<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 JUNE 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
or organization) Identification 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:
645,997 at JULY 31, 1999
-------- -------------
<PAGE> 2
<TABLE>
<CAPTION>
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
JUNE 30, DECEMBER 31,
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 20,377 $ 12,771
Federal funds sold 13,200 18,500
Interest-bearing demand deposits 212 598
-------------------------------
Cash and cash equivalents 33,789 31,869
Interest-bearing deposits 228 225
Investment securities
Available for sale 71,939 54,612
Held to maturity (fair value of $12,090) 11,746
-------------------------------
Total investment securities 71,939 66,358
Loans held for sale
Loans, net of allowance for loan losses of $2,746 and $2,787 301,998 287,559
Premises and equipment 18,877 18,393
Federal Reserve and Federal Home Loan Bank stock 3,973 3,973
Interest receivable 2,580 2,249
Other assets 4,686 5,528
-------------------------------
Total assets $ 438,070 $ 416,154
===============================
LIABILITIES
Deposits
Noninterest bearing $ 46,518 $ 58,658
Interest bearing 296,096 263,743
-------------------------------
Total deposits 342,614 322,401
Short-term borrowings 3,400 4,000
Federal Home Loan Bank advances 54,000 54,000
Interest payable 786 817
Other liabilities 7,813 3,050
-------------------------------
Total liabilities 408,613 384,268
-------------------------------
COMMITMENTS AND CONTINGENCIES
EQUITY RECEIVED FROM CONTRIBUTIONS AND
DIVIDENDS TO THE ESOP 4,463 4,418
-------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 stated value
Authorized -- 5,000,000 shares
Issued -- 1,038,428 shares, less ESOP shares of
278,045 and 292,960 760 741
Additional paid-in capital 9,073 8,834
Retained earnings 24,611 24,201
Accumulated other comprehensive income (493) 336
Less treasury stock, at cost, 230,243 and 183,048 shares (8,957) (6,644)
-------------------------------
Total stockholders' equity 24,994 27,468
-------------------------------
Total liabilities and stockholders' equity $ 438,070 $ 416,154
===============================
</TABLE>
See notes to consolidated financial statements
<PAGE> 3
<TABLE>
<CAPTION>
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30 JUNE 30
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 6,156 $ 5,779 $12,117 $11,581
Investment securities
Taxable 1,357 1,002 2,576 1,935
Tax exempt 60 109 161 219
-------------------------------------------------------
Total interest income 7,573 6,890 14,854 13,735
-------------------------------------------------------
INTEREST EXPENSE
Deposits 3,149 2,568 6,124 5,043
Federal funds purchased and short-term borrowings
72 3 117
Federal Home Loan Bank advances 730 554 1,451 1,105
-------------------------------------------------------
Total interest expense 3,879 3,194 7,578 6,265
-------------------------------------------------------
NET INTEREST INCOME 3,694 3,696 7,276 7,470
Provision for loan losses 179 180 344 475
-------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
3,515 3,516 6,932 6,995
-------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 525 534 1,014 1,130
Fiduciary activities 537 599 1,018 1,129
Commission income from insurance agency 180 52 415 52
Income from reinsurance company 27 81 81 162
Gain on sale of securities 176 176
Other income 92 14 204 101
-------------------------------------------------------
Total other income 1,537 1,280 2,908 2,574
-------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 2,232 2,023 4,385 4,062
Net occupancy expenses 388 311 794 586
Data processing and equipment expenses
509 529 1,028 1,086
Other expenses 1,026 1,056 2,014 2,141
-------------------------------------------------------
Total other expenses 4,155 3,919 8,221 7,875
-------------------------------------------------------
Income Before Income Tax 897 877 1,619 1,694
Income tax expense 267 250 502 485
-------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS
630 627 1,117 1,209
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - CONTINUED
(Dollar Amounts in Thousands, Except Per Share Data)
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30 JUNE 30
1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISCONTINUED OPERATIONS
Loss from operation of discontinued subsidiary
(less tax benefit of $55 in 1999 and $67 in
1998) $ (39) $ (34) $ (81) $ (65)
Loss on disposal of subsidiary, including
provision of $81 for operating losses during
phase-out period (less tax benefit of $31 in
1999) (50) (50)
--------------------------------------------------------------------
Total loss from discontinued
operations (89) (34) (131) (65)
--------------------------------------------------------------------
NET INCOME $541 $593 $986 $1,144
====================================================================
Basic and Diluted Earnings per Share from continued
operations $0.96 $0.90 $1.68 $1.74
Basic and Diluted Earnings per Share from loss on
discontinued operations (0.14) (0.05) (0.20) (0.09)
