<PAGE> 1
HORIZON BANCORP
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
450 5th Street N.W.
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended SEPTEMBER 30, 1999 commission file number 0-10792
HORIZON BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1562417
------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
515 FRANKLIN SQUARE, MICHIGAN CITY, INDIANA 46360
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 879-0211
Securities registered pursuant to Section 12(b) of the Act:
NONE
----
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
--------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
643,923 at OCTOBER 31, 1999
------- --------
<PAGE> 2
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------------- ----------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 14,617 $ 12,771
Federal funds sold 18,500
Interest-bearing demand deposits 328 598
-------------------- ----------------------
Cash and cash equivalents 14,945 31,869
Interest-bearing deposits 229 225
Investment securities
Available for sale 69,787 54,612
Held to maturity (fair value of $0 and $12,090) 11,746
-------------------- ----------------------
Total investment securities 69,787 66,358
Loans held for sale
Loans, net of allowance for loan losses of $2,848 and $2,787 300,224 287,559
Premises and equipment 18,356 18,393
Federal Reserve and Federal Home Loan Bank stock 3,973 3,973
Interest receivable 2,366 2,249
Other assets 6,150 5,528
-------------------- ----------------------
Total assets $416,030 $416,154
==================== ======================
LIABILITIES
Deposits
Noninterest bearing $ 37,423 $ 58,658
Interest bearing 289,085 263,743
-------------------- ----------------------
Total deposits 326,508 322,401
Short-term borrowings 650 4,000
Federal Home Loan Bank advances 54,000 54,000
Interest payable 768 817
Other liabilities 5,486 3,050
-------------------- ----------------------
Total liabilities 387,412 384,268
-------------------- ----------------------
COMMITMENTS AND CONTINGENCIES
EQUITY RECEIVED FROM CONTRIBUTIONS AND
DIVIDENDS TO THE ESOP 5,274 4,418
-------------------- ----------------------
STOCKHOLDERS' EQUITY
Common stock, $1 stated value
Authorized -- 5,000,000 shares
Issued -- 1,038,428 shares, less ESOP shares of
277,678 and 292,960 760 741
Additional paid-in capital 9,105 8,834
Retained earnings 23,325 24,201
Accumulated other comprehensive income (863) 336
Less treasury stock, at cost, 230,843 and 183,048 shares (8,983) (6,644)
-------------------- ----------------------
Total stockholders' equity 23,344 27,468
==================== ======================
Total liabilities and stockholders' equity $416,030 $416,154
==================== ======================
</TABLE>
See notes to consolidated financial statements
<PAGE> 3
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
----------------- ---------------- ----------------- ----------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans receivable $ 6,254 $ 5,815 $18,371 $17,396
Investment securities:
Taxable 1,268 992 3,844 2,927
Tax exempt 3 115 164 334
----------------- ---------------- ----------------- ----------------
Total interest income 7,525 6,922 22,379 20,657
----------------- ---------------- ----------------- ----------------
INTEREST EXPENSE
Deposits 3,060 2,657 9,184 7,700
Federal funds purchased and short-term borrowings
10 21 13 42
Federal Home Loan Bank advances 745 713 2,196 1,914
----------------- ---------------- ----------------- ----------------
Total interest expense 3,815 3,391 11,393 9,656
----------------- ---------------- ----------------- ----------------
NET INTEREST INCOME 3,710 3,531 10,986 11,001
Provision for loan losses 200 180 545 655
----------------- ---------------- ----------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
3,510 3,351 10,441 10,346
----------------- ---------------- ----------------- ----------------
OTHER INCOME
Service charges on deposit accounts 523 581 1,537 1,711
Fiduciary activities 518 524 1,536 1,653
Commission income from insurance agency 206 205 621 257
Income from reinsurance company 39 46 120 107
Gain on sale of securities 33 209
Other income 147 99 351 301
----------------- ---------------- ----------------- ----------------
Total other income 1,466 1,455 4,374 4,029
----------------- ---------------- ----------------- ----------------
OTHER EXPENSES
Salaries and employee benefits 2,279 2,175 6,664 6,237
ESOP termination expense 1,959 1,959
Net occupancy expenses 458 377 1,252 963
Data processing and equipment expenses
517 481 1,545 1,567
Other expenses 1,223 1,156 3,236 3,297
----------------- ----------------- ---------------- -----------------
Total other expenses 6,436 4,189 14,656 12,064
----------------- ----------------- ---------------- -----------------
