-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NUAZegcVJBGREElYvu+qeRirQZD81rpq127ShZOYF5BsNACHMET4Fy85HKD83HBr 0uLyKvKYJY5ud7/mbDVbXA== 0000950152-01-001806.txt : 20010330 0000950152-01-001806.hdr.sgml : 20010330 ACCESSION NUMBER: 0000950152-01-001806 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORIZON BANCORP /IN/ CENTRAL INDEX KEY: 0000706129 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351562417 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-10792 FILM NUMBER: 1583192 BUSINESS ADDRESS: STREET 1: 515 FRANKLIN SQ CITY: MICHIGAN CITY STATE: IN ZIP: 46360 BUSINESS PHONE: 2198790211 MAIL ADDRESS: STREET 1: 515 FRANKLIN SQ CITY: MICHIGAN CITY STATE: IN ZIP: 46360 FORMER COMPANY: FORMER CONFORMED NAME: CITIZENS MICHIANA FINANCIAL CORP DATE OF NAME CHANGE: 19861021 10-K405 1 l87096ae10-k405.txt HORIZON BANCORP FORM 10-K405 1 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 for the fiscal year ended December 31, 2000 ----------------- Commission file number 0-10792 ------- Horizon Bancorp ---------------- (Exact name of registrant as specified in its charter) INDIANA 35-1562417 ------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 515 Franklin Square, Michigan City 46360 ---------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 219-879-0211 ------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value, 661,928 shares outstanding as of February 28, 2001 - ------------------------------------------------------------------------------ Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by checkmark 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K X . --- The aggregate market value of the registrant's common stock held by nonaffiliates of the registrant, based on the average bid price of such stock as of February 28, 2001 was $18,017,000. 1 2 Documents Incorporated by Reference ----------------------------------- Part of Form 10-K into which Document portion of document is incorporated - -------- ----------------------------------- Portions of the Registrant's I, II, VI 2000 Annual Report to shareholders Portions of the Registrant's Proxy III Statement to be filed for its May 10, 2001 annual meeting of shareholders Except as provided in Part I, Part II, Part III and Part IV no part of the Registrant's 2000 Annual Report to Shareholders or Proxy Statement shall be deemed incorporated herein by this reference or to be filed with the Securities and Exchange Commission for any purposes. 2 3 PART I ------ ITEM 1. BUSINESS a) GENERAL DEVELOPMENT OF BUSINESS Horizon Bancorp, a registered bank holding company organized under the laws of the State of Indiana on April 26, 1983, ("Registrant"), became the parent corporation and sole shareholder of The First Merchants National Bank of Michigan City pursuant to a plan of reorganization effective October 31, 1983. Prior to October 31, 1983, the Registrant conducted no business and had only nominal assets necessary to complete the plan of reorganization. On October 1, 1986 the Registrant issued 399,340 shares of its common stock in exchange for all of the common stock of Citizens Michiana Financial Corporation in connection with mergers of such companies and their subsidiaries. Subsequent to the merger, the Registrant remained a one-bank holding company with a wholly-owned subsidiary, Horizon Bank, N.A. ("Bank") and Bank's wholly-owned subsidiaries, Horizon Trust & Investment Management, N.A. ("Horizon Trust") and Horizon Insurance Services, Inc. ("Horizon Insurance") and non-bank subsidiaries, HBC Insurance Group ("Insurance Company") and The Loan Store, Inc., ("Loan Store"). b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Registrant, Bank and its subsidiaries are engaged in the commercial and retail banking business, investment management services, commercial and personal property and casualty insurance services, retail lending and insurance credit life sales. c) NARRATIVE DESCRIPTION OF BUSINESS The Registrant's business is that incident to its 100% ownership of Bank, Loan Store and the Insurance Company. The main source of funds for the Registrant is dividends from Bank. Bank was chartered as a national bank association in 1873 and has operated continuously since that time. Bank, whose deposits are insured by the Federal Deposit Insurance Corporation to the extent provided by law, is a full-service commercial bank offering a broad range of commercial and retail banking services, corporate and individual trust and agency services, commercial and personal property and casualty insurance services and other services incident to banking. Bank maintains four facilities located within La Porte County, Indiana and four facilities located in Porter County, Indiana. At December 31, 2000, Bank had total assets of $531,776,000 and total deposits of $386,348,000. Aside from the stock of Bank, Insurance Company and Loan Store, the Registrant's only other significant assets are cash and cash equivalents totaling approximately $903,000, investment securities totaling approximately $241,000 and taxes receivable of approximately $561,000 at December 31, 2000. The business of the Registrant, Bank, Horizon Trust, Horizon Insurance, Insurance Company and Loan Store is not seasonal to any material degree. No material part of the Registrant's business is dependent upon a single or small group of customers, the loss of any one or more of who would have a materially adverse effect on the business of the Registrant. Revenues from loans accounted for 76% in 2000, 69% in 1999 and 70% in 1998 of the total consolidated revenue. Revenues from investment securities accounted for 10% in 2000, 14% in 1999 and 13% in 1998 of total consolidated revenue. The Registrant has no employees and there are approximately 209 full and part-time persons employed by Bank, Horizon Trust and Horizon Insurance as of December 31, 2000. A high degree of competition exists in all major areas where the Registrant engages in business. Bank's primary market consists of La Porte County, Indiana, Porter County, Indiana, and Berrien County, Michigan. Bank competes with commercial banks located in the home county and contiguous counties in Indiana and Michigan, as well as with savings and loan associations, consumer finance companies, and credit unions located therein. To a more moderate extent, Bank competes with Chicago money center banks, mortgage banking companies, insurance companies, brokerage houses, other institutions engaged in money market financial services, and certain government agencies. The Insurance Company offers credit life and accident and health insurance. The Loan Store, Inc. sold the majority of its assets in August 1999. The net income generated from the Insurance Company and the Loan Store are not significant to the overall operations of the Registrant. 3 4 SUPERVISION AND REGULATION The Registrant is registered as a bank holding company and is subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act of 1956, as amended ("BHC Act"). The Federal Reserve has issued regulations under the BHC Act requiring a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. It is the policy of the Federal Reserve that, pursuant to this requirement, a bank holding company should stand ready to use its resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity. The BHC Act requires the prior approval of the Federal Reserve to acquire more than a 5% voting interest of any bank or bank holding company. Additionally, the BHC Act restricts the Registrant's nonbanking activities to those which are determined by the Federal Reserve to be closely related to banking and a proper incident thereto. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become "undercapitalized" (as defined in FDICIA) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency. Bank holding companies are required to comply with the Federal Reserve's risk-based capital guidelines. The Federal Deposit Insurance Corporation ("FDIC") and the Office of the Comptroller of the Currency ("OCC") have adopted risk-based capital ratio guidelines to which depository institutions under their respective supervision are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk weighted categories, with higher levels of capital being required for the categories perceived as representing greater risk. Registrant's affiliate bank exceeded the risk-based capital requirements of the FDIC and OCC as of December 31, 2000. For the Registrant's regulatory capital ratios and regulatory requirements as of December 31, 2000, see the information under the Management Discussion and Analysis of Financial Condition section of the Annual Report to Shareholders for the year ended December 31, 2000, located in Exhibit 13, attached hereto and incorporated by reference. The Registrant's affiliate bank is (i) subject to the provisions of the National Bank Act; (ii) supervised, regulated, and examined by the OCC; and (iii) subject to the rules and regulations of the OCC, Federal Reserve, and the FDIC. A substantial portion of the Registrant's cash revenue is derived from dividends paid to it by its affiliate bank. Both federal and state law extensively regulates various aspects of the banking business, such as reserve requirements, truth-in-lending and truth-in-savings disclosures, equal credit opportunity, fair credit reporting, trading in securities, and other aspects of banking operations. Branching by the Registrant's affiliate bank is subject to the jurisdiction and requires notice to or the prior approval of the OCC. The Registrant and its affiliate bank are subject to the Federal Reserve Act, which restricts financial transactions between banks and affiliated companies. The statute limits credit transactions between banks, affiliated companies and its executive officers and its affiliates. The statute prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, and restricts the types of collateral security permitted in connection with a bank's extension of credit to an affiliate. FDICIA accomplished a number of sweeping changes in the regulation of depository institutions, including the Registrant's affiliate bank. FDICIA requires, among other things, federal bank regulatory authorities to take "prompt corrective action" with respect to banks which do not meet minimum capital requirements. FDICIA further directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, management compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value of publically traded shares, and such other standards as the agency deems appropriate. The deposits of the Registrant's affiliate bank are insured up to $100,000 per insured account by the Bank Insurance Fund ("BIF"), which is administered by the FDIC, except for deposits acquired in connection with affiliations with savings associations, which deposits are insured by the Savings Association Insurance Fund ("SAIF"). Accordingly, the Registrant's affiliated bank pays deposit insurance premiums to both BIF and SAIF. 4 5 The Riegle-Neal Community Development and Regulatory Improvement Act of 1994 ("Act") contains seven titles pertaining to community development and home ownership protection, small business capital formation, paperwork reduction and regulatory improvement, money laundering, and flood insurance. The applicable federal supervisory agencies continue to promulgate regulations implementing the Act which apply to Registrant's affiliate bank. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allows for interstate banking and interstate branching without regard to whether such activity is permissible under state law. Bank holding companies may now acquire banks anywhere in the United States subject to certain state restrictions. On November 12, 1999, the President signed into law comprehensive legislation that modernizes the financial services industry for the first time in decades. The Gramm-Leach-Bliley Act ("GLBA") permits bank holding companies to conduct essentially unlimited securities and insurance activities, in addition to other activities determined by the Federal Reserve to be related to financial services. As a result of the GLBA, the Registrant may underwrite and sell securities and insurance. It may acquire, or be acquired by, brokerage firms and insurance underwriters. The Registrant does not anticipate significant changes in its products or services as a result of the GLBA. In addition to the matters discussed above, the Registrant's affiliate bank is subject to additional regulation of its activities, including a variety of consumer protection regulations affecting its lending, deposit, and collection activities and regulations affecting secondary mortgage market activities. The earnings of financial institutions are also affected by general economic conditions and prevailing interest rates, both domestic and foreign, and by the monetary and fiscal policies of the United States government and its various agencies, particularly the Federal Reserve. Additional legislative and administrative actions affecting the banking industry may be considered by the United States Congress, state legislatures, and various regulatory agencies, including those referred to above. It cannot be predicted with certainty whether such legislative or administrative action will be enacted or the extent to which the banking industry in general or the Registrant and its affiliate bank in particular would be affected. d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES None e) AVAILABLE INFORMATION N/A 5 6 I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL Information required by this section of Securities Act Industry Guide 3 is presented in Management's Discussion and Analysis Section of the Corporation's 2000 Annual Report to Shareholders. II. INVESTMENT PORTFOLIO a. The following is a schedule of the book value of investment securities available for sale and held to maturity at December 31, 2000, 1999 and 1998:
(in thousands) 2000 1999 1998 AVAILABLE FOR SALE U.S. Treasury and U.S. Government agencies and corporations $26,171 $30,428 $12,568 State and Municipal 5,564 4,230 Mortgage-backed securities 18,850 23,565 41,167 Collateralized mortgage obligations 20,458 11,322 Other securities 315 315 4,289 Unrealized gain/(loss) 17 (1,980) 561 ----------------------------------------------------- Total investment securities available for sale $71,375 $67,880 $58,585 ----------------------------------------------------- HELD TO MATURITY U.S. Treasury and U.S. Government agencies and corporations $1,630 Obligations of states and political subdivisions 10,116 ----------------------------------------------------- Total investment securities held to maturity $0 $0 $11,746 ----------------------------------------------------- Total investment securities available for sale and held to maturity $71,375 $67,880 $70,331 -----------------------------------------------------
b. The following is a schedule of maturities of each category of debt securities and the related weighted average yield of such securities as of December 31, 2000:
After one year After five years One year or less through five years through ten years After ten years (Thousands) Amount Yield Amount Yield Amount Yield Amount Yield ----------------------------------------------------------------------------------- AVAILABLE FOR SALE U.S. Treasury and U.S. Government $8,995 5.41% $ 8,378 6.36% $ 6,481 6.48% $ 2,317 6.51% agency securities (1) Obligations of states and political 34 4.30% 2,163 6.17% 2,393 6.90% 974 6.84% subdivisions Mortgage-backed securities (2) 3,835 6.01% 8,426 6.79% 6,589 6.61% Collateralized mortgage obligations 8,026 5.99% 12,432 6.84% Other securities 315 5.75% ----------------------------------------------------------------------------------- Total $9,344 5.41% $14,375 6.18% $25,326 6.47% $22,313 6.74%
(1) Amortized cost is based on contractual maturity or call date where a call option exists (2) Maturity based upon maturity date The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount. Yields are not presented on a tax-equivalent basis. Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies and corporations of the U.S. Government, there were no investments in securities of any one issuer that exceeded 10% of the consolidated stockholders' equity of the Registrant at December 31, 2000. 6 7 III. LOAN PORTFOLIO a. Types of Loans - Total loans on the balance sheet are comprised of the following classifications at December 31 for the years indicated.
