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 June 30, 1997 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 incorporation or (I. R. S. Employer
organization) Identification No.)
515 Franklin Square, Michigan City, Indiana 46360
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(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
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
713,461 at July 22, 1997
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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
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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 - 11
3
CONSOLIDATED BALANCE SHEET (THOUSANDS) (UNAUDITED)
June 30 Dec 31
1997 1996
---- ----
ASSETS
Cash and cash equivalents
Cash and due from banks $ 26,053 $ 19,551
Money market investment 1,270 789
Federal funds sold 0 0
--------- ---------
Total cash and cash equivalents 27,323 20,340
Short-term investments-interest-bearing balances in banks 214 211
Investment securities available for sale, net 55,198 59,041
Investment securities held to maturity,
(Estimated market value of $12,572 June 30, 1997 and 12,385 12,810
$12,838 December 31,1996)
Loans held for sale 1,782 1,034
Total loans 271,720 271,476
Allowance for loan losses (2,108) (2,435)
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Net loans 269,612 269,041
Premises and equipment, net 15,699 14,053
Accrued interest receivable 2,522 2,216
Other assets 3,009 3,292
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Total assets $ 387,744 $ 382,038
========= =========
LIABILITIES
Deposits
Noninterest-bearing $ 42,651 $ 46,050
Interest-bearing 241,719 243,130
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Total deposits 284,370 289,180
Short-term borrowings 12,849
Federal Home Loan Bank Advances 65,000 41,500
Accrued interest payable 584 590
Other liabilities 3,743 4,411
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Total liabilities 353,697 348,530
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Commitments and contingencies
Equity received from contributions and dividends to the ESOP 4,036 4,211
STOCKHOLDERS' EQUITY
Common stock: $1 stated value, 5,000,000 shares authorized and
1,027,531 shares issued, less ESOP shares of 307,713 at
June 30, 1997 and 315,357 at December 31, 1996 710 708
Additional paid-in capital 7,984 7,962
Retained earnings 24,628 23,898
Unrealized gain/loss on securities available for sale (net of tax) 385 85
Less treasury stock, at cost - 131,170 shares at June 30, 1997 and 124,085
shares at
December 31, 1996 (3,696) (3,356)
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Total stockholders' equity 30,011 29,297
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Total liabilities and stockholder's equity $ 387,744 $ 382,038
========= =========
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME (THOUSANDS)(UNAUDITED)
Three Months Six Months
Ended June 30 Ended June 30
--------------- -----------------
1997 1996 1997 1996
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INTEREST INCOME
Interest and fees on loans $6,243 $5,662 $12,262 $11,138
Interest and dividends on investments
Taxable 1,094 1,158 2,141 2,430
Nontaxable 98 103 219 191
------ ------ ------- -------
Total interest income 7,435 6,923 14,622 13,759
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INTEREST EXPENSE
Interest on deposits 2,617 2,322 5,180 4,600
Interest on Federal funds purchased and securities
sold under agreements to repurchase 59 189 85 361
Interest on Federal Home Loan Bank advances 599 323 1,158 639
------ ------ ------- -------
Total interest expense 3,275 2,834 6,423 5,600
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NET INTEREST INCOME 4,160 4,089 8,199 8,159
PROVISION FOR LOAN LOSSES 188 200
------ ------ ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,972 4,089 7,999 8,159
------ ------ ------- -------
NONINTEREST INCOME
Service charges on deposits 402 423 818 797
Fiduciary income 555 519 1,173 1,029
Other Income 74 118 159 222
------ ------ ------- -------
Total noninterest income 1,031 1,060 2,150 2,048
------ ------ ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 1,975 2,131 4,066 4,098
Occupancy expense of Company premises, net of rental income 297 265 605 544
Data processing and equipment expenses 564 515 1,082 988
Loss on other real estate owned 39 38 39 82
Other expenses 1,208 1,010 2,327 2,031
------ ------ ------- -------
Total noninterest expense 4,083 3,959 8,119 7,743
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INCOME BEFORE INCOME TAXES 920 1,190 2,030 2,464
PROVISION FOR INCOME TAXES 272 391 619 796
------ ------ ------- -------
NET INCOME $ 648 $ 799 $ 1,411 $ 1,668
====== ====== ======= =======
Earnings per common share $ 0.90 $ 1.07 $ 1.97 $ 2.23
See notes to the consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (UNAUDITED)
(In thousands)
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
Balance, beginning of period $ 29,143 $ 28,607 $ 29,297 $ 28,553
Net income 648 799 1,411 1,668
Cash dividends ($.45 for the three months ended June 30, 1997
and $.35 for three months ended June 30, 1996) (341) (257) (682) (518)
Purchase of Treasury Stock (67) (187) (340) (255)
Net repurchases and distributions with ESOP 25 55 25 55
Change in unrealized gain (loss) on securities available for sale 603 (213) 300 (699)
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Balance, June 30 $ 30,011 $ 28,804 $ 30,011 $ 28,804
======== ======== ======== ========
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS) (UNAUDITED) June 30 June 30
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,411 $ 1,668
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 557 496
Net (accretion)/amortization 83 188
Additional paid in capital from release of ESOP shares 131 50
Gain/loss on disposal of fixed assets 77 (5)
Provision for loan losses 200
Loss on other real estate owned 39
Change in income taxes 23 31
Change in deferred loan fees (30) (24)
Change in unearned income 63 143
Change in interest receivable (306) (132)
Change in interest payable (6) 191
Change in other assets 17 (1,674)
Change in other liabilities (668) 260
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Net cash provided by operating activities 1,591 1,192
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale
Proceeds from maturities, calls and principal repayments of investment
