,127
30 to 89 days delinquent 6,315 3,821 2,887 2,149 5,011
 
90 days and greater delinquent - accruing interest $ 241 $ 59 $ 24 $ 1 $ 28
Trouble debt restructures - accruing interest 1,492 1,523 1,256 1,231 1,218
Trouble debt restructures - non-accrual 1,014 1,164 1,466 2,857 3,172
Non-accrual loans   7,936       10,091       10,426       10,895       12,262  
Total non-performing loans $ 10,683     $ 12,837     $ 13,172     $ 14,984     $ 16,680  
   
HORIZON BANCORP
Financial Highlights
(Dollars in thousands except share and per share data and ratios, Unaudited)
 
December 31 December 31
2016   2015
Balance sheet:
Total assets $ 3,141,156 $ 2,652,401
Investment securities 633,025 632,611
Commercial loans 1,069,957 804,995
Mortgage warehouse loans 135,727 144,692
Residential mortgage loans 531,874 437,144
Consumer loans 398,428 362,300
Earning assets 2,801,030 2,403,482
Non-interest bearing deposit accounts 496,248 335,955
Interest bearing transaction accounts 1,499,120 1,177,651
Time deposits 475,842 366,547
Borrowings 267,489 449,347
Subordinated debentures 37,456 32,797
Common stockholders' equity 340,855 254,332
Total stockholders' equity 340,855 266,832
 
Income statement: Twelve Months Ended
Net interest income $ 85,992 $ 74,734
Provision for loan losses 1,842 3,162
Non-interest income 37,974 30,402
Non-interest expenses 89,411 74,193
Income tax expense   8,801       7,232  
Net income 23,912 20,549
Preferred stock dividend   (42 )     (125 )
Net income available to common shareholders $ 23,870     $ 20,424  
 
Per share data:
Basic earnings per share $ 1.19 $ 1.94
Diluted earnings per share 1.19 1.89
Cash dividends declared per common share 0.41 0.39
Book value per common share 15.37 14.20
Tangible book value per common share 11.48 11.02
Market value - high 28.41 18.77
Market value - low $ 15.41 $ 14.92
Weighted average shares outstanding - Basic 19,987,728 15,765,444
Weighted average shares outstanding - Diluted 20,082,410 16,197,312
 
Key ratios:
Return on average assets 0.81 % 0.87 %
Return on average common stockholders' equity 8.23 9.87
Net interest margin 3.29 3.56
Loan loss reserve to total loans 0.69 0.83
Non-performing loans to loans 0.50 0.95
Average equity to average assets 10.22 9.30
Bank only capital ratios:
Tier 1 capital to average assets 10.14 8.69
Tier 1 capital to risk weighted assets 13.77 11.89
Total capital to risk weighted assets 14.41 12.68
 
Loan data:
Substandard loans $ 30,361 $ 25,233
30 to 89 days delinquent 6,315 5,012
 
90 days and greater delinquent - accruing interest $ 241 $ 28
Trouble debt restructures - accruing interest 1,492 1,218
Trouble debt restructures - non-accrual 1,014 3,172
Non-accrual loans   7,936       12,262  
Total non-performing loans $ 10,683     $ 16,680  
         
HORIZON BANCORP
Allocation of the Allowance for Loan and Lease Losses

(Dollars in Thousands, Unaudited)

 
December 31 September 30 June 30 March 31 December 31
2016   2016   2016   2016   2015
Commercial $ 6,579 $ 6,222 $ 6,051 $ 6,460 $ 7,195
Real estate 2,090 1,947 2,102 1,794 2,476
Mortgage warehousing 1,254 1,337 1,080 1,014 1,007
Consumer   4,914     5,018     4,993     4,968     3,856
Total $ 14,837   $ 14,524   $ 14,226   $ 14,236   $ 14,534
 
Net Charge-offs (Recoveries)

(Dollars in Thousands, Unaudited)

 
Three months ended
December 31   September 30   June 30   March 31   December 31
2016   2016   2016   2016   2015
Commercial $ 49 $ (5 ) $ 101 $ 403 $ 1,595
Real estate 64 - (31 ) 83 (59 )
Mortgage warehousing - - - - -
Consumer   197     162       172       344     440  
Total $ 310   $ 157     $ 242     $ 830   $ 1,976  
         
Total Non-performing Loans

(Dollars in Thousands, Unaudited)

 
December 31 September 30 June 30 March 31 December 31
2016   2016   2016   2016   2015
Commercial $ 2,432 $ 5,419 $ 4,330 $ 5,774 $ 7,005
Real estate 5,022 4,251 5,659 5,974 6,237
Mortgage warehousing - - - - -
Consumer   3,229     3,108     3,183     3,236     3,438
Total $ 10,683   $ 12,778   $ 13,172   $ 14,984   $ 16,680
         
Other Real Estate Owned and Repossessed Assets

(Dollars in Thousands, Unaudited)

