UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| | |
| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year endedDecember 31, 20042007 Commission file number0-10792 Horizon Bancorp
(Exact name of registrant as specified in its charter)
| | | |
| 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) |
Registrant’s telephone number, including area code:
219-879-0211Securities registered pursuant to Section 12(b) of the Act:
| | | |
| Title of each class | | Name of each exchange on which registered |
NoneCommon Stock, no par value | | Not ApplicableThe NASDAQ Stock Market, LLC |
| |
|
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
None
Indicate by checkmarkcheck mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Exchange Act Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ No
o Indicate by
checkmarkcheck mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K
o
Indicate by checkmarkcheck mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company þ
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o No
þ The aggregate market value of the registrant’s common stock held by
nonaffiliatesnon-affiliates of the registrant, based on the average bid price of such stock as of June 30,
2004,2007, the last day of the registrant’s most recently completed second fiscal quarter, was approximately
$53,976,331.$66,408,840.
As of March
17, 2005,14, 2008, the registrant had
3,090,2593,252,232 shares of Common Stock outstanding.
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 5, 20058, 2008 annual meeting of shareholders | | III |
20042007 Annual Report on Form 10-K
Table of Contents
2
PART I
Horizon Bancorp (“Horizon”
or the “Company”) is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in Northwestern Indiana and Southwestern Michigan through its bank subsidiary, Horizon Bank, N.A. (the “Bank”)
. and other affiliated entities. Horizon operates as a single segment, which is commercial banking. Horizon’s Common Stock is traded on the Nasdaq
SmallCapGlobal Market under the symbol HBNC.
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,
On June 10, 2005, Horizon acquired Alliance Financial Corporation and its wholly owned bank subsidiary, Alliance Banking Company (collectively referred to as Alliance). Alliance had three offices in Porter County, Indiana, one office in Lake County, Indiana, one office in Elkhart County, Indianasouthwest Michigan, and one office in St. Joseph County,Michigan City, Indiana, $141 million of assets and $117 million of deposits at the date of the acquisition. See Note 2 of the Consolidated Financial Statements for further discussion regarding the acquisition.
On April 23, 2007, the Bank opened a full service branch in Benton Harbor, Michigan and on January 28, 2008 the Bank opened its second full service branch in Valparaiso, Indiana.
The Bank maintains fourteen other full service facilities and one loan production office in Northwest Indiana . At December 31,
2004,2007, the Bank had total assets of
$911$1.259 million and total deposits of
$613$894 million. The Bank has
three wholly ownedfour wholly-owned subsidiaries: Horizon Trust & Investment Management, N.A. (“Horizon Trust”), Horizon Investments, Inc. (“Horizon Investments”)
and, Horizon Insurance Services, Inc. (“Horizon Insurance”)
. 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.
Horizon formed
Horizon Statutory Trust I in 2002 and Horizon Bancorp Capital Trust II in 2004
(“Trust II”) and Horizon Bancorp Capital Trust III in 2006 (“Trust III”) for the purpose of participating in
Pooledpooled trust preferred securities offerings. The Company assumed additional debentures as the result of the acquisition of Alliance in 2005, which formed Alliance Financial Statutory Trust
Preferred Stock offerings.I (“Alliance Trust”). See Note
910 of the
consolidated financial statementsConsolidated Financial Statements for further discussion regarding these previously consolidated entities that are now reported separately. The business of Horizon
the Bank, Horizon Trust I and II, and Horizon Insurance is not seasonal to any material degree.
No material part of Horizon’s business is dependent upon a single or small group of customers, the loss of any one or more of whom would have a materially adverse effect on the business of Horizon. In
2004,2007, revenues from loans accounted for
62%73% of the total consolidated
revenue. For the same year,revenue and revenues from investment securities accounted for
18%13% of total consolidated revenue.
The Bank, Horizon Trust and Horizon InsuranceInvestments employed approximately 247265 full and part-time personspeople as of December 31, 2004.2007. Horizon does not have any employees.
3
Competition
Competition
A high degree of competition exists in all major areas where Horizon engages in business. The Bank’s primary market consists of
La PortePorter, LaPorte, St. Joseph and
PorterElkhart Counties, Indiana, and Berrien County, Michigan. The Bank competes with commercial
banks located in the home county and contiguous counties in Indiana and Michigan, as well as with savings and loan associations, consumer finance companies and credit unions. To a more moderate extent, the Bank competes with Chicago money center banks, mortgage banking companies, insurance companies, brokerage houses, other institutions engaged in money market financial services and certain government agencies.
Based on deposits as of June 30,
2004, the Bank2007, Horizon was the
largest of the 12 bank and thrift institutions with offices in La Porte County with 34.9% of the deposits and the fifth largest of the 15 institutions with offices in Porter County with 6.9% of deposits. Horizon opened its first office in Berrien County, Michigan in 2003 and as of June 30, 2004, was the ninth largest of the 11 bank and thrift
institutions in LaPorte County with a 35.74% market share and the fifth largest of the 16 such institutions in Porter County with an 8.18% market share. In Berrien County, Michigan, Horizon was the fourth largest of the 10 bank and thrift institutions with an 8.09% market share. In 2005, Horizon opened new offices in St. Joseph and Elkhart Counties, Indiana. Horizon’s market share of deposits
in that county withwas less than
1.9%.1.00% in each of these counties. (Source: FDIC Summary of Deposits Market Share Reports, available at www.fdic.gov).
3
Supervision and Regulation
Horizon is registered as a bank holding company and is subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (“Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (“BHC Act”). The Federal Reserve has issued regulations under the BHC Act requiring a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. It is the policy of the Federal Reserve that, pursuant to this requirement, a bank holding company should stand ready to use its resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity.
The BHC Act requires the prior approval of the Federal Reserve to acquire more than a 5% voting interest of any bank or bank holding company. Additionally, the BHC Act restricts Horizon’s nonbanking activities to those, which are determined by the Federal Reserve to be closely related to banking and a proper incident thereto.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” (as defined in FDICIA) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency.
Bank holding companies are required to comply with the Federal Reserve’s risk-based capital guidelines. The Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC”) have adopted risk-based capital ratio guidelines to which depository institutions under their respective supervision are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk weighted categories, with higher levels of capital being required for the categories perceived as representing greater risk.
The Bank exceeded the risk-based capital requirements of the FDIC and OCC as of December 31, 2004. For Horizon’s regulatory capital ratios and regulatory requirements as of December 31,
2004,2007, see the information in Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 below, which is incorporated herein by reference.
The Bank is (i) subject to the provisions of the National Bank Act; (ii) supervised, regulated, and examined by the OCC; and (iii) subject to the rules and regulations of the OCC, Federal Reserve, and the FDIC.
4
The Bank’s deposits are insured up to $100,000 per insured accountapplicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), which was signed into law in February 2006, has resulted in significant changes to the federal deposit insurance program:
| • | | 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 |
Pursuant to the Reform Act, the FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15% and 1.5% of estimated insured deposits and the FDIC has been given discretion to set assessment rates according to risk regardless of the level of the fund reserve ratio. On November 2, 2006, the FDIC adopted final regulations that set the designated reserve ratio for the DIF at 1.25% beginning January 1, 2007.
Insured depository institutions that were in existence on December 31, 1996, and paid assessments prior to that date (or their successors) are entitled to a one-time credit against future assessments based on their past contributions to the BIF or SAIF. In 2006, the Bank Insurance Fund, which is administeredreceived a one-time credit of $457,534 against future assessments. Of the initial credit, $143,623 remained unused at December 31, 2007.
Also on November 2, 2006, the FDIC adopted final regulations that establish a new risk-based premium system. Under the new system, the FDIC will evaluate each institution’s risk based on three primary sources of information: supervisory ratings for all insured institutions, financial ratios for most institutions, and long-term debt issuer ratings for large institutions that have such ratings. An institution’s assessments will be based on the insured institution’s ranking in one of four risk categories. Effective January 1, 2007, well-capitalized institutions with the CAMELS ratings of 1 or 2 are grouped in Risk Category I and will be assessed for deposit insurance at an annual rate of between five and seven cents for every $100 of domestic deposits. Institutions in Risk Categories II, III and IV will be assessed at annual rates of 10, 28 and 43 cents, respectively. An increase in assessments could have a material adverse effect on the Company’s earnings.
FDIC-insured institutions remain subject to the requirement to pay assessments to the FDIC to fund interest payments on bonds issued by the
FDIC.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.
Both federal and state law extensively regulates various aspects of the banking business, such as reserve requirements, truth-in-lending and truth-in-savings disclosures, equal credit opportunity, fair credit reporting, trading in securities and other aspects of banking operations. Branching by the Bank is subject to the jurisdiction and requires notice to or the prior approval of the OCC.
Horizon and the Bank are subject to the Federal Reserve Act, which restricts financial transactions between banks and affiliated companies. The statute limits credit transactions between banks, affiliated companies and its executive officers and its affiliates. The statute prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, and restricts the types of collateral security permitted in connection with a bank’s extension of credit to an affiliate.
5
The FDICIA accomplished a number of sweeping changes in the regulation of depository institutions and their holding companies. The FDICIA requires, among other things, federal bank regulatory authorities to take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. The FDICIA further directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, management compensation, a maximum ratio of classified assets to capital,
4
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 November 12, 1999, the President signed into law comprehensive legislation that modernizes the financial services industry for the first time in decades. The Gramm-Leach-Bliley Act (“GLBA”) permits bank holding companies to conduct essentially unlimited securities and insurance activities, in addition to other activities determined by the Federal Reserve to be related to financial services. As a result of the GLBA, Horizon may underwrite and sell securities and insurance. It may acquire, or be acquired by, brokerage firms and insurance underwriters. Horizon does not anticipate significant changes in its products or services as a result of the GLBA.
On October 26, 2001, President Bush signed the
The USA
PatriotPATRIOT Act of 2001 (the
“Patriot“PATRIOT Act”)
. The Patriot Act is intended to strengthen the ability of U.S. Law Enforcement to combat terrorism on a variety of fronts. The
potential impact of the Patriot Act on financial institutions is significant and wide-ranging. The PatriotPATRIOT Act contains sweeping anti-money laundering and financial transparency laws and requires financial institutions to implement additional policies and procedures with respect to, or additional measures designed to address, any or all the following matters, among others: money laundering, suspicious activities and currency transaction reporting, and currency crimes.
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.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934 (the “1934 Act”). In particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit committees, including independence, expertise and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and their directors and executive officers; and (v) new and increased civil and criminal penalties for violation of the securities laws. Management expects that significant additional efforts and expense will continue to be required to comply with the provisions of the Sarbanes-Oxley Act.
The Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”) was signed into law by President Bush on December 4, 2003. The FACT Act amendsamended the Fair Credit Reporting Act and makesmade permanent certain federal preemptions that form the basis for a national credit reporting system. The FACT Act iswas also intended to (i) address identity theft, (ii) increase access to credit information, (iii) enhance the accuracy of credit reporting, (iv) facilitate the opt-out by consumers from certain marketing solicitations, (v) protect medical information, and (vi) promote financial literacy. The statute will affectapplies to credit reporting agencies (commonly referred to as “credit bureaus”), financial institutions, other users of credit reports and those who furnish information to credit bureaus. Management does not anticipate that this legislation will have a significant adverse effect on our business.
6
In addition to the matters discussed above,
Horizon’s affiliate bankHorizon Bank is subject to additional regulation of its activities, including a variety of consumer protection regulations affecting its lending, deposit, and collection activities and regulations affecting secondary mortgage market activities. The earnings of financial institutions are also affected by general economic conditions and prevailing interest rates, both domestic and foreign, and by the monetary and fiscal policies of the United States
governmentGovernment and its various agencies, particularly the Federal Reserve.
Additional legislative and administrative actions affecting the banking industry may be considered by the United States Congress, state legislatures and various regulatory agencies, including those referred to above. It cannot be predicted with certainty whether such legislative or administrative action will be enacted or the extent to which the banking industry in general or Horizon and its
affiliate bank in particular wouldaffiliates will be affected.
5
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 itemItem 7 below, herein incorporated by reference. |
| |
| | II. | | INVESTMENT PORTFOLIO |
| | a.A. | | The following is a schedule of the amortized cost and fair value of investment securities available for sale at December 31, 2004, 2003,2007, 2006 and 2002:2005: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | |
| | | | | |
| | b.B. | | The following is a schedule of maturities of each category of debt securities and the related weighted averageweighted-average yield of such securities as of December 31, 2004:2007: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
| | The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount. Yields are not presented on a tax-equivalent basis. |
67
The weighted-average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount. Yields are not presented on a tax-equivalent basis.
Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies and corporations of the U.S. Government, there were no investments in securities of any one issuer that exceeded 10% of the consolidated stockholders’ equity of Horizon at December 31, 2007.
| | III. | Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies and corporations of the U.S. Government, there were no investments in securities of any one issuer that exceeded 10% of the consolidated stockholders’ equity of Horizon at December 31, 2004. |
| | a.A. | | 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 | |
| | | | | |
| | b.B. | | 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, 2004:2007: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
The following is a schedule of fixed-rate and variable-rate commercial, financial, agricultural and commercial tax-exempt loans due after one year. (Variable-rate loans are those loans with floating or adjustable interest rates.)
| | | | | | | | | | | | | |
| | | 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 | | | | | |
8
| | C. | The following is a schedule of fixed-rate and variable-rate commercial, financial, agricultural and commercial tax-exempt loans due after one year. (Variable-rate loans are those loans with floating or adjustable interest rates.) |
| | | | | | | | | |
| (Thousands) | | Fixed Rate | | | Variable Rate | |
| | | |
| Total commercial, financial, agricultural, and commercial tax-exempt loans due after one year | | $ | 94,168 | | | $ | 71,175 | |
| | 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 | |
| | | | | |
7
LOAN PORTFOLIO (continued)
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 | |
| | | | |
Discussion of Non-Accrual Policy
| | | LOAN PORTFOLIO (continued) |
|
| | The decrease in nonaccrual loans in 2004 is primarily due to decreases in consumer loans of $125 thousand and mortgage loans of $337 thousand partially offsetby an increase in commercial loans of $112 thousand. The increase in nonaccrual loans in 2003 is primarily due to increases in consumer loans of $89 thousand, mortgage loans of $254 thousand and commercial loans of $146 thousand. The decrease in nonaccrual loans in 2002 is primarily due to a decrease in commercial loans of $868 thousand partially offset by an increase in mortgage loans of $340 thousand. The decrease in nonaccrual loans in 2001 is primarily due to a decrease in nonaccrual mortgage loans of $637 thousand. The increase in nonaccrual loans in 2000 is primarily due to the increase in nonaccrual mortgage loans of $842 thousand and increase in nonaccrual commercial loans of $321 thousand. |
| | | | | |
| (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 | |
| | Discussion of Nonaccrual Policy |
|
| 1. | | From time to time, the Bank obtains information, which may lead management to believe that the collection of interestpayments may be doubtful on a particular loan. In recognition of such, it is management’s policy to convert the loan from an “earning asset” to a nonaccruingnon-accruing loan. Further, it is management’s policy to place a commercial loan on a nonaccrualnon-accrual status when delinquent in excess of 90 days, unless the Loan Committee approves otherwise. The officer responsible for the loan, the senior lending officer and the senior collectionscollection officer must review all loans placed on nonaccrualnon-accrual status. The senior collectionscollection officer monitors the loan portfolio for any potential problem loans. |
|
9
| | 2. | | Potential Problem Loans |
| |
| | | Impaired loans for which the discounted cash flows or collateral value exceeded the carrying value of the loan totaled $427,499$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 $62,000$406,000 at those respective dates. The average balance of impaired loans during 20042007 and 20032006 was $291,501$1,673,000 and $320,925,$942,000, respectively. |
| |
| | 3. | | Foreign outstandingsOutstandings |
| |
| | | None |
| |
| | 4. | | Loan Concentrations |
| |
| | | | As of December 31, 2004,2007, there are no significant concentrations of loans exceeding 10% of total loans. See Item III A above for a listing of the types of loans other than those disclosed in Item III(a) above.by concentration. |
|
| | 5.D. | | Other Interest-Bearing Assets |
| |
| | | There are no other interest-bearing assets as of December 31, 2004,2007, which would be required to be disclosed under Item III C.1 or 2 if such assets were loans. |
8
| IV. | III. | 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 | % |
| | | | | |
10
| | 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) |
9
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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.
V. DEPOSITS
| | III. | DEPOSITS |
|
| | | 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. | IV. | 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 |
| |
| V. | 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 shareholders’stockholders’ equity at the end of the period. |
| | | | | | | | | | | | | | | | | |
| 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 | % |
11
FORWARD-LOOKING STATEMENTS AND RISK FACTORS A cautionary note about forward-looking statements: In its oral and written statements, Horizon from time to time includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can include statements about estimated cost savings, plans and objectives for future operations and expectations about Horizon’s financial and business performance as well as economic and market conditions. They often can be identified by the use of words like “expect,” “may,” “could,” “intend,” “project,” “estimate,”
“believe,”“believe” or “anticipate.”
10
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.
By their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. You are cautioned that actual results may differ materially from those contained in the forward-looking statement. The discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 of this Form 10-K lists some of the factors that could cause Horizon’s actual results to vary materially from those expressed in or implied by any forward-looking statements. Your attention is directed to this discussion.
Other risks and uncertainties that could affect Horizon’s future performance are set forth immediately below in Item 1A — Risk Factors
ITEM 1A. RISK FACTORS
As a financial institution, we are subject to a number of types of risks. Although we undertake a variety of efforts to manage and control those risks, many of the risks are outside of our control. Among the risks we face are the following:
| • | | 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. |
Investors should consider carefully these risks and the other risks and uncertainties described below. Any of the following risks could materially adversely affect our business, financial condition or operating results which could cause our stock price to decline. The risks and uncertainties described below are not, however, the only ones that we may face. Additional risks and uncertainties not currently known to us, or that we currently believe are not material, could also materially adversely affect our business, financial condition or operating results.
Our financial performance may be adversely impacted if we are unable to continue to grow our commercial and consumer loan portfolios, obtain low-cost funds and compete with other providers of financial services.
Our ability to maintain our history of record earnings year after year will depend, in large part, on our ability to continue to grow our commercial and consumer loan portfolios and obtain low-cost funds. During 2006 and 2007, we focused on increasing consumer loans, and we intend to continue to emphasize and grow consumer, as well as commercial types of loans in the foreseeable future. This
12
represented a shift in our emphasis from 2002 and 2003 when we focused on mortgage banking services, which generated a large portion of our income during those years.
We have also funded our growth with low-cost consumer deposits, and our ability to sustain our growth will depend in part on our continued success in attracting such deposits or finding other sources of low-cost funds.
Another factor in maintaining our history of record earnings will be our ability to expand our scope of available financial services to our customers in an increasingly competitive environment. In addition to other banks, our competitors include credit unions, securities dealers, brokers, mortgage bankers, investment advisors, and finance and insurance companies. Competition is intense in most of our markets. We compete on price and service with our competitors. Competition could intensify in the future as a result of industry consolidation, the increasing availability of products and services from non-banks, greater technological developments in the industry, and banking reform.
Our commercial and consumer loans expose us to increased credit risks.
We have a large percentage of commercial and consumer loans. Commercial loans generally have greater credit risk than residential mortgage loans because repayment of these loans often depends on the successful business operations of the borrowers. These loans also typically have much larger loan balances than residential mortgage loans. Consumer loans generally involve greater risk than residential mortgage loans because they are unsecured or secured by assets that depreciate in value. Although we undertake a variety of underwriting, monitoring and reserving protections with respect to these types of loans, there can be no guarantee that we will not suffer unexpected losses.
Changes in market interest rates could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in market interest rates. Our results of operations depend substantially on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest-bearing liabilities. Our profitability depends on our ability to manage our assets and liabilities during periods of changing market interest rates. If rates increase rapidly as a result of an improving economy, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments reprice, resulting in a negative impact on interest spreads and net interest income. The impact of rising rates could be compounded if deposit customers move funds from savings accounts to higher rate certificate of deposit accounts. Conversely, should market interest rates fall below current levels, our net interest margin could also be negatively affected, as competitive pressures could keep us from further reducing rates on our deposits, and prepayments and curtailments on assets may continue. Such movements may cause a decrease in our interest rate spread and net interest margin, and therefore, decrease our profitability.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans. Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities.
13
An economic slowdown in Northwestern Indiana and Southwestern Michigan could affect our business.
Our primary market area for deposits and loans consists of LaPorte and Porter Counties in Northwestern Indiana and Berrien County in Southwestern Michigan. An economic slowdown in these areas could hurt our business. Possible consequences of such a downturn could include the following:
| • | | 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. |
Because our stock is thinly traded, it may be more difficult for you to sell your shares or buy additional shares when you desire to do so and the price may be volatile.
Although our common stock has been listed on the NASDAQ Capital Market since December 2001 and since February 1, 2007, has been listed on NASDAQ Global Market, our common stock is thinly traded. Average daily trading volume during 2007 was only 1,689 shares. The prices of thinly traded stocks, such as ours, are typically more volatile than stocks traded in a large, active public market and can be more easily impacted by sales or purchases of large blocks of stock. Thinly traded stocks are also less liquid, and because of the low volume of trades, you may be unable to sell your shares when you desire to do so.
The preparation of our financial statements requires the use of estimates that may vary from actual results.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the level of the allowance for loan losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not have to increase the allowance for loan losses and/or sustain loan losses that are significantly higher than the provided allowance.
Our mortgage warehouse and indirect lending operations are subject to a higher fraud risk than our other lending operations.
We buy loans originated by mortgage bankers and automobile dealers. Because we must rely on the mortgage bankers and automobile dealers in making and documenting these loans, there is an increased risk of fraud to us on the part of the third-party originators and the underlying borrowers. In order to guard against this increased risk, we perform investigations on the loan originators with whom we do business, and we review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance. However, there is no guarantee that our procedures will detect all cases of fraud or legal noncompliance.
We are subject to extensive regulation and changes in laws, regulations and policies could adversely affect our business.
Our operations are subject to extensive regulation by federal agencies. See “Supervision and Regulation” in the description of our Business in Item 1 above for detailed information on the laws and regulations to which we are subject. Changes in applicable laws, regulations or regulator policies could materially affect our business. The likelihood of any major changes in the future and their effects are impossible to determine.
Our inability to continue to accurately process large volumes of transactions could adversely impact our business and financial results.
In the normal course of business, we process large volumes of transactions. If systems of internal control should fail to work as expected, if systems are used in an unauthorized manner, or if employees subvert the system of internal controls, significant losses could result.
14
We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk. Operational risk resulting from inadequate or failed internal processes, people and systems includes the risk of fraud by persons inside or outside the company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.
We establish and maintain systems of internal operational controls that provide us with timely and accurate information about our level of operational risk. While not foolproof, these systems have been designed to manage operational risk at appropriate, cost-effective levels. Procedures exist that are designed to ensure that policies relating to conduct, ethics and business practices are followed. From time to time, losses from operational risk may occur, including the effects of competition; technological changes; regulatory developments; changes in fiscal, monetaryoperational errors.
While we continually monitor and tax policies; market, economic, operational, liquidity, creditimprove the system of internal controls, data processing systems and interest rate risks associated with Horizon’s business; inflation; competition in the financial services industry; changes in general economic conditions, either nationally or regionally, resulting in, among other things, credit quality deterioration;corporate-wide processes and changes in the securities markets. A decline in mortgage loan volume could also affect the performance of Horizon.procedures, there can be no assurance that future losses will not occur.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
The main office of Horizon and the Bank is located at 515 Franklin Square, Michigan City, Indiana. The building located across the street from the main office of Horizon and the Bank, at 502 Franklin Square, houses the credit administration, operations,
facilities and purchasing and information technology departments of the Bank. In addition to these principal facilities, the Bank has
1116 sales offices located at:
3631 South Franklin Street, Michigan City, Indiana
113 W. First St., Wanatah, Indiana
1500 W. Lincolnway, LaPorte, Indiana
423 South Roosevelt Street, Chesterton, Indiana
4208 N. Calumet, Valparaiso, Indiana
902 Lincolnway, Valparaiso, Indiana
2650 Willowcreek Road, Portage, Indiana
2450 West Lincoln Highway,
233 East 84th Drive, Merrillville, Indiana
811 Ship Street, StSt. Joseph, Michigan
2608 Niles Road, StSt. Joseph, Michigan
105 East Jefferson Blvd,
1041 E. Napier Ave., Benton Harbor, Michigan
233 South Main Street, South Bend, Indiana
1808
1909 East Bristol Street,
Suite K, Elkhart, Indiana
500 West Buffalo Street, New Buffalo, Michigan
13696 Redarrow Highway, Harbert, Michigan
6801 West U.S. 12 Three Oaks, Michigan
Horizon owns all of the facilities, except for the South Bend Elkhart, Portage and Merrillville, Indiana offices, which are leased from third parties.
ITEM 3. LEGAL PROCEEDINGS No material pending legal proceedings, other than ordinary routine litigation incidental to the business to which Horizon or any of its subsidiaries is a party or of which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
15
No matters were submitted to a vote of Horizon’s stockholders during the fourth quarter of the
20042007 fiscal year.
11
SPECIAL ITEM: EXECUTIVE OFFICERS OF REGISTRANT
| | | | | | | |
| Robert C. Dabagia | | | 6669 | | | Chairman of Horizon since 1998; Chief Executive Officer of Horizon and the Bank until July 1, 2001. |
| | | | | | | |
| Craig M. Dwight | | | 4851 | | | Chairman and Chief Executive Officer of the Bank since January 2003; President and Chief Executive Officer of Horizon and the Bank since July 1, 2001; President and Chief Administrative Officer of Horizon and President of the Bank since 1998; and Vice President and Senior Lender of the Bank since 1997.2001. |
| | | | | | | |
| Thomas H. Edwards | | | 5255 | | | President and Chief Operating Officer of the Bank since January 2003; Executive Vice President and Senior Lender of Horizon and the Bank since 1999, Executive of Loan Management Services, Crowe, Chizek and Company, LLP since 1993. |
| | | | | | |
Lawrence J. Mazur | | | 56 | | | President and Chief Executive Officer of Horizon Trust & Investment Management, N.A. since January 2003; President of Horizon Trust & Investment Management, N.A. since December 1998; Secretary of Horizon Bancorp since 2001; President, Financial Planning and Management Corporation since 1994.2003. |
| | | | | | | |
| James H. Foglesong | | | 5962 | | | Chief Financial Officer of Horizon and the Bank since January 2001; Executive Vice President and Chief Financial Officer, Security Financial Bancorp since 1995.2001. |
| | | | | | | |
| James D. Neff | | | 4548 | | | 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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PART II
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 |
There were no purchases by the Company of its common stock during the fourth quarter.
