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 September 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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:
694,443 at October 20, 1997
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2
HORIZON BANCORP
FORM 10-Q
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL INFORMATION REQUIRED BY RULE 10-01 OF REGULATION S-X IS
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INCLUDED IN THIS FORM 10-Q AS REFERENCED BELOW
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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) Sept 30 Dec 31
1997 1996
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ASSETS
Cash and cash equivalents
Cash and due from banks $ 15,520 $ 19,551
Money market investment 663 789
Federal funds sold 1,125 0
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Total cash and cash equivalents 17,308 20,340
Short-term investments-interest-bearing balances in banks 215 211
Investment securities available for sale, net 52,185 59,041
Investment securities held to maturity,
(Estimated market value of $11,950 September 30, 1997 and 11,696 12,810
$12,838 December 31,1996)
Loans held for sale 1,981 1,034
Total loans 262,531 271,476
Allowance for loan losses (2,550) (2,435)
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Net loans 259,981 269,041
Premises and equipment, net 16,165 14,053
Accrued interest receivable 2,251 2,216
Other assets 2,752 3,292
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Total assets $ 364,534 $ 382,038
========= =========
LIABILITIES
Deposits
Noninterest-bearing $ 58,191 $ 46,050
Interest-bearing 224,038 243,130
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Total deposits 282,229 289,180
Short-term borrowings 12,849
Federal Home Loan Bank Advances 45,000 41,500
Accrued interest payable 687 590
Other liabilities 3,664 4,411
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Total liabilities 331,580 348,530
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Commitments and contingencies
Equity received from contributions and dividends to the ESOP 4,150 4,211
STOCKHOLDERS' EQUITY
Common stock: $1 stated value, 5,000,000 shares authorized and
1,027,531 shares issued, less ESOP shares of 305,412 at September 30, 1997 and 713 708
315,357 at December 31, 1996
Additional paid-in capital 7,477 7,962
Retained earnings 24,651 23,898
Unrealized gain/loss on securities available for sale (net of tax) 364 85
Less treasury stock, at cost - 144,193 shares at September 30, 1997 and
124,085 shares at December 31, 1996 (4,401) (3,356)
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Total stockholders' equity 28,804 29,297
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Total liabilities and stockholder's equity $ 364,534 $ 382,038
========= =========
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME (THOUSANDS) (UNAUDITED)
Three Months Nine Months
Ended September 30 Ended September 30
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1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 6,214 $ 5,923 $18,476 $17,061
Interest and dividends on investments
Taxable 1,058 1,064 3,199 3,494
Nontaxable 104 124 323 315
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Total interest income 7,376 7,111 21,998 20,870
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INTEREST EXPENSE
Interest on deposits 2,614 2,436 7,794 7,036
Interest on Federal funds purchased and securities
sold under agreements to repurchase 22 196 107 557
Interest on Federal Home Loan Bank advances 681 398 1,839 1,037
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Total interest expense 3,317 3,030 9,740 8,630
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NET INTEREST INCOME 4,059 4,081 12,258 12,240
PROVISION FOR LOAN LOSSES 765 13 965 13
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,294 4,068 11,293 12,227
------- ------- ------- -------
NONINTEREST INCOME
Service charges on deposits 506 362 1,324 1,159
Fiduciary income 582 488 1,755 1,517
Other Income 212 133 371 355
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Total noninterest income 1,300 983 3,450 3,031
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NONINTEREST EXPENSE
Salaries and employee benefits 1,986 1,978 6,052 6,076
Occupancy expense of Company premises, net of rental income 323 289 928 833
Data processing and equipment expenses 548 526 1,630 1,514
Loss on other real estate owned 0 32 39 114
Loss on disposal of fixed assets 225 225
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Other expenses 1,207 1,118 3,534 3,149
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Total noninterest expense 4,289 3,943 12,408 11,686
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INCOME BEFORE INCOME TAXES 305 1,108 2,335 3,572
PROVISION FOR INCOME TAXES 7 476 626 1,272
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NET INCOME $ 298 $ 632 $ 1,709 $ 2,300
======= ======= ======= =======
Earnings per common share $ 0.42 $ 0.86 $ 2.39 $ 3.09
See notes to the consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (UNAUDITED)
(In thousands)
Three Months Nine Months
Ended September 30 Ended September 30
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1997 1996 1997 1996
---- ---- ---- ----
Balance, beginning of period $ 30,011 $ 28,804 $ 29,297 $ 28,553
Net income 298 632 1,709 2,300
Cash dividends ($.45 for the three months ended September 30,
1997 and $.35 for the three months ended September 30, 1996) (274) (258) (956) (776)
Purchase of Treasury Stock (705) (25) (1,045) (280)
Net repurchases and distributions with ESOP (505) (489) (480) (434)
Change in unrealized gain (loss) on securities available for sale (21) 262 279 (437)
-------- -------- -------- --------
Balance, September 30 $ 28,804 $ 28,926 $ 28,804 $ 28,926
======== ======== ======== ========
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS) (UNAUDITED) Sept 30 Sept 30
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,709 $ 2,300
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 829 899