Income Before Income Tax (1,460) 617 159 2,311
Income tax expense (473) 226 29 711
----------------- ---------------- ----------------- ----------------
NET INCOME FROM CONTINUING OPERATIONS $ (987) $ 391 $ 130 $ 1,600
</TABLE>
<PAGE> 4
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - CONTINUED
(Dollar Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
----------------- ----------------- ---------------- -----------------
DISCONTINUED OPERATIONS
Loss from operation of discontinued subsidiary
<S> <C> <C> <C> <C>
(less tax benefit of $55 in 1999 and $81 in $ $ (22) $ (81) $ (87)
1998)
Loss on disposal of subsidiary, including
provision of $113 for operating losses during
phase-out period (less tax benefit of $43 in
1999) (20) (70)
----------------- ----------------- ---------------- -----------------
Total loss from discontinued operations
(20) (22) (151) (87)
----------------- ----------------- ---------------- -----------------
NET INCOME (LOSS) $ (1,007) $ 369 $ (21) $ 1,513
================= ================= ================ =================
Basic and Diluted Earnings per Share from continued
operations $ (1.53) $ 0.56 $ .20 $ 2.30
Basic and Diluted Earnings per Share from loss on
discontinued operations (0.03) (0.03) (0.23) (0.13)
----------------- ----------------- ---------------- -----------------
BASIC AND DILUTED EARNINGS PER SHARE $ (1.56) $ 0.53 $ (.03) $ 2.17
================= ================= ================ =================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Comprehensive Retained Comprehensive Treasury
Stock Capital Income Earnings Income Stock Total
------------- ------------ --------------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1998
$741 $8,834 $24,201 $336 $(6,644) $27,468
Net income (Loss) $(21) (21) (21)
Other comprehensive income,
net of tax
Unrealized losses on
securities, net of
reclassification
adjustment
(1,199) (1,199) (1,199)
---------------
Comprehensive income
$(1,220)
===============
Cash dividends ($1.35 per
share)
(855) (855)
Issuance of 4,000 shares of
common stock for purchase
of investment management
entity 4 196 200
Purchase of 47,795 shares
of treasury stock
(2,339) (2,339)
Net purchases and
distributions with ESOP
15 75 90
------------- ------------ ---------- --------------- ------------ ------------
BALANCES, SEPTEMBER 30, 1999 $760 $9,105 $23,325 $(863) $(8,983) $23,344
============= ============ ========== =============== ============ ============
</TABLE>
<PAGE> 6
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September
1999 1998
----------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (21) $ 1,514
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for loan losses 545 655
Provision for loan losses, discontinued operations 250 120
Additional paid-in capital from release of ESOP shares 304 (149)
Depreciation and amortization 1040 849
Deferred income tax (23) (368)
Investment securities amortization, net 142 163
Gain on sale of investment securities (176)
Loss on disposal of fixed assets 90 28
Loss on other real estate owned 40
Deferred loan fees (45) (55)
Unearned income 221 (88)
Net change in:
Interest receivable (117) 13
Interest payable (49) 104
Other assets 995 (405)
Other liabilities 2,436 (906)
----------------- -------------------
Net cash provided by operating activities 5,592 1,515
----------------- -------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (4) (4)
Purchases of securities available for sale (35,250) (27,864)
Proceeds from maturities, calls, and principal repayments
of securities available for sale 16,342 13,469
Proceeds from sales of securities available for sale 11,562
Purchases of securities held to maturity (2,597)
Proceeds from maturities, calls, and principal repayments of
securities held to maturity 2,000 1,287
Net change in loans (19,012) (14,483)
Proceeds from sales of loans 5,087 2,481
Recoveries on loans previously charged-off 289 295
Purchases of premises and equipment (1,093) (1,582)
----------------- -------------------
Net cash used by investing activities (20,079) (28,998)
----------------- -------------------
FINANCING ACTIVITIES
Net change in
Deposits 4,107 24,566
Short-term borrowings (3,350) (8,450)
Federal Home Loan Bank advance 8,000
Dividends paid (855) (930)
Purchase of treasury stock (2,339) (1,617)
----------------- -------------------
Net cash provided (used) by financing activities (2,437) 21,569
----------------- -------------------
NET CHANGE IN CASH AND CASH EQUIVALENT (16,924) (5,914)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,869 20,358
----------------- -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $14,945 $14,444
================= ===================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 11,442 $ 9,928
Income tax paid 230 590
See notes to consolidated financial statements.