(Thousands) 2000 1999 1998 1997 1996 --------------------------------------------------------------------- Commercial, financial, agricultural and $88,421 $89,361 $76,682 $73,177 $75,460 commercial tax-exempt loans Mortgage warehouse loans 102,884 85,542 Real estate mortgage loans 125,431 154,717 152,390 120,345 133,739 Installment loans 76,842 64,737 61,274 64,593 62,277 --------------------------------------------------------------------- Total loans $393,578 $394,357 $290,346 $258,115 $271,476 ---------------------------------------------------------------------
b. Maturities and Sensitivities of Loans to Changes in Interest Rates - The following is a schedule of maturities and sensitivities of loans to changes in interest rates, excluding real estate mortgage, mortgage warehousing and installment loans, as of December 31, 2000:
One year or One through After five Total Maturing or repricing (thousands) less five years years ----------------------------------------------------- Commercial, financial, agricultural and commercial tax-exempt loans $51,472 $26,325 $10,624 $88,421
The following is a schedule of fixed-rate and variable-rate commercial, financial, agricultural and commercial tax-exempt loans due after one year. (Variable-rate loans are those loans with floating or adjustable interest rates.)
(Thousands) Fixed Rate Variable Rate -------------------------------- Total commercial, financial, agricultural, and commercial tax-exempt loans due after one year $19,302 $17,647
c. Risk Elements 1. Nonaccrual, Past Due and Restructured Loans - The following schedule summarizes nonaccrual, past due and restructured loans.
December 31 (thousands) 2000 1999 1998 1997 1996 ------------------------------------------------------ a. Loans accounted for on a nonaccrual basis $2,487 $1,173 $64 $319 $316 b. Accruing loans which are contractually past due 90 days or more as to interest and principal payments 699 401 830 862 682 c. Loans not included in (a) or (b) which are "Troubled Debt Restructuring's" as defined by SFAS No. 15 ------------------------------------------------------ Totals $3,186 $1,574 $894 $1,181 $998 ------------------------------------------------------
The increase in nonaccrual loans in 2000 is primarily due to the increase in nonaccrual mortgage loans of $842 thousand and increase in nonaccrual commercial loans of $321 thousand. The increase in nonaccrual loans in 1999 is primarily due to the addition of 4 mortgage loans totaling $375 thousand, 8 consumer loans totaling $252 thousand and 7 commercial loans totaling $546 thousand. 7 8 III. LOAN PORTFOLIO (CONTINUED) (Thousands) Gross interest income that would have been recorded on nonaccrual loans outstanding as of December 31, 2000 in the period if the loans had been current, in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period. $241 Interest income actually recorded on nonaccrual loans outstanding as of December 31, 2000 and included in net income for the period. 0 Interest income not recognized during the period on nonaccrual loans outstanding as of December 31, 2000. $241 Discussion of Nonaccrual Policy From time to time, the Bank obtains information, which may lead management to believe that the collection of interest may be doubtful on a particular loan. In recognition of such, it is management's policy to convert the loan from an "earning asset" to a nonaccruing loan. Further, it is management's policy to place a commercial loan on a nonaccrual status when delinquent in excess of 90 days, unless the Loan Committee approves otherwise. The officer responsible for the loan, the senior lending officer and the senior collections officer must review all loans placed on nonaccrual status. The senior collections officer monitors the loan portfolio for any potential problem loans. 2. Potential Problem Loans Impaired loans for which the discounted cash flows or collateral value exceeded the carrying value of the loan totaled $609,000 at December 31, 2000 and the allowance for impaired loans, included in the Bank's allowance for loan losses totaled $40,000 at that date. The average balance of impaired loans during 2000 was $600,000 and no interest income was recorded or received during the year. There were no loans classified as impaired during 1999. 3. Foreign outstandings None 4. Loan Concentrations As of December 31, 2000 there are no significant concentrations of loans exceeding 10% of total loans other than those disclosed in Item III above. 5. Other Interest-Bearing Assets There are no other interest-bearing assets as of December 31, 2000, which would be required to be disclosed under Item III C.1 or 2 if such assets were loans. 8 9 IV. SUMMARY OF LOAN LOSS EXPERIENCE A. The following is an analysis of the activity in the allowance for loan losses account:
(Thousands) 2000 1999 1998 1997 1996 -------------------------------------------------------------- LOANS Loans outstanding at the end of the period (1) 393,578 394,357 290,346 258,115 271,476 Average loans outstanding during the period (1) 400,524 306,142 268,209 269,348 256,580
(1) Net of unearned income and deferred loan fees
ALLOWANCE FOR LOAN LOSSES 2000 1999 1998 1997 1996 -------------------------------------------------------------- Balance at beginning of the period $3,273 $2,787 $2,702 $2,435 $2,777 Loans charged-off: Commercial and agricultural loans (71) (50) (39) (56) (11) Real estate mortgage loans (3) (42) (2) (1) (14) Installment loans (740) (1,135) (1,275) (1,384) (532) ------ ------ ------ ------ ------ Total loans charged-off (814) (1,227) (1,316) (1,441) (557) Recoveries of loans previously charged-off: Commercial and agricultural loans 66 82 3 50 27 Real estate mortgage loans 15 3 Installment loans 253 281 395 333 122 ------ ------ ------ ------ ------ Total loan recoveries 334 363 401 383 149 Net loans (charged-off)/recovered (480) (864) (915) (1,058) (408) Provision charged to operating expense 2,010 1,100 1,000 1,325 66 Provision charged to discontinued operations 250 -------------------------------------------------------------- Balance at the end of the period $4,803 $3,273 $2,787 $2,702 $2,435 -------------------------------------------------------------- Ratio of net (charge-offs)/recoveries to average (0.12)% (0.28)% (0.34)% (0.39)% (0.16)% loans outstanding for the period
The provision for loan losses in 2000 increased as a result of entering the mortgage warehousing business that includes sub-prime mortgages. The provision for loan losses in 1996 was below normal because of low delinquency experienced in all loan portfolios at that time. Management expects charge-offs in all other portfolios to remain at the current levels. B. The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and the percentage of loans in each category to total loans. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31 (THOUSANDS)
2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------ % OF % OF % OF % OF % OF LOANS LOANS LOANS LOANS LOANS ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS ------------------------------------------------------------------------------------------------ Commercial, financial $1,422 22% $819 23% $725 27% $765 28% $576 28% and agricultural Real estate mortgage 159 32% 149 39% 61 52% 82 47% 102 49% Mortgage warehousing 1,628 26% 812 22% Installment 1,270 20% 1,345 16% 1,800 21% 1,290 25% 1,075 23% Unallocated 324 148 201 565 682 ------------------------------------------------------------------------------------------------ Total $4,803 100% $3,273 100% $2,787 100% $2,702 100% $2,435 100% ------------------------------------------------------------------------------------------------
In 1998, $277 thousand of the increase in the allowance allocated to installment loans is related to loans originated at the Loan Store. The majority of the assets of The Loan Store were sold in August 1999. The remaining increase in the allocation associated with installment 9 10 loans is related to the methodology adopted in 1996 in which the higher of the Bank or the industry average charge-off rate is utilized. The industry average historical rate was higher than Bank's historical charge-off rate in 1998 resulting in an additional allocation to the installment loan portfolio of $160 thousand. In 1999, Horizon began a mortgage warehousing program. This program is described in the "Management Discussion and Analysis" and Note 1 of the Registrant's Annual Report to Shareholders, Exhibit 13. In 2000, Horizon continued to grow the mortgage warehousing portfolio and increased the allowance for loan losses associated with this line of business. V. DEPOSITS Information required by this section is incorporated by reference to the information appearing under the caption "Summary of Selected Financial Data" of the Registrant's Annual Report to Shareholders, Exhibit 13. VI. RETURN ON EQUITY AND ASSETS Information required by this section is incorporated by reference to the information appearing under the caption Summary of Selected Financial Data" of the Registrant's Annual Report to Shareholders, Exhibit 13. VII. SHORT-TERM BORROWINGS The following is a schedule of statistical information relative to securities sold under agreements to repurchase which are secured by U.S. Treasury and U.S. Government agency securities and mature within one year. There were no other categories of short-term borrowings for which the average balance outstanding during the period was 30 percent or more of shareholders' equity at the end of the period. There were no securities sold under agreements to repurchase outstanding during 1999 or 1998.