The Securities and Exchange Commission requires Horizon to include a line graph comparing Horizon’s cumulative five-year total shareholder returns on the Common Shares with market and industry returns over the past five years. SNL Financial LC prepared the following graph. The return represented in the graph assumes the investment of $100 on January 1, 2003, and further assumes reinvestment of all dividends. The Common Shares began trading on the NASDAQ Global Market February 1, 2007. Prior to that date, the Common Shares were traded on the NASDAQ Capital Market.
Horizon Bancorp
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | 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 | | |
| |
The other information regarding Horizon’s common stock is included under the caption “Horizon’s Common Stock and Related Stockholders’ Matters” in Item 8 below, which is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA The information required under this item is incorporated by reference to the information appearing under the caption “Summary of Selected Financial Data” in Item 8 of this Form 10-K.
17
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Horizon Bancorp and Subsidiaries Management’s Discussion and Analysis of
Financial Condition and Results of OperationOperations
(Table Dollar Amounts in Thousands)
Horizon’s net interest margin at 3.03% for 2007 declined two basis points from 2006. Average earning assets increased approximately $54 million, which was the
emphasis shifted from residential mortgage lending to more traditional commercial banking functions. As residential mortgage loan refinance activity slowed, Horizon was able to diversify its revenue streams. Commercial loans grew 34% to over $200primary cause of an increase of $1.3 million
and consumer loans increased by 40% to over $140 million. 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. Consumer loans grew as a result of additional home equity lendingor 4.0% in
all markets and expansion of indirect lending into southwest Michigan.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.
Non-interest income increased $2.1 million or 21% over the prior year, which was
accomplished throughthe largest contributor to the growth in net income. Growth occurred in most areas of non-interest income, especially gain on sale of loans which increased due to a
12% increase in depositshigher percentage of new loans being sold and
a 54% increase in borrowed funds.better sales execution.
Non-interest expenses increased $689 thousand or 2.3% over the prior year. Horizon began to see positive impact from staff reductions initiated during 2007 and other expense categories were held constant with the previous year.
Critical Accounting Policies Horizon has established various accounting policies, which govern the application of accounting principles generally accepted in the United States in the preparation the Company’s financial statements. The significant accounting policies of the Company are described in the notes to the consolidated financial statements included in Part II, Item 8 on Form 10-K. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management has identified the
allowance for loan lossesfollowing as
a critical accounting
13
policies:
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.
14
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 | |
| | | |
16
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
An allowance for loan losses is maintained to absorb loan losses inherent in the loan portfolio. The determination of the allowance for loan losses is a critical accounting policy that involves management’s ongoing quarterly assessments of the probable estimatedincurred losses inherent in the loan portfolio. The identification of loans that may have potentialprobable incurred losses is subjective, therefore, a general reserve is maintained to cover all potentialprobable losses within the entire loan portfolio. Horizon utilizes a loan grading system that helps identify, monitor and address asset quality problems in an adequate and timely manner. Each quarter, various factors affecting the quality of the loan portfolio are reviewed. Large credits are reviewed on an individual basis for loss potential. Other loans are reviewed as a group based upon previous trends of loss experience. Horizon also reviews the current and anticipated economic conditions of its lending market as well as transaction risk to determine the effect they may have on the loss experience of the loan portfolio. The methodology described above is
1718
consistent with
Goodwill and Intangible Assets
Management believes that the
Officeaccounting for goodwill and other intangible assets also involves a higher degree of
judgment than most other significant accounting policies. Statement of Financial Accounting Standard (SFAS) No. 142, “Accounting for Goodwill and Other Intangible Assets,” establishes standards for the
Comptrolleramortization of
the Currency’s guidance in determining the adequacyacquired intangible assets and impairment assessment of
the allowance for loan losses.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.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets on a servicing-retained basis. Capitalized servicing rights are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. When the book value of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value. In periods of falling market interest rates, accelerated loan prepayment speeds can adversely impact the fair value of these mortgage-servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or adversely.
19
Analysis of Financial Condition
Investment Securities
Investment securities totaled $234.675 million at December 31, 2007, and consisted of U. S. Treasury and Government Agency securities of $26.220 million (11.2)%; Municipal securities of $86.931 million (37.0)%; Mortgage-backed securities of $107.371 million (45.8)%; collateralized mortgage obligations of $13.552 million (5.8)%; and corporate securities of $601 thousand (.2)%.
As indicated above, 51.9% 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, 2007, the mortgage-backed securities and collateralized mortgage obligations in the investment portfolio had an average life of 6.46 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, 2007 and 2006, 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 recorded, net of tax, directly to stockholders’ equity. Net appreciation on these securities totaled $97 thousand, which resulted in a $63 thousand increase, net of tax, to stockholders’ equity at December 31, 2007. This compared to a $1.507 million, net of tax, reduction in stockholders’ equity at December 31, 2006.
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, 2007, Horizon has investments in the common stock of the Federal Reserve and Federal Home Loan Bank totaling $12.625 million compared to $12.136 million at December 31, 2006.
At December 31, 2007, Horizon does not maintain a trading account and is not using any derivative products for hedging or other purposes.
20
Loans
Total loans, the principal earning asset of the Bank, were $888.852 million at December 31, 2007. The current level of loans is an increase of 5.3% from the December 31, 2006, level of $843.834 million. As the table below indicates, the increase is related to growth in Commercial and Consumer loans. The categories related to residential real estate lending, Real estate and Mortgage warehouse, declined during 2007.
| | | | | | | | | | | | | | | | | |
| (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 | % |
| | | | | | | |
The acceptance and management of credit risk is an integral part of the Bank’s business as a financial intermediary. The Bank has established 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 $216.019 million or 24.3% of total loans as of December 31, 2007, compared to $222.235 million or 26.3% of total loans as of December 31, 2006. 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.
21
In addition to the customary real estate loans described above, the Bank also has outstanding on December 31, 2007, $58.809 million in home equity lines of credit compared to $54.527 million at December 31, 2006. 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 4 of the consolidated financial statements.
Residential real estate lending is a highly competitive business. As of December 31, 2007, the real estate loan portfolio reflected a wide range of interest rates and repayment patterns, but could generally be categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | % |
| | | | | | | | | | | | | |
During 2007 and 2006, approximately $135 million and $96 million, respectively, of residential mortgages were sold into the secondary market.
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. During 2006 Horizon sold a large portion of its mortgage servicing business. The unpaid principal balances and number of loans serviced for others totaled approximately $26,191,000 and 324 and $23,702,000 and 279 at December 31, 2007 and 2006, respectively.
The Bank began capitalizing mortgage servicing rights during 2000 and the aggregate fair value of capitalized mortgage servicing rights at December 31, 2007, totaled approximately $269,000. 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.
| | | | | | | | | | | | | |
| (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 | |
| | | |
Commercial Loans
Commercial loans totaled $307.535 million, or 34.6% of total loans as of December 31, 2007, compared to $271.457 million, or 32.1% as of December 31, 2006.
22
Commercial loans consisted of the following types of loans at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | % |
| | | |
Consumer Loans
Consumer loans totaled $287.073 million, or 32.3% of total loans as of December 31, 2007, compared to $237.875 million, or 28.2% as of December 31, 2006. The total consumer loan portfolio increased 20.7% in 2007. The growth in consumer loans came from the indirect automobile segment of the portfolio as Horizon continued to expand its dealer network in southwest Michigan and north central Indiana that started in 2006 and into Northern Illinois in 2007. The Illinois indirect program was begun in the first quarter with the intent to sell the loans originated. Due to changes in economic conditions, efforts to sell these loans were unsuccessful and the program was terminated during the third quarter. Approximately $25 million of loans were originated under this program. These loans remain on Horizon’s books and are generally performing as agreed. Direct consumer loans, mostly consisting of home equity term and revolving loans, were relatively stable in 2007.
Mortgage Warehouse Loans
Horizon’s mortgage warehousing business line has specific mortgage companies as customers of Horizon Bank. Individual mortgage loans originated by these mortgage companies are funded as a secured borrowing with pledge of collateral under Horizon’s agreement with the mortgage company. Each individual mortgage is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. In addition, Horizon takes possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan. At the time a loan is transferred to the secondary market, the mortgage company repurchases the loan under its option within the agreement. Due to the repurchase feature contained in the agreement, the transaction does not qualify as a sale under SFAS 140 paragraph 9 (c) and therefore is accounted for as a secured borrowing with pledge of collateral under paragraph 12 of SFAS 140 pursuant to the agreement with the mortgage company. When the individual loan is sold to the end investor by the mortgage company the proceeds from the sale of the loan are received by Horizon and used to payoff the loan balance with Horizon along with any accrued interest and any related fees. The remaining balance from the sale is forwarded to the mortgage company. These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected at the time each loan is sold. Fee income for each loan sold is recorded when collected and no costs are deferred due to the term between each loan funding and related payoff is typically less than 30 days.
Based on the agreements with each mortgage company, at any time a mortgage company can repurchase from Horizon their outstanding loan balance on an individual mortgage and regain possession of the original note. Horizon also has the option to request that the mortgage company repurchase an individual mortgage. Should this occur, Horizon would return the original note and reassign the assignment of the mortgage to the mortgage company. Also, in the event that the end investor would not be able to honor the sales commitment and the mortgage company would not be able to repurchase its loan on an individual mortgage, Horizon would be able to exercise its rights under the agreement.
23
Allowance and Provision for Loan Losses/Critical Accounting Policy
At December 31, 2007, the allowance for loan losses was $7.193$9.791 million, or 1.28%1.10% of total loans outstanding, compared to $6.909$8.738 million, or 1.54%1.03% at December 31, 2003.2006. During 2004,2007, the provision for loan losses totaled $990 thousand$3.068 million compared to $1.350$905 thousand in 2006. The need for an additional provision is a direct result of deterioration of loan quality in the wholesale mortgage (which total approximately $8.0 million) and indirect automobile portfolios.
In December, Horizon discovered a $189 thousand fraudulent loan in the wholesale mortgage portfolio. This, combined with three other delinquent wholesale mortgage loans, prompted Horizon to conduct an internal review of the portfolio. This review included approximately 65% of the portfolio and, while no additional fraudulent loans were detected, the review resulted in a specific allocation of over $1.400 million of the total allowance to this portfolio. The allocation included a combination of specific reserves assigned to certain loans as well as an amount based on Horizon’s recent loss history and national charge off statistics of sub-prime mortgage loans.
Horizon’s analysis of the indirect loan portfolio gave added weight to recent charge off history plus a comparison of current credit scores compared to original credit scores on approximately 65% of the borrowers in 2003. The allowance as athis portfolio. Original credit scores had only six percent of total loans decreased due to strongthe borrowers at or below a 624 credit quality andscore. The recent analysis indicated that 19% of these borrowers now have credit scores of 624 or below. Based on this analysis, Horizon increased its allocation of the allowance by $500 thousand for future indirect loan loss ratios which are better than those of Horizon’s peers. However,losses.
Despite the increased allowance, no assurance can be given that Horizon will not, in any particular period, sustain loan losses that are significant in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of factors then prevailing, including economic conditions and management’s ongoing quarterly assessments of the portfolio, will not require increases in the allowance for loan losses. Horizon considers the allowance for loan losses to be adequate to cover losses inherent in the loan portfolio as of December 31,
2004.2007.
Nonperforming loans are defined as loans that are greater than 90 days delinquent or have had the accrual of interest discontinued by management. Management continues to work diligently toward returning nonperforming loans to an earning asset basis. Nonperforming loans for the previous three years ending December 31 are as follows:
| | | | | | | | | | | | | |
| | | 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 | |
Nonperforming loans total
19%31% of the allowance for loan losses at December 31,
20042007, compared to
27%30% and
21%22% of the allowance for loan losses on December 31,
20032006 and
2002,2005, respectively.
A loan becomes impaired when, based on current information, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is classified as impaired, the degree of impairment must be recognized by estimating future cash flows from the debtor. The present value of these cash flows is computed at a discount rate based on the interest rate contained in the loan agreement. However, if a particular loan has a determinable market value, the creditor may use that value. Also, if the loan is secured and considered collateral dependent, the creditor may use the fair value of the collateral. (See Note-4 of the audited financial statements for further discussion of impaired loans)
24
Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by 1
–— 4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicate that underlying cash flows of a borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
Other real estate owned (OREO) net of any related allowance for OREO losses for the previous three years ending December 31 are as follows:
| | | | | | | | | | | | | |
| | | 2004 | | | 2003 | | | 2002 | |
| |
| Other real estate owned | | $ | 276 | | | $ | 15 | | | $ | 0 | |
| | | | | | | | | | | | | |
| (dollar amounts in thousands) | | 2007 | | 2006 | | 2005 |
| |
| Other real estate owned | | $ | 238 | | | $ | 75 | | | $ | 23 | |
The primary source of funds for the Bank comes from the acceptance of demand and time deposits. However, at times the Bank will use its ability to borrow funds from the Federal Home Loan Bank and other sources when it can do so at interest rates and terms that are superior to those required for
18
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
Horizon continually revises and enhances its interest-bearing consumer and commercial demand deposit products based on local market conditions and its need for funding to support various types of assets. These product changes caused the changes in the average balances and rates paid as displayed in the table above.
Certificates of deposit of $100,000 or more, which are considered to be rate sensitive and are not considered a part of core deposits, mature as follows as of December 31, 2004:2007:
| | | | | | | | | |
| (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 | |
Interest expense on time certificates of $100,000 or more was approximately
$1.762$5.134 million,
$1.757$5.533 million and
$1.231$2.059 million for
2004, 2003,2007, 2006 and
2002,2005, respectively.
