Access Horizon Press Releases

Michigan City, Indiana (NASDAQ GM: HBNC) - Horizon Bancorp today announced its unaudited financial results for the quarter ended March 31, 2009. Net income for the first quarter of 2009 was $2.6 million or $.70 diluted earnings per share. This compares to $2.5 million or $.78 per diluted earnings per share for the same quarter of the prior year. The net income for the first quarter represents a 4.2% increase from the first quarter of the prior year. Diluted earnings per share at March 31, 2009 were $.08 per share less than for the same period ending March 31, 2008. Diluted earnings per share were reduced by $.11 per share resulting from the accrual of the preferred stock dividends and the accretion of the discount on preferred stock, which is not available to common stockholders. The preferred stock was issued in the fourth quarter of 2008 and therefore did not impact the first quarter of 2008.

Craig M. Dwight, President and Chief Executive Officer commented, "Horizon's first quarter earnings performance is a direct result of our efforts to balance revenues from multiple business units, manage overhead and improve net interest margin over the prior year. Like most banks, Horizon incurred higher loan losses in the first quarter due to further deterioration in the local economy. However, Horizon's increase in revenues more than offset the higher loan losses." In addition, Mr. Dwight stated, "We are seeing the big banks in our local market area take drastic action to cut staff, which is creating a disruption in the quality of service they deliver to their customers. Given the national media's negative focus on the big banks we believe good performing community banks, such as Horizon, have a great opportunity to pick-up additional market share."

Net interest income for the quarter ended March 31, 2009 was $11.4 million, an increase of $2.5 million, or a 27.9% increase from the first quarter of 2008. The net interest margin improved 68 basis points from the first quarter of 2008 to 3.78% and improved 21 basis points from the fourth quarter of 2008. The lower cost of deposits due to the decline in interest rates has significantly contributed to the increase in the net interest margin. In addition, asset yields have not declined at the same pace as deposit rates due to interest rate floors that are in place on approximately $368.2 million out of $532.8 million of the Company's adjustable rate loans along with the ability to get higher spreads on new and renewed loans than in the same period last year.

Horizon assesses the adequacy of its Allowance for Loan and Lease Losses (ALLL) by regularly reviewing the performance of its loan portfolios. During the first quarter of 2009 a provision for loan losses of $3.2 million was required to adequately fund the ALLL compared to a provision of $778,000 for the first quarter of 2008 and $2.2 million for the fourth quarter of 2008. The provision for the first quarter resulted from continued losses primarily in the commercial and installment loan portfolios due to current economic pressures. Non-performing loans at March 31, 2009 increased to $10.5 million or 1.11% of total loans compared to $3.1 million or 0.36% at March 31, 2008 and $7.9 million or 0.89% at December 31, 2008. When compared to non-performing loans at year-end the increase came from each of the commercial, real estate, and consumer loan portfolios. Horizon's non-performing loan statistics, while having increased from the prior quarter, still compare favorably to National^{^[1]} and State of Indiana^{^[2]} bank averages for the same ratio as of December 31, 2008 of 2.50% and 2.68%. Management believes the total allowance of $11.6 million or 1.23% of total loans is adequate to absorb probable incurred losses contained in the loan portfolios.

Non-interest income increased $1.3 million or 39.9% from the first quarter of 2008. The gain on sale of mortgage loans contributed $1.1 million to the increase in non-interest income due to the $1.9 million of gain on sale of loans in the first quarter of 2009 compared to $804,000 during the same period last year. As mortgage interest rates declined the Company's mortgage loan division had the ability to increase mortgage loan production and was able to provide customers with the needed service to lower their mortgage interest rates. During the first quarter of 2009 the Company originated approximately $100.4 million of mortgage loans to be sold on the secondary market compared to $35.7 million for the same period last year. Interchange fees and wire transfer fees contributed $342,000 to the increase in non-interest income. These increases were offset by a decrease in mortgage servicing income of $110,000 due to impairment charges in the Company's mortgage servicing asset. In addition, the income recorded for the increase in the cash surrender value of bank owned life insurance was $72,000 less than the same period last year due to a reduction in the returns on the underlying assets of the insurance products.

