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 December 31, 1999
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 January 27, 2000, 8,630,515 common shares, $1.00 par value, were
outstanding.
1
<PAGE>
HORIZON FINANCIAL CORP.
INDEX PAGE
- ----- ----
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4-5
Consolidated Statements of Stockholders' Equity 6
Consolidated Statements of Cash Flow 7-8
Notes to Consolidated Financial Statements 9-10
Item 2 Management's discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES
2
<PAGE>
HORIZON FINANCIAL CORP.
Consolidated Statements of Financial Condition
Dec 31, March 31,
1999 1999 *
---- --------
(Unaudited) (Unaudited)
ASSETS:
- -------
Cash and Due from Banks $ 9,677,189 $ 10,889,530
Interest-Bearing Deposits 8,997,382 15,572,363
Investment Securities Available for Sale 14,365,235 27,631,904
Investment Securities-Held to Maturity 1,367,400 1,391,873
Mortgage-Backed Securities-Available for Sale 47,355,060 43,886,859
Mortgage-Backed Securities-Held to Maturity 8,626,465 10,959,539
Federal Home Loan Bank stock 5,019,600 4,861,700
Loans Receivable 569,277,842 533,649,169
Accrued Interest and Dividends Receivable 4,121,914 3,739,470
Property and Equipment, Net 14,952,840 11,609,414
Goodwill 645,793 688,846
Other real estate owned 323,468 0
Other Assets 3,075,184 3,235,435
------------ ------------
Total Assets $687,805,372 $668,116,102
============ ============
LIABILITIES:
- ------------
Deposits $549,028,847 $537,389,845
Securities sold under agreements to repurchase 10,030,000 14,800,000
Borrowings 22,000,000 7,918,151
Accounts payable and other liabilities 5,032,903 6,034,947
Advances by Borrowers for Taxes and Insurance 588,069 928,618
Deferred Compensation 1,307,425 1,260,100
Net Deferred Income Tax Liabilities 1,455,225 2,572,474
Income Tax Payable 0 770,986
------------ ------------
Total Liabilities $589,442,469 $571,675,121
============ ============
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;
8,574,893 and 8,491,523 Shares Issued
and Outstanding $ 8,574,893 $ 8,491,523
Paid-in Capital 57,091,177 56,459,066
Retained Earnings 32,074,955 28,638,576
Other Comprehensive Income 1,126,603 3,201,816
Debt Related to ESOP <504,725> <350,000>
------------ ------------
Total Stockholders' Equity $ 98,362,903 $ 96,440,981
------------ ------------
Total Liabilities and $687,805,372 $668,116,102
Stockholders' Equity ============ ============
* All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.
(See Notes to Financial Statements)
3
<PAGE>
HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
3 Months Ended
Dec 31,
1999 1998*
INTEREST INCOME: ---- ----
- ----------------
Interest on Loans $11,038,740 $10,799,891
Interest and Dividends on Investment and
Mortgage-Backed Securities 1,597,587 1,546,166
----------- -----------
Total Interest Income 12,636,327 12,346,057
INTEREST EXPENSE:
- -----------------
Interest on Deposits 6,198,868 6,201,982
Interest on Borrowings 473,029 212,952
----------- -----------
Total Interest Expense 6,671,897 6,414,934
----------- -----------
Net Interest Income 5,964,430 5,931,123
----------- -----------
Provision for Loan Losses 49,884 107,000
Net Interest Income After Provision ----------- -----------
For Loan Losses 5,914,546 5,824,123
----------- -----------
NON-INTEREST INCOME:
- --------------------
Service Fees 411,883 453,628
Net Gain (Loss) on Sale of Loans <25,924> <112,979>
Net Gain (Loss) on Sale of Investments 0 0
Other 141,564 316,844
----------- -----------
Total Non-Interest Income 527,523 657,493
----------- -----------
NON-INTEREST EXPENSE:
- ---------------------
Compensation and Employee Benefits 1,719,564 1,443,079
Building Occupancy 546,781 405,031
Other Expenses 972,156 993,740
----------- -----------
Total Non-Interest Expense 3,238,501 2,841,850
----------- -----------
Income Before Provision for
Income Taxes 3,203,568 3,639,766
Provision for Income Taxes 1,010,736 1,234,282
----------- -----------
Net Income $2,192,832 $2,405,484
=========== ===========
Earnings Per Share:
Basic Earnings Per Share $.26 $.28
Diluted Earnings Per Share $.25 $.28
* All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.
