þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Indiana | 35-1562417 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
515 Franklin Square, Michigan City | 46360 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Name of each exchange on which registered | |
Common Stock, no par value
o
$66,408,840.
Documents Incorporated by Reference
Part of Form 10-K into which | ||||
Documents Incorporated by Reference Document | portion of document is incorporated | |||
Portions of the Registrant’s Proxy Statement to be filed for its May | III |
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EX-21 | ||||||||
EX-23 | ||||||||
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EX-32.2 |
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The Bank was chartered as a national bankbanking association in 1873 and has operated continuously since that time. The Bank is a full-service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services and other services incident to banking. The Bank opened a second office in St. Joseph, Berrien County, Michigan in 2004. The Bank also has four offices in La Porte County, Indiana,
and Horizon had one nonbank subsidiary, HBCGrantor Trust. Horizon Trust offers corporate and individual trust and agency services and investment management services. Horizon Investments manages the investment portfolio of the Bank. Horizon Insurance Group, Inc. (the “Insurance Company”). The Insurance Company previously offered credita full line of personal insurance products until March 2005, at which time the majority of its assets were sold to a third party. Horizon Grantor Trust holds title to certain company owned life and accident and health insurance and was liquidated during 2004. The net income generated from the Insurance Company was not significant to the overall operations of Horizon.
policies.
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Competition
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Supervision and Regulation
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• | Effective March 31, 2006, the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) were merged to create a new fund, called the Deposit Insurance Fund (“DIF”) | ||
• | The current $100,000 deposit insurance coverage is subject to adjustment for inflation beginning in 2010 and every succeeding five years | ||
• | Deposit insurance coverage for individual retirement accounts and certain other retirement accounts has been increased from $100,000 to $250,000 and also will be subject to adjustment for inflation |
Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017. For the quarter ended December 31, 2007, the FICO assessment rate was equal to 1.14 cents for each $100 in domestic deposits maintained at an institution.
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minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value of publicly traded shares and such other standards as the agency deems appropriate.
On October 26, 2001, President Bush signed the
Many of the provisions in the PATRIOT Act were to have expired December 31, 2005, but the U.S. Congress authorized renewals that extended the provisions until March 10, 2006. In early March 2006, the U.S. Congress approved the USA PATRIOT Improvement and Reauthorization Act of 2005 (the “Reauthorization Act”) and the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006 (the “PATRIOT Act Amendments”), and they were signed into law by President Bush on March 9, 2006. The Reauthorization Act makes permanent all but two of the provisions that had been set to expire and provides that the remaining two provisions, which relate to surveillance and the production of business records under the Foreign Intelligence Surveillance Act, will expire in three years. The PATRIOT Act Amendments include provisions allowing recipients of certain subpoenas to obtain judicial review of nondisclosure orders and clarifying the use of certain subpoenas to obtain information from libraries. Horizon does not anticipate that these changes will materially affect its operations.
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BANK HOLDING COMPANY STATISTICAL DISCLOSURES
I. | DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL | ||
Information required by this section of Securities Act Industry Guide 3 is presented in Management’s Discussion and Analysis as set forth in | |||
II. | INVESTMENT PORTFOLIO |
The following is a schedule of the amortized cost and fair value of investment securities available for sale at December 31, |
(in thousands) | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||||
AVAILABLE FOR SALE | Cost | Fair Value | Cost | Fair Value | Cost | Fair Value | ||||||||||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2006 | 2005 | |||||||||||||||||||||||||||||||||||||||||||||
Available for Sale | Cost | Fair Value | Cost | Fair Value | Cost | Fair Value | ||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury and U.S. Government agencies and corporations | $ | 86,348 | $ | 85,626 | $ | 66,945 | $ | 66,772 | $ | 5,979 | $ | 6,072 | $ | 25,660 | $ | 26,220 | $ | 58,595 | $ | 58,445 | $ | 72,153 | $ | 70,367 | ||||||||||||||||||||||||
State and municipal | 54,881 | 57,327 | 57,799 | 60,230 | 35,504 | 37,115 | 86,389 | 86,931 | 81,363 | 81,800 | 64,608 | 65,972 | ||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 124,666 | 124,308 | 72,806 | 73,546 | 45,164 | 46,741 | 108,247 | 107,371 | 93,591 | 91,174 | 119,392 | 116,020 | ||||||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | 13,380 | 13,338 | 14,354 | 14,488 | 18,697 | 19,525 | 13,650 | 13,552 | 11,215 | 11,010 | 22,781 | 22,153 | ||||||||||||||||||||||||||||||||||||
Corporate notes | 632 | 683 | 600 | 659 | 632 | 601 | 632 | 649 | 632 | 665 | ||||||||||||||||||||||||||||||||||||||
Total investment securities | $ | 279,907 | $ | 281,282 | $ | 212,504 | $ | 215,695 | $ | 105,344 | $ | 109,453 | $ | 234,578 | $ | 234,675 | $ | 245,396 | $ | 243,078 | $ | 279,566 | $ | 275,177 | ||||||||||||||||||||||||
The following is a schedule of maturities of each category of debt securities and the related |
After one year | After One Year | After Five Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | One Year or Less | Through Five Years | Through Ten Years | After Ten Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available for Sale | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One year or | through five | After five years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
less | years | through ten years | After ten years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Thousands) | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AVAILABLE FOR SALE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury and U.S. Government agency securities (1) | $ | 73,582 | 2.73 | % | $ | 12,044 | 2.89 | % | $ | 1,012 | 4.77 | % | $ | 1,700 | 4.39 | % | $ | 7,475 | 5.06 | % | $ | 16,033 | 5.88 | % | ||||||||||||||||||||||||||||||||||||||||
Obligations of states and political subdivisions | $ | 1,235 | 5.91 | % | 6,283 | 4.13 | % | 6,570 | 4.33 | % | $ | 43,239 | 4.60 | % | 4,127 | 4.76 | 5,888 | 4.15 | 22,802 | 4.24 | 54,114 | 4.21 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities (2) | 17,428 | 4.00 | % | 32,186 | 3.77 | % | 74,694 | 4.70 | % | 2,677 | 3.40 | 43,602 | 4.34 | 35,427 | 4.90 | 25,665 | 5.54 | |||||||||||||||||||||||||||||||||||||||||||||||
Collateralized mortgage obligations (2) | 13,338 | 3.84 | % | 1,360 | 4.56 | 8,937 | 5.43 | 321 | 4.22 | 2,934 | 4.82 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other securities | 683 | 7.58 | % | — | — | — | 601 | 7.58 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,235 | 5.91 | % | $ | 97,293 | 3.05 | % | $ | 50,800 | 3.63 | % | $ | 131,954 | 4.60 | % | $ | 9,177 | 4.33 | $ | 60,127 | 4.49 | $ | 66,025 | 4.69 | $ | 99,346 | 4.86 | ||||||||||||||||||||||||||||||||||||
(1) | Fair value is based on contractual maturity or call date where a call option exists | |
(2) | Maturity based upon final maturity date |
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III. |
LOAN PORTFOLIO |
Types of Loans — Total loans on the balance sheet are comprised of the following classifications at December 31 for the years indicated. |
(Thousands) | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
Commercial, financial, agricultural and commercial tax-exempt loans | $ | 203,966 | $ | 152,362 | $ | 111,897 | $ | 100,912 | $ | 88,421 | $ | 307,535 | $ | 271,457 | $ | 273,310 | $ | 203,966 | $ | 152,362 | ||||||||||||||||||||
Mortgage warehouse loans | 127,992 | 126,056 | 268,452 | 205,511 | 102,884 | 78,225 | 112,267 | 97,729 | 127,992 | 126,056 | ||||||||||||||||||||||||||||||
Real estate mortgage loans | 89,139 | 67,428 | 73,910 | 80,571 | 125,431 | 216,019 | 222,235 | 159,312 | 89,139 | 67,428 | ||||||||||||||||||||||||||||||
Installment loans | 142,945 | 101,872 | 81,534 | 79,807 | 76,842 | 287,073 | 237,875 | 202,383 | 142,945 | 101,872 | ||||||||||||||||||||||||||||||
Total loans | $ | 564,042 | $ | 447,718 | $ | 535,793 | $ | 466,801 | $ | 393,578 | $ | 888,852 | $ | 843,834 | $ | 732,734 | $ | 564,042 | $ | 447,718 | ||||||||||||||||||||
Maturities and Sensitivities of Loans to Changes in Interest Rates — The following is a schedule of maturities and sensitivities of loans to changes in interest rates, excluding real estate mortgage, mortgage warehousing and installment loans, as of December 31, |
Maturing or repricing | One Year or | One Through | After five | One Year or | One Through | After Five Years | ||||||||||||||||||||||||||
(thousands) | Less | Five Years | years | Total | ||||||||||||||||||||||||||||
(dollar amounts in thousands) | Less | Five Years | Total | |||||||||||||||||||||||||||||
Commercial, financial, agricultural and commercial tax-exempt loans | $ | 123,955 | $ | 65,612 | $ | 14,399 | $ | 203,966 | $ | 189,501 | $ | 115,316 | $ | 2,718 | $ | 307,535 |
Fixed | Variable | |||||||||||
(dollar amounts in thousands) | Rate | Rate | ||||||||||
Total commercial, financial, agricultural and commercial tax-exempt loans due after one year | $ | 67,260 | $ | 50,773 |
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C. |
(Thousands) | Fixed Rate | Variable Rate | ||||||
Total commercial, financial, agricultural, and commercial tax-exempt loans due after one year | $ | 94,168 | $ | 71,175 |
Risk Elements |
1. | Nonaccrual, Past Due and Restructured Loans — The following schedule summarizes nonaccrual, past due and restructured loans. |
December 31 (thousands) | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||
December 31 (dollar amounts in | ||||||||||||||||||||||||||||||||||||||||
thousands) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
a. Loans accounted for on a nonaccrual basis | $ | 1,358 | $ | 1,707 | $ | 1,217 | $ | 1,772 | $ | 2,487 | $ | 2,862 | $ | 2,481 | $ | 1,822 | $ | 1,358 | $ | 1,707 | ||||||||||||||||||||
b. Accruing loans which are contractually past due 90 days or more as to interest and principal payments | 0 | 176 | 76 | 128 | 699 | 87 | 144 | 251 | — | 176 | ||||||||||||||||||||||||||||||
c. Loans not included in (a) or (b) which are “Troubled Debt Restructuring’s” as defined by SFAS No. 15 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Totals | $ | 1,358 | $ | 1,883 | $ | 1,293 | $ | 1,900 | $ | 3,186 | $ | 2,949 | $ | 2,625 | $ | 2,073 | $ | 1,358 | $ | 1,883 | ||||||||||||||||||||
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The increase in non-accrual loans in 2007 is primarily due to an increase in commercial real estate loans of $281 thousand and an increase in consumer loans of $381 thousand. This increase was partially offset by a decrease in mortgage loans of $281. The increase in non-accrual loans in 2006 was primarily due to an increase in commercial real estate loans of $761 thousand. This increase was partially offset by a decrease in mortgage loans and consumer loans of $67 thousand and $36 thousand, respectively. The increase in non-accrual loans in 2005 was primarily due to non-accrual loans acquired from Alliance of $389 thousand, an increase in consumer and commercial loans of $44 thousand and $189 thousand, respectively. The decrease in non-accrual loans in 2004 was primarily due to decreases in consumer loans of $125 thousand and mortgage loans of $337 thousand partially offset by an increase in commercial loans of $112 thousand. The increase in non-accrual loans in 2003 was primarily due to increases in consumer loans of $89 thousand, mortgage loans of $254 thousand and commercial loans of $146 thousand.
(dollar amounts in thousands) | ||||
Gross interest income that would have been recorded on non-accrual loans outstanding as of December 31, 2007, in the period if the loans had been current, in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period | $ | 287 | ||
Interest income actually recorded on non-accrual loans outstanding as of December 31, 2007, and included in net income for the period | 165 | |||
Interest income not recognized during the period on non-accrual loans outstanding as of December 31, 2007 | $ | 122 | ||
(Thousands) | ||||
Gross interest income that would have been recorded on nonaccrual loans out standing as of December 31, 2004 in the period if the loans had been current, in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period. | $ | 168 | ||
Interest income actually recorded on nonaccrual loans outstanding as of December 31, 2004 and included in net income for the period. | 80 | |||
Interest income not recognized during the period on nonaccrual loans outstanding as of December 31, 2004. | $ | 88 |
1. | From time to time, the Bank obtains information, which may lead management to believe that the collection of | |||
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2. | Potential Problem Loans | |||
Impaired loans for which the discounted cash flows or collateral value exceeded the carrying value of the loan totaled | ||||
3. | Foreign | |||
None | ||||
4. | Loan Concentrations | |||
As of December 31, | ||||
Other Interest-Bearing Assets | |||
There are no other interest-bearing assets as of December 31, |
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IV. | SUMMARY OF LOAN LOSS EXPERIENCE |
A. | The following is an analysis of the activity in the allowance for loan losses account: |
(Thousands) | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
LOANS | ||||||||||||||||||||||||||||||||||||||||
Loans outstanding at the end of the period (1) | $ | 564,042 | $ | 447,718 | $ | 535,793 | $ | 466,801 | $ | 393,578 | $ | 888,852 | $ | 843,834 | $ | 732,734 | $ | 564,042 | $ | 447,718 | ||||||||||||||||||||
Average loans outstanding during the period (1) | 511,973 | 512,441 | 478,311 | 426,821 | 400,524 | $ | 839,591 | 780,555 | 640,758 | 514,916 | $ | 512,441 |
(1) | Net of unearned income and deferred loan fees |
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||
ALLOWANCE FOR LOAN LOSSES | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||
Balance at beginning of the period | $ | 6,909 | $ | 6,255 | $ | 5,410 | $ | 4,803 | $ | 3,273 | $ | 8,738 | $ | 8,368 | $ | 7,193 | $ | 6,909 | $ | 6,255 | ||||||||||||||||||||
Loans charged-off: | ||||||||||||||||||||||||||||||||||||||||
Commercial and agricultural loans | (161 | ) | 0 | (244 | ) | (149 | ) | (71 | ) | — | 23 | 305 | 161 | — | ||||||||||||||||||||||||||
Real estate mortgage loans | (41 | ) | (226 | ) | (112 | ) | (515 | ) | (3 | ) | 36 | — | 29 | 41 | 226 | |||||||||||||||||||||||||
Installment loans | (863 | ) | (758 | ) | (841 | ) | (917 | ) | (740 | ) | 2,701 | 1,120 | 1,096 | 863 | 758 | |||||||||||||||||||||||||
Total loans charged-off | (1,065 | ) | (984 | ) | (1,197 | ) | (1,581 | ) | (814 | ) | 2,737 | 1,143 | 1,430 | 1,065 | 984 | |||||||||||||||||||||||||
Recoveries of loans previously charged-off: | ||||||||||||||||||||||||||||||||||||||||
Commercial and agricultural loans | 79 | 20 | 90 | 115 | 66 | 48 | 201 | 161 | 79 | 20 | ||||||||||||||||||||||||||||||
Real estate mortgage loans | 2 | 23 | 24 | 301 | 15 | — | — | 2 | 2 | 23 | ||||||||||||||||||||||||||||||
Installment loans | 278 | 245 | 303 | 267 | 253 | 674 | 407 | 364 | 278 | 245 | ||||||||||||||||||||||||||||||
Total loan recoveries | 359 | 288 | 417 | 683 | 334 | 722 | 608 | 527 | 359 | 288 | ||||||||||||||||||||||||||||||
Net loans charged-off | (706 | ) | (696 | ) | (780 | ) | (898 | ) | (480 | ) | 2,015 | 535 | 903 | 706 | 696 | |||||||||||||||||||||||||
Provision charged to operating expense | 990 | 1,350 | 1,625 | 1,505 | 2,010 | 3,068 | 905 | 1,521 | 990 | 1,350 | ||||||||||||||||||||||||||||||
Provision charged to discontinued operations | ||||||||||||||||||||||||||||||||||||||||
Acquired through acquisition | — | — | 557 | — | — | |||||||||||||||||||||||||||||||||||
Balance at the end of the period | $ | 7,193 | $ | 6,909 | $ | 6,255 | $ | 5,410 | $ | 4,803 | $ | 9,791 | $ | 8,738 | $ | 8,368 | $ | 7,193 | $ | 6,909 | ||||||||||||||||||||
Ratio of net charge-offs to average loans outstanding for the period | (0.14 | )% | (0.14 | )% | (0.16 | )% | (0.21 | )% | (0.12 | )% | .24 | % | .07 | % | .14 | % | .14 | % | .14 | % | ||||||||||||||||||||
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B. | The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and the percentage of loans in each category to total loans. |
Allocation of the Allowance for Loan Losses at December 31 (thousands)
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
% of Loans | % of Loans | % of Loans | % of Loans | % of Loans | ||||||||||||||||||||||||||||||||||||
Allowance | to Total | Allowance | to Total | Allowance | to Total | Allowance | to Total | Allowance | to Total | |||||||||||||||||||||||||||||||
Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | |||||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,469 | 36 | % | $ | 1,829 | 28 | % | $ | 1,732 | 21 | % | $ | 1,678 | 22 | % | $ | 1,422 | 22 | % | ||||||||||||||||||||
Real estate mortgage | 808 | 16 | % | 834 | 12 | % | 712 | 14 | % | 641 | 17 | % | 159 | 32 | % | |||||||||||||||||||||||||
Mortgage warehousing | 2,029 | 23 | % | 2,445 | 37 | % | 2,007 | 50 | % | 1,357 | 44 | % | 1,628 | 26 | % | |||||||||||||||||||||||||
Installment | 1,860 | 25 | % | 1,524 | 23 | % | 1,574 | 15 | % | 1,702 | 17 | % | 1,270 | 20 | % | |||||||||||||||||||||||||
Unallocated | 27 | 277 | 230 | 32 | 324 | |||||||||||||||||||||||||||||||||||
Total | $ | 7,193 | 100 | % | $ | 6,909 | 100 | % | $ | 6,255 | 100 | % | $ | 5,410 | 100 | % | $ | 4,803 | 100 | % | ||||||||||||||||||||
Allocation of the Allowance for Loan Losses at December 31 (dollar amounts in thousands) |
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2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | % of | ||||||||||||||||||||||||||||||||||||
Loans | Loans | Loans | Loans | Loans | ||||||||||||||||||||||||||||||||||||
Allowance | to Total | Allowance | to Total | Allowance | to Total | Allowance | to Total | Allowance | to Total | |||||||||||||||||||||||||||||||
Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loan | |||||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,656 | 35 | % | $ | 2,987 | 32 | % | $ | 2,733 | 37 | % | 2,469 | 36 | % | $ | 1,829 | 28 | % | |||||||||||||||||||||
Real estate mortgage | 779 | 24 | 768 | 27 | 585 | 22 | 808 | 16 | 834 | 12 | ||||||||||||||||||||||||||||||
Mortgage warehousing | 1,309 | 9 | 1,762 | 13 | 1,958 | 13 | 2,029 | 23 | 2,445 | 37 | ||||||||||||||||||||||||||||||
Installment | 5,047 | 32 | 3,181 | 28 | 2,958 | 28 | 1,860 | 25 | 1,524 | 23 | ||||||||||||||||||||||||||||||
Unallocated | — | — | 40 | — | 134 | — | 27 | — | 277 | — | ||||||||||||||||||||||||||||||
Total | $ | 9,791 | 100 | % | $ | 8,738 | 100 | % | $ | 8,368 | 100 | % | $ | 7,193 | 100 | % | $ | 6,909 | 100 | % | ||||||||||||||||||||
In 1999, Horizon began a mortgage warehousing program. This program is described in Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 below and in the Notes to the Financial Statements in Item 8 below, which are incorporated herein by reference. The greatest risk related to these loans is transaction and fraud risk. During 20042007, Horizon processed an average of over $14 million per day$1.8 billion in mortgage warehouse loans. During 2004 the lines of credit granted to customers decreased from $459 million at December 31, 2003 to $388 million at December 31, 2004. Also there was a decline in the percent of the mortgage warehouse portfolio which was sub-prime. Sub-prime loans are assigned a higher reserve.
