<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended SEPTEMBER 30, 1996 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
incorporation or organization) Identification No.)
BOX D, BECKLEY, WV 25802-2803
- ------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(304) 255-7000
------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 periods that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE 4,653,543 SHARES
------------------------------ --------------------------------
Class Outstanding at November 13, 1996
1
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HORIZON BANCORP, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Income for The Three Months Ended
September 30, 1996 and 1995 and for The Nine Months Ended September 30, 1996
and 1995
Condensed Consolidated Statements of Shareholders' Equity for The Nine Months
Ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for The Nine Months Ended
September 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT 11
Computation of Earnings Per Share
EXHIBIT 27
Financial Data Schedule
2
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HORIZON BANCORP, INC.
PART I
FINANCIAL INFORMATION
The September 30, 1996 and December 31, 1995, consolidated balance sheets of
Horizon Bancorp, Inc. and Subsidiaries, and the related statements of income
for the nine months ended September 30, 1996 and 1995, and the related
consolidated statement of changes in shareholders' equity for the nine months
ended September 30, 1996 and 1995, and the notes to consolidated financial
statements, all of which have been restated to reflect the merger of Twentieth
Bancorp, Inc. on August 30, 1996, under the pooling of interests method of
accounting, appear on the following pages.
The Board of Directors approved a two-for-one stock split effected in the form
of a 100% stock dividend for shareholders of record December 1, 1996.
Accordingly, the results of operations presented on a per share basis for the
nine months ended September 30, 1996 and 1995 were restated to reflect the
increased number of common shares outstanding as a result of the split.
3
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CONSOLIDATED BALANCE SHEETS (UNAUDITED, PRIOR YEAR RESTATED)
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
---------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 35,350 $ 35,133
Federal funds sold 6,180 4,675
-----------------------------
Cash and cash equivalents 41,530 39,808
Investment securities:
Available-for-sale, at fair value 204,631 178,229
Held-to-maturity, at cost (approximate
fair value of $40,054 at September 30, 1996
and $68,131 at December 31, 1995) 40,084 67,303
Loans:
Total loans 629,234 620,570
Less: Allowance for loan losses (9,387) (8,522)
-----------------------------
Net loans 619,847 612,048
Premises and equipment, net 16,795 17,299
Accrued interest receivable and other assets 21,371 17,366
-----------------------------
Total assets $944,258 $932,053
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $120,238 $116,528
Interest bearing 677,225 678,204
-----------------------------
Total deposits 797,463 794,732
Short-term borrowings 28,689 22,317
Accrued interest payable and other liabilities 10,887 10,621
-----------------------------
Total liabilities 837,039 827,670
Shareholders' equity:
Common stock, $1 par value; 20,000,000 shares
authorized; 4,653,543 shares outstanding at
September 30, 1996 and December 31, 1995,
including 5,540 shares in treasury 4,653 4,653
Capital surplus 19,738 19,744
Retained earnings 83,142 78,592
Treasury stock (175) (175)
Unrealized (loss) gain on available-for-sale securities (139) 1,569
-----------------------------
Total shareholders' equity 107,219 104,383
-----------------------------
Total liabilities and shareholders' equity $944,258 $932,053
=============================
</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, PRIOR YEAR RESTATED)
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $14,535 $14,169 $42,927 $40,513
