<PAGE> 1
UNITED STATES 2
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, 1996
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, 897,311 shares outstanding at March 11, 1997
------------------------------------------------------------------------
(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
11, 1997 was $27,059,000.
<PAGE> 2
Documents Incorporated by Reference
-----------------------------------
Part of Form 10-K into which
Document portion of document is incorporated
-------- -----------------------------------
Portions of the Registrant's 1996 I, II, VI
annual report to shareholders
Portions of the Registrant's III
proxy statement to be filed for
its May 29,1997 annual meeting
of shareholders
Except as provided in Part I, Part II and Part III, no part of the Registrant's
1996 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.
2
<PAGE> 3
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, Horizon Bank,
N.A., formerly known as First Citizens Bank, N.A. (Bank) and Bank's
wholly-owned subsidiary, IMS Investment Management, N.A. (IMS) 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, investment management services,
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 five facilities located exclusively
within LaPorte County, Indiana and three facilities located in Porter
County, Indiana. At December 31, 1996, Bank had total assets of
$382,038,000 and total deposits of $289,180,000. Aside from the stock of
Bank, Insurance Company and Loan Store, the Registrant's only other
significant assets are cash and cash equivalents totaling approximately
$712,000, investment securities totaling approximately $1,404,000 and taxes
receivable of approximately $1,188,000 at December 31, 1996.
The business of the Registrant, Bank, IMS, Insurance Company and Loan
Store 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 68% in 1996, 67% in 1995, and 66% in 1994
of the total consolidated revenue. Revenues from investment securities
accounted for 15% in 1996, 20% in 1995 and 20% in 1994 of total
consolidated revenue.
The Registrant has no employees and there are approximately 170 full
and part-time persons employed by Bank, IMS and Loan Store as of December
31, 1996.
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.
3
<PAGE> 4
The Insurance Company offers credit life and accident and health
insurance. The Loan Store, Inc. is engaged in the business of retail
lending and operates three facilities in Indiana. The net income generated
from the Insurance Company and the Loan Store 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, Bank, IMS, Insurance Company and Loan Store 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 affiliates, its investments in the
stock or other securities thereof, and its taking of such stock or
securities as collateral for loans to any borrower.
4
<PAGE> 5
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 1996 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, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury and U.S. Government agencies
and corporations $ 4,965 $ 7,165 $18,034
Mortgage-backed securities 49,683 62,717
Other securities 4,248 4,281
Unrealized gain/(loss) 145 779
------- ------- -------
Total investment securities available for sale $59,041 $74,942 $18,034
======= ======= =======
HELD TO MATURITY
U.S. Treasury and U.S. Government agencies and corporations $ 2,793 $ 3,164 $ 3,521
Obligations of states and political subdivisions 10,017 9,003 11,954
Mortgage-backed securities
Other securities
Unrealized gain/(loss) 0 0
------- ------- -------
Total investment securities held to maturity $12,810 $12,167 $15,475
======= ======= =======
Toal investment securities for sale and held
to maturity $ 71,851 $87,109 $33,509
======== ======= =======
</TABLE>
5
<PAGE> 6
(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, 1996:
<TABLE>
<CAPTION>
One year or less After one year After five years After ten years
through five years through ten years
(Thousands) Amount Yield Amount Yield Amount Yield Amount Yield
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury and U.S. Government $ 1,001 6.20% $ 3,964 6.79%
agency securities(1)
Other securities 4,248 7.12%
Mortgage-backed securities (2) 1,182 7.05% 48,502 7.21%
-----------------------------------------------------------------------------
Total $ 5,249 6.94% $ 5,146 6.85% $ 0 0.00% $48,502 7.21%
HELD TO MATURITY
U.S. Government agency securities $ 2,793 7.38%
Obligations of states and political 2,057 4.17% 3,680 4.44% 3,753 5.04% 527 5.00%
subdivisions
-----------------------------------------------------------------------------
Total $ 4,850 6.02% $ 3,680 4.44% $ 3,753 5.04% $ 527 5.00%
Total investment securities $10,099 6.50% $ 8,826 5.85% $ 3,753 5.04% $49,029 7.19%
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 maturity date
</TABLE>
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, 1996.
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.
<TABLE>
<CAPTION>
(Thousands) 1996 1995 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural and $ 75,460 $ 66,125 $ 67,177 $ 64,645 $ 67,074
commercial tax-exempt loans
Real estate mortgage loans 133,739 119,739 105,512 103,693 102,398
Installment loans 62,277 55,798 50,933 52,880 48,896
----------------------------------------------------------------------------
Total loans $271,476 $241,662 $223,622 $221,218 $218,368
=============================================================================
</TABLE>
6
<PAGE> 7
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, 1996:
<TABLE>
<CAPTION>
Maturing or repricing (thousands) One year or One through After five Total
less five years years
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, agricultural and $33,125 $26,900 $15,435 $75,460
commercial tax-exempt loans
</TABLE>
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.)
<TABLE>
<CAPTION>
(Thousands) Fixed Rate Variable Rate
--------------------------------
<S> <C> <C>
Total commercial, financial, $31,551 $10,984
agricultural, and commercial tax-exempt
loans due after one year
</TABLE>
(C) Risk Elements
1. Nonaccrual, Past Due and Restructured Loans - The following schedule
summarizes nonaccrual, past due and restructured loans.
<TABLE>
<CAPTION>
December 31 (thousands) 1996 1995 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(a) Loans accounted for on a
nonaccrual basis $316 $668 $2,794 $1,687 $2,054
(b) Accruing loans which are
contractually past due 90 days or more 682 533 474 481 205
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 $998 $1,201 $3,268 $2,168 $2,259
============================================================================
</TABLE>
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.
7
<PAGE> 8
III. LOAN PORTFOLIO (Continued)
<TABLE>
<CAPTION>
(Thousands)
<S> <C> <C>
Gross interest income that would have $36 $55
been recorded on nonaccrual loans out
standing as of December 31, 1996 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
Interest income actually recorded on 0 0
nonaccrual loans outstanding as of December
31, 1996 and included in net income for the
period
Interest income not recognized during the $36 $55
period on nonaccrual loans outstanding as
of December 31, 1996
</TABLE>
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 $124,000 at December 31, 1996. 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, 1996 there are no significant concentrations of
loans exceeding 10% of total loans other than those disclosed in Item
III above.
8
<PAGE> 9
III. LOAN PORTFOLIO (Continued)
(D) Other Interest-Bearing Assets
Other than $349,000 held as other real estate owned, net of allowance,
there are no other interest-bearing assets as of December 31, 1996 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:
<TABLE>
<CAPTION>
(Thousands) 1996 1995 1994 1993 1992
-------------------------------------------------------------------------------
LOANS
<S> <C> <C> <C> <C> <C>
Loans outstanding at the end of the $ 271,476 $ 241,662 $ 223,622 $ 219,139 $ 215,649
period (1)
Average loans outstanding during the $ 256,580 $ 226,198 $ 218,053 $ 214,033 $ 208,615
period (1)
(1) Net of unearned income
and deferred loan fees
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of the period $ 2,777 $ 2,555 $ 2,310 $ 1,997 $ 2,479
Loans charged-off:
Commercial and agricultural loans (11) (45) (213) (1,625)
Real estate mortgage loans (14) (17)
Installment loans (532) (231) (221) (343) (515)
--------- --------- --------- --------- ---------
Total loans charged-off (557) (293) (221) (556) (2,140)
Recoveries of loans previously
charged-off:
Commercial and agricultural loans 27 358 143 339 229
Real estate mortgage loans 8
Installment loans 122 149 158 254 228
--------- --------- --------- --------- ---------
Total loan recoveries 149 515 301 593 457
--------- --------- --------- --------- ---------
Net loans charged-off (408) 222 80 37 (1,683)
--------- --------- --------- --------- ---------
Provision charged to operating expense 66 165 276 1,201
-------------------------------------------------------------------------------
Balance at the end of the period $ 2,435 $ 2,777 $ 2,555 $ 2,310 $ 1,997
================================================================================
Ratio of net charge-offs (recoveries) to .16% (.10)% (.04)% (.02)% .81%
average loans outstanding for the period
</TABLE>
9
<PAGE> 10
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. (thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------
Allowance % of Total Allowance % of Total Allowance % of Total Allowance % of Total Allowance % of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, $576 0.2% $733 0.3% $1,434 0.6% $1,064 0.5% $1,192 0.6%
financial and
agricultural
Real estate 102 0.0% 139 0.1% 111 0.0% 171 0.1% 185 0.1%
mortgage
Installment 1,075 0.4% 655 0.3% 407 0.2% 514 0.2% 389 0.2%
Unallocated 682 1,250 603 561 231
-------------------------------------------------------------------------------------------------------------------
Total $2,435 0.9% $2,777 1.1% $2,555 0.9% $2,310 1.1% $1,997 0.9%
===================================================================================================================
</TABLE>
The increase in the reserve allocation for installment loans from 1995 to
1996 is primarily the result of the change in methodology for the
historical portion of the allowance callculation. In 1996, the Bank began
using the industry average charge-off rate instead of the Bank's historical
charge-off rate which was used in previous years. This change in methodolgy
resulted in a $325 increase in the portion of the allowance allocated to
installment loans.
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.
During 1997, charge-offs are expected to remain consistant with amounts net
charge-offs in each category.
10
<PAGE> 11
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 62 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 62 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.
<TABLE>
<CAPTION>
(Thousands) 1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Outstanding at year end $11,562 $9,558 $6,693
Approximate weighted average interest 5.14% 5.52% 6.39%
rate at year-end
Highest amount outstanding as of any $14,822 $16,446 $7,980
month-end during the year
Approximate average outstanding during $10,961 $8,196 $6,525
the year
Approximate weighted average interest 5.07% 5.65% 4.11%
rate during the year
</TABLE>
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
credit administration, operations and micro-computer departments of Bank.
In addition to these principal facilities, the Bank has eight sales
offices located at:
5477 Johnson Road, Michigan City, Indiana
3600 South Franklin Street, Michigan City, Indiana
117 E First St., Wanatah, Indiana
1410 Lincolnway, LaPorte, Indiana
754 Indian Boundary Road, Chesterton, Indiana
3125 N. Calumet, Valparaiso, Indiana
6504 U.S. Highway 6, Portage, Indiana
265 U.S. Highway 30, Valparaiso, Indiana
The Loan Store has sales offices at the following locations:
200 W 80th Place, Suite C, Merriville, Indiana
8343 Indianapolis Blvd. , Highland, Indiana
6313 University Commons, South Bend, Indiana
11
<PAGE> 12
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 59 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 1996 fiscal year.
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 63 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 62 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 13 through 34 in the 1996 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 35 through 63, 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, 1996 and 1995
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994 Consolidated Statements of Changes in
Stockholders' Equity for the years ended December 31,1996,
1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
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 29, 1997 ("1997 Proxy Statement"). The 1997
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.
12
<PAGE> 13
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
- --------------------------------------------------------
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 1996 annual report to shareholders on the pages
referenced and are specifically incorporated by reference under Item 8
of this Form 10-K:
<TABLE>
<CAPTION>
Annual Report
Page Number
--------------
<S> <C>
Consolidated Balance Sheets 35
Consolidated Statements of Income 36
Consolidated Statements of Changes in Stockholders' Equity 37
Consolidated Statements of Cash Flows 38
Notes to the Consolidated Financial Statements 39 - 59
Report of Independent Public Accountants 60
</TABLE>
(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 16 of
this Form 10-K.
(b) Reports on Form 8-K
-------------------
None
Exhibits
- --------
(c) Reference is made to the Exhibit Index which is found on page 16 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.
13
<PAGE> 14
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 March 28, 1997 /s/ Larry E. Reed
----------------------- -----------------------------------------------
Larry E. Reed
Chairman & Chief Executive Officer
Date March 28, 1997 /s/ Thomas P. McCormick
----------------------- ----------------------------------------------
Thomas P. McCormick
President
Date March 28, 1997 /s/ Diana E. Taylor
----------------------- ----------------------------------------------
Diana E. Taylor
Chief Financial Officer/Secretary/Treasurer
14
<PAGE> 15
Pursuant to the requirements of the Securities Exchange Act of 1934, 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
---- -------------------
March 28, 1997 /s/ Dale W. Alspaugh
- ------------------ -----------------------------------
Dale W. Alspaugh, Director
March 28, 1997 /s/ Russell L. Arndt
- ------------------ -----------------------------------
Russell L. Arndt, Director
March 28, 1997 /s/ George R. Averitt
- ------------------ -----------------------------------
George R. Averitt, Director
March 28, 1997 /s/ James D. Brown
- ------------------ -----------------------------------
James D. Brown, Director
March 28, 1997 /s/ Robert C. Dabagia
- ------------------ -----------------------------------
Robert C. Dabagia, Director
March 28, 1997 /s/ Myles J. Kerrigan
- ------------------ -----------------------------------
Myles J. Kerrigan, Director
March 28, 1997 /s/ Donald J. Manaher
- ------------------ -----------------------------------
Donald J. Manaher, Director
March 28, 1997 /s/ Robert E. McBride
- ------------------ -----------------------------------
Robert E. McBride, Director
March 28, 1997 /s/ Thomas P. McCormick
- ------------------ -----------------------------------
Thomas P. McCormick, Director
President
March 28, 1997 /s/ Boyd W. Phelps
- ------------------ -----------------------------------
Boyd W. Phelps, Director
March 28, 1997 /s/ Larry E. Reed
- ------------------ -----------------------------------
Larry E. Reed, Director
Chairman & Chief Executive Officer
March 28, 1997 /s/ Gene L. Rice
- ------------------ -----------------------------------
Gene L. Rice, Director
March 28, 1997 /s/ Susan D. Sterger
- ------------------ -----------------------------------
Susan D. Sterger, Director
15
<PAGE> 16
EXHIBIT INDEX
-------------
The following exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBERS
- ------ ----------- ------------
<S> <C> <C>
3.1 ARTICLES OF INCORPORATION OF HORIZON BANCORP INCORPORATED BY REFERENCE
TO 12/31/89 FORM 10-K
3.2 BY-LAWS OF HORIZON BANCORP INCORPORATED BY REFERENCE
TO 12/31/91 FORM 10-K
10.1 MATERIAL CONTRACTS-AGREEMENT REGARDING INCORPORATED BY REFERENCE
EMPLOYMENT CONTRACTS TO 12/31/87 FORM 10-K
10.2 MATERIAL CONTRACTS-1987 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-SUPPLEMENTAL EMPLOYEE INCORPORATED HEREIN
RETIREMENT PLAN PAGES 17 - 34
10.6 MATERIAL CONTRACTS-FIRST AMENDMENT TO INCORPORATED HEREIN
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN PAGES 35 - 36
10.7 MATERIAL CONTRACTS-SECOND AMENDMENT TO INCORPORATED HEREIN
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN PAGES 37 - 38
10.8 MATERIAL CONTRACTS - AGREEMENT REGARDING INCORPORATED HEREIN
EMPLOYMENT CONTRACTS PAGES 39 - 47
11 STATEMENT REGARDING COMPUTATION OF PER SHARE ANNUAL REPORT ATTACHED
EARNINGS-REFER TO ANNUAL REPORT PAGE 41
FOOTNOTE 1 (EXHIBIT 13)
13 REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1996 ATTACHED
(NOT DEEMED FILED EXCEPT FOR PORTIONS
THEREOF WHICH ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO THIS FORM 10-K)
21 SUBSIDIARIES OF THE REGISTRANT INCORPORATED HEREIN
PAGE 48
</TABLE>
16
<PAGE> 1
Exhibit 10.5 - Material Contract
HORIZON BANCORP
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 1993
17
<PAGE> 2
HORIZON BANCORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
INTRODUCTION 1
I. DEFINITIONS 1
<S> <C> <C>
1.1 Adjustment 1
1.2 Adjustment Factor 1
1.3 Board 1
1.4 Code 1
1.5 Committee 2
1.6 Company 2
1.7 Compensation 2
1.8 Effective Date 2
1.9 Employee 2
1.10 Excess Matching Contributions 2
1.11 Excess Matching Contributions Account 2
1.12 Employer Supplemental Contributions 3
1.13 Employer Supplemental Contributions
Account 3
1.14 Excess Salary Redirection Contributions 3
1.15 Excess Salary Redirection Contributions
Account 3
1.16 Individual Account 3
1.17 Matching Contributions 3
1.18 Matching Contributions Account 3
1.19 Participant 3
1.20 Plan 3
1.21 Plan Year 4
1.22 Salary Redirection Contributions 4
1.23 Salary Redirection Contributions Account 4
1.24 Thrift Plan 4
1.25 Total and Permanent Disability 4
II. ELIGIBILITY AND PARTICIPATION 4
</TABLE>
18
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
III. CONTRIBUTIONS AND ALLOCATIONS 4
3.1 Excess Salary Redirection Contributions 4
3.2 Excess Matching Contributions 6
3.3 Employer Supplemental Contributions 7
3.4 Allocation of Adjustments 8
3.5 Allocation of Forfeitures 8
IV. FUNDING OF BENEFITS 9
4.1 Unsecured Contractual Rights 9
4.2 Trust 9
V. DISTRIBUTIONS 9
5.1 Forfeitures on Termination of Service 9
5.2 Year of Service 10
5.3 Time of Payment of Benefits 10
5.4 Method of Payment 10
5.5 Death of the Participant and Beneficiary
Designation 10
VI. PLAN ADMINISTRATION 11
6.1 Company11
6.2 Benefits Committee 11
6.3 Claims Procedure 12
6.4 Records14
6.5 No Liability 14
6.6 Indemnity of Committee Members 14
6.7 Discretionary Powers and Authority of the
Company and Committee 14
VII. AMENDMENT AND TERMINATION OF THE PLAN 15
7.1 Amendment of the Plan 15
7.2 Termination of the Plan 15
</TABLE>
19
<PAGE> 4
<TABLE>
<CAPTION>
VIII. MISCELLANEOUS 15
<S> <C> <C>
8.1 Governing Law 15
8.2 Headings and Gender 15
8.3 Administration Expenses 15
8.4 Participant's Rights; Acquittance 15
8.5 Spendthrift Clause 15
8.6 Counterparts 16
8.7 No Enlargement of Employment Rights 16
8.8 Limitations on Liability 16
8.9 Incapacity of Participant or Beneficiary 16
8.10 Corporate Successors 16
SIGNATURES 17
</TABLE>
20
<PAGE> 5
INTRODUCTION
------------
Effective January 1, 1993, Horizon Bancorp (the "Company") adopts the
Horizon Bancorp Supplemental Executive Retirement Plan (the "Plan") as set forth
herein.
The purpose of this Plan is to permit a select group of management or
highly compensated employees of the Company or its subsidiaries who participate
in the Horizon Bancorp Employees' Thrift Plan (the "Thrift Plan") to elect to
defer compensation from the Company or receive contributions from the Company
without regard to the limitations imposed by the Internal Revenue Code of 1986,
as amended (the "Code") on the benefits which may accrue to such employees under
the Thrift Plan. It is the intention of the Company that the Plan shall
constitute an unfunded arrangement maintained for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees for federal income tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
ARTICLE I
DEFINITIONS
-----------
Whenever the initial letter of a word or phrase is capitalized herein,
the following words and phrases shall have the meanings stated below unless a
different meaning is plainly required by the context:
1.1 "Adjustment" means the amounts of earnings or losses credited to a
Participant's Individual Account pursuant to Section 3.4 for each Plan Year. The
amount of interest credited shall be determined based on the investment earnings
under the funding method(s) used by the Company pursuant to Section 4.2.
However, if no such method is used, interest shall be credited to a
Participant's Individual Account at a rate equal to the average twenty-six (26)
week U.S. Treasury Bill rate published in the WALL STREET JOURNAL as in effect
as of the first business day of each calendar month.