Information required by this section is found in Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 below and in the Consolidated Financial Statements and related notes in Item 8 below, which are incorporated herein by reference. |
VI. | RETURN ON EQUITY AND ASSETS |
Information required by this section is found in Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 below and in the Consolidated Financial Statements and related notes in Item 8 below, which are incorporated herein by reference. |
VII. | SHORT TERM BORROWINGS |
The following is a schedule of statistical information relative to securities sold under agreements to repurchase which are secured by U.S. Treasury and U.S. Government agency securities and mature within one year. There were no other categories of short-term borrowings for which the average balance outstanding during the period was 30 percent or more of |
December 31 (thousands) | 2004 | 2003 | ||||||||||||||||
December 31 (dollar amounts in thousands) | 2007 | 2006 | ||||||||||||||||
Outstanding at year end | $ | 27,681 | $ | 15,241 | $ | 41,369 | $ | 38,642 | ||||||||||
Approximate weighted average interest rate at year-end | 1.40 | % | 0.52 | % | ||||||||||||||
Approximate weighted-average interest rate at year-end | 2.54 | % | 3.09 | % | ||||||||||||||
Highest amount outstanding as of any month-end during the year | $ | 29,371 | $ | 46,353 | $ | 42,961 | $ | 40,179 | ||||||||||
Approximate average outstanding during the year | $ | 20,877 | $ | 28,257 | $ | 39,931 | $ | 35,334 | ||||||||||
Approximate weighted average interest during the year | .95 | % | .84 | % | ||||||||||||||
Approximate weighted-average interest during the year | 2.94 | % | 2.91 | % |
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Horizon may include forward-looking statements in filings with the Securities and Exchange Commission (“SEC”), such as this Form 10-K, in other written materials, and in oral statements made by senior management to analysts, investors, representatives of the media, and others. It is intended that these forward-looking statements speak only as of the date they are made, and Horizon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the forward-looking statement is made or to reflect the occurrence of unanticipated events.
• | credit risk: the risk that loan customers or other parties will be unable to perform their contractual obligations; | ||
• | market risk: the risk that changes in market rates and prices will adversely affect our financial condition or results of operation; | ||
• | liquidity risk: the risk that Horizon or the Bank will have insufficient cash or access to cash to meet its operating needs; and | ||
• | operational risk: the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. |
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• | increases in loan delinquencies and foreclosures; | ||
• | declines in the value of real estate and other collateral for loans; and | ||
• | a decline in the demand for our products and services. |
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Robert C. Dabagia | Chairman of Horizon since 1998; Chief Executive Officer of Horizon and the Bank until July 1, 2001. | |||||
Craig M. Dwight | Chairman and Chief Executive Officer of the Bank since January 2003; President and Chief Executive Officer of Horizon and the Bank since July 1, | |||||
Thomas H. Edwards | President and Chief Operating Officer of the Bank since January | |||||
James H. Foglesong | Chief Financial Officer of Horizon and the Bank since January | |||||
James D. Neff | Corporate Secretary of Horizon since 2007; Executive Vice President-Mortgage Banking of Horizon Bank since January 2004; Senior Vice President of Horizon Bank since October 1999. |
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Period Ending | ||||||||||||||||||||||||||||||||
Index | 12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | ||||||||||||||||||||||||||
Horizon Bancorp | 100.00 | 159.04 | 158.62 | 157.28 | 167.20 | 159.77 | ||||||||||||||||||||||||||
Russell 2000 | 100.00 | 147.25 | 174.24 | 182.18 | 215.64 | 212.26 | ||||||||||||||||||||||||||
SNL Bank $1B-$5B Index | 100.00 | 135.99 | 167.83 | 164.97 | 190.90 | 139.06 | ||||||||||||||||||||||||||
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During 2004,
To leverage the additional regulatory capital raised through the Trust Preferred offering completed in October of 2004, the investment portfolio increased by over 30%.
Funding of this increasenet interest income. Growth in earning assets occurred in commercial and consumer loans. Growth in these higher yielding asset categories offset a higher cost core deposits.
better sales execution.
13
policy. Additional discussion regarding the allowance for loan loss is included in the following Analysis of Financial Condition and the notes to the consolidated financial statements.
Analysis of Financial Condition
Investment Securities
Horizon maintains a high quality investment portfolio with low credit risk. Investment securities totaled $281.282 million at December 31, 2004 and consisted of U. S. Treasury and Government Agency securities of $85.626 million (30.4)%; Municipal securities of $57.327 million (20.4)%; Mortgage-Backed securities of $124.308 million (44.2)%; collateralized mortgage obligations of $13.338 million (4.7)%; and corporate securities of $683 thousand (0.2)%.
As indicated above, 48.9% of the investment portfolio consists of mortgage-backed securities and collateralized mortgage obligations. These instruments are secured by residential mortgages of varying maturities. Principal and interest payments are received monthly as the underlying mortgages are repaid. These payments also include prepayments of mortgage balances as borrowers either sell their homes or refinance their mortgages. Therefore, mortgage-backed securities and collateralized mortgage obligations have maturities that are stated in terms of average life. The average life is the average amount of time that each dollar of principal is expected to be outstanding. As of December 31, 2004, the mortgage-backed securities and collateralized mortgage obligations in the investment portfolio had an average life of 5.45 years. Securities that have interest rates above current market rates are purchased at a premium. These securities may experience a significant increase in prepayments when lower market interest rates create an incentive for the borrower to refinance the underlying mortgage. This may result in a decrease of current income, however, this risk is mitigated by a shorter average life. Management currently believes that prepayment risk on these securities is nominal.
At December 31, 2004 and 2003, all investment securities were classified as available for sale. Securities classified as available for sale are carried at their fair value, with both unrealized gains and losses added or subtracted, net of tax, directly to stockholders’ equity. This accounting method adds potential volatility to stockholders’ equity, but net income is not affected unless securities are sold. Net appreciation on these securities totaled $1.375 million, which resulted in a $894 thousand addition, net of tax, to stockholders’ equity at December 31, 2004. This compared to a $2.075 million, net of tax, addition in stockholders’ equity at December 31, 2003.
As a member of the Federal Reserve and Federal Home Loan Bank system, Horizon is required to maintain an investment in the common stock of each entity. The investment in common stock is based on a predetermined formula. At December 31, 2004, Horizon has investments in the common stock of the Federal Reserve and Federal Home Loan Bank totaling $11.279 million compared to $10.853 million at December 31, 2003.
At December 31, 2004, Horizon does not maintain a trading account and is not using any derivative products for hedging or other purposes.
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Loans
Total loans, the principal earning asset of the Bank, were $564.042 million at December 31, 2004. The current level of loans is an increase of 25.98% from the December 31, 2003 level of $447.718 million. As the table below indicates, the increase is related to growth in commercial and consumer loans.
Dollar | Percent | |||||||||||||||
December 31 | 2004 | 2003 | Change | Change | ||||||||||||
Real estate loans | ||||||||||||||||
1 – 4 family | $ | 85,694 | $ | 63,995 | $ | 21,699 | 33.91 | % | ||||||||
Multi-family | 0 | 25 | (25 | ) | (100.00 | ) | ||||||||||
Other | 3,445 | 3,408 | 37 | 1.09 | ||||||||||||
Total | 89,139 | 67,428 | 21,711 | 24.36 | ||||||||||||
Commercial loans | ||||||||||||||||
Working capital and equipment | 99,783 | 80,471 | 19,312 | 24.00 | ||||||||||||
Real estate, including agriculture | 89,818 | 57,959 | 31,859 | 54.97 | ||||||||||||
Tax exempt | 5,804 | 6,440 | (636 | ) | (9.88 | ) | ||||||||||
Other | 8,561 | 7,492 | 1,069 | 14.27 | ||||||||||||
Total | 203,966 | 152,362 | 51,604 | 33.87 | ||||||||||||
Consumer loans | ||||||||||||||||
Auto | 55,363 | 40,584 | 14,779 | 36.42 | ||||||||||||
Recreation | 4,969 | 1,115 | 3,854 | 345.65 | ||||||||||||
Real estate/home improvement | 32,079 | 23,389 | 8,690 | 37.15 | ||||||||||||
Home equity | 39,492 | 28,013 | 11,479 | 40.98 | ||||||||||||
Unsecured | 1,653 | 1,809 | (156 | ) | (8.62 | ) | ||||||||||
Other | 9,389 | 6,962 | 2,427 | 34.86 | ||||||||||||
Total | 142,945 | 101,872 | 41,073 | 40.32 | ||||||||||||
Mortgage warehouse loans | ||||||||||||||||
Prime | 66,402 | 54,935 | 11,467 | 20.87 | ||||||||||||
Sub-Prime | 61,590 | 71,121 | (9,531 | ) | (13.40 | ) | ||||||||||
Total | 127,992 | 126,056 | 1,936 | 1.54 | ||||||||||||
Grand total | $ | 564,042 | $ | 447,718 | $ | 116,324 | 25.98 | |||||||||
The acceptance and management of credit risk is an integral part of the Bank’s business as a financial intermediary. The Bank has established rigorous underwriting standards including a policy that monitors the lending function through strict administrative and reporting requirements as well as an internal loan review of consumer and small business loans. The Bank also uses an independent third-party loan review function that regularly reviews asset quality.
Real Estate Loans
Real estate loans totaled $89,139 million or 15.8% of total loans as of December 31, 2004, compared to $67.428 million or 15.1% of total loans as of December 31, 2003. This category consists of home mortgages that generally require a loan to value of no more than 80%. Some special guaranteed or insured real estate loan programs do permit a higher loan to collateral value ratio.
15
In addition to the customary real estate loans described above, the Bank also has outstanding on December 31, 2004, $39.492 million in home equity lines of credit compared to $28.013 million at December 31, 2003. Credit lines normally limit the loan to collateral value to no more than 89%. These loans are classified as consumer loans in the table above and in Note 3 of the consolidated financial statements.
Residential real estate lending is a highly competitive business. As of December 31, 2004, the real estate loan portfolio reflected a wide range of interest rates and repayment patterns, but could generally be categorized as follows:
2004 | 2003 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Amount | Portfolio | Yield | Amount | Portfolio | Yield | |||||||||||||||||||
Fixed rate | ||||||||||||||||||||||||
Monthly payment | $ | 26,500 | 29.73 | % | 5.85 | % | $ | 14,700 | 21.80 | % | 6.56 | % | ||||||||||||
Biweekly payment | 3,803 | 4.27 | 6.56 | 4,714 | 6.99 | 6.86 | ||||||||||||||||||
Adjustable rate | ||||||||||||||||||||||||
Monthly payment | 58,781 | 65.94 | 5.20 | 47,888 | 71.02 | 5.46 | ||||||||||||||||||
Biweekly payment | 55 | .06 | 4.20 | 126 | .19 | 4.00 | ||||||||||||||||||
Total | $ | 89,139 | 100.00 | % | 5.44 | % | $ | 67,428 | 100.00 | % | 5.79 | % | ||||||||||||
During 2004 and 2003, approximately $106 million and $217 million respectively of residential mortgages were sold into the secondary market. Horizon anticipates that the volume of mortgage loan activity will remain fairly constant in 2005. Overall mortgage activity is anticipated to decline, however as Horizon enters new markets, originations in these markets should offset the overall decline.
In addition to the real estate loan portfolio, the Bank sells real estate loans and retains the servicing rights. Loans serviced for others are not included in the consolidated balance sheets. The unpaid principal balances and number of loans serviced for others totaled approximately $171,367,000 and 2,048 and $148,359,000 and 1,846 at December 31, 2004 and 2003.
The Bank began capitalizing mortgage servicing rights during 2000 and the aggregate fair value of capitalized mortgage servicing rights at December 31, 2004 totaled approximately $1,332,000. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type, and interest rates, were used to stratify the originated mortgage servicing rights.
2004 | 2003 | 2002 | ||||||||||
Mortgage Servicing Rights | ||||||||||||
Balances, January 1 | $ | 1,429 | $ | 939 | $ | 892 | ||||||
Servicing rights capitalized | 482 | 860 | 340 | |||||||||
Amortization of servicing rights | (438 | ) | (370 | ) | (293 | ) | ||||||
1,473 | 1,429 | 939 | ||||||||||
Impairment allowance | (141 | ) | (296 | ) | (407 | ) | ||||||
Balances, December 31 | $ | 1,332 | $ | 1,133 | $ | 532 | ||||||
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Commercial Loans
Commercial loans totaled $203.966 million or 36.2% of total loans as of December 31, 2004, compared to $152.4 million or 34.0% as of December 31, 2003. An improving local economy, strong sales effort and the addition of experienced lenders fueled the commercial growth. The southwest Michigan market continued to have its strong growth pattern.
Commercial loans consisted of the following types of loans at December 31:
2004 | 2003 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Number | Amount | Portfolio | Number | Amount | Portfolio | |||||||||||||||||||
SBA guaranteed loans | 25 | $ | 6,110 | 3.00 | % | 27 | $ | 6,617 | 4.34 | % | ||||||||||||||
Municipal government | 20 | 5,804 | 2.85 | 21 | 6,440 | 4.23 | ||||||||||||||||||
Lines of credit | 304 | 31,480 | 15.43 | 218 | 30,208 | 19.83 | ||||||||||||||||||
Real estate and equipment term loans | 634 | 160,572 | 78.72 | 421 | 109,097 | 71.60 | ||||||||||||||||||
Total | 983 | $ | 203,966 | 100.00 | % | 687 | $ | 152,362 | 100.00 | % | ||||||||||||||
Consumer Loans
Consumer loans totaled $142.945 million or 25.3% of total loans as of December 31, 2004, compared to $101,872 million or 22.8% as of December 31, 2003. The total consumer loan portfolio increased 40.3% in 2004. The growth in consumer loans resulted from an increase in the number of automobile dealers from whom Horizon buys loans. Growth also came in home equity lines of credit through increased marketing and a more competitive product.
Mortgage Warehouse Loans
In November 1999, Horizon began a mortgage-warehousing program. Horizon enters into agreements with mortgage companies and purchases, at its discretion, mortgage loans from mortgage companies at par, net of certain fees, and later sells them back to the mortgage companies at the same amount and without recourse provisions. Interest income is recorded based upon a rate of interest tied to the prime rate during the funding period, not the rates on the individual note. Such loans are made to individuals and reviewed, prior to purchase, for evidence that the loans are of secondary market quality and meet Horizon’s internal underwriting guidelines. An assignment of the mortgage to Horizon is required. In addition, Horizon takes possession of the original note and forwards such note to the end investor. In the event that the end investor would not honor this commitment and the mortgage companies would not be able to honor their repurchase obligations, Horizon would then need to sell these loans in the secondary market at the fair value of these loans. Loans are typically resold within 30 days and are seldom held more than 90 days.
Allowance and Provision for Loan Losses/Critical Accounting Policy
Losses
1718
consistent with
goodwill. At December 31, 2004,2007, Horizon had core deposit intangibles of $2.068 million subject to amortization and $5.787 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods. SFAS No. 142 requires an annual evaluation of goodwill for impairment. The evaluation of goodwill for impairment requires the use of estimates and assumptions. Horizon has concluded that the recorded value of goodwill is not impaired.
19
20
(dollar amounts in thousands) | Dollar | Percent | ||||||||||||||
December 31 | 2007 | 2006 | Change | Change | ||||||||||||
Real estate loans | ||||||||||||||||
1 - 4 family | $ | 206,914 | $ | 214,031 | $ | (7,117 | ) | (3.33 | )% | |||||||
Other | 9,105 | 8,204 | 901 | 10.98 | ||||||||||||
Total | 216,019 | 222,235 | (6,216 | ) | (2.80 | ) | ||||||||||
Commercial loans | ||||||||||||||||
Working capital and equipment | 154,459 | 128,500 | 25,959 | 20.20 | ||||||||||||
Real estate, including agriculture | 141,733 | 131,103 | 10,630 | 8.11 | ||||||||||||
Tax exempt | 3,809 | 3,861 | (52 | ) | (1.35 | ) | ||||||||||
Other | 7,534 | 7,993 | (459 | ) | (5.74 | ) | ||||||||||
Total | 307,535 | 271,457 | 36,078 | 13.29 | ||||||||||||
Consumer loans | ||||||||||||||||
Auto | 174,331 | 125,542 | 48,789 | 38.86 | ||||||||||||
Recreation | 7,074 | 8,862 | (1,788 | ) | (20.18 | ) | ||||||||||
Real estate/home improvement | 41,684 | 43,590 | (1,906 | ) | (4.37 | ) | ||||||||||
Home equity | 59,131 | 54,527 | 4,604 | 8.44 | ||||||||||||
Unsecured | 1,979 | 1,979 | — | — | ||||||||||||
Other | 2,874 | 3,375 | (501 | ) | (14.84 | ) | ||||||||||
Total | 287,073 | 237,875 | 49,198 | 20.68 | ||||||||||||
Mortgage warehouse loans | ||||||||||||||||
Prime | 69,894 | 53,547 | 16,347 | 30.53 | ||||||||||||
Sub-Prime | 8,331 | 58,720 | (50,389 | ) | (85.81 | ) | ||||||||||
Total | 78,225 | 112,267 | (34,042 | ) | (30.32 | ) | ||||||||||
Grand total | $ | 888,852 | $ | 843,834 | $ | 45,018 | 5.33 | % | ||||||||
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2007 | 2006 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
(dollar amounts in thousands) | Amount | Portfolio | Yield | Amount | Portfolio | Yield | ||||||||||||||||||
Fixed rate | ||||||||||||||||||||||||
Monthly payment | $ | 41,491 | 19.21 | % | 6.47 | % | $ | 46,301 | 20.84 | % | 6.35 | % | ||||||||||||
Biweekly payment | 2,663 | 1.23 | 6.49 | 3,047 | 1.37 | 6.45 | ||||||||||||||||||
Adjustable rate | ||||||||||||||||||||||||
Monthly payment | 171,845 | 79.55 | 5.90 | 172,860 | 77.78 | 5.72 | ||||||||||||||||||
Biweekly payment | 20 | .01 | 7.79 | 27 | .01 | 7.50 | ||||||||||||||||||
Total | $ | 216,019 | 100.00 | % | 6.03 | % | $ | 222,235 | 100.00 | % | 5.88 | % | ||||||||||||
(dollar amounts in thousands) | 2007 | 2006 | 2005 | |||||||||
Mortgage Servicing Rights | ||||||||||||
Balances, January 1 | $ | 28 | $ | 1,278 | $ | 1,473 | ||||||
Servicing rights capitalized | 79 | 83 | 239 | |||||||||
Amortization of servicing rights | (51 | ) | (251 | ) | (434 | ) | ||||||
Servicing rights sold | — | (862 | ) | — | ||||||||
276 | 248 | 1,278 | ||||||||||
Impairment allowance | (7 | ) | (3 | ) | (44 | ) | ||||||
Balances, December 31 | $ | 269 | $ | 245 | $ | 1,234 | ||||||
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2007 | 2006 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
(dollar amounts in thousands) | Number | Amount | Portfolio | Number | Amount | Portfolio | ||||||||||||||||||
SBA guaranteed loans | 17 | $ | 3,863 | 1.26 | % | 20 | $ | 4,321 | 1.60 | % | ||||||||||||||
Municipal government | 26 | 3,809 | 1.24 | 42 | 3,861 | 1.42 | ||||||||||||||||||
Lines of credit | 346 | 59,025 | 19.19 | 395 | 49,549 | 18.25 | ||||||||||||||||||
Real estate and equipment term loans | 959 | 240,838 | 78.31 | 997 | 213,726 | 78.73 | ||||||||||||||||||
Total | 1,350 | $ | 307,535 | 100.00 | % | 1,454 | $ | 271,457 | 100.00 | % | ||||||||||||||
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2007.
