1
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 MARCH 31, 2000 commission file number 0-10792
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HORIZON BANCORP
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(Exact name of registrant as specified in its charter)
INDIANA 35-1562417
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(State or other jurisdiction of (I.R. S. Employer Identification No.)
incorporation or organization)
515 FRANKLIN SQUARE, MICHIGAN CITY, INDIANA 46360
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 879-0211
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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:
689,458 at MARCH 31, 2000
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2
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
MARCH 31, DECEMBER 31,
2000 1999
-------------------------
ASSETS
Cash and due from banks $ 16,844 $ 34,670
Interest-bearing demand deposits 174
-------------------------
Cash and cash equivalents 16,844 34,844
Interest-bearing deposits 235 232
Investment securities, available for sale 66,035 67,880
Loans, net of allowance for loan losses of $3,709 and $3,273 392,652 391,084
Premises and equipment 17,836 18,134
Federal Reserve and Federal Home Loan Bank stock 5,897 5,897
Interest receivable 2,584 2,780
Other assets 5,322 5,145
-------------------------
Total assets $ 507,405 $ 525,996
=========================
LIABILITIES
Deposits
Noninterest bearing $ 42,786 $ 44,890
Interest bearing 335,998 318,778
-------------------------
Total deposits 378,784 363,668
Short-term borrowings 14,500 24,500
Federal Home Loan Bank advances 80,225 105,000
Interest payable 1,284 920
Other liabilities 3,206 2,909
-------------------------
Total liabilities 477,999 496,997
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COMMITMENTS AND CONTINGENCIES
EQUITY RECEIVED FROM CONTRIBUTIONS AND
DIVIDENDS TO THE ESOP 7,807 7,808
-------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 stated value
Authorized -- 5,000,000 shares
Issued-- 1,038,428 shares, less ESOP shares of
165,289 and 165,309 873 873
Additional paid-in capital 13,166 13,153
Retained earnings 23,101 22,629
Accumulated other comprehensive income (1,319) (1,201)
Less treasury stock, at cost, 348,817 and 350,293 shares (14,222) (14,263)
-------------------------
Total stockholders' equity 21,599 21,191
-------------------------
Total liabilities and stockholders' equity $ 507,405 $ 525,996
=========================
See notes to consolidated financial statements
3
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
THREE MONTHS ENDED MARCH 31
2000 1999
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INTEREST INCOME
Loans receivable $8,685 $5,961
Investment securities:
Taxable 1,208 1,219
Tax exempt 3 101
---------------------
Total interest income 9,896 7,281
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INTEREST EXPENSE
Deposits 4,195 2,975
Federal funds purchased and short-term borrowings 107 3
Federal Home Loan Bank advances 1,140 721
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Total interest expense 5,442 3,699
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NET INTEREST INCOME 4,454 3,582
Provision for loan losses 503 165
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,951 3,417
---------------------
OTHER INCOME
Service charges on deposit accounts 462 489
Fiduciary activities 667 481
Commission income from insurance agency 229 235
Income from reinsurance company 38 54
Other income 225 112
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Total other income 1,621 1,371
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OTHER EXPENSES
Salaries and employee benefits 2,255 2,153
Net occupancy expenses 446 406
Data processing and equipment expenses 514 519
Other expenses 1,071 986
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Total other expenses 4,286 4,064
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Income Before Income Tax 1,286 724
Income tax expense 506 234
---------------------
NET INCOME FROM CONTINUING OPERATIONS $ 780 $ 490
4
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - CONTINUED
(Dollar Amounts in Thousands, Except Per Share Data)
THREE MONTHS ENDED MARCH 30
2000 1999
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DISCONTINUED OPERATIONS
Income/(loss) from operation of discontinued subsidiary
(less tax benefit of $1 in 2000 and $31 in 1999) $ 2 $ (45)
----------------------
Total income/(loss) from discontinued operations 2 (45)
----------------------
NET INCOME $ 782 $ 445
======================
Basic and Diluted Earnings per Share from continued operations
$ 1.13 $0.73
Basic and Diluted Earnings per Share from income/(loss) on discontinued
operations
0.00 (0.07)
----------------------
BASIC AND DILUTED EARNINGS PER SHARE $ 1.13 $0.66
======================
See notes to consolidated financial statements.