Non-interest expense increased $1.4 million or 17.1% from the first quarter of 2008. Salaries and benefits increased $556,000 primarily due to commissions paid to the mortgage loan division based on the higher mortgage volume. Loan expense was up from the first quarter of the prior year due to increased collection expense related to problem loans. Also, professional fees are higher compared to last year due to increasing rules and regulations requiring professional assistance from legal and accounting professionals. FDIC deposit insurance costs have increased and will continue to increase during the year based on the FDIC's rate increases that are required to replenish the insurance fund due to failed banks and related financial problems. Other losses for the first three months of 2009 included a one-time charge of $210,000 for a wire transfer fraud perpetrated on the bank during the first quarter and $65,000 in other real estate owned write-downs.

Income tax expense was impacted in the first quarter of 2009 by a $100,000 income tax refund related to amended returns filed for prior years.

On March 31, 2009, Horizon's total assets were $1.4 billion, compared to $1.3 billion on December 31, 2008. Cash and cash equivalents increased $52.9 million since year end primarily due to a $50.0 million fixed rate long term corporate repurchase agreement entered into on March 31, 2009 as part of the Company's strategy to extend the duration of its liabilities in this low interest rate environment.

Investment securities increased by approximately $24.0 million compared to the end of 2008. This growth was continued from the fourth quarter as additional investment securities were purchased to leverage the capital raised through the U.S. Department of Treasury's Capital Purchase Program which is part of the Economic Emergency Stabilization Act approved by Congress during the fourth quarter of 2008. The intent was to purchase a total of approximately $125.0 million of investment securities and using the cash flows from the repayment of mortgage backed securities to fund new loan growth. Approximately $105.0 million in investment securities were purchased and $20.0 million of the remaining leverage strategy was used to fund loan growth during the first quarter.

Net loans increased $52.0 million since December 31, 2008. This increase is almost entirely related to the growth in the Company's mortgage warehouse business line as its customers utilized their warehouse lines. Commercial loans increased slightly and both real estate and consumer loans decreased.

Total deposits increased $136.3 million during the first quarter. Growth came in both interest-bearing transaction accounts totaling $60.7 million and time deposits totaling $78.2 million. The Company's borrowings decreased slightly during the first quarter. These results were from two major funding initiatives that were implemented during the quarter. The first initiative was to reduce short-term borrowings, which would increase short-term daily liquidity, and the second initiative was to continue to take steps to extend the duration of liabilities in a low interest rate environment. The short-term borrowings of $52.2 million at year-end were replaced with a $50.0 million fixed rate long-term corporate repurchase agreement leaving the balance of borrowings steady and extending its duration. The Company also added $33.6 million of long-term brokered certificates of deposit to help in extending the duration of deposits. The remaining growth in total deposits was primarily from municipal money market accounts and short-term certificates of deposit. This short-term funding was designed to match the growth of short-term assets in the mortgage warehouse business line and provide additional liquidity without utilizing asset based collateral borrowings or federal fund lines. The Company will continue to look for opportunities to extend the duration of liabilities as long-term rates remain low.

Stockholders' equity totaled $106.4 million at March 31, 2009 compared to $103.4 million at December 31, 2008. The increase in stockholders' equity during the quarter was the result of net income and an increase in the market value of investment securities available for sale, reduced by dividends declared. At March 31, 2009, the ratio of average stockholders' equity to average assets was 7.94% compared to 6.65% at December 31, 2008. Book value per common share at March 31, 2009 increased to $25.62 compared to $24.60 at December 31, 2008.

Horizon will hold its annual shareholders' meeting on Thursday, May 7, 2009, 6:00 p.m. (local time; registration will begin at 5:30 p.m.), at the Clarion Inn (formerly Holiday Inn), 5820 South Franklin Street, Michigan City, Indiana.

Horizon opened a full service branch in Goshen, Indiana on April 6, 2009 and has received regulatory approval to open a full service branch in Munster, Indiana. Construction is underway on the Munster branch and it is scheduled to open in June of 2009.

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 on the World Wide Web 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 December 31, 2008

[2] Indiana peer group: Consists of 22 publicly traded banks all headquartered in the State of Indiana as reported by the Uniform Bank Performance Reports as of December 31, 2008.

Charts for 1st Quarter 2009

Horizon Bancorp Announces Increased First Quarter