2004 | 2003 | 2002 | ||||||||||
Nonperforming loans | $ | 1,358 | $ | 1,882 | $ | 1,293 |
(dollar amounts in thousands) | 2007 | 2006 | 2005 | |||||||||
Nonperforming loans | $ | 2,949 | $ | 2,625 | $ | 1,822 |
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2004 | 2003 | 2002 | ||||||||||
Other real estate owned | $ | 276 | $ | 15 | $ | 0 |
(dollar amounts in thousands) | 2007 | 2006 | 2005 | |||||||||
Other real estate owned | $ | 238 | $ | 75 | $ | 23 |
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deposited funds.funds or loan demand is greater than the ability to grow deposits. Total deposits were $612.217$893.664 million at December 31, 20042007, compared to $546.168$913.973 million at December 31, 20032006, or an increasea decrease of 12.1%2.2%. Average deposits and rates by category for the pervious three years ended December 31 are as follows:
Average Balance Outstanding for the | Average Rate Paid for the Year | Average Balance Outstanding for the | Average Rate Paid for the Year | |||||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31 | Ended December 31 | Year Ended December 31 | Ended December 31 | |||||||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing demand deposits | $ | 62,634 | $ | 56,763 | $ | 47,603 | $ | 76,530 | $ | 78,654 | $ | 73,501 | ||||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | 104,909 | 90,614 | 87,544 | .46 | % | .38 | % | .81 | % | 202,453 | 178,773 | 165,767 | 2.73 | % | 2.43 | % | 1.44 | % | ||||||||||||||||||||||||||||||
Savings deposits | 36,265 | 34,955 | 33,051 | .20 | .27 | .69 | 31,431 | 34,637 | 38,231 | .28 | .28 | .36 | ||||||||||||||||||||||||||||||||||||
Money market | 123,013 | 90,494 | 61,294 | 1.27 | 1.33 | 2.36 | 112,266 | 139,177 | 143,652 | 3.30 | 3.28 | 2.37 | ||||||||||||||||||||||||||||||||||||
Time deposits | 266,201 | 237,676 | 207,169 | 3.22 | 3.55 | 4.10 | 402,287 | 387,365 | 320,014 | 4.75 | 4.37 | 3.42 | ||||||||||||||||||||||||||||||||||||
Total deposits | $ | 593,022 | $ | 510,502 | $ | 436,661 | $ | 824,967 | $ | 818,606 | $ | 741,165 | ||||||||||||||||||||||||||||||||||||
25
(dollar amounts in thousands) | ||||||||
Due in three months or less | $ | 34,439 | $ | 82,417 | ||||
Due after three months through six months | 19,797 | 53,390 | ||||||
Due after six months through one year | 12,186 | 38,751 | ||||||
Due after one year | 37,200 | 53,223 |
Within One | One to three | Three to five | After five | Within One | One to | Three to | After Five | |||||||||||||||||||||||||||||
(dollar amounts in thousands) | Total | Year | Three Years | Five Years | Years | |||||||||||||||||||||||||||||||
Year | Years | Years | Years | |||||||||||||||||||||||||||||||||
Deposits | $ | 476,855 | $ | 101,656 | $ | 33,706 | $ | 893,664 | $ | 795,469 | $ | 78,353 | $ | 19,329 | $ | 513 | ||||||||||||||||||||
Long-term debt obligations (1) | 8,140 | 38,809 | 15,411 | $ | 77,345 | 212,756 | 762 | 80,880 | 60,837 | 70,277 | ||||||||||||||||||||||||||
Subordinated debentures (2) | 22,682 | 27,837 | — | — | — | 27,837 |
19
(1) | Includes debt obligations to the Federal Home Loan Bank and term repurchase agreements with maturities beyond one year borrowed by Horizon’s banking subsidiary. See | |
(2) | Includes Trust Preferred Capital Securities issued by Horizon Statutory Trusts |
Expiration by Period | |||||||||||||||||
Expiration by Period | Greater | ||||||||||||||||
Within one year | Greater than | Within One | Than One | ||||||||||||||
year | one year | Year | Year | ||||||||||||||
Letters of credit | $ | 528 | $ | 457 | $ | 1,617 | $ | 312 | |||||||||
Unfunded loan commitments | 91,372 | 39,344 | 90,063 | 51,666 |
26
Retirement Plans
On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the termination of the Horizon Bancorp Employee Stock Ownership Plan (ESOP). This decision was based upon a thorough financial analysis of the impact this plan has had on the earningsDecember 2005 and capital of Horizon since its inception and the expected future impact retaining this plan would likely have on Horizon. On December 31, 1999, the debt owed by the ESOP was repaid with the proceeds from the sale of a portion of the unallocated shares to Horizon Bancorp. The remaining shares for all active participants were allocated to participants. The termination of the ESOP resulted in an expense of $2.073 million for 1999. The remaining shares in the ESOP plan were transferred to the Stock Bonus Plan.
Prior to Horizon’s stock being listed on NASDAQ SmallCap, the market value of the shares held in Horizon’s Stock Bonus Plan was classified outside of shareholders’ equity. Since the shares in the Stock Bonus Plan are now readily tradeable, Horizon reclassified the Stock Bonus Plan equity to shareholders’ equity at December 31, 2001.
The retirement plans of Horizon own approximately 17% of the outstanding shares at December 31, 2004.
June 2007 respectively.
20
declared in 2003.2005. The dividend payout ratio (dividends as a percent of net income) was 21%24% during 2004, 19%2007 and 2006 and 23% during 2003, and 22% in 2002.2005. For additional information regarding dividend conditions, see Note 1 of the Notes to the Consolidated Financial Statements.
In October of 2004, Horizon formed Horizon Bancorp Capital Trust II (Trust II), a statutory business trust. Trust II issued $10 million of Trust Preferred Capital Securities as a participant in a pooled trust preferred securities offering. Horizon issued junior subordinated debentures aggregating $10 million to Trust II. The junior subordinated debentures are the sole assets of Trust II.unconditionally guaranteed by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends, respectively, on a quarterly basis. The junior subordinated debentures and the securities bear interest at a rate of 90 day LIBOR plus 1.95% and mature on October 21, 2034, and are noncallablenon-callable for five years. After that period, the securities may be called at any quarterly interest payment date at par. Costs associated with the issuance of the securities totaling $17,500 were capitalized and are being amortized to the first call date of the securities.
27
The Bank purchases home mortgages from mortgage companies under warehouse agreements whereby the mortgage company has the right to repurchase the loan. Because these transactions are sales of the loans to the Bank and the Bank is the owner of the purchased loans, the Bank has historically treated these loans as home mortgage loans for call report and regulatory capital purposes. During the course of the routine, periodic examination by bank regulatory authorities commenced in February 2003, the examination personnel raised the issue of whether the Bank’s mortgage warehouse loans should be treated as other loans rather than as home mortgage loans for call report purposes. If these mortgage loans were treated as other loans, it would change the calculations for risk-based capital and reduce the Bank’s risk-based capital ratios. The following table shows, for year-ends in 2004, 2003 and 2002 the amount of the Bank’s risk-based and Tier 1 capital ratios as reported and as they would be under this alternative treatment:
Horizon Bank and | Alternative | Minimum Required To | ||||||||||
Horizon Bancorp as of: | Reported | Treatment | Be Well Capitalized | |||||||||
December 31, 2004 | ||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||
Consolidated | 13.95 | % | 12.52 | % | N/A | |||||||
Bank | 13.62 | % | 12.11 | % | 10.00 | % | ||||||
Tier 1 Capital (to risk-weighted assets) | ||||||||||||
Consolidated | 11.71 | % | 10.51 | % | N/A | |||||||
Bank | 12.37 | % | 10.97 | % | 6.00 | % | ||||||
Tier 1 Capital (to average assets) | ||||||||||||
Consolidated | 7.37 | % | 7.37 | % | N/A | |||||||
Bank | 7.78 | % | 7.78 | % | 5.00 | % |
21
Horizon Bank and | Alternative | Minimum Required To | ||||||||||
Horizon Bancorp as of: | Reported | Treatment | Be Well Capitalized | |||||||||
December 31, 2003 | ||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||
Consolidated | 14.43 | % | 12.06 | % | N/A | |||||||
Bank | 15.22 | % | 13.15 | % | 10.00 | % | ||||||
Tier 1 Capital (to risk-weighted assets) | ||||||||||||
Consolidated | 13.19 | % | 11.48 | % | N/A | |||||||
Bank | 13.97 | % | 11.90 | % | 6.00 | % | ||||||
Tier 1 Capital (to average assets) | ||||||||||||
Consolidated | 7.48 | % | 7.48 | % | N/A | |||||||
Bank | 7.90 | % | 7.90 | % | 5.00 | % | ||||||
December 31, 2002 | ||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||
Consolidated | 13.37 | % | 10.30 | % | N/A | |||||||
Bank | 13.55 | % | 10.41 | % | 10.00 | % | ||||||
Tier 1 Capital (to risk-weighted assets) | ||||||||||||
Consolidated | 12.12 | % | 9.17 | % | N/A | |||||||
Bank | 12.29 | % | 9.27 | % | 6.00 | % | ||||||
Tier 1 Capital (to average assets) | ||||||||||||
Consolidated | 7.13 | % | 7.13 | % | N/A | |||||||
Bank | 7.20 | % | 7.20 | % | 5.00 | % |
If the Bank is required to reclassify such loans, the Bank still meets the regulatory “well capitalized” standards for all of 2004, 2003 and 2002. Bank regulators have not issued a final opinion on this matter but management continues to believe that these loans are properly characterized for risk-based capital purposes. However there is no assurance that the regulators will concur with that determination. If required to treat mortgage warehouse loans as commercial loans, the Bank will consider increasing the amount of its capital through the issuance of subordinated debt, trust preferred securities or equity securities; or consider other alternatives.
As of December 31, 2004,2007, management is not aware of any other recommendations by banking regulatory authorities, which, if they were to be implemented, would have or are reasonably likely to have a material effect on Horizon’s liquidity, capital resources or operations.
2228
2004 2003 2002 2007 2006 2005 Average Yield/ Average Yield/ Average Yield/ Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate (dollar amounts in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate Interest-bearing assets Loans — total (1) (3) $ 514,916 $ 33,386 6.48 % $ 512,441 $ 34,527 6.74 % $ 478,311 $ 35,168 7.35 % $ 853,314 $ 63,619 7.45 % $ 785,448 $ 57,282 7.29 % $ 640,758 $ 44,749 6.98 % Taxable investment securities, including FRB and FHLB stock 192,419 7,211 3.75 122,521 4,743 3.87 82,441 4,645 5.63 169,295 8,121 4.80 190,670 8,348 4.38 244,495 9,610 3.93 Nontaxable investment securities (2) 52,722 2,264 4.29 47,299 2,038 4.31 27,327 1,236 4.52 74,222 3,061 4.12 65,773 2,796 4.25 54,806 2,372 4.32 Interest-bearing balances and money market investments (4) 4,924 69 1.40 4,576 57 1.25 881 47 5.33 2,602 125 4.80 4,469 153 3.42 1,177 38 3.23 Federal funds sold 4,560 58 1.28 18,590 196 1.05 9,644 185 1.92 2,854 142 4.97 1,890 101 5.34 755 24 3.18 Total interest-earning assets 769,541 42,988 5.59 704,427 41,543 5.90 598,604 41,281 6.90 1,102,287 75,068 6.81 1,048,250 68,680 6.55 941,991 56,793 6.03 Noninterest-earning assets Cash and due from banks 16,822 18,911 20,731 20,312 21,525 19,610 Allowance for loan losses (6,985 ) (6,581 ) (5,708 ) (8,680 ) (8,723 ) (7,615 ) Other assets 39,547 24,933 24,900 66,481 57,053 46,127 Total assets $ 818,925 $ 741,690 $ 638,527 $ 1,180,400 $ 1,118,105 $ 1,000,113 Interest-bearing liabilities Savings deposits $ 36,265 74 .20 $ 34,955 95 .27 $ 33,051 230 .69 Interest-bearing liabilities Savings deposits $ 31,431 88 .28 % $ 34,637 96 .28 % $ 38,231 139 .36 Money market 123,013 1,558 1.27 90,494 1,204 1.38 61,294 1,444 2.36 112,266 3,701 3.30 139,177 4,559 3.28 143,652 3,414 2.37 Interest-bearing demand deposits 104,909 482 .46 90,614 347 .38 87,544 709 .81 202,453 5,531 2.73 178,773 4,164 2.33 165,767 2,385 1.44 Time deposits 266,200 8,579 3.22 237,676 8,444 3.55 207,169 8,483 4.10 402,287 19,122 4.75 387,365 16,915 4.37 320,014 10,934 3.42 Short-term borrowings 37,205 600 1.61 34,110 388 1.14 22,915 353 1.54 72,920 2,930 4.02 78,747 2,035 2.58 45,517 1,573 3.46 Long-term debt 135,362 6,273 4.63 147,417 6,932 4.70 135,096 6,909 5.12 209,419 10,888 5.20 157,179 9,366 5.95 155,393 7,475 4.81 Total interest-bearing liabilities 702,954 17,566 2.50 635,266 17,410 2.74 547,069 18,128 3.31 1,030,776 42,260 4.10 975,878 37,135 3.81 868,574 25,920 2.98 Noninterest-bearing liabilities Demand deposits 62,634 56,763 47,603 Noninterest-bearing liabilities Demand deposits 76,530 78,654 73,501 Other liabilities 5,013 5,049 5,169 6,870 6,138 6,153 Stockholders’ equity 48,324 44,612 38,686 66,224 57,435 51,885 Total liabilities and stockholders’ equity $ 818,925 $ 741,690 $ 638,527 $ 1,180,400 $ 1,118,105 $ 1,000,113 Net interest income $ 25,422 $ 24,151 $ 23,153 $ 32,808 $ 31,545 $ 30,873 Net interest income as a percent of interest earning assets 3.31 % 3.43 % 3.87 % 2.98 % 3.01 % 3.28 %
(1) | Nonaccruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loans fees. | |
(2) | Yields are not presented on a tax-equivalent basis. | |
(3) | Loan fees and late fees included in interest on loans aggregated | |
(4) | Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations. Horizon’s subsidiary bank had no funds invested in Eurodollar Certificates of Deposit at December 31, |
2329
2004 – 2003 | 2003 – 2002 | 2007 - 2006 | 2006 - 2005 | |||||||||||||||||||||||||||||||||||||||||||||
Increase/(Decrease) | Increase/(Decrease) | Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||||||||||||||||||||||||
Change | Change | Change | Change | Change | Change | Change | Change | |||||||||||||||||||||||||||||||||||||||||
Total | Due to | Due to | Total | Due to | Due to | Total | Due to | Due to | Total | Due to | Due to | |||||||||||||||||||||||||||||||||||||
Change | Volume | Rate | Change | Volume | Rate | |||||||||||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | Change | Volume | Rate | Change | Volume | Rate | ||||||||||||||||||||||||||||||||||||||||||
Interest Income | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans — total | $ | (1,141 | ) | $ | 166 | $ | (1,307 | ) | $ | (641 | ) | $ | 2,413 | $ | (3,054 | ) | $ | 6,337 | $ | 5,037 | $ | 1,300 | $ | 12,533 | $ | 10,479 | $ | 2,054 | ||||||||||||||||||||
Taxable investment securities | 2,486 | 2,627 | (141 | ) | 96 | 1,824 | (1,728 | ) | (227 | ) | (984 | ) | 757 | (1,310 | ) | (2,281 | ) | 971 | ||||||||||||||||||||||||||||||
Nontaxable investment securities | 226 | 233 | (7 | ) | 802 | 863 | (61 | ) | 265 | 350 | (85 | ) | 424 | 467 | (43 | ) | ||||||||||||||||||||||||||||||||
Interest-bearing balances and money market investments | 12 | 5 | 7 | 10 | 69 | (59 | ) | (28 | ) | (77 | ) | 49 | 115 | 113 | 2 | |||||||||||||||||||||||||||||||||
Federal funds sold | (138 | ) | (173 | ) | 35 | 11 | 120 | (109 | ) | 41 | 48 | (7 | ) | 77 | 53 | 24 | ||||||||||||||||||||||||||||||||
Total interest income | 1,445 | 2,858 | (1,413 | ) | 278 | 5,289 | (5,011 | ) | 6,388 | 4,375 | 2,013 | 11,839 | 8,831 | 3,008 | ||||||||||||||||||||||||||||||||||
Interest Expense | ||||||||||||||||||||||||||||||||||||||||||||||||
Savings deposits | (21 | ) | 3 | (24 | ) | (135 | ) | 13 | (148 | ) | (8 | ) | (9 | ) | 1 | (43 | ) | (12 | ) | (31 | ) | |||||||||||||||||||||||||||
Money market | 354 | 414 | (60 | ) | (240 | ) | 531 | (771 | ) | (858 | ) | (887 | ) | 29 | 1,145 | (109 | ) | 1,254 | ||||||||||||||||||||||||||||||
Interest-bearing demand deposits | 135 | 60 | 75 | (362 | ) | 24 | (386 | ) | 1,367 | 593 | 774 | 1,779 | 200 | 1,579 | ||||||||||||||||||||||||||||||||||
Time deposits | 135 | 960 | (825 | ) | (39 | ) | 1,162 | (1,201 | ) | 2,207 | 669 | 1,538 | 5,981 | 2,577 | 3,404 | |||||||||||||||||||||||||||||||||
Short-term borrowings | 212 | 38 | 174 | 35 | 143 | (108 | ) | 895 | (160 | ) | 1,055 | 462 | 933 | (471 | ) | |||||||||||||||||||||||||||||||||
Long-term debt | (641 | ) | (564 | ) | (77 | ) | 21 | 599 | (578 | ) | 1,522 | 2,826 | (1,304 | ) | 1,843 | 87 | 1,756 | |||||||||||||||||||||||||||||||
Total interest expense | 174 | 911 | (737 | ) | (720 | ) | 2,472 | (3,192 | ) | 5,125 | 3,032 | 2,093 | 11,167 | 3,676 | 7,491 | |||||||||||||||||||||||||||||||||
Net Interest Earnings | $ | 1,271 | $ | 1,947 | $ | (676 | ) | $ | 998 | $ | 2817 | $ | (1,819 | ) | $ | 1,263 | $ | 1,343 | $ | (80 | ) | $ | 672 | $ | 5,155 | $ | (4,483 | ) | ||||||||||||||||||||
Horizon continueduntil the fourth quarter of 2007 at which point they began to experience lowerdecline.
2004 | 2003 | 2002 | ||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2006 | 2005 | |||||||||||||||||||||
Commercial loans | $ | 174,391 | $ | 126,315 | $ | 104,878 | $ | 291,656 | $ | 267,263 | $ | 234,971 | ||||||||||||
Mortgage warehouse loans | 134,063 | 225,880 | 205,787 | 70,279 | 96,334 | 108,298 | ||||||||||||||||||
Real estate loans | 85,314 | 70,386 | 85,942 | 228,466 | 201,756 | 123,815 | ||||||||||||||||||
Installment loans | 121,148 | 89,860 | 81,704 | 262,913 | 220,095 | 173,674 | ||||||||||||||||||
Total average loans outstanding | $ | 514,916 | $ | 512,441 | $ | 478,311 | $ | 853,314 | $ | 785,448 | $ | 640,758 | ||||||||||||
30
24
To keep the Bank’s regulatory capital leveraged, the average investment portfolio wasAverage interest-bearing deposits increased by 44%. The increase in this category of earning assets caused a decline in the net interest margin as investment securities carry lower yields than loans. While reducing the net interest margin, it did have a positive impact on net income and earnings per share.
Throughout 2004 Horizon heldover 11% during 2007. Short-term deposit rates fairly level. Short termincreased due to a higher concentration of deposits in higher cost deposit rates were increased late in the year, however, this had little impact on the entire year.products. The overall cost of time deposits decreasedincreased as maturing certificates of deposit renewed at lower rates.
higher rates and a greater reliance on higher cost short term negotiable certificates of deposit.
Noninterestmargin.
The increase in other income in 2004 over 2003 relates primarily to the increase in cash surrender value of bank owned life insurance taken out in early January of 2004. The increase in 2003 over 2002 resulted from increases in wire transfer fees charged primarily to mortgage warehouse customers and fees collected on sub-prime loans originated by Horizon, but funded by third parties.
Noninterest2007.
Noninterest
2005.
2531
The primary factors effecting 2003 were: 1) Increased occupancy related to a new facility in Chesterton, Indiana, which replaced an existing facility, and new facilities in the Southwest Michigan market, 2) Decreased data processingadditional costs related to the credit card portfolio whichacquisition of Alliance including expenses relative to the operation of the additional branches, and the amortization of the core deposit intangible acquired in the acquisition. 2006 was sold during 2002, 3)also impacted by an increase in the deferred loan fees being amortized over the life of the loan. Efforts to maintain non-interest expenses at current levels were successful. Professional fees increased related to rewriting Horizon’s Articles of Association and By Laws which were adopted at the May 2003 shareholders meeting, 4) Outside services increased due in part to maintaining guards at certain branch locations, and 5) Loan expense increaseddeclined due to the additional volume of loans originated.
a reduction in legal fees.
2007.