</TABLE>
<PAGE> 7
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Horizon Bancorp (Horizon) and its wholly-owned subsidiaries, Horizon Bank, N.A.
(Bank), HBC Insurance Group, Inc. (Insurance Company) and The Loan Store, Inc.
All intercompany balances and transactions have been eliminated. The results of
operations for the period ended September 30, 1999 and September 30, 1998 are
not necessarily indicative of the operating results for the full year of 1999 or
1998. These interim financial statements are prepared without audit and reflect
all adjustments (consisting of normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the consolidated position
of Horizon Bancorp at September 30, 1999 and its results of operations and cash
flows for the periods presented. The accompanying consolidated financial
statements do not purport to contain all the necessary financial disclosure
required by generally accepted accounting principals that might otherwise be
necessary in the circumstances and should be read in conjunction with the 1998
Horizon Bancorp consolidated financial statements and related notes thereto
included in its Annual Report for the year ended December 31, 1998.
NOTE 2 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1999
Gross Gross
Amortized Unrealized Unrealized Fair
September 30 Cost Gains Losses Value
- ------------------------------------------------------ ----------------- ----------------- ---------------- ------------------
Available for sale
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $ 30,652 $ 46 $ (701) $ 29,997
State and municipal 4,230 1 (80) 4,151
FHLMC mortgage-backed securities 7,046 81 (40) 7,087
FNMA mortgage-backed securities 17,554 14 (155) 17,413
GNMA collateralized mortgage obligation
8,058 (565) 7,493
FHLMC collateralized mortgage obligation
964 964
FNMA collateralized mortgage obligation
2,389 (12) 2,377
Marketable equity securities 315 (10) 305
----------------- ----------------- ---------------- ------------------
Total available for sale $ 71,208 $ 142 $ (1,563) $ 69,787
================= ================= ================ ==================
</TABLE>
<PAGE> 8
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 2 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1998
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ------------------------------------------------------- ---------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury and federal agencies $12,568 $ 93 $ (16) $12,645
GNMA mortgage-backed securities 12,321 72 (79) 12,314
FHLMC mortgage-backed securities 9,117 220 (4) 9,333
FNMA mortgage-backed securities 19,729 217 (3) 19,943
Marketable equity securities 316 61 377
---------------- ------------------ ---------------- -----------------
Total available for sale 54,051 663 (102) 54,612
---------------- ------------------ ---------------- -----------------
Held to maturity
Federal agencies 1,630 62 1,692
State and municipal 10,116 287 (5) 10,398
---------------- ------------------ ---------------- -----------------
Total held to maturity 11,746 349 (5) 12,090
---------------- ------------------ ---------------- -----------------
Total investment securities $65,797 $ 1,012 $ (107) $66,702
================ ================== ================ =================
</TABLE>
The amortized cost and fair value of securities available for sale at September
30, 1999, by contractual Maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers May have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale
Amortized Fair
Cost Value
----------------- -----------------
<S> <C> <C>
Within one year $ 5,103 $ 5,089
One to five years 16,685 16,435
Five to ten years 9,757 9,533
After ten years 3,337 3,091
----------------- -----------------
34,882 34,148
Mortgage-backed securities 24,600 24,500
Collateralized mortgage obligations 11,411 10,834
Marketable equity securities 315 305
----------------- -----------------
$71,208 $69,787
================= =================
</TABLE>
Proceeds from sales of securities available for sale during the nine months
ending September 30, 1999 were $11.562 million. Gross gains of $209 thousand and
gross losses of $32 thousand were realized on those sales.
<PAGE> 9
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
During the nine month period ending September 30, 1999, debt securities with an
amortized cost of $10.050 million were transferred from held to maturity to
available for sale so the Bank could minimize the tax consequences of holding
tax-exempt securities. The securities had an unrealized gain of approximately
$350 thousand. There were no transfers between classifications during 1998.
