<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended JUNE 30, 1996 Commission File Number: 0-11672
-------------- -------
HORIZON BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
WEST VIRGINIA 55-0631939
- ------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
BOX D, BECKLEY, WV 25802-2803
- ------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(304) 255-7000
------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE 2,830,130 SHARES
------------------------------ -----------------------------
Class Outstanding at August 7, 1996
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HORIZON BANCORP, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Income for The Three Months
Ended June 30, 1996 and 1995 and for The Six Months Ended June 30, 1996 and
1995
Condensed Consolidated Statements of Shareholders' Equity for The
Six Months Ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for The Six
Months Ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT 11
Computation of Earnings Per Share
EXHIBIT 27
Financial Data Schedule
2
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- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
--------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 22,126 $ 19,680
Federal funds sold 440 2,400
--------------------------
Cash and cash equivalents 22,566 22,080
Investment securities:
Available-for-sale, at fair value 111,371 115,120
Held-to-maturity, at cost (approximate
fair value of $33,081 at June 30, 1996
and $34,745 at December 31, 1995) 33,717 34,413
Loans:
Total loans 432,606 426,402
Less: Allowance for loan losses (6,622) (6,522)
--------------------------
Net loans 425,984 419,880
Premises and equipment, net 9,994 10,209
Accrued interest receivable and other assets 14,337 13,043
--------------------------
Total assets $617,969 $614,745
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 72,860 $ 74,558
Interest bearing 446,305 439,917
--------------------------
Total deposits 519,165 514,475
Short-term borrowings 19,010 20,941
Accrued interest payable and other liabilities 7,620 8,222
--------------------------
Total liabilities 545,795 543,638
Shareholders' equity:
Common stock, $1 par value; 5,000,000 shares
authorized; 2,835,670 shares outstanding at
June 30, 1996 and December 31, 1995,
including 5,540 shares in treasury 2,835 2,835
Capital surplus 12,262 12,262
Retained earnings 57,549 55,001
Treasury stock (175) (175)
Unrealized (loss) gain on available-for-sale securities (297) 1,184
--------------------------
Total shareholders' equity 72,174 71,107
--------------------------
Total liabilities and shareholders' equity $617,969 $614,745
==========================
</TABLE>
See notes to consolidated financial statements.
3
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- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $10,055 $ 8,886 $19,962 $17,313
Interest and dividends on investment securities:
Taxable 1,699 1,718 3,397 3,464
Tax-exempt 521 512 1,033 1,027
Federal funds sold and other 96 199 158 324
----------------------- -----------------------
Total interest income 12,371 11,315 24,550 22,128
Interest expense:
Deposits 4,685 4,268 9,435 8,041
Short-term borrowings 167 121 308 234
----------------------- -----------------------
Total interest expense 4,852 4,389 9,743 8,275
----------------------- -----------------------
Net interest income 7,519 6,926 14,807 13,853
Provision for loan losses 314 268 649 485
----------------------- -----------------------
Net interest income after provision
for loan losses 7,205 6,658 14,158 13,368
Other income:
Service charges and fees 470 373 920 796
Investment securities losses (35) - (36) (131)
Other 387 290 725 601
----------------------- -----------------------
Total other income 822 663 1,609 1,266
Other expenses:
Salaries and employee benefits 2,164 2,183 4,355 4,239
Net occupancy expense 266 229 525 454
Equipment expense 381 362 759 722
Outside data processing 402 295 639 512
Federal deposit insurance 2 276 4 544
Advertising 87 87 180 159
Other 1,353 872 2,739 1,923
----------------------- -----------------------
Total other expenses 4,655 4,304 9,201 8,553
----------------------- -----------------------
Income before income taxes 3,372 3,017 6,566 6,081
Applicable income taxes 1,247 951 2,320 1,934
----------------------- -----------------------
Net income $ 2,125 $ 2,066 $ 4,246 $ 4,147
======================= =======================
Net income per common share $0.75 $0.73 $1.50 $1.46
======================= =======================
Dividends per share $0.30 $0.25 $0.60 $0.50
======================= =======================
Average common shares outstanding 2,830 2,835 2,830 2,835
======================= =======================
</TABLE>
See notes to consolidated financial statements.