2632
Rate Sensitivity | ||||||||||||||||||||||||||||||||||||||||
> 3 | > 6 | Rate Sensitivity | ||||||||||||||||||||||||||||||||||||||
Months | Months | Greater | > 3 Months | |||||||||||||||||||||||||||||||||||||
3 Months | and < 6 | and < 1 | Than 1 | 3 Months or | and < 6 | > 6 Months | Greater Than | |||||||||||||||||||||||||||||||||
or Less | Months | Year | Year | Total | Less | Months | and < 1 Year | 1 Year | Total | |||||||||||||||||||||||||||||||
Loans | $ | 261,058 | $ | 43,916 | $ | 93,230 | $ | 169,674 | $ | 567,878 | $ | 270,683 | $ | 82,169 | $ | 115,202 | $ | 429,211 | $ | 897,265 | ||||||||||||||||||||
Federal funds sold | 35,314 | — | — | — | 35,314 | |||||||||||||||||||||||||||||||||||
Interest-bearing balances with Banks | 985 | 985 | 249 | — | — | — | 249 | |||||||||||||||||||||||||||||||||
Investment securities and FRB and FHLB stock | 32,328 | 13,121 | 21,896 | 225,216 | 292,561 | 22,954 | 10,259 | 13,579 | 200,508 | 247,300 | ||||||||||||||||||||||||||||||
Other assets | 12,683 | 39,725 | 52,407 | 22,931 | — | — | 55,815 | 78,746 | ||||||||||||||||||||||||||||||||
Total assets | $ | 307,053 | $ | 57,037 | $ | 115,126 | $ | 434,615 | $ | 913,831 | $ | 352,131 | $ | 92,428 | $ | 128,781 | $ | 685,534 | $ | 1,258,874 | ||||||||||||||||||||
Rate Sensitivity | ||||||||||||||||||||||||||||||||||||||||
> 3 | > 6 | Rate Sensitivity | ||||||||||||||||||||||||||||||||||||||
Months | Months | Greater | > 3 Months | |||||||||||||||||||||||||||||||||||||
3 Months | and < 6 | and < 1 | Than 1 | 3 Months or | and < 6 | > 6 Months | Greater Than | |||||||||||||||||||||||||||||||||
or Less | Months | Year | Year | Total | Less | Months | and < 1 Year | 1 Year | Total | |||||||||||||||||||||||||||||||
Noninterest-bearing deposits | $ | 4,801 | $ | 4,801 | $ | 9,601 | $ | 38,812 | $ | 58,015 | $ | 6,959 | $ | 6,959 | $ | 11,614 | $ | 58,565 | $ | 84,097 | ||||||||||||||||||||
Interest-bearing deposits | 129,647 | 83,914 | 81,301 | 259,340 | 554,202 | 210,485 | 148,059 | 129,524 | 321,499 | 809,567 | ||||||||||||||||||||||||||||||
Borrowed funds | 93,110 | 18,801 | 12,223 | 120,534 | 244,668 | 33,799 | 1,916 | 8,812 | 242,161 | 286,688 | ||||||||||||||||||||||||||||||
Other liabilities | 6,514 | 6,514 | — | — | — | 7,877 | 7,877 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 50,432 | 50,432 | — | — | — | 70,645 | 70,645 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 227,558 | $ | 107,516 | $ | 103,125 | $ | 475,632 | $ | 913,831 | $ | 251,243 | $ | 156,934 | $ | 149,950 | $ | 700,747 | $ | 1,258,874 | ||||||||||||||||||||
GAP | $ | 79,495 | $ | (50,479 | ) | $ | 12,001 | $ | (41,017 | ) | $ | 100,888 | $ | (64,506 | ) | $ | (21,169 | ) | $ | (15,213 | ) | |||||||||||||||||||
Cumulative GAP | $ | 79,495 | $ | 29,016 | $ | 41,017 | $ | 100,888 | $ | 36,382 | $ | 15,213 |
27
objective is to remain reasonably neutral with respect to IRR. Horizon utilizes a variety of strategies to maintain this position including the sale of mortgage loans on the secondary market and varying maturities of FHLB advances, certificates of deposit funding and investment securities.
33
28
Quantitative Disclosure of Market Risk
2010 and | Fair Value | |||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | Beyond | Total | 12/31/04 | |||||||||||||||||||||||||
Rate-sensitive assets | ||||||||||||||||||||||||||||||||
Fixed interest rate loans | $ | 61,729 | $ | 47,593 | $ | 36,983 | $ | 24,945 | $ | 12,305 | $ | 31,870 | $ | 215,425 | $ | 212,291 | ||||||||||||||||
Average interest rate | 6.40 | % | 6.35 | % | 6.19 | % | 6.12 | % | 6.36 | % | 6.24 | % | 6.29 | % | ||||||||||||||||||
Variable interest rate loans | 336,475 | 1,352 | 2,395 | 1,355 | 4,169 | 6,707 | 352,453 | 354,165 | ||||||||||||||||||||||||
Average interest rate | 5.95 | % | 6.07 | % | 5.78 | % | 6.55 | % | 6.34 | % | 6.19 | % | 5.89 | % | ||||||||||||||||||
Total loans | 398,204 | 48,945 | 39,378 | 26,300 | 16,474 | 38,577 | 567,878 | 566,874 | ||||||||||||||||||||||||
Average interest rate | 6.02 | % | 6.34 | % | 6.16 | % | 6.14 | % | 6.35 | % | 6.23 | % | 6.04 | % | ||||||||||||||||||
Securities, including FRB and FHLB stock | 67,345 | 42,397 | 34,558 | 30,045 | 15,478 | 102,738 | 292,561 | 292,561 | ||||||||||||||||||||||||
Average interest rate | 4.319 | % | 4.19 | % | 3.49 | % | 3.73 | % | 4.50 | % | 4.59 | % | 4.25 | % | ||||||||||||||||||
Other interest-bearing assets | 12,985 | 12,985 | 12,985 | |||||||||||||||||||||||||||||
Average interest rate | 4.11 | % | 4.11 | % | ||||||||||||||||||||||||||||
Total earnings assets | 478,535 | 91,342 | 73,936 | 56,345 | 31,952 | 141,597 | 873,389 | 872,420 | ||||||||||||||||||||||||
Average interest rate | 5.73 | % | 5.34 | % | 4.91 | % | 4.85 | % | 5.45 | % | 5.03 | % | 6.04 | % | ||||||||||||||||||
Rate-sensitive liabilities | ||||||||||||||||||||||||||||||||
Noninterest-bearing deposits | $ | 19,203 | $ | 11,784 | $ | 8,206 | $ | 5,715 | $ | 3,980 | $ | 9,127 | $ | 58,015 | $ | 58,015 | ||||||||||||||||
NOW accounts | 45,196 | 10,673 | 11,916 | 12,834 | 10,608 | 22,624 | 113,851 | 104,520 | ||||||||||||||||||||||||
Average interest rate | .60 | % | .53 | % | .53 | % | .53 | % | .53 | % | .53 | % | .56 | % | ||||||||||||||||||
Savings and money market accounts | 84,656 | 33,886 | 24,347 | 4,689 | 3,693 | 6,883 | 158,154 | 151,349 | ||||||||||||||||||||||||
Average interest rate | 1.12 | % | 1.12 | % | 1.06 | % | .20 | % | .20 | % | .20 | % | 1.04 | % | ||||||||||||||||||
Certificates of deposit | 165,010 | 21,114 | 76,860 | 16,631 | 2,582 | 282,197 | 283,576 | |||||||||||||||||||||||||
Average interest rate | 2.60 | % | 3.21 | % | 4.17 | % | 3.61 | % | 3.45 | % | 3.14 | % | ||||||||||||||||||||
Total deposits | 314,065 | 77,457 | 121,329 | 39,869 | 20,863 | 38,634 | 612,217 | 597,460 | ||||||||||||||||||||||||
Average interest rate | 1.75 | % | 1.43 | % | 2.91 | % | 1.70 | % | .73 | % | .34 | % | 1.78 | % | ||||||||||||||||||
Fixed interest rate borrowings | 24,171 | 16,440 | 19,729 | 2,269 | 81,159 | 937 | 144,705 | 149,893 | ||||||||||||||||||||||||
Average interest rate | 2.92 | % | 3.92 | % | 4.08 | % | 3.76 | % | 5.39 | % | 4.94 | % | 4.44 | % | ||||||||||||||||||
Variable interest rate borrowings | 99,963 | 99,963 | 100,011 | |||||||||||||||||||||||||||||
Average interest rate | 3.35 | % | 3.35 | % | ||||||||||||||||||||||||||||
Total funds | 438,199 | 93,897 | 141,058 | 42,138 | 102,022 | 39,571 | 856,933 | 847,364 | ||||||||||||||||||||||||
Average interest rate | 2.21 | % | 1.87 | % | 3.07 | % | 1.81 | % | 4.44 | % | 1.90 | % | 2.47 | % |
New Accounting Pronouncements
Statements of Financial Accounting Standards (SFAS) No. 123, Share-Based Payment (Revised 2004)
SFAS 123R establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant. SFAS 123R is effective for Horizon on July 1, 2005. Horizon will transition to fair value based accounting for stock-based compensation using a modified version of prospective application (“modified prospective application”). Under modified
29
prospective application, as it is applicable to Horizon, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after July 1, 2005. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (generally referring to nonvested awards) that are outstanding as of July 1, 2005 must be recognized as the remaining requisite service is rendered during the period of and/or the periods after the adoption of SFAS 123R. The attribution of compensation cost for those earlier awards will be based on the same method and on the same grant-date fair values previously determined for the pro forma disclosures required for companies that did not adopt the fair value accounting method for stock-based employee compensation. Based on the stock-based compensation awards outstanding as of December 31, 2004 for which the requisite service is not expected to be fully rendered prior to July 1, 2005, Horizon does not expect the additional compensation costs to be material as a result of the adoption of SFAS 123R. Future levels of compensation cost recognized related to stock-based compensation awards (including the aforementioned expected costs during the period of adoption) may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards before and after the adoption of this standard.
Financial Accounting Standards Board Interpretations (FIN) No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (Revised December 2003)
FIN 46, establishes accounting guidance for consolidation of variable interest entities (VIE) that function to support the activities of the primary beneficiary. The primary beneficiary of a VIE entity is the entity that absorbs a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns, or both, as a result of ownership, controlling interest, contractual relationship or other business relationship with a VIE. Prior to the implementation of FIN 46, VIEs were generally consolidated by an enterprise when the enterprise had a controlling financial interest through ownership of a majority of voting interest in the entity. The provisions of FIN 46 were effective immediately for all arrangements entered into after January 31, 2003. If a VIE existed prior to February 1, 2003, FIN 46 was effective at the beginning of the first interim period beginning after June 15, 2003. However, subsequent revisions to the interpretation deferred the implementation date of FIN 46 until the first period ending after December 15, 2003.
Horizon adopted FIN 46 in connection with its consolidated financial statements for the quarter ended March 31, 2004. The implementation of FIN 46 required Horizon to de-consolidate its investment in Horizon Statutory Trust I because Horizon is not the primary beneficiary. All prior financial statements have been restated to reflect this de-consolidation. There was no impact on shareholders’ equity, income from continuing operations or net income.
Emerging Issues Task Force (EITF) Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
EITF 03-1 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless: (i) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (ii) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment’s cost and its fair value. Certain disclosure requirements of EITF 03-1 were adopted in 2003 and Horizon began presenting the new disclosure requirements in its consolidated financial statements for the year ended December 31, 2003. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However, in September 2004, the effective date of these provisions was delayed until the finalization of a FASB Staff Position to provide additional implementation guidance.
30
SEC Staff Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan Commitments
SAB 105 summarizes the views of the staff of the SEC regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. SAB 105 provides that the fair value of recorded loan commitments that are accounted for as derivatives under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” should not incorporate the expected future cash flows related to the associated servicing of the future loan. In addition, SAB 105 requires registrants to disclose their accounting policy for loan commitments. The provisions of SAB 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. The adoption of this accounting standard did not have a material impact on Horizon’s financial statements.
American Institute of Certified Public Accountants Statement of Position (SOP) No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer
SOP 03-3 addresses accounting for differences between the contractual cash flows of certain loans and debt securities and the cash flows expected to be collected when loans or debt securities are acquired in a transfer and those cash flow differences are attributable, at least in part, to credit quality. As such, SOP 03-3 applies to loans and debt securities acquired individually, in pools or as part of a business combination and does not apply to originated loans. The application of SOP 03-3 limits the interest income, including accretion of purchase price discounts, that may be recognized for certain loans and debt securities. Additionally, SOP 03-3 does not allow the excess of contractual cash flows over cash flows expected to be collected to be recognized as an adjustment of yield, loss accrual or valuation allowance, such as the allowance for possible loan losses. SOP 03-3 requires that increases in expected cash flows subsequent to the initial investment be recognized prospectively through adjustment of the yield on the loan or debt security over its remaining life. Decreases in expected cash flows should be recognized as impairment. In the case of loans acquired in a business combination where the loans show signs of credit deterioration, SOP 03-3 represents a significant change from current purchase accounting practice whereby the acquiree’s allowance for loan losses is typically added to the acquirer’s allowance for loan losses. SOP 03-3 is effective for loans and debt securities acquired in a transfer by Horizon beginning January 1, 2005. Horizon is evaluating the impact of this standard.
3134
2013 and | Fair Value | |||||||||||||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | Beyond | Total | 12/31/07 | |||||||||||||||||||||||||
Rate-sensitive assets | ||||||||||||||||||||||||||||||||
Fixed interest rate loans | $ | 176,129 | $ | 94,934 | $ | 63,179 | $ | 41,398 | $ | 24,662 | $ | 25,757 | $ | 426,059 | $ | 428,991 | ||||||||||||||||
Average interest rate | 7.22 | % | 7.59 | % | 7.88 | % | 8.16 | % | 8.34 | % | 7.59 | % | 7.58 | % | ||||||||||||||||||
Variable interest rate loans | 291,924 | 62,478 | 50,792 | 41,773 | 15,767 | 8,472 | 471,206 | 483,650 | ||||||||||||||||||||||||
Average interest rate | 7.06 | % | 6.20 | % | 6.25 | % | 6.39 | % | 6.55 | % | 6.17 | % | 6.77 | % | ||||||||||||||||||
Total loans | 468,053 | 157,412 | 113,971 | 83,171 | 40,429 | 34,229 | 897,265 | 912,641 | ||||||||||||||||||||||||
Average interest rate | 7.12 | % | 7.04 | % | 7.15 | % | 7.27 | % | 7.64 | % | 7.24 | % | 7.15 | % | ||||||||||||||||||
Securities, including FRB and FHLB stock | 46,793 | 23,188 | 23,089 | 21,903 | 27,040 | 105,287 | 247,300 | 247,300 | ||||||||||||||||||||||||
Average interest rate | 4.83 | % | 4.92 | % | 5.18 | % | 5.22 | % | 4.49 | % | 4.58 | % | 4.76 | % | ||||||||||||||||||
Other interest-bearing assets | 35,563 | 35,563 | 35,563 | |||||||||||||||||||||||||||||
Average interest rate | 2.30 | % | 2.30 | % | ||||||||||||||||||||||||||||
Total earnings assets | 550,409 | 180,600 | 137,060 | 105,074 | 67,469 | 139,516 | 1,180,128 | 1,195,504 | ||||||||||||||||||||||||
Average interest rate | 7.32 | % | 6.29 | % | 6.26 | % | 6.26 | % | 6.30 | % | 5.09 | % | 6.60 | % | ||||||||||||||||||
Rate-sensitive liabilities | ||||||||||||||||||||||||||||||||
Noninterest-bearing deposits | $ | 25,533 | $ | 17,780 | $ | 12,382 | $ | 8,623 | $ | 6,005 | $ | 13,774 | $ | 84,097 | $ | 84,097 | ||||||||||||||||
NOW accounts | 100,361 | 28,285 | 20,551 | 15,181 | 10,616 | 55,580 | 230,574 | 229,914 | ||||||||||||||||||||||||
Average interest rate | 3.43 | % | 2.27 | % | 2.19 | % | 2.15 | % | 2.00 | % | 2.12 | % | 2.71 | % | ||||||||||||||||||
Savings and money market accounts | 36,785 | 26,921 | 19,234 | 13,634 | 9,636 | 23,691 | 129,901 | 128,310 | ||||||||||||||||||||||||
Average interest rate | 2.33 | % | 2.38 | % | 2.39 | % | 2.40 | % | 2.41 | % | 2.39 | % | 2.37 | % | ||||||||||||||||||
Certificates of deposit | 350,897 | 53,731 | 24,623 | 11,034 | 8,295 | 512 | 449,092 | 450,797 | ||||||||||||||||||||||||
Average interest rate | 4.75 | % | 4.48 | % | 4.85 | % | 4.63 | % | 4.14 | % | 1.00 | % | 4.71 | % | ||||||||||||||||||
Total deposits | 513,576 | 126,717 | 76,790 | 48,472 | 34,552 | 93,557 | 893,664 | 893,118 | ||||||||||||||||||||||||
Average interest rate | 4.08 | % | 2.91 | % | 2.74 | % | 2.40 | % | 2.28 | % | 1.87 | % | 3.41 | % | ||||||||||||||||||
Fixed interest rate borrowings | 5,789 | 65,465 | 45,415 | 30,375 | 30,462 | 35,277 | 212,783 | 219,728 | ||||||||||||||||||||||||
Average interest rate | 3.61 | % | 4.71 | % | 5.12 | % | 5.03 | % | 5.07 | % | 3.97 | % | 4.74 | % | ||||||||||||||||||
Variable interest rate borrowings | 73,906 | 73,906 | 73,906 | |||||||||||||||||||||||||||||
Average interest rate | 3.93 | % | 3.93 | % | ||||||||||||||||||||||||||||
Total funds | 593,271 | 192,182 | 122,205 | 78,847 | 65,014 | 128,834 | 1,180,353 | 1,186,752 | ||||||||||||||||||||||||
Average interest rate | 4.06 | % | 3.53 | % | 3.62 | % | 3.41 | % | 3.59 | % | 2.44 | % | 3.68 | % |
3235
Consolidated Financial Statements
Table of Contents
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Consolidated Financial Statements | ||||
Other Information | ||||
3336
and Subsidiaries(All Share and Per Share Amounts Have Been Adjusted for a 3-for-2 Stock Split Declared October 21, 2003) December 31 2007 2006 Cash and due from banks $ 19,714 $ 52,311 Interest-bearing demand deposits 1 1 Federal funds sold 35,314 6,500 Cash and cash equivalents 55,029 58,812 Interest-bearing deposits 249 898 Investment securities, available for sale 234,675 243,078 Loans held for sale 8,413 13,103 Loans, net of allowance for loan losses of $9,791 and $8,738 879,061 835,096 Premises and equipment 24,607 23,394 Federal Reserve and Federal Home Loan Bank stock 12,625 12,136 Goodwill 5,787 5,787 Other intangible assets 2,068 2,412 Interest receivable 5,897 6,094 Cash value life insurance 22,384 13,464 Other assets 8,079 8,156 Total assets $ 1,258,874 $ 1,222,430 Deposits Noninterest bearing $ 84,097 $ 81,949 Interest bearing 809,567 832,024 Total deposits 893,664 913,973 Borrowings 258,852 199,793 Subordinated debentures 27,837 40,209 Interest payable 2,439 1,771 Other liabilities 5,437 4,807 Total liabilities 1,188,229 1,160,553 Preferred stock, no par value Authorized, 1,000,000 shares No shares issued Common stock, $.2222 stated value Authorized, 22,500,000 shares Issued, 5,011,656 and 4,998,106 shares 1,114 1,111 Additional paid-in capital 25,638 25,229 Retained earnings 60,982 54,196 Accumulated other comprehensive income (loss) 63 (1,507 ) Less treasury stock, at cost, 1,759,424 shares (17,152 ) (17,152 ) Total stockholders’ equity 70,645 61,877 Total liabilities and stockholders’ equity $ 1,258,874 $ 1,222,430 December 31 2004 2003 Cash and due from banks $ 18,253 $ 28,434 Interest-bearing demand deposits 1 30 Federal funds sold 17,000 Cash and cash equivalents 18,254 45,464 Interest-bearing deposits 985 9,135 Investment securities, available for sale 281,282 215,695 Loans held for sale 3,836 8,213 Loans, net of allowance for loan losses of $7,193 and $6,909 556,849 440,809 Premises and equipment 17,561 16,460 Federal Reserve and Federal Home Loan Bank stock 11,279 10,853 Interest receivable 4,688 3,769 Other assets 19,097 7,045 Total assets $ 913,831 $ 757,443 Deposits Noninterest bearing $ 58,015 $ 71,157 Interest bearing 554,202 475,011 Total deposits 612,217 546,168 Short-term borrowings 82,281 20,241 Long-term borrowings 139,705 125,972 Subordinated debentures 22,682 12,372 Interest payable 1,024 751 Other liabilities 5,490 5,716 Total liabilities 863,399 711,220 Preferred stock, no par value Authorized, 1,000,000 shares No shares issued Common stock, $.2222 stated value Authorized, 22,500,000 shares Issued, 4,778,608 and 4,684,095 shares 1,062 1,041 Additional paid-in capital 22,729 20,994 Retained earnings 43,092 37,638 Restricted stock, unearned compensation (972 ) Accumulated other comprehensive income 894 2,075 Less treasury stock, at cost, 1,732,486 and 1,698,881 shares (16,373 ) (15,525 ) Total stockholders’ equity 50,432 46,223 Total liabilities and stockholders’ equity $ 913,831 $ 757,443
See notes to consolidated financial statements
3437
(All Share and Per Share Amounts Have Been Adjusted for a 3-for-2 Stock Split Declared October 21, 2003) Years Ended December 31 2007 2006 2005 Loans receivable $ 63,618 $ 57,282 $ 44,749 Investment securities Taxable 8,389 8,602 9,720 Tax exempt 3,061 2,796 2,372 Total interest income 75,068 68,680 56,841 Deposits 28,442 25,734 16,374 Federal funds purchased and short-term borrowings 2,930 2,035 1,210 Long-term borrowings 8,575 7,100 6,789 Subordinated debentures 2,313 2,266 1,595 Total interest expense 42,260 37,135 25,968 32,808 31,545 30,873 Provision for loan losses 3,068 905 1,521 29,740 30,640 29,352 Service charges on deposit accounts 3,469 3,102 2,966 Wire-transfer fee income 357 396 438 Fiduciary activities 3,556 3,100 2,748 Commission income from insurance agency — — 46 Gain on sale of loans 2,566 1,681 1,756 Gain on sale of mortgage servicing rights — 656 — Increase in cash surrender value of life insurance 920 470 487 Gain (loss) on sale of securities available for sale 2 (764 ) 4 Other income 1,401 1,496 1,368 Total other income 12,271 10,137 9,813 Salaries and employee benefits 17,154 16,433 16,518 Net occupancy expenses 2,418 2,338 2,217 Data processing and equipment expenses 2,516 2,560 2,342 Professional fees 1,169 1,386 1,225 Outside services and consultants 1,022 1,100 1,064 Loan expenses 2,106 1,952 1,427 Other expenses 4,759 4,686 4,336 Total other expenses 31,144 30,455 29,129 10,867 10,322 10,036 Income tax expense 2,727 2,838 2,945 $ 8,140 $ 7,484 $ 7,091 $ 2.54 $ 2.36 $ 2.31 $ 2.51 $ 2.33 $ 2.24 Years Ended December 31 2004 2003 2002 Loans receivable $ 33,386 $ 34,527 $ 35,168 Investment securities Taxable 7,338 4,996 4,877 Tax exempt 2,264 2,038 1,236 Total interest income 42,988 41,561 41,281 Deposits 10,693 10,090 11,089 Federal funds purchased and short-term borrowings 600 388 650 Long-term borrowings 5,554 6,329 5,855 Subordinated debentures 719 603 534 Total interest expense 17,566 17,410 18,128 25,422 24,151 23,153 Provision for loan losses 990 1,350 1,625 24,432 22,801 21,528 Service charges on deposit accounts 3,088 3,161 2,948 Wire-transfer fee income 522 752 757 Fiduciary activities 2,694 2,411 2,348 Commission income from insurance agency 254 246 653 Gain on sale of loans 2,126 3,843 3,152 Loss on sale of securities (510 ) Other income 1,985 1,237 391 Total other income 10,669 11,140 10,249 Salaries and employee benefits 14,767 13,948 12,752 Net occupancy expenses 1,832 1,827 1,652 Data processing and equipment expenses 1,997 2,068 2,177 Other expenses 7,076 6,928 6,822 Total other expenses 25,672 24,771 23,403 9,429 9,170 8,374 Income tax expense 2,494 2,636 2,778 6,935 6,534 5,596 97 $ 6,935 $ 6,534 $ 5,499 Before cumulative effect of a change in accounting for goodwill $ 2.32 $ 2.19 $ 1.88 Cumulative effect of a change in accounting for goodwill (.03 ) $ 2.32 $ 2.19 $ 1.85 Before cumulative effect of a change in accounting for goodwill $ 2.22 $ 2.10 $ 1.86 Cumulative effect of a change in accounting for goodwill (.03 ) $ 2.22 $ 2.10 $ 1.83
See notes to consolidated financial statements.
