SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from ______________ to _______________
Commission file number 0-27062
Horizon Financial Corp.
(Exact name of registrant as specified in its charter)
Chartered by the State of Washington
(State or other jurisdiction of incorporation or organization)
91-1695422
(IRS Employer Identification No.)
1500 Cornwall Avenue
Bellingham, Washington
(Address of principal executive offices)
98225
(Zip Code)
Registrant's telephone number including area code: (360) 733-3050
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 [ ]
As of August 2, 1996, 6,596,324 common shares, $1.00 par value, were
outstanding.
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HORIZON FINANCIAL CORP.
INDEX PAGE
- ----- ----
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Financial Condition 1
Consolidated Statements of Operations 2
Consolidated Statements of Stockholders' Equity 3
Consolidated Statements of Cash Flow 4-5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES
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HORIZON FINANCIAL CORP.
Consolidated Statements of Financial Condition
June 30, March 31,
1996 1996
(unaudited)
-------- --------
ASSETS:
Cash and Due from Banks $ 4,002,484 $ 4,844,146
Interest-Bearing Deposits 8,809,785 8,756,304
Investment Securities - Available for Sale 30,629,365 34,623,256
Investment Securities - Held to Maturity 14,670,141 16,080,247
Mortgage-Backed Securities-Available for Sale 1,259,261 279,473
Mortgage-Backed Securities - Held to Maturity 22,188,817 23,078,825
Loans Receivable 400,380,309 389,650,547
Accrued Interest and Dividends Receivable 3,522,583 3,614,937
Property and Equipment, Net 6,213,063 6,246,041
Other Assets 1,822,846 1,793,828
-------- --------
Total Assets $493,498,654 $488,967,604
LIABILITIES:
Deposits $406,171,948 $402,676,437
Accounts Payable and Other Liabilities 4,325,647 4,582,712
Advances by Borrowers for Taxes and Insurance 397,418 832,442
Deferred Compensation 1,065,653 1,087,684
Deferred Income Tax Liabilities 548,383 575,000
Income Taxes Currently Payable 1,028,321 66,115
-------- --------
Total Liabilities 402,753,610 384,793,257
STOCKHOLDERS' EQUITY:
Serial Preferred Stock, $1.00 Par Value,
10,000,000 Shares Authorized;
None Issued or Outstanding
Common Stock, $1.00 Par Value,
30,000,000 Shares Authorized;
6,594,886 and 6,579,954 Issued
and Outstanding 6,594,886 6,579,954
Paid-in Capital 39,544,047 39,415,875
Retained Earnings 32,771,344 31,548,712
Net Unrealized Gain/(Loss) on Investments
Available for Sale 1,551,007 1,602,673
Debt Related to ESOP (500,000) -0-
-------- --------
Total Stockholders' Equity 79,961,284 79,147,214
-------- --------
Total Liabilities and Stockholders'Equity $493,498,654 $488,967,604
(See Notes to Financial Statements)
1
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HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
3 Months Ended
June 30
1996 1995
-------- --------
INTEREST INCOME:
Interest on Loans $8,328,247 $7,803,736
Interest and Dividends on Investment
Securities 1,181,292 1,210,854
Total Interest Income 9,509,539 9,014,590
INTEREST EXPENSE:
Interest on Deposits 5,125,258 5,014,548
Net Interest Income 4,384,281 4,000,042
Provision for Loan Losses 60,000 15,000
Net Interest Income After
Provision for Loan Losses 4,324,281 3,985,042
NON-INTEREST INCOME:
Service Fees 260,978 229,243
Net Gain(Loss) on Sale of Investments
and Trading Securities -0- 1,800
Other 49,452 105,870
Total Non-Interest Income 310,430 336,913
NON-INTEREST EXPENSE:
Compensation and Employee Benefits 964,052 920,562
Building Occupancy 274,970 255,027
FDIC Insurance 26,375 207,277
Data Processing 99,547 99,744
Advertising 111,783 71,081
Other Expenses 313,649 243,445
Total Non-Interest Expense 1,790,346 1,797,136
Income Before Provision for
Income Taxes 2,844,365 2,524,819
Provision for Income Taxes 962,206 826,250
Net Income 1,882,159 1,698,569
Earnings Per Share $.29 $.26
(See Notes to Financial Statements)
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<TABLE>
HORIZON FINANCIAL CORP.