--------------------------------------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE $0.82 $0.85 $1.48 $1.65
====================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER' EQUITY
(Table Dollar Amounts in Thousands)
Accumulated
Additional Other
Paid-in Comprehensive Retained Comprehensive Treasury
Common Stock Capital Income Earnings Income Stock Total
------------- ----------- ---------------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1998 $741 $8,834 $24,201 $336 $(6,644) $27,468
Net income $986 986 986
Other comprehensive
income, net of tax
Unrealized losses on
securities, net of
reclassification
adjustment (829) (829) (829)
----------------
Comprehensive income $157
================
Cash dividends ($.90 per
share) (576) (576)
Issuance of 4,000 shares
of common stock for
purchase of investment
management entity 4 196 200
Purchase of 47,195
shares of treasury
stock (2,313) (2,313)
Net purchases and
distributions with ESOP 15 43 58
------------------------- ---------------------------------------------------
BALANCES, JUNE 30, 1999 $760 $9,073 $24,611 $(493) $(8,957) $24,994
========================= ===================================================
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollar Amounts in Thousands)
Six Months
Ended June
1999 1998
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 986 $ 1,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 540 550
Additional paid-in capital from release of ESOP shares 98 101
Depreciation and amortization 655 557
Deferred income tax (23) (427)
Investment securities amortization, net 109 112
Gain on sale of investment securities (176)
Loss on disposal of fixed assets 21 4
Loss on other real estate owned 30
Deferred loan fees (44) (46)
Unearned income 292 4
Net change in:
Interest receivable (331) (17)
Interest payable (31) (52)
Other assets 1,581 (152)
Other liabilities 4,763 (1,186)
------------------------------
Net cash provided by operating activities 8,440 622
------------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (3) (2)
Purchases of securities available for sale (30,644) (15,078)
Proceeds from maturities, calls, and principal repayments
of securities available for sale 13,533 8,269
Proceeds from sales of securities available for sale 8,257
Purchases of securities held to maturity (1,338)
Proceeds from maturities, calls, and principal repayments of
securities held to maturity 2,000 1,046
Net change in loans (15,398) (7,771)
Proceeds from sales of loans 2,246
Recoveries on loans previously charged-off 171 232
Purchases of premises and equipment (1,160) (874)
------------------------------
Net cash used by investing activities (23,244) (13,270)
------------------------------
FINANCING ACTIVITIES
Net change in
Deposits 20,213 36,182
Short-term borrowings (600) (13,000)
Federal Home Loan Bank advance (1,000)
Dividends paid (576) (623)
Purchase of treasury stock (2,313) (585)
------------------------------
Net cash provided by financing activities 16,724 20,974
------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENT 1,920 8,326
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,869 20,358
------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,789 $ 28,684
==============================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 7,767 $ 6,309
Income tax paid 150 590
</TABLE>
See notes to consolidated financial statements.
<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 June 30, 1999 and June 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 June 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
June 30 Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury and federal agencies $30,082 $ 77 $ (500) $29,659
State and municipal 4,245 2 (9) 4,238
GNMA mortgage-backed securities 3,669 64 (9) 3,724
FHLMC mortgage-backed securities 7,663 91 (30) 7,724
FNMA mortgage-backed securities 15,207 51 (73) 15,185
GNMA collateralized mortgage obligation
8,064 (432) 7,632
FHLMC collateralized mortgage obligation
963 963
FNMA collateralized mortgage obligation
2,542 2,542
Marketable equity securities 315 (43) 272
-------------------------------------------------------------------
Total available for sale $72,750 $ 285 $(1,096) $71,939
===================================================================
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 2 - INVESTMENT SECURITIES
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 June 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 $ 5,136 $ 5,134
One to five years 16,641 16,491
Five to ten years 9,055 8,907
After ten years 3,495 3,366
----------------------------
34,327 33,898
Mortgage-backed securities 26,539 26,632
Collateralized mortgage obligations 11,569 11,137
Marketable equity securities 315 272
----------------------------
$72,750 $71,939
============================
</TABLE>
Proceeds from sales of securities available for sale during the six months
ending June 30, 1999 were $8.257 million. Gross gains of $191 thousand and gross
losses of $15 thousand were realized on those sales. There were no sales of
securities available for sale during the six months ending June 30, 1998.