4
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- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
AVAILABLE DEFERRED
COMMON CAPITAL RETAINED TREASURY FOR SALE ESOP
STOCK SURPLUS EARNINGS STOCK SECURITIES BENEFITS TOTAL
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $2,835 $12,262 $55,001 $(175) $ 1,184 $ -- $71,107
Six months ended June 30, 1996:
Net income -- -- 4,246 -- -- -- 4,246
Cash dividends ($0.60 per share) -- -- (1,698) -- -- -- (1,698)
Change in unrealized gain (loss) on
available-for-sale securities,
net of deferred income taxes -- -- -- -- (1,481) -- (1,481)
---------------------------------------------------------------------------------------
Balances at June 30, 1996 $2,835 $12,262 $57,549 $(175) $ (297) $ -- $72,174
=======================================================================================
Balances at December 31, 1994 $2,835 $12,262 $49,903 $ -- $(1,297) $(121) $63,582
Six months ended June 30, 1995:
Net income -- -- 4,147 -- -- -- 4,147
Cash dividends ($0.50 per share) -- -- (1,418) -- -- -- (1,148)
Change in unrealized (loss) gain on
available-for-sale securities,
net of deferred income taxes -- -- -- -- 1,843 -- 1,843
Purchase of treasury stock -- -- -- (92) -- (92)
Reduction in ESOP indebtedness -- -- -- -- -- 121 121
---------------------------------------------------------------------------------------
Balances at June 30, 1995 $2,835 $12,262 $52,632 $ (92) $ 546 $ -- $68,183
=======================================================================================
</TABLE>
See notes to consolidated financial statements.
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- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
HORIZON BANCORP, INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30
1996 1995
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,246 $ 4,147
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and Amortization 507 604
Provision for loan losses 649 485
Loss on sale of investment securities 36 131
Change in accrued interest receivable and other assets (1,339) (480)
Change in accrued interest payable and other liabilities 289 2,886
------------------------
Net cash provided by operating activities 4,388 7,773
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities 5,071 4,873
Proceeds from maturities of available-for-sale securities 11,012 4,327
Purchases of available-for-sale securities (14,689) (14,298)
Proceeds from maturities of held-to-maturity securities 1,680 18,563
Purchases of held-to-maturity securities (984) (1,084)
Net increase in loans (6,750) (14,083)
Purchases of premises and equipment (303) (2,496)
Cash received in purchase of branches, net of cash paid -- 3,456
------------------------
Net cash (used in) by investing activities (4,963) (742)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 4,690 (2,934)
Net (decrease) increase in short-term borrowings (1,931) 758
Cash dividends paid (1,698) (1,418)
Purchase of treasury shares -- (92)
------------------------
Net cash provided by (used in) financing activities 1,061 (3,686)
------------------------
Net increase in cash and cash equivalents 486 3,345
Cash and cash equivalents at beginning of period 22,080 24,432
------------------------
Cash and cash equivalents at end of period $22,566 $27,777
========================
</TABLE>
See notes to consolidated financial statements.
6
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
HORIZON BANCORP, INC.
JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
The accompanying unaudited interim consolidated financial statements
have been prepared by Horizon Bancorp, Inc. ("Horizon"), in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. The results of
operations for the three month period and six month period ended June 30, 1996,
are not necessarily indicative of the results to be expected for the year ending
December 31, 1996. Certain 1995 amounts have been reclassified to conform to
current year presentation. Such reclassifications had no impact on net income
or shareholders' equity.
These financial statements are to be read in conjunction with the financial
statements and notes included in the 1995 Annual Report and Form 10-K of
Horizon Bancorp, Inc.
