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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, 1995
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)
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WEST VIRGINIA 55-0631939
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE PARK AVENUE
BECKLEY, WV 25802-2803
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (304) 255-7000
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
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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
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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, 1996, there were 2,449,930 shares of Horizon Bancorp, Inc.
$1 par value common stock held by non-affiliates with an aggregate market value
of $101,672,081.
As of March 15, 1996, there were 2,830,130 shares of Horizon Bancorp, Inc. $1
par value common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
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Incorporated into
(1) Portions of the Annual Report to Shareholders for
fiscal year ended December 31, 1995 (hereinafter the
"1995 Annual Report") Parts I & II
(2) Form 8-K filed with the Securities & Exchange
Commission on February 23, 1996, announcing the signing
of a definitive agreement to acquire Twentieth
Bancorp, Inc. Part I, Item 1
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HORIZON BANCORP, INC.
FORM 10K INDEX
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Page
Part I Item 1 Business .............................................. 2-7
Item 2 Properties ............................................ 7-8
Item 3 Legal Proceedings ..................................... 8
Item 4 Submission of Matters to a Vote of Security Holders ... 8
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Part II Item 5 Market for the Registrant's Common Stock and Related
Shareholder Matters ................................... 8
Item 6 Selected Financial Data ............................... 8
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 8
Item 8 Financial Statements and Supplementary Data ........... 8
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................... 8
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Part III Item 10 Directors and Executive Officers of the Registrant .... 9-13
Item 11 Executive Compensation ................................ 15-17
Item 12 Security Ownership of Certain Beneficial Owners
and Management ........................................ 21-23
Item 13 Certain Relationships and Related Transactions ........ 24
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Part IV Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K ........................................... 25
Signatures ............................................................. 26
Index to Exhibits ...................................................... 25
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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 of Hinton ("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.
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Greenbrier and Marlinton were acquired by Horizon on March 31, 1993, through a
merger between Allegheny Bankshares Corporation and Horizon Bancorp, Inc.
As of December 31, 1995, Horizon had approximate consolidated assets of
$614,745,000, deposits of $514,475,000 and shareholders' equity of $71,107,000.
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 of
Hinton."
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.
During 1995, Horizon, through two of its subsidiary banks, purchased certain
assets and assumed certain liabilities of a regional banking company. Greenbrier
Valley National Bank acquired the regional branch office at Fairlea, Greenbrier
County, on March 31, 1995. Bank of Raleigh acquired regional branch offices
located at Beaver and Sophia, Raleigh County, and at Oak Hill in Fayette County
on May 12, 1995. The assets of these offices acquired by Horizon totaled
approximately $21,000,000.
The Board of Directors of Horizon implemented a dividend reinvestment plan in
September 1995 for Horizon's shareholders. The purpose of the plan is 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
are eligible to participate in the plan. The plan is voluntary, and all
maintenance and transaction costs are paid by Horizon.
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FUTURE ACQUISITIONS AND EXPANSIONS
Horizon has entered into an agreement to acquire Twentieth Bancorp, Inc. of
Huntington, West Virginia. Under the terms of the agreement, Horizon will issue
1.01 shares of its common stock in exchange for each share of common stock of
Twentieth Bancorp. As a result of this transaction, approximately 1,818,000
shares of Horizon Bancorp common stock will be issued.
The Definitive Agreement is attached as an Exhibit to the 8-K filed by the
registrant in February 1996 which is incorporated herein by reference. The
Acquisition is subject to the approval of the shareholders of Horizon as well as
the shareholders of Twentieth Bancorp along with bank regulatory agencies. It is
presently anticipated that the required shareholder meetings will be held in
August 1996 and if approved by the shareholders and by the regulators, it is
anticipated that the acquisition would close in August or September of 1996.
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 1995, Horizon Bancorp had 270 full-time equivalent employees.
COMPETITION
Bank of Raleigh's primary market area is generally defined as Raleigh County,
West Virginia. As of December 31, 1995, there were five banks operating in
Raleigh County. Total deposits of the commercial banks in Raleigh County at
December 31, 1995 were approximately $596,445,000, and Bank of Raleigh ranked
first with 42.23% of the total deposits in Raleigh County. Bank of Raleigh's
largest competitor in the market area reported total deposits of $150,380,000
and the smallest competitor in the market area had total deposits of $2,861,000.
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 December
31, 1994 level of $224,203,000 to a December 31, 1995 level of $251,906,000.
The primary market area of National Bank of Summers of Hinton 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,
1995, there were two banks operating in Summers County with total deposits of
approximately $116,220,000. National Bank of Summers had total deposits of
$60,532,000 as of December 31, 1995, and the other bank in the market area had
total deposits of approximately $55,733,000 as of that date. Summers ranked
first with 52.06% of total deposits.
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The primary market area of Greenbrier Valley National Bank is generally defined
as Greenbrier County, West Virginia. Greenbrier's market area is served by five
financial institutions. These institutions include One Valley Bank, a
wholly-owned subsidiary of a state-wide multi-bank holding company. As of
December 31, 1995, total deposits at these five financial institutions were
approximately $451,430,000. Greenbrier is the largest of these five banks with
33.24% of the deposits in Greenbrier County. Greenbrier had total deposits of
$150,040,000 as of December 31, 1995, and the other banks within the market
area had total deposits of approximately 66.76% 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, 1995, total deposits at these two
commercial banks were approximately $98,669,000. First National Bank in
Marlinton had approximately 53.25% of the total deposits.
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 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.
SUPERVISION AND REGULATIONS
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
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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 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").
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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.
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 26 of
Horizon's Annual Report to Shareholders for the fiscal year ended December 31,
1995. 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. During 1995,
branches in Kroger supermarkets were acquired from a regional bank and
are located at Beaver and Sophia, Raleigh County, and at Oak Hill in
Fayette County.
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 County Roads Plaza on Stokes
Drive.
Greenbrier Valley National Bank's main office is located at 109 South Jefferson
Street, Lewisburg, West Virginia. Greenbrier has four full service branch
offices located in Alderson, Rainelle, Fairlea, and Rupert, West Virginia.
During 1995, a branch in a Kroger supermarket was acquired from a regional bank
and is located at Fairlea.
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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 15, 1996, the total number of holders of Horizon's common stock was
2,127.
The section of Management's Discussion and Analysis of Financial Condition and
Results of Operations entitled "Market and Dividend Information" on pages 25
and 26 of Horizon's 1995 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 1995
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 5 through 26 of Horizon's 1995 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
included on pages 29 through 45 of Horizon's 1995 Annual
Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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Part III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF HORIZON
DIRECTORS
The bylaws of Horizon provide that the Board of Directors of Horizon shall
consist of not fewer than five (5) and no more than thirty (30) individuals, as
fixed and determined, from time to time, by the Horizon Board of Directors. The
Board of Directors has fixed the number of directors to be elected at Horizon's
Annual Meeting of Shareholders and to constitute the Board of Directors of
Horizon at eighteen (18).
All the individuals listed below served as directors of Horizon during Horizon's
1995 fiscal year, are currently serving as directors and except for John C.
Horton, Jr., who died on March 23, 1996, and William E. Kane who has attained
age 70 (2), have been nominated to stand for re-election at Horizon's Annual
Meeting of Shareholders expected to be held during the third quarter of 1996.
The following table sets forth background information on each director.
The Board of Directors does not presently intend to add another director to
replace Mr. Horton either by action of the Board or by nomination at the annual
shareholder meeting.
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SERVED FAMILY
AS A RELATIONSHIP
DIRECTOR OF WITH OTHER PRINCIPAL OCCUPATION OR
DIRECTORS AGE HORIZON SINCE DIRECTORS EMPLOYMENT LAST 5 YEARS
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John M. Alderson, IV 66 1993 None Retired Claims Agent - State Farm Insurance Company,
Lewisburg, WV; Owner - J.M. Alderson Store, Alderson,
WV (retail); Director - Allegheny Bankshares
Corporation, Director - Greenbrier Valley National
Bank, Lewisburg, WV; Director - Horizon Bancorp,
Inc., Beckley, WV
Phillip W. Cain 48 1995 None Executive Vice President, CEO and Director, First
National Bank in Marlinton, Marlinton, WV; Director,
Horizon Bancorp, Inc., Beckley, WV
W. H. File, III 48 1993 (1) Partner - File, Payne, Scherer & File, Beckley, WV
(law firm); Director - Bank of Raleigh, Beckley, WV;
Director - Horizon Bancorp, Inc., Beckley, WV
David W. Hambrick 54 1993 None President and Chief Operating Officer - Allegheny
Bankshares Corporation, Lewisburg, WV; Executive Vice
President - Greenbrier Valley National Bank,
Lewisburg, WV; Director - First National Bank
in Marlinton, Marlinton, WV; Director, Executive
Vice President and Chief Financial Officer -
Horizon Bancorp, Inc., Beckley, WV
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Frank S. Harkins, Jr. 55 1982 None Chairman of the Board and Director -
Horizon Bancorp, Inc.; Director - National Bank
of Summers of Hinton, Hinton, WV; Director - Greenbrier
Valley National Bank, Lewisburg, WV; Director, President
and Chief Executive Officer - Bank of Raleigh,
Beckley, WV
John C. Horton, Jr. 67 1993 None Retired Director of Conferences at The
Greenbrier, White Sulphur Springs, WV (resort);
Director - Greenbrier Valley National Bank, Lewisburg,
WV; Director - Allegheny Bankshares Corporation,
Lewisburg, WV; Director - Horizon Bancorp, Inc.,
Beckley, WV
Tracy W. Hylton, II 47 1993 None President, Eller, Inc. (surface mining); President -
Nell Jean Industries, Inc. (mine supply); President -
Upper Laurel Mining; President - New Land Leasing;
President - MIN, Inc. (surface mining); President,
Gracie, Inc. (land leasing); President - Tammie
Lynn Coal Company (surface mining); Vice
President - Nell Jean Enterprises, (retail);
President - Lightning, Inc. (land leasing); President -
Patience, Inc. (surface mining); Director - Bank of
Raleigh; Director - Horizon Bancorp, Inc., Beckley, WV
William E. Kane(2) 70 1993 None President and owner of DMC Company (building supply and
furniture), Durbin, WV; Chairman and President - The
First National Bank in Marlinton, Marlinton, WV;
Director - Allegheny Bankshares Corporation, Lewisburg,
WV; Director - Horizon Bancorp, Inc., Beckley, WV
Robert L. Kosnoski 61 1993 None President - Mountaineer Parts & Repair, Inc., Mt. Hope,
WV; President - Beckley Flying Service, Beckley, WV;
President - Paint Creek Coal Co., Mt. Hope, WV (coal
mining); Director - Bank of Raleigh, Beckley, WV;
Director - Horizon Bancorp, Inc., Beckley, WV
Thomas E. Lilly 57 1993 None Chairman and CEO - Lillys' Crown Jewelers Corporation,
Beckley, WV (retail jewelry); President - Lillys' Crown
Jewelers Corporation, Beckley, WV; Director - Bank of
Raleigh, Beckley, WV; Director - Horizon Bancorp, Inc.,
Beckley, WV
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Carolyn H. McCulloch 67 1984 None Director and Chairman of the Board - Bank of Raleigh,
Beckley, WV; Director and Vice President - Horizon
Bancorp, Inc., Beckley, WV
Philip L. McLaughlin 55 1993 None Director, Chairman of the Board and Chief Executive
Officer - Allegheny Bankshares Corporation, Lewisburg,
WV; Director, President and Chief Executive Officer -
Greenbrier Valley National Bank, Lewisburg, WV; Director
- First National Bank in Marlinton, Marlinton,
WV; Director - Bank of Raleigh, Beckley, WV; Director,
President and Chief Executive Officer - Horizon Bancorp,
Inc., Beckley, WV
Harper W. Nelson 58 1993 None Director, Vice President and Secretary - Marlinton
Electric Co., Inc. (petroleum), Marlinton, WV; Director -
WV Petroleum Marketers Association (marketer of
petroleum), Marlinton, WV; Director - First National
Bank in Marlinton, WV; Director - Allegheny
Bankshares Corporation, Lewisburg, WV; Director -
Horizon Bancorp, Inc., Beckley, WV
Rodney H. Pack 60 1993 None Vice President, Sales and Administration -
Acme Limestone Co., Inc., Fort Spring, WV; Executive
Vice President - Acme Limestone Corporation (crushed
limestone manufacturing), Fort Springs, WV;
President - Raleigh Ready Mix and Asphalt, Inc.,
(Portland cement concrete and asphaltic supplier),
Sprague, WV; President - Wolf Creek Corporation (land
development) Alderson, WV; Director - Greenbrier Valley
National Bank, Lewisburg, WV; Director - Allegheny
Bankshares Corporation, Lewisburg, WV; Director -
Horizon Bancorp, Inc., Beckley, WV
E. M. Payne III 60 1985 (1) Partner - File, Payne, Scherer & File, Beckley, WV (law
firm); Director and Secretary - Horizon Bancorp, Inc.;
Director - Bank of Raleigh, Beckley, WV; President -
Piney Land Company, (land development, coal, gas and
timber), Beckley, WV; President - McCreery Coal Land
Company (land development, coal, gas and timber),
Beckley, WV; President - Combahee Investment Corporation
(land management and development), Beckley, WV; President
- Hilton Head Equity Management Co., Inc. (land
management and development), Beckley, WV; President -
The James T. McCreery Company, Inc. (land development,
coal and timber), Beckley, WV
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R. T. Rogers 62 1985 None President and CEO - R. T. Rogers Oil Co.,
(oil and fuel distributor), Hinton, WV; Director -
National Bank of Summers of Hinton, Hinton, WV; Director -
Horizon Bancorp, Inc., Beckley, WV
James E. Songer 65 1985 None President - Homeseekers Land & Building Co., Inc., Beckley,
WV, (real estate); President - Songer Insurance, Inc.,
Beckley, WV (insurance); President - Sunset Memorial Park, Inc.
(perpetual care); Director - Bank of Raleigh, Beckley, WV;
Director - Horizon Bancorp, Inc., Beckley, WV
Albert M. Ticche, Jr. 43 1992 None Assistant Administrator & Treasurer - Beckley Hospital, Inc.,
Beckley, WV; Administrator and Treasurer - Beckley Hospital,
Inc., Beckley, WV; President - Extend-A-Care, Inc. (health
care); Director - Bank of Raleigh, Beckley, WV; Director -
Horizon Bancorp, Inc., Beckley, WV
E. A. Tuckwiller, Jr. 68 1993 None Owner - Stonehill Farm, Lewisburg, WV; Director - Greenbrier
Valley National Bank, Lewisburg, WV; Director -
Allegheny Bankshares Corporation, Lewisburg, WV; Director -
Horizon Bancorp, Inc., Beckley, WV
Earl R. Turner 61 1995 None President, CEO and Director, National Bank of Summers of Hinton,
Hinton, WV; Director - Horizon Bancorp, Inc., Beckley, WV
<FN>
(1) W. H. File, III, and E. M. Payne III are brothers-in-law
(2) Horizon's bylaws provide that "To be eligible for nomination and election
at the annual meeting, no director shall have attained the age of seventy
years as of the date of the meeting." Therefore, Mr. Kane is not eligible
for nomination and election to the Board of Directors.
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EXECUTIVE OFFICERS
The principal executive officers of Horizon are listed in the following table.
Each of these three individuals have entered into employment agreements with
Horizon. See "Item 11 Executive Compensation--Compensation Committee of the
Board Report on Executive Compensation and Incentive Stock Option Plan."
<TABLE>
<CAPTION>
NAME AGE BANKING EXPERIENCE AND QUALIFICATIONS
- ---- --- -------------------------------------
<S> <C> <C>
Philip L. McLaughlin 55 1987 to 1993, Director, Chairman of the Board and Chief Executive Officer of
Allegheny Bankshares Corporation; 1970 to present, Director of Greenbrier Valley
National Bank; 1986 to present, President, Chief Executive Officer and Director of
Greenbrier Valley National Bank; Member of Executive and Investment Committees of
Greenbrier Valley National Bank; Director of First National Bank in Marlinton; 1993
to present, President and Chief Executive Officer of Horizon Bancorp, Inc.
Frank S. Harkins, Jr. 56 1961 to 1976, Kanawha Valley Bank, N.A.; 1976 to 1986, Executive Vice President and
Chief Executive Officer of Bank of Raleigh; 1986 to present, Director, President and
Chief Executive Officer of Bank of Raleigh; 1983 to 1993, President and Chief Executive
Officer of Horizon Bancorp, Inc.; Member of Executive, Trust and Investment Committees
of Bank of Raleigh; Director of National Bank of Summers; 1993 to present, Chairman of
the Board of Horizon Bancorp, Inc.
David W. Hambrick 54 1987 to 1993, President and Chief Operating Officer of Allegheny Bankshares Corporation;
1986 to present, Director and Executive Vice President of Greenbrier Valley National Bank;
Member of Executive, Trust and Investment Committees of Greenbrier Valley National Bank;
Director of First National Bank in Marlinton; 1993 to present, Director,
Executive Vice President and Chief Financial Officer of Horizon Bancorp, Inc.
</TABLE>
<PAGE> 14
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Horizon's
directors and executive officers, and persons who own more than 10% of a
registered class of Horizon's equity securities, to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of common
stock and other equity securities of Horizon. Officers, directors and greater
than 10% shareholders are required by SEC regulation to furnish Horizon with
copies of all Section 16(a) forms they file.
