<PAGE>
UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
-----------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number: 0-24036
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Horizon Financial Services Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
42-1419757
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(I.R.S. Employer Identification No.)
301 First Avenue East, Oskaloosa, Iowa 52577
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(515)673-8328
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 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. [X] YES [ ] 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 853,060
------------ -------
Class Shares Outstanding
as of February 13, 1998
Transitional Small Business Disclosure Format (check one):
Yes _____: No __X___
<PAGE>
HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1997 and June 30, 1997 1
Consolidated Statements of Operations for the three months and 2
six months ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the six months ended 3
December 31, 1997 and 1996
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and 5
Results of Operations
Part II. Other Information 10
Signatures 11
Index of Exhibits 12
Exhibits 13
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1997 1997
- ------ --------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 5,020,829 $ 5,621,242
Securities available for sale 24,711,452 24,942,234
Loans receivable, net 55,923,966 52,193,285
Real estate 333,502 550,690
Stock in Federal Home Loan Bank, at cost 1,104,600 955,600
Office property and equipment, net 1,041,963 1,082,013
Accrued interest receivable 571,222 554,239
Prepaid expenses and other assets 61,095 70,160
------------ ------------
Total assets $ 88,768,629 $ 85,969,463
------------ ============
Liabilities and Stockholders' Equity
Deposits $ 56,860,295 $ 57,641,372
Advances from Federal Home Loan Bank 22,070,320 19,101,533
Advance payments by borrowers for taxes and insurance 200,631 400,663
Accrued taxes on income:
Current 264,588 39,923
Deferred 121,263 51,000
Accrued expenses and other liabilities 229,223 322,311
------------ ------------
Total liabilities 79,746,320 77,556,802
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value, authorized 250,000
shares, none issued -- --
Common stock, $.01 par value, 1,500,000 shares
authorized, issued and outstanding 1,046,198 shares 10,462 5,231
Additional paid-in capital 4,832,294 4,795,400
Retained earnings, substantially restricted 5,692,163 5,305,946
Treasury stock, at cost (1,348,395) (1,360,275)
Unearned employee stock ownership plan shares (161,409) (193,798)
Unearned recognition and retention plan shares (29,547) (47,655)
Unrealized gain (losses) on securities available for sale 26,741 (92,188)
------------ ------------
Total stockholders' equity 9,022,309 8,412,661
------------ ------------
Total liabilities and stockholders' equity $ 88,768,629 $ 85,969,463
============ ============
</TABLE>
-1-
<PAGE>
HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Interest income:
<S> <C> <C> <C> <C>
Interest on loans $ 1,193,752 $ 1,091,557 $ 2,348,067 $ 2,164,896
Interest on securities available for sale 431,215 302,215 854,961 645,503
Other interest earning assets 56,653 34,540 113,717 50,549
----------- ----------- ----------- -----------
Total interest income 1,681,620 1,428,312 3,316,745 2,860,948
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 689,874 679,392 1,357,364 1,325,033
Interest on advances and other borrowing 318,954 154,643 621,969 317,128
----------- ----------- ----------- -----------
Total interest expense 1,008,828 834,035 1,979,333 1,642,161
----------- ----------- ----------- -----------
Net interest income 672,792 594,277 1,337,412 1,218,787
Provision for losses on loans 18,000 12,000 46,000 107,073
----------- ----------- ----------- -----------
Net interest income after provision for
Losses on loans 654,792 582,277 1,291,412 1,111,714
----------- ----------- ----------- -----------
Non-interest income:
Fees, commissions and service charges 118,792 90,243 223,046 175,093
Profit on securities available for sale, net 86,067 57,759 193,793 57,759
Other (1,915) 1,510 26,731 7,085
----------- ----------- ----------- -----------
Total non-interest income 202,944 149,512 443,570 239,937
----------- ----------- ----------- -----------
Non-interest expense:
Compensation, payroll taxes and
employee benefits 308,622 259,007 594,675 517,687
Advertising 10,067 9,438 24,709 30,883
Office property and equipment 79,215 75,862 175,592 150,081
Federal insurance premiums 9,413 31,300 18,045 393,100
Data processing services 28,270 26,167 56,372 52,179
