Horizon Bancorp Announces Record Earnings for 2008

MICHIGAN CITY, Ind., Jan 23, 2009 (BUSINESS WIRE) --
HBNC | Quote | Chart | News | PowerRating -- Horizon Bancorp (NASDAQ: HBNC | Quote | Chart | News | PowerRating) today announced its unaudited financial
results for the fourth quarter and year ended December 31, 2008. Net
income for 2008 was $8.972 million or $2.75 per fully diluted share
compared to $8.140 million or $2.51 per fully diluted share for 2007.
This represents a 10.2% increase in annual earnings. Net income for the
fourth quarter of 2008 was $2.122 million or $.64 per fully diluted
share. This compares to $2.010 million or $.62 per fully diluted share
for the same quarter of the prior year and $1.373 million or $.41 per
fully diluted share for the third quarter of 2008.

Craig M. Dwight, Horizon's Chief Executive Officer stated, "We are
pleased to report our ninth consecutive year of record earnings. Given
the multiple challenges confronting the banking industry, including
higher unemployment, increasing loan defaults, overall deterioration in
the national and local economies and complexity and frequency of change
in accounting rules, we are extremely proud of the effort put forth by
the entire Company to exceed last year's performance."

Net interest income for the quarter and year ended December 31, 2008 was
$9.7 million and $37.4 million, respectively. This represents an
increase of $818 thousand or 9.2% for the quarter and $4.5 million or
13.8% for the year when compared to the same prior year periods. The
increases are due to an improvement in the net interest margin by 35
basis points to 3.38% for the year and 36 basis points to 3.57% for the
quarter. This reduced funding costs by an amount that exceeded the
decline in yields on earning assets. Horizon's cost of funds has dropped
approximately 108 basis points since the fourth quarter of 2007 while
the yield on earning assets declined approximately 72 basis points.
Horizon reduced rates on NOW and money market accounts in line with
short-term rate decreases put in place by the Federal Open Market
Committee. In addition, a large amount of Certificates of Deposit (CDs)
matured during the first half of 2008 and were renewed at lower rates.
Additionally, at December 31, 2008, all mortgage warehouse loans ($123
million) and certain home equity and commercial loans (totaling
approximately $136 million) reached contractual rate floors. This
improved the net interest margin as funding costs continued to decline.

Horizon assesses the adequacy of its Allowance for Loan and Lease Losses
(ALLL) by regularly reviewing the performance of all of its loan
portfolios. As a result of its most recent review, a provision for loan
losses of $2.2 million was taken for the fourth quarter of 2008. This
compares to a provision of $3.1 million for the third quarter of 2008
and $1.9 million for the fourth quarter of 2007. For the year, the
provision of $7.6 million is more than double the prior year. This
increase is primarily due to the deterioration of loan quality in all
segments of the portfolio except the mortgage warehouse area.

At December 31, 2008, Horizon's non-performing loans of approximately
$7.9 million or .89% of total loans represents an increase from the end
of the third quarter when non-performing loans totaled $6.6 million or
.77% of total loans and an increase from the prior year-end totals of
$2.9 million or .33% of total loans. Horizon's non-performing loan
statistics, while having increased from the prior year, still compare
favorably to National(1) and State of Indiana(2) bank
averages for the same ratio as of September 30, 2008 of 1.99% and 1.87
%, respectively. As a result of the deterioration in the loan portfolio,
Horizon has adjusted the historical ratios used to determine the ALLL to
reflect these recent trends. Also, loans with specific reserves
increased from the prior year-end. In addition to problem loans, Horizon
has $2.9 million of other real estate owned which represents an increase
from September 30, 2008 and December 31, 2007 of $1.5 million and $2.6
million respectively. Management feels that the total ALLL of $11.410
million or 1.29% of total loans is adequate to absorb probable incurred
losses contained in the loan portfolio.

Non-interest income increased $1.56 million or 12.7% from 2007, however,
was fairly level with the prior quarter and the same quarter of the
prior year. The increase from the prior year resulted from the
following: (a) NSF fees increased due to a price increase implemented
during the first quarter of 2008, (b) wire transfer fees increased due
to increased volume and a price change to mortgage warehouse customers,
(c) fiduciary fees increased as additional income was generated by the
ESOP management line of business, (d) gain on sale of loans increased
and (e) proceeds from a death benefit received on a bank owned life
insurance policy amounting to $538 thousand. The increase from gain on
sale of loans resulted from (i) Horizon's transfer of loans from the
loan portfolio to held for sale and subsequent sale of these loans
generating a gain of approximately $194 thousand and (ii) Horizon's
adoption of Securities and Exchange Commission Staff Accounting Bulletin
109 (which requires treating commitments to make and sell mortgage loans
as a derivative) which created an additional $231 thousand gain. These
increases were offset by a decline in the gain from brokering
non-conforming mortgages.