Interest and dividends on investment securities:
Taxable 3,091 2,983 9,170 8,693
Tax-exempt 698 580 1,955 1,756
Federal funds sold and other 196 392 643 936
----------------------- -----------------------
Total interest income 18,520 18,124 54,695 51,898
Interest expense:
Deposits 7,023 7,084 20,926 19,359
Short-term borrowings 238 236 628 551
----------------------- -----------------------
Total interest expense 7,261 7,320 21,554 19,910
----------------------- -----------------------
Net interest income 11,259 10,804 33,141 31,988
Provision for loan losses 727 564 2,228 1,537
----------------------- -----------------------
Net interest income after provision
for loan losses 10,532 10,240 30,913 30,451
Other income:
Service charges and fees 835 735 2,224 1,945
Investment securities losses - - (89) (131)
Other 308 575 1,450 1,583
----------------------- -----------------------
Total other income 1,143 1,310 3,585 3,397
Other expenses:
Salaries and employee benefits 3,196 3,254 9,839 9,714
Net occupancy expense 393 424 1,205 1,158
Equipment expense 470 529 1,487 1,516
Outside data processing 433 415 1,563 1,326
Advertising 161 164 397 448
Other 2,737 2,150 7,225 6,098
----------------------- -----------------------
Total other expenses 7,390 6,936 21,716 20,260
----------------------- -----------------------
Income before income taxes 4,285 4,614 12,782 13,588
Applicable income taxes 1,534 1,588 4,600 4,695
----------------------- -----------------------
Net income $ 2,751 $ 3,026 $ 8,182 $ 8,893
======================= =======================
Net income per common share $0.30 $0.33 $0.88 $0.96
======================= =======================
Dividends per share $0.15 $0.13 $0.45 $0.38
======================= =======================
Average common shares outstanding (1,2) 9,296 9,298 9,296 9,298
======================= =======================
</TABLE>
(1) Average shares outstanding have been adjusted for the exchange ratio
(1.01 shares of Horizon for each share of Twentieth).
(2) Average shares outstanding have been adjusted for the recently announced
Horizon two-for-one stock split effected in the form of a 100% stock
dividend, which is payable December 15, 1996.
See notes to consolidated financial statements.
5
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED, PRIOR YEAR RESTATED)
- --------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (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 December 31, 1995 $4,653 $19,744 $78,592 $(175) $ 1,569 $ -- $104,383
Nine months ended September 30, 1996:
Net income -- -- 8,182 -- -- -- 8,182
Cash dividends declared by pooled
companies
Horizon ($0.45 per share) -- -- (3,092) -- -- -- (3,092)
Twentieth -- -- (540) -- -- -- (540)
Redemption of fractional shares
in pooling -- (6) -- -- -- -- (6)
Change in unrealized gain (loss)
on available-for-sale
securities, net of deferred
income taxes -- -- -- -- (1,708) -- (1,708)
---------------------------------------------------------------------------------------
Balances at September 30, 1996 $4,653 $19,738 $83,142 $(175) $ (139) $ -- $107,219
=======================================================================================
Balances at December 31, 1994 $4,653 $19,744 $71,163 $ -- $(2,547) $(121) $ 92,892
Nine months ended September 30, 1995:
Net income -- -- 8,893 -- -- -- 8,893
Cash dividends declared by pooled
companies
Horizon ($0.38 per share) -- -- (2,121) -- -- -- (2,121)
Twentieth -- -- (540) -- -- -- (540)
Change in unrealized (loss) gain
on available-for-sale
securities, net of deferred
income taxes -- -- -- -- 3,003 -- 3,003
Purchase of treasury stock -- -- -- (140) -- -- (140)
Reduction in ESOP indebtedness -- -- -- -- -- 121 121
---------------------------------------------------------------------------------------
Balances at September 30, 1995 $4,653 $19,744 $77,395 $(140) $ 456 $ -- $102,108
=======================================================================================
</TABLE>
See notes to consolidated financial statements.