3538
(All Share and Per Share Amounts Have Been Adjusted for a 3-for-2 Stock Split Declared October 21, 2003) Restricted Accumulated Additional Stock, Other Common Paid-in Comprehensive Retained Unearned Comprehensive Treasury Stock Capital Income Earnings Compensation Income (Loss) Stock Total $ 1,062 $ 22,729 $ 43,092 $ (972 ) $ 894 $ (16,373 ) $ 50,432 Net income $ 7,091 7,091 7,091 Other comprehensive loss, net of tax, unrealized holding losses on securities (3,747 ) (3,747 ) (3,747 ) Comprehensive income $ 3,344 Cash dividends ($.53 per share) (1,660 ) (1,660 ) Exercise of stock options 30 916 946 Tax benefit related to stock options 907 907 Purchase treasury stock (651 ) (651 ) Amortization of unearned compensation 212 212 1,092 24,552 48,523 (760 ) (2,853 ) (17,024 ) 53,530 Net income $ 7,484 7,484 7,484 Other comprehensive loss, net of tax, unrealized holding gains on securities, net of reclassification adjustment 1,346 1,346 1,346 Comprehensive income $ 8,830 Cash dividends ($.56 per share) (1,811 ) (1,811 ) Reclassification of restricted stock, unearned compensation to paid-in capital upon adoption of SFAS 123 (R) (760 ) 760 Exercise of stock options 19 716 735 Tax benefit related to stock options 469 469 Stock option expense 40 40 Purchase treasury stock (128 ) (128 ) Amortization of unearned compensation 212 212 1,111 25,229 54,196 — (1,507 ) (17,152 ) 61,877 Net income $ 8,140 8,140 8,140 Other comprehensive income, net of tax, unrealized holding gains on securities, net of reclassification adjustment 1,570 1,570 1,570 Comprehensive income $ 9,710 Adjustment to accrued income taxes upon adoption of financial interpretation 48 563 563 Cash dividends ($.59 per share) (1,917 ) (1,917 ) Issuance of restricted stock 2 (2 ) Exercise of stock options 3 132 135 Tax benefit related to stock options 68 68 Stock option expense 53 53 Reversal of compensation expense for forfeiture of non-vested shares (2 ) (82 ) (84 ) Amortization of unearned compensation 240 240 $ 1,114 $ 25,638 $ 60,982 $ — $ 63 $ (17,152 ) $ 70,645 Restricted Accumulated Additional Stock, Other Common Paid-in Comprehensive Retained Unearned Comprehensive Treasury Stock Capital Income Earnings Compensation Income Stock Total 1,038 $ 20,808 $ 28,130 $ 430 $ (15,463 ) $ 34,943 Net income $ 5,499 5,499 5,499 Other comprehensive income, net of tax, unrealized gains on securities 2,241 2,241 2,241 Comprehensive income $ 7,740 Cash dividends ($.41 per share) (1,211 ) (1,211 ) Purchase of 4,500 shares of treasury stock (62 ) (62 ) 1,038 20,808 32,418 2,671 (15,525 ) 41,410 Net income $ 6,534 6,534 6,534 Other comprehensive loss, net of tax, unrealized losses on securities, net of reclassification adjustment (596 ) (596 ) (596 ) Comprehensive income $ 5,938 Cash dividends ($.44 per share) (1,311 ) (1,311 ) Exercise of stock options 3 155 158 Tax benefit related to stock options 31 31 Fractional share payment due to stock split (3 ) (3 ) 1,041 20,994 37,638 2,075 (15,525 ) 46,223 Net income $ 6,935 6,935 6,935 Other comprehensive loss, net of tax, unrealized losses on securities (1,181 ) (1,181 ) (1,181 ) Comprehensive income $ 5,754 Cash dividends ($.49 per share) (1,481 ) (1,481 ) Exercise of stock options 11 434 445 Tax benefit related to stock options 251 251 Purchase treasury stock (848 ) (848 ) Issuance of restricted stock 10 1,050 $ (1,060 ) Amortization of unearned compensation 88 88 $ 1,062 $ 22,729 $ 43,092 $ (972 ) $ 894 $ (16,373 ) $ 50,432
See notes to consolidated financial statements.
3639
Years Ended December 31 | 2004 | 2003 | 2002 | 2007 | 2006 | 2005 | ||||||||||||||||||
Operating Activities | ||||||||||||||||||||||||
Net income | $ | 6,935 | $ | 6,534 | $ | 5,499 | $ | 8,140 | $ | 7,484 | $ | 7,091 | ||||||||||||
Items not requiring (providing) cash | ||||||||||||||||||||||||
Provision for loan losses | 990 | 1,350 | 1,625 | 3,068 | 905 | 1,521 | ||||||||||||||||||
Depreciation and amortization | 1,606 | 1,524 | 1,444 | 2,278 | 2,471 | 2,281 | ||||||||||||||||||
Share based compensation | 53 | 40 | — | |||||||||||||||||||||
Premium amortization on securities available for sale | 582 | 872 | 124 | 121 | 240 | 764 | ||||||||||||||||||
Goodwill impairment | 874 | |||||||||||||||||||||||
Mortgage servicing rights impairment (recovery) | (155 | ) | (111 | ) | 407 | 2 | (41 | ) | (97 | ) | ||||||||||||||
Deferred income tax | (458 | ) | (525 | ) | (703 | ) | (225 | ) | (78 | ) | 174 | |||||||||||||
Loss on sales of securities available for sale | 510 | |||||||||||||||||||||||
(Gain) loss on sales of securities available for sale | (2 | ) | 764 | (4 | ) | |||||||||||||||||||
Gain on sale of mortgage servicing rights | — | (656 | ) | — | ||||||||||||||||||||
Gain on sale of loans | (2,126 | ) | (3,843 | ) | (3,152 | ) | (2,566 | ) | (1,681 | ) | (1,756 | ) | ||||||||||||
Proceeds from sales of loans | 114,499 | 222,975 | 166,834 | 135,436 | 95,471 | 98,150 | ||||||||||||||||||
Loans originated for sale | (107,996 | ) | (214,725 | ) | (169,486 | ) | (128,180 | ) | (104,453 | ) | (94,998 | ) | ||||||||||||
Deferred loan fees | 34 | 1 | (6 | ) | ||||||||||||||||||||
Unearned income | (372 | ) | (353 | ) | (618 | ) | ||||||||||||||||||
Gain on sale of other real estate owned | (17 | ) | (64 | ) | (180 | ) | ||||||||||||||||||
(Gain) loss on sale of other real estate owned | (10 | ) | 4 | (38 | ) | |||||||||||||||||||
(Gain) loss on sale of premises and equipment | 11 | (24 | ) | (137 | ) | 10 | 16 | (22 | ) | |||||||||||||||
Federal Home Loan Bank stock dividends | (458 | ) | (325 | ) | ||||||||||||||||||||
Tax benefit of options exercised | (68 | ) | (469 | ) | (907 | ) | ||||||||||||||||||
Increase in cash surrender value of life insurance | (544 | ) | (920 | ) | (470 | ) | (487 | ) | ||||||||||||||||
Net change in | ||||||||||||||||||||||||
Interest receivable | (919 | ) | (259 | ) | (301 | ) | 197 | (281 | ) | (596 | ) | |||||||||||||
Interest payable | 273 | (106 | ) | 92 | 668 | 108 | 497 | |||||||||||||||||
Other assets | 2,321 | (1,096 | ) | 475 | (670 | ) | 536 | 912 | ||||||||||||||||
Other liabilities | (226 | ) | 633 | 82 | 648 | (879 | ) | (1,269 | ) | |||||||||||||||
Net cash provided by operating activities | 13,980 | 12,968 | 2,873 | |||||||||||||||||||||
Net cash provided by (used in) operating activities | 17,980 | (969 | ) | 11,216 | ||||||||||||||||||||
Investing Activities | ||||||||||||||||||||||||
Net change in interest-bearing deposits | 8,150 | (8,814 | ) | (74 | ) | 649 | 14,837 | (10,048 | ) | |||||||||||||||
Purchases of securities available for sale | (171,180 | ) | (214,133 | ) | (75,323 | ) | (51,822 | ) | (91,791 | ) | (38,417 | ) | ||||||||||||
Proceeds from maturities, calls and principal repayments of securities available for sale | 103,227 | 69,693 | 36,482 | 34,546 | 33,695 | 54,071 | ||||||||||||||||||
Proceeds from sales of securities available for sale | 35,899 | 27,973 | 91,265 | 7,150 | ||||||||||||||||||||
Purchase of Federal Reserve and Federal Home Loan Bank stock | (2,199 | ) | (1,591 | ) | ||||||||||||||||||||
Purchase of FRB and FHLB stock, net of redemption | (539 | ) | (81 | ) | (712 | ) | ||||||||||||||||||
Proceeds from sale of mortgage servicing rights | — | 1,273 | — | |||||||||||||||||||||
Proceeds from sale of Federal Home loan Bank Stock | 50 | 928 | — | |||||||||||||||||||||
Net change in loans | (117,492 | ) | 87,443 | (70,182 | ) | (47,773 | ) | (112,203 | ) | (83,118 | ) | |||||||||||||
Proceeds from sale of fixed assets | 51 | 31 | 585 | — | 1 | 723 | ||||||||||||||||||
Recoveries on loans previously charged-off | 359 | 288 | 417 | 722 | 608 | 527 | ||||||||||||||||||
Proceeds from sale of other real estate owned | 165 | 330 | 1,095 | 768 | 44 | 409 | ||||||||||||||||||
Purchases of premises and equipment | (2,659 | ) | (2,210 | ) | (1,489 | ) | (3,001 | ) | (3,877 | ) | (1,421 | ) | ||||||||||||
Purchase of trust preferred securities | (310 | ) | (372 | ) | — | (372 | ) | — | ||||||||||||||||
Purchase of bank owned life insurance | (12,000 | ) | (8,000 | ) | — | — | ||||||||||||||||||
Acquisition, net of cash acquired | — | — | (2,901 | ) | ||||||||||||||||||||
Net cash used in investing activities | (191,689 | ) | (33,672 | ) | (110,452 | ) | (46,427 | ) | (65,673 | ) | (73,737 | ) | ||||||||||||
See notes to consolidated financial statements
3740
(Dollar Amounts in Thousands)(Continued) Years Ended December 31 2004 2003 2002 2007 2006 2005 (Continued) (Continued) Net change in Deposits $ 66,049 $ 56,909 $ 69,660 $ (20,309 ) $ 58,407 $ 126,213 Short-term borrowings 62,040 (4,168 ) 2,065 Repurchase agreements and note payable 39,222 (7,183 ) (2,256 ) Proceeds from long-term borrowings 89,850 148,038 161,848 220,000 250,000 107,000 Repayment of long-term borrowings (76,117 ) (169,178 ) (120,029 ) (200,163 ) (226,657 ) (146,982 ) Proceeds from issuance of trust preferred securities 10,310 12,372 — 12,372 — Redemption of trust preferred securities (12,372 ) — — Dividends paid (1,481 ) (1,311 ) (1,211 ) (1,917 ) (1,811 ) (1,660 ) Fractional share payment due to stock split (3 ) Issuance of stock 696 189 Exercise of stock options 135 735 946 Tax benefit of options exercised 68 469 907 Purchase of treasury stock (848 ) (62 ) — (128 ) (651 ) Net cash provided by financing activities 150,499 30,476 124,643 24,664 86,204 83,517 (27,210 ) 9,772 17,064 (3,783 ) 19,562 20,996 45,464 35,692 18,628 58,812 39,250 18,254 $ 18,254 $ 45,464 $ 35,692 $ 55,029 $ 58,812 $ 39,250 Interest paid $ 17,293 $ 17,516 $ 18,036 $ 41,592 $ 36,960 $ 25,281 Income tax paid 1,072 3,780 3,860 2,630 1,530 1,870
3841
42
39
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
Interest and Fees on Loans— Interest on commercial, mortgage and installment loans is recognized over the term of the loans based on the principal amount outstanding. When principal or interest is past due 90 days or more, and the loan is not well secured or in the process of collection, or when serious doubt exists as to the collectibility of a loan, the accrual of interest is discontinued. Loan origination fees, net of direct loan origination costs, are deferred and recognized over the life of the loan as a yield adjustment.
43
40
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
The unallocatedqualitative allowance is based upon management’s evaluation of various conditions, the effects of which are not directly measured in the determination of the formulageneral and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific credits. The conditions evaluated in connection with the unallocatedqualitative allowance may include factors such as local, regional and national economic conditions and forecasts, concentrations of credit and changes in the composition of the portfolio.
44
41
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
Income Taxes— Horizon files annual consolidated income tax returns with its subsidiaries. Income tax in the consolidated statements of income includes deferred income tax provisions or benefits for all significant temporary differences in recognizing income and expenses for financial reporting and income tax purposes.
45
Stock Options-— At December 31, 2004,2007, Horizon has stock option plans, which are described more fully in Note 18. Effective January 1, 2006, Horizon accountsadopted Statement of Financial Accounting Standards No. 123(R),Share-Based Payment(“SFAS 123(R)”). SFAS 123(R) addresses all forms of share-based payment awards, including shares under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS 123(R) requires all share-based payments to be recognized as expense, based upon their fair values, in the financial statements over the vesting period of the awards. Horizon has elected the modified prospective application and, as a result, has recorded approximately $53 thousand and $40 thousand for 2007 and 2006 respectively in compensation expense relating to vesting of stock options less estimated forfeitures for the 12 month period ended December 31, 2007 and 2006. Prior to adoption of SFAS 123(R), unearned compensation related to restricted stock awards was classified as a separate component of stockholders’ equity. Upon the adoption of SFAS 123(R) on January 1, 2006, the balance in unearned compensation was reclassified to additional paid-in capital.
Years Ended December 31 | 2005 | |||
Net income, as reported | $ | 7,091 | ||
Less: Total stock-based employee compensation cost determined under the fair value based method, net of income taxes | (35 | ) | ||
Pro forma net income | $ | 7,056 | ||
Earnings per share: | ||||
Basic – as reported | $ | 2.31 | ||
Basic – pro forma | $ | 2.30 | ||
Diluted – as reported | $ | 2.24 | ||
Diluted – pro forma | $ | 2.23 |
4246
47
Notes to Consolidated Financial Statements
Years Ended December 31 | 2004 | 2003 | 2002 | |||||||||
Net income, as reported | $ | 6,935 | $ | 6,534 | $ | 5,499 | ||||||
Less: Total stock-based employee compensation cost determined under the fair value based method, net of income taxes | (127 | ) | (79 | ) | (4 | ) | ||||||
Pro forma net income | $ | 6,808 | $ | 6,455 | $ | 5,495 | ||||||
Earnings per share: | ||||||||||||
Basic – as reported | $ | 2.32 | $ | 2.19 | $ | 1.85 | ||||||
Basic – pro forma | $ | 2.27 | $ | 2.17 | $ | 1.85 | ||||||
Diluted – as reported | $ | 2.22 | $ | 2.10 | $ | 1.83 | ||||||
Diluted – pro forma | $ | 2.18 | $ | 2.08 | $ | 1.83 |
Reclassifications— Certain reclassifications have been made toIn December 2007, the 2003FASB issued SFAS No. 141 (revised 2007),Business Combinations(“SFAS 141R”), which replaces the FASB Statement No. 141. SFAS 141R establishes principles and 2002 consolidatedrequirements for how an acquirer recognizes and measures in its financial statements the identifiable assets required, the liabilities assumed, any non-controlling interests in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements that will enable users to be comparable to 2004. These reclassifications had no effectevaluate the nature and financial effects of the business combination. SFAS 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 141R on net income.
the Company’s financial condition, results of operations and cash flows.
2004 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31 | Cost | Gains | Losses | Value | ||||||||||||
Available for sale | ||||||||||||||||
U. S. Treasury and federal agencies | $ | 86,348 | $ | 12 | $ | (734 | ) | $ | 85,626 | |||||||
State and municipal | 54,881 | 2,493 | (47 | ) | 57,327 | |||||||||||
Federal agency collateralized mortgage obligations | 13,380 | 14 | (56 | ) | 13,338 | |||||||||||
Federal agency mortgage backed pools | 124,666 | 639 | (997 | ) | 124,308 | |||||||||||
Corporate notes | 632 | 51 | 683 | |||||||||||||
Total investment securities | $ | 279,907 | $ | 3,209 | $ | (1,834 | ) | $ | 281,282 | |||||||
2003 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31 | Cost | Gains | Losses | Value | ||||||||||||
Available for sale | ||||||||||||||||
U. S. Treasury and federal agencies | $ | 66,945 | $ | 196 | $ | (369 | ) | $ | 66,772 | |||||||
State and municipal | 57,799 | 2,482 | (51 | ) | 60,230 | |||||||||||
Federal agency collateralized mortgage obligations | 14,354 | 176 | (42 | ) | 14,488 | |||||||||||
Federal agency mortgage backed pools | 72,806 | 747 | (7 | ) | 73,546 | |||||||||||
Corporate notes | 600 | 59 | 659 | |||||||||||||
Total investment securities | $ | 212,504 | $ | 3,660 | $ | (469 | ) | $ | 215,695 | |||||||
Assets | ||||
Cash and cash equivalents | $ | 10,447 | ||
Investment securities | 28,922 | |||
Loans, net of allowance for loan losses | 86,447 | |||
Premises and equipment | 4,983 | |||
Goodwill | 5,629 | |||
Core deposit intangible | 2,952 | |||
Other assets | 1,711 | |||
Total assets | 141,091 | |||
Liabilities | ||||
Deposits | 117,137 | |||
Borrowings | 9,040 | |||
Other liabilities | 1,566 | |||
Total liabilities | 127,743 | |||
Net Assets Acquired | $ | 13,348 | ||
4348
49
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Year ended December 31 2005 Net interest income $ 32,884 Net income 6,111 Per Share – combined Basic net income $ 1.99 Diluted net income 1.93 2007 Gross Gross Amortized Unrealized Unrealized Fair December 31 Cost Gains Losses Value Available for sale U.S. Treasury and federal agencies $ 25,660 $ 560 $ — $ 26,220 State and municipal 86,389 906 364 86,931 Federal agency collateralized mortgage obligations 13,650 53 151 13,552 Federal agency mortgage-backed pools 108,247 253 1,129 107,371 Corporate notes 632 — 31 601 Total investment securities $ 234,578 $ 1,772 $ 1,675 $ 234,675 2006 Gross Gross Amortized Unrealized Unrealized Fair December 31 Cost Gains Losses Value Available for sale U.S. Treasury and federal agencies $ 58,595 $ 58 $ 208 $ 58,445 State and municipal 81,363 806 369 81,800 Federal agency collateralized mortgage obligations 11,215 19 224 11,010 Federal agency mortgage-backed pools 93,591 54 2,471 91,174 Corporate notes 632 17 — 649 Total investment securities $ 245,396 $ 954 $ 3,272 $ 243,078
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Within one year | $ | 1,213 | $ | 1,235 | $ | 5,099 | $ | 5,139 | ||||||||
One to five years | 80,368 | 79,865 | 7,457 | 7,588 | ||||||||||||
Five to ten years | 18,354 | 18,614 | 30,017 | 30,277 | ||||||||||||
After ten years | 41,926 | 43,922 | 70,108 | 70,748 | ||||||||||||
141,861 | 143,636 | 112,681 | 113,752 | |||||||||||||
Federal agency collateralized mortgage obligations | 13,380 | 13,338 | 13,650 | 13,552 | ||||||||||||
Federal agency mortgage backed pools | 124,666 | 124,308 | ||||||||||||||
Federal agency mortgage-backed pools | 108,247 | 107,371 | ||||||||||||||
Totals | $ | 279,907 | $ | 281,282 | $ | 234,578 | $ | 234,675 | ||||||||
gross losses of $2,011,000 were recognized on these sales. Proceeds from the sales of securities available for sale during 2005 were $7,150,000. Gross gains of $37,000 and gross losses of $33,000 were recognized on these sales. The tax expense on net realized gains for 2007 and 2005 was $700 and $1,400 respectively. The tax benefit on net realized losses for 2006 was $267,000.
rates.
