UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995
OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from Commission
file number 0-10792 ----------
______HORIZON BANCORP_______
(Exact name of registrant as specified in its charter)
__________INDIANA____________ ______35-1562417_______
State or other jurisdiction of (I.R.S.
Employer
incorporation or organization
Identification No.)
515 Franklin St., Michigan City, Indiana _________46360_________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 219-879-0211
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value, 739,810 shares outstanding at March 29, 1996
(Title of class)
Indicate by checkmark 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 by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K X .
The aggregate market value of the registrant's common stock held by
nonaffiliates of the registrant, based on the bid price of such stock on March
29, 1996 was XX,XXX,XXX .
<PAGE>
Documents Incorporated by Reference
-----------------------------------
Part of Form 10-K into which
Document portion of document is incorporated
- -------- -----------------------------------
Portions of the Registrant's 1995 ......................... I, II, VI
annual report to shareholders
Portions of the Registrant's .............................. III
proxy statement to be filed for
its May 16,1996 annual meeting
of shareholders
Except as provided in Part I, Part II and Part III, no part of the Registrant's
1995 annual report to shareholders or proxy statement shall be deemed
incorporated herein by this reference or to be filed with the Securities and
Exchange Commission for any purposes.
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
(a) General Development of Business
Horizon Bancorp, a registered bank holding company organized under the laws
of the State of Indiana on April 26, 1983, (Registrant), became the parent
corporation and sole shareholder of The First Merchants National Bank of
Michigan City pursuant to a plan of reorganization effective October 31,
1983. Prior to October 31, 1983, the Registrant conducted no business and
had only nominal assets necessary to complete the plan of reorganization.
On October 1, 1986 the Registrant issued 399,340 shares of its common stock
in exchange for all of the common stock of Citizens Michiana Financial
Corporation in connection with mergers of such companies and their
subsidiaries. Subsequent to the merger, the Registrant remains a one-bank
holding company with a wholly-owned subsidiary, First Citizens Bank, N.A.
(Bank) and non-bank subsidiaries, HBC Insurance Group (Insurance Company)
and The Loan Store, Inc., (Loan Store).
(b) Financial Information About Industry Segments
The Registrant, Bank and its subsidiaries are engaged in the commercial and
retail banking business, retail lending and insurance credit life sales.
Refer to Item 1(e) and Item 6 for information pertaining to Registrant's
banking business.
(c) Narrative Description of Business
The Registrant's business is that incident to its 100% ownership of Bank,
Loan Store and the Insurance Company. The main source of funds for the
Registrant is dividends from Bank. Bank was chartered as a national bank
association in 1873 and has operated continuously since that time. Bank,
whose deposits are insured by the Federal Deposit Insurance Corporation to
the extent provided by law, is a full-service commercial bank offering a
broad range of commercial and retail banking services, corporate and
individual trust and agency services, and other services incident to
banking. Bank maintains eight facilities located exclusively within LaPorte
County, Indiana and three facilities located in Porter County, Indiana. At
December 31, 1995, Bank had total assets of $363,889,000 and total deposits
of $289,039,000. Aside from the stock of Bank, the Registrant's only other
significant assets are cash totaling approximately $661,000, investment
securities totaling approximately $1,430,000 and taxes receivable of
approximately $552,000 at December 31, 1995.
The business of the Registrant and Bank is not seasonal to any material
degree.
No material part of the Registrant's business is dependent upon a single or
small group of customers, the loss of any one or more of whom would have a
materially adverse effect on the business of the Registrant. Revenues from
loans accounted for 67% in 1995, 66% in 1994, and 66% in 1993 of the total
consolidated revenue. Revenues from investment securities accounted for 20%
in 1995, 20% in 1994 and 21% in 1993 of total consolidated revenue.
The Registrant has no employees and there are approximately 195 full and
part-time persons employed by Bank as of December 31, 1995.
A high degree of competition exists in all major areas where the Registrant
engages in business. Bank's primary market consists of LaPorte County,
Indiana, portions of Porter County, Indiana, and Berrien County, Michigan.
Bank competes with commercial banks located in the home county and
contiguous counties in Indiana and Michigan, as well as with savings and
loan associations, consumer finance companies, and credit unions located
therein. To a more moderate extent, Bank competes with Chicago money center
banks, mortgage banking companies, insurance companies, brokerage houses,
other institutions engaged in money market financial services, and certain
government agencies.
<PAGE>
The Insurance Company offers credit insurance. The Loan Store, Inc. is
engaged in the business of retail lending and operates one facility in
Merrillville, Indiana. The net income generated from the insurance
operation and the finance company are not significant to the overall
operations of the Registrant.
Regulation
The earnings and growth of the banking industry and the Registrant are
affected not only by the general economic conditions, but also by the
credit policies of monetary authorities, particularly the Federal Reserve
System. An important function of the Federal Reserve System is to regulate
the national supply of bank credit in order to contest recessionary trends
and curb inflationary pressures. Among the instruments of monetary policy
used by the Federal Reserve System to implement these objectives are open
market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, and changes in reserve requirements against
member bank deposits. These means are used in varying combinations to
influence overall growth of bank loans, investments and deposits and may
also affect interest rates charged on loans or paid on deposits. The
monetary policies of the Federal Reserve System have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future. Because of changing conditions
in the national and international economy and the money markets, and as a
result of actions by monetary and fiscal authorities, including the Federal
Reserve System, interest rates, credit availability and deposit levels may
change due to circumstances beyond the control of the Registrant or Bank.
The Registrant, as a bank holding company, is subject to regulation
under the Bank Holding Company Act of 1956, as amended (Act), and is
registered with the Board of Governors of the Federal Reserve System (Board
of Governors). Under the Act, the Registrant is required to obtain prior
approval of the Board of Governors before acquiring direct ownership or
control of more than 5% of the voting shares of any bank. With certain
exceptions, the Act precludes the Registrant from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company which is not a bank and from engaging in any business other than
that of banking, managing and controlling banks, or furnishing services to
its subsidiary. The Registrant may engage in, and may own shares of
companies engaged in, certain activities found by the Board of Governors to
be so closely related to banking as to be a proper incident thereto.
The Registrant is required to file annual reports of its operations
with the Board of Governors and such additional information as they may
require pursuant to the Act, and the Registrant and Bank are subject to
examination by the Board of Governors. Further, the Registrant and Bank are
prohibited from engaging in certain tie-in arrangements with respect to any
extension of credit or provision of property or services.
The Board of Governors also possesses the authority through cease and
desist powers to regulate parent holding company and nonbank subsidiaries
where action of a parent holding company or its nonbank subsidiaries
constitutes a serious threat to the safety, soundness or stability of a
subsidiary bank. Federal bank regulatory agencies also have the power to
regulate debt obligations issued by bank holding companies. Included in
these powers is the authority to impose interest ceilings and reserve
requirements on such debt obligations.
The acquisition of banking subsidiaries by bank holding companies is
subject to the jurisdiction of, and requires the prior approval of, the
Federal Reserve and, for institutions resident in Indiana, the Indiana
Department of Financial Institutions. Bank holding companies located in
Indiana are permitted to acquire banking subsidiaries throughout the state,
subject to limitations based upon the percentage of total state deposits of
the holding company's subsidiary banks. Further, Indiana law permits
interstate bank holding company acquisitions on a reciprocal basis, subject
to certain limitations. Beginning July 1, 1992, Indiana law permits the
Registrant to acquire banks, and be acquired by bank holding companies,
located in any state in the country which permits reciprocal entry by
Indiana bank holding companies.
The Registrant and Bank are "affiliates" within the meaning of the
Federal Reserve Act. The Federal Reserve Act and the Federal Deposit
Insurance Act limit the amount of the Bank's loans or extensions of credit
to the Registrant, its investments in the stock or other securities
thereof, and its taking of such stock or securities as collateral for loans
to any borrower.
Bank, as a national bank, is regulated and regularly examined by the
Office of the Comptroller of the Currency (OCC). In addition to certain
statutory limitations on the payment of dividends, approval of the OCC is
required for any dividend to the Registrant by Bank if the total of all
dividends, including any proposed dividend, declared by Bank in any
calendar year exceeds the total of its net profits (as defined by the OCC)
for that year combined with its retained net profits for the preceding two
years, less any required transfers to surplus.
The Federal Reserve Board implemented risk-based capital requirements
for banks and bank holding companies in December, 1988. The risk-based
capital requirements have little effect on the Registrant because existing
capital is in excess of the requirements. (See additional discussion in
Management's Discussion and Analysis in Registrant's Annual Report to
Shareholders, Exhibit 13.)
(d) Financial Information about Foreign and Domestic Operations and
Export Sales
None
(e) Statistical Disclosures
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
Information required by this section of Securities Act Industry Guide 3 is
presented in Management 's Discussion and Analysis Section of the
Corporation's 1995 Annual Report to Shareholders,
II. INVESTMENT PORTFOLIO
(A) The following is a schedule of the book value of investment securities
available for sale and held to maturity at December 31, 1995, 1994 and
1993.
1995 1994 1993
---- ---- ----
AVAILABLE FOR SALE
U.S. Treasury and U.S. Government $ 7,165 $ 18,034 $ 15,671
agencies and corporations
Mortgage-backed securities 62,717 63,704
Other securities 4,281 5,327
Unrealized gain/(loss) 779 (3,923)
--------- --------- ---------
Total investment securities available $ 74,942 $ 83,142 $ 15,671
for sale ========= ========= =========
HELD TO MATURITY
U.S. Treasury and U.S. Government $ 3,164 $ 3,521 $ 23,249
agencies and corporations
Obligations of states and political 9,003 11,954 13,856
subdivisions
Mortgage-backed securities 42,866
Other securities 6,420
Unrealized gain/(loss) 0 0 (138)
--------- --------- ---------
Total investment securities held to 12,167 15,475 86,253
maturity ========= ========= =========
Total investment securities available $ 87,109 $ 98,617 $ 101,924
for sale and held to maturity ========= ========= =========
(B) The following is a schedule of maturities of each category of debt
securities and the related weighted average yield of such securities
as of December 31, 1995:
<TABLE>
<CAPTION>
After one After five years
One year or year through through ten After ten
less five years years years
(Thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- ----------- ------ ----- ------ ----- ------ ----- ------ -----
AVAILABLE FOR SALE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. $ 6,162 5.31% $ 1,004 6.20%
Government agency
securities(1)
Other securities 4,281 6.03%
Mortgage-backed 40,417 6.70% 20,462 7.10% 1,837 6.34%
securities (2)
Total $ 10,443 5.60% $ 41,421 6.69% $ 20,462 7.10% $ 1,837 6.34%
--------- ---- --------- ---- --------- ---- --------- ----
HELD TO MATURITY
U.S. Government agency $ 457 7.76% $ 1,538 7.88% $ 1,169 8.12%
securities
Obligations of states 3,686 3.72% 4,280 4.21% 195 4.51% 842 5.36%
and political
subdivisions
Total $ 3,686 3.72% $ 4,737 4.55% $ 1,733 7.50% $ 2,011 6.97%
--------- ---- --------- ---- --------- ---- --------- ----
Total investment $ 14,129 5.11% $ 46,158 6.47% $ 22,195 7.13% $ 3,848 6.67%
securities available for ========= ==== ========= ==== ========= ==== ========= ====
sale and held to maturity
<FN>
(1) Amortized cost is based on contractual maturity or call date where a call
option exists
(2) Maturity based upon estimated weighted-average life.
</FN>
</TABLE>
<PAGE>
The weighted average interest rates are based on coupon rates for
securities purchased at par value and on effective interest rates considering
amortization or accretion if the securities were purchased at a premium or
discount. Yields are not presented on a tax-equivalent basis.
(C) Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies and corporations of the U.S. Government,
there were no investments in securities of any one issuer which
exceeded 10% of the consolidated stockholders' equity of the
Registrant at December 31, 1995.
III. LOAN PORTFOLIO
(A) Types of Loans - Total loans on the balance sheet are comprised of the
following classifications at December 31 for the years indicated.
Thousands) 1995 1994 1993 1992 1991
- ---------- ---- ---- ---- ---- ----
Commercial, financial, $ 66,125 $ 67,177 $ 64,645 $ 67,074 $ 68,254
agricultural and commercial
tax-exempt loans
Real estate mortgage loans 119,739 105,512 103,693 102,398 76,692
Installment loans 55,798 50,933 52,880 48,896 57,227
------ ------ ------ ------ ------
Total loans $241,662 $223,622 $221,218 $218,368 $202,173
======== ======== ======== ======== ========
B) Maturities and Sensitivities of Loans to Changes in Interest Rates The
following is a schedule of maturities and sensitivities of loans to
changes in interest rates, excluding real estate mortgage and
installment loans, as of December 31, 1995:
One After
One year through five
Maturing or repricing (thousands) or less five years Total
- --------------------------------- ------- ---- ----- -----
Commercial, financial, $33,592 $23,567 $8,966 $66,125
agricultural and commercial
tax-exempt loans
The following is a schedule of fixed-rate and variable-rate commercial,
financial, agricultural and commercial tax-exempt loans due after one year.
(Variable-rate loans are those loans with floating or adjustable interest
rates.)
Fixed Variable
(Thousands) Rate Rate
----------- ---- ----
Total commercial, financial, agricultural, $15,595 $16,938
and commercial tax-exempt loans due after
one year
(C) Risk Elements
1. Nonaccrual, Past Due and Restructured Loans - The following schedule
summarizes nonaccrual, past due and restructured loans.
December 31 (thousands) 1995 1994 1993 1992 1991
----------------------- ---- ---- ---- ---- ----
(a) Loans accounted for on a .....$ 668 $2,794 $1,687 $2,054 $5,233
nonaccrual basis
(b) Accruing loans which are ..... 533 474 481 205 202
contractually past due 90
days or more as to interest
and principal payments
(c) Loans not included in (a)
or (b) which are "Troubled
Debt Restructuring's" as
defined by SFAS No. 15
Totals ..... $1,201 $3,268 $2,168 $2,259 $5,435
====== ====== ====== ====== ======
The decrease in nonaccrual loans in 1995 is primarily due to three loans
which were returned to an accruing basis. These loans had sustained
required payment performance over the last six months or longer. The
increase in nonaccrual loans in 1994 is due primarily to three loans for
approximately $1,500,000, secured by real estate and having common
ownership. These loans were placed on nonaccrual in April and May of 1994.
III. LOAN PORTFOLIO (Continued)
(Thousands)
Gross interest income that would have
been recorded on nonaccrual loans
outstanding as of December 31, 1995 in
the period if the loans had been current,
in accordance with their original terms
and had been outstanding throughout the
period or since origination if held for
part of the period $55
Interest income actually recorded on
nonaccrual loans outstanding as of
December 31, 1995 and included in net
income for the period 0
Interest income not recognized during the
period on nonaccrual loans outstanding as
of December 31, 1995 $55
===
<PAGE>
Discussion of Nonaccrual Policy
From time to time, the Bank obtains information which may lead management
to believe that the collection of interest may be doubtful on a particular
loan. In recognition of such, it is management's policy to convert the loan
from an "earning asset" to a nonaccruing loan. Further, it is management's
policy to place a commercial loan on a nonaccrual status when delinquent in
excess of 90 days, unless the Loan Committee approves otherwise. All loans
placed on nonaccrual status must be reviewed by the officer responsible for
the loan, the senior lending officer and the loan review officer. The loan
review officer monitors the loan portfolio for any potential problem loans.
2. Potential Problem Loans
Loans where there are serious doubts as to the ability of the borrower to
comply with present loan repayment terms, and not included in Section 1
above, amount to $ 344,000 at December 31, 1995. Loan customers included in
this category are having financial difficulties at the present time and may
need adjustments in their repayment terms. Payments are anticipated or
collateral or guarantees are available to reduce any possible loss. These
loans and potential loss exposure have been considered in management's
analysis of the adequacy of the allowance for loan losses. Consideration
was given to loans classified for regulatory purposes as loss, doubtful,
substandard or special mention that have not been disclosed in Section 1
above. Management believes that these loans do not represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity or capital resources, or
management believes that these loans do not represent material credits
about which management is aware of any information which causes management
to have serious doubts as to the ability of such borrowers to comply with
the loan repayment terms.
3. Foreign outstandings
None
4. Loan Concentrations
As of December 31, 1995 there are no significant concentrations of loans
exceeding 10% of total loans other than those disclosed in Item III above.