securities-available for sale 5,874 10,534
Proceeds from maturities, calls and principal repayments of investment
securities-held to maturity 1,421 1,083
Purchase of investment securities-available for sale (1,887)
Purchase of investment securities-held to maturity (1,000) (2,884)
Increase in short-term investments (3) (3)
Change in loans (6,931) (21,182)
Purchase of loans (344)
Proceeds from sales of loans 5,285
Recoveries on loans previously charged off 94 95
Premises and equipment expenditures (2,280) (1,131)
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Net cash provided by (used in) investing activities 573 (13,832)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits (4,810) (1,342)
Dividends paid (682) (518)
Change in short-term borrowings (12,849) 4,584
Purchase of treasury stock (340) (255)
Change in Federal Home Loan Bank advance 23,500 4,000
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Net cash provided by (used in) financing activities 4,819 6,469
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NET CHANGE IN CASH AND CASH EQUIVALENTS 6,983 (6,171)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,340 22,066
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,323 $ 15,895
======== ========
CASH PAID DURING THE YEAR FOR:
Interest $ 6,417 $ 5,409
Income taxes 456 600
See notes to the consolidated financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 June 30, 1997 and June 30, 1996 are
not necessarily indicative of the operating results for the full year of 1997 or
1996. 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, 1997 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 1996 Horizon
Bancorp consolidated financial statements and related notes thereto included in
its Annual Report for the year ended December 31, 1996.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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, 1997:
U. S. Treasury and U. S. Government agency securities $ 4,954 $ 56 $ 0 $ 5,010
Other securities 1,003 1,003
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Subtotal 5,957 56 0 6,013
FHLMC 14,733 181 (70) 14,844
FNMA 23,301 98 (80) 23,319
GNMA 6,916 152 (9) 7,059
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Total mortgage-backed securities 44,950 431 (159) 45,222
Total debt securities 50,907 487 (159) 51,235
Equity securities 4,049 (86) 3,963
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Total investment securities available for sale $54,956 $487 $(245) $55,198
======= ==== ===== =======
HELD TO MATURITY AT JUNE 30, 1997:
U. S. Government agency securities $ 2,480 $121 0 $ 2,601
Obligations of states and political subdivisions 9,905 90 (24) 9,971
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Total debt securities held to maturity $12,385 $211 $ (24) $12,572
======= ==== ===== =======
AVAILABLE FOR SALE AT DECEMBER 31 1996:
U. S. Treasury and U. S. Government agency securities $ 4,965 $103 $ 5,068
Other securities 1,018 (4) 1,014
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Subtotal 5,983 103 (4) 6,082
GNMA 7,620 148 (18) 7,750
FHLMC 16,719 154 (81) 16,792
FNMA 25,344 56 (115) 25,285
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Total mortgage-backed securities 49,683 358 (214) 49,827
Total debt securities 55,666 461 (218) 55,909
Equity securities 3,230 (98) 3,132
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Total investment securities available for sale $58,896 $461 $(316) $59,041
======= ==== ===== =======
HELD TO MATURITY AT DECEMBER 31, 1996:
U. S. Government agency securities $ 2,793 $ 2,793
Obligations of states and political subdivisions 10,017 75 (47) 10,045
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Total debt securities held to maturity $12,810 $ 75 $ (47) $12,838
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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, 1997,
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
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AVAILABLE FOR SALE:
Due in one year or less $ 1,003 1,003
Due after one year through five years 4,954 5,010
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Subtotal 5,957 6,013
Mortgage-backed securities 44,950 45,222
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Total debt securities available for sale $50,907 $51,235
======= =======
HELD TO MATURITY:
Due in one year or less $ 2,179 $2,179
Due after one year through five years 3,233 3,265
Due after five years through ten years 5,486 5,600
Due after ten years 1,487 1,528
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Total debt securities held to maturity $12,385 $12,572
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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(In Thousands)
NOTE 3 - LOANS AVAILABLE FOR SALE AND HELD TO MATURITY
- ------------------------------------------------------
Loans held to maturity are comprised of the following classifications: June 30 Dec 31
1997 1996
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Commercial $ 75,505 $ 75,460
Real estate mortgage 129,071 133,739
Installment 67,144 62,277
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Total loans held to maturity $271,720 $271,476
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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
1997 1996
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Balance, beginning of period $2,435 $2,777
Provision charged to expense 200 66
Recoveries 94 149
Loan charge-offs (621) (557)
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Balance, end of period $2,108 $2,435
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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: 1997 1996
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Nonperforming Loans $349 $998
OREO before allowance for OREO losses 125 500
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Total nonperforming assets $474 $1,498
==== ======
The following is an analysis of the activity in the allowance for OREO account: June 30 Dec 31
1997 1996
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Balance, beginning of period $ 151 $1,075
Losses on OREO charged to expense
Losses charged to allowance
Reversal of allowance on sale (151) (924)
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Balance, end of period $ 0 $151
===== ====
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, 1997
there were no impaired loans outstanding.
