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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(Mark One)
/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, 1994
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 ___________TO___________
COMMISSION FILE NUMBER 0-11672
HORIZON BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WEST VIRGINIA 55-0631939
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE PARK AVENUE 25802-2803
BECKLEY, WV (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (304) 255-7000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK PAR VALUE $1.00
(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 by check mark 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
As of March 15, 1995, there were 2,404,075 shares of Horizon Bancorp, Inc. $1
par value common stock held by non-affiliates with an aggregate market value of
$67,314,100.
As of March 15, 1995, there were 2,835,670 shares of Horizon Bancorp, Inc. $1
par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
Incorporated into
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(1) Portions of the Annual Report to Shareholders for fiscal year ended
December 31, 1994 (hereinafter the "1994 Annual Report") Parts I & II
(2) Portions of the Definitive Proxy Statement for Annual Meeting of Part III
Shareholders to be held on April 25, 1995, to be filed with the
Securities and Exchange Commission(the "Commission").
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PART I
ITEM 1. BUSINESS
THE REGISTRANT
The Registrant was incorporated in 1982 under the laws of the State of West
Virginia as a one-bank holding company known as Raleigh Bankshares, Inc. On
January 3, 1984, the Bank of Raleigh became a wholly-owned subsidiary of Raleigh
Bankshares.
Subsequent to 1984, the Board of Directors determined that the name, Raleigh
Bankshares, may have had a constraining effect upon expanding activities. The
shareholders approved an amendment on April 16, 1985, to change Raleigh
Bankshares' name to Horizon Bancorp, Inc.
Banking operations are, and are expected to continue to be, Horizon Bancorp's
primary business and major source of revenue. Horizon Bancorp derives, for the
most part, its revenues from dividends paid by its subsidiary banks. The
principal role of Horizon Bancorp is to supervise and coordinate the activities
of the subsidiary banks.
Horizon has four operating subsidiaries, Bank of Raleigh ("Raleigh"), National
Bank of Summers ("Summers"), Greenbrier Valley National Bank ("Greenbrier") and
The First National Bank in Marlinton ("Marlinton").
Summers was acquired by Horizon on June 1, 1985, through a consolidation between
Summers Bank and NBS National Bank, a wholly-owned subsidiary of Horizon.
On September 19, 1988, Crossroads National Bank, Bradley, West Virginia, was
merged with and into Raleigh. The former offices of Crossroads National Bank
became a full service branch of Raleigh, all as further described in the Form
S-4 Registration Statement, Registration No. 33-20986, filed with the Securities
and Exchange Commission on March 31, 1988, and declared effective on April 12,
1988.
Greenbrier and Marlinton were acquired by Horizon on March 31, 1993, through a
merger between Allegheny Bankshares Corporation and Horizon Bancorp, Inc. Under
the agreement of merger, shareholders of Allegheny Bankshares Corporation
received 1.2566 shares of Horizon Bancorp common stock for each share of
Allegheny Bankshares previously held by them. As a result of this transaction,
approximately 950,000 shares of Horizon Bancorp common stock was issued. A Form
S-4 Registration Statement, Registration No. 33-56608, was filed with the
Securities and Exchange Commission on December 31, 1992.
As of December 31, 1994, Horizon had approximate consolidated assets of
$569,935, deposits of $483,555 and shareholders' equity of $63,582.
The Bank of Raleigh, the principal subsidiary bank of Horizon, was originally
chartered in 1899 as a state banking corporation with the name "Bank of
Raleigh." It has conducted banking operations in Beckley, West Virginia,
continuously since that time. In 1957, Beckley Industrial Savings and Loan
Company merged into Raleigh, with Raleigh surviving the merger. As described
above, Crossroads National Bank, Bradley, West Virginia, merged with and into
Raleigh during 1988, and Crossroads' former offices are now operated as a
branch of Raleigh.
Summers was incorporated in 1895 as a state banking corporation under the laws
of the State of West Virginia with the name "The Bank of Summers." Summers
opened for business in 1895 and operated as a state bank under the laws of the
State of West Virginia from that date until 1906, when the Bank obtained a
national charter and assumed its present name, "National Bank of Summers."
Greenbrier was incorporated in 1901 as a national banking association with the
name of "First National Bank of Alderson." An Agreement to Consolidate and Plan
of Reorganization dated February 12, 1985, as amended by Amendment dated October
24, 1985, among Allegheny Bankshares Corporation, Greenbrier Valley Bank and
First National Bank of Alderson ("Agreement; Plan of Reorganization") was
entered into whereby Greenbrier Valley Bank was consolidated with First
National Bank of Alderson and formed a new bank under the charter of
First National Bank of Alderson and the title of Greenbrier Valley
National Bank.
Marlinton was incorporated in 1902 as a national banking association under the
laws of the United States.
The Board of Directors of Horizon has discussed the implementation of a dividend
reinvestment plan for Horizon's shareholders. The purpose of the plan would be
to provide Horizon's shareholders with a convenient means of purchasing
additional shares of common stock of Horizon through the investment of
dividends. All shareholders would be eligible to participate in the plan. The
plan would be voluntary, and all maintenance and transaction costs would be paid
by Horizon. The plan has not yet been, and there is no assurance it will be,
formally adopted.
The Board of Directors of Horizon has authorized the development of a share
repurchase plan for Horizon's common shares. If the plan is imple-
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mented, shares repurchased will be used for various corporate purposes such as
the exercise of stock options, for employee stock ownership plans, stock
dividends and dividend reinvestment plans. The dollar amount and other features
of the program have not been determined and there is no assurance the program
will be implemented.
FUTURE ACQUISITIONS AND EXPANSIONS
Horizon, through two of its subsidiary banks, has entered into purchase and
assumption agreements with Huntington National Bank West Virginia ("Huntington")
under which Horizon's subsidiary banks will purchase certain assets and assume
certain liabilities of Huntington.
Under the agreements, assets acquired total approximately $18,276 as of
September 30, 1994. Greenbrier will acquire the Huntington office located at
Fairlea, Greenbrier County with assets of approximately $4,627 as of September
30, 1994. Raleigh will acquire Huntington offices at Sophia and Beaver, Raleigh
County, and at Oak Hill in Fayette County. The assets of these offices acquired
by Raleigh totaled approximately $13,649 as of September 30, 1994.
Horizon has no current plans, arrangements or understandings to acquire any
other banking or banking-related businesses at this time.
EMPLOYEES
At the close of 1994, Horizon Bancorp had 249 full-time equivalent employees.
COMPETITION
Bank of Raleigh's primary market area is generally defined as Raleigh County,
West Virginia. As of December 31, 1994, there were four banks operating in
Raleigh County. Total deposits of the commercial banks in Raleigh County at year
end were $732,962, and Bank of Raleigh ranked second with 32.58% of the total
deposits in Raleigh County. Bank of Raleigh's largest competitor in the market
area reported total deposits of $291,462 and the smallest competitor in the
market area had total deposits of $40,715.
Five new banks have been chartered in Raleigh County since 1970. In addition,
one federally-chartered savings and loan association has opened since 1980.
Total deposits for Bank of Raleigh, however, have increased from the 1993
year-end level of $224,203 to a December 31, 1994 level of $235,899.
The primary market area of National Bank of Summers is generally defined as
Summers County, West Virginia. Bank of Raleigh and National Bank of Summers do
not operate in the same general market area. As of December 31, 1994, there were
two banks operating in Summers County with total deposits of approximately
$119,778. National Bank of Summers had total deposits of $61,437 as of December
31, 1994, and the other bank in the market area had total deposits of
approximately $58,341 as of that date. Summers ranked first with 51.29% of total
deposits.
The primary market area of Greenbrier Valley National Bank is generally defined
as Greenbrier County, West Virginia. Greenbrier's market area is served by six
financial institutions. These institutions include One Valley Bank, a
wholly-owned subsidiary of a state-wide multi-bank holding company. As of
December 31, 1994, total deposits at these six financial institutions were
approximately $418,171. Greenbrier is the largest of these six banks with 33.76%
of the deposits in Greenbrier County. Greenbrier had total deposits of $141,163
as of December 31, 1994, and the other banks within the market area had total
deposits of approximately 66.24% as of that date.
First National Bank in Marlinton's primary market area is generally defined as
Pocahontas County, West Virginia. There are two commercial banks within
Marlinton's market area. As of December 31, 1994, total deposits at these two
commercial banks were approximately $92,484.
Horizon banks are subject to competition from less heavily regulated entities
such as brokerage firms, money market mutual funds, consumer finance and credit
card companies and other financial services companies. For instance, savings
banks, savings and loan associations, credit unions, and issuers of commercial
paper compete for funds and loans. In addition, personal and corporate trust and
investment counseling services are offered by insurance companies, investment
counseling firms and other firms and individuals.
Until 1992, the various banks and bank holding companies operating in West
Virginia were predominantly owned by shareholders in West Virginia and were
financed by operations arising principally in West Virginia. During 1992,
BancOne Corp., the seventh largest bank holding company in the United States,
executed an Agreement with Key Centurion Bancshares, Inc., the largest bank
holding company in the State, which provided for the acquisition of all of the
outstanding stock of Key Centurion. Also in 1993, Huntington Bancshares,
Incorporated consummated the acquisition of Commerce Banc Corporation.
In 1994, Congress passed the Riegle-Neal Interstate Banking and Branching
Efficiency Act. Under this
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Act, absent action to opt out or limit interstate branching by the West Virginia
Legislature, interstate branch banking may occur after June 1, 1997. The states
are permitted: i) to opt into interstate branch banking prior to June 1, 1997;
ii) to opt out of interstate branch banking prior to that date; iii) to allow
only acquisition of branches; iv) to opt into de novo interstate branch banking;
or v) to allow the acquisition of a branch of a bank without acquiring the bank
itself. It is too early to determine what response, if any, will be adopted by
the West Virginia Legislature in 1996. In the event that interstate branch
banking does become permissible in West Virginia, the effect will likely be an
increase in competition with out-of-state banks and bank holding companies.
SUPERVISION AND REGULATION
Horizon is a bank holding company within the provisions of the Bank Holding
Company Act of 1956, is registered as such and is subject to supervision by the
Board of Governors of the Federal Reserve System ("Federal Reserve"). Horizon is
also a registered bank holding company within the provisions of the West
Virginia Bank Holding Company laws (W.Va. Code 31A-8A-1 et seq.) ("West Virginia
Act"), and is subject to the supervision of the West Virginia Board of Banking
and Financial Institutions ( Board of Banking ) and Commissioner of Banking. The
Bank Holding Company Act and the West Virginia Act require Horizon to secure the
prior approval of the Federal Reserve and the Board of Banking before Horizon
acquires ownership or control of more than 5% of the voting shares or
substantially all of the assets of any institution, including another bank. In
addition, the West Virginia Act prohibits a depository institution, including a
bank holding company, from controlling more than 20% of the total deposits of
all depository institutions in West Virginia.
As a bank holding company, Horizon is required to file with the Federal Reserve
and the Commissioner of Banking annual reports and such additional information
as the Federal Reserve may require pursuant to the Bank Holding Company Act and
the Banking Commissioner may require under the West Virginia Act. The Federal
Reserve and the Banking Commissioner may also make examinations of Horizon and
any or all of its subsidiaries. Further, under Section 106 of the 1970
Amendments to the Bank Holding Act and the regulations of the Federal Reserve, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or any
provision of credit, sale or lease of property or furnishing of services. In
addition, pursuant to the United States Code, Horizon is considered an affiliate
of the Banks and, as such, the Banks are subject to statutory limitations in
extending credit to, or investing funds, in Horizon, and in accepting Horizon's
securities or other obligations as collateral for any advances made by the Banks
to any other entity or person.
Horizon Bancorp is required to register annually with the Commissioner of
Banking of West Virginia ("Commissioner") and to pay a registration fee to the
Commissioner based on the total deposits in the banks with respect to which
Horizon is a bank holding company. The registration fee is limited to ten
dollars per million dollars in deposits rounded off to the nearest million
dollars. Horizon is also under the regulatory control of the Commissioner.
The operations of Raleigh are subject to federal and state statutes, which apply
to state-chartered banks and to non-members of the Federal Reserve. Raleigh's
operations are also subject to regulations of the Board of Banking, the Federal
Reserve and the Federal Deposit Insurance Corporation ("FDIC").
The primary supervisory authorities of Raleigh are the FDIC and the Commissioner
of Banking. The FDIC and Banking Commissioner regularly examine such areas as
reserves, loans, investments, management practices and other aspects of
Raleigh's operations. Independent of those examinations, both supervisory
authorities also conduct regular examinations of Raleigh's Trust Department.
These examinations are designed for the protection of Raleigh's depositors and
not for its shareholders. In addition to these regular examinations, Raleigh
must furnish to the FDIC and the Board of Banking quarterly reports containing a
full and accurate statement of its affairs.
The operations of Greenbrier, Marlinton and Summers are subject to federal and
state statutes which apply to national banks and to members of the Federal
Reserve. Greenbrier's, Marlinton's and Summers' operations are also subject to
regulations of the FDIC, the Federal Reserve, and the Office of the Comptroller
of the Currency ("Comptroller").
The primary supervisory authority of Greenbrier, Marlinton and Summers is the
Comptroller, which regularly examines such areas as reserves, loans,
investments, management practices, and other aspects of its affairs.
The Banks are members of the FDIC, and their deposits are insured as provided by
law. Raleigh is not a member of the Federal Reserve System.
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In addition to the effect of general economic conditions, the earnings of the
Bank are affected by the fiscal and monetary policies of the Federal Reserve,
which regulates the national money supply in order to mitigate recessionary and
inflationary pressures. The techniques used by the Federal Reserve include
setting the reserve requirements of member and nonmember banks, establishing
interest rates on time and savings deposits and the discount rate on member bank
borrowings, and conducting open market operations in United States government
securities to exercise control over the supply of money and credit.
The policies of the Federal Reserve have a direct and indirect effect on the
amount of bank loans and deposits, and the interest rates charged and paid
thereon. While the impact of current economic conditions and the policies of the
Federal Reserve and other regulatory authorities designed to deal with these
conditions upon the future business and earnings of the Banks cannot be
accurately predicted, those policies can materially affect the revenues and
income of commercial banks.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
Statistical disclosures required by bank holding companies are included in
"Five-Year Selected Financial Summary" on page 5 and in "Management's Discussion
and Analysis of Operations" set forth on pages 5 through 23 of Horizon's Annual
Report to Shareholders for the fiscal year ended December 31, 1994. That
information is incorporated herein by reference.
ITEM 2. PROPERTIES
Horizon Bancorp's principal office is located in the Bank of Raleigh at One Park
Avenue, Beckley, West Virginia. Bank of Raleigh has a full-service branch
consisting of the former offices of Crossroads National Bank at the Crossroads
Mall, Bradley, West Virginia. In addition, a full-service branch is located at
the corner of Main and Kanawha Streets, Beckley, West Virginia.
The operations of National Bank of Summers are conducted at 123 Temple Street in
Hinton, West Virginia. National Bank of Summers operates, in addition to its
main office, a full-service branch facility at Country Roads Plaza on Stokes
Drive.
Greenbrier Valley National Bank's main office is located at 109 South
Jefferson Street, Lewisburg, West Virginia. Greenbrier has three full service
branch offices located in Alderson, Rainelle and Rupert, West Virginia.
The principal office of First National Bank in Marlinton is located at 300
Eighth Street, Marlinton, Pocahontas County, West Virginia. Marlinton owns its
office facility in Marlinton.
Horizon also offers services to its customers at various locations within the
service area through automated teller machines. The automated teller machines
permit customers to make deposits, withdrawals, and loan payments at these
locations, and the banks have joined a regional network, linking other machines
in the region.
ITEM 3. LEGAL PROCEEDINGS
The Banks and Horizon are involved in various legal proceedings arising in the
normal course of business. It is anticipated that the ultimate resolution of
these proceedings will not have a material adverse effect on the financial
position or operations of Horizon or the Banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
At March 1, 1995, the total number of holders of Horizon's common stock was
2,175.