6
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, PRIOR YEAR RESTATED)
- --------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
1996 1995
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,182 $ 8,893
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and Amortization 1,343 1,785
Provision for loan losses 2,228 1,537
Loss on sale of investment securities 89 131
Gain on sale of other real estate -- 118
Change in accrued interest receivable and other assets (4,105) (252)
Change in accrued interest payable and other liabilities 1,139 749
------------------------
Net cash provided by operating activities 8,876 12,725
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities 9,671 4,873
Proceeds from maturities of available-for-sale securities 20,912 8,985
Purchases of available-for-sale securities (41,960) (39,134)
Proceeds from maturities of held-to-maturity securities 14,149 37,938
Purchases of held-to-maturity securities (4,669) (12,511)
Net increase in loans (10,047) (12,252)
Purchases of premises and equipment (584) (4,317)
Proceeds from sale of other real estate -- 205
Cash received in purchase of branches, net of cash paid -- 3,456
------------------------
Net cash used in by investing activities (12,528) (12,757)
FINANCING ACTIVITIES
Net increase in deposits 2,731 2,326
Net increase in short-term borrowings 6,372 2,555
Cash dividends paid (3,632) (2,661)
Purchase of treasury shares -- (140)
Other (6) --
------------------------
Net cash provided by (used in) financing activities 5,465 2,080
------------------------
Net increase in cash and cash equivalents 1,722 2,048
Cash and cash equivalents at beginning of period 39,808 39,756
------------------------
Cash and cash equivalents at end of period $41,530 $41,804
========================
</TABLE>
See notes to consolidated financial statements.
7
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED, PRIOR YEAR RESTATED)
- --------------------------------------------------------------------------------
HORIZON BANCORP, INC.
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
The accompanying unaudited interim consolidated financial statements have been
prepared by Horizon Bancorp, Inc. ("Horizon"), in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. The results of operations
for the three month period and nine month period ended September 30, 1996, are
not necessarily indicative of the results to be expected for the year ending
December 31, 1996. Certain 1995 amounts have been reclassified to conform to
current year presentation. Such reclassifications had no impact on net income
or shareholders' equity.
The Board of Directors recently approved a two-for-one stock split effected in
the form of a 100% stock dividend for shareholders of record December 1, 1996.
All information has been restated to reflect the increased number of common
shares outstanding as a result of the split.
These financial statements are to be read in conjunction with the financial
statements and notes included in the 1995 Annual Report and Form 10-K of
Horizon Bancorp, Inc.
- --------------------------------------------------------------------------------
NOTE 2. MERGERS AND ACQUISITIONS
- --------------------------------------------------------------------------------
On August 30, 1996, Horizon acquired all of the outstanding stock of Twentieth
Bancorp, Inc. of Huntington, West Virginia. Horizon issued 1.01 shares of
common stock for each share of Twentieth's common stock outstanding, resulting
in the issuance of 1,817,873 shares of Horizon common stock. The acquisition
was accounted for under the pooling of interests method of accounting and
accordingly financial information of Horizon and Twentieth has been presented
as if the companies had always been combined.
The following supplemental information reflects the separate results of the
combined entities for the period to the acquisition:
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996
(in thousands, except per share data)
As Reported
-----------------------
Pro Forma
Horizon Twentieth Consolidated
Bancorp, Bancorp, Pro Forma (adjusted for
Inc. Inc. Consolidated stock split)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $24,550 $11,625 $36,175 $36,175
Interest expense 9,743 4,550 14,293 14,293
-------------------------------------------------------------
Net interest income before
provision for loan losses 14,807 7,075 21,882 21,882
Provision for loan losses 649 852 1,501 1,501
-------------------------------------------------------------
Net interest income 14,158 6,223 20,381 20,381
Other income 1,609 833 2,442 2,442
</TABLE>
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- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Other expenses 9,201 5,125 14,326 14,326
-------------------------------------------------------------
Income before income taxes 6,566 1,931 8,497 8,497
-------------------------------------------------------------
Income tax expense 2,320 746 3,066 3,066
=============================================================
Net income $ 4,246 $ 1,185 $ 5,431 $ 5,431
=============================================================
Average shares outstanding
(thousands) 2,830 1,800 4,648 9,296 [3,4]
=============================================================
Earnings per share $ 1.50 $ 0.66 $ 1.17 $ 0.58
=============================================================
</TABLE>
[3] Average shares outstanding have been adjusted for the exchange ratio
(1.01 shares of Horizon for each share of Twentieth).
[4] Average shares outstanding have been adjusted for the recently announced
Horizon two-for-one stock split effected in the form of a 100% stock
dividend, which is payable December 15, 1996.
