Horizon Bancorp Announces Record Quarterly and Six-Month Earnings

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| Source: Horizon Bancorp

MICHIGAN CITY, Ind., July 27, 2017 (GLOBE NEWSWIRE) -- (NASDAQ:HBNC) – Horizon Bancorp (“Horizon”) today announced its unaudited financial results for the three-month and six-month periods ended June 30, 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 second quarter of 2017 increased 43.4% to $9.1 million or $0.41 diluted earnings per share compared to $6.3 million or $0.35 diluted earnings per share for the second quarter of 2016.
  • Net income, excluding acquisition-related expenses, gain on sale of investment securities and purchase accounting adjustments (“core net income”), for the second quarter of 2017 increased 24.2% to $8.6 million or $0.39 diluted earnings per share compared to $6.9 million or $0.38 diluted earnings per share for the same period of 2016.
  • Net income for the first six months of 2017 was $17.3 million or $0.77 diluted earnings per share compared to $11.7 million or $0.64 diluted earnings per share for the same period in 2016.
  • Core net income for the first six months of 2017 increased 30.7% to $16.1 million or $0.71 diluted earnings per share compared to $12.3 million or $0.68 diluted earnings per share for the same period of 2016.
  • Return on average assets was 1.12% for the second quarter of 2017 compared to 0.94% for the same period in 2016.
  • Commercial loans, excluding acquired commercial loans, increased by an annualized rate of 13.4%, or $71.1 million, during the first six months of 2017.
  • Consumer loans, excluding acquired consumer loans, increased by an annualized rate of 25.9%, or $51.2 million, during the first six months of 2017.
  • Total loans, excluding acquired loans, increased by an annualized rate of 11.7%, or $124.3 million, during the first six months of 2017.
  • Net interest income for the second quarter of 2017 increased $6.3 million, or 30.3%, compared to the same period in 2016.
  • Net interest margin was 3.84% for the second quarter of 2017 compared to 3.80% for the prior quarter and 3.48% for the second quarter of 2016. The improvement in net interest margin 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 and an increase in loan yields.
  • Net interest margin, excluding the impact of purchase accounting adjustments (“core net interest margin”), was 3.71% for the second quarter of 2017 compared to 3.66% for the prior quarter and 3.42% for the same period in 2016.
  • Horizon’s tangible book value per share rose to $12.20 at June 30, 2017, compared to $11.48 at December 31, 2016.
  • Horizon’s Grand Rapids, Michigan loan production office converted into a full-service branch during the second quarter of 2017.
  • On May 4, 2017, Horizon announced its entrance into central Ohio by opening a loan production office located in Dublin, Ohio, in the Columbus metropolitan area, which will provide a full-range of commercial products and services.
  • On May 23, 2017, Horizon announced the pending acquisition of Lafayette Community Bancorp (“Lafayette”) and its wholly-owned subsidiary, Lafayette Community Bank, headquartered in Lafayette, Indiana.
  • On June 13, 2017, Horizon’s Board of Directors announced the approval of an 18% increase in the Company’s quarterly cash dividend from $0.11 to $0.13 per share, payable on July 21, 2017 to shareholders of record on July 7, 2017.
  • On June 14, 2017, Horizon announced the pending acquisition of Wolverine Bancorp, Inc. (“Wolverine”) and its wholly-owned subsidiary, Wolverine Bank, headquartered in Midland, Michigan.
  • On June 26, 2017, Horizon announced its wholly-owned subsidiary, Horizon Bank, N.A., converted from a national bank to an Indiana state-chartered non-member bank. The charter conversion became effective following the close of business on June 23, 2017 and the converted bank now operates under the name Horizon Bank.

Craig Dwight, Chairman and CEO, commented: “Horizon continued to expand upon its growth story during the second quarter of 2017 with the announcement of two acquisitions, solid organic loan growth, the opening of a full-service branch in Grand Rapids, Michigan, and a loan production office in Dublin, Ohio, a vibrant suburb of Columbus, Ohio. Additionally, Horizon Bank converted from a national bank to an Indiana state-chartered non-member bank during the quarter which should result in a pre-tax cost savings of approximately $432,000 annually. A portion of the cost savings from the charter conversion will be allocated to the state bank associations and expanded internal audit.”

Dwight continued, “Horizon experienced strong loan growth during the first six months of 2017, primarily in commercial and consumer loans. Our growth markets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo, combined to produce total loan growth of $83.1 million during this time period. The loan growth in these markets spurred commercial loan growth, excluding acquired commercial loans, to an annualized growth rate of 13.4% during the first six months of 2017. Consumer loans, excluding acquired consumer loans, increased at an annualized growth rate of 25.9% during the first six months of 2017 due to an increased focus on the management of direct consumer loans and the addition of a seasoned consumer loan portfolio manager during the third quarter of 2016. Residential mortgage loans experienced an increase of $18.1 million, or an annualized growth of 6.8%, during the first six months of 2017. The increases in commercial, consumer and mortgage loans were offset by a decrease in mortgage warehouse loans of $12.0 million from December 31, 2016 to June 30, 2017. Excluding loans acquired through acquisition, total loans increased by 11.7% on an annualized basis. We believe Horizon is well positioned to continue our growth story by strengthening our existing market share and capitalizing on the recent investments in our growth markets.”

