Horizon Bancorp (HBNC) 8-K Horizon Bancorp Announces Record Second Quarter and Year-to-Date Earnings

Contact: James H. Foglesong

Chief Financial Officer

Phone: (219) 873-2608

Fax: (219) 874-9280

Date:  July 21, 2008

FOR IMMEDIATE RELEASE

Horizon Bancorp Announces Record Second Quarter and Year-to-Date Earnings

Michigan City, Indiana (NasdaqGM: HBNC) – Horizon Bancorp today announced its unaudited financial results for the quarter and six months ended June 30, 2008. Net income for the second quarter of 2008 was $2.990 million or $.92 per fully diluted share.  This compares to $2.016 million or $.62 per fully diluted share for the same quarter of the prior year.  Year-to-date net income was $5.518 million or $1.70 per fully diluted share compared to $3.860 million or $1.19 per fully diluted share for the same period of the prior year. This represents a 48.3% increase in quarterly net income and a 43.0% increase for the first six months when compared to the same prior year periods.

Craig M. Dwight, Horizon’s President and Chief Executive Officer stated, “We are delighted to report record quarterly and year-to-date earnings. The performance for the first half of 2008 is the result of continued efforts to improve net interest margin and non-interest income while limiting increases in non-interest expense. These efforts more than offset the increase in consumer loan charge-offs caused by the general economic decline. Given the general performance of the entire banking sector, I am extremely proud of the performance by the Horizon team.”

Net interest income for the quarter and six months ended June 30, 2008 was $9.335 million and $18.258 million respectively. These represent increases of $1.3 million or 16.1% for the quarter and $2.6 million or 16.5% for the first six months when compared to the same prior year periods. These increases resulted from an improvement in the net interest margin of 40 basis points to 3.40% for the quarter and 28 basis points to 3.25% for the six-month period. The improvement resulted primarily from reductions in funding costs that exceeded declines in yields on earning assets. Horizon’s cost of funds has dropped approximately 100 basis points since the second quarter of 2007 while the yield on earning assets declined only 60 basis points. Horizon reduced rates on <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />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 six months of 2008 and were reinvested in lower rate CDs. In early January, Horizon swapped its $37.8 million of subordinated debentures from an adjustable interest rate to a lower fixed interest rate.

The provision for loan losses increased to $1.490 million for the second quarter of 2008 from $365 thousand for the second quarter of 2007 and to $2.268 for the first six months of 2008 compared to $590 thousand for the same period of the prior year. Net charge-offs for the quarter were $1.359 million compared to $320 thousand for the same quarter of 2007. Non-performing loans at June 30, 2008 totaled $5.7 million or 0.67% of total loans compared to $2.9 million or 0.33% at December 31, 2007 and $2.4 million or 0.28% at June 30, 2007. Additionally, Horizon has $633 thousand of other real estate owned. The increase in non-performing loans relates primarily to two loan relationships, secured by commercial and residential real estate and other assets. The increase in

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Pg. 2 Cont.  Horizon Announces 2nd Quarter Earnings

charge-offs is the result of continuing deterioration in the home equity and indirect automobile loan portfolios. This deterioration appears to be caused by a weak economy, which is contributing to higher unemployment and an increase in the number of personal bankruptcies in Horizon’s lending area. Management feels that the total allowance of $9.812 million or 1.17% of total loans is adequate to absorb probable losses contained in the loan portfolio.

Non-interest income increased $910 thousand or 30.5% from the second quarter of 2007 and has increased $1.258 million or 21.5% for the first six months of 2008.  The main contributing factors were: (a) an increase in service charges on deposit accounts primarily due to an increase in the charge for non-sufficient fund checks implemented in the first quarter of 2008, (b) an increase in fiduciary income due to additional revenue from Horizon’s ESOP management line of business, (c) an increase in gain on sale of loans resulting from an increase in the dollar amount of loans sold and (d) a death benefit received on a bank owned life insurance policy.

Non-interest expense increased $266 thousand or 3.3% from the second quarter of 2007 and $437 thousand or 2.8% for the first six months. Salaries and benefits decreased due to the staff reduction, which occurred during the third quarter of 2007. Loan expense increased from the prior year due to higher collection expense and lower deferred costs on new loans.

The effective tax rate declined to 14.7% for the second quarter of 2008 compared to 25.1% in the second quarter of 2007. Additional tax exempt income from bank owned life insurance of $538 thousand was recorded during the quarter. Also during the current quarter, Horizon realized $116 thousand from amended returns filed to claim additional enterprise zone tax credits and additional tax benefits related to Horizon’s investment subsidiary.

On June 30, 2008, Horizon’s total assets were $1.194 billion, compared to $1.259 billion on December 31, 2007. Loans declined $50 million since December 31, 2007. The decline was almost entirely related to the sale of $37 million of adjustable rate mortgage loans. The loans were sold to reduce Horizon’s reliance on non-core funding and improve bank capital ratios.