Non-interest expense increased $1.6 million or 5.2% from 2007. The
increase was driven primarily by two factors: (a) loan expense increased
from the prior year due to higher collection expense and less deferred
costs on new loans and (b) increased FDIC insurance costs as the one
time credits granted in 2006 were fully utilized during the first
quarter of 2008. Salaries and benefits decreased due to the staff
reduction, which occurred during the third quarter of 2007.

Income tax expense was impacted in 2008 by $163 thousand of income tax
refunds related to amended returns filed for prior years. Also,
increased tax exempt income, including the life insurance death benefit,
caused a decrease in the effective tax rate.

On December 31, 2008, Horizon's total assets were $1.306 billion,
compared to $1.259 billion on December 31, 2007.

Federal funds sold decreased as Horizon's deposit totals were abnormally
high at year-end 2007 due to deposits made by local municipalities near
the end of the year.

Investment securities increased by approximately $77 million as
investment securities were purchased during the fourth quarter to
leverage the additional 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 is to purchase a total of approximately $125
million of investment securities, until the new capital can be leveraged
with loans. Horizon believes this increase will make the additional
capital revenue neutral to common shareholders.

Gross loans for 2008 decreased $7 million since December 31, 2007.
Mortgage warehouse loans increased late in the fourth quarter of 2008
due to increased refinance activity which is expected to continue
through the first quarter of 2009. Real estate loans declined during the
year as approximately $37 million of loans were transferred to held for
sale and were subsequently sold during the first quarter to reduce
Horizon's reliance on non-core funding and improve Horizon Bank's
capital ratios. In addition, Horizon sold a high percentage of its 2008
residential mortgage loan production, which contributed to the reduction
in the mortgage loan portfolio. Installment loans declined due to a
lower volume of automobile loans. Commercial loans showed modest growth
as efforts were concentrated on maintaining existing relationships and
closely monitoring the portfolio for any challenges to asset quality.

Total deposits have declined $52 million since December 31, 2007. The
decrease came in high cost, short-term consumer certificates of deposit
(CDs). The decrease in deposits was funded by an increase in borrowed
funds and additional capital. Brokered CDs were approximately $50
million at both December 31, 2008 and 2007. The increase in wholesale
funding is in part caused by several large regional banks pricing
certificates of deposit well above wholesale funding rates. Horizon has
maintained its deposit pricing discipline and has not "chased" the large
bank pricing strategies.

Stockholders' equity totaled $103.4 million at December 31, 2008
compared to $70.6 million at December 31, 2007. In December of 2008
Horizon received an investment of $25 million through participation in
the U.S. Department of Treasury's (Treasury) Capital Purchase Program.
Under the program, the Treasury acquired 25,000 Series A shares of
Horizon's Fixed Rate Cumulative Perpetual Preferred Stock that will pay
a 5% per annum dividend for the first five years of the investment
(which will total $1,250,000 a year) and 9% per annum thereafter (which
will total $2,250,000 a year) unless Horizon redeems the shares. The
preferred shares qualify as Tier I capital and are callable by Horizon
after three years. As part of its investment, the Treasury also received
a warrant to purchase 212,104 shares of common stock of Horizon, with an
exercise price of $17.68 per share. The warrant is expected to give the
Treasury the opportunity to benefit from an increase in the common stock
price of the company. At December 31, 2008, the ratio of stockholders'
equity to total assets was 7.91% compared to 5.61% at December 31, 2007.
Tangible equity to tangible assets was 7.37% at December 31, 2008
compared to 5.02% at December 31, 2007. Book value per common share at
December 31, 2008 increased to $24.46 compared to $21.72 at December 31,
2007.

Other items

Horizon has received regulatory approval to open a second branch in
Elkhart, Indiana. The new branch will be located on the south side of
Elkhart and is expected to open in April of 2009. Horizon has acquired
land in Munster, Indiana for a full service branch. This branch is
expected to open mid-year.

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 September 30, 2008

(2) Indiana peer group: Consists of 22 publicly traded banks
all head quartered in the State of Indiana as reported by the Uniform
Bank Performance Reports as of September 30, 2008.