Other real estate expense, net 4,084 4,020 11,140 26,756
Other 91,158 75,019 148,718 132,988
----------- ----------- ----------- -----------
Total non-interest expense 530,829 480,813 1,029,251 1,303,674
----------- ----------- ----------- -----------
Earnings before taxes on income 326,907 250,976 705,731 47,977
Taxes on income 112,689 93,600 244,689 17,900
----------- ----------- ----------- -----------
Net earnings $ 214,218 $ 157,376 $ 461,042 $ 30,077
=========== =========== =========== ===========
Earnings per common share - (1)
Basic $ 0.26 $0.19 (1) $ 0.56 $0.04 (1)
Diluted $ 0.25 $0.19 (1) $ 0.54 $0.04 (1)
Weighted average common shares outstanding - (1) 853,060 855,732 852,070 875,803
=========== =========== =========== ===========
</TABLE>
(1) Earnings per share restated to reflect a two-for-one stock split
(effected as a 100% stock dividend) issued to stockholders of record on
October 20, 1997 and adoption of Statement of Financial Accounting
Standard No. 128, "Earnings Per Share", effective December 31, 1997.
-2-
<PAGE>
HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended
December 31,
1997 1996
---------- ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 461,042 $ 30,077
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 88,130 76,841
Amortization of fees, premiums and accretion of discounts, net 81,117 21,585
Provision for losses on loans 46,000 107,073
Realized profit on assets available for sale (193,792) (57,759)
(Increase) decrease in accrued interest receivable (16,982) 25,934
Amortization of stock compensation plans 50,497 51,671
Other, net 159,133 24,332
------------- ------------
Net cash provided by operating activities 675,145 279,754
------------ -----------
Cash flows from investing activities:
Principal collected on assets available for sale 1,432,143 873,559
Proceeds from sale of assets available for sale 9,814,349 4,186,696
Purchase of assets available for sale (10,713,346) (4,595,413)
Purchase Federal Home Loan Bank Stock (149,000) (73,800)
Loans to customers, net (3,766,681) (2,339,622)
Proceeds from sale of real estate 225,000 - - -
Purchase of office property and equipment, net (48,080) (16,918)
------------- -------------
Net cash used in investing activities (3,205,615) (1,965,498)
------------ ------------
Cash flows from financing activities:
Increase (decrease) in customer deposit accounts, net (781,077) 680,773
Decrease advance payments by borrowers for taxes and insurance (200,032) (213,563)
Proceeds from advances from FHLB 8,500,000 3,000,000
Principal payments on advances from FHLB (5,531,214) (2,529,429)
Payment of dividends (69,354) (65,911)
Net proceeds from options exercised 11,734 - - -
Treasury stock acquired - - - (337,354)
------------ -------------
Net cash provided by financing activities 1,930,057 534,516
-------------- -------------
Net decrease in cash and cash equivalents (600,413) (1,151,228)
Cash and cash equivalents at beginning of year 5,621,242 3,470,538
------------- ------------
Cash and cash equivalents at end of year $ 5,020,829 $ 2,319,310
============ ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,040,032 $ 1,656,119
Cash paid for taxes 20,521 48,307
Transfers of loans to real estate acquired through foreclosures - - - 114,430
============ =============
To mark assets available for sale to fair value:
Change in fair value $ (189,689) $ (11,565)
Less deferred taxes 70,760 4,216
------------- ---------------
Change in valuation allowance $ 118,929 $ 7,349
============= ===============
</TABLE>
-3-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HORIZON FINANCIAL SERVICES CORPORATION
1. BASIS OF PRESENTATION
The consolidated financial statements for the three and six months ended
December 31, 1997 are unaudited. In the opinion of management of Horizon
Financial Services Corporation (the "Registrant or Company"), these financial
statements reflect all adjustments, consisting only of normal occurring
accruals, necessary to present fairly the consolidated financial position of the
Company at December 31, 1997 and its results of operations and statements of
cash flows for the periods presented. These consolidated financial statements do
not purport to contain all the necessary disclosures required by generally
accepted accounting principles that might otherwise be necessary in the
circumstances and should be read in conjunction with the consolidated financial
statements and notes therein included in the annual report of Horizon Financial
Services Corporation for the year ended June 30, 1997. The results of the
periods presented are not necessarily representative of the results of
operations and cash flows which may be expected for the entire year.
