Horizon Financial Reports Profitable First Quarter of Fiscal 2009 - FOXBusiness

Jul 23, 2008 3:30 PM - % of Nonperforming Assets by Market Nonperforming Nonperforming (dollars in 000s) Assets Assets ------- ------- Whatcom County $ 9,022 23% Skagit County 660 2% Snohomish County 20,717 54% Pierce County 8,184 21% ------- ------- Total nonperforming assets $38,583 100% ======= =======

The provision for loan losses was $3.0 million in the first quarter of fiscal 2009, $2.0 million in the immediate prior quarter ended March 31, 2008, and $400,000 in the first quarter of fiscal 2008. Horizon recorded net charge offs of $3.0 million for the quarter ended June 30, 2008, compared to $777,000 in the immediate prior quarter and $27,000 in the first quarter of fiscal 2008. The reserve for loan losses totaled $19.1 million at June 30, 2008, representing 1.54% of net loans receivable compared to $19.1 million, or 1.60% of net loans receivable at March 31, 2008 and $16.3 million, or 1.50% of net loans receivable at June 30, 2007.

Horizon elected to take profits from its investment securities portfolio in the first quarter, generating a net gain of $579,000, primarily from the sale of equity holdings, including shares of Freddie Mac common stock (NYSE:FRE) . We continue to hold approximately 19,800 common shares of Freddie Mac, and we do not hold any preferred shares of either Freddie Mac or Fannie Mae, said Jacobson.

Total deposits increased 11% to $1.10 billion during the quarter ended June 30, 2008, compared to $988.0 million for the comparable period in 2007. Transaction accounts totaled $353.0 million and accounted for 32% of total deposits at June 30, 2008, compared to $389.0 million, or 39% of total deposits a year ago. Time deposits increased to $744.0 million during the current quarter compared to $599.0 million at June 30, 2007. Brokered certificates of deposit were $153.8 million, or 14% of total deposits at June 30, 2008. This continues to be a challenging environment for attracting core deposits. Our shift in focus to commercial and industrial lending and away from construction and development lending should assist us in attracting core deposits going forward.

At June 30, 2008, Horizon's book value was $10.69 per share, compared to $10.31 per share a year earlier, and its tangible book value was $10.63 per share, up from $10.24 per share a year ago. Horizon remains well capitalized with a Tier 1 capital to average assets leverage ratio of 8.8%, which remains solidly above the regulatory threshold of 5% for a well capitalized rating, and well above the 4% threshold for adequately capitalized institutions. Horizon declared a cash dividend on June 26, 2008 of $0.135 per share which is payable on August 1, 2008 to shareholders of record on July 11, 2008. Our dividend payments for the quarter totaled approximately $1.6 million on an equity base of $127.0 million, noted Chairman V. Lawrence Evans. While we are diligent in reviewing our dividend policy each quarter, we recognize that cash dividends are important to our shareholders. We do not, however, anticipate making further share repurchases in the near term, which will support our efforts to preserve our capital base.

For the first quarter of fiscal 2009, net revenues were $13.5 million, compared to $15.1 million for the comparable quarter in fiscal 2008. Interest income declined 14% to $21.4 million in the current quarter compared to $24.9 million for the three months ended June 30, 2007. Contributing to this decline was $750,000 in interest reversals related to the increase in non-accrual loans during the quarter ended June 30, 2008. Interest expense declined 11% in the current quarter to $10.2 million, from $11.5 million for the three months ended June 30, 2007.

Non-interest income increased 33% to $2.3 million in the first quarter of fiscal 2009, compared to $1.7 million in the first quarter of fiscal 2008. The increase is primarily a result of growth in service fee revenue and gains on sales of investment securities.

Non-interest expense increased 5% to $7.6 million in the first quarter of fiscal 2009, from $7.3 million in the first quarter of fiscal 2008. The increase reflects the overall growth of the Bank, including our new Puyallup retail office and home loan center, which opened last summer.

The yield on earning assets was 6.48% in the first quarter of fiscal 2009, a decrease from 7.36% in the preceding quarter and 8.53% in the first quarter of fiscal 2008. In the first quarter of fiscal 2009, the cost of interest-bearing liabilities was 3.18%, compared to 3.60% in the preceding quarter and 4.05% for first quarter of fiscal 2008.

The return on average equity was 6.32% in the first quarter of fiscal 2009, compared to 11.77% in the immediate prior quarter and 16.08% in first quarter of fiscal 2008. Return on average assets was 0.57% in the first quarter of fiscal 2009 compared to 1.08% for the preceding quarter and 1.56% in the first quarter of fiscal 2008.

Horizon Financial Corp. is a $1.45 billion, state-chartered bank holding company headquartered in Bellingham, Washington. Its primary subsidiary, Horizon Bank, is a state-chartered commercial bank that operates 19 full-service offices, four commercial loan centers and four real estate loan centers throughout Whatcom, Skagit, Snohomish and Pierce counties, Washington.

Sources: The Puget Sound Economic Forecaster June 2008 www.economicforecaster.com; http://www.nwrealestate.com/nwrpub/common/news.cfm;http://www.workforceexplorer.com/admin/uploadedPublications/1885_laus_current.xls

Horizon Financial Corp. Rich Jacobson, CEO V. Lawrence Evans, Chairman Dennis Joines, President & COO 360.733.3050