(thousands) 2000 ---- Outstanding at year end $ 16,698 Approximate weighted average interest rate at year-end 5.85% Highest amount outstanding as of any month-end during the year $ 16,698 Approximate average outstanding during the year $ 2,590 Approximate weighted average interest during the year 5.83%
RISK FACTORS A cautionary note about forward-looking statements. In its oral and written communication, the Registrant from time to time includes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements can include statements about estimated cost savings, plans and objectives for future operations, and expectations about performance as well as economic and market conditions and trends. They often can be identified by the use of words like "expect," "may," "could," "intend," "project", "estimate," "believe" or "anticipate." The Registrant may include forward-looking statements in filings with the Securities and Exchange Commission, such as this Form 10-K, in other written materials, and in oral statements made by senior management to analysts, investors, representatives of the media, and others. It is intended that these forward-looking statements speak only as of the date they are made, and the Registrant undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the forward looking statement is made or to reflect the occurrence of unanticipated events. By their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially from those contained in the forward looking statement. The discussion in the 2000 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition," incorporated in Item 6 of this Form 10-K, lists some of the factors which could cause the Registrant's actual results to vary materially from those in any forward-looking statements. Your attention is directed to this discussion which can be found in Exhibit 13 to this Form 10-K. Other uncertainties which could affect the Registrant's future performance include the effects of competition, technological changes and regulatory developments; changes in fiscal, monetary and tax policies; market, economic, operational, liquidity, credit and interest rate risks associated with the Registrant's business; inflation; competition in the financial services industry; changes in general economic conditions, either nationally or regionally, resulting in, among other things, credit quality deterioration; and changes in the securities 10 11 markets. Investors should consider these risks, uncertainties, and other factors in addition to those mentioned by the Registrant in its other filings from time to time when considering any forward-looking statement. ITEM 2. PROPERTIES - -------------------- The main office of the Registrant and Bank is located at 515 Franklin Square, Michigan City, Indiana. The building located adjacent to the main office of the Registrant and Bank, at 502 Franklin Square, houses the credit administration, operations and microcomputer departments of Bank. In addition to these principal facilities, the Bank has eight sales offices located at: 515 Franklin Square, Michigan City, Indiana 3631 South Franklin Street, Michigan City, Indiana 117 E. First St., Wanatah, Indiana 1410 Lincolnway, LaPorte, Indiana 754 Indian Boundary Road, Chesterton, Indiana 4208 N. Calumet, Valparaiso, Indiana 6504 U.S. Highway 6, Portage, Indiana 265 U.S. Highway 30, Valparaiso, Indiana ITEM 3. LEGAL PROCEEDINGS - -------------------------- No material pending legal proceedings, other than ordinary routine litigation incidental to the business to which the Registrant or any of its subsidiaries is a party or of which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ No matters were submitted to a vote of the Registrant's stockholders during the fourth quarter of the 2000 fiscal year. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ The information required under this item is incorporated by reference to the information appearing under the caption "Horizon's Common Stock and Related Stockholder Matters" of the Registrant's Annual Report to Shareholders, Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- The information required under this item is incorporated by reference to the information appearing under the caption "Summary of Selected Financial Data" of the Registrant's Annual Report to Shareholders, Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Management's discussion and analysis of financial condition and results of operations appears in the 2000 Annual report to Shareholders, Exhibit 13 and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- The information required under this item is incorporated by reference to the information appearing in the Management's Discussion and Analysis included as Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The consolidated financial statements and supplementary data required under this item are incorporated herein by reference to the Annual Report to Shareholders, Exhibit 13. The Registrant is not required to furnish the 11 12 supplementary financial information specified by Item 302 of Regulation S-K. Consolidated Balance Sheets, December 31, 2000 and 1999 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to the Consolidated Financial Statements Report of Independent Public Accountants ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE -------------------- None PART III -------- This information is omitted from this report pursuant to General Instruction G. (3) of Form 10-K as the Registrant intends to file with the Commission its definitive Proxy Statement pursuant to Regulation 14-A of the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2000. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) 1. Financial Statements The following consolidated financial statements of the Registrant appear in the 2000 Annual Report to Shareholders on the pages referenced and are specifically incorporated by reference under Item 8 of this Form 10-K:
Annual Report Page Number ----------- Consolidated Balance Sheets 20 Consolidated Statements of Income 21 Consolidated Statements of Changes in Stockholders' Equity 22 Consolidated Statements of Cash Flows 23 Notes to the Consolidated Financial Statements 24 - 46 Report of Independent Public Accountants 47
2. FINANCIAL STATEMENT SCHEDULES Financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the financial statements. 3. EXHIBITS Reference is made to the Exhibit Index that is found on page 16 of this Form 10-K. (b) REPORTS ON FORM 8-K 12 13 None (c) EXHIBITS Reference is made to the Exhibit Index that is found on page 16 of this Form 10-K. (d) FINANCIAL STATEMENT SCHEDULES Financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the financial statements. 13 14 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 Horizon Bancorp --------------- registrant Date: 3/29/2001 /s/ Robert C. Dabagia - ---------------- --------------------- Robert C. Dabagia Chairman & Chief Executive Officer Date: 3/29/2001 /s/ James H. Foglesong - ---------------- ---------------------- James H. Foglesong Chief Financial Officer 14 15 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date Signature and Title - ---- ------------------- 3/29/2001 /s/ Dale W. Alspaugh - --------- -------------------- Dale W. Alspaugh, Director 3/29/2001 /s/ George R. Averitt - --------- --------------------- George R. Averitt, Director 3/29/2001 /s/ Robert C. Dabagia - --------- --------------------- Robert C. Dabagia, Director Chairman & Chief Executive Officer 3/29/2001 /s/ Craig M. Dwight - --------- --------------------- Craig M. Dwight, Director President 3/29/2001 /s/ Robert E. Mcbride - --------- --------------------- Robert E. Mcbride, Director 3/29/2001 /s/ Larry N. Middleton - --------- ---------------------- Larry N. Middleton, Director 3/29/2001 /s/ Bruce E. Rampage - --------- -------------------- Bruce E. Rampage, Director 3/29/2001 /s/ Gene L. Rice - --------- ---------------- Gene L. Rice, Director 3/29/2001 /s/ Susan D. Sterger - --------- -------------------- Susan D. Sterger, Director 3/29/2001 /s/ Robert E. Swinehart - --------- ----------------------- Robert E. Swinehart, Director 3/29/2001 /s/ Spero W. Valavanis - --------- ---------------------- Spero W. Valavanis, Director 15 16 EXHIBIT INDEX ------------- The following exhibits are included in this Form 10-K or are incorporated by reference as noted in the following table:
Exhibit Number Description Sequential Page Number - ------ ----------- ---------------------- 3.1 ARTICLES OF INCORPORATION OF HORIZON BANCORP INCORPORATED BY REFERENCE File number 0-10792 3.2 BY-LAWS OF HORIZON BANCORP INCORPORATED BY REFERENCE File number 0-10792 10.1 MATERIAL CONTRACTS-1987 STOCK OPTION AND INCORPORATED BY REFERENCE STOCK APPRECIATION RIGHTS PLAN OF HORIZON BANCORP 10.2 MATERIAL CONTRACTS - NONQUALIFIED STOCK OPTION AND STOCK APPRECIATION INCORPORATED BY REFERENCE RIGHTS AGREEMENT File number 0-10792 10.3 MATERIAL CONTRACTS - SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN INCORPORATED BY REFERENCE TO 12/31/96 FORM 10-K 10.4 MATERIAL CONTRACTS - FIRST AMENDMENT TO SUPPLEMENTAL EMPLOYEE RETIREMENT INCORPORATED BY REFERENCE PLAN TO 12/31/96 FORM 10-K 10.5 MATERIAL CONTRACTS - SECOND AMENDMENT TO SUPPLEMENTAL EMPLOYEE RETIREMENT INCORPORATED BY REFERENCE PLAN TO 12/31/96 FORM 10-K 10.6 MATERIAL CONTRACTS - FIRST AMENDMENT TO THE 1987 STOCK OPTION AND STOCK INCORPORATED BY REFERENCE APPRECIATION RIGHTS PLAN TO 1997 PROXY STATEMENT 10.7 MATERIAL CONTRACTS - 1997 KEY EMPLOYEES STOCK OPTION AND STOCK INCORPORATED BY REFERENCE APPRECIATION RIGHTS PLAN TO 1997 PROXY STATEMENT 10.8 MATERIALS CONTRACTS - DIRECTORS DEFERRED COMPENSATION PLAN INCORPORATED BY REFERENCE TO 12/31/99 FORM 10-K 10.9 MATERIAL CONTRACTS - EXECUTIVE EMPLOYMENT CONTRACT - LAWRENCE J. MAZUR INCORPORATED BY REFERENCE TO 12/31/99 FORM 10-K 10.10 MATERIAL CONTRACTS - CHANGE OF CONTROL AGREEMENT INCORPORATED BY REFERENCE TO 12/31/99 FORM 10-K 10.11 MATERIAL CONTRACTS - EXECUTIVE EMPLOYMENT CONTRACT - JAMES D. NEFF INCORPORATED BY REFERENCE TO 12/31/99 FORM 10-K 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - REFER TO ANNUAL ANNUAL REPORT ATTACHED REPORT FOOTNOTE 1 (EXHIBIT 13) PAGE 27 13 REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, ANNUAL REPORT ATTACHED 2000 (NOT DEEMED FILED EXCEPT FOR PORTIONS THEREOF WHICH ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THIS FORM 10-K) 21 SUBSIDIARIES OF THE REGISTRANT INCORPORATED HEREIN