Loan Growth by Type, Excluding Acquired Loans
Six Months Ended June 30, 2017
(Dollars in Thousands)
              Excluding Acquired Loans
                  
  June 30 December 31 Amount Acquired Amount Percent
  2017 2016 Change FFBT Loans Change Change
   (Unaudited)              
Commercial loans $1,143,761 $1,069,956 $73,805 $(2,742) $71,063 6.6%
Residential mortgage loans    549,997  531,874  18,123  (59)  18,064 3.4%
Consumer loans    450,209  398,429  51,780  (562)  51,218 12.9%
Subtotal    2,143,967  2,000,259  143,708  (3,363)  140,345 7.0%
Held for sale loans    3,730  8,087  (4,357)  -  (4,357) -53.9%
Mortgage warehouse loans    123,757  135,727  (11,970)  -  (11,970) -8.8%
Total loans $ 2,271,454 $2,144,073 $127,381 $(3,363) $124,018 5.8%
                  

Mr. Dwight stated, “Horizon realized core net income of $8.6 million and $16.1 million for the three and six months ended June 30, 2017, a strong increase of 24.2% and 30.7%, respectively, when compared to the same periods in 2016. Core net interest margin for the second quarter of 2017 was 3.71%, an increase from 3.66% for the prior quarter and 3.42% for the same period in 2016. Horizon’s core net interest margin for the six months ended June 30, 2017 increased 27 basis points to 3.67% when compared to the same period in 2016. Total non-interest income decreased during the three and six months ended June 30, 2017 when compared to the same periods in 2016 by $1.1 million and $882,000, respectively, primarily due to a decrease in gains on sale of mortgage loans. This decrease in income was due to a decrease in the volume of originations and an increase in the percentage of those originations being retained in our portfolio when comparing 2017 to 2016. Continued growth in service charges on deposit accounts, interchange fees and fiduciary activities partially offset the decrease in gains on sale of mortgage loans. These non-interest income sources offer a significant growth opportunity and will lessen the impact of mortgage revenue volatility. Horizon’s strategy of revenue diversification through commercial loan growth and non-mortgage related fee income is evident in our results. At its peak for the year ended December 31, 2012, mortgage warehouse and gain on sale of mortgage loans revenue comprised 24.5% of Horizon’s total revenue base (interest income and non-interest income). For the year ending December 31, 2016 and the six months ending June 30, 2017, mortgage warehouse and gain on sale of mortgage loans revenue as a percentage of total revenue declined to 13.5% and 8.46%, respectively.”

Non-GAAP Reconciliation of Net Income and Diluted Earnings per Share
(Dollars in Thousands Except per Share Data)
             
  Three Months Ended Six Months Ended
  June 30 June 30
Non-GAAP Reconciliation of Net Income 2017 2016 2017 2016
  (Unaudited)(Unaudited)
Net income as reported $   9,072 $6,326 $   17,296 $11,707
Merger expenses    200  1,881    200  2,520
Tax effect    (70)  (531)    (70)  (696)
Net income excluding merger expenses    9,202  7,676    17,426  13,531
             
Gain on sale of investment securities    3  (767)    (32)  (875)
Tax effect    (1)  268    11  306
Net income excluding gain on sale of investment securities    9,204  7,177    17,405  12,962
             
Acquisition-related purchase accounting adjustments ("PAUs")    (939)  (397)    (1,955)  (944)
Tax effect    329  139    684  330
Net income excluding PAUs $ 8,594 $6,919 $ 16,134 $12,348
             
Non-GAAP Reconciliation of Diluted Earnings per Share            
Diluted earnings per share as reported $ 0.41 $0.35 $ 0.77 $0.64
Merger expenses    0.01  0.10    0.01  0.14
Tax effect    (0.00)  (0.03)    (0.00)  (0.04)
Diluted earnings per share excluding merger expenses    0.42  0.42    0.78  0.74
             
Gain on sale of investment securities    0.00  (0.04)    (0.00)  (0.05)
Tax effect    (0.00)  0.01    0.00  0.02
Net income excluding gain on sale of investment securities    0.42  0.39    0.78  0.71
             
Acquisition-related PAUs    (0.04)  (0.02)    (0.09)  (0.05)
Tax effect    0.01  0.01    0.02  0.02
Diluted earnings per share excluding PAUs $0.39 $0.38 $ 0.71 $0.68
             

On May 23, 2017, Horizon entered into an agreement to acquire Lafayette and its wholly owned subsidiary, Lafayette Community Bank, in a cash and stock merger. The acquisition is expected to close in the third quarter of 2017, subject to regulatory and Lafayette shareholder approval. Lafayette Community Bank serves Tippecanoe County, Indiana through four full-service locations. As of March 31, 2017, Lafayette had total assets of $172.1 million.

On June 13, 2017, Horizon entered into an agreement to acquire Wolverine and its wholly owned subsidiary, Wolverine Bank, in a cash and stock merger. The acquisition is expected to close early in the fourth quarter of 2017, subject to regulatory and Wolverine shareholder approval. Wolverine Bank serves Midland and Saginaw Counties, Michigan through three full-service locations and one loan production office in Troy, Michigan in Oakland County. As of March 31, 2017, Wolverine had total assets of $379.3 million.