Bank of Raleigh holds a special Power of Attorney to file Section 16(a) forms on
behalf of Horizon's directors. Based solely on review of the copies of such
reports furnished to Horizon or written representations that no other reports
were required, Horizon believes that during the 1995 fiscal year, all filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with except that (1) two reports, covering an
aggregate of two transactions, were filed late by Earl R. Turner; (2) two
reports, covering an aggregate of two transactions, were filed late by Phillip
W. Cain; (3) one report covering one transaction was filed late by David W.
Hambrick; (4) two reports covering five transactions were filed late by Frank S.
Harkins, Jr.; (5) one report covering one transaction was filed late by Thomas
E. Lilly; (6) one report covering two transactions was filed late by Philip L.
McLaughlin; (7) one report covering one transaction was filed late by E. M.
Payne III, President of Piney Land Company; and (8) one report covering five
transactions was filed late by E. A. Tuckwiller, Jr.
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid during 1995, 1994 and
1993 to the executive officers whose cash compensation exceeded $100,000;
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- -----------------------
OTHER NUMBER OF
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPEN- STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION(1) AWARD($) OPTIONS/SARs(3) SATION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Philip L. McLaughlin 1995 158,351 3,500
President and Chief 1994 140,480 10,237 2,000
Executive Officer 1993 127,892 3,446 2,000
Frank S. Harkins, Jr. 1995 159,500 9,480(4) 3,500 13,783(2)
Chairman of the Board 1994 159,500 2,400 7,271(4) 2,000 13,279(2)
1993 159,500 7,611(4) 2,000 13,241(2)
David W. Hambrick 1995 106,232
Executive Vice President 1994 110,480 600
and Chief Financial Officer 1993 102,570 2,921 1,000
<FN>
(1) Includes FICA Tax on non-qualified deferred compensation applied in 1994,
the year in which Mr. Harkins attained age 55 and fifteen years of service.
This tax was paid by Bank of Raleigh. No other compensation or benefits were
received by the named executive officers in an amount exceeding $50,000 or 10%
of total salary and bonus.
(2) Includes $3,600 paid by National Bank of Summers for directors meetings in
1995 all of which was deferred pursuant to the Directors' Deferred Compensation
Plan and $3,600 paid by Bank of Releigh in 1995 all of which was deferred;
Includes $3,600 paid by National Bank of Summers for director meetings in 1994
all of which was deferred pursuant to the Directors' Deferred Compensation Plan
and $3,600 paid by Bank of Raleigh in 1994 all of which was deferred. Includes
$3,900 paid by National Bank of Summers for director meetings in 1993, of which
$3,600 was deferred pursuant to the Directors' Deferred Compensation Plan and
$3,600 paid by Bank of Raleigh for director meetings all of which was deferred
pursuant to the Directors' Deferred Compensation Plan. See: "Directors'
Deferred Compensation Plans". Includes $6,583 consisting of dividends and
interest paid in 1995 in connection with the Horizon Employee Stock Ownership
Plan ("ESOP"); includes $6,079 consisting of dividends and interest accrued in
1994 in connection with the ESOP. Includes $5,741 consisting of dividends and
interest accrued in 1993 in connection with the ESOP.
(3) A stock plan was approved at the meeting of shareholders held on June 8,
1993. Pursuant to the plan, shares were granted in 1995 to the named
individuals as set forth in ther "Option/SAR Grants in Last Fiscal Year" table.
(4) Pursuant to the ESOP, contributions are made by two of Horizon's affiliate
banks, Bank of Raleigh and the National Bank of Summers. Shares of Horizon
common stock are acquired and allocated to each participant's account in the
same proportion that each such participant's compensation for the year bears to
the total compensation paid to all participants. The stock was held in trust
for distribution upon the employee's separation from service. Amounts in the
table represent the value of the shares allocated to Mr. Harkins' ESOP account
for fiscal years 1995, 1994 and 1993. These shares vest upon the completion of
seven years of service with Horizon. On December 29, 1995, Mr. Harkins received
5,922 shares with an aggregate market value of $233,919. Pursuant to a
Resolution of the Horizon Board of Directors, the ESOP was terminated and the
vested shares and cash were distributed to each participant on December 29,
1995.
</TABLE>
<PAGE> 16
The following table sets forth certain information concerning Options/SARs
granted during 1995 to the named executives and all optionees as a group. None
of the options granted were exercisable during 1995. The options granted will
be exercisable as follows: (a) on and after the second anniversary of the Date
of Grant, up to one-third of the total number of Option Shares; and (b) on and
after the third anniversary of the Date of Grant, up to an additional one-third
of the total number of Option Shares; and (c) on and after the fourth
anniversary of the Date of Grant the remaining Option Shares.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARs EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Philip L. McLaughlin 3,500 35% 40.00 12/20/2000 0% 38,640 85,540
Frank S. Harkins, Jr. 3,500 35% 40.00 12/20/2000 0% 38,640 85,540
All Optionees 10,000 100% 40.00 12/20/2000 0% 110,400 244,400
(including the two
listed above)
</TABLE>
<PAGE> 17
The following table indicates, for purposes of illustrations, the approximate
annual retirement benefits that would be payable in the life annuity form under
various assumptions as to salary and years of service for a participant
obtaining age 65 in 1995. The benefit amounts are not subject to reduction for
Social Security.
RETIREMENT BENEFITS
-------------------
YEARS OF SERVICE
----------------
<TABLE>
<CAPTION>
AVERAGE COMPENSATION 10 20 30
<S> <C> <C> <C>
$ 20,000 $ 3,520 $ 7,040 $10,560
40,000 7,520 15,040 22,560
60,000 11,520 23,040 34,560
75,000 14,520 29,040 43,560
100,000 19,520 39,040 58,560
125,000 24,520 49,040 73,560
150,000 29,520 59,040 88,560
</TABLE>
Prior to the acquisition of Allegheny Bankshares, Horizon sponsored a
non-contributory retirment plan for its employees which provided a benefit of
.8% of average compensation for each year of service up to 30 years, plus .65%
of average compensation in excess of covered compensation for each year of
service up to 30 years, plus .5% of average compensation for each year of
service in excess of 30 years, up to a maximum 10 years of service. Effective
April 1, 1993, the benefit formula in Horizon's plan was amended to be the same
as the benefit formula in the Allegheny Bankshares Defined Benefit Plan. This
formula provides for a benefit of 1.5% of one's first $9,600, and 2% of W-2
earnings in excess of $9,600, multiplied by years of service up to 30. The chart
above is based upon the revised benefit formula. Participants in the Horizon
plan prior to April 1, 1993, will have the old Horizon formula in effect on
March 31, 1993, plus the amount under the new benefit formula set forth above
for years of service after March 31, 1993. In general, the chart above will
overstate the actual pension benefit for employees who participated in the
Horizon plan prior to April 1, 1993.
Compensation covered by the pension plan is based upon total pay. The Internal
Revenue Code prohibits compensation in excess of $150,000 (as indexed) to be
taken into account in determining one's pension benefit. Normal retirement age
is 65 under the plan. The plan provides for early retirement between ages 55
and 65 with at least 10 years of service.
As of December 31, 1995, the current credited years of service and projected
estimated annual benefit under the retirement plan (assuming that each
continues employment, the plan is not terminated or amended, current
compensation increases under the plan's assumptions and that the maximum
compensation allowed under the code does not exceed $150,000) for the following
officers is:
<TABLE>
<CAPTION>
NAME CURRENT SERVICE PROJECTED PENSION
- ---- --------------- -----------------
<S> <C> <C>
Frank S. Harkins, Jr. 18 $69,156
Philip L. McLaughlin 27 88,560
David W. Hambrick 29 88,560
</TABLE>
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in Horizon's
cumulative total shareholder return on its Common Stock for the five year
period ending December 31, 1995, with the cumulative total return of Standard &
Poors 500 Stock Index and the Media General Industry Group Index - 04, which
consists of all banks and bank holding companies within the United States whose
stock has been publicly traded for at least six years. The listings of the
banks and bank holding companies in the index are not listed by SIC code. The
graph assumes (i) the reinvestment of all dividends and (ii) an initial
investment of $100. There is no assurance that Horizon's stock performance will
continue in the future with the same or similar trends as depicted in the
graph. The graph shall not be deemed incorporated by Form 10-K by any general
statement incorporating by reference this Form 10-K into any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent that Horizon specifically incorporates this graph by reference, and
shall not otherwise be filed under such Acts.
Prior to 1993, Horizon Common Stock was not traded on any formalized exchange.
In mid 1993 Horizon Common Stock was listed on Nasdaq National Market.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG HORIZON BANCORP, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
HORIZON BANCORP, INC. 100 101.40 106.47 196.90 208.13 298.86
INDUSTRY INDEX 100 141.18 168.20 198.83 188.63 266.76
BROAD MARKET 100 130.48 140.46 154.62 156.66 215.54
</TABLE>
<PAGE> 19
COMPENSATION COMMITTEE OF THE BOARD
REPORT ON
EXECUTIVE COMPENSATION AND INCENTIVE STOCK OPTION PLAN
The Compensation Committee of the Board of Directors of Horizon Bancorp, Inc.,
(the "Committee") composed of five independent non-employee directors, E. M.
Payne III, Chairman, John C. Horton, Jr., Carolyn H. McCulloch, James E. Songer
and Rodney H. Pack, is responsible for the award of stock options as authorized
by the Horizon Incentive Stock Option Plan (the "Plan") and to report and make
recommendations to the Board on all material issues relating to executive
compensation for Frank S. Harkins, Jr. (Horizon's Chairman of the Board and the
President and Chief Executive Officer of the Bank of Raleigh), Philip L.
McLaughlin (President and Chief Executive Officer of Horizon and Greenbrier
Valley National Bank) and David W. Hambrick (Executive Vice President and Chief
Financial Officer of Horizon and Executive Vice President and Chief Operating
Officer of Greenbrier Valley National Bank).
During the calendar year 1995 no changes were made in the compensation and
benefit levels of the three Horizon principal officers (Harkins, McLaughlin and
Hambrick) since their individual employment contracts were for terms ending on
March 31, 1996. In 1996 the Committee will address the future of the contracts
for the named principal officers. Also in 1996 the Committee will address a more
aggressive pay-for-performance compensation program which will focus senior
management's attention on Horizon's strategic business initiatives and financial
performance objectives. The Committee believes the senior executive compensation
program must be designed and executed in such a manner that it will emphasize
four principal concepts going forward into the remainder of this decade. These
concepts will include:
1) A greater amount of the executives' pay packages will be placed at
risk and will be based upon creating long-term value for the
shareholders;
2) A program which shall provide highly competitive financial awards
for meeting or exceeding earnings and other financial targets;
3) A program which shall tie compensation more closely to the fortunes
of the individual shareholders;
4) Greater emphasis will be placed on the achievement of both short and
long-term internal value added performance measures as well as
shareholder return expectations in relation to Horizon's banking
peers.
During 1995 the Committee met twice concerning the award of stock options which
would continue the Plan objectives. In 1995, ten thousand (10,000) shares of
stock options were granted as follows:
<TABLE>
<CAPTION>
<S> <C>
Philip L. McLaughlin 3,500 shares
Frank S. Harkins, Jr. 3,500 shares
Glenda Williams 750 shares
Charles S. Houck 750 shares
Earl Turner 750 shares
Phillip W. Cain 750 shares
</TABLE>
The shares were granted at the then current market price of $40 per share. The
1995 stock options shall become exercisable in accordance with a three year
vesting schedule.
In all of its deliberations the Committee considers Horizon's profitability, its
success in surpassing established objectives, the growth of its core deposit
base, the quality and efficiency of Horizon's staff, and other material factors
directly related to Horizon's performance.
This Compensation Committee of the Board Report on Executive Compensation and
Incentive Stock Option Plan ("Report") shall not be deemed incorporated by
reference by an general statement incorporating by reference this Form 10-K into
any filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that Horizon specifically incorporates this report by
reference, and shall not otherwise be filed under such Acts.
E. M. PAYNE III, CHAIRMAN
JOHN C. HORTON, JR.
CAROLYN H. McCULLOCH
JAMES E. SONGER
RODNEY H. PACK
<PAGE> 20
COMPENSATION OF DIRECTORS
Directors of Horizon, who are not employees of the subsidiaries, were
compensated $300 for each board meeting attended in 1995. During 1995, there
were no other arrangements pursuant to which any director of Horizon or its
subsidiaries was compensated for services as a director, although directors of
certain subsidiaries could defer receipt of their directors' fees, pursuant to
the Directors' Deferred Compensation Plans.
DIRECTORS' DEFERRED COMPENSATION PLANS
The Bank of Raleigh adopted a voluntary deferred compensation program effective
January 1, 1987, which permits the directors of the Bank of Raleigh to defer
their board fees. The program was established to attract and retain board
members by providing supplemental retirement benefits and survivor benefit
payments should death occur prior to retirement. Retirement benefits are
payable for 180 months beginning the month after a director's seventieth
birthday. Survivor payments begin the month following the date of death.
The plan is a defined benefit plan based on the fees deferred and number of
years to retirement. For a director who leaves the board prior to retirement, a
pro-rata benefit is payable at the same time as the benefit would have been
paid had the director remained active. The Bank of Raleigh recognizes each year
through an accrual calculation the current year's expense on each individual.
The Bank of Raleigh has purchased life insurance on participating directors in
amounts that will actuarially fund the future liabilities under this plan. The
Bank is the owner and sole beneficiary of the policies. The program has been
designed so that if assumptions relating to mortality, tax effects, and other
factors are realized, the fees deferred plus the increase in cash surrender
value from the insurance purchased will offset the expenses charged against the
Bank's income for plan benefits. During 1995, a total of $86,400 was deferred
by directors of Bank of Raleigh pursuant to the deferred compensation
agreements.
Also in January of 1988, National Bank of Summers of Hinton entered into
deferred compensation agreements with its directors, which included basically
the same terms and conditions as the Bank of Raleigh Directors' Deferred
Compensation Plan. During 1995, a total of $21,950 was deferred by directors of
National Bank of Summers of Hinton pursuant to these Agreements.
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 1, 1996, concerning
those shareholders who are known to Horizon to be the beneficial owners of more
than 5% of Horizon's voting securities:
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C> <C>
Common Stock Carolyn H. McCulloch 157,926 shares (1) 5.6%
536 Woodlawn Avenue
Beckley, WV 25801
Common Stock Bank of Raleigh Trust and 212,366 shares (2) 7.5%
Financial Services Division
P. O. Box D
Beckley, WV 25801
<FN>
(1) Consists of 15,138 shares owned of record; 106,530 shares owned by her
sister-in-law, Polly Jo Masters, for which Mrs. McCulloch holds a special
power of attorney to vote the shares; 36,258 shares held by Bank of Raleigh
Trustee for John H. McCulloch Revocable Life Insurance Trust-Marital Trust, of
which Mrs. McCulloch is beneficiary.
(2) The Bank of Raleigh, a wholly-owned subsidiary of Horizon, holds these
shares as agent or sole trustee of certain revocable and irrevocable trusts and
as sole executor of certain estates. These shares will be voted by the Bank of
Raleigh pursuant to the terms of the trust agreement or at the direction of
either the principal or the grantor, in the case of revocable trusts, and at
the direction of the majority of adult beneficiaries, in the case of
irrevocable trusts and in the case of estates in which the Bank of Raleigh
serves as sole executor.
</TABLE>
<PAGE> 22
The following table sets forth as of March 1, 1996, certain information with
respect to Horizon's Common Stock owned beneficially by directors and executive
officers of Horizon as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C> <C> <C>
Common Stock John M. Alderson, IV 9,034 (18)
Common Stock Phillip W. Cain 1,925 (1) (18)
Common Stock W. H. File, III 3,590 (2) (18)
Common Stock David W. Hambrick 10,969 (3) (18)
Common Stock Frank S. Harkins, Jr. 12,311 (4) (18)
Common Stock John C. Horton, Jr. 42,724 (5) 1.51%
Common Stock Tracy W. Hylton, II 3,200 (18)
Common Stock William E. Kane 12,097 (18)
Common Stock Robert L. Kosnoski 21,046 (18)
Common Stock Thomas E. Lilly 2,535 (6) (18)
Common Stock Carolyn H. McCulloch 157,926 (7) 5.6%
Common Stock Philip L. McLaughlin 10,804 (8) (18)
Common Stock Harper W. Nelson 3,863 (9) (18)
Common Stock Rodney H. Pack 6,216 (10) (18)
Common Stock E. M. Payne III 24,335 (11) (18)
Common Stock R. T. Rogers 9,096 (12) (18)
Common Stock James E. Songer 26,886 (13) (18)
Common Stock Albert M. Tieche, Jr. 21,781 (14) (18)
Common Stock E. A. Tuckwiller, Jr. 3,109 (15) (18)
Common Stock Earl R. Turner 2,293 (16) (18)
Common Stock All directors and executive 385,740 (17) 13.6%
officers of Horizon as a group
(20 individuals including
those named above)
<FN>
(1) Consists of 1,806 shares owned of record; 84 shares owned by spouse; and
35 shares owned by his son.
(2) Consists of 3,365 shares owned of record; and 225 shares owned as custodian for son.
(3) Consists of 9,713 shares owned of record; and 1,256 shares owned by spouse.
(4) Consists of 2,020 shares owned of record; 3,569 shares owned jointly with
spouse; 700 shares owned by spouse; 100 shares owned by his mother-in-law
jointly with Mr. Harkins' spouse; and 5,922 shares in an Individual
Retirement Account.