16 EX-13 2 l87096aex13.txt EXHIBIT 13 1 Exhibit 13 - Annual Report to Shareholders for the year ended December 31, 2000 2 Exhibit 13 ================================================================================ HORIZON BANCORP Management Discussion and Analysis of Results of Operations and Financial Condition ================================================================================ 3 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) ANALYSIS OF FINANCIAL CONDITION INVESTMENT SECURITIES Horizon maintains a high quality investment portfolio with very low credit risk. Investment securities totaled $71.375 million at December 31, 2000 and consisted of U. S. Treasury and Government Agency securities of $26.002 million (36.4)%; Municipal securities of $5.696 million (8)%; Equity securities of $241 thousand (.4)%; Mortgage-Backed securities of $18.934 million (26.5)%; and collateralized mortgage obligations of $20.502 million (28.7)%. As indicated above, the majority of the investment portfolio consists of mortgage-backed securities and collateralized mortgage obligations. These instruments are secured by residential mortgages of varying maturities. Principal and interest payments are received monthly as the underlying mortgages are repaid. These payments also include prepayments of mortgage balances as borrowers either sell their homes or refinance their mortgages. Therefore, mortgage-backed securities and collateralized mortgage obligations have maturities that are stated in terms of average life. The average life is the average amount of time that each principal dollar is expected to be outstanding. As of December 31, 2000, the mortgage-backed securities and collateralized mortgage obligations in the investment portfolio had an average life of 3.8 years. Securities that have interest rates above current market rates are purchased at a premium. These securities may experience a significant increase in prepayments when lower market interest rates create an incentive for the borrower to refinance the underlying mortgage. This may result in a decrease of current income. That risk is mitigated by a shorter average life. Management currently believes that prepayment risk on these securities is nominal. During the second quarter of 1999, debt securities with an amortized cost of $10.050 million were transferred from held to maturity to available for sale in order to minimize the tax consequences of holding tax-exempt securities. The majority of the tax-exempt portfolio was subsequently sold. Therefore, at December 31, 1999 and 2000, all investment securities were classified as available for sale. Securities classified as available for sale are carried at their fair value, with both unrealized gains and losses added or subtracted, net of tax, directly to stockholders' equity. This accounting method adds potential volatility to stockholders' equity, but net income is not affected unless securities are sold. Net appreciation on these securities totaled $17 thousand, which resulted in a $9 thousand addition, net of tax, to stockholders' equity at December 31, 2000. This compared to a $1.201 million, net of tax, reduction in stockholders' equity at December 31, 1999. As a member of the Federal Reserve and Federal Home Loan Bank system, Horizon is required to maintain an investment in the common stock of each entity. The investment in common stock is based on a predetermined formula. At December 31, 2000, Horizon has investments in the common stock of the Federal Reserve and Federal Home Loan Bank totaling $6.239 million compared to $5.897 million at December 31, 1999. At December 31, 2000, Horizon does not maintain a trading account and is not using any derivative products for hedging or other purposes. HORIZON BANCORP & SUBSIDIARIES 3 4 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) LOANS Total loans, the principal earning asset of the Bank, were $393.578 million at December 31, 2000. The current level of loans is a decrease of 0.2% from the December 31, 1999 level of $394.357 million. As the table below indicates, the decrease is primarily related to the planned reduction of mortgage loans during 2000.
DECEMBER 31 2000 1999 DOLLAR CHANGE PERCENT CHANGE - ------------------------------------------------------------------------------------------------ Real estate loans 1 - 4 family $123,136 $152,999 $(29,863) (19.52)% Multi-family 246 279 (33) (11.83) Other 2,049 1,439 610 42.39 -------------------------------------- Total 125,431 154,717 (29,286) (18.93) -------------------------------------- Commercial loans Working capital and equipment 67,969 67,480 489 0.72 Real estate, including agriculture 11,151 8,428 2,723 32.31 Tax exempt 7,075 7,903 (828) (10.48) Other 2,226 5,550 (3,324) (59.89) -------------------------------------- Total 88,421 89,361 (940) (1.05) -------------------------------------- Consumer loans Auto 12,249 14,060 (1,811) (12.88) Recreation 2,499 1,567 932 59.48 Real estate/home improvement 36,221 30,974 5,247 16.94 Home equity 11,883 6,470 5,413 83.66 Credit cards 4,751 5,092 (341) (6.70) Unsecured 6,767 4,126 2,641 64.01 Other 2,472 2,448 24 (0.98) -------------------------------------- Total 76,842 64,737 12,105 18.70 -------------------------------------- Mortgage warehouse loans Prime 58,500 10,410 48,090 461.96 Sub-Prime 44,384 75,132 (30,748) (40.93) -------------------------------------- Total 102,884 85,542 17,342 20.27 -------------------------------------- Grand total $393,578 $394,357 $ (779) (0.20)% ====================================================
The acceptance and management of credit risk is an integral part of Bank's business as a financial intermediary. The Bank has established rigorous underwriting standards including a policy that monitors the lending function through strict administrative and reporting requirements. The Bank engages an independent third-party loan review function that regularly reviews asset quality. 4 HORIZON BANCORP & SUBSIDIARIES 5 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) REAL ESTATE LOANS Real estate loans totaled $125.431 million or 32% of total loans as of December 31, 2000, compared to $154.717 million or 39% of total loans as of December 31, 1999. This category consists of home mortgages that generally require a loan to value of at least 80%. Some special guaranteed or insured real estate loan programs do permit a higher loan to collateral value ratio. In addition to the customary real estate loans described above, the Bank also has outstanding on December 31, 2000, $11.883 million in home equity lines of credit and $6.470 million at December 31, 1999. Credit lines normally limit the loan to collateral value to no more than 89%. These loans are classified as consumer loans in the table above and in Note 4 to the consolidated financial statements. Residential real estate lending is a highly competitive business. As of December 31, 2000, the real estate loan portfolio reflected a wide range of interest rate and repayment patterns, but could generally be categorized as follows:
2000 1999 ------------------------------------------------------------------- PERCENT OF PERCENT OF AMOUNT PORTFOLIO YIELD AMOUNT PORTFOLIO YIELD ------------------------------------------------------------------- Fixed rate Monthly payment $ 81,357 64.86% 7.41% $109,967 71.08% 7.27% Biweekly payment 14,835 11.83 7.59 16,362 10.57 7.52 Adjustable rate Monthly payment 28,933 23.07 8.05 28,051 18.13 7.44 Biweekly payment 306 .24 8.93 337 .22 7.71 --------------------- ------------------ Total $125,431 100.00% 7.54% $154,717 100.00% 7.32% ===================== ===================
In addition to the real estate loan portfolio, the Bank sold real estate loans, which it services. On December 31, 2000, the portfolio serviced consisted of 838 loans totaling $53.169 million. Total loans sold during 2000 totaled $37.173 million. COMMERCIAL LOANS Commercial loans totaled $88.421 million or 22.6% of total loans as of December 31, 2000, compared to $89.361 million or 22.7% as of December 31, 1999. Commercial loans consisted of the following types of loans at December 31:
2000 1999 --------------------------------------------------------------------- PERCENT OF PERCENT OF NUMBER AMOUNT PORTFOLIO NUMBER AMOUNT PORTFOLIO --------------------------------------------------------------------- SBA guaranteed loans 19 $ 2,379 2.69% 21 $ 2,565 2.87% Municipal government 42 7,411 8.38 47 8,344 9.34 Lines of credit 172 23,310 26.36 158 17,328 19.39 Real estate and equipment term loans 312 55,321 62.57 337 61,124 68.40 --------------------------------------------------------------------- Total 545 $88,421 100.00% 563 $89,361 100.00% ======================================================================
HORIZON BANCORP & SUBSIDIARIES 5 6 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) CONSUMER LOANS Consumer loans totaled $76.842 million or 20% of total loans as of December 31, 2000, compared to $64.737 million or 16% as of December 31, 1999. The total consumer loan portfolio increased 18.7% in 2000. MORTGAGE WAREHOUSE LOANS In November 1999, Horizon started a mortgage-warehousing program. Horizon enters into agreements with mortgage companies and purchases, at its discretion, mortgage loans from mortgage companies at par, net of certain fees, and later sells them back to the mortgage companies at the same amount and without recourse provisions. Interest income is recorded based upon a rate of interest tied to the prime rate during the funding period, not the rates on the individual note. Such loans are reviewed, prior to purchase, for evidence that the loans are of secondary market quality and meet Horizon's internal underwriting guidelines. An assignment of the mortgage to Horizon is required. In addition, Horizon takes possession of the original note and forwards such note to the end investor. In the event that the end investor would not honor this commitment and the mortgage companies would not be able to honor their repurchase obligations, Horizon would then need to sell these loans in the secondary market at the fair value of these loans. Loans are typically resold within 30 days and are seldom held more than 90 days. ALLOWANCE AND PROVISION FOR LOAN LOSSES The allowance for loan losses represents Horizon's estimate of potential credit losses associated with the loan portfolio. The identification of loans that may have potential losses is necessarily subjective. Therefore, a general reserve is maintained to cover all potential losses within the entire loan portfolio. Horizon utilizes a loan grading system that helps identify, monitor, and address asset quality problems, should they arise, in an adequate and timely manner. Each quarter, various factors affecting the quality of the loan portfolio are reviewed. Large credits are reviewed on an individual basis for loss potential. Other loans are reviewed as a group based upon previous trends of loss experience. Horizon also reviews the current and anticipated economic conditions of its lending market to determine the effect they may have on the loss experience of the loan portfolio. The methodology described above is consistent with the Office of the Comptroller of the Currency's guidance in determining the adequacy of the allowance for loan losses. At December 31, 2000, the allowance for loan losses was 1.22% of total loans outstanding, compared to .83% at December 31, 1999. During 2000, the provision for loan losses totaled $2.010 million compared to $1.350 million in 1999, (including $250 thousand for The Loan Store, which was discontinued in 1999). NONPERFORMING LOANS Nonperforming loans are defined as loans that are greater than 90 days delinquent or have had the accrual of interest discontinued by management. Management continues to work diligently toward returning nonperforming loans to an earning asset basis. Nonperforming loans for the previous three years ending December 31 are as follows:
2000 1999 1998 - -------------------------------------------------------------------------------- Nonperforming loans $3,186 $1,574 $894
Nonperforming loans total 66% of the allowance for loan losses at December 31, 2000 compared to 48% and 32% of the allowance for loan losses on December 31, 1999 and 1998, respectively. 6 HORIZON BANCORP & SUBSIDIARIES 7 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) A loan becomes impaired when, based on current information, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is classified as impaired, the degree of impairment must be recognized by estimating future cash flows from the debtor. The present value of these cash flows is computed at a discount rate based on the interest rate contained in the loan agreement. However, if a particular loan has a determinable market value, the creditor may use that value. Also, if the loan is secured and considered collateral dependent, the creditor may use the fair value of the collateral. Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by 1 - 4 family residences, residential construction loans, automobile, home equity, second mortgage loans, and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicate that underlying cash flows of a borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Other real estate owned (OREO) and the related allowance for OREO losses for the previous three years ending December 31 are as follows:
2000 1999 1998 - ---------------------------------------------------------------------- Other real estate owned $136 $0 $133
DEPOSITS The primary source of funds for the Bank comes from the acceptance of demand and time deposits. However, at times the Bank will use its ability to borrow funds from the Federal Home Loan Bank when it can do so at interest rates and terms that are superior to those required for deposited funds. Total deposits were $386.348 million at December 31, 2000 compared to $363.668 million at December 31, 1999 or an increase of 6.2%. Below is a table of average deposits and rates by category for the previous three years ended December 31.