<PAGE>
III. LOAN PORTFOLIO (Continued)
(D) Other Interest-Bearing Assets
Other than $3,117,000 held as other real estate owned, net of
allowance, there are no other interest-bearing assets as of December
31, 1995 which would be required to be disclosed under Item III C.1 or
2 if such assets were loans.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
(A) The following schedule presents an analysis of the allowance for loan
losses, average loan data and related ratios for the years ended
December 31:
(Thousands) 1995 1994 1993 1992 1991
- ----------- ---- ---- ---- ---- ----
LOANS
Loans outstanding at the .... $241,662 $223,622 $219,139 $215,649 $198,444
end of the period (1)
Average loans outstanding ... $226,200 $218,053 $214,033 $208,615 $205,628
during the period (1)
(1) Net of unearned income
and deferred loan fees
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of the . $ 2,555 $ 2,310 $ 1,997 $ 2,479 $ 2,462
period
Loans charged-off:
Commercial and .............. (45) (213) (1,625) (1,408)
agricultural loans
Real estate mortgage ........ (17)
loans
Installment loans ........... (231) (220) (343) (515) (728)
---- ---- ---- ---- ----
Total loans charged-off ..... (293) (220) (556) (2,140) (2,136)
Recoveries of loans
previously charged-off:
Commercial and .............. 358 143 339 229 240
agricultural loans
Real estate mortgage ........ . 8 1
loans
Installment loans ........... 149 157 254 228 340
--- --- --- --- ---
Total loan recoveries ....... 515 300 593 457 581
Net loans charged-off ....... 222 80 37 (1,683) (1,555)
--- -- -- ------ ------
Provision charged to ........ 165 276 1,201 1,572
operating expense
Balance at the end of the ... $ 2,777 $ 2,555 $ 2,310 $ 1,997 $ 2,479
======= ======= ======= ======= =======
period
Ratio of net charge-offs ..... (0.10)% (0.04)% (0.02)% 0.81% 0.76%
(recoveries) to average
loans outstanding for the
period
<PAGE>
IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
The allowance for loan losses balance and the provision charged to
expense are judgmentally determined by management based upon the periodic
reviews of the loan portfolio. In 1995, nonperforming loans decreased due
primarily to the three loans returned to an accruing basis. In 1994, the
bank experienced an increase in nonperforming loans which was due
principally to the loans to a single borrower. As of December 31, 1994,
the allowance for possible loan losses increased over 1993 both in terms
of amount and percentage of outstanding loans. The provision for possible
loan losses was lower in 1994 than 1993 in part because the bank
experienced net loan recoveries. The provision for loan losses continues
to decrease in 1994, not withstanding the increase in nonperforming loans,
due to the availability of excess reserves within the allowance. The 1993
provision reflects both the decrease in charge-offs and nonperforming
loans. Management also considered the varying charge-off and recovery
levels relative to the installment loan portfolio as well as varying
levels of charge-offs on commercial loans in determining an adequate
allowance for loan losses for the periods presented. See also Note 5 of
the notes to the consolidated financial statements. Estimating the risk of
loss and the amount of loss is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to
cover possible losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific
borrower situations including their financial position and collateral
values and other factors and estimates which are subject to change over
time.
(B) The following schedule is a breakdown of the allowance for loan losses
allocated by type of loan and the percentage of loans in each category to
total loans.
Allocation of the Allowance for Loan Losses at December 31, 1995 (thousands)
1995 1994 1993
---- ---- ----
%of %of %of
Allowance Total Allowance Total Allowance Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
Commercial, $733 27.4% $1,434 29.9 % $1,064 29.2%
financial
and
agricultural
Real estate ... 139 49.5% 111 47.1% 171 46.9%
mortgage
Installment ... 655 23.1% 407 23.0% 514 23.9%
Unallocated. 1,250 603 561
----- --- ---
Total $2,777 100.0% $2,555 100.0% $2,310 100.0%
====== ===== ====== ===== ====== =====
1992 1991
---- ----
%of %of
Allowance Total Allowance Total
Amount Loans Amount Loans
------ ----- ------ -----
Commercial, $1,192 30.7% $1,632 33.8%
financial
and
agricultural
Real estate 185 46.9% 182 37.9%
mortgage
Installment 389 22.4% 469 28.3%
Unallocated 231 196
--- ---
Total $1,997 100.0% $2,479 100.0%
====== ===== ====== =====
While management's periodic analysis of the adequacy of the allowance for
loan losses may allocate portions of allowance for specific problem loan
situations, the entire allowance is available for any loan charge-offs
that occur.
<PAGE>
V. DEPOSITS
Information required by this section is incorporated by reference to the
information appearing under the caption "Summary of Selected Financial
Data" on page of the Registrant's Annual Report to Shareholders, Exhibit
13.
VI. RETURN ON EQUITY AND ASSETS
Information required by this section is incorporated by reference to
the information appearing under the caption "Summary of Selected Financial
Data" on page of the Registrant's Annual Report ---- to Shareholders,
Exhibit 13.
VII. SHORT-TERM BORROWINGS
The following is a schedule of statistical information relative to
securities sold under agreements to repurchase which are secured by U.S.
Treasury and U.S. Government agency securities and mature within one year.
There were no other categories of short-term borrowings for which the
average balance outstanding during the period was 30 percent or more of
shareholders' equity at the end of the period.
(Thousands) 1995 1994 1993
----------- ---- ---- ----
Outstanding at year end ... $ 9,558 $6,693 $5,769
Approximate weighted ...... 5.52% 6.39% 3.06%
average interest rate at year-end
Highest amount outstanding $16,446 $7,980 $9,132
as of any month-end during the year
Approximate average ....... $ 8,196 $6,525 $7,490
outstanding during the year
Approximate weighted average 5.65% 4.11% 2.78%
interest rate during the year
ITEM 2. PROPERTIES
- -------------------
The main office of the Registrant and Bank is located at 515 Franklin
Square, Michigan City, Indiana. The building located adjacent to the main office
of the Registrant and Bank, at 502 Franklin Square, houses the lending,
operations and micro-computer departments of Bank. In addition to these
principal facilities, the Bank has eight branches located at:
1020 N. Karwick Road, Michigan City, Indiana
5477 Johnson Road, Michigan City, Indiana
3600 South Franklin Street, Michigan City, Indiana
353 Main Street, Westville, Indiana
1410 Lincolnway, LaPorte, Indiana
754 Indian Boundary Road, Chesterton, Indiana
3125-5 N. Calumet , Valparaiso, Indiana
6500 U.S. Highway 6, Portage, Indiana
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The information required under this Item is incorporated by reference to
the information appearing under the caption "Note 18 - Commitments, Off-Balance
Sheet Risk and Contingencies" on page of the registrants -- Annual Report to
Shareholders, Exhibit 13.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of the Registrant's stockholders
during the fourth quarter of the 1995 fiscal year.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The information required under this item is incorporated by reference to
the information appearing under the caption "Market for Horizon's Common Stock
and Related Stockholder Matters" on page of the Registrant's Annual Report to
Shareholders, Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information required under this item is incorporated by reference to
the information appearing under the caption "Summary of Selected Financial Data"
on page of the Registrant's Annual Report to Shareholders, ---- Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Management's discussion and analysis of financial condition and results of
operations appears on pages through -# in the 1995 Annual Report to
Shareholders, Exhibit 13 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements and supplementary data required under
this item are incorporated herein by reference to the Annual Report to
Shareholders, pages xx through , Exhibit 13. The Registrant is not required to
furnish the supplementary financial information specified by Item 302 of
Regulation S-K.
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders'Equity
for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to the Consolidated Financial Statements
Report of Independent Public Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
The disclosures required under this item are incorporated by reference to
the Registrant's Forms 8-K, Exhibit 16.
PART III
Information relating to the following items will be included in the
Registrant's definitive proxy statement for the annual meeting of shareholders
to be held May 16, 1996 ("1996 Proxy Statement"). The 1996 Proxy Statement will
be filed with the Commission within one hundred twenty days of the close of the
Registrant's last fiscal year and is in part incorporated into this Form 10-K
Annual Report by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1. Financial Statements
The following consolidated financial statements of the Registrant appear
in the 1995 annual report to shareholders on the pages referenced and are
specifically incorporated by reference under Item 8 of this Form 10-K:
Annual Report
Page Number
-----------
Consolidated Balance Sheets ............................... 1
Consolidated Statements of Income ......................... 2
Consolidated Statements of Changes in Stockholders' Equity 3
Consolidated Statements of Cash Flows ..................... 4
Notes to the Consolidated Financial Statements ............ 8 - 28
Report of Independent Public Accountants .................. 29
(a) 2. Financial Statement Schedules
Financial statement schedules are omitted for the reason that they are
not required or are not applicable, or the required information is
included in the financial statements.
(a) 3. Exhibits
Reference is made to the Exhibit Index which is found on page of this
Form 10-K.
(b) Reports on Form 8-K
The following Forms 8-K were filed during the fourth quarter of 1992:
October 15, 1992 - Change in and disagreements with Registrant's
Certifying Accountant
November 6, 1992 - Amendment to October 15, 1992 Form 8-K
November 17, 1992 - Change in Registrant's Certifying Accountant
December 11, 1992 - Second Amendment to October 15, 1992 Form 8-K
January 17, 1995 - Significant Matters to Shareholders
Exhibits
- --------
(c) Reference is made to the Exhibit Index which is found on page of this
Form 10-K.
(d) Financial Statement Schedules Financial statement schedules are
omitted for the reason that they are not required or are not
applicable, or the required information is included in the financial
statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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____________________
(Registrant)
Date 3/19/96 Larry E. Reed
Chairman & Chief Executive Officer
Date 3/19/96 Thomas P. McCormick
Secretary/Senior Loan Officer
Date 3/19/96 Diana E. Taylor
Chief Financial Officer/Treasurer
Pursuant to the requirements of the Securities Exchange Act of l934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date Signature and Title
3/19/96 Dale W. Alspaugh, Director
3/19/96 Russell L. Arndt, Director
3/19/96 George R. Averitt, Director
3/19/96 James D. Brown, Director
3/19/96 Robert C. Dabagia, Director
Chief Administrative Officer
3/19/96 Myles J. Kerrigan, Director
3/19/96 Robert E. McBride, Director
3/19/96 Boyd W. Phelps, Director
3/19/96 Larry E. Reed, Director
Chairman & Chief Executive Officer
3/19/96 Gene L. Rice, Director
<PAGE>
EXHIBIT INDEX
The following exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBERS
- ------ ----------- ------------
3.1 ARTICLES OF INCORPORATION OF HORIZON BANCORP INCORPORATED BY REFERENCE
12/31/89 FORM 10-K
3.2 BY-LAWS OF HORIZON BANCORP INCORPORATED BY REFERENCE
TO 12/31/91FORM 10-K
10.1 MATERIAL CONTRACTS-AGREEMENT INCORPORATED BY REFERENCE
REGARDING EMPLOYMENT CONTRACTS TO EXHIBIT 10
FORM 8-K DATED 12/13/89
10.2 MATERIAL CONTRACTS-l987 STOCK OPTION AND INCORPORATED BY REFERENCE
STOCK APPRECIATION RIGHTS PLAN OF HORIZON TO 12/31/86 FORM 10-K
BANCORP
10.3 MATERIAL CONTRACTS-NONQUALIFIED STOCK OPTION INCORPORATED BY REFERENCE
AND STOCK APPRECIATION RIGHTS AGREEMENT TO 12/31/86 FORM 10-K
10.4 MATERIAL CONTRACTS-AMENDED NONQUALIFIED INCORPORATED BY REFERENCE
DIRECTORS DEFERRED COMPENSATION PLAN TO 12/31/89 FORM 10-K
10.5 MATERIAL CONTRACTS-AMENDED EMPLOYEE THRIFT INCORPORATED BY REFERENCE
PLAN TO 12/31/88 FORM 10-K
11 STATEMENT REGARDING COMPUTATION OF PER SHARE PAGE OF THE ANNUAL
EARNINGS-REFER TO ANNUAL REPORT REPORT
FOOTNOTE 1 (EXHIBIT 13)
13 REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1995
(NOT DEEMED FILED EXCEPT FOR PORTIONS
THEREOF WHICH ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO THIS FORM 10-K)
16 LETTER REGARDING CHANGE IN CERTIFYING INCORPORATED BY REFERENCE
ACCOUNTANT TO FORMS 8-K DATED
10/15/92, 10/15/92,
11/6/92 AND 11/17/92
22 SUBSIDIARY OF THE REGISTRANT INCORPORATED BY REFERENCE
TO 2/31/87 FORM 10-K
27 FINANCIAL DATA SCHEDULE
HORIZON BANCORP 1995 ANNUAL REPORT
Our goal in 1995 was to continue positioning Horizon Bancorp to produce higher
returns and sustainable earnings growth for our shareholders and
owner-employees. To accomplish this, we placed major emphasis on reexamination
of our branch delivery system, training our owner-employees, reallocating
resources to support profitable growth, and technology. We achieved substantial
success in these endeavors. While 1994 and 1995 were years of strategic
positioning, our challenge in 1996 is continuing execution: to meet or exceed
each of our business plans to achieve better financial performance.
Change is the watchword in the banking industry. We see change in customer
demands for different types of financial services and different ways to access
those services, across all segments of our customer base. We are responding to
change on all levels -- with new, nontraditional products, new ways to deliver
them, and a leaner, more efficient way of doing business that keeps the customer
first. Horizon has undertaken numerous strategies designed to enhance its future
financial and stock price performance. We would like to discuss them with you.
<PAGE>
BRANCH DELIVERY SYSTEM
We have found that more and more of our customers are banking without visiting a
traditional branch office -- we now call them sales offices. Many are banking
electronically through automated teller machines ("ATM"), telephones or their
personal computer. To remain competitive from a cost standpoint, we are reducing
the overhead burden of marginally profitable sales offices and opening new
offices where they're called for by the types of products we want to offer.
We have established a standard for deposit levels in a market that has strong
economic growth -- or a strong and consistent growth pattern in loan
origination's for an existing sales office -- to meet our profit standards. In
the past three years 4 such offices failed to meet these standards and were
closed.
We are expanding into contiguous markets with good growth patterns. In the past
three years we have opened four Bank sales offices in markets where significant
growth opportunities have been identified. Those markets are LaPorte,
Chesterton, Portage and Valparaiso. The latter three, all in Porter County, were
opened in 1994 and 1995. We are pleased with their progress.
Direct installment lending and credit cards continued their growth in 1995.
We have enjoyed three consecutive years of double digit percentage
installment loan growth due to the implementation of two dramatic changes in
strategy: 1) the decision to exit indirect automobile financing, and 2) the
origination of consumer loans at all sales office.
In 1991 the Bank began its exit from indirect automobile lending. Among the
major reasons were: 1) low yield performance, 2) inability to capture the entire
banking relationship at the point of sale, and 3) no opportunity to earn credit
insurance commissions. Although the shift has created over $30 million in
roll-off since that time, from Senior Management's perspective, this was a
market that banks would continue to play an increasingly minor role due to the
obvious ties between the automobile manufacturers and their respective captive
financing arms. The strategic shift in focus from this market to direct loan
origination in Bank sales offices has been successful.
Prior to 1994, consumer credit underwriting was primarily conducted at the
Bank's main office in Michigan City. This was a practice common to many
organizations because of the limited available technology needed for expedited
credit decision making as well as a shortage of seasoned lenders.
After considerable training and technology investments, the sales office staffs
have positively responded to the increased responsibility with strong growth in
loans originated and credit insurance sales. We expect the Consumer Lending
portfolio to continue to be a larger percentage of our total loan portfolio in
1996.
TRAINING
Horizon continues to believe that the investment with the highest possible
future return is in training its owner-employees. The nature of today's banking
profession requires individuals empowered with decision making authority at all
levels. Errors in judgment in the decision making process, caused by inadequate
learning skills or accomplishment, can result in significant financial and
customer acquisition opportunity losses.
In April 1995 a five-week training program -- NEWS (New Employee Workshops
Seminars) -- commenced for all employees. The goal of this program is to convey
Horizon's philosophy on team building, diversity, negotiation and conflict
resolution as well as the regulatory and product information needed to enhance
the decision making process. This program can be compared to Disney University
in its mission.
Commencing in 1994, Horizon enrolled the officer staff in the American
Management Associations 4 week Management Course. This program is conducted in
one week units that can be scheduled over an 18-24 month period and covers such
topics as corporate strategy, marketing finance and self-development. This
program, NEWS and a future in-house sales training program are equipping our
owner-employees with the learning skills required in our industry.
<PAGE>
ALLOCATION OF RESOURCES TO SUPPORT PROFITABLE GROWTH
We have been working on initiatives that will contribute to strengthening
Horizon and making its fundamental earnings power more visible in 1996. During
1995 we confronted the issue of over-staffing and remixing the combination of
sales and sales-support owner-employees to bring more value to Horizon and the
customer.
Senior Management created a staffing model that established and monitors payroll
and personnel counts for every division of Horizon. Beginning in mid-1995 a
significant reduction in staffing was started due to advanced training programs,
changes in technology and redesigning existing processes. Full time equivalents
now stand at 195 versus 245 one year ago, an expected annual compensation
savings of $1.3 million.