The section of Management's Discussion and Analysis of Financial Condition and
Results of Operations entitled "Market and Dividend Information" on page 23 of
Horizon's 1994 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Table 1, "Five-Year Selected Financial Summary," on page 5 of Horizon's 1994
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained on pages 5 through 23 of Horizon's 1994 Annual Report
to Shareholders is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained on pages 26 through 41 of Horizon's 1994 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the sections "Management Nominees to the Board of
Directors," "Executive Officers of Horizon," and "Compliance With Section 16(a)
of the Securities Exchange Act of 1934" on pages 4 through 6, page 8, and page
17, respectively, of Horizon's definitive Proxy Statement for the 1995 Annual
Meeting of Shareholders are incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the sections "Executive Compensation" on pages 11
through 16, "Compensation of Directors" on page 16, and "Directors Defined
Compensation Plans" on pages 16 through 17 of Horizon's definitive Proxy
Statement for the 1995 Annual Meeting of Shareholders are incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the sections "Principal Owners of Horizon Common
Stock" and "Security Ownership of Management" on pages 8 through 10 of Horizon's
definitive Proxy Statement for the 1995 Annual Meeting of Shareholders are
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the sections "Transactions With Management and
Others" and "Compensation Committee Interlocks and Insider Participation" on
page 17 of Horizon's definitive Proxy Statement for the 1995 Annual Meeting of
Shareholders is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)Financial Statements-Pages 26 through 41 of Horizon's 1994 Annual Report
to Shareholders is incorporated herein by reference.
(2) Financial Statement Schedules-All financial statement schedules are
presented in the Consolidated Financial Statements or related notes.
(b) None.
(c) Exhibits
(3) Articles of Incorporation and Bylaws-Exhibits 3(a) and (c) were filed as
part of Horizon's S-14 Registration Statement, Registration No. 2-287946, on
October 4, 1983 and are incorporated herein by reference. Exhibit 3(b) was filed
as part of Horizon's 1983 Annual Report on Form 10-K and is incorporated herein
by reference. Exhibit 3(b)(ii) was filed as part of Horizon's 1985 Annual Report
on Form 10-K and is incorporated herein by reference.
(11) Statement Re: Computation of Earnings Per Share.
(13) Portions of Horizon's 1994 Annual Report to Shareholders which have
been specifically incorporated by reference herein.
(16) Letter concerning change in certifying accountant - the letter
concerning the change in the certifying accountant was filed as exhibit (16) to
Horizon's form 10-K for the fiscal year ended December 31, 1992, and is
incorporated herein by reference.
(22) Subsidiaries of Registrant -
Bank of Raleigh, a state banking corporation wholly owned by registrant.
National Bank of Summers, a national banking corporation wholly owned by
registrant.
Greenbrier Valley National Bank, a national banking corporation wholly
owned by registrant.
First National Bank in Marlinton, a national banking corporation wholly
owned by registrant.
(23.1) /s/ Consent of Ernst & Young LLP
(23.2) /s/ Consent of Mason & Bashaw
(23.3) /s/ Consent of Arnett & Foster
(27) Financial Data Schedule
This schedule contains summary financial information extracted from the December
31, 1994, consolidated financial statements and notes and is qualified in its
entirety by reference to such financial statements.
(99) Additional Exhibits
(99.1) Report of Independent Auditors -- Mason & Bashaw for year ended
December 31, 1992.
(99.2) Report of Independent Auditors -- Arnett & Foster for year ended
December 31, 1992.
(99.4) Portions of Horizon's 1994 Proxy Statement to Shareholders which have
been specifically incorporated by reference herein.
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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 on the 15th day of March,
1995.
HORIZON BANCORP, INC.
By: /s/ Frank S. Harkins, Jr.
----------------------------------------------------
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 15th day of March, 1995.
/s/ Frank S. Harkins, Jr.
----------------------------------------------------
Chairman of the Board
(Principal Executive Officer)
/s/ Philip L. McLaughlin
----------------------------------------------------
President and Chief Executive Officer
/s/ David W. Hambrick
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Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ E. M. Payne III
----------------------------------------------------
Secretary
/s/ John M. Alderson IV
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Director
/s/ W. H. File III
----------------------------------------------------
Director
/s/ Paul E. Hess, Jr.
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Director
/s/ John C. Horton, Jr.
----------------------------------------------------
Director
/s/ Tracy W. Hylton II
----------------------------------------------------
Director
/s/ William E. Kane
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Director
/s/ H. L. Kirkpatrick
----------------------------------------------------
Director
/s/ Robert L. Kosnoski
----------------------------------------------------
Director
/s/ Thomas E. Lilly
----------------------------------------------------
Director
/s/ Dr. Paul H. Loflin
----------------------------------------------------
Director
/s/ Carolyn H. McCulloch
----------------------------------------------------
Director
/s/ Beulah D. Moore
----------------------------------------------------
Director
/s/ Harper W. Nelson
----------------------------------------------------
Director
/s/ Rodney H. Pack
----------------------------------------------------
Director
/s/ R. T. Rogers
----------------------------------------------------
Director
/s/ James E. Songer
----------------------------------------------------
Director
/s/ Albert M. Tieche, Jr.
----------------------------------------------------
Director
/s/ E. A. Tuckwiller, Jr.
----------------------------------------------------
Director
/s/ Munir S. Yarid
----------------------------------------------------
Director
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TABLE OF CONTENTS
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Consolidated Financial Highlights .................. 1
Letter to Our Shareholders, Customers and Friends .. 2
Management's Discussion & Analysis of Financial
Condition and Results of Operations ............. 5
Report of Independent Auditors ..................... 24
Consolidated Financial Statements .................. 26
Notes to Consolidated Financial Statements ......... 30
Shareholders' Information .......................... 42
Directors, Horizon Bancorp, Inc. and Affiliates ... 43
Additional Information ............................. 44
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CONSOLIDATED FINANCIAL HIGHLIGHTS
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(Dollars in Thousands, Except Per Share Data)
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DECEMBER 31, DECEMBER 31,
1994 1993
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FOR THE PERIOD ENDED
Net Interest Income ...................................... $ 26,644 $ 25,381
Non Interest Income ...................................... 2,447 2,506
Net Income ............................................... 6,971 6,519
Cash Dividends ........................................... 2,752 2,555
PER SHARE DATA
Net Income ............................................... $ 2.46 $ 2.30
Cash Dividends Declared .................................. 0.97 0.93
Year-end Book Value ...................................... 22.43 21.39
SELECTED AVERAGE BALANCES
Total Assets ............................................. $563,564 $550,174
Net Loans ................................................ 362,027 331,948
Investment Securities .................................... 159,942 173,993
Earning Assets ........................................... 535,235 524,951
Deposits ................................................. 477,511 469,655
Shareholders' Equity ..................................... 61,767 58,431
SELECTED BALANCES AT YEAR-END
Total Assets ............................................. $569,935 $555,671
Net Loans ................................................ 370,582 343,539
Investment Securities .................................... 155,150 170,359
Earning Assets ........................................... 531,082 522,196
Deposits ................................................. 483,555 472,415
Shareholders' Equity ..................................... 63,582 60,637
SELECTED RATIOS
Return on Average Equity ................................. 11.29% 11.16%
Return on Average Assets ................................. 1.24% 1.18%
Net Interest Margin (Taxable Equivalent) ................ 5.20% 5.00%
Net Charge-offs to Average Net Loans ..................... 0.23% 0.29%
Average Equity to Average Assets ......................... 10.96% 10.62%
Risk-based Capital:
Tier I Capital to Risk-Adjusted Assets .................. 17.86% 18.72%
Total Capital to Risk-Adjusted Assets ................... 19.65% 20.49%
Leverage ................................................ 11.19% 10.90%
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LETTER TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS
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PHILIP L. MCLAUGHLIN FRANK S. HARKINS, JR.
President and Chief Chairman of the Board
Executive Officer
[PHOTO] [PHOTO]
DEAR HORIZON SHAREHOLDERS:
Horizon enjoyed another very successful year and we are pleased to provide
this report which reflects increased earnings and positive changes in other
performance measures. Horizon has continued to achieve strong financial
performance, to improve asset quality and to maintain sound capital.
Net income increased to $6.97 million or $2.46 per share in 1994, an increase
of 6.9% from $6.52 million or $2.30 per share earned in 1993. This represents a
return on average assets (ROA) of 1.24% and a return on average equity (ROE) of
11.29%. The enhanced earnings resulted from a combination of an increased
interest margin and a lower provision for loan losses reflecting improvements in
asset quality.
The net yield on average earning assets increased to 5.2% in 1994 from 5.0% in
1993, largely due to a 7.9% increase in net loans and improved management of our
net interest margin. Loans grew moderately in 1994, primarily in residential
mortgages, with total net loan balances increasing to $370.6 million at
December 31, 1994 from $343.5 million at December 31, 1993.
Asset quality improved in 1994 with non-performing assets declining to $3.83
million at December 31, 1994 from $8.65 million at year-end 1993. In addition,
net charge-offs as a percentage of average loans declined to 0.23% in 1994 from
0.29% in 1993. The provision for loan losses declined to $1.53 million in 1994
from $1.96 million in 1993 and at December 31, 1994 the allowance for loan
losses was 1.68% of total loans outstanding.
Shareholder equity increased 4.9% during 1994 to $63.6 million, or $22.43 per
share, representing an average equity to average asset ratio of 10.96%. Your
cash dividend was increased in 1994 to $0.97 per share from $0.93 in 1993, an
increase of 4.3%. The cash dividend paid represents 39.5% of earnings and
reflects Horizon's policy of maintaining a balance between regular dividend
increases and reinvesting earnings for future growth.
We encourage you to read the "Management's Discussion and Analysis" section of
this report for a more complete explanation of your company's financial
performance.
Horizon's philosophy is to achieve, through the affiliation of community
banks, improved financial performance by seeking efficiencies in those areas
not apparent to customers while maintaining strong community and customer
service orientation. We are committed to the community bank concept, with its
emphasis on building customer relationships, access by customers to decision
makers and strong community involvement of bank boards and employees. We
continue to seek technological enhancements which achieve operational
efficiencies while improving service levels. We have, for example, made a
major commitment to imaging technology which will offer a wide range of
service improvements to our customers while creating operational and
marketing efficiencies.
2
<PAGE> 10
While enhancement of shareholder value remains our primary focus, we remain
committed to fulfilling the financial needs of the communities our banks serve
in a manner superior to that of our competitors.
In accordance with the board retirement policy, Horizon will lose three
long-term and valuable board members in 1995. H. L. Kirkpatrick, Paul H. Loflin
and Munir S. Yarid, all accomplished and dedicated directors, will retire from
the board after distinguished service for many years. We appreciate their wisdom
and counsel, and will miss their dedication and support to Horizon and to the
individual banks which they have faithfully served.
We anticipate that 1995 will be another rewarding year, and we are optimistic
about Horizon's future.
Sincerely,
/S/ /S/
--------------------- --------------------
Frank S. Harkins, Jr. Philip L. McLaughlin
Chairman President and CEO
[CHART]
3
<PAGE> 11
FINANCIAL
SUMMARY
&
REVIEW
HORIZON BANCORP, INC.
<PAGE> 12
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The following discussion is provided to assist readers of the consolidated
financial statements in understanding the operating performance of Horizon
Bancorp, Inc. ("Horizon"). For a more complete understanding, reference is made
to the consolidated financial statements, notes to the consolidated financial
statements, and other information presented elsewhere in this report.
Horizon Bancorp, Inc. is a bank holding company headquartered in Beckley, West
Virginia. Its banking subsidiaries are Bank of Raleigh, First National Bank in
Marlinton, Greenbrier Valley National Bank, and National Bank of Summers.
Horizon Bancorp's subsidiaries engage in commercial banking activities which
provide financial and trust services to individuals and commercial customers
primarily located in Greenbrier, Pocahontas, Raleigh, and Summers Counties of
West Virginia.
Throughout the following discussion, dollars are expressed in thousands, except
per share data.
<TABLE>
<CAPTION>
TABLE 1
FIVE-YEAR SELECTED FINANCIAL SUMMARY
----------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Interest Income $ 41,217 $ 40,647 $ 42,609 $ 45,199 $ 45,996
Interest Expense 14,573 15,266 18,735 23,879 26,462
Net Interest Income 26,644 25,381 23,874 21,320 19,534
Provision for Loan Losses 1,525 1,955 2,069 2,754 1,848
Noninterest Income 2,447 2,506 2,598 2,214 2,195
Noninterest Expense 17,394 16,353 15,392 14,707 13,740
Provision for Income Taxes 3,201 3,060 2,851 1,627 1,680
Net Income 6,971 6,519 6,160 4,446 4,461
PER SHARE OF COMMON STOCK:
Net Income $ 2.46 $ 2.30 $ 2.17 $ 1.55 $ 1.55
Dividends Declared 0.97 0.93 0.85 0.75 0.72
Book Value 22.43 21.39 19.98 18.36 17.59
AVERAGE BALANCE SHEET SUMMARY:
Loans, Net of Unearned Income $362,027 $331,948 $307,542 $273,449 $262,446
Investment Securities 159,942 173,993 175,152 185,882 180,643
Total Assets 563,564 550,174 530,144 506,783 500,370
Deposits 477,511 469,655 452,690 432,274 424,790
Long-Term Borrowings 266 800 1,400 2,150 2,453
Shareholders' Equity 61,767 58,431 54,929 51,880 49,361
KEY FINANCIAL RATIOS:
Average Equity to Average Assets 10.96% 10.62% 10.36% 10.24% 9.86%
Return on Average Assets 1.24% 1.18% 1.16% 0.88% 0.89%
Return on Average Equity 11.29% 11.16% 11.21% 8.57% 9.04%
Dividends Declared as a Percent
of Net Income 39.48% 39.19% 34.50% 43.61% 42.08%
Average Loans to Average Deposits 75.82% 70.68% 67.94% 63.26% 61.78%
</TABLE>
5
<PAGE> 13
MANAGEMENT'S DISCUSSION & ANALYSIS
EARNINGS SUMMARY
Horizon's net income of $6,971 in 1994 increased $452 or 6.93% over 1993's total
of $6,519. This increase in net income for 1994 is attributable to growth of
approximately $13,390 in average assets and an increase in the net interest
margin. Improvement in asset quality resulted in decreased charge-offs and,
accordingly, the provision for loan losses decreased by $430 or 21.99%.
Horizon's net income in 1993, $6,519, increased $359 or 5.83% over 1992's
earnings of $6,160 due to an increased net interest margin and growth in average
assets.
A five-year summary of net income and other financial highlights is presented in
Table 1.
EARNINGS PER SHARE
[CHART]
Earnings per share was $2.46 for the year ended December 31, 1994, compared to
$2.30 for the year ended December 31, 1993, and $2.17 for the year ended
December 31, 1992. Dividends per share were $0.97 for the year ended December
31, 1994, compared to $0.93 for 1993 and $0.85 for 1992.
Return on average assets (ROA) measures how effectively Horizon utilizes its
assets to produce net income while return on average equity (ROE) measures the
amount of income earned relative to the amount of shareholders' investment in
Horizon. Horizon's ROA increased to 1.24% for the year ended December 31, 1994,
compared to 1.18% and 1.16% for the years ended December 31, 1993 and 1992. For
the year ended December 31, 1994, Horizon's ROE totaled 11.29% compared to
11.16% and 11.21% for the years ended December 31, 1993 and 1992.
MERGER ACTIVITY
On March 31, 1993, Horizon effected a business combination with Allegheny
Bankshares Corporation by exchanging 949,840 shares of Horizon common stock for
all of the outstanding common stock of Allegheny. The combination resulted in
the addition of five banking offices and approximately $205,000 in assets.
RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY
[CHART] [CHART]
6
<PAGE> 14
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Horizon's net interest income represents the excess of interest earned on loans,
investment securities and other interest-earning assets over the interest
incurred on deposits and borrowings and constitutes the Company's largest source
of earnings. Net interest income is influenced by the volume and relative yield
(or cost) of earning assets and interest-bearing liabilities as well as the
relative sensitivity of such assets and liabilities to changes in interest
rates. Interest income is presented and discussed in this section on a fully
tax-equivalent basis, as indicated in the Distribution of Average Assets,
Liabilities and Shareholders' Equity, Interest Rates and Interest Differential
located in Table 2. Table 2 presents the Company's average interest-earning
assets and interest-bearing liabilities, the related income and expenses and
average yields and rates on earning assets and interest-bearing liabilities. The
"taxable-equivalent basis" adjustment has been included in interest income to
reflect the level of income had income on obligations of state and political
subdivisions exempt from income tax been taxable, at a tax rate of 34.0%, for
all periods reported.