(See Notes to Financial Statements)
4
<PAGE>
HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
9 Months Ended
Dec. 31,
1999 1998*
---- -----
INTEREST INCOME:
- ----------------
Interest on Loans $32,390,196 $31,176,138
Interest and Dividends on Investment
and Mortgage-Backed Securities 4,556,071 4,708,431
----------- -----------
Total Interest Income 36,946,267 35,884,569
INTEREST EXPENSE:
- -----------------
Interest on Deposits 18,173,553 18,559,526
Interest on Borrowings 1,124,133 453,602
----------- -----------
Total Interest Expense 19,297,686 19,013,128
----------- -----------
Net Interest Income 17,648,581 16,871,441
----------- -----------
Provision for Loan Losses 129,884 484,500
Net Interest Income After Provision ----------- -----------
for Loan Losses 17,518,697 16,386,941
----------- -----------
NON-INTEREST INCOME:
- --------------------
Service Fees 1,383,050 1,336,417
Net Gain (Loss) on Sale of Loans <70,565> <249,661>
Net Gain (Loss) Sale of Investments 187,255 304,866
Other 402,272 1,088,349
----------- -----------
Total Non-Interest Income 1,902,012 2,479,971
----------- -----------
NON-INTEREST EXPENSE:
- ---------------------
Compensation and Employee Benefits 5,033,693 4,145,690
Building Occupancy 1,601,412 1,170,030
Other Expenses 3,150,389 2,891,146
----------- -----------
Total Non-Interest Expense 9,785,494 8,206,866
----------- -----------
Income Before Provision for
Income Taxes 9,635,215 10,660,046
Provisions for Income Taxes 3,205,227 3,619,027
----------- -----------
Net Income $6,429,988 $7,041,019
=========== ===========
Earnings Per Share:
Basic Earnings Per Share $.75 $.83
Diluted Earnings Per Share $.74 $.82
* All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.
(See Notes to Financial Statements)
5
<PAGE>
<TABLE>
Consolidated Statements of Changes in Stockholder's Equity
9 Months Ended Dec 31, 1999 and 1998 *
(unaudited)
Accum
Common Stock Addi- Other
------------ tional Compre- Debt
Number Paid-In Retained hensive Related Treasury
Of Shares At Par Capital Earnings Income to ESOP Stock Total
--------- ------- ------- --------- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
3/31/98 8,446,958 $8,446,958 $55,591,677 $22,900,670 $3,135,677 $<400,000> $ 0 $89,674,982
Cash div on
common stock
at $.33 per
share <2,473,025> <2,473,025>
Stock opts.
exercised 6,368 6,368 53,788 60,156
DRIP 26,154 26,154 374,671 400,825
Net change in
other Compre-
hensive income 772,512 772,512
Net income 7,041,019 7,041,019
Regulatory
reclassifi-
cation
(Bellingham
Bancorp) 300,000 <300,000> 0
Balance at --------- ---------- ----------- ----------- ----------- ----------- ------ ------------
12/31/98 8,479,480 $8,479,480 $56,320,136 $27,168,664 $ 3,908,189 $ <400,000> $ 0 $ 95,476,469
========= ========== =========== =========== =========== =========== ====== ============
Balance at
3/31/99 8,491,523 $8,491,523 $56,459,066 $28,638,576 $ 3,201,816 $ <350,000> $ 0 $ 96,440,981
Cash div
on common <2,993,609> <2,993,609>
stock at
$.35 per
share
Stock opts
exercised 51,943 51,943 290,457 342,400
DRIP 31,427 31,427 341,654 373,081
Net change
in other
compre-
hensive
income <$2,075,213> <2,075,213>
Loan to
ESOP <154,725> <154,725>
Net income 6,429,988 6,429,988
--------- ---------- ----------- ----------- ----------- ----------- ------ ------------
Balance at
12/31/99 8,574,893 $8,574,893 $57,091,177 $32,074,955 $ 1,126,603 $ <504,725> $ 0 $ 98,362,903
========= ========== =========== =========== =========== =========== ====== ============
* All prior year numbers have been restated to reflect the merger of Bellingham Bancorporation effective
June 19, 1999.
