Horizon Bancorp Announces Third Quarter Year-to-Date Net Income Ahead of Last Year

• Press Release
• Source: Horizon Bancorp
• On 4:05 pm EDT, Friday October 23, 2009

MICHIGAN CITY, Ind.--(BUSINESS WIRE)--Horizon Bancorp (NASDAQ: HBNC - News) today announced its unaudited financial results for the three and nine months ended September 30, 2009.

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SUMMARY:

• Horizon’s year-to-date net income for the first nine months of 2009 was $7.1 million, which exceeds last year’s net income for the same time period of $6.9 million.
• Horizon’s third quarter 2009 net income was $2.4 million or $0.61 diluted earnings per share.
• Net interest margin for the third quarter increased compared to the prior quarter.
• Horizon continued to experience strong residential mortgage loan volume through the third quarter.
• Horizon’s quarterly provision to the loan loss reserve increased by approximately $125,000 from the second quarter of 2009 increasing the allowance for loan losses to total loans to 1.58%.
• Horizon’s balance of Other Real Estate Owned of $1.7 million at September 30, 2009 was at its lowest level since September 30, 2008.
• Horizon’s non-performing loans increased by $2.0 million from June 30, 2009 to September 30, 2009.
• Horizon’s net loan charge-offs for the third quarter decreased from the previous two quarters.
• Horizon’s non-performing loans to total loans ratio as of September 30, 2009 was 1.87%, which compares favorably to National and State of Indiana peer averages.¹
• Horizon’s capital ratios continue to be above the regulatory standards for well-capitalized banks.

Craig M. Dwight, Chief Executive Officer of Horizon Bancorp stated, “During the past five years our team of dedicated community bankers diligently worked to balance Horizon’s revenue streams and loan portfolios to minimize risk during recessionary periods. This is best evidenced by our balanced loan portfolios, increasing market share in retail mortgages, and our disciplined credit culture. So far this approach has proven to be very effective during the current recession.” In addition, Mr. Dwight commented, “We are proud of our year-to-date results as we continue to beat the national and regional banking trends.”

Performance Highlights:

Net income for the third quarter of 2009 was $2.4 million or $.61 diluted earnings per share. This compares to $1.3 million or $.41 diluted earnings per share for the same quarter of the prior year. Net income for the nine months ended September 30, 2009 was $7.1 million or $1.84 diluted earnings per share. This compares to $6.9 million or $2.11 diluted earnings per share for the same period of the prior year.

Diluted earnings per share were reduced by $.11 per share for the three months and $.32 per share for the nine months ending September 30, 2009 resulting from the preferred stock dividends and the accretion of the discount on the preferred stock. The preferred stock was issued in the fourth quarter of 2008 and therefore did not impact the three or nine month periods ending September 30, 2008.

Net interest income increased $1.3 million for the three months and $5.7 million for the nine months ending September 30, 2009 compared to the same prior year periods, due to an increase in interest earning assets and a decrease in the cost of funds. The net interest margin increased to 3.64% for the nine months ending September 30, 2009 compared to 3.31% in the prior year for the same period and the third quarter net interest margin increased to 3.64% from 3.45% in the prior year.

The improvement in year-to-date net interest income over the same period of the prior year is a result of Horizon’s ability to reduce the cost of interest bearing liabilities more than the reduction in the yields experienced on the interest earning assets. In addition, interest rate floors on over 50.0% of the Company’s adjustable rate loans have helped in maintaining the yield on the interest earning assets.

The provision for loan losses was approximately $3.4 million for three months ending September 30, 2009 compared to $3.1 million for the same period the prior year. The third quarter provision is similar to the $3.3 million and $3.2 million reserves taken in the first and second quarters of 2009. Consumer loan charge-offs continue to add to the need for higher quarterly provisions for loan losses but appear to be stabilizing as the amount of consumer charge-offs have decreased over the last two quarters. However, the increase in non-performing loans has contributed to the need for additional provision expense for loan losses as specific reserves are identified for these loans.