(5) Consists of 26,262 shares owned of record; and 16,462 shares owned by Mary
Key Horton Family Trust, Greenbrier Valley National Bank Trustee.
</TABLE>
<PAGE> 23
(6) Consists of 500 shares owned of record; 635 shares owned by Lillys'
Crown Jewelers, Inc. of which Mr. Lilly is President; and 1,400
shares owned by Lilly Family Trust of which Mr. Lilly is trustee.
(7) Consists of 15,138 shares owned of record: 106,530 shares owned by her
sister-in-law, Polly Jo Masters, for which Mrs. McCulloch holds a special
power of attorney to vote the shares; 36,258 shares held by Bank of
Raleigh Trustee for John H. McCulloch Revocable Life Insurance
Trust-Marital Trust, of which Mrs. McCulloch is beneficiary.
(8) Consists of 10,512 shares owned of record; and 27 shares owned jointly
with spouse; 90 shares owned by spouse; and 175 shares in an Individual
Retirement Account.
(9) Consists of 2,814 shares owned of record; and 1,049 shares owned jointly
with spouse.
(10) Consists of 814 shares owned of record; 2,882 shares owned jointly with
spouse; and 2,520 shares owned jointly with mother.
(11) Consists of 2,203 shares owned of record; 4,141 shares owned by family
members; 8,005 shares owned by Piney Land Company of which Mr. Payne is
President; 2,986 shares owned by McCreery Coal Land Company of which Mr.
Payne is President; 300 shares owned by Combahee Investment Corporation
of which Mr. Payne is President; 4,000 shares owned by Hilton Head
Equity Management Company of which Mr. Payne is President; and 2,700
shares owned by James T. McCreery Company of which Mr. Payne is Vice
President.
(12) Consists of 8,771 shares owned of record; and 325 shares owned by spouse.
(13) Consists of 20,652 shares owned of record; 234 shares owned by spouse;
2,500 shares owned by Songer Insurance Company of which Mr. Songer is
President; 2,000 shares owned by Homeseekers Land and Building Co., Inc.
of which Mr. Songer is President; and 1,500 shares owned by Sunset
Memorial Park, Inc. of which Mr. Songer is President.
(14) Consists of 13,003 shares owned of record; 6,000 shares owned by Beckley
Hospital, Inc. Employee's Retirement Plan and Trust; and 2,778 shares
owned by Beckley Hospital, Inc. Mr. Tieche is Administrator and
Treasurer of Beckley Hospital, Inc.
(15) consists of 62 shares owned of record; 2,721 shares owned jointly with
spouse; 303 shares owned jointly with son; and 22 shares owned
jointly by spouse and grandson.
(16) Consists of 2,000 shares owned jointly with spouse; and 293 shares in an
Individual Retirement Account.
(17) In computing the aggregate number of shares owned by directors and
executive officers of Horizon and its subsidiaries as a group, the same
shares have not been counted more than once.
(18) Beneficial ownership does not exceed one percent of the class.
<PAGE> 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Horizon and its various banking subsidiaries have had and expect to have in the
future, transactions in the ordinary course of their business with directors,
officers, principal shareholders and their associates. During 1995, all of
these transactions were made on substantially the same terms, including
interest rates, collateral and repayment terms on extensions of credit, as
those prevailing at the same time for comparable transactions with other
unaffiliated persons. Loans to these individuals, which at December 31, 1995
were, in the aggregate, 14.82% of total shareholders' equity, in the opinion of
the management of Horizon, did not involve more than the normal risk of
collectibility or present other unfavorable features.
The Bank of Raleigh paid fees in 1995 and expects to pay fees in 1996, to File,
Payne, Scherer & File, Attorneys at Law, of which Bank of Raleigh and Horizon
director W. H. File, III, and director and Secretary of Horizon, E. M. Payne
III, are partners. Based on information provided by that firm, the amount paid
to that law firm in 1995 did not exceed 5% of the firm's gross revenues.
During 1995, Horizon paid premiums for Horizon and its subsidiaries, including
property and casualty insurance, directors and officers liability, blanket
bond, and various other financial bonds and insurance coverages to Songer
Insurance Agency, of which Bank of Raleigh and Horizon director, James E.
Songer, is President and majority shareholder. Based on information provided
by Songer Insurance Agency, amounts paid to this agency did not exceed 5% of
its gross revenues. E. M. Payne III has been a member of the Horizon
Compensation Committee since 1992 and has served as Chairman of the Committee
since 1993. James E. Songer has served as a member of the Compensation
Committee from 1992 to present.
In the opinion of Horizon, these transactions were on terms no less favorable
to Horizon than they would have been with third parties not otherwise
affiliated with Horizon.
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements on pages 29 through 45 of Horizon's
1995 Annual Report to Shareholders are incorporated herein by reference:
Consolidated balance sheets - December 31, 1995 and 1994
Consolidated statements of income - years ended December 31, 1995, 1994,
and 1993
Consolidated statements of shareholders' equity - years ended December 31,
1995, 1994, and 1993
Consolidated statements of cash flows - years ended December 31, 1995,
1994, and 1993
Notes to consolidated financial statements - December 31, 1995
(a)(2) None.
(b) None.
(c) Exhibits
(a)(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
(12) Statements re: Computation of Ratios
(13) Horizon Bancorp, Inc. 1995 Annual Report
(21) Subsidiaries of Registrant -
Bank of Raleigh, a state banking corporation wholly owned by registrant.
National Bank of Summers of Hinton, 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) /s/Consent of Ernst & Young LLP
(27) Financial Data Schedule
<PAGE> 26
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, 1996.
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, 1996.
/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
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ E. M. Payne III
Secretary
/s/ John M. Alderson IV
Director
/s/ Phillip W. Cain
Director
/s/ W. H. File III
Director
/ / John C. Horton, Jr.
Director (Deceased March 23, 1996)
/s/ Tracy W. Hylton II
Director
/s/ William E. Kane
Director
/s/ Robert L. Kosnoski
Director
/s/ Thomas E. Lilly
Director
/s/ Carolyn H. McCulloch
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/ Earl R. Turner
Director
<PAGE> 1
EXHIBIT 11 - COMPUTATION RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Primary:
Average shares outstanding 2,833,330 2,835,000 2,835,000
Net effect of options 2,115 85 0
Total 2,835,445 2,835,085 2,835,000
Net Income 8,071,000 6,971,000 6,519,000
Earnings Per Share $2.85 $2.46 $2.30
Fully Diluted:
Average shares outstanding 2,833,330 2,835,000 2,835,000
Net effect of options 2,492 85 0
Total 2,835,822 2,835,085 2,835,000
Net Income 8,071,000 6,971,000 6,519,000
Earnings Per Share $2.85 $2.46 $2.30
</TABLE>
<PAGE> 1
Exhibit 12
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
<S> <C>
Average Equity to Average Assets = Average Equity Divided by Average Assets
Return on Average Assets = Net Income Divided by Average Assets
Return on Average Equity = Net Income Divided by Average Equity
Efficiency Ratio = Total Other Expenses Divided by Net Interest Income Plus Total Other Income
Dividends Declared as a Percent of Net Income = Cash Dividends Divided by Net Income
Average Total Loans to Average Deposits = Average Total Loans Divided by Average Deposits
Nonperforming Loans to Total Loans = Nonaccruing Loans Plus Loans Ninety Days Past Due and Accruing Interest
plus Restructured Loans Divided by Total Loans
Nonperforming Assets to Total Assets = Nonaccruing Loans plus Loans Ninety Days Past Due and Accruing Interest
plus Restructured Loans plus Other Real Estate Owned plus In-substance
Foreclosure Divided by Total Assets
Allowance for Loan Losses to Nonperforming Loans = Allowance for Loan Losses Divided by Nonaccruing Loans plus Loans Ninety
Days Past Due and Accuring Interest Plus Restructured Loans
Allowance for Loan Losses as a Percent of Total Loans = Allowance for Loan Losses Divided by Total Loans
</TABLE>
<PAGE> 1
EXHIBIT 13
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
TABLE OF CONTENTS
- ---------------------------------------------------------------------------------------------
Consolidated Financial Highlights ..... 1 Consolidated Financial Statements ....... 29
Letter to Our Shareholders, Notes to Consolidated Financial
Customers and Friends ............... 2 Statements ............................ 33
Management's Discussion & Shareholders' Information ............... 46
Analysis of Financial Directors, Horizon Bancorp,
Condition and Results of Inc. and Affiliates ................... 47
Operations .......................... 5 Additional Information .................. 48
Report of Independent Auditors ........ 27
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
DECEMBER 31
1995 1994
-------------------------
<S> <C> <C>
FOR THE PERIOD ENDED
Net interest income ........................... $ 28,423 $ 26,644
Noninterest income ............................ 3,022 2,447
Net income .................................... 8,071 6,971
Cash dividends ................................ 2,973 2,752
PER SHARE DATA
Net income .................................... $ 2.85 $ 2.46
Cash dividends declared ....................... 1.05 0.97
Year-end book value ........................... 25.13 22.43
SELECTED AVERAGE BALANCES
Total assets .................................. $595,867 $563,564
Net loans ..................................... 399,759 362,027
Investment securities ......................... 148,770 159,942
Earning assets ................................ 559,099 535,235
Deposits ...................................... 503,796 477,511
Shareholders' equity .......................... 67,300 61,767
SELECTED BALANCES AT YEAR-END
Total assets .................................. $614,745 $569,935
Net loans ..................................... 419,880 370,582
Investment securities ......................... 149,533 155,150
Earning assets ................................ 571,813 531,082
Deposits ...................................... 514,475 483,555
Shareholders' equity .......................... 71,107 63,582
SELECTED RATIOS
Return on average equity ...................... 11.99% 11.29%
Return on average assets ...................... 1.35% 1.24%
Net interest margin (taxable equivalent) ...... 5.30% 5.20%
Net charge-offs to average net loans .......... 0.22% 0.23%
Average equity to average assets .............. 11.29% 10.96%
Risk-based capital:
Tier I capital to risk-adjusted assets ....... 17.96% 18.23%
Total capital to risk-adjusted assets ........ 19.21% 19.48%
Leverage ..................................... 11.31% 11.28%
</TABLE>
1
<PAGE> 2
- -------------------------------------------------------------------------------
LETTER TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS
- -------------------------------------------------------------------------------
DEAR HORIZON SHAREHOLDERS:
We are pleased to report to you that Horizon enjoyed record earnings in
1996, continuing the positive momentum the company has experienced over the past
five years. Net income for the year reached $8.07 million, or $2.85 per share,
an increase of 15.4% over the $2.46 reported in 1994. The return on average
assets (ROA) for the year was 1.35% as was the return on average equity (R0E),
which reached 11.99%.
Horizon's strong financial results continue to be supported by a net
interest margin of 5.30%, up from 5.20% in 1994. Net interest income for the
year was $28.4 million compared to $26.6 million, an increase of 6.68% from
1994. Maintaining the interest margin, our primary source of income, remains an
ongoing challenge.
Noninterest income increased to $3.02 million from $2.45 million, an
increase of 23.5%. Noninterest expense increased 5.4% to $18.3 million in 1995
from $17.4 million in 1994. Net overhead, which is noninterest expense less
noninterest income excluding securities transactions, as a percent of average
earning assets, increased 1.8% in 1995 when compared to 1994. Horizon's
efficiency ratio, an industry measure of overhead control, was 58.3% in 1995,
compared to 59.8% in 1994 and has been better than Horizon's peers for each of
the last five years.
The company's capital position remains strong with $71.1 million in total
equity, or 11.57% of assets. The market price of your stock increased 36% during
1995 from $28.63 per share at December 31, 1994 to $39.00 per share at year end
1995, creating total market capitalization at year end of $110 million, an
increase of $29 million in shareholder value during the year.
We encourage you to read the "Management Discussion and Analysis" in this
report for a more complete explanation of Horizon's financial performance.
During the year, the Board of Directors took several initiatives designed
to maintain your Horizon shares as an attractive investment. Included in these
is a dividend reinvestment plan which provides a convenient and economical means
to automatically invest all or a portion of your quarterly dividends in
additional Horizon shares. Horizon also offers you the opportunity to have your
quarterly dividends electronically deposited into your designated bank on the
dividend payment date. Both services are voluntary and transaction costs are
paid by the Company.
Horizon's strong equity position continues to compliment the company's
strategic initiative of growth through acquisition. In April 1995, we completed
the purchase of four supermarket branch locations in Kroger stores from a
regional banking company. These offices held $20.9 million in deposits and $17.4
million in loans, and permitted us to add convenient locations and expanded
hours.
On February 7, 1996, Horizon Bancorp, Inc. announced an agreement with
Twentieth Bancorp, Inc., a $318 million banking company headquartered in
Huntington, West Virginia, to acquire the company and to merge Twentieth Street
Bank into Horizon. Twentieth operates six offices in two counties in
southwestern West Virginia and has the second largest market share in
Huntington, West Virginia. After the merger, Horizon will have assets in excess
of $930 million, will operate twenty offices in seven counties, and will be the
fifth largest independent banking company in West Virginia. This strategic
combination with Twentieth Bancorp is a major step toward our goal of becoming
one of West Virginia's premier independent banking organizations. The merger is
subject to the approval of shareholders of both companies. The information
accompanying this letter fully explains the merger.
The acquisition of Twentieth Bancorp reaffirms Horizon's philosophy of
expanding our company through the affiliation of community banks which share our
community focus. Its inclusion into our company will be reflective of the
decentralized management structure which lets local Horizon affiliate banks make
decisions where they make the most sense - the local community. As we grow, and
more affiliate banks join our company, that commitment to local management will
remain. Who knows best about the needs of your community than your local banker?
<PAGE> 3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Without question, 1995 was an excellent year. We realize, however, to
succeed we must continue to focus on details. We must be flexible to meet
customers needs, particularly those requiring technology-driven alternatives to
traditional banking. Our 1995 introduction of telephone banking and our check
imaging process are two recent examples of our use of technology to meet
customer needs. We will continue to explore opportunities to expand
technology-enhanced customer service.
We have not forgotten, however, that it is the people of our organization
that enable us to succeed. Their commitment to excellence, along with the
leadership of our Boards of Directors, assures our company's future.
This commitment of our people could not have been better demonstrated than
by two of our executive officers who passed away in 1995 and one member of the
Board of Directors who passed away in early 1996. Paul E. Hess, President and
CEO of National Bank of Summers of Hinton died on May 3, 1995 after a
distinguished career in banking expanding nearly forty years, the last ten years
of which was as CEO of the National Bank of Summers of Hinton. Beulah D. Moore,
Executive Vice President and CEO of First National Bank in Marlinton died
November 8, 1995. Beulah dedicated her entire banking career of forty-three
years to the First National Bank of Marlinton, twenty-six years of which were in
her capacity as CEO. Words cannot adequately express the debt of gratitude owed
these three leaders, who contributed so significantly to our company's success.
We will miss them.
Yours sincerely,
----------------------------- ---------------------------
Frank S. Harkins, Jr. Philip L. McLaughlin
Chairman of the Board President & CEO
EARNINGS PER SHARE/DIVIDENDS PER SHARE
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
[ ] Earnings per Share $1.55 $2.17 $2.30 $2.46 $2.85
[ ] Dividends per Share $0.75 $0.85 $0.93 $0.97 $1.05
</TABLE>
3
<PAGE> 4
FINANCIAL
SUMMARY
&
REVIEW
HORIZON BANCORP, INC.
<PAGE> 5
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCAIL 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 of
Hinton. Horizon Bancorp's subsidiaries engage in commercial banking activities
which provide financial and trust services to individuals and commercial
customers primarily in Fayette, 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
----------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Interest income $ 46,474 $ 41,217 $ 40,647 $ 42,609 $ 45,199
Interest expense 18,051 14,573 15,266 18,735 23,879
Net interest income 28,423 26,644 25,381 23,874 21,320
Provision for loan losses 1,061 1,525 1,955 2,069 2,754
Noninterest income 3,022 2,447 2,506 2,598 2,214
Noninterest expense 18,324 17,394 16,353 15,392 14,707
Provision for income taxes 3,989 3,201 3,060 2,851 1,627
Net income 8,071 6,971 6,519 6,160 4,446
PER SHARE OF COMMON STOCK:
Net income $ 2.85 $ 2.46 $ 2.30 $ 2.17 $ 1.55
Dividends declared 1.05 0.97 0.93 0.85 0.75
Book value 25.13 22.43 21.39 19.98 18.36
AVERAGE BALANCE SHEET SUMMARY:
Total loans $399,759 $362,027 $331,948 $307,542 $273,449
Investment securities 148,770 159,942 173,993 175,152 185,882
Total assets 595,867 563,564 550,174 530,144 506,783
Deposits 503,796 477,511 469,655 452,690 432,274
Long-term debt -- 266 800 1,400 2,150
Equity 67,300 61,767 58,431 54,929 51,880
BALANCES AT YEAR-END:
Total assets $614,745 $569,935 $555,671 $541,131 $511,624
Net loans 419,880 370,582 343,539 317,995 281,562
Investment securities 149,533 155,150 170,359 166,948 184,938
Earning assets 571,813 531,082 522,196 507,784 477,568
Deposits 514,475 483,555 472,415 463,356 435,150
Shareholders' equity 71,107 63,582 60,637 56,647 52,819
KEY FINANCIAL RATIOS:
Average equity to average assets 11.29% 10.96% 10.62% 10.36% 10.24%
Return on average assets 1.35% 1.24% 1.18% 1.16% 0.88%
Return on average equity 11.99% 11.29% 11.16% 11.21% 8.57%
Efficiency ratio 58.27% 59.79% 58.64% 58.14% 62.49%
Dividends declared as a percent of net income 36.84% 39.48% 39.19% 34.50% 43.61%
Average total loans to average deposits 79.35% 75.82% 70.68% 67.94% 63.26%
ASSET QUALITY:
Nonperforming loans to total loans 1.30% 1.26% 2.50% 1.73% 1.97%
Nonperforming assets to total assets 0.98% 0.98% 1.76% 1.41% 1.64%
Allowance for loan losses to nonperforming loans 117.92% 132.89% 64.61% 83.81% 62.71%
Allowance for loan losses as a percent of total loans 1.53% 1.68% 1.62% 1.45% 1.24%
</TABLE>
5
<PAGE> 6
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
FINANCIAL REVIEW
Horizon reported consolidated net income for 1995 of $8,071, or $2.85 per
share, compared with $6,971, or $2.46 per share, in 1994. This increase in net
income for 1995 is partially attributable to growth of approximately $32,303 or
5.73% in average assets and a corresponding increase of 10 basis points in the
net interest margin. Improvements in asset quality resulted in decreased
provision for loan losses of $464 or 30.43% during 1995. Income was also
enhanced in 1995 by a $575 or 23.50% increase in noninterest income. Gains in
income were offset by a $930 or 5.35% increase in noninterest expenses and a
$788 or 24.62% increase in income tax expense. Net income for 1994 of $6,971
represents an increase of 6.93% over net income recorded in 1993. The increase
in 1994 was attributable to growth in average assets and asset quality
improvements which helped reduce the provision for loan losses.