HORIZON BANCORP
Financial Highlights
(Unaudited - dollars in thousands except share and per share data
and ratios)
Three Months Ended: Year Ended:
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2008 2008 2007 2008 2007
End of period balances:
Total assets $ 1,306,857 $ 1,188,631 $ 1,258,874 $ 1,306,857 $ 1,258,874
Short term investments 2,679 1,186 35,563 2,679 35,563
Investment securities 303,268 230,837 234,675 303,268 234,675
Commercial loans 310,842 304,997 307,535 310,842 307,535
Mortgage warehouse loans 123,287 101,992 78,225 123,287 78,225
Real estate loans 167,766 168,058 216,019 167,766 216,019
Installment loans 280,072 282,900 287,073 280,072 287,073
Earning assets 1,206,493 1,107,428 1,180,128 1,206,493 1,107,428
Non-interest bearing deposit accounts 83,642 86,093 81,097 83,642 81,949
Interest bearing transaction accounts 428,931 334,121 360,476 428,931 468,624
Time deposits 328,596 329,208 449,091 328,596 449,091
Borrowings 324,383 328,442 258,852 324,383 258,852
Long-term borrowings 27,837 27,837 27,837 27,837 27,837
Stockholders' equity 103,350 75,072 70,645 103,350 70,645
Average balances:
Total assets $ 1,196,513 $ 1,179,045 $ 1,182,921 $ 1,202,727 $ 1,180,400
Short term investments 6,687 3,682 8,204 22,534 5,455
Investment securities 240,390 239,304 226,672 241,953 227,000
Commercial loans 309,465 301,810 304,456 305,126 291,656
Mortgage warehouse loans 74,175 85,230 53,599 77,091 70,279
Real estate loans 167,049 167,793 217,731 175,645 222,428
Installment loans 281,708 283,669 281,337 283,098 255,228
Earning assets 1,102,302 1,101,002 1,118,737 1,125,390 1,102,286
Non-interest bearing deposit accounts 79,567 80,762 77,245 77,600 78,654
Interest bearing transaction accounts 354,478 340,012 338,749 361,191 352,587
Time deposits 339,769 351,888 391,817 372,677 402,287
Borrowings 294,574 296,280 283,104 280,451 282,339
Subordinated debentures 27,837 27,837 27,837 27,837 27,837
Stockholders' equity 79,605 76,027 70,151 76,491 66,224
Per share data:
Basic earnings per share $ 0.64 $ 0.42 $ 0.63 $ 2.78 $ 2.54
Diluted earnings per share 0.64 0.41 0.62 2.74 2.51
Cash dividends declared per common share 0.17 0.17 0.15 0.66 0.56
Book value per common share 24.46 23.39 21.72 24.46 21.72
Market value - high 24.52 25.87 26.40 25.87 28.10
Market value - low 12.00 16.36 24.40 12.00 24.40
Basic average common shares outstanding 3,209,482 3,209,482 3,204,203 3,208,658 3,177,272
Diluted average common shares outstanding 3,246,664 3,255,409 3,247,331 3,246,351 3,217,050
Key ratios:
Return on average assets 0.71 % 0.45 % 0.68 % 0.75 % 0.69 %
Return on average equity 10.66 7.01 11.46 11.73 12.29
Net interest margin 3.57 3.45 3.21 3.38 3.03
Loan loss reserve to loans 1.29 1.22 1.10 1.29 1.10
Non-performing loans to loans 0.89 0.77 0.33 0.89 0.33
Average equity to average assets 6.65 6.45 5.93 6.35 5.61
Bank only capital ratios:
Tier 1 capital to average assets 9.46 % 7.65 % 7.29 % 9.46 % 7.29 %
Tier 1 capital to risk weighted assets 11.83 10.04 9.49 11.83 9.49
Total capital to risk weighted assets 13.04 11.22 10.56 13.04 10.56

Allocation of the Allowance for Loan and Lease Losses
(Dollars in Thousands)
Dec. 31, 2008 Dec. 31, 2007
Commercial $3,202 $2,656
Real estate 973 779
Mortgage warehousing 1,354 1,309
Installment 5,881 5,047
Unallocated -0- -0-
Total $11,410 $9,791

Net Charge-offs
(Dollars in Thousands)
Three months ended Three months ended Three months ended Year ended Year ended
Dec. 31, 2008 Sept. 30, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007
Commercial $(5 ) $1,276 $(5 ) $1,343 $(48 )
Real estate 26 (50 ) 36 301 36
Mortgage warehousing -0- -0- -0- -0- -0-
Installment 1,257 1,198 929 4,305 2,027
Total $1,278 $2,424 $960 $5,949 $2,015

