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, 1998 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
(State or other jurisdiction of incorporation or (I. R. S. Employer
organization) 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
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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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
686,977 at July 31, 1998
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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
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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) June 30 Dec 31
1998 1997
---- ----
ASSETS
Cash and cash equivalents
Cash and due from banks $ 19,546 $ 19,506
Money market investment 263 852
Federal funds sold 8,875 0
--------- ---------
Total cash and cash equivalents 28,684 20,358
Short-term investments-interest-bearing balances in banks 221 219
Investment securities available for sale, net 54,197 48,638
Investment securities held to maturity,
(Estimated market value of $12,990 June 30, 1998 and 12,738 11,447
$11,756 December 31,1997)
Loans held for sale 2,119
Total loans 265,149 258,115
Allowance for loan losses (2,832) (2,702)
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Net loans 262,317 255,413
Premises and equipment, net 16,456 16,144
Accrued interest receivable 2,281 2,264
Other assets 4,166 3,149
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Total assets $ 381,060 $ 359,751
========= =========
LIABILITIES
Deposits
Noninterest-bearing $ 95,296 $ 61,474
Interest-bearing 205,299 202,939
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Total deposits 300,595 264,413
Short-term borrowings 3,000 16,000
Federal Home Loan Bank Advances 41,000 42,000
Accrued interest payable 622 674
Other liabilities 2,721 3,907
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Total liabilities 347,938 326,994
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Commitments and contingencies
Equity received from contributions and dividends to the ESOP 3,764 4,048
STOCKHOLDERS' EQUITY
Common stock: $1 stated value, 5,000,000 shares authorized and
1,034,428 shares issued, less ESOP shares of 298,560 at June 30, 1998 and 735 720
307,538 at December 31, 1997
Additional paid-in capital 8,549 7,763
Retained earnings 24,877 24,355
Unrealized gain/loss on securities available for sale (net of tax) 311 400
Less treasury stock, at cost - 156,019 shares at June 30, 1998 and 146,263
shares at
December 31, 1997 (5,114) (4,529)
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Total stockholders' equity 29,358 28,709
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Total liabilities and stockholder's equity $ 381,060 $ 359,751
========= =========
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
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1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $5,978 $6,243 $11,909 $12,262
Interest and dividends on investments
Taxable 1,002 1,094 1,935 2,141
Nontaxable 109 98 219 219
------ ------ ------- -------
Total interest income 7,089 7,435 14,063 14,622
------ ------ ------- -------
INTEREST EXPENSE
Interest on deposits 2,568 2,617 5,043 5,180
Interest on Federal funds purchased and other
short term borrowings 72 59 117 85
Interest on Federal Home Loan Bank advances 612 599 1,201 1,158
------ ------ ------- -------
Total interest expense 3,252 3,275 6,361 6,423
------ ------ ------- -------
NET INTEREST INCOME 3,837 4,160 7,702 8,199
PROVISION FOR LOAN LOSSES 225 188 550 200
------ ------ ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,612 3,972 7,152 7,999
------ ------ ------- -------
NONINTEREST INCOME
Service charges on deposits 534 402 1,130 818
Fiduciary income 599 555 1,129 1,173
Other Income 147 74 315 159
------ ------ ------- -------
Total noninterest income 1,280 1,031 2 ,574 2,150
------ ------ ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 2,093 1,975 4,207 4,066
Occupancy expense of Company premises, net of rental income 332 297 624 605
Data processing and equipment expenses 535 564 1,094 1,082
Loss on other real estate owned and repossessed collateral 11 39 30 39
Other expenses 1,091 1,208 2,209 2,327
------ ------ ------- -------
Total noninterest expense 4,062 4,083 8,164 8,119
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 830 920 1,562 2,030
PROVISION FOR INCOME TAXES 237 272 418 619
------ ------ ------- -------
NET INCOME 593 648 1,144 1,411
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OTHER COMPREHENSIVE INCOME
Change in unrealized gains on securities (40) 603 (89) 300
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COMPREHENSIVE INCOME $ 553 $1,251 $ 1,055 $ 1,711
====== ====== ======= =======
Basic earnings per common share $ 0.80 $ 1.75 $ 1.52 $ 2.38
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
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1998 1997 1998 1997
---- ---- ---- ----
Balance, beginning of period $ 28,569 $ 29,143 $ 28,709 $ 29,297
Net income 593 648 1,144 1,411
Cash dividends ($.45 for the three months ended June 30, 1998 (311) (341) (623) (682)
and $.45 for the three months ended June 30, 1997)
Purchase of Treasury Stock (334) (67) (585) (340)
Net repurchases and distributions with ESOP 881 25 802 25
Change in unrealized gain (loss) on securities available for sale (40) 603 (89) 300
-------- -------- -------- --------
Balance, June 30 $ 29,358 $ 30,011 $ 29,358 $ 30,011
======== ======== ======== ========
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS) (UNAUDITED) June 30 June 30
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,144 $ 1,411
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 557 557
Net (accretion)/amortization 112 83
Additional paid in capital from release of ESOP shares (101) (131)
loss on disposal of fixed assets 4 77
Provision for loan losses 550 200
Loss on other real estate owned 30 39
Change in income taxes (427) 23
Change in deferred loan fees (46) (30)
Change in unearned income 4 63