Horizon does not have a history of actively trading securities, but keeps the securities available for sale should liquidity or other needs develop that would warrant the sale of securities. While these securities are held in the available for sale portfolio, Horizon intends and has the ability to hold them until the earlier of a recovery in fair value or maturity.
4450
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)20042007 and 2003:2006: Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses U. S. Treasury and Federal agencies $ 60,872 $ 425 $ 10,691 $ 309 $ 71,563 $ 734 State and municipal 2,791 10 869 37 3,660 47 Federal agency collateralized mortgage obligations 8,154 56 8,154 56 Federal agency mortgage backed pools 73,026 854 9,097 143 82,123 997 Total temporarily impaired securities $ 144,843 $ 1,345 $ 20,657 $ 489 $ 165,500 $ 1,834 Less than 12 Months 12 Months or More Total Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Unrealized Unrealized Unrealized Value Losses Value Losses Value Losses Fair Value Losses Fair Value Losses Fair Value Losses U. S. Treasury and federal agencies $ 20,631 $ 369 $ 0 $ 0 $ 20,631 $ 369 State and municipal 5,445 �� 51 5,445 51 $ 21,498 $ 161 $ 11,177 $ 203 $ 32,675 $ 364 Federal agency collateralized mortgage obligations 5,478 42 5,478 42 2,665 22 4,995 129 7,660 151 Federal agency mortgage backed pools 4,965 7 4,965 7 Federal agency mortgage-backed pools 692 15 60,046 1,114 60,738 1,129 Corporate notes 601 31 — — 601 31 Total temporarily impaired securities $ 36,519 $ 469 $ 0 $ 0 $ 36,519 $ 469 $ 25,456 $ 229 $ 76,218 $ 1,446 $ 101,674 $ 1,675
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Description of | Unrealized | Unrealized | Unrealized | |||||||||||||||||||||
Securities | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
2006 | ||||||||||||||||||||||||
U.S. Treasury and federal agencies | $ | 10,804 | $ | 30 | $ | 10,899 | $ | 178 | $ | 21,703 | $ | 208 | ||||||||||||
State and municipal | 22,354 | 121 | 10,615 | 248 | 32,969 | 369 | ||||||||||||||||||
Federal agency collateralized mortgage obligations | — | — | 9,203 | 224 | 9,203 | 224 | ||||||||||||||||||
Federal agency mortgage-backed pools | 1,742 | 10 | 84,785 | 2,461 | 86,527 | 2,471 | ||||||||||||||||||
Total temporarily impaired securities | $ | 34,900 | $ | 161 | $ | 115,502 | $ | 3,111 | $ | 150,402 | $ | 3,272 | ||||||||||||
4551
2005, respectively.
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)34 — Loans and Allowance December 31 2004 2003 Commercial loans $ 203,966 $ 152,362 Mortgage warehouse loans 127,992 126,056 Real estate loans 89,139 67,428 Installment loans 142,945 101,872 564,042 447,718 Allowance for loan losses (7,193 ) (6,909 ) Total loans $ 556,849 $ 440,809 December 31 2004 2003 2002 Allowance for loan losses Balances, January 1 $ 6,909 $ 6,255 $ 5,410 Provision for losses 990 1,350 1,625 Recoveries on loans 359 288 417 Loans charged off (1,065 ) (984 ) (1,197 ) Balances, December 31 $ 7,193 $ 6,909 $ 6,255 December 31 2007 2006 Commercial loans $ 307,535 $ 271,457 Mortgage warehouse loans 78,225 112,267 Real estate loans 216,019 222,235 Installment loans 287,073 237,875 888,852 843,834 Allowance for loan losses (9,791 ) (8,738 ) Total loans $ 879,061 $ 835,096 December 31 2007 2006 2005 Allowance for loan losses Balances, January 1 $ 8,738 $ 8,368 $ 7,193 Acquired through acquisition — — 557 Provision for losses 3,068 905 1,521 Recoveries on loans 722 608 527 Loans charged off (2,737 ) (1,143 ) (1,430 ) Balances, December 31 $ 9,791 $ 8,738 $ 8,368 exceeded the carrying value of the loan totaled $427,499approximately $1,870,000 and $314,621$1,768,000 at December 31, 20042007 and 2003,2006, respectively. The allowance for impaired loans, included in the Bank’s allowance for loan losses, totaled $65,000$345,000 and $61,742$406,000 at December 31, 20042007 and 2003,2006, respectively. The average balance of impaired loans during 20042007 was $291,501$1,673,000 and $320,925$942,000 during 2003.2006. There was $21,787$165,000, $117,000 and $900$63,000 of interest income recorded on the cash and receivedaccrual basis during 20042007, 2006 and 20032005, respectively, on impaired loans.2004, there were no loans past due more than 90 days and still accruing interest. At December 31 2003,2007, loans past due more than 90 days and still accruing interest totaled approximately $176,000.Loans on which the recognition of$87,000. At December 31, 2006, loans past due more than 90 days and still accruing interest has been discontinued or reduced totaled approximately $1,358,000, $1,707,000 and $1,217,000$144,000. Non-accruing loans at December 31, 2004, 20032007, 2006 and 2002.2005, totaled approximately $2,862,000, $2,481,000 and $1,822,000, respectively. Interest income not recognized on these loans totaled approximately $88,270, $118,000$122,000, $77,000 and $122,000$60,000 in 2004, 20032007, 2006 and 2002.$5,393,321$15,217,000 and $5,731,000,$5,834,000, as of December 31, 20042007 and 2003.2006, respectively. During 2004,2007, new loans or advances were $1,523,000$12,282,000 and loan payments were $1,861,000.$2,899,000.4652
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)45 — Premises and Equipment December 31 2004 2003 2007 2006 Land $ 3,814 $ 3,517 $ 7,006 $ 6,641 Buildings and improvements 19,283 17,921 25,453 23,565 Furniture and equipment 8,380 8,144 10,366 9,809 Total cost 31,477 29,582 42,825 40,015 Accumulated depreciation (13,916 ) (13,122 ) (18,218 ) (16,621 ) Net $ 17,561 $ 16,460 $ 24,607 $ 23,394
2006, respectively.
2004 | 2003 | 2002 | 2007 | 2006 | 2005 | |||||||||||||||||||
Mortgage Servicing Rights | ||||||||||||||||||||||||
Balances, January 1 | $ | 1,429 | $ | 939 | $ | 892 | $ | 248 | $ | 1,278 | $ | 1,473 | ||||||||||||
Servicing rights capitalized | 482 | 860 | 340 | 79 | 83 | 239 | ||||||||||||||||||
Servicing rights sold | — | (862 | ) | — | ||||||||||||||||||||
Amortization of servicing rights | (438 | ) | (370 | ) | (293 | ) | (51 | ) | (251 | ) | (434 | ) | ||||||||||||
1,473 | 1,429 | 939 | 276 | 248 | 1,278 | |||||||||||||||||||
Impairment allowance | (141 | ) | (296 | ) | (407 | ) | (7 | ) | (3 | ) | (44 | ) | ||||||||||||
Balances, December 31 | $ | 1,332 | $ | 1,133 | $ | 532 | $ | 269 | $ | 245 | $ | 1,234 | ||||||||||||
4753
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)67 — Intangible Assets 2007 2006 Gross Gross Carrying Accumulated Carrying Accumulated December 31 Amount Amortization Amount Amortization Amortizable intangible assets Core deposit intangible $ 2,952 $ (884 ) $ 2,952 $ (553 ) Noncompete agreement 90 (90 ) 90 (77 ) $ 3,042 $ (974 ) $ 3,042 $ (630 ) 2008 $ 317 2009 305 2010 292 2011 280 2012 269 Thereafter 605 $ 2,068 December 31 2004 2003 2007 2006 Noninterest-bearing demand deposits $ 58,015 $ 71,157 $ 84,097 $ 81,949 Interest-bearing demand deposits 113,859 92,284 230,574 307,147 Money market (variable rate) 123,092 94,174 100,792 129,981 Savings deposits 35,062 34,403 29,110 31,495 Certificates of deposit of $100,000 or more 103,622 78,593 227,781 151,342 Other certificates and time deposits 178,567 175,557 221,310 212,059 Total deposits $ 612,217 $ 546,168 $ 893,664 $ 913,973
54
2005 | $ | 146,827 | ||
2006 | 19,158 | |||
2007 | 82,498 | |||
2008 | 28,225 | |||
2009 | 5,481 | |||
$ | 282,189 | |||
2008 | $ | 350,922 | ||
2009 | 53,731 | |||
2010 | 24,623 | |||
2011 | 11,034 | |||
2012 | 8,295 | |||
Thereafter | 486 | |||
$ | 449,091 | |||
December 31 | 2004 | 2003 | 2007 | 2006 | ||||||||||||
Federal funds purchased | $ | 24,600 | ||||||||||||||
Federal Home Loan Bank advances | 30,000 | |||||||||||||||
Federal Home Loan Bank advances, variable and fixed rates ranging from 2.86% to 7.53%, due at various dates through November 15, 2024 | $ | 157,783 | $ | 137,951 | ||||||||||||
Securities sold under agreements to repurchase | 27,681 | $ | 15,241 | 96,369 | 56,642 | |||||||||||
Notes payable, unsecured | 5,000 | |||||||||||||||
Notes payable | 4,700 | 5,200 | ||||||||||||||
Total short-term borrowings | $ | 82,281 | $ | 20,241 | $ | 258,852 | $ | 199,793 | ||||||||
The Bank has various adjustable rate short-term advances with the Federal Home Loan Bank due atlender on various dates through June 2005. Interest is payable monthly and the advances are secured by first and second mortgages which are more fully described in the following footnote.
48
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
Horizon has an unsecured $5,000,000$12,000,000 line of credit, none of which, $4.7 million was outstanding at December 31, 2004.2007. The line of credit is from an unrelated financial institution with interest payable quarterly at a rate indexed to LIBOR. The note matures within one year.
55
2008 | $ | 51,355 | ||
2009 | 40,125 | |||
2010 | 45,133 | |||
2011 | 30,142 | |||
2012 | 41,568 | |||
Thereafter | 50,529 | |||
�� | ||||
$ | 258,852 | |||
December 31 | 2004 | 2003 | ||||||
Federal Home Loan Bank advances, variable and fixed rates ranging from 2.86% to 7.53%, due at various dates through November 15, 2024 | $ | 113,705 | $ | 125,972 | ||||
Securities sold under repurchase agreements, fixed rate, due at various dates through October 25, 2009 | 26,000 | |||||||
Total long-term debt | $ | 139,705 | $ | 125,972 | ||||
The Federal Home Loan Bank advances are secured by first and second mortgage loans totaling approximately $330,840,000. Advances are subject to restrictions or penalties in the event of prepayment.
Contractual maturities in years ending December 31 | ||||
2005 | $ | 8,140 | ||
2006 | 15,649 | |||
2007 | 23,160 | |||
2008 | 5,286 | |||
2009 | 10,125 | |||
Thereafter | 77,345 | |||
$ | 139,705 | |||
Note 910 — Subordinated Debentures
49
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
In October of 2004, Horizon formed Horizon Bancorp CapitalStatutory Trust II (Trust II), a wholly owned statutory business trust. Trust II issued $10sold $10.310 million of Trust Preferred Capital Securities as a participant in a pooled trust preferred securities offering. Horizon issued juniorThe proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures aggregating $10 million to Trust II.from Horizon. The junior subordinated debentures are the sole assets of Trust II.II and are fully and unconditionally guaranteed by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends, respectively, on a quarterly basis. The junior subordinated debentures and the securities bear interest at a rate of 90 day LIBOR plus 1.95% and mature on October 21, 2034, and are noncallablenon-callable for five years. After that period, the securities may be called at any quarterly interest payment date at par. Costs associated with the issuance of the securities totaling $17,500 were capitalized and are being amortized to the first call date of the securities.
56
57
Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
was $200,000 in 2006 and 2005.
Years Ended December 31 | 2007 | 2006 | 2005 | |||||||||
Supplies and printing | $ | 452 | $ | 466 | $ | 452 | ||||||
Advertising | 630 | 613 | 659 | |||||||||
Communication | 561 | 479 | 480 | |||||||||
Directors fees | 280 | 279 | 272 | |||||||||
Insurance expense | 430 | 466 | 509 | |||||||||
Postage | 354 | 340 | 301 | |||||||||
Amortization of intangibles | 344 | 367 | 230 | |||||||||
Travel and entertainment | 548 | 530 | 527 | |||||||||
Other | 1,160 | 1,146 | 906 | |||||||||
Total other expenses | $ | 4,759 | $ | 4,686 | $ | 4,336 | ||||||
5058
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)12 — Other Expenses Years Ended December 31 2004 2003 2002 Supplies and printing $ 403 $ 365 $ 339 Advertising 790 731 670 Communication 700 630 644 Professional fees 1,219 1,229 1,096 Training 70 95 115 Outside services and consultants 978 1,114 944 Loan expenses 1,154 1,092 755 Goodwill impairment 714 Directors fees 274 224 177 Insurance expense 376 340 316 Other 1,112 1,108 1,052 Total other expenses $ 7,076 $ 6,928 $ 6,822 Note 1314 — Income Tax Years Ended December 31 2004 2003 2002 2007 2006 2005 Income tax expense Currently payable Federal $ 2,445 $ 2,673 $ 2,953 $ 2,671 $ 2,381 $ 2,226 State 507 488 528 281 535 545 Deferred (458 ) (525 ) (703 ) (225 ) (78 ) 174 Total income tax expense $ 2,494 $ 2,636 $ 2,778 $ 2,727 $ 2,838 $ 2,945 Reconciliation of federal statutory to actual tax expense Federal statutory income tax at 34% $ 3,206 $ 3,114 $ 2,847 $ 3,695 $ 3,510 $ 3,412 Tax exempt interest (882 ) (804 ) (534 ) (1,097 ) (1,009 ) (841 ) Tax exempt income (185 ) (13 ) (12 ) (318 ) (170 ) (175 ) Nondeductible and other 20 17 129 261 154 189 Effect of state income taxes 335 322 348 186 353 360 Actual tax expense $ 2,494 $ 2,636 $ 2,778 $ 2,727 $ 2,838 $ 2,945
The tax benefit applicable to securities losses for 2003 was $152,951. There were no security sales in 2004 and 2002.
51
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
A cumulative net deferred tax asset is included in other assets. The components of the asset are as follows:
December 31 | 2004 | 2003 | 2007 | 2006 | ||||||||||||
Assets | ||||||||||||||||
Allowance for loan losses | $ | 3,057 | $ | 2,936 | $ | 3,944 | $ | 3,757 | ||||||||
Accrued operating expenses | 158 | 214 | ||||||||||||||
Loan fees | 56 | 42 | ||||||||||||||
Difference in expense recognition | — | 101 | ||||||||||||||
Director and employee benefits | 675 | 663 | 829 | 855 | ||||||||||||
Net operating loss carryforward | — | 60 | ||||||||||||||
Tax credit carry forward | — | 82 | ||||||||||||||
Unrealized loss on securities available for sale | — | 811 | ||||||||||||||
Total assets | 3,946 | 3,855 | 4,773 | 5,666 | ||||||||||||
Liabilities | ||||||||||||||||
Depreciation | (936 | ) | (742 | ) | (899 | ) | (1,062 | ) | ||||||||
Difference in expense recognition | (111 | ) | — | |||||||||||||
Federal Home Loan Bank stock dividends | (333 | ) | (138 | ) | (326 | ) | (326 | ) | ||||||||
Difference in basis of intangible assets | (826 | ) | (959 | ) | ||||||||||||
Difference in basis of assets | — | (185 | ) | |||||||||||||
Difference in basis of liabilities | — | (5 | ) | |||||||||||||
Unrealized gain on securities available for sale | (34 | ) | — | |||||||||||||
Other | (373 | ) | (213 | ) | (178 | ) | (110 | ) | ||||||||
Unrealized gain on securities available for sale | (481 | ) | (1,117 | ) | ||||||||||||
Total liabilities | (2,123 | ) | (2,210 | ) | (2,374 | ) | (2,647 | ) | ||||||||
Net deferred tax asset | $ | 1,823 | $ | 1,645 | $ | 2,399 | $ | 3,019 | ||||||||
59
Years Ended December 31 | 2004 | 2003 | 2002 | 2007 | 2006 | 2005 | ||||||||||||||||||
Unrealized gains (losses) on securities: | ||||||||||||||||||||||||
Unrealized losses on securities: | ||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the year | $ | (1,816 | ) | $ | (1,414 | ) | $ | 3,398 | $ | 2,413 | $ | 1,307 | $ | (5,765 | ) | |||||||||
Less: reclassification adjustment for losses realized in net income | (510 | ) | ||||||||||||||||||||||
Less: reclassification adjustment for gains (losses) realized in net income | 2 | (764 | ) | 4 | ||||||||||||||||||||
Net unrealized gains (losses) | (1,816 | ) | (904 | ) | 3,398 | 2,415 | 2,071 | (5,769 | ) | |||||||||||||||
Tax (expense) benefit | 635 | 308 | (1,157 | ) | (845 | ) | (725 | ) | 2,022 | |||||||||||||||
Other comprehensive income (loss) | $ | (1,181 | ) | $ | (596 | ) | $ | 2,241 | $ | 1,570 | $ | 1,346 | $ | (3,747 | ) | |||||||||
52
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
The Bank is a party to financial instruments with off-balance sheet risk in the ordinary course of business to meet financing needs of its customers. These financial instruments include commitments to make loans and standby letters of credit. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank follows the same credit policy to make such commitments as is followed for those loans recorded in the financial statements.
60
During the course of a periodic examination by the Bank’s regulators that commenced in February 2003, the examination personnel raised the issue of whether the Bank’s mortgage warehouse loans should be treated as other loans rather than home mortgages for call report purposes. If these loans are treated as other loans for regulatory reporting purposes, it would change the calculations for risk based capital and reduce the Bank’s risk-based capital ratios. Management believes that it has properly characterized the loans in its mortgage warehouse loan portfolio for risk-based capital purposes, but there is no assurance that the regulators will concur with that determination. Should the call report classification of the loans be changed, Horizon and the Bank would still be categorized as well capitalized at December 31, 2004 and 2003.