1.2 "Adjustment Factor" means the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of the Code, as
applied to such items and in such manner as the Secretary of the Treasury shall
provide.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes said section.
1.5 "Committee" means the Benefits Committee described in Section
6.2 of the Plan.
1.6 "Company" means Horizon Bancorp.
21
<PAGE> 6
1.7 "Compensation" means a Participant's wages, salaries and fees for
professional services and other amounts received (without regard to whether or
not an amount is paid in cash) paid during a Plan Year for personal services
actually rendered in the course of employment with the Company to the extent
that the amounts are includable in gross income including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, reimbursements, overtime and expense allowances. Compensation shall
include (i) elective contributions to the Plan or any other plan maintained by
the Company on the Employee's behalf, (ii) compensation deferred under an
eligible deferred compensation plan within the meaning of Section 457(b)
(relating to deferred compensation plans maintained by state and local
governments and tax-exempt organizations), and (iii) employee contributions
(under governmental plans) described in Section 141(h)(2) of the Code that are
picked up by the employing unit and thus are treated as company contributions.
"Elective contributions" are amounts excludable from the Employee's gross income
under Section 402(a)(8) of the Code (relating to an arrangement under Section
401(k)), Section 402(h) of the Code (relating to a simplified employee pension
plan), Section 125 of the Code (relating to a cafeteria plan), Section 403(b) of
the Code (relating to a tax-sheltered annuity), or under this Plan. Compensation
taken into account for all purposes under the Plan shall not be limited as
provided in Section 401(a)(17) of the Code to the first Two Hundred Thousand
Dollars ($200,000), as adjusted by the Adjustment Factor, of any Participant's
Compensation.
1.8 "Effective Date" means January 1, 1993.
1.9 "Employee" means any person who is employed by the Company.
1.10 "Excess Matching Contributions" means contributions made to the
Plan by the Company for the Plan Year, at the discretion of the Company, and
allocated to a Participant's Individual Account by reason of the Participant's
Excess Salary Redirection Contributions contributed to the Plan pursuant to
Section 3.1(a).
1.11 "Excess Matching Contributions Account" means that portion of a
Participant's Individual Account attributable to (a) Excess Matching
Contributions allocated to such Participant pursuant to Section 3.2 and (b) the
Participant's proportionate share, attributable to his Excess Matching
Contribution Account, of the Adjustments, reduced by any distributions from such
account pursuant to Article V.
1.12 "Employer Supplemental Contributions" means contributions made
to the Plan by the Company for the Plan Year, at the discretion of the Company,
pursuant to Section 3.3.
1.13 "Employer Supplemental Contributions Account" means that portion of
a Participant's Individual Account attributable to (a) Employer Supplemental
Contributions allocated to such Participant pursuant to Section 3.3 and (b) the
Participant's proportionate share, attributable to his Employer Supplemental
Contributions Account, of the Adjustments, reduced by any distributions from
such account pursuant to Article V.
22
<PAGE> 7
1.14 "Excess Salary Redirection Contributions" means contributions made
to the Plan pursuant to Section 3.1 by the Company, at the election of the
Participant, and at the discretion of the Company, in lieu of cash Compensation
under a Participation Agreement between the Participant and the Company.
1.15 "Excess Salary Redirection Contributions Account" means that
portion of a Participant's Individual Account attributable to (a) Excess Salary
Redirection Contributions allocated to such Participant pursuant to Section 3.1
and (b) the Participant's proportionate share, attributable to his Excess Salary
Redirection Contributions Account, of the Adjustments, reduced by any
distributions from such account pursuant to Article V.
1.16 "Individual Account" means the detailed record kept of the amounts
credited or charged to each Participant in accordance with the terms of the
Plan. Such Individual Account is comprised of whichever of the following are
applicable to a particular Participant: Excess Matching Contributions Account,
Excess Salary Redirection Contributions Account and Employer Supplemental
Contributions Account and any earnings (or losses) with respect thereto.
1.17 "Matching Contributions" means the matching contributions made to
the Thrift Plan by the Company for the Plan Year and allocated to a
Participant's Matching Contributions Account under the Thrift Plan by reason of
the Participant's Salary Redirection Contributions made thereunder.
1.18 "Matching Contributions Account" means the account established for
a Participant under the Thrift Plan to which Matching Contributions are made.
1.19 "Participant" means a salaried Employee of the Company or its
subsidiaries who is a Participant under the Thrift Plan and who becomes a
Participant pursuant to the provisions of Article II of the Plan.
1.20 "Plan" means the Horizon Bancorp Supplemental Executive Retirement
Plan.
1.21 "Plan Year" means the twelve (12) month period beginning
January 1 and ended December 31.
1.22 "Salary Redirection Contributions" means a Participant's
contributions made to the Thrift Plan by the Company at the election of the
Participant, in lieu of cash Compensation, pursuant to a salary redirection
agreement between the Participant and the Company and allocated to a
Participant's Salary Redirection Contributions Account under the Thrift Plan.
1.23 "Salary Redirection Contributions Account" means the account
established for a Participant under the Thrift Plan to which Salary Redirection
Contributions are allocated.
1.24 "Thrift Plan" means the Horizon Bancorp Employees' Thrift Plan, as
amended from time to time.
23
<PAGE> 8
1.25 "Total and Permanent Disability" or "Totally and Permanently
Disabled" means a disability as determined for purposes of the Federal Social
Security Act which qualifies the Participant for permanent disability insurance
payments in accordance with such Act. Disability for purposes of the Plan shall
not include any disability which is incurred while the Participant is on leave
of absence because of military or similar service and for which a governmental
pension is payable. The Committee may require subsequent proof of continued
disability, prior to the Participant's sixty-fifth (65th) birthday, at intervals
of not less than six (6) months. A minimal level of earnings in restricted
activity during any period of disability shall not disqualify a Participant from
receiving disability benefits for such period if the disabled Participant
receives disability benefits under the Social Security Act for the same period.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
-----------------------------
A management or highly compensated Employee of the Company or its
subsidiaries is eligible to participate in the Plan provided such Employee is
designated as a Participant by the Board in writing.
ARTICLE III
CONTRIBUTIONS AND ALLOCATIONS
-----------------------------
3.1 Excess Salary Redirection Contributions.
----------------------------------------
(a) AMOUNT OF CONTRIBUTION. The Company shall credit, as
of each pay period, Excess Salary Redirection
Contributions on behalf of each executive who is a
Participant under the Plan for the Plan Year, such
percentage (or dollar amount) of such Participant's
Compensation as mutually agreed upon between the
Participant and the Company pursuant to the terms of a
Participation Agreement meeting the requirements of
Section 3.1(d) prior to the beginning of each Plan
Year. The Participant will elect in the Participation
Agreement to defer an overall percentage (or dollar
amount) of the Participant's Compensation which shall
represent the total amount of deferrals to both the
Thrift Plan and this Plan. The percentage (or dollar
amount) of the Participant's Excess Salary Redirection
Contributions shall be the percentage (or dollar
amount) remaining of the total percentage (or dollar
amount) elected on the Participation Agreement after
the maximum percentage (or dollar amount) of Salary
Redirection Contributions made to the Thrift Plan are
taken into account. Such percentage (or dollar amount)
shall remain in effect for each Plan Year thereafter
until or unless another percentage (or dollar amount)
is agreed upon by the Participant and the Company
prior to the beginning of the applicable Plan Year or
until the Company notifies the Participant, prior to
the beginning of such Plan Year, that the Participant
is no longer eligible for contributions under this
Section 3.1.
(b) The maximum percentage of a Participant's Compensation
that may constitute Excess Salary Redirection
Contributions for a Plan Year shall not, when added to
a Participant's Salary Redirection Contributions under
the Thrift Plan, exceed twenty-five percent (25%) of
such Participant's Compensation for such Plan Year.
24
<PAGE> 9
(c) TIMING OF CONTRIBUTIONS. Excess Salary Redirection
Contributions made for the benefit of a Participant for
any Plan Year shall be made to a Participant's Excess
Salary Redirection Contributions Account within the
time prescribed for making Salary Redirection
Contributions under the Thrift Plan.
(d) PARTICIPATION AGREEMENT. As a condition to the
Company's obligation to make an Excess Salary
Redirection Contribution for the benefit of a
Participant pursuant to subsection (a), the Participant
must execute a Participation Agreement with the Company
on such forms as prescribed by the Committee in which
it is agreed that the Company will redirect a portion
of the Participant's Compensation, as specified in the
Participation Agreement, during each pay period. The
Participation Agreement for any Plan Year must be
executed and delivered by the Participant and the
Company prior to the January 1 of the calendar year to
which the Participation Agreement relates.
The Participant's election to defer a portion
of his Compensation each year shall be irrevocable once
made, except that the Committee, in its sole
discretion, may waive the Participant's election to
defer compensation if the Participant has suffered an
unforeseeable emergency which results in severe
financial hardship. Such waiver shall apply to the
portion of the calendar year remaining after the
Committee's determination that the Participant has
suffered a severe financial hardship. The effective
date of the waiver shall be fixed by the Committee
after application by the Participant under such
procedures as may be fixed by the Committee. The
Participant's application shall include a signed
statement of the facts causing financial hardship and
any other facts required by the Committee in its
discretion.
For purposes of this Section 3.1, an
unforeseeable emergency is a severe financial hardship
to a Participant resulting from a sudden and unexpected
illness or accident of the Participant or a dependent
of the Participant (as defined in Section 152(a) of the
Code), loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseen
circumstances arising as a result of events beyond the
control of the Participant. The circumstances that will
constitute an unforeseeable emergency will depend upon
the facts of each case; however, the Committee shall
not grant any waiver of a Participant's deferral
election to the extent that his hardship may be
relieved (i) through reimbursement or compensation by
insurance or otherwise; (ii) by liquidation of the
Participant's assets, to the extent liquidation of such
assets would not itself cause severe financial
hardship; or (iii) by cessation of Salary Redirection
Contributions under the Thrift Plan. An unforeseeable
emergency shall not include the need to send a
Participant's child to college or the desire to
purchase a home.
25
<PAGE> 10
3.2 Excess Matching Contributions.
------------------------------
(a) AMOUNT OF CONTRIBUTION. The Company may, but shall not
be required to, make Excess Matching Contributions
under the Plan. Excess Matching Contributions to be
made by the Company for the benefit of a Participant
for any Plan Year shall consist of two parts. The first
part shall be in an amount, as determined by the Board,
which does not exceed the difference between (i) and
(ii) below:
(i) The Matching Contributions which would have
been allocated to the Participant's Matching
Contributions Account under the Thrift Plan
for the Plan Year without giving effect to the
limitations on Compensation imposed by Section
401(a)(17) of the Code, the reductions
applicable to highly compensated employees due
to the discrimination tests set forth in
Section 401(k) and (m) of the Code, the
limitations on Salary Redirection
Contributions imposed by Section 402(g) of the
Code or the limitations on annual additions
imposed by Section 415 of the Code.
(ii) The amount of Matching Contributions actually
allocated to the Participant's Matching
Contributions Account under the Thrift Plan
for the Plan Year.
(b) In addition to the Excess Matching Contributions
specified in subsection (a), the Company may, as
determined by the Board, make an additional Excess
Matching Contribution in such amount as shall be
determined by the Board in its discretion.
(c) TIMING OF CONTRIBUTIONS. Excess Matching Contributions
made for the benefit of a Participant for any Plan Year
shall be credited to a Participant's Excess Matching
Contributions Account within the time prescribed for
making Matching Contributions under the Thrift Plan.
3.3 EMPLOYER SUPPLEMENTAL CONTRIBUTIONS. In addition to the Excess
Matching Contributions provided for in Section 3.2, the Employer may make
Employer Supplemental Contributions under the plan in accordance with the
provisions of subsections (a) and (b).
(a) AMOUNT OF CONTRIBUTION. The Company may, but shall not
be required to, contribute on behalf of a Participant
such amounts as the Board may in its discretion
determine from time to time to be advisable, which
amounts shall constitute the Employer Supplemental
Contributions under the Plan.
(b) TIMING OF CONTRIBUTIONS. Employer Supplemental
Contributions may be made by the Company at any time.
26
<PAGE> 11
3.4 Allocation of Adjustments.
--------------------------
(a) INDIVIDUAL ACCOUNTS. The Committee shall establish and
maintain an Individual Account in the name of each
Participant to which the Committee shall credit all
amounts allocated to each such Participant pursuant to
this Article III. Each Individual Account shall be
comprised of whichever of the following are applicable
to a particular Participant: Excess Matching
Contributions Account, Excess Salary Redirection
Contributions Account and Employer Supplemental
Contributions Account.
(b) DETERMINATION OF ADJUSTMENTS. Following the allocations
made pursuant to Sections 3.1, 3.2, and 3.3, the
Committee shall determine the Adjustments for December
31 of the applicable Plan Year (and, in the event a
Participant is eligible for a distribution as provided
in Article V, for the last day of the month immediately
preceding the month the Participant terminates service
for any reason), and on such other dates as the
Committee deems advisable, by adding together all
income received, and realized and unrealized gains and
any realized and unrealized losses since the most
recent allocation of Adjustments to Participants'
Individual Accounts.
(c) ALLOCATION OF ADJUSTMENTS. The Adjustments shall be
allocated as of the end of the Plan Year to the
Individual Accounts of Participants who maintain a
credit balance in their Individual Accounts as of such
date in the same proportion that the balance of each
Participant's Individual Account as of such date bears
to the balance of all Individual Accounts of
Participants in the Plan on such date. Provided,
however, in the event any Participant is entitled to a
distribution of his Individual Account under Article V,
the Adjustments shall be allocated as of the last day
of the month immediately preceding the month in which
the Participant's termination of service occurs.
3.5 ALLOCATION OF FORFEITURES. The amount, if any, of a Participant's
Excess Matching Contributions and Employer Supplemental Contributions Accounts
forfeited under Section 5.1 shall be allocated to the Excess Matching
Contributions Accounts or the Employer Supplemental Contributions Accounts, as
the case may be, of all other Participants eligible to receive Excess Matching
Contributions under Section 3.2 and Employer Supplemental Contributions under
Section 3.3 for the Plan Year in which the forfeiture occurs. Such allocation
shall be allocated in the proportion that the Participant's Compensation for the
Plan Year bears to the total Compensation of all Participants for such Plan
Year. If, however, there are no Participants under the Plan who are eligible to
receive an allocation of forfeitures for the Plan Year in which a forfeiture
occurs, then, once the Company has satisfied all obligations to Participants
under the Plan, such forfeiture shall revert to the Company.
27
<PAGE> 12
ARTICLE IV
FUNDING OF BENEFITS
-------------------
4.1 UNSECURED CONTRACTUAL RIGHTS. The Plan at all times shall be
unfunded and shall constitute a mere promise by the Company to make benefit
payments in the future. Notwithstanding any other provision of this Plan or any
trust created in connection with the Plan, neither a Participant nor his
designated beneficiary shall have any preferred claim on, or any beneficial
ownership interest in, any assets of the Company prior to the time benefits are
paid as provided in Article V, including any Compensation deferred hereunder by
the Participant. All rights created under this Plan shall be mere unsecured
contractual rights of the Participant against the Company.
4.2 TRUST. Notwithstanding the provisions of Section 4.1, the Committee
may, in its discretion, satisfy all or any part of the Company's obligations
under the Plan from a trust established by the Company in connection with the
Plan or from an insurance contract, annuity or similar vehicle owned by the
Company or by setting aside and investing amounts deferred under the Plan as an
asset of the Company. Any such trust or other vehicle shall constitute solely a
means to assist the Company in meeting its promised obligations under the Plan
and shall not constitute a funded account within the meaning of ERISA or the
Code, nor shall it create a security interest for the benefit of any Participant
or beneficiary. Any trust created hereunder shall conform in all respects to the
terms of the Model Trust, as described in Revenue Procedure 92-64.
ARTICLE V
DISTRIBUTIONS
-------------
5.1 FORFEITURES ON TERMINATION OF SERVICE. A Participant's Excess Salary
Redirection Contributions Account shall not be subject to forfeiture or
reversion to the Company hereunder. Provided, however, to the extent specified
by the Board at the time an Employee becomes a Participant, the Participant's
Excess Matching Contributions Account and Employer Supplemental Contributions
Account under the Plan shall be subject to forfeiture upon the Participant's
termination of employment, prior to his completion of such number of Years of
Service as shall be determined by the Board at the time he became a Participant,
under circumstances other than any one of the following: (i) the death of the
Participant while still employed; (ii) the Committee's determination that the
Participant is Totally and Permanently Disabled; or (iii) a Participant's
retirement on or after attaining age sixty-five (65).
Notwithstanding the foregoing provisions of this Section 5.1, the
Participant shall not have any preferred claim on, or any beneficial ownership
interest in, any assets of the Company or any trust created in connection with
the Plan and any such assets shall be and remain subject to the claims of the
Company's creditors until the time such assets are actually paid to the
Participant as provided in Article V.
5.2 YEAR OF SERVICE. For purposes of this Article V, a Year of Service
means each Plan Year (commencing on and after the Effective Date) during which
the Employee has completed one thousand (1,000) Hours of Service for the
Company, as defined in Section 1.23 of the Thrift Plan.
28
<PAGE> 13
5.3 TIME OF PAYMENT OF BENEFITS. All nonforfeitable amounts credited to
a Participant's Individual Account, including any Adjustments credited in
accordance with Section 3.5, shall be distributed to a Participant (or his
designated beneficiary) within thirty (30) days after the earliest of a
Participant's termination of service following death, Total and Permanent
Disability, retirement on or after attaining age sixty-five (65) or other
separation from service with the Company.
5.4 METHOD OF PAYMENT. The sole form of distribution of the
Participant's benefits under the Plan shall be a single lump sum.
5.5 DEATH OF THE PARTICIPANT AND BENEFICIARY DESIGNATION. If a
Participant dies before distribution of his benefits under the Plan commences,
the Participant's entire benefit under the Plan shall be distributed to the
Participant's designated beneficiary, in a single lump sum, as soon as
reasonably practicable after the Participant's death.
The Participant may designate a primary and contingent beneficiary or
beneficiaries on forms provided by the Committee, which for this purpose may
include the Participation Agreement. Such designation may be changed at any time
for any reason by the Participant. If the Participant fails to designate a
beneficiary, or if such designation shall for any reason be illegal or
ineffective, or if the designated beneficiary shall not survive the Participant,
his benefits under the Plan shall be paid: (i) to his surviving spouse; (ii) if
there is no surviving spouse, to his descendants (including legally adopted
children or their descendants) per stirpes; (iii) if there is neither a
surviving spouse nor surviving descendants, to the duly appointed and qualified
executor or other personal representative of the Participant to be distributed
in accordance with the Participant's wills or applicable intestacy law; or (iv)
in the event that there shall be no such representative duly appointed and
qualified within thirty (30) days after the date of death of the Participant,
then to such persons as, at the date of his death, would be entitled to share in
the distribution of the Participant's estate under the provisions of the
applicable statute then in force governing the descent of intestate property, in
the proportions specified in such statute. The Committee may determine the
identity of the distributees, and in so doing may act and rely upon any
information it may deem reliable upon reasonable inquiry, and upon any
affidavit, certificate, or other paper believed by it to be genuine, and upon
any evidence believed by it to be sufficient.
ARTICLE VI
PLAN ADMINISTRATION
-------------------
6.1 Company.
--------
(a) The Company, in establishing and maintaining the Plan,
of necessity retains control of the operation and
administration of the Plan. The Company, in accordance
with specific provisions of the Plan, has, as herein
indicated, delegated certain of these rights and
obligations to the Committee which, in turn, shall be
solely responsible for those, and only those, delegated
rights and obligations.
29
<PAGE> 14
(b) The Company shall supply such full and timely
information for all matters relating to the Plan as (i)
the Committee, (ii) the trustee of any trust
established in connection with the Plan, or (iii) the
attorneys, accountants and investment manager(s)
engaged on behalf of the Plan by the Company may
require for the effective discharge of their respective
duties.