Deposits declined $101 million since the end of the preceding year. The majority of the decrease came in both negotiable and high cost, short-term consumer CDs. The deposit falloff was funded by a decline in assets and additional borrowings, which were at lower rates than the maturing CDs.

Stockholders' equity totaled $73.6 million at June 30, 2008 compared to $70.6 million at December 31, 2007. The increase in stockholders’ equity during the period was the result of net income, offset by a decrease in market value of available for sale securities and dividends declared. At June 30, 2008, the ratio of stockholders' equity to total assets was 6.16% compared to 5.61% at December 31, 2007. Book value per common share at June 30, 2008 was $22.94 compared to $22.03 at December 31, 2007. Horizon’s capital ratios exceed the regulatory well-capitalized minimums.

Other items

Horizon held its annual shareholders’ meeting on Thursday, May 8, 2008. The following incumbent directors were re-elected to three-year terms: Craig M. Dwight, James B. Dworkin, Daniel F. Hopp and Robert E. McBride.

On June 10, 2008, Horizon increased its quarterly dividend from $0.15 per share to $0.17 per share. This represents an increase of 13.3%.

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Pg. 3 Cont. Horizon Announces 2nd Quarter Earnings

Horizon opened its 17th full service office on July 14, 2008. The branch is located at 8590 Broadway, Merrillville, Lake County, Indiana 46410. This is Horizon’s first full service branch location in Lake County.

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.

Contact:	Horizon Bancorp
	James H. Foglesong
	Chief Financial Officer
	(219) 873-2608
	Fax: (219) 874-9280

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HORIZON BANCORP

Financial Highlights

(Unaudited – dollars in thousands except share and per share data and ratios)

(In thousands except per share data and ratios)

	Three Months Ended:									Six Months Ended:
	June 30,			March 31,			June 30,			June 30,			June 30,
	2008			2008			2007			2008			2007
End of period balances:
Total assets	$	1,194,447		$	1,249,676		$	1,192,283		$	1,194,447		$	1,192,283
Short term investments		1,378			36,231			4,408			1,378			4,408
Investment securities		252,791			238,993			224,541			252,791			224,541
Commercial loans		303,179			305,490			295,018			303,179			295,018
Mortgage warehouse loans		82,865			88,483			78,716			82,865			78,716
Real estate loans		168,940			172,427			219,161			168,940			219,161
Installment loans		283,430			282,025			256,506			283,430			256,506
Earning assets		1,115,240			1,143,917			1,106,668			1,115,240			1,106,668
Non-interest bearing deposit accounts		81,212			74,757			82,635			81,212			86,427
Interest bearing transaction accounts		349,737			403,784			347,493			349,737			423,335
Time deposits		361,307			404,189			390,816			361,307			390,816
Borrowings		293,423			255,974			272,553			293,423			272,553
Subordinated debentures		27,837			27,837			27,837			27,837			27,837
Stockholder’s equity		73,613			74,671			63,172			73,613			63,172
Average balances :
Total assets	$	1,190,134		$	1,258,716		$	1,182,656		$	1,224,424		$	1,165,896
Short term investments		14,519			60,775			1,407			37,833			3,541
Investment securities		251,433			236,544			231,623			244,083			236,468
Commercial loans		301,710			307,506			287,522			304,608			280,271
Mortgage warehouse loans		77,144			71,756			80,222			74,450			83,387
Real estate loans		169,780			198,137			221,190			183,958			226,066
Installment loans		281,948			284,150			240,657			283,048			239,571
Earning assets		1,119,467			1,179,311			1,094,264			1,149,389			1,089,738
Non-interest bearing deposit accounts		76,802			73,214			76,670			75,008			77,901
Interest bearing transaction accounts		362,087			388,492			343,906			375,289			366,166
Time deposits		370,390			429,253			396,667			399,821			408,137
Borrowings		270,171			260,300			272,065			265,235			228,612
Subordinated debentures		27,837			27,837			27,837			27,837			33,406
Stockholder’s equity		76,708			73,596			65,302			75,152			64,532
Per share data:
Basic earnings per share	$	0.93		$	0.79		$	0.63		$	1.72		$	1.21
Diluted earnings per share		0.92			0.78			0.62			1.70			1.19
Cash dividends declared per common share		0.17			0.15			0.15			0.32			0.28
Book value per common share		22.94			23.28			19.77			22.94			19.77
Market value - high		23.99			24.50			28.05			24.50			28.10
Market value - low		17.53			20.86			26.80			17.53			26.60
Basic average common shares outstanding		3,208,419			3,207,232			3,200,259			3,207,825			3,163,159
Diluted average common shares outstanding		3,238,331			3,242,471			3,243,537			3,241,656			3,205,780
Key ratios:
Return on average assets		1.00	%		0.80	%		0.68	%		0.90	%		0.66	%
Return on average equity		15.59			13.82			12.35			14.69			11.96
Net interest margin		3.40			3.10			3.00			3.25			2.97
Loan loss reserve to loans		1.17			1.14			1.02			1.17			1.02
Non-performing loans to loans		0.67			.37			0.28			0.67			0.28
Average equity to average assets		6.45			5.85			5.52			6.14			5.53
Bank only capital ratios:
Tier 1 capital to average assets		7.55	%		6.94	%		7.17	%		7.55	%		7.17	%
Tier 1 capital to risk weighted assets		10.13			9.76			9.86			10.13			10.40
Total capital to risk weighted assets		11.24			10.84			10.89			11.24			10.89