 
December 31 September 30 June 30 March 31 December 31
2016   2016   2016   2016   2015
Commercial $ 542 $ 542 $ 542 $ 424 $ 161
Real estate 2,648 3,182 2,925 3,393 3,046
Mortgage warehousing - - - - -
Consumer   26     67     69     -     -
Total $ 3,216   $ 3,791   $ 3,536   $ 3,817   $ 3,207
       
HORIZON BANCORP AND SUBSIDIARIES
Average Balance Sheets

(Dollar Amounts in Thousands, Unaudited)

 
Three Months Ended Three Months Ended
December 31, 2016 December 31, 2015
Average     Average Average     Average
Balance   Interest   Rate Balance   Interest   Rate
 
ASSETS
Interest-earning assets
Federal funds sold $ 27,034 $ 42 0.62 % $ 4,285 $ 2 0.19 %
Interest-earning deposits 33,901 73 0.86 % 20,265 5 0.10 %
Investment securities - taxable 496,794 2,221 1.78 % 452,628 2,337 2.05 %
Investment securities - non-taxable (1) 219,937 1,338 3.36 % 174,768 1,213 4.17 %
Loans receivable (2)(3)   2,154,479       25,715 4.76 %   1,717,355       20,233 4.69 %
Total interest-earning assets (1) 2,932,145 29,389 4.07 % 2,369,301 23,790 4.10 %
 
Non-interest-earning assets
Cash and due from banks 40,788 33,621
Allowance for loan losses (14,593 ) (15,739 )
Other assets   283,410     213,386  
 
$ 3,241,750   $ 2,600,569  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits $ 1,949,549 $ 1,693 0.35 % $ 1,604,394 $ 1,524 0.38 %
Borrowings 382,177 6,199 6.45 % 324,496 1,539 1.88 %
Subordinated debentures   38,084       558 5.83 %   32,773       505 6.11 %
Total interest-bearing liabilities 2,369,810 8,450 1.42 % 1,961,663 3,568 0.72 %
 
Non-interest-bearing liabilities
Demand deposits 504,274 349,127
Accrued interest payable and
other liabilities 24,322 21,468
Stockholders' equity   343,344     268,311  
 
$ 3,241,750   $ 2,600,569  
 
Net interest income/spread $ 20,939 2.65 % $ 20,222 3.38 %
 
Net interest income as a percent
of average interest earning assets (1) 2.92 % 3.50 %
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non-accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees.
       
HORIZON BANCORP AND SUBSIDIARIES
Average Balance Sheets

(Dollar Amounts in Thousands, Unaudited)

 
Twelve Months Ended Twelve Months Ended
December 31, 2016 December 31, 2015
Average     Average Average     Average
Balance   Interest   Rate Balance   Interest   Rate
ASSETS
Interest-earning assets
Federal funds sold $ 17,142 $ 95 0.55 % $ 10,264 $ 11 0.11 %
Interest-earning deposits 34,506 278 0.81 % 14,045 10 0.07 %
Investment securities - taxable 490,274 9,666 1.97 % 394,976 8,700 2.20 %
Investment securities - non-taxable (1) 192,881 4,921 3.59 % 152,931 4,494 4.32 %
Loans receivable (2)(3)   1,948,580       91,569 4.71 %   1,593,790       75,373 4.74 %
Total interest-earning assets (1) 2,683,383 106,529 4.05 % 2,166,006 88,588 4.20 %
 
Non-interest-earning assets
Cash and due from banks 37,549 31,692
Allowance for loan losses (14,439 ) (16,351 )
Other assets   255,129     179,138  
 
$ 2,961,622   $ 2,360,485  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits $ 1,752,326 $ 6,616 0.38 % $ 1,438,026 $ 5,559 0.39 %
Borrowings 425,444 11,807 2.78 % 336,618 6,286 1.87 %
Subordinated debentures   49,834       2,114 4.24 %   32,717       2,009 6.14 %
Total interest-bearing liabilities 2,227,604 20,537 0.92 % 1,807,361 13,854 0.77 %
 
Non-interest-bearing liabilities
Demand deposits 417,900 317,246
Accrued interest payable and
other liabilities 13,574 16,364
Stockholders' equity   302,544     219,514  
 
$ 2,961,622   $ 2,360,485  
 
Net interest income/spread $ 85,992 3.13 % $ 74,734 3.43 %
 
Net interest income as a percent
of average interest earning assets (1) 3.29 % 3.56 %

(1)

Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.

(2)

Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.

(3)

Non-accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees.
   