</TABLE>
(See Notes to Financial Statements)
6
<PAGE>
HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
9 Months Ended
Dec 31,
1999 1998*
---- -----
Cash Flows From Operating Activities:
Net Income $ 6,429,988 $7,041,019
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 763,333 383,629
Provision for loan losses 129,884 484,500
Changes in Assets and Liabilities:
Interest & Dividends Receivable < 382,444> 164,392
Interest Payable 52,373 31,497
Federal Income Tax (rec) Payable <770,986> 636,130
Other Assets 160,251 <350,806>
Other Liabilities <1,402,685> <3,922,657>
Goodwill 43,053 62,187
Other Real Estate Ow <323,468> 0
----------- ----------
Net Cash Flows from Operating Activities 4,699,299 4,702,998
----------- ----------
Cash Flows From Investing Activities:
Inv in Interest-Bearing Deposits, Net 6,574,981 5,708,833
FHLB Stock <157,900> <111,000>
Purchases of Investment securities-AFS <7,254,219> <5,563,600>
Proceeds from Sales and Mat of
Investments securities - AFS 19,656,272 5,108,157
Purchases of Investment Securities - HTM - -
Proceeds from Sales & Mat of
Investment Securities-HTM 24,473 993,223
Purchases of Mtge Backed Securities-AFS <5,967,146> -
Proceeds from Sales and Mat of Mtge
Backed Sec-AFS 10,751,391 13,568,858
Purch of Mtg. Backed Securities-HTM - -
Proceeds from Sales and Mat of Mtge Backed
Securities-HTM 2,333,074 3,407,533
Net Change in Loans <46,438,531> <67,621,948>
Purchases of Bank Premises and Equipment < 4,106,759> <4,071,555>
---------- ----------
Net Cash Flows From Investing Activities <24,584,364> <48,581,499>
---------- ----------
* All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.
(See Notes to Financial Statements)
7
<PAGE>
HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
9 Months Ended
Dec 31,
1999 1998*
---- -----
Cash Flows From Financing Activities:
Change in Deposits 11,639,002 26,869,988
Borrowings 9,311,849 19,569,575
Common Stock Issued, Net 715,481 460,981
Cash Dividends Paid <2,993,609> <2,471,590>
Treasury Stock purhased - <203,838>
---------- ----------
Net Cash Flows from Financing Activities 18,672,723 44,225,116
---------- ----------
Net change in Cash and Cash Equivalents <1,212,341> 346,615
Cash and Cash Equivalents,
Beginning of Year 10,889,530 9,841,417
Cash and Cash Equivalents,
End of Year 9,677,189 10,188,032
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash Paid During the Period for:
Interest Expense $18,277,048 17,554,370
Income Taxes $ 3,960,000 2,825,000
* All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.
(See Notes to Financial Statements)
8
<PAGE>
HORIZON FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED DEC 31, 1999
(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 December 31, 1999 and 1998 are not
necessarily indicative of the operating results for the full year. The March
31, 1999, consolidated statement of financial condition presented with the
interim financial statements has been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999. For audited financial
results, refer to the consolidated financial statements and footnotes thereto
included in the Bank's annual report for the year ended March 31, 1999.
On October 13, 1995, Horizon Bank, a savings bank, ("Bank") reorganized into
the holding company form of ownership ("Reorganization"), resulting in the
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. The consolidated financial statements for the
three months and nine months ended December 31, 1999, 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.
On June 19, 1999 Bellingham Bancorporation merged into Horizon Financial Corp.
This transaction was accounted for as a pooling of interests. 983,186 shares
were issued as a result of the merger. 262,990 of these shares were reissued
after the retirement of the outstanding treasury shares which occurred just
prior to the merger. As such, all prior year numbers have been restated to
reflect the merger.
NOTE B - Net Income Per Share
- -----------------------------
Basic earnings per share for the three months ended December 31, 1999 and 1998
are calculated on the basis of 8,566,711 and 8,469,413 weighted average shares
outstanding. Diluted earnings per share for
9
<PAGE>
the three months ended December 31, 1999 and 1998 are calculated on the basis
of 8,640,591 and 8,596,475 weighted average share outstanding, respectively.