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
Management determines the appropriate classification of securities at the
time of purchase. 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 and estimated fair values of investment securities are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $163,186 $683 $ (729) $163,140
Obligations of states and political subdivisions 16,083 176 (103) 16,156
Mortgage-backed securities 15,979 64 (256) 15,787
Other securities 9,614 22 (88) 9,548
------------------------------------------------------------
Totals $204,862 $945 $(1,176) $204,631
============================================================
HELD-TO-MATURITY SECURITIES
Obligations of states and political subdivisions $ 40,017 $471 $ (434) $ 40,054
============================================================
</TABLE>
9
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury securities and obligations of U.S.
government agencies and corporations $136,898 $2,620 $(429) $139,089
Obligations of states and political subdivisions 11,323 175 (16) 11,482
Mortgage-backed securities 18,887 145 (71) 18,961
Other securities 8,571 151 (25) 8,697
-----------------------------------------------------------
Totals $175,679 $3,091 $(541) $178,229
===========================================================
HELD-TO-MATURITY SECURITIES
U.S. Treasury securities and obligations of U.S.
government agencies and corporations $ 31,057 $ 179 $ (4) $ 31,232
Obligations of states and political subdivisions 36,146 823 (170) 36,799
Other debt securities 100 -- -- 100
-----------------------------------------------------------
Totals $ 67,303 $1,002 $(174) $ 68,131
===========================================================
</TABLE>
- -------------------------------------------------------------------------------
NOTE 4. ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
1996 1995
--------------------
<S> <C> <C>
Balance at beginning of period $8,522 $8,153
Charge-offs (2,267) (1,598)
Recoveries 904 502
--------------------
Net charge-offs (1,363) (1,096)
Provision for loan losses 2,228 1,537
--------------------
Balance at end of period $9,387 $8,594
====================
Allowance for loan losses as a % of total loans 1.49% 1.41%
Earnings coverage of net charge-offs 6.00X 8.11X
</TABLE>
At September 30, 1996, the recorded investment in loans that are considered to
be impaired under FASB Statement No. 114, "Accounting by Creditors for
Impairment of a Loan," was not significant.
- -------------------------------------------------------------------------------
NOTE 5. NEW ACCOUNTING STANDARD
- -------------------------------------------------------------------------------
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," which is applicable to Horizon
in 1996. This Statement provides
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companies with the option of accounting for stock-based compensation under
APB Opinion No. 25, "Accounting for Stock Issued to Employees," or applying
the provisions of Statement 123.
As allowed by Statement No. 123, Horizon has elected to continue accounting
for stock-based compensation under Opinion 25. Horizon will make proforma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in Statement No. 123 had been applied in its 1996
annual report to shareholders.
In June 1996, the FASB issued Statement No. 125, (SFAS No. 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which supersedes SFAS No. 76, "Extinguishment of Debt." SFAS No. 125 prescribes
the accounting treatment for securitization transactions based on a financial
components approach with an emphasis on physical control, such as the ability
to pledge or exchange the securitized assets, while prior rules emphasized the
economic risks or rewards of ownership of the agreements, securities lending,
loan participations, and other financial component transfers and exchanges.
Under the financial components approach of SFAS No. 125, both the transferor and
transferee will recognize on its balance sheet the assets and liabilities, or
components thereof, that it controls and not recognize on the balance sheet the
assets and liabilities that were surrendered or extinguished in the transfer.
Horizon does not expect the new rules to have a material effect on its
financial position and results of operations. SFAS No. 125 is effective for
transactions occurring after December 31, 1996.
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MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
INTRODUCTION
Horizon Bancorp, Inc., ("Horizon") is a multi-bank holding company headquartered
in Beckley, West Virginia. Horizon engages in commercial banking activities and
provides financial and trust services to individuals and commercial customers
primarily in Fayette, Greenbrier, Pocahontas, Raleigh, and Summers, Cabell,
Wayne, and Lincoln Counties of West Virginia.