Consolidated Statements of Changes in Stockholder's Equity
3 Months Ended June 30, 1996 and 1995
(unaudited)
Net Unrealized
Common Stock Additional Gains(Losses) Debt
Number Paid-In Retained on Related
of Shares at Par Capital Earnings Securities to ESOP Total
--------- -------- ------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 3/31/95 6,514,652 $6,514,652 $39,036,616 $26,426,840 $ 731,652 (25,000) $72,684,760
Cash div on common stock
at $.08 per share (523,129) (523,129)
Stock opts exercised 18,774 18,774 (8,963) 9,811
DRIP 5,683 5,683 60,376 66,059
Net change in unrealized
gain/loss - AFS 372,185 372,185
Net income 1,698,569 1,698,569
--------- -------- ------- -------- ---------- ------- ---------
Balance at 6/30/95 $6,539,109 $6,539,109 $39,088,029 $27,602,280 $1,103,837 $(25,000) $74,308,255
Balance at 3/31/96 6,579,954 6,579,954 39,415,875 31,548,712 1,602,673 $ -0- $79,147,214
Cash div on common
stock at $.10 Per Sh. (659,527) (659,527)
Stock opts. exercised 9,312 9,312 62,846 72,158
DRIP 5,620 5,620 65,326 70,946
Net change in unrealized
gain/loss - AFS (51,666) (51,666)
ESOP Loan (500,000) (500,000)
Net income 1,882,159 1,882,159
--------- -------- ------- -------- ---------- ------- ---------
Balance at 6/30/96 $6,594,886 $6,594,886 $39,544,047 $32,771,344 $1,551,007 $ (500,000) $79,961,284
(See Notes to Financial Statements)
</TABLE>
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HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
3 Months Ended
June 30,
1996 1995
-------- --------
Cash Flows from Operating Activities:
Net Income $ 1,882,159 $ 1,698,569
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 111,718 108,222
Amortization and Deferrals, Net 71,569 (12,353)
Provision for Loan Losses 60,000 15,000
Provision for Deferred Income Tax -0- -0-
Loss on Retirement of Bank Premises/Eqpt -0- -0-
Changes in Assets and Liabilities:
Interest & Dividends Receivable 92,354 (207,772)
Interest Payable (498) 58,461
Federal Income Taxes Receivable -0- 825,550
Federal Income Taxes Payable 962,206 -0-
Other Assets (29,018) (41,281)
Other Liabilities (713,622) 4,336
-------- --------
Net Cash Provided by Operating Activities 2,436,868 2,448,732
Cash Flows From Investing Activities:
Change in Interest-Bearing Deposits, Net $ (53,481) $ 6,102,814
Purchases of Investment Securities - AFS (609,699) (5,031,043)
Proceeds from Sales and Maturities of
Investment Securities - AFS 4,524,293 1,256,100
Purchases of Investment Securities - HTM -0- (2,726,998)
Proceeds from Maturities of Investment
Securities - HTM 1,410,106 3,368,532
Purchases of Mtge Backed Securities - HTM -0- -0-
Purchases of Mtge Backed Securities - AFS (1,000,000) -0-
Proceeds from Mat of Mtge back Sec - HTM 890,010 411,496
Proceeds from Mat of Mtge back Sec - AFS 21,224 57,215
Proceeds from Sale of Loans -0- 4,129,649
Principal Payments on Loans 18,002,936 9,143,796
Originations and Purchases of Loans (29,364,267) (21,044,864)
Purchases of Bank Premises and Equipment (78,740) (16,364)
-------- --------
Net Cash Flows From Investing Activities (6,257,618) (4,349,667)
(See Notes to Financial Statements)
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HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
3 Months Ended
June 30,
1996 1995
-------- --------
Cash Flows From Financing Activities:
Change in Checking and
Savings Accounts, Net 4,601,950 (618,873)
Proceeds From Issuance of Time Deposits 33,893,484 30,826,505
Payments for Maturing Time Deposits (34,999,923) (27,561,597)
Common Stock Issued, Net 143,104 75,870
Cash Dividends Paid (659,527) (523,129)
-------- --------
Net Cash Flows from Financing Activities 2,979,088 2,198,776
Net Change in Cash and Cash Equivalents (841,662) 297,841
Cash and Cash Equivalents, Beginning of Year 4,844,146 4,946,359
-------- --------
Cash and Cash Equivalents, End of Year $4,002,484 $5,244,200
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest Expense $ 5,125,756 $ 4,956,087
Income Taxes 690,000 900,000
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HORIZON FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1996
(unaudited)
NOTE A - Basis of Presentation
The unaudited consolidated financial statements have been prepared in
accordance with general accepted accounting principles for interim financial
information and with the instructions to the Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation are reflected in the interim financial statements. The results
of operations for the periods ended June 30, 1996 and 1995 are not necessarily
indicative of the operating results for the full year. The March 31, 1996,
consolidated statement of financial condition presented with the interim
financial statements was audited and received an unqualified opinion. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Bank's annual report for the year ended
March 31, 1996.