Diluted EPS figures are computed by determining the number of additional
shares that are deemed outstanding due to stock options under the treasury
stock method.
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. All prior year numbers have been restated to reflect the merger
with Bellingham Bancorporation.
HORIZON FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
- -------
The Corporation was formed under Washington law on May 22, 1995, and became
the holding company of the Bank, effective October 13, 1995. As a bank holding
company, the Corporation has a number of additional options and operating
advantages over the Bank. These include, but are not limited to: expanded
business diversification options; flexibility in acquisitions; and the ability
to repurchase its own stock without incurring the adverse tax consequences of
recapturing portions of the Bank's bad debt reserve. The 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 of 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 checking and savings deposits and to use the funds to make
residential, commercial and consumer loans in the Bank's primary market area.
The Bank's operations are conducted through 16 full-service office facilities,
located in Whatcom, Skagit and Snohomish counties in northwest Washington. The
Bank recently opened an additional office in Whatcom County, located in the
Barkley Village area of Bellingham, in the northeast portion of the city. In
addition to serving the growing population in this area, this new office
(approximately 15,000 square feet) serves as an operation center to support
additional growth for the Corporation. The Bank is also currently building an
office at Murphy's Corner near Mill Creek, which will replace the Bank's
current leased location in that area. During the fiscal year ended March 31,
1999, the Bank relocated its Edmonds office by purchasing the Dayton Place
building at the corner of 5th and Dayton in downtown Edmonds. During the
quarter ended June 30, 1999, the Bank purchased a bank site in Marysville,
which will provide additional growth opportunities. The Bank's management
continues to research sites for future development, with emphasis on locations
in the growing Snohomish County markets.
At its March 19, 1998 meeting, the Board of Directors authorized the
repurchase of up to 10% (approximately 747,000 shares) of the Corporation's
outstanding common stock over the subsequent 24
10
<PAGE>
month period. This repurchase plan was rescinded by the Board of Directors
effective January 18, 1999 with the signing of the definitive agreement to
merge with Bellingham Bancorporation.
In December 1998, the Bank became a member of the Federal Home Loan Bank of
Seattle. One of the significant benefits of membership include the ability to
supplement the Bank's balance sheet with wholesale funds in order to meet
cyclical funding needs and to assist management in its interest rate risk
management efforts.
On January 18, 1999, the Corporation announced a definitive agreement to merge
with Bellingham Bancorporation. The merger of Bellingham Bancorporation into
Horizon Financial Corp. was completed on June 19, 1999 and was accounted for
as a pooling of interests. The historical numbers presented herein for
Horizon Financial Corp. have been restated to include Bellingham
Bancorporation's numbers.
On January 19, 2000, the Corporation announced a stock repurchase plan. The
plan allows the repurchase of up to 10% (approximately 863,000 shares) of the
Corporation's outstanding common stock over the subsequent 24 month period.
Financial Condition
- -------------------
Total consolidated assets for the Corporation as of December 31, 1999, were
$687,805,372, an increase of 2.95% from the March 31, 1999 level of
$668,116,102. This increase in assets was due primarily to the growth in
loans receivable, which increased 6.68% to $569,277,842 at December 31, 1999,
from $533,649,169 at March 31, 1999.
Total liabilities increased 3.11% to $589,442,469 at December 31, 1999, from
$571,675,121 at March 31, 1999. The increase in liabilities was due to the
growth in FHLB borrowings, which increased to $22,000,000 from $7,918,151.
The primary reason for the growth in borrowings was to supplement a slow
period of deposit growth, which increased 2.17% to $549,028,847 at December
31, 1999 from $537,389,845 at March 31, 1999.
Total stockholders' equity showed a small increase to $98,362,903 at December
31, 1999, from $96,440,981 at March 31, 1999.
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 December 31, 1999, the Bank had liquid
assets (cash and marketable securities with maturities of one year or less)
with a book value of $29,724,865.