Off-Balance Sheet Arrangements As of December 31,
2004,2007, Horizon does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Contractual Obligations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 note 9Note 10 in Horizon’s Consolidated Financial Statements. |
| |
| (2) | | Includes Trust Preferred Capital Securities issued by Horizon Statutory Trusts III and II.III and those assumed in the acquisition of Alliance. See note 10Note 11 in Horizon’s Consolidated Financial Statements. |
| | | | | | | | | | |
| | | | | | | | | | | | 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
During 2001, Horizon initiated a Shareholder Value Plan. The Plan is a comprehensive strategic plan to broaden and improve the market for Horizon’s common stock with local community investors who have a long-term, personal interest in helping Horizon remain an independent community bank. It includes improved communications with
shareholdersstockholders and customers as well as efforts to improve the marketability of its common stock. During the fourth quarter of 2001, two important components of the Shareholder Value Plan were completed. These included a
three for one3-for-1 stock split and the listing of Horizon’s stock on the NASDAQ
Capital Market (formerly named the NASDAQ SmallCap
Market) and effective February 1, 2007, Horizon is listed on Nasdaq Global Market. Before this, Horizon’s stock was traded on the Bulletin Board. A dividend reinvestment plan was implemented in early 2002 and the quarterly per share dividend was increased to
$.10 2/$.102/3 in the fourth quarter of 2002. In October of 2003, Horizon’s Board of Director’s declared a
3 for 23-for-2 stock split and in December of 2003 increased the dividend to $.12. In December
of 2004, the Board of Director’s increased the quarterly dividend to $.13 per
share. This is the third consecutive year for an increaseshare and to $.14 per share and $.15 per share in
cash dividends.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.
The capital resources of Horizon and the Bank exceed regulatory capital ratios for “well capitalized” banks at December 31,
2004.2007. Stockholders’ equity totaled
$50.432$70.645 million as of December 31,
20042007, compared to
$46.223$61.877 million as of December 31,
2003.2006. At year-end
2004,2007, the ratio of stockholders’ equity to assets was
5.52%5.61% compared to
6.10%5.06% for
2003.2006. Horizon’s capital increased during the year
20042007 as a result of increased earnings, net of dividends declared, exercise of stock options
and net of tax,
decreaseimprovement in unrealized gain
(loss) on securities available for sale and the amortization of unearned compensation.
The percentage growth in assets was greater than the percentage growth in equity, causing the equity to asset ratio from 2003 to 2004 to decrease.Horizon declared dividends in the amount of
$.49$.59 per share in
2004,2007, and
$.44$.56 per share in
20032006 and
$.40 2/3$.53 per share in
2002. These amounts have been adjusted for the three for two stock split20
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
MarchOctober of
2002,2004, Horizon formed Horizon Statutory Trust
III (Trust
I)II), a
wholly owned statutory business trust. Trust
III issued
$12$10.310 million of Trust Preferred Capital Securities as a participant in a pooled trust preferred securities offering.
Horizon issuedThe proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures
aggregating $12 million to Trust I.from Horizon. The junior subordinated debentures are the sole assets of Trust
I. 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 3.60% and mature on March 26, 2032II and are
noncallable 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 $362 thousand were capitalizedfully and
are being amortized to the first call date of the securities.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
In December of 2006, Horizon formed Horizon Bancorp Capital Trust III (Trust III), a wholly owned statutory business trust. Trust III issued $12.372 million of Trust Preferred Capital Securities as a participant in a pooled trust preferred securities offering. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Horizon. The junior subordinated debentures are the sole assets of Trust III 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 1.65% and mature on January 30, 2037, and are noncallable 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 $12,647 were capitalized and are being amortized to the first call date of the securities. The proceeds of this issue were used to redeem the securities issued by Trust I on March 26, 2007.
The Company assumed additional debentures as the result of the acquisition of Alliance in 2005. In June 2004, Alliance formed Alliance Financial Statutory Trust I a wholly owned business trust (Alliance Trust) to sell $5.155 million in trust preferred securities. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Alliance. The junior subordinated debentures are the sole assets of Alliance Trust 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 2.65%, mature in June 2034, and are non-callable for five years. After that period, the securities may be called at any quarterly interest payment date at par.
The Trust Preferred Capital Securities, subject to certain limitations, are
included in Tier 1 Capital for regulatory purposes. At December 31, 2007, $6.049 million of the $27.837 million in securities were not included in Tier 1 Capital for regulatory purposes. Dividends on the Trust Preferred Capital Securities are recorded as interest expense.
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.
Consolidated net income was $6.935$8.140 million or $2.22$2.51 per diluted share in 2004, $6.5342007, $7.484 million or $2.10$2.33 per diluted share in 2006 and $7.091 million or $2.24 per share in 2003 and $5.499 million or $1.83 per share in 2002. All per share information has been adjusted for the three for two stock split declared October 21, 2003.2005.
2228
The primary source of earnings for Horizon is net interest income. Net interest income is the difference between what Horizon has earned on assets it has invested and the interest paid on deposits and other funding sources. The net interest margin is net interest income expressed as a percentage of average earning assets. Horizon’s earning assets consist of loans, investment securities and interest-bearing balances in banks.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
| | | | | |
Assets | | |
| 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 | |
| | | | | | | | | | | | | | | |
| | | |
Liabilities and Stockholders’ Equity | | |
| 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 $3,129,000, $3,771,000$ 3,296,000, $3,470,000 and $2,654,000$3,246,000 in 2004, 20032007, 2006 and 20022005 respectively. |
| |
| (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, 2004.2007. |
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’s average earning assets were
$769.100$1,102.287 million in
20042007 compared to
$704.055$1,048.250 million in
20032006 and
$598.317$941.991 million in
2002.2005. The net interest margin for
20042007 was
3.31%2.98% compared to
3.43%3.01% and
3.87%3.28% in
20032006 and
2002,2005, respectively.
Short termShort-term interest
rates began to increase in the third quarter of
2004. The years 20032004 and
2002 saw acontinued through 2005 until June of 2006. Short-term interest remained relatively stable
rate environment.Horizon continueduntil the fourth quarter of 2007 at which point they began to experience lowerdecline.
Horizon’s net interest margin declined three basis points for 2007 compared to 2006. During 2006, low yielding investment securities were sold and the proceeds were reinvested in higher yielding securities, which improved the yield on the investment portfolio. Increases in commercial and consumer loans improved the yield on the total loan portfolio. These caused an increase in yield on total earning assets. Offsetting this was were increases in the cost of short term funding from both negotiable certificates of deposit and short term borrowings. The cost of long term debt increased due to maturities of certain debt at low yields as new loans and loan renewals came on at lower rates than those maturing or paying off.which were replaced with higher costing debt. Average loans outstanding during 20042007 showed only modest growth from 2003,2006, however, the total growth was limited due to a decline in mortgage warehouse loans caused by a slow down in the residential lending market. Changes in the mix of the loan portfolio showed significant change asis shown in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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
Average commercial loans grew
over 38% andnearly 9%, consumer loans increased by over
34%19% and residential real estate loans increased by over 12%.
An improving local economy, strong sales effort and the addition of experienced lenders fueled theCommercial loan growth came from nonresidential commercial
growth. The southwest Michigan market, in which Horizon opened its first branch in the second quarter of 2003, continued to have a strong growth pattern.real estate loans. Average consumer loans grew as a result of
additional home equity lending in all markets and expansion of indirect lending into southwest Michigan and north central Indiana.
Residential mortgage refinance activity slowed throughoutAverage consumer loans increased due to indirect loans originated within Horizon’s normal market area, which are held in the
country causing aportfolio, as well as approximately $24 million of indirect loans originated in the suburban Chicago market. Horizon terminated its Illinois indirect loan operation in October of 2007. Mortgage loans, while showing an increase in average balance, have declined since the end of 2006. This was intentional as Horizon shifts its emphasis to more traditional commercial and consumer banking lines of business. The decline in
averagemortgage demand caused mortgage warehouse loans
outstanding ofto decrease by over
40%27%.
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.
The increase in net interest income during
20042007 and
20032006 is primarily the result of increased earning
assets. The increase in net interest income resulting from increased earning assets
particularly mortgage warehouse loans in 2003 and investment securities in 2004, andwas partially offset by
decliningdeclines in the net interest
margins.Noninterestmargin.
The major components of
noninterestnon-interest income consist of service charges on deposit accounts, gain on sale of loans and fiduciary fees. Service charges on deposit accounts are based upon: a) recovery of direct operating expenses associated with providing the service, b) allowing for a profit margin that provides an adequate return on assets and stockholders’ equity and c) competitive factors within the Bank’s markets. Service charges on deposits were
$3.088$3.469 million,
$3.161$3.102 million and
$2.948$2.966 million, for
2004, 20032007, 2006 and
2002,2005, respectively.
Gain on sale of loans was
$2.126$2.566 million for
2004 compared to $3.8432007, $1.681 million for 2006 and $1.756 million in
20032005. Horizon has sold between 50% and
$3.152 million for 2002. In 2003 and 2002 Horizon sold approximately 85%60% of its residential mortgage loan production
to the secondary market. However, in
2004 this percentage dropped to around 60% as more customers took2005 and 2006. In 2007 Horizon sold approximately 77% of its residential mortgage loan production. The loans retained are predominantly adjustable rate
mortgages which are held in the Bank’s permanent portfolio of real estatemortgage loans. During
20042007, Horizon sold
$106$135 million of current production of residential mortgage loans into the secondary market compared to
$185$96 million in
20032006 and
$132$98 million in
2002. The 2004 gain includes approximately $394 thousand from the sale of portfolio loans while the 2002 gain amount includes approximately $357 thousand gain on the sale of portfolio loans. The 2002 amount also includes approximately $381 thousand of gain on the sale of credit card loans. Portfolio mortgage loans were sold to reduce the interest rate risk related to long-term fixed rate assets and to provide funding for the growth in other loan areas. The credit card loans were sold to reduce the credit risk, eliminate the inefficiencies related to managing a small portfolio and to provide funding for other loan categories. 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.Fiduciary fees were
$2.694$3.556 million in
20042007 compared to
$2.411$3.100 million in
20032006 and
$2.348$2.748 million in
2002. The fluctuations are primarily2005. Fiduciary income increased due to
changesan increase in
the market value of assets under administration,
additional income from the ESOP line of business and
ana fee increase
implemented in
one time estate fees.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.
Non-interest ExpenseNoninterest
Non-interest expense totaled
$25.672$31.144 million in
20042007 compared to
$24.771$30.455 million in
20032006 and
$23.403$29.129 million in
2002.2005.
Salaries and benefits increased 5.9%4.4% during 20042007 compared to an increasea decrease of 9.4%.6% during 2003.2006. Incentive compensation accruals for various Horizon employees were reduced during the fourth quarter of 2006, as incentive targets were not met, while normal incentive compensation accruals continued all of 2007 as incentive targets were met. The increase for 2004 relatedreduction to the costincentive accruals in 2006 is the main cause of expansion into new markets partially offsetthe increase in salaries and employee benefits in 2007. The staff reductions, which took place in 2006 and 2007, are now favorably impacting compensation expense. The staff reductions in 2006 were accomplished through normal attrition and were the result of an efficiency study. The staff reduction in 2007 was the result of a reduction in force by declines in incentive compensation and commissionseliminating certain positions. The 2007 expense includes approximately $262 thousand of severance benefits paid to mortgage originators.the terminated employees. The increase for 2003 was caused primarily by increases in incentive compensation due to company performance and commissions paid to mortgage originators.ongoing annual impact of the 2007 staff reductions will be approximately $1.5 million.
2531
Total other expenses, excluding salaries and benefits,
decreased .4% in 2007 and increased
.76%11.2% in
2004 and 1.61% in 2003.2006. During
2004 Horizon reviewed all areas2006 other expenses were impacted by a full year of
noninterest expense and developed annual reductions of over $350 thousand. The more significant reductions included revisions to services provided by third parties, a change in check clearing vendors and real estate and personal property tax revisions.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.
Income tax expense
before cumulative effect of change in accounting for goodwill, totaled
$2.494$2.727 million in
2004, $2.6362007 compared to $2.838 million in
20032006 and
$2.778$2.945 million in
2002.2005. The effective tax rate was
26.45%25.1%,
28.75%,27.5% and
33.14%29.3% for
2004, 2003,2007, 2006 and
2002,2005, respectively. The
declinesdecrease in the effective tax rate
are caused by increased tax exemptwas due to an increase in the percentage of tax-exempt income
from bank owned life insurance and tax exempt investmentto pre-tax income.
Liquidity and Rate Sensitivity Management Management and the Board of Directors meet regularly to review both the liquidity and rate sensitivity position of Horizon. Effective asset and liability management ensures Horizon’s ability to monitor the cash flow requirements of depositors along with the demands of borrowers and to measure and manage interest rate risk. Horizon utilizes an interest rate risk assessment model designed to highlight sources of existing interest rate risk and consider the effect of these risks on strategic planning. Management maintains (within certain parameters) an essentially balanced ratio of interest sensitive assets to liabilities in order to protect against the effects of wide interest rate fluctuations.
