HORIZON BANCORP
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
450 5th Street N.W.
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 commission file number 0-10792
HORIZON BANCORP
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of incorporation or organization)
35-1562417
(I.R. S. Employer Identification No.)
515 Franklin Square, Michigan City, Indiana 46360
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 879-0211
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value (Title of class) 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 X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
747,460 at June 30, 1996
HORIZON BANCORP
FORM 10-Q
Part I - Financial Information
ITEM 1. FINANCIAL INFORMATION REQUIRED BY RULE 10-01 OF REGULATION S-X IS
INCLUDED IN THIS FORM 10-Q AS REFERENCED BELOW
Financial Statements ............................. Page
Consolidated Balance Sheet (Unaudited) .......................... 1
Consolidated Statement of Income (Unaudited) .................... 2
Condensed Consolidated Statement of Changes ..................... 3
in Stockholders' Equity (Unaudited)
Consolidated Statement of Cash Flows (Unaudited) ................ 4
Notes to the Consolidated Financial Statements (Unaudited) ...... 5 - 12
CONSOLIDATED BALANCE SHEET
(Thousands) (Unaudited)
June 30 Dec 31
ASSETS 1996 1995
---- ----
Cash and cash equivalents
Cash and due from banks ............................. $ 14,596 $ 20,987
Money market investment ............................. 1,299 1,079
Federal funds sold ................................. 0 0
-------- --------
Total cash and cash equivalents ................... 15,895 22,066
Short-term investments-Interest-bearing balances in banks .. 209 206
Investment securities available for sale, net (Note 2) .... 63,072 74,942
Investment securities held to maturity, (Note 2)
(Estimated market value of $13,902 June 30, ........... 13,957 12,167
1996 and $12,202 December 31,1995)
Total loans (Note 3) ....................................... 264,128 241,662
Allowance for loan losses (Note 4) ......................... (2,705) (2,777)
-------- --------
Net loans ............................................. 261,423 238,885
Premises and equipment, net ................................ 11,667 11,027
Accrued interest receivable ................................ 3,032 2,900
Other assets ............................................... 6,361 5,820
-------- --------
Total assets ....................................... $375,616 $368,013
======== ========
LIABILITIES
Deposits
Noninterest-bearing ................................... $ 41,375 $ 45,479
Interest-bearing ...................................... 246,267 243,505
-------- --------
Total deposits ..................................... 287,642 288,984
Short-term borrowings ...................................... 26,153 21,569
Federal Home Loan Bank Advances ............................ 25,400 21,400
Accrued interest payable ................................... 758 567
Other liabilities .......................................... 3,382 3,122
-------- --------
Total liabilities .................................. 343,335 335,642
Commitments and contingencies
Equity received from contributions and dividends to the ESOP 3,477 3,818
STOCKHOLDERS' EQUITY
Common stock: $1 stated value, 5,000,000 shares
authorized and 1,027,531 shares issued, less ESOP
shares of 293,130 and 295,370 at June 30, 1996 and
December 31, 1995 ..................................... 734 732
Additional paid-in capital ................................. 9,243 9,238
Retained earnings .......................................... 22,303 21,105
Unrealized gain/loss on securities available for sale
(net of tax) ............................................... (233) 466
Less treasury stock, at cost - 121,586 shares at
June 30, 1996 and 93,745 shares at December 31, 1995 ....... (3,243) (2,988)
-------- --------
Total stockholders' equity ......................... 28,804 28,553
-------- --------
Total liabilities and stockholder's equity ......... $375,616 $368,013
======== ========
See notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands) (Unaudited)
Three Months Six Months
Ended June 30 Ended June 30
1996 1995 1996 1995
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $5,662 $4,896 $11,138 $9,701
Interest and dividends on investments
Taxable 1,158 1,414 2,430 2,837
Nontaxable 103 153 191 296
------ ------ ------ ------
Total interest income 6,923 6,463 13,759 12,834
INTEREST EXPENSE