NOTE 3 - LOANS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------------- -------------------
<S> <C> <C>
Commercial loans $ 85,075 $ 76,682
Real estate loans 157,070 152,390
Installment loans 60,927 61,274
--------------------- -------------------
Total loans $303,072 $290,346
===================== ===================
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------------- ------------------
<S> <C> <C>
Allowance for loan losses
Balances, beginning of period $ 2,787 $ 2,702
Provision for losses, operations 545 820
Provision for losses,
discontinued operations 250 180
Recoveries on loans 289 401
Loans charged off (1,023) (1,316)
--------------------- ------------------
Balances, end of period $ 2,848 $ 2,787
===================== ==================
</TABLE>
NOTE 5 - NONPERFORMING ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------------- ------------------
<S> <C> <C>
Nonperforming loans $ 1,098 $ 894
OREO before allowance for OREO losses 133
===================== ==================
Total nonperforming assets $ 1,098 $ 1,027
===================== ==================
</TABLE>
<PAGE> 10
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 6 - OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Nine Months Ended September 30 1999
-----------------
<S> <C>
Unrealized gains (losses) on securities:
Unrealized holding losses arising during the period $ (1,789)
Less: reclassification adjustment for gains realized in net income 177
------------------
Net unrealized losses (1,966)
Tax benefit 767
------------------
Other comprehensive income $ (1,199)
==================
</TABLE>
NOTE 7 - DISCONTINUED OPERATIONS
At their April, 1999 meeting, the Board of Directors of Horizon Bancorp approved
discontinuing the operations of The Loan Store, Inc., a wholly owned subsidiary
of Horizon Bancorp. On August 13, 1999 substantially all of the assets of The
Loan Store, Inc. were sold. As of September 30, 1999 the remaining assets of The
Loan Store, Inc. were $147 thousand as compared to $4.459 million as of December
31, 1998.
NOTE 8 - ESOP
On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the
termination of the Horizon Bancorp Employee Stock Ownership Plan ("ESOP") as of
December 31, 1999. The debt currently owed by the ESOP will be repaid with the
proceeds from the sale of a portion of the unallocated shares to Horizon
Bancorp. All remaining shares will be immediately allocated to participants. The
expense related to the termination of the ESOP was recorded in the 3rd quarter
and resulted in an expense of $1.195, net of tax. The expense recorded is based
upon the price of Horizon Bancorp stock. An independent valuation firm performed
a valuation of Horizon Stock in the 3rd quarter. The market price of the stock
per this valuation was $44.00 per share. The valuation will be updated as of
December 31, 1999 and any increase or decrease in expense will be recorded
during the 4th quarter. Each $1.00 increase or decrease in stock price will
result in an approximate $110,000 increase or decrease in expense. The
termination is subject to regulatory approval. Upon the termination of the ESOP,
the retirement plans of Horizon Bancorp will own approximately 24% of the
outstanding shares.
<PAGE> 11
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Item 2 - Introduction
The purpose of this discussion is to focus on Horizon's financial condition,
changes in financial condition and the results of operations in order to provide
a better understanding of the consolidated financial statements included
elsewhere herein. This discussion should be read in conjunction with the
consolidated financial statements and the related notes.
FINANCIAL CONDITION
LIQUIDITY
The Bank maintains a stable base of core deposits provided by long standing
relationships with consumers and local businesses. These deposits are the
principal source of liquidity for Horizon. Other sources of liquidity for
Horizon include earnings, loan repayment, investment security sales and
maturities, sale of real estate loans and borrowing relationships with
correspondent banks, including the Federal Home Loan Bank (FHLB). During the
nine months ended September 30, 1999, cash and cash equivalents decreased by
$16.9 million in order to fund growth in the loan portfolios and to acquire
additional investment securities. In addition to liquidity provided from the
normal operating, funding, and investing activities of Horizon, at September 30,
1999, Bank has available approximately $74.4 million in unused credit lines with
various money center banks including the FHLB.
There have been no other material changes in the liquidity of Horizon from
December 31, 1998 to September 30, 1999.
CAPITAL RESOURCES
The capital resources of Horizon and Bank remain strong and exceed regulatory
capital ratios for "well capitalized" banks at September 30, 1999. Stockholders'
equity totaled $28.618 million ($5.274 million from ESOP) as of September 30,
1999 compared to $31.886 million ($4.418 million from ESOP) as of December 31,
1998. The change in stockholders' equity during the nine months ended September
30, 1999 is the result of the decrease in the market value of investment
securities available for sale accounted for as an addition / reduction of
stockholders' equity, the repurchase of Horizon Bancorp stock and net income,
net of dividends paid. At September 30, 1999, the ratio of stockholders' equity
to assets was 6.88% compared to 7.66% at December 31, 1998.
Horizon has selectively purchased shares that became available in the market
from time to time. During the nine months ended September 30, 1999, management
purchased 47,795 shares at a cost of $2.339 million.