Among the key issues facing banking today is the need to embrace the changing
role of financial sales. Banks that continue to believe their survival and
prosperity will continue via traditional "order-taking" methods will not
survive. We are moving to a standard of 60% of our owner-employees directly
devoted to sales by the end of 1996. This a shift from 45% in 1994. We expect to
reach the goal of 70% in 1997.
We are looking at all of our jobs and processes with an eye toward working
smarter and more effectively in providing a high level of quality service to our
customers. We expect dramatic noninterest expense reductions in 1996 compared to
1995 and prior while at the same time increasing earning assets. Vigilance on
costs and staffing levels is essential to our future success.
In 1996 we will be introducing a totally redesigned service package that will
correct an imbalance in profit distribution in our customer base. After
considerable in-house research and modeling, discussion with consultants and
attendance at outside education programs, Senior Management believes that 130%
of Horizon's profit is derived from 20% of its customers. This is an industry
phenomenon that creates an obvious imperative to change the pricing and delivery
of our services. We are creating an outstanding sales force that, absent this
change in service package pricing, would be charged with delivering its wealth
creation and improving quality of life expertise regardless of the customers
present or likely future profitability. New service packages along with our new
data processing system and extensive training will allow implementation of
revised pricing disciplines to correct the imbalances in profit among the
different customer segments.
Allowing customers to make a choice of when and what price they want to pay for
the delivery of routine financial services will require continued expansion of
our present automated teller machine ("ATM") and automated loan machine ("ALM")
networks. As with the new South Franklin facility discussed later in this
report, we will be installing technology centers both within and without
existing sales offices that will facilitate extended hours access to financial
services.
In 1995 Horizon formed a consumer finance company, The Loan Store. This
affiliate's mission is to originate high yield and generally smaller consumer
loans in markets that the Bank cannot readily or profitably enter. The
announcement of the intent to form this entity was made in March 1995, limited
operations began in November 1995, and full operations commenced February 1,
1996. The first location is Merrillville, Indiana. A second Indiana location is
planned for 1996. Thereafter, it is The Loan Store management's plan to open one
store per quarter in the Indiana, Illinois and Michigan region.
In late 1994, Horizon received permission from regulatory authorities to
incorporate a captive credit insurance company -- HBC Insurance Group, Inc.
("HBC") -- is domiciled in Arizona. The benefit of operating HBC is simple:
without a captive company, under Indiana statute, the highest earnings possible
on an individual insurance sale is 35% of the gross premium. With HBC's
formation, the Bank and The Loan Store can exclusively sell HBC's credit
insurance. At loan maturity the balance of the premium net of commissions
already paid flows to directly Horizon's consolidated net income. HBC operating
expenses are approximately 15% of gross premium sold. We have experienced double
digit percent premium growth since its formation.
Presently we plan on creating a trust subsidiary that will develop its own sales
office system. Our Trust Division has now grown to over $347 million in market
value of assets under management. At December 31, 1995 this was nearly as large
as First Citizens Bank in asset size. We believe the creation of a separate
corporate entity will allow for the geographic expansion of trust services in
much the same fashion that the Bank did in Porter County, without being confined
to the restrictions of a commercial banking charter in terms of regulatory
burden and office location limitations. The new entity will have a separately
reported operating income and expense statement that will provide a high level
of accountability on the entity's ability to grow revenues and manage costs,
while at the same time eliminate the distortion associated with consolidating a
large trust department's operating expenses -- but not its assets under
management -- with the Bank. This division has identified markets that are
better suited to investment management and trust services than commercial
banking expansion. As with The Loan Store strategy, this will allow greater ease
of movement into growing markets.
We believe our cramped facility at South Franklin in Michigan City is placing
the Bank at a competitive disadvantage in the continually growing South
Franklin/US Highway 421 corridor. This location has the highest customer counts
of all our sales offices but is among the smallest in physical size. With
construction commencing in March 1996 directly across the street from our
present site, we will be offering investment management and trust services as
well as our complete retail product lineup at a new 13,000 square foot sales
office totally devoted to personal selling. As part of our technology strategy,
this facility is also designed for extended hours access to routine financial
services in a completely automated environment. This self-service technology
center will offer advanced function ATMs, that among other routine features can
cash a check to the penny or provide a printout of a customers most recent
statement; automated loan machines with several enhancements planned for 1996;
an interactive voice response terminal with direct access to customer
information; and a stand-alone personal computer that will offer a host of user
friendly programs such as financial planning programs and Horizon Bancorp
Internet home page access.
<PAGE>
TECHNOLOGY
We have and will continue to invest heavily in technology, not only to expand
alternative delivery systems that customers are demanding, but also to foster
new product development and the marketing of an extensive array of financial
products and services. Furthermore, technology is playing a critical role in our
cost containment programs.
The use of a technologically advanced credit scoring system has allowed the Bank
and The Loan Store to extend its loan decision to the point of sale, thereby
decreasing the decision time from hours to minutes. This provides us with a
tremendous competitive advantage in the marketplace. Coupled with the credit
score card a pricing matrix sets the interest rate based upon the amount
borrowed and credit score. The result -- borrowers with an excellent credit
history pay a lower rate, less credit worthy borrowers are offered a rate
directly related to their statistically valid predicted ability to repay. Since
implementation of this strategy in April 1995, the Bank's total Installment Loan
portfolio's spread to the average national prime rate has increased from 82
basis points to 194 basis points and the actual yield has grown by 79 basis
points.
Our planned Interactive Voice Response System will do more than tell you the
balance in your checking account. We have other value-added features planned
that include calling or faxing a business when its balances exceed or decline
below certain customer defined levels, automated statement generation and
Internet access.
1995 culminated with the completion of two significant technology events. Four
Automated Loan Machines ("ALM") were introduced in November. The entire
transaction on an ALM, everything from borrower education to identification,
validation, underwriting, consummation and even documentation is done on-line in
under 10 minutes. We believe the ALM will revolutionize the financial industry
by supporting a consumer driven retail platform that will eventually be expanded
to support other consumer deposit, loan and alternative financial services.
The installation of an automated collection system now allows our staff to more
efficiently monitor debtor payment performance in an on-line environment. Prior
to installation, collections were monitored on paper copy. Collection staffing
was reduced 50% after implementation. The system is used by the Bank and The
Loan Store.
From 1976 through November 1994, the Bank contracted with a third party remote
service bureau for processing its core product systems, with the exception of
trust. Near the expiration of the Bank's contract an investigation of other
processors was conducted. The search concluded that from expense and product
performance perspectives, the FISERV Comprehensive Banking System best met
present and future needs. After several hundred hours of training and testing,
the system was successfully installed in November 1994. Several long awaited
products have been introduced since this conversion.
Prior to our conversion to the FISERV system the third party remote system had
become a quagmire of quick fix patches as changes became necessary. Our
owner-employees believed that these standards were the way to perform the
required tasks. Even when we attempted to make improvements in our internal
processes, the solutions remained basically the same. With our conversion to a
new system we have begun the process of redesigning manual and partially manual
processes.
To date, a large part of the redesign has involved the streamlining and/or
elimination of steps that brought little or no value to Horizon or most
importantly -- the customer. As we have gained considerable experience with
personal computer network systems we have explored the opportunities and costs
of converting, or eliminating as appropriate, several manual processes. We are
well aware of the pitfalls inherent in this endeavor. We will not allow
ourselves to: 1) remake or fix an old process instead of redesigning it, 2)
determine what the new process should be by over-studying current processes, 3)
take too long and lose momentum and 4) attempt to accomplish everything at once
and overtax our owner-employees as well as our capacity for change.
Our Trust Division also converted from a remote service bureau environment to an
in-house data processing system. Again, as with the FISERV system of the Bank,
this will allow for greater flexibility in product creation and customer
communication. The Trust Division operated under the remote processing agreement
for over 20 years -- a system that met that division's basic needs. With the
revolution in financial services Trust Management decided that at the expiration
of the then current contract they would purchase the Trust-Rite system from The
Northern Trust Company, Chicago. The system was successfully installed in July
1995.
<PAGE>
COMMUNITY
Our strong commitment to the communities we serve will continue and increase. We
strive to make a positive difference in the future of these communities while at
the same time striking a measured balance in our community efforts which
fulfills both social needs and Horizon needs. We understand the values of the
people who live and work in the communities we serve and believe the fortunes of
Horizon are directly related to the fortunes of the communities.
In 1995 the owner-employees devoted thousand of hours to numerous causes. One of
the programs we are extremely proud of is our involvement with the Michigan City
Schools and more particularly Niemann Elementary School. In 1994, we were
approached by Niemann's principal to explore a partnership. Since that time we
have forged an uncommon bond between our organizations that has had a
significant positive impact on the education process at Niemann. We have
provided both financial and human resources. Niemann School is now conducting
education based upon a year round calendar. Its staff has been able to attend
many innovative development programs. But most importantly, the children of
Niemann are experiencing a change in the education process heretofore only
dreamed of. They have participated in significant cultural and educational
events not available to them because of limited resources.
ASSET QUALITY
We will not waiver in our commitment to asset quality. 1995 continued our net
recovery position in loan losses. In an environment of change, this remains the
one constant in our approach to the banking business. Although this issue has
been largely absent from headlines during the strengthening of the economy, it
will reappear when the business cycle turns down again -- as it inevitably will.
Although we were growing the loan portfolios at the same time, we have not had a
monthly provision for loan losses since April 1994. In 1996 and beyond, we will
continue to manage and maximize profitability over the entire business cycle
without taking on undue credit or interest rate risk.
<PAGE>
We are committed to being a high performance independent community bank. This
means having a clear vision and set of priorities that we follow, having a
balanced capacity to assess and take risk, attracting and retaining the best
people in an environment that is fun and rewarding, and being dedicated to
superior performance for customers, shareholders and our fellow owner-employees.
Our goals for 1996 are aggressive, but necessarily so. We will continue to
refine our business mix, reallocate resources to areas with the most attractive
opportunities and rigorously control expenses while maintaining the high quality
customer service that is essential to our success.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
A REPORT TO OUR SHAREHOLDERS, OWNER EMPLOYEES, CUSTOMERS AND COMMUNITY.....
This Report to you, our stakeholders, provides us the opportunity to discuss in
detail several important aspects of Horizon Bancorp (Horizon) and its
subsidiaries, First Citizens Bank, N.A. (Bank), HBC Insurance Group, Inc. and
The Loan Store, Inc. This report covers the financial performance of Horizon,
other operating results and various changes and programs that we expect to
undertake in the months ahead.
Horizon Bancorp is a bank holding company headquartered in Michigan City,
Indiana and its principal business is commercial banking conducted through First
Citizens Bank, a national bank chartered in 1873. In 1984, Horizon Bancorp was
formed as a one bank holding company and in 1985, the employees of Horizon
formed an Employee Stock Ownership Plan which is also considered a bank holding
company under the rules and regulations of the Federal Reserve. In 1994, HBC
Insurance Group, Inc. was chartered as a reinsurance company for the sale of
credit life and accident and health insurance on consumer loans. In 1995, The
Loan Store, Inc. was chartered as a finance company. This subsidiary offers a
wide variety of credit services to consumers.
ANALYSIS OF FINANCIAL CONDITION
- -------------------------------
INVESTMENT SECURITIES
Horizon maintains an overall investment portfolio of high quality with very low
credit risk. Investment securities totaled $87.109 million at December 31, 1995
and consisted of U.S. Treasury and Government Agency securities of $10.345
million (12%); Other securities of $13.160 million (15%); and Mortgage Backed
securities of $63.604 million (73%). Total investment securities decreased 11.7%
from 1994. The decrease was from principal and interest payments received on
mortgage backed securities and from the maturity of investments, primarily
municipal securities. These funds were used primarily to fund loan growth during
1995.
As indicated above, the majority of the investment portfolio consists of
mortgage backed securities. These instruments are secured by residential
mortgages of varying maturities. Principal and interest payments are received
monthly as the underlying mortgages are repaid. These payments also include
prepayments of mortgage balances as borrowers either sell their homes or
refinance their mortgages. Therefore, mortgage backed securities have maturities
that are stated in terms of average life. The average life is the average amount
of time that each principal dollar is expected to be outstanding. As of December
31, 1995, the mortgage backed securities in the investment portfolio had an
average life of 5.06 years and a range of 1.53 years to 10.81 years. Mortgage
backed securities that have interest rates above current market rates are
purchased at a premium. These securities may experience a significant increase
in prepayments when lower market interest rates create an incentive for the
borrower to refinance the underlying mortgage. This may result in a decrease of
current income. That risk is mitigated by a shorter average life. Management
currently believes that this risk is nominal.
Mortgage backed securities are repriced when the underlying mortgages carry
adjustable interest rates, some of which may have caps. Approximately 43% of the
mortgage backed securities that Horizon holds are secured by adjustable rate
mortgages. Adjustments to the interest rates on the underlying mortgages occur
throughout the year and these rate adjustments are passed through to the
mortgage backed security immediately. The average amount and yield of the
securities subject to repricing during each of the quarters of 1996, are as
follows:
(IN THOUSANDS)
Amount Yield
------ -----
First Quarter, 1996 $1,482 6.14%
Second Quarter, 1996 9,845 6.50
Third Quarter, 1996 6,581 6.09
Fourth Quarter, 1996 3,180 5.47
The portion of the investment portfolio that is represented by the securities of
State and Political Subdivisions, preferred stock and other securities is
generally rated by Standard and Poor's and/or Moody's Investors Service. At
December 31, 1995, this portion of the investment portfolio had an original cost
of $13.284 million and of that amount, $8.484 million (64%) were rated AAA;
$2.388 million (18%) were rated AA or A; and $2.412 million (18%) were not
rated. Most of the not rated bonds were issued by local municipalities in our
market area.
Management adopted Statement of Financial Accounting Standards (FAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities" on January 1,
1994. FAS 115 requires that debt securities that Horizon has both the positive
intent and ability to hold to maturity be carried at amortized cost. Debt
securities that Horizon does not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as available for
sale or trading and are carried at fair value. Unrealized gains and losses on
securities classified as available for sale are carried as a separate component
of stockholders' equity. Horizon considers a significant portion of its
investment portfolio available for sale under guidelines set forth in FAS 115.
As a result, Horizon transferred a major portion of its investment portfolio to
available for sale upon implementation of FAS 115. At December 31, 1995, 86.0%
of investment securities were classified as available for sale compared to 84.3%
at December 31, 1994. Under Statement of Financial Accounting Standard (SFAS)
No. 115, securities classified as available for sale are carried at their fair
value, with both unrealized gains and losses added or subtracted, net of tax,
directly to stockholders' equity. This accounting method adds potential
volatility to stockholders' equity, but net income is not affected unless
securities are sold. Net appreciation on these securities totaled $779 thousand,
which resulted in a $466 thousand addition, net of tax, to stockholders' equity
at December 31, 1995. This compared to a $2.327 million, net of tax, reduction
in stockholders' equity at December 31, 1994.
Currently, Horizon does not maintain a trading account and is not using any
derivative products for hedging or other purposes.
<PAGE>
LOANS
Total loans were $241.662 million at December 31, 1995, the principal earning
asset of Bank . The current level of loans is an increase of 8.07% from the
December 31, 1994 level of $223.622 million. As the table below indicates, the
increases are primarily in 1-4 family real estate loans which increased 13.58%
and consumer credit cards and real estate/home improvement loans which increased
29.92% and 20.30%, respectively.
(In thousands) $ %
December 31 1995 1994 Change Change
- ----------- ---- ---- ------ ------
Real estate loans:
1-4 Family .......... $116,249 $102,350 13,899 13.58%
Multifamily ......... 729 632 97 15.35%
Other ............... 2,761 2,530 231 9.13%
----- ----- --- ----
Total ............... 119,739 105,512 14,227 13.48%
Business Loans:
Working Capital and . 51,537 50,209 1,328 2.64%
Equipment
Real Estate, ........ 7,006 9,576 (2,570) -26.84%
including Agriculture
Tax Exempt .......... 5,895 5,585 310 5.55%
Other ............... 1,687 1,807 (120) -6.64%
----- ----- ---- ----
Total ............... 66,125 67,177 (1,052) -1.57%
Consumer Loans:
16,799 17,050 (251) -1.47%
Recreation .......... 1,095 1,054 41 3.89%
Real Estate/ Home ... 13,702 11,390 2,312 20.30%
Improvement
Education ........... 9,854 10,044 (190) -1.89%
Home Equity ......... 3,211 3,157 54 1.71%
Credit Cards ........ 6,018 4,632 1,386 29.92%
Unsecured ........... 1,605 1,477 128 8.67%
Other ............... 3,514 2,129 1,385 65.05%
----- ----- ----- -----
Total ............... 55,798 50,933 4,865 9.55%
Grand Total ......... $241,662 $ 223,622 18,040 8.07%
======== ========= ====== ====
<PAGE>
The acceptance and management of credit risk is an integral part of Bank's
business as a financial intermediary. Bank has established rigorous underwriting
standards including a policy that monitors the lending function through strict
administrative and reporting requirements. Bank maintains an independent loan
review function that regularly attests to asset quality.