Interest on deposits (Note 9) 2,322 2,339 4,600 4,524
Interest on Federal funds purchased and
securities sold under agreements
to repurchase 189 234 361 479
Interest on Federal Home Loan Bank advances 323 236 639 463
------ ------ ------ ------
Total interest expense 2,834 2,809 5,600 5,466
NET INTEREST INCOME 4,089 3,654 8,159 7,368
PROVISION FOR LOAN LOSSES (Note 5)
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,089 3,654 8,159 7,368
NONINTEREST INCOME
Service charges on deposits 423 360 797 695
Trust department income (Note 1) 519 460 1,029 877
Interest on Federal income tax refund 298
Other income 118 79 222 136
------ ------ ------ ------
Total noninterest income 1,060 899 2,048 2,006
NONINTEREST EXPENSE
Salaries and employee benefits
(Notes 11 and 12) 2,131 1,947 4,098 3,897
Occupancy expense of Company premises,
net of rental income 265 234 544 496
Data processing and equipment expenses 515 454 988 842
Loss on other real estate owned 38 252 82 313
Other expenses (Note 13) 1,010 1,138 2,031 2,181
------ ------ ------ ------
Total noninterest expense 3,959 4,025 7,743 7,729
INCOME BEFORE INCOME TAXES 1,190 528 2,464 1,645
PROVISION FOR INCOME TAXES (Notes 1 and 14) 391 84 796 (297)
------ ------ ------ ------
NET INCOME $ 799 $ 444 $1,668 $1,942
====== ====== ====== ======
Earnings per common share (Note 1) $1.07 $0.60 $2.23 $2.57
See notes to the consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (Unaudited) (In thousands)
Three Months Six Months
Ended June 30 Ended June 30
1996 1995 1996 1995
---- ---- ---- ----
Balance, beginning of period ................... $28,607 $26,822 $28,553 $24,361
Net income ..................................... 799 444 1,668 1,942
Cash dividends ($.35 for the three months
ended June 30, 1996 and $.30 for the three ..... (257) (276) (518) (556)
months ended June 30, 1995)
Purchase of Treasury Stock ..................... (187) (315) (255) (446)
Shares repurchased by the ESOP ................. (23) (23)
Shares distributed from the ESOP ............... 78 78
Increase in additional paid-in capital
from amortization of unearned
Change in unrealized gain (loss) on
securities available for sale .................. (213) 1,026 (699) 2,040
------- ------- ------- -------
Balance, June 30............................. $28,804 $27,701 $28,804 $27,341
======= ======= ======= =======
See notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS(Thousands)
June 30 June 30
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................ $ 1,668 $ 1,942
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation .......................................... 496 417
Net (accretion)/amortization .......................... 188 179
Reserve for security (gains)/losses ................... (3,305)
Additional paid in capital from release
of ESOP shares ....................................... 50
Gain/loss on disposal of fixed assets ................. (5) 21
Loss on other real estate owned ....................... 239
Provision for/(Benefit of) deferred taxes ............. 31 170
Change in deferred loan fees .......................... (24) 1
Change in unearned income ............................. 143 (95)
Change in interest receivable ......................... (132) (34)
Change in interest payable ............................ 191 122
Change in other assets ................................ (1,674) 3,618
Change in other liabilities ........................... 260 (278)
-------- --------
Net cash provided by operating activities ........ 1,192 2,997
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, calls and principal
repayments of investment securities-available for sale 10,534 9,442
Proceeds from maturities, calls and principal
repayments of investment securities-held to maturity . 1,083 2,290
Purchase of investment securities-available for sale ... (1,006)
Purchase of investment securities-held to maturity ..... (2,884) (2,303)
Increase in short-term investments ..................... (3)
Change in loans ........................................ (21,182) 2,047
Purchase of loans ...................................... (344) (954)
Proceeds from sales of loans ........................... 353
Recoveries on loans previously charged off ............. 95 311
Premises and equipment expenditures .................... (1,131) (716)
Proceeds from disposal of premises and equipment ....... 28
-------- --------
Net cash provided by (used in) investing activities .... (13,832) 9,492
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits .................... (1,342) (9,592)