5
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Table Dollar Amounts in Thousands)
Accumulated
Additional Other
Common Paid-in Comprehensive Retained Comprehensive Treasury
Stock Capital Income Earnings Income Stock Total
------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 $873 $13,153 $22,629 $(1,201) $(14,263) $21,191
Net income $782 782 782
Other comprehensive income, net of tax
Unrealized losses on securities,
net of reclassification
adjustment
(118) (118) (118)
---------------
Comprehensive income
$664
===============
Cash dividends ($.45 per share)
(310) (310)
Re-issuance of 1,476 shares of
treasury stock 12
48 60
Purchase of 154 shares of treasury
stock
(7) (7)
Net purchases and distributions with
ESOP 1
1
------------------------ -------------------------------------------------
BALANCES, MARCH 31, 2000 $873 $13,166 $23,101 $(1,319) $(14,222) $21,599
======================== =================================================
6
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollar Amounts in Thousands)
Three Months
Ended March
2000 1999
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OPERATING ACTIVITIES
Net income $ 782 $ 455
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 503 165
Provision for loan losses, discontinued operations 75
Additional paid-in capital from release of ESOP shares 49
Depreciation and amortization 368 317
Deferred income tax (167) 23
Investment securities amortization, net 26 52
Loss on sale of investment securities 5
Gain on sale of loans (23)
Proceeds from sales of loans 5,149
Deferred loan fees (9) (21)
Unearned income (42) 146
Net change in:
Interest receivable 196 (172)
Interest payable 364 95
Other assets 67 1,271
Other liabilities 296 52
--------------------------
Net cash provided by operating activities 7,510 2,512
--------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (3) (1)
Purchases of securities available for sale (5,000) (24,158)
Proceeds from maturities, calls, and principal repayments
of securities available for sale 6,624 3,624
Proceeds from sales of securities available for sale 920
Proceeds from maturities, calls, and principal repayments of
securities held to maturity 1,678
Net change in loans (7,300) (6,663)
Recoveries on loans previously charged-off 154 92
Purchases of premises and equipment (69) (554)
--------------------------
Net cash used by investing activities (5,594) (25,032)
--------------------------
FINANCING ACTIVITIES
Net change in
Deposits 15,116 3,877
Short-term borrowings (10,000) 725
Federal Home Loan Bank advance 25,225
Repayment of Federal Home Loan Bank advance (50,000)
Re-issuance of Treasury Stock 60
Dividends paid (310) (290)
Purchase of treasury stock (7) (956)
--------------------------
Net cash provided (used) by financing activities (19,916) 3,356
--------------------------
NET CHANGE IN CASH AND CASH EQUIVALENT (18,000) (19,164)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,844 31,869
--------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,844 $ 12,708
==========================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 5,806 $ 3,674
Income tax paid 230 0
See notes to consolidated financial statements.
7
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Horizon Bancorp (Horizon) and its wholly-owned subsidiaries, Horizon 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 March 31, 2000 and March 31, 1999 are not
necessarily indicative of the operating results for the full year of 2000 or
1999. 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 March 31, 2000 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 1999
Horizon Bancorp consolidated financial statements and related notes thereto
included in its Annual Report for the year ended December 31, 1999.
NOTE 2 - INVESTMENT SECURITIES
2000
Gross Gross
Amortized Unrealized Unrealized Fair
March 31 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------
Available for sale
U.S. Treasury and federal agencies $ 25,178 $ 15 $ (854) $ 24,339
State and municipal 4,214 (136) 4,078
FHLMC mortgage-backed securities 6,428 1 (107) 6,322
FNMA mortgage-backed securities 15,945 9 (325) 15,629
GNMA collateralized mortgage obligation
8,045 (603) 7,442
FHLMC collateralized mortgage obligation
5,843 (24) 5,819
FNMA collateralized mortgage obligation
2,241 (46) 2,195
Marketable equity securities 315 (104) 211
----------------------------------------------------
Total available for sale $ 68,209 $ 25 $ (2,199) $ 66,035
====================================================
8
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 2 - INVESTMENT SECURITIES
1999
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
Available for sale
U.S. Treasury and federal agencies $30,428 $18 $ (866) $29,580
State and Municipal 4,230 (130) 4,100
FHLMC mortgage-backed securities 6,722 14 (127) 6,609
FNMA mortgage-backed securities 16,843 40 (267) 16,616
GNMA collateralized mortgage obligations 8,051 (582) 7,469
FHLMC collaterailzed mortgage obligation 964 (19) 945
FNMA collateralized mortgage obligations 2,307 (32) 2,275
Marketable equity securities 315 (29) 286
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Total investment securities $69,860 $72 $(2,052) $67,880
The amortized cost and fair value of securities available for sale at March 31,
2000, 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.