As of December 31, 1999, the total book value of investments and
mortgage-backed securities was $74,886,785 compared to a market value of
$76,549,661, resulting in an unrealized gain of $1,662,876. On March 31,
1999, the book value of investments and mortgage-backed securities was
$83,582,540 compared to a market value of $88,721,979 resulting in an
unrealized gain of $5,139,439. The primary reason for this difference at
December 31, 1999 compared to March 31, 1999 was the overall higher level of
interest rates, which decreased the valuation of the bank's investment
portfolio.
The Bank's primary sources of funds are cash flow from operations, which
consist mainly of mortgage loan repayments; deposit increases; loan sales;
borrowings; and cash received from the maturity or sale of investment
securities. These funds are primarily used to originate real estate, consumer
and commercial loans.
11
<PAGE>
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) Entering into reverse repurchase agreements; 3) Borrowing from the Federal
Home Loan Bank of Seattle; 4) Accepting additional jumbo and/or public funds
deposits; or 5) Accessing the discount window of the Federal Reserve Bank of
San Francisco.
Stockholders' equity to total assets was 14.30% as of December 31, 1999, 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 and Nine Months Ended
December 31, 1999 and 1998
Net Interest Income
- -------------------
Net interest income for the three months ended December 31, 1999, increased
.56% to $5,964,430 from $5,931,123 in the same time period of the previous
year. Interest on loans for the quarter ended December 31, 1999, increased
2.21% to $11,038,740, from $10,799,891. This increase was due primarily to an
overall growth in loans receivable. Interest and dividends on investments and
mortgage-backed securities increased 3.33% to $1,597,587, from $1,546,166 for
the comparable quarter a year ago due to in part to recognizing FHLB dividends
during the quarter. Total interest income increased 2.35% to $12,636,327 from
$12,346,057. This increase is primarily attributable to an overall increase
in interest earning assets over the prior period.
Total interest paid on deposits decreased slightly to $6,198,868 from
$6,201,982. Interest on borrowings increased to $473,029 during the quarter,
compared to $212,952 for the comparable period one year ago, due to a higher
level of borrowings outstanding. During the quarter, the bank increased it's
wholesale borrowings in order to further leverage its balance sheet and fund
loan receivable growth due to a slow growth in retail deposits.
Net interest income for the nine-month period ended December 31, 1999
increased 4.61% to $17,648,581 from $16,871,441 for the comparable period one
year ago. Total interest income increased 2.96% to $36,946,267 from
$35,884,569, due primarily to the increase in the Bank's earning assets.
Total interest expense for the nine-month period increased slightly to
$19,297,686 from $19,013,128.
Provision for losses on loans
The provision for losses on loans for the three months ended December 31,
1999, decreased 53.38% to $49,884 from $107,000 in the same time period of the
previous year. The provision for losses for the nine months ended December
31, 1999 decreased 73.19% to $129,884 from $484,500 for the same period one
year ago. The provision made during the nine months ended December 31, 1998,
represented 100% of the loan loss provisions for the entire fiscal year. At
December 31, 1999, the loan loss reserve balance was $4,558,639. This
represents .80% of loans receivable, compared to .87% as
12
<PAGE>
of December 31, 1998. The Bank's management considers this to be an adequate
level of reserves at this time.
As of December 31, 1999, the Bank had $666,407 in loans over 90 days
delinquent compared to $422,468 at December 31, 1998. This is due in part to
the changing mix of loans on the Bank's balance sheet, which now includes more
commercial, consumer, VISA and other unsecured loans.
Non Interest Income
- -------------------
Non interest income for the three months ended December 31, 1999, decreased
19.77% to $527,523 from $657,493 for the same time period a year ago. The
primary reason for the decline was due to the change in other income, which
decreased 55.32% to $141,564 from $316,844 at December 31, 1998. One
significant reason for this difference relates to the sale of mortgage
servicing rights. Prior to the merger with Horizon, the Bank of Bellingham's
mortgage division sold its mortgage servicing rights at the time it sold loans
in the secondary market. Horizon, however, retains the servicing rights on
the loans it sells, which defers income into future quarters as servicing fee
income.