AVERAGE BALANCE OUTSTANDING AVERAGE RATE PAID FOR THE YEAR FOR THE YEAR ENDED DECEMBER 31 ENDED DECEMBER 31 ----------------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------------- Noninterest-bearing demand deposits $ 40,254 $ 43,258 $ 58,032 Interest-bearing demand deposits 67,853 45,679 18,088 3.29% 2.45% 2.64% Savings deposits 38,536 45,358 50,194 2.21 1.77 2.17 Time deposits 247,254 203,180 161,029 5.91 5.25 5.64 ------------------------------- Total deposits $393,897 $ 337,475 $287,343 ===============================
In 1999 and 2000, Horizon began offering new interest-bearing consumer and commercial demand deposit product. These product changes caused the increases in the average balances and average rates paid as displayed in the table above. HORIZON BANCORP & SUBSIDIARIES 7 8 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) -- RETIREMENT PLAN On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the termination of the Horizon Bancorp Employee Stock Ownership Plan ("ESOP"). This decision was based upon a thorough financial analysis of the impact this plan has had on the earnings and capital of Horizon since it's inception and the expected future impact retaining this plan would likely have on Horizon. On December 31, 1999, the debt owed by the ESOP was repaid with the proceeds from the sale of a portion of the unallocated shares to Horizon Bancorp. The remaining shares for all active participants were allocated to participants. The termination of the ESOP resulted in an expense of $2.073 million for 1999. The remaining shares in the ESOP plan were transferred to the Stock Bonus Plan. The retirement plans of Horizon Bancorp own approximately 20% of the outstanding shares at December 31, 2000. CAPITAL RESOURCES The capital resources of Horizon and Bank exceed regulatory capital ratios for "well capitalized" banks at December 31, 2000. Stockholders' equity totaled $31.624 million ($6.676 million from ESOP) as of December 31, 2000 compared to $28.999 million ($7.808 million from ESOP) as of December 31, 1999. At year-end 2000, the ratio of stockholders' equity to assets was 5.95% compared to 5.51% for 1999. Horizon's capital to asset ratio increased during the year 2000 as a result of increased earnings and the increase in the valuation allowance for securities available for sale, net of the repurchase of treasury shares. Horizon selectively purchases shares that become available in the market from time to time and repurchases shares from the stock bonus plan, as required, when participants leave the plan and elect to exercise their put option. During 2000, management purchased 26,733 shares at a cost of $1.200 million compared to 167,245 shares at a cost of $7.619 million, and 36,785 shares at a cost of $2.115 million for 1999 and 1998, respectively. Treasury stock repurchases in 1999 included the repurchase of 107,936 shares totaling $4.749 million from the ESOP plan as part of the termination. Horizon paid dividends in the amount of $1.80 per share in 2000, 1999 and 1998. The dividend payout ratio (dividends as a percent of net income) was 32% during 2000 as compared to -344% and 114% in 1999 and 1998, respectively. For additional information regarding dividend conditions, see Note 1 of the Notes to the Consolidated Financial Statements. As of December 31, 2000, management is not aware of any current recommendations by banking regulatory authorities, which, if they were to be implemented, would have or are reasonably likely to have a material effect on Horizon's liquidity, capital resources, or operations. RESULTS OF OPERATIONS NET INCOME Consolidated net income from continuing operations $3.783 million or $5.54 per share in 2000. In 1999, the net loss was $(191) thousand or $(.29) per share and in 1998 net income was $1.254 million or $1.83 per share. In April 1999, the Board of Directors of Horizon Bancorp approved discontinuing the operations of The Loan Store, Inc., a wholly owned subsidiary of Horizon Bancorp. On August 13, 1999, substantially all of the assets of The Loan Store, Inc. were sold. Losses, after tax, related to this subsidiary were $163 thousand or $.25 per share and $171 thousand or $.25 per share in 1998. NET INTEREST INCOME The primary source of earnings for Horizon is net interest income. Net interest income is the difference between what Horizon has earned on assets it has invested and the interest paid on deposits and other funding sources. The net interest margin is net interest income expressed as a percentage of average earnings assets. Horizon's earning assets consist of loans, investment securities, and interest-bearing balances in banks. 8 HORIZON BANCORP & SUBSIDIARIES 9 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands)
2000 1999 1998 --------------------------------------------------------------------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE --------------------------------------------------------------------------------- ASSETS Interest-bearing assets Loans - total (1) (3) $400,524 $36,883 9.21% $306,142 $25,634 8.37% $264,810 $23,346 8.82% Taxable investment securities, including FRB and FHLB stock 73,203 4,871 6.65 73,322 4,647 6.34 57,242 3,636 6.35 Nontaxable investment securities (2) 280 13 4.64 3,417 167 4.89 9,721 447 4.60 Interest-bearing balances and money market investments (4) 636 33 5.19 943 43 4.56 773 29 3.75 Bankers acceptances Federal funds sold 2,413 153 6.34 8,375 406 4.85 6,441 345 5.36 ----------------- -------- ------- -------- ------- Total interest-bearing assets 477,056 41,953 8.79 392,199 30,897 7.88 338,987 27,803 8.20 ------- ------- ------- Noninterest-earning assets Cash and due from banks 15,739 14,083 12,917 Allowance for loan losses (4,048) (2,748) (2,826) Other assets 26,032 24,825 22,328 -------- -------- -------- Total assets $514,779 $428,359 $371,406 ======== ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Interest-bearing liabilities Savings deposits $ 38,536 853 2.21 $ 45,358 805 1.77 $ 50,194 1,091 2.17 Interest-bearing demand deposits 67,853 2,231 3.29 45,679 1,121 2.45 18,088 477 2.64 Time deposits 247,254 14,605 5.91 203,180 10,677 5.25 161,029 9,010 5.60 Short-term borrowings 10,996 612 5.57 1,173 76 6.48 864 50 5.79 Long-term debt 75,168 4,998 6.65 55,934 3,086 5.52 47,121 2,658 5.64 ------------------ ----------------- --------- ------- ---- Total interest-bearing liabilities 439,807 23,299 5.30 351,324 15,765 4.49 277,296 13,286 4.79 ------- ------- ------- Noninterest-bearing liabilities Demand deposits 40,254 43,258 58,032 Other liabilities 4,236 3,615 3,017 Stockholders' equity 30,482 30,162 33,061 -------- -------- -------- Total liabilities and stockholders' equity $514,779 $428,359 $371,406 ======== ======== ======== Net interest income $18,654 $15,132 $14,517 ======= ======= ======= Net interest income as a percent of interest-bearing assets 3.91% 3.86% 4.28% ==== ==== ====
(1) Nonaccruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loans fees. (2) Yields are not presented on a tax-equivalent basis. (3) Loan fees and late fees included in interest on loans aggregated $1,852,000, $1,165,000, and $1,156,000 in 2000, 1999, and 1998, respectively. (4) Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations. Horizon's subsidiary bank had no funds invested in Eurodollar Certificates of Deposit at December 31, 2000. HORIZON BANCORP & SUBSIDIARIES 9 10 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands)
2000 - 1999 1999 - 1998 INCREASE/(DECREASE) INCREASE/(DECREASE) ------------------------------------------------------------------------------------------ CHANGE CHANGE CHANGE CHANGE TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO CHANGE VOLUME RATE CHANGE VOLUME RATE ------------------------------------------------------------------------------------------ INTEREST INCOME Loans - total $ 11,249 $ 8,499 $ 2,750 $ 2,288 $ 3,505 $ (1,217) Taxable investment securities 224 (8) 232 1,011 1,019 (8) Nontaxable investment securities (154) (146) (8) (280) (306) 26 Interest-bearing balances and money market investments (10) (15) 5 14 7 7 Federal funds sold (253) (351) 98 61 96 (35) ------------------------------------------------------------------------------------------ Total interest income 11,056 7,979 3,077 3,094 4,321 (1,227) ------------------------------------------------------------------------------------------ INTEREST EXPENSE Savings deposits 48 (132) 180 (285) (98) (187) Interest-bearing demand deposits 1,110 653 457 644 679 (35) Time deposits 3,928 2,499 1,429 1,666 2,242 (576) Short-term borrowings 536 548 (12) 26 19 7 Long-term debt 1,912 1,198 714 428 487 (59) ------------------------------------------------------------------------------------------ Total interest expense 7,534 4,766 2,768 2,479 3,329 (850) ------------------------------------------------------------------------------------------ NET INTEREST EARNINGS $ 3,522 $ 3,213 $ 309 $ 615 $ 992 $ (377) ========================================================================================
Horizon's average earning assets were $477.056 million in 2000 compared to $392.199 million in 1999 and $338.987 million in 1998. The net interest margin for 2000 was 3.91% compared to 3.86% and 4.28% in 1999 and 1998, respectively. The increase in net interest margin from 1999 to 2000 is primarily a result of increased volume and rate in the loan portfolios. The decrease in net interest margin from 1998 to 1999 is primarily a result of increased volume in the loan portfolio at a lower rate than the previous year and an increase in the volume of time deposits to fund the loan growth. NONINTEREST INCOME The major components of noninterest income consist of service charges on deposit accounts and fiduciary fees. Service charges on deposit accounts are based upon: a) recovery of direct operating expenses associated with providing the service, b) allowing for a profit margin that provides an adequate return on assets and stockholders' equity, and c) competitive factors within the Bank's markets. Service charges on deposits were $2.028 million, $2.048 million, and $2.255 million for 2000, 1999, and 1998, respectively. The decline in service charges in 1999 is the result of the redesign of Horizon's checking accounts to stay more competitive within our markets. Fiduciary fees were $2.728 million in 2000 compared to $2.113 million and $2.141 million in 1999 and 1998, respectively. 