State of the Local Banking Industry

Horizon is fortunate to be headquartered in the State of Indiana, which is ranked as the best place to do business in the Midwest and fifth nationwide in a survey of more than 500 chief executives by Chief Executive Magazine. Indiana’s conservative fiscal policy and ability to reinvest in its infrastructure has positioned Indiana well for future growth.

In addition, Horizon Bank, NA has office locations in Southwestern Michigan and this region of the state is known for outstanding local business leadership and its ability to rebound from recessions. The economic outlook for the states of Indiana and Michigan are positive. As the local economy goes, so go the local community banks.

Indiana and Michigan banks, in aggregate, experienced improvement in earnings for the third consecutive year and, in total, were profitable for 2011 and the first quarter of 2012. The primary driver for improvement to earnings was better loan quality, as evidenced by lower loan losses. The chart below reflects the aggregate earnings for all banks within each state.

*In millions. Source: UBPR for States of IN & MI, represents aggregate earning for all banks in each state

The good news is banks in both states are starting to grow their respective loan portfolios, albeit nominally. This is a positive sign that consumers and business owners are regaining the confidence in their future earning power to borrow and ability repay loans. In order for banks to continue to improve earnings in 2012 and beyond, loan growth and operational efficiency will be the key to their success. Without loan growth, banks will start to see a reduction in earnings as the cost of doing business continues to escalate. Banks must make loans to survive, which will help to further boost the local economies. The current trend in improved bank earnings and lower loan losses will increase banks willingness to lend money.