Dividends paid ......................................... (518) (556)
Change in short-term borrowings ........................ 4,584 (16,030)
Purchase of treasury stock ............................. (255) (1,000)
Change in Federal Home Loan Bank advance ............... 4,000 (446)
-------- --------
Net cash provided by (used in) financing activities .... 6,469 (27,624)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................ (6,171) (15,135)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......... 22,066 28,134
CASH AND CASH EQUIVALENTS AT END OF QUARTER ............ $ 15,895 $ 12,999
======== ========
CASH PAID DURING THE YEAR FOR:
Interest ............................................... 5,409 5,588
Income taxes ........................................... 600 750
See notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Horizon Bancorp (Horizon) and its wholly-owned subsidiaries, First Citizens
Bank, N.A. (Bank), HBC Insurance Group, Inc. (Insurance Company) and The Loan
Store, Inc. All intercompany balances and transactions have been eliminated. The
results of operations for the period ended June 30, 1996 June 30, 1995 are not
necessarily indicative of the operating results for the full year of 1996 or
1995. These interim financial statements are prepared without audit and reflect
all adjustments (consisting of normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the consolidated position
of Horizon Bancorp at June 30, 1996 and its results of operations and cash flows
for the periods presented. The accompanying consolidated financial statements do
not purport to contain all the necessary financial disclosure required by
generally accepted accounting principals that might otherwise be necessary in
the circumstances and should be read in conjunction with the 1995 Horizon
Bancorp consolidated financial statements and related notes thereto included in
its Annual Report for the year ended December 31, 1995.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2 - INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
The amortized cost and estimated fair value of investment securities available
for sale and held to maturity are as follows:
(Thousands) Gross Gross
Amortized unrealized unrealized
Cost gains losses Fair Value
---- ----- ------ ----------
AVAILABLE FOR SALE AT JUNE 30, 1996:
U. S. Treasury and U. S. Government agency securities $ 5,004 $ 4 $ $ 5,008
Other securities .................................... 1,032 (13) 1,019
------- ------- ------- -------
Subtotal ...................................... 6,036 4 (13) 6,027
FHLMC ............................................... 18,433 122 (165) 18,390
FNMA ................................................ 27,588 55 (259) 27,384
GNMA ................................................ 8,160 65 (73) 8,152
------- ------- ------- -------
Total mortgage-backed securities .............. 54,181 242 (497) 53,926
Total debt securities ......................... 60,217 246 (510) 59,953
Equity securities ................................... 3,234 (115) 3,119
------- ------- ------- -------
Total investment securities available for sale $63,451 $ 246 $ (625) $63,072
======= ======= ======= =======
HELD TO MATURITY AT JUNE 30, 1996:
U. S. Government agency securities .................. $ 2,976 $ (53) $ 2,923
Obligations of states and political subdivisions .... 10,981 26 (28) 10,979
------- ------- ------- -------
Total debt securities held to maturity ........ $13,957 $ 26 $ (81) $13,902
======= ======= ======= =======
AVAILABLE FOR SALE AT DECEMBER 31 1995:
U. S. Treasury and U. S. Government agency securities $ 7,165 $ 16 $ 7,181
Other securities .................................... 1,046 (8) 1,038
------- ------- ------- -------
Subtotal ...................................... 8,211 16 (8) 8,219
GNMA ................................................ 9,061 154 (8) 9,207
FHLMC ............................................... 21,165 395 (9) 21,551
FNMA ................................................ 32,491 374 (19) 32,846
------- ------- ------- ------
Total mortgage-backed securities .............. 62,717 923 (36) 63,604
Total debt securities ......................... 70,928 939 (44) 71,823
Equity securities ................................... 3,235 (116) 3,119
------- ------- ------- -------
Total investment securities available for sale $74,163 $ 939 $ (160) $74,942
======= ======= ======= =======
HELD TO MATURITY AT DECEMBER 31, 1995:
U. S. Government agency securities .................. $ 3,164 $ 2 $ $ 3,166