- --------------------------------------------------------------------------------
NOTE 2. MERGERS AND ACQUISITIONS
- --------------------------------------------------------------------------------
Horizon has 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 which will result in the issuance of 1,818,000 shares of
Horizon common stock. 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. The results of operations of the
separate companies are summarized as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30
1996 1995
------------------------
<S> <C> <C>
Net interest income:
Horizon $14,807 $13,853
Twentieth 7,075 7,331
------------------------
Proforma $21,882 $21,184
========================
Net income:
Horizon $ 4,246 $ 4,147
Twentieth 1,185 1,720
========================
Proforma $ 5,431 $ 5,867
========================
Net income per common share:
Horizon $1.50 $1.46
Twentieth 0.66 0.96
Proforma 1.17 1.26
</TABLE>
Horizon expects to receive regulatory and shareholder approvals and complete
its acquisition of Twentieth in the third quarter of 1996.
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- --------------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
Management determines the appropriate classification of securities
at the time of purchase. Debt securities are classified as
held-to-maturity when Horizon has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at
amortized cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of
deferred income taxes, reported in a separate component of shareholders'
equity. Horizon does not hold investment securities for trading purposes.
The amortized cost and estimated fair values of investment securities are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury securities and obligations of U.S.
government agencies and corporations $ 85,374 $518 $ (714) $ 85,178
Obligations of states and political subdivisions 10,778 48 (116) 10,710
Mortgage-backed securities 8,407 75 (237) 8,245
Other securities 7,315 26 (103) 7,238
-----------------------------------------------------------
Totals $111,874 $667 $(1,170) $111,371
===========================================================
HELD-TO-MATURITY SECURITIES
Obligations of states and political subdivisions $ 33,717 $211 $ (847) $ 33,081
===========================================================
</TABLE>
<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 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>
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- -------------------------------------------------------------------------------
NOTE 4. ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
JUNE 30
1996 1995
--------------------
<S> <C> <C>
Balance at beginning of period $6,522 $6,328
Charge-offs (771) (519)
Recoveries 222 184
--------------------
Net charge-offs (549) (335)
Provision for loan losses 649 485
--------------------
Balance at end of period $6,622 $6,478
====================
Allowance for loan losses as a % of total loans 1.53% 1.59%
Earnings coverage of net charge-offs 7.73X 12.38X
</TABLE>
At June 30, 1996, the recorded investment in loans that are considered to be
impaired under FASB Statement No. 114, "Accounting by Creditors for Impairment
of a Loan," was not significant.
- -------------------------------------------------------------------------------
NOTE 5. NEW ACCOUNTING STANDARD
- -------------------------------------------------------------------------------
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," which is applicable to Horizon
in 1996. This Statement provides companies with the option of accounting
for stock-based compensation under APB Opinion No. 25, "Accounting for
Stock Issued to Employees," or applying the provisions of Statement 123.
As allowed by Statement No. 123, Horizon has elected to continue accounting
for stock-based compensation under Opinion 25. Horizon will make pro
forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in Statement No. 123 had been
applied in its 1996 annual report to shareholders.
9
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- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
INTRODUCTION
Horizon Bancorp, Inc., ("Horizon") is a multi-bank holding company
headquartered in Beckley, West Virginia. Horizon engages in commercial banking
activities and provides financial and trust services to individuals and
commercial customers primarily in Fayette, Greenbrier, Pocahontas, Raleigh,
and Summers Counties of West Virginia.
The following discussion and analysis is provided to assist readers of
the consolidated financial statements in understanding the operating
performance of Horizon. This discussion should be read in conjunction with
the December 31, 1995 consolidated financial statements and the
accompanying notes to the financial statements included in the 1995 annual
report.
Throughout the following discussion, dollars are expressed in thousands,
except per share data.
RESULTS OF OPERATIONS
Horizon reported consolidated net income for the first six months of
1996 of $4,246, or $1.50 per share, compared with $4,147, or $1.46 per
share, in the same quarter of 1995.
Return on average assets (ROA) measures how effectively Horizon uses its
assets to produce net income while return on average equity (ROE) measures
income earned compared with the amount of shareholders' investment in
Horizon. For the six months ended June 30, 1996, Horizon's ROA was 1.38%,
compared to 1.44% for the six months ended June 30, 1995. For the six
months ended June 30, 1996, Horizon's ROE totaled 11.84%, compared to 12.57%
for the six months ended June 30, 1995.