Net (accretion)/amortization 118 276
Additional paid in capital from release of ESOP shares 127
Gain/loss on disposal of fixed assets 225 1
Provision for loan losses 965
Loss on other real estate owned 39
Change in income taxes 23 (150)
Change in deferred loan fees (46) (41)
Change in unearned income 36 206
Change in interest receivable (35) 733
Change in interest payable 97 73
Change in other assets (373) (1,352)
Change in other liabilities (747) 226
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Net cash provided by operating activities 2,967 3,171
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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 9,094 14,078
Proceeds from maturities, calls and principal repayments of investment
securities-held to maturity 2,343 2,544
Purchase of investment securities-available for sale (1,887) (993)
Purchase of investment securities-held to maturity (1,235) (4,914)
Increase in short-term investments (4)
Change in loans (3,041) (21,949)
Purchase of loans (1,379) (344)
Proceeds from sales of loans 11,403 959
Recoveries on loans previously charged off 175 119
Premises and equipment expenditures (3,167) (2,295)
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Net cash provided by (used in) investing activities 12,302 (12,795)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits (6,951) (1,699)
Dividends paid (956) (776)
Change in short-term borrowings (12,849) (4,204)
Purchase of treasury stock (1,045) (280)
Change in Federal Home Loan Bank advance 3,500 9,000
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Net cash provided by (used in) financing activities (18,301) 2,041
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NET CHANGE IN CASH AND CASH EQUIVALENTS (3,032) (7,583)
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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 $ 17,308 $ 14,483
======== ========
Interest $ 9,837 $ 8,558
Income taxes 411 1,464
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
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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 September 30, 1997 and September 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 September 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
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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 SEPTEMBER 30, 1997:
U. S. Treasury and U. S. Government agency securities $ 4,955 77 $ 0 $ 5,032
Other securities 0 0
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Subtotal 4,955 77 0 5,032
FHLMC 14,011 244 (46) 14,209
FNMA 22,054 199 0 22,253
GNMA 6,523 178 0 6,701
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Total mortgage-backed securities 42,588 621 (46) 43,163
Total debt securities 47,543 698 (46) 48,195
Equity securities 4,030 (40) 3,990
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Total investment securities available for sale $ 51,573 $ 698 $ (86) $ 52,185
========= ========= ========= =========
HELD TO MATURITY AT SEPTEMBER 30, 1997:
U. S. Government agency securities $ 2,363 $ 104 $ 0 $ 2,467
Obligations of states and political subdivisions 9,333 160 (10) 9,483
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Total debt securities held to maturity $ 11,696 $ 264 $ (10) $ 11,950
========= ========= ========= =========
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
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(CONTINUED)
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The amortized cost and estimated fair value of debt securities at September 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 $ 0 $ 0
Due after one year through five years 4,955 5,032
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Subtotal 4,955 5,032
Mortgage-backed securities 42,588 43,163
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Total debt securities available for sale $ 47,543 $ 48,195
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HELD TO MATURITY:
Due in one year or less $ 1,561 $ 1,561
Due after one year through five years 3,272 3,301
Due after five years through ten years 5,582 5,752
Due after ten years 1,281 1,336
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Total debt securities held to maturity $ 11,696 $ 11,950
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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
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Loans held to maturity are comprised of the following classifications: Sept 30 Dec 31
1997 1996
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Commercial $ 71,018 $ 75,460
Real estate mortgage 125,176 133,739
Installment 66,337 62,277
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Total loans held to maturity $ 262,531 $ 271,476
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NOTE 4 - ALLOWANCE FOR LOAN LOSSES
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The following is an analysis of the activity in the allowance for loan losses account: Sept 30 Dec 31
1997 1996
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Balance, beginning of period $ 2,435 $ 2,777
Provision charged to expense 965 66
Recoveries 175 149
Loan charge-offs (1,025) (557)
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Balance, end of period $ 2,550 $ 2,435
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NOTE 5 - NONPERFORMING ASSETS:
- ------------------------------
The following is a summary of nonperforming loans and Other Real Estate Owned (OREO) Sept 30 Dec 31
OREO is presented before the allowance for OREO losses: 1997 1996
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Nonperforming Loans $ 568 $ 998
OREO before allowance for OREO losses 207 500
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Total nonperforming assets $ 775 $ 1,498
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The following is an analysis of the activity in the allowance for OREO account: Sept 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 September 30,
1997 there were no impaired loans outstanding.