The following discussion and analysis is provided to assist readers of the
consolidated financial statements in understanding the operating performance
of Horizon. This discussion should be read in conjunction with the December 31,
1995 consolidated financial statements and the accompanying notes to the
financial statements included in the 1995 annual report.
Throughout the following discussion, dollars are expressed in thousands,
except per share data.
RESULTS OF OPERATIONS
Horizon reported consolidated net income for the first nine months of 1996 of
$8,182, or $0.88 per share, compared with $8,893, or $0.96 per share, in the
same period of 1995.
Return on average assets (ROA) measures how effectively Horizon uses its assets
to produce net income while return on average equity (ROE) measures income
earned compared with the amount of shareholders' investment in Horizon. For
the nine months ended September 30, 1996, Horizon's ROA was 1.17%, compared to
1.32% for the nine months ended September 30, 1995. For the nine months ended
September 30, 1996, Horizon's ROE totaled 10.30%, compared to 11.94% for the
nine months ended September 30, 1995.
Net income for the three months ended September 30, 1996, was $2,751, or $0.30
per share, compared with $3,026, or $0.33 per share, in the third quarter of
1995.
NET INTEREST INCOME
Net interest income is Horizon's largest source of earnings. Net interest income
is influenced by the volume and relative yield (cost) of earning assets and
interest-bearing liabilities and the relative sensitivity of such assets and
liabilities to changes in interest rates. Interest income is presented and
discussed on a fully tax-equivalent basis.
Net interest income increased $1,543 or 4.66% in the first nine months of 1996,
from $33,116 reported for the first nine months of 1995. Both interest income
and interest expense increased when comparing the first nine months of 1996 with
1995. The increase in interest income resulted from an increase in volume and
yield on average interest-earning assets and changes in the mix of earning
assets. Average loans, Horizon's highest yielding assets, increased $24,517 or
4.13% in volume and the yield increased 10 basis points during the nine months
ended September 30, 1996, from the same period of 1995. The increase in loan
volume and yield accounts for the majority of the increase in net interest
income. These increases are representative of the current economic activity
and efforts by management to extend its market share.
The following table 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.
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET INTEREST MARGIN
--------------------------------------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
--------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold $ 15,949 $ 643 5.4% $ 21,473 $ 936 5.8%
Investment securities:
Taxable 192,317 9,170 6.4 186,940 8,693 6.2
Tax exempt(1) 51,366 3,258 8.5 44,839 2,660 7.9
--------------------------------------------------------------------
Total investment securities 243,683 12,428 6.8 231,779 11,353 6.5
Total loans(1)(2) 617,932 43,142 9.3 593,415 40,737 9.2
--------------------------------------------------------------------
Total earning assets
and interest income 877,564 56,213 8.5 846,667 53,026 8.4
Noninterest earning assets:
Cash and due from banks 29,904 25,735
Premises and equipment 16,945 15,465
Other assets 19,254 19,401
Less: Allowance for loan losses (8,977) (8,425)
-------- --------
Total assets $934,690 $898,843
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 127,485 $2,427 2.5% $120,532 $2,364 2.6%
Savings deposits 185,969 4,221 3.0 213,861 4,926 3.1
Certificates of deposit 366,466 14,278 5.2 324,562 12,069 5.0
---------------------------------------------------------------------
Total interest-bearing deposits 679,920 20,926 4.1 658,955 19,359 3.9
Short-term borrowings 22,365 628 3.7 22,150 551 3.3
---------------------------------------------------------------------
Total interest-bearing
liabilities and interest
expense 702,285 21,554 4.1 681,105 19,910 3.9
----------------- ------------------
Noninterest-bearing liabilities:
Demand deposits 114,343 109,456
Other 12,159 8,997
-------- --------
Total liabilities 126,502 118,453
Shareholders' equity 105,903 99,285
-------- --------
Total liabilities and
shareholders' equity $934,690 $898,843
======== ========
Net interest income $34,659 $33,116
======= ======
Spread 4.4% 4.5%
==== ====
Net interest margin 5.3% 5.2%
==== ====
</TABLE>
(1) Fully taxable equivalent using 35%.