Net interest income on a taxable equivalent basis rose to $27,799 for the year
ended December 31, 1994, from $26,361 reported for the year ended December 31,
1993, an increase of 5.46%. This compares to an increase of $1,847 or 7.53% for
1993. Horizon's net interest margin for 1994 increased to 5.20% from 5.00% and
4.90% during 1993 and 1992. Changes in the volume of average earning assets, in
particular loans, contributed to net interest income growth in 1994. Increased
net interest income due to volume changes resulted from growth of average
earning assets of 1.96% in 1994 and 4.65% in 1993. These increases were
partially offset by volume increases in average interest-bearing liabilities of
0.98% in 1994 and 3.01% in 1993. Volume changes of this nature will increase net
interest income because of the spread between the yield earned on earning assets
and the rate paid on interest-bearing liabilities.
Horizon's average interest rate spread expanded from 4.10% in 1992 to 4.30% in
1993 to 4.50% in 1994. The interest rate spread expanded in 1994 because the
weighted average rate on interest-bearing liabilities declined 20 basis points.
Horizon is generally liability sensitive; throughout 1994 management emphasized
special term deposit instruments to offset rising market rates. Also, loans,
which are Horizon's highest yielding asset, expanded as a percentage of earning
assets from 63.23% in 1993 to 67.64% in 1994.
Horizon's average interest-earning assets increased $10,284 or 1.96% from 1993
to 1994 and $23,307 or 4.65% from 1992 to 1993. The percentage of earning assets
funded by interest-bearing liabilities dropped from 81.33% in 1993 to 80.55% in
1994. This factor favorably affected net interest income. Average loans, net of
unearned income, grew $30,079 or 9.06% in 1994 compared to growth of $24,406 or
7.94% in 1993. This change represents both a cyclical increase reflecting
current economic activity as well as efforts by management to extend its market
share in commercial and real estate loans, both of which show increases.
Increases in loans have been partially funded by decreases in investment
securities. During 1994, average investment securities declined $14,051 or 8.08%
following a decline of $1,159 or 0.66% in 1993. Average federal funds sold
declined $4,207 or 25.48% in 1994 and increased $1,219 or 7.97% in 1993. During
1994, management made efforts to draw down the average balance of federal funds
sold and place these funds into higher-yielding assets. Average interest-bearing
deposits with other banks declined $1,537 or 61.48% in 1994 and $1,159 or 31.68%
in 1993.
Average interest-bearing liabilities increased $4,186 or 0.98% in 1994 and
$12,468 or 3.01% in 1993. During this period, Horizon attracted additional
deposits due to core growth, and customers gradually shifted their funds from
certificates of deposit to accounts with more liquidity, savings and demand
deposits, due to the interest rate environment prevailing during the period.
Average short-term borrowings, principally repurchase agreements, increased
$2,651 or 16.68% in 1994 following an average balance decrease of $586 or 3.56%
in 1993. Average long-term borrowings declined $534 or 66.75% in 1994 and $600
or 42.86% in 1993. These borrowings were associated with the acquisition of a
subsidiary bank and were paid-off during 1994.
Table 2 summarizes the composition of average interest-earning assets and
average interest-bearing liabilities, along with the related income or expense
and the weighted average yield or cost of such funds. Table 3 summarizes changes
in interest income and expense by rate and volume.
7
<PAGE> 15
MANAGEMENT'S DISCUSSION & ANALYSIS
<TABLE>
<CAPTION>
TABLE 2
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS'
EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL
(In thousands of dollars)
--------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------------
AVERAGE INCOME/ AVERAGE INCOME/ AVERAGE INCOME/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits
with other banks $ 963 $ 87 9.0% $ 2,500 $ 238 9.5% $ 3,659 $ 328 9.0%
Federal funds sold 12,303 521 4.2 16,510 505 3.1 15,291 529 3.5
Investment securities:
Taxable 119,129 7,405 6.2 143,244 9,635 6.7 153,967 11,748 7.6
Exempt from federal
taxes (1) 40,813 3,139 7.7 30,749 2,611 8.5 21,185 2,027 9.6
--------------------------------------------------------------------------------------
Total investment
securities 159,942 10,544 6.6 173,993 12,246 7.0 175,152 13,775 7.9
--------------------------------------------------------------------------------------
Loans, net of unearned
income (1) (2) 362,027 31,220 8.6 331,948 28,638 8.6 307,542 28,617 9.3
--------------------------------------------------------------------------------------
Total earning assets
and interest income 535,235 42,372 7.9 524,951 41,627 7.9 501,644 43,249 8.6
--------------------------------------------------------------------------------------
Noninterest-earning assets:
Cash & due from banks 15,183 14,268 14,185
Bank premises & equipment 6,996 6,899 6,961
Other assets 12,062 9,009 11,455
Less: Allowance for loan
losses (5,912) (4,953) (4,101)
--------------------------------------------------------------------------------------
Total assets $563,564 $550,174 $530,144
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 90,584 $ 2,464 2.7% $ 87,078 $ 2,490 2.9% $ 64,643 $ 2,309 3.6%
Savings deposits 131,095 3,910 3.0 119,760 4,049 3.4 111,662 4,512 4.0
Certificates of deposit 190,657 7,650 4.0 203,429 8,203 4.0 220,308 11,296 5.1
--------------------------------------------------------------------------------------
Total interest-
bearing deposits 412,336 14,024 3.4 410,267 14,742 3.6 396,613 18,117 4.6
--------------------------------------------------------------------------------------
Short-term borrowings 18,548 524 2.8 15,897 476 3.0 16,483 523 3.2
Long-term borrowings 266 25 9.4 800 48 6.0 1,400 95 6.8
--------------------------------------------------------------------------------------
Total interest-bearing
liabilities & interest
expense 431,150 14,573 3.4 426,964 15,266 3.6 414,496 18,735 4.5
--------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Demand deposits 65,175 59,388 56,077
Other 5,472 5,391 4,642
--------------------------------------------------------------------------------------
Total liabilities 501,797 491,743 475,215
--------------------------------------------------------------------------------------
Shareholders' equity 61,767 58,431 54,929
--------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $563,564 $550,174 $530,144
======================================================================================
NET INTEREST INCOME $27,799 $26,361 $24,514
NET YIELD ON EARNING ASSETS 5.2% 5.0% 4.9%
======================================================================================
</TABLE>
(1) Fully taxable equivalent using the rate of 34%.
(2) Nonaccrual loans are included in average balances.
8
<PAGE> 16
<TABLE>
<CAPTION>
TABLE 3
CHANGES IN INTEREST MARGIN ATTRIBUTABLE TO RATE & VOLUME
--------------------------------------------------------------
1994 VS. 1993 1993 VS. 1992
DUE TO CHANGES IN DUE TO CHANGES IN
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits
with other banks $ (139) $ (12) $ (151) $ (107) $ 17 $ (90)
Federal funds sold (145) 161 16 41 (65) (24)
Investment securities:
Taxable (1,545) (685) (2,230) (782) (1,331) (2,113)
Exempt from federal
taxes 792 (264) 528 837 (253) 584
--------------------------------------------------------------
Total investment
securities (753) (949) (1,702) 55 (1,584) (1,529)
--------------------------------------------------------------
Loans 2,582 -- 2,582 2,221 (2,200) 21
--------------------------------------------------------------
Total interest earned on
interest-earning assets 1,545 (800) 745 2,210 (3,832) (1,622)
--------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing demand
deposits 119 (145) (26) 697 (516) 181
Regular savings 365 (504) (139) 286 (749) (463)
Certificates of deposit (553) -- (553) (811) (2,282) (3,093)
Short-term borrowings 80 (32) 48 (17) (30) (47)
Long-term borrowings (42) 19 (23) (37) (10) (47)
--------------------------------------------------------------
Total interest paid
on interest-bearing
liabilities (31) (662) (693) 118 (3,587) (3,469)
--------------------------------------------------------------
Net interest income $ 1,576 $(138) $ 1,438 $2,092 $ (245) $ 1,847
==============================================================
</TABLE>
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
NONINTEREST INCOME
Noninterest income represents all sources of income generated by Horizon other
than from interest on earning assets. Noninterest income decreased in 1994 by
$59 or 2.35% due to the change in investment securities gains and losses (losses
of $187 in 1994 as compared to gains of $77 in 1993). The majority of these
losses were incurred due to a restructuring of the investment portfolio using a
strategy designed to take advantage of the purchase of higher yielding
investments. Losses on securities transactions were partially offset by
increases in service charges and fees and fees from trust services. Service
charges and fees increased by $172 or 10.68% due to a higher level of deposits
and increased transactions being subject to these fees. Trust fees increased $45
or 13.89% due to continued growth in trust operations.
Noninterest income decreased in 1993 by $92 or 3.54%. Increases in service
charges and fees and trust services were more than offset by decreases in
investment securities gains and other income. Service charges and fees increased
by $353 or 28.08% due to increased emphasis placed on these fees and increased
transactions. Trust fees increased $82 or 33.88% due to growth in trust
operations. Investment securities gains decreased $168 or 68.57% due to one-time
gains recognized during 1992. Other income decreased $359 or 42.04% because of
decreases in gain on sale of assets, exchange fees, insurance commissions, and
other miscellaneous items.
9
<PAGE> 17
MANAGEMENT'S DISCUSSION & ANALYSIS
<TABLE>
<CAPTION>
TABLE 4
NONINTEREST INCOME
YEAR ENDED DECEMBER 31
--------------------------------------------
1994 1993 1992 1991 1990
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service Charges & Fees $1,782 $1,610 $1,257 $1,179 $1,144
Fees From Trust Services 369 324 242 192 247
Securities Gains & Losses (187) 77 245 12 --
Other 483 495 854 831 804
--------------------------------------------
Total $2,447 $2,506 $2,598 $2,214 $2,195
============================================
</TABLE>
NONINTEREST EXPENSE
Noninterest expenses are frequently referred to as overhead; they are the costs
which are incurred through normal operation. During 1994, total noninterest
expenses increased $1,041 or 6.37% from the total expenses in 1993. This
compares to an increase of $961 or 6.24% in 1993 as compared to 1992.
In 1994, salaries and employee benefits increased $134 or 1.69%. The primary
reason for the increase is slight salary increases. For the year ended December
31, 1993, salaries and employee benefits increased $619 or 8.45%. Reasons for
the increase in 1993 included a $90 or 25.64% increase in pension cost, a $120
rise in employee bonuses, and a $409 or 5.50% increase in salaries.
Occupancy, furniture and equipment expenses increased $236 or 12.90% in 1994.
This follows an increase of $113 or 6.58% in 1993. These increases are primarily
due to repairs, remodeling, and the reduction in the estimated useful life of
one of Horizon's bank buildings.
Data processing fees increased $192 or 22.56% in 1994 as compared to an increase
of $62 or 7.86% in 1993. The primary reason for the increase in data processing
is the payment of $170 to terminate an existing contract and allow for
conversion, in 1995, of two subsidiary banks.
Other operating expenses increased $449 or 10.70% in 1994 as compared to 1993.
This follows a $122 or 3.00% increase in 1993 when compared to 1992. Expenses of
this type are subject to ongoing cost containment measures.
<TABLE>
<CAPTION>
TABLE 5
NONINTEREST EXPENSES
YEAR ENDED DECEMBER 31
-----------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries & Employee Benefits $ 8,081 $ 7,947 $ 7,328 $ 6,576 $ 6,584
Net Occupancy 2,066 1,830 1,717 2,070 1,932
Federal Deposit Insurance 1,059 1,042 995 896 495
Advertising 501 488 490 485 400
Outside Data Processing 1,043 851 789 799 748
Other 4,644 4,195 4,073 3,881 3,581
-----------------------------------------------
Total $17,394 $16,353 $15,392 $14,707 $13,740
</TABLE>
INCOME TAXES
The effective tax rate is defined as applicable income taxes expressed as a
percentage of income before income taxes. The effective tax rate was 31.47% in
1994, 31.94% in 1993, and 31.64% in 1992. The decline in the effective tax rate
during 1994 was primarily the result of a higher level of tax-exempt investment
securities income and the reduction in non-deductible merger expenses.
Tax-exempt investment income expressed as a percentage of income before income
taxes was 20.37% in 1994, 17.99% in 1993, and 16.21% in 1992. In 1993, the
effective tax rate was higher than the previous year primarily because of
nondeductible merger expenses.
<TABLE>
<CAPTION>
TABLE 6
APPLICABLE INCOME TAXES
YEAR ENDED DECEMBER 31
-------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Before Income Taxes $10,172 $9,579 $9,011 $6,073 $6,141
Applicable Income Taxes 3,201 3,060 2,851 1,627 1,680
Effective Tax Rate 31.47% 31.94% 31.64% 26.79% 27.36%
</TABLE>
10
<PAGE> 18
QUARTERLY RESULTS
The results of operations for the first three quarters of 1994 have been
discussed in quarterly reports to shareholders. Summarized quarterly financial
data is provided in Note 16 of the Notes to Consolidated Financial Statements.
Net income for the fourth quarter of 1994 increased $124 or 8.28% over the same
quarter of 1993. On a per share basis, fourth quarter earnings were $0.58
compared to $0.53 in 1993, an increase of 9.43%. The primary reasons for the
improvement are a $1,036 or 15.98% increase in net interest income and a
decrease of $96 or 14.08% in provision for loan losses. The increase in net
interest income was due to collections on a nonaccruing loan of approximately
$300 and improvement in total interest income. The decrease in the provision for
loan losses was prompted by continuing improvement in credit quality as
evidenced by a decrease of $4,652 in nonaccrual loans (primarily one credit
relationship which was resolved with no significant loss to Horizon). Horizon
recorded a $190 loss on investment sales due to a restructuring of the
investment portfolio to take advantage of increasing interest rates.
BALANCE SHEET ANALYSIS
LOANS
At December 31, 1994, total loans approximated $376,910 and represented an
increase of $27,720 or 7.94% from the December 31, 1993, total of $349,190. This
follows an increase of $26,520 or 8.22% in 1993. Total loans comprise 66.13% of
total assets on December 31, 1994, and 62.84% on December 31, 1993.
Commercial loans comprised 26.58% of total loans at December 31, 1994, and are
down slightly from 26.88% at December 31, 1993. The subsidiary banks continue to
employ an officer call program as a means to identify desirable small business
customers.
Residential real estate loans at December 31, 1994 approximate 48.27% of total
loans and are up from 44.18% at December 31, 1993. Growth in residential real
estate lending is attributable to an increase in the local economy, higher
demand for housing, and increased marketing efforts. Horizon currently sells
real estate mortgages on the secondary market to investors and sales
approximated $2,755 in 1994. Currently, $4,639 in mortgages are serviced for
others under existing contracts by the subsidiary banks.
AVERAGE LOANS / AVERAGE DEPOSITS
[CHART]
Loans to individuals for household, family, and other consumer expenditures
totaled $88,418 at December 31, 1994 or 23.46% of total loans. This is a
decrease of $3,396 or 3.70% from the previous year-end total of $91,814 (or
26.29% of total loans) and follows consumer loan growth of $11,332 or 14.08% in
1993. The primary reason for the decrease in 1994 was paydown of existing
automobile loans and increased competition for loans of this type in the market
area.
Credit card receivables, included in loans to individuals, increased $1,786 or
57.01% in 1994 following an increase of $2,574 or 69.36% in 1993. Growth in this
category is attributable to development of the credit card department and
issuance of a single credit card by all subsidiary banks. Horizon also engages
in private label financing for a furniture and appliance retailer that totaled
$4,269 at December 31, 1994. This is an increase of $1,117 or 35.44% from the
December 31, 1993, total of $3,152.
11
<PAGE> 19
MANAGEMENT'S DISCUSSION & ANALYSIS
<TABLE>
<CAPTION>
TABLE 7
SUMMARY OF LOANS BY TYPE
----------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural
& other loans $100,169 $ 93,848 $ 89,500 $ 73,396 $ 69,055
Real estate - construction loans 6,385 9,266 3,180 2,375 2,007
Real estate - residential mortgage 181,938 154,262 149,508 136,205 127,204
Loans to individuals for household,
family, & other consumer expenditures 93,119 97,025 86,873 77,897 73,880
----------------------------------------------------
Gross Loans 381,611 354,401 329,061 289,873 272,146
Deduct unearned income, principally on
installment loans 4,701 5,211 6,391 4,788 3,310
----------------------------------------------------
Total Loans $376,910 $349,190 $322,670 $285,085 $268,836
====================================================
</TABLE>
In May, 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for the
Impairment of a Loan." In October, 1994, certain provisions of Statement No. 114
were amended by Statement of Financial Accounting Standards No. 118. Statement
No. 114 requires that loans that are within the scope be measured based upon the
present value of expected future cash flows, discounted at the loan's effective
interest rate; at the loan's observable market price; or, if the loan is
collateral dependent, the fair value of the collateral. Horizon will adopt
Statement No. 114 effective January 1, 1995 and the adoption will not have a
material impact on Horizon's financial statements.