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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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
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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
nine months ended September 30, 1997 cash flows were generated from earnings of
$1.709 million, a $8.0 million decrease in investment securities, an $8.9
million decrease in loans and a $3.5 million increase in borrowing with the
FHLB. Cash flows were used for a $12.8 million decrease in short term
borrowings, a $2.1 million increase in fixed assets and a $7.0 million decrease
in deposits. The net cash position decreased $3.0 million, primarily in cash and
due from banks. In addition to liquidity provided from the normal operating,
funding and investing activities of Horizon, at September 30, 1997, Bank has
available approximately $82.5 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 September 30, 1997.
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
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CAPITAL RESOURCES
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The capital resources of Horizon and Bank remain strong and exceed regulatory
capital ratios for "well capitalized" banks at September 30, 1997. Stockholders'
equity totaled $32.954 million ($4.150 million from ESOP) as of September 30,
1997 compared to $33.508 million ($4.211 million from ESOP) as of December 31,
1996. The change in stockholders' equity during the nine months ended September
30, 1997 is the result of the increase in the market value of investment
securities available for sale accounted for as an addition of stockholders'
equity and net income, net of dividends paid. At September 30, 1997, the ratio
of stockholders' equity to assets was 9.04% 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 nine months ended September 30, 1997, management
purchased 20,108 shares at a cost of $1.045 million.
There have been no other material changes in Horizon's capital resources from
December 31, 1996 to September 30, 1997.
MATERIAL CHANGES IN FINANCIAL CONDITION - SEPTEMBER 30, 1997 COMPARED TO
------------------------------------------------------------------------
DECEMBER 31, 1996
-----------------
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 NINE MONTHS ENDED SEPTEMBER 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.
As of September 30, 1997 the Employee Stock Ownership Plan (ESOP) owned 34.43%
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 September 30, 1997.
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RESULTS OF OPERATIONS
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MATERIAL CHANGES IN RESULTS OF OPERATIONS - SEPTEMBER 30, 1997 COMPARED TO
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SEPTEMBER 30, 1996.
-------------------
During the nine months ended September 30, 1997 earnings totaled $1.709 million
or $2.39 per share compared to $2.300 million or $3.09 per share for the same
period in 1996.
Net interest income was $12.258 million for the nine months ended September 30,
1997 compared to $12.240 million for the same period 1996. In the second and
third quarters of 1997, the Bank increased the provision for loan losses. This
increase, totaling $965 thousand year-to-date, compares to a $13,000 provision
for loan losses for similar periods in 1996. The reinstatement of more than a
nominal provision for loan losses was due to: a) an increase in net charge-offs
as loan portfolio concentrations shift from predominately mortgage loans to
consumer loans and b) anticipated loan growth in the last quarter of 1997 and
later.
In 1996 management implemented a credit scoring discipline for consumer loans
using the Fair/Isaac CreditDesk pooled score card product. Management believes
consumer lending necessitates a combination of credit scoring and lender
judgment for prudent loan growth. Part of the change in the provision for loan
losses in the third quarter 1997 reflects the adaptation changes that result in
increases in consumer loan charge-offs associated with moving towards combining
these disciplines.
Total noninterest income for the nine months ended September 30, 1997 increased
$419 thousand or 14% from the same period in 1996. The largest components of the
change was in the fiduciary income which increased $0.5 thousand or 16% from the
same period in 1996 and service charges on deposits which increased $165
thousand or 14%.
Noninterest expense increased $722 thousand or 6.2% to $12.408 million for the
nine months ended September 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 September 30, 1997.
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PART II - OTHER INFORMATION
For the nine months ended September 30, 1997
ITEM 1. LEGAL PROCEEDINGS
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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
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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
- ---------------------------------------- --------------------------------------------------
Date: BY: Larry E. Reed
Chairman and Chief Executive Officer
8/11/97
- ---------------------------------------- --------------------------------------------------
Date: BY: Diana E. Taylor
Vice President and Chief Financial Officer
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