Non interest income for the nine months ended December 31, 1999 decreased
23.31% to $1,902,012 from $2,479,971. The net gain/loss on sale of loans
showed a loss of $70,565 during the nine-months ended December 31, 1999,
compared to a loss of $249,661 in the prior period. This decline in losses is
due to an inactive period in loan sales. The net gain/loss on sales of
investment securities decreased 38.58% to $187,255 from $304,866 for the
comparable period one year ago. This difference is due primarily to the sale
of selected common stocks and mortgage backed securities from the Bank's
investment portfolio during the year ended December 31, 1998. Other
non-interest income for the nine-month period decreased 63.04% to $402,272
from $1,088,349, due primarily to the reasons stated in the discussion above
regarding the sale of mortgage loan servicing rights.
Non Interest Expense
- --------------------
Non interest expense for the three months ended December 31, 1999, increased
13.96% to $3,238,501 from $2,841,850. Compensation and employee benefits
increased 19.16% for the quarter ended December 31, 1999, to $1,719,564 from
$1,443,079. This is due is part to expenses related to the Bank's deferred
compensation plan and growth in personnel in the Bank's commercial division.
Building occupancy for the quarter ended December 31, 1999 increased 35.00% to
$546,781 from $405,031. Factors contributing to this increase include: a new
office in Bellingham opened November 1999, a new office in Edmonds, opened in
March 1999; a new office in Bellingham, opened by the Bank of Bellingham in
November 1998; and considerable technology upgrades implemented over the past
year, including the replacement of most of the personal computers at the Bank,
and the installation of a wide area network. Other non-interest expense
decreased 2.17% to $972,156 from $993,740 for the same period one year ago.
Non interest expense for the nine months ended December 31, 1999 increased
19.24% to $9,785,494 from $8,206,866. Compensation and employee benefits
increased 21.42% to $5,033,693 from $4,145,690. Building occupancy expenses
for the nine months increased 36.87% to $1,601,412 from $1,170,030. Other
expenses increased 8.97% to $3,150,389 at December 31, 1999 compared to
$2,891,146 for the prior period due primarily to the reasons stated in the
discussion above regarding the quarterly results.
13
<PAGE>
Forward Looking Statements
In this document, Horizon has included certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
This statement is for the express purpose of availing Horizon to the
protections of the safe harbor provisions of said Act with respect to all
"forward looking statements". Horizon has used "forward looking statements"
to describe future plans and strategies, including expectations of Horizon's
potential future financial results. Management's ability to predict results
or the effect of future plans and strategies is inherently uncertain. Factors
that could effect results include, but are not limited to: the future level of
interest rates, industry trends, general economic conditions, loan delinquency
rates, and changes in state and federal regulations. These factors should be
considered when evaluating the "forward looking statements" and undue reliance
should not be placed on such statements.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Horizon Financial Corporation has certain litigation and/or
negotiations in progress resulting from activities arising from
normal operations. In the opinion of management, none of these
matters is likely to have a materially adverse effect on the
Corporation's financial position or results of operation.
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
15
<PAGE>
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: February 11, 2000
-------------------------
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 9677189
<INT-BEARING-DEPOSITS> 8997382
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66739895
<INVESTMENTS-CARRYING> 9993865
<INVESTMENTS-MARKET> 9949766
<LOANS> 569277842
<ALLOWANCE> 4558639
<TOTAL-ASSETS> 687805372
<DEPOSITS> 549028847
<SHORT-TERM> 32030000
<LIABILITIES-OTHER> 8383622
<LONG-TERM> 0
0
0
<COMMON> 8574893
<OTHER-SE> 89788010
<TOTAL-LIABILITIES-AND-EQUITY> 687805372
<INTEREST-LOAN> 32390196
<INTEREST-INVEST> 4556071
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 36946267
<INTEREST-DEPOSIT> 18173553
<INTEREST-EXPENSE> 19297686
<INTEREST-INCOME-NET> 17648581
<LOAN-LOSSES> 129884
<SECURITIES-GAINS> 187255
<EXPENSE-OTHER> 9785494
<INCOME-PRETAX> 9635215
<INCOME-PRE-EXTRAORDINARY> 9635215
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6429988
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 7.72
<LOANS-NON> 0
<LOANS-PAST> 666407
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4463305
<CHARGE-OFFS> 35070
<RECOVERIES> 521
<ALLOWANCE-CLOSE> 4558639
<ALLOWANCE-DOMESTIC> 1063883
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3494756
</TABLE>