On October 13, 1995, Horizon Bank, a savings bank, ("Bank") reorganized into
the holding company form of ownership ("Reorganization"), resulting in Horizon
Financial Corp. ( Registrant ) becoming the sole stockholder of the Bank.
Each outstanding share of common stock of the Bank and options to acquire
shares of common stock of the Bank, became outstanding shares of common stock
of the Registrant and options to acquire shares of common stock of the
Registrant, respectively, as a result of the Reorganization. Accordingly, the
financial statements for the three months ended June 30, 1995, are those of
the Bank. The consolidated financial statements for the three months ended
June 30, 1996, include the accounts of Horizon Financial Corp., the Bank and
other subsidiaries of the Bank. Significant intercompany balances and
transactions have been eliminated in consolidation.
Prior to Reorganization, Horizon Financial Corp. had no material assets or
liabilities and engaged in no business activity. At its March 26, 1996
meeting, the Board of Directors authorized the repurchase of up to 10%
(approximately 655,000 shares) of the Corporation's outstanding Common Stock
over a 24 month period.
NOTE B - Net Income Per Share
Earnings per share for the three months ended June 30, 1996 and 1995 are
calculated on the basis of 6,586,781 and 6,526,916 weighted average shares
outstanding, respectively.
NOTE C - Reclassification
Certain reclassifications have been made to prior financial statements to
conform with current presentation. Such reclassifications have no effect on
net income.
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HORIZON FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Horizon Financial Corporation was formed on October 13, 1995, as the parent
company of Horizon Bank, a savings bank, its wholly-owned subsidiary. Horizon
Bank, a savings bank, was organized in 1922 as a Washington state chartered
mutual savings and loan association and converted to a federal mutual savings
and loan association in 1934. In 1979 the Bank converted to a Washington
state chartered mutual savings bank, the deposits in which are insured by the
Federal Deposit Insurance Corporation ("FDIC"). On August 12, 1986, the Bank
then converted to a state chartered stock savings bank. The primary business
of the Bank is to acquire funds in the form of savings deposits and to use the
funds to make loans secured by residential, and to a lesser extent, commercial
properties made in the Bank's primary market area. The Bank's operations are
conducted through twelve full-service office facilities, all located in
Northwestern Washington.
Financial Condition
Total assets for the Bank as of June 30, 1996, were $493,498,654, an increase
of .93% from the March 31, 1996, level of $488,967,604. This increase in
assets was due primarily to the growth in loans receivable, which increased
2.75% to $400,380,309 at June 30, 1996, from $389,650,547 at March 31, 1996.
Total liabilities increased .91% to $413,537,370 at June 30, 1996, from
$409,820,390 at March 31, 1996. The increase in liabilities was due primarily
to the growth in savings deposits, which increased .87% to $406,171,948 from
$402,676,437.
Total stockholders' equity increased 1.03% to $79,961,284 at June 30, 1996,
from $79,147,214 at March 31, 1996.
Liquidity and Capital Resources
The Bank maintains liquid assets in the form of cash and short-term
investments to provide a source to fund loans, savings withdrawals and other
short-term cash requirements. At June 30, 1996, the Bank had liquid assets
(cash and marketable securities with maturities of one year or less) with a
book value of $26,882,031.