10 HORIZON BANCORP & SUBSIDIARIES 11 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) NONINTEREST EXPENSE Noninterest expense totaled $17.905 million in 2000 compared to $19.430 million and $17.436 million in 1999 and 1998, respectively. The increase in 1999 is a result of the ESOP termination expense. Excluding one time charge, noninterest expenses would have declined slightly from 1998 to 1999. Salaries and benefits decreased 1.09% during 2000 compared to an decrease of 1.43% during 1999 and a increase of 14.12% for 1998. The increase in 1998 is primarily a result of the payment of the severance benefit after the termination of the President and Chief Administrative Officer who was a party to an employment contract and increased expenses related to ESOP. Total other expenses increased 13.76% in 2000, decreased 9.65% in 1999 and decreased 3.51% in 1998. The primary factors in the increase of the 2000 expenses were: 1) $80 thousand increase in professional fees; 2) $144 thousand increase in outside services and consultant fees; 3) $75 thousand increase in loan expense and; 4) $57 thousand increase in advertising expense. The primary factors in the reduction of the 1999 expenses were: 1) $294 thousand decrease in other losses and; 2) $178 thousand decrease in corporate expenses. The primary factors in the reduction of the 1998 expenses were: 1) $146 thousand decrease in supplies and printing expenses, 2) $273 thousand decrease in advertising expenses, 3) $236 thousand increase in professional fees, 4) $166 thousand decrease in training expenses, and; 5) $93 thousand decrease in outside services and consultants. INCOME TAXES Income tax expense, before discontinued operations, totaled $1.812 million in 2000 compared to $675 thousand and $460 thousand in 1999 and 1998, respectively. The effective tax rate was 32.39%, 139.46%, and 26.84% for 2000, 1999, and 1998, respectively. The effective tax rate is high in 1999 because the majority of the ESOP termination expenses were not tax deductible. Excluding that expense, the effective tax rate for 1999 would have been 26.40%. LIQUIDITY AND RATE SENSITIVITY MANAGEMENT Management and the Board of Directors meet regularly to review both the liquidity and rate sensitivity position of Horizon. Effective asset and liability management ensures Horizon's ability to monitor the cash flow requirements of depositors along with the demands of borrowers and to measure and manage interest rate risk. Horizon utilizes an interest rate risk assessment model designed to highlight sources of existing interest rate risk and consider the effect of these risks on strategic planning. Management maintains an essentially balanced ratio of interest sensitive assets to liabilities in order to protect against the effects of wide interest rate fluctuations. LIQUIDITY The Bank maintains a stable base of core deposits provided by long standing relationships with consumers and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, sale of real estate loans and borrowing relationships with correspondent banks, including the Federal Home Loan Bank (FHLB). During 2000, cash flows were generated from an increase in deposits of $23 million and increases in short term borrowings of $10 million. Cash flows were used for a $3.5 million increase in investment securities and a $30 million decrease in FHLB borrowings. The net cash and cash equivalent position increased $207 thousand, in cash and due from banks. HORIZON BANCORP & SUBSIDIARIES 11 12 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) INTEREST SENSITIVITY The degree by which net interest income may fluctuate due to changes in interest rates is monitored by Horizon using computer simulation modeling, incorporating not only the current GAP position but the effect of expected repricing of specific financial assets and liabilities. When repricing opportunities are not properly aligned, net interest income may be affected when interest rates change. Forecasting results of the possible outcomes determine the exposure to interest rate risk inherent in Horizon's balance sheet. The goal is to manage imbalanced positions that arise when the total amount of assets repricing or maturing in a given time period differs significantly from liabilities that are repricing or maturing in the same time period. The theory behind managing the difference between repricing assets and repricing liabilities is to have more assets repricing in a rising rate environment and more liabilities repricing in a declining rate environment. At December 31, 2000, Horizon had a negative GAP position of .79. This indicates that the total amount of assets repricing within one year were 79% of the total amount of liabilities repricing within the same time period. This compares to a negative GAP position of .71 at December 31, 1999.
RATE SENSITIVITY ---------------------------------------------------------------- GREATER THAN 3 GREATER THAN 6 GREATER 3 MONTHS MONTHS AND LESS MONTHS AND LESS THAN 1 AS OF DECEMBER 31, 2000 OR LESS THAN 6 MONTHS THAN 1 YEAR YEAR TOTAL - ------------------------------------------------------------------------------------------------------ Loans $165,362 $22,106 $ 35,441 $170,042 $392,951 Money market investments 1,033 1,033 Interest-bearing balances with Banks 238 238 Investment securities and FRB and FHLB stock 14,017 2,946 15,872 44,779 77,614 Other assets 59,940 59,940 ---------------------------------------------------------------- Total assets $180,650 $25,052 $ 51,313 $274,761 $531,776 ================================================================ Noninterest-bearing deposits $ 30,044 $ 30,044 Interest-bearing deposits $ 87,619 $77,046 $ 86,163 105,476 356,304 Borrowed funds 44,605 2,157 29,313 33,393 109,468 Other liabilities 4,336 4,336 Stockholders' equity 31,624 31,624 ---------------------------------------------------------------- Total liabilities and stockholders' equity $132,224 $79,203 $115,476 $204,873 $531,776 ================================================================ GAP $ 48,426 $(54,151) $ (64,163) $ 69,888 Cumulative GAP $ 48,426 $ (5,725) $ (69,888)
Included in the GAP analysis are certain interest-bearing demand accounts and savings accounts. These interest-bearing accounts are subject to immediate withdrawal. However, Horizon considers approximately 70% of these deposits to be insensitive to gradual changes in interest rates and generally to behave like deposits with longer maturities based upon historical experience. 12 HORIZON BANCORP & SUBSIDIARIES 13 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Horizon's primary market risk exposure is interest rate risk. Interest rate risk (IRR) is the risk that Horizon's earnings and capital will be adversely affected by changes in interest rates. The primary approach to IRR management is one that focuses on adjustments to the asset/liability mix in order to limit the magnitude of IRR. Horizon's exposure to interest rate risk is due to repricing or mismatch risk, embedded options risk, and yield curve risk. Repricing risk is the risk of adverse consequence from a change in interest rates that arise because of differences in the timing of when those interest rate changes affect Horizon's assets and liabilities. Basis risk is the risk that the spread, or rate difference, between instruments of similar maturities will change. Options risk arises whenever products give the customer the right, but not the obligation, to alter the quantity or timing of cash flows. Yield curve risk is the risk that changes in prevailing interest rates will affect instruments of different maturities by different amounts. Horizon's objective is to remain reasonably neutral with respect to IRR. Horizon utilizes a variety of strategies to maintain this position including the sale of mortgage loans on the secondary market and varying maturities of FHLB advances, certificates of deposit funding, and investment securities. The table, which follows, provides information about Horizon's financial instruments that are sensitive to changes in interest rates as of December 31, 2000. Horizon had no derivative financial instruments or trading portfolio as of December 31, 2000. The table incorporates Horizon's internal system generated data related to the maturity and repayment/withdrawal of interest-earning assets and interest-bearing liabilities. For loans, securities, and liabilities with contractual maturities, the table presents principal cash flows and related weighted average interest rates by contractual maturities as well as the historical experience of Horizon related to the impact of interest rate fluctuations on the prepayment of residential loans and mortgage-backed securities. From a risk management perspective, Horizon believes that repricing dates are more relevant than contractual maturity dates when analyzing the value of financial instruments. For deposits with no contractual maturity dates, the table presents principal cash flows and weighted average rate, as applicable, based upon Horizon's experience and management's judgment concerning the most likely withdrawal behaviors. HORIZON BANCORP & SUBSIDIARIES 13 14 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) QUANTITATIVE DISCLOSURE OF MARKET RISK
2006 & Fair Value 2001 2002 2003 2004 2005 Beyond Total 12/31/00 - ------------------------------------------------------------------------------------------------------------- RATE-SENSITIVE ASSETS Fixed interest rate loans $ 31,060 $26,979 $22,522 $18,122 $13,990 $70,468 $183,141 $189,386 Average interest rate 8.34% 8.23% 8.09% 8.04% 7.93% 7.93% 8.07% Variable interest rate loans 196,652 1,586 3,306 6,005 2,550 4,514 214,613 217,320 Average interest rate 9.95% 8.38% 8.21% 8.05% 9.16% 7.78% 9.80% Total loans 227,712 28,565 25,828 24,127 16,540 74,982 397,754 406,706 Average interest rate 9.73% 8.24% 8.11% 8.04% 8.12% 7.92% 9.01% Securities, including FRB and FHLB stock 32,835 8,352 12,632 2,482 4,639 16,674 77,614 77,614 Average interest rate 6.18% 6.59% 6.34% 6.29% 6.57% 6.49% 6.34% Other interest-bearing assets 1,271 1,271 1,271 Average interest rate 4.75% 4.75% Total earnings assets 261,818 36,917 38,460 26,609 21,179 91,656 476,639 485,591 Average interest rate 9.26% 7.87% 7.53% 7.88% 7.78% 7.66% 8.56% RATE-SENSITIVE LIABILITIES Noninterest-bearing deposits $30,044 $ 30,044 $ 30,044 NOW accounts $ 49,569 $ 8,211 $ 6,674 $ 5,425 $ 4,409 19,144 93,432 94,171 Average interest rate 4.04% 4.20% 4.20% 4.20% 4.20% 4.20% 4.11% Savings and money market accounts 24,353 1,686 1,362 1,113 917 4,889 34,320 32,776 Average interest rate 1.81% 1.97% 1.92% 1.88% 1.85% 1.78% 1.82% Certificates of deposit 176,907 41,857 5,569 4,219 228,552 229,753 Average interest rate 6.16% 6.42% 5.50% 5.82% 6.19% Total deposits 250,829 51,754 13,605 10,757 5,326 54,077 386,348 386,744 Average interest rate 5.32% 5.92% 4.50% 4.60% 3.80% 1.65% 4.82% Fixed interest rate borrowings 25,031 33 10,037 15,039 42 137 50,319 50,076 Average interest rate 6.61% 6.97% 6.90% 6.19% 6.97% 7.29% 6.54% Variable interest rate borrowings 51,044 1,517 1,233 1,002 815 3,538 59,149 60,195 Average interest rate 6.54% 5.79% 5.79% 5.79% 5.79% 5.79% 6.44% Total funds 326,904 53,304 24,875 26,798 6,183 57,752 495,816 497,015 Average interest rate 5.61% 5.92% 5.53% 5.53% 4.08% 1.91% 5.18%