6.2 Benefits Committee.
-------------------
(a) The Company shall appoint a committee of not less than
three (3) persons, who are members of the Board but who
are not Employees, to hold office at the pleasure of
the Company, such committee to be known as the Benefits
Committee ("Committee"). No Compensation shall be paid
to members of the Committee from the trust for service
on such Committee. The Committee shall choose from
among its members a chairman and a secretary. Any
action of the Committee shall be determined by the vote
of a majority of its members. Either the chairman or
the secretary may execute any certificate or written
direction on behalf of the Committee. If the Company
shall fail to appoint the Committee, then the Company
shall constitute the plan administrator of the Plan and
all references to the Committee under the Plan shall be
deemed for all purposes to refer to the Company.
(b) The Committee shall hold meetings upon such notice, at
such place or places and at such time or times as the
Committee may from time to time determine. A majority
of the members of the Committee at the time in office
shall constitute a quorum for the transaction of
business.
(c) The Committee may employ such counsel, accountants, and
other agents as it shall deem advisable. The Company
shall pay, or cause to be paid, the reasonable
compensation of such counsel, accountants, and other
agents and any other reasonable expenses incurred by
the Committee in the administration of the Plan and
trust.
(d) All members of the Committee shall serve until their
resignation or dismissal by the Board and vacancies
shall be filled in the same manner as the original
appointments. The Board may dismiss any member of the
Committee with or without cause.
30
<PAGE> 15
6.3 Claims Procedure.
-----------------
(a) The Committee shall receive all applications for
benefits. Upon receipt by the Committee of such an
application, it shall determine all facts which are
necessary to establish the right of an application to
benefits under the provisions of the Plan and the
amount thereof as herein provided. Upon request, the
Committee shall afford the applicant the right of a
hearing with respect to any finding of fact or
determination. The applicant shall be notified in
writing of any adverse decision with respect to his
claim within sixty (60) days after its submission. The
notice shall be written in a manner calculated to be
understood by the applicant and shall include:
(i) The specific reason or reasons for the denial;
(ii) Specific references to the pertinent Plan
provisions on which the denial is based;
(iii) A description of any additional material or
information necessary for the applicant to
perfect the claim and an explanation why such
material or information is necessary; and
(iv) An explanation of the Plan's claim review
procedures.
(b) If special circumstances require an extension of time
for processing the initial claim, a written notice of
the extension and the reason therefor shall be
furnished to the claimant before the end of the initial
sixty (60) day period. In no event shall such extension
exceed sixty (60) days.
(c) In the event a claim for benefits is denied or if the
applicant has had no response to such claim within
sixty (60) days of its submission (in which case the
claim for benefits shall be deemed to have been
denied), the applicant or his duly authorized
representative, at the applicant's sole expense, may
appeal the denial to the Committee within sixty (60)
days of the receipt of written notice of denial or
sixty (60) days from the date such claim is deemed to
be denied. In pursuing such appeal the applicant or his
duly authorized representative:
(i) May request in writing that the Committee
review the denial;
(ii) May review pertinent documents; and
(iii) May submit issues and comments in writing.
31
<PAGE> 16
(d) The decision on review shall be made within sixty (60)
days of receipt of the request for review, unless
special circumstances require an extension of time for
processing, in which case a decision shall be rendered
as soon as possible, but not later than one hundred
twenty (120) days after receipt of request for review.
If such an extension of time is required, written
notice of the extension shall be furnished to the
claimant before the end of the original sixty (60) day
period. The decision on review shall be made in
writing, shall be written in a manner calculated to be
understood by the claimant, and shall include specific
references to the provisions of the Plan on which such
denial is based. If the decision on review is not
furnished within the time specified above, the claims
shall be deemed denied on review.
6.4 RECORDS. All acts and determinations of the Committee shall be duly
recorded by the secretary thereof and all such records together with such other
documents as may be necessary in exercising its duties under the Plan shall be
reserved in the custody of such secretary. Such records and documents shall at
all times be open for inspection and for the purpose of making copies by any
person designated by the Company.
6.5 NO LIABILITY. The Company assumes no obligation or responsibility
to any of its Employees, Participants or beneficiaries for any act of, or
failure to act, on the part of the Committee (unless the Company is the
Committee).
6.6 INDEMNITY OF COMMITTEE MEMBERS. The Company shall indemnify and save
harmless the members of the Committee, and each of them, from and against any
and all loss resulting from liability to which the Committee, or the members of
the Committee, may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence) in their official capacities in the
administration of the Plan, including all expenses reasonably incurred in their
defense, in case the Company fails to provide such defense. The Committee
members and the Company may execute a letter agreement further delineating the
indemnification agreement of this Section 6.6.
6.7 DISCRETIONARY POWERS AND AUTHORITY OF THE COMPANY AND COMMITTEE. The
Company and the Committee shall have any and all power and authority (including
discretion with respect to the exercise of that power and authority) which shall
be necessary, properly advisable, desirable or convenient to enable them to
carry out their responsibilities under the Plan. By way of illustration and not
limitation, the Company and Committee are empowered and authorized to (a) make
rules and regulations with respect to the Plan which are not inconsistent with
the provisions of the Plan or the Code; (b) determine, consistently therewith,
all questions that may arise concerning eligibility, benefits, status and rights
of any person claiming particular status under the Plan, including without
limitation Participants, beneficiaries and the spouses and beneficiaries
thereof; and (c) subject to and consistent with the Code, to construe and
interpret the Plan and correct any defect, supply any omissions or reconcile any
inconsistencies in the Plan. Subject to the provisions of Section 6.3, such
action shall be final, conclusive and binding upon all persons, whether or not
claiming benefits under the Plan.
32
<PAGE> 17
ARTICLE VII
AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------
7.1 AMENDMENT OF THE PLAN. The Company shall have the right at any
time by action of the Board, to modify, alter or amend the Plan in whole or in
part.
7.2 TERMINATION OF THE PLAN. The Company reserves the right at any
time by action of its Board to terminate the Plan by resolution of the Board or
to reduce or cease contributions at any time.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 GOVERNING LAW. The Plan shall be construed, regulated and
administered according to the laws of the State of Indiana, except in those
areas preempted by the laws of the United States of America in which case such
laws will control.
8.2 HEADINGS AND GENDER. The headings and subheadings in the Plan have
been inserted for convenience of reference only and shall not affect the
construction of the provisions hereof. In any necessary construction the
masculine shall include the feminine and the singular the plural, and vice
versa.
8.3 ADMINISTRATION EXPENSES. The expenses of administering the Plan
shall be paid by the Company.
8.4 PARTICIPANT'S RIGHTS; ACQUITTANCE. No Participant in the Plan
shall acquire any right to be retained in the Company's employ by virtue of the
Plan, nor, upon his dismissal, or upon his voluntary termination of employment,
shall he have any right or interest in and to any assets of the Company other
than as specifically provided herein. Unless a trust is established in
connection with the Plan, the Company shall be liable for the payment of any
benefit provided for herein.
8.5 SPENDTHRIFT CLAUSE. No benefit or interest available hereunder
will be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors of the
Participant or the Participant's designated beneficiary, either voluntarily or
involuntarily.
8.6 COUNTERPARTS. The Plan may be executed in any number of
counterparts, each of which shall constitute but one and the same instrument and
may be sufficiently evidenced by any one counterpart.
8.7 NO ENLARGEMENT OF EMPLOYMENT RIGHTS. Nothing contained in the Plan
shall be construed as a contract of employment between the Company and any
person, nor shall the Plan be deemed to give any person the right to be retained
in the employ of the Company or limit the right of the Company to employ or
discharge any person with or without cause, or to discipline any Employee.
33
<PAGE> 18
8.8 LIMITATIONS ON LIABILITY. Notwithstanding any of the preceding
provisions of the Plan, neither the Company, the Committee nor any individual
acting as an employee or agent of either of them shall be liable to any
Participant, Employee or beneficiary for any claim, loss, liability or expense
incurred in connection with the Plan, except when the same shall have been
judicially determined to be due to the gross negligence or willful misconduct of
such person.
8.9 INCAPACITY OF PARTICIPANT OR BENEFICIARY. If any person entitled to
receive a payment under the Plan is physically or mentally incapable of
personally receiving and giving a valid receipt for any payment due (unless
prior claim therefor shall have been made by a duly qualified guardian or other
legal representative), then, unless and until claim therefor shall have been
made by a duly appointed guardian or other legal representative of such person,
the Company may provide for such payment or any part thereof to be made to any
other person or institution then contributing toward or providing for the care
and maintenance of such person. Any such payment shall be a payment for the
account of such person and a complete discharge of any liability of the Company
and the Plan therefor.
8.10 CORPORATE SUCCESSORS. The Plan shall not be automatically
terminated by a transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with any other corporation or other entity,
but the Plan shall be continued after such sale, merger or consolidation only if
and to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. In the event that the Plan is not continued by the
transferee, purchaser or successor entity, then the Plan shall terminate in
accordance with the provisions of Section 7.2.
SIGNATURES
IN WITNESS WHEREOF, the Company has caused this Supplemental Executive
Retirement Plan to be executed by its duly authorized officers, this 31st day of
December, 1992, but effective as of January 1, 1993.
HORIZON BANCORP
By: Robert C. Dabagia
-------------------------
Title: President
----------------------
ATTEST: [SEAL]
By: Larry E. Reed
-----------------
Title: Chairman
-----------------
34
<PAGE> 1
Exhibit 10.6 - Material Contract
FIRST AMENDMENT
---------------
TO
--
HORIZON BANCORP
---------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
WHEREAS, Horizon Bancorp (the "Company") maintains the Horizon Bancorp
Supplemental Executive Retirement Plan (the "Plan"); and
WHEREAS, the Compensation Committee of the Company's Board of Directors
has determined that it is in the Company's best interests to amend the Plan;
NOW, THEREFORE, pursuant to the power reserved to the Company under
Section 7.1 of the Plan and delegated to the undersigned officers by resolution
of the company's Board of Directors, the plan is hereby amended, effective
January 1, 1996 and with respect to all benefits accrued under the Plan on and
after such date, in the following particulars:
1. By substituting the following for Section 5.4 of the Plan:
"5.4 METHOD OF PAYMENT. Benefits shall be distributed
in a single lump sum payment or in substantially equal annual
installments over a period of not less than three (3) nor more
than twelve (12) years, or in a combination of those two (2)
methods, as elected by a Participant in accordance with the
provisions of Section 5.6."
2. By substituting the following for the first paragraph of
Section 5.5 of the plan:
"If a Participant dies before the distribution of his
benefits under the Plan commences, the Participant's benefits
shall be distributed to the Participant's designated beneficiary
or beneficiaries in a single lump sum or in substantially equal
annual installments or in a combination of those two methods, as
elected by the Participant in accordance with the provisions of
Section 5.6, as soon as reasonably practicable after the
Participant's death. Installment payments under this Section 5.5
shall be made over a period which is not less than three (3) nor
more than twelve (12) years. If a Participant dies after
distribution of his benefits under the Plan has begun, the
balance of the Participant's benefits yet to be distributed (if
any) shall continue to be distributed to the Participant's
designated beneficiary or beneficiaries in the manner in which
such benefits were being distributed on the date of the
Participant's death.
35
<PAGE> 2
3. By adding the following new Section 5.6 to the Plan to read as
follows:
"5.6 Payment Form Elections. A Participant shall
designate the method of payment to be used under Sections 5.4 and
5.5 at the time he becomes a Participant in this Plan on the form
authorized by and filed with the Committee. A Participant may
change such designation by completing and filing a new election
form with the Committee at any time but in no event later than
six (6) months prior to the date on which his benefits first
become distributable under Section 5.3. If no election is in
effect or if the Participant's election has not been timely or
properly made at the time distributions are to commence under
either Section 5.4 or 5.5, distribution shall be made in five (5)
substantially equal annual installments."
IN WITNESS WHEREOF, the Company has caused this amendment to be
executed on its behalf by its duly authorized officers this __________ day of
____________________, 1996, but effective as of January 1, 1996 and with respect
to all benefits accrued under the Plan on and after such date.
HORIZON BANCORP
By:
Robert C. Dabagia, President
ATTEST: [SEAL]
By:
Larry E. Reed, Chairman
36
<PAGE> 1
Exhibit 10.7 - Material Contract
SECOND AMENDMENT
TO
HORIZON BANCORP
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
WHEREAS, Horizon Bancorp (the "Corporation") maintains the Horizon
Bancorp Supplemental Executive Retirement Plan (the "Plan"); and
WHEREAS, the Corporation's Board of Directors has determined that it is
in the Corporation's best interests to amend the Plan.
NOW, THEREFORE, pursuant to the power reserved to the Corporation
under Section 7.1 of the Plan, the Plan is hereby amended, effective , 1996, in
the following particulars:
1. By adding the following new Section 4.3 to the Plan to read as
follows:
"4.3 CHANGE IN CONTROL.
(a) ESTABLISHMENT OF A TRUST DUE TO CHANGE IN
CONTROL OF THE COMPANY. Notwithstanding the
provisions of Sections 4.1 and 4.2, upon a
Change in Control of the Company, as defined
in Section 4.3(b), the Company shall, as
soon as possible, but in no event later than
ninety (90) days following the Change in
Control, establish a trust that shall
substantially conform to the model trust, as
described in Revenue Procedure 92-64. Upon
the creation of such trust, the Company
shall make an irrevocable lump sum
contribution to the trust in an amount that
is sufficient to pay all Plan Participants
and beneficiaries the benefits to which Plan
Participants or their beneficiaries would be
entitled pursuant to the terms of the Plan
as of the date on which the Change in
Control occurred.
37
<PAGE> 2
(b) DEFINITION OF CHANGE IN CONTROL. "Change in
Control" means a change in control of a
nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended,
or if Item 6(e) is no longer in effect, any
regulations issued by the Securities and
Exchange Commission pursuant to the
Securities Exchange Act of 1934 which serve
similar purposes; provided that, without
limitation, a Change in Control shall be
deemed to have occurred if and when (i) any
"person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) is or becomes a
beneficial owner, directly or indirectly, of
securities of the Company representing
twenty-five percent (25%) or more of the
combined voting power of the Company's then
outstanding securities or (ii) individuals
who were members of the Board of Directors
of the Company immediately prior to a
meeting of the shareholders of the Company
involving a contest for the election of
directors shall not constitute a majority of
the Board of Directors following such
election. Notwithstanding the foregoing, a
Change in Control of the Company shall not
occur as a result of the issuance of stock
by the Company in connection with any public
offering or private placement of its stock."
IN WITNESS WHEREOF, the Corporation has caused this amendment
to be executed on its behalf by its duly authorized officers this day of ,
1996, but effective as of , 1996.
HORIZON BANCORP
By:
-----------------------
Robert C. Dabagia, President
[ S E A L]
ATTEST:
By:
---------------------------
Larry E. Reed, Chairman
38
<PAGE> 1
Exhibit 10.8 - Material Contract
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT has been made and entered into as of the 1st
day of January 1997, among HORIZON BANCORP, an Indiana corporation (the
"Company"), HORIZON BANK, N.A., a national banking association (the "Bank"), and
THOMAS P. MCCORMICK, President and Chief Administrative Officer of the Company
and the Bank (the "Executive").
Section 1. Employment; Period of Employment
- --------------------------------------------
(a) The Company and the Bank jointly and severally hereby agree to
employ the Executive, and the Executive hereby agrees to become employed by the
Company and the Bank, upon and subject to the terms and conditions set forth
herein.
(b) The Company and the Bank shall employ the Executive on a full-time
basis, during the Period of Employment, which shall be deemed to have commenced
on the date of this Agreement and which shall end on December 31, 1999, except
as provided below. The Period of Employment shall be automatically extended for
one (1) additional year on December 31, 1997, and on each subsequent December
31, unless any party gives written notice of termination of such automatic
termination at least thirty (30) days prior thereto, in which event the Period
of Employment shall terminate at the end of the period in effect at the time
such notice is given.
Section 2. Position, Duties, Responsibilities
- ----------------------------------------------
(a) The Executive shall serve, during the Period of Employment, as an
employee of the Company and of the Bank with such duties and responsibilities as
the Executive shall have with the Company and the Bank on the date of this
Agreement. At all times during the Period of Employment, the Executive shall
hold a position with functions, duties and responsibilities at least equal in
responsibility, scope and importance to those of his position on the date of
this Agreement.
(b) Throughout the Period of Employment, the Executive shall devote his
full time and undivided attention during normal business hours to the business
and affairs of the Company and the Bank, except for reasonable vacations and
illness or incapacity, but nothing in this Agreement shall preclude the
Executive from engaging in charitable and community activities, and from
managing his personal investments, provided that such activities do not
materially interfere with the regular performance of his duties and
responsibilities under this Agreement.
(c) The office of the Executive shall be located in the executive
office section of the principal offices of the Company and the Bank in Michigan
City and the Executive shall not be required to locate his office elsewhere
without his prior written consent, nor shall he be required to be absent
therefrom on travel status or otherwise more than a total of twenty (20) working
days in any calendar year nor more than ten (10) consecutive days at any one
time, without his prior written consent.
Section 3. Compensation and Related Matters
- --------------------------------------------
(a) For all services rendered by the Executive in any capacity during
the Period of Employment, including, without limitation, services as an
executive officer, director or member of any committee of the Company or the
Bank or of any other subsidiary, division or affiliate of the Company or the
Bank, the Executive shall be paid as compensation:
(1) A base salary, payable not less often than semi-monthly, equal to
ONE HUNDRED NINETY THOUSAND DOLLARS ($190,000.00) with such increases
in such salary, commencing no later than January 1, 1998, as shall be
awarded from time to time in accordance with the published compensation
survey figures for comparable sized institutions used in the salary
administration program applicable to executives of the Company and the
Bank, and in no event less than the median amount reported by the most
recent Cole Survey or similar study for the comparable position with
banks of comparable assets;
39
<PAGE> 2
(2) Executive performance awards, stock options or appreciation rights,
bonuses, or other incentive grants ("Incentive Compensation Awards") at
least in equal amount, and of substantially the same kind, as those
awarded to any other executive of the Company or the Bank during the
Period of Employment, under any executive compensation plan existing on
the date of this Agreement as contained in the attached Exhibit A,
Schedule of Benefits, or any such plan that may hereafter be adopted
for the benefit of executives of the Company or the Bank generally; and
(3) Any other personal benefits or perquisites including, but not
limited to, social or business club memberships, and the use of any
other Company or Bank facility ("Nonpecuniary Benefits") to the same
extent and in the same manner as provided to the Executive on the date
of this Agreement as contained in the attached Exhibit A, Schedule of
Benefits, and to the same extent and in the same manner as provided to
any other executive of the Company or the Bank, and as provided
hereafter for the benefit of executives of the Company or the Bank
generally.
(b) Any increase in salary pursuant to clause (1) of paragraph (a) of
this Section or any Incentive Compensation Awards or Nonpecuniary Benefits shall
in no way diminish any other obligation of the Company or the Bank under this
Agreement.
(c) During the Period of Employment the Executive shall be entitled to
participate in any employee welfare benefit program, including any group
hospitalization or medical plan, health care plan, dental care plan, life or
other insurance or death benefit plan, or other similar plan or program in which
and to the maximum extent that any other executive of the Company or the Bank
may from time to time be entitled to participate. The Executive shall also be
entitled to participate in a retirement plan, pension plan, deferred
compensation plan, thrift plan, employee stock ownership plan, stock bonus plan
or similar plan or program in which and to the maximum extent that any other
executive of the Company or the Bank may from time to time be entitled to
participate. The Company and the Bank shall not thereafter make any changes in
such plans or programs or in any Incentive Compensation Award program which
would adversely affect the Executive's rights or benefits thereunder, unless
such change occurs pursuant to a change applicable to all executives of the
Company and the Bank and does not result in a proportionately greater reduction
in the rights of or benefits to the Executive as compared with any other
executive of the Company or the Bank.