<TABLE>
<CAPTION>
TABLE 8
MATURITY RANGES OF LOANS
AFTER ONE
DUE IN ONE THROUGH FIVE DUE AFTER
YEAR OR LESS YEARS FIVE YEARS TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, & agricultural $ 73,494 $ 20,572 $ 6,103 $100,169
Real estate - construction loans 5,510 395 480 6,385
Real estate - residential mortgage 104,291 50,171 27,476 181,938
Loans to individuals for household, family, and
other consumer expenditures 34,002 52,426 6,691 93,119
-------------------------------------------------------
Gross Loans $217,297 $123,564 $40,750 $381,611
=======================================================
Loans with a predetermined interest rate due after
one year $ 68,869
Loans with a floating interest rate due after one year $ 95,445
</TABLE>
INVESTMENT SECURITIES
Horizon's investment portfolio is composed of U.S. Treasury and other U.S.
government agency obligations, government agency issued mortgage-backed
securities, government agency issued collateralized mortgage obligations
("CMOs"), state and municipal securities, and other securities. Current policy
guidelines require all purchases of securities for the investment portfolio to
be rated investment grade. All CMO's are rated AAA. While obligations of states
and municipalities have a higher investment risk, approximately 92% of these
securities in Horizon's portfolio are investment grade or better at December 31,
1994.
The investment portfolio generally provides a source of liquidity along with
opportunities to increase yields on earning assets and can also serve to manage
Horizon's gap position in stated maturity intervals. Investment securities
totaled $155,150 at December 31, 1994, and have decreased $15,209 or 8.93% from
December 31, 1993. This decrease resulted as Horizon's loans grew at a more
rapid rate than deposits during 1994 and the investment portfolio was used to
fund this growth. The investment portfolio increased $3,411 or 2.04% from
December 31, 1992 to December 31, 1993. This increase was primarily funded
through
12
<PAGE> 20
reductions in federal funds sold during 1993. This was in line with the
Company's investment strategy of investing in securities with higher yields and
longer maturities when short-term rates were falling.
Horizon places importance on safety and liquidity in its investment portfolio.
U.S. Treasury and federal agencies securities comprise 63.60% of the total
investment portfolio. The U.S. Treasury and federal agencies securities are
relatively short-term and are frequently used for pledging of public funds or
securities sold under agreements to repurchase. At December 31, 1994, U.S.
Treasury and federal agencies securities declined $16,779 or 14.53% from
December 31, 1993, primarily due to shifting of funds to cover the higher loan
demand experienced during 1994.
Securities of states and political subdivisions totaled $40,749 at December 31,
1994, and increased $501 or 1.24% from the previous year. This follows an
increase of $21,135 or 110.58% at December 31, 1993, compared to December 31,
1992. A large portion of this growth was funded by maturities of U.S. Treasury
securities which were reinvested into municipal securities. The purchases of
municipal securities were a result of tax planning. Horizon has limited
investments in municipal securities primarily to publicly issued securities of
municipalities with a rating of A1 or better or to unrated general obligation
securities of municipalities in the market area.
<TABLE>
<CAPTION>
TABLE 9
SECURITIES PORTFOLIO
----------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury & federal agencies-AFS $ 43,380 $ -- $ -- $ -- $ --
U.S. Treasury & federal agencies-HTM 55,290 115,449 128,534 140,117 129,129
States & political subdivisions-HTM 40,749 40,248 19,113 25,751 34,777
Other securities-AFS 4,179 -- -- -- --
Other securities-HTM 1,480 7,162 7,418 4,513 5,888
Mortgage-backed securities-AFS 10,010 7,500 11,883 14,557 14,185
Mortgage-backed securities-HTM 62 -- -- -- --
----------------------------------------------------
Total $155,150 $170,359 $166,948 $184,938 $183,979
====================================================
</TABLE>
Other securities are primarily bonds of major U.S. corporations which carry
investment grade ratings and were purchased to increase the yield of the
portfolio. At December 31, 1994, other securities totaled $5,659 and have
decreased $1,503 or 20.99% from December 31, 1993. Decreases in 1994 were due to
maturities of securities in this category and these funds were placed in other
asset categories.
Mortgage-backed securities totaled $10,072 at December 31, 1994, and have
increased $2,572 or 34.29% from the total of $7,500 at December 31, 1993.
Purchases in 1994 were primarily pools of adjustable rate mortgages and were
bought as a means to increase cash flow and portfolio yield.
Other than investments in the U.S. Government, no single investment comprises
more than 10% of the portfolio.
Horizon adopted the provisions of Financial Accounting Standards Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities," as of
January 1, 1994. Under the new rules, debt securities that Horizon has both the
positive intent and ability to hold to maturity are to 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 to be classified as
available-for-sale (AFS) and carried at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried as a separate
component of shareholders' equity.
In accordance with the new standard, prior period financial statements have not
been restated. The balance of shareholders' equity at January 1, 1994 was
increased by approximately $145, net of $95 in deferred income taxes, to reflect
the net unrealized holding gains on securities classified as available-for-sale
previously carried at amortized cost.
Horizon, at December 31, 1994, classified 62.89% of its securities as
held-to-maturity (HTM) and carries them at amortized cost. Securities
available-for-sale are reported at fair value. Horizon does not hold securities
for trading purposes. At December 31, 1994, Horizon's available-for-sale
investment securities approximated $57,569, or 37.11% of total investments, and
the unrealized loss, net of deferred taxes, totaled $1,297.
13
<PAGE> 21
MANAGEMENT'S DISCUSSION & ANALYSIS
<TABLE>
<CAPTION>
TABLE 10
MATURITY OF INVESTMENT SECURITIES
------------------------------------------------------------------------------------------------------------
1 1-5 5-10 AFTER TOTAL
YEAR AVG. YEARS AVG. YEARS AVG. 10 YEARS AVG. BOOK AVG.
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD VALUE YIELD
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury-AFS $ 5,084 4.89% $11,544 6.41% $ -- --% $ -- --% $ 16,628 5.75%
U.S. Treasury-HTM 2,997 5.19 16,495 6.24 -- -- -- -- 19,492 6.02
Federal agencies-AFS 5,928 5.49 18,378 5.96 2,446 7.07 -- -- 26,752 6.01
Federal agencies-HTM 14,002 7.11 21,298 6.24 498 5.41 -- -- 35,798 6.54
States & political
subdivisions-AFS -- -- -- -- -- -- -- -- -- --
States & political
subdivisions-HTM 3,702 6.40 3,248 5.77 25,056 5.58 8,743 7.50 40,749 5.50
Other Securities-AFS 3,512 6.44 -- -- 467 6.37 200 6.00 4,179 6.41
Other Securities-HTM -- -- 993 7.17 487 8.19 -- -- 1,480 7.49
Mortgage-backed
securities-AFS -- -- 523 6.17 1,156 9.00 8,331 6.37 10,010 6.85
Mortgage-backed
securities-HTM -- -- -- -- -- -- 62 9.64 62 --
------------------------------------------------------------------------------------------------------------
Total Investment
Securities $35,225 6.03% $72,479 6.17% $30,110 5.84% $17,336 7.27% $155,150 6.00%
============================================================================================================
</TABLE>
OVERNIGHT INVESTMENTS
At December 31, 1994, federal funds sold totaled $5,350 and have declined $950
or 15.08% from the December 31, 1993, total of $6,300. Significant growth in the
loan portfolio continued throughout 1994 and was partially funded through
reductions in federal funds sold.
DEPOSITS
Total deposits at December 31, 1994, increased $11,140 or 2.36% from the
December 31, 1993, amount. This follows a $9,059 or 1.96% increase from December
31, 1992. Deposit growth is attributed to the independent status of the
subsidiary banks and a marketing campaign which emphasizes local ownership.
Horizon's member banks do not actively compete solely on the basis of market
interest rates or employ the use of brokered funds.
Noninterest-bearing deposits totaled $70,781 at December 31, 1994, and increased
$8,135 or 12.99% from December 31, 1993. This follows an increase of $4,013 or
6.84% from December 31, 1992. Growth in noninterest-bearing deposits is
attributed to the willingness of the customers to conduct business with banks
perceived as locally owned and community oriented.
Interest-bearing deposits totaled $412,774 at December 31, 1994, and increased
$3,005 or 0.73% from December 31, 1993. This compares to an increase of $5,046
or 1.25% from December 31, 1992. The subsidiary banks do not currently match
local competitors in rate terms; rather, rates are set subject to desired
margins and projected budget goals. The balance of interest-bearing transaction
accounts, also known as NOW accounts, totaled $58,701 at December 31, 1994, a
decrease of $5,760 or 8.94% from the $64,461 at December 31, 1993. Money market
deposit accounts and other savings accounts totaled $155,265 at December 31,
1994, and reflect a decrease of $3,776 or 2.37% from the December 31, 1993,
total of $159,041. The other major consumer category, time deposits of less than
$100,000, totaled $163,319 at December 31, 1994, and increased $9,386 or 6.10%
from the December 31, 1993, total of $153,933.
Included in interest-bearing deposits are certificates of deposit in
denominations of $100,000 or more which totaled $35,489 at December 31, 1994.
This is an increase of $3,155 or 9.76% from the December 31, 1993 total of
$32,334; details are shown in Table 11. Large denomination certificates of
deposit comprise 7.34% of total deposits at December 31, 1994, and have
increased from 6.84% at December 31, 1993. The majority of the large
certificates of deposit are maintained by established customers and are
considered stable. It is not the policy of the subsidiary banks to actively bid
for public funds or employ the use of brokered funds.
14
<PAGE> 22
<TABLE>
<CAPTION>
TABLE 11
MATURITIES OF CERTIFICATES OF
DEPOSIT OF $100,000 OR MORE
AS OF DECEMBER 31
---------------------------------------
1994 1993 1992 1991
---------------------------------------
<S> <C> <C> <C> <C> <C>
Three months or less $11,727 $12,736 $24,387 $17,322
Over three months through six months 8,842 6,306 5,116 6,075
Over six months through twelve months 8,294 9,460 4,185 4,050
Over twelve months 6,626 3,832 734 1,909
---------------------------------------
Total $35,489 $32,334 $34,422 $29,356
=======================================
</TABLE>
BORROWED FUNDS
Securities sold under agreements to repurchase totaled $16,797 at December 31,
1994, and decreased $634 or 3.64% from the December 31, 1993, total of $17,431.
This compares to an increase of $2,291 or 15.98% from December 31, 1992, to
December 31, 1993. Securities are sold under agreements to repurchase primarily
for customer accommodation. The average daily balance of short-term borrowings
in 1994 was $18,548 and carried a weighted average rate of 3.00%. In 1994, the
average daily balance of short-term borrowings increased $2,651 or 16.68% from
the 1993 average balance of $15,897. The maximum amount of short-term borrowings
at any month end in 1994 was $24,146 and compares to $20,121 in 1993.
CAPITAL ADEQUACY
Capital serves several important functions. It serves to control the growth of
assets and provides assurance to the public that Horizon will be able to
continue to provide financial services. Management's objective is to maintain a
capital level that is sufficient to meet growth and regulatory requirements. The
primary measures used by management to monitor capital are found in the ratios
listed in Table 12. Additionally, the level of capital and related ratio
analysis is monitored quarterly by regulatory authorities.
A common measure used to assess capital adequacy is the primary capital ratio
which increased from 11.81% at December 31, 1993, to 12.13% at December 31,
1994. This calculation involves total shareholders' equity plus the allowance
for loan losses divided by total assets plus the allowance for loan losses.
Continued growth in primary capital can be attributed to the retention of
operating earnings after payment of dividends.
Regulatory agencies have adopted guidelines relating to capital for bank holding
companies. In general, these guidelines require the maintenance of an amount of
capital based on risk-adjusted assets. Assets with potentially higher risk are
required to have more capital than assets with lower risk. Also, banks and bank
holding companies are required to maintain capital to support, on a
risk-adjusted basis, certain off-balance sheet activities such as loan
commitments and securities lending.
The regulatory capital standards classify capital into two tiers, referred to as
Tier I and Tier II. Tier I capital consists of common shareholders' equity less
goodwill. Tier II capital consists of Tier I capital plus the allowance for loan
losses. In determining risk-based capital requirements, assets are assigned
risk-weights of 0% to 100% which are determined by the regulatory assigned
levels of credit risk associated with such assets. Off-balance sheet items are
considered in the calculation of risk-adjusted assets through conversion factors
established by the regulators. Bank holding companies are required to meet the
regulatory minimums of 4% Tier I and 8% total risk-based capital.
As shown in Table 12, Horizon's Tier I risk-based capital ratio was 17.86% at
December 31, 1994, and compares to 18.72% at December 31, 1993. The decline is
attributable to an increase of $32,768 or 10.24% in risked-weighted assets. The
total risk-based capital ratio was 19.65% at December 31, 1994, and compares to
20.49% at December 31, 1993. Horizon continues to be well above the minimum
regulatory guidelines for all risk-based capital ratios.
In 1990, regulatory authorities added a leverage calculation to the
requirements. The leverage ratio compares Tier I capital to total average assets
less goodwill. At December 31, 1994, Horizon's leverage ratio was 11.19%,
significantly above the 3% minimum regulatory maintenance requirement, and
compares to 10.90% at December 31, 1993. The reason for the increase in the
leverage ratio was a decline in goodwill from $755 at December 31, 1993 to $596
at December 31, 1994 and an increase in Tier I capital from $59,883 at December
31, 1993 to $62,987 at December 31, 1994.
15
<PAGE> 23
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 12
CAPITAL ADEQUACY
December 31
-------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY CAPITAL:
Total Shareholders' Equity $ 63,582 $ 60,637 $ 56,647 $ 52,819 $50,619
Allowance for Loan Losses 6,328 5,651 4,675 3,523 2,948
-------------------------------------------------------
Total Primary Capital $ 69,910 $ 66,288 $ 61,322 $ 56,342 $53,567
=======================================================
Ratio of Primary Capital to Total Assets
and Allowance for Loan Losses 12.13% 11.81% 11.24% 10.94% 10.52%
RISK-BASED CAPITAL
Tier I Capital:
Total Shareholders' Equity $63,582 $ 60,637 $ 56,647 $ 52,819 $50,619
Less: Goodwill 595 754 928 1,099 1,271
-------------------------------------------------------
Total Tier I Capital 62,987 59,883 55,719 51,720 49,348
=======================================================
Tier II Capital:
Allowable Allowance for Loan Losses 6,328 5,651 4,675 3,523 2,948
-------------------------------------------------------
Total Risk-Based Capital $69,315 $ 65,534 $ 60,394 $ 55,243 $52,296
=======================================================
Risk-Weighted Assets $352,663 $319,895 $282,456 $244,445
RISK-BASED CAPITAL RATIOS:
Tier I Capital 17.86% 18.72% 19.73% 21.16%
Total Capital 19.65% 20.49% 21.38% 22.60%
Leverage 11.19% 10.90% 10.53% 10.23%
</TABLE>
Table 13 illustrates the relationship between net income and capital
generation. After adjusting for earnings retained and not returned to the
shareholders in the form of dividends, the rate of internal capital growth
increased from approximately 6.79% in 1993 to 6.83% in 1994. This was primarily
due to an increase in the dividend payout ratio from 39.19% in 1993 to 39.48%
in 1994.
<TABLE>
<CAPTION>
TABLE 13
INTERNAL CAPITAL GENERATION
-----------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average equity 11.29% 11.16% 11.21% 8.57% 9.04%
-----------------------------------------------------
Earnings retained 60.52% 60.81% 65.50% 56.39% 57.92%
-----------------------------------------------------
Internally generated capital 6.83% 6.79% 7.34% 4.83% 5.24%
</TABLE>
ASSET QUALITY
The major categories analyzed when reviewing asset quality are nonaccruing
loans, properties acquired by foreclosure (other real estate), and in-substance
foreclosures. Table 14 presents data on these assets for the past five years.