Change in interest receivable (17) (306)
Change in interest payable (52) (6)
Change in other assets 50 279
Change in other liabilities (1,186) (668)
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Net cash provided by operating activities 622 1,591
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, calls and principal repayments of investment
securities-available for sale 8,269 5,874
Proceeds from maturities, calls and principal repayments of investment
securities-held to maturity 1,046 1,421
Purchase of investment securities-available for sale (15,078) (1,887)
Purchase of investment securities-held to maturity (1,338) (1,000)
Increase in short-term investments (2) (3)
Change in loans (7,771) (6,931)
Proceeds from sales of loans 2,246 5,285
Recoveries on loans previously charged off 232 94
Premises and equipment expenditures (874) (2,280)
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Net cash provided by (used in) investing activities (13,270) 573
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits 36,182 (4,810)
Dividends paid (623) (682)
Change in short-term borrowings (13,000) (12,849)
Purchase of treasury stock (585) (340)
Change in Federal Home Loan Bank advance (1,000) 23,500
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Net cash provided by (used in) financing activities 20,974 4,819
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NET CHANGE IN CASH AND CASH EQUIVALENTS 8,326 6,983
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,358 20,340
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,684 $ 27,323
======== ========
CASH PAID DURING THE YEAR FOR:
Interest $ 6,309 $ 6,417
Income taxes 590 456
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 June 30, 1998 and June 30, 1997 are
not necessarily indicative of the operating results for the full year of 1998 or
1997. 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, 1998 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 1997 Horizon
Bancorp consolidated financial statements and related notes thereto included in
its Annual Report for the year ended December 31, 1997.
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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 JUNE 30, 1998:
U. S. Treasury and U. S. Government agency securities $ 8,947 $ 47 $ 0 $ 8,994
FHLMC 10,698 173 (5) 10,866
FNMA 24,987 200 (20) 25,167
GNMA 5,021 103 (7) 5,117
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Total mortgage-backed securities 40,706 476 (32) 41,150
Total debt securities 49,653 523 (32) 50,144
Equity securities 4,024 29 4,053
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Total investment securities available for sale $53,677 $ 552 $ (32) $54,197
======= ===== ======== =======
HELD TO MATURITY AT JUNE 30, 1998:
U. S. Government agency securities $ 1,889 $ 56 $ 0 $ 1,945
Obligations of states and political subdivisions 10,849 197 (1) 11,045
------- ----- -------- -------
Total debt securities held to maturity $12,738 $ 253 $ (1) $12,990
======= ===== ======== =======
AVAILABLE FOR SALE AT DECEMBER 31 1997:
U. S. Treasury and U. S. Government agency securities $ 3,965 $ 60 $ 0 $ 4,025
FHLMC 13,126 244 13,370
FNMA 20,811 229 21,040
GNMA 6,048 140 6,188
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Total mortgage-backed securities 39,985 613 40,598
Total debt securities 43,950 673 44,623
Equity securities 4,020 (5) 4,015
------- ----- -------- -------
Total investment securities available for sale $47,970 $ 673 $ (5) $48,638
======= ===== ======== =======
HELD TO MATURITY AT DECEMBER 31, 1997:
U. S. Government agency securities $ 2,040 $ 104 $ 0 $ 2,144
Obligations of states and political subdivisions 9,407 205 9,612
------- ----- -------- -------
Total debt securities held to maturity $11,447 $ 309 $ 0 $11,756
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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)
- -----------
The amortized cost and estimated fair value of debt securities at June 30, 1998,
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 after one year through five years $ 6,696 $ 6,728
Due after five years through ten years 251 252
Due after ten years 2,000 2,014
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Subtotal 8,947 8,994
Mortgage-backed securities 40,706 41,150
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Total debt securities available for sale $49,653 $50,144
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HELD TO MATURITY:
Due in one year or less $ 1,664 $ 1,665
Due after one year through five years 1,822 1,832
Due after five years through ten years 6,566 6,755
Due after ten years 2,686 2,738
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Total debt securities held to maturity $12,738 $12,990
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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NOTE 3 - LOANS AVAILABLE FOR SALE AND HELD TO MATURITY
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Loans held to maturity are comprised of the following classifications: June 30 Dec 31
1998 1997
---- ----
Commercial $ 74,566 $ 73,177
Real estate mortgage 129,952 120,345
Installment 60,631 64,593
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Total loans held to maturity $265,149 $258,115
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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
1998 1997
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Balance, beginning of period $2,702 $ 2,435
Provision charged to expense 550 1,325
Recoveries 232 383
Loan charge-offs (652) (1,441)
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Balance, end of period $2,832 $ 2,702
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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: 1998 1997
---- ----
Nonperforming Loans $1,249 $1,181
OREO before allowance for OREO losses 128 125
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Total nonperforming assets $1,377 $1,306
====== ======
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, 1998
there were no impaired loans outstanding.