The Bank maintains a stable base of core deposits provided by long standing relationships with consumers and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayments, investment security sales and maturities, sale of real estate loans and borrowing relationships with correspondent banks, including the Federal Home Loan Bank (FHLB). At December 31,
2004,2007, Horizon has available approximately
$158.733$171.2 million in available credit from various money center banks, including the FHLB. During
2004,2007, cash flows were generated primarily from
an increase in depositsproceeds from borrowings of
$66.0$185.0 million and
an increase in borrowed fundssales, maturities, and prepayments of
$86.1investment securities of $62.5 million. Cash flows were used
for a $116.0to purchase investments totaling $56.5 million, increase
in loans
$47.8 million and
a 65.6 million increase in investment securities.repay debt $100.5 million. The net cash and cash equivalent position decreased by
$27.2$3.8 million during
2004.2007.
The degree by which net interest income may fluctuate due to changes in interest rates is monitored by Horizon using computer simulation models, incorporating not only the current GAP position but the effect of expected repricing of specific financial assets and liabilities. When repricing opportunities are not properly aligned, net interest income may be affected when interest rates change. Forecasting results of the possible outcomes determines the exposure to interest rate risk inherent in Horizon’s balance sheet. The goal is to manage imbalanced positions that arise when the total amount of assets that reprice or maturingmature in a given time period differs significantly from liabilities that reprice or mature in the same time period. The theory behind managing the difference between repricing assets and liabilities is to have more assets repricing in a rising rate environment and more liabilities repricing in a declining rate environment. At December 31, 2004,2007, the amount of assets that reprice within one year were 103% of liabilities that reprice within one year. At December 31, 2006, the amount of assets that reprice within one year were approximately 109%96% of the amount of liabilities that reprice within the same time period. This compares to 122% at December 31, 2003.
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| | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
Included in the GAP analysis are certain interest-bearing demand accounts and savings accounts. These interest-bearing accounts are subject to immediate withdrawal. However, Horizon considers approximately
50%58% of these deposits to be insensitive to gradual changes in interest rates and generally to behave like deposits with longer maturities based upon historical experience.
Quantitative and Qualitative Disclosures About Market Risk Horizon’s primary market risk exposure is interest rate risk. Interest rate risk (IRR) is the risk that Horizon’s earnings and capital will be adversely affected by changes in interest rates. The primary approach to IRR management is one that focuses on adjustments to the asset/liability mix in order to limit the magnitude of IRR.
Horizon’s exposure to interest rate risk is due to repricing or mismatch risk, embedded options risk, and yield curve risk. Repricing risk is the risk of adverse consequence from a change in interest rates that arise because of differences in the timing of when those interest rate changes affect Horizon’s assets and liabilities. Basis risk is the risk that the spread, or rate difference, between instruments of similar maturities will change. Options risk arises whenever products give the customer the right, but not the obligation, to alter the quantity or timing of cash flows. Yield curve risk is the risk that changes in prevailing interest rates will affect instruments of different maturities by different amounts. Horizon’s
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
The table, which follows, provides information about Horizon’s financial instruments that are sensitive to changes in interest rates as of December 31,
2004.2007. The table incorporates Horizon’s internal system generated data related to the maturity and repayment/withdrawal of interest-earning assets and interest-bearing liabilities. For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and related
weighted averageweighted-average interest rates by contractual maturities as well as the historical experience of Horizon related to the impact of interest rate fluctuations on the prepayment of residential loans and mortgage-backed securities. From a risk management perspective, Horizon believes that repricing dates are more relevant than contractual maturity dates when analyzing the value of financial instruments. For deposits with no contractual maturity dates, the table presents principal cash flows and weighted average rate, as applicable, based upon Horizon’s experience and management’s judgment concerning the most likely withdrawal behaviors.
Horizon had no derivative financial instruments or trading portfolio as of December 31, 2004.2007.
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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
Quantitative Disclosure of Market Risk
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 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 | % | | | | |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required under this item is incorporated by reference to the information appearing in Management’s Discussion and Analysis of Financial Condition and Results of Operation included in Item 7.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Horizon Bancorp
Consolidated Financial Statements
Table of Contents
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Consolidated Financial Statements | | | | |
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| | | 3437 | |
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| | | 3639 | |
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| | | 37-3840-41 | |
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| | | 39-6342-69 | |
| | | | | |
| | | 6470 | |
| | | | | |
Other Information | | | | |
| | | | | |
| | | 6571 | |
| | | | | |
| | | 66-6772-73 | |
| | | | | |
| | | 6874 | |
3336
Horizon Bancorp and Subsidiaries
Consolidated Balance Sheets
(Dollar Amounts in Thousands)
(All Share and Per Share Amounts Have Been Adjusted for a 3-for-2 Stock Split Declared October 21, 2003)| | | | | | | | | |
| December 31 | | 2007 | | 2006 |
| |
Assets | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | |
Liabilities | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | |
Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
Stockholders’ Equity | | | | | | | | |
| Preferred stock, no par value Authorized, 1,000,000 shares No shares issued | | | | | | | | |
| Common stock, $.2222 stated value Authorized, 22,500,000 shares Issued, 5,011,656 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 | |
| |
Assets | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | |
Liabilities | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | |
Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
Stockholders’ Equity | | | | | | | | |
| Preferred stock, no par value | | | | | | | | |
| Authorized, 1,000,000 shares | | | | | | | | |
| No shares issued | | | | | | | | |
| Common stock, $.2222 stated value | | | | | | | | |
| Authorized, 22,500,000 shares | | | | | | | | |
| Issued, 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
Horizon Bancorp
Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data)
(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 |
| |
Interest Income | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Interest Expense | | | | | | | | | | | | |
| 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 | |
| | | |
Net Interest Income | | | 32,808 | | | | 31,545 | | | | 30,873 | |
| Provision for loan losses | | | 3,068 | | | | 905 | | | | 1,521 | |
| | | |
| | | | | | | | | | | | | |
Net Interest Income After Provision for Loan Losses | | | 29,740 | | | | 30,640 | | | | 29,352 | |
| | | |
| | | | | | | | | | | | | |
Other Income | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Other Expenses | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Income Before Income Tax | | | 10,867 | | | | 10,322 | | | | 10,036 | |
| Income tax expense | | | 2,727 | | | | 2,838 | | | | 2,945 | |
| | | |
| | | | | | | | | | | | | |
Net Income | | $ | 8,140 | | | $ | 7,484 | | | $ | 7,091 | |
| | | |
| | | | | | | | | | | | | |
Basic Earnings Per Share | | $ | 2.54 | | | $ | 2.36 | | | $ | 2.31 | |
| | | | | | | | | | | | | |
Diluted Earnings Per Share | | $ | 2.51 | | | $ | 2.33 | | | $ | 2.24 | |
| | | | | | | | | | | | | |
| Years Ended December 31 | | 2004 | | | 2003 | | | 2002 | |
| |
Interest Income | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Interest Expense | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Net Interest Income | | | 25,422 | | | | 24,151 | | | | 23,153 | |
| Provision for loan losses | | | 990 | | | | 1,350 | | | | 1,625 | |
| | | |
| | | | | | | | | | | | | |
Net Interest Income After Provision for Loan Losses | | | 24,432 | | | | 22,801 | | | | 21,528 | |
| | | |
| | | | | | | | | | | | | |
Other Income | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Other Expenses | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Income Before Income Tax and Cumulative Effect of Change in Accounting for Goodwill | | | 9,429 | | | | 9,170 | | | | 8,374 | |
| Income tax expense | | | 2,494 | | | | 2,636 | | | | 2,778 | |
| | | |
| | | | | | | | | | | | | |
Income Before Cumulative Effect of Change in Accounting for Goodwill | | | 6,935 | | | | 6,534 | | | | 5,596 | |
| | | | | | | | | | | | | |
Cumulative Effect of a Change in Accounting for Goodwill (Net of Income Taxes of $63) | | | | | | | | | | | 97 | |
| | | |
Net Income | | $ | 6,935 | | | $ | 6,534 | | | $ | 5,499 | |
| | | |
| | | | | | | | | | | | | |
Basic Earnings Per Share | | | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | |
Diluted Earnings Per Share | | | | | | | | | | | | |
| 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
Horizon Bancorp
Consolidated Statements of Stockholders’ Equity
(Dollar Amounts in Thousands)
(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 | |
| |
Balances, January 1, 2005 | | $ | 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 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2005 | | | 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 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2006 | | | 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 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2007 | | $ | 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 | |
| |
Balances, January 1, 2002 | | | 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 | ) |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2002 | | | 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 | ) |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2003 | | | 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 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2004 | | $ | 1,062 | | | $ | 22,729 | | | | | | | $ | 43,092 | | | $ | (972 | ) | | $ | 894 | | | $ | (16,373 | ) | | $ | 50,432 | |
| | | | | | | | | |
See notes to consolidated financial statements.
3639
Horizon Bancorp
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31 | | 2004 | | 2003 | | 2002 | | | 2007 | | 2006 | | 2005 | |
| | |
| (Continued) | | (Continued) | |
Financing Activities | | |
| 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 | |
| | | | | |
| | | |
Net Change in Cash and Cash Equivalents | | | (27,210 | ) | | 9,772 | | 17,064 | | | | (3,783 | ) | | 19,562 | | 20,996 | |
| | | |
Cash and Cash Equivalents, Beginning of Year | | 45,464 | | 35,692 | | 18,628 | | | 58,812 | | 39,250 | | 18,254 | |
| | | | | |
| | | |
Cash and Cash Equivalents, End of Year | | $ | 18,254 | | $ | 45,464 | | $ | 35,692 | | | $ | 55,029 | | $ | 58,812 | | $ | 39,250 | |
| | | | | |
| | | |
Additional Cash Flows Information | | |
| 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 | |
See notes to consolidated financial statements.
3841
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 1 — Nature of Operations and Summary of Significant Accounting Policies Nature of Business— The consolidated financial statements of Horizon Bancorp (Horizon) and its wholly owned
subsidiaries,subsidiary, Horizon Bank, N.A. (Bank)
and HBC Insurance Group, Inc. (Insurance Company) conform to accounting principles generally accepted in the United States of America and reporting practices followed by the banking industry.
The Bank is a full-service commercial bank offering a broad range of commercial and retail banking and other services incident to banking. The Bank has
twothree active wholly owned subsidiaries: Horizon Trust & Investment Management, Inc. (HTIM)
and, Horizon Investments, Inc. (Investment
company).Company) and Horizon Grantor Trust. HTIM offers corporate and individual trust and agency services and investment management services. Horizon Investments, Inc. manages the investment portfolio of the Bank.
Horizon Grantor Trust holds title to certain company owned life insurance policies. The Bank maintains
foursixteen full service facilities
in LaPorte County, three full service facilities in Porter County,and one loan production office throughout Northwest Indiana and
two full service facilities in Berrien County,Southwest Michigan. The Bank also maintains
a loan production
officesoffice in
Elkhart, Lake
and St. Joseph Counties ofCounty Indiana. The Bank also wholly
ownedowns Horizon Insurance Services, Inc. (Insurance Agency) which
is inactive, but previously offered a full line of personal insurance products. The net income generated from the insurance operations was not significant to the overall operations of Horizon and
was liquidatedthe majority of the insurance agency assets were sold during
2004.2005. Horizon conducts no business except that incident to its ownership of the subsidiaries.
Horizon formed Horizon Statutory Trust
III in
20022004 and Horizon Bancorp Capital Trust
IIIII in
20042006 for the purpose of participating in Pooled Trust Preferred Stock offerings.
The Company assumed additional debentures as the result of the acquisition of Alliance in 2005 which formed Alliance Financial Statutory Trust I (Alliance Trust). See Note
910 for further discussion regarding these previously consolidated entities that are now reported separately.
Basis of Reporting— The consolidated financial statements include the accounts of Horizon and subsidiaries. All material
intercompanyinter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Investment Securities Available for Sale— Horizon designates its investment portfolio as available for sale based on management’s plans to use such securities for asset and liability management, liquidity and not to hold such securities as long-term investments. Management repositions the portfolio to take advantage of future expected interest rate trends when Horizon’s long-term profitability can be enhanced. Investment securities available for sale and marketable equity securities are carried at estimated fair value and any net unrealized gains/losses (after tax) on these securities are included in accumulated other comprehensive income. Gains/losses on the disposition of securities available for sale are recognized at the time of the transaction and are determined by the specific identification method.
42
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Loans Held for Sale— Loans held for sale are reported at the lower of cost or market value in the aggregate.
39
Horizon Bancorp
Notes 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.
Concentrations of Credit Risk— The Bank grants commercial, real estate and consumer loans to customers located primarily in
LaPorte County and portions of Porter County in Northwest Indiana and
Berrien County,southwest Michigan and provides mortgage warehouse lines to mortgage companies in the United States. Commercial loans make up approximately
36%35% of the loan portfolio and are secured by both real estate and business assets. These loans are expected to be repaid from cash flows from operations of the businesses.
RealResidential real estate loans make up approximately
16%24% of the loan portfolio and are secured by
both commercial and residential real estate. Installment loans make up approximately
25%32% of the loan portfolio and are primarily secured by consumer assets. Mortgage warehouse loans make up approximately
23%9% of the loan portfolio and are secured by residential real estate.