Mr. Dwight concluded, “We are very pleased to be partnering with these outstanding institutions and their talented and experienced teams. Lafayette Community Bancorp provides Horizon entry into the attractive Lafayette market and will fill a market gap between Indianapolis and Northwest Indiana. Wolverine Bancorp strengthens Horizon’s presence in the state of Michigan and provides entry into the key markets of the Great Lakes Bay Region and Oakland County. Over the years, both leadership teams have strived to provide customer focused advice and a commitment to community banking which complements Horizon’s customer focused philosophy and core values. We believe Horizon is well positioned to efficiently integrate each institution and take advantage of growth opportunities within the market each institution serves.” 

Income Statement Highlights

Net income for the second quarter of 2017 was $9.1 million or $0.41 diluted earnings per share compared to $8.2 million or $0.37 diluted earnings per share for the first quarter of 2017. The increase in net income and diluted earnings per share from the previous quarter reflects increases in net interest income and non-interest income of $1.6 million and $653,000, respectively, offset by increases in non-interest expense and income tax expense of $967,000 and $468,000, respectively.

Net income for the second quarter of 2017 was $9.1 million or $0.41 diluted earnings per share compared to $6.3 million or $0.35 diluted earnings per share for the second quarter of 2016.  The increase in net income and diluted earnings per share from the same period of 2016 reflects an increase in net interest income of $6.3 million offset by a decrease in non-interest income of $1.1 million and increases in non-interest expense and income tax expense of $1.5 million and $895,000, respectively.

Net income for the six months ended June 30, 2017 totaled $17.3 million or $0.77 diluted earnings per share compared to $11.7 million or $0.64 diluted earnings per share for the same period in 2016. The increase in net income and diluted earnings per share reflects an increase in net interest income of $12.2 million offset by a decrease in non-interest income of $882,000 and increases in non-interest expense and income tax expense of $3.8 million and $2.0 million, respectively.

The increases in diluted earnings per share when comparing 2017 periods to 2016 periods was partially offset by an increase in dilutive shares outstanding as a result of the stock issued in the Kosciusko Financial, Inc. and LaPorte Bancorp, Inc. acquisitions in 2016. Core net income for the second quarter of 2017 was $8.6 million or $0.39 diluted earnings per share compared to $6.9 million or $0.38 diluted earnings per share for the same period of 2016. For the six months ended June 30, 2017, core net income was $16.1 million or $0.71 diluted earnings per share compared to $12.3 million or $0.68 diluted earnings per share for the same period in 2016.

Horizon’s net interest margin was 3.84% for the second quarter of 2017, up from 3.80% for the prior quarter and 3.48% for same period of 2016.  The increase in the net interest margin for the second quarter of 2017 was primarily due to an increase of 15 basis points in loan yields when compared to the prior quarter. The increase in the net interest margin compared to the same period of 2016 was due to an increase in loan yields of 25 basis points and a decrease in the cost of borrowings of 24 basis points. Excluding acquisition-related purchase accounting adjustments, the margin would have been 3.71% for the second quarter of 2017 compared to 3.66% for the first quarter of 2017 and 3.42% for the same period of 2016. Interest income from acquisition-related purchase accounting adjustments was $939,000, $1.0 million and $397,000, for the three months ended June 30, 2017, March 31, 2017 and June 30, 2016, respectively.

Horizon’s net interest margin for the six months ended June 30, 2017 was 3.81% compared to 3.47% for the same period in 2016. The increase in the net interest margin was primarily due to an increase in loan yields of 14 basis points which was offset by a decrease in the yield earned on non-taxable securities of 24 basis points. Also, the cost of interest-bearing liabilities decreased 16 basis points primarily due to a decrease in the cost of borrowings of 24 basis points. Excluding acquisition-related purchase accounting adjustments, the margin would have been 3.67% for the six months ended June 30, 2017 compared to 3.40% for the same period in 2016. Interest income from acquisition-related purchase accounting adjustments was $2.0 million and $944,000 for the six months ended June 30, 2017 and 2016, respectively.

Non-GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
  Three Months Ended
 Six Months Ended
  June 30 March 31 June 30 June 30
Net Interest Margin As Reported 2017 2017 2016 2017 2016
Net interest income $27,198 $25,568 $20,869 $   52,766 $40,643
Average interest-earning assets    2,943,627  2,797,429  2,471,354    2,870,884  2,406,468
Net interest income as a percent of average interest-               
earning assets ("Net Interest Margin")  3.84%  3.80%  3.48%  3.81%  3.47%
                
Impact of Acquisitions               
Interest income from acquisition-related               
purchase accounting adjustments $(939) $(1,016) $(397) $   (1,955) $(944)
                
Excluding Impact of Prepayment Penalties and Acquisitions               
Net interest income $26,259 $24,552 $20,472 $   50,811 $39,699
Average interest-earning assets    2,943,627  2,797,429  2,471,354    2,870,884  2,406,468
Core Net Interest Margin  3.71%  3.66%  3.42%  3.67%  3.40%
                

Lending Activity

Total loans increased $127.7 million from $2.144 billion as of December 31, 2016 to $2.271 billion as of June 30, 2017 as commercial loans increased by $73.8 million, residential mortgage loans increased by $18.1 million and consumer loans increased by $51.8 million. Offsetting these increases was a decrease in mortgage warehouse loans of $12.0 million.  Total loans, excluding acquired loans, mortgage warehouse loans and loans held for sale, increased by an annualized rate of 14.1%, or $140.3 million, during the six months ended June 30, 2017.