Obligations of states and political subdivisions .... ------- ------- ------- -------
Total debt securities held to maturity ........ $12,167 $ 57 $ (22) $12,202
======= ======= ======= =======
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2 - INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
(CONTINUED) The amortized cost and estimated fair value of debt securities at
June 30, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
(Thousands) Amortized Fair
Cost Value
---- -----
AVAILABLE FOR SALE:
Due in one year or less ................ $ 5,004 $ 5,008
Due after one year through five years .. 1,032 1,019
------- -------
Subtotal ............................... 6,036 6,027
Mortgage-backed securities ............. 54,181 53,926
------- -------
Total debt securities available for sale $60,217 $59,953
======= =======
HELD TO MATURITY:
Due in one year or less ................ $ 5,087 $ 5,085
Due after one year through five years .. 4,110 4,099
Due after five years through ten years . 2,432 2,399
Due after ten years .................... 2,328 2,319
------- -------
Total debt securities held to maturity . $13,957 $13,902
======= =======
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 3 - TOTAL LOANS
Total loans are comprised of the following classifications:
June 30 Dec 31
(In Thousands) 1996 1995
---- ----
Commercial .................................. $ 69,761 $ 66,125
Real estate mortgage ........................ 132,360 119,739
Installment ................................. 62,007 55,798
-------- --------
Total Loans ............................ $264,128 $241,662
======== ========
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the activity in the allowance for loan losses
account:
June 30 Dec 31
1996 1995
---- ----
Balance, beginning of period ................ $ 2,777 $ 2,555
Provision charged to expense
Recoveries ............................. 95 515
Loan charge-offs ....................... (167) (293)
------- -------
Balance, end of period ...................... $ 2,705 $ 2,777
======= =======
NOTE 5 - NONPERFORMING ASSETS:
The following is a summary of nonperforming loans and Other Real Estate Owned
(OREO). June 30 Dec 31 OREO is presented before the allowance for OREO losses:
June 30 Dec 31
1996 1995
---- ----
Nonperforming Loans ......................... $ 1,046 $ 3,909
OREO before allowance for OREO losses ....... 4,087 4,193
------- -------
Total nonperforming assets ............. $ 5,133 $ 8,102
======= =======
The following is an analysis of the activity in the allowance for OREO account:
June 30 Dec 31
1996 1995
---- ----
Balance, beginning of period ................ $ 1,075 $ 1,801
Losses on OREO charged to expense ...... 48
Losses charged to allowance ............ (24) (774)
------- -------
Balance, end of period ...................... $ 1,051 $ 1,075
======= =======
Horizon adopted Statement of Financial Accounting Standards FAS 114 "Accounting
by Creditors for Impairment of a Loan" as of January 1, 1995. At June 30, 1996
there were no impaired loans outstanding.
FOR THE SIX MONTHS ENDED JUNE 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The purpose of this discussion is to focus on Horizon's financial condition,
changes in financial condition and the results of operations in order to provide
a better understanding of the consolidated financial statements included
elsewhere herein. This discussion should be read in conjunction with the
consolidated financial statements and the related notes.
FINANCIAL CONDITION
LIQUIDITY
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 repayment, investment security sales and
maturities, sale of real estate loans and borrowing relationships with
correspondent banks, including the Federal Home Loan Bank (FHLB). During the
first half of 1996, cash flows were generated from earnings of $1.668 million, a
$10 million decrease in investment securities, a $5 million increase in short
term borrowings and a $4 million increase in borrowings with FHLB. Cash flows
were used for a $22 million increase in loan demand, and a $1 million decrease
in deposits. The net cash position decreased $6 million, primarily in cash and
due from banks. In addition to liquidity provided from the normal operating,
funding and investing activities of Horizon, at June 30, 1996, Bank has
available approximately $45.4 million in unused credit lines with various money
center banks.
There have been no other material changes in the liquidity of Horizon from
December 31, 1995 to June 30, 1996.