<PAGE> 9
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
During the six month period ending June 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>
June 30, December 31,
1999 1998
-----------------------------
<S> <C> <C>
Commercial loans $ 84,911 $ 76,682
Real estate loans 157,748 152,390
Installment loans 62,085 61,274
-----------------------------
Total loans $ 304,744 $ 290,346
=============================
<CAPTION>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
June 30, December 31,
1999 1998
-----------------------------
<S> <C> <C>
Allowance for loan losses
Balances, beginning of period $ 2,787 $ 2,702
Provision for losses, operations 344 820
Provision for losses, discontinued operations 196 180
Recoveries on loans 171 401
Loans charged off (752) (1,316)
-----------------------------
Balances, end of period $ 2,746 $ 2,787
=============================
<CAPTION>
NOTE 5 - NONPERFORMING ASSETS
June 30, December 31,
1999 1998
-----------------------------
<S> <C> <C>
Nonperforming loans $ 1,478 $ 894
OREO before allowance for OREO losses 98 133
-----------------------------
Total nonperforming assets $ 1,576 $ 1,027
=============================
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Table Dollar Amounts in Thousands)
NOTE 6 - OTHER COMPREHENSIVE INCOME
Six Months Ended June 30
1999 1998
-------------------------------------
<S> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding losses arising during the period $ (1,182) $(146)
Less: reclassification adjustment for gains realized in net income 177
-------------------------------------
Net unrealized losses (1,359) (146)
Tax benefit 530 57
-------------------------------------
Other comprehensive income $ (829) $(89)
=====================================
</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. At June 30, 1999 the total assets of The Loan Store, Inc.
were $3.619 million. It is anticipated that the sale of these assets will be
completed in the third quarter of 1999.
NOTE 8 - SUBSEQUENT EVENT
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
termination of the ESOP will result in an expense of approximately $950,000, net
of tax, assuming a stock price of $42.50. The expense recorded will change as
the stock price changes. Each $1.00 increase or decrease in stock price will
result in an approximate $110,000 increase or decrease in expense. After the
termination of the ESOP, the retirement plans of Horizon Bancorp will own
approximately 22% of the outstanding shares. It is anticipated that the
termination of the ESOP will have no material effect on the regulatory capital
ratios of Horizon Bancorp.
<PAGE> 11
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 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 six
months ended June 30, 1999, cash flows were generated from earnings of $986
thousand and a $20 million increase in deposits and proceeds from the sale of
debt securities in the amount of $8.257 million. Cash flows were used to
purchase $3 million of taxable municipal securities and $3.5 million of federal
agency CMO's securities and a $14 million increase in total loans. In addition
to liquidity provided from the normal operating, funding, and investing
activities of Horizon, at June 30, 1999, Bank has available approximately $73.5
million in unused credit lines with various money center banks.
There have been no other material changes in the liquidity of Horizon from
December 31, 1998 to June 30, 1999.
Capital Resources
- -----------------
The capital resources of Horizon and Bank remain strong and exceed regulatory
capital ratios for "well capitalized" banks at June 30, 1999. Stockholders'
equity totaled $29.557 million ($4.463 million from ESOP) as of June 30, 1999
compared to $31.886 million ($4.418 million from ESOP) as of December 31, 1998.
The change in stockholders' equity during the six months ended June 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 June 30, 1999, the ratio of stockholders' equity to assets was 6.72%
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 six months ended June 30, 1999, management
purchased 47,195 shares at a cost of $2.313 million.
The increase in equity received from contributions and dividends to the ESOP and
the corresponding decrease in additional paid in capital is related to the
accrual of the market value appreciation associated with shares which are
anticipated to be allocated to participants accounts in 1999.
There have been no other material changes in Horizon's capital resources from
December 31, 1998 to June 30, 1999.
<PAGE> 12
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Material Changes in Financial Condition - June 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 June 30, 1999 as compared with December 31, 1998 there is a change in the
deposit mix in which the noninterest-bearing deposits decreased $12 million and
the interest-bearing deposits increased $32.4 million. The two largest
contributing factors were the reengineering 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.
At June 30, 1999 as compared with December 31, 1998 there is an increase in
other liabilities of $4.8 million. This increase is associated with the proper
recording of the purchase of $4.5 million investment security which had a trade
date of June 28, 1999 and a settlement date of July 1, 1999.
There have been no other material changes in the financial condition of Horizon
from December 31, 1998 to June 30, 1999.
Results of Operations
- ---------------------
Material changes in results of operations - June 30, 1999 compared to June 30,
- ------------------------------------------------------------------------------
1998
- ----
During the six months ended June 30, 1999, earnings totaled $986 thousand or
$1.48 per share compared to $1.144 million or $1.65 per share for the same
period in 1998.
Net interest income was $7.276 million for the six months ended June 30, 1999
compared to $7.470 million for the same period 1998. The decline in net interest
income is related primarily to the declining rates earned in the loan and
investment portfolios and the change in the mix of the deposit portfolio
resulting in a higher concentration of interest bearing products.
Total noninterest income for the six months ended June 30, 1999 increased $334
thousand or 13.0% from the same period in 1998. The two largest components of
the change was 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 $176 thousand.