Loan balances in the growth markets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo totaled $480.2 million as of June 30, 2017. Combined, these markets contributed $83.1 million, or 20.9%, in loan growth during the six months ended June 30, 2017.

Residential mortgage lending activity for the three months ended June 30, 2017 generated $2.2 million in income from the gain on sale of mortgage loans, an increase of $236,000 from the previous quarter and a decrease of $852,000 from the same period in 2016. Residential mortgage lending activity for the six months ended June 30, 2017 generated $4.2 million in income from the gain on sale of mortgage loans, a decrease of $989,000 from the same period in 2016. Total origination volume for the second quarter of 2017, including loans placed into portfolio, totaled $110.4 million, representing an increase of 67.5% from the previous quarter and a decrease of 17.0% from the same period in 2016. Total origination volume for the six months ended June 30, 2017, including loans placed into portfolio, totaled $176.3 million, a decrease of 17.0% compared to the same period in 2016. The decrease in mortgage loan origination volume was primarily due to an increase in mortgage loan interest rates when comparing 2017 to 2016. Purchase money mortgage originations during the second quarter of 2017 represented 78.4% of total originations compared to 69.8% of originations during the previous quarter and 78.2% during the second quarter of 2016. Purchase money mortgage originations for the six months ended June 30, 2017 represented 75.1% of originations compared to 73.4% for the same period in 2016.

The provision for loan losses totaled $330,000 for the second and first quarters of 2017 compared to $232,000 for the second quarter of 2016. The increase in the provision for loan losses in the second quarter of 2017 was due to the increase in gross loans when compared to the same period in 2016. The provision for loan losses totaled $660,000 and $764,000 for the six months ended June 30, 2017 and 2016, respectively. The decrease in the provision for loan losses was due to a decrease in net charge-offs when comparing the 2017 and 2016 periods.

The ratio of the allowance for loan losses to total loans decreased to 0.66% as of June 30, 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 0.82% as of June 30, 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 1.18% as of June 30, 2017 compared to 1.39% as of December 31, 2016.

Non- GAAP Allowance for Loan and Lease Loss Detail
As of June 30, 2017
(Dollars in Thousands, Unaudited)
                         
  Horizon                     
  Legacy Heartland Summit Peoples Kosciusko LaPorte CNB Total
Pre-discount loan balance $1,834,963 $13,823 $46,708 $130,009 $68,577 $176,902 $8,612 $   2,279,594
                         
Allowance for loan losses (ALLL)    14,956  71  -  -  -  -  -    15,027
Loan discount   N/A   879  2,416  3,086  1,004  4,248  237    11,870
ALLL+loan discount    14,956  950  2,416  3,086  1,004  4,248  237    26,897
                         
Loans, net $1,820,007 $12,873 $44,292 $126,923 $67,573 $172,654 $8,375 $ 2,252,697
                         
ALLL/ pre-discount loan balance  0.82%  0.51%  0.00%  0.00%  0.00%  0.00%  0.00%  0.66%
Loan discount/ pre-discount loan balance   N/A   6.36%  5.17%  2.37%  1.46%  2.40%  2.75%  0.52%
ALLL+loan discount/ pre-discount loan balance  0.82%  6.87%  5.17%  2.37%  1.46%  2.40%  2.75%  1.18%
                         

Non-performing loans to total loans increased 1 basis point to 0.51% at June 30, 2017 from 0.50% at December 31, 2016.  Non-performing loans totaled $11.6 million as of June 30, 2017, an increase of $880,000 from $10.7 million as of December 31, 2016.  Compared to December 31, 2016, non-performing commercial loans increased by $362,000, non-performing real estate loans increased by $263,000 and non-performing consumer loans increased $255,000. 

Expense Management

Total non-interest expense was $1.5 million higher in the second quarter of 2017 compared to the same period of 2016.  Excluding merger-related expenses of $200,000 and $1.9 million recorded during the three months ended June 30, 2017 and 2016, respectively, total non-interest expense increased $3.2 million, or 16.9%. The increase was primarily due to an increase in salaries and employee benefits of $2.1 million, net occupancy expenses of $295,000, data processing expenses of $368,000, and other expenses of $252,000 reflecting overall company growth, market expansion and recent acquisitions. Outside services and consultant expense and professional fee expense decreased by $933,000 and $212,000, respectively, in the second quarter of 2017 when compared to the same period of 2016 primarily due to one-time expenses related to the Kosciusko Financial, Inc. and LaPorte Bancorp, Inc. acquisitions in 2016. FDIC insurance expense decreased $166,000 in the second quarter of 2017 when compared to the same period of 2016 as the assessment rate schedule was reduced effective for assessment payments due in the fourth quarter of 2016 and 2017. Loan expense decreased $159,000 in the second quarter of 2017 when compared to the same prior year period of 2016 primarily due to a decrease in loan collection expenses.