During the first quarter of 1999, the Bank's subsidiary, Horizon Trust &
Investment Management, N.A. purchased Financial Planning and Management
Corporation in exchange for 4,000 shares of Horizon Bancorp stock. The effect of
this purchase was an increase in capital of $200,000 and the recording of
associated goodwill.
There have been no other material changes in Horizon's capital resources from
December 31, 1998 to September 30, 1999.
<PAGE> 12
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
MATERIAL CHANGES IN FINANCIAL CONDITION - SEPTEMBER 30, 1999 COMPARED TO
DECEMBER 31, 1998
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.
At September 30, 1999 as compared with December 31, 1998 there is a change in
the deposit mix in which the noninterest-bearing deposits decreased $21 million
and the interest-bearing deposits increased $25.3 million. The two largest
contributing factors were the restructuring of the consumer checking account
product to include an interest-bearing feature at a nominal interest rate and
the introduction of a municipal NOW account for previously off-balance sheet
public fund investments.
There have been no other material changes in the financial condition of Horizon
from December 31, 1998 to September 30, 1999.
RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS - SEPTEMBER 30, 1999 COMPARED TO
SEPTEMBER 30, 1998
During the nine months ended September 30, 1999, earnings totaled a negative $21
thousand or a negative $.03 per share compared to $1.513 million or $2.17 per
share for the same period in 1998.
Net interest income was $10.986 million for the nine months ended September 30,
1999 compared to $11.001 million for the same period 1998.
Total noninterest income for the nine months ended September 30, 1999 increased
$345 thousand or 8.56% from the same period in 1998. The two largest components
of the change were the addition of commission income from the acquisition of an
insurance agency that was purchased as of April 1, 1998 and a gain on the sale
of investment securities of $209 thousand.
Noninterest expense increased $2.594 million or 21.50% to $14.657 million for
the nine months ended September 30, 1999 compared to the same period in 1998.
The largest component of the change is the benefit expense of $1.959 million
associated with the termination of the ESOP. Two other contributing factors are
an increase in salary and benefit expense associated with the insurance agency
acquisition as well as increased personnel to achieve the planned asset growth
of the Trust Company. The other factor is increased occupancy expenses related
to capital asset expenditures and leased property rentals.
<PAGE> 13
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
RESULTS OF OPERATIONS (CONTINUED)
At the April, 1999 meeting, the Board of Directors of Horizon Bancorp approved
discontinuing the operations of The Loan Store, Inc., a wholly owned subsidiary
of Horizon Bancorp. As of August 13, 1999 substantially all the assets of The
Loan Store were sold. At September 30, 1999 The Loan Store, Inc.'s total assets
were $147 thousand and the net loss is $151 thousand for the nine month period
ending September 30, 1999. As of December 31, 1998, The Loan Store had total
assets of $4.459 million.
On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the
termination of the Horizon Bancorp Employee Stock Ownership Plan ("ESOP") as of
December 31, 1999. The debt currently owed by the ESOP will be repaid with the
proceeds from the sale of a portion of the unallocated shares to Horizon
Bancorp. All remaining shares will be immediately allocated to participants. The
expense related to the termination of the ESOP was recorded in the 3rd quarter
and resulted in an expense of $1.195, net of tax. The expense recorded is based
upon the price of Horizon Bancorp stock. An independent valuation firm performed
a valuation of Horizon Stock in the 3rd quarter. The market price of the stock
per this valuation was $44.00 per share. The valuation will be updated as of
December 31, 1999 and any increase or decrease in expense will be recorded
during the 4th quarter. Each $1.00 increase or decrease in stock price will
result in an approximate $110,000 increase or decrease in expense. At the
termination of the ESOP, the retirement plans of Horizon Bancorp owned
approximately 24% of the outstanding shares.
There have been no other material changes in the results of operations of
Horizon for nine months ending September 30, 1999 and 1998.
<PAGE> 14
HORIZON BANCORP AND SUBSIDIARIES
YEAR 2000
Our Y2K plan has been developed using the Federal Financial Institutions
Examination Council (FFIEC) Interagency Statement as a guide. The plan has been
divided into five phases; awareness, assessment, renovation, validation and
implementation. Our progress in each phase is described below:
AWARENESS PHASE
Horizon's Year 2000 project team was established in 1997 and an overall strategy
was developed that encompassed in-house systems, outsourced systems, vendors,
auditors, customers and suppliers. Customers and company personnel were formally
notified of the Y2K project and team.