2. ORGANIZATION
The Company was organized as a Delaware corporation at the direction of Horizon
Federal Savings Bank (the "Bank") for the purpose of becoming a savings bank
holding company, as part of the conversion from a mutual to a stock institution.
The conversion was completed on June 28, 1994 with the sale of 506,017 shares of
the Company's common stock at a price of $10 per share. Total proceeds from the
conversion of $4,148,060 (net of issuance costs of $507,300 and ESOP shares of
$404,810) have been recorded as common stock and paid-in capital. On October 10,
1997 the Company declared a two-for-one stock split (effected as a 100% stock
dividend) payable on or about November 10, 1997 to shareholders of record on
October 20, 1997. Earnings per share have been restated to reflect this stock
split and the adoption of Statement of Financial Accounting Standard No. 128,
"Earnings Per Share", effective December 31, 1997.
3. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, the Bank and the Bank's wholly owned subsidiary,
Horizon Investment Services, Inc. The principal business activity of Horizon
Investment Services, Inc. is to sell credit life insurance to customers of the
Bank. All material intercompany accounts and transactions have been eliminated.
-4-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Horizon Financial Services Corporation (the "Company") is a savings bank holding
company the primary asset of which is Horizon Federal Savings Bank (the "Bank").
The Company was incorporated in March 1994 and sold 506,017 shares of common
stock on June 28, 1994 for the purpose of acquiring all of the capital stock of
the Bank in connection with the Bank's conversion from mutual to stock form of
ownership (the "Conversion"). All references to the Company prior to June 28,
1994, except where otherwise indicated, are to the Bank and its subsidiary on a
consolidated basis.
The principal business of the Company (through its operating subsidiary, the
Bank), has historically consisted of attracting deposits from the general public
and making loans secured by residential and, to a lesser extent, other
properties. The Company's results of operations are primarily dependent on net
interest rate spread, which is the difference between the average yield on
loans, mortgage-backed and related securities and investments and the average
rate paid on deposits and other borrowing. The interest rate spread is affected
by regulatory, economic and competitive factors that influence interest rates,
loan demand and deposit flows. The Company, like other non-diversified savings
institution holding companies, is subject to interest rate risk to the degree
that its interest-earning assets mature or reprice at different times, or on a
different basis, than its interest-bearing liabilities.
The Company's results of operations are also affected by, among other things,
fee income received, loss or profit on securities available for sale, the
establishment of provisions for possible loan losses, income derived from
subsidiary activities, the level of operating expenses and income taxes. The
Company's operating expenses principally consist of employee compensation and
benefits, occupancy expenses, federal deposit insurance premiums, data
processing expenses and other general and administrative expenses.
The Company is significantly affected by prevailing economic conditions
including federal monetary and fiscal policies and federal regulation of
financial institutions. Deposit balances are influenced by a number of factors
including interest rates paid on competing personal investments and the level of
personal income and savings within the institution's market area. Lending
activities are influenced by the demand for housing as well as competition from
other lending institutions. The primary sources of funds for lending activities
include deposits, loan payments, borrowings and funds provided from operations.