(d) During the Period of Employment, the Executive shall be entitled to
the normal benefits attendant to his position, including, without limitation, an
office, secretarial and clerical staff, as well as to reimbursement, upon proper
accounting, of reasonable expenses and disbursements incurred by him in the
course of his duties.
(e) The Executive shall be entitled to the number of vacation days in
each calendar year and to compensation in respect of earned but unused vacation
or personal days, determined in accordance with the Company's and the Bank's
vacation plan or plans. The Executive shall also be entitled to all paid
holidays given by the Company and the Bank to their executives.
Section 4. Termination by the Company or the Bank for Cause
- ------------------------------------------------------------
(a) The Executive's employment under this Agreement may be terminated
by the Company and the Bank without a breach by the Company or the Bank of their
obligations under this Agreement only for "Cause" or for death or disability as
described in Section 5. For purposes of this Agreement, the Company and the Bank
shall have "cause" to terminate the Executive's employment during the Period of
Employment upon the happening of any of the following:
(1) The willful and continued failure of the Executive to substantially
perform his duties hereunder (other than any such failure resulting
from the Executive's incapacity due to physical or mental illness),
after demand for substantial performance is delivered to the Executive
by the Company or the Bank specifically identifying the manner in which
the Company or the Bank believes the Executive has not substantially
performed his duties; or
40
<PAGE> 3
(2) Any act that constitutes on the part of the Executive common law
fraud, dishonesty, or a felony, and which resulted in, or was intended
to result in, a benefit to the Executive at the expense of the Company
or the Bank, or conviction of a felony or crime of moral terpitude.
(b) For purposes of this Section, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company or the Bank.
(c) Termination for Cause shall be effective only upon the vote of not
less than a majority of the directors of the Company and the Bank then in
office, after reasonable notice to and an opportunity for the Executive,
together with his counsel, to be heard before a meeting of not less than a
majority of the Board of Directors of both the Company and Bank then in office,
and delivery to the Executive of a Notice of Termination stating that in the
good faith opinion of such directors the Executive was guilty of conduct
constituting Cause and specifying the particulars thereof in detail. The
effective date of the Executive's termination shall be referred to as the
"Termination Date." Should the respective Board of Directors deem it advisable,
the Executive may be relieved of all powers, duties and responsibilities pending
a determination of cause provided that all compensation and benefits due to
Executive shall continue pending such determination. In the event the Executive
is terminated for cause, then the Company or the Bank shall continue to pay the
Executive's base salary for a period of six (6) months thereafter together with
continuation of any hospitalization or medical plan, health care plan, dental
care plan, life or other insurance or death benefit plan unless such termination
for cause was based upon Section 4 (a) (2).
Section 5. Death or Disability
- -------------------------------
If, during the Employment Period, the Executive shall die, the
obligations imposed by this Agreement shall cease and terminate. In the event
Executive shall become disabled and thereby prevented from performing his duties
and responsibilities on a full-time basis, then his compensation shall be
adjusted as follows, to-wit:
(a) If disability occurs, the Executive shall be entitled to receive
his full salary, together with all other distributions, bonuses and benefits as
provided in Section 3 above, for nine (9) months, less any disability insurance
payments that are made to him under any policy of insurance in existence and
paid for by the Company or Bank. After nine (9) months, the Executive's base
salary shall be discontinued, provided that nothing herein contained shall
interfere with his right to receive disability insurance payments under the
terms of any disability insurance then in existence and paid for by the Company
or Bank.
(b) In administering this Agreement during any period of disability,
the following shall be applicable:
(1) The term "disability" whenever used in this Agreement shall mean
substantial inability to perform the services required under this
Agreement. When disabled , the Executive shall be excused from
rendering services to or for the Company and Bank. On termination of
such disability, the Executive shall be obligated to render the
services required by this Agreement. If, after discontinuation of his
base salary by reason of disability, the Executive returns to the
employ of the Company or Bank in the same capacity as prior to the
disability, he shall commence again to receive his full compensation
and other benefits as provided in this Agreement.
(2) During the period that the Executive is disabled and before the
expiration of nine (9) consecutive months of such disability, the
Company and the Bank shall not have the right to terminate this
Agreement.
(3) If following a period of disability, the Executive shall be able to
provide the services required in this Agreement and does so provide
such services in accordance with the provisions of this Agreement for a
continuous period of six (6) months or more, any subsequent disability
resulting from or contributed to by the same cause or causes shall be
regarded as a new period of disability and the Executive's rights under
this Section (5) shall commence again as if the same were a new
disability.
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<PAGE> 4
(4) If following a period of disability, the Executive provides the
services required under this Agreement for a continuous period of less
than six (6) months , then any subsequent disability occurring within
six (6) months of the return to service resulting from or contributed
to by the same cause or causes shall be deemed a continuation of the
previous disability and the entire period of disability shall be
treated as a single period.
(5) A medical certification shall be required to establish disability
and such certification shall be provided following an examination of
the Executive by a duly qualified and licensed doctor of medicine
appointed by the Company and Bank.
In the event a disability occurs for a continuous period of nine (9)
months or more, then the Board of Directors of the Company and the Bank, upon
the vote of not less than the majority of the Board of Directors of the Company
and not less than a majority of the Directors of the Bank, respectively, then in
office, may terminate the Executive by reason of disability. Termination by
reason of disability shall be effective ten (10) days following the delivery of
notice of termination to the Executive setting forth each Board's finding of
disability and the reasons therefore accompanied by a current medical
certification of the Executive's inability to substantially perform the services
required by this Agreement.
Section 6. Termination by the Executive for Good Reason
- --------------------------------------------------------
(a) In the event that the Executive should reasonably determine in good
faith that his status, functions, duties or responsibilities with either the
Company or the Bank have diminished subsequent to the execution of this
Agreement, and shall resign for that reason from his employment with both the
Company and the Bank during the Employment Period, the Executive shall be
considered to have resigned for Good Reason and, subject to the notice
requirement of Section 6 (b) hereof, shall be entitled to receive all of the
payments and enjoy all of the benefits specified in Section 7 hereof. Good
Reason shall also include the breach by the Company or the Bank of any of the
material terms, provisions, duties and responsibilities set forth in this
Agreement.
(b) The Executive shall be required to give a thirty (30) day Notice to
the Company and the Bank of his intent to resign for Good Reason. This Notice
shall include a statement of all reasons, including any breach of the terms of
this Agreement, for such resignation. The Company and/or the Bank shall have
thirty (30) days in which to cure any breach and remedy any reason for such
resignation. Failure by the Executive to provide the Notice required by this
section shall result in forfeiture by the Executive of all rights, payments and
benefits granted under Section 7 hereof.
Section 7. Severance Benefits
- ------------------------------
(a) In the event of the termination of the employment of the Executive
for a reason other than Cause or death or disability, subject to the notice
requirement of Section 6 (b) hereof where the Executive terminates his
employment for Good Reason, the severance benefits provided for by this
Agreement shall constitute the entire obligation of the Company and the Bank to
the Executive and shall constitute full settlement of any claim under law or in
equity that he might otherwise assert against the Company or the Bank or any of
their employees or Directors on account of such termination. Such amounts are
liquidated damages for the failure of the Company and the Bank to perform their
obligations under this Agreement and severance pay and are not a penalty.
(b) If the employment of the Executive is terminated by the Company
or the Bank for a reason other than Cause or death or disability or by the
Executive for Good Reason:
(1) The Company and the Bank shall pay the Executive in cash within ten
(10) business days following his Termination Date an amount equal to
the Executive's annual base salary at the highest rate during the
twelve (12) months preceding the Termination Date multiplied by (i)
three in the event of termination by the Company or the Bank of the
Executive for a reason other than Cause or death or disability, or (ii)
two in the event of termination by the Executive for Good Reason. The
Company and the Bank shall withhold from this and all other benefits
payable under this Agreement all Federal, State, City, County or other
taxes as shall be required pursuant to any law or governmental
regulation or ruling.
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<PAGE> 5
(2) Until the expiration of the Period of Employment, the Company will
maintain, and will cause the Bank to maintain, in full force and effect
for the continued benefit of the Executive (and his dependents as of
the Termination Date), each employee welfare benefit plan, including
any group hospitalization plan, health care plan, dental care plan,
life or other insurance or death benefit plan, or other similar present
group employee benefit plan or program, in which the Executive was
entitled to participate immediately prior to the Termination Date,
unless an essentially equivalent and no less favorable benefit is
provided by the Company and the Bank. If the terms of any employee
welfare benefit plan of the Company or the Bank do not permit continued
participation by the Executive following the Termination Date, then the
Company and the Bank shall arrange to provide to the Executive a
benefit substantially similar to, and no less favorable than, the
benefit he was entitled to receive under such plan at the end of the
period of coverage. The Executive shall have the option to have
assigned to him at no cost and with no apportionment of prepaid
premiums any assignable insurance policy owned by the Company or the
Bank and relating specifically to the Executive;
(3) If the Termination Date is prior to the date of normal retirement
as that term is defined in any defined benefit pension plan of the
Company or the Bank that may then be in effect, the Company and the
Bank will pay the Executive an amount equal to the difference between
the monthly annuity thereafter paid under the pension plan and that
which would have been paid under the pension plan had the Executive
remained in the employ of the Company and the Bank until the end of the
Employment Period; and
(4) The Company and the Bank shall pay for the benefit of the Executive
reasonable expenses for a period not to exceed one (1) year associated
with outplacement in a comparable position through a professional
placement firm.
Although the parties to this Agreement do not believe payments made
pursuant to this Section 7 would constitute "parachute payments" under Section
280G of the Internal Revenue Code, no payment shall be made to the Executive
hereunder to the extent such payment would constitute a non-deductible "excess
parachute payment" under Section 280G of the Internal Revenue Code of 1954, as
amended, or similar provisions then in effect.
Section 8. Mitigation
- ----------------------
The Executive shall not be required to mitigate the amount of any
payment provided for in Section 7 by seeking other employment of otherwise, nor
shall the amount of any payment provided for in Section 7 be reduced by any
compensation earned by the Executive as a result of employment by another
employer after the Date of Termination, or otherwise.
Section 9. Legal Expenses
- --------------------------
In the event that the Executive institutes any legal action to enforce
his rights under, or to recover damages for breach of this Agreement, the
Executive, if he is the prevailing party, shall be entitled to recover from the
Company of the Bank actual expenses for attorney's fees and disbursements
incurred by him.
Section 10. Confidentiality
- ----------------------------
(a) The Executive agrees not to disclose, either while in the Company's
or the Bank's employ or at any time thereafter, to any person not employed by
the Company or the Bank, or not engaged to render services to the Company or the
Bank, any confidential information obtained by him while in the employ of the
Company or the Bank, including, without limitation, any of the Company's or the
Bank's customers or trade secrets; provided, however, that this provision shall
not preclude the Executive from use or disclosure of information known generally
to the public or of information not considered confidential by persons engaged
in the business conducted by the Company or the Bank or from disclosure required
by law or Court order.
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<PAGE> 6
(b) The Executive agrees that all records and copies of the records
pertaining to the financial affairs, operations, customers and business of the
Company and the Bank and their affiliates, subsidiaries and divisions, including
but not limited to, customer lists and trade secrets, that are made or received
by the Executive in the course of his employment by the Company or the Bank
shall be the property of the Company of the Bank, and agrees to keep such
documents subject to the Company's or the Bank's custody and control and to
surrender to the Company or the Bank such of those documents as are still in his
possession at the termination of his employment. The Executive agrees not to
disclose or give possession of such documents or records to anyone except
authorized representatives of the Company or the Bank. The Executive further
agrees to return to the Company or the Bank at the Company's or the Bank's main
office any and all such documents or records and other property of the Company
or the Bank promptly upon termination of his employment.
Section 11. Non-Competition Agreement
- --------------------------------------
For a period of one (1) year immediately following the termination,
with or without cause, or expiration of this agreement, the Executive shall not,
within a radius of thirty (30) miles from the then present principal place of
business of the Company and Bank, directly or indirectly, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
management, operation, or control of any bank holding company, state or national
bank, savings and loan association, or financial institution engaging in a
business substantially similar to the type of business then conducted by the
Company and Bank at the time of termination or expiration of this agreement,
provided that nothing contained in this clause shall be construed to prevent or
prohibit Executive from acquisition or sale of shares, bonds, notes or other
securities in other financial institutions so long as such ownership, whether
direct or beneficially held, does not violate the provisions contained in this
section. In the event of the Executive's actual or threatened breach of the
provisions of this section, the Company and Bank shall be entitled to an
injunction restraining the Executive therefrom. Nothing contained herein shall
be construed as prohibiting the Company and Bank from pursuing any other
available remedies for such breach or threatened breach, including the recovery
of damages from the Executive, together with attorneys' fees and costs incurred
in the enforcement of this section.
Section 12. Notices
- --------------------
All notices, requests, demands and other communications provided for by
this Agreement shall be in writing and shall be sufficiently given if and when
mailed in the continental United States by registered or certified mail or
personally delivered to the party entitled thereto at the address stated below
or to such changed address as the addressee may have given by a similar notice:
To the Company and the Bank:
Horizon Bancorp/Horizon Bank
515 Franklin Square
Michigan City, IN 46360
Attention: Corporate Secretary
To the Executive: Mr. Thomas P. McCormick
3521 Pottawattomie
Michigan City, IN 46360
Any such notice delivered in person shall be deemed to have been
received on the date of delivery.
Section 13. General Provisions
- -------------------------------
(a) No right or interest to or in any payments shall be assignable by
the Executive; provided, however, that this provision shall not preclude him
from designating one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude the legal representative of his
estate from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of the Executive's estate.
44
<PAGE> 7
(b) No right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation, in respect of any claim, debt or obligation, or to execution,
attachment, levy or similar process, or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall, to the full extent permitted by law, be
null, void and of no effect.
(c) In the event of the Executive's death, reference in this Agreement
to the Executive shall be deemed, where appropriate, to refer to his legal
representative or to his beneficiary or beneficiaries.
(d) The titles to sections in this Agreement are intended solely for
convenience and no provision of this Agreement is to be construed by reference
to the title of any section.
(e) This Agreement shall be binding upon and shall inure to the benefit
of the Executive, his heirs and legal representative and the Company, the Bank
and their successors as provided in Section 15 hereof.
(f) No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof, have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Indiana.
Section 14. Amendment of Modification; Waiver
- ----------------------------------------------
No provision of this Agreement may be amended, modified or waived
unless such amendment, modification or waiver shall be authorized by the Boards
of Directors of the Company and the Bank or any authorized committee of the
Boards of Directors and shall be agreed to in writing, signed by the Executive
and by an officer of the Company and the Bank thereunto duly authorized. Except
as otherwise specifically provided in this Agreement, no waiver by either party
hereto of any breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar provision or condition at the same or at any prior or
subsequent time.
Section 15. Severability
- -------------------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, or in the event that
any party hereto is determined not to be bound hereby, the remaining provisions
and portions of this Agreement and the obligations of the other parties to this
Agreement shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by law.
Section 16. Successors to the Company or the Bank
- --------------------------------------------------
Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the Company, the Bank and any successor of the
Company or the Bank, including, without limitation, any corporation or
corporations acquiring directly or indirectly all or substantially all of the
assets of the Company or the Bank whether by merger, consolidation, sale or
otherwise (and such successor shall thereafter be deemed "the Company" or "the
Bank" for the purposes of this agreement), but shall not otherwise be assignable
by the Company or the Bank. The Company and the Bank shall require any
successor, by agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company and the Bank would be required to perform it if
no such succession had taken place. Failure of the Company and the Bank to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive to terminate his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
45
<PAGE> 8
Section 17. Counterparts
- -------------------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute the same instrument.
IN WITNESS WHEREOF, the Company, the Bank and the Executive have
executed this Agreement as of the date and year first above written.
HORIZON BANCORP
By:
-------------------------
Larry E. Reed
Chairman
ATTEST:
- --------------------------
Diana E. Taylor, Secretary
HORIZON BANK
By:
-------------------------
Larry E. Reed
Chairman
ATTEST:
- --------------------------
Diana E. Taylor, Secretary
"EXECUTIVE"
--------------------------
Thomas P. McCormick
46
<PAGE> 9
EXHIBIT A
---------
SCHEDULE OF BENEFITS
--------------------
Thomas P. McCormick
-------------------
1. Country Club Membership, personal and business use:
a. Pottawattomie Country Club
b. Long Beach Country Club
c. Others as desired and prudent
2. Luncheon Club Memberships, personal and business use:
a. As desired and prudent
3. Service Club Memberships
a. As desired and prudent
4. Inclusion in annual incentive compensation programs as approved by the Board
for management.
5. Inclusion in general benefit programs for medical, disability, life
insurance, etc., as approved by the Board and management for employees.
6. Inclusion in the ESOP, 401K, SERP, Stock Option Plan or any similar plan(s)
approved and as administered by the Board of Directors.
47
<PAGE> 1
EXHIBIT 13
A REPORT TO OUR SHAREHOLDERS, OWNER-EMPLOYEES, CUSTOMERS AND COMMUNITY
This report to you, our stakeholders, provides us the opportunity to detail
several important aspects of Horizon Bancorp (Horizon) and its subsidiaries,
Horizon Bank, N.A. (Bank), IMS Investment Management, N.A. (IMS), HBC Insurance
Group, Inc. And The Loan Store, Inc. Enclosed you will find information on the
financial performance of Horizon, other operating results and our vision for the
future of Horizon financial services delivery. Horizon is a Michigan City,
Indiana based holding company that serves clients with offices in Northwest
Indiana. Horizon, through Bank, was established in 1873. At December 31, 1996
total corporate assets were $382.0 million and IMS assets under administration
were $405.5 million.
Horizon's principal businesses are commercial banking conducted through Bank and
investment and wealth creation services conducted through IMS, a national trust
bank chartered in 1996. In 1984, Horizon 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 Bank. 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 charted as
a finance company. This subsidiary offers a wide variety of credit services to
consumers.
pg. 2 Financial Highlights
pg. 4 The Future of Financial Services Delivery
pg. 13 Management Discussion & Analysis
pg. 35 Financial Statements
pg. 64 Corporate Structure
1
<PAGE> 2
<TABLE>
<CAPTION>
Horizon Bancorp Financial Highlights
1996 1995 % Change
---- ---- --------
<S> <C> <C> <C>
OPERATING RESULTS
Net Interest Income 16,433 15,150 8.47%
Fees on Investment Management Activities 2,094 1,769 18.37%
Net Income 3,824 3,039 25.83%
Return on:
Average Total Assets 1.04% 0.86%
Average Shareholders Equity 11.67% 10.09%
Net Interest Margin (taxable equivalent) 4.87% 4.71%
BALANCE SHEET AND INVESTMENT MANAGEMENT
Total Loans 271,476 241,662 12.34%
Total Assets Under Management at Market Value 405,508 347,699 16.63%
Total Deposits 289,180 288,984 0.07%
Total Assets 382,038 368,013 3.81%
Shareholders Equity 33,508 32,371 3.51%
STOCK DATA (PER SHARE)
Earnings $5.19 $4.12 25.97%
Cash Dividends Declared 1.40 1.20 16.67%
Book Value 46.40 43.18
Market Value:
Period End - Bid 47.00 35.50
High 47.00 35.50
Low 35.63 30.00
Weighted Average Shares Outstanding 736,887 750,286
</TABLE>
2
<PAGE> 3
The December 31 retirement of Bob Dabagia as President brought to close a
distinguished 35 year banking career, 17 years of which were with Horizon and
Citizens Bank. We are grateful to Bob for the contributions and dedication he
brought to Horizon. Bob played an important role in the successful
transformation of our company. His leadership, integrity and hard work earned
him a position of well-deserved prominence in our community. He has, and
continues to contribute generously of his time and expertise to many civic,
educational and charitable organizations.