HORIZON BANCORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

(Dollar Amounts in Thousands)

 
December 31 December 31
2016   2015
(Unaudited)
Assets
Cash and due from banks $ 70,832 $ 48,650
Investment securities, available for sale 439,831 444,982
Investment securities, held to maturity (fair value of $195,093 and $193,703) 193,194 187,629
Loans held for sale 8,087 7,917
Loans, net of allowance for loan losses of $14,837 and $14,534 2,121,149 1,734,597
Premises and equipment, net 66,357 60,798
Federal Reserve and Federal Home Loan Bank stock 23,932 13,823
Goodwill 77,052 49,600
Other intangible assets 9,195 7,371
Interest receivable 12,713 10,535
Cash value of life insurance 74,134 54,504
Other assets   44,680       31,995  
Total assets $ 3,141,156     $ 2,652,401  
Liabilities
Deposits
Non-interest bearing $ 496,248 $ 335,955
Interest bearing   1,974,962       1,544,198  
Total deposits 2,471,210 1,880,153
Borrowings 267,489 449,347
Subordinated debentures 37,456 32,797
Interest payable 472 507
Other liabilities   23,674       22,765  
Total liabilities   2,800,301       2,385,569  
Commitments and contingent liabilities
Stockholders' Equity
Preferred stock, Authorized, 1,000,000 shares
Series B shares $.01 par value, $1,000 liquidation value
Issued 0 and 12,500 shares - 12,500
Common stock, no par value
Authorized, 66,000,000 shares
Issued, 22,190,846 and 17,992,986 shares
Outstanding, 22,171,596 and 17,909,831 shares - -
Additional paid-in capital 182,326 106,370
Retained earnings 164,173 148,685
Accumulated other comprehensive (loss)   (5,644 )     (723 )
Total stockholders' equity   340,855       266,832  
Total liabilities and stockholders' equity $ 3,141,156     $ 2,652,401  
   
HORIZON BANCORP AND SUBSIDIARIES
Condensed Consolidated Statements of Income

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

 
Three Months Ended Twelve Months Ended
December 31   December 31
2016   2015   2016   2015
(Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Interest Income    
Loans receivable $ 25,715 $ 20,233 $ 91,569 $ 75,373
Investment securities
Taxable 2,336 2,344 10,039 8,721
Tax exempt   1,338     1,213       4,921       4,494  
Total interest income   29,389     23,790       106,529       88,588  
Interest Expense
Deposits 1,693 1,524 6,616 5,559
Borrowed funds 6,199 1,539 11,807 6,286
Subordinated debentures   558     505       2,114       2,009  
Total interest expense   8,450     3,568       20,537       13,854  
Net Interest Income 20,939 20,222 85,992 74,734
Provision for loan losses   623     342       1,842       3,162  
Net Interest Income after Provision for Loan Losses   20,316     19,880       84,150       71,572  
Non-interest Income
Service charges on deposit accounts 1,348 1,364 5,404 4,807
Wire transfer fees 218 140 806 633
Interchange fees 1,905 1,498 7,042 5,591
Fiduciary activities 1,868 1,604 6,621 5,637
Gain on sale of investment securities (includes $961 for the three months
ended and $1,836 for the twelve months ended December 31, 2016 and $65 for
the three months ended and $189 for the twelve months ended December 31,
2015 related to accumulated other comprehensive earnings reclassifications) 961 65 1,836 189
Gain on sale of mortgage loans 2,504 2,240 11,675 10,055
Mortgage servicing income net of impairment 552 268 1,908 993
Increase in cash value of bank owned life insurance 498 360 1,643 1,249
Death benefit on bank owned life insurance - - - 145
Other income   331     211       1,039       1,103  
Total non-interest income   10,185     7,750       37,974       30,402  
Non-interest Expense
Salaries and employee benefits 11,421 10,171 44,013 37,712
Net occupancy expenses 2,311 1,751 8,322 6,400
Data processing 1,512 1,081 5,367 4,251
Professional fees 562 474 2,752 2,070
Outside services and consultants 1,880 982 7,863 5,735
Loan expense 1,496 1,404 5,582 5,379
FDIC insurance expense 280 400 1,559 1,499
Other losses 174 81 684 432
Other expense   3,653     2,896       13,269       10,715  
Total non-interest expense   23,289     19,240       89,411       74,193  
Income Before Income Tax 7,212 8,390 32,713 27,781
Income tax expense (includes $336 for the three months ended and $643 for the
twelve months ended December 31, 2016 and $23 for the three months ended
and $66 for the twelve months ended December 31, 2015, related to income tax
expense from reclassification items)   1,609     2,215       8,801       7,232  
Net Income 5,603 6,175 23,912 20,549
Preferred stock dividend   -     (31 )     (42 )     (125 )
Net Income Available to Common Shareholders $ 5,603   $ 6,144     $ 23,870     $ 20,424  
Basic Earnings Per Share $ 0.25 $ 0.34 $ 1.19 $ 1.30
Diluted Earnings Per Share 0.25 0.34 1.19 1.26

Horizon Bancorp
Mark E. Secor
Chief Financial Officer
(219) 873-2611
Fax: (219) 874-9280

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