Available for Sale
Amortized Fair
Cost Value
-----------------------
Within one year $ 33 $ 33
One to five years 16,618 16,245
Five to ten years 6,058 5,733
After ten years 6,683 6,406
-----------------------
29,392 28,417
Mortgage-backed securities 22,373 21,951
Collateralized mortgage obligations 16,129 15,456
Marketable equity securities 315 211
-----------------------
$68,209 $66,035
=======================
There were no sales of securities available for sale during the three months
ending March 31, 2000.
During 1999, debt securities with an amortized cost of $10.050 million were
transferred from held to maturity to available for sale so the Bank could
minimize the tax consequences of holding tax-exempt securities. The securities
had an unrealized gain of approximately $350 thousand. There were no transfers
between classifications in the three months ended March 31, 2000.
9
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 3 - LOANS
MARCH 31, December 31,
2000 1999
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Commercial loans $ 92,606 $ 89,361
Mortgage warehouse loans 82,940 85,542
Real estate loans 153,138 154,717
Installment loans 67,677 64,737
-------------------------
Total loans $396,361 $394,357
=========================
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
MARCH 31, December 31,
2000 1999
-----------------------------
Allowance for loan losses
Balances, beginning of period $ 3,273 $ 2,787
Provision for losses, operations 503 1,100
Provision for losses, discontinued operations 250
Recoveries on loans 154 363
Loans charged off (221) (1,227)
------------------------
Balances, end of period $ 3,709 $ 3,273
========================
NOTE 5 - NONPERFORMING ASSETS
March 31, December 31
2000 1999
-------------------------
Nonperforming loans $1,769 $1,574
Other real estate owned 137
---------------------
Total nonperforming assets $1,906 $1,574
=====================
10
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 6 - OTHER COMPREHENSIVE INCOME
Three Months Ended March 31 2000
-----
Unrealized gains (losses) on securities:
Unrealized holding losses arising during the period $(179)
-----
Less: reclassification adjustment for gains realized in net income
Net unrealized losses (179)
Tax benefit 61
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Other comprehensive income $(118)
=====
NOTE 7 - DISCONTINUED OPERATIONS
At their April, 1999 meeting, the Board of Directors of Horizon Bancorp approved
discontinuing the operations of The Loan Store, Inc., a wholly owned subsidiary
of Horizon Bancorp. On August 13, 1999 substantially all of the assets of The
Loan Store, Inc. were sold. On March 31, 2000, loans totaling approximately $250
thousand were repurchased from the purchaser as outlined in the purchase
agreement. No further recourse exists as a result of this transaction. As of
March 31, 2000, the remaining assets of The Loan Store, Inc. were $340 thousand.
NOTE 8 - ESOP
On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the
termination of the Horizon Bancorp Employee Stock Ownership Plan ("ESOP") as of
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. All
remaining shares were allocated to participants. The expense related to the
termination of the ESOP was recorded in the 3rd quarter of 1999 and resulted in
an expense of $2.073 million for the year ended December 31, 1999. The expense
recorded was based upon the price of Horizon Bancorp stock. An independent
valuation firm performed a valuation of Horizon Stock and determined the market
price of the stock was $44.00 per share as of December 31, 1999. The retirement
plans of Horizon Bancorp own approximately 22% of the outstanding shares.
11
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
Item 2 - 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
three months ended March 31, 2000, cash and cash equivalents decreased by $18
million and were used to repay short term borrowings and Federal Home Loan Bank
advances. In addition to liquidity provided from the normal operating, funding,
and investing activities of Horizon, at March 31, 2000, Bank has available
approximately $103 million in unused credit lines with various money center
banks including the FHLB.
There have been no other material changes in the liquidity of Horizon from
December 31, 1999 to March 31, 2000.