(2) Nonaccrual loans are included in average balances.
Horizon's net interest margin for the nine months ended September 30, 1996,
increased 10 basis points from the nine months ended September 30, 1995. Average
interest-bearing liabilities increased $21,180 or 3.11% in the nine months ended
September 30, 1996 from $681,105 during the nine months ended September 30,
1995. The increase is related to deposits acquired through the purchase of four
supermarket branches in the first and second quarters of 1995. The related cost
of funds increased 20 basis points, primarily due to a 20 basis point increase
in cost of certificates of deposit and the shifting of deposits to these higher
yielding accounts.
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- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
At September 30, 1996, the allowance for loan losses as a percentage of total
loans increased to 1.49% from 1.37% at December 31, 1995. During the first nine
months of 1996, the allowance was strengthened through a provision for loan
losses of $2,228 compared to $1,537 for the same period of 1995. Net charge-offs
were $1,363 for the nine months ended September 30, 1996, compared to $1,096 for
the same period in 1995. Net charge-offs increased $267 for the nine months
ended September 30, 1996 when compared to the same period of 1995. The increase
is primarily due to growth in the credit card department.
Total nonperforming loans were 1.18% of total loans at September 30, 1996, a
decrease from the 1.26% at December 31, 1995. At September 30, 1996,
nonperforming assets were 0.84% of total assets, a decrease from the 0.90% at
December 31, 1995.
Nonperforming loans decreased $402 during the nine months ended September 30,
1996, from the $7,799 reported at December 31, 1995. The reduction is due to the
collection of a significant nonaccruing loan, migration of other borrowers from
ninety days past due and still accruing interest to nonaccrual, and improved
collection efforts.
<TABLE>
<CAPTION>
ANALYSIS OF ASSET
QUALITY
-----------------------------
SEPTEMBER 30 DECEMBER 31
1996 1995
-----------------------------
<S> <C> <C>
Nonaccruing loans $3,792 $4,556
Loans ninety days past due and accruing interest 3,605 3,243
-----------------------
Total nonperforming loans 7,397 7,799
Other real estate owned 501 558
-----------------------
Total nonperforming assets $7,898 $8,357
=======================
Nonperforming loans to total loans 1.18% 1.26%
Nonperforming assets to total assets 0.84% 0.90%
Allowance for loan losses to nonperforming loans 126.90% 109.27%
</TABLE>
NONINTEREST INCOME
Noninterest income is primarily of a fee nature and consists of service charges
on deposits, trust department income, and a variety of miscellaneous
transactions. Noninterest income increased $188 or 5.53% during the nine months
ended September 30, 1996 from the $3,397 reported in the same period in 1995.
The increase is due to a decline of $42 in investment securities losses, a $279
increase in service charges, and a $133 decrease in other income. Service
charges increased due to higher deposit balances along with increased
transactions subject to service charges.
Noninterest income increased $167 or 12.75% during the three months ended
September 30, 1996 from $1,310 reported in the same period in 1995. The
decrease was due primarily to a $150 one-time gain on sale of other real
estate owned in the third quarter of 1995.
NONINTEREST EXPENSE
Noninterest expense is frequently referred to as overhead; that is the cost of
normal operations. Horizon's noninterest expense for the nine months ended
September 30, 1996, increased $1,456 or 7.19% over the nine months ended
September 30, 1995. Data processing expense increased $237 or 17.87% for the
nine months ended September 30, 1996, from $1,326 for the first nine months of
1995. The increase is due primarily to an increase in the number of accounts
being processed
14
<PAGE> 15
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- --------------------------------------------------------------------------------
for the first nine months of 1996 when compared to the number of accounts
processed for the nine months ended September 30, 1995. Other expenses increased
$1,949 for the first nine months of 1996 over the same period of 1995, excluding
an $822 decrease in Federal deposit insurance. The increase is primarily due to
investment banking and other professional fees of $1,159 related to the
acquisition, an increase in losses other than loans of $164 due primarily to
the receipt of $150 of insurance proceeds for covered losses in 1995, and an
increase of $154 in cost of operations for the credit card department due to
growth.