We extend our deepest appreciation to Bob for his thoughtful contributions. His
vision and perseverance helped lay the foundation for the future of Horizon.
3
<PAGE> 4
THE FUTURE OF FINANCIAL SERVICES DELIVERY
We have been preparing Horizon Bancorp for the future of financial services. It
started with the vision to reinvent our culture. We know that the business of
banking is changing dramatically ..... and quickly. While many bankers see the
greatest competitive threat from other banks we see the competition coming from
non-bank competitors delivering non-traditional products and services.
While 1996 was a record year for net income, investment management growth, loan
growth, earnings per share and market price per share we still strive to reach
the higher levels of performance we believe this organization is capable of
achieving.
Horizon is building a leading market position in personal investment management,
small business lending, consumer lending and financial convenience by expanding
its atm network and a new approach to the delivery of financial services through
its newly created Horizon Technology Centers. The Horizon Technology Centers
include several self-service platforms such as automated loan machines,
financial planning models and automated merchant services.
Our business strategy also includes investing in our owner-employees through
extensive training programs to ensure we continue the level of outstanding
service needed to maintain our leading market position. Our strategy also
includes helping to build stronger communities by wisely investing resources -
human and financial - in sound programs and innovative partnerships. Horizon
owner-employees strive to make a positive difference in the lives of those who
live in the communities we serve.
In March 1997 we changed the name of First Citizens Bank, N.A. to Horizon Bank,
N.A. The name change reflects our renewed energy and purpose. Horizon Bank is
dedicated to greater choice and more convenience, to helping enhance the quality
of our customers lives and providing the opportunity to acquire a level of
wealth that will meet realistic goals through products and technology designed
to fit human needs. We believe Horizon Bank more accurately reflects the new
organization that has emerged.
4
<PAGE> 5
We acknowledge the inevitability of structural change driven by the marketplace
forces that have changed the basis, nature and intensity of competition for
customers. It is obvious to us that within five years the traditional bank will
no longer dominate its market. In its place will be a new kind of institution,
organized into discrete business units:
- wealth creation
- quality of life
- financial convenience.
Your company is being transformed from a single, integrated business requiring
only financial performance measures to a diversified financial services provider
requiring separate, yet interrelated business units requiring different
strategies, organization capabilities, performance standards and measurements.
We believe we are well prepared for the transformation.
To build and maintain market leadership, Horizon's business unit strategies
concentrate on these three distinct, yet interrelated concepts which are best
described in nontraditional terms. The following pages describe these concepts
and how they are incorporated into our business strategies with highlights of
the most noteworthy activities and initiatives that are taking place.
5
<PAGE> 6
Wealth Creation
- ---------------
The primary economic force that is common to individuals and
households is their interest in acquiring a measurable and
sustainable level of wealth that will meet their realistic goals.
While banks have historically perceived themselves to be
collectors of deposits and makers of loans and in that process to
take some interest risk as a financial intermediary, in the past
two decades our most valued customers have sought out other
financial service providers who have articulated their roles as
wealth creators. In that process banks have moved from a position
of holding 80% of the financial assets of these customers to a
position of holding 20% today. That data demonstrates the urgent
need to bring wealth creation to the front of our design projects
when we create the architecture for products, delivery systems and
technology.
6
<PAGE> 7
While banks have not traditionally positioned themselves as providers of
sophisticated financial advisory services - we are changing that perception. In
late 1996 we moved our Trust Division into an autonomous business unit of
Horizon Bank named IMS Investment Management, N.A. IMS is a trust bank that
exclusively delivers wealth creation products and services. It does not make
loans or accept FDIC insured deposits of Horizon Bank. Its sole mission is to
create wealth for its clients.
This business unit holds great promise. IMS does not underestimate the
importance of the longer-term contest with nimbler and powerful nontraditional
financial service providers that have been steadily stealing customer "share of
wallet" - and show no signs of letting up.
We saw earlier than most the critical importance of developing Personal Trust at
the community bank level. U.S. demographic trends are favorable for the growth
of retirement assets and the substantial transition of wealth through
inheritance. IMS's risk management profile and strong investment standards will
enable us to expand this attractive niche as the larger personal trust providers
continue to substantially raise the minimum amount of investable assets they are
willing to manage.
The IMS Smart Rewards programs focuses on smaller investment account
relationships using a select list of mutual funds. Smart Rewards representatives
are already in many of our sales offices. This segment of our investment
management business should grow significantly as investors continue to seek
alternatives to traditional bank deposit products.
As a highly focused company, IMS has developed an effective business strategy
encompassing fiduciary, investment, custody and personal banking services.
Substantial investments in technology and training combined with highly skilled
professionals, have produced a business unit that well positions IMS for future
growth and expansion. Our relationship focus ensures that clients receive high
value services we can deliver profitably.
7
<PAGE> 8
Quality of Life
- ---------------
A very close second to wealth creation is the desire by customers
to enjoy a high quality of life throughout their lifetime. Their
definitions of quality of life vary and change during their lives.
While we are not the determining influence as to how much they
earn in order to support their quality of life, we can play a
major role in the planning and use of financial supplements
(loans) that they use in managing their life style and quality of
life. We have already modified much of our role in this process
through credit scoring, automated loan machines and sales office
delivery. However, we must also design into these products the
features that give greater recognition to the lifestyle selection
of the customer.
8
<PAGE> 9
Lending and credit risk are inherent to the banking business. It has always been
necessary for us to understand and measure credit risk. Judgement has
traditionally been used in credit decisions for all loans - large and small
(whether it was needed or not). This usually meant that an underwriter needed to
be located in every sales office. Pricing was not risk based. The teenager with
a limited credit history getting her first car loan received the same interest
rate and terms as the two-wage family with an unblemished credit history.
We have changed this inefficient method of measuring and pricing credit risk for
consumer and residential lending. Our credit scoring systems have allowed
Horizon to significantly increase consumer loans and yield while maintaining
acceptable levels of delinquency and charge-offs.
In recent years Horizon has undertaken a very strong and consistent investment
in technology and sales training programs to better equip our representatives in
the credit approval process. These investments include implementation of the
scoring models mentioned above, documentation standards driven by credit score,
automated documentation preparation systems, rewriting policies and procedures
to align with the change in processes and providing the high level of training
needed to maintain an effective sales force that delivers responsive,
value-added credit services to our customers.
Our consumer finance company, The Loan Store, Inc., is performing and expanding
at expected levels. With locations in Highland, Merrillville and South Bend,
Indiana we expect this company to grow to six offices by 1998. This entity is
entirely consistent with our Quality of Life strategy. Consumer finance company
laws allow this company to expand into markets with greater ease and lower costs
than a traditional bank branch while at the same time providing stronger net
interest margins.
Our business lending unit is beginning to leverage many of the technologies we
initially employed in consumer credit risk analysis. With the emergence of
credit scoring models for small business and our proven use of pricing driven by
the credit score we expect to provide a higher level of responsiveness to
customer needs while at the same time lending at a rate of return based upon
expected future servicing needs and risk.
Mortgage lending is another business unit we expect to move into an autonomous
subsidiary in the near future. To effectively compete with the nontraditional
financial service providers we need to originate residential mortgage loans in
markets outside our traditional trade areas, sell them on the secondary markets
and either elect to retain or sell the servicing rights. Because this strategy
is not deposit growth dependent, the volume of loans we can originate and sell
is only limited by our ability to attract and retain an inspired sales force.
9
<PAGE> 10
Financial Convenience
- ---------------------
This sector of our business constitutes the activities that are
generally used most frequently and valued the least by customers.
This is the transfer of payment process, the collection of
deposits, teller sold items, help in balancing checkbooks, etc.
These are for the most part the services that are used most
frequently by 80% of our lobby customers.
10
<PAGE> 11
The emergence of the new consumers of the 1990s is profoundly changing the
structure and delivery of services to value-conscious consumers. No longer can
we gauge trends across mass markets. We need to offer products and services that
add value yet deliver them in a profitable individualized mix of product, price
and distribution points.
We are using technology to allow consumers access to information and service at
their convenience.
We have been working hard to abandon the "old" banking paradigm of catering to
all customers regardless of profitability. We agree with prominent banking
research companies who find that 200% of our profit comes from 20% of our
customers. The growing disaffection of our most profitable customers by either
leaving altogether or, more typically, rapidly reducing their balances will
ultimately result in lower profits.
We believe that services providers in the Financial Convenience arena cannot
provide one level of services that fits all. We are shifting service choices to
retain our most valuable customers while at the same time providing alternative
delivery choices for the 80% who are presently unprofitable.
To that end we have redesigned our consumer checking account products to provide
all customers with the opportunity to select the level of Financial Convenience
they need while at the same time expanding our numbers of profitable accounts.
Profitability aside, customers also want direct access to their financial
information. Many no longer have time to stop by for a chat with their banker.
They want information technology that allows them to perform commonly used
services at ATMs, voice response systems, automated loan machines and at home on
their PC.
Our new Horizon Technology Centers provide customers a sales-office based
platform that is accessible before and after scheduled office hours. This new
concept is being introduced at our new South Franklin office in Michigan City.
In it customers will find ATMs, an automated loan machine, financial planning
models, voice response system access, automated merchant services and even areas
where our customers of the future can play with personal computers equipped with
fun ways to learn about financial services.
11
<PAGE> 12
1997 and Beyond
Horizon's challenge will be to profitably offer products, services and delivery
that are consistent with our wealth creation, quality of life and financial
convenience strategies. Critical to meeting that challenge will be communicating
the business plan with and developing the business plan through every
owner-employee of Horizon. We have begun that process. We also place a very high
degree of importance in linking owner-employee training and development programs
to the business plan. We are successfully continuing that process. We also see
the development and distribution of technology that allows all customers to be
profitable at all levels of activity and balances critical to our success. We
acknowledge that implementing our business plan in an environment that continues
to favor less regulated non-bank competitors vying for the most profitable
customers in all three concepts - wealth creation, quality of life and financial
convenience - of our business will be increasingly challenging. Horizon Bancorp,
however, is well positioned to meet these challenges having embarked on a
focused set of strategies to create a "new" diversified financial services
company through IMS Investment Management, The Loan Store, Inc., HBC Insurance
Group, Inc. and Horizon Bank.
12
<PAGE> 13
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ANALYSIS OF FINANCIAL CONDITION
Investment Securities
- ---------------------
Horizon maintains an overall investment portfolio of high quality with very low
credit risk. Investment securities totaled $71.851 million at December 31, 1996
and consisted of U.S. Treasury and Government Agency securities of $7.861
million (11%); Municipal securities of $10.017 million (14%); Other securities
of $4.146 million (6%); and Mortgage Backed securities of $49.827 million (69%).
Total investment securities decreased 17.5% from 1995. The decrease was from
principal and interest payments received on mortgage backed securities and from
the maturity of investments, primarily U.S. Treasury and Government Agency
securities. These funds were used primarily to fund loan growth during 1996.
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, 1996, the mortgage backed securities in the investment portfolio had an
average life of 6.63 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.
13
<PAGE> 14
Mortgage backed securities are repriced when the underlying mortgages carry
adjustable interest rates, some of which may have caps. Approximately 39% 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 1997, are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Amount Yield
------ -----
<S> <C> <C>
First Quarter, 1997 $ 969 7.36%
Second Quarter, 1997 3,995 7.19%
Third Quarter, 1997 10,711 7.66%
Fourth Quarter, 1997 2,166 8.00%
</TABLE>
The portion of the investment portfolio that is represented by the securities of
State and Political Subdivisions is generally rated by Standard and Poor's
and/or Moody's Investors Service. At December 31, 1996, this portion of the
investment portfolio had an original cost of $10.017 million and of that amount,
$8.218 million (82%) were rated AAA; $666 thousand (7%) were rated AA or A; and
$1.113 million (11%) 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 adoption of FAS
115.
14
<PAGE> 15
At December 31, 1996, 82.2% of investment securities were classified as
available for sale compared to 86.0% at December 31, 1995. 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 $145 thousand, which resulted in a $85
thousand addition, net of tax, to stockholders' equity at December 31, 1996.
This compared to a $466 thousand, net of tax, addition to stockholders' equity
at December 31, 1995.
Currently, Horizon does not maintain a trading account and is not using any
derivative products for hedging or other purposes.
Loans
- -----
Total loans were $271.476 million at December 31, 1996, the principal earning
asset of Bank . The current level of loans is an increase of 12.34% from the
December 31, 1995 level of $241.662 million. As the table below indicates, the
increases are primarily in 1-4 family real estate loans which increased $14.822
million or 12.75%, working capital and equipment loans which increased $7.822
million or 15.18% and consumer real estate/home improvement loans which
increased $6.227 million or 45.45%. These increases were offset by the sale of
consumer education loans in July, 1996 which reduced education loans by $9.765
million or 99.10%.
15
<PAGE> 16
<TABLE>
<CAPTION>
(In thousands) $ %
December 31 1996 1995 Change Change
- ----------- ---- ---- ------ ------
<S> <C> <C> <C> <C>
Real estate loans:
1-4 Family $131,071 $116,249 14,822 12.75%
Multifamily 466 729 (263) -36.08%
Other 2,202 2,761 (559) -20.25%
-------- -------- ------ -----
Total 133,739 119,739 14,000 11.69%
Commercial Loans:
Working Capital and Equipment 59,359 51,537 7,822 15.18%
Real Estate, including Agriculture 5,698 7,006 (1,308) -18.67%
Tax Exempt 6,926 5,895 1,031 17.49%
Other 3,477 1,687 1,790 106.11%
-------- -------- ------ -----
Total 75,460 66,125 9,335 14.12%
Consumer Loans:
Auto 20,353 16,799 3,554 21.16%
Recreation 1,434 1,095 339 30.96%
Real Estate/ Home Improvement 19,929 13,702 6,227 45.45%
Education 89 9,854 (9,765) -99.10%
Home Equity 4,041 3,211 830 25.85%
Credit Cards 7,244 6,018 1,226 20.37%
Unsecured 5,154 1,605 3,549 221.12%
Other 4,033 3,514 519 14.77%
-------- -------- ------ -----
Total 62,277 55,798 6,479 11.61%
Grand Total $271,476 $241,662 29,814 12.34%
======== ======== ====== ======
</TABLE>
16
<PAGE> 17
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.
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.
Real Estate Loans
- -----------------
Real estate loans totaled $133.739 million or 49% of total loans as of December
31, 1996, compared to $119.739 million or 50% as of December 31, 1995. 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 $2.657 million and $2.996 million at
December 31, 1996 and 1995, respectively.
In addition to the customary real estate loans described above, Bank also had
outstanding on December 31, 1996, $4.041 million in home equity lines of credit
and $3.211 million at December 31, 1995. 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.
17
<PAGE> 18
Residential real estate lending is a highly competitive business. As of December
31, 1996, the real estate loan portfolio reflected a wide range of interest rate
and repayment patterns, but could generally be categorized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
|-----------------1996-------------| |-------------1995---------------|
Percent of Percent of
---------- ----------
Amount Portfolio Yield Amount Portfolio Yield
------ --------- ----- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate
Monthly Payment $53,508 40.01% 7.90% $ 55,602 46.44% 7.92%
Bi-Weekly Payment 25,782 19.28% 7.84% 25,951 21.67% 7.85%
Adjustable Rate
Monthly Payment 53,807 40.23% 7.49% 37,439 31.27% 7.62%
Bi-Weekly Payment 642 0.48% 8.18% 747 0.62% 8.76%
--- ----- ----- --- ----- -----
Total $133,739 100.00% 7.74% $119,739 100.00% 7.83%
======== ======= ===== ======== ======= =====
</TABLE>
In addition to the real estate loan portfolio, Bank sells real estate loans
which it services. On December 31, 1996, the portfolio serviced consisted of 359
loans totaling $19.609 million. The sale of real estate loans was greatly
diminished during 1995, but sales resumed in 1996. Total loans sold during 1996
totaled $6.392 million.
18
<PAGE> 19
Commercial Loans
- ----------------
Commercial loans totaled $75.460 million or 28% of total loans as of December
31, 1996, compared to $66.125 million or 27% as of December 31, 1995.
Commercial loans consisted of the following types of loans at December 31:
<TABLE>
<CAPTION>
(In thousands)
|----------------------1996---------------------| |-------------------1995------------------|
Percent of Percent of
Mumber Amount Portfolio Number Amount Portfolio
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
SBA Guaranteed Loans 43 $4,748 6.29% 44 $4,961 7.50%
Municipal Government 63 8,884 11.77% 28 8,144 12.32%
Lines of Credit 149 16,192 21.46% 135 16,868 25.51%
Real Estate and Equipment Term Loans 296 45,636 60.48% 312 36,152 54.67%
--- ------ ------ --- ------ ------
Total 551 $75,460 100.00% 519 $66,125 100.00%
=== ======= ======= === ======= =======
</TABLE>
First Citizens Bank was recognized by the State of Indiana as the top lender in
the state sponsored Capital Access Program for the third year and is a Certified
Lender with the Small Business Administration.
Consumer Loans
- --------------
Consumer loans totaled $62.277 million or 23% of total loans as of December 31,
1996, compared to $55.798 million or 23% as of December 31, 1995. The total
consumer loan portfolio increased 9.6% in 1995 despite the planned reduction in
the indirect loan portfolio of 8.0%. In 1996, the consumer loan portfolio
continued to grow, increasing 11.61% even after the sale of education loans
totaling $9.765 million or 17.66% of the consumer portfolio. These increases can
be attributable to Bank's strong emphasis on direct lending in the 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.
19
<PAGE> 20
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, 1996, the allowance for loan losses was .90% of total loans
outstanding, compared to 1.15% at December 31, 1995.
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 status. Nonperforming loans for the previous three years ending
December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Nonperforming Loans $ 998 $ 1,201 $ 3,268
===== ======= =======
</TABLE>
Nonperforming loans were .41 times the allowance for loan losses at December 31,
1996 compared to .43 and 1.28 times the allowance for loan losses on December
1995 and 1994, respectively. The decrease in the nonperforming loans 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 a
period of six months or longer.
20
<PAGE> 21
Bank adopted FAS 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.
FAS 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 real
estate 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:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Other real estate owned $500 $4,193 $5,730
Allowance for OREO losses 151 1,075 1,801
---- ------ ------
Net other real estate owned $349 $3,118 $3,929
==== ====== ======
</TABLE>
21
<PAGE> 22
The decline in OREO during 1996 is a result of the sale of one property owned by
Bank's wholly owned subsidiary, Trail Creek Properties, Inc. ("TCP"). On August
14, 1996, TCP announced it had signed an agreement with Indiana Blue Chip Hotel
& Riverboat Casino Resort Corp. ("Blue Chip") for the sale of property commonly
known as Newport Marina and some surrounding contiguous and noncontiguous
parcels. This property is to be used for a riverboat gaming site. The Newport
Marina property was acquired by TCP in 1990 in a foreclosure action on a
defaulted loan. The sale, consummated on November 4, 1996, resulted in a gain of
approximately $1 million, net of tax.
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 $289.180
million at December 31, 1996 compared to $288.984 million at December 31, 1995
or an increase of .07% . Below is a table of average deposits and rates by
category for the previous three years ending December 31.
<TABLE>
<CAPTION>
(In Thousands)
Average Balance Average Rate
Outstanding for the Paid for the
Year Ended December 31 Year Ended December 31
---------------------- ----------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C>
Noninterest-bearing
demand deposits $ 33,680 $ 34,186 $ 34,193
Interest-bearing
demand deposits 53,851 51,802 52,529 1.48% 1.47% 1.49%
Savings deposits 70,386 76,127 90,482 2.25 2.25 2.49
Time deposits 132,780 125,690 113,288 5.44 5.42 3.94
--------- --------- ---------
Total deposits $ 290,697 $ 287,805 $ 290,492
========= ========= =========
</TABLE>
Management believes that the slow growth 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. Plans for 1997
include growth in deposits, especially time deposits, and will likely cause an
increase in the average rate paid.