CAPITAL RESOURCES
The capital resources of Horizon and Bank remain strong and exceed regulatory
capital ratios for "well capitalized" banks at June 30, 1996. Stockholders'
equity totaled $32.281 million ($3.477 million from ESOP) as of June 30, 1996
compared to $32.371 million ($3.818 million from ESOP) as of December 31, 1995.
The decline in stockholders' equity during the first six months of 1996 is the
result of the decrease in the market value of investment securities available
for sale accounted for as an addition/reduction of stockholders' equity and net
income, net of dividends paid. At June 30, 1996, the ratio of stockholders'
equity to assets was 8.59% compared to 8.80% for 1995. Horizon increased its
quarterly dividend from $.30 to $.35 per share in April 1996.
Horizon has selectively purchased shares that became available in the market
from time to time. During the first half of 1996, management purchased 6,279
shares at a cost of $255 thousand.
There have been no other material changes in Horizon's capital resources from
December 31, 1995 to June 30, 1996.
MATERIAL CHANGES IN FINANCIAL CONDITION - JUNE 30, 1996 COMPARED TO
DECEMBER 31, 1995
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.
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Horizon's total loans increased $22.5 million from December 31, 1995 to June 30,
1996. This increase is primarily the result of strong loan demand and the
implementation of a new credit scoring system.
There have been no other material changes in the financial condition of Horizon
from December 31, 1995 to June 30, 1996.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - JUNE 30, 1996 COMPARED TO
JUNE 30, 1995.
First half of 1996 earnings totaled $1.668 thousand or $2.23 per share compared
to $1.942 million or $2.57 per share for the same quarter in 1995. In March
1995, Horizon received a federal income tax refund totaling $1.190 million
including interest of $298 thousand or $1.57 per share. Without the effect of
the tax refund and related interest income, earnings per share increased $1.24
or 125%.
Net interest income was $8.159 million for the first half of 1996 compared to
$7.368 million for the same period 1995. This increase is primarily the result
of strong loan growth, especially in the direct installment and mortgage loan
portfolios.
Total noninterest income for the first half of 1996, excluding the effects of
interest on Federal income tax refunds of $298, increased $340 thousand or 20%
from the same quarter in 1995. The largest component of the change was in the
Trust Department income which increased $152 thousand or 17% from the same
period in 1995.
Noninterest expense increased slightly from $7.729 million to $7.743 million for
the first half of 1996 compared to 1995. The largest increase was in salaries
and benefits which increased $201 thousand to $4.098 million. This increase
primarily relates to stock appreciation rights (SARs) expense and employee stock
ownership (ESOP) expense which are required to increase as the market value of
Horizon's stock increases. In the first half of 1996, the market value of
Horizon's stock has increased $3 per share. Horizon continues to monitor its
staffing model to determine the optimum number of owner-employees per operating
division.
There have been no other material changes in the results of operations of
Horizon from December 31, 1995 to June 30, 1996.
PART II - OTHER INFORMATION
For the six months ended June 30, 1996
ITEM 1. LEGAL PROCEEDINGS
See Management's Discussion and Analysis
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
First Citizens Bank. N.A. and its wholly owned subsidiary, Trail Creek
Properties, Inc., announced on August 14, 1996 that an agreement has been signed
with Indiana Blue Chip Hotel & Riverboat Casino Resort Corp. ("Blue Chip") for
the sale of property commonly known as Newport Marina and some surrounding
contiguous and noncontiguous parcels to be used for a riverboat gaming site. The
terms of the agreement are contingent upon certain future events occurring,
including Blue Chip's receipt of a gaming license. If these events occur by
November 30, 1996, then Horizon expects to record a gain on the sale with a
closing completed by December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. January 17, 1995 - Significant matters to shareholders
b. March 23, 1995 - Horizon receives $1.190 million income tax refund
SIGNATURES
Pursuant to the requirements 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
BY: Larry E. Reed
Chairman and Chief Executive Officer
Date: August 14, 1996
BY: Diana E. Taylor
Vice President and Chief Financial Officer
Date: August 14, 1996