Noninterest expense for the three months ended September 30, 1996, increased
$454 or 6.55% over the three months ended September 30, 1995. Improvements in
the efficiency of operations were evidenced by a $58 or 1.78% decrease in
salaries and employee benefits, a $31 or 7.31% decrease in net occupancy
expense, and a $59 or 11.15% decrease in equipment expense. Other expenses
increased $587 for the third quarter of 1996 over the same period of 1995. The
increase is primarily due to nonrecurring acquisition and restructuring expenses
of $350 and an increase of $62 in cost of operations for the credit card
department due to growth.
INCOME TAXES
Income tax expense expressed as a percentage of income before income taxes was
35.99% for the nine months ended September 30, 1996, and compares to 34.55% for
the nine months ended September 30, 1995. For the three months ended September
30, 1996, the percentage was 35.80% and compares to 34.42% for the three months
ended September 30, 1995. The higher effective tax rate for 1996 compared to
1995 reflects an increase in nondeductible expenses related to the acquisition.
15
<PAGE> 16
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BALANCE SHEET ANALYSIS
At September 30, 1996, total assets increased $12,205 or 1.31% from the
December 31, 1995 total of $932,053.
Investment securities totaled $244,715 at September 30, 1996, and were
virtually unchanged from the December 31, 1995 total of $245,532.
Growth in total loans has been evidenced by stronger loan demand in the first
nine months of 1996. For the nine months ended September 30, 1996, total loans
increased $8,664 or 1.40%. The increase was due primarily to commercial loan
growth reflecting more favorable economic conditions in the market area.
Net premises and equipment have decreased $504 or 2.91% from $17,299 at
December 31, 1995 to $16,795 at September 30, 1996. The decrease consists
primarily of depreciation charges net of purchases for the current year.
Total deposits at September 30, 1996 were $797,463 and have increased $2,731
or 0.34% from the December 31, 1995 total of $794,732.
At September 30, 1996, short-term borrowings approximated $28,689 in securities
sold under agreements to repurchase which are offered for customer
accommodation and borrowings of $1,000 from the Federal Home Loan Bank of
Pittsburgh. The FHLB borrowing is a one-year term note indexed to the prime
rate and was used to fund a portion of a commercial loan.
Shareholders' equity increased $2,836 or 2.72% from the total at December 31,
1995, primarily from retention of earnings net of the decline in unrealized
gain on available-for-sale securities of $1,708 from $1,569 at December 31,
1995 to an unrealized loss of $139 at September 30, 1996. This decline is
due to increasing interest rates.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Horizon's liquidity position is believed to be adequate for the availability
of funds for loan growth and deposit withdrawals, and provide for other
transaction requirements. Liquidity is provided primarily by investments in
cash and cash equivalents and maturities of investments and loans. The
liquidity position is monitored regularly and management is not aware of any
trends, commitments, or events that are likely to result in a liquidity
increase or decrease of a material amount.
Interest rate risk is measured through a static gap analysis and monitored
closely by management. Due to Horizon's stable core deposit base,
management has been able to effectively manage interest rate risk without
the use of derivative products.
CAPITAL RESOURCES AND DIVIDENDS
Shareholders' equity when expressed as a percentage of total assets totaled
11.35% on September 30, 1996, an increase from the 11.20% reported at
December 31, 1995. The primary capital ratio, which includes equity and the
allowance for loan losses, was 12.23% on September 30, 1996, and has increased
slightly from the 12.00% reported on December 31, 1995. The Federal regulatory
agencies have adopted risk-based capital guidelines and Horizon continues to
be well above the minimum guidelines for all risk-based ratios.