Certain statements in this report that relate to the plans, objectives or future
performance may be deemed to be forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Words or phrases
"will likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the PSLRA. Such statements
are based on Management's current expectations. Actual strategies and results in
future periods may differ materially from those currently expected because of
various risks and uncertainties. Additional discussion of factors affecting the
Company's business and prospects is contained in the Company's periodic filings
with the Securities and Exchange Commission. The Company disclaims any intent or
obligation to update these forward-looking statements.
-5-
<PAGE>
FINANCIAL CONDITION
The Company's total assets at December 31, 1997 of $88.8 million increased $2.8
million, or 3.26%, from $86.0 million at June 30, 1997. This increase was
reflected in a $3.7 million increase in net loans receivable and a $149,000
increase in Federal Home Loan Bank Stock. This increase was partially offset by
a $600,000 decrease in cash and cash equivalents, a $231,000 decrease in
securities available for sale and a $217,000 decrease in real estate. Total
liabilities increased $2.2 million to $79.7 million at December 31, 1997 from
$77.5 million at June 30, 1997, primarily due to a $3.0 million increase in
advances from the Federal Home Loan Bank (the "FHLB") of Des Moines to $22.1
million from $19.1 million at June 30, 1997. Advances from the Federal Home Loan
Bank were used to fund growth in the Company's loan portfolio and for
operations. Deposits decreased $781,000 to $56.8 at December 31, 1997 from $57.6
at June 30, 1997. Advance payments by borrowers for taxes and insurance
decreased $200,000 from $401,000 at June 30, 1997 to $201,000 at December 31,
1997. There were no other significant changes in the components of the Company's
balance sheet.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily on the level of its net
interest income and non-interest income and the level of its operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and interest rates earned or paid on such assets or
liabilities, respectively. The Company's non-interest income consists primarily
of fees charged on transaction accounts which help to offset the costs
associated with establishing and maintaining these accounts.
Comparison of three month and six month periods ended December 31, 1997 and
December 31, 1996
GENERAL
Net earnings for the three months ended December 31, 1997 increased $57,000 to
$214,000 from $157,000 for the three month period ended December 31, 1996. For
the six months ended December 31, 1997, net earnings increased $431,000 to
$461,000 for the comparable period in 1996. The increase for the three month
period ended December 31, 1997 compared to the three month period ended December
31, 1996 was attributable to increases in net interest income and non-interest
income, primarily gains on securities available for sale and fees, commissions
and service charges, offset in part by increases in non-interest expense, loan
loss provisions and taxes on income. The increase for the six month period was
primarily due to the absence of the one time special assessment of $207,000, net
of taxes, charged to the Company by the FDIC to recapitalize the SAIF during the
six month period ended December 31, 1996. Net earnings, without the SAIF
assessment, for the six months ended December 31, 1996 was $237,000 as compared
to $461,000 for the same six month period in 1997, resulting in an increase of
$224,000 or 94.5%.
INTEREST INCOME
Interest income increased $253,000 to $1.7 million for the three month period
ended December 31, 1997 compared to $1.4 million for the three month period
ended December 31, 1996 and $456,000 to $3.3 million for the six month period
ended December 31, 1997 compared to $2.9 million for the comparable period ended
December 31, 1996. The increase was due to an increase in average
interest-earning assets, consisting primarily of mortgage loans and securities
available for sale, of approximately $13.5 million and $12.2 million for the
three and six months ended December 31, 1997, respectively, over the comparable
periods in 1996, and, to a lesser extent, the upward adjustment of the rates on
the Bank's adjustable-rate mortgage loans which repriced during 1997. The
weighted average yield on average interest-earning assets decreased slightly to
8.02% for the six months ended December 31, 1997 from 8.11% for the same period
in 1996.