14 HORIZON BANCORP & SUBSIDIARIES 15 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement requires companies to record derivatives on the balance sheet at their fair value. SFAS No. 133 also acknowledges that the method of recording a gain or loss depends on the use of the derivative. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. - For a derivative designated as hedging the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. - For a derivative designated as hedging the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge), the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. - For a derivative designated as hedging the foreign currency exposure of a net investment in a foreign operation, the gain or loss is reported in other comprehensive income (outside earnings) as part of the cumulative translation adjustment. The accounting for a fair value hedge described above applies to a derivative designated as a hedge of the foreign currency exposure of an unrecognized firm commitment or an available-for-sale security. Similarly, the accounting for a cash flow hedge described above applies to a derivative designated as a hedge of the foreign currency exposure of a foreign-currency-denominated forecasted transaction. - For a derivative not designated as a hedging instrument, the gain or loss is recognized in earnings in the period of change. The new Statement applies to all entities. If hedge accounting is elected by the entity, the method of assessing the effectiveness of the hedging derivative and the measurement approach of determining the hedge's ineffectiveness must be established at the inception of the hedge. SFAS No. 133 amends SFAS No. 52 and supercedes SFAS Nos. 80, 105, and 119. SFAS No. 107 is amended to include the disclosure provisions about the concentrations of credit risk from SFAS No. 105. Several Emerging Issues Task Force consensuses are also changed or nullified by the provisions of SFAS No. 133. SFAS No. 133 will be effective for all fiscal years beginning after June 15, 1999. The implementation date was deferred by SFAS 137 and as a result the effective date of SFAS 133 will be for all fiscal quarters of fiscal years beginning after June 15, 2000. At this time, management does not believe the statement will have any impact on the financial condition or results of operations of Horizon. HORIZON BANCORP & SUBSIDIARIES 15 16 MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL - ------------------------------------------------------------------------- CONDITION - --------- (Table dollar amounts in thousands) FORWARD-LOOKING STATEMENTS Certain statements in this section constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the Company to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. 16 HORIZON BANCORP & SUBSIDIARIES 17 ================================================================================ HORIZON BANCORP Consolidated Financial Statements 2000 Annual Report ================================================================================ 18 TABLE OF CONTENTS FINANCIAL STATEMENTS Consolidated balance sheet 20 Consolidated statement of income 21 Consolidated statement of stockholders' equity 22 Consolidated statement of cash flows 23 Notes to consolidated financial statements 24 INDEPENDENT AUDITOR'S REPORT 47 OTHER INFORMATION Management's report on financial statements 48 Summary of selected financial data 49 Horizon's common stock and related stockholders' matters 50 HORIZON BANCORP & SUBSIDIARIES 19 19 CONSOLIDATED BALANCE SHEET - -------------------------------------------------------------------------------- (Table dollar amounts in thousands)
DECEMBER 31 2000 1999 - ---------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 34,018 $ 34,670 Federal funds sold Interest-bearing demand deposits 1,033 174 ------------------------- Cash and cash equivalents 35,051 34,844 Interest-bearing deposits 238 232 Investment securities available for sale 71,375 67,880 Loans held for sale 4,176 Loans, net of allowance for loan losses of $4,803 and $3,273 388,775 391,084 Premises and equipment 17,281 18,134 Federal Reserve and Federal Home Loan Bank stock 6,239 5,897 Interest receivable 3,301 2,780 Other assets 5,340 5,145 ------------------------- Total assets $531,776 $525,996 ======================== LIABILITIES Deposits Noninterest bearing $ 30,044 $ 44,890 Interest bearing 356,304 318,778 ------------------------- Total deposits 386,348 363,668 Short-term borrowings 34,148 24,500 Federal Home Loan Bank advances 75,320 105,000 Interest payable 1,015 920 Other liabilities 3,321 2,909 ------------------------- Total liabilities 500,152 496,997 ========================= COMMITMENTS AND CONTINGENCIES EQUITY RECEIVED FROM CONTRIBUTIONS AND DIVIDENDS TO THE ESOP 6,676 7,808 ------------------------- STOCKHOLDERS' EQUITY Common stock, $1 stated value Authorized, 5,000,000 shares Issued, 1,038,428 shares, less ESOP shares of 131,652 and 165,309 907 873 Additional paid-in capital 14,263 13,153 Retained earnings 25,184 22,629 Accumulated other comprehensive income (loss) 9 (1,201) Treasury stock, at cost, 375,396 and 350,293 shares (15,415) (14,263) ------------------------- Total stockholders' equity 24,948 21,191 ------------------------- Total liabilities and stockholders' equity $531,776 $525,996 ========================
See notes to consolidated financial statements. 20 HORIZON BANCORP & SUBSIDIARIES 20 CONSOLIDATED STATEMENT OF INCOME - -------------------------------------------------------------------------------- (Dollar amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31 2000 1999 1998 - --------------------------------------------------------------------------------------------- INTEREST INCOME Loans receivable $36,883 $25,634 $ 23,346 Investment securities Taxable 5,057 5,096 4,010 Tax exempt 13 167 447 ----------------------------------- Total interest income 41,953 30,897 27,803 ----------------------------------- INTEREST EXPENSE Deposits 17,689 12,603 10,578 Federal funds purchased and short-term borrowings 612 76 50 Federal Home Loan Bank advances 4,998 3,086 2,658 ----------------------------------- Total interest expense 23,299 15,765 13,286 ----------------------------------- NET INTEREST INCOME 18,654 15,132 14,517 Provision for loan losses 2,010 1,100 820 ----------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,644 14,032 13,697 ----------------------------------- OTHER INCOME Service charges on deposit accounts 2,028 2,048 2,255 Wire transfer fee income 479 91 17 Fiduciary activities 2,728 2,113 2,141 Gain on sale of mortgage loans 268 19 Gain on sale of other real estate owned 12 72 Gain on sale of securities 177 Commission income from insurance agency 812 811 462 Income from reinsurance company 109 158 158 Other income 420 393 420 ----------------------------------- Total other income 6,856 5,882 5,453 ----------------------------------- OTHER EXPENSES Salaries and employee benefits 9,115 9,017 9,148 ESOP termination expense 2,073 Net occupancy expenses 1,733 1,692 1,344 Data processing and equipment expenses 2,077 2,079 2,108 Loss on disposal of fixed assets 36 219 26 Loss on other real estate owned 4 Other expenses 4,944 4,346 4,810 ----------------------------------- Total other expenses 17,905 19,430 17,436 ----------------------------------- INCOME BEFORE INCOME TAX 5,595 484 1,714 Income tax expense 1,812 675 460 ----------------------------------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS 3,783 (191) 1,254 ----------------------------------- DISCONTINUED OPERATIONS Loss from operation of discontinued subsidiary (less tax benefit of $56 and $115 for 1999 and 1998) (81) (171) Loss on disposal of subsidiary, including provision of $134 for operating losses during phase-out period (less tax benefit of $52 in 1999) (82) ----------------------------------- Total loss from discontinued operations (163) (171) ----------------------------------- NET INCOME (LOSS) $ 3,783 $ (354) $ 1,083 =================================== Basic & diluted earnings per share from continuing operations $ 5.54 $ (.29) $ 1.83 Basic & diluted earnings per share from loss on discontinued operations (.25) (.25) ----------------------------------- BASIC AND DILUTED EARNINGS PER SHARE $ 5.54 $ (.54) $ 1.58 ===================================
See notes to consolidated financial statements. HORIZON BANCORP & SUBSIDIARIES 21 21 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- (Dollar amounts in thousands)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE TREASURY STOCK CAPITAL INCOME (LOSS) EARNINGS INCOME (LOSS) STOCK TOTAL - ----------------------------------------------------------------------------------------------------------------------- BALANCES, JANUARY 1, 1998 $720 $ 7,763 $24,355 $ 400 $ (4,529) $28,709 Net income $ 1,083 1,083 1,083 Other comprehensive income, net of tax, unrealized losses on securities (64) (64) (64) ------ Comprehensive income $1,019 ====== Cash dividends ($1.80 per share) (1,237) (1,237) Purchase of 36,785 shares of treasury stock (2,115) (2,115) Issuance of 6,897 shares of common stock for purchase of insurance agency 7 379 386 Net purchases and distributions with ESOP 14 627 641 Tax benefit of ESOP dividend deduction 65 65 --------------- ---------------------------------------- BALANCES, DECEMBER 31, 1998 741 8,834 24,201 336 (6,644) 27,468 Net loss $ (354) (354) (354) Other comprehensive income, net of tax, unrealized losses on securities, net of reclassification adjustment (1,537) (1,537) (1,537) ------- Comprehensive loss $(1,891) ======= Cash dividends ($1.80 per share) (1,218) (1,218) Purchase of 167,245 shares of treasury stock (7,619) (7,619) Issuance of 4,000 shares of common stock for purchase of investment management entity 4 196 200 Net purchases and distributions with ESOP 128 4,058 4,186 Tax benefit of ESOP dividend deduction 65 65 --------------- ---------------------------------------- BALANCES, DECEMBER 31, 1999 873 13,153 22,629 (1,201) (14,263) 21,191 Net income $ 3,783 3,783 3,783 Other comprehensive income, net of tax, unrealized gains on securities 1,210 1,210 1,210 ------ Comprehensive income $4,993 ====== Cash dividends ($1.80 per share) (1,228) (1,228) Purchase of 26,733 shares of treasury stock (1,200) (1,200) Re-issuance of 1,476 shares of common stock in partial payment of directors fees 12 48 60 Net purchases and distributions with ESOP 34 1,098 1,132 --------------- ---------------------------------------- BALANCES, DECEMBER 31, 2000 $907 $14,263 $25,184 $ 9 $(15,415) $24,948 =============== ========================================
See notes to consolidated financial statements. 22 HORIZON BANCORP & SUBSIDIARIES 22 CONSOLIDATED STATEMENT OF CASH FLOWS - -------------------------------------------------------------------------------- (Dollar amounts in thousands)