22
<PAGE> 23
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 ESOP 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 ESOP 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 July 3, 1996, after obtaining approval from all required regulatory agencies,
the ESOP borrowed $965,500 directly from Horizon and utilized the proceeds to
purchase 23,550 shares from unrelated shareholders. In exchange, the ESOP issued
a Term Note and Security Agreement to Horizon.
As of December 31, 1996, 135,930 shares were allocated to employees combined
with 179,427 unallocated shares for a total of 315,357 shares in the ESOP.
Dividends paid on 135,930 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, from a capital retention
standpoint, the ESOP 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.
23
<PAGE> 24
As of December 31, 1996, the ESOP owned 34.91% 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 38.54%, excluding vested stock options, as
of December 31, 1996.
At December 31, 1996, the ESOP paid $512,700 to Horizon in order to release
17,607 shares which were allocated to participants.
CAPITAL RESOURCES
- -----------------
The capital resources of Horizon and Bank remain strong and exceed regulatory
capital ratios for "well capitalized" banks at December 31, 1996. Stockholders'
equity totaled $33.508 million ($4.211 million from ESOP) as of December 31,
1996 compared to $32.371 million ($3.818 million from ESOP) as of December 31,
1995. The increase in stockholders' equity during 1996 is the result of net
income, net of dividends paid offset by the decrease in the market value of
investment securities available for sale accounted for as an addition/reduction
of stockholders' equity. At year end 1996, the ratio of stockholders' equity to
assets was 8.77% compared to 8.80% for 1995.
Horizon has selectively purchased shares that became available in the market
from time to time. During 1996, management purchased 8,778 shares at a cost of
$368 thousand compared to 21,562 shares at a cost of $745 thousand and 7,041
shares at a cost of $233 thousand for 1995 and 1994, respectively.
Horizon paid dividends in the amount of $1.40 per share in 1996 and $1.20 per
share in 1995 and 1994. The dividend pay-out ratio (dividends as a percent of
net income) was 27% during 1996 as compared to 29% and 34% in 1995 and 1994,
respectively. The dividend pay-out ratio is lower in 1996 and 1995 because net
income includes the gain on sale of OREO of approximately $1 million, net of
tax, in 1996 and the Federal and State tax refunds of $1.252 million, including
interest, in 1995. The dividend pay-out ratio excluding the OREO gain and tax
refunds would be 37% and 50% in 1996 and 1995, respectively. 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.
24
<PAGE> 25
As of December 31, 1996, 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.
IMS INVESTMENT MANAGEMENT
- -------------------------
On October 1, 1996, the Bank formed a wholly-owned subsidiary, IMS Investment
Management, N.A. (IMS). IMS manages the majority of the trust accounts
previously managed by Bank. Assets under management of IMS had a book value of
$351 million at December 31, 1996 compared to $319 million at December 31, 1995.
This represents a 10.0% increase over 1995.
The book value and market value of assets held in IMS at December 31, 1996 by
asset type are as follows: (In thousands)
<TABLE>
<CAPTION>
Book Value Percentage Market Value Percentage
<S> <C> <C> <C> <C>
Cash $1,388 0.40% $1,388 0.34%
Money Market Funds 56,692 16.14% 56,692 13.98%
Government and Agency Bonds 88,772 25.28% 89,305 22.02%
Municipal Bonds 49,137 13.99% 50,369 12.42%
Corporate Bonds 38,237 10.89% 38,629 9.53%
Common and Preferred Stock 86,970 24.76% 137,681 33.96%
Mutual Funds 24,916 7.09% 26,721 6.59%
Miscellaneous 5,095 1.45% 4,723 1.16%
-------- ------ -------- ------
Total $351,207 100.00% $405,508 100.00%
======== ======= ======== =======
</TABLE>
25
<PAGE> 26
IMS 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, 1996 are as follows:
<TABLE>
<CAPTION>
(In thousands)
Book Value Percentage
---------- ----------
<S> <C> <C>
Agencies $147,901 42.11%
Estates and Guardianships 3,309 0.94%
Personal Trusts 100,246 28.55%
Employee Benefit 99,206 28.25%
Corporate Agency 437 0.12%
Other 108 0.03%
-------- ------
Total $351,207 100.00%
======== =======
</TABLE>
Agencies total 42.11% of the book value of the accounts administered by IMS at
December 31, 1996. In an agency account, IMS typically holds assets for a client
and maintains records of these assets. IMS may or may not have the
responsibility for making investment decisions on this type of account. Personal
trusts consist of 28.55% of the assets managed by IMS. In a personal trust, IMS
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 IMS or the grantor of the personal trust. Employee benefit agencies and
trusts are 28.25% of the assets in IMS. Responsibilities of IMS 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.
26
<PAGE> 27
RESULTS OF OPERATIONS
NET INCOME
- ----------
Consolidated net income was $3.824 million or $5.19 per share for 1996 compared
to $3.039 million or $4.05 per share and $2.668 million or $3.48 per share in
1995 and 1994, 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 $4.409 million or $5.98 per share for
1996, compared to $3.631 million or $4.84 per share and $2.828 million or $3.68
per share in 1995 and 1994 respectively. In November, 1996, a gain on sale of
OREO was recorded totaling approximately $1 million or $1.35 per share, net of
tax. 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.
27
<PAGE> 28
<TABLE>
<CAPTION>
--------------1996------------ -------------1995-----------------
Average Yield/ Average Yield/
(In thousands) Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans - total (1) (3) $256,580 $23,096 9.00% $226,198 $20,228 8.94%
Taxable investment securities 67,833 4,504 6.64% 82,348 5,422 6.58%
Nontaxable investment securities (2) 10,138 455 4.49% 12,233 519 4.24%
Interest-bearing balances and 968 46 4.75% 1,044 60 5.75%
money market investments (4)
Bankers Acceptances
Federal funds sold 2,476 132 5.33% 592 33 5.57%
----- --- ----- --- -- -----
Total interest-earning assets 337,995 28,233 8.35% 322,415 26,262 8.15%
------- ------ ----- ------- ------ -----
Noninterest-earning assets
Cash and due from banks 12,879 13,310
Allowance for loan losses (2,655) (2,716)
Other assets 19,547 20,303
------ ------
Total assets $367,766 $353,312
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Savings deposits 70,386 1,587 2.25% 76,127 1,712 2.25%
Interest-bearing demand deposits 53,851 798 1.48% 51,802 760 1.47%
Time deposits 132,780 7,221 5.44% 125,690 6,811 5.42%
Short-term borrowings 13,529 713 5.27% 15,948 939 5.89%
Long-term debt 27,306 1,481 5.42% 16,726 890 5.32%
------ ----- ----- ------ --- -----
Total interest-earning liabilities 297,852 11,800 3.96% 286,293 11,112 3.88%
------- ------ ----- ------- ------ -----
Noninterest-bearing liabilities
Demand deposits 33,680 34,186
Other liabilities 3,479 2,719
Stockholder's equity 32,755 30,114
-------- --------
Total liabilities and stockholders' equity $367,766 $353,312
======== ========
Net interest income 16,433 15,150
======== ========
Net interest income as a percent of interest-earning assets 4.86% 4.70%
==== ====
</TABLE>
<TABLE>
<CAPTION>
---------------1994------------------
Average Yield/
(In thousands) Balance Interest Rate
------- -------- ----
<S> <C> <C> <C>
ASSETS
Interest-earning assets
Loans - total (1) (3) $218,053 $18,559 8.51%
Taxable investment securities 86,337 4,906 5.68%
Nontaxable investment securities (2) 15,483 620 4.00%
Interest-bearing balances and 1,253 51 4.07%
money market investments (4)
Bankers Acceptances 538 18 3.35%
Federal funds sold 1,306 43 3.29%
------- ------ -----
Total interest-earning assets 322,970 24,197 7.49%
------- ------ -----
Noninterest-earning assets
Cash and due from banks 16,279
Allowance for loan losses (2,540)
Other assets 17,425
------
Total assets $354,134
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Savings deposits $90,482 2,253 2.49%
Interest-bearing demand deposits 52,529 781 1.49%
Time deposits 113,288 4,466 3.94%
Short-term borrowings 14,393 659 4.58%
Long-term debt 20,429 1,198 5.86%
-------- ------ -----
Total interest-earning liabilities 291,121 9,357 3.21%
-------- ------ -----
Noninterest-bearing liabilities
Demand deposits 34,193
Other liabilities 449
Stockholder's equity 28,371
--------
Total liabilities and stockholders' equity $354,134
========
Net interest income 14,840
======
Net interest income as a percent of interest-earning assets 4.59%
=====
<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
$1,122,390, $1,056,404 and $956,959 in 1996, 1995 and 1994,
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, 1996.
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
1996-1995 1995 - 1994
Increase/(Decrease) Increase/(Decrease)
(In thousands) 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 $2,868 $2,734 $134 $1,669 $708 $ 961
Taxable investment securities (918) (963) 45 516 (235) 751
Nontaxable investment securities (64) (93) 29 (101) (136) 35
Interest bearing balances & (14) (4) (10) 9 (10) 19
money market investments
Bankers Acceptances (18) (9) (9)
Federal Funds Sold 99 101 (2) (10) (31) 21
------ ------ ---- ------ ------ ------
Total interest income $1,971 $1,775 $196 $2,065 $ 287 $1,778
------ ------ ---- ------ ------ ------
INTEREST EXPENSE
----------------
Savings deposits $ (125) $ (129) $ 4 $ (541) $ (336) $ (205)
Interest bearing demand deposits 38 30 8 (21) (11) (10)
Time deposits 410 385 25 2,345 530 1,815
Short-term borrowings (226) (134) (92) 280 77 203
Long-term debt 591 574 17 (308) (204) (104)
------ ------ ---- ------ ------ ------
Total interest expense 688 726 (38) 1,755 56 1,699
------ ------ ---- ------ ------ ------
NET INTEREST EARNINGS $1,283 $1,049 $234 $ 310 $ 231 $ 79
====== ====== ==== ====== ====== ======
</TABLE>
29
<PAGE> 30
Horizon's average earning assets were $337.995 million in 1996 compared to
$322.415 million in 1995 and $322.970 million in 1994. The net interest margin
for 1996 was 4.86% compared to 4.70% and 4.59% in 1995 and 1994, respectively.
The increase in net interest margin from 1995 to 1996 was primarily related to
the increased volume of loans, especially consumer loans, offset slightly by
increased volume of certificates of deposits and long term debt.
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.
NONINTEREST INCOME
- ------------------
The major components of noninterest income consist of service charges on deposit
accounts and fiduciary 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 $1.573 million, $1.441 million and $1.310 million for
1996, 1995 and 1994, respectively.
Net security gains were $0 for 1996 compared to $46 thousand and $273 thousand
for 1995 and 1994, respectively. Net security gains in 1995 and 1994 were the
result of investment portfolio repositioning that occurred during these years.
Trust fees were $2.094 million in 1996 compared to $1.769 million and $1.700
million in 1995 and 1994, respectively.
NONINTEREST EXPENSE
- -------------------
Noninterest expense totaled $16.694 million in 1996 compared to $15.931 million
and $14.609 million in 1995 and 1994, respectively. The increases in 1996 was a
result of increased salaries and benefits and data processing and equipment
expense offset by a decrease in loss on other real estate owned. 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.
30
<PAGE> 31
Salaries and benefits increased 3.67% during 1996 compared to an increase of
13.72% for 1995 and an increase of 1.98% for 1994. 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 Bank developed and implemented a staffing model
to monitor productivity and determine the optimum number of employees per
division and reached these levels in early 1996.
Data processing and equipment expense increased 22.56% in 1996, 4.4% in 1995,
27.55% in 1994. The 1996 increase is due to investments in technology that
caused an increase in depreciation expense and an increase in support and
maintenance expense. The 1994 increase is due to expenses associated with
conversion to an in-house main frame computer system and other technology
related expenses.
Total other expenses increased 4.89%, 9.44% and 11.11% in 1996, 1995 and 1994,
respectively. The primary factors contributing to the 1996 increase in other
expense were: 1) $70 thousand increase in supplies and printing expenses, 2) $75
thousand increase in advertising expenses, 3) $199 thousand increase in
corporate expenses, 4) $170 thousand increase in losses, including frauds and
forgeries and 5) $332 thousand decrease in deposit insurance expense . 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.
FDIC deposit insurance assessments decreased 97.65% in 1996 compared to
decreases of 49.48% and 8.19% in 1995 and 1994, respectively. The FDIC assesses
"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. The Bank Insurance Fund (BIF) was
fully funded in 1996 and the Bank's assessment rate was reduced to zero. The
1995 decrease was due to a refund of $171 thousand and the reduction of rates to
$.04 per $100 of insured deposits. On September 30, 1996, the Deposit Insurance
Funds Act of 1996 was signed into law, which made members of the BIF partially
responsible for servicing the interest on Financing Corporation (FICO) bonds
that were issued by the government to pay for the thrift cleanup in the late
1980's. Beginning January, 1997, Horizon will begin paying the FICO assessment
of 1.296 cents per $100 of deposits.
31
<PAGE> 32
INCOME TAXES
- ------------
The income tax provision totaled $1.599 million in 1996 compared to $167
thousand and $1.449 million 1995 and 1994, respectively. The effective tax rate
was 29.49%, 5.21% and 35.20% for 1996, 1995, and 1994, 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 1996,
cash flows were generated from earnings of $3.8 million, a $14.3 million
decrease in investment securities, a $6.4 million sale of loans and a $20
million increase in borrowings with FHLB. Cash flows were used for a $37.8
million increase in loan demand, a $4 million purchase of premises and equipment
and $8.7 million reduction in short term borrowings. The net cash position
decreased $1.7 million, primarily in cash and due from banks and Federal funds
sold.
32
<PAGE> 33
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 to quantify 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, 1996, Horizon had a negative Gap position of 1:.82 This indicates
that the total amount of assets repricing within one year were 82% of the total
amount of liabilities repricing within the same time period. This compares to a
negative GAP position of 1:.95 at December 31, 1995.
33
<PAGE> 34
<TABLE>
<CAPTION>
Rate Sensitivity
Greater than 3 months Less than 6 months
3 months and and Greater
(In thousands) or less Less than 6 months Greater than 1 year than 1 year Total
-------------- ------- ------------------ ------------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Loans $53,313 $17,009 $33,533 $166,220 $270,075
Money Market Investments 789 789
Interest bearing balances with Banks 211 211
Investment securities and investment securities 8,063 10,778 17,167 35,847 71,855
available for sale
Other assets 39,108 39,108
-----------------------------------------------------------------------------
Total assets $62,165 $27,787 $50,700 $241,386 $382,038
=============================================================================
Non-interest bearing deposits 46,050 46,050
Interest bearing deposits 71,639 35,176 20,517 115,798 243,130
Borrowed funds 20,324 23,000 11,025 54,349
Other liabilities 5,001 5,001
Stockholders equity 33,508 33,508
-----------------------------------------------------------------------------
Total liabilities and stockholders equity $91,963 $35,176 $43,517 $211,382 $382,038
=============================================================================
GAP $(29,798) $(7,389) $7,183 $30,004
Cumulative GAP (29,798) (37,187) (30,004) 0
</TABLE>
34
<PAGE> 35
CONSOLIDATED BALANCE SHEETS (THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 19,551 $ 20,987
Money market investment 789 1,079
--------- ---------
Total cash and cash equivalents 20,340 22,066
Short-term investments-interest-bearing
balances in banks 211 206
Investment securities available for sale 59,041 74,942
Investment securities held to maturity
(fair value $12,838 - 1996, $12,202 - 1995) 12,810 12,167
Loans held for sale 1,034
Loans 271,476 241,662
Allowance for loan losses (2,435) (2,777)
--------- ---------
Net loans 269,041 238,885
Premises and equipment 14,053 11,027
Accrued interest receivable 2,216 2,900
Other assets 3,292 5,820
--------- ---------
Total assets $ 382,038 $ 368,013
========= =========
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
LIABILITIES
Deposits
Noninterest-bearing $ 46,050 $ 45,479
Interest-bearing 243,130 243,505
--------- ---------
Total deposits 289,180 288,984
Short-term borrowings 12,849 21,569
Federal Home Loan Bank advances 41,500 21,400
Accrued interest payable 590 567
Other liabilities 4,411 3,122
--------- ---------
Total liabilities 348,530 335,642
========= =========
Equity received from contributions and dividends
to the ESOP 4,211 3,818
STOCKHOLDERS' EQUITY
Common stock: $1 stated value, 5,000,000 shares
authorized and 1,027,531 shares issued, less
ESOP shares of 315,357 and 295,370 at
December 31, 1996 and 1995 708 732
Additional paid-in capital 7,962 9,238
Retained earnings 23,898 21,105
Net unrealized gain/loss on securities 85 466
Less treasury stock, at cost
(124,085 shares - 1996, 115,307 shares - 1995) (3,356) (2,988)
--------- ---------
Total stockholders' equity 29,297 28,553
--------- ---------
Total liabilities and stockholder's equity $ 382,038 $ 368,013
========= =========
</TABLE>
The accomanying notes are an integral part of these financial statements.
35
<PAGE> 36
CONSOLIDATED STATEMENTS OF INCOME (THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $23,096 $20,228 $18,559
Interest and dividends on investments
Taxable 4,682 5,515 5,000
Nontaxable 455 519 620
------- ------- -------
Total interest income 28,233 26,262 24,179
------- ------- -------
INTEREST EXPENSE
Interest on deposits 9,605 9,284 7,499
Interest on Federal funds purchased
and securities sold under agreements
to repurchase 714 938 659
Interest on Federal Home Loan Bank
advances 1,481 890 1,198
------- ------- -------
Total interest expense 11,800 11,112 9,356
------- ------- -------
NET INTEREST INCOME 16,433 15,150 14,823
PROVISION FOR LOAN LOSSES 66 165
------- ------- -------
NET INTEREST INCOME AFTER
PREVISION FOR LOAN LOSSES 16,367 15,150 14,658
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NONINTEREST INCOME
Service charges on deposits 1,573 1,441 1,310
Fiduciary income 2,094 1,769 1,700
Investment security gains 46 273
Gain on sale of other real
estate owned 1,609 45 490
Other Income 474 686 295
------- ------- -------
Total noninterest income 5,750 3,987 4,068
------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 8,671 8,364 7,355
Occupancy expense of Company
premises, net of rental income 1,164 1,017 1,036
Data processing and equipment
expenses 2,108 1,720 1,648
Loss on other real estate owned 55 353 479
Other expenses 4,696 4,477 4,091
------- ------- -------
Total noninterest expense 16,694 15,931 14,609
------- ------- -------
INCOME BEFORE INCOME TAXES 5,423 3,206 4,117
PROVISION FOR INCOME TAXES 1,599 167 1,449
------- ------- -------
NET INCOME $ 3,824 $ 3,039 $ 2,668
======= ======= =======
Earnings per common share $ 5.19 $ 4.12 $ 3.62
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 37
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid-In Capital Earnings
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994 $732 $9,238 $17,212
- ---------------------------------------------------------------------------------------------------------------------
Net Income 2,668
Cash Dividends ($1.20 per share) (919)
Purchase of 7,041 shares of treasury stock
Change in unrealized loss on marketable equity securities
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $732 $9,238 $18,961
- ---------------------------------------------------------------------------------------------------------------------
Net Income 3,039
Cash Dividends ($1.20 per share) (895)
Purchase of 21,562 shares of treasury stock
Change in unrealized loss on marketable equity securities
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $732 $9,238 $21,105
- ---------------------------------------------------------------------------------------------------------------------
Net Income 3,824
Cash Dividends ($1.40 per share) (1,031)
Purchase of 8,778 shares of treasury stock
Net purchases and distributions with ESOP (24) (1,339)
Tax benefit of ESOP dividend deduction 63
Change in unrealized loss on marketable equity securities
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $708 $7,962 $23,898
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Unrealized Gain/loss on Total
Securities Available for Stockholders'
Sale Treasury Stock Equity
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994 $(138) $(2,010) $25,034
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 2,668
Cash Dividends ($1.20 per share) (919)
Purchase of 7,041 shares of treasury stock (233) (233)
Change in unrealized loss on marketable equity securities (2,189) (2,189)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $(2,327) $(2,243) $24,361
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 3,039
Cash Dividends ($1.20 per share) (895)
Purchase of 21,562 shares of treasury stock (745) (745)
Change in unrealized loss on marketable equity securities 2,793 2,793
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $466 $(2,988) $28,553
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 3,824
Cash Dividends ($1.40 per share) (1,031)
Purchase of 8,778 shares of treasury stock (368) (368)
Net purchases and distributions with ESOP (1,363)
Tax benefit of ESOP dividend deduction 63
Change in unrealized loss on marketable equity securities (381) (381)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $85 $(3,356) $29,297
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are in integral part of these financial statements.