Total non-interest expense for the six months ended June 30, 2017 increased $3.8 million, or 9.4%, when compared to the same period in 2016. Excluding merger-related expenses of $200,000 and $2.5 million recorded during the six months ended June 30, 2017 and 2016, respectively, total non-interest expense increased $6.1 million, or 16.2%. The increase was primarily due to increases in salaries and employee benefits of $3.8 million, net occupancy expenses of $811,000, data processing expenses of $570,000 and other expenses of $683,000 reflecting overall company growth, market expansion and recent acquisitions. Outside services and consultant expense and professional fee expense decreased $810,000 and $430,000, respectively, for the six months ended June 30, 2017 when compared to the same period of 2016 primarily due to one-time expenses related to the Kosciusko Financial, Inc. and LaPorte Bancorp, Inc. acquisitions in 2016. FDIC insurance expense decreased $308,000 during the first six months of 2017 when compared to the same period in 2016 due to the reduced assessment rate schedule. Other losses decreased $275,000 for the six months ended June 30, 2017 when compared to the same 2016 period due to lower debit card fraud-related expenses. Loan expense was $247,000 lower for the six months ended June 30, 2017 when compared to the same period of 2016 primarily due to a decrease in loan collection expenses.

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)
 
  June 30 March 31 June 30
  2017 2017 2016
  (Unaudited)    (Unaudited)
Total stockholders’ equity $   357,259  $348,575 $281,002
Less: Intangible assets    86,726   87,094  65,144
Total tangible stockholders' equity $   270,533  $261,481 $215,858
          
Common shares outstanding    22,176,465   22,176,465  18,857,301
     
Tangible book value per common share $   12.20  $11.79 $11.45
     

About Horizon

Horizon Bancorp is an independent, commercial bank holding company serving northern and central Indiana, southwest and central Michigan, and central Ohio 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.

Additional Information for Shareholders

Communications in this document do not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

In connection with the proposed merger with Lafayette Community Bancorp, Horizon has filed with the SEC a Registration Statement on Form S-4 that includes a proxy statement of Lafayette Community Bancorp and a prospectus of Horizon, as well as other relevant documents concerning the proposed transaction. Shareholders and investors are urged to read the Registration Statement and the proxy statement/prospectus regarding the merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain important information. A free copy of the proxy statement/prospectus, as well as other filings containing information about Horizon, may be obtained free of charge at the SEC’s website at www.sec.gov. You may also obtain these documents, free of charge, from Horizon at www.horizonbank.com under the tab “About Us – Investor Relations – Documents – SEC Filings.”

The information available through Horizon’s website is not and shall not be deemed part of this document or incorporated by reference into other filings Horizon makes with the SEC.

In connection with the proposed merger with Wolverine Bancorp, Inc. (“Wolverine Bancorp”), Horizon will file with the SEC a Registration Statement on Form S-4 that will include a proxy statement of Wolverine Bancorp and a prospectus of Horizon, as well as other relevant documents concerning the proposed transaction. Shareholders and investors are urged to read the Registration Statement and the proxy statement/prospectus regarding the merger when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. A free copy of the proxy statement/prospectus (when it becomes available), as well as other filing containing information about Horizon and Wolverine Bancorp, may be obtained free of charge at the SEC’s website at www.sec.gov. You will also be able to obtain these documents, free of charge, from Horizon at www.horizonbank.com under the tab “About Us – Investor Relations – Documents – SEC Filings,” or from Wolverine Bancorp at www.wolverinebank.com under the tab “Investor Information – SEC Filings.” The information available through Horizon’s and Wolverine Bancorp’s websites is not and shall not be deemed part of this filing or incorporated by reference into other filings Horizon or Wolverine Bancorp make with the SEC.

Horizon, Lafayette Community Bancorp and Wolverine Bancorp and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Lafayette Community Bancorp and Wolverine Bancorp in connection with the proposed merger. Information about the directors and executive officers of Horizon is set forth in Horizon’s Annual Report on Form 10-K filed with the SEC on February 28, 2017, and in the proxy statement for Horizon’s 2017 annual meeting of shareholders, as filed with the SEC on March 17, 2017. Information about the directors and executive officers of Wolverine Bancorp is set forth in Wolverine Bancorp’s Annual Report on Form 10-K filed with the SEC on March 31, 2017, and in the proxy statement for Wolverine Bancorp’s 2017 annual meeting of shareholders, as filed with the SEC on April 17, 2017. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the proxy statement/prospectus regarding the Lafayette Community Bancorp merger and by reading the proxy statement/prospectus regarding the Wolverine Bancorp merger when it becomes available. Free copies of these documents may be obtained as described in the preceding paragraph.

HORIZON BANCORP 
Financial Highlights
(Dollars in thousands except share and per share data and ratios, Unaudited)
                
  June 30 March 31 December 31 September 30 June 30
  2017 2017 2016 2016 2016
Balance sheet:               
Total assets $3,321,178 $3,169,643 $3,141,156 $3,325,650 $2,918,080
Investment securities  704,525  673,090  633,025  744,240  628,935
Commercial loans  1,143,761  1,106,471  1,069,956  1,047,450  874,580
Mortgage warehouse loans  123,757  89,360  135,727  226,876  205,699
Residential mortgage loans  549,997  533,646  531,874  530,162  493,626
Consumer loans  450,209  417,476  398,429  386,031  363,920
Earning assets  2,990,924  2,845,922  2,801,030  2,963,005  2,591,208
Non-interest bearing deposit accounts  508,305  502,400  496,248  479,771  397,412
Interest bearing transaction accounts  1,401,407  1,432,228  1,499,120  1,367,285  1,213,659
Time deposits  509,071  509,071  475,842  489,106  471,190
Borrowings  485,304  319,993  267,489  569,908  492,883
Subordinated debentures  37,562  37,516  37,456  37,418  32,874
Total stockholders’ equity  357,259  348,575  340,855  345,736  281,002
                