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FOR THE SIX MONTHS ENDED JUNE 30, 1998
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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
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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 six
months ended June 30, 1998 cash flows were generated from earnings of $1.144
million and a $36 million increase in deposits. Cash flows were used for a $6.9
million increase in investment securities, a $7 million increase in total loans,
$13 million decrease in short term borrowings, and a $1 million decrease in FHLB
Advances. The net cash position increased $8.3 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, 1998, Bank has
available approximately $77.5 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, 1997 to June 30, 1998.
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FOR THE SIX MONTHS ENDED JUNE 30, 1998
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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, 1998. Stockholders'
equity totaled $33.122 million ($3.764 million from ESOP) as of June 30, 1998
compared to $32.757 million ($4.048 million from ESOP) as of December 31, 1997.
The change in stockholders' equity during the six months ended June 30,1998 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, 1998, the ratio of
stockholders' equity to assets was 8.69% compared to 9.11% at December 31, 1997.
Horizon has selectively purchased shares that became available in the market
from time to time. During the six months ended June 30,1998, management
purchased 9,756 shares at a cost of $585 thousand.
The decrease in equity received from contributions and dividends to the ESOP and
the corresponding increase in additional paid in capital is related to the
expiration of the obligation to repurchase ESOP shares that were distributed to
participants who exited the plan.
There have been no other material changes in Horizon's capital resources from
December 31, 1997 to June 30, 1998.
MATERIAL CHANGES IN FINANCIAL CONDITION - JUNE 30, 1998 COMPARED TO
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DECEMBER 31, 1997
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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.
As of April 1, 1998, Horizon's wholly owned subsidiary, Horizon Bank, N.A.
consummated the acquisition of the assets of Phoenix Insurance Services, Inc.
(Phoenix). Phoenix is an independent insurance agency offering a full line of
commercial and personal insurance products, located in LaPorte county, Indiana.
As of July 1, 1998, Horizon's wholly owned subsidiary, Horizon Bank, N.A.
consummated the acquisition of the assets of the Trowbridge Insurance Agency.
Trowbridge is an independent insurance agency offering a full line of commercial
and personal insurance products, located in Porter county, Indiana.
FOR THE SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------
On June 30, 1998, noninterest bearing deposits increased approximately $30
million and certificates of deposits decreased by a like amount. These changes
are primarily related to one municipal deposit account that traditionally
redeems a large amount of certificates of deposits at mid year. Noninterest
bearing deposits and certificates of deposits returned to normal levels in mid
June, 1998.
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As of June 30, 1998, the Employee Stock Ownership Plan (ESOP) owned 34.02% 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 which: (i) is not recommended by the vote of 70% of
the Corporation's directors; or (ii) is proposed by a person, whether an
individual, partnership, corporation, group, or otherwise, who separately or in
association with one or more other persons holds at the date of the proposal 10%
or more of the then outstanding common stock of the Corporation and such
proposal does not offer to all shareholders of the Corporation consideration for
their shares which is at least equal to the highest percent over book value paid
by such person for the shares of the Corporation held by it at the date of the
proposal. All other business combinations will require the affirmative vote of a
majority of the outstanding common stock of the Corporation. This Article shall
not be altered, amended or repealed except by an affirmative vote of at least
seventy percent (70%) of the total number of shares of the Corporation entitled
to vote on such matter.
There have been no other material changes in the financial condition of Horizon
from December 31, 1997 to June 30, 1998.
RESULTS OF OPERATIONS
---------------------
MATERIAL CHANGES IN RESULTS OF OPERATIONS - JUNE 30, 1998 COMPARED TO
---------------------------------------------------------------------
JUNE 30, 1997
-------------
During the six months ended June 30, 1998 earnings totaled $1.144 million or
$1.52 per share compared to $1.411 million or $2.38 per share for the same
period in 1997.
Net interest income was $7.152 million for the six months ended June 30, 1998
compared to $7.999 million for the same period 1997. The decline in net interest
income is related to a combination of rate and volume in the installment loan
portfolio and rate in the mortgage portfolio.
Total noninterest income for the six months ended June 30, 1998 increased $424
thousand or 20% from the same period in 1997. The largest component of the
change was in the service charge income which increased $312 thousand or 38%
from the same period in 1997. This increase is primarily related to service
charges on ATM transactions.
Noninterest expense increased $45 thousand or 1% to $8.164 million for the six
months ended June 30, 1998, compared to the same period in 1997.
There have been no other material changes in the results of operations of
Horizon from June 30, 1997 to June 30, 1998.
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PART II - OTHER INFORMATION
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For the six months ended June 30, 1998
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
8/13/98 /s/ LARRY E. REED
- ------------------------- -----------------------------------------------
Date: BY: Larry E. Reed
Chairman and Chief Executive Officer
8/13/98 /s/ DIANA E. TAYLOR
- ------------------------- ----------------------------------------------
Date: BY: Diana E. Taylor
Vice President and Chief Financial Officer
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