The Bank's primary sources of funds are cash flow from operations, which
consist primarily of mortgage loan repayments; deposit increases; loan sales;
and cash received from the maturity or sale of investment securities. These
funds are primarily used to originate mortgage loans on real estate.
The Bank's liquidity fluctuates with the supply of funds and management
believes that the current level of liquidity is adequate at this time. If
additional liquidity is needed, the Bank's options include, but are not
necessarily limited to: (1) selling additional loans in the secondary market;
(2) reverse repurchase agreements; (3) accepting additional jumbo and/or
public funds deposits; or (4) accessing the discount window of the Federal
Reserve Bank of San Francisco. The Bank had no borrowings against any kind of
credit as of June 30, 1996.
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Stockholders' equity to total assets was 16.20% as of June 30, 1996, well in
excess of the 5.0% minimum required by the FDIC in order to be considered
well capitalized.
Comparative Results of Operations
For the Three Months Ended
June 30, 1996 and 1995
Net Interest Income
Net interest income for the three months ended June 30, 1996, increased
9.61% to $4,384,281 from $4,000,042 in the same time period of the previous
year. Total interest income increased 5.49% to $9,509,539 from $9,014,590.
This increase is primarily attributable to an increase in interest earning
assets over the prior period. Total interest paid on deposits increased
2.21% to $5,125,258 from $5,014,548. This increase occurred with the Bank's
total deposits payable at June 30, 1996 increasing 6.79% to $406,171,948
from $380,349,484 at June 30, 1995.
The weighted average yield on all earning assets at June 30, 1996, decreased
15 basis points, or .15% to 8.07% from 8.22% at June 30, 1995. The weighted
average yield on loans decreased 16 basis points to 8.42% from 8.58%, and
the weighted average yield on investments decreased 19 basis points to 6.28%
from 6.47%. The yield on investments was down primarily as a result of the
Bank's existing short-term investments maturing and being reinvested at
lower rates. The same is true for the Bank's cost of funds, which decreased
22 basis points to 5.11% at June 30, 1996, from 5.33% at June 30, 1995. As
a result, the Bank's interest rate spread increased 7 basis points to 2.96%
from 2.89%.
Net interest income for the three months ended June 30, 1996, after
provision for loan losses, increased 8.51% to $4,324,281 from $3,985,042.
Provision for loan losses increased to $60,000 from $15,000 for the same
period one year ago. At June 30, 1996 the Bank had no loans listed as over
90 days delinquent.
Non Interest Income
Non interest income for the three months ended June 30, 1996, decreased
7.86% to $310,430 from $336,913 for the same time period a year ago.
Service fee income increased 13.84% to $260,978 from $229,243. This
increase is primarily attributable to the increase in loan activity during
the quarter, as compared to the previous year. Other non interest income
decreased to $49,452 from $105,870. The primary reason for this difference
is that during the quarter ended June 30, 1995, a payment of $59,966 was
received from First Interstate Bank in connection with the sale of the
Bank's Trust Department. No trust income was recognized in 1996 as the
final accounting for the sale of the trust department was completed in 1995.
Non Interest Expense
Non interest expense for the three months ended June 30, 1996, decreased
.38% to $1,790,346 from $1,797,136. Compensation and employee benefits
increased 4.72% to $964,052 from $920,562. Building occupancy increased
7.82% to $274,940 from $255,027. The Bank added one new office in Mill
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Creek in September of 1995. The Bank's FDIC insurance expense declined to
$26,375 for the quarter ending June 30, 1996, compared to $207,277 for the
three months ended June 30, 1995, due to the decline in FDIC insurance
premiums for well capitalized banks.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Horizon Financial Corp. is unaware of any pending or
threatened litigation against the corporation or its
subsidiaries at the present time.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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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 FINANCIAL CORP.
By: /s/ V. Lawrence Evans
---------------------
V. Lawrence Evans
President and Chief Executive Officer
By: /s/ Richard P. Jacobson
-----------------------
Richard P. Jacobson
Chief Financial Officer
Dated: August 12, 1996
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