Horizon Bancorp of Michigan City, Ind., expects to report a 42% decline in third-quarter earnings from a year earlier, to $1.3 million, as a result of a significant increase in its provision for loan losses.

The $2.1 billion-asset company said in a pre-earnings announcement Monday that credit deterioraton in its commercial and indirect automobile loan portfolios forced it to more than double its loss provision, to $3.1 million. One commercial loan has been written down, the remaining balance of another was charged off, and the company boosted its loss reserves on a third commercial loan secured by undeveloped residential real estate that has seen a significant decline in value.

Horizon also said that its $160 million indirect auto loan portfolio has been hurt by a rise in repossessions.

Horizon's nonperforming assets totaled $6.63 million for the quarter, up 155% from the third quarter of 2007.

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