53
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
Horizon’s and the Bank’s actual and required capital amounts and ratios are as follows:
Minimum | Minimum Required To | |||||||||||||||||||||||||||||||||||||||||||||||
Required To Be | Be Well | |||||||||||||||||||||||||||||||||||||||||||||||
Well | Minimum Required | Capitalized1 Under | ||||||||||||||||||||||||||||||||||||||||||||||
Minimum | Capitalized1 | for Capital1 | Prompt Corrective | |||||||||||||||||||||||||||||||||||||||||||||
Required for | Under Prompt | Actual | Adequacy Purposes | Action Requirements | ||||||||||||||||||||||||||||||||||||||||||||
Capital1 | Corrective | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||||||||||||||
Adequacy | Action | |||||||||||||||||||||||||||||||||||||||||||||||
Actual | Purposes | Requirements | ||||||||||||||||||||||||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total capital1 (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 78,186 | 13.95 | % | $ | 44,836 | 8.00 | % | N/A | N/A | $ | 99,491 | 10.90 | % | $ | 72,998 | 8.00 | % | N/A | N/A | ||||||||||||||||||||||||||||
Bank | 76,201 | 13.62 | 44,767 | 8.00 | $ | 55,959 | 10.00 | % | 96,448 | 10.58 | 72,923 | 8.00 | $ | 91,154 | 10.00 | % | ||||||||||||||||||||||||||||||||
Tier I capital1 (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 65,630 | 11.71 | 22,418 | 4.00 | N/A | N/A | 83,651 | 9.17 | 36,499 | 4.00 | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Bank | 69,204 | 12.37 | 22,384 | 4.00 | 33,575 | 6.00 | 86,657 | 9.51 | 36,462 | 4.00 | 54,692 | 6.00 | ||||||||||||||||||||||||||||||||||||
Tier I capital1 (to average assets) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 65,630 | 7.37 | 35,635 | 4.00 | N/A | N/A | 83,651 | 6.99 | 47,853 | 4.00 | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Bank | 69,204 | 7.78 | 35,597 | 4.00 | 44,496 | 5.00 | 86,657 | 7.29 | 47,573 | 4.00 | 59,466 | 5.00 | ||||||||||||||||||||||||||||||||||||
As of December 31, 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total capital1 (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 61,078 | 14.43 | % | $ | 33,852 | 8.00 | % | N/A | N/A | $ | 102,897 | 12.92 | % | $ | 63,738 | 8.00 | % | N/A | N/A | ||||||||||||||||||||||||||||
Bank | 64,050 | 15.22 | 33,666 | 8.00 | $ | 42,083 | 10.00 | % | 89,327 | 11.26 | 63,444 | 8.00 | $ | 79,305 | 10.00 | % | ||||||||||||||||||||||||||||||||
Tier I capital1 (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 55,797 | 13.19 | 16,926 | 4.00 | N/A | N/A | 73,554 | 9.23 | 31,869 | 4.00 | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Bank | 58,769 | 13.97 | 16,833 | 4.00 | 25,250 | 6.00 | 80,589 | 10.16 | 31,722 | 4.00 | 47,583 | 6.00 | ||||||||||||||||||||||||||||||||||||
Tier I capital1 (to average assets) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 55,797 | 7.48 | 29,850 | 4.00 | N/A | N/A | 73,554 | 6.25 | 47,040 | 4.00 | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Bank | 58,769 | 7.90 | 29,769 | 4.00 | 37,212 | 5.00 | 80,589 | 6.89 | 46,760 | 4.00 | 58,449 | 5.00 |
1 | As defined by regulatory agencies |
Note 17 — Stock Options and Stock Appreciation Rights
Horizon maintains the 1987 Nonqualified Stock Option and Stock Appreciation Right Plan (1987 Plan) under which options and stock appreciation rights (SARs) were granted to certain officers and employees. SARs entitle eligible employees to receive cash, stock or a combination of cash and stock totaling the excess, on the date of exercise, of the fair market value of the shares of common stock covered by the option over the option’s exercise price. The underlying stock options are deemed to have been cancelled upon exercise of the SARs. No options were available for grant at December 31, 2004, 2003 and 2002, however, outstanding options may be exercised until their expiration.
5461
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)Horizon recognizes compensation expense related to the 1987 Plan on a periodic basis based on the difference between the excess of the fair market value of the shares of common stock over the exercise price for SARs and those options exercised during the year. In the third quarter of 2002, Horizon entered into agreements with participants that capped the value of their SARs at $14.67 per share and discontinued any future vesting. No additional compensation expense is recognized when the fair value of Horizon stock exceeds $14.67 per share as there is a presumption that participants will exercise their options rather than the SARs. No compensation expense relating to the SARs was recorded in 2004 or 2003. Horizon recorded a reduction in compensation expense related to the 1987 Plan of $13,000 in 2002.A summary of transactions for the 1987 Plan follows:Note 18 — Share Based Compensation Shares Weighted- Average Available Options Exercise for Grant Outstanding Price Balances, January 1, 2002 0 21,600 $ 3.67 Exercised/cancelled (3,600 ) 3.00 Balances, December 31, 2002 0 18,000 3.81 Exercised/cancelled (8,550 ) 3.00 Balances, December 31, 2003 0 9,450 4.53 Exercised/cancelled 0 Balances, December 31, 2004 0 9,450 4.53
The options granted under the 1987 Plan are fully vested.
The following table summarizes information about stock options under the 1987 Plan outstanding at December 31, 2004:
Options | ||||||||||||||||
Outstanding | Weighted- | |||||||||||||||
Weighted- | Average | |||||||||||||||
Range of | Number | Average | Exercise | Number | ||||||||||||
Exercise Prices | Outstanding | Contractual Life | Price | Exercisable | ||||||||||||
$3.00 | 2,700 | 6.08 years | $ | 3.00 | 2,700 | |||||||||||
$5.00 to $5.45 | 6,750 | 4.70 years | $ | 5.15 | 6,750 |
Under Horizon’s 1997 Stock Option and Stock Appreciation Right Plan (1997 Plan), which is accounted for in accordance with Financial Accounting PrinciplesStandards Board Opinion (APB)Statement of Financial Accounting Standards No. 25,Accounting for Stock Issued to Employees,and related interpretations,123 (revised 2004) Share-Based Payment (FAS 123R), Horizon may grant certain officers and employees stock option awards or stock appreciation rights which vest and become fully exercisable at the end of five years of continued employment. SARs entitle eligible employees to receive cash, stock or a combination of cash and stock totaling the excess, on the date of exercise, of the fair market value of the shares of common stock covered by the option over the option exercise price. The underlying stock options are deemed to have been cancelled upon exercise of the SARs. In the third quarter of 2002, Horizon entered into agreements with participants that capped the value of their SARs at $14.67 per share and discontinued any future vesting. No additional compensation expense is recognized
55
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
when the fair value of Horizon stock exceeds $14.67 per share as there is a presumption that participants will exercise their options rather than the SARs. No compensation expense relating to the SARs was recorded in 20042007, 2006 or 2003. Horizon recorded compensation expense of $437,000 related to the 1997 plan in 2002.
2005.
Weighted- | ||||||||||||
Shares | Average | |||||||||||
Available for | Options | Exercise | ||||||||||
Grant | Outstanding | Price | ||||||||||
Balances, January 1, 2002 | 4,500 | 400,500 | $ | 8.64 | ||||||||
Exercised/cancelled | (65,160 | ) | 8.66 | |||||||||
Balances, December 31, 2002 | 4,500 | 335,340 | 8.63 | |||||||||
Granted | (4,500 | ) | 4,500 | 17.93 | ||||||||
Exercised/cancelled | (2,700 | ) | 6.49 | |||||||||
Balances, December 31, 2003 | 0 | 337,140 | 8.77 | |||||||||
Exercised/cancelled | (52,513 | ) | 8.49 | |||||||||
Balances, December 31, 2004 | 0 | 284,627 | 8.83 | |||||||||
The options grantedoption activity under the 1997 Plan vest at a rateas of 20% per year.
December 31, 2007 and changes during the year then ended, is presented below:
Weighted- | ||||||||||||||||
Weighted- | Average | Aggregate | ||||||||||||||
Average | Remaining | Intrinsic | ||||||||||||||
Shares | Exercise Price | Term | Value | |||||||||||||
Outstanding, beginning of year | 37,520 | $ | 7.95 | |||||||||||||
Exercised | (9,750 | ) | 9.44 | |||||||||||||
Outstanding, end of year | 27,770 | $ | 8.07 | 3.65 | $ | 488 | ||||||||||
Exercisable, end of year | 26,870 | $ | 7.74 | 5.01 | $ | 481 | ||||||||||
December 31 | 2003 | |||
Dividend yields | 2.31 | % | ||
Volatility factors of expected market price of common stock | 26.35 | % | ||
Risk-free interest rates | 4.03 | % | ||
Expected life of options | 9 years | |||
Weighted-average fair value of options granted during the year | $ | 5.27 |
5662
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)The following table summarizes information about stock options under the 1997 Plan outstanding at December 31, 2004: Options Outstanding Weighted- Weighted- Average Number Average Exercise Number Exercise Prices Outstanding Contractual Life Price Exercisable $6.22 to $7.50 132,077 5.72 years $ 6.49 79,067 $9.22 to $11.17 121,050 5.42 years 10.03 103,050 $13.33 27,000 3.56 years 13.33 27,000 $17.93 4,500 8.01 years 17.93 900
On January 21, 2003, the Board of Directors adopted the Horizon Bancorp 2003 Omnibus Equity Incentive Plan (Plan)(2003 Plan) which was approved by stockholders on May 8, 2003. Under the 2003 Plan, Horizon may issue up to 150,000 common shares, plus the number of shares that are tendered to or withheld by Horizon in connection with the exercise of options plus that number of shares that are purchased by Horizon with the cash proceeds received upon option exercises. The 2003 Plan limits the number of shares available to 150,000 for incentive stock options and to 75,000 for the grant of nonoptionnon-option awards. The shares available for issuance under the 2003 Plan may be divided among the various types of awards and among the participants as the Compensation Committee (Committee) determines. The Committee is authorized to grant any type of award to a participant that is consistent with the provisions of the 2003 Plan. Awards may consist of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance units, performance shares or any combination of these awards. The Committee determines the provisions, terms and conditions of each award. The restricted shares vest over a period of time established by the committee at the endtime of five years of continuous employment.each grant. Holders of restricted shares receive dividends and may vote the shares. The restricted shares are recorded at fair market value (on the date granted) as a separate component of stockholders’ equity. The cost of these shares areis being amortized against earnings using the straight-line method over five years.the vesting period. The options and restricted shares granted under the 2003 plan vest at a rate of 20% per year. The restricted shares granted under the 2003 Plan vest at the end of each grant’s vesting period.
Restricted | Option | |||||||||||||||||||
Available | Shares | Options | Share Grant | Exercise | ||||||||||||||||
for Grant | Outstanding | Outstanding | Price | Price | ||||||||||||||||
Balances, January 1, 2004 | 150,000 | 0 | 0 | |||||||||||||||||
Granted | (65,000 | ) | 45,000 | 20,000 | $ | 23.56 | $ | 23.56 | ||||||||||||
Balances, December 31, 2004 | 85,000 | 45,000 | 20,000 | 23.56 | 23.56 | |||||||||||||||
57
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
The fair value of options granted is estimated on the date of the grant using an option-pricing model with the following weighted-average assumptions:
December 31 | 2004 | 2007 | 2006 | 2005 | ||||||||||||
Dividend yields | 2.04 | % | 2.18 | % | 2.14 | % | 1.87 | % | ||||||||
Volatility factors of expected market price of common stock | 23.37 | % | 20.47 | % | 18.10 | % | 19.97 | % | ||||||||
Risk-free interest rates | 4.44 | % | 5.05 | % | 5.20 | % | 4.37 | % | ||||||||
Expected life of options | 9 years | 6 years | 9 years | 9 years | ||||||||||||
Weighted-average fair value of options granted during the year | $ | 6.97 |
The following table summarizes information about stock options
Weighted | ||||||||||||||||
Options | Average | |||||||||||||||
Number | Outstanding | Exercise | Number | |||||||||||||
Exercise Price | Outstanding | Contractual Life | Price | Exercisable | ||||||||||||
$23.56 | 20,000 | 9.59 years | $ | 23.56 | 0 |
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted- | Remaining | Aggregate | ||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||
Shares | Exercise Price | Term | Value | |||||||||||||
Outstanding, beginning of year | 33,000 | $ | 24.96 | |||||||||||||
Granted | 5,000 | 27.50 | ||||||||||||||
Exercised | (1,400 | ) | 23.56 | |||||||||||||
Forfeited or expired | (7,600 | ) | 25.65 | |||||||||||||
Outstanding, end of year | 29,000 | $ | 25.28 | 7.66 | $ | 11 | ||||||||||
Exercisable, end of year | 11,000 | $ | 24.34 | 6.95 | $ | 14 | ||||||||||
63
2007 | 2006 | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Grant Date Fair | Grant Date Fair | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
�� | ||||||||||||||||
Non-vested beginning of year | 45,000 | $ | 23.56 | 45,000 | $ | 23.56 | ||||||||||
Granted | 10,000 | 27.22 | — | — | ||||||||||||
Exercised | 2,400 | 23.56 | — | — | ||||||||||||
Forfeited | 7,600 | 23.56 | — | — | ||||||||||||
Non-vested, end of year | 45,000 | $ | 24.37 | 45,000 | $ | 23.56 | ||||||||||
64
58
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
65
Federal Home Loan Bank Advances— Rates currently available to the BankHorizon for debt with similar terms and remaining maturities are used to estimate fair values of existing advances.
borrowings.
2007 | 2006 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
December 31 | Amount | Value | Amount | Value | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 55,029 | $ | 55,029 | $ | 52,312 | $ | 52,312 | ||||||||
Interest-bearing deposits | 249 | 249 | 898 | 898 | ||||||||||||
Investment securities available for sale | 234,675 | 234,675 | 243,078 | 243,078 | ||||||||||||
Loans including loans held for sale, net | 887,474 | 902,837 | 848,199 | 855,468 | ||||||||||||
Interest receivable | 5,897 | 5,897 | 6,094 | 6,094 | ||||||||||||
Stock in FHLB and FRB | 12,625 | 12,625 | 12,136 | 12,136 | ||||||||||||
Liabilities | ||||||||||||||||
Noninterest-bearing deposits | 84,097 | 84,097 | 81,949 | 81,949 | ||||||||||||
Interest-bearing deposits | 809,567 | 809,021 | 832,024 | 821,701 | ||||||||||||
Borrowings | 258,852 | 265,797 | 199,793 | 215,100 | ||||||||||||
Subordinated debentures | 27,837 | 27,860 | 40,209 | 44,032 | ||||||||||||
Interest payable | 2,439 | 2,439 | 1,771 | 1,771 |
5966
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)The estimated fair values of Horizon’s financial instruments are as follows: 2004 2003 Carrying Fair Carrying Fair December 31 Amount Value Amount Value Cash and cash equivalents $ 18,254 $ 18,254 $ 45,464 $ 45,464 Interest-bearing deposits 985 985 9,135 9,135 Investment securities available for sale 281,282 281,282 215,695 215,695 Loans including loans held for sale, net 560,685 559,681 449,022 462,138 Interest receivable 4,688 4,688 3,769 3,769 Stock in FHLB and FRB 11,279 11,279 10,853 10,853 Noninterest-bearing deposits 58,015 58,015 71,157 71,157 Interest-bearing deposits 554,202 539,445 475,011 480,578 Short-term borrowings 82,281 82,281 20,241 20,241 Long-term debt 139,705 144,894 125,972 130,782 Guaranteed preferred beneficial interests in Horizon Bancorp’s subordinated debentures 22,682 22,729 12,000 12,000 Interest payable 1,024 1,024 751 751
Note 19 — Subsequent Event
On February 24, 2005, Horizon entered into an Agreement of Merger and Plan of Reorganization with Alliance Financial Corporation (Alliance). Under the terms of the agreement, Horizon will acquire Alliance and its wholly owned subsidiary, Alliance Banking Company of New Buffalo, Michigan. Horizon has agreed to purchase the outstanding shares of Alliance for $38 per share for a total transaction value of $11.7 million. Alliance stockholders will receive 100% cash for their shares. When the merger is consummated, on a pro forma basis using December 31, 2004, numbers, the combined companies will have approximately $1.04 billion in total assets, $649 million in total loans, $725 million in total deposits and $50 million in stockholders’ equity. The acquisition is expected to result in approximately $6.9 million of goodwill and other intangibles. Management anticipates the transaction, which is subject to regulatory approval and approval by Alliance stockholders, will close in the second or third quarter of 2005.