A five-year summary of operating results and other financial highlights is
presented in Table 1.
EARNINGS PER SHARE
<TABLE>
<S> <C>
1991 $1.55
1992 $2.17
1993 $2.30
1994 $2.46
1995 $2.85
</TABLE>
Dividends per share were $1.05 for the year ended December 31, 1995, compared
to $0.97 for 1994 and $0.93 for 1993. The dividend increase in 1995 was $0.08
or 8.25% per share and represents a dividends payout of 36.84%.
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
year ended December 31, 1995, Horizon's ROA was 1.35%, compared to 1.24%, and
1.18% for the years ended December 31, 1994 and 1993. For the year ended
December 31, 1995, Horizon's ROE totaled 11.99%, compared to 11.29% and 11.16%
for the years ended December 31, 1994 and 1993.
Total assets increased $44,810 or 7.86% during 1995 to $614,745 partially as
the result of the purchase of four branch offices of a regional bank.
These branches, in Kroger supermarkets, were in Horizon's present market areas
and added $17,396 in loans and $20,987 to total deposits.
Average assets increased 5.73% in 1995 as compared to increases of 2.43% in 1994
and 3.78% in 1993. Average loans increased $37,732 or 10.42% and compares
favorably to 1994's increase of $30,079 or 9.06%. Part of 1995's increase in
average loans is due to the acquisition of approximately $17,396 in loans
related to the aforementioned bank branch purchases. Loan growth during 1995
was funded by an increase in average deposits of $26,285, or 5.50%, to $503,796
during 1995 from $477,511 during 1994. The loan to deposit ratio was 82.88% at
December 31, 1995 compared to 77.95% at December 31, 1994 and 73.92% at December
31, 1993.
Management is not aware of trends, events or uncertainties that will affect the
results of operations. There are no regulatory recommendations which, if
implemented, would negatively impact the results of Horizon Bancorp, Inc.
6
<PAGE> 7
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RETURN ON AVERAGE ASSETS
<TABLE>
<S> <C>
1991 0.88%
1992 1.16%
1993 1.18%
1994 1.24%
1995 1.35%
</TABLE>
RETURN ON AVERAGE EQUITY
<TABLE>
<S> <C>
1991 8.57%
1992 11.21%
1993 11.16%
1994 11.29%
1995 11.99%
</TABLE>
ACQUISITION ACTIVITY
In February 1996, Horizon entered into a definitive agreement to acquire all of
the outstanding common stock of Twentieth Bancorp, Inc. (Twentieth),
headquartered in Huntington, West Virginia. Horizon will exchange 1.01 shares
of its common stock for each share of Twentieth's common stock outstanding
(approximately 1,818,000 shares of Horizon common stock to be issued). This
business combination is expected to be accounted for as a pooling of interests.
The pooling of interests method requires the combining of the financial
information of the merging companies as though they had always been combined.
At December 31, 1995, Twentieth had total assets and deposits of approximately
$317,800 and $280,250.
During the first and second quarter of 1995, two of Horizon's subsidiary banks
acquired certain assets and assumed certain liabilities of four branch offices
of a regional bank for approximately $125. These four branch offices had assets
of approximately $21,000 at the time of acquisition. This transaction was
accounted for under the purchase method of accounting.
NET INTEREST INCOME
Net interest income, interest income less interest expense, is Horizon'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 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, as indicated in Table 2. The "taxable-equivalent basis" adjustment has
been included in interest income to reflect the level of income had income on
tax exempt investments and loans been exempt from income taxes, at a tax rate
of 35.0% for 1995 and 34.0% in 1994 and 1993.
Net interest income, tax adjusted ("net interest income") increased 6.63% or
$1,842 for the year ended December 31, 1995, from $27,799 reported for the year
ended December 31, 1994. This compares to an increase of $1,438 or 5.46% for
1994. As a result, Horizon's net interest margin rose 10 basis points to 5.30%
during 1995, following a 20 basis point increase during 1994. Average total
loans increased $37,732 or 10.42% during 1995 and contributed to the growth in
net interest income. Average earning assets during 1995 were $559,099 compared
to the $535,235 during 1994. Average interest-bearing liabilities increased
5.57% during 1995 and 0.98% during 1994. 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 and the
ability of Horizon to reprice assets more quickly than liabilities reprice.
Horizon's interest rate spread expanded from 4.3% in 1993 to 4.5% in 1994 and
1995. The interest rate spread increased in 1994 due to management reducing the
weighted average cost of funds. Horizon is liability sensitive and has managed
to maintain the 4.5% spread in 1995, a time of increasing interest rates. This
was accomplished through active asset/liability management of core deposits
which tend to reprice more slowly than interest earning assets.
7
<PAGE> 8
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
Average interest-earning assets increased $23,864 or 4.46% during 1995 and
$10,284 or 1.96% during 1994. Average total loans increased 10.42% during 1995,
compared to an increase of $30,079 or 9.06% during 1994. These increases are
representative of current economic activity and efforts by management to extend
its market share in commercial and consumer loans. The increase in average
total loans has been partially funded by the $11,172 or 6.99% decline in
average investment securities during 1995. This decline in average investment
securities follows a $14,051 or 8.08% decline during 1994. Average federal
funds sold decreased $1,733 or 14.09% in 1995 and $4,207 or 25.48% in 1994.
Management has made efforts to lower the average balance of federal funds sold
and deploy these funds into higher-yielding assets.
Average interest-bearing liabilities increased $24,020 or 5.57% in 1995 and
$4,186 or 0.98% in 1994. During this period, Horizon attracted additional
deposits due to core growth, and customers gradually shifted their funds to
higher yielding accounts. Average short-term borrowings which are principally
repurchase agreements, decreased $2,028 or 10.78% in 1995 following an average
balance increase of $1,817 or 10.69% in 1994.
Table 2 summarizes the composition of average interest-earnings 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.
8
<PAGE> 9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 2
AVERAGE BALANCE SHEETS, INTEREST RATES ON
EARNING ASSETS, AND INTEREST BEARING LIABILITIES
----------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST BALANCE EXPENSE COST
----------------------------------------------------------------------------------------------
<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%
Federal funds sold 10,570 587 5.6 12,303 521 4.2 16,510 505 3.1
Investment securities:
Taxable 107,755 6,949 6.4 119,129 7,405 6.2 143,244 9,635 6.7
Tax exempt (1) 41,015 3,188 7.8 40,813 3,139 7.7 30,749 2,611 8.5
----------------------------------------------------------------------------------------------
Total investment securities 148,770 10,137 6.8 159,942 10,544 6.6 173,993 12,246 7.0
Total loans (1)(2) 399,759 36,968 9.2 362,027 31,220 8.6 331,948 28,638 8.6
----------------------------------------------------------------------------------------------
Total earning assets
and interest income 559,099 47,692 8.5 535,235 42,372 7.9 524,951 41,627 7.9
Noninterest earning assets:
Cash and due from banks 16,923 15,183 14,268
Premises and equipment 9,435 6,996 6,899
Other assets 16,899 12,062 9,009
Less: Allowance for loan
losses (6,489) (5,912) (4,953)
-------- -------- --------
Total assets $595,867 $563,564 $550,174
======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 82,681 $ 2,288 2.8% $ 90,584 $ 2,464 2.7% $ 87,078 $ 2,490 2.9%
Savings deposits 114,900 3,715 3.2 131,095 3,910 3.0 119,760 4,049 3.4
Certificates of deposit 240,803 11,521 4.8 190,657 7,650 4.0 203,429 8,203 4.0
----------------------------------------------------------------------------------------------
Total interest-
bearing deposits 438,384 17,524 4.0 412,336 14,024 3.4 410,267 14,742 3.6
Short-term borrowings 16,786 527 3.1 18,814 549 2.9 16,697 524 3.1
----------------------------------------------------------------------------------------------
Total interest-bearing
liabilities and interest
expense 455,170 18,051 4.0 431,150 14,573 3.4 426,964 15,266 3.6
--------------- ---------------- -----------------
Noninterest-bearing liabilities:
Demand deposits 65,412 65,175 59,388
Other 7,985 5,472 5,391
-------- -------- --------
Total liabilities 528,567 501,797 491,743
Shareholders' equity 67,300 61,767 58,431
-------- -------- --------
Total liabilities and
shareholders' equity $595,867 $563,564 $550,174
======== ======== ========
Net interest income $29,641 $27,799 $26,361
======= ======= =======
Spread 4.5% 4.5% 4.3%
==== ==== ====
Net interest margin 5.3% 5.2% 5.0%
==== ==== ====
<FN>
(1) Fully taxable equivalent using 35% in 1995 and 34% in 1994 and 1993.
(2) Nonaccrual loans are included in average balances.
</TABLE>
9
<PAGE> 10
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 3
CHANGES IN INTEREST MARGIN ATTRIBUTABLE
TO RATE AND VOLUME
-----------------------------------------------------------------------------
1995 VS. 1994 1994 VS. 1993
DUE TO CHANGE IN DUE TO CHANGE IN
VOLUME RATE TOTAL VOLUME RATE TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with other banks $ (87) $ -- $ (87) $ (139) $ (12) $ (151)
Federal funds sold (83) 149 66 (145) 161 16
Securities:
Taxable (697) 241 (456) (1,545) (685) (2,230)
Tax exempt 14 35 49 792 (264) 528
-----------------------------------------------------------------------------
Total investment securities (683) 276 (407) (753) (949) (1,702)
Total loans 3,444 2,304 5,748 2,582 -- 2,582
-----------------------------------------------------------------------------
Total interest income 2,591 2,729 5,320 1,545 (800) 745
Demand deposits (251) 75 (176) 119 (145) (26)
Savings deposits (467) 272 (195) 365 (504) (139)
Certificates of savings 2,199 1,672 3,871 (553) -- (553)
Short term borrowings (60) 38 (22) 38 (13) 25
-----------------------------------------------------------------------------
Total interest expense 1,421 2,057 3,478 (31) (662) (693)
-----------------------------------------------------------------------------
Net interest income $1,170 $ 672 $1,842 $ 1,576 $(138) $ 1,438
=============================================================================
</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 is income generated by Horizon other than interest income.
It 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 $575 or 23.50% during the year ended December 31,
1995, due to increased service charges of $220 or 12.35%, trust income of $75
or 20.33%, and other income of $224 or 46.38%. Service charges increased due to
higher deposit balances along with increased trnasactions and refinement of the
service charge schedule. Trust income increased due to growth in this
department and increased estate settlements. Other income increased due to
gains recognized on the sale of other real estate owned and increased insurance
commissions related to various lending products.
Noninterest income decreased in 1994 by $59 or 2.35% due partially to the
change in investment securities gains and losses (losses of $187 in 1994 as
compared to gains of $77 in 1993). Most of the 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 in 1994 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.
<TABLE>
<CAPTION>
TABLE 4
NONINTEREST INCOME
--------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges and fees $2,002 $1,782 $1,610 $1,257 $1,179
Fees from trust services 444 369 324 242 192
Securities (losses) and gains (131) (187) 77 245 12
Other 707 483 495 854 831
--------------------------------------------------
Total $3,022 $2,447 $2,506 $2,598 $2,214
==================================================
</TABLE>
10
<PAGE> 11
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- -------------------------------------------------------------------------------
NONINTEREST EXPENSE
Noninterest expense is frequently referred to as overhead; that is the cost of
normal operations. Noninterest expense increased $930 or 5.35% in 1995 and
$1,041 or 6.37% in 1994. Continuing growth in noninterest expense reflects the
increased cost incurred to compete as community banks through the implementation
and servicing of various banking products. Horizon has made a major commitment
to enhancing its information systems and customer service through additional
technology including image processing which has increased noninterest expense.
Horizon expects to leverage this investment in technology to increase future
revenues and customer convenience and satisfaction.
Even though noninterest expense has increased over each of the past five years,
Horizon has managed to maintain an efficiency ratio between 58.14% and 62.49%.
The efficiency ratio measures how effectively management utilizes noninterest
expense to generate both net interest income and other income. A lower
efficiency ratio generally means that the organization is effectively leveraging
its noninterest expense to generate net interest income and other income.
Horizon's efficiency ratio has been better than its peers over the past five
years.
Salaries and employee benefits increased $408 or 5.05% during 1995 and $134 or
1.69% during 1994. Reasons for the increase in 1995 include $224 in additional
salaries and employee benefits associated with the regional bank branch
purchases, an increase of $66 or 14.86% in pension cost, and $118 in salary
increases. The increase in 1994 was primarily due to normal salary increases.
For the year ended December 31, 1995, net occupancy and equipment expense
increased $617 or 29.86% primarily because of $426 or 58.44% additional
depreciation on building and equipment. The principal reason for the increase is
depreciation on data processing equipment of $405 and other technology
enhancements placed into service during 1995. Net occupancy and equipment
expense increased $236 or 12.90% during 1994 and $113 or 6.58% during 1993. The
increases in 1994 were due to repairs, remodeling, and the reduction in the
estimated useful life of a bank building.
Outside data processing expense increased $104 or 9.97% in 1995 as compared to
an increase of $192 or 22.56% in 1994 and $62 or 7.86% in 1993. The principal
reasons for the increase in data processing expense in 1995 are the growth in
items processed and the increased technological enhancements. The primary
reason for the increase in outside data processing expense in 1994 was the
payment of $170 to terminate an old contract and conversion costs.
Deposit insurance assessments declined $515 or 48.63% in 1995 due to decreased
FDIC insurance premiums. This is compared to an increase of $17 or 1.63% in
FDIC insurance premiums during 1994. In September 1995, the FDIC lowered the
deposit insurance premium for a "well capitalized institution" from
twenty-three cents to four cents per $100 of average deposits and refunded a
substantial portion of the first six months' premium. In December 1995, the FDIC
set the 1996 premium for insured deposits at the statutory minimum of $2.
Congress is considering an assessment on commercial banks to increase the
Savings Association Insurance Fund; if enacted, the pretax charge to earnings
of Horizon in 1996 would not be material to the financial results of Horizon.
Other operating expense increased $307 or 6.61% during 1995 and compares to an
increase of $449 or 10.70% during 1994. Included in 1995 are various expenses
associated with credit card processing which increased $202 or 59.06%. The
credit card department experienced growth and has required additional resources
to manage this growth. The increase in 1994 is due to increased costs
associated with the growth in Horizon's balance sheet and introduction of new
financial products to its customers.
11
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- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 5
NONINTEREST EXPENSE
---------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
---------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 8,489 $ 8,081 $ 7,947 $ 7,328 $ 6,576
Net occupancy and equipment 2,683 2,066 1,830 1,717 2,070
Deposit insurance and assessments 544 1,059 1,042 995 896
Advertising 510 501 488 490 485
Outside data processing 1,147 1,043 851 789 799
Other 4,951 4,644 4,195 4,073 3,881
---------------------------------------
Total $18,324 $17,394 $16,353 $15,392 $14,707
=======================================
</TABLE>
INCOME TAXES
The effective tax rate is defined as applicable income taxes expressed as a
percentage of income before income taxes. Horizon's effective tax rate was
33.1% in 1995, 31.5% in 1994, and 31.9% in 1993. The increase during 1995 was
due to Horizon's move in the federal corporate income tax rate structure from
34% to 35%. The decline in the effective tax rate during 1994 was primarily the
result of a higher level of tax-exempt investment securities income and a
reduction in nondeductible merger expenses.
Tax-exempt investment income expressed as a percentage of income before income
taxes was 17.18% in 1995, 20.37% in 1994, and 17.99% in 1993. Horizon will
continue to purchase tax-exempt investments and loans after considering the
after-tax yield and maturity of the investment vehicle.
Refer to Note 9 in Notes to Consolidated Financial Statements for more
information concerning income taxes.