Net income for the three months ended June 30, 1996, was $2,125, or $0.75 per
share, compared with $2,066, or $0.73 per share, in the second quarter of 1995.
NET INTEREST INCOME
Net interest income is Horizon's largest source of earnings. Net interest
income is influenced by the volume and relative yield (cost) of earning
assets and interest-bearing liabilities and the relative sensitivity of such
assets and liabilities to changes in interest rates. Interest income is
presented and discussed on a fully tax-equivalent basis.
Net interest income increased $1,029 or 7.15% in the first six months of
1996, from $14,396 reported for the first six months of 1995. Both
interest income and interest expense increased when comparing the first
six months of 1996 with 1995. The increase in interest income resulted
from an increase in volume and yield on average interest-earning assets and
changes in the mix of earning assets. Average loans, Horizon's highest
yielding assets, increased $42,129 or 10.92% in volume and the yield
increased 40 basis points during the first half of 1996 from the same period of
1995. The increase in loan volume and yield accounts for the
majority of the increase in net interest income. These increases are
representative of the current economic activity and efforts by management
to extend its market share.
The following table summarizes the composition of average interest-earning
assets and average interest-bearing liabilities, along with the related income
or expense and the weighted average yield or cost of such funds.
10
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<TABLE>
<CAPTION>
NET INTEREST MARGIN
--------------------------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995
--------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold $ 5,746 $ 158 5.5% $ 11,140 $ 324 5.8%
Investment securities:
Taxable 103,734 3,397 6.5 107,725 3,464 6.4
Tax exempt(1) 41,899 1,589 7.6 41,059 1,556 7.6
--------------------------------------------------------------------
Total investment securities 145,633 4,986 6.8 148,784 5,020 6.7
Total loans(1)(2) 427,848 20,024 9.4 385,719 17,327 9.0
--------------------------------------------------------------------
Total earning assets
and interest income 579,227 25,168 8.7 545,643 22,671 8.3
Noninterest earning assets:
Cash and due from banks 18,522 15,835
Premises and equipment 10,216 7,801
Other assets 15,601 12,218
Less: Allowance for loan losses (6,506) (6,373)
-------- --------
Total assets $617,060 $575,124
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 82,388 $1,090 2.6% $ 85,382 $1,063 2.5%
Savings deposits 111,840 1,800 3.2 119,222 1,912 3.2
Certificates of deposit 250,571 6,545 5.2 213,409 5,066 4.7
---------------------------------------------------------------------
Total interest-bearing deposits 444,799 9,435 4.2 418,013 8,041 3.8
Short-term borrowings 17,910 308 3.4 17,894 234 2.6
---------------------------------------------------------------------
Total interest-bearing
liabilities and interest
expense 462,709 9,743 4.2 435,907 8,275 3.8
----------------- ------------------
Noninterest-bearing liabilities:
Demand deposits 72,886 69,028
Other 9,754 4,194
-------- --------
Total liabilities 545,349 509,129
Shareholders' equity 71,711 65,995
-------- --------
Total liabilities and
shareholders' equity $617,060 $575,124
======== ========
Net interest income $15,425 $14,396
======= ======
Spread 4.5% 4.5%
==== ====
Net interest margin 5.3% 5.3%
==== ====
</TABLE>
(1) Fully taxable equivalent using 35%.
(2) Nonaccrual loans are included in average balances.
Horizon's net interest margin for the six months ended June 30, 1996 is the
same as for the six months ended June 30, 1995.
Average interest-bearing liabilities increased $26,802 or 6.15% in the six
months ended June 30, 1996 from $435,907 during the six months ended June 30,
1995. The increase is related to
11
<PAGE> 12
deposits acquired through the purchase of four supermarket branches in
the first and second quarters of 1995. The related cost of funds increased
40 basis points, primarily due to a 50 basis point increase in cost of
certificates of deposit and the shifting of deposits to these higher
yielding accounts.
ALLOWANCE FOR LOAN LOSSES
At June 30, 1996, the allowance for loan losses as a percentage of total loans
was 1.53%, unchanged from December 31, 1995. During the first six months of
1996, the allowance remained stable through a provision for loan losses of $649
compared to $485 for the same period of 1995. Net charge-offs were $549 for the
six months ended June 30, 1996, compared to $335 for the same period in 1995.