The geographic distribution of outstanding loans is reviewed to determine that
Bank is serving the credit needs of our communities and to examine the success
of marketing efforts in our various market segments. On December 31, 1995,
outstanding loans were geographically distributed as follows:
% of (In thousands) % of
Number Total Amount Total
------ ----- ------ -----
Michigan City 6,572 40.64% $85,453 35.36%
City of LaPorte 1,643 10.16% 28,452 11.77%
Other LaPorte County 3,076 19.02% 36,853 15.25%
Porter County 956 5.91% 19,998 8.28%
Other Indiana 2,561 15.84% 43,117 17.84%
Out of State 1,363 8.43% 27,789 11.50%
----- ----- ------ ------
Total 16,171 100.00% $241,662 100.00%
====== ======= ======== =======
COMMUNITY REINVESTMENT
Bank actively promotes home ownership among minority and low-to-moderate income
groups under our Community Reinvestment Act programs. These programs include
special marketing efforts, education programs for prospective home owners and
financial assistance and special loan programs through the Bank's membership in
the Federal Home Loan Bank. Bank is a partner with organizations assisting
minority and low-to -moderate income families, including the Community
Development Corporation which provides direct construction programs and other
forms of housing assistance.
The primary obstacle to home ownership for low-to-moderate income families in
our market has been a poor credit history on the part of the applicant. Special
credit counseling programs are now available for these potential borrowers and
some success has been seen from these efforts, although results do not reflect
large numbers of qualified applicants. Another obstacle today is that the price
of a home results in a mortgage payment that is unaffordable by many prospective
families.
Based upon the results of these loan programs and on the efforts made throughout
the community by Bank employees, the Community Reinvestment Act Performance
Evaluation dated September 30, 1994 resulted in a rating of Outstanding, the
highest rating available.
<PAGE>
REAL ESTATE LOANS
Real estate loans totaled $119.739 million or 50% of total loans as of December
31, 1995, compared to $105.512 million or 47% as of December 31, 1994. This
category consists of home mortgages which generally require a loan to value of
at least 80%. Some special guaranteed or insured real estate loan programs do
permit a higher loan to collateral value ratio. Legally binding commitments to
extend credit on real estate loans totaled $2.996 million and $3.188 million at
December 31, 1995 and 1994, respectively.
In addition to the customary real estate loans described above, Bank also had
outstanding on December 31, 1995, $3.211 million in home equity lines of credit
and $3.157 million at December 31, 1994. Credit lines normally limit the loan to
collateral value to no more than 70%. These loans are classified as consumer
loans in the table above and in Note 4 to the consolidated financial statements.
Residential real estate lending is a highly competitive business. As of December
31, 1995, the real estate loan portfolio reflected a wide range of interest rate
and repayment patterns, but could generally be categorized as follows:
(Dollars in thousands)
|-----------1995-----------| |-----------1994----------|
Percent Percent
of of
Amount Portfolio Yield Amount Portfolio Yield
------ --------- ----- ------ --------- ------
Fixed Rate
Monthly ....... $ 55,602 46.44% 7.92% $ 47,764 45.27% 7.97%
Payment
Bi-Weekly ..... 25,951 21.67% 7.85% 26,241 24.87% 7.88%
Payment
Adjustable Rate
Monthly ....... 37,439 31.27% 7.62% 30,802 29.19% 7.38%
Payment
Bi-Weekly payment 747 0.62% 8.76% 705 0.66% 7.34%
--- ---- ---- --- ---- ----
Total ......... $119,739 100.0% 7.83% $105,512 100.0% 7.80%
======== ===== ==== ======== ===== ====
In addition to the real estate loan portfolio, Bank sold real estate loans which
it services. On December 31, 1995, the portfolio serviced consisted of 326 loans
totaling $16.195 million. The sale of real estate loans was greatly diminished
during 1995, although sales may resume in 1996.
<PAGE>
COMMERCIAL LOANS
Commercial loans totaled $66.125 million or 27% of total loans as of December
31, 1995, compared to $67.177 million or 30% as of December 31, 1994. The
decline was due to several large relationships that were paid down in the first
quarter as well as the ability of business customers to internally finance their
growth. Modest growth in this portfolio is expected in 1996.
Commercial loans consisted of the following types of loans at December 31:
(In thousands)
|----------1995---------||---------1994----------|
Percent Percent
Number Amount of Number Amount of
Portfolio Portfolio
------ ------ --------- ------ ------ ---------
SBA Guaranteed Loans ......... 44 $4,961 7.50% 37 $4,526 6.74%
Municipal Government ......... 28 8,144 12.32% 22 8,354 12.44%
Lines of Credit .............. 108 16,868 25.50% 108 20,651 30.74%
Real Estate and Equipment ....
Term Loans 339 36,152 54.60% 288 33,646 50.08%
--- ------ ----- --- ------ -----
Total ........................ 519 $66,125 100.00% 455 $67,177 100.00%
=== ======= ====== === ======= ======
Small Business loans increased 9.6% in 1995. First Citizens Bank was recognized
by the State of Indiana as the top lender in the state sponsored Capital Access
Program and is a Certified Lender with the Small Business Administration.
CONSUMER LOANS
Consumer loans totaled $55.798 million or 23% of total loans as of December 31,
1995, compared to $50.933 million or 23% as of December 31, 1994. In 1994, Bank
decided to exit indirect automobile lending. The decrease in the indirect
consumer loan portfolio was $4.1 million or 8.0% of the total consumer loan
portfolio. Even with the planned reduction in indirect lending, the total
consumer loan portfolio grew 9.6%. This increase can be attributable to Bank's
strong emphasis on direct lending in the various sales offices.
In mid 1995, Bank purchased a credit scoring system to assist in lending
decisions. A credit scoring system is a computer-based predictive behavior
program that uses information such as employment history, credit reports and
monthly income and expenses to make a recommendation regarding the approval of a
consumer loan. This system has assisted in improving the approval ratio on
consumer installment loans from 66% at the end of 1994 to 80% at the end of
1995.
<PAGE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses represents Bank's estimate of potential credit
losses associated with the loan portfolio, including off-balance-sheet lending
commitments. The identification of loans that may have potential losses is
necessarily subjective. Therefore, a general reserve is maintained to cover all
potential losses within the entire loan portfolio. Bank utilizes a loan grading
system that helps identify, monitor and address asset quality problems, should
they arise, in an adequate and timely manner. Each quarter, Bank reviews various
factors affecting the quality of the loan portfolio. Large credits are reviewed
on an individual basis for loss potential. Other loans are reviewed as a group
based upon previous trends of loss experience. Bank also reviews the current and
anticipated economic conditions of its lending market to determine the effect
they may have on the loss experience of the loan portfolio. The methodology
described above is consistent with the Office of the Comptroller of the
Currency's Banking Circular 201 which gives guidance in determining the adequacy
of the allowance for loan losses.
At December 31, 1995, the allowance for loan losses was 1.15% of total loans
outstanding, compared to 1.14% at December 31, 1994.
NONPERFORMING LOANS
Nonperforming loans are defined as loans that are greater than 90 days
delinquent or have had the accrual of interest discontinued by management.
Management continues to work diligently toward returning nonperforming loans to
an earning asset basis. Nonperforming loans for the previous three years ending
December 31 are as follows:
(In thousands)
1995 1994 1993
---- ---- ----
Nonperforming Loans $ 1,201 $ 3,268 $ 2,168
======= ======= =======
Nonperforming loans were .43 times the allowance for loan losses at December 31,
1995 compared to 1.28 and .94 times the allowance for loan losses on December
1994 and 1993, respectively. The decrease in the nonperforming assets as of
December 31, 1995 is primarily due to three loans which were returned to a
performing status. These loans had sustained required payment performance over
the last six months or longer.
Bank adopted Statement of Financial Accounting Standard (SFAS) No. 114 and 118,
"Accounting by Creditors for Impairment of a Loan" as of January 1, 1995. This
statement addresses how a financial institution classifies impaired loans. A
loan becomes impaired when, based on current information, it is probable that a
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is classified as impaired, the degree
of impairment must be recognized by estimating future cash flows from the
debtor. The present value of these cash flows is computed at a discount rate
based on the interest rate contained in the loan agreement. However, if a
particular loan has a determinable market value, the creditor may use that
value. Also, if the loan is secured and considered collateral dependent, the
creditor may use the fair value of the collateral.
SFAS No. 114 and 118 apply to all loans except large groups of homogeneous loans
that are collectively evaluated. Smaller-balance, homogeneous loans are
evaluated for impairment in total. Such loans include residential first mortgage
loans secured by 1 to 4 family residences, residential construction loans,
automobile, home equity and second mortgage loans. Commercial loans and mortgage
loans secured by other properties are evaluated individually for impairment.
When analysis of borrower operating results and financial condition indicate
that underlying cash flows of a borrower's business are not adequate to meet its
debt service requirements, the loan is evaluated for impairment. Often this is
associated with a delay or shortfall in payments of 30 days or more. Loans are
generally moved to nonaccrual status when 90 days or more past due. These loans
are often considered impaired. Impaired loans or portions thereof, are charged
off when deemed uncollectible.
Other real estate owned (OREO) and the related allowance for OREO losses for the
previous three years ending December 31 is as follows:
(In thousands)
1995 1994 1993
---- ---- ----
Other real estate owned $4,193 $5,730 $7,553
Allowance for OREO losses 1,075 1,801 1,988
----- ----- -----
Net other real estate owned $3,118 $3,929 $5,565
====== ====== ======
During 1995, progress was made through the sale of a portion of these assets
although an additional loss of $353 thousand was realized. At December 31, 1995,
other real estate owned consisted of only 3 properties, one commercial property,
one small residential property and a waterfront property on Trail Creek.
On November 2, 1993, a referendum was passed by the voters of LaPorte County to
allow riverboat casino gambling in Michigan City, Indiana. Several gaming
companies made application to the State Gaming Commission for a casino license
in Michigan City. Horizon owns a waterfront property that is the preferred
property for a gaming operation and may be of interest to a gaming company if a
Michigan City casino license is granted. Gaming companies who made application
for the license contacted Horizon and preliminary discussions concerning the
sale of this property have been held. It is expected that a license for Michigan
City will be considered by the state gaming commission in the first half of
1996. There are no assurances that the license will be granted to Michigan City
or that the property owned by Horizon will be purchased by the licensee for
development of gaming and related facilities.
<PAGE>
DEPOSITS
The primary source of funds for Bank comes from the acceptance of demand and
time deposits. However, at times Bank will use its ability to borrow funds from
the Federal Home Loan Bank when it can do so at interest rates and terms that
are superior to those required for deposited funds. Total deposits were $288.984
million at December 31, 1995 compared to $295.784 million at December 31, 1994
or a 2.3% decline. Below is a table of average deposits and rates by category
for the previous three years ending December 31.
(In Thousands)
Average Balance Average Rate
Outstanding for the Paid for the
Year Ended December 31 Year Ended December 31
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Noninterest-bearing
demand deposits $ 34,186 $ 34,193 $ 31,270
Interest-bearing
demand deposits 51,802 52,529 50,678 1.47% 1.49% 1.78%
Savings deposits 76,127 90,482 94,567 2.25 2.49 2.70
Time deposits 125,690 113,288 123,478 5.42 3.94 4.17
------- ------- ------- ---- ---- ----
Total deposits $287,805 $290,492 $299,993
======== ======== ========
Management believes that the decrease in deposits is the result of the lower
interest rate environment, intense competition from non-financial institutions
offering mutual funds, annuities and other investment alternatives and from
Bank's own or competitive borrowed funds such as FHLB borrowings. Time deposits
did show an increase in the average balance, although the balance of time
deposits at December 31, 1995 was $115.269 million. The decline was from
certificates held by municipalities that matured at the end of 1995. The
majority of these funds were transferred to an interest bearing deposit account
and subsequently transferred out of the Bank as they were distributed by the
municipalities.
Beginning in the second quarter of 1995, management increased interest rates on
certificates of deposits in order to stop the disintermediation of funds. This
accounts for the increased cost of these funds to 5.42% from 3.94% in 1994.
While raising interest rates did increase the yield paid on these deposits, it
did not bring in a large amount of new deposits. Therefore, in the fourth
quarter, certificate of deposit rates were lowered. It should be noted that for
any given deposit type there exists a broad range of interest rates in our
market. On average, Bank attempts to maintain interest rates at or near those
rates being offered by the leading Chicago banks, which is about mid-range at
the local level.
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - RETIREMENT PLAN
In early 1993, the Compensation Committee of the Board initially discussed the
continuation of Horizon's employee retirement benefit program which is
maintained as an Employee Stock Ownership Plan. In August 1993, the Board of
Directors approved the continuation of this plan and authorized the transfer of
172,414 shares of Horizon's stock into the Employee Stock Ownership Plan for
future allocation to employee retirement accounts. This was reported to
shareholders in the 1993 annual report issued in April, 1994. Upon approval by
all the required regulatory agencies, Horizon issued $5,000,006 in stock on
August 26, 1994 at a price of $29 per share, the market value of the stock at
the time the transaction was approved. Under Federal regulation, the Employee
Stock Ownership Plan may pay a value equal to or less than market value for
acquired shares, but not more. Under Statement of Position 93-6 "Employers
Accounting for Employee Stock Ownership Plans" issued by the Accounting
Standards Division of the American Institute of Certified Public Accountants,
these shares are not included in outstanding shares for the purposes of
computing earnings per share and book value per share until they are committed
to be released for allocation to employee retirement accounts.
On December 31, 1995, the employees also owned in the ESOP a total of 122,956
shares which when combined with the additional purchase of 172,414 shares places
a total of 295,370 shares in the ESOP. Dividends paid on 122,956 shares which
have been allocated to employee accounts in prior years are returned to Horizon
in payment for shares not yet allocated and as a result these dividends are
returned to capital and are not recorded as compensation expense. Dividends paid
on unallocated shares as well as any additional contributions made by Horizon to
the ESOP are treated as compensation expense, but are returned to capital as a
payment for unallocated shares. Although the stock being acquired carries an
issue price of $29 per share, the stock must be allocated at its current market
value if that is higher at the date of allocation. In this instance the cost
increase is charged to compensation expense and is also returned to capital. As
a result, the cost of providing a retirement benefit, as well as the reduction
in cash for dividends on allocated shares, are returned to Horizon's capital
accounts. Retirement programs in other companies that are not ESOP companies
result in costs only and no return of capital is realized. Therefore, although
the ESOP results in charges to expense like any retirement plan, the ESOP from a
capital retention standpoint, is of no cost to Horizon. Further, Horizon
receives special tax benefits for ESOP related dividends that are not otherwise
available. Because the costs attributable to the ESOP are returned to capital,
under Horizon's policy, the amount of such ESOP related additions may be added
to net income in computing net income for dividend purposes.
As of December 31, 1995, the ESOP owned 32.37% 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. In addition to those shares
owned by the ESOP, insiders also own other shares which would bring the
ownership of insiders to a level of 35.95%, excluding vested stock options, as
of December 31, 1995.
At December 31, 1995, the ESOP paid $500,000 to Horizon in order to release
17,241 shares which were allocated to participants.
<PAGE>
CAPITAL RESOURCES
- -----------------
The capital resources of Horizon and Bank remain strong and exceed regulatory
capital ratios for "well capitalized" banks at December 31, 1995. Stockholders'
equity totaled $32.371 million ($3.818 million from ESOP) as of December 31,
1995 compared to $27.413 million ($3.052 million from ESOP) as of December 31,
1994. The increase in stockholders' equity during 1995 is the result of the
increase in the market value of investment securities available for sale
accounted for as an addition/reduction of stockholders' equity and net income,
net of dividends paid. At year end 1995, the ratio of stockholders' equity to
assets was 8.80% compared to 7.42% for 1994.
Horizon has selectively purchased shares that became available in the market
from time to time. During 1995, management purchased 21,562 shares at a cost of
$745 thousand compared to 7,041 shares at a cost of $233 thousand and 14,446
shares at a cost of $432 thousand for 1994 and 1993, respectively.
Under risk-based capital guidelines issued by the Federal Reserve Board, Bank is
required to maintain a minimum risk-based capital ratio of 8.0% at December 31,
1995. This ratio may be increased based upon ratings assigned by regulatory
authorities. The components of risk-based capital are tier 1 capital and tier 2
capital. Tier 1 capital is total capital for Bank and tier 2 capital includes
the total allowance for loan losses for risk-based capital purposes. Allowance
for loan losses is tier 2 capital up to a maximum of 1.25% of risk-weighted
assets.