Mortgage Warehouse Loans ——Horizon’s mortgage warehousing business line has specific mortgage companies as customers of Horizon purchases residentialBank. Individual mortgage loans from variousoriginated by these mortgage companies priorare funded as a secured borrowing with pledge of collateral under Horizon’s agreement with the mortgage company. Each individual mortgage is assigned to sale of these loansHorizon until the loan is sold to the secondary market by the mortgage companiescompany. In addition, Horizon takes possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan. At the time a loan is transferred to the secondary market, the mortgage company repurchases the loan under its option within the agreement. Due to the repurchase feature contained in the secondary market.agreement, the transaction does not qualify as a sale under SFAS 140 paragraph 9 (c) and therefore is accounted for as a secured borrowing with pledge of collateral under paragraph 12 of SFAS 140 pursuant to the agreement with the mortgage company. When the individual loan is sold to the end investor by the mortgage company the proceeds from the sale of the loan are received by Horizon held loans that were purchased under agreementsand used to resellpayoff the loan balance with Horizon along with any accrued interest and any related fees. The remaining balance from 28 approved mortgage companies at December 31, 2004. Horizon purchases such loans from mortgage companies, net of certain fees, and later sells them backthe sale is forwarded to the mortgage companiescompany. These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected at the same amounttime each loan is sold. Fee income for each loan sold is recorded when collected and without recourse provisions. As a result, no gainscosts are deferred due to the term between each loan funding and losses are recorded at the resale of loans. Horizon records interest and fee incomerelated payoff is typically less than 30 days.
Based on the loans during the funding period. Horizon uses the stated interest rate in the agreementagreements with each mortgage company, for interest income recognition,at any time a mortgage company can repurchase from Horizon their outstanding loan balance on an individual mortgage and not the interest rates on the individual loans. Horizon does not retain servicingregain possession of the loans when they are resold. Loans consistoriginal note. Horizon also has the option to request that the mortgage company repurchase an individual mortgage. Should this occur, Horizon would return the original note and reassign the assignment of purchase moneythe mortgage to the mortgage company. Also, in the event that the end investor would not be able to honor the sales commitment and refinancethe mortgage loans and are generally held no more than 90 days bycompany would not be able to repurchase its loan on an individual mortgage, Horizon and are typically resold within 30 days.would be able to exercise its rights under the agreement.
43
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Allowance for Loan Losses— An allowance for loan losses is maintained to absorb loan losses inherent in the loan portfolio. The allowance is based on ongoing quarterly assessments of the probable
estimated losses inherent in the loan portfolio. The allowance is increased by the provision for credit losses, which is charged against current period operating results and decreased by the amount of charge offs, net of recoveries. Horizon’s methodology for assessing the appropriateness of the allowance consists of several key elements, which include the
formulageneral allowance, specific allowances for identified problem loans and the
unallocatedqualitative allowance.
The
formulageneral allowance is calculated by applying loss factors to pools of outstanding
loans and certain unused commitments.loans. Loss factors are based on a historical loss experience and may be adjusted for significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date.
Specific allowances are established in cases where management has identified conditions or circumstances related to a credit that management believes indicate the probability that a loss will be incurred in excess of the amount determined by the application of the formula allowance.
40
Horizon Bancorp
Notes 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.
Loan Impairment— When analysis determines a borrower’s operating results and financial condition are not adequate to meet debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally placed on
nonaccrualnon-accrual status when 90 days or more past due. These loans are also often considered impaired. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. This typically occurs when the loan is 120 or more days past due.
Loans are considered impaired if full principal or interest payments are not made in accordance with the original terms of the loan. Impaired loans are measured and carried at the lower of cost or the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or at the fair value of the collateral if the loan is collateral dependent.
Smaller balance homogenous loans are evaluated for impairment in the aggregate. Such loans include residential first mortgage loans secured by one to four family residences, residential construction loans and automobile, home equity and second mortgages. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment.
Premises and Equipment— Buildings and major improvements are capitalized and depreciated using primarily the straight-line method with useful lives ranging from 3 to 40 years. Furniture and equipment are capitalized and depreciated using primarily the straight-line method with useful lives ranging from 2 to 20 years. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on disposition are included in current operations.
Federal Reserve and Federal Home Loan Bank Stock— The stock is a required investment for institutions that are members of the Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) systems. The required investment in the common stock is based on a predetermined formula.
44
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Mortgage Servicing Rights— Mortgage servicing rights on originated loans that have been sold are capitalized by allocating the total cost of the mortgage loans between the mortgage servicing rights and the loans based on their relative fair values. Capitalized servicing rights are amortized in proportion to and over the period of estimated servicing revenue. Impairment of mortgage-servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. For purposes of measuring impairment, the rights are stratified based on the predominant risk characteristics of the underlying loans. The predominant characteristic currently used for stratification is type of loan. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceed their fair value. Amortization expense and charges related to an impairment write-down are included in other income.
Goodwill—Goodwill is tested annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value.
Subsequent increases inGoodwill totaled $5.787 million at December 31, 2007 and 2006. A large majority of the goodwill
value are not recognized inrelates to the
acquisition of Alliance financial
statements.41
Corporation.
Horizon Bancorp
Notes 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.
The Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of FIN 48, no material liabilities for uncertain tax positions have been recorded. However, the Company reduced its liabilities for certain tax position by $563,000. This reduction was recorded as a cumulative effect adjustment to equity. The following financial statement line items for 2007 were affected by the change in accounting principle.
Trust Assets and Income— Property, other than cash deposits, held in a fiduciary or agency capacity is not included in the consolidated balance sheets since such property is not owned by Horizon.
Earnings per Common Share and Dividends Declared per Common Share— Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In August 2002, substantially all of the participants in Horizon’s Stock Option and Stock Appreciation Rights Plans voluntarily entered into an agreement with Horizon to cap the value of their stock appreciation rights (SARS) at $14.67 per share and cease any future vesting of the SARS. These agreements with option holders make it more advantageous to exercise an option rather than a SAR whenever Horizon’s stock price exceeds $14.67 per share, therefore, the option becomes potentially dilutive at $14.67 per share or higher. The number of shares used in the computation of basic earnings per share is 2,993,6963,200,440 for 2004, 2,978,1612007, 3,177,272 for 20032006 and 2,975,3943,067,632 for 2002.2005. The number of shares used in the computation of diluted earnings per share is 3,123,3253,243,565 for 2004, 3,108,1782007, 3,217,050 for 20032006 and 3,003,3813,162,950 for 2002.2005. There were 18,000 and 5,000 shares for 2007 and 2006 respectively that were excluded from diluted earnings per share, as they were anti-dilutive. There were no anti-dilutive shares for 2005.
45
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Dividend Restrictions— Regulations of the Comptroller of the Currency limit the amount of dividends that may be paid by a national bank to its parent holding company without prior approval of the Comptroller of the Currency.
Total stockholder’s equity for the Bank atAt December 31,
2004, was $70.447 million of which $62.6852007, $7.787 million was
restrictedavailable for payment of dividends from
dividend distributionthe Bank to Horizon. Additionally, the Federal Reserve Board limits the amount of dividends that may be paid by Horizon to its stockholders under its capital adequacy guidelines.
Consolidated Statements of Cash Flows— For purposes of reporting cash flows, cash and cash equivalents are defined to include cash and due from banks, money market investments and federal funds sold with maturities of one day or less. Horizon reports net cash flows for customer loan transactions, deposit transactions, short-term investments and short-term borrowings.
Stock SplitShare-Based Compensation- On October 21, 2003, the Board of Directors of Horizon declared a 3-for-2 stock split. All share and per share amounts have been adjusted to give effect for this stock split.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.
Prior to the adoption of SFAS 123(R), Horizon accounted for these plans under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost related to the option plans iswas reflected in net income, as all options granted under these plansthe plan had an exercise price equal to the market value of the underlying common stock on the grant date. Compensation cost related to restricted stock awards is reflected in net income. The following table illustrates the effect on net income and earnings per share if Horizon had applied the fair value provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 123,Accounting for Stock-Based Compensation, to stock-based employee compensation.
| | | | | |
| 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 | |
Reclassifications— Certain reclassifications have been made to the stock option plans compensation.2006 and 2005 consolidated financial statements to be comparable to 2007. These reclassifications had no effect on net income.
4246
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Recent Accounting Pronouncements
Fair Value Measurements— In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157) on fair value measurement. SFAS 157 provides guidance for using fair value to measure assets and liabilities. SFAS 157 also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. SFAS 157 does not expand the use of fair value in any new circumstances.
Over forty current accounting standards within generally accepted accounting principles require (or permit) entities to measure assets and liabilities at fair value. Prior to SFAS 157, the methods for measuring fair value were diverse and inconsistent, especially for items that are not actively traded. In the case of derivatives, the FASB consulted with investors, who generally supported fair value, even when market data are not available, along with expanded disclosure of the methods used and the effect on earnings.
Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts such sales or transfers. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy.
SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. Horizon has not determined the impact that SFAS 157 will have on its consolidated financial condition or results of operations.
Fair Value Option for Financial Assets and Financial Liabilities— In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities; including an Amendment of FASB Statement No. 115(SFAS 159). SFAS 159 permits entities with an irrevocable option to report most financial assets and liabilities at fair value, with subsequent changes in fair value reported in earnings. The election can be applied on an instrument-by-instrument basis. The statement establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. The provisions of FAS 159 are effective for the fiscal year beginning January 1, 2008. The Company does not expect the adoption of SFAS No. 159 to have a material impact on the operations of the Company.
47
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
| | | | | | | | | | | | | |
| 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.
Note 2 — Investment SecuritiesAcquisition| | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | |
The following table summarizes the estimated fair values of the net assets acquired as of the June 10, 2005, acquisition date:
| | | | | |
| 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The following pro forma disclosures, including the effect of the purchase accounting adjustments, depict the results of operations as though the merger had taken place January 1, 2004:
| | | | | |
| 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 | |
Note 3 — Investment Securities
| | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | |
49
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities available for sale at December 31, 2004,2007, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | | | |
Securities with a carrying value of
$73,044,000$116,931,000 and
$39,184,000$78,795,000 were pledged at December 31,
20042007 and
2003,2006, respectively, to secure certain public and trust deposits and securities sold under agreements to repurchase.
Proceeds from sales of securities available for sale during
20032007 were
$35,899,000.$27,973,000. Gross gains of
$140,000$164,000 and gross losses of
$650,000$162,000 were recognized on these sales in
2003. There were no2007. Proceeds from sales of securities available for sale during
20042006 were $91,265,000. Gross gains of $1,247,000 and
2002.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.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at December 31,
20042007 and
2003,2006, was
$165,500,000$101,674,000 and
$36,519,000,$150,402,000, respectively, which is approximately
59%43% and
17%62% of Horizon’s available-for-sale investment portfolio. These declines primarily resulted from
recent increasesdecreases in market interest
rates and failure of certain investments to maintain consistent credit quality ratings.rates.
Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.
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.
Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
4450
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) The following table shows our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31,
20042007 and
2003:| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Less than 12 Months | | | 12 Months or More | | | Total | |
Description of | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | |
Securities | | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | |
| |
2004 | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
Description of | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | | Unrealized | | Unrealized | | Unrealized |
Securities | | Value | | Losses | | Value | | Losses | | Value | | Losses | | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
| 2003 | | |
| U. S. Treasury and federal agencies | | $ | 20,631 | | $ | 369 | | $ | 0 | | $ | 0 | | $ | 20,631 | | $ | 369 | | |
2007 | | |
| 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Note 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 | |
| | | |
Impaired loans for which
the carrying value of the loans exceeded the discounted cash flows or collateral value
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.
At December 31,
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.
2005, respectively.
Loans to directors and executive officers of Horizon and the Bank, including associates of such persons, amounted to $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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Note 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 | |
| | | | | |
Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled approximately
$171,367,000$26,191,000 and
$148,359,000$23,702,000 at December 31,
20042007 and
2003.2006, respectively.
The aggregate fair value of capitalized mortgage servicing rights at December 31, 2004,2007, totaled approximately $1,332,000.$309,000. 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 | | | 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 | |
| | | | | |
During 2004,2006, the Bank sold mortgage servicing rights with a book value of $862,000. The principal balance of the loans on which the servicing was sold amounted to $134,465,000. During 2007, the Bank recorded additional impairment of approximately $2,000. During 2006, the Bank recorded a gross recovery of the impairment allowance totaling approximately $155,000.$41,000.
4753
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Note 67 — Intangible Assets
As a result of the acquisition of Alliance (Note 2) in 2005, the Company has recorded certain amortizable intangible assets related to core deposit intangibles. The Core deposit intangible is being amortized over ten years using an accelerated method. Additionally, the Company has a non-compete agreement being amortized over four years from the acquisition of a mortgage company in 2003. Amortizable intangible assets are summarized as follows:
| | | | | | | | | | | | | | | | | |
| | | 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 | ) |
| | | |
Amortization expense for intangible assets totaled $344,000, $368,000 and $230,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Estimated amortization for the years ending December 31 are as follows:
| | | | | |
| 2008 | | $ | 317 | |
| 2009 | | | 305 | |
| 2010 | | | 292 | |
| 2011 | | | 280 | |
| 2012 | | | 269 | |
| Thereafter | | | 605 | |
| | | | |
| | | $ | 2,068 | |
| | | | |
Note 8 — Deposits
| | | | | | | | | | | | | | | | | |
| 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Certificates and other time deposits maturing in years ending December 31 are as follows:
| | | | | |
| 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 | |
| | | | |
Note 79 — Short-Term Borrowings
| | | | | | | | | | | | | | | | | |
| 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 Federal Home Loan Bank advances are secured by first and second mortgage loans and mortgage warehouse loans totaling approximately $427,815,000. Advances are subject to restrictions or penalties in the event of prepayment. In addition, $75,200,000 of the advances outstanding at December 31, 2007 contained options with dates ranging from March 17, 2008 to April 29, 2013, whereby the interest rate may be adjusted by the Federal Home Loan Bank, at which time the advances may be repaid at the option of the Company without penalty.