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<PAGE>
INTEREST EXPENSE
Interest expense increased $175,000 to $1.0 million from $834,000 for the three
month period and increased $337,000 to $2.0 million from $1.6 million for the
six month period ended December 31, 1997 as compared to the same periods in
1996. The increase in interest expense was attributable to increased advances
from the Federal Home Loan Bank which primarily were used to fund mortgage loan
growth and the interest rate on advances increasing to 5.80% for the six months
ended December 31, 1997 from 5.69% for the same period in 1996. The weighted
average interest rates paid on average interest bearing liabilities increased to
5.08% for the six months ended December 31, 1997 from 4.95% for the same period
in 1996.
NET INTEREST INCOME
Net interest income was $672,000 and $1.3 million for the three months and six
months ended December 31, 1997, respectively, compared to $594 000 and $1.2
million for the comparable periods in 1996. The increase in net interest income
was primarily a result of the increase in interest income as discussed above.
The Company's net interest margin was 2.94% for the six month period ended
December 31, 1997 compared to 3.16% for the same period in 1996.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans is a result of management's periodic analysis
of the adequacy of the Company's allowance for losses on loans. During the six
month period ended December 31, 1997 the Company's provision for losses on loans
was $46,000 compared to $107,000 for the six month period ended December 31,
1996. The provision for losses on loans was increased during 1996 predominantly
as a result of a $75,000 commercial business operating loan which was classified
as a loss in 1996 and subsequently written off during the first quarter of the
1997 fiscal year. During the three month period ended December 31, 1997, the
Company's provision for loan losses was $18,000 compared to $12,000 for the
three month period ended December 31, 1996. As of December 31, 1997, the
Company's non-performing assets, consisting of nonaccrual loans, accruing loans
90 days or more delinquent, real estate owned and repossessed consumer property,
totaled $857,600 or .97% of total assets, compared to $1,045,000 or 1.22% of
total assets as of June 30, 1997. As of December 31, 1997 the Company's
allowance for losses on loans was $380,000, representing 44.3% of non-performing
assets and .68% of net loans receivable.
The Company continues to monitor and adjust its allowance for losses on loans as
management's analysis of its loan portfolio and economic conditions dictate. The
Company believes it has taken an appropriate approach toward reserve levels,
consistent with the Company's loss experiences and considering, among other
factors, the composition of the Company's loan portfolio, the level of the
Company's classified and non-performing assets and their estimated value. Future
additions to the Company's allowance for losses on loans and any change in the
related ratio of the allowance for losses on loans to non-performing loans are
dependent upon the economy, changes in real estate values and interest rates.
Because the Company has had extremely low loan losses during its history,
management also considers the loss experience of similar portfolios in
comparable lending markets. In addition, federal regulators may require
additional reserves as a result of their examination of the Company.
Accordingly, the calculation of the adequacy of the allowance for losses on
loans is not based directly on the level of non-performing assets. The allowance
for losses on loans reflects what the Company currently believes is an adequate
level of reserves, although there can be no assurance that future losses will
not exceed the estimated amounts, thereby adversely affecting future results of
operations.
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<PAGE>
NON-INTEREST INCOME
Non-interest income was $203,000 and $444,000 for the three and six months ended
December 31, 1997 respectively, compared to $149,000 and $240,000 for the same
periods ended December 31, 1996. The increase in non-interest income was
primarily attributable to profit on sale of securities which increased $28,000
for the three month period and $136,000 for the six month period ended December
31, 1997 from the corresponding period in 1996. Non-interest income from fees,
commissions and service charges increased $28,000 and $48,000 for the three and
six month periods ended December 31, 1997, respectively, over the comparable
periods in 1996 due to increased fees charged on checking accounts, increased
loan fees and increased commission income on sales of alternative financial
products sold through the wholly-owned financial services subsidiary of the
Bank.