Income statement: Three months ended
Net interest income $27,198 $25,568 $20,939 $24,410 $20,869
Provision for loan losses  330  330  623  455  232
Non-interest income  8,212  7,559  9,484  9,318  9,266
Non-interest expenses  22,488  21,521  22,588  24,082  20,952
Income tax expense  3,520  3,052  1,609  2,589  2,625
Net income  9,072  8,224  5,603  6,602  6,326
Preferred stock dividend  -  -  -  -  -
Net income available to common shareholders $9,072 $8,224 $5,603 $6,602 $6,326
                
Per share data:               
Basic earnings per share (1) $0.41 $0.37 $0.25 $0.31 $0.35
Diluted earnings per share (1)  0.41  0.37  0.25  0.30  0.35
Cash dividends declared per common share (1)  0.13  0.11  0.11  0.10  0.10
Book value per common share (1)  16.11  15.72  15.37  15.61  14.90
Tangible book value per common share  12.20  11.79  11.48  11.83  11.45
Market value - high  27.50  28.09  28.41  20.01  16.76
Market value - low $24.73 $24.91 $17.84 $16.61 $15.87
Weighted average shares outstanding - Basic  22,176,465  22,175,526  22,155,549  21,538,752  18,268,880
Weighted average shares outstanding - Diluted  22,322,390  22,326,071  22,283,722  21,651,953  18,364,167
                
Key ratios:               
Return on average assets  1.12%  1.07%  0.69%  0.80%  0.94%
Return on average common stockholders' equity  10.24  9.66  6.49  7.88  9.43
Net interest margin  3.84  3.80  2.92  3.37  3.48
Loan loss reserve to total loans  0.66  0.70  0.69  0.66  0.73
Non-performing loans to loans  0.51  0.46  0.50  0.58  0.68
Average equity to average assets  10.94  11.12  10.59  10.18  9.94
Bank only capital ratios:               
Tier 1 capital to average assets  9.84  10.26  9.93  9.65  9.39
Tier 1 capital to risk weighted assets  12.83  13.40  13.33  12.73  12.51
Total capital to risk weighted assets  13.46  14.05  13.98  13.34  13.23
                
Loan data:               
Substandard loans $34,870 $30,865 $30,361 $33,914 $28,629
30 to 89 days delinquent  4,555  5,476  6,315  3,821  2,887
                
90 days and greater delinquent - accruing interest $160 $245 $241 $59 $24
Trouble debt restructures - accruing interest  1,924  1,647  1,492  1,523  1,256
Trouble debt restructures - non-accrual  668  998  1,014  1,164  1,466
Non-accrual loans  8,811  6,944  7,936  10,091  10,426
Total non-performing loans $11,563 $9,834 $10,683 $12,837 $13,172
                
(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)
      
 June 30 June 30
 2017 2016
Balance sheet:     
Total assets$   3,321,178 $2,918,080
Investment securities   704,525    628,935
Commercial loans   1,143,761    874,580
Mortgage warehouse loans   123,757    205,699
Residential mortgage loans   549,997    493,626
Consumer loans   450,209    363,920
Earning assets   2,990,924    2,591,208
Non-interest bearing deposit accounts   508,305    397,412
Interest bearing transaction accounts   1,401,407    1,213,659
Time deposits   509,071    471,190
Borrowings   485,304    492,883
Subordinated debentures   37,562    32,874
Total stockholders’ equity   357,259    281,002
      
Income statement:Six Months Ended
Net interest income$ 52,766 $40,643
Provision for loan losses   660    764
Non-interest income   15,771    17,733
Non-interest expenses   44,009    41,302
Income tax expense   6,572    4,603
Net income   17,296    11,707
Preferred stock dividend   -     (42)
Net income available to common shareholders$17,296 $11,665
      
Per share data:     
Basic earnings per share (1)$0.78 $0.65
Diluted earnings per share (1)   0.77    0.64
Cash dividends declared per common share (1)   0.24    0.20
Book value per common share (1)   16.11    14.90
Tangible book value per common share   12.20    11.45
Market value - high   28.09    18.59
Market value - low$24.73 $15.41
Weighted average shares outstanding - Basic   22,175,998    18,096,503
Weighted average shares outstanding - Diluted   22,324,520    18,190,542
      
Key ratios:     
Return on average assets 1.10%  0.89%
Return on average common stockholders' equity   9.99    9.26
Net interest margin   3.81    3.47
Loan loss reserve to total loans   0.66    0.73
Non-performing loans to loans   0.51    0.68
Average equity to average assets   11.03    10.05
Bank only capital ratios:     
Tier 1 capital to average assets   9.84    9.39
Tier 1 capital to risk weighted assets   12.83    12.51
Total capital to risk weighted assets   13.46    13.23
      
Loan data:     
Substandard loans$34,870 $28,629
 30 to 89 days delinquent    4,555    2,887
      
90 days and greater delinquent - accruing interest$160 $24
Trouble debt restructures - accruing interest   1,924    1,256
Trouble debt restructures - non-accrual   668    1,466
Non-accrual loans   8,811    10,426
Total non-performing loans$11,563 $13,172
      
(1) Adjusted for 3:2 stock split on November 14, 2016   

 

HORIZON BANCORP
 
Allocation of the Allowance for Loan and Lease Losses
(Dollars in Thousands, Unaudited)
             