37
<PAGE> 38
CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income $ 3,824 $ 3,039 $ 2,668
Adjustments to reconcile net income to net cash:
from operating activities:
Depreciation 1,040 892 725
Net (accretion)/amortization 312 179 247
Additional paid in capital from release of 244 172
ESOP shares
Provision for loan losses 66 165
Gains on sales of loans (8)
Security gains (46) (273)
Gain/loss on disposal of fixed assets (2) 24 21
Gain on sale of other real estate owned (1,609) (45) (490)
Loss on other real estate owned 55 353 479
Benefit of deferred taxes 357 117 (202)
Change in deferred loan fees (52) (26) (56)
Change in unearned income 51 (262) (629)
Change in interest receivable 684 (93) (167)
Change in interest payable 23 101 54
Change in other assets 2,825 697 1,423
Change in other liabilities 1,289 452 (2,415)
-------- -------- --------
Net cash provided by operating activities 9,107 5,554 1,542
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 15,607 14,895
available for sale
Proceeds from maturities, calls and principal
repayments of investment
securities-available for sale 17,969 16,923 11,660
Proceeds from maturities, calls and principal
repayments of investment
securities-held to maturity 5,555 5,926 8,436
Purchase of investment securities-available for (2,993) (19,757) (29,584)
sale
Purchase of investment securities-held to maturity (6,217) (2,622) (5,859)
Change in short-term investments (5) (106)
Change in loans (37,452) (17,138) (6,121)
Purchase of loans (344) (1,260) (1,367)
Proceeds from sales of loans 6,392 353 3,477
Recoveries on loans previously charged-off 149 515 301
Premises and equipment expenditures (4,064) (1,667) (1,635)
-------- -------- --------
Net cash provided by (used in) investing (21,010) (3,226) (5,797)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits 196 (6,800) (10,351)
Dividends paid (1,031) (895) (919)
Change in short-term borrowings (8,720) (3,124) 18,924
Purchase of treasury stock (368) (745) (233)
Change in Federal Home Loan Bank advance 20,100 3,000 (100)
-------- -------- --------
Net cash provided by (used in) 10,177 (8,564) 7,321
financing activities
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,726) (6,236) 3,066
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 22,066 28,134 25,055
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD END OF YEAR $ 20,340 $ 21,898 $ 28,121
======== ======== ========
CASH PAID DURING THE YEAR FOR:
Interest $ 11,823 $ 11,011 $ 9,302
Income taxes $ 1,714 $ (202) $ 1,378
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 39
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
NATURE OF BUSINESS - The consolidated financial statements include
Horizon Bancorp (Horizon) and its wholly-owned subsidiaries, Horizon Bank, N.A.
(Bank), HBC Insurance Group, Inc. (Insurance Company) and The Loan Store, Inc.
(Loan Store). Bank is a full-service commercial bank offering a broad range of
commercial and retail banking and other services incident to banking. Bank's
wholly-owned subsidiary, IMS Investment Management, Inc. (IMS) offers corporate
and individual trust and agency services and investment management services.
Bank maintains five facilities located within LaPorte County, Indiana and four
facilities located in Porter County, Indiana. The Insurance Company offers
credit life and accident and health insurance. The earnings generated from the
Insurance Company is not significant to the overall operations of Horizon. The
Loan Store is engaged in the business of retail lending and operates three
facilities in 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 consolidated 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 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.
LOANS HELD FOR SALE - Loans held for sale are reported at the lower of
cost or market value in the aggregate.
INTEREST AND FEES ON LOANS - Interest on commercial, real estate 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.
39
<PAGE> 40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
CONCENTRATIONS OF CREDIT RISK - Bank grants commercial, real estate
mortgage and installment loans to customers located primarily in LaPorte County
and Porter County in Northwest Indiana. Commercial loans make up approximately
28% 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 mortgage loans make up approximately 49% 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 a significant
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.
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 $349,000 and $3,117,000 at December 31, 1996 and 1995,
respectively.
40
<PAGE> 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
SERVICING RIGHTS - Prior to adopting Statement of Financial Accounting
Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights," at the
beginning of 1996, servicing right assets were recorded only for purchased
rights to service mortgage loans. Subsequent to adopting this standard,
servicing rights represent both purchased rights and the allocated value of
servicing rights retained on loans sold. Servicing rights are expensed in
proportion to, and over the period of, estimated net servicing revenues. At
December 31, 1996, the servicing rights asset was not material and was not
recorded under SFAS No. 122.
Excess servicing receivables are reported when a loan sale results in servicing
in excess of normal amounts, and is expensed over the estimated life of the
servicing asset.
INCOME TAXES - Horizon files annual consolidated income tax returns. SFAS
No. 109, 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.
IMS 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 IMS 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 736,887 for 1996, 750,286 for
1995, and 767,419 for 1994.
Regulations of the Comptroller of the Currency limit the amount of
dividends that may be paid by a national bank to its parent holding company
without prior approval of the Comptroller of the Currency. According to these
regulations, as of December 31, 1996 approximately $3,122,000 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 STATEMENTS 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 1995
and 1994 consolidated financial statements to be comparable to 1996.
41
<PAGE> 42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1996 and 1995. 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.
42
<PAGE> 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
- ------------------------------------------------------------------------------
SHORT-TERM BORROWINGS - 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.
The estimated fair values of Horizon's financial instruments at December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(Thousands)
1996 1996 1995 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 20,340 $ 20,340 $ 22,066 $ 22,066
Short-term investments 211 211 206 206
Investment securities 71,851 71,871 87,109 87,144
Net loans 270,075 258,035 238,885 240,440
Interest receivable 2,216 2,216 2,900 2,900
Financial Liabilities:
Deposits:
Noninterest-bearing $ 46,050 $ 46,050 $ 45,479 $ 45,479
Interest-bearing 243,130 246,960 243,505 244,372
---------- ------------ ---------- ----------
Total deposits 289,180 293,010 288,984 289,851
Short-term borrowings 12,849 12,824 21,569 21,569
Federal Home Loan Bank advances 41,500 41,503 21,400 21,428
Interest payable 590 590 567 567
</TABLE>
43
<PAGE> 44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
<TABLE>
<CAPTION>
-------------------1996--------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C>
AVAILABLE FOR SALE AT DECEMBER 31:
U.S. Treasury and U.S. Government
agency securities $ 4,965 $ 103 $ $ 5,068
Other securities 1,018 (4) 1,014
-------- -------- -------- --------
Subtotal 5,983 103 (4) 6,082
-------- -------- -------- --------
GNMA 7,620 148 (18) 7,750
FHLMC 16,719 154 (81) 16,792
FNMA 25,344 56 (115) 25,285
-------- -------- -------- --------
Total mortgage-backed securities 49,683 358 (214) 49,827
-------- -------- -------- --------
Total debt securities 55,666 461 (218) 55,909
Equity securities 3,230 (98) 3,132
-------- -------- -------- --------
Total investment securities available for sale $ 58,896 $ 461 $ (316) $ 59,041
======== ======== ======== ========
HELD TO MATURITY AT DECEMBER 31:
U.S. Government agency securities $ 2,793 $ $ $ 2,793
Obligations of state and political subdivisions 10,017 75 (47) 10,045
-------- -------- -------- --------
Total debt securities held to maturity $ 12,810 $ 75 $ (47) $ 12,838
======== ======== ======== ========
----------------------1995------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C>
AVAILABLE FOR SALE AT DECEMBER 31:
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:
U.S. Government agency securities $ 3,164 $ 2 $ $ 3,166
Obligations of state and political subdivisions 9,003 55 (22) 9,036
-------- -------- -------- --------
Total debt securities held to maturity $ 12,167 $ 57 $ (22) $ 12,202
======== ======== ======== ========
</TABLE>
44
<PAGE> 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
1996, 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.
<TABLE>
<CAPTION>
(Thousands)
Amortized Fair
Cost Value
<S> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less $ 2,019 $ 2,018
Due after one year through five years 3,964 4,064
------- -------
Subtotal 5,983 6,082
Mortgage-backed securities 49,683 49,827
------- -------
Total debt securities available for sale $55,666 $55,909
======= =======
HELD TO MATURITY:
Due in one year or less $ 2,056 $ 2,061
Due after one year through five years 3,982 3,997
Due after five years through ten years 5,122 5,158
Due after ten years 1,650 1,622
------- -------
Total debt securities held to maturity $12,810 $12,838
======= =======
</TABLE>
Gross gains and losses realized on sales of investment securities
available for sale were $0 for 1996. Gross gains and losses realized on sales of
investment securities available for sale were $62,000 and $16,000 for 1995 and
$273,000 and $0 for 1994.
At December 31, 1996 and 1995, 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 $19,836,000 and $45,485,000 as of December 31, 1996 and 1995,
respectively, were pledged to secure public and trust deposits, securities sold
under agreements to repurchase and Federal Home Loan Bank advances.
45
<PAGE> 46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - LOANS
- --------------
Loans as presented in the consolidated balance sheets are comprised of the
following classifications:
<TABLE>
<CAPTION>
(Thousands)
1996 1995
<S> <C> <C>
Commercial loans $ 75,460 $ 66,125
Real estate mortgages 133,739 119,739
Installment loans 62,277 55,798
-------- --------
Total loans $271,476 $241,662
======== ========
</TABLE>
Loans to directors and executive officers of Horizon and Bank, including
associates of such persons, amounted to $4,188,000 and $4,689,000, as of
December 31, 1996 and 1995, respectively. During 1996 new loans or advances were
$1,551,000 and loan payments were $2,052,000.
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
- ----------------------------------
The following is an analysis of the activity in the allowance for loan
losses account:
<TABLE>
<CAPTION>
(Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 2,777 $ 2,555 $ 2,310
Provision charged to expense 66 165
Recoveries credited to the allowance 149 515 301
Losses charged to the allowance (557) (293) (221)
------- ------- -------
Balance at end of year $ 2,435 $ 2,777 $ 2,555
======= ======= =======
</TABLE>
At December 31, 1996 and 1995, loans past due more than 90 days and
still accruing interest approximated $682,000 and $533,000, respectively.
Loans on which the recognition of interest has been discontinued or reduced
totaled $316,000, $668,000 and $2,794,000 at December 31, 1996, 1995 and 1994,
respectively. Interest income not recognized on these loans totaled
approximately $36,000, $55,000, and $264,000 in 1996, 1995 and 1994,
respectively. There were no impaired loans as of December 31, 1996 or 1995.
46
<PAGE> 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
<TABLE>
<CAPTION>
(Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,075 $ 1,801 $ 1,988
Loss on other real estate owned
charged to expense 48 59
Reversal of allowance on sale (924)
Losses charged to the allowance (774) (246)
------- ------- -------
Balance end of year $ 151 $ 1,075 $ 1,801
======= ======= =======
</TABLE>
NOTE 7 - PREMISES AND EQUIPMENT-NET
- -----------------------------------
Premises and equipment are stated at cost, less accumulated depreciation
and consist of the following:
<TABLE>
<CAPTION>
(Thousands)
December 31
1996 1995
---- ----
<S> <C> <C>
Land $ 2,504 $ 2,014
Buildings and improvements 12,757 10,328
Furniture and equipment 6,288 5,187
-------- --------
Total 21,549 17,529
Accumulated depreciation (7,496) (6,502)
-------- --------
Premises and equipment, net $ 14,053 $ 11,027
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
totaled $1,040,000, $892,000 and $725,000, respectively.
47
<PAGE> 48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - LEASES
- ---------------
Bank has leases for premises and equipment which expire at various dates
through 2001. 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, 1996, 1995 and 1994 amounted to $317,000, $197,000 and
$100,000, respectively.
The future minimum commitments as of December 31, 1996, for all
noncancelable operating leases, follows:
<TABLE>
<CAPTION>
Year Ending (Thousands)
December 31 Rental Commitments
----------- ------------------
<S> <C>
1997 $ 287
1998 215
1999 152
2000 36
2001 27
-----
Total $ 717
=====
</TABLE>
NOTE 9 - DEPOSITS
- -----------------
<TABLE>
<CAPTION>
The components of the (Thousands)
deposit categories are as follows: December 31
1996 1995
----- ----
<S> <C> <C>
DEMAND
Noninterest-bearing $ 46,050 $ 45,479
Interest-bearing (NOW) 48,172 54,949
-------- --------
Total demand deposits 94,222 100,428
-------- --------
SAVINGS
Fixed rate 55,843 60,516
Money market (variable rate) 8,876 12,824
-------- --------
Total savings deposits 64,719 73,340
-------- --------
TIME
Certificates of deposit of $100,000 or more 28,158 17,730
Other time deposits 102,081 97,486
-------- --------
Total time deposits 130,239 115,216
-------- --------
Total deposits $289,180 $288,984
======== ========
</TABLE>
48
<PAGE> 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - DEPOSITS (continued)
- -----------------------------
Interest expense on time certificates of $100,000 or more was
approximately $2,001,000, $1,713,000 and $863,000 for 1996, 1995 and 1994,
respectively.
Certificates of deposit of $100,000 or more by remaining maturity:
<TABLE>
<CAPTION>
(Thousands)
December 31
1996 1995
<S> <C> <C>
Due in three months or less $14,311 $11,240
Due after three months through six months 5,059 2,473
Due after six months through one year 3,261 2,219
Due after one year 5,527 1,798
------- -------
Total certificates of deposit of $100,000 or more $28,158 $17,730
======= =======
</TABLE>
NOTE 10 - BORROWED FUNDS
Included in short-term borrowings were $11,562,000 and $9,558,000 of
securities sold under agreements to repurchase and $1,200,000 and $11,900,000 of
Federal Funds purchased, at December 31, 1996 and 1995 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, 1996 Bank has
available approximately $41,300,000 in credit lines with various money center
banks.
Federal Home Loan Bank Advances at December 31, 1996 by contractual maturity are
as follows:
<TABLE>
<CAPTION>
(Thousands)
<S> <C>
FHLB Advance, 5.16%, Due January 13, 1997 $ 7,500
FHLB Advance, 5.54%, Due December 1, 1997 3,000
FHLB Advance, 6.21%, Due August 3, 1998 5,000
FHLB Advance, 5.31%, Due October 1, 1998 3,000
FHLB Advance, 5.90%, Due December 17, 1998 3,000
FHLB Advance, 5.425%, Due October 12, 1999 10,000
FHLB Advance, 5.23%, Due January 3, 2000 10,000
-------
$41,500
=======
</TABLE>
Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB),
advances are secured by all stock in the FHLB and all mortgage loans.
49
<PAGE> 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN - RETIREMENT PLAN
- ---------------------------------------------------------
Horizon maintains an employee stock ownership plan (ESOP) as a retirement
benefit program 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. 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 ESOP
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 allocated or committed-to-be-released
for allocation to employee retirement accounts.
As of December 31, 1996 there were 315,357 shares of Horizon stock held in
the ESOP trust. Dividends received on these shares are used to service the debt
of the ESOP. Annually, when payments on ESOP debt are made, a proportionate
amount of shares are allocated to participants.
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 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Dividends paid on unallocated ESOP shares $255 $207 $ --
Market value increase of 17,607 shares released 244 172 --
Other contributions 86 213 158
---- ---- ----
Total ESOP expense included in salaries and benefits $585 $592 $158
==== ==== ====
Total cash contributions made to ESOP during the year $86 $207 $298
=== ==== ====
</TABLE>
50
<PAGE> 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN - RETIREMENT PLAN (continued)
- ---------------------------------------------------------------------
The balance sheet presentation of "Equity received from contributions and
dividends to the ESOP" follows the guidance of Emerging Issue Task Force Issue
No. 90-11, "Sponsor's Balance Sheet Classification of Capital Sotck with a Put
Option Held by Employee Stock Ownership Plan." This Issuance requires securities
held by an ESOP to be reported outside of permanent equity if by their terms
they can be returned to the sponsor for cash. Since Horizon stock is not readily
tradable on an established market, the ESOP stock can be returned to the sponsor
for cash upon employee termination or retirement.
Below are the transactions affecting equity received from contributions and
dividends to the ESOP:
<TABLE>
<CAPTION>
(Thousands)
Common Additional Unallocated Obligation
Stock Paid-in Capital ESOP 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 (1985 plan) 298 298
Dividends on allocated ESOP shares 147 147
Dividends on unallocated ESOP shares 207 207
Market value increase in ESOP shares released 172 172
Additional contributions 146 146
Tax benefit of ESOP dividend deduction 50 50
Loan to fund ESOP share repurchases (254) (254)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $295 $8,277 $(4,754) $ 0 $3,818
- --------------------------------------------------------------------------------------------------------------------------------
Dividends on allocated ESOP shares 255 255
Dividends on unallocated ESOP shares 172 172
Market value increase in ESOP shares released 244 244
Additional contributions 86 86
Net ESOP share purchases and distributions 24 1,186 1,210
Loans to fund ESOP share repurchases (1,574) (1,574)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $319 $9,707 $(5,815) $ 0 $4,211
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1996, 1995 and 1994 expense related to
the thrift plan totaled $203,000, $172,000 and $124,000, respectively, while
contributions were $203,000, $172,000 and $160,000, respectively.
NOTE 13 - OTHER EXPENSES
- ------------------------
The following is an analysis of other expenses:
<TABLE>
<CAPTION>
(Thousands)
Year Ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplies and printing $ 309 $ 379 $ 359
Advertising 489 414 369
Communication expense 492 444 375
Professional fees 516 486 458
Deposit insurance expense 8 340 673
Training expense 251 320 262
Outside services and consultants expense 642 625 501
Insurance Company expense 226 176
Corporate expenses 628 429 361
Other expenses 1,136 864 733
------ ------ ------
Total other expenses $4,697 $4,477 $4,091
====== ====== ======
</TABLE>
52
<PAGE> 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - INCOME TAXES
- ----------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Thousands)
Years ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current tax expense
Federal $ 886 $ 716 $ 1,268
State 356 288 383
Income tax refunds (954)
------- ------- -------
Total 1,242 50 1,651
Deferred tax provision (benefit) 357 117 (202)
------- ------- -------
Total provision for income taxes $ 1,599 $ 167 $ 1,449
======= ======= =======
</TABLE>
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 .