NON-INTEREST EXPENSE
Total non-interest expense was $531,000 and $1.0 million for the three and six
months ended December 31, 1997, respectively, compared to $481,000 and $1.3
million for the same periods in 1996, reflecting increases of $50,000 and
$274,000, respectively. The decrease for the six month period was primarily the
result of the one-time special assessment of $ 331,000 by the FDIC to
recapitalize the SAIF during September 1997. Compensation, payroll taxes and
employee benefits, the largest component of non-interest expense, increased
$50,000 and $77,000 for the three and six month periods ended December 31, 1997,
respectively, compared to the same period during 1996. Significant factors
causing the increase in compensation were costs generally associated with the
Company's stock-based compensation plans as a result of an increase in the
Company's stock price, normal salary increases and costs of benefits provided.
There were no other significant changes in the components of non-interest
expense.
TAXES ON INCOME
Income taxes increased $19,000 and $227,000 for the three and six month periods
ended December 31, 1997, respectively, primarily as a result of the increases in
net earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits and principal and interest
payments collected on mortgage loans, investments and related securities. While
scheduled loan repayments and maturing investments are relatively predictable,
deposit flows and early loan prepayments are more influenced by interest rates,
general economic conditions and competition. Additionally, the Company may
borrow funds from the FHLB of Des Moines or utilize other borrowings of funds
based on need, comparative costs and availability at the time.
The Office of Thrift Supervision (the "OTS") requires minimum levels of liquid
assets. OTS regulations presently require the Bank to maintain an average daily
balance of liquid assets (United States Treasury and federal agency securities
and other investments having maturities of five years of less) equal to at least
4.0% of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. Such requirements may be
changed from time to time by the OTS to reflect changing economic conditions.
Such investments are intended to provide a source of relatively liquid funds
upon which the Bank may rely, if necessary, to fund deposit withdrawals and
other short-term funding needs. The Bank has historically maintained its
liquidity ratio in excess of that required. The Banks liquidity ratio was 5.4%
at December 31, 1997 and 7.12% on June 30, 1997.
The Company uses its liquidity resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals
and to meet operating expenses. At December 31, 1997, the Company had
outstanding commitments to extend credit which amounted to $1,773,000 (including
$535,000 in available revolving commercial lines of credit). At December 31,
1997, certificates of deposit scheduled to mature in one year or less totaled
$20.0 million. At December 31 1997, the Company had $22.1 million of advances
from the FHLB of Des Moines outstanding. Management
-8-
<PAGE>
believes based on its experience to date, that a significant portion of these
funds will remain with the Company. Management believes that loan repayments and
other sources of funds will be adequate to meet the Company's foreseeable
liquidity needs.
Liquidity management is both a daily and long-term responsibility of management.
The Bank adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest-bearing investments and (iv) the objectives of its
asset/liability management program. Excess liquidity generally is invested in
interest-earning overnight deposits and other short-term government and agency
obligations.
At December 31, 1997 the Bank had tangible and core capital of $6.5 million, or
7.5% of adjusted total assets, which was approximately $5.2 million and $3.9
million above the minimum requirements of 1.5% and 3.0%, respectively, of the
adjusted total assets in effect on that date. At December 31, 1997 the Bank had
risk-based capital of $6.7 million (including $6.5 million in core capital), or
13.8% of risk-weighted assets of $49.0 million. This amount was $2.8 million
above the 8.0% requirement in effect on that date.