Noninterest expense increased $346 thousand or 4.4% to $8.221 million for the
six months ended June 30, 1999 compared to the same period in 1998. The two
largest components of the change is the 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 component 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 SIX MONTHS ENDED JUNE 30, 1999
Results of Operations (continued)
- ---------------------------------
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. At June 30, 1999 The Loan Store, Inc.'s total assets were
$3.619 million and had a loss of $131 thousand for the six month period ending
June 30, 1999. It is anticipated that the sale of these assets will be completed
in the third quarter of 1999 and no material gain or loss is expected upon the
sale of the assets.
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
termination of the ESOP will result in an expense of approximately $950,000, net
of tax, assuming a stock price of $42.50. The expense recorded will change as
the stock price changes. Each $1.00 increase or decrease in stock price will
result in an approximate $110,000 increase or decrease in expense. After the
termination of the ESOP, the retirement plans of Horizon Bancorp will own
approximately 22% of the outstanding shares. It is anticipated that the
termination of the ESOP will have no material effect on the regulatory capital
ratios of Horizon Bancorp.
There have been no other material changes in the results of operations of
Horizon for six months ending June 30, 1999 and 1998.
<PAGE> 14
HORIZON BANCORP AND SUBSIDIARIES
YEAR 2000
Horizon began it's Year 2000 ("Y2K") planning and evaluation process in 1997 and
developed a plan to address Y2K compliance. A project team was formed and began
meeting in September 1997. The systems within the Company have been reviewed and
each system assigned a rating of mission critical or non-mission critical.
Eight critical vendors were identified that provide hardware and software in
order to operate the core data processing systems utilized by the Company. The
core data processing systems of the Bank and The Loan Store, and the machines on
which they reside, were brought Y2K compliant and tested during the third
quarter of 1998. The Y2K compliant version of the core data processing system of
the Bank's wholly owned subsidiary Horizon Trust and Investment Management were
installed and tested during the 4th quarter of 1998. The Y2K compliant version
of the core data processing system of Horizon Insurance Services, Inc. was
received during the 3rd quarter of 1998 and was tested during the 4th quarter of
1998.
The Bank also utilizes four outside vendor to interface information into the
core data processing systems. Three of these vendors have certified that they
are Y2K compliant and one vendor was unable to become compliant on a timely
basis. The Bank converted to another vendor for this service as of January 1,
1999.
The Bank's large loan customers have been contacted regarding their readiness
for the Year 2000 to determine if the Company has significant risk or exposure
due to potential problems of customers related to the Year 2000. Information is
being gathered on the majority of these customer and evaluated on an ongoing
basis. These customer's will be monitored on a consistent basis through the Year
2000.
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. Approximately 90% of these costs have been incurred to date.
The major risks of Horizon's Y2K issues are its ability to provide consistent
daily processing of customer information and the soundness of Horizon's loan
portfolio. Horizon is managing this risk by performing extensive analysis and
testing to identify potential problem areas for its systems and throughout its
customer base. 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.
Horizon's contingency plans consist primarily of manual processing of the core
data in the event that the core data processing system is not operable during
the effected time frames.
<PAGE> 15
HORIZON BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
FOR THE THREE AND SIX MONTHS ENDED JUNE 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 June 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
8/16/99 /s/ Robert C. Dabagia
- ---------------- -----------------------------------------------------
Date: BY: Robert C. Dabagia
Chairman and Chief Executive Officer
8/16/99 /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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,149
<INT-BEARING-DEPOSITS> 228
<FED-FUNDS-SOLD> 13,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,939
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 304,744
<ALLOWANCE> 2,746
<TOTAL-ASSETS> 438,070
<DEPOSITS> 342,614
<SHORT-TERM> 3,400
<LIABILITIES-OTHER> 8,599
<LONG-TERM> 54,000
0
0
<COMMON> 760
<OTHER-SE> 28,697
<TOTAL-LIABILITIES-AND-EQUITY> 438,070
<INTEREST-LOAN> 12,117
<INTEREST-INVEST> 2,737
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,854
<INTEREST-DEPOSIT> 6,124
<INTEREST-EXPENSE> 7,578
<INTEREST-INCOME-NET> 7,276
<LOAN-LOSSES> 344
<SECURITIES-GAINS> 176
<EXPENSE-OTHER> 8,221
<INCOME-PRETAX> 1,619
<INCOME-PRE-EXTRAORDINARY> 1,117
<EXTRAORDINARY> (131)
<CHANGES> 0
<NET-INCOME> 986
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.48
<YIELD-ACTUAL> 4.01
<LOANS-NON> 998
<LOANS-PAST> 480
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,787
<CHARGE-OFFS> 752
<RECOVERIES> 171
<ALLOWANCE-CLOSE> 2,746
<ALLOWANCE-DOMESTIC> 2,746
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 465
</TABLE>