<TABLE>
<CAPTION>
TABLE 6
APPLICABLE INCOME TAXES
----------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
----------------------------------------
<S> <C> <C> <C> <C> <C>
Income before income taxes $12,060 $10,172 $9,579 $9,011 $6,073
Applicable income taxes 3,989 3,201 3,060 2,851 1,627
Effective tax rate 33.1% 31.5% 31.9% 31.6% 26.8%
</TABLE>
QUARTERLY RESULTS
The results of operations for the first three quarters of 1995 have been
disclosed in quarterly reports to shareholders. Note 16 of the Notes to
Consolidated Financial Statements provides summarized unaudited financial data
on a quarterly basis.
For the fourth quarter of 1995, net income totaled $1,802, an increase of $180
or 11.10% over the same quarter of 1994. On a per share basis, fourth quarter
1995 net income was $0.64, compared to $0.58 in 1994, an increase of 10.34%.
Compared with the fourth quarter of 1994, Horizon's fourth quarter 1995 results
reflected lower net interest income, which was more than offset by reduced
provision for loan losses. Net interest income totaled $7,440 in the fourth
quarter of 1995, a decrease of $79 or 1.05% from the net interest income total
of $7,519 for the fourth quarter of 1994. Comparing fourth quarter 1995 to
fourth quarter 1994, total interest income rose $1,088 or 9.70% and interest
expense increased $1,167 or 31.53% and reflects pricing pressures currently
encountered in the market areas. The decline in the provision for loan losses
of $310 or 52.90% from the fourth quarter of 1994 was due to more stable credit
quality during 1995. The fourth quarter 1994 increase in the provision for loan
losses was $276 or 89.03% from the level recorded in the third quarter of 1994.
Management's decision to increase the fourth quarter 1994 provision was guided
by an increase of $189 or 30.24% in consumer loan charge-offs late in 1994.
12
<PAGE> 13
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- -------------------------------------------------------------------------------
Net income decreased in the fourth quarter of 1995, compared to prior quarters
in 1995, due to higher noninterest expenses, primarily related to Horizon's new
data processing system. This investment in technology is expected to increase
noninterest expenses in the near term, however, the expanded use of technology
should increase efficiencies and customer service in the future. Net income
decreased in the fourth quarter of 1994, compared to prior quarters in 1994,
due to higher provisions for loan losses to cover unexpected charge-offs on
consumer loans and securities losses. The securities losses were a result of
the restructuring of the investment portfolio with a strategy designed to take
advantage of the purchase of higher yielding investments.
BALANCE SHEET ANALYSIS
LOANS
At December 31, 1995, total loans approximated $426,402, an increase of $49,492
or 13.13% from the December 31, 1994 total of $376,910. This follows an increase
of $27,720 or 7.94% from December 31, 1993 to 1994. Total loans comprise 69.36%
of total assets on December 31, 1995, and 66.13% of total assets on December 31,
1994. During 1995, two subsidiary banks purchased four branches from a regional
bank, the assets of which included a group of loans. These purchased loans
totaled $17,396 and were comprised primarily of consumer loans.
Commercial loans comprised 30.67% of total loans at December 31, 1995, and have
increased from the 26.58% reported at December 31, 1994. This growth is due to
the financing of several regional grocery stores and motels in Horizon's market
area, an officer call program, and generally positive economic conditions.
Residential real estate loans at December 31, 1995, equaled 43.13% of total
loans, down slightly from 48.27% at December 31, 1994. Residential real estate
loans as a percentage of total loans have declined due to growth in commercial
and consumer loans.
AVERAGE LOANS/AVERAGE DEPOSITS
<TABLE>
<S> <C>
1991 63.26%
1992 67.94%
1993 70.68%
1994 75.82%
1995 79.35%
</TABLE>
Consumer loans totaled $114,298 at December 31, 1995 or 26.81% of total loans.
This is an increase of $21,179 or 22.74% from the previous year-end total of
$93,119. A primary reason for the increase was the purchase of branches
mentioned earlier. Credit card loans, included in consumer loans, totaled $4,978
at December 31, 1995, an increase of $65 or 1.32% from $4,913 at December 31,
1994. This follows an increase of $1,786 or 57.01% in 1994. Growth in 1994 was
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 retail merchants that totaled $5,835 at December 31, 1995.
This is an increase of $1,566 or 36.68% from the December 31, 1994 total of
$4,269.
13
<PAGE> 14
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 7
SUMMARY OF LOANS BY TYPE
------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $130,757 $100,169 $ 93,848 $ 89,500 $ 73,396
Real estate - construction 4,698 6,385 9,266 3,180 2,375
Real estate - mortgage 183,904 181,938 154,262 149,508 136,205
Consumer loans 114,298 93,119 97,025 86,873 77,897
------------------------------------------------
Gross loans 433,657 381,611 354,401 329,061 289,873
Unearned income (7,255) (4,701) (5,211) (6,391) (4,788)
------------------------------------------------
Total loans 426,402 376,910 349,190 322,670 285,085
Allowance for loan losses (6,522) (6,328) (5,651) (4,675) (3,523)
------------------------------------------------
Net loans $419,880 $370,582 $343,539 $317,995 $281,562
================================================
</TABLE>
During the normal course of business, Horizon's subsidiary banks offer certain
financial products to their customers to aid them in meeting their requirements
for liquidity and credit enhancement. These products are accounted for as
contingent liabilities and, accordingly, they are not reflected in the loan
balances until the commitment is funded. These commitments include letters of
credit and lines of credit which are made under various conditions. See Note 13
of the Notes to Consolidated Financial Statements for additional information.
Horizon's loan portfolio is considered diversified within the market areas it
serves. No particular group of loans currently exceed 10% of total loans.
Maturity ranges of loans are detailed in Table 8. The repayment amounts
shown are reported in the maturity category based on contractual terms.
Rollover of loan balances is not significant.
<TABLE>
<CAPTION>
TABLE 8
MATURITY RANGES OF LOANS
-------------------------------------------
YEAR OR AFTER ONE DUE AFTER
LESS THROUGH FIVE FIVE YEARS TOTAL
-------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 91,530 $ 26,151 $13,076 $130,757
Real estate - construction 3,367 1,331 -- 4,698
Real estate - mortgage 115,118 56,345 12,441 183,904
Consumer loans 51,267 58,765 4,266 114,298
-------------------------------------------
Gross loans $261,282 $142,592 $29,783 $433,657
===========================================
Loans with a predetermined
interest rate due after one year 68,950
Loans with a floating interest 103,425
rate due after one year
</TABLE>
INVESTMENT SECURITIES
Horizon's 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. At December 31,
1995, and 1994, the investment portfolio totaled $149,533 and $155,150,
respectively. In each period, U.S. Treasury and Federal Agency securities
represented a substantial portion of the portfolio total. At December 31, 1995,
U. S. Treasury and Federal Agency securities were $89,848 or 60.09% of the
portfolio and at December 31, 1994 comprised $98,670 or 63.60% of total
investment securities. During 1995, a portion of the maturing investment
securities was used to help fund Horizon's 13.13% loan growth. Investment
securities averaged $148,770, $159,942 and $173,993 for the years ending
December 31, 1995, 1994, and 1993, respectively.
The investment portfolio decreased $15,209 or 8.93% from December 31, 1993 to
December 31, 1994. This decrease occurred as Horizon's loans grew at a more
rapid rate than deposits during 1994 and investment maturities were used to
fund the 7.87% loan growth.
14
<PAGE> 15
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Horizon places importance on safety and liquidity in its investment portfolio.
U.S. Treasury and federal agencies securities comprise 60.09% of the total
investment portfolio. The U.S. Treasury and federal agencies securities are
short-term and a portion of this portfolio is frequently used for pledging of
public funds or securities sold under agreements to repurchase.
Securities of states and political subdivisions totaled $41,585 at December 31,
1995, and increased $836 or 2.05% from the previous year. This follows an
increase of $501 or 1.24% from December 31, 1993 to December 31, 1994.
Purchasing municipal securities was the result of tax planning for Horizon. The
Company's investments in municipal securities are primarily limited 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
------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. treasury and federal agencies-AFS $ 88,848 $ 43,380 $ -- $ -- $ --
U.S. treasury and federal agencies-HTM 1,000 55,290 115,449 128,534 140,117
States and political subdivisions-AFS 8,172 -- -- -- --
States and political subdivisions-HTM 33,413 40,749 40,248 19,113 25,751
Other securities-AFS 8,628 4,179 -- -- --
Other securities-HTM -- 1,480 7,162 7,418 4,513
Mortgage-backed securities-AFS 9,472 10,010 7,500 11,883 14,557
Mortgage-backed securities-HTM -- 62 -- -- --
------------------------------------------------
Total $149,533 $155,150 $170,359 $166,948 $184,938
================================================
</TABLE>
At December 31, 1995, other securities totaled $8,628 and have increased $2,970
or 52.47% from December 31, 1994. This increase was the result of Horizon
placing a portion of maturing investments in government agencies into higher
yielding debt and equity investments.
Horizon's mortgage backed securities are classified in the available-for-sale
category. While rated as investment grade, they are, nevertheless, subjected to
prepayment risk and market risk since the mortgages related to these securities
can prepay anytime without penalties. This risk occurs when interest rates
decline, causing the securities to lose value since the term and, therefore,
the income stream of the securities have shortened due to prepayments.
Mortgage-backed securities totaled $9,472 at December 31, 1995, a decrease of
$600 or 5.96% from the December 31, 1994 total of $10,072. This decrease is a
direct result of principal payments received during 1995. All mortgage-backed
securities are currently rated as investment grade; however, changes in market
rates could lead to a loss in market value despite the securities carrying a
rating of investment grade. No purchases of mortgage-backed securities were
executed in 1995. Horizon's portfolio contains no high-risk mortgage-backed
securities such as interest-only or principal-only securities.
Other than investments in U.S. treasury and agency securities, no single
investment comprises more than 10% of the portfolio. Horizon's investment
portfolio contains no high risk securities or securities that could be expected
to change in market value more than traditional debt securities.
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 these rules, debt securities that Horizon has both the
positive intent and ability to hold to maturity are carried at amortized cost.
Debt securities that Horizon does not have the positive intent and ability to
hold to maturity and all marketable equity securities are classified as
available-for-sale (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. Horizon holds no investments in the
held-to-maturity category for which the unrealized loss is judged to be other
than temporary.
In October 1995, the Financial Accounting Standards Board (FASB) approved a
one-time "holiday" from FASB 115 restrictions over transfers of
held-to-maturity securities. Companies
15
<PAGE> 16
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
had a one time opportunity to restructure their portfolios. During the
"holiday," Horizon transferred securities with amortized cost of $44,586 from
the held-to-maturity category to the available-to-sale category. The
unrealized gain on those securities was $275 (net of $183 in deferred income
taxes), which is included in shareholders' equity.
At December 31, 1995, Horizon classified 23.01% of its securities as
held-to-maturity and 76.99% classified as available-for-sale. The unrealized
gain on available-for-sale securities, net of deferred taxes, totaled $1,184 at
December 31, 1995. At December 31, 1994, the unrealized loss on
available-for-sale securities totaled $1,297. This change, approximately
$2,481, is primarliy due to changes in interest rates.
<TABLE>
<CAPTION>
TABLE 10
MATURITY OF INVESTMENT SECURITIES
-----------------------------------------------------------------------------------------
1-5 5-10 AFTER 10 TOTAL
1 YEAR AVG. YEARS AVG. YEARS AVG. YEARS AVG. CARRYING 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 $13,599 6.75% $21,689 6.13% $ -- --% $ -- --% $ 35,288 6.37%
U.S. treasury-HTM -- -- -- -- -- -- -- -- -- --
Federal agencies-AFS 8,060 6.27 36,142 6.32 9,358 8.01 -- -- 53,560 6.38
Federal agencies-HTM -- -- 1,000 6.01 -- -- -- -- 1,000 6.01
States and political
subdivisions-AFS 12 7.84 699 6.45 6,436 4.96 1,025 5.11 8,172 5.10
States and political
subdivisions-HTM 1,005 6.10 3,946 5.71 23,267 4.84 5,195 5.22 33,413 5.05
Other securities-AFS 3,407 6.44 2,525 7.16 2,671 7.31 25 6.00 8,628 6.71
Other securities-HTM -- -- -- -- -- -- -- -- -- --
Mortgage-backed
securities-AFS -- -- 338 9.09 988 7.65 8,146 6.86 9,472 7.03
-----------------------------------------------------------------------------------------
Total investment
securities $26,083 6.53% $66,339 6.26% $42,720 5.74% $14,391 6.13% $149,533 6.07%
=========================================================================================
</TABLE>
OVERNIGHT INVESTMENTS
At December 31, 1995, federal funds sold totaled $2,400 which represented 0.39%
of total assets, have declined $2,950 or 55.14% from the December 31, 1994
total of $5,350. Growth in the loan portfolio was partially funded through
reductions in federal funds sold.
DEPOSITS
The Company offers a diverse range of products to its customers, including
interest bearing and noninterest bearing demand accounts, savings accounts, and
certificates of deposit. Horizon does not actively compete solely on the basis
of market interest rates or use brokered funds.
Noninterest-bearing deposits totaled $74,558 at December 31, 1995, an increase
of $3,777 or 5.34% from December 31, 1994. This follows an increase of $8,135 or
12.99% from December 31, 1993 to December 31, 1994. Part of the increase in
noninterest-bearing deposits in 1995 is due to Horizon's acquisition of branches
mentioned earlier and the remainder of 1995's increase along with 1994's
increase is due to the willingness of the customers to conduct business with
banks perceived as locally owned and community oriented.
At December 31, 1995, interest-bearing deposits totaled $439,917, an increase
of $27,143 or 6.58% when compared to the December 31, 1994 total of $412,774.
This compares to an increase of $3,005 or 0.73% for the year ended December 31,
1994. The primary reason for the 1995 increase is Horizon's acquisition of
branches mentioned earlier. The subsidiary banks do not attempt to match
regional competitors' interest rates; instead, rates are set subject to desired
margins and projected budget goals. Interest-bearing transaction accounts,
also known as NOW accounts, totaled $59,370 at December 31, 1995, an increase
of $669 or 1.14% from the $58,701 at December 31, 1994. Money market deposit
accounts and other savings accounts totaled
16
<PAGE> 17
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$134,990 at December 31, 1995, a decrease of $20,275 or 13.06% from the December
31, 1994, total of $155,265. The other major consumer category, time deposits of
less than $100,000, totaled $201,027 at December 31, 1995, an increase of
$37,708 or 23.09% from the December 31, 1994, total of $163,319, reflecting a
continuing shift of deposits from savings deposits to time certificates.
Included in interest-bearing deposits are certificates of deposit in
denominations of $100,000 or more which totaled $44,530 at December 31, 1995.
This is an increase of $9,041 or 25.48% from the December 31, 1994 total of
$35,489. Maturities of certificates of deposit of $100,000 or more are shown in
Table 11. Part of the growth in large denomination certificates of deposit is
attributed to the decline in money market deposits and savings accounts and
reflects higher rates offered on the certificates of deposits during part of
1995. Large denomination certificates of deposit comprise 8.66% of total
deposits at December 31, 1995, having increased from 7.34% at December 31,
1994. Established customers maintain most of the large certificates of deposit
and are considered stable. It is not the policy of the subsidiary banks to
actively bid for public funds or large denomination certificates of deposit.
<TABLE>
<CAPTION>
TABLE 11
MATURITIES OF CERTIFICATES OF
DEPOSIT OF $100,000 OR MORE
-------------------------------------------
AS OF DECEMBER 31
1995 1994 1993 1992 1991
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Three months or less $13,363 $11,727 $12,736 $24,387 $17,322
Over three months through six months 10,857 8,842 6,306 5,116 6,075
Over six months through twelve months 10,854 8,294 9,460 4,185 4,050
Over twelve months 9,456 6,626 3,832 734 1,909
-------------------------------------------
Total $44,530 $35,489 $32,334 $34,422 $29,356
===========================================
</TABLE>
BORROWED FUNDS
Borrowed funds are primarily for customer accomodation and are used to meet
daily liquidity requirements. At December 31, 1995, short-term borrowings
totaled $20,941 and were comprised of $16,941 in securities sold under
agreements to repurchase, $3,000 in federal funds purchased, and $1,000 Federal
Home Loan Bank borrowings. This compares to $16,797 in securities sold under
agreements to repurchase at December 31, 1994, an increase in total short-term
borrowings of $4,144 or 24.67%. The average daily balance of short-term
borrowings in 1995 was $16,786 at a weighted average rate of 3.97%. In
1994, the average daily balance of short-term borrowings was $18,814. The
maximum amount of short-term borrowings at any month end was $24,623 in 1995
and $24,146 in 1994.
Securities sold under agreements to repurchase are primarily for customer
accommodation. Most of the customers who make these agreements have established
accounts and other banking arrangements with Horizon. Balances in federal funds
purchased vary from day to day and are used to meet daily liquidity
requirements.
Refer to Note 8 of Notes to Consolidated Financial Statements for additional
information on short-term borrowings.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $7,525 or 11.84% to $71,107 at December 31, 1995,
from $63,582 at December 31, 1994. The increase in total shareholders' equity
was the result of retained earnings ($5,098) and the change in unrealized gain
on available-for-sale securities, net of deferred income taxes ($2,481). The
internal capital generation rate was 7.57% for the year ended December 31, 1995
and is illustrated in Table 13. This rate is a function of net income, less
dividends, as a percentage of average shareholders' equity.
A frequent measure of capital adequacy is the primary capital ratio which
increased from 12.13% at December 31, 1994 to 12.50% at December 31, 1995.