HORIZON BANCORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollar Amounts in Thousands)
December 31, December 31,
2008 2007
(Unaudited)
Assets
Cash and due from banks $ 36,000 $ 19,714
Interest-bearing demand deposits 1 1
Federal funds sold - 35,314
Cash and cash equivalents 36,001 55,029
Interest-bearing deposits 2,679 249
Investment securities, available for sale 301,638 234,675
Investment securities, held to maturity 1,630 -
Loans held for sale 5,955 8,413
Loans, net of allowance for loan losses of $11,410 and $9,791 870,557 879,061
Premises and equipment 28,280 24,607
Federal Reserve and Federal Home Loan Bank stock 12,625 12,625
Goodwill 5,787 5,787
Other intangible assets 1,751 2,068
Interest receivable 5,708 5,897
Cash value life insurance 22,451 22,384
Deferred tax asset 2,887 2,187
Other assets 8,908 5,892
Total assets $ 1,306,857 $ 1,258,874
Liabilities
Deposits
Noninterest bearing $ 83,642 $ 84,097
Interest bearing 757,527 809,567
Total deposits 841,169 893,664
Borrowings 324,383 258,852
Subordinated debentures 27,837 27,837
Interest payable 1,910 2,700
Other liabilities 8,208 5,437
Total liabilities 1,203,507 1,188,229
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, no par value
Authorized, 1,000,000 shares
Issued, 25,000 and -0- shares 24,405 -
Common stock, $.2222 stated value
Authorized, 22,500,000 shares
Issued, 5,011,656 and 4,998,106 shares 1,114 1,114
Additional paid-in capital 26,551 25,638
Retained earnings 67,804 60,982
Accumulated other comprehensive income (loss) 628 63
Less treasury stock, at cost, 1,759,424 shares (17,152 ) (17,152 )
Total stockholders' equity 103,350 70,645
Total liabilities and stockholders' equity $ 1,306,857 $ 1,258,874

HORIZON BANCORP AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data)
Three Months Ended Year Ended December 31
December 31
2008 2007 2008 2007
(Unaudited) (Unaudited)
Interest Income
Loans receivable $ 14,038 $ 16,530 $ 57,801 $ 63,618
Investment securities
Taxable 2,177 2,372 9,111 8,389
Tax exempt 833 479 3,323 3,061
Total interest income 17,048 19,381 70,235 75,068
Interest Expense
Deposits 3,984 6,765 19,536 28,442
Borrowed funds 2,990 3,231 11,772 11,505
Subordinated debentures 385 513 1,577 2,313
Total interest expense 7,359 10,510 32,885 42,260
Net Interest Income 9,689 8,871 37,350 32,808
Provision for loan losses 2,163 1,928 7,568 3,068
Net Interest Income after Provision for Loan Losses 7,526 6,943 29,782 29,740
Other Income
Service charges on deposit accounts 910 954 3,885 3,469
Wire transfer fees 146 91 528 357
Fiduciary activities 896 956 3,713 3,556
Gain on sale of loans 857 758 2,979 2,566
Increase in cash surrender value of Bank owned life insurance 219 224 920 920
Death benefit officer life insurance -- -- 538 --
Gain (loss) on sale of securities -- 2 (15 ) 2
Other income 341 303 1,283 1,401
Total other income 3,369 3,288 13,831 12,271
Other Expenses
Salaries and employee benefits 4,051 4,007 16,749 17,154
Net occupancy expenses 656 641 2,600 2,418
Data processing and equipment expenses 866 603 2,611 2,516
Professional fees 330 214 1,133 1,169
Outside services and consultants 326 292 1,147 1,022
Loan expense 552 597 2,223 1,402
Other expenses 1,449 1,218 6,316 5,463
Total other expenses 8,230 7,572 32,779 31,144
Income Before Income Tax 2,665 2,659 10,834 10,867
Income tax expense 543 649 1,862 2,727
Net Income $ 2,122 $ 2,010 $ 8,972 $ 8,140
Basic Earnings Per Share $ .64 $ .63 $ 2.78 $ 2.54
Diluted Earnings Per Share $ .64 $ .62 $ 2.75 $ 2.51

SOURCE: Horizon Bancorp

Horizon Bancorp
James H. Foglesong, 219-873-2608 or
Mark E. Secor, 219-873-2611
Fax: 219-874-9280

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