Consumer charge-offs increased $177 for the six months ended June 30, 1996 when
compared to the same period of 1995. The increase is primarily due to growth in
the credit card department. The higher provision for loan losses is due to
higher consumer charge-offs.
Total nonperforming loans were 0.93% of total loans at June 30, 1996, a
decrease from the 1.30% at December 31, 1995. At June 30, 1996,
nonperforming assets were 0.72% of total assets, a decrease from the 0.98%
at December 31, 1995.
Nonperforming loans decreased $1,527 during the six months ended June 30, 1996,
from the $5,531 reported at December 31, 1995. The reduction is due to the
collection of a significant nonaccruing loan, migration of other borrowers from
ninety days past due and still accruing interest to nonaccrual, and improved
collection efforts.
<TABLE>
<CAPTION>
ANALYSIS OF ASSET
QUALITY
-------------------------
JUNE 30 DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
Nonaccruing loans $2,048 $2,364
Loans ninety days past due and accruing interest 1,956 3,167
---------------------
Total nonperforming loans 4,004 5,531
Other real estate owned 472 503
---------------------
Total nonperforming assets $4,476 $6,034
=====================
Nonperforming loans to total loans 0.93% 1.30%
Nonperforming assets to total assets 0.72% 0.98%
Allowance for loan losses to nonperforming loans 165.38% 117.92%
</TABLE>
NONINTEREST INCOME
Noninterest income is primarily of a fee nature and consists of service
charges on deposits, trust department income, and a variety of
miscellaneous transactions. Noninterest income increased $343 or 27.09%
during the six months ended June 30, 1996 from the $1,266 reported in the
same period in 1995. The increase is due to a decline of $95 in
investment securities losses, a $124 increase in service charges, and a $124
increase in other income. The investment security losses incurred in the
first half of 1995 were to take advantage of higher yielding investments.
Service charges increased due to higher deposit balances along with
increased transactions subject to service charges. Trust income increased
22.66% because of increased fees related to estate settlements in the first six
months of 1996.
Noninterest income increased $159 or 23.98% during the three months ended June
30, 1996 from $663 reported in the same period in 1995. The increase is net of
security losses of $35 in the second quarter of 1996 compared to $0 in the
second quarter of 1995. Increased balances and transactions subject to service
charges along with an increase in trust income are the primary reasons for
the increase.
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<PAGE> 13
NONINTEREST EXPENSE
Noninterest expense is frequently referred to as overhead; that is the cost of
normal operations. Horizon's noninterest expense for the six months ended June
30, 1996, increased $648 or 7.58% over the six months ended June 30, 1995.
Salaries and employee benefits increased $116 or 2.74%. Net occupancy expenses
increased $71 or 15.64% in the first half of 1996 compared to the first half of
1995 due to increased depreciation charges for a new bank building placed in
service during the fourth quarter of 1995 and increased costs related to the
operation of the supermarket branches acquired in the first and second quarters
of 1995. Data processing expense increased $127 or 24.80% for the six months
ended June 30, 1996, from $512 for the first six months of 1995. The increase is
due primarily to a 30% increase in the number of accounts being processed for
the first six months of 1996 when compared to the number of accounts processed
for the six months ended June 30, 1995. Federal deposit insurance decreased $540
to the statutory minimum of $4 as the FDIC has lowered assessments on soundly
capitalized institutions. Other expenses increased $816 for the first six months
of 1996 over the same period of 1995. The increase is primarily due to
investment banking and other professional fees of $346 related to potential
acquisitions, an increase in losses other than loans of $172 due primarily to
the receipt of $150 of insurance proceeds for covered losses in the first half
of 1995, and an increase of $92 in cost of operations for the credit card
department due to growth.