Growth in primary capital can be
17
<PAGE> 18
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MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
attributed to the retention of operating earnings after payment of dividends
and the increase in the unrealized gain on available-for-sale securities.
Regulatory agencies have adopted guidelines relating to capital for bank
holding companies. These guidelines require the maintenance of an amount of
capital based upon risk-adjusted assets. Assets with potentially higher risk
are required to have more capital than assets with lower risk. Additionally,
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. It is anticipated that the regulatory
agencies will begin considering interest rate risk in assessing capital
adequacy in future reporting periods.
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 intangibles and unrealized gain on available-for-sale securities (plus
unrealized loss on available-for-sale securities). 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.
The minimum standard for Tier I capital, Tier II capital, and leverage ratio is
4%, 8%, and 3%, respectively.
As shown in Table 12, Horizon's Tier I capital ratio was 17.96% at December 31,
1995 down slightly from 18.23% at December 31, 1994. The total risk-based
capital or Tier II ratio was 19.21% at December 31, 1995 and compares to 19.48%
at December 31, 1994. Horizon continues to be well above the minimum regulatory
guidelines for risk-based capital and is illustrated in Table 12.
The regulatory agencies have also added a leverage calculation to the
requirements. The leverage ratio compares Tier I capital to total assets. At
December 31, 1995, and 1994, Horizon's leverage ratio was 11.31%, and 11.28%
significantly above the 3% minimum regulatory requirement.
<TABLE>
<CAPTION>
TABLE 12
CAPITAL ADEQUACY
------------------------------------------------------------
DECEMBER 31
1995 1994 1993 1992 1991
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary capital:
Total shareholders' equity $ 71,107 $ 63,582 $ 60,637 $ 56,647 $ 52,819
Allowance for loan losses 6,522 6,328 5,651 4,675 3,523
------------------------------------------------------------
Total primary capital $ 77,629 $ 69,910 $ 66,288 $ 61,322 $ 56,342
============================================================
Ratio of primary capital to
total assets and allowance for loan losses 12.50% 12.13% 11.81% 11.24% 10.94%
RISK-BASED CAPITAL
Tier I capital:
Common shareholders' equity $ 71,107 $ 63,582 $ 60,637 $ 56,647 $ 52,819
Intangible assets (408) (595) (754) (928) (1,099)
Unrealized (gain) loss on avaliable-for-sale
securities (1,184) 1,297
------------------------------------------------------------
Total Tier I capital 69,515 64,284 59,883 55,719 51,720
Tier II capital:
Allowable allowance for loan losses 4,837 4,408 3,999 3,531 3,056
------------------------------------------------------------
Total risk-based capital $ 74,352 $ 68,692 $ 63,882 $ 59,250 $ 54,776
============================================================
Risk-weighted assets $386,973 $352,663 $319,895 $282,456 $244,445
Risk-based capital ratios:
Tier I capital 17.96% 18.23% 18.72% 19.73% 21.16%
Total capital 19.21% 19.48% 19.97% 20.98% 22.41%
Leverage 11.31% 11.28% 10.78% 10.30% 10.11%
</TABLE>
18
<PAGE> 19
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Table 13 illustrates the relationship between net income and capital
generation. After adjusting for earnings retained, the rate of internal capital
growth increased from 6.83% in 1994 to 7.57% in 1995.
<TABLE>
<CAPTION>
TABLE 13
INTERNAL CAPITAL GENERATION
-------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average equity 11.99% 11.29% 11.16% 11.21% 8.57%
-------------------------------------------
Earnings retained 63.16% 60.52% 60.81% 65.50% 56.39%
-------------------------------------------
Internally generated capital 7.57% 6.83% 6.79% 7.34% 4.83%
===========================================
</TABLE>
In 1995, dividends paid to shareholders totaled $1.05 per share. This is an
increase of 8.25% from the $0.97 per share cash dividend paid to shareholders
in 1994.
ASSET QUALITY
A review of asset quality is centered upon nonaccrual loans, loans past due
ninety days and accruing interest, other real estate owned, and insubstance
foreclosures. Table 14 presents data on these assets for the previous five
years. Nonperforming assets, which totaled $6,034 at December 31, 1995,
increased $422 or 7.52% from the December 31, 1994 total of $5,612. The ratio
of nonperforming loans to total loans has increased slightly from 1.26% at
December 31, 1994 to 1.30% at December 31, 1995 and is primarily due to an
increase in loans ninety days past due and accruing interest. The ratio of
nonperforming assets to total assets remained stable at 0.98% at December 31,
1995 and 1994. The allowance for loan losses to nonperforming loans decreased
from 132.89% at December 31, 1994 to 117.92% at December 31, 1995.
The amount of loans contractually past due more than ninety days which continue
to accrue interest, at December 31, 1995 totaled $3,167 an increase of $1,386 or
77.82% from the $1,781 at December 31, 1994. While the general level of loans
past due more than ninety days has increased consistent with national consumer
debt past due trends, a major portion of Horizon's increase reflects past due
loans of three commercial customers. These commercial credit relationships are
continually monitored by management through the loan review department and
management believes that no significant exposure exists in these credits. At
December 31, 1995, loans past due ninety days or more and accruing interest
comprise 0.74% of total loans and compare to 0.47% at December 31, 1994.
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, including those in the consumer category, are
placed on nonaccural 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 ninety days past due if it is anticipated that interest or
any part of principal may not be collected.
19
<PAGE> 20
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
NONPERFOMING LOANS
<TABLE>
<CAPTION>
ALLOWANCE FOR NONPERFORMING
LOAN LOSSES LOANS
<S> <C> <C>
1991 $3.5 $5.6
1992 $4.7 $5.6
1993 $5.7 $8.7
1994 $6.3 $4.8
1995 $6.5 $5.5
</TABLE>
Nonaccruing loans have declined $617 or 20.70% from $2,981 at December 31, 1994
to $2,364 at December 31, 1995. This decrease was caused by lower nonaccruals
in the commercial loan ($55 decrease) and commercial real estate loan ($546
decrease) categories. These decreases were not caused by any one significant
lending relationship. During 1994, the level of total nonaccrual loans declined
$4,652 or 60.95% and was related to the workout of a credit relationship which
totaled approximately $4.6 million.
Other real estate represents properties acquired in connection with collection
efforts made on loans. Other real estate totaled $503 at December 31, 1995 and
decreased $259 or 33.99% from $762 at December 31, 1994. This follows a decline
of $255 or 25.07% during 1994. Management anticipates no significant difficulty
in disposing of other real estate and believes that no significant losses are
inherent in this nonearning asset category. If a material decline is noted in
the value of tracts of other real estate, write-downs will occur upon receipt
of appraisals or other information which includes a deterioration in the fair
value.
<TABLE>
<CAPTION>
TABLE 14
ANALYSIS OF ASSET QUALITY
--------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $2,364 $2,981 $7,633 $1,986 $3,096
Loans ninety days past due and accruing interest 3,167 1,781 1,113 1,983 2,522
Restructured loans -- -- -- 1,609 --
---------------------------------------------
Total nonperforming loans 5,531 4,762 8,746 5,578 5,618
Other real estate owned 503 762 1,017 1,563 1,984
In-substance foreclosures -- 88 -- 483 775
---------------------------------------------
Total nonperforming assets $6,034 $5,612 $9,763 $7,624 $8,377
=============================================
Nonperforming loans to total loans 1.30% 1.26% 2.50% 1.73% 1.97%
Nonperforming assets to total assets 0.98% 0.98% 1.76% 1.41% 1.64%
Allowance for loan losses to nonperforming loans 117.92% 132.89% 64.61% 83.81% 62.71%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
Effective January 1, 1995, Horizon adopted Financial Accounting Standards Board
(FASB) Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by FASB Statement No. 118. The Statement requires that impaired
loans be measured at the present value of expected future cash flows discounted
at the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. In determining whether a
loan is impaired, management considers such factors as past payment history,
recent economic events, current and projected financial condition of the
borrower, and other relevant information. Impairment is determined on a
loan-by-loan basis and generally consists of significant commercial
20
<PAGE> 21
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
loans. A loan is categorized and reported as impaired when it is probable that
the creditor will be unable to repay all of the principal and interest
according to contractual terms of the loan agreement. Because Horizon is a
retail community banking organization with few large commercial loans, the
adoption of FASB Statement No. 114 did not materially affect its financial
statements, determination of the adequacy of the allowance for loan losses,
reporting of nonperforming assets, revenue recognition, and comparability of
financial information with that of prior years. Additional information on
impaired loans is contained in Note 6 to the consolidated financial statements.
The allowance for loan losses is maintained by management at a level believed
adequate to absorb losses in the loan portfolio. Management reviews the
adequacy of the allowance in a systematic manner on a periodic basis. Factors
used when determining the adequacy of the allowance for loan losses include the
trend in loan growth, general economic conditions, previous loan loss
experience, and the collectibility of higher risk loans. The allowance is an
estimate and requires management to make estimates and assumptions that affect
the determination of the allowance. Actual results could differ from those
estimates.
Horizon maintains an internal watch list which is evaluated regularly to
estimate potential losses. In addition, credits of a specified amount or which
are classified as higher risk are reviewed on a periodic basis to help
determine and minimize loss exposure. Reserves resulting from this analysis,
supplemented by historical charge-off analysis for loans not specifically
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
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOAN AMOUNT LOAN AMOUNT LOAN AMOUNT LOAN AMOUNT LOAN
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $2,320 30% $2,213 26% $2,677 26% $2,212 27% $1,656 25%
Real estate - construction 328 1 507 2 498 2 -- 1 -- 1
Real estate - residential 1,350 43 1,337 48 1,140 44 1,198 46 881 47
Consumer loans 1,919 26 1,573 24 966 28 1,191 26 879 27
Unallocated 605 -- 698 -- 370 -- 74 -- 107 --
-----------------------------------------------------------------------------------------
Total $6,522 100% $6,328 100% $5,651 100% $4,675 100% $3,523 100%
=========================================================================================
</TABLE>
At December 31, 1995, the allowance for loan losses as a percentage of total
loans was 1.53% and compares to 1.68% at December 31, 1994. During 1995, the
allowance remained stable through a provision for loan losses of $1,061 that
exceeded net charge-offs by $194. For the year ended December 31, 1994, the
provision for loan losses exceeded net charge-offs by $677. Net charge-offs in
1995 increased $19 or 2.24% from the level in 1994 . The stable trend in net
charge-offs over the past four years and similar net charge-offs expected in
the future lead management to reduce the provision for loan losses in 1995 to
$1,061 from the $1,525 provided in 1994. This reduced provision for loan losses
coupled with the increase in loans mentioned previously caused the percentage
of the allowance for loan losses to total loans to decrease by 15 basis points.
Management considers the current level of the allowance for loan losses
adequate to absorb possible losses from loans.
The provision for loan losses of $1,061 in 1995 declined $464 or 30.43% from
the 1994 total of $1,525. This follows a decline of $430 or 21.99% from 1993 to
1994. During 1995, net charge-offs to average total loans was 0.22%, a
slight decrease from the 0.23% for 1994. The
21
<PAGE> 22
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
decreased provision for loan losses during the period from 1991 through 1995 is
the result of generally improving asset quality and stable net charge-offs
during this period of time.
Net loan charge-offs in 1995 increased $19 or 2.24% from the amount experienced
in 1994. This compares to a decrease in net charge-offs of $131 or 13.38%
during 1994. Earnings coverage of net charge-offs was 9.31 times in 1995, 8.23
times in 1994, and 6.66 times in 1993.
PROVISION FOR LOAN LOSSES/
NET CHARGE-OFFS
<TABLE>
<CAPTION>
PROVISIONS FOR NET
LOAN LOSSES CHARGE-OFFS
<S> <C> <C>
1991 $2.8 $2.2
1992 $2.1 $0.9
1993 $2.0 $1.0
1994 $1.5 $0.8
1995 $1.0 $0.9
</TABLE>
Net charge-offs of commercial loans were $126 or 14.53% of total net charge-offs
in 1995. This is a decrease from 17.57% of total net charge-offs in 1994 and
26.66% of total net charge-offs in 1993. The decrease in commercial net
charge-offs is primarily the result of Horizon's improved loan review program
which is designed to minimize charge-offs on commercial credits. Real estate
loans represented $67 or 7.73% of total net charge-offs in 1995 having decreased
from 18.04% in 1994 and 32.18% in 1993. The primary reason for this decrease is
an improvement of collateral values. Revolving credit net charge-offs were $172
or 19.84% of total net charge-offs in 1995 and compares to 19.46% in 1994 and
3.37% in 1993. Continuing charge-offs in this category are a result of growth in
this section of the loan portfolio during the last four years. Other consumer
loan net charge-offs were $503 or 57.90% of total net charge-offs in 1995 and
compare to 44.93% in 1994 and 37.79% in 1993. The increase in consumer net
charge-offs in 1995 is consistent with the national trend in consumer net
charge-offs. Consumer delinquencies and charge-offs will be an area Horizon will
focus on in 1996 in an effort to minimize losses.
At December 31, 1995, Horizon has an allowance for loan losses sufficient to
absorb over 7.5 times the amount of net charge-offs experienced in 1995. This
ratio compares favorably to Horizon's peer institutions.
Management is not aware of any loans in which possible credit problems of the
borrowers causes doubt as to repayment ability or compliance with present loan
terms that have not been considered in the determination of the adequacy of the
allowance for loan losses.
22
<PAGE> 23
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 16
ALLOWANCE FOR LOAN LOSSES
-------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $6,328 $5,651 $4,675 $3,523 $2,948
Provision for loan losses 1,061 1,525 1,955 2,069 2,754
Loans charged-off:
Commercial 204 313 708 571 653
Real estate 89 191 401 315 1,051
Revolving credit 214 188 41 22 33
Other consumer 764 626 584 560 827
-------------------------------------------
Total 1,271 1,318 1,734 1,468 2,564
Recoveries:
Commercial 78 164 447 186 139
Real estate 22 38 86 115 42
Revolving credit 42 23 8 10 11
Other consumer 262 245 214 240 193
-------------------------------------------
Total 404 470 755 551 385
-------------------------------------------
Net charge-offs 867 848 979 917 2,179
-------------------------------------------
Balance at year end $6,522 $6,328 $5,651 $4,675 $3,523
===========================================
Percentage of net charge-offs to average loans 0.22% 0.23% 0.29% 0.30% 0.80%
Percentage of allowance for loan losses to total loans 1.53% 1.68% 1.62% 1.45% 1.24%
Earnings coverage of net charge-offs 9.31X 8.23X 6.66X 6.72X 2.04X
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is to maintain sufficient
liquidity to meet funding requirements of customers and achieve stability in
net interest income through various market rate and economic cycles. A major
contributor to accomplishing this goal is maintaining a stable base of core
deposits and other interest-bearing funds. Other factors which help to 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.
Rate sensitive assets and liabilities are those which can be repriced to
prevailing market rates within a short time, generally one year. Management
places emphasis upon monitoring the rate sensitivity of earning assets and
interest-bearing liabilities within the one-year time period. Table 17
illustrates the rate sensitivity position of Horizon within the one year time
period at December 31, 1995. Readers are reminded that this is a static
analysis of the position at a particular point in time. Actual results may
vary from the position detailed in Table 17
To meet customer requirements for funding needs, a primary source has
historically been readily marketable and maturing securities. At December 31,
1995, approximately 17.44% of the securities portfolio matures or reprices
within one year. At December 31, 1995, all of the securities held were rated as
investment quality and 76.99% of the portfolio was classified as
available-for-sale and could be sold to satisfy liquidity requirements, if
needed. Subsidiary banks also invest excess funds into overnight instruments
known as federal funds sold with correspondent banks and these averaged $10,570
during 1995.
Horizon subsidiary banks also have in place certain lines of credit with
correspondent banks that total approximately $9,000 to fund any unusual cash
needs. Two subsidiary banks of Horizon are members of the Federal
Home Loan Bank of Pittsburgh and formal lines of credit have been established
for borrowing up to $142,900, if the need arises. Refer to Note 8 of the
consolidated financial statements for additional information on the
relationship with the Federal Home Loan Bank of Pittsburgh.
23
<PAGE> 24
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
Table 17 shows that Horizon has a large amount of interest-bearing deposits that
reprice within one year primarily savings deposits, money market deposits, and
interest-bearing demand deposits. Many of these deposit accounts are considered
stable and have traditionally not been subject to fluctuations in market rates
offered.
Another area of consideration in the rate sensitivity area is the fact that at
December 31, 1995, $9,472 in mortgage-backed securities were held in the
portfolio. Mortgage-backed securities have maturity and cash flow tendencies
that vary with the level of market interest rates. Earning assets of this
nature show amounts in time categories greater than one year; however, part of
these balances may be subject to repricing within one year because refinancing
activity may impact the actual cash flows from these instruments.
Horizon's cash and cash equivalents, defined as cash and due from banks and
federal funds sold, is a product of its operating, investing, and financing
activities. Cash provided by operating activities increased by 14.64% in 1995
after decreasing by 2.40% in 1994. These increases and decreases are due
primarily to changes in other assets and liabilities. Net cash has been
generated by financing activities for the past three years, primarily through
increases in deposits and short-term borrowings. The net cash generated has
been used in Horizon's investing activities, primarily in funding loan growth.
In 1995, $4,285 was used to purchase premises and equipment, primarily the
construction of a new bank facility and purchase of computer hardware and
software to provide centralized processing and check imaging. Also, during
1995, Horizon acquired four branches of a regional bank holding company
and received cash, net of cash paid, of approximately $3,456 in addition to
acquiring various loans and deposits.