Securities sold under agreements to repurchase consist of obligations of the Bank to other parties. The obligations are secured by
U. S.U.S. agency and mortgage-backed securities and such collateral is held in safekeeping by third parties. The maximum amount of outstanding agreements at any month end during
20042007 and
20032006 totaled
$55,372,000$97,677,000 and
$46,353,000$70,179,000 and the daily average of such agreements totaled
$26,430,000$75,588,000 and
$28,257,000.$63,098,000, respectively. The agreements at December 31,
2004,2007, mature at various dates through
October 27, 2009. Agreements with a maturitySeptember 11, 2017. Securities sold under repurchase agreements totaling $20,000,000 may be cancelled at the discretion of
one year or less are included in short-term borrowings, while those with a maturity of more than one year are included in long-term debt.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
beginning on September 11, 2010.
Horizon Bancorp
Notes 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.
At December 31, 2004,2007, the Bank has available approximately $158,733,000$171,167,000 in credit lines with various money center banks, including the FHLB.
55
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Contractual maturities in years ending December 31
| | | | | |
| 2008 | | $ | 51,355 | |
| 2009 | | | 40,125 | |
| 2010 | | | 45,133 | |
| 2011 | | | 30,142 | |
| 2012 | | | 41,568 | |
| Thereafter | | | 50,529 | |
| | | | |
| �� | | | | |
| | | $ | 258,852 | |
| | | | |
Note 8 — Long-Term Debt| | | | | | | | | |
| 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
In March of 2002, Horizon formed Horizon Statutory Trust I (Trust I), a
wholly owned statutory business trust. Trust I
issued $12sold $12.372 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 $12 million to Trust I.from Horizon. The junior subordinated debentures are the sole assets of Trust
I.I 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 day90-day LIBOR plus 3.60% and mature on March 26, 2032, and are noncallable for five years. After that period, the securities may be called at any quarterly interest payment date at par.
These securities have been called and were redeemed on March 26, 2007. Costs associated with the issuance of the securities totaling $362,000 were capitalized and
are beingwere amortized to the
March 26,2007 first call date of the securities.
49
Horizon Bancorp
Notes 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
In December of 2006, Horizon formed Horizon Bancorp Capital Trust III (Trust III), a wholly owned statutory business trust. Trust III sold $12.372 million of Trust Preferred Capital Securities as a participant in a pooled trust preferred securities offering. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Horizon. The junior subordinated debentures are the sole assets of Trust III 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 1.65% and mature on January 30, 2037, and are noncallable 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 $12,647 were capitalized and are being amortized to the first call date of the securities. The proceeds of this issue were used to redeem the securities issued by Trust I on March 26, 2007.
The Company assumed additional debentures as the result of the acquisition of Alliance in 2005. In June 2004, Alliance formed Alliance Financial Statutory Trust I a wholly owned business trust (Alliance Trust) to sell $5.155 million in trust preferred securities. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Alliance. The junior subordinated debentures are the sole assets of Alliance Trust 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 2.65%, mature in June 2034, and are non-callable for five years. After that period, the securities may be called at any quarterly interest payment date at par.
The Trust Preferred Capital Securities, subject to certain limitations, are
included in Tier 1 Capital for regulatory purposes. At December 31, 2007, $6.049 million of the $27.837 million in securities were not included in Tier 1 Capital for regulatory purposes. Dividends on the Trust Preferred Capital Securities are recorded as interest expense.
Note 1011 — Employee Stock BonusOwnership Plan Effective January 1, 2007, Horizon maintainsconverted its stock bonus plan to an employee stock ownership plan (“ESOP”). Prior to that date Horizon maintained an employee stock bonus plan (Stock Bonus Plan) that coverscovered substantially all employees. The Stock Bonus Plan isstock bonus plan was noncontributory and Horizon may make discretionarymade matching contributions of amounts contributed by the employees to the Employee Thrift Plan and regulardiscretionary contributions. Prior to the establishment of the employee stock bonus plan, Horizon maintained an ESOP that was terminated in 1999. The prior ESOP accounts of active employees and the discretionary accounts of active employees will remain in the new ESOP. The Matching contribution accounts under the Stock Bonus Plan will be transferred to the Horizon maintainedBancorp Employees’ Thrift Plan.
The ESOP exists for the benefit of substantially all employees. Contributions to the ESOP are by Horizon and are determined by the Board of Directors at their discretion. The contributions may be made in the form of cash or common stock. Shares are allocated among participants each December 31 on the basis of each participant’s eligible compensation to total eligible compensation. Eligible compensation is limited to $225,000 for each participant. Dividends on shares held by the plan, at the discretion of each participant, may be distributed to an employee stock ownership plan. The retirement plans of individual participant or left in the plan to purchase additional shares.
57
Horizon own approximately 16.7% of the outstanding shares.Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Total cash contributions and expense recorded
duringfor the
each of the years 2004, 2003 and 2002ESOP was $300,000 in 2007. The expense recorded for the Stock Bonus Plan
were $250,000.was $200,000 in 2006 and 2005.
The ESOP, which is not leveraged, owns a total of 380,332 shares of Horizon’s stock or 13.9% of the outstanding shares.
Note 1112 — Employee Thrift Plan The Employee Thrift Plan (Plan)(“Plan”) provides that all employees of Horizon with the requisite hours of service are eligible for the Plan. The Plan permits voluntary employee contributions and Horizon may make discretionary matching and profit sharing contributions. Each eligible employee is vested according to a schedule based upon years of service. Employee voluntary contributions are vested at all times and Horizon’s discretionary contributions vest over a six-year period. The Bank’s expense related to the thrift plan totaled $300,000approximately $348,000 in 2007, $332,000 in 2006 and $384,000 for each of the years 2004 and 2003, and $264,000 for 2002.2005.
Note 13 — Other Expenses
| | | | | | | | | | | | | |
| 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Note 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 Bancorp
Notes 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 1415 — Other Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | ) |
| | | | | |
Note 1516 — Commitments, Off-Balance Sheet Risk and Contingencies Because of the nature of its activities, Horizon is subject to pending and threatened legal actions that arise in the normal course of business. In management’s opinion, after consultation with counsel, none of the litigation to which Horizon or any of its subsidiaries is a party will have a material effect on the consolidated financial position or results of operations of Horizon.
The Bank was required to have approximately
$793,000$2,367,000 of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing balance requirements at December 31,
2004.2007. These balances are included in cash and cash equivalents and do not earn interest.
52
Horizon Bancorp
Notes 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.
At December 31,
20042007 and
2003,2006, commitments to make loans amounted to approximately
$95,152,000$141,729,000 and
$59,564,000$154,686,000 and commitments under outstanding standby letters of credit amounted to approximately
$985,000$1,929,000 and
$1,136,000.$3,000,000. Since many commitments to make loans and standby letters of credit expire without being used, the amount does not necessarily represent future cash advances. No losses are anticipated as a result of these transactions. Collateral obtained upon exercise of the commitment is determined using management’s credit evaluation.
Note 1617 — Regulatory Capital Horizon and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category. The assigned capital category is largely determined by three ratios that are calculated according to the regulations: total risk adjusted capital, Tier I capital and Tier I leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity. The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity’s activities that are not part of the calculated ratios.
60
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank’s operations. At December 31,
20042007 and
2003,2006, Horizon and the Bank are categorized as well capitalized and met all subject capital adequacy requirements.
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 Bancorp
Notes 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
Horizon Bancorp
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:
| | | | | | | | | | | | | |
| | | 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 Bancorp
Notes 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.
A summary of
transactions for the 1997 Plan follows:| | | | | | | | | | | | | |
| | | | | | | | | | | 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 | |
| | | | | | | | | | | | | | | |
There were no options granted during the years 2007, 2006 and 2005. The
fairtotal intrinsic value of options
granted is estimated onexercised during the
date of the grant using an option-pricing model with the following weighted-average assumptions:| | | | | |
| 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
Horizon Bancorp
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 | | | | |
Range of | | 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 Bancorp
Notes 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
A summary of option activity under the 2003 Plan outstanding atas of December 31, 2004:2007, and changes during the year then ended, is presented below:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The weighted average grant-date fair value of options granted during the years 2007, 2006 and 2005 was $6.59, $7.12 and $7.66, respectively. The total intrinsic value of options exercised during the year ended December 31, 2007 was $4,258. No options granted under the 2003 Plan were exercised in 2006.
A summary of the status of Horizon’s non-vested, restricted shares as of December 31, 2007 and 2006, is presented below:
| | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | |
All grants vest at the end of five years of continuous employment.
Total compensation cost recognized in the income statement for option-based payment arrangements during 2007 was $53,000 and the related tax benefit recognized was $21,000. Total compensation cost recognized in the income statement for option-based payment arrangements during 2006 was $40,000 and the related tax benefit recognized was $16,000. No cost was recognized for the year 2005.
Total compensation cost recognized in the income statement for restricted share based payment arrangements during 2007, 2006 and 2005 was $240,000, $212,000 and $212,000, respectively. The recognized tax benefit related thereto was $96,000, $84,000 and $84,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2007, 2006 and 2005 was $135,000, $735,000 and $946,000, respectively. The actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled $68,000, $723,000 and $1,139,000, respectively, for the years ended December 31, 2007, 2006 and 2005.
As of December 31, 2007, there was $569,000 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under all of the plans. That cost is expected to be recognized over a weighted-average period of 2.5 years.
64
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 1819 — FDIC One-Time Assessment Credit
Effective November 17, 2006, the FDIC implemented a one-time credit of $4.7 billion to eligible institutions. The purpose of the credit is to recognize contributions made by certain institutions to capitalize the Bank Insurance Fund and Savings Association Insurance Fund, which have now been merged into the Deposit Insurance Fund. The Bank is an eligible institution and has received notice from the FDIC that its share of the credit is $457,534. Horizon utilized $313,911 of this credit during 2007 which reduced the Company’s FDIC insurance expense. The remaining credit of $143,623 is not reflected in the accompanying financial statements as it represents contingent future credits against future insurance assessment payments. As such, the timing and ultimate recoverability of the one-time credit may change.
Note 20 — Fair Values of Financial Instruments The estimated fair value amounts were determined using available market information, current pricing information applicable to Horizon and various valuation methodologies. Where market quotations were not available, considerable management judgment was involved in the determination of estimated fair values. Therefore, the estimated fair value of financial instruments shown below may not be representative of the amounts at which they could be exchanged in a current or future transaction. Due to the inherent uncertainties of expected cash flows of financial instruments, the use of alternate valuation assumptions and methods could have a significant effect on the derived estimated fair value amounts.
The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or market value of Horizon taken as a whole. The disclosed fair value estimates are limited to Horizon’s significant financial instruments at December 31,
20042007 and
2003.2006. These include financial instruments recognized as assets and liabilities on the consolidated balance sheet as well as certain off-balance sheet financial instruments. The estimated fair values shown below do not include any valuation of assets and liabilities which are not financial instruments as defined by SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, such as the value of real property, the value of core deposit intangibles, the value of mortgage servicing rights nor the value of anticipated future business.58
.
Horizon Bancorp
Notes 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:
Cash and Cash Equivalents— The carrying amounts approximate fair value.
Interest-Bearing Deposits— The carrying amounts approximate fair value.
Investment Securities— For debt and marketable equity securities available for sale and held to maturity, fair values are based on quoted market prices or dealer quotes. For those securities where a quoted market price is not available, carrying amount is a reasonable estimate of fair value based upon comparison with similar securities.
Net Loans— The fair value of portfolio loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying amounts of loans held for sale approximate fair value.
65
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Interest Receivable/Payable— The carrying amounts approximate fair value.
FHLB and FRB Stock— Fair value of FHLB and FRB stock is based on the price at which it may be resold to the FHLB and FRB.
Deposits— The fair value of demand deposits, savings accounts, interest-bearing checking accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturity.
Short-Term Borrowings— The carrying amounts approximate fair value.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.
Guaranteed Preferred Beneficial Interest in Horizon Bancorp’s Subordinated Debentures— Rates currently available for debentures with similar terms and remaining maturities are used to estimate fair values of existing debentures.
Commitments to Extend Credit and Standby Letter of Credit— The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. Due to the short-term nature of these agreements, carrying amounts approximate fair value.
The estimated fair values of Horizon’s financial instruments are as follows:
| | | | | | | | | | | | | | | | | |
| | | 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
Horizon Bancorp
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 | |
| |
Assets | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
| 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 Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 2021 — Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position, results of operations and cash flows of Horizon Bancorp:
Condensed Balance Sheets
| | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | |
Condensed Statements of Income
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Condensed Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | | | | | | | |
| 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 | |
| | | | | |
| | | |
Investing Activities | | |
| 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 | ) | |
| | | | | |
| | | |
Financing Activities | | |
| 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 | |
| | | | | |
| | | |
Net Change in Cash and Cash Equivalents | | 156 | | | (33 | ) | | 408 | | | | (410 | ) | | | (130 | ) | | | (130 | ) | |
| | | |
Cash and Cash Equivalents at Beginning of Year | | 585 | | 618 | | 210 | | | 481 | | 611 | | 741 | |
| | | | | |
| | | |
Cash and Cash Equivalents at End of Year | | $ | 741 | | $ | 585 | | $ | 618 | | | $ | 71 | | $ | 481 | | $ | 611 | |
| | | | | |
6268
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands) Note 2122 — Quarterly Results of Operations (Unaudited) The following is a summary of the quarterly consolidated results of operations:
| | | | | | | | | | | | | | | | | |
| 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
Report of Independent Registered Public Accounting FirmTo the Stockholders and
Audit Committee, Board of Directors
and StockholdersHorizon Bancorp
Michigan City, Indiana
We have audited the accompanying consolidated balance sheets of Horizon Bancorp as of December 31,
20042007 and
2003,2006, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the
three years in the
three-year period ended December 31,
2004. These2007. The Company’s management is responsible for these financial
statements are the responsibility of Horizon’s management.statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
AnThe Company is not required to have, nor were we engaged to perform, an audit
includesof its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management
as well asand evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Horizon Bancorp as of December 31, 20042007 and 2003,2006, and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 2004,2007, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1, in 2007, the Company changed its method of accounting for income taxes.
|
|
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 | |  |
bkd.com
Fort Wayne, Indiana
January 28, 2005
6470
HORIZON BANCORP
Horizon Bancorp
Management’s Report on Financial Statements Management is responsible for the preparation and presentation of the consolidated financial statements and related notes on the preceding pages. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America appropriate in the circumstances and include amounts that are based on management’s best estimates and judgments. Financial information elsewhere in the Annual Report is consistent with that in the consolidated financial statements.