Nonperforming assets decreased $4,819 or 55.71% from December 31, 1993, to
December 31, 1994. Because of the decrease in nonaccrual loans, the ratio of
nonperforming loans to year-end loans has declined from 2.15% at December 31,
1993, to 0.78% at December 31, 1994. The ratio of nonperforming assets to
year-end loans and other real estate also declined from 2.43% at December 31,
1993, to 1.00% at December 31, 1994. The coverage ratio, which is the ratio of
the allowance for loan losses to nonperforming assets, improved from 65.33% at
December 31, 1993, to 165.18% at December 31, 1994.
In 1992, Horizon funded the development of land and construction of a major
retail store in its market area. Late in 1993, this credit relationship,
approximately $4.6 million, was placed on nonaccrual and was the primary cause
for the increase in the 1993 nonperforming ratios. Throughout late 1993 and
1994, management focused on the resolution of this credit relationship and in
the fourth quarter of 1994 secured the
16
<PAGE> 24
refinancing of this relationship with an unrelated entity. This is the primary
reason for the improvement noted in the 1994 nonperforming ratios.
The amount of loans contractually past due over 90 days, which continue to
accrue interest, has increased from $1,113 at December 31, 1993, to $1,781 at
December 31, 1994. At December 31, 1994, these loans comprise 0.48% of total
loans and compare to 0.32% of total loans at December 31, 1993. The primary
reason for the increase is a $667 rise in commercial loans past due 90 days or
more.
Nonaccrual loans are noninterest earning assets reported in accordance with
regulatory or generally accepted accounting standards. They are loans which,
in the opinion of management, the full collection of principal and interest is
unlikely. Generally, loans are placed on nonaccrual status when repossession,
foreclosure or bankruptcy proceedings are initiated, financial distress on the
part of the borrower becomes known, or when payments are delinquent for 90 to
120 days. If collateral appears sufficient to prevent loss and insure full
collection, an exception to the policy may be made. Loans may be placed on
nonaccrual status prior to becoming 90 days past due if it is anticipated that
interest or any part of principal may not be collected.
ALLOWANCE FOR LOAN LOSSES/
NON-PERFORMING LOANS
[GRAPH]
The level of nonaccruing loans has declined $4,652 or 60.95% from $7,633 at
December 31, 1993, to $2,981 at December 31, 1994. The primary reason for the
decrease is the full collection of the nonaccruing loan mentioned above.
Other real estate totaled $762 at December 31, 1994, and declined $255 or
25.07% from $1,017 at December 31, 1993. This follows a decline of $546 or
34.93% during 1993. Management is actively seeking sale of other real estate
and no undue difficulty in disposition is foreseen.
Lending policies of the subsidiary banks are in written form and periodically
revised by the Board of Directors to reflect current standards. The policies
form the basis which guide employees in their daily activities and provide
parameters for acceptable lending. Written guidelines have established the
undesirable nature of highly leveraged transactions and out-of-area loans.
Management is not aware of any loans not included in Table 14 that would
require a significant increase to the provision for loan losses.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, which requires that
impaired loans be measured at the present value of expected future cash flows
at the loan's original effective interest rate. As a practical expedient, loans
may be measured at their observable market price or, in the case of collateral
dependent loans, the fair value of the underlying collateral. Horizon has
completed the analysis required to adopt the Statement, which is effective for
fiscal years beginning after December 15, 1994. Adoption of this new accounting
standard will not materially impact Horizon's consolidated financial
statements.
Investment securities totaled $155,150 at December 31, 1994, and comprise
27.22% of total assets. The quality of the investment portfolio is evidenced by
the fact that all issues currently held are rated as investment grade.
Additionally, U.S. government and agency securities comprise 63.60% of the
portfolio and carry a minimum amount of risk. Written policies are in place to
guide daily activities and various limitations are detailed in the policies as
to minimum securities ratings needed and maturities sought.
17
<PAGE> 25
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 14
ANALYSIS OF ASSET QUALITY
--------------------------------------------------------
1994 1993 1992 1991 1990
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccruing Loans $2,981 $7,633 $1,986 $3,096 $4,235
Restructured Loans -- -- 1,609 -- --
Other Real Estate 762 1,017 1,563 1,984 2,342
In-substance Foreclosures 88 -- 483 775 --
--------------------------------------------------------
Total $3,831 $8,650 $5,641 $5,855 $6,577
========================================================
Loans Ninety Days Past Due &
Accruing Interest $1,781 $1,113 $1,983 $2,522 $2,702
Nonperforming Loans to Year-end Loans 0.78% 2.15% 1.09% 1.07% 1.56%
Nonperforming Assets to Year-end Loans
& Other Real Estate 1.00% 2.43% 1.71% 2.00% 2.40%
Allowance for Loan Losses to
Nonperforming Assets 165.18% 65.33% 82.88% 60.15% 44.82%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained by management at a level believed
adequate to absorb losses in the loan portfolio. The level of the allowance is
reviewed by management in a systematic manner on a quarterly basis. Several
factors are used when determining the adequacy of the allowance for loan losses
and include the trend in loan growth, general economic conditions, previous
loan loss experience, and the collectibility of higher risk loans. Each bank
maintains an internal loan watch list which is evaluated periodically to
estimate potential losses. Minimum estimates for watch list credits are
provided based upon past loan loss experience, estimated collateral values, and
other factors. Reserves resulting from this analysis, supplemented by
historical charge-off analysis for loans not specially evaluated, are
considered allocated reserves and are supplemented by an unallocated amount for
loan losses. This unallocated amount is determined by analyzing potential
exposure in the loan portfolio and other trends and factors.
The allocation in Table 15 is based on estimates and subjective judgments and
is not necessarily indicative of the specific amounts or loan categories in
which losses may ultimately occur.
<TABLE>
<CAPTION>
TABLE 15
ALLOCATION OF THE
ALLOWANCE FOR LOAN
LOSSES BY LOAN TYPE
------------------------
December 31, 1994
------------------------
BALANCE AT DECEMBER 31, 1994, APPLICABLE TO: Percent of Loans
In Each Category
Amount To Total Loans
------------------------
<S> <C> <C>
Commercial, Financial, & Agricultural $2,213 26%
Real Estate-Construction & Development 507 2%
Real Estate-Residential 1,337 48%
Loans to Individuals for Household, Family & Other Consumer Expenditures 1,573 24%
Unallocated 698
------------------------
Total $6,328 100%
========================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
------------------------
BALANCE AT DECEMBER 31, 1993, APPLICABLE TO: Percent of Loans
In Each Category
Amount To Total Loans
------------------------
<S> <C> <C>
Commercial, Financial, & Agricultural $2,677 26%
Real Estate-Construction & Development 498 2%
Real Estate-Residential 1,140 44%
Loans to Individuals for Household, Family & Other Consumer Expenditures 966 28%
Unallocated 370
------------------------
Total $5,651 100%
========================
</TABLE>
18
<PAGE> 26
The allowance for loan losses was 1.68% of total loans at December 31, 1994,
and totaled $6,328. This compares to an allowance for loan losses at December
31, 1993, which totaled $5,651 or 1.62% of total loans. During 1994, the
allowance for loan losses was strengthened by a provision for loan losses of
$1,525 that exceeded net charge-offs by $677. In 1993, the provision for loan
losses exceeded net charge-offs by $976 and the allowance for loan losses
totaled $5,651. As shown in Table 15, approximately 11.03% or $698 of the
allowance for loan losses at December 31, 1994 was available to absorb
unidentified losses; this compares to an unallocated portion of 6.55% or $370
at December 31, 1993.
The provision of $1,525 in 1994 declined $430 or 21.99% from the 1993 total of
$1,955. This compares to a decline of $114 or 5.51% in 1993 and a decline of
$685 or 24.87% in 1992. During 1994, net loan losses to average net loans was
0.23% and represents a decrease from 0.29% experienced in 1993. The decreased
provisions during 1994 and 1993 are a result of improving asset quality and is
evidenced by a decrease in nonaccrual loans of $4,652 or 60.95% in 1994.
Management believes that the current level of the allowance for loan losses is
adequate to absorb potential loan losses.
Net loan charge-offs in 1994 decreased $131 or 13.38% from the amount
experienced in 1993. This compares to an increase in net charge-offs during
1993 of $62 or 6.76% from the amount experienced in 1992. Net charge-offs to
average net loans decreased to 0.23% in 1994 from 0.29% in 1993.
PROVISION FOR LOAN LOSSES/
NET CHARGE-OFFS
[GRAPH]
Net charge-offs of commercial loans were 17.59% of total net charge-offs in
1994, down from 26.66% of total net charge-offs in 1993. The decrease in
charge-offs is a result of several factors, the primary factor being an
improvement in general economic conditions. Real estate loans represented
18.06% of net charge-offs in 1994, a decrease from 32.18% of total net
charge-offs in 1993. Losses in the real estate portfolio are related to value
of the collateral at time of foreclosure; values at date of foreclosure are
difficult to predict and frequently vary from appraised values. Credit card
loans and related credits were 19.48% of total net charge-offs in 1994, an
increase from 3.37% of total net charge-offs in 1993. The credit card portfolio
has grown rapidly during the last three years; as a result charge-offs have
risen. Other consumer loans constituted 44.86% of total net charge-offs in 1994
and is compared to total net charge-offs of 37.79% in 1993. Consumer loans are
primarily for home improvements, automobiles, and other personal and household
purposes. During the past three years, net losses in this category averaged
40.72% of net charge-offs. The increase in 1994 was not due to any particular
item but resulted from increases in the various categories of consumer loans.
19
<PAGE> 27
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
--------------------------------------------------------------------------------
The following is a summary of activity in the allowance for loan losses:
<TABLE>
<CAPTION>
TABLE 16
ALLOWANCE FOR LOAN LOSSES
-----------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $5,651 $4,675 $3,523 $2,948 $2,793
Provision for Loan Losses 1,525 1,955 2,069 2,754 1,848
Loans Charged-Off:
Commercial 313 708 571 653 864
Real Estate 191 401 315 1,051 392
Revolving Credit 188 41 22 33 --
Other Consumer 626 584 560 827 767
-----------------------------------------------------
Total 1,318 1,734 1,468 2,564 2,023
-----------------------------------------------------
Recoveries:
Commercial 164 447 186 139 90
Real Estate 38 86 115 42 24
Revolving Credit 23 8 10 11 --
Other Consumer 245 214 240 193 216
-----------------------------------------------------
Total 470 755 551 385 330
-----------------------------------------------------
Net Charge-Offs 848 979 917 2,179 1,693
-----------------------------------------------------
Balance at Year-end $6,328 $5,651 $4,675 $3,523 $2,948
====================================================
Percentage of Net Charge-Offs to
Average Net Loans 0.23% 0.29% 0.30% 0.80% 0.65%
Percentage of Allowance for Loan Losses
to Year-end Loans 1.68% 1.62% 1.45% 1.24% 1.10%
Earnings Coverage of Net Charge-Offs 8.23X 6.66X 6.72X 2.04X 2.63X
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
Horizon's goal is to maintain sufficient liquidity to meet funding requirements
of customers, including both loan requests and deposit withdrawals. A major
contributor to accomplishing this goal is maintaining a stable base of core
deposits and other interest-bearing funds. Other factors which help achieve
liquidity include having an adequate amount of readily marketable assets and a
diversified customer base in the market area. Adequate earnings and capital
also enhance liquidity.
A primary source for meeting customer requirements for funding needs is readily
marketable and maturing securities. Approximately 22.70% of the securities
portfolio matures within one year. In addition, overnight funds, commonly known
as federal funds sold, are liquid investments and averaged $12,303 in 1994. Two
subsidiary banks are members of the Federal Home Loan Bank of Pittsburgh and
formal lines of credit have been established which allow for borrowing up to
$140,000 if the need arises. Horizon subsidiary banks also have in place
certain lines of credit with correspondent banks that total $9,000 to fund
unusual cash needs; however, Horizon does not currently anticipate the need for
using these lines of credit. Finally, adjustable rate mortgages totaling
approximately $118,622 have been made to secondary market guidelines and could
be sold to raise funds although Horizon has no plans to do so in the
foreseeable future.
Horizon's cash and cash equivalents, represented by cash and due from banks and
federal funds sold, are a product of its operating, investing, and financing
activities. Cash provided by operating activities decreased 2.40% in 1994 after
increasing 6.64% in 1993. These increases and decreases are due primarily to
changes in other assets and other liabilities. Net cash has been generated by
financing activities for the past three years, primarily through deposit
growth. The net cash generated has been used in Horizon's investing activities,
primarily in funding loan growth.
The major objectives of asset/liability management include achieving adequate
liquidity and maintaining an appropriate level of interest rate risk.
Management of liquidity involves meeting the potential funding needs of loan
and deposit customers and any unexpected cash requirements. Interest rate
sensitivity management seeks to maintain or increase net interest income while
reducing exposure to movements in interest rates. Horizon's Asset/Liability
Committee formulates liquidity strategies and seeks to maintain a
20
<PAGE> 28
proper mix of interest sensitive assets and liabilities while achieving an
interest margin which is consistent with the risk involved.
Horizon's goal is to stabilize the net interest margin by monitoring the rate
sensitive position. From Table 17, the one-year cumulative interest sensitivity
gap is (28.98%) at December 31, 1994, and compares to (17.31%) at December 31,
1993. The liability sensitive gap is created by assuming that interest-bearing
demand deposits, money market deposit accounts, and savings deposits will
reprice in the one-to-three-month sensitivity bucket. These deposits total
$213,966; however, a majority are considered stable and not subject to movement
because of rates.
Monthly reports are prepared for the net interest margin, maturities of assets
and liabilities, and projected earnings. A primary function of the
Asset/Liability Committee is to review the various reports and to coordinate
interest rates and asset/liability maturities at the subsidiary banks. Hedging
is not currently used, rather, interest rates are set at terms to impact
favorably the profit projection and may not necessarily correspond to
prevailing market rates.
In recent years, variable rate loans have been emphasized by the subsidiary
banks. Currently, $118,622 or 62.99% of the real estate loan portfolio are
adjustable rate mortgages. Home equity lines of credit with adjustable rates
are offered and totaled $6,323 at December 31, 1994 and have decreased 7.76%
from the December 31, 1993 total of $6,855. Approximately $48,847 of the loans
in the commercial loan category have maturities of less than one year or have
floating rates which can be adjusted. Loans in the installment category are of
a longer term fixed-rate nature. Liquidity is provided by monthly repayments on
these loans which can be reinvested at current market rates.
Large denomination certificates of deposit are $35,489 at December 31, 1994,
and have increased $3,155 or 9.76% from the December 31, 1993 total of $32,334.
Horizon also utilizes repurchase agreements for funding and these totaled
$16,797 at December 31, 1994, and carry an adjustable rate which is based on a
government index. At December 31, 1994, repurchase agreements decreased $634 or
3.64% following an increase of $2,291 or 15.98% in 1993. The remaining deposits
or funding liabilities carry fixed interest rates.
21
<PAGE> 29
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 17
INTEREST SENSITIVITY ANALYSIS
December 31, 1994
---------------------------------------------------------------
1-3 3-6 Over 6 Total
Non-Sensitive
Months Months Months One Year
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets:
Interest-bearing deposits with
other banks $ -- $ -- $ -- $ -- $ --
Federal funds sold 5,350 -- -- 5,350 --
Investment securities 21,407 4,390 9,428 35,225 119,925
Loans 156,205 20,799 40,293 217,297 164,314
---------------------------------------------------------------
Total Earning Assets 182,962 25,189 49,721 257,872 284,239
Noninterest-Bearing Demand Deposits -- -- -- -- 70,781(1)
Interest-Bearing Liabilities:
Interest-bearing demand deposits 58,701 -- -- 58,701 --
Money market deposit accounts 28,945 -- -- 28,945 --
All other saving deposits 126,320 -- -- 126,320 --
Interest-bearing time deposits 59,785 44,154 88,310 192,249 6,559
Short-term borrowings 16,797 -- -- 16,797 --
Long-term borrowings -- -- -- -- --
---------------------------------------------------------------
Total Interest-Bearing Liabilities 290,548 44,154 88,310 423,012 6,559
Interest-Sensitivity Gap $(107,586) $ (18,965) $ (38,589) $(165,140)
===============================================================
Cumulative Gap $(107,586) $(126,551) $(165,140) $(165,140)
===============================================================
Ratio of Interest-Sensitive Assets to
Interest-Sensitive Liabilities 62.97% 57.05% 56.30% 60.96%
Ratio of One Year Cumulative Gap
to Total Assets on December 31, 1994 (28.98%)
Ratio of One Year Cumulative Gap
to Total Assets on December 31, 1993 (17.31%)
Ratio of One Year Cumulative Gap
to Total Assets on December 31, 1992 (17.94%)
Ratio of One Year Cumulative Gap
to Total Assets on December 31, 1991 (22.77%)
</TABLE>
(1) Demand deposits do not bear interest.