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 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 minimize volatility in net interest income. As detailed
in Table 17, the one-year cumulative interest sensitivity gap is (25.59%) at
December 31, 1995 and compares to (28.98%) at December 31, 1994. The liability
sensitive gap is a result of assuming that interest-bearing demand deposits,
money market deposits, and savings deposits will reprice in the one-to-three
month sensitivity time frame. These deposits total $194,360, however, a majority
are considered stable and not subject to movement due to rate fluctuations.
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. Horizon
also uses computer simulation to analyze liquidity and interest rate
sensitivity. Hedging is not used; interest rates are set at terms to impact
favorably the income projection and may not necessarily correspond to
prevailing market rates.
Currently, $131,036 or 71.25% of the residential real estate loan portfolio is
comprised of adjustable rate mortgages an increase of $12,414 or 10.47% from the
balance of $118,622 at December 31, 1994. Approximately $59,384 of the loans in
the commercial loan portfolio have floating rates or maturities of one year or
less. Loans in the installment loan category are of a longer term fixed-rate
nature, however, liquidity is provided by scheduled monthly repayments which
can be reinvested at current market rates. Because rollovers are not material,
the repayments of loans do not differ significantly from contract terms as a
result.
Large denomination certificates of deposit totaled $44,530 at December 31,
1995, and have increased $9,041 or 25.48% from $35,489 at December 31, 1994.
This increase reflects movement from other short-term deposit accounts.
Short-term borrowings are also used for liquidity purposes and their cost will
vary with fluctuating interest rates.
24
<PAGE> 25
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Management is not aware of any trends, events, or uncertainties, either
favorable or unfavorable, that are likely to affect Horizon's liquidity.
Currently, there are no recommendations from regulators concerning liquidity or
rate sensitivity that, if implemented, would have a material effect on Horizon.
<TABLE>
<CAPTION>
TABLE 17
INTEREST SENSITIVITY ANALYSIS
-------------------------------------------------------
DECEMBER 31, 1995
1-3 3-6 OVER 6 TOTAL OVER
MONTHS MONTHS MONTHS ONE YEAR ONE YEAR
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits with other banks $ -- $ -- $ -- $ -- $ --
Investment securities 7,292 5,552 13,239 26,083 123,450
Gross loans 161,619 60,617 39,046 261,282 172,375
Federal funds sold 2,400 -- -- 2,400 --
-------------------------------------------------------
Total earning assets 171,311 66,169 52,285 289,765 295,825
Noninterest-bearing demand deposits -- -- -- -- 74,558(1)
Interest-bearing liabilities:
Demand deposits 59,370 -- -- 59,370 --
Money market deposits 22,965 -- -- 22,965 --
Savings deposits 112,025 -- -- 112,025 --
Time deposits 58,087 37,062 80,841 175,990 69,567
Short-term borrowings 20,941 -- -- 20,941 --
-------------------------------------------------------
Total interest-bearing liabilities 273,388 37,062 80,841 391,291 69,567
-------------------------------------------------------
Interest-sensitivity gap $(102,077) $ 29,107 $ (28,556) $(101,526)
=======================================================
Cumulative gap $(102,077) $(72,970) $(101,526) $(101,526)
=======================================================
Ratio of interest-sensitive assets to interest-
sensitive liabilities 62.66% 178.54% 64.68% 74.05%
Ratio of one year cumulative gap to total assets
on December 31, 1995 (16.52)%
<FN>
(1) Demand deposits do not bear interest.
</TABLE>
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 1995 and 1994. 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 based on 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.
25
<PAGE> 26
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 18
------------------------------------------------------------------------
QUARTER STOCK PRICE RANGE DIVIDEND DECLARED PER SHARE
------------------------------------------------------------------------
<S> <C> <C>
4th Quarter 1995 $34.50-42.00 $0.30
3rd Quarter 1995 $29.50-36.00 $0.25
2nd Quarter 1995 $28.00-31.00 $0.25
1st Quarter 1995 $28.00-31.00 $0.25
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
</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
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 12 in the consolidated financial
statements for restrictions on subsidiary dividends, the primary source of
funds for dividends paid by Horizon to its shareholders.
During 1995, Horizon instituted a dividend reinvestment plan for its
shareholders. Existing shareholders may elect to have all or a portion of their
quarterly dividends reinvested in Horizon stock at the current market price.
Costs of the dividend reinvestment plan is borne by Horizon.
At March 15, 1996, there were 2,127 holders of record of Horizon common stock.
26
<PAGE> 27
- -------------------------------------------------------------------------------
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, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Horizon Bancorp,
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Charleston, West Virginia
February 9, 1996
28
<PAGE> 28
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FINANCIAL
STATEMENTS
&
NOTES
HORIZON BANCORP, INC.
<PAGE> 29
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
ASSETS
Cash and due from banks--Note 3 $ 19,680 $19,082
Federal funds sold 2,400 5,350
----------------------
Cash and cash equivalents 22,080 24,432
Investment securities--Note 4:
Available-for-sale at fair value 115,120 57,569
Held-to-maturity (approximate fair value of $34,745 and
$93,445 at December 31, 1995 and 1994) 34,413 97,581
Loans, net--Notes 5 and 6 419,880 370,582
Premises and equipment, net--Note 7 10,209 7,097
Accrued interest receivable and other assets--Note 9 13,043 12,674
----------------------
Total assets $614,745 $569,935
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 74,558 $ 70,781
Interest bearing 439,917 412,774
----------------------
Total deposits 514,475 483,555
Short-term borrowings--Note 8 20,941 16,797
Accrued interest payable and other liabilities--Note 10 8,222 6,001
----------------------
Total liabilities 543,638 506,353
Shareholders' equity--Notes 10 and 12:
Common stock, $1 par value; 5,000,000 shares authorized;
2,835,670 shares outstanding at December 31, 1995 and 1994,
including 5,540 shares in treasury at December 31, 1995 2,835 2,835
Capital surplus 12,262 12,262
Retained earnings 55,001 49,903
Treasury stock (175) --
Unrealized gain (loss) on available-for-sale securities 1,184 (1,297)
Deferred ESOP benefit -- (121)
----------------------
Total shareholders' equity 71,107 63,582
----------------------
Total liabilities and shareholders' equity $614,745 $569,935
======================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $36,866 $31,132 $28,546
Interest and dividends on investment
securities:
Taxable 6,949 7,405 9,635
Tax-exempt 2,072 2,072 1,723
Federal funds sold and other 587 608 743
-------------------------
Total interest income 46,474 41,217 40,647
Interest expense:
Deposits 17,524 14,024 14,742
Short-term borrowings--Note 8 527 549 524
-------------------------
Total interest expense 18,051 14,573 15,266
-------------------------
Net interest income 28,423 26,644 25,381
Provision for loan losses--Note 6 1,061 1,525 1,955
-------------------------
Net interest income after provision
for loan losses 27,362 25,119 23,426
Other income:
Service charges and fees 2,002 1,782 1,610
Investment securities (losses) gains (131) (187) 77
Other 1,151 852 819
-------------------------
Total other income 3,022 2,447 2,506
Other expenses:
Salaries and employee benefits--Note 10 8,489 8,081 7,947
Net occupancy and equipment expense--Note 7 2,683 2,066 1,830
Outside data processing 1,147 1,043 851
Federal deposit insurance 544 1,059 1,042
Advertising 510 501 488
Other 4,951 4,644 4,195
-------------------------
Total other expenses 18,324 17,394 16,353
-------------------------
Income before income taxes 12,060 10,172 9,579
Applicable income taxes--Note 9 3,989 3,201 3,060
-------------------------
Net income $ 8,071 $ 6,971 $ 6,519
=========================
Net income per common share $2.85 $2.46 $2.30
=========================
Average common shares outstanding 2,833 2,835 2,835
=========================
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
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 January 1, 1993 $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 indeptedness -- -- -- -- -- 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
Net income - 1995 -- -- 8,071 -- -- -- 8,071
Cash dividends ($1.05 per share) -- -- (2,973) -- -- -- (2,973)
Purchase of treasury shares -- -- -- (175) -- -- (175)
Reduction in ESOP indebtedness -- -- -- -- -- 121 121
Change in unrealized gain
(loss) on available-for-
sale securities, net of
deferred income taxes -- -- -- -- 2,481 -- 2,481
-------------------------------------------------------------------
Balances at December 31, 1995 $2,835 $12,262 $55,001 $(175) $1,184 $ -- $71,107
===================================================================
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,071 $ 6,971 $ 6,519
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,165 759 666
Provision for loan losses 1,061 1,525 1,955
Deferred income tax benefit (723) (710) (701)
Amortization 194 179 222
Loss (gain) on sale of investment securities 131 187 (77)
Change in accrued interest receivable and other assets (1,379) (267) 1,292
Change in accrued interest payable and other liabilities 2,348 836 (163)
--------------------------------
Net cash provided by operating activities 10,868 9,480 9,713
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities 4,818 8,292 --
Proceeds from maturities of available-for-sale securities 10,463 10,464 --
Purchases of available-for-sale securities (24,206) (30,864) --
Proceeds from maturities of held-to-maturity securities 22,067 41,215 --
Purchases of held-to-maturity securities (3,501) (14,269) --
Proceeds from sales and maturities of investment securities -- -- 74,130
Purchases of investment securities -- -- (77,055)
Net increase in loans (32,961) (28,563) (27,476)
Purchases of premises and equipment (4,285) (749) (1,042)
Cash received in purchase of branches, net of cash paid 3,456 -- --
--------------------------------
Net cash used in investing activities (24,149) (14,474) (31,443)
FINANCING ACTIVITIES
Net increase in deposits 9,933 11,140 9,059
Payments on long-term borrowing -- (800) (600)
Increase in short-term borrowings 4,144 166 2,291
Cash dividends paid (2,973) (2,752) (2,555)
Acquisition of treasury shares (175) -- --
Other -- -- (10)
--------------------------------
Net cash provided by financing activities 10,929 7,754 8,185
--------------------------------
Net (decrease) increase in cash and cash equivalents (2,352) 2,760 (13,545)
Cash and cash equivalents at beginning of year 24,432 21,672 35,217
--------------------------------
Cash and cash equivalents at end of year $22,080 $24,432 $21,672
================================
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
ORGANIZATION
Horizon Bancorp, Inc. (Horizon) is a bank holding company with four banking
subsidiaries engaged in community banking activities and providing financial
services to individuals and businesses throughout southeastern West Virginia.
Horizon considers all of its principal business activities to be bank related.
BASIS OF ACCOUNTING
The accounting and reporting policies of Horizon conform to generally accepted
accounting principles and to general practices within the banking industry. The
accompanying consolidated financial statements include the accounts of Horizon
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The following is a summary
of the more significant policies.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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. 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 allowance for loan losses is established through provisions for loan losses
charged against income. Loans deemed to be uncollectible are charged against
the allowance for loan losses, and subsequent recoveries, if any, are credited
to the allowance.
On January 1, 1995, Horizon adopted Financial Accounting Standards Board
Statement (FASB) No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by FASB Statement No. 118. The 1995 allowance for loan losses
related to loans that are identified for evaluation in accordance with
Statement 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Prior to 1995, the allowance for loan losses
related to these loans was based on undiscounted cash flows or the fair value
of the collateral for collateral dependent loans. The adoption of this
33
<PAGE> 34
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
pronouncement did not materially impact Horizon's financial statements,
accounting policies, non-performing loans, or determination of the adequacy of
the allowance for loan losses.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated loan losses. Management's periodic evaluation
of the adequacy of the allowance is based on Horizon's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
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, minus
estimated costs to sell, 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.
INCOME TAXES
Deferred income taxes (included in other assets) 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 on a separate return basis, and remits
amounts to be currently payable to the parent company.
REVENUE RECOGNITION
Interest on loans and amortization of unearned income are computed by methods
which generally result in level rates of return on principal amounts
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
which 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. Interest received on nonaccrual loans generally is either applied
against principal or reported as interest income, according to management's
judgement as to the collectibility of principal. Generally, loans are restored
to accrual status when the obligation becomes current, has performed in
accordance with the contractual terms for a reasonable period of time, and the
ultimate collectibility of the total contractual principal and interest is no
longer in doubt.
EMPLOYEE BENEFIT PLAN
Horizon has a defined benefit pension plan covering substantially all its
employees (see Note 10). Pension costs are actuarially determined and charged
to expense. Horizon provides no postretirement benefits other than pension
benefits or postemployment benefits.
STOCK-BASED COMPENSATION
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
34
<PAGE> 35
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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. Horizon has decided to continue to apply the
provisions of APB 25 to account for stock-based compensation.
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
- -------------------------------------------------------------------------------
In February 1996, Horizon entered into a definitive agreement to acquire all of
the outstanding common stock of Twentieth Bancorp, Inc. (Twentieth),
headquartered in Huntington, West Virginia. Horizon will exchange 1.01 shares
of its common stock for each share of Twentieth's common stock outstanding
(approximately 1,818,000 shares of Horizon common stock to be issued). This
business combination is expected to be accounted for as a pooling of interests.
The pooling of interests method requires the combining of the financial
information of the merging companies as though they had always been combined.
At December 31, 1995, Twentieth had total assets and deposits of approximately
$317,800 and $280,250. Following is an analysis presenting the condensed
results of operations of Horizon and Twentieth as though the combination had
been consummated at December 31, 1995.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------
<S> <C> <C> <C>
Net interest income:
Horizon $28,423 $26,644 $25,381
Twentieth 14,595 13,898 12,459
--------------------------
Proforma $43,018 $40,542 $37,840
==========================
Net income:
Horizon $ 8,071 $ 6,971 $ 6,519
Twentieth 3,411 3,154 2,977
--------------------------
Proforma $11,482 $10,125 $ 9,496
==========================
Net income per common share:
Horizon $2.85 $2.46 $2.30
Twentieth 1.90 1.75 1.65
Proforma 2.47 2.18 2.04
</TABLE>
During the first and second quarter of 1995, two of Horizon's subsidiary banks
acquired certain assets and assumed certain liabilities of four branch offices
of a regional bank for approximately $125. These four branch offices had assets
of approximately $21,000 at the time of acquisition. This transaction was
accounted for under the purchase 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 $1,200 is being amortized on a straight-line basis over 10 years.
Accumulated amortization approximated $815 and $595 at December 31, 1995 and
1994, 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, 1995, was approximately $5,100.
35
<PAGE> 36
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4. INVESTMENT SECURITIES
- -------------------------------------------------------------------------------
The amortized cost and estimated fair values of investment securities are as
follows:
<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 $ 87,161 $1,919 $(232) $ 88,848
Obligations of states and political
subdivisions 8,072 116 (16) 8,172
Mortgage-backed securities 9,419 124 (71) 9,472
Other equity securities 8,502 151 (25) 8,628
--------------------------------------------
Totals $113,154 $2,310 $(344) $115,120
============================================
HELD-TO-MATURITY SECURITIES
U.S. Treasury securities and obligations
of U.S. government agencies and
corporations $ 1,000 $ -- $ -- $ 1,000
Obligations of states and political
subdivisions 33,413 502 (170) 33,745
--------------------------------------------
Totals $ 34,413 $ 502 $(170) $34,745
============================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------
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 $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
============================================
HELD-TO-MATURITY SECURITIES
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>
On November 15, 1995, the FASB staff issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with provisions in that Special Report,
Horizon chose to reclassify securities from held-to-maturity to
available-for-sale. At the date of transfer, the amortized cost of those
36
<PAGE> 37
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
securities was $44,586 and the unrealized gain on those securities was $275
(net of $183 in deferred income taxes), which is included in shareholders'
equity.
The amortized cost and estimated fair values of investment securities at
December 31, 1995, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because certain securities include the
right to call or prepay the obligations prior to their contractual maturities.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------------------
<S> <C> <C>
AVAILABLE-FOR-SALE
Due in one year or less $ 25,058 $ 25,078
Due after one year but through five years 59,837 61,055
Due after five years but through ten years 17,791 18,465
Due after ten years 1,049 1,050
Mortgage-backed securities 9,419 9,472
--------------------------
$113,154 $115,120
==========================
HELD-TO-MATURITY
Due in one year or less $ 1,005 $ 1,015
Due after one year but through five years 4,946 5,013
Due after five years but through ten years 23,267 23,457
Due after ten years 5,195 5,260
--------------------------
$ 34,413 $ 34,745
==========================
</TABLE>
During the years ended December 31, 1995 and 1994, available-for-sale
securities with a fair value at the date of sale of $4,818 and $8,292 were
sold. The gross realized gains on such sales totaled $0 and $12 and the gross
realized losses totaled $131 and $199. 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.