60
Horizon BancorpNotes to Consolidated Financial Statements(Table Dollar Amounts in Thousands)
Note 2021 — Condensed Financial Information (Parent Company Only)
December 31 | 2004 | 2003 | 2007 | 2006 | ||||||||||||
Assets | ||||||||||||||||
Total cash and cash equivalents | $ | 741 | $ | 585 | $ | 71 | $ | 481 | ||||||||
Investment securities, available for sale | — | 12,024 | ||||||||||||||
Investment in Bank | 70,447 | 61,195 | 94,602 | 87,307 | ||||||||||||
Investment in Insurance Company | 550 | |||||||||||||||
Other assets | 3,383 | 2,595 | 9,326 | 8,295 | ||||||||||||
Total assets | $ | 74,571 | $ | 64,925 | $ | 103,999 | $ | 108,107 | ||||||||
Liabilities | ||||||||||||||||
Short-term borrowings | $ | 5,000 | $ | 4,700 | $ | 5,200 | ||||||||||
Guaranteed preferred beneficial interests in Horizon Bancorp’s subordinated debentures | $ | 22,682 | 12,372 | |||||||||||||
Subordinated debentures | 27,837 | 40,209 | ||||||||||||||
Other liabilities | 1,457 | 1,330 | 817 | 821 | ||||||||||||
Stockholders’ Equity | 50,432 | 46,223 | 70,645 | 61,877 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 74,571 | $ | 64,925 | $ | 103,999 | $ | 108,107 | ||||||||
Years Ended December 31 | 2004 | 2003 | 2002 | 2007 | 2006 | 2005 | ||||||||||||||||||
Operating Income (Expense) | ||||||||||||||||||||||||
Dividend income from Bank | $ | 4,800 | $ | 2,250 | $ | 2,550 | $ | 4,250 | $ | 5,900 | $ | 9,900 | ||||||||||||
Investment income | 19 | 18 | 16 | 139 | 91 | 48 | ||||||||||||||||||
Other income | — | 4 | — | |||||||||||||||||||||
Interest expense | (825 | ) | (724 | ) | (614 | ) | (2,571 | ) | (2,675 | ) | (1,800 | ) | ||||||||||||
Employee benefit expense | (338 | ) | (250 | ) | (250 | ) | (509 | ) | (433 | ) | (412 | ) | ||||||||||||
Other expense | (94 | ) | (147 | ) | (98 | ) | (97 | ) | (155 | ) | (153 | ) | ||||||||||||
Income Before Undistributed Income of Subsidiaries | 3,562 | 1,147 | 1,604 | 1,212 | 2,732 | 7,583 | ||||||||||||||||||
Undistributed Income of Subsidiaries | 2,873 | 4,960 | 3,542 | |||||||||||||||||||||
Undistributed Income (Loss) of Subsidiaries | 5,725 | 3,497 | (1,435 | ) | ||||||||||||||||||||
Income Before Tax | 6,435 | 6,107 | 5,146 | 6,937 | 6,229 | 6,148 | ||||||||||||||||||
Income Tax Benefit | 500 | 427 | 353 | 1,203 | 1,255 | 943 | ||||||||||||||||||
Net Income | $ | 6,935 | $ | 6,534 | $ | 5,499 | $ | 8,140 | $ | 7,484 | $ | 7,091 | ||||||||||||
6167
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Years Ended December 31 2004 2003 2002 2007 2006 2005 Net income $ 6,935 $ 6,534 $ 5,499 $ 8,140 $ 7,484 $ 7,091 Items not requiring (providing) cash Equity in undistributed net income of Bank (2,860 ) (4,902 ) (3,519 ) Equity in undistributed net income of Insurance Company (13 ) (58 ) (23 ) Distributions in excess (equity in undistributed) net income of Bank (5,725 ) (3,497 ) 1,435 Change in Income taxes receivable 703 (493 ) (353 ) (1,836 ) (1,745 ) — Dividends receivable from Bank 300 400 (100 ) (1,600 ) Share based compensation 53 40 — Reversal of compensation expense (84 ) — — Amortization of unearned compensation 240 212 — Other assets (1,166 ) (32 ) (425 ) 596 298 (1,348 ) Other liabilities 127 193 52 (4 ) 149 (785 ) Net cash provided by operating activities 3,726 1,242 1,531 1,780 2,629 4,793 Investment in Insurance Company 563 Purchases of securities available for sale — (12,024 ) — Proceeds from maturities, calls and principal repayments of securities available for sale 12,024 — — Investment in Bank (7,500 ) (3,000 ) (12,000 ) — — (8,764 ) Investment in Statutory Trusts (310 ) (372 ) — (372 ) — Redemption of Statutory Trust 372 — — Acquisition, net of cash acquired — — (2,901 ) Net cash used in investing activities (7,247 ) (3,000 ) (12,372 ) 12,396 (12,396 ) (11,665 ) Dividends paid (1,481 ) (1,311 ) (1,211 ) (1,917 ) (1,811 ) (1,660 ) Change in short-term borrowings (5,000 ) 2,850 150 (500 ) (2,000 ) 7,200 Issuance of stock 696 189 Fractional share payment due to stock split (3 ) Exercise of stock options 135 735 946 Tax benefit of stock options 68 469 907 Proceeds from issuance of trust preferred securities 10,310 12,372 — 12,372 — Redemption of trust preferred securities (12,372 ) — — Purchase of treasury stock (848 ) (62 ) — (128 ) (651 ) Net cash provided by financing activities 3,677 1,725 11,249 (14,586 ) 9,637 6,742 156 (33 ) 408 (410 ) (130 ) (130 ) 585 618 210 481 611 741 $ 741 $ 585 $ 618 $ 71 $ 481 $ 611
6268
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)2122 — Quarterly Results of Operations (Unaudited) Three Months Ended 2004 March 31 June 30 September 30 December 31 Interest income $ 9,818 $ 10,774 $ 10,613 $ 11,770 Interest expense 4,229 4,263 4,211 4,850 Net interest income 5,589 6,511 6,402 6,920 Provision for loan losses 246 228 207 309 Net income 1,517 1,803 1,763 1,852 Earnings per share Basic $ .51 $ .60 $ .59 $ .62 Diluted $ .49 $ .58 $ .56 $ .59 Average shares outstanding Basic 2,990,989 2,983,976 2,998,563 3,001,122 Diluted 3,115,635 3,123,636 3,124,339 3,129,110 Three Months Ended 2003 March 31 June 30 September 30 December 31 Three Months Ended 2007 March 31 June 30 September 30 December 31 Interest income $ 10,175 $ 10,255 $ 11,094 $ 10,019 $ 17,948 $ 18,566 $ 19,173 $ 19,381 Interest expense 4,290 4,270 4,488 4,344 10,312 10,524 10,914 10,510 Net interest income 5,885 5,985 6,606 5,675 7,636 8,042 8,259 8,871 Provision for loan losses 375 375 300 300 225 365 550 1,928 Loss on sale of securities 6 267 237 Net income 1,724 1,775 2,028 1,007 1,844 2,016 2,270 2,010 Earnings per share Basic $ .58 $ .59 $ .68 $ .34 $ .58 $ .63 $ .71 $ .63 Diluted $ .56 $ .57 $ .65 $ .32 $ .57 $ .62 $ .70 $ .62 Average shares outstanding Basic 2,974,050 2,975,157 2,981,250 2,982,065 3,194,309 3,200,259 3,202,341 3,204,715 Diluted 3,068,941 3,109,759 3,120,567 3,133,322 3,239,479 3,243,537 3,242,919 3,247,843
Three Months Ended 2006 | March 31 | June 30 | September 30 | December 31 | ||||||||||||
Interest income | $ | 15,663 | $ | 16,650 | $ | 17,758 | $ | 18,609 | ||||||||
Interest expense | 7,853 | 8,814 | 9,946 | 10,522 | ||||||||||||
Net interest income | 7,810 | 7,836 | 7,812 | 8,087 | ||||||||||||
Loss on sale of securities available for sale | 158 | 91 | 515 | — | ||||||||||||
Provision for loan losses | 380 | 225 | 120 | 180 | ||||||||||||
Net income | 1,449 | 1,834 | 1,968 | 2,233 | ||||||||||||
Earnings per share | ||||||||||||||||
Basic | $ | .46 | $ | .58 | $ | .62 | $ | .70 | ||||||||
Diluted | $ | .45 | $ | .57 | $ | .61 | $ | .69 | ||||||||
Average shares outstanding | ||||||||||||||||
Basic | 3,142,219 | 3,183,870 | 3,189,004 | 3,193,306 | ||||||||||||
Diluted | 3,203,206 | 3,209,294 | 3,211,777 | 3,238,648 | ||||||||||||
6369
To the Stockholders and
![]() |
Indianapolis, Indiana March 10, 2008 |
201 N. Illinois Street, Suit 700 P.O. Box 44998 Indianapolis, IN 46244-0998 317 383-400 Fax. 317 383-4200 Beyond Your Numbers | ![]() |
Fort Wayne, IndianaJanuary 28, 2005
6470
HORIZON BANCORP
6571
2004 | 2003 | 2002 | 2001 | 2000 | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||
Earnings | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 25,422 | $ | 24,151 | $ | 23,153 | $ | 19,807 | $ | 18,654 | $ | 32,808 | $ | 31,545 | $ | 30,873 | $ | 25,422 | $ | 24,151 | ||||||||||||||||||||
Provision for loan losses | 990 | 1,350 | 1,625 | 1,505 | 2,010 | 3,068 | 905 | 1,521 | 990 | 1,350 | ||||||||||||||||||||||||||||||
Total noninterest income | 10,669 | 11,140 | 10,249 | 9,521 | 6,856 | |||||||||||||||||||||||||||||||||||
Total noninterest expense | 25,672 | 24,771 | 23,403 | 21,106 | 17,905 | |||||||||||||||||||||||||||||||||||
Total non-interest income | 12,271 | 10,137 | 9,813 | 10,669 | 11,140 | |||||||||||||||||||||||||||||||||||
Total non-interest expense | 31,144 | 30,455 | 29,129 | 25,672 | 24,771 | |||||||||||||||||||||||||||||||||||
Provision for income taxes | 2,494 | 2,636 | 2,778 | 2,592 | 1,812 | 2,727 | 2,838 | 2,945 | 2,494 | 2,636 | ||||||||||||||||||||||||||||||
Net income from continuing operations | 6,935 | 6,534 | 5,596 | 4,125 | 3,783 | |||||||||||||||||||||||||||||||||||
Cumulative effective of change in accounting for goodwill, net of tax | (97 | ) | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 6,935 | $ | 6,534 | $ | 5,499 | $ | 4,125 | $ | 3,783 | $ | 8,140 | $ | 7,484 | $ | 7,091 | $ | 6,935 | $ | 6,534 | ||||||||||||||||||||
Cash dividend declared | $ | 1,481 | $ | 1,311 | $ | 1,211 | $ | 1,179 | $ | 1,228 | $ | 1,917 | $ | 1,811 | $ | 1,660 | $ | 1,481 | $ | 1,311 | ||||||||||||||||||||
Per Share Data | ||||||||||||||||||||||||||||||||||||||||
Net income basic | $ | 2.32 | $ | 2.19 | $ | 1.85 | $ | 1.39 | $ | 1.23 | $ | 2.54 | $ | 2.36 | $ | 2.31 | $ | 2.32 | $ | 2.19 | ||||||||||||||||||||
Net income diluted | 2.22 | 2.10 | 1.83 | 1.39 | 1.23 | 2.51 | 2.33 | 2.24 | 2.22 | 2.10 | ||||||||||||||||||||||||||||||
Cash dividends declared | .49 | .44 | .41 | .40 | .40 | .59 | .56 | .53 | .49 | .44 | ||||||||||||||||||||||||||||||
Book value at period end | 16.56 | 15.48 | 13.93 | 11.73 | 10.60 | 21.72 | 19.11 | 17.01 | 16.56 | 15.48 | ||||||||||||||||||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||||||||||||||||||
Basic | 2,993,696 | 2,978,161 | 2,975,394 | 2,978,187 | 3,072,974 | 3,200,440 | 3,177,272 | 3,067,632 | 2,993,696 | 2,978,161 | ||||||||||||||||||||||||||||||
Diluted | 3,123,325 | 3,108,178 | 3,003,381 | 2,978,187 | 3,072,974 | 3,243,565 | 3,217,050 | 3,162,950 | 3,123,325 | 3,108,178 | ||||||||||||||||||||||||||||||
Period End Totals | ||||||||||||||||||||||||||||||||||||||||
Loans, net of deferred loan fees and unearned income | $ | 564,042 | $ | 447,718 | $ | 535,793 | $ | 466,801 | $ | 393,578 | $ | 888,852 | $ | 843,834 | $ | 732,734 | $ | 564,042 | $ | 447,718 | ||||||||||||||||||||
Allowance for loan losses | 7,193 | 6,909 | 6,255 | 5,410 | 4,803 | 9,791 | 8,738 | 8,368 | 7,193 | 6,909 | ||||||||||||||||||||||||||||||
Total assets | 913,831 | 757,443 | 720,502 | 587,945 | 531,776 | 1,258,874 | 1,222,430 | 1,127,875 | 913,831 | 757,443 | ||||||||||||||||||||||||||||||
Total deposits | 612,217 | 546,168 | 489,259 | 419,599 | 386,348 | 893,664 | 913,973 | 855,566 | 612,217 | 546,168 | ||||||||||||||||||||||||||||||
Total borrowings | 244,668 | 158,585 | 183,893 | 127,637 | 109,468 | 286,689 | 240,002 | 211,470 | 244,668 | 158,585 |
6672
HORIZON BANCORP
2004 | 2003 | 2002 | 2001 | 2000 | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||
Ratios | ||||||||||||||||||||||||||||||||||||||||
Loan to deposit | 92.76 | % | 81.97 | % | 109.51 | % | 111.25 | % | 101.87 | % | 99.46 | % | 93.76 | % | 85.64 | % | 92.76 | % | 81.97 | % | ||||||||||||||||||||
Loan to total funding | 65.67 | 63.53 | 79.59 | 85.30 | 79.38 | 75.30 | 76.73 | 68.67 | 65.67 | 63.53 | ||||||||||||||||||||||||||||||
Return on average assets | .85 | .88 | .86 | .76 | .73 | .69 | .67 | .71 | .85 | .88 | ||||||||||||||||||||||||||||||
Average stockholders’ equity to average total assets | 5.90 | 6.01 | 6.06 | 6.29 | 5.92 | 5.61 | 5.14 | 5.19 | 5.90 | 6.01 | ||||||||||||||||||||||||||||||
Return on average stockholders’ equity | 14.38 | 14.65 | 14.21 | 12.11 | 12.41 | 12.29 | 13.03 | 13.67 | 14.38 | 14.65 | ||||||||||||||||||||||||||||||
Dividend payout ratio (dividends divided by net income) | 21.36 | 20.06 | 22.02 | 28.85 | 32.43 | 23.51 | 24.20 | 21.21 | 21.36 | 20.06 | ||||||||||||||||||||||||||||||
Price to book value ratio | 162.74 | 184.40 | 126.85 | 129.83 | 59.21 | 118.09 | 143.53 | 166.42 | 162.74 | 184.40 | ||||||||||||||||||||||||||||||
Price to earnings ratio | 12.14 | 13.12 | 9.64 | 12.94 | 5.10 | 10.21 | 11.77 | 12.24 | 12.14 | 13.12 |
6773
2004 | ||||||||||||
Dividends | ||||||||||||
Common Stock Prices | Declared | |||||||||||
High | Low | Per Share | ||||||||||
First Quarter | $ | 28.25 | $ | 24.00 | $ | .12 | ||||||
Second Quarter | 25.87 | 23.02 | .12 | |||||||||
Third Quarter | 24.75 | 23.12 | .12 | |||||||||
Fourth Quarter | 27.50 | 24.15 | .13 |
2003 | 2007 | |||||||||||||||||||||||
Dividends | Dividends | |||||||||||||||||||||||
Common Stock Prices | Declared | Common Stock Prices | Declared | |||||||||||||||||||||
High | Low | Per Share | High | Low | Per Share | |||||||||||||||||||
First Quarter | $ | 19.68 | $ | 17.67 | $ | .10 2/3 | $ | 28.10 | $ | 26.60 | $ | .14 | ||||||||||||
Second Quarter | 21.65 | 18.57 | .10 2/3 | 27.97 | 26.80 | .15 | ||||||||||||||||||
Third Quarter | 24.65 | 20.33 | .10 2/3 | 27.52 | 25.75 | .15 | ||||||||||||||||||
Fourth Quarter | 29.00 | 22.93 | .12 | 26.40 | 24.40 | .15 |
2006 | ||||||||||||
Dividends | ||||||||||||
Common Stock Prices | Declared | |||||||||||
High | Low | Per Share | ||||||||||
First Quarter | $ | 32.23 | $ | 26.30 | $ | .14 | ||||||
Second Quarter | 31.00 | 25.16 | .14 | |||||||||
Third Quarter | 26.93 | 25.50 | .14 | |||||||||
Fourth Quarter | 27.89 | 25.92 | .14 |
6874
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
ITEM 9A.9A(T). CONTROLS AND PROCEDURES
PART III
This information is omitted from this report pursuant to General Instruction G. (3) of Form 10-K as Horizon intends to file with the Commission its definitive Proxy Statement pursuant to Regulation 14A ofRule 13a-15(f) under the Securities Exchange Act of 1934,1934. Horizon’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
75
76
69
Number of Securities | ||||||||||||
Remaining Available for | ||||||||||||
Weighted-Average | Future Issuance Under | |||||||||||
Number of Securities to | Exercise Price of | Equity Compensation | ||||||||||
be Issued Upon Exercise | Outstanding | Plans (Excluding | ||||||||||
of Outstanding Options, | Options, Warrants | Securities Reflected in | ||||||||||
Plan Category | Warrants and Rights | and Rights | the First Column) | |||||||||
Equity compensation plans approved by security holders (1) | 56,770 | $ | 16.86 | 138,802 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 56,770 | $ | 16.86 | 138,802 | ||||||||
Number of securities | ||||||||||||
remaining available for | ||||||||||||
future issuance under | ||||||||||||
Number of securities to be | Weighted-average | equity compensation | ||||||||||
issued upon exercise of | exercise price of | plans (excluding | ||||||||||
outstanding options, | outstanding options, | securities reflected in the | ||||||||||
Plan Category | warrants and rights | warrants and rights | first column) | |||||||||
Equity compensation plans approved by security holders (1) | 314,077 | $ | 9.61 | 91,605 | ||||||||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||||||
Total | 314,077 | $ | 9.61 | 91,605 | ||||||||
(1) | Represents options granted or available under |
77
7078
Horizon Bancorp | ||||||||
Registrant | ||||||||
Date: March | By: | /s/ Craig M. Dwight | ||||||
President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Date: March | By : | /s/ James H. Foglesong | ||||||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||||||
71
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date | Signature and Title | |
March | /s/ Robert C. Dabagia | |
Robert C. Dabagia, Chairman of the Board | ||
and Director | ||
March | /s/ Craig M. Dwight | |
Craig M. Dwight, President and Chief | ||
Executive Officer and Director | ||
March | /s/ Susan D. Aaron | |
Susan D. Aaron, Director | ||
March | /s/ James B. Dworkin | |
James B. Dworkin, Director | ||
March | /s/ Charley E. Gillispie | |
Charley E. Gillispie, Director |
79
Date | Signature and Title | |
March | /s/ Daniel F. Hopp | |
Daniel F. Hopp, Director | ||
March | /s/ Robert E. McBride | |
Robert E. McBride, Director | ||
March | /s/ Peter L. Pairitz | |
Peter L. Pairitz, Director | ||
March | /s/ Larry N. Middleton | |
Larry N. Middleton, Director | ||
March | /s/ Bruce E. Rampage | |
Bruce E. Rampage, Director | ||
March | /s/ Robert E. Swinehart | |
Robert E. Swinehart, Director | ||
March | /s/ Spero W. Valavanis | |
Spero W. Valavanis, Director |
7280
Exhibit | ||||
Number | Description | Incorporated by Reference/Attached | ||
1.1 | Placement Agreement, dated December 15, 2006, among Horizon Bancorp, Horizon Capital Trust III and J.P. Morgan Securities Inc. | Incorporated by Reference to Exhibit 1.1 to Registrant’s Form 8-K filed December 21, 2006 | ||
2.1 | Agreement of Merger and Plan of Reorganization for Horizon Bancorp and Alliance Financial Corporation | Incorporated by Reference to Exhibit 2.1 to Registrant’s Form 8-K filed March 1, 2005 | ||
2.2 | Amendment to Agreement of Merger and Plan of Reorganization for Horizon Bancorp and Alliance Financial Corporation | Incorporated by Reference to Exhibit 2.1 to Registrant’s Form 8-K filed March 24, 2005 | ||
3.1 | Articles of Incorporation of Horizon Bancorp, as amended | Incorporated by Reference to Exhibit Form 10-Q for the Quarter Ended September 30, | ||
3.2 | Amended and Restated Bylaws of Horizon Bancorp (as adopted January 21, 2003) | Incorporated by Reference to Exhibit 3.2 to Registrant’s Form 10-K for the Year Ended December 31, 2002 | ||
4.1 | Indenture, dated as of October 21, 2004, between Horizon Bancorp and Wilmington Trust Company related to the issuance of Trust Preferred Securities | Incorporated by Reference to Exhibit 4.1 to Registrant’s Form 8-K filed October 27, | ||
4.2 | Amended and Restated Declaration of Trust of Horizon Bancorp Capital Trust II, dated as of October 21, 2004, related to the issuance of Trust Preferred Securities | Incorporated by Reference to Exhibit 4.2 to Registrant’s Form 8-K filed October 27, 2004 | ||
Incorporated by Reference to Exhibit Form | ||||
4.4 | Amended and Restated Trust Agreement of Horizon Bancorp Capital Trust III, dated as of December 15, 2006 | Incorporated by Reference to Exhibit 4.2 to Registrant’s Form 8-K filed December 21, 2006 | ||
10.1* | Supplemental Employee Retirement Plan, as amended | Attached | ||
10.2* | ||||
1997 Key Employees Stock Option and Stock Appreciation Rights Plan | ||||
Form of Amendment No. 1 to Horizon Bancorp Stock Option and Stock |
7381
Exhibit | ||||
Number | Description | Incorporated by Reference/Attached | ||
Appreciation Rights Agreement and Schedule Identifying Material Details of Individual Amendments | ||||
10.4* | Horizon Bancorp 2003 Omnibus Equity Incentive Plan | Incorporated by Reference to Appendix B to the Registrant’s Proxy Statement for the Annual Meeting of Shareholders Held on May 8, 2003 | ||
Agreement dated October 18, 1999, between Horizon Bank, N.A., and James D. | Incorporated by Reference to Exhibit 10.11 to Registrant’s Form 10-K for the year ended December 31, 2003 | |||
Directors Deferred Compensation Plan | ||||
Form of Change of Control Agreement for certain executive officers | ||||
Form of Restricted Stock Award Agreement under 2003 Omnibus Plan | ||||
Form of Option Grant Agreement under 2003 Omnibus Plan | ||||
Description of Executive Officer Bonus Plan | ||||
Guarantee Agreement of Horizon Bancorp, dated as of October 21, 2004, related to the issuance of Trust Preferred Securities | Incorporated by Reference to Exhibit 10.1 to Registrant’s Form 8-K filed October 27, 2004 | |||
10.12* | Horizon Bancorp 2005 Supplemental Executive Retirement Plan | Incorporated by Reference to Exhibit 10.14 to Registrant’s Form 10-K for the year ended December 31, 2006 | ||
10.13* | Employment Agreement, dated July 19, 2006, among Horizon Trust & Management, N.A., Horizon Bank, Horizon Bancorp and Lawrence J. Mazur | Incorporated by Reference to Exhibit 10.1 to Registrant’s Form 8-K filed July 21, 2006 | ||
10.14* | Amendment to Horizon Bancorp Restricted Stock Award Agreement, dated July 19, 2006 | Incorporated by Reference to Exhibit 10.2 to Registrant’s Form 8-K filed July 21, 2006 | ||
82
Exhibit | ||||
Number | Description | Incorporated by Reference/Attached | ||
10.15* | Employment Agreement, dated December 1, 2006, among Horizon Bancorp, Horizon Bank, N.A. and Craig M. Dwight | Incorporated by Reference to Exhibit 10.1 to Registrant’s Form 8-K filed December 6, 2006 | ||
10.16* | Letter Agreement, dated December 1, 2006, between Horizon Bank, N.A. and Craig M. Dwight | Incorporated by Reference to Exhibit 10.2 to Registrant’s Form 8-K filed December 6, 2006 | ||
10.17* | Guarantee Agreement of Horizon Bancorp, dated as of December 15, 2006 | Incorporated by Reference to Exhibit 10.1 to Registrant’s Form 8-K filed December 21, 2006 | ||
10.18* | Employment Agreement, dated July 16, 2007, among Horizon Bancorp, Horizon Bank, N.A. and Thomas H. Edwards | Incorporated by Reference to Exhibit 10.1 to Registrant’s form 8-K filed July 19, 2007. | ||
21 | Subsidiaries of Horizon | Attached | ||
23 | Consent ofBKD, | Attached | ||
31.1 | Certification of Craig M. Dwight pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Attached | ||
31.2 | Certification of James H. Foglesong pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Attached | ||
32.1 | Certification of Craig M. Dwight Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Attached | ||
32.2 | Certification of James H. Foglesong Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Attached |
* | Indicates exhibits that describe or evidence management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K. |
7483