The following table compares Bank's capital ratios at December 31, 1995 with
regulatory guidelines:
(In thousands)
Tier I Tier 2
Risk-based Risk-based
Capital Capital
Capital balances, 12/31/95 $29,102 $31,682
Required regulatory capital 12,378 20,629
Capital in excess of 16,724 11,053
regulatory minimums
Capital ratios, 12/31/95 14.11% 15.36%
Regulatory capital ratios for 6.00% 10.00%
"well capitalized" required
at 12/31/95
Horizon paid dividends in the amount of $1.20 per share in 1995, 1994 and 1993.
The dividend pay-out ratio (dividends as a percent of net income) was 29% during
1995 as compared to 34% and 30% in 1994 and 1993, respectively. The dividend
pay-out ratio is lower in 1995 because net income includes the Federal and State
tax refunds of $1.252 million, including interest. The dividend pay-out ratio
excluding the tax refunds would be 50% in 1995. Horizon intends to target a
dividend pay-out ratio of 35-45% in the future as determined by quarterly
earnings, capital levels and regulatory approvals. Because all of the costs
attributable to the ESOP are returned to capital, the amount of such ESOP
related additions may be added back to net income in computing dividends under
Horizon's policy. For additional information regarding dividend conditions, see
Note 1 of the Notes to the Consolidated Financial Statements.
As of December 31, 1995, management is not aware of any current recommendations
by banking regulatory authorities which, if they were to be implemented, would
have or are reasonably likely to have a material effect on Horizon's liquidity,
capital resources or operations.
TRUST
The assets under management by the Bank's Trust Department exceeded assets of
the Bank during 1995. Assets under management had a book value of $319 million
at December 31, 1995 compared to $295 million at December 31, 1994.
This represents a 8.1% increase over 1994.
The book value and market value of assets held in the Trust Department at
December 31, 1995 by asset type are as follows:
<PAGE>
(In thousands)
Book Value Percentage Market Value Percentage
---------- ---------- ------------ ----------
Cash ......................... $ 1,175 .037% $ 1,175 0.32%
Money Market Funds ........... 53,023 16.60% 50,832 14.13%
Government and Agency Bonds... 80,950 25.34% 82,943 23.05%
Municipal Bonds .............. 46,934 14.69% 48,988 13.61%
Corporate Bonds .............. 37,005 11.58% 38,173 10.61%
Common and Preferred Stock ... 62,821 19.66% 103,367 28.73%
Mutual Funds ................. 20,369 6.38% 21,355 5.93%
Miscellaneous ................ 17,195 5.38% 13,028 3.62%
--------- ------ -------- ----
Total ........................ $ 319,472 100.00 $359,861 100.00%
========= ====== ======== ======
The Trust Department manages a variety of types of investment accounts including
personal trusts, agencies, estates and guardianships, corporate agencies and
employee benefit agencies and trusts. The total book values of each of these
types of accounts at December 31, 1995 are as follows:
(In thousands)
Book Value Percentage
---------- ----------
Agencies $ 108,647 34.01%
Estates and 2,715 0.85%
Guardianships
Personal Trusts 99,658 31.19%
Employee Benefit 92,087 28.83%
Corporate Agency 16,235 5.08%
Other 130 0.04%
----------- -----------
Total $ 319,472 100.00%
=========== ===========
Agencies total 34.01% of the book value of the accounts administered by the
Trust Department at December 31, 1995. In an agency account, the Trust
Department typically holds assets for a client and maintains records of these
assets. The Trust Department may or may not have the responsibility for making
investment decisions on this type of account. Personal trusts consist of 31.19%
of the assets managed by the Trust Department. In a personal trust, the Trust
Department is named trustee for the assets in the trust. There may be an estate
plan included in this type of trust and the investment decisions may be made by
either the Trust Department or the grantor of the personal trust. Employee
benefit agencies and trusts are 28.82% of the assets in the Trust Department.
Responsibilities of the Trust Department for employee benefit accounts normally
consist of maintaining records for each plan participant, complying with
regulations governing retirement plans and may include making investment
decisions.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
NET INCOME
Consolidated net income was $3.039 million or $4.05 per share for 1995 compared
to $2.668 million or $3.48 per share and $3.103 million or $4.02 per share in
1994 and 1993, respectively. Because of the unique qualities of ESOP derived
costs discussed above, these earnings from a capital retention standpoint could
be comparable to a non-ESOP performance of $3.631 million or $4.84 per share for
1995, compared to $2.828 million or $3.68 per share and $3.278 million or $4.24
per share in 1994 and 1993 respectively. In March 1995, Horizon received a
Federal income tax refund of $954 thousand plus interest of $298 thousand. The
total $1.252 million or $1.67 per share is included in 1995 net income.
NET INTEREST INCOME
The primary source of earnings for Horizon is net interest income. Net interest
income is the difference between what Horizon has earned on assets it has
invested and the interest paid on deposits and other funding sources. The net
interest margin is net interest income expressed as a percentage of average
earning assets. Horizon's earning assets consist of loans, investment securities
and interest bearing balances in banks.
<PAGE>
<TABLE>
<CAPTION>
-------------1995------------ --------------1994-------- ------------1993-------------
Average Yield/ Average Yield/ Average Yield/
(In thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------- ------- -------- ---- ------- -------- ---- ------- -------- ----
ASSETS
Interest-earning assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans - total (1) (3) $226,198 $20,228 8.94% $218,053 $18,559 8.51% $214,033 $19,097 8.92%
Taxable investment securities 82,348 5,422 6.58% 86,337 4,906 5.68% 92,496 5,496 5.94%
Nontaxable investment securities( 12,233 519 4.24% 15,483 620 4.00% 11,157 451 4.04%
Interest-bearing balances and 1,044 60 5.75% 1,253 51 4.07% 869 26 2.99%
money market investments (4)
Bankers Acceptances 538 18 3.35%
Federal funds sold 592 33 5.57% 1,306 43 3.29% 1,962 60 3.06%
--- -- ---- ----- -- ---- ----- -- ----
Total interest-earning 322,415 26,262 8.15% 322,970 24,197 7.49% 320,517 25,130 7.84%
======= ====== ==== ======= ====== ==== ======= ====== ====
Noninterest-earning assets
Cash and due from banks 13,310 16,279 14,757
Allowance for loan loss (2,716) (2,540) (2,418)
Other assets 20,303 17,425 19,811
====== ====== ======
Total assets $353,312 $354,134 $352,667
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities
Savings deposits $76,127 1,712 2.25% $90,482 2,253 2.49% $94,567 2,553 2.70%
Interest-bearing demand 51,802 760 1.47% 52,529 781 1.49% 50,678 901 1.78%
Time deposits 125,690 6,811 5.42% 113,288 4,466 3.94% 123,478 5,144 4.17%
Short-term borrowings 15,948 939 5.89% 14,393 659 4.58% 12,898 403 3.12%
Long-term debt 16,726 890 5.32% 20,429 1,198 5.86% 11,081 750 6.77%
------ --- ---- ------ ----- ---- ------ --- ----
Total interest-earning 286,293 11,112 3.88% 291,121 9,357 3.21% 292,702 9,751 3.33%
======= ====== ==== ======= ===== ==== ======= ===== ====
Noninterest-bearing liabilities
Demand deposits 34,186 34,193 31,270
Other liabilities 2,719 449 1,961
Stockholder's equity 30,114 28,371 26,734
------ ------ ------
Total liabilities and s $353,312 $354,134 $352,667
======== ======== ========
Net interest income $15,150 $14,840 $15,379
====== ====== ======
Net interest income as a percent of 4.70% 4.59% 4.80%
interest-earning assets ==== ==== ====
<FN>
(1) Nonaccruing loans for the purpose of the computations above are included in
the daily average loan amounts outstanding. Loan totals are shown net of
unearned income and deferred loan fees.
(2) Yields are not presented on a tax-equivalent basis.
(3) Loan fees and late fees included in interest on loans aggregated
$1,056,404, $956,959 and $1,071,000 in 1995, 1994 and 1993,
respectively.
(4) Horizon has no foreign office and, accordingly, no assets or liabilities
attributable to foreign operations. Horizon's subsidiary bank had no funds
invested in Eurodollar Certificates of Deposit at December 31, 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995-1994 1994 - 1993
Increase/(Decrease) Increase/(Decrease)
(In thousand) Change Change Change Change
Total Due To Due To Total Due To Due To
INTEREST INCOME Change Volume Rate Change Volume Rate
- --------------- ------ ------ ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Loans - total $1,669 $708 $961 $(538) $354 $(892)
Taxable investment 516 (235) 751 (590) (356) (234)
securities
Nontaxable investment (101) (136) 35 169 173 (4)
securities
Interest bearing balances 9 (10) 19 25 14 11
& money market
investments
Bankers Acceptances (18) (9) (9) 0
Federal Funds Sold (10) (31) 21 (17) (21) 4
Total interest income $2,065 $287 $1,778 $(951) $164 $(1,115)
------ ---- ------ ----- ---- -------
INTEREST EXPENSE
Savings deposits $(541) $(336) $(205) $(300) $(107) $(193)
Interest bearing demand (21) (11) (10) (120) 32 (152)
deposits
Time deposits 2,345 530 1,815 (678) (411) (267)
Short-term borrowings 280 77 203 256 51 205
Long-term debt (308) (204) (104) 448 560 (112)
Total interest 1,755 56 1,699 (394) 125 (519)
----- -- ----- ---- --- ----
expense
NET INTEREST EARNINGS $310 $231 $79 $(557) $39 $(596)
==== ==== === ===== === =====
</TABLE>
<PAGE>
Horizon's average earning assets were $322.551 million in 1995 which is
consistent with the previous two years. The net interest margin for 1995 was
4.70% compared to 4.59% and 4.80% in 1994 and 1993, respectively. The increase
in net interest margin from 1994 to 1995 was primarily due to interest rate
increases during late 1994 and early 1995 that allowed Horizon to obtain higher
interest rates on adjustable rate loans and investment securities offset by the
increased rates that were paid on deposits and other funding, especially
certificates of deposits and short term borrowings. In March, 1995, management
increased rates on certificates of deposits, especially those with a maturity of
6 months. While this did result in increasing the total certificates of deposits
outstanding, the increase in volume did not compensate for the increase in
rates. Therefore, interest rates were lowered in the fourth quarter of 1995.
The decrease in the net interest margin from 1993 to 1994 was heavily affected
by the extremely volatile interest rates experienced in 1994. This can be seen
by the change in short term borrowing rates which increased 146 basis points
from 1993 to 1994. Interest rates on both loans and investment securities
decreased during this period as well as savings, demand and time deposit rates.
Interest income was also negatively affected by the roll off of indirect auto
loans as Bank shifted its consumer lending to other product lines which were
developed during this period. Bank also benefited from its efforts to supplement
interest income with fees on loans to cover much of the related origination and
servicing costs. These fees are included in interest income and are
substantially less sensitive to lower interest rates.
NONINTEREST INCOME
The major components of noninterest income consist of service charges on deposit
accounts and trust account fees. Service charges on deposit accounts are based
upon: a) recovery of direct operating expenses associated with providing the
service, b) allowing for a profit margin that provides an adequate return on
assets and stockholders' equity and c) competitive factors within Bank's
markets. Service charges on deposits were $1.441 million, $1.310 million and
$1.288 million for 1995, 1994 and 1993, respectively.
Net security gains were $46 thousand for 1995 compared to $273 thousand and $526
thousand for 1994 and 1993, respectively. Net security gains in 1995, 1994 and
1993 were the result of investment portfolio repositioning that occurred during
these years. Trust fees were $1.769 million in 1995 compared to $1.700 million
and $1.630 million in 1994 and 1993, respectively.
NONINTEREST EXPENSE
Noninterest expense totaled $15.931 million in 1995 compared to $14.609 million
and $14.106 million in 1994 and 1993, respectively. The increase in 1995 was a
result of increased salaries and benefits, data processing and equipment expense
and training costs offset by a decrease in loss on other real estate owned. The
increase in 1994 is the result of increased data processing and equipment
expense offset by a decline in loss on other real estate owned and an increase
in other expense.
Salaries and benefits increased 13.72% during 1995 compared to an increase of
1.98% for 1994 and an increase of 7.58% for 1993. The 1995 increase is primarily
the result of an increase in group health insurance costs, termination benefits,
ESOP expense and stock appreciation rights expense offset by the decrease in
bonus expense. The 1993 increase results from expenses associated with improved
financial performance. Bank has developed a staffing model to monitor
productivity and determine the optimum number of employees per division and is
diligently working towards reaching these levels in early 1996. Full time
equivalent employees totaled 195 at December 31, 1995, compared to 245 at
December 31, 1994.
Data processing and equipment expense increased 4.4% in 1995, increased 27.55%
in 1994 and decreased 13.64% in 1993. The 1994 increase is due to expenses
associated with conversion to an in-house main frame computer system and other
technology related expenses. The 1993 decrease is due to decreases in equipment
maintenance expense and Bank's renegotiation of its data processing contract in
July, 1990.
<PAGE>
Total other expenses increased 9.44%, 11.11% and 7.94% in 1995, 1994 and 1993,
respectively. The primary factors contributing to the 1995 increase in other
expense were: 1) $185 thousand increase in external training expenses associated
with an intense development program for bank owner-employees, 2) a $68 thousand
increase in advertising expenses, 3) a decrease of $333 thousand from the
reduction in Federal Deposit Insurance Corporation (FDIC) rates, 4) $176
thousand expense related to the Insurance Company and 5) a $68 thousand increase
in communication expenses. The primary factors contributing to the 1994 increase
in other expense were: 1) an $86 thousand increase in student loan servicing
expense associated with student loans purchased and serviced by a third party,
2)a $123 thousand increase in external training expenses associated with an
intense development program for bank officers, 3)a $65 thousand increase in
outside services, and 4) a $60 thousand decrease in FDIC insurance expense.
FDIC deposit insurance assessments decreased 49.48% in 1995 compared with a
decrease of 8.19% in 1994 and an increase of 6.75% for 1993. The 1995 decrease
was due to a refund of $171 thousand and the reduction of rates to $.04 per $100
of insured deposits. The 1994 decrease is the result of a reduction of Bank's
assessment rate to $.23 per $100 of insured deposits and lower outstandings. The
1993 increase is the result of an increase in deposits and assessment rate to
$.245 per $100 of insured deposits. During 1993, the FDIC assessed "risk-based"
deposit insurance premiums based upon capital levels and regulatory supervisory
ratings. As a "well capitalized" financial institution, Bank qualified for the
lowest possible assessment in mid-1993 and remains in that category at December
31, 1995. The Bank Insurance Fund (BIF) is now fully funded. Therefore, a
nominal fee will be paid in 1996 for FDIC Insurance.
INCOME TAXES
The income tax provision totaled $167 thousand in 1995 compared to $1.449
million and $1.665 million in 1994 and 1993, respectively. The effective tax
rate was 5.21%, 35.20%, and 34.92% for 1995, 1994, and 1993, respectively.
Horizon received a Federal income tax refund during the first quarter of 1995
totaling $1.252 million including interest of $298 thousand. In 1993, Horizon
filed several amended tax returns to obtain refunds of Federal taxes paid in
prior periods dating back to 1985. Excluding the portion of the tax refund that
was a direct reduction of tax expense in 1995, the effective tax rate would have
been 34.97%.
LIQUIDITY AND RATE SENSITIVITY MANAGEMENT
- -----------------------------------------
Management and the Board of Directors meet regularly to review both the
liquidity and rate sensitivity position of Horizon. Effective asset and
liability management ensures Horizon's ability to monitor the cash flow
requirements of depositors along with the demands of borrowers and to measure
and manage interest rate risk. Horizon utilizes an interest rate risk assessment
model designed to highlight sources of existing interest rate risk and consider
the effect of these risks on strategic planning. Management maintains an
essentially balanced ratio of interest sensitive assets to liabilities in order
to protect against the effects of wide interest rate fluctuations.
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 1995,
cash flows were generated from earnings of $3 million, a $16 million decrease in
investment securities and a $3 million increase in borrowings with FHLB. Cash
flows were used for an $18 million increase in loan demand, a $7 million
decrease in deposits and $3 million reduction in short term borrowings. The net
cash position decreased $6 million, primarily in cash and due from banks and
Federal funds sold.
<PAGE>
INTEREST SENSITIVITY
The degree by which net interest income may fluctuate due to changes in interest
rates is monitored by Horizon using computer simulation modeling, incorporating
not only the current Gap position but the effect of expected repricing of
specific financial assets and liabilities. When repricing opportunities are not
properly aligned, net interest income may be affected when interest rates
change. Forecasting results of the possible outcomes determine the exposure of
interest rate risk inherent in Horizon's balance sheet. The goal is to manage
imbalanced positions that arise when the total amount of assets repricing or
maturing in a given time period differs significantly from liabilities that are
repricing or maturing in the same time period. The theory behind managing the
difference between repricing assets and repricing liabilities is to have more
assets repricing in a rising rate environment and more liabilities repricing in
a declining rate environment. At December 31, 1995, Horizon had a negative Gap
position of 1:.95 This indicates that the total amount of assets repricing
within one year were 95% of the total amount of liabilities repricing within the
same time period. This compares to a positive GAP position of 1.19:1 at December
31, 1994.