At December 31, 1995 and 1994, investment securities with carrying amounts of
$32,100 and $33,600, 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
1995 1994
----------------------
<S> <C> <C>
Commercial $130,757 $100,169
Real estate - construction 4,698 6,385
Real estate - mortgage 183,904 181,938
Consumer loans 114,298 93,119
----------------------
Gross loans 433,657 381,611
Less unearned income (7,255) (4,701)
----------------------
Total loans 426,402 376,910
Less allowance for loan losses (6,522) (6,328)
----------------------
Net loans $419,880 $370,582
======================
</TABLE>
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
37
<PAGE> 38
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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
1995:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 9,235
Loans made 4,150
Principal collected (2,673)
Other changes (172)
-------
Balance at December 31, 1995 $10,540
=======
</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>
1995 1994 1993
---------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 6,328 $ 5,651 $ 4,675
Charge-offs (1,271) (1,318) (1,734)
Recoveries 404 470 755
---------------------------
Net charge-offs (867) (848) (979)
Provision for loan losses 1,061 1,525 1,955
---------------------------
Balance at end of year $ 6,522 $ 6,328 $ 5,651
===========================
</TABLE>
At December 31, 1995, the recorded investment in loans that are considered to
be impaired under Statement 114 was $2,646 (of which $1,616 were on a
nonaccrual basis). Included in this amount are $1,616 of impaired loans for
which the related allowance for loan losses is $457 and $1,030 of impaired
loans that, as a result of write-downs or being well secured, do not have an
allowance for loan losses. The average recorded investment in impaired loans
during the year ended December 31, 1995 was approximately $2,736. For the year
ended December 31, 1995, Horizon recognized interest income on those impaired
loans of $97, which included $91 of interest income recognized using the cash
basis method of income recognition.
- -------------------------------------------------------------------------------
7. PREMISES AND EQUIPMENT
- -------------------------------------------------------------------------------
The major categories of premises and equipment and related accumulated
depreciation are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
Land $ 1,455 $ 1,305
Building and improvements 10,129 8,410
Furniture and equipment 8,477 6,080
------------------
20,061 15,795
Less accumulated depreciation (9,852) (8,698)
------------------
$10,209 $ 7,097
==================
</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: 1996--$180; 1997--$110; 1998--$50; 1999--$15;
2000--$15; with $1,130 of commitments extending beyond 2000.
38
<PAGE> 39
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total rent expense, including cancelable and noncancelable leases, approximated
$160, $75, and $70, in 1995, 1994, and 1993, respectively.
- -------------------------------------------------------------------------------
8. 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, 1995, Horizon is
entitled to receive approximately $142,900 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
from the FHLB at December 31, 1995 approximated $1,000 at a floating interest
rate of prime less 2.48%.
Short-term borrowings consist primarily of securities sold under agreements to
repurchase. The weighted average interest rate on short-term borrowings
approximated 3.7% and 3.0% at December 31, 1995 and 1994. Interest paid on
deposits and short-term borrowings approximated $17,100, $14,700, and $15,650
in 1995, 1994, and 1993.
- -------------------------------------------------------------------------------
9. 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
1995 1994
----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $2,346 $2,009
Accrued employee benefits 1,366 1,055
Available-for-sale securities -- 865
Other 114 55
-----------------
Total deferred tax assets 3,826 3,984
Deferred tax liabilities:
Available-for-sale securities 788 --
Premises and equipment 69 129
Other 142 98
-----------------
Total deferred tax liabilities 999 227
-----------------
Net deferred tax assets $2,827 $3,757
=================
</TABLE>
The applicable income tax provisions included in the consolidated statements of
income are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------
<S> <C> <C> <C>
Current:
Federal $4,084 $3,374 $3,245
State 628 537 516
------------------------------
Total current 4,712 3,911 3,761
Deferred:
Federal (625) (600) (596)
State (98) (110) (105)
------------------------------
Total deferred (723) (710) (701)
------------------------------
Total $3,989 $3,201 $3,060
==============================
</TABLE>
39
<PAGE> 40
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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>
1995 1994 1993
AMOUNT % AMOUNT % AMOUNT %
------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory federal rate $4,221 35.0% $3,458 34.0% $3,257 34.0%
Plus: State income tax, net of
federal tax benefits 344 2.9 280 2.8 271 2.8
------------------------------------------
4,565 37.9 3,738 36.8 3,528 36.8
Increase (decrease) in taxes
resulting from:
Tax-exempt interest (709) (5.9) (696) (6.8) (592) (6.2)
Other - net 133 1.1 159 1.5 124 1.3
------------------------------------------
$3,989 33.1% $3,201 31.5% $3,060 31.9%
==========================================
</TABLE>
Income taxes relating to securities transactions approximated $(52), $(75), and
$30 in 1995, 1994, and 1993, respectively.
Income taxes paid approximated $4,600, $3,500, and $3,700 in 1995, 1994, and
1993, respectively.
- -------------------------------------------------------------------------------
10. 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>
1995 1994
-----------------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation $ 4,891 $ 3,737
Nonvested benefit obligation 475 417
-----------------
Accumulated benefit obligation 5,366 4,154
Effect of estimated future compensation increases 2,089 1,405
-----------------
Projected benefit obligation 7,455 5,559
Plan assets at fair value 6,133 5,247
-----------------
Projected benefit obligation in excess of plan assets (1,322) (312)
Unrecognized prior service cost 1,410 1,373
Unrecognized net asset at transition, net of amortization (377) (407)
Unrecognized net gain from past experience different from
that assumed (784) (1,481)
-----------------
Accrued pension cost included in other liabilities $(1,073) $ (827)
=================
</TABLE>
40
<PAGE> 41
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Following is a summary of the components of net periodic pension cost:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 463 $ 478 $ 316
Interest cost on projected benefit obligation 485 435 413
Actual (return ) loss on plan assets (970) 15 (429)
Net amortization and deferral 558 (440) 141
----------------------
Net periodic pension cost $ 536 $ 488 $ 441
======================
</TABLE>
Assumptions used in the accounting for defined benefit plans were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
1995 1994 1993
----------------------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 8.5% 7.5%
Rate of increase in future compensation levels 6.0% 6.0% 5.0-6.0%
Expected long-term rate of return on plan assets 8.5% 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 1995, the weighted average discount rate was reduced to 7.5% from 8.5%.
This was the primary reason for the increase 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 $490, $470,
and $440 during 1995, 1994, and 1993. The liability for such agreements
approximated $2,020 and $1,680 at December 31, 1995 and 1994, 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 $2,625 and $2,170
at December 31, 1995 and 1994, included in other assets in the accompanying
consolidated balance sheets.
During 1995, the Horizon Employee Stock Ownership Plan (ESOP) retired its
remaining outstanding debt and distributed the plan assets to the plan
participants.
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, 1995, there were options outstanding for
the purchase of 30,000 shares of Horizon stock ranging from $28.50 to $40.00
per share, of which 10,000 options were exercisable. Through December 31,
1995, no options issued under the incentive stock option plan had been
exercised.
- -------------------------------------------------------------------------------
11. 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
41
<PAGE> 42
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
--------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 22,080 $ 22,080 $ 24,432 $ 24,432
Investment securities 149,533 149,865 155,150 151,014
Loans 419,880 422,239 370,582 366,894
Financial liabilities:
Deposits 514,475 516,955 483,555 484,503
Short-term borrowings 20,941 20,941 16,797 16,797
</TABLE>
- -------------------------------------------------------------------------------
12. 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 1996, the
subsidiary banks' net retained profits available for distribution to Horizon as
dividends, without regulatory approval, approximate $6,200, plus net income for
the interim period through the date of declaration.
42
<PAGE> 43
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13. 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 $2,900 and $3,500 at
December 31, 1995 and 1994.
Loan Commitments--At December 31, 1995 and 1994, Horizon had commitments
outstanding to extend credit at prevailing market rates approximating
$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.
- -------------------------------------------------------------------------------
14. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------
<S> <C> <C>
Cash $ 412 $ 1,001
Investment in subsidiary banks 68,282 62,559
Investment securities 1,058 445
Premises and equipment 791 --
Receivable from consolidated subsidiary banks -- 157
Other assets 667 137
--------------------
Total assets $71,210 $64,299
====================
Liabilities $ 103 $ 717
Shareholders' equity 71,107 63,582
--------------------
Total liabilities and shareholders' equity $71,210 $64,299
====================
</TABLE>
43
<PAGE> 44
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Dividends from subsidiary banks $ 5,623 $4,603 $3,895
Interest income on investment securities 49 13 --
Operating expenses (1,254) (804) (670)
--------------------------------
Income before income tax and equity in undistributed
earnings of subsidiary banks 4,418 3,812 3,225
Income tax benefit 400 223 171
--------------------------------
Income before equity in undistributed
earnings of subsidiary banks 4,818 4,035 3,396
Equity in undistributed earnings of subsidiary banks 3,253 2,936 3,123
--------------------------------
Net income $ 8,071 $6,971 $6,519
================================
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 8,071 $ 6,971 $ 6,519
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 405 -- --
Equity in undistributed earnings of subsidiary banks (3,253) (2,936) (3,123)
Decrease (increase) in receivables from consolidated
subsidiary banks 157 604 (761)
(Increase) decrease in other assets (530) (119) 37
(Decrease) increase in other liabilities (493) 391 476
---------------------------------
Net cash provided by operating activities 4,357 4,911 3,148
Investing activities:
Purchases of premises and equipment (1,196) -- --
Purchases of investment securities (602) (450) --
---------------------------------
Net cash used in investing activities (1,798) (450) --
Financing activities:
Cash dividends paid (2,973) (2,752) (2,555)
Payments on long-term borrowing -- (800) (600)
Acquisition of treasury shares (175) -- --
Other -- -- (10)
---------------------------------
Net cash used in financing activities (3,148) (3,552) (3,165)
---------------------------------
Net (decrease) increase in cash (589) 909 (17)
Cash at beginning of year 1,001 92 109
---------------------------------
Cash at end of year $ 412 $ 1,001 $ 92
=================================
</TABLE>
44
<PAGE> 45
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------
Summarized quarterly financial data (in thousands of dollars except for per
share amounts) for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------------------------------------
<S> <C> <C> <C> <C>
Interest income $10,813 $11,080 $12,273 $12,308
Interest expense 3,886 4,389 4,908 4,868
Net interest income 6,927 6,691 7,365 7,440
Provision for loan losses 217 268 300 276
Securities losses, net (131) -- -- --
Net income 2,081 2,066 2,122 1,802
Earnings per share 0.73 0.73 0.75 0.64
</TABLE>
<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 0.56 0.61 0.71 0.58
</TABLE>
45
<PAGE> 46
- -------------------------------------------------------------------------------
SHAREHOLDERS' INFORMATION
- -------------------------------------------------------------------------------
ANNUAL MEETING STOCK LISTING
The annual meeting of shareholders Horizon's common stock is traded on
of Horizon Bancorp, Inc. will be the NASDAQ National Market System
held on August 14, 1996, at the with a ticker symbol of HZWV.
Glade Springs Conference Center,
Daniels, West Virginia at 4:00 p.m. NASDAQ Market Makers:
EXECUTIVE OFFICES
Horizon Bancorp, Inc. Wheat First Securities
One Park Avenue The Robinson-Humphrey Co., Inc.
Beckley, West Virginia 25802-2803 Sandler O'Neill & Partners
(304) 255-7000
NATURE OF BUSINESS
INDEPENDENT AUDITORS
Horizon is a West Virginia multibank
Ernst & Young LLP holding company with four affiliate
900 United Center banks and fourteen locations in
Charleston, West Virginia 25301 southern West Virginia.
FINANCIAL STATEMENTS OFFICERS
During the year, Horizon distributes Frank S. Harkins, Jr.
three interim quarterly financial Chairman of the Board
reports and an annual report.
Additionally, Horizon files an Philip L. McLaughlin
annual report on Form 10-K and President and CEO
quarterly reports on Form 10-Q
with the Securities and Exchange David W. Hambrick
Commission. Copies of these reports Executive Vice President and
may be obtained without charge Chief Financial Officer
upon written request to:
Mark L. Anderson
Mark L. Anderson Controller
Horizon Bancorp, Inc.
Post Office Box D C. Duane Blankenship
Beckley, West Virginia 25802-2803 Auditor
(304) 255-7307
John W. Deitz
CONTACTS Loan Review Officer
Analysts, portfolio managers, and Cynthia Martin
others seeking financial Compliance Officer
information about Horizon
Bancorp, Inc. should contact: Pamela Daniel
Shareholder Information
David W. Hambrick
Post Office Box 387 Abigail Scott
Lewisburg, West Virginia 24901 Information Officer
(304) 645-2500
Glenda Williams
Stock Transfer Agent Operations Officer
Harris Trust and Savings Bank
Attn: Shareholder Services Division
311 West Monroe Street
Post Office Box A-3504
Chicago, Illinois 60690-3504
(312) 461-3309
46
<PAGE> 47
- -------------------------------------------------------------------------------
DIRECTORS
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC. AND AFFILIATES
HORIZON BANCORP, INC.
DIRECTORS
Frank S. Harkins, Jr. John M. Alderson IV Harper W. Nelson
Chairman of the Board W. H. File III Rodney H. Pack
Phillip W. Cain E. M. Payne III
Philip L. McLaughlin John C. Horton, Jr. R. T. Rogers
President and Chief Tracy W. Hylton II James E. Songer
Executive Officer William E. Kane Albert M. Tieche, Jr.
Robert L. Kosnoski E. A. Tuckwiller, Jr.
David W. Hambrick Thomas E. Lilly Earl R. Turner
Executive Vice President Carolyn H. McCulloch
and Chief Financial Officer
- -------------------------------------------------------------------------------
DIRECTORS OF BANK OF RALEIGH
Carolyn H. McCulloch W. H. File III Philip L. McLaughlin
Chairman of the Board Tracy W. Hylton II E. M. Payne III
Robert L. Kosnoski James E. Songer
Frank S. Harkins, Jr. Thomas E. Lilly Albert M. Tieche, Jr.
President and Chief
Executive Officer
- -------------------------------------------------------------------------------
DIRECTORS OF FIRST NATIONAL BANK IN MARLINTON
William E. Kane Phillip W. Cain John R. LaRue
Chairman of the Board Executive Vice Philip L. McLaughlin
and President President and Chief Louise B. McNeel
Executive Officer Harper W. Nelson
Harry J. Widney Jimmie A. Ryder, Sr.
Vice President and James E. Baxter
Vice Chairman of the David W. Hambrick
Board Dolan Irvine
- -------------------------------------------------------------------------------
DIRECTORS OF GREENBRIER VALLEY NATIONAL BANK
John C. Horton, Jr. John M Alderson IV Rodney H. Pack
Chairman of the Board John Wade Bell III Norman B. Ream, Jr.
L. Wade Griffith Don R. Smathers
Philip L. McLaughlin Jesse O. Guills E. A. Tuckwiller, Jr.
President and Chief Frank S. Harkins, Jr. John R. Wilson, D.V.M.
Executive Officer James A. King
David W. Hambrick
Executive Vice President
- -------------------------------------------------------------------------------
DIRECTORS OF NATIONAL BANK OF SUMMERS OF HINTON
R. T. Rogers James G. Dillon
Chairman of the Board Frank S. Harkins, Jr.
Jack L. Hellems
Earl R. Turner Victor G. Morgan
President and Chief J. M. O'Bryan
Executive Officer Leon Ray Pivont
47
<PAGE> 48
- --------------------------------------------------------------------------------
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
Krogers, Beaver Rupert
Krogers, Lester Square, Sophia Krogers, Fairlea
Krogers, Fountain Square, Oak Hill
NATIONAL BANK OF SUMMERS OF HINTON FIRST NATIONAL BANK IN MARLINTON
Offices: Office:
Temple Street, Hinton 300 Eighth Street, Marlinton
Stokes Drive, Hinton
HORIZON BANCORP, INC. IS AN AFFILIATION OF COMMUNITY BANKS, BOUND
TOGETHER BY A COMMON GOAL OF ENHANCING SHAREHOLDER VALUE BY
COMPETING MORE EFFECTIVELY IN THE FINANCIAL MARKET PLACE.
48
<PAGE> 1
Exhibit 23
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 9, 1996,
included in the 1995 Annual Report to Shareholders of Horizon Bancorp, Inc. and
Subsidiaries.
We also consent to the incorporation by reference in the Registration
Statements pertaining to the Incentive Stock Option Plan (Form S-8 No.
33-73926) and the Dividend Reinvestment Plan (Form S-3, No. 33-61695) of
Horizon Bancorp, Inc. of our report dated February 9, 1996, with respect 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, 1995.
/s/ ERNST & YOUNG LLP
Charleston, West Virginia
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1995, consolidated financial statements and notes and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000730025
<NAME> HORIZON BANCORP
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 19,680
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 115,120
<INVESTMENTS-CARRYING> 34,413
<INVESTMENTS-MARKET> 34,745
<LOANS> 426,402
<ALLOWANCE> 6,522
<TOTAL-ASSETS> 614,745
<DEPOSITS> 514,475
<SHORT-TERM> 20,941
<LIABILITIES-OTHER> 8,222
<LONG-TERM> 0
<COMMON> 2,835
0
0
<OTHER-SE> 68,272
<TOTAL-LIABILITIES-AND-EQUITY> 614,745
<INTEREST-LOAN> 36,866
<INTEREST-INVEST> 9,021
<INTEREST-OTHER> 587
<INTEREST-TOTAL> 46,474
<INTEREST-DEPOSIT> 17,524
<INTEREST-EXPENSE> 18,051
<INTEREST-INCOME-NET> 28,423
<LOAN-LOSSES> 1,061
<SECURITIES-GAINS> (131)
<EXPENSE-OTHER> 18,324
<INCOME-PRETAX> 12,060
<INCOME-PRE-EXTRAORDINARY> 12,060
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,071
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 2.85
<YIELD-ACTUAL> 5.30
<LOANS-NON> 2,364
<LOANS-PAST> 3,167
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,328
<CHARGE-OFFS> 1,271
<RECOVERIES> 404
<ALLOWANCE-CLOSE> 6,522
<ALLOWANCE-DOMESTIC> 6,522
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 605
</TABLE>