16
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Pertinent capital ratios were:
<TABLE>
<CAPTION>
Minimum Regulatory
September 30, 1996 December 31, 1995 Requirements
-------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' Equity/Total Assets 11.35% 11.20%
Primary Capital Ratio 12.23% 12.00%
Risk-Adjusted Capital
Tier I 16.79% 17.32% 4.00%
Tier II 17.96% 18.77% 8.00%
Leverage 11.23% 10.90% 3.00%
</TABLE>
Management is not aware of any trends, events, or uncertainties, either
favorable or unfavorable, that are likely to have a material effect on
Horizon's liquidity, capital resources or results of operations. There are
no current recommendations by regulatory authorities that, if implemented,
would have a material effect on Horizon.
17
<PAGE> 18
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- -----------------------------------------------------------------------------
HORIZON BANCORP, INC.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings, other than ordinary litigation incidental to
the business, to which Horizon Bancorp or any of its subsidiaries are a
party to or of which any of their property is subject. Management believes
that the liability, if any, resulting from current litigation will not be
material to the reported financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
11. Statement of Computation of Earnings per Share
27. Financial Data Schedule
18
<PAGE> 19
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- ----------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON BANCORP, INC.
---------------------
(Registrant)
Date: November 13, 1996 /s/ Frank S. Harkins, Jr.
----------------- -------------------------
Frank S. Harkins, Jr.
Chairman of the Board
Date: November 13, 1996 /s/ C. Duane Blankenship
----------------- ------------------------
C. Duane Blankenship
Chief Financial Officer
19
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 9,296,006 9,299,580 9,296,009 9,304,534
Net effect of options 4,642 2,290 5,422 0
---------------------------------------------------------------------
Total 9,300,648 9,301,870 9,301,431 9,304,534
=====================================================================
Net income $2,751,000 $3,026,000 $8,182,000 $8,893,000
=====================================================================
Earnings per share $0.30 $0.33 $0.88 $0.96
=====================================================================
FULLY DILUTED:
Average shares outstanding 9,296,006 9,299,580 9,296,009 9,304,534
Net effect of options 4,642 3,188 5,584 0
---------------------------------------------------------------------
Total 9,300,648 9,302,768 9,301,593 9,304,534
=====================================================================
Net income $2,751,000 $3,026,000 $8,182,000 $8,893,000
=====================================================================
Earnings per share $0.30 $0.33 $0.88 $0.96
=====================================================================
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 35,350
<INT-BEARING-DEPOSITS> 677
<FED-FUNDS-SOLD> 6,180
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 204,631
<INVESTMENTS-CARRYING> 40,084
<INVESTMENTS-MARKET> 40,054
<LOANS> 629,234
<ALLOWANCE> 9,387
<TOTAL-ASSETS> 944,258
<DEPOSITS> 797,463
<SHORT-TERM> 28,689
<LIABILITIES-OTHER> 10,887
<LONG-TERM> 0
0
0
<COMMON> 4,653
<OTHER-SE> 102,566
<TOTAL-LIABILITIES-AND-EQUITY> 944,258
<INTEREST-LOAN> 42,927
<INTEREST-INVEST> 11,125
<INTEREST-OTHER> 643
<INTEREST-TOTAL> 54,695
<INTEREST-DEPOSIT> 20,926
<INTEREST-EXPENSE> 21,554
<INTEREST-INCOME-NET> 33,141
<LOAN-LOSSES> 2,228
<SECURITIES-GAINS> (89)
<EXPENSE-OTHER> 21,716
<INCOME-PRETAX> 12,782
<INCOME-PRE-EXTRAORDINARY> 12,782
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,182
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 5.30
<LOANS-NON> 3,792
<LOANS-PAST> 3,605
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,522
<CHARGE-OFFS> 2,267
<RECOVERIES> 904
<ALLOWANCE-CLOSE> 9,387
<ALLOWANCE-DOMESTIC> 9,387
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,025
</TABLE>