Horizon Bancorp and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollar Amounts in Thousands)

	June 30,  2008 (Unaudited)			December 31, 2007
Assets
Cash and due from banks	$	18,700		$	19,714
Interest-bearing demand deposits		1			1
Federal funds sold		-0-			35,314
Cash and cash equivalents		18,701			55,029
Interest-bearing deposits		1,378			249
Investment securities, available for sale		251,976			234,675
Investment securities, held to maturity		815			-0-
Loans held for sale		10,033			8,413
Loans, net of allowance for loan losses of $9,812 and $9,791		828,602			879,061
Premises and equipment		25,575			24,607
Federal Reserve and Federal Home Loan Bank stock		12,625			12,625
Goodwill		5,787			5,787
Other intangible assets		1,908			2,068
Interest receivable		5,888			5,897
Cash value life insurance		22,953			22,931
Other assets		8,206			7,532
Total assets	$	1,194,447		$	1,258,874
Liabilities
Deposits
Non-interest bearing	$	81,212		$	84,097
Interest bearing		711,044			809,567
Total deposits		792,256			893,664
Borrowings		293,423			258,852
Subordinated debentures		27,837			27,837
Interest payable		1,966			2,439
Other liabilities		5,352			5,437
Total liabilities		1,120,834			1,188,229
Commitments and Contingent Liabilities
Stockholders’ Equity
Preferred stock, no par value
Authorized, 1,000,000 shares
No shares issued
Common stock, $.2222 stated value
Authorized, 22,500,000 shares
Issued, 5,013,906 and 5,011,656 shares		1,114			1,114
Additional paid-in capital		25,816			25,638
Retained earnings		65,460			60,982
Accumulated other comprehensive income (loss)		(1,625	)		63
Less treasury stock, at cost, 1,759,424 shares		(17,152	)		(17,152	)
Total stockholders’ equity		73,613			70,645
Total liabilities and stockholders’ equity	$	1,194,447		$	1,258,874

Horizon Bancorp and Subsidiaries

Condensed Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data)

	Three Months Ended June 30					Six Months Ended June 30
	2008 (Unaudited)			2007 (Unaudited)		2008 (Unaudited)			2007 (Unaudited)
Interest Income
Loans receivable	$	14,194		$	15,774	$	29,561		$	30,758
Investment securities
Taxable		2,214			1,935		4,762			4,038
Tax exempt		862			857		1,699			1,718
Total interest income		17,270			18,566		36,022			36,514
Interest Expense
Deposits		4,697			7,087		11,291			14,381
Borrowed funds		2,846			2,925		5,674			5,177
Subordinated debentures		392			512		799			1,278
Total interest expense		7,935			10,524		17,764			20,836
Net Interest Income		9,335			8,042		18,258			15,678
Provision for loan losses		1,490			365		2,268			590
Net Interest Income after Provision for Loan Losses		7,845			7,677		15,990			15,088
Other Income
Service charges on deposit accounts		989			841		1,910			1,619
Wire transfer fees		122			91		227			185
Fiduciary activities		1,021			891		1,906			1,695
Gain on sale of loans		661			600		1,465			1,150
Increase in cash surrender value of Bank owned life insurance		221			231		449			463
Death benefit officer life insurance		538			-0-		538			-0-
Loss on sale of securities		(15	)		-0-		(15	)		-0-
Other income		361			334		631			741
Total other income		3,898			2,988		7,111			5,853
Other Expenses
Salaries and employee benefits		4,220			4,501		8,495			8,870
Net occupancy expenses		617			554		1,289			1,171
Data processing and equipment expenses		650			628		1,283			1,265
Professional fees		291			372		540			741
Outside services and consultants		260			217		534			476
Loan expense		719			493		1,319			948
Other expenses		1,482			1,208		2,806			2,358
Total other expenses		8,239			7,973		16,266			15,829
Income Before Income Tax		3,504			2,692		6,835			5,112
Income tax expense		514			676		1,317			1,252
Net Income	$	2,990		$	2,016	$	5,518		$	3,860
Basic Earnings Per Share	$	.93		$	.63	$	1.72		$	1.21
Diluted Earnings Per Share	$	.92		$	.62	$	1.70		$	1.19