22
<PAGE> 30
EFFECTS OF INFLATION
Because Horizon's assets are, for the most part, liquid in nature, they are not
significantly affected by inflation. However, the rate of inflation affects
operating expenses, such as employee salaries and benefits, occupancy and
equipment charges and other overhead expenses. Horizon attempts to adjust its
charges for services to compensate for increasing costs. As a result, interest
rates have a more significant impact on the Company's performance than the
effect of inflation.
MARKET AND DIVIDEND INFORMATION
Table 18 summarizes the range of prices of common stock and dividends declared
for each quarter of 1994 and 1993. During 1993, Horizon's stock became listed on
the National Association of Securities Dealers Automated Quotation (NASDAQ)
System under the symbol HZWV. Prior to 1993, there was no established market for
Horizon's stock. Price ranges are compiled from quotations furnished by broker
sources and actual trades that occurred during the periods. These ranges may not
represent actual transactions as trades may have taken place at higher or lower
prices of which company personnel are not aware.
<TABLE>
<CAPTION>
TABLE 18
-----------------------------------------------------------------
QUARTER STOCK PRICE RANGE DIVIDEND DECLARED PER SHARE
-----------------------------------------------------------------
<S> <C> <C>
4th Quarter 1994 $28.00-31.00 $0.25
3rd Quarter 1994 $28.00-30.00 $0.24
2nd Quarter 1994 $28.00-30.00 $0.24
1st Quarter 1994 $28.00-31.00 $0.24
4th Quarter 1993 $28.00-30.50 $0.24
3rd Quarter 1993 $25.00-31.00 $0.23
2nd Quarter 1993 $25.25-25.75 $0.23
1st Quarter 1993 $25.25-25.75 $0.23
</TABLE>
Owners of Horizon common stock receive dividends from legally available funds
when declared by the Board of Directors of Horizon. The Board of Directors
presently intends to continue the policy of paying quarterly cash dividends.
Future dividends will depend upon earnings of Horizon and its subsidiaries,
their financial condition, and other factors which include government regulation
and policies. Refer to Note 13 in the Notes to Consolidated Financial Statements
for restrictions on subsidiary dividends, the primary source of funds for
dividends paid by Horizon to its shareholders.
23
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Horizon Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Horizon Bancorp,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Horizon
Bancorp, Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for certain investment securities as of January 1, 1994.
We also have audited, as to combination only, the accompanying consolidated
statements of income, shareholders' equity, and cash flows for the year ended
December 31, 1992. As described in Note 2, these statements have been combined
from the consolidated statements of Horizon Bancorp, Inc. and subsidiaries and
Allegheny Bankshares Corporation and subsidiaries (which statements are not
presented separately herein). The financial statements of Horizon Bancorp, Inc.
and subsidiaries for the year ended December 31, 1992, prior to their
restatement for the pooling of interests with Allegheny Bankshares Corporation
and subsidiaries, were audited by other auditors. The financial statements of
Allegheny Bankshares Corporation and subsidiaries for the year ended December
31, 1992, prior to its combination with Horizon Bancorp, Inc. and subsidiaries,
were audited by other auditors. In our opinion, the accompanying consolidated
statements of income, shareholders' equity, and cash flows for the year ended
December 31, 1992, have been properly combined on the basis described in Note
2.
/s/ ERNST & YOUNG LLP
Charleston, West Virginia
February 3, 1995
24
<PAGE> 32
FINANCIAL
STATEMENTS
&
NOTES
HORIZON BANCORP, INC.
<PAGE> 33
CONSOLIDATED BALANCE SHEETS
Horizon Bancorp, Inc.
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-----------------------
<S> <C> <C>
ASSETS
Cash and due from banks--Note 3 $ 19,082 $ 15,372
Federal funds sold 5,350 6,300
-----------------------
Cash and Cash Equivalents 24,432 21,672
Interest-bearing deposits with other banks -- 1,998
Investment securities--Note 4:
Available-for-sale (at fair value) 57,569 --
Held-to-maturity (approximate fair value of $93,445 and $174,215
at December 31, 1994 and 1993) 97,581 170,359
Loans, net--Notes 5, 6, and 7 370,582 343,539
Premises and equipment, net--Note 8 7,097 7,109
Accrued interest receivable and other assets--Note 10 12,674 10,994
-----------------------
Total Assets $569,935 $555,671
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 70,781 $ 62,646
Interest-bearing 412,774 409,769
-----------------------
Total Deposits 483,555 472,415
Short and long-term borrowings--Note 9 16,797 17,431
Accrued interest payable and other liabilities--Note 11 6,001 5,188
-----------------------
Total Liabilities 506,353 495,034
Shareholders' equity--Notes 11 and 13:
Common stock, $1 par value; 5,000,000 shares authorized;
2,835,670 shares outstanding at December 31, 1994 and 1993 2,835 2,835
Capital surplus 12,262 12,262
Retained earnings 49,903 45,684
Unrealized loss on available-for-sale securities (1,297) --
Deferred ESOP benefit (121) (144)
-----------------------
Total Shareholders' Equity 63,582 60,637
-----------------------
Total Liabilities and Shareholders' Equity $569,935 $555,671
=======================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 34
CONSOLIDATED STATEMENTS OF INCOME
Horizon Bancorp, Inc.
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans--Note 7 $31,132 $28,546 $28,543
Interest and dividends on investment
securities:
Taxable 7,405 9,635 11,748
Tax-exempt 2,072 1,723 1,461
Federal funds sold and other 608 743 857
-------------------------------
Total Interest Income 41,217 40,647 42,609
Interest expense:
Deposits 14,024 14,742 18,117
Borrowings--Note 9 549 524 618
-------------------------------
Total Interest Expense 14,573 15,266 18,735
-------------------------------
Net Interest Income 26,644 25,381 23,874
Provision for loan losses--Note 6 1,525 1,955 2,069
-------------------------------
Net Interest Income After Provision for Loan Losses 25,119 23,426 21,805
Other income:
Service charges and fees 1,782 1,610 1,257
Investment securities (losses) gains (187) 77 245
Other 852 819 1,096
-------------------------------
Total Other Income 2,447 2,506 2,598
Other expenses:
Salaries and employee benefits--Note 11 8,081 7,947 7,328
Net occupancy expense--Note 8 2,066 1,830 1,717
Data processing 1,043 851 789
Federal deposit insurance 1,059 1,042 995
Advertising 501 488 490
Other 4,644 4,195 4,073
-------------------------------
Total Other Expenses 17,394 16,353 15,392
-------------------------------
Income Before Income Taxes 10,172 9,579 9,011
Applicable income taxes--Note 10 3,201 3,060 2,851
-------------------------------
Net Income $ 6,971 $ 6,519 $ 6,160
===============================
Net income per common share $ 2.46 $ 2.30 $ 2.17
===============================
Average common shares outstanding 2,835 2,835 2,837
===============================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 35
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Horizon Bancorp, Inc.
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Unrealized
Loss on
Available- Deferred
Common Capital Retained Treasury for-Sale ESOP
Stock Surplus Earnings Stock Securities Benefits Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1992 $2,877 $12,894 $37,685 $(352) $ -- $(285) $52,819
Net income - 1992 -- -- 6,160 -- -- -- 6,160
Cash dividends declared by pooled
companies:
Horizon ($.85 per share) -- -- (1,603) -- -- -- (1,603)
Allegheny -- -- (522) -- -- -- (522)
Reduction in ESOP indebtedness -- -- -- -- -- 105 105
Acquisition of treasury shares -- -- -- (312) -- -- (312)
--------------------------------------------------------------------------
Balances at December 31, 1992 2,877 12,894 41,720 (664) -- (180) 56,647
Net income - 1993 -- -- 6,519 -- -- -- 6,519
Cash dividends declared by pooled
companies:
Horizon ($.93 per share) -- -- (2,419) -- -- -- (2,419)
Allegheny -- -- (136) -- -- -- (136)
Reduction in ESOP indebtedness -- -- -- -- -- 36 36
Redemption of fractional shares in
pooling -- (10) -- -- -- -- (10)
Retirement of treasury shares (42) (622) -- 664 -- -- --
--------------------------------------------------------------------------
Balances at December 31, 1993 2,835 12,262 45,684 -- -- (144) 60,637
Adjustment to beginning balance for
change in accounting method, net
of deferred income taxes -- -- -- -- 145 -- 145
Net income - 1994 -- -- 6,971 -- -- -- 6,971
Cash dividends ($.97 per share) -- -- (2,752) -- -- -- (2,752)
Reduction in ESOP indebtedness -- -- -- -- -- 23 23
Change in unrealized loss on available-
for-sale securities, net of deferred
income taxes -- -- -- -- (1,442) -- (1,442)
--------------------------------------------------------------------------
Balances at December 31, 1994 $2,835 $12,262 $49,903 $ -- $(1,297) $(121) $63,582
==========================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 36
CONSOLIDATED STATEMENTS OF CASH FLOWS
Horizon Bancorp, Inc.
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,971 $ 6,519 $ 6,160
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 759 666 714
Provision for loan losses 1,525 1,955 2,069
Deferred income tax benefit (710) (701) (616)
Amortization 179 222 263
Loss (gain) on sale of investment securities 187 (77) (245)
Change in accrued interest receivable and other assets (267) 1,292 1,581
Change in accrued interest payable and other liabilities 836 (163) (818)
-----------------------------
Net Cash Provided by Operating Activities 9,480 9,713 9,108
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities 8,292 -- --
Proceeds from maturities of available-for-sale securities 10,464 -- --
Purchases of available-for-sale securities (30,864) -- --
Proceeds from maturities of held-to-maturity securities 41,215 -- --
Purchases of held-to-maturity securities (14,269) -- --
Proceeds from sales and maturities of investment securities -- 74,130 78,722
Purchases of investment securities -- (77,055) (56,863)
Net increase in loans (28,563) (27,476) (38,016)
Purchases of premises and equipment (749) (1,042) (335)
-----------------------------
Net Cash Used in Investing Activities (14,474) (31,443) (16,492)
FINANCING ACTIVITIES
Net increase in deposits 11,140 9,059 28,255
Payments on long-term borrowing (800) (600) (750)
Increase (decrease) in short-term borrowings 166 2,291 (1,399)
Cash dividends paid (2,752) (2,555) (2,125)
Acquisition of treasury shares -- -- (312)
Other -- (10) (57)
-----------------------------
Net Cash Provided by Financing Activities 7,754 8,185 23,612
-----------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,760 (13,545) 16,228
Cash and cash equivalents at beginning of year 21,672 35,217 18,989
-----------------------------
Cash and Cash Equivalents at End of Year $24,432 $21,672 $35,217
=============================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 37
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
BASIS OF ACCOUNTING
The accounting and reporting policies of Horizon Bancorp, Inc. and its
subsidiaries (Horizon) conform to generally accepted accounting principles and
to general practices within the banking industry. The following is a summary of
the more significant policies.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Horizon Bancorp, Inc. and its wholly-owned subsidiaries. Horizon considers all
of its principal business activities to be bank related. All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Horizon considers cash and due from banks and federal funds sold as cash and
cash equivalents.
INVESTMENT SECURITIES
Management determines the appropriate classification of securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when Horizon has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of deferred
income taxes, reported in a separate component of shareholders' equity. Horizon
does not hold investment securities for trading purposes.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Realized gains and losses and declines in value judged
to be other-than-temporary are included in net securities gains (losses). The
cost of securities sold is based on the specific identification method.
ALLOWANCE FOR LOAN LOSSES
The provision for loan losses included in the statements of income is based
upon senior management's review of the loan portfolio, historical charge-off
experience, composition of the loan portfolio, loan volume, current economic
conditions, and other relevant factors. These provisions, less net charge-offs,
comprise the allowance for loan losses. In management's judgment, the allowance
for loan losses is maintained at a level adequate to provide for potential
losses in the loan portfolio.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation expense is computed principally on the straight-line method over
the estimated useful lives of the assets.
OTHER REAL ESTATE (ORE)
Real estate acquired in satisfaction of a loan is reported in other assets.
Properties acquired by foreclosure or deed in lieu of foreclosure are
transferred to ORE and recorded at the lower of cost or fair value based on
appraised value at the date actually or constructively received with the
corresponding charge, if necessary, to the allowance for loan losses.
Subsequent writedowns, if necessary, are charged directly to expense.
30
<PAGE> 38
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
--------------------------------------------------------------------------------
INCOME TAXES
Deferred income taxes are provided for temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements at the statutory tax rate. Horizon and its subsidiaries file
consolidated federal and state income tax returns. Each subsidiary provides for
income taxes as if the subsidiary were not included in a consolidated return
with its parent.
REVENUE RECOGNITION
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. Loan origination and commitment fees and direct
loan origination costs are being recognized as collected and incurred. The use
of this method of recognition does not produce results that are materially
different from results that would have been produced if such costs and fees
were deferred and amortized as an adjustment of the loan yield over the life of
the related loan.
The accrual of interest income generally is discontinued when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, unpaid interest credited to income in the current year is
reversed, and interest accrued in prior years is charged to the allowance for
loan losses. Management may elect to continue the accrual of interest when the
estimated net realizable value of collateral is sufficient to cover the
principal balance and accrued interest and the loan is in the process of
collection.
EMPLOYEE BENEFIT PLAN
Horizon has a defined benefit pension plan covering substantially all its
employees (see Note 11). Pension costs are actuarially determined and charged
to expense. Horizon provides no postretirement benefits other than pension
benefits.
NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average number of
common shares outstanding during the applicable period.
--------------------------------------------------------------------------------
2. MERGER AND ACQUISITIONS
--------------------------------------------------------------------------------
On March 31, 1993, Horizon effected a business combination with Allegheny
Bankshares Corporation in a transaction accounted for under the pooling of
interests method of accounting.
Horizon has acquired banks in prior years in acquisitions accounted for using
the purchase method of accounting. The purchase prices were allocated to the
identifiable tangible and intangible assets acquired and liabilities assumed
based upon their estimated fair value at the date of consummation. The excess
of purchase price over the fair value of the net assets acquired (goodwill) of
approximately $1,190 is being amortized on a straight-line basis over 10 years.
Accumulated amortization approximated $595 and $475 at December 31, 1994 and
1993, respectively.
--------------------------------------------------------------------------------
3. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
--------------------------------------------------------------------------------
Horizon's subsidiaries are required to maintain average balances with the
Federal Reserve Bank or as cash in vault. The average amount of those reserve
balances for the year ended December 31, 1994 was approximately $4,700.
--------------------------------------------------------------------------------
4. INVESTMENT SECURITIES
--------------------------------------------------------------------------------
Horizon adopted the provisions of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as of January 1, 1994. In
accordance with the new standard, prior period financial statements have not
been restated. The balance of shareholders' equity at January 1, 1994 was
increased by approximately $145, net of $95 in deferred income taxes, to
reflect the net unrealized holding gains on securities classified as
available-for-sale previously carried at amortized cost.
31
<PAGE> 39
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4. INVESTMENT SECURITIES -- CONTINUED
--------------------------------------------------------------------------------
The amortized cost and estimated fair values of investment securities are as
follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $44,787 $ 4 $(1,411) $43,380
Mortgage-backed securities 10,579 15 (584) 10,010
Other equity securities 4,365 -- (186) 4,179
-------------------------------------------------------------------------
Totals $59,731 $19 $(2,181) $57,569
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
-------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $55,290 $ 45 $(1,429) $53,906
Obligations of states and
political subdivisions 40,749 79 (2,786) 38,042
Mortgage-backed securities 62 2 -- 64
Other debt securities 1,480 -- (47) 1,433
-------------------------------------------------------------------------
Totals $97,581 $126 $(4,262) $93,445
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
-------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $115,449 $2,617 $(109) $117,957
Obligations of states and
political subdivisions 40,248 1,150 (53) 41,345
Corporate securities 3,472 165 -- 3,637
Mortgage-backed securities 7,500 133 (47) 7,586
Other securities 3,690 -- -- 3,690
-------------------------------------------------------------------------
Totals $170,359 $4,065 $(209) $174,215
=========================================================================
</TABLE>
The amortized cost and estimated fair values of investment securities at
December 31, 1994, by contractual maturity, are shown on the following page.