ASSESSMENT PHASE
All hardware, software, networks, ATM's, platforms and customer and vendor
interdependencies potentially affected by the Year 2000 date change were
identified. The assessment also included any system dependent on embedded
microchips, such as heating/cooling, security systems, elevators and vaults.
From this assessment detailed plans were created identifying resource needs,
time frames and sequencing of our Y2K efforts. Assessment of the effect possible
customer failure would have on the our company was also performed with needs
identified and appropriate plans put in place. In order to obtain assistance in
this analysis, Horizon hired a consultant to perform an assessment report
regarding Horizon's Y2K preparedness and testing strategies. This phase was
completed by June 1998.
RENOVATION PHASE
Renovation or replacement of affected systems began in July, 1998. This phase
includes all hardware and software upgrades, system replacements, vendor
certification and other associated changes. As of October, 1998 all mission
critical items were renovated. This includes core processing hardware, software,
and vendor interfaces. Other affected systems are being renovated on schedule
per our Y2K timetable.
VALIDATION PHASE
Testing is the largest part of the Year 2000 project and has required the
efforts of a large number of dedicated people in our company. As of September
30, 1999 testing of mission critical and non-critical systems was substantially
complete. We will continue to test as we upgrade or install new systems.
Verification of customer/vendor interfaces was also completed in the 3rd quarter
of 1999.
IMPLEMENTATION PHASE
This is the process of certifying that all systems in place and in use by our
company are certified as Year 2000 compliant. This phase was completed in the
2nd quarter of 1999 but again will be monitored as we upgrade or install new
systems throughout 1999.
CONTINGENCY PLANNING
Although we have installed and certified all systems to be year 2000 compliant,
we understand that being a premier service provider requires attention to every
detail. Towards that end, we have put in place formal contingency plans designed
to minimize any disruption caused by problems resulting from the century date
change. These plans were completed within the second quarter of 1999 with formal
testing completed during August 1999.
The costs associated with Y2K are anticipated to be approximately $280,000. This
does not include upgrades to systems that would have been replaced in the normal
upgrade processes. Substantially all of these costs have been incurred to date.
<PAGE> 15
HORIZON BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
ITEM 1. LEGAL PROCEEDINGS
- ----------------------------
See Management's Discussion and Analysis
ITEM 2. CHANGES IN SECURITIES
- -------------------------------
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -----------------------------------------
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
Not Applicable
ITEM 5. OTHER INFORMATION
- ---------------------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
a. Financial Data Schedule
b. No reports on Form 8-K were filed during the three months ended
September 30, 1999.
<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON BANCORP
11/12/1999 /s/ Robert C. Dabagia
- --------------------- -------------------------------------------
Date: BY: Robert C. Dabagia
Chairman and Chief Executive Officer
11/12/1999 /s/ Diana E. Taylor
- --------------------- -------------------------------------------
Date: BY: Diana E. Taylor
Senior Vice President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-03-1999
<CASH> 14,945
<INT-BEARING-DEPOSITS> 229
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,787
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 303,072
<ALLOWANCE> 2,848
<TOTAL-ASSETS> 416,030
<DEPOSITS> 326,508
<SHORT-TERM> 650
<LIABILITIES-OTHER> 6,254
<LONG-TERM> 54,000
0
0
<COMMON> 760
<OTHER-SE> 27,858
<TOTAL-LIABILITIES-AND-EQUITY> 416,030
<INTEREST-LOAN> 18,371
<INTEREST-INVEST> 4,008
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 22,379
<INTEREST-DEPOSIT> 9,184
<INTEREST-EXPENSE> 11,393
<INTEREST-INCOME-NET> 10,986
<LOAN-LOSSES> 545
<SECURITIES-GAINS> 209
<EXPENSE-OTHER> 14,656
<INCOME-PRETAX> 159
<INCOME-PRE-EXTRAORDINARY> 130
<EXTRAORDINARY> (151)
<CHANGES> 0
<NET-INCOME> (21)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
<YIELD-ACTUAL> 3.95
<LOANS-NON> 980
<LOANS-PAST> 118
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,787
<CHARGE-OFFS> 1,023
<RECOVERIES> 289
<ALLOWANCE-CLOSE> 2,848
<ALLOWANCE-DOMESTIC> 2,848
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 434
</TABLE>