Noninterest expense for the three months ended June 30, 1996, increased $351 or
8.16% over the three months ended June 30, 1995. Net occupancy expense
increased $37 or 16.16% in the first six months of 1996 compared to the same
period of 1995. The increase is due primarily to depreciation charges related
to a new bank building. Data processing expense increased $107 or 36.27% for
the quarter ended June 30, 1996, from $295 for the three months ended June 30,
1995. This increase is due to the increased number of accounts processed in
1996 as compared to the same period of 1995. Other expenses increased $481 or
55.16% for the three months ended June 30, 1996, over the three months ended
June 30, 1995. The increase was primarily due to professional fees of $196
related to potential acquisitions, the receipt of $150 in insurance proceeds
for covered losses in 1995, and an increase of $45 in cost of operations for
the credit card department.
INCOME TAXES
Income tax expense expressed as a percentage of income before income taxes
was 35.33% for the six months ended June 30, 1996, and compares to 31.80%
for the six months ended June 30, 1995. For the three months ended June 30,
1996, the percentage was 36.98% and compares to 31.52% for the three months
ended June 30, 1995. The higher effective tax rate for 1996 compared to 1995
reflects an increase in nondeductible expenses related to potential
acquisitions.
13
<PAGE> 14
BALANCE SHEET ANALYSIS
At June 30, 1996, total assets increased $3,224 or 0.52% from the December
31, 1995 total of $614,745.
Investment securities totaled $145,088 at June 30, 1996, and have
decreased $4,445 or 2.97% from the December 31, 1995 total of $149,533.
This is attributable to loan demand and reflects management's strategy to
fund portions of loan growth through maturities of investment securities.
Growth in total loans has been evidenced by stronger loan demand in the first
six months of 1996. For the six months ended June 30, 1996, total loans
increased $6,204 or 1.46%. The increase was due primarily to commercial loan
growth reflecting more favorable economic conditions in the market area.
Net premises and equipment have decreased $215 or 2.11% from $10,209 at
December 31, 1995 to $9,994 at June 30, 1996. The decrease consists of $518 in
depreciation charges net of $303 in equipment purchases.
Total deposits at June 30, 1996 were $519,165 and have increased $4,690 or
0.91% from the December 31, 1995 total of $514,475. This increase is
primarily due to an increase of $6,388 or 1.45% in interest-bearing liabilities
obtained as a result of higher rates paid on certificates of deposit.
At June 30, 1996, short-term borrowings approximated $18,010 in securities
sold under agreements to repurchase which are offered for customer
accommodation and borrowings of $1,000 from the Federal Home Loan Bank of
Pittsburgh. The FHLB borrowing is a one-year term note indexed to the prime
rate and was used to fund a portion of a commercial loan.
Shareholders' equity increased $1,067 or 1.50% from the total at December 31,
1995, primarily from retention of earnings net of the decline in unrealized
gain on available-for-sale securities of $1,481 from $1,184 at December 31,
1995 to an unrealized loss of $297 at June 30, 1996. This decline is due to
increasing interest rates.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Horizon's liquidity position is believed to be adequate for the availability
of funds for loan growth and deposit withdrawals, and provide for other
transaction requirements. Liquidity is provided primarily by investments in
cash and cash equivalents and maturities of investments and loans. The
liquidity position is monitored regularly and management is not aware of any
trends, commitments, or events that are likely to result in a liquidity
increase or decrease of a material amount.
Interest rate risk is measured through a static gap analysis and monitored
closely by management. Due to Horizon's stable core deposit base,
management has been able to effectively manage interest rate risk without
the use of derivative products.
CAPITAL RESOURCES AND DIVIDENDS
Shareholders' equity when expressed as a percentage of total assets totaled
11.68% on June 30, 1996, an increase from the 11.57% reported at December 31,
1995. The primary capital ratio,
14
<PAGE> 15
which includes equity and the allowance for loan losses, was 12.62% on June 30,
1996, and has increased slightly from the 12.50% reported on December 31, 1995.
The Federal regulatory agencies have adopted risk-based capital guidelines and
Horizon continues to be well above the minimum guidelines for all risk-based
ratios.