In meeting its responsibility for the accuracy of the consolidated financial statements, management relies on Horizon’s system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded to permit the preparation of appropriate financial information. The system of internal controls is supplemented by a program of internal audits to independently evaluate the adequacy and application of financial and operating controls and compliance with Company policies and procedures.
The Audit Committee of the Board of Directors meets periodically with management, the independent accountants and the internal auditors to ensure that each is properly discharging its responsibilities with regard to the consolidated financial statements and internal accounting controls. The independent accountants have full and free access to the Audit Committee and meet with it to discuss auditing and financial reporting matters.
The consolidated financial statements in the Annual Report have been audited byBKD, LLP, independent registered public accounting firm, for 2004, 20032007, 2006 and 2002.2005. Their audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and included consideration of internal accounting controls, tests of accounting records and other audit procedures to the extent necessary to allow them to express their opinion on the fairness of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.
6571
HORIZON BANCORPHorizon Bancorp
Summary of Selected Financial Data
(Dollar Amounts In Thousands Except Per Share Data and Ratios)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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
Horizon Bancorp
Summary of Selected Financial Data
(Dollar Amounts In Thousands Except Per Share Data and Ratios)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
All share and per share amounts have been adjusted for the 3-for-1 stock split declared October 16, 2001, and the 3-for-2 stock split declared on October 21, 2003.
6773
Horizon Bancorp
Horizon’s Common Stock and Related Stockholders’ Matters Horizon common stock is traded on the NASDAQ
Small Cap marketGlobal Market under the symbol “HBNC.” The following table sets forth, for the periods indicated, the high and low prices per share. Also summarized below are the cash dividends declared by quarter for
20032007 and
2002. All amounts in the table have been adjusted for the 3-for-2 stock split declared October 21, 2003.| | | | | | | | | | | | | |
| | | 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 | |
There can be no assurance as to the amount of future dividends on Horizon common stock since future dividends are subject to the discretion of the Board of Directors, cash needs, general business conditions and dividends from the bank subsidiary.
The approximate number of holders of record of Horizon’s outstanding common stock based upon the number of record holders as of December 31, 2004,2007, is 600.578.
6874
| | |
| ITEM 9. | | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone
ITEM 9A.9A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision of and with the participation of its management, including the Chief Executive Officer and Chief Financial Office, Horizon has evaluated the effectiveness of the design and operation of its disclosure controls (as defined in Rule 13a-15(e) of the Securities Exchange Act Rule 13a-15(e)of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the evaluation date, Horizon’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by Horizon in the reports it files or submits under the Exchange Act is gathered, analyzedrecorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and are designed to ensure that information required to be disclosed with adequate timeliness, accuracyin those reports is accumulated and completeness. Since the evaluation date, there have been no significant changescommunicated to management as appropriate to allow timely decisions regarding disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management of Horizon Bancorp is responsible for establishing and maintaining effective internal control over financial reporting as defined in
Horizon’s internal controls or in other factors that could significantly affect its internal controls.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.
Management assessed the effectiveness of Horizon’s internal control over financial reporting as amended, not later than 120 days afterof December 31, 2004.2007. In making this assessment, management used the criteria set forth in “Internal Control – Integrated Framework” issued by the Committee of sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has determined that Horizon’s internal control over financial reporting as of December 31, 2007 is effective based on the specified criteria.
Internal Control Over Financial Reporting
Horizon’s management, including its Chief Executive Officer and Chief Financial Officer, also have concluded that during the fiscal quarter ended December 31, 2007, there were no changes in Horizon’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect Horizon’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION Not applicable.
75
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 for its 2008 Annual Meeting of Shareholders (the “Proxy Statement”) pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2007.
ITEM 10. DIRECTORS, AND EXECUTIVE OFFICERS OF THE REGISTRANTAND CORPORATE GOVERNANCE The information relating to Horizon’s directors required by this item is found in the Proxy Statement under “Proposal I — Election of Directors” and is incorporated into this report by reference. The information relating to the Audit Committee of the Board of Directors required by this item is found in the Proxy Statement under “Corporate Governance — The Audit Committee” and is incorporated into this report by reference.
The information relating to Horizon’s executive officers required by this item is included in Part I of this Form 10-K under “Special Item: Executive Officers” and is incorporated into this item by reference.
The information relating to certain filing obligations of directors and executive officers required by this item is found in the Proxy Statement under “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated into this report by reference.
Horizon has a code of ethics that applies to its directors, chief executive officer and chief financial officer. The code is available on Horizon’s website atwww.accesshorizon.com http://www.accesshorizon.com/. The other information required by this item is incorporated by reference from the Proxy Statement sections captioned “Board of Directors,” “The Audit Committee” and “Section 16 (a) Beneficial Ownership Reporting Compliance.”
ITEM 11. EXECUTIVE COMPENSATION The information on executive and director compensation and compensation committee matters required by this item is incorporated by reference fromcan be found in the Proxy Statement section captionedunder “Corporate Governance,” “Compensation Committee Report,” “Compensation Discussion and Analysis,” “Executive Compensation.”Compensation” and “Compensation of Directors” and is incorporated into this report by reference.
76
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Equity Compensation Plan Information
The following table presents information regarding grants under all equity compensation plans of Horizon through December 31,
2004.69
2007.
| | | | | | | | | | | | | |
| | | | | | | | | | | 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 the 1987 Stock Option and Stock Appreciation Rights Plan of Horizon Bancorp, the 1997 Key Employees’ Stock Option and Stock Appreciation Rights Plan of Horizon Bancorp and the Horizon Bancorp 2003 Omnibus Equity Incentive Plan. |
The remaining information required by this item is incorporated by reference fromcan be found in the Proxy Statement section captionedunder “Common Stock Ownership by Directors and Executive Officers.”Officers” and “Stock Ownership of Certain Beneficial Owners” and is incorporated by reference into this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSTRANSACTIONS; AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference fromfound in the Proxy Statement section captionedunder “Corporate Governance” and “Certain Business Relationships and Transactions.”Transactions” and is incorporated by reference into this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference from the Proxy Statement section captioned “Accountant Fees and Services.”
77
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)Documents Filed As Part of This Annual Report on Form 10-K:
1.Financial Statement
See the Financial Statements included in Item 8.
2.Financial Statement Schedules
Financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the financial statements.
3.Exhibits
The exhibits filed as part of this Annual Report on Form 10-K are identified in the Exhibit Index, which Exhibit Index specifically identifies those exhibits that describe or evidence all management contracts and compensation plans or arrangements required to be filed as exhibits to this Report. Such Exhibit Index is incorporated herein by reference.
| See the Financial Statements included in Item 8. |
| 2. | Financial Statement Schedules |
| Financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the financial statements. |
| The exhibits filed as part of this Annual Report on Form 10-K are identified in the Exhibit Index, which Exhibit Index specifically identifies those exhibits that describe or evidence all management contracts and compensation plans or arrangements required to be filed as exhibits to this Report. Such Exhibit Index is incorporated herein by reference. |
7078
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized
| | | | | | |
| | | | | Horizon Bancorp |
| | | |
Registrant |
| | | | |
| |
Date: March 23, 200511, 2008 | By: | /s/ Craig M. Dwight | |
| | | | By: | | /s/ Craig M. Dwight |
| | | | | | |
| | | | | | Craig M. Dwight |
| | | | | | President and Chief Executive Officer (Principal Executive Officer) | |
| | | | |
| | | |
Date: March 23, 200511, 2008 | By : | /s/ James H. Foglesong | |
| | | | By : | | /s/ James H. Foglesong |
| | | | | | |
| | | | | | 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 15, 200511, 2008 | | /s/ Robert C. Dabagia |
| | |
| | Robert C. Dabagia, Chairman of the Board |
| | and Director |
| | | |
March 15, 200511, 2008 | | /s/ Craig M. Dwight |
| | |
| | Craig M. Dwight, President and Chief |
| | Executive Officer and Director |
| | | |
March 15, 200511, 2008 | | /s/ Susan D. Aaron |
| | |
| | Susan D. Aaron, Director |
| | | |
March 15, 200511, 2008 | | /s/ James B. Dworkin |
| | |
| | James B. Dworkin, Director |
| | | |
March 15, 200511, 2008 | | /s/ Charley E. Gillispie |
| | |
| | Charley E. Gillispie, Director |
79
| | |
| Date | | Signature and Title |
| | | |
March 15, 200511, 2008 | | /s/ Daniel F. Hopp |
| | |
| | Daniel F. Hopp, Director |
| | | |
March 15, 200511, 2008 | | /s/ Robert E. McBride |
| | |
| | Robert E. McBride, Director |
| | | |
March 15, 200511, 2008 | | /s/ Peter L. Pairitz |
| | |
| | Peter L. Pairitz, Director |
| | | |
March 15, 200511, 2008 | | /s/ Larry N. Middleton |
| | |
| | Larry N. Middleton, Director |
| | | |
March 15, 200511, 2008 | | /s/ Bruce E. Rampage |
| | |
| | Bruce E. Rampage, Director |
| | | |
March 15, 200511, 2008 | | /s/ Robert E. Swinehart |
| | |
| | Robert E. Swinehart, Director |
| | | |
March 15, 200511, 2008 | | /s/ Spero W. Valavanis |
| | |
| | Spero W. Valavanis, Director |
7280
The following exhibits are included in this Form 10-K or are incorporated by reference as noted in the following table:
| | | | | |
| 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 3.1 to3to Registrant’s
Form 10-Q for the Quarter Ended September 30, 20032007 |
| | | | | |
| 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, 2004.2004 |
| | | | | |
| 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 |
| | | | | |
10.1*4.3 | | 1987 Stock Option and Stock Appreciation Rights PlanJunior Subordinated Indenture, dated as of December 15, 2006, between Horizon Bancorp as amendedand Wilmington Trust Company. | | Incorporated by Reference to Exhibit 10.14.1 to Registrant’s
Form 10-K for the Year Ended8-K filed December 31, 2001.21, 2006 |
| | | | |
| 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* | | Nonqualified Stock Option and Stock Appreciation Rights Agreement between Horizon Bancorp and Craig M. Dwight | | Incorporated by Reference to Exhibit 10.2 to Registrant’s Form 10-K for the Year Ended December 31, 2001 |
| | | | |
10.3* | | Supplemental Employee Retirement Plan, as
amended | | Incorporated by Reference to Exhibit 10.3 to Registrant’s Form 10-K for the Year Ended December
31, 2001 |
| | | | |
10.4* | | 1997 Key Employees Stock Option and Stock Appreciation Rights Plan | | Incorporated by Reference to Exhibit 10.4 to Registrant’s Form 10-K for the Year Ended December 31, 2001Attached |
| | | | | |
10.5*10.3* | | Form of Amendment No. 1 to Horizon Bancorp Stock Option and Stock Appreciation Rights Agreement and Schedule Identifying Material Details of Individual Amendments | | Incorporated by Reference to Exhibit 10.1 to Registrant’s Form 10-Q for the Quarter Ended September 30, 2002Attached |
7381
| | | | | |
| Exhibit | | | | |
| Number | | Description | | Incorporated by Reference/Attached |
10.6 | | 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 |
| | | | | |
10.710.5* | | Agreement dated October 18, 1999, between Horizon Bank, N.A., and James D. Neff.Neff | | Incorporated by Reference to Exhibit 10.11 to Registrant’s Form 10-K for the year ended December 31, 2003 |
| | | | | |
10.810.6* | | Directors Deferred Compensation Plan | | AttachedIncorporated by Reference to Exhibit 10.8 to Registrant’s Form 10-K for the year ended December 31, 2004 |
| | | | | |
10.910.7* | | Form of Change of Control Agreement for certain executive officers | | AttachedIncorporated by Reference to Exhibit 10.9 to Registrant’s Form 10-K for the year ended December 31, 2004 |
| | | | | |
10.1010.8* | | Form of Restricted Stock Award Agreement under 2003 Omnibus Plan | | AttachedIncorporated by Reference to Exhibit 10.10 to Registrant’s Form 10-K for the year ended December 31, 2004 |
| | | | | |
10.1110.9* | | Form of Option Grant Agreement under 2003 Omnibus Plan | | AttachedIncorporated by Reference to Exhibit 10.11 to Registrant’s Form 10-K for the year ended December 31, 2004 |
| | | | | |
10.1210.10* | | Description of Executive Officer Bonus Plan | | AttachedIncorporated by Reference to Exhibit 10.12 to Registrant’s Form 10-K for the year ended December 31, 2004 |
| | | | | |
10.1310.11 | | 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, LLPLlp | | 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. |
*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