<PAGE>
RATE SENSITIVITY
After 3
months After 6
3 and months and Greater
months before before than
(In thousands) or less months 1 year 1 year Total
- -------------- ------- ------ -------- ------ -----
Loans $53,387 $19,549 $37,927 $128,022 $238,885
Money Market Investments 1,079 1,079
Interest bearing balances 106 100 206
with Banks
Investment securities and 9,159 4,222 31,133 42,595 87,109
investment securities
available for sale
Other assets 40,734 40,734
Total assets $63,625 $23,771 $69,166 $211,451 $368,013
======= ======= ======= ======== ========
Non-interest bearing deposit 45,479 45,479
Interest bearing deposits 78,774 23,943 21,238 119,550 243,505
Borrowed funds 25,069 14,900 3,000 42,969
Other liabilities 3,689 3,689
Stockholders equity 32,371 32,371
Total liabilities and $103,843 $23,943 $36,138 $204,089 $368,013
stockholders equity ======== ======= ======= ======== ========
GAP $(40,218) $(172) $33,028 $7,362
Cumulative GAP (40,218) (40,390) (7,362) 0
Included in the gap analysis are certain interest-bearing demand accounts and
savings accounts. These interest-bearing accounts are subject to immediate
withdrawal. However, Horizon considers approximately 70% of these deposits to be
insensitive to gradual changes in interest rates and generally to behave like
deposits with longer maturities based upon historical experience. Accordingly,
Horizon has considered the balances of interest-bearing demand and savings
account deposits which totaled $89.804 million at December 31, 1995 to be
non-rate sensitive.
NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the Financial Accounting
Standards Board that will apply in 1996. Statement of Accounting Standards No.
121, "Accounting for the impairment of long-lived assets," requires a review of
long term assets for impairment of recorded value and resulting write-downs if
value is impaired. Statement of Accounting Standards No. 122, "Accounting for
mortgage servicing rights," requires recognition of an asset when servicing
rights are retained on in-house originated loans that are sold. Statement of
Accounting Standards No. 123, "Accounting for stock-based compensation,"
requires proforma disclosure of the effect on net income of valuing future
option grants at estimated fair value of the option granted. These statements
are not expected to have a material effect on Horizon's financial position or
results of operations.
<PAGE>
CONSOLIDATED BALANCE SHEETS (Thousands)
December 31
ASSETS 1995 1994
---- ----
Cash and cash equivalents (Notes 1 and 17)
Cash and due from banks $ 20,987 $ 23,821
Money market investments 1,079 1,063
Federal funds sold 3,250
------------ ------------
Total cash and cash equivalents 22,066 28,134
Short-term investments - Interest-bearing
balances in banks 206 100
Investment securities available for sale, net
(Notes 1 and 3) 74,942 83,142
Investment securities held to maturity (Notes 1
and 3)(Estimated market value of $12,202 in
1995 and $15,225 in 1994) 12,167 15,475
Total loans (Note 4) 241,662 223,622
Allowance for loan losses (Notes 1 and 5) (2,777) (2,555)
------------ ------------
Net loans 238,885 221,067
Premises and equipment, net (Notes 1 and 7) 11,027 10,445
Accrued interest receivable 2,900 2,807
Other assets 5,820 8,300
------------ ------------
Total assets $ 368,013 $ 369,470
============ ============
LIABILITIES
Deposits (Note 9)
Noninterest-bearing $ 45,479 $ 40,686
Interest-bearing 243,505 255,098
------------ ------------
Total deposits 288,984 295,784
Short-term borrowings (Note 10) 21,569 24,693
Federal Home Loan Bank advances (Note 10) 21,400 18,400
Obligation to employee stock ownership plan
(ESOP)(Note 11) 298
Accrued interest payable 567 466
Other liabilities 3,122 2,416
------------ ------------
Total liabilities 335,642 342,057
------------ ------------
Commitments and contingencies (Notes 8 and 17)
Equity received from contributions and dividends to 3,818 3,052
the ESOP
STOCKHOLDERS' EQUITY (Notes 1 and 11)
Common stock: $1 stated value, 5,000,000 shares
authorized and 1,027,531 shares issued, less ESOP
shares of 295,370 and 295,279 at December 31, 1995
and 1994 732 732
Additional paid-in capital 9,238 9,238
Retained earnings 21,105 18,961
Unrealized gain/loss on securities available
for sale (net of tax) (Note 3) 466 (2,327)
Less treasury stock, at cost 115,307 shares and
93,745 shares at December 31, 1995 and 1994 (2,988) (2,243)
------------ ------------
Total stockholders' equity 28,553 24,361
------------ ------------
Total liabilities and stockholders' equity $ 368,013 $ 369,470
============ ============
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Thousands)
For the years ended December 31
1995 1994 1993
---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 20,228 $ 18,559 $ 19,097
Interest on balances in banks 4 3 3
Interest on Federal funds sold 33 43 60
Interest and dividends on investments:
Taxable 5,478 4,954 5,519
Nontaxable 519 620 451
--------- --------- ---------
Total interest income 26,262 24,179 25,130
--------- --------- ---------
INTEREST EXPENSE
Interest on deposits (Note 9) 9,284 7,499 8,598
Interest on Federal funds purchased and
securities sold under agreements
to repurchase 938 659 403
Interest on Federal Home Loan Bank advances . 890 1,198 750
--------- --------- ---------
Total interest expense 11,112 9,356 9,751
--------- --------- ---------
NET INTEREST INCOME 15,150 14,823 15,379
PROVISION FOR LOAN LOSSES (Note 5) 165 276
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 15,150 14,658 15,103
--------- --------- ---------
NONINTEREST INCOME
Service charges on deposits 1,441 1,310 1,288
Trust department income (Note 1) 1,769 1,700 1,630
Security gains (Note 3) 46 273 526
Gain on sale of other real estate owned 45 490
Other income 686 295 327
--------- --------- ---------
Total noninterest income 3,987 4,068 3,771
--------- --------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits
(Notes 11 and 12) 8,364 7,355 7,212
Occupancy expense of Company premises,
net of rental income 1,017 1,036 1,043
Data processing and equipment expenses 1,720 1,648 1,292
Loss on other real estate owned 353 479 877
Other expenses (Note 13) 4,477 4,091 3,682
--------- --------- ---------
Total noninterest expense 15,931 14,609 14,106
--------- --------- ---------
INCOME BEFORE INCOME TAXES 3,206 4,117 4,768
PROVISION FOR INCOME TAXES 167 1,449 1,665
(Notes 1 and 14)
NET INCOME $ 3,039 $ 2,668 $ 3,103
========= ========= =========
Earnings per common share (Note 1) $ 4.05 $ 3.48 $ 4.02
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Thousands, except per share data)
<TABLE>
<CAPTION>
Unrealized
Gain/loss
Additional Securities Total
Common Paid-In Retained Available Treasury Stockholders'
Stock Capital Earnings for Sale Stock Equity
----- ------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 732 $9,238 $15,032 $ (132) $(1,578) $23,292
Net Income 3,103 3,103
Cash Dividends ($1.20 per (923) (923)
share)
Purchase of 14,446 shares (432) (432)
of treasury stock
Change in unrealized loss on (6) (6)
marketable equity securities
Balance, December 31, 1993 $ 732 $9,238 $17,212 $ (138) $(2,010) $25,034
----- ------ ------- ------- ------- -------
Net Income 2,668 2,668
Cash Dividends ($1.20 per (919) (919)
share)
Purchase of 7,041 shares of (233) (233)
treasury stock
Change in unrealized loss on (2,189) (2,189)
marketable equity securities
Balance, December 31, 1994 $ 732 $9,238 $18,961 $(2,327) $(2,243) $24,361
----- ------ ------- ------- ------- -------
Net Income 3,039 3,039
Cash Dividends ($1.20 per (895) (895)
share)
Purchase of 21,562 shares of (745) (745)
treasury stock
Change in unrealized loss on 2,793 2,793
marketable equity securities
Balance, December 31, 1995 $ 732 $9,238 $21,105 $ 466 $(2,988) $28,553
===== ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands)
For the years ended December 31
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,039 $ 2,668 $ 3,103
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 892 725 605
Net (accretion)/amortization 179 247 620
Additional paid in capital from release
of ESOP shares 172
Provision for loan losses 165 276
Gains on sales of loans (8)
Security gains (46) (273) (526)
Loss on disposal of fixed assets 24 21 32
Gain on sale of other real estate owned (45) (490)
Loss on other real estate owned 353 479 877
Provision for/(Benefit of) deferred taxes 117 (202) (56)
Change in deferred loan fees (26) (56) (39)
Change in unearned income (262) (629) (601)
Change in interest receivable (93) (167) (183)
Change in interest payable 101 54 (99)
Change in other assets 697 1,423 (532)
Change in other liabilities 452 (2,415) 2,648
--- ------ -----
Net cash provided by operating activities 5,554 1,542 6,125
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities
available for sale 15,607 14,895 21,903
Proceeds from maturities, calls and principal
repayments of investment
securities-available for sale 16,923 11,660
Proceeds from maturities, calls and principal
repayments of investment securities-held to
maturity 5,926 8,436 22,978
Purchase of investment securities-available
for sale (19,757) (29,584)
Purchase of investment securities-held
to maturity (2,622) (5,859) (48,051)
Change in short-term investments (106) 8,000
Change in loans (17,138) (6,121) (6,606)
Purchase of loans (1,260) (1,367) (10,459)
Proceeds from sales of loans 353 3,477 13,659
Recoveries on loans previously charged-off 515 301 593
Premises and equipment expenditures (1,667) (1,635) (921)
Proceeds from disposal of premises and
equipment 168 13 23
--- -- --
Net cash provided by (used in) investing (3,058) (5,784) 1,119
------ ------ -----
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits (6,800) (10,351) 4,709
Dividends paid (895) (919) (923)
Change in short-term borrowings (3,124) 18,924 (12,459)
Purchase of treasury stock (745) (233) (432)
Change in Federal Home Loan Bank advance 3,000 (100) 10,000
-------- ---- ------
Net cash provided by (used in) financing
activities (8,564) 7,321 895
-------- ----------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (6,068) 3,079 8,139
-------- ---------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING 28,134 25,055 16,916
OF YEAR -------- ---------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,066 $ 28,134 $ 25,055
======== ========== ========
CASH PAID/(RECEIVED) DURING THE YEAR FOR:
Interest $ 11,011 $ 9,302 $ 9,850
Income taxes $ (202) $ 1,378 $ 2,509
The accompanying notes are an integral part of these balance sheets.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The consolidated financial statements include Horizon
Bancorp (Horizon) and its wholly-owned subsidiaries, First Citizens Bank, N.A.
(Bank), HBC Insurance Group, Inc. (Insurance Company) and The Loan Store, Inc.
Bank is a full-service commercial bank offering a broad range of commercial and
retail banking services, corporate and individual trust and agency services, and
other services incident to banking. Bank maintains six facilities located
exclusively within LaPorte County, Indiana and three facilities located in
Porter County, Indiana. The Insurance Company offers credit insurance. The net
income generated from the insurance operation are not significant to the overall
operations of Horizon. The Loan Store, Inc. is engaged in the business of retail
lending and operates one facility in Merrillville, Indiana. Horizon conducts no
business except that incident to its ownership of the subsidiaries.
BASIS OF REPORTING - The consolidated financial statements include the
accounts of Horizon and subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES - Management must make estimates and assumptions in
preparing financial statements that affect the amounts reported therein and the
disclosures provided. Actual results could differ from these estimates.
INVESTMENT SECURITIES AVAILABLE FOR SALE - Horizon & Bank designate a
portion of their investment portfolio as available for sale based on
management's plans to use such securities for asset and liability management,
liquidity, and not to hold such securities as long-term investments. Management
repositions the portfolio to take advantage of future expected interest rate
trends when Horizon's long-term profitability can be enhanced. Investment
securities available for sale and marketable equity securities, comprised
primarily of Federal Home Loan Bank and Federal Reserve stock, are carried at
estimated fair value and any net unrealized gains/losses (after tax) on these
securities are reflected as a separate component of stockholders' equity.
Gains/losses on the disposition of securities available for sale are recognized
at the time of the transaction and are determined by the specific identification
method.
INVESTMENT SECURITIES HELD TO MATURITY- Investment securities are purchased
with the intent and ability to hold to maturity, and are carried at cost and
adjusted for amortization of premiums and accretion of discounts. Gains/losses
on the disposition of securities held to maturity are recognized at the time of
the transaction and are determined by the specific identification method.
INTEREST AND FEES ON LOANS - Interest on commercial, mortgage and
installment loans is recognized over the term of the loans based on the
principal amount outstanding. When principal or interest is past due 90 days or
more, and the loan is not well secured and it is in the process of collection,
or when serious doubt exists as to the collectability of a loan, the accrual of
interest is discontinued. Loan origination fees, net of direct loan origination
costs, are deferred and recognized over the life of the loan as a yield
adjustment.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CONCENTRATIONS OF CREDIT RISK - Bank grants commercial, real estate and
consumer loans to customers located primarily in LaPorte County and portions of
Porter County in Northwest Indiana. Commercial loans make up approximately 27%
of the loan portfolio and are secured by both real estate and business assets.
These loans are expected to be repaid from cash flow from operations of
businesses. Real estate loans make up approximately 50% of the loan portfolio
and are secured by both commercial and residential real estate. Installment
loans make up approximately 23% of the loan portfolio and are primarily secured
by consumer assets.
ALLOWANCE FOR LOAN LOSSES - An allowance for loan losses is established and
maintained because some loans may not be repaid in full. Increases to the
allowance are recorded by a provision for loan losses charged to expense.
Estimating the risk of loss and the amount of loss on any loan is necessarily
subjective. Accordingly, the allowance is maintained by management at a level
considered adequate to cover losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations, including their financial position and collateral values,
and other factors and estimates which are subject to change over time. Actual
losses may vary from current estimates and the amount of the provision may be
either greater than or less than actual net charge-offs. While the largest
portion of this reserve is intended to cover loan losses, it is considered a
general reserve for all credit-related purposes.
LOAN IMPAIRMENT - When analysis determines borrower operating results and
financial condition are not adequate to meet its debt service requirements, the
loan is evaluated for impairment. Often this is associated with a delay or
shortfall in payments of 30 days or more. Loans are generally moved to
non-accrual status when 90 days or more past due. These loans are also often
considered impaired. Impaired loans, or portions thereof are charged-off when
deemed uncollectible. This typically occurs when the loan is 120 or more days
past due.
Loans are considered impaired if full principal or interest payments are
not made in accordance with the original terms of the loan. Impaired loans are
measured and carried at the lower of cost or the present value of expected
future cash flows discounted at the loan's effective interest rate, at the
loan's observable market price, or at the fair value of the collateral if the
loan is collateral dependent. Smaller balance homogenous loans are evaluated for
impairment in aggregate. Such loans include residential first mortgage loans
secured by 1- 4 family residences, residential construction loans and
automobile, home equity and second mortgages. Commercial loans and mortgage
loans secured by other properties are evaluated individually for impairment.
PREMISES AND EQUIPMENT - Buildings and major improvements are capitalized
and depreciated using primarily the straight-line method with useful lives
ranging from 3 to 40 years. Furniture and equipment are capitalized and
depreciated using primarily the straight-line method with useful lives ranging
from 3 to 20 years. Maintenance and repairs are expensed as incurred.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
OTHER REAL ESTATE OWNED - Other real estate owned is carried at the lower
of cost or fair value, less selling costs, and is included in other assets. Any
reduction to fair value from the carrying value of the related loans at the time
of acquisition is charged to the allowance for loan losses. Subsequent
reductions in fair value, and gains or losses on sales, are recognized in
earnings in the period the reduction in value is determined or the sale is
consummated. Other real estate owned, net of allowance, included in other
assets, totaled $3,117,000 and $3,929,000 at December 31, 1995 and 1994,
respectively. (See Note 6)
INCOME TAXES - Horizon files annual consolidated income tax returns.
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes " requires an asset and liability approach for accounting for
income taxes. Its objective is to recognize the amount of taxes payable or
refundable for the current year, and deferred tax assets and liabilities for
future tax consequences attributable to differences between the financial
statement carrying amount of assets and liabilities and their respective tax
bases. The measurement of tax assets and liabilities is based on enacted tax
laws. Deferred tax assets may be reduced, if necessary, by the amount of such
benefits that are not expected to be realized based on available evidence.
TRUST ASSETS AND INCOME - Property, other than cash deposits, held in a
fiduciary or agency capacity is not included in the consolidated balance sheets
since such property is not owned by Horizon. Income from trust activities is
recognized on a cash basis, which is not materially different from the accrual
method.