Capital Resources
- -----------------
The capital resources of Horizon and Bank exceed regulatory capital ratios for
"well capitalized" banks at March 31, 2000. Stockholders' equity totaled $29.406
million ($7.807 million from ESOP) as of March 31, 2000 compared to $28.999
million ($7.808 million from ESOP) as of December 31, 1999. The change in
stockholders' equity during the three months ended March 31, 2000 is the result
of the decrease in the market value of investment securities available for sale
accounted for as a reduction of stockholders' equity and net income, net of
dividends paid. At March 31, 2000, the ratio of stockholders' equity to assets
was 5.80% compared to 5.51% at December 31, 1999.
There have been no other material changes in Horizon's capital resources from
December 31, 1999 to March 31, 2000.
12
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
Material Changes in Financial Condition - March 31, 2000 compared to December
- -----------------------------------------------------------------------------
31, 1999
- --------
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.
During the first quarter of 2000, nearly $64 million in short-term borrowings
and Federal Home Loan Bank advances were repaid with cash that became available
for use in Horizon's Federal Reserve account and by the increase in
interest-bearing deposit accounts. Horizon continues to monitor funding sources
to reduce the cost of funds and maintain adequate liquidity.
There have been no other material changes in the financial condition of Horizon
from December 31, 1990 to March 31, 2000.
Results of Operations
- ---------------------
Material changes in results of operations - March 31, 2000 compared to March 31,
- --------------------------------------------------------------------------------
2000
- ----
During the three months ended March 31, 2000, net income totaled $782 thousand
or $1.13 per share compared to $445 thousand or $0.66 per share for the same
period in 1999.
Net interest income was $4.454 million for the three months ended March 31, 2000
compared to $3.582 million for the same period 1999. The increase attributable
to the addition of the mortgage warehousing program which began in October 1999.
The provision for loan losses totaled $503 thousand for the three months ended
March 31, 2000 compared to $165 thousand for the same period in 1999. The
increase in the provision is available for losses inherent in the entire loan
portfolio. The allowance for loan losses to total loans is .94% at March 31,
2000 compared to .83% at December 31, 1999.
Total non-interest income for the three months ended March 31, 2000 increased
$250 thousand or 18.23% from the same period in 1999. The two primary components
of the change were an increase in fiduciary fees of $186 thousand and the
addition of transaction fees related the mortgage warehousing program that began
in October 1999.
Non-interest expense increased $222 thousand or 5.46% for the three months ended
March 31, 2000 compared to the same period in 1999.
13
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
Results of Operations (continued)
- ---------------------------------
At their April, 1999 meeting, the Board of Directors of Horizon Bancorp approved
discontinuing the operations of The Loan Store, Inc., a wholly owned subsidiary
of Horizon Bancorp. On August 13, 1999 substantially all of the assets of The
Loan Store, Inc. were sold. On March 31, 2000, loans totaling approximately $250
thousand were repurchased from the purchaser as outlined in the purchase
agreement. No further recourse exists as a result of this transaction. As of
March 31, 2000, the remaining assets of The Loan Store, Inc. were $340 thousand.
On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the
termination of the Horizon Bancorp Employee Stock Ownership Plan ("ESOP") as of
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. All
remaining shares were allocated to participants. The expense related to the
termination of the ESOP was recorded in the 3rd quarter of 1999 and resulted in
an expense of $2.073 million for the year ended December 31, 1999. The expense
recorded was based upon the price of Horizon Bancorp stock. An independent
valuation firm performed a valuation of Horizon Stock and determined the market
price of the stock was $44.00 per share as of December 31, 1999. The retirement
plans of Horizon Bancorp own approximately 22% of the outstanding shares.
There have been no other material changes in the results of operations of
Horizon for three months ending March 31, 2000 and 1999.
Forward-Looking Statements
- --------------------------
Certain statements in this section constitute forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results, performance, or
achievements of the Company to differ materially from any future results,
performance, or achievements expressed or implied by such forward-looking
statements.
14
HORIZON BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2000
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
- ------- -----------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
a. Financial Data Schedule
b. No reports on Form 8-K were filed during the three months ended March
31, 2000.
15
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
5/03/2000 /s/ Robert C. Dabagia
- ------------------------ ---------------------
Date: BY: Robert C. Dabagia
Chairman and Chief Executive Officer
5/03/2000 /s/ Diana E. Taylor
- ------------------------ -------------------
Date: BY: Diana E. Taylor
Senior Vice President and Chief
Financial Officer