  June 30 March 31 December 31 September 30
  2017 2017 2016 2016
Commercial $   7,617 $7,600 $6,579 $6,222
Real estate    1,750  1,697  2,090  1,947
Mortgage warehousing    1,090  1,042  1,254  1,337
Consumer    4,570  4,715  4,914  5,018
Total $ 15,027 $15,054 $14,837 $14,524
             


Net Charge-offs (Recoveries)
(Dollars in Thousands, Unaudited)
                
  June 30 March 31 December 31 September 30 June 30
  2017 2017 2016 2016 2016
Commercial $   24 $(134) $49 $(5) $101
Real estate    (8)  38  64  -  (31)
Mortgage warehousing    -   -  -  -  -
Consumer    341  209  197  162  172
Total $ 357 $113 $310 $157 $242
                

 

Total Non-performing Loans
(Dollars in Thousands, Unaudited)
                
  June 30 March 31 December 31 September 30 June 30
  2017 2017 2016 2016 2016
Commercial $   2,794 $1,530 $2,432 $5,419 $4,330
Real estate    5,285  5,057  5,022  4,251  5,659
Mortgage warehousing    -   -  -  -  -
Consumer    3,484  3,247  3,229  3,108  3,183
Total $ 11,563 $9,834 $10,683 $12,778 $13,172
                


Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
                
  June 30 March 31 December 31 September 30 June 30
  2017 2017 2016 2016 2016
Commercial $   409 $542 $542 $542 $542
Real estate    1,805  2,413  2,648  3,182  2,925
Mortgage warehousing    -   -  -  -  -
Consumer    21  20  26  67  69
Total $ 2,235 $2,975 $3,216 $3,791 $3,536
                

   

HORIZON BANCORP AND SUBSIDIARIES
Average Balance Sheets
(Dollar Amounts in Thousands, Unaudited)
       
    Three Months Ended Three Months Ended
    June 30, 2017 June 30, 2016
    Average   Average Average  Average
    BalanceInterest Rate Balance InterestRate
                
ASSETS             
Interest-earning assets            
  Federal funds sold$1,728$6 1.39% $3,309$40.49%
  Interest-earning deposits 27,677 83 1.20%  28,045 590.85%
  Investment securities - taxable 423,815 2,155 2.04%  469,925 2,5982.22%
  Investment securities - non-taxable (1) 290,494 1,766 3.40%  182,886 1,1953.70%
  Loans receivable (2)(3) 2,199,913 26,795 4.94%  1,787,189 20,7944.69%
   Total interest-earning assets (1) 2,943,627 30,805 4.33%  2,471,354 24,6504.10%
                
Non-interest-earning assets            
  Cash and due from banks 42,331      35,435   
  Allowance for loan losses (15,131)      (14,350)   
  Other assets 279,024      223,258   
                
    $3,249,851     $2,715,697   
                
LIABILITIES AND SHAREHOLDERS' EQUITY          
Interest-bearing liabilities            
  Interest-bearing deposits$1,980,025$1,721 0.35% $1,625,024$1,5570.39%
  Borrowings 359,462 1,338 1.49%  400,585 1,7211.73%
  Subordinated debentures 36,340 548 6.05%  32,854 5036.16%
   Total interest-bearing liabilities 2,375,827 3,607 0.61%  2,058,463 3,7810.74%
                
Non-interest-bearing liabilities            
  Demand deposits 499,446      364,822   
  Accrued interest payable and            
    other liabilities 19,143      22,574   
Stockholders' equity 355,435      269,838   
                
    $3,249,851     $2,715,697   
                
Net interest income/spread  $27,198 3.73%   $20,8693.36%
                
Net interest income as a percent            
  of average interest earning assets (1)     3.84%     3.48%
                
(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)
      
   Six Months Ended Six Months Ended
   June 30, 2017 June 30, 2016
   Average Average Average Average
   BalanceInterestRate BalanceInterestRate
ASSETS            
Interest-earning assets           
 Federal funds sold$   2,377$110.93% $2,853 $ 40.28%
 Interest-earning deposits   26,220   1521.17%    24,300   1090.90%
 Investment securities - taxable   411,417   4,4872.20%    464,209   5,0922.21%
 Investment securities - non-taxable (1)   280,563   3,4033.40%    181,660   2,4323.64%
 Loans receivable (2)(3)   2,150,307   51,5864.85%    1,733,446   40,5414.71%
  Total interest-earning assets (1)   2,870,884   59,6394.29%    2,406,468   48,1784.10%
              
Non-interest-earning assets           
 Cash and due from banks   41,788       34,246   
 Allowance for loan losses   (15,035)       (14,350)   
 Other assets   279,497       217,797   
              
   $3,177,134    $2,644,161   
              
LIABILITIES AND SHAREHOLDERS' EQUITY         
Interest-bearing liabilities           
 Interest-bearing deposits$1,970,235$3,4740.36% $1,571,579 $  3,0480.39%
 Borrowings   305,116   2,2751.50%    401,594   3,4801.74%
 Subordinated debentures   36,315   1,1246.24%    32,653   1,0076.20%
  Total interest-bearing liabilities   2,311,666   6,8730.60%    2,005,826   7,5350.76%
              
Non-interest-bearing liabilities           
 Demand deposits   495,262       350,157   
 Accrued interest payable and           
   other liabilities   19,901       22,465   
Stockholders' equity   350,305       265,713   
              