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FOR THE SIX MONTHS ENDED JUNE 30, 1997
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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 six
months ended June 30, 1997 cash flows were generated from earnings of $1.411
million, a $4.3 million decrease in investment securities and a $23.5 million
increase in borrowing with the FHLB. Cash flows were used for a $12.8 million
decrease in short term borrowings, a $1.6 million increase in fixed assets and a
$4.8 million decrease in deposits. The net cash position increased $7.1 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, 1997,
Bank has available approximately $62.5 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, 1996 to June 30, 1997.
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FOR THE SIX MONTHS ENDED JUNE 30, 1997
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CAPITAL RESOURCES
- -----------------
The capital resources of Horizon and Bank remain strong and exceed regulatory
capital ratios for "well capitalized" banks at June 30, 1997. Stockholders'
equity totaled $34.047 million ($4.036 million from ESOP) as of June 30, 1997
compared to $33.508 million ($4.211 million from ESOP) as of December 31, 1996.
The change in stockholders' equity during the six months ended June 30,1997 is
the result of the increase 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, 1997, the ratio of
stockholders' equity to assets was 8.78% compared to 8.77% at December 31, 1996.
Horizon increased its quarterly dividend from $.35 to $.45 per share in March
1997.
Horizon has selectively purchased shares that became available in the market
from time to time. During the six months ended June 30,1997, management
purchased 7,085 shares at a cost of $340 thousand.
There have been no other material changes in Horizon's capital resources from
December 31, 1996 to June 30, 1997.
MATERIAL CHANGES IN FINANCIAL CONDITION - JUNE 30, 1997 COMPARED TO
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DECEMBER 31, 1996
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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, 1997
--------------------------------------
As of January 1, 1997, the Bank discontinued the repurchase agreement deposit
product. This product was classified as a short-term borrowing on the
consolidated balance sheet and accounts for the $9 million decrease in that
category. The majority of these accounts were transferred to money market
accounts with an unrelated brokerage firm and are no longer shown on the
consolidated balance sheet.
On June 30, 1997, a short-term $20 million advance was obtained from the FHLB in
order to meet funding needs due to the decline of balance in municipal deposit
accounts at mid year. This advance was repaid in full on July 11, 1997.
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As of December 31, 1996, the Employee Stock Ownership Plan (ESOP) owned 34.38%
of the outstanding shares of Horizon and is subject to regulation and review by
the Federal Reserve Bank as a bank holding company. Also, shares owned in the
ESOP are subject to the voting decisions of the individual employees and are not
otherwise voted by management. Through their Visions and Values document, the
employees have indicated that it is their intent to maintain their ownership in
Horizon as an independent community bank. They are committed to doing those
things necessary to make it a strong financial institution which brings high
value to its stakeholders - its customers, shareholders, employees and
communities. Horizon Bancorp articles of incorporation require the affirmative
vote of the holders of not less the 70% of the outstanding common stock of the
Corporation to approve any merger or consolidation of the Corporation with or
into any other corporation.
There have been no other material changes in the financial condition of Horizon
from December 31, 1996 to June 30, 1997.
RESULTS OF OPERATIONS
---------------------
MATERIAL CHANGES IN RESULTS OF OPERATIONS - JUNE 30, 1997 COMPARED TO
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JUNE 30, 1996.
--------------
During the six months ended June 30, 1997 earnings totaled $1.411 million or
$1.97 per share compared to $1.668 million or $2.23 per share for the same
period in 1996.
Net interest income was $7.999 million for the six months ended June 30, 1997
compared to $8.159 million for the same period 1996. In the second quarter of
1997, the Bank increased the provision for loan losses. This increase, totaling
$200 thousand year-to-date, compares to no provision for loan losses for similar
periods in 1996. The reinstatement of a provision for loan losses was due to
loan growth and an expected increase in net charge-offs as loan portfolio
concentrations shift from predominately mortgage loans to consumer loans.
Total noninterest income for the six months ended June 30, 1997 increased $102
thousand or 5% from the same period in 1996. The largest component of the change
was in the fiduciary income which increased $144 thousand or 14% from the same
period in 1996.
Noninterest expense increased $376 thousand or 4.9% to $8.119 million for the
six months ended June 30, 1997, compared to the same period in 1996.
There have been no other material changes in the results of operations of
Horizon from December 31, 1996 to June 30, 1997.
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PART II - OTHER INFORMATION
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For the six months ended June 30, 1997
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
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SIGNATURES
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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
8/11/97 /s/ Larry E. Reed
- -------------------------- ---------------------------------------
Date: BY: Larry E. Reed
Chairman and Chief Executive Officer
8/11/97 /s/ Diana E. Taylor
- -------------------------- ---------------------------------------
Date: BY: Diana E. Taylor
Vice President and Chief Financial Officer
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