Temporary differences between the amounts reported in the financial
statements and the tax basis of assets and liabilities at December 31, 1996 and
1995, were as follows:
<TABLE>
<CAPTION>
(Thousands)
1996 1995
---- ----
<S> <C> <C>
Gross deferred tax assets:
Allowance for losses on loans and other real estate $ 68 $ 763
Accrued operating expenses 100 43
Deferred loan fees 163 186
Depreciation 137
Other 561 433
------- -------
Total deferred tax assets 892 1,562
Valuation allowance (264)
------- -------
Subtotal 892 1,298
Gross deferred tax liabilities:
Depreciation (55)
Discount accretion (3) (107)
------- -------
Total deferred tax liabilities (58) (107)
Net deferred tax assets $ 834 $ 1,191
======= =======
</TABLE>
53
<PAGE> 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - INCOME TAXES (continued)
- ----------------------------------
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:
<TABLE>
<CAPTION>
(Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes at the statutory Federal income tax rate $ 1,843 $ 1,090 $ 1,400
Add/(subtract) tax effect of:
Tax-exempt income (300) (334) (327)
Nondeductible expenses and other (285) 175 95
Federal and state tax refunds (954)
State tax, net of federal effect 341 190 281
------- ------- -------
Total provision for income taxes $ 1,599 $ 167 $ 1,449
======= ======= =======
</TABLE>
Not included in the above tables, but directly impacting changes in
stockholders' equity were the effects of unrealized gains/(losses) on securities
of $60,000 and ($313,000) in 1996 and 1995.
NOTE 15 - REGULATORY MATTERS
- ----------------------------
Horizon and Bank are subject to regulatory capital requirements administered by
federal and banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the consolidated financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately captialized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. Horizon is classified
as well capitalized as of December 31, 1996 and 1995. The minimum requirements
are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
-------------- Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
54
<PAGE> 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - REGULATORY MATTERS (continued)
- ----------------------------------------
Regulatory guidelines differ from generally accepted accounting principles
regarding the classification of "Equity received from contributions and
dividends to the ESOP." Under risk based capital guidelines, "Equity received
from contributions and dividends to the ESOP" is included in calculating total
and tier 1 capital ratios.
At year end, actual capital levels (in millions) and minimum required levels
were:
<TABLE>
<CAPTION>
-----------------1996----------------- -----------------1995------------------
Minimum Required Minimum Required
To Be Well To Be Well
Actual Capitalized Actual Capitalized
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets)
Consolidated $ 35.8 13.6% $ 28.0 10.0% $ 35.0 16.66% $ 21.0 10.0%
Bank $ 32.7 13.5% $ 24.3 10.0% $ 31.6 15.36% $ 20.6 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $ 33.3 12.7% $ 16.8 6.0% $ 32.4 15.41% $ 12.6 6.0%
Bank $ 30.3 12.5% $ 14.6 6.0% $ 29.1 14.11% $ 12.4 6.0%
Tier 1 capital (to average assets)
Consolidated $ 33.3 8.2% $ 20.4 5.0% $ 32.4 8.4% $ 19.3 5.0%
Bank $ 30.3 8.2% $ 18.6 5.0% $ 29.1 8.2% $ 10.3 5.0%
</TABLE>
55
<PAGE> 56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS
- ---------------------------------------------
Presented below are condensed financial statements for the parent
company, Horizon Bancorp:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS (Thousands)
-----------------------
December 31
ASSETS 1996 1995
---- ----
<S> <C> <C>
Total cash and cash equivalents $ 712 $ 661
Investment in Bank 30,473 29,737
Investment in Insurance Company 172 183
Investment in The Loan Store 433 498
Investment securities, net 1,404 1,430
Accrued interest receivable 20 16
Dividends receivable from Bank 1,000 400
Other assets 1,902 1,303
---------- --------
Total assets $ 36,116 $ 34,228
========= ========
LIABILITIES
Other liabilities $ 2,608 $ 1,857
---------- --------
Total liabilities 2,608 1,857
Equity received from contributions and dividends to the ESOP 4,211 3,818
STOCKHOLDERS' EQUITY 29,297 28,553
---------- --------
Total liabilities and stockholders' equity $ 36,116 $ 34,228
========= ========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME (Thousands)
- ------------------------------
For the years ended December 31
OPERATING INCOME/(EXPENSE) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Dividend income from Bank $ 3,600 $ 1,600 $ 1,600
Investment income 123 92 60
Interest on federal and state income tax refunds 298
Other income 23 33 34
Interest expense (20) (6)
Employee benefits expense (1,399) (993) (376)
Other expense (238) (143) (124)
-------- -------- -------
INCOME BEFORE UNDISTRIBUTED INCOME OF SUBSIDIARIES 2,109 867 1,188
UNDISTRIBUTED INCOME OF SUBSIDIARIES 1,049 987 1,379
-------- -------- -------
INCOME BEFORE INCOME TAX 3,158 1,854 2,567
BENEFIT FOR INCOME TAX 666 1,185 101
-------- -------- -------
NET INCOME $ 3,824 $ 3,039 $ 2,668
======== ======== =======
</TABLE>
56
<PAGE> 57
CONDENSED STATEMENTS OF CASH FLOWS
- ----------------------------------
<TABLE>
<CAPTION>
(Thousands)
For the years ended December 31
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,824 $ 3,039 $ 2,668
Adjustments to reconcile net income to
net cash from operating activities:
Undistributed income of Bank (1,125) (990) (1,379)
Undistributed loss of Insurance Company 11
Undistributed loss of Loan Store 65
Additional paid in capital from release of ESOP shares 244 172
Accretion (12)
Change in income taxes receivable (387) (173) (161)
Change in interest receivable (4) (9) (2)
Change in dividends receivable from Bank (600)
Change in other assets (1,343) 130 (93)
Change in other liabilities 751 614 184
----- ----- -----
Net cash from operating activities 1,424 2,783 1,217
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investment securities 36
Principal repayments of investment securities 26
Purchase of investment securities (1,006)
----- ----- -----
Net cash from investing activities 26 (1,006) 36
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Investment in Insurance Company (47) (150)
Investment in Loan Store (500)
Dividends paid (1,031) (895) (919)
Purchase of treasury stock (368) (745) (233)
----- ----- -----
Net cash from financing activities (1,399) (2,187) (1,302)
----- ----- -----
NET CHANGE IN CASH AND CASH EQUIVALENTS 51 (410) (49)
----- ----- -----
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 661 1,071 1,120
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 712 $ 661 $ 1,071
======= ======= ========
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest $ 0 $ 20 $ 9
Income taxes $ 0 $ (954) $ (35)
</TABLE>
57
<PAGE> 58
NOTES TO THE CONSOLIDATED STATEMENTS (CONTINUED)
NOTE 17 - 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, 1996 and 1995, 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 $814,000
for 1996, $400,000 for 1995, and $217,000 for 1994.
<TABLE>
<CAPTION>
A summary of transactions for the plan follows:
-------------Shares----------
Available Options
For Grant Outstanding Exercise Price
--------- ----------- --------------
<S> <C> <C> <C>
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
Exercised (3,000) $41.25
--------
Balance: December 31, 1996 79,750 $13.50 - $31.50
======= ===============
</TABLE>
At December 31, 1996 there were outstanding options for the purchase of
79,750 shares with exercise prices ranging from $13.50 to $31.50 per share. The
weighted average price of outstanding options was $26.20 and the weighted
average remaining life was 11.6 years.
58
<PAGE> 59
NOTES TO THE CONSOLIDATED FINANCIAL STAEMENTS (CONTINUED)
NOTE 18 - 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 $4,200,000 of cash on hand or on
deposit with the Federal Reserve Bank to meet regulatory reserve and clearing
balance requirements at December 31, 1996. 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, 1996, commitments to make loans amounted to
approximately $34,810,000 and commitments under outstanding standby letters of
credit amounted to approximately $1,679,000. 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.
59
<PAGE> 60
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, 1996, and
1995 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, 1996. 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, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 14, 1997
60
<PAGE> 61
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Management is responsible for the preparation and presentation of the
consolidated financial statements and related notes on the preceding pages. The
consolidated financial 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 consolidated financial statements.
In meeting its responsibility for the accuracy of the consolidated
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
consolidated 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 consolidated financial statements in the Annual Report have been
audited by Arthur Andersen LLP, independent public accountants, for 1996, 1995,
and 1994. 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 consolidated
financial statements in conformity with generally accepted accounting
principles.
61
<PAGE> 62
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
EARNINGS
Total interest income $28,233 $26,262 $24,179
Total interest expense 11,800 11,112 9,356
Net interest income 16,433 15,150 14,823
Provision for loan losses 66 165
Total noninterest income 5,750 3,987 4,068
Total noninterest expense 16,694 15,931 14,609
Provision for income taxes 1,599 167 1,449
Income before cumulative effect of change in accounting principle 3,824 3,039 2,668
Cumulative effect of change in accounting principle
Net income 3,824 3,039 2,668
Cash dividend declared 1,031 895 919
PER SHARE DATA
Income before cumulative effect of change in accounting principle $5.19 $4.05 $3.48
Net income 5.19 4.05 3.48
Cash dividends declared 1.40 1.20 1.20
Book value at period end 46.40 43.18 36.00
Weighted average shares outstanding 736,887 750,286 767,419
PERIOD END TOTALS (Thousands)
Loans, net of deferred loan fees and unearned income $271,476 $241,662 $223,622
Allowance for loan losses 2,435 2,777 2,555
Total assets 382,038 368,013 369,470
Total deposits 289,180 288,984 295,784
Long-term debt 41,500 21,400 15,400
RATIOS
Loan to deposit 93.88% 83.62% 75.59%
Loan to total funding 79.03 72.80 65.98
Return on average total assets 1.04 0.86 0.75
Average stockholders' equity to average total assets 8.91 8.53 8.01
Return on average stockholders' equity 11.67 10.09 9.41
Dividend payout ratio (dividends divided by net income) 26.96 29.45 34.45
</TABLE>
<TABLE>
1993 1992
---- ----
<S> <C> <C>
EARNINGS
Total interest income $25,130 $28,527
Total interest expense 9,751 13,015
Net interest income 15,379 15,512
Provision for loan losses 276 1,201
Total noninterest income 3,771 3,951
Total noninterest expense 14,106 15,009
Provision for income taxes 1,665 1,492
Income before cumulative effect of change in accounting principle 3,103 1,761
Cumulative effect of change in accounting principle (152)
Net income 3,103 1,609
Cash dividend declared 923 794
PER SHARE DATA
Income before cumulative effect of change in accounting principle $4.02 $2.22
Net income 4.02 2.03
Cash dividends declared 1.20 1.00
Book value at period end 36.13 31.28
Weighted average shares outstanding 772,525 793,930
PERIOD END TOTALS (Thousands)
Loans, net of deferred loan fees and unearned income $219,139 $215,649
Allowance for loan losses 2,310 1,997
Total assets 364,001 357,460
Total deposits 306,135 301,426
Long-term debt 16,600 9,393
RATIOS
Loan to deposit 71.58% 71.54%
Loan to total funding 66.32 65.72
Return on average total assets 0.88 0.44
Average stockholders' equity to average total assets 7.58 7.19
Return on average stockholders' equity 11.61 6.19
Dividend payout ratio (dividends divided by net income) 29.75 49.35
</TABLE>
62
<PAGE> 63
SUMMARY OF SELECTED FINANCIAL DATA
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 1996 and 1995.
<TABLE>
Common Stock Dividends
Bid Prices Declared
1995 High Low Per Share
---- ---- --- ---------
<S> <C> <C> <C>
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
1996
----
First Quarter $41.00 $35.63 $.35
Second Quarter 42.00 38.00 .35
Third Quarter 44.00 41.00 .35
Fourth Quarter 47.00 42.63 .35
</TABLE>
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.
The approximate number of holders of outstanding common stock, based upon the
number of record holders, as of December 31, 1996 is 754.
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.
63
<PAGE> 64
BOARD OF DIRECTORS
- ------------------
DALE W. ALSPAUGH
CHANCELLOR
PURDUE UNIVERSITY N.C.
RUSSELL L. ARNDT
AGRICULTURIST
GEORGE R. AVERITT
RETIRED PUBLISHER -THE NEWS DISPATCH
JAMES D. BROWN
RETIRED
ROBERT C. DABAGIA
RETIRED PRESIDENT -HORIZON BANCORP
MYLES J. KERRIGAN
BOARD MEMBER, CHICAGO BOARD OF TRADE
PRESIDENT, NORTHWEST RACQUET CLUB
DONALD J. MANAHER*
PUBLISHER
THE NEWS DISPATCH
ROBERT E. MCBRIDE
PATHOLOGIST
NORTHERN INDIANA MEDICAL LABORATORY SERVICES, INC.
THOMAS P. MCCORMICK
PRESIDENT
HORIZON BANK
HORIZON BANCORP
LARRY N. MIDDLETON, JR.
PRESIDENT
CENTURY 21 MIDDLETON CO., INC.
BOYD W. PHELPS
VICE PRESIDENT
SEICO, INC.
LARRY E. REED
CHAIRMAN, CEO
HORIZON BANK
HORIZON BANCORP
GENE L. RICE
AGRICULTURIST
SUSAN D. STERGER
EXECUTIVE VICE PRESIDENT
MCKEE GROUP
ROBERT E. SWINEHART*
PRESIDENT
BEARING DIVISION
EMERSON POWER TRANSMISSION CORP.
*DIRECTOR OF HORIZON BANK ONLY
DIRECTORS EMERITUS
- ------------------
JOHN A. GARRETTSON
RETIRED CHAIRMAN - HORIZON BANCORP
BURTON J. RUBY
RETIRED - JAYMAR RUBY, INC.
It is with deep regret that we note on January 18, 1997 the passing of
Russell R. McWhorter. Russ retired from Citizens Bank in May 1981 as Chairman of
the Board. He will be missed.
64
<PAGE> 65
OWNER EMPLOYEES
HORIZON BANK
SALES OFFICES
HORIZON BANK
SALES OFFICES
FRANKLIN SQUARE
Sherri Alonso
Kathryn Benkie
Brian Bishop
Stephen Brooks
Kelly Cavanaugh
Rhonda Henderson
Carla Kanney
Joann Krickhahn
Hong Le Mai
Sharon Meer
Joy Pawlak
Sherry Price
Maxine Schwartz
Heather Stanley
Maggie Vaughan
Valerie Vedron
JOHNSON ROAD
Teresa Baker
Jennie Cecil
Janet Downs
Sandra Miller
Lisa Poston
SOUTH FRANKLIN
Cindy Bolding
Betty Bowden
Daryl Crockett
Diane Dawson
Linda Earley
Laurie Gorski
A'Ric Jackson
Rosie Jones
Kelly Lowery
Darla Nespo
Lynn Neitzel
Elizabeth Olmo
Debra Richards
Roxann Zoborosky
LAPORTE
Sheryl Bowman
Kayde Darnell
JoAnn Decker
Stammy Ellinger
Doris Nevers
Sanna Palo
Nina Sampson
Mary Shultz
Gail Ulrich
Catherine Zawacki
PORTAGE
Michelle Flick
Linette Godfrey
Pamela Karner
Heidi Potzebowski
Christine Pouch
CHESTERTON
Racquel Mitchell
Karen Parrish
Julianne Whiteman
NORTH VALPARAISO
Kristin Campbell
Kathleen Lawrence
Phyllis Newkirk
Janet Williams
WANATAH
Norma Campbell
Beverly Hartman
Elaine Hefner
Evelyn Soplanda
65
<PAGE> 66
OWNER EMPLOYEES
COMMERCIAL LOANS
Sheri Anderson
Christopher Chatfield
Craig Dwight
Rita Stec
MORTGAGE LOANS
John Biddle
Janet Biernacki
Stacey Fisher-Koester
Jane Nelson
Debra Pedzinski
Robin Reider
Lois Swanson
CREDIT ADMINISTRATION
Darla Bowen
Kathy Callan
Stephen Dick
Rebecca Doperalski
Mary Kay Hanke
Franklin McCarty
Mary McColl
Cathy Poehl
Bonnie Piotrowski
Brenda Reiser
Yun-Ying Rempala
Gilbert Romero
Kellie Rusboldt
Sandra Skierkowski
Yolanda Thomas
Kathi Wolferd
AUDIT
Toni Geroluim
Rhonda McCausland
Rachel Saxon
JoAnn Swistek
LOAN REVIEW
Robert Holmes
INFORMATION SYSTEMS
Jane Barth
Thomas Bowman
Pamela Bricher
Brenda Brown
Amanda Childs
Cheryl Fisher
Shannon Gillem
Renee Hale
Andrea Hartke
Karen Jarrell
Teresa Jaske
Eunice Keppen
Michelle Krayniak
Joseph Mellen
Patricia Pierce
Cindy Pointon
Joseph Reed
William Retseck
David Rose
Barbara Simuel
Tammy Steinhagen
Ferdinand Tinio
Melanie Turner
Toni Whitfield
FINANCE
Beverly Foster
Myron Long
Sharon Meyers
Diana Taylor
Catherine Tempel
Julie Zippel
MARKETING
Jennifer DeHaven
Thad Donovan
Bette Novak
Eyvette Sellers
Rhonda Weirich
EXECUTIVE MANAGEMENT
Thomas McCormick
Marjorie McGill
Larry Reed
PURCHASING
Richard Carr
John Garrettson
Susan Henshaw
Rebecca Mazzaia
David Spears
HUMAN RESOURCES
Judy Dodge
Annerose Maron
Rae Rankin
Melanie Trowbridge
HUMAN DEVELOPMENT
Yvonne McGill
Tricia Rogers
ENROLLED IN TRAINING PROGRAM
Dalemarasha Cooper
Elizabeth Davis
Victoria Henry
Teresa Nims
Denise Moore
66
<PAGE> 67
OWNER EMPLOYEES
IMS INVESTMENT MANAGEMENT
Diana Alinsky
Mary Beth Atkinson
Susan Bietry
Leon Dargis
Patricia Finney
Jacquelyn Frymier
Nancy Hawkins
Brian Holt
Timothy Hurlbut
Susan Hunt
Janet Jasicki
Connie Johnston
Sandra Kazmucha
Bobbie Lange
Barbara Ludlow
Kristen Mallory
Kimberly Martin
Jason McDaniel
Justina Mejean
Brian Merrill
Mary Napier
Stephanie Oberlie
Cheryl Reinhart
Robert Rose
THE LOAN STORE
Emmett Burleson
Shirley Dowdell
David Levenhagen
Kathleen Mallory
Michael Pappas
Deron Robinson
67
<PAGE> 1
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State of Name Under Which
Subsidiary Incorporation Business is Done
- ---------- ------------- ----------------
<S> <C> <C>
Horizon Bank, National Association Indiana Horizon Bank
IMS Investment Management,
National Association Indiana IMS Investment Management
(a subsidiary of Horizon Bank)
HBC Insurance Company, Inc. Arizona HBC Insurance Company
The Loan Store, Inc. Indiana The Loan Store
</TABLE>
48
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,551
<INT-BEARING-DEPOSITS> 211
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,041
<INVESTMENTS-CARRYING> 12,810
<INVESTMENTS-MARKET> 12,838
<LOANS> 271,476
<ALLOWANCE> 2,435
<TOTAL-ASSETS> 382,038
<DEPOSITS> 289,180
<SHORT-TERM> 12,849
<LIABILITIES-OTHER> 4,411
<LONG-TERM> 41,500
<COMMON> 708
0
0
<OTHER-SE> 32,800
<TOTAL-LIABILITIES-AND-EQUITY> 382,038
<INTEREST-LOAN> 23,096
<INTEREST-INVEST> 5,137
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 28,233
<INTEREST-DEPOSIT> 9,605
<INTEREST-EXPENSE> 11,800
<INTEREST-INCOME-NET> 16,433
<LOAN-LOSSES> 66
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,750
<INCOME-PRETAX> 5,423
<INCOME-PRE-EXTRAORDINARY> 3,824
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,824
<EPS-PRIMARY> 5.19
<EPS-DILUTED> 5.19
<YIELD-ACTUAL> 4.86
<LOANS-NON> 316
<LOANS-PAST> 682
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 124
<ALLOWANCE-OPEN> 2777
<CHARGE-OFFS> 557
<RECOVERIES> 149
<ALLOWANCE-CLOSE> 2,435
<ALLOWANCE-DOMESTIC> 1,753
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 682
</TABLE>