EARNINGS PER COMMON SHARE AND DIVIDENDS DECLARED PER COMMON SHARE -
Earnings per common share have been computed based on the weighted average
number of shares outstanding during the periods presented. The number of shares
used in the computation of earnings per share is 750,286 for 1995, 767,419 for
1994 and 772,525 for 1993.
Regulations of the Office of the Comptroller of the Currency (OCC) limit
the amount of dividends that may be paid by a national bank to its parent
holding company without prior approval of the OCC. According to these
regulations, as of December 31, 1995, approximately $4,357,000 of additional
dividends may be paid by Bank to Horizon without prior approval of the
Comptroller of the Currency. Additionally, the Federal Reserve Board limits the
amount of dividends that may be paid by Horizon to its stockholders under its
capital adequacy guidelines.
CONSOLIDATED STATEMENT OF CASH FLOWS - For purposes of reporting cash
flows, cash and cash equivalents is defined to include cash and due from banks,
money market investments and Federal funds sold with maturities of 1 day or
less. Horizon reports net cash flows for customer loan transactions, deposit
transactions, short-term investments and short-term borrowings.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1994
and 1993 financial statements to be comparable to 1995.
<PAGE>
NOTE 2 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts were determined using available market
information, current pricing information applicable to Horizon and various
valuation methodologies. Where market quotations were not available,
considerable management judgment was involved in the determination of estimated
fair values. Therefore, the estimated fair value of financial instruments shown
below may not be representative of the amounts at which they could be exchanged
in a current or future transaction. Due to the inherent uncertainties of
expected cash flows of financial instruments, the use of alternate valuation
assumptions and methods could have a significant effect on the derived estimated
fair value amounts.
The estimated fair values of financial instruments, as shown below, are not
intended to reflect the estimated liquidation or market value of the Corporation
taken as a whole. The disclosed fair value estimates are limited to Horizon's
significant financial instruments at December 31, 1995 and 1994. These include
financial instruments recognized as assets and liabilities on the consolidated
balance sheet as well as certain off-balance sheet financial instruments. The
estimated fair values shown below do not include any valuation of assets and
liabilities which are not financial instruments as defined by SFAS No. 107
"Disclosures about Fair Value of Financial Instruments", such as the value of
real property, the value of core deposit intangibles, the value of mortgage
servicing rights, nor the value of anticipated future business.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The carrying amounts
approximate fair value.
INVESTMENT SECURITIES - For debt and marketable equity securities available
for sale and held to maturity , fair values are based on quoted market prices or
dealer quotes. For those securities where a quoted market price is not
available, carrying amount is a reasonable estimate of fair value based upon
comparison with similar securities.
NET LOANS - The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
INTEREST RECEIVABLE/PAYABLE - The carrying amounts approximate fair value.
DEPOSITS - The fair value of demand deposits, savings accounts,
interest-bearing checking accounts, and money market deposits is the amount
payable on demand at the reporting date. The fair value of fixed maturity
certificates of deposit is estimated by discounting the future cash flows using
the rates currently offered for deposits of similar remaining maturity.
<PAGE>
NOTE 2 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
SHORT-TERM BORROWINGS AND OBLIGATION TO ESOP - The carrying amounts
approximate fair value.
FEDERAL HOME LOAN BANK ADVANCES - Rates currently available to the Bank for
debt with similar terms and remaining maturities are used to estimate fair value
of existing advances.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The fair value
of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the counterparties at
the reporting date. Due to the short-term nature of these agreements, the fair
market value is not material. (See Note 17)
The estimated fair values of Horizon's financial instruments at December 31,
1995 and 1994 are as follows:
(Thousands)
1995 1995 1994 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial Assets:
Cash and cash equivalents $ 22,066 $ 22,066 $ 28,134 $ 28,134
Short-term investments 206 206 100 98
Investment securities 87,109 87,144 98,617 97,082
Net loans 238,885 240,440 221,067 216,020
Interest receivable 2,900 2,900 2,807 2,807
Financial Liabilities:
Deposits:
Noninterest-bearing $ 45,479 $ 45,479 $ 40,686 $ 40,686
Interest-bearing 243,505 244,372 255,098 252,603
--------- --------- --------- ---------
Total deposits 288,984 289,851 295,784 293,289
Short-term borrowings and
obligation to ESOP 21,569 21,569 24,693 24,693
Federal Home Loan Bank advances 21,400 21,428 18,400 17,803
Interest payable 567 567 466 466
<PAGE>
NOTE 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES HELD
TO MATURITY
The amortized cost and estimated fair value of investment securities
available for sale and held to maturity are as follows:
(Thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
AVAILABLE FOR SALE AT DECEMBER 31 1995:
U.S. Treasury and U.S. Government
agency securities $ 7,165 $ 16 $ $ 7,181
Other securities 1,046 (8) 1,038
------- ------- ------ -------
Subtotal 8,211 16 (8) 8,219
GNMA 9,061 154 (8) 9,207
FHLMC 21,165 395 (9) 21,551
FNMA 32,491 374 (19) 32,846
-------- ------- ------ --------
Total mortgage-backed securities 62,717 923 (36) 63,604
Total debt securities 70,928 939 (44) 71,823
Equity securities 3,235 (116) 3,119
-------- ------- ------ --------
Total investment securities
available for sale $ 74,163 $ 939 $ (160) $ 74,942
======== ======= ====== ========
HELD TO MATURITY AT DECEMBER 31, 1995:
U.S. Government agency securities 3,164 2 3,166
Obligations of states and
political subdivisions 9,003 55 (22) 9,036
-------- ------ ------- --------
Total debt securities held
to maturity $ 12,167 $ 57 $ (22) $ 12,202
======== ====== ======= ========
AVAILABLE FOR SALE AT DECEMBER 31, 1994:
U.S. Treasury and U.S. Government
agency securities $ 18,034 $ $ (289) $ 17,745
Other securities 2,078 (92) 1,986
-------- ------ -------
Subtotal 20,112 (381) 19,731
GNMA 10,000 (724) 9,276
FHLMC 28,067 (1,471) 26,596
FNMA 25,637 (1,180) 24,457
-------- ------- -------
Total mortgage-backed securities 63,704 (3,375) 60,329
Total debt securities 83,816 (3,756) 80,060
Equity securities 3,249 (167) 3,082
-------- ------- ------- -------
Total investment securities
available for sale $ 87,065 $ $ (3,923) $ 83,142
======== ======= ======= ========
HELD TO MATURITY AT DECEMBER 31, 1994:
U.S. Government agency securities 3,521 3,521
Obligations of states and
political subdivisions 11,954 3 (253) 11,704
------ ------- ---- --------
Total debt securities held
to maturity $ 15,475 $ 3 (253 $ 15,225
======== ======= ==== ========
<PAGE>
NOTE 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES HELD
TO MATURITY (Continued)
The amortized cost and estimated fair value of debt securities at December 31,
1995, 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
---- -----
AVAILABLE FOR SALE:
Due in one year or less $ 4,013 $ 4,015
Due after one year through five years 4,198 4,204
------- -------
Subtotal 8,211 8,219
Mortgage-backed securities 62,717 63,604
------- -------
Total debt securities available for sale $70,928 $71,823
======= =======
HELD TO MATURITY:
Due in one year or less $ 3,686 $ 3,685
Due after one year through five years 4,737 4,749
Due after five years through ten years 1,733 1,728
Due after ten years 2,011 2,040
------- -------
Total debt securities held to maturity $12,167 $12,202
======= =======
Gross gains and losses realized on sales of investment securities
available for sale were $62,000 and $16,000 for 1995. Gross gains and losses
realized on sales of investment securities available for sale were $273,000 and
$0 for 1994 and $526,000 and $0 for 1993.
At December 31, 1995 and 1994, there were no holdings of securities of any
one issuer, other than the U.S. Government and its agencies and corporations, in
an amount greater than 10% of stockholders' equity.
Investment securities and investment securities available for sale with an
amortized cost of $45,485,000 and $44,697,000 as of December 31, 1995 and 1994,
respectively, were pledged to secure public and trust deposits, securities sold
under agreements to repurchase and Federal Home Loan Bank advances.
<PAGE>
NOTE 4 - LOANS
Loans as presented in the consolidated balance sheets are comprised of the
following classifications:
(Thousands)
December 31
1995 1994
---- ----
Commercial loans 66,125 $67,177
Real estate mortgages 119,739 105,512
Installment loans 55,798 50,933
--------- ---------
Total loans $ 241,662 $ 223,622
========= =========
Loans to directors and executive officers of Horizon and Bank, including
associates of such persons, amounted to $4,737,000 and $4,674,000, as of
December 31, 1995 and 1994, respectively. During 1995 new loans or advances were
$1,041,000 and loan payments were $978,000.
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the activity in the allowance for loan
losses account:
(Thousands)
1995 1994 1993
---- ---- ----
Balance at beginning of year $ 2,555 $ 2,310 $ 1,997
Provision charged to expense 165 276
Recoveries credited to the allowance 515 301 593
Losses charged to the allowance (293) (221) (556)
------- ------- -------
Balance at end of year $ 2,777 $ 2,555 $ 2,310
======= ======= =======
At December 31, 1995 and 1994, loans past due more than 90 days and
still accruing interest approximated $533,000 and $474,000, respectively.
Loans on which the recognition of interest has been discontinued or reduced
totaled $668,000, $2,794,000 and $1,687,000 at December 31, 1995, 1994 and 1993,
respectively. Interest income not recognized on these loans totaled
approximately $55,000, $264,000, and $133,000 in 1995, 1994 and 1993,
respectively.
Horizon adopted SFAS No.'s 114 and 118, "Accounting by Creditors for
Impairment of a Loan," effective January 1, 1995. These statements provide
guidance as to when loans should be classified and reported as impaired and
address how the allowance for loan losses related to these loans should be
determined. Any shortfall in the estimated value of an impaired loan compared
with recorded investment of a loan, is identified as an allocated portion of the
allowance for loan losses and is one of the factors considered by management in
their overall assessment of allowance adequacy. The impact of adopting this
statement was not significant to the financial condition of Horizon or Bank.
<PAGE>
NOTE 6 - ALLOWANCE FOR OTHER REAL ESTATE OWNED
The following is an analysis of the activity in the allowance for other real
estate owned included in other assets:
(Thousands)
-----------
1995 1994 1993
Balance at beginning of year $ 1,801 $ 1,988 $ 2,037
Loss on Other Real Estate Owned
charged to expense 48 59 650
Losses charged to the allowance (774) (246) (699)
------- ------- -------
Balance end of year $ 1,075 $ 1,801 $ 1,988
======= ======= =======
NOTE 7 - PREMISES AND EQUIPMENT-NET
Premises and equipment are stated at cost, less accumulated depreciation and
consist of the following:
(Thousands)
December 31
1995 1994
---- ----
Land $ 2,014 $ 1,917
Buildings and improvements 10,328 10,180
Furniture and equipment 5,187 5,157
-------- --------
Total 17,529 17,254
Accumulated depreciation (6,502) (6,809)
-------- --------
Premises and equipment, net $ 11,027 $ 10,445
======== ========
Depreciation expense for the years ended December 31, 1995, 1994 and 1993
totaled $892,000, $725,000 and $605,000, respectively.
NOTE 8 - LEASES
Bank has leases for premises and equipment which expire at various dates
through 1999. Many have renewal options. Bank pays taxes, insurance and
maintenance costs on the leases. Rental expense related to these leases for the
years ended December 31, 1995, 1994 and 1993 amounted to $197,000, $100,000 and
$62,000, respectively.
The future minimum commitments as of December 31, 1995, for all
noncancelable operating leases, follows:
Year Ending (Thousands)
December 31 Rental Commitments
----------- ------------------
1996 $ 236
1997 183
1998 154
1999 112
------
Total $ 685
======
<PAGE>
NOTE 9 - DEPOSITS
The components of the deposit categories are as follows:
(Thousands)
December 31
1995 1994
---- ----
DEMAND
Noninterest-bearing $ 45,479 $ 40,686
Interest-bearing (NOW) 54,949 67,385
-------- --------
Total demand deposits 100,428 108,071
SAVINGS
Fixed rate 60,516 66,761
Money market (variable rate) 12,824 16,424
-------- --------
Total savings deposits 73,340 83,185
TIME
Certificates of deposit of $100,000
or more 17,730 11,562
Other time deposits 97,486 92,966
-------- --------
Total time deposits 115,216 104,528
Total deposits $288,984 $295,784
======== ========
Interest expense on time certificates of $100,000 or more was approximately
$1,713,000 , $863,000 and $857,000 for 1995, 1994 and 1993, respectively.
Certificates of deposit of $100,000 or more by remaining maturity:
(Thousands)
December 31
1995 1994
Due in three months or less $11,240 $ 3,671
Due after three months through six months 2,473 3,995
Due after six months through one year 2,219 1,678
Due after one year 1,798 2,218
----- -----
Total certificates of deposit of $100,000 or more $17,730 $11,562
======= =======
NOTE 10 - BORROWED FUNDS
Included in short-term borrowings were $9,558,000 and $6,693,000 of
securities sold under agreements to repurchase and $11,900,000 and $18,000,000
of Federal Funds purchased, at December 31, 1995 and 1994 respectively. These
short-term borrowings mature within one year and are secured by U.S. Government
securities. In addition to these borrowings, at December 31, 1995 Bank has
available approximately $30,500,000 in credit lines with various money center
banks.
Federal Home Loan Bank Advances at December 31, 1995 by contractual maturity are
as follows:
(Thousands)
FHLB Advance, 6.65%, Due August 1, 1996 $2,000
FHLB Advance, 4.57%, Due October 7, 1996 7,000
FHLB Advance, 4.87%, Due November 18, 1996 1,900
FHLB Advance, 5.51%, Due December 16, 1996 3,000
FHLB Advance, 7.04%, Due July 28, 1997 1,500
FHLB Advance, 5.54%, Due December 1, 1997 3,000
FHLB Advance, 5.31%, Due October 1, 1998 3,000
-----
$21,400
=======
Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB),
advances are secured by all stock in the FHLB and specific mortgage-backed
securities.
<PAGE>
NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN - RETIREMENT PLAN
Horizon maintains an employee stock ownership plan (ESOP) as a retirement
plan that currently covers substantially all employees. The ESOP is
noncontributory and each eligible employee is vested according to a schedule
based upon years of service.
The ESOP borrowed $3,400,000 in 1985 for the purpose of purchasing 137,259
shares of Horizon common stock at $26.85 per share from former Board members and
their families. Under terms of the loan agreement, unallocated shares held with
the Bank, as ESOP trustee, were pledged as collateral. Horizon also guaranteed
the loan, and was obligated to contribute sufficient cash to the ESOP to repay
the loan principal and interest. As additional collateral, Horizon pledged 51%
of the issued and outstanding stock of Bank. The first payment on the loan was
made in October 1985, and the last scheduled payment was paid in 1995.
In early 1993, the Compensation Committee of the Board initially discussed
the continuation of Horizon's employee retirement benefit program which is
maintained as an Employee Stock Ownership Plan. In August 1993, the Board of
Directors approved the continuation of this plan and authorized the transfer of
172,414 shares of the Company's stock into the Employee Stock Ownership Plan for
future allocation to employee retirement accounts. Upon approval by all the
required regulatory agencies, Horizon issued $5,000,006 in stock on August 26,
1994 at a price of $29 per share, the market value of the stock at the time the
transaction was approved. Under Federal regulation, the Employee Stock Ownership
Trust may pay a value equal to or less than market value for acquired shares,
but not more. Under Statement of Position (SOP) 93-6 "Employers Accounting for
Employees Stock Ownership Plans" issued by the Accounting Standards Division of
the American Institute of Certified Public Accountants, these shares are not
included in outstanding shares for the purposes of computing earnings per share
and book value per share until they are committed-to-be-released for allocation
to employee retirement accounts.
The provisions of SOP 93-6 were adopted in conjunction with the continuation
of the ESOP and affected ESOP expense beginning January 1, 1995. Below are the
transactions affecting ESOP expense and cash contributions to the ESOP in 1995,
1994 and 1993:
(in thousands)
1995 1994 1993
---- ---- ----
Dividends paid on unallocated ESOP $207 -- --
shares
Market value increase of 17,241 shares 172 -- --
released
Other contributions 213 158 175
--- --- ---
Total ESOP expense included in $592 $158 $175
salaries and benefits ==== ==== ====
Total cash contributions made to ESOP $207 $298 $226
during the year ==== ==== ====
Below are the transactions affecting the ESOP equity accounts for 1995:
<TABLE>
<CAPTION>
(In thousands)
Additional Unallocated
Common Paid-in ESOP Obligation
Stock Capital Shares to ESOP Total
----- ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 295 $ 8,055 $(5,000) $(298) $3,052
----- ------- ------- ----- ------
Final ESOP obligation payment 298 298
(1985 plan)
Dividends on allocated ESOP shares 147 147
Dividends on unallocated ESOP 207 207
shares
Market value increase in ESOP 172 172
shares released
Additional contributions 146 146
Tax benefit of ESOP dividend 50 50
deduction
Loan to fund ESOP share (254) (254)
repurchases
Balance, December 31, 1995 $ 295 $ 8,277 $(4,754) $ 0 $3,818
===== ======= ======= ===== ======
</TABLE>
<PAGE>
NOTE 12 - EMPLOYEE BENEFIT PLAN
The Employee Thrift Plan (Plan) provides that all employees of Bank with the
requisite hours of service are eligible for the Plan. Bank fully matches the
first 2% and 50% of the subsequent 4% of individual employee contributions.