Actual maturities may differ from contractual maturities because certain
securities include the right to call or prepay the obligations prior to their
contractual maturities.
32
<PAGE> 40
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4. INVESTMENT SECURITIES -- CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------------------------
<S> <C> <C>
AVAILABLE-FOR-SALE
Due in one year or less $14,548 $14,524
Due after one year but through five years 31,426 29,922
Due after five years but through ten years 2,978 2,913
Due after ten years 200 200
Mortgage-backed securities 10,579 10,010
----------------------------
$59,731 $57,569
============================
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------------------------
<S> <C> <C>
HELD-TO-MATURITY
Due in one year or less $20,701 $20,665
Due after one year but through five years 42,034 40,682
Due after five years but through ten years 26,041 24,174
Due after ten years 8,743 7,860
Mortgage-backed securities 62 64
----------------------------
$97,581 $93,445
============================
</TABLE>
Proceeds from sales of available-for-sale securities during 1994 approximated
$8,292. Gross gains of $12 and gross losses of $199 were realized on these
sales. Proceeds from sales of investment securities approximated $1,584 during
1993. Gross gains of $81 and gross losses of $4 were realized on those sales.
Proceeds from sales of investment securities approximated $9,900 during 1992.
Gross gains of $253 and gross losses of $8 were realized on those sales.
At December 31, 1994 and 1993, investment securities with carrying amounts of
$33,600 and $27,900, respectively, were pledged to secure public deposits,
repurchase agreements, and for other purposes as required or permitted by law.
--------------------------------------------------------------------------------
5. LOANS
--------------------------------------------------------------------------------
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
---------------------
<S> <C> <C>
Commercial $100,169 $ 93,848
Real estate - construction 6,385 9,266
Real estate - mortgage 181,938 154,262
Consumer loans 88,194 93,807
Other 4,925 3,218
---------------------
Total Loans 381,611 354,401
Less:
Unearned income (4,701) (5,211)
Allowance for loan losses (6,328) (5,651)
---------------------
Net Loans $370,582 $343,539
=====================
</TABLE>
33
<PAGE> 41
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5. LOANS -- CONTINUED
--------------------------------------------------------------------------------
Horizon's subsidiaries have granted loans to officers and directors of Horizon
and its subsidiaries and to their associates. Related party loans were made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the same time for comparable transactions with unrelated persons
and do not involve more than normal risk of collectibility.
The following presents the activity with respect to related party loans during
1994:
<TABLE>
<S> <C>
Balance at January 1, 1994 $ 8,941
Loans made 2,580
Principal collected (2,367)
Other changes 81
--------
Balance at December 31, 1994 $ 9,235
========
</TABLE>
Other changes primarily represent additions to and changes in director and
executive officer status.
--------------------------------------------------------------------------------
6. ALLOWANCE FOR LOAN LOSSES
--------------------------------------------------------------------------------
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Balance at beginning of year $5,651 $ 4,675 $ 3,523
Charge-offs (1,318) (1,734) (1,468)
Recoveries 470 755 551
-----------------------------------
Net charge-offs (848) (979) (917)
Provision for loan losses 1,525 1,955 2,069
-----------------------------------
Balance at End of Year $6,328 $ 5,651 $ 4,675
===================================
</TABLE>
The Company will adopt Financial Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," effective January 1, 1995.
As a result of applying the new rules, certain impaired loans will be reported
at the present value of expected future cash flows discounted at the loan's
original effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. The adoption of this standard will not have a material
impact on the Company's financial statements.
--------------------------------------------------------------------------------
7. OTHER REAL ESTATE, NONACCRUAL, AND RESTRUCTURED LOANS
--------------------------------------------------------------------------------
Other real estate of approximately $762 and $1,017 at December 31, 1994 and
1993, respectively, is included in other assets.
Information with respect to nonaccrual and restructured loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-----------------
<S> <C> <C>
Nonaccrual loans $2,981 $7,633
Restructured loans -- --
Interest income that would have been recorded under
original terms of the above loans 610 541
Interest income recorded on such loans during the period 379 196
</TABLE>
34
<PAGE> 42
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
8. PREMISES AND EQUIPMENT
--------------------------------------------------------------------------------
The major categories of premises and equipment and related accumulated
depreciation are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------
<S> <C> <C>
Land $ 1,305 $ 1,280
Building and improvements 8,410 8,063
Furniture and equipment 6,080 5,735
--------------------
15,795 15,078
Less accumulated depreciation (8,698) (7,969)
--------------------
$ 7,097 $ 7,109
====================
</TABLE>
Horizon has entered into noncancelable lease agreements (operating leases) with
respect to certain premises and equipment. The minimum annual rental commitment
under these operating leases is: 1995--$90; 1996--$90; 1997--$80; 1998--$35;
1999--$15; with $1,140 of commitments extending beyond 1999.
Total rent expense, including cancelable and noncancelable leases, approximated
$75, $70, and $50, in 1994, 1993 and 1992, respectively.
--------------------------------------------------------------------------------
9. SHORT AND LONG-TERM BORROWINGS
--------------------------------------------------------------------------------
Two of Horizon's subsidiary banks are members of the Federal Home Loan Bank of
Pittsburgh (FHLB). one benefit of being a member of the FHLB is that it provides
Horizon with an additional source of short-term and long-term funding, in the
form of collateralized advances. At December 31, 1994, Horizon is entitled to
receive approximately $140,000 in collateralized advances from the FHLB at
prevailing interest rates, subject to satisfying the capital stock requirement
provisions of the agreement, as defined.
Short-term borrowings consist primarily of securities sold under agreements to
repurchase. The weighted average interest rate on short-term borrowings
approximated 3.0% at December 31, 1994 and 1993. Interest paid on deposits and
short-term borrowings approximated $14,700, $15,650, and $19,800 in 1994, 1993,
and 1992.
During 1994, Horizon made a final payment of $800 on a note payable to an
unrelated financial institution.
--------------------------------------------------------------------------------
10. INCOME TAXES
--------------------------------------------------------------------------------
Significant components of Horizon's deferred tax assets and liabilities, which
are included in other assets, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
----------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $2,009 $1,588
Accrued employee benefits 1,055 805
Available-for-sale securities 865 --
Other 55 59
----------------
Total Deferred Tax Assets 3,984 2,452
Deferred tax liabilities:
Premises and equipment 129 182
Other 98 88
----------------
Total Deferred Tax Liabilities 227 270
----------------
Net Deferred Tax Assets $3,757 $2,182
================
</TABLE>
35
<PAGE> 43
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
10. INCOME TAXES -- CONTINUED
-------------------------------------------------------------------------------
The income tax provisions (benefits) included in the consolidated statements of
income are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------
<S> <C> <C> <C> <C>
Current:
Federal $3,374 $3,245 $3,004
State 537 516 463
------------------------
Total Current 3,911 3,761 3,467
Deferred - Federal and State (710) (701) (616)
------------------------
Total $3,201 $3,060 $2,851
========================
</TABLE>
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the statutory federal income tax rate to income
before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
AMOUNT % AMOUNT % AMOUNT %
---------------------------------------------------
<S> <C> <C> <C> <C>
Tax at statutory federal rate $3,458 34.0% $3,257 34.0% $3,064 34.0%
Plus: State income tax, net of federal tax
benefits 280 2.8 271 2.8 255 2.8
---------------------------------------------------
3,738 36.8 3,528 36.8 3,319 36.8
Increase (decrease) in taxes resulting from:
Tax-exempt interest (696) (6.8) (592) (6.2) (540) (6.0)
Other - net 159 1.5 124 1.3 72 0.8
---------------------------------------------------
$3,201 31.5% $3,060 31.9% $2,851 31.6%
===================================================
</TABLE>
Income taxes relating to securities transactions approximated $(75), $30, and
$100 in 1994, 1993, and 1992, respectively.
Income taxes paid approximated $3,474, $3,680, and $3,530 in 1994, 1993, and
1992, respectively.
-------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS
-------------------------------------------------------------------------------
Horizon has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's
compensation during employment. Horizon's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes.
The following table sets forth the plan's funded status and amounts recognized
in Horizon's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1994 1993
-----------------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation $ 3,737 $ 3,904
Nonvested benefit obligation 417 399
-----------------
Accumulated Benefit Obligation 4,154 4,303
Effect of estimated future compensation increases 1,405 2,543
-----------------
Projected Benefit Obligation 5,559 6,846
Plan assets at fair value 5,247 5,262
-----------------
Projected Benefit Obligation in Excess of Plan Assets (312) (1,584)
Unrecognized prior service cost 1,373 1,493
Unrecognized net asset at transition, net of amortization (407) (438)
Unrecognized net gain from past experience different from that
assumed (1,481) (162)
-----------------
Accrued Pension Cost Included in Other Liabilities $ (827) $ (691)
=================
</TABLE>
36
<PAGE> 44
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS -- CONTINUED
--------------------------------------------------------------------------------
Following is a summary of the components of net periodic pension cost:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 478 $ 316 $ 281
Interest cost on projected benefit obligation 435 413 374
Actual loss (return) on plan assets 15 (429) (346)
Net amortization and deferral (440) 141 42
------------------------
Net Periodic Pension Cost $ 488 $ 441 $ 351
========================
</TABLE>
Assumptions used in the accounting for defined benefit plans were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
1994 1993 1992
--------------------------------
<S> <C> <C> <C>
Weighted average discount rate 8.5% 7.5% 7.5 - 8.5%
Rate of increase in future compensation levels 6.0% 5.0 - 6.0% 5.0 - 6.0%
Expected long-term rate of return on plan assets 8.5% 7.5 - 8.5% 7.5 - 8.5%
</TABLE>
Plan assets consist principally of U.S. Government securities, corporate stocks
and bonds, and other short-term investments.
During 1994, the prior Horizon defined benefit plan and the Allegheny defined
benefit plan were merged. As a result of the merger of the plans, the benefit
formula for the former Horizon defined benefit plan was amended and this was the
primary reason for the decrease in the projected benefit obligation noted above.
Horizon has individual deferred compensation and supplemental retirement
agreements with certain directors and officers. The cost of such individual
agreements is being accrued over the period of active service from the date of
the respective agreement. The cost of such agreements approximated $470, $440,
and $240, during 1994, 1993, and 1992. The liability for such agreements
approximated $1,680 and $1,280 at December 31, 1994 and 1993, and is included in
other liabilities in the accompanying consolidated balance sheets.
To assist in funding the above liabilities, Horizon has insured the lives of
certain directors and officers. Horizon is the owner and beneficiary of the
insurance policies with a cash surrender value approximating $2,170 and $1,940
at December 31, 1994 and 1993, included in other assets in the accompanying
consolidated balance sheets.
Horizon has established an Employee Stock Ownership Plan (ESOP) with certain
employees over twenty-one years of age with one year of credited service
qualifying for participation. Prior to the merger with Allegheny, Horizon
decided not to permit additional employees to enter the ESOP and is no longer
contributing to the ESOP. Earnings of the ESOP are allocated among employee
participants on the basis of the ratio of their compensation to the total
compensation paid to all eligible participants who are to receive an allocation
for the year.
In April 1988, the ESOP borrowed money from a third party lender to purchase
outstanding shares of Horizon stock. The loan is secured by the Horizon stock
held by the ESOP and the guarantee of Horizon, and is included as a liability in
the accompanying consolidated balance sheets with a corresponding reduction of
shareholders' equity. As loan payments are made by the ESOP, the loan obligation
is reduced and shareholders' equity is credited for the amount of the loan
payment.
Horizon has an incentive stock option plan for certain key employees. Pursuant
to the plan, an aggregate maximum of 100,000 shares of common stock have been
reserved for issuance; however, no more than 10,000 options may be issued in any
calendar year. At December 31, 1994, there were options outstanding for the
purchase of 20,000 shares of Horizon stock at prices ranging from $28.50 to
$29.50 per share, none of which were exercisable.
37
<PAGE> 45
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------
FASB Statement No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by Horizon in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts for cash and cash equivalents
approximate their fair value.
INVESTMENT SECURITIES: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market values of comparable instruments.
LOANS: The fair values of fixed rate commercial, real estate, and consumer loans
are estimated using discounted cash flow analysis at interest rates currently
being offered for loans with similar terms to borrowers of similar credit
worthiness. For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are deemed to approximate
carrying values.
ACCRUED INTEREST: The carrying value of accrued interest approximates its fair
value.
DEPOSITS: The fair value of demand deposits (i.e. interest and noninterest
checking, passbook savings, and certain types of money market accounts) is, by
definition, equal to their carrying amounts. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts for short-term borrowings
approximate their fair values.
COMMITMENTS: The fair values of commitments (standby letters of credit and loan
commitments) are estimated based on fees currently charged to enter into similar
agreements, taking into consideration the remaining terms of the agreements and
the counterparties' credit standing. The estimated fair value of these
commitments approximate their carrying value.
The estimated fair values of the Bank's financial instruments are as follows:
1994 1993
-----------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
-----------------------------------------
[S] [C] [C] [C] [C]
Financial Assets:
Cash and cash equivalents $ 24,432 $ 24,432 $ 21,672 $ 21,672
Investment securities 155,150 151,014 170,359 174,215
Loans 370,582 366,894 343,539 347,200
Financial Liabilities:
Deposits 483,555 484,503 472,415 473,700
Short-term borrowings 16,797 16,797 17,431 17,431
38
<PAGE> 46
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13. RESTRICTIONS ON SUBSIDIARY DIVIDENDS
--------------------------------------------------------------------------------
The primary source of funds for the dividends paid by Horizon to its
shareholders is dividends received from its subsidiary banks. Dividends paid by
the subsidiary banks are subject to restriction by banking regulations. The most
restrictive provision requires approval by the appropriate regulatory agency if
dividends declared in any year exceed the current year's net income, plus the
retained net profits of the two preceding years. During 1995, the subsidiary
banks' net retained profits available for distribution to Horizon as dividends,
without regulatory approval, approximate $6,000, plus net income for the interim
period through the date of declaration.
-------------------------------------------------------------------------------
14. COMMITMENTS AND CONTINGENT LIABILITIES
-------------------------------------------------------------------------------
In the normal course of business, Horizon offers certain financial products to
its customers to aid them in meeting their requirements for liquidity and credit
enhancement. Generally accepted accounting principles require that these
products be accounted for as contingent liabilities and, accordingly, they are
not reflected in the accompanying financial statements. Horizon's exposure to
loss in the event of nonperformance by the counterparty for commitments to
extend credit and standby letters of credit is the contract or notional amounts
of these instruments. Management does not anticipate any material losses as a
result of these commitments and contingent liabilities. Following is a
discussion of these commitments and contingent liabilities.
STANDBY LETTERS OF CREDIT--These agreements are used by Horizon's customers as a
means of improving their credit standing in their dealings with others. Under
these agreements, Horizon guarantees certain financial commitments in the event
that its customers are unable to satisfy their obligations. Horizon had issued
standby letters of credit of $3,500 as of December 31, 1994.
LOAN COMMITMENTS--As of December 31, 1994, Horizon had commitments outstanding
to extend credit at prevailing market rates totaling $45,000. These commitments
generally require the customers to maintain certain credit standards. The amount
of collateral obtained, if deemed necessary by Horizon upon extension of credit,
is based on management's credit evaluation of the customer. Collateral held
varies but may include accounts receivable, inventory, property and equipment,
and income producing commercial properties.
Management conducts regular reviews of these commitments on an individual
customer basis, and the results are considered in assessing the adequacy of
Horizon's allowance for loan losses.