   $3,177,134    $2,644,161   
              
Net interest income/spread  $52,7663.69%    $ 40,6433.34%
              
Net interest income as a percent           
  of average interest earning assets (1)    3.81%     3.47%
              
(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)
 
 June 30
December 31
 20172016
 (Unaudited) 
Assets  
Cash and due from banks$   65,993   $70,832 
Investment securities, available for sale   505,051    439,831 
Investment securities, held to maturity (fair value of $203,542 and $194,086)   199,474    193,194 
Loans held for sale   3,730    8,087 
Loans, net of allowance for loan losses of $15,027 and $14,837   2,252,697    2,121,149 
Premises and equipment, net   65,358    66,357 
Federal Reserve and Federal Home Loan Bank stock   14,945    23,932 
Goodwill   77,644    76,941 
Other intangible assets   9,082    9,366 
Interest receivable   13,316    12,713 
Cash value of life insurance   75,006    74,134 
Other assets   38,882    44,620 
Total assets$   3,321,178   $3,141,156 
Liabilities  
Deposits  
Non-interest bearing$   508,305   $496,248 
Interest bearing   1,910,478    1,974,962 
Total deposits   2,418,783    2,471,210 
Borrowings   485,304    267,489 
Subordinated debentures   37,562    37,456 
Interest payable   559    472 
Other liabilities   21,711    23,674 
Total liabilities   2,963,919    2,800,301 
Commitments and contingent liabilities  
Stockholders’ Equity  
Preferred stock, Authorized, 1,000,000 shares  
Issued 0 and 0 shares   -     - 
Common stock, no par value  
Authorized 66,000,000 shares(1)  
Issued, 22,195,715 and 22,192,530 shares(1)  
Outstanding, 22,176,465 and 22,171,596 shares(1)   -     - 
Additional paid-in capital   182,552    182,326 
Retained earnings   176,123    164,173 
Accumulated other comprehensive loss   (1,416)  (5,644)
Total stockholders’ equity   357,259    340,855 
Total liabilities and stockholders’ equity$   3,321,178   $3,141,156 
   
(1) Adjusted for 3:2 stock split on November 14, 2016  
   


HORIZON BANCORP AND SUBSIDIARIES
Condensed Consolidated Statements of Income 
(Dollar Amounts in Thousands, Except Per Share Data, Unaudited)
 
 Three Months EndedSix Months Ended 
 June 30June 30 
  2017   2016   2017   2016  
 (Unaudited)
 (Unaudited)(Unaudited)(Unaudited) 
Interest Income     
Loans receivable$ 26,795   $20,794  $ 51,586   $  40,541  
Investment securities     
  Taxable   2,244      2,661     4,650      5,205  
  Tax exempt   1,766      1,195     3,403      2,432  
  Total interest income 30,805    24,650     59,639      48,178  
Interest Expense     
Deposits   1,721      1,557     3,474      3,048  
Borrowed funds   1,338      1,721     2,275      3,480  
Subordinated debentures   548      503     1,124      1,007  
  Total interest expense   3,607      3,781     6,873      7,535  
Net Interest Income   27,198      20,869     52,766      40,643  
Provision for loan losses   330      232     660      764  
Net Interest Income after Provision for Loan Losses   26,868      20,637     52,106      39,879  
Non-interest Income     
Service charges on deposit accounts   1,566      1,417     2,966      2,705  
Wire transfer fees   178      175     328      296  
Interchange fees   1,382      978     2,558      1,909  
Fiduciary activities   1,943      1,465     3,865      3,100  
Gain on sale of investment securities (includes $(3) and $767 for the three     
  months ended June 30, 2017 and 2016, respectively and $32 and $875 for the six      
  months ended June 30, 2017 and 2016, respectively, related to accumulated other 
  comprehensive earnings reclassifications)
   (3)    767     32      875  
Gain on sale of mortgage loans   2,054      3,529     3,968      5,643  
Mortgage servicing income net of impairment   359      500     806      947  
Increase in cash value of bank owned life insurance   408      351     872      696  
Other income   325      84     376      482  
Total non-interest income   8,212      9,266     15,771      16,653  
Non-interest Expense     
Salaries and employee benefits   12,466      10,317     24,175      20,382  
Net occupancy expenses   2,196      1,901     4,648      3,837  
Data processing   1,502      1,134     2,809      2,239  
Professional fees   535      747     1,148      1,578  
Outside services and consultants   1,265      2,198     2,487      3,297  
Loan expense   1,250      1,409     2,357      2,604  
FDIC insurance expense   243      409     506      814  
Other losses   78      136     128      403  
Other expense   2,953      2,701     5,751      5,068  
Total non-interest expense   22,488      20,952     44,009      40,222  
Income Before Income Tax    12,592      8,951     23,868      16,310  
Income tax expense (includes $(1) and $268 for the three months ended     
June 30, 2017 and 2016, respectively, and $11 and $306 for the six months ended June 30, 2017 and 2016, respectively related to income tax expense from     
  reclassification items)   3,520      2,625     6,572      4,603  
Net Income    9,072      6,326     17,296      11,707  
Preferred stock dividend   -       -      -       (42) 
Net Income Available to Common Shareholders$   9,072   $  6,326  $   17,296   $  11,665  
Basic Earnings Per Share$   0.41   $  0.35  $   0.78   $  0.65  
Diluted Earnings Per Share   0.41      0.35     0.77      0.64  
      

 

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