Employee voluntary contributions are vested at all times and Bank contributions
are fully vested after six years. Bank's 1995, 1994 and 1993 expense related to
the thrift plan totaled $172,000, $124,000 and $157,000, respectively, while
contributions were $172,000, $160,000 and $143,000, respectively.
NOTE 13 - OTHER EXPENSES
The following is an analysis of other expenses:
(Thousands)
Years Ended December 31
1995 1994 1993
---- ---- ----
Supplies and printing $ 379 $ 359 $ 382
Advertising 414 369 392
Communication expense 444 375 368
Professional fees 486 458 388
Deposit insurance expense 340 673 733
Training expense 320 262 134
Outside services and consultants expense 625 501 439
Insurance Company expense 176
Other expenses 1,293 1,094 846
----- ----- ---
Total other expenses $4,477 $4,091 $3,682
====== ====== ======
NOTE 14 - INCOME TAXES
The provision for income taxes consists of the following:
(Thousands)
Years Ended December 31
1995 1994 1993
---- ---- ----
Current tax expense:
Federal $ 716 $1,268 $1,351
State 288 383 370
Income tax refunds (954)
----- ------ ------
Total 50 1,651 1,721
Deferred tax provision (benefit) 117 (202) (56)
----- ------ ------
Total provision for income taxes $ 167 $1,449 $1,665
===== ====== ======
In 1993, Horizon filed several amended tax returns to obtain refunds for
federal and state taxes paid in prior periods. The original returns were filed
dating back to 1985. A refund was received in 1995 of $954,000 plus $298,000 of
interest .
<PAGE>
NOTE 14 - INCOME TAXES (Continued)
Temporary differences between the amounts reported in the financial
statements and the tax basis of assets and liabilities at December 31, 1995 and
1994, were as follows:
(Thousands)
1995 1994
---- ----
Gross deferred tax assets:
Allowance for losses on loans
and other real estate $ 763 $ 930
Accrued operating expenses 43 69
Deferred loan fees 186 157
Depreciation 137 121
Other 433 434
------- -------
Total deferred tax assets 1,562 1,711
Valuation allowance (264) (312)
------- -------
Subtotal 1,298 1,399
Gross deferred tax liabilities:
Discount accretion (107) (91)
------- -------
Net deferred tax assets $ 1,191 $ 1,308
======= =======
The difference between the financial statement tax provision and amounts
computed by applying the statutory Federal income tax rate of 34% to income
before taxes is as follows:
(Thousands)
1995 1994 1993
---- ---- ----
Income taxes at the statutory Federal
income tax rate $ 1,090 $ 1,400 $ 1,621
Add/(subtract) tax effect of:
Tax-exempt income (334) (327) (232)
Nondeductible expenses and other 175 142 4
Federal and state tax refunds (954)
State tax, net of federal effect 190 281 269
------- ------- -------
Total provision for income taxes $ 167 $ 1,449 $ 1,665
======= ======= =======
Not included in the above tables, but directly impacting changes in
stockholders' equity are the effects of the following:
(Thousands)
1995 1994
---- ----
Current tax benefit for Employee Stock Ownership Plan 50 30
Deferred tax asset/(liability) related to unrealized (313) 1,596
gain/(loss) on securities
<PAGE>
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company,
Horizon Bancorp:
CONDENSED BALANCE SHEETS (Thousands)
December 31
1995 1994
---- ----
ASSETS
Total cash and cash equivalents $ 661 $ 1,071
Investment in Bank 29,737 26,040
Investment in Insurance Company 183 150
Investment in The Loan Store 498
Investment securities, net 1,430 372
Accrued interest receivable 16 7
Dividends receivable from Bank 400 400
Other assets 1,303 914
------- -------
Total assets $34,228 $28,954
======= =======
LIABILITIES
Obligation to employee stock ownership plan $ $ 298
Other liabilities 1,857 1,243
------- -------
Total liabilities 1,857 1,541
Equity received from contributions and
dividends to the ESOP 3,818 3,052
STOCKHOLDERS' EQUITY 28,553 24,361
------- -------
Total liabilities and stockholders' equity $34,228 $28,954
======= =======
CONDENSED STATEMENTS OF INCOME (Thousands)
For the years ended December 31
1995 1994 1993
---- ---- ----
OPERATING INCOME/(EXPENSE)
Dividend income from Bank $ 1,600 $ 1,600 $ 1,600
Investment income 92 60 33
Interest on federal and state income
tax refunds 298
Other income 33 34
Interest expense (20) (6) (12)
Employee benefits expense (993) (376) (522)
Other expense (143) (124) (69)
------- ------- -------
INCOME BEFORE UNDISTRIBUTED INCOME OF
SUBSIDIARIES 867 1,188 1,030
UNDISTRIBUTED INCOME OF SUBSIDIARIES 987 1,379 1,699
------- ------- -------
INCOME BEFORE INCOME TAX 1,854 2,567 2,729
BENEFIT FOR INCOME TAX 1,185 101 374
------- ------- -------
NET INCOME $ 3,039 $ 2,668 $ 3,103
======= ======= =======
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (continued)
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands)
For the years ended December 31
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,039 $ 2,668 $ 3,103
Adjustments to reconcile net income to
net cash from operating activities:
Undistributed income of Bank (990) (1,379) (1,699)
Additional paid in capital from release
of ESOP shares 172
Change in income taxes receivable 144 (161) (394)
Change in interest receivable (9) (2) (2)
Change in dividends receivable from Bank (400)
Change in other assets 67 (93) 715
Change in other liabilities 360 184 580
------- ------- -------
Net cash from operating activities 2,783 1,217 1,903
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investment securities 36
Purchase of investment securities (1,006)
------- -------
Net cash from investing activities (1,006) 36
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Investment in Insurance Company (47) (150)
Investment in Finance Company (500)
Dividends paid (895) (919) (923)
Purchase of treasury stock (745) (233) (432)
------- ------- -------
Net cash from financing activities (2,187) (1,302) (1,355)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (410) (49) 548
------- ------- -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,071 1,120 572
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 661 $ 1,071 $ 1,120
======= ======= =======
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest $ 20 $ 9 $ 9
Income taxes $ (954) $ (35) $ 0
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 - STOCK OPTIONS
Horizon maintains a Nonqualified Stock Option and Stock Appreciation Rights
Plan (Plan) under which options and stock appreciation rights (SARs) may be
granted to certain officers and employees. SARs entitle eligible employees to
receive cash, stock or a combination of cash and stock totaling the excess, on
the date of exercise, of the fair market value of the shares of common stock
covered by the option over the option exercise price. The underlying stock
options are deemed to have been exercised upon exercise of the SARs. No options
remain available for grant at December 31, 1995 and 1994, however, outstanding
options may be exercised on a cumulative percentage basis until their
expiration.
Horizon recognizes compensation expense related to the plan on a periodic
basis based on the difference between the excess, of the fair market value of
the shares of common stock over the exercise price for SARs and those options
exercised during the year. Horizon's expense related to the Plan was $400,000
for 1995, $217,000 for 1994, and $101,000 for 1993.
A summary of transactions for the plan follows:
--------Shares-------
Available Options
For Grant Outstanding Exercise Price
--------- ----------- --------------
Balance: December 31, 1990 10,000 75,000 $22.50 - $31.50
Granted (Expire January 27, 2001) (10,000) 10,000 $13.50
Forfeitures 500 (500) $13.50 - $31.50
------- ------ ---------------
Balance: December 31, 1991 500 84,500 $13.50 - $31.50
Forfeitures 600 (600) $13.50
Expirations (1,100)
------- ------ ---------------
Balance: December 31, 1992 0 83,900 $13.50 - $31.50
Exercised ======= (900) $28.00
Balance: December 31, 1993 83,000 $13.50 - $31.50
------ ---------------
Balance: December 31, 1994 83,000 $13.50 - $31.50
Exercised (250) $34.75
Balance: December 31, 1995 82,750 $13.50 - $31.50
====== ===============
<PAGE>
NOTE 17 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
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.
Bank was required to have approximately $4,634,000 of cash on hand or on
deposit with the Federal Reserve Bank to meet regulatory reserve and clearing
balance requirements at December 31, 1995. These balances are included in cash
and cash equivalents and do not earn interest.
Bank is a party to financial instruments with off-balance sheet risk in the
ordinary course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans and standby letters of
credit. Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to make loans and
standby letters of credit is represented by the contractual amount of those
instruments. Bank follows the same credit policy to make such commitments as is
followed for those loans recorded in the financial statements.
As of December 31, 1995, commitments to make loans amounted to
approximately $39,886,000 and commitments under outstanding standby letters of
credit amounted to approximately $1,285,000. Since many commitments to make
loans and standby letters of credit expire without being used, the amount does
not necessarily represent future cash advances. No losses are anticipated as a
result of these transactions. Collateral obtained upon exercise of the
commitment is determined using management's credit evaluation of the borrower
and may include real estate, vehicles, business assets, deposits and other
items.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of
Horizon Bancorp:
We have audited the accompanying consolidated balance sheets of HORIZON
BANCORP (an Indiana Corporation) and subsidiaries as of December 31, 1995, and
1994 and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HORIZON BANCORP and
subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 28 , 1996
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Management is responsible for the preparation and presentation of the
financial statements and related notes on the preceding pages. The statements
have been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances and include amounts that are based on
management's best estimates and judgments. Financial information elsewhere in
the Annual Report is consistent with that in the financial statements.
In meeting its responsibility for the accuracy of the financial statements,
management relies on the Company's system of internal accounting controls. This
system is designed to provide reasonable assurance that assets are safeguarded
and transactions are properly recorded to permit the preparation of appropriate
financial information. The system of internal controls is supplemented by a
program of internal audits to independently evaluate the adequacy and
application of financial and operating controls and compliance with Company
policies and procedures.
The Audit Committee of the Board of Directors meets periodically with
management, the independent accountants and the internal auditors to ensure that
each is properly discharging its responsibilities with regard to the financial
statements and internal accounting controls. The independent accountants have
full and free access to the Audit Committee and meet with it to discuss auditing
and financial reporting matters.
The financial statements in the Annual Report have been audited by Arthur
Andersen LLP, independent public accountants, for 1995, 1994, and 1993. Their
audits were conducted in accordance with generally accepted auditing standards
and included a consideration of internal accounting controls, tests of
accounting records and other audit procedures to the extent necessary to allow
them to express their opinion on the fairness of the financial statements in
conformity with generally accepted accounting principles.
<PAGE>
<TABLE>
SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS (Thousands)
Total interest income $ 26,262 $ 24,179 $ 25,130 $ 28,527 $ 29,706
Total interest expense 11,112 9,356 9,751 13,015 16,094
Net interest income 15,150 14,823 15,379 15,512 13,612
Provision for loan losses 165 276 1,201 1,572
Total noninterest income 3,987 4,068 3,771 3,951 3,926
Total noninterest expense
15,931 14,609 14,106 15,009 12,975
Provision/(benefit) for
income taxes 167 1,449 1,665 1,492 713
Income/(loss) before
cumulative effect of change
in accounting principle and
extraordinary item 3,039 2,668 3,103 1,761 2,278
Cumulative effect of change
in accounting principle and
extraordinary item (152)
Net income/(loss) 3,039 2,668 3,103 1,609 2,278
Cash dividend declared 895 919 923 794 803
PER SHARE DATA
Income/(loss) before
cumulative effect of change
in accounting principle and
extraordinary item $ 4.05 $ 3.48 $ 4.02 $ 2.22 $ 2.82
Net income/(loss) $ 4.05 $ 3.48 $ 4.02 $ 2.03 $ 2.82
Cash dividends declared 1.20 1.20 1.20 1.00 1.00
Book value at period end 43.18 36.00 36.13 32.83 31.28
Weighted average shares
outstanding 750,286 767,419 772,525 793,930 808,232
PERIOD END TOTALS (Thousands)
Loans, net of deferred loan
fees and unearned income $ 241,662 $223,622 $219,139 $215,649 $198,444
Allowance for loan losses 2,777 2,555 2,310 1,997 2,479
Total assets 368,013 369,470 364,001 357,460 361,858
Total deposits 288,984 295,784 306,135 301,426 303,355
Long-term debt 21,400 15,400 16,600 9,393 18,190
RATIOS
Loans to deposit 83.62 75.59 71.58 71.54 65.42
Loans to total funding 72.80 65.98 66.32 65.72 59.62
Return on average total assets .86% .75% .88% .44% .67%
Average stockholders' equity to
average total assets 8.53 8.01 7.58 7.19 7.23
Return on average stockholders'
equity 10.09 9.41 11.61 6.19 9.27
Dividend payout ratio (dividends
divided by net income) 29.45 34.45 29.75 49.35 35.25
</TABLE>
<PAGE>
MARKET FOR HORIZON'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
Horizon common stock is traded on the over-the-counter market. The Chicago
Corporation is the principal broker in Horizon stock. The following table sets
forth, for the periods indicated, the high and low bid prices per share as
reported by The Chicago Corporation. The bid prices represent dealer prices and,
do not include retail mark-up, mark-down or commissions and may not represent
actual transactions. Also summarized below are the cash dividends declared by
quarter for 1995 and 1994.
Common Stock Dividends
Bid Prices Declared
1994 High Low Per Share
First Quarter ............... $ 30.25 $ 30.00 $ .30
Second Quarter .............. 31.00 30.50 .30
Third Quarter ............... 33.00 31.00 .30
Fourth Quarter .............. 32.50 32.25 .30
1995
First Quarter ............... $ 33.00 $ 30.00 $ .30
Second Quarter .............. 33.63 33.00 .30
Third Quarter ............... 34.50 33.63 .30
Fourth Quarter .............. 35.50 34.50 .30
There can be no assurance as to the amount of future dividends on Horizon
common stock since future dividends are subject to the discretion of the Board
of Directors, cash needs, general business conditions and dividends from the
bank subsidiary as discussed in Note 1.
The approximate number of holders of outstanding common stock, based upon
the number of record holders, as of December 31, 1995 is 778.
FORM 10-K
Horizon will provide without charge to each stockholder upon written request to
Diana E. Taylor, Chief Financial Officer, Horizon Bancorp, 515 Franklin Square,
Michigan City, Indiana 46360, a copy of the Company's Annual Report on Form
10-K, including the Financial Statements and schedules thereto required to be
filed with the Securities and Exchange Commission for the Company's most recent
fiscal year.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 22,066,000
<INT-BEARING-DEPOSITS> 206,000
<FED-FUNDS-SOLD> 3,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,942
<INVESTMENTS-CARRYING> 12,167,000
<INVESTMENTS-MARKET> 12,202,000
<LOANS> 241,662,000
<ALLOWANCE> 2,777,000
<TOTAL-ASSETS> 368,013,000
<DEPOSITS> 288,984,000
<SHORT-TERM> 21,569,000
<LIABILITIES-OTHER> 3,689,000
<LONG-TERM> 21,400,000
0
0
<COMMON> 732,000
<OTHER-SE> 3,818,000
<TOTAL-LIABILITIES-AND-EQUITY> 368,013,000
<INTEREST-LOAN> 20,228,000
<INTEREST-INVEST> 5,997,000
<INTEREST-OTHER> 37,000
<INTEREST-TOTAL> 26,262,000
<INTEREST-DEPOSIT> 9,284,000
<INTEREST-EXPENSE> 11,112,000
<INTEREST-INCOME-NET> 15,150,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 46,000
<EXPENSE-OTHER> 15,931,000
<INCOME-PRETAX> 3,206,000
<INCOME-PRE-EXTRAORDINARY> 3,206,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,039,000
<EPS-PRIMARY> 4.05
<EPS-DILUTED> 4.05
<YIELD-ACTUAL> 4.70
<LOANS-NON> 668,000
<LOANS-PAST> 3,584,000
<LOANS-TROUBLED> 3,096,000
<LOANS-PROBLEM> 344,000
<ALLOWANCE-OPEN> 2,555,000
<CHARGE-OFFS> 293,000
<RECOVERIES> 515,000
<ALLOWANCE-CLOSE> 2,777,000
<ALLOWANCE-DOMESTIC> 2,777,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,250,000
</TABLE>