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<PAGE>
OTHER INFORMATION
PART II
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) Annual meeting date: October 23, 1997
(b) Not required
(c) The matters approved by stockholders at the Meeting
and number of votes cast for, against or withheld (as
well as the number of abstentions and broker
non-votes) as to each matter are set forth below:
<TABLE>
<CAPTION>
Proposal Number of Votes
-------- ---------------
For Withheld
--- --------
<S> <C> <C>
Election of the following director for a three year term:
1) Thomas L. Gillespie 316,613 3,500
2) Norman P. Zimmerman 316,613 3,500
For Against Abstain
--- ------- -------
Ratification of the appointment of KPMG Peat
Marwick LLP as the Company's auditors for the 320,038 None 75
fiscal year ending June 30, 1998
</TABLE>
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11-Computation of Per Share Earnings
Exhibit 27-Financial Data Schedule
(b) Reports on Form 8-K:
None
-10-
<PAGE>
SIGNATURES
Pursuant to the requirement 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 FINANCIAL SERVICES CORPORATION
Registrant
Date: February 13, 1998 /s/ Robert W. DeCook
------------------------ ---------------------
Robert W. DeCook
President and Chief Executive Officer
Date: February 13, 1998 /s/ Sharon McCrea
------------------------- ------------------
Sharon McCrea
Vice President and Chief Financial Officer
-11-
<PAGE>
INDEX OF EXHIBITS
Exhibit Page
- ------- ----
11. Statement regarding computation of per share earnings 13
27. Financial Data Schedule 14
-12-
<PAGE>
EXHIBIT 11
Statement Regarding Computation of Earnings Per Share
<TABLE>
<CAPTION>
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/97 12/31/96
--------- --------- --------- --------
Net Earnings $214.218 $157,376 $461,042 $ 30,077
========= ========= ========= ========
<S> <C> <C> <C> <C>
Basic earnings per share:
Weighted average shares outstanding 853,060 855,732 852,070 875,803
Less unearned employee stock ownership plan shares (32,834) (46,164) (34,435) (47,953)
---------- --------- --------- --------
Weighted average number of common shares outstanding 820,226 809,568 817,635 827,850
========= ======= ========= =======
Earnings per common share - basic $ 0.26 $ 0.19 $ 0.56 $ 0.04
=========== =========== =========== ===========
Diluted earnings per share:
Weighted average shares outstanding 853,060 855,732 852,070 875,803
Less unearned employee stock ownership plan shares (32,834) (46,164) (34,435) (47,953)
Assumed incremental option shares
using the treasury stock method 36,440 17,745 32,945 16,912
---------- -------- --------- ---------
Common and common equivalent shares outstanding 856,666 827,313 850,580 844,762
========= ======= ======== ========
Earnings per common share - diluted $ 0.25 $ 0.19 $ 0.54 $ 0.04
=========== =========== ========== ==========
</TABLE>
-13-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HORIZON FINANCIAL SERVICES CORPORATION FOR
THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1,000
[/LEGEND]
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 5,021 5,021
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 24,711 24,711
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 55,924 55,924
<ALLOWANCE> 380 380
<TOTAL-ASSETS> 88,769 88,769
<DEPOSITS> 56,860 56,860
<SHORT-TERM> 22,070 22,070
<LIABILITIES-OTHER> 817 817
<LONG-TERM> 0 0
<COMMON> 10 10
0 0
0 0
<OTHER-SE> 9,022 9,022
<TOTAL-LIABILITIES-AND-EQUITY> 88,769 88,769
<INTEREST-LOAN> 1,194 2,348
<INTEREST-INVEST> 431 855
<INTEREST-OTHER> 57 114
<INTEREST-TOTAL> 1,682 3,317
<INTEREST-DEPOSIT> 690 1,357
<INTEREST-EXPENSE> 1,009 1,979
<INTEREST-INCOME-NET> 673 1,337
<LOAN-LOSSES> 18 46
<SECURITIES-GAINS> 86 194
<EXPENSE-OTHER> 531 1,029
<INCOME-PRETAX> 327 706
<INCOME-PRE-EXTRAORDINARY> 327 706
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 214 461
<EPS-PRIMARY> 0.26 0.56
<EPS-DILUTED> 0.25 0.54
<YIELD-ACTUAL> 8.05 8.02
<LOANS-NON> 726 726
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 242 242
<ALLOWANCE-OPEN> 366 348
<CHARGE-OFFS> 4 14
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 380 380
<ALLOWANCE-DOMESTIC> 380 380
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 33 33
</TABLE>