Bond rates have increased in the first six months of 1996 causing the unrealized
net gain (loss) on available-for-sale securities to change from an unrealized
net gain of $1,184 at December 31, 1995 to an unrealized net loss of $297 at
June 30, 1996. At June 30, 1996, shareholders' equity included an unrealized net
loss on available-for-sale investments of $297.
Pertinent capital ratios were:
<TABLE>
<CAPTION>
Minimum Regulatory
June 30, 1996 December 31, 1995 Requirements
-------------------------------------------------------
<S> <C> <C> <C>
Shareholders' Equity/Total Assets 11.68% 11.57%
Primary Capital Ratio 12.62% 12.50%
Risk-Adjusted Capital
Tier I 17.10% 17.96% 4.00%
Tier II 18.28% 19.21% 8.00%
Leverage 11.66% 11.31% 3.00%
</TABLE>
Management is not aware of any trends, events, or uncertainties, either
favorable or unfavorable, that are likely to have a material effect on
Horizon's liquidity, capital resources or results of operations. There are
no current recommendations by regulatory authorities that, if implemented,
would have a material effect on Horizon.
15
<PAGE> 16
HORIZON BANCORP, INC.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings, other than ordinary litigation incidental to
the business, to which Horizon Bancorp or any of its subsidiaries are a
party to or of which any of their property is subject. Management believes
that the liability, if any, resulting from current litigation will not be
material to the reported financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
11. Statement of Computation of Earnings per Share
27. Financial Data Schedule
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON BANCORP, INC.
---------------------
(Registrant)
Date: August 7, 1996 /s/ Frank S. Harkins, Jr.
-------------- -------------------------
Frank S. Harkins, Jr.
Chairman of the Board
Date: August 7, 1996 /s/ C. Duane Blankenship
-------------- ------------------------
C. Duane Blankenship
Chief Financial Officer
17
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1996 1995 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 2,830,130 2,835,637 2,830,130 2,835,653
Net effect of options 6,386 85 6,386 85
---------------------------------------------------------------------
Total 2,836,516 2,835,722 2,836,516 2,835,738
=====================================================================
Net income $2,125,000 $2,066,000 $4,246,000 $4,147,000
=====================================================================
Earnings per share $0.75 $0.73 $1.50 $1.46
=====================================================================
FULLY DILUTED:
Average shares outstanding 2,830,130 2,835,670 2,830,130 2,835,670
Net effect of options 6,386 85 6,526 85
---------------------------------------------------------------------
Total 2,836,516 2,835,755 2,836,656 2,835,755
=====================================================================
Net income $2,125,000 $2,066,000 $4,246,000 $4,147,000
=====================================================================
Earnings per share $0.75 $0.73 $1.50 $1.46
=====================================================================
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000730025
<NAME> HORIZON BANCORP
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,126
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 440
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,371
<INVESTMENTS-CARRYING> 33,717
<INVESTMENTS-MARKET> 33,081
<LOANS> 432,606
<ALLOWANCE> 6,622
<TOTAL-ASSETS> 617,969
<DEPOSITS> 519,165
<SHORT-TERM> 19,010
<LIABILITIES-OTHER> 7,620
<LONG-TERM> 0
<COMMON> 2,835
0
0
<OTHER-SE> 69,339
<TOTAL-LIABILITIES-AND-EQUITY> 617,969
<INTEREST-LOAN> 19,962
<INTEREST-INVEST> 4,430
<INTEREST-OTHER> 158
<INTEREST-TOTAL> 24,550
<INTEREST-DEPOSIT> 9,435
<INTEREST-EXPENSE> 9,743
<INTEREST-INCOME-NET> 14,807
<LOAN-LOSSES> 649
<SECURITIES-GAINS> (36)
<EXPENSE-OTHER> 9,201
<INCOME-PRETAX> 6,566
<INCOME-PRE-EXTRAORDINARY> 6,566
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,246
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
<YIELD-ACTUAL> 5.30
<LOANS-NON> 2,048
<LOANS-PAST> 1,956
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,522
<CHARGE-OFFS> 771
<RECOVERIES> 222
<ALLOWANCE-CLOSE> 6,622
<ALLOWANCE-DOMESTIC> 6,622
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 725
</TABLE>