-------------------------------------------------------------------------------
15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
-------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-----------------
<S> <C> <C>
Cash $ 1,001 $ 92
Investment in subsidiary banks 62,559 60,918
Investment securities 445 --
Receivable from consolidated subsidiary banks 157 761
Other assets 137 17
-----------------
Total Assets $64,299 $61,788
=================
Liabilities $ 717 $ 1,151
Shareholders' equity 63,582 60,637
-----------------
Total Liabilities and Shareholders' Equity $64,299 $61,788
=================
</TABLE>
39
<PAGE> 47
---------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------
---------------------------------------------------------------
15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION -- CONTINUED
---------------------------------------------------------------
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Dividends from subsidiary banks $ 4,603 $ 3,895 $ 3,615
Interest income on investment securities 13 -- --
Operating expenses 804 670 620
-----------------------------
Income Before Income Tax and Equity in Undistributed
Earnings of Subsidiary Banks 3,812 3,225 2,995
Income tax benefit (223) (171) (90)
-----------------------------
Income Before Equity in Undistributed
Earnings of Subsidiary Banks 4,035 3,396 3,085
Equity in undistributed earnings of subsidiary banks 2,936 3,123 3,075
-----------------------------
Net Income $ 6,971 $ 6,519 $ 6,160
=============================
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 6,971 $ 6,519 $ 6,160
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiary banks (2,936) (3,123) (3,075)
Decrease (increase) in receivables from consolidated
subsidiary banks 604 (761) --
(Increase) decrease in other assets (119) 37 31
Increase in accrued expenses 391 476 61
-----------------------------
Net Cash Provided by Operating Activities 4,911 3,148 3,177
Investing activities:
Purchases of investment securities (450) -- --
-----------------------------
Net Cash Used in Investing Activities (450)
Financing activities:
Cash dividends paid (2,752) (2,555) (2,125)
Payments on long-term borrowing (800) (600) (750)
Acquisition of treasury shares -- -- (312)
Other -- (10) (57)
-----------------------------
Net Cash Used in Financing Activities (3,552) (3,165) (3,244)
-----------------------------
Net Increase (Decrease) in Cash 909 (17) (67)
Cash at beginning of year 92 109 176
-----------------------------
Cash at End of Year $ 1,001 $ 92 $ 109
=============================
</TABLE>
40
<PAGE> 48
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------------------------------------
Summarized quarterly financial data (in thousands of dollars except for per
share amounts) for 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $9,719 $9,953 $10,325 $11,220
Interest expense 3,618 3,641 3,613 3,701
Net interest income 6,101 6,312 6,712 7,519
Provision for loan losses 326 303 310 586
Securities gains (losses), net 18 -- (15) (190)
Net income 1,585 1,743 2,021 1,622
Earnings per share .56 .61 .71 .58
</TABLE>
<TABLE>
<CAPTION>
1993
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $10,099 $10,213 $10,102 $10,233
Interest expense 3,928 3,821 3,767 3,750
Net interest income 6,171 6,392 6,335 6,483
Provision for loan losses 291 396 586 682
Securities gains (losses), net 44 (4) 37 --
Net income 1,725 1,758 1,538 1,498
Earnings per share .61 .62 .54 .53
</TABLE>
41
<PAGE> 49
-------------------------------------------------------------------------------
SHAREHOLDERS' INFORMATION
-------------------------------------------------------------------------------
ANNUAL MEETING
The annual meeting of shareholders of Horizon Bancorp, Inc. will be held on
April 25, 1995, at the Beckley Hotel and Conference Center, 1940 Harper
Road, Beckley, West Virginia at 4:00 p.m.
EXECUTIVE OFFICES
Horizon Bancorp, Inc.
One Park Avenue
Beckley, West Virginia 25802-2803
(304) 255-7000
INDEPENDENT AUDITORS
Ernst & Young LLP
900 United Center
Charleston, West Virginia 25301
FINANCIAL STATEMENTS
During the year, Horizon distributes three interim quarterly financial
reports and an annual report. Additionally, Horizon files an annual report
on Form 10-K and quarterly reports on Form 10-Q with the Securities and
Exchange Commission. Copies of these reports may be obtained without charge
upon written request to:
Mark L. Anderson
Horizon Bancorp, Inc.
Post Office Box D
Beckley, West Virginia 25802-2803
(304) 255-7307
CONTACTS
Analysts, portfolio managers, and others seeking financial information
about Horizon Bancorp, Inc. should contact:
David W. Hambrick
Post Office Box 387
Lewisburg, West Virginia 24901
(304) 645-2500
Stock Transfer Agent
Bank of Raleigh
Attn: Pamela Daniel
Post Office Box D
Beckley, West Virginia 25802-2803
(304) 255-7289
STOCK LISTING
Horizon's common stock is traded on the NASDAQ National Market System with
a ticker symbol of HZWV.
NASDAQ Market Makers:
Wheat First Securities
The Robinson-Humphrey Co., Inc.
NATURE OF BUSINESS
Horizon is a West Virginia multibank holding company with four affiliate
banks and ten locations in southern West Virginia.
OFFICERS
Frank S. Harkins, Jr.
Chairman of the Board
Philip L. McLaughlin
President and CEO
David W. Hambrick
Executive Vice President
and Chief Financial Officer
Mark L. Anderson
Controller
C. Duane Blankenship
Auditor
John W. Deitz
Loan Review Officer
Cynthia Martin
Compliance Officer
Pamela Daniel
Shareholder Information
Abigail Scott
Information Officer
Glenda Williams
Operations Officer
42
<PAGE> 50
-------------------------------------------------------------------------------
DIRECTORS
-------------------------------------------------------------------------------
HORIZON BANCORP, INC. AND AFFILIATES
HORIZON BANCORP, INC.
DIRECTORS
<TABLE>
<S> <C> <C> <C>
Frank S. Harkins, Jr. John M. Alderson IV Thomas E. Lilly James E. Songer
Chairman of the Board W. H. File III Dr. Paul H. Loflin Albert M. Tieche, Jr.
Paul E. Hess, Jr. Carolyn H. McCulloch E. A. Tuckwiller, Jr.
Philip L. McLaughlin John C. Horton, Jr. Beulah D. Moore Munir S. Yarid
President and Chief Tracy W. Hylton II Harper W. Nelson
Executive Officer William E. Kane Rodney H. Pack
H. L. Kirkpatrick E. M. Payne III
David W. Hambrick Robert L. Kosnoski R. T. Rogers
Executive Vice President
and Chief Financial Officer
</TABLE>
-------------------------------------------------------------------------------
DIRECTORS OF BANK OF RALEIGH
<TABLE>
<S> <C> <C> <C>
Carolyn H. McCulloch W. H. File III Robert L. Kosnoski E. M. Payne III
Chairman of the Board Paul E. Hess, Jr. Thomas E. Lilly James E. Songer
Tracy W. Hylton II Dr. Paul H. Loflin Albert M. Tieche, Jr.
Frank S. Harkins, Jr. H. L. Kirkpatrick Philip L. McLaughlin
President and Chief
Executive Officer
</TABLE>
-------------------------------------------------------------------------------
DIRECTORS OF FIRST NATIONAL BANK IN MARLINTON
<TABLE>
<S> <C> <C> <C>
William E. Kane Beulah D. Moore David W. Hambrick Louise B. McNeel
Chairman of the Board Executive Vice President Dolan Irvine Harper W. Nelson
and President and Chief Executive Officer John R. LaRue Jimmie A. Ryder, Sr.
Philip L. McLaughlin
Harry J. Widney James E. Baxter
Vice President and Vice
Chairman of the Board
</TABLE>
-------------------------------------------------------------------------------
DIRECTORS OF GREENBRIER VALLEY NATIONAL BANK
<TABLE>
<S> <C> <C> <C>
Munir S. Yarid Philip L. McLaughlin John M. Alderson IV Rodney H. Pack
Chairman of the Board President and Chief John Wade Bell III Norman B. Ream, Jr.
Executive Officer L. Wade Griffith Don R. Smathers
John C. Horton, Jr. Jesse O. Guills E. A. Tuckwiller, Jr.
Vice Chairman of the David W. Hambrick Frank S. Harkins, Jr. John R. Wilson, D.V.M.
Board Executive Vice President James A. King
</TABLE>
-------------------------------------------------------------------------------
DIRECTORS OF NATIONAL BANK OF SUMMERS
<TABLE>
<S> <C> <C> <C>
J. Campbell Gwinn Paul E. Hess, Jr. Frank S. Harkins, Jr. Victor G. Morgan
Chairman of the Board President and Chief Jack L. Hellems J. M. O'Bryan
Executive Officer S. D. McLean Leon Ray Pivont
R. T. Rogers
Vice Chairman of the James G. Dillon
Board
</TABLE>
43
<PAGE> 51
-------------------------------------------------------------------------------
ADDITIONAL INFORMATION
-------------------------------------------------------------------------------
MEMBER BANKS AND LOCATIONS
BANK OF RALEIGH GREENBRIER VALLEY NATIONAL BANK
Offices: Offices:
One Park Avenue, Beckley Alderson
Main and South Kanawha Streets, Beckley Lewisburg
Crossroads Mall, Bradley Rainelle
Rupert
NATIONAL BANK OF SUMMERS
Offices: FIRST NATIONAL BANK IN MARLINTON
Temple Street, Hinton Office:
Stokes Drive, Hinton 300 Eighth Street, Marlinton
HORIZON BANCORP, INC. IS AN AFFILIATION OF COMMU-
NITY BANKS, BOUND TOGETHER BY A COMMON GOAL OF
ENHANCING SHAREHOLDER VALUE BY COMPETING MORE
EFFECTIVELY IN THE FINANCIAL MARKET PLACE.
44
<PAGE> 1
Exhibit 11
Summary of Earnings per Share
1994 1993
-------- --------
Primary:
Average shares outstanding 2,835,670 2,835,670
Net effect of options 85 0
--------- ---------
Total 2,835,755 2,835,670
========= ==========
Net Income 6,971,000 6,519,000
Earnings per Share $2.46 $2.30
========= =========
Fully Diluted:
Average shares outstanding 2,835,670 2,835,670
Net effect of options 85 0
--------- ---------
Total 2,835,755 2,835,670
========= =========
Net Income 6,971,000 6,519,000
Earnings per Share $2.46 $2.30
========= ========
<PAGE> 1
Exhibit (23.1)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report Form (10-K)
of Horizon Bancorp, Inc. and Subsidiaries of our report dated February 3,
1995, included in the 1994 Annual Report to Shareholders of Horizon Bancorp,
Inc., and Subsidiaries.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-73926) pertaining to the Incentive Stock Option Plan of
Horizon Bancorp, Inc. of our report dated February 3, 1995, with repect to the
consolidated financial statements of Horizon Bancorp, Inc. and Subsidiaries
incorporated by reference in the Annual Report on Form 10-K for the year ended
December 31, 1994.
/s/ ERNST & YOUNG LLP
Charleston, West Virginia
March 28, 1995
<PAGE> 1
Exhibit (23.2)
MASON & BASHAW, CPA'S, A.C.
CERTIFIED PUBLIC ACCOUNTANTS
ACCOUNTING CORPORATION
P.O. Box 1204
BECKLEY, WEST VIRGINIA 25802-1204
David H. Bashaw, CPA
Rolfe A. Richmond, CPA Telephone (304) 252-7353
Robert D. Smith, CPA FAX (304) 253-1732
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Horizon Bancorp, Inc. and subsidiaries of our report dated
January 29, 1993, with respect to the consolidated financial statements of
Horizon Bancorp, Inc. and Subsidiaries for the year ended December 31, 1992.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-73926) pertaining to the Incentive Stock Option Plan of
Horizon Bancorp, Inc. of our report dated January 29, 1993, with respect to the
consolidated financial statements of Horizon Bancorp, Inc. and subsidiaries
incorporated by reference in the Form 10-K for the year ended December 31,
1994.
MASON & BASHAW
Certified Public Accountants
Backley, West Virginia
March 20, 1995
<PAGE> 1
Exhibit (23.3)
ARNETT & FOSTER
CONSENT OF INDEPENDENT AUDITORS
Securities and Exchange Commission
Washington, D.C.
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of Horizon Bancorp, inc. and subsidiaries for the year ended December
31, 1994, of our report dated February 4, 1993, with respect to the
consolidated financial statements of Allegheny Bankshares Corporation and
subsidiaries.
We also hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-73926) pertaining to the Incentive Stock Option
Plan of Horizon Bancorp, Inc. of our report dated February 4, 1993, with respect
to the consolidated financial statements of Allegheny Bankshares Corporation
and subsidiaries Incorporated by reference in the Annual Report on Form 10-K of
Horizon Bancorp, Inc. for the year ended December 31, 1994.
ARNETT & FOSTER
Charleston, West Virginia
March 20, 1995
1000 Laidley Tower, 500 Lee Street, East, P.O. Box 2629
Charleston, West Virginia 25329
304/346-0441
Certified Public Accountants
Member of the McGladrey Network
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000730025
<NAME> HORIZON BANCORP, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 19,082
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,569
<INVESTMENTS-CARRYING> 97,581
<INVESTMENTS-MARKET> 93,445
<LOANS> 376,910
<ALLOWANCE> 6,328
<TOTAL-ASSETS> 569,935
<DEPOSITS> 483,555
<SHORT-TERM> 16,797
<LIABILITIES-OTHER> 16,001
<LONG-TERM> 0
<COMMON> 2,835
0
0
<OTHER-SE> 60,747
<TOTAL-LIABILITIES-AND-EQUITY> 569,935
<INTEREST-LOAN> 31,132
<INTEREST-INVEST> 9,477
<INTEREST-OTHER> 608
<INTEREST-TOTAL> 41,217
<INTEREST-DEPOSIT> 14,024
<INTEREST-EXPENSE> 14,573
<INTEREST-INCOME-NET> 26,644
<LOAN-LOSSES> 1,525
<SECURITIES-GAINS> (187)
<EXPENSE-OTHER> 17,394
<INCOME-PRETAX> 10,172
<INCOME-PRE-EXTRAORDINARY> 10,172
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,971
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.46
<YIELD-ACTUAL> 5.20
<LOANS-NON> 2,981
<LOANS-PAST> 1,781
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,651
<CHARGE-OFFS> 1,318
<RECOVERIES> 470
<ALLOWANCE-CLOSE> 6,328
<ALLOWANCE-DOMESTIC> 5,630
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 698
</TABLE>
<PAGE> 1
Exhibit (99.1)
MASON & BASHAW, CPS'S, A.C.
CERTIFIED PUBLIC ACCOUNTNTS
ACCOUNTING CORPORATION
P.O. BOX 1204
BECKLEY, WEST VIRGINIA 25802-1204
David H. Bashaw, CPA
Rolfe A. Richmond, CPA Telephone (304) 252-7353
Robert D. Smith, CPA Fax (304) 253-1732
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
HORIZON BANCORP, INC. AND SUBSIDIARIES
Beckley, West Virginia
We have audited the accompanying consolidated balance sheets of
HORIZON BANCORP, INC. AND SUBSIDIARIES as of December 31, 1992, 1991 and 1990,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1992. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion of these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 accompanying consolidated financial statements
present fairly, in all material respects, the financial position of HORIZON
BANCORP, INC. AND SUBSIDIARIES as of December 31, 1992, 1991 and 1990, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1992, in conformity with generally
accepted accounting principles.
As explained in Note 2 to the consolidated financial statements,
HORIZON BANCORP, INC. has entered into a merger agreement with Allegheny
Bankshares Corporation. The transaction is expected to be accounted for as a
pooling of interest.
MASON & BASHAW
Certified Public Accountants
January 29, 1993
<PAGE> 1
Exhibit (99.2)
ARNETT & FOSTER
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Allegheny Bankshares Corporation
Lewisburg, West Virginia
We have audited the consolidated balance sheets of Allegheny Bankshares
Corporation and subsidiaries as of December 31, 1992 and 1991, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years ended December 31, 1992, 1991 and 1990. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Allegheny
Bankshares Corporation and subsidiaries as of December 31, 1992 and 1991, and
the results of their operations and their cash flows for the years ended
December 31, 1992, 1991 and 1990, in conformity with generally acccepted
accounting principles.
As more fully described in Notes 1 and 8 to the consolidated financial
statements, effective January 1, 1992, the Company changed its method of
accounting for income taxes. As more fully described in Note 12 to the
consolidated financial statements, the Company's Board of Directors has entered
into a merger agreement with Horizon Bancorp, Inc., a West Virginia based bank
holding company. The merger is anticipated to be accounted for by the pooling of
interests method of accounting. The proposed merger will result in the Company
being merged into the acquiring company. The proposed transaction has received
necessary regulatory approvals and is pending shareholder approval.
ARNETT & FOSTER
Charleston, West Virginia
February 4, 1993
1000 Laidley Tower, 500 Lee Street, East, P.O. Box 2629
Charleston, West Virginia 25329
304/346-0441
Certified Public Accountants
Member of the McGladrey Network