Non-performing loans at September 30, 2009 increased to $16.5 million or 1.87% compared to $13.5 million or 1.49% of total loans on June 30, 2009, and $6.6 million or 0.77% at September 30, 2008. Horizon’s non-performing loan statistics, while having increased from the prior quarter, still compare favorably to National and State of Indiana peer averages ¹ for the same ratio as of June 30, 2009 of 3.49% and 3.06%. The increase in the Company’s non-performing loans can be attributed to the slower economy and continued local unemployment causing lower business revenues and increased consumer bankruptcies.

Non-accrual loans totaled $15.6 million on September 30, 2009, up from $12.8 million on June 30, 2009, and $6.5 million on September 30, 2008. The increase in the three months ended September 30, 2009 was due to increases in commercial, mortgage, and consumer loans. Commercial loan non-accruals increased from $7.9 million on June 30, 2009 to $9.2 million on September 30, 2009. This was primarily due to one commercial loan totaling $1.6 million placed on non-accrual during the quarter. This loan is to a manufacturing company and is current and in the process of a restructure.

Loans to homebuilders and land developers totaled $2.7 million of commercial non-accrual loans on September 30, 2009, followed by loans to restaurant operators totaling $2.6 million. Mortgage loans on non-accrual increased from $3.8 million to $4.6 million during the quarter. Consumer loans on non-accrual increased from $1.2 million to $1.8 million during the quarter. The primary reason for the increase of consumer loans on non-accrual is the increase of borrowers under Chapter 13 bankruptcy repayment plans. Most consumer loans in bankruptcy are paying but are held as non-accrual loans until a stable payment pattern has been established under the plan.

Loans 90 days delinquent but still accruing totaled $856,000 on September 30, 2009, up from $687,000 on June 30, 2009, and $122,000 on September 30, 2008. Horizon’s policy is to place loans over 90 days delinquent on non-accrual unless they are well secured and in the process of collection.

Other Real Estate Owned (OREO) totaled $1.7 million on September 30, 2009, down from $2.2 million on June 30, 2009, but up slightly from $1.4 million on September 30, 2008. The decline during the third quarter was due to the sale of six properties with a book balance of $806,000 partially offset by the addition of five properties with a book balance of $268,000. On September 30, 2009, OREO was comprised of 17 properties. Of these, 15 totaling $1.3 million were residential and the other two were commercial. Repossessed property totaled $142,000 on September 30, 2009, up from $115,000 on June 30, 2009. On September 30, 2009, repossessed property consisted of 15 automobiles and one boat.

The residential mortgage loan activity continued to be strong through the third quarter as evidenced by volumes higher than the prior year in both the conventional residential mortgage and mortgage warehouse business lines. Conventional residential mortgage refinancing activity has increased the gain on sale of loans by $2.7 million for the nine months ending September 30, 2009 when compared to the same period in the prior year.

The primary cost to originate residential mortgage loans is the commissions paid to mortgage originators and this accounted for most of the increase in salary and benefits, which was $1.6 million higher for the nine months ended September 30, 2009 when compared to the same period in the prior year.

A gain on the sale of securities of $422,000 was realized during the third quarter as our analysis determined that market conditions provided the opportunity to add these gains to capital without a negative impact to long term earnings.

Other items

Horizon Bancorp is a locally owned, independent, commercial bank holding company serving Northern Indiana and Southwest Michigan. Horizon also offers mortgage-banking services throughout the Midwest. Horizon Bancorp may be reached online at www.accesshorizon.com. Its common stock is traded on the NASDAQ Global Market under the symbol HBNC.

Statements in this press release which express “belief,” “intention,” “expectation,” and similar expressions, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, such management. Such statements are inherently uncertain and there can be no assurance that the underlying assumptions will prove to be accurate. Actual results could differ materially from those contemplated by the forward-looking statements. Any forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

¹ National peer group: Consists of all insured commercial banks having assets between $1 Billion and $3 Billion as reported by the Uniform Bank Performance Report as of June 30, 2009. Indiana peer group: Consists of 18 publicly traded banks all headquartered in the State of Indiana as reported by the Uniform Bank Performance Reports as of June 30, 2009.

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