YEAR ENDED DECEMBER 31 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ 3,783 $ (354) $ 1,083 Adjustments to reconcile net income (loss) to net cash provided by operating activities Provision for loan losses 2,010 1,100 820 Additional paid-in capital from release of ESOP shares 1,807 360 Depreciation and amortization 1,445 1,409 1,135 Deferred income tax (157) (98) 392 Investment securities amortization, net 105 164 199 Investment securities gains (177) Discontinued operations 237 194 Loss on disposal of fixed assets 36 219 26 (Gain) loss on sale of loans (268) 19 Proceeds from sales of loans 33,265 11,955 2,765 Loans originated for sale (37,173) Gain on sale of other real estate owned (12) (68) Deferred loan fees (57) (49) (84) Unearned income (223) 102 (61) Net change in Interest receivable (521) (531) 15 Interest payable 95 103 143 Other assets (813) 1,586 (1,409) Other liabilities 412 (141) (857) ----------------------------------- Net cash provided by operating activities 1,927 17,283 4,721 ----------------------------------- INVESTING ACTIVITIES Net change in interest-bearing deposits (6) (7) (6) Purchases of securities available for sale (13,321) (35,250) (27,839) Proceeds from maturities, calls, and principal repayments of securities available for sale 11,718 17,708 17,868 Proceeds from sales of securities available for sale 11,738 Purchases of securities held to maturity (2,597) Proceeds from maturities, calls, and principal repayments of securities held to maturity 1,785 2,282 Net change in loans 245 (117,265) (34,048) Principal payments received on ESOP loan 5,769 651 Proceeds from sale of fixed assets 23 715 Recoveries on loans previously charged-off 334 363 401 Purchase of insurance agency (785) Purchase of investment management entity 200 Purchases of premises and equipment (651) (2,070) (3,423) Purchase of Federal Reserve and Federal Home Loan Bank stock (342) (1,924) (350) ----------------------------------- Net cash used by investing activities (2,000) (118,238) (47,846) ----------------------------------- FINANCING ACTIVITIES Net change in Deposits $ 22,680 $ 41,267 $ 57,988 Short-term borrowings 9,648 20,500 (12,000) Federal Home Loan Bank advances 50,320 66,000 70,000 Repayment of Federal Home Loan Bank advances (80,000) (15,000) (58,000) Dividends paid (1,228) (1,218) (1,237) Re-issuance of treasury stock 60 Purchase of treasury stock (1,200) (7,619) (2,115) ----------------------------------- Net cash provided by financing activities 280 103,930 54,636 ----------------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 207 2,975 11,511 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 34,844 31,869 20,358 ----------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 35,051 $ 34,844 $ 31,869 =================================== ADDITIONAL CASH FLOWS INFORMATION Interest paid $ 23,394 $ 15,868 $ 13,388 Income tax paid 2,150 350 440
See notes to consolidated financial statements. HORIZON BANCORP & SUBSIDIARIES 23 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS -- The consolidated financial statements of Horizon Bancorp (Horizon) and its wholly owned subsidiaries, Horizon Bank, N.A. (Bank), HBC Insurance Group, Inc. (Insurance Company), and The Loan Store, Inc. conform to generally accepted accounting principles and reporting practices followed by the banking industry. The Bank is a full-service commercial bank offering a broad range of commercial and retail banking and other services incident to banking. The Bank has two wholly-owned subsidiaries: Horizon Trust & Investment Management, N.A. (HTIM) and Horizon Insurance Services, Inc. (Insurance Agency). HTIM offers corporate and individual trust and agency services and investment management services. The Insurance Agency offers a full line of commercial and personal insurance products. The Bank maintains four facilities in LaPorte County, Indiana and four facilities in Porter County, Indiana. The Insurance Company offers credit insurance. The net income generated from the insurance operations is not significant to the overall operations of Horizon. The Loan Store, Inc. is a discontinued operation and sold its loan portfolio to another finance company in August 1999. The Loan Store, Inc. was a subprime consumer finance company with offices located in Highland, South Bend, and Michigan City, Indiana. Horizon conducts no business except that incident to its ownership of the subsidiaries. BASIS OF REPORTING -- The consolidated financial statements include the accounts of Horizon and subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENT SECURITIES AVAILABLE FOR SALE -- Horizon and the Bank designate their investment portfolio as available for sale based on management's plans to use such securities for asset and liability management, liquidity, and not to hold such securities as long-term investments. Management repositions the portfolio to take advantage of future expected interest rate trends when Horizon's long-term profitability can be enhanced. Investment securities available for sale and marketable equity securities are carried at estimated fair value and any net unrealized gains/losses (after tax) on these securities are included in accumulated other comprehensive income. Gains/losses on the disposition of securities available for sale are recognized at the time of the transaction and are determined by the specific identification method. LOANS HELD FOR SALE -- Loans held for sale are reported at the lower of cost or market value in the aggregate. INTEREST AND FEES ON LOANS -- Interest on commercial, mortgage, and installment loans is recognized over the term of the loans based on the principal amount outstanding. When principal or interest is past due 90 days or more, and the loan is not well secured and it is in the process of collection, or when serious doubt exists as to the collectibility of a loan, the accrual of interest is discontinued. Loan origination fees, net of direct loan origination costs, are deferred and recognized over the life of the loan as a yield adjustment. CONCENTRATIONS OF CREDIT RISK -- The Bank grants commercial, real estate, and consumer 24 HORIZON BANCORP & SUBSIDIARIES 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) loans to customers located primarily in LaPorte County and portions of Porter County in Northwest Indiana and provides mortgage warehouse lines to mortgage companies in the United States. Commercial loans make up approximately 22% of the loan portfolio and are secured by both real estate and business assets. These loans are expected to be repaid from cash flow from operations of the businesses. Real estate loans make up approximately 32% of the loan portfolio and are secured by both commercial and residential real estate. Installment loans make up approximately 20% of the loan portfolio and are primarily secured by consumer assets. Mortgage warehouse loans make up approximately 26% of the loan portfolio and are secured by residential real estate. MORTGAGE WAREHOUSE LOANS -- Horizon purchases residential mortgage loans from various mortgage companies prior to sale of these loans by the mortgage companies in the secondary market. Horizon held loans that were purchased under agreements to resell from 28 approved mortgage companies at December 31, 2000. Horizon purchases such loans from mortgage companies, net of certain fees, and later sells them back to the mortgage companies at the same amount and without recourse provisions. As a result, no gains and losses are recorded at the resale of loans. Horizon records interest and fee income on the loans during the funding period. Horizon uses the stated interest rate in the agreement with each mortgage company for interest income recognition, and not the interest rates on the individual loans. Horizon does not retain servicing of the loans when they are resold. Loans consist of purchase money and refinance mortgage loans and are generally held no more than 90 days by Horizon and are typically resold within 30 days. ALLOWANCE FOR LOAN LOSSES -- An allowance for loan losses is maintained to absorb loan losses inherent in the loan portfolio. The allowance is based on ongoing quarterly assessments of the probable estimated losses inherent in the loan portfolio. The allowance is increased by the provision for credit losses, which is charged against current period operating results and decreased by the amount of charge offs, net of recoveries. Horizon's methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for identified problem loans, and the unallocated allowance. The formula allowance is calculated by applying loss factors to outstanding loans and certain unused commitments, in each case based on the internal risk grade of such loans, pools or loans, or commitments. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on a historical loss experience and may be adjusted for significant factors that, in management's judgement, affect the collectibility of the portfolio as of the evaluation date. Specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicate the probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance. The unallocated allowance is based upon management's evaluation of various conditions, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific credits. The conditions evaluated in connection with the unallocated allowance may include factors such as local, regional, and national economic conditions and forecasts, and adequacy of loan policies and internal controls, the experience of the lending staff, bank regulatory examination results, and changes in the composition of the portfolio. LOAN IMPAIRMENT-- When analysis determines a borrower's operating results and financial HORIZON BANCORP & SUBSIDIARIES 25 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) condition are not adequate to meet debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are also often considered impaired. Impaired loans, or portions thereof are charged-off when deemed uncollectible. This typically occurs when the loan is 120 or more days past due. Loans are considered impaired if full principal or interest payments are not made in accordance with the original terms of the loan. Impaired loans are measured and carried at the lower of cost or the present value of expected future cash flows discounted at the loan's effective interest rate, at the loan's observable market price, or at the fair value of the collateral if the loan is collateral dependent. Smaller balance homogenous loans are evaluated for impairment in the aggregate. Such loans include residential first mortgage loans secured by one to four family residences, residential construction loans and automobile, home equity, and second mortgages. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. PREMISES AND EQUIPMENT -- Buildings and major improvements are capitalized and depreciated using primarily the straight-line method with useful lives ranging from 3 to 40 years. Furniture and equipment are capitalized and depreciated using primarily the straight-line method with useful lives ranging from 3 to 20 years. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on disposition are included in current operations. FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK -- The stock is a required investment for institutions that are members of the Federal Reserve and Federal Home Loan Bank systems. The required investment in the common stock is based on a predetermined formula. SERVICING RIGHTS -- Servicing rights represent both purchased rights and the allocated value of servicing rights retained on mortgage loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenue. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance. INTANGIBLE ASSETS -- Intangible assets are being amortized on the straight-line basis over a 15-year period. Such assets are periodically evaluated as to the recoverability of their carrying value. TREASURY STOCK -- Treasury stock is stated at cost using the first-in, first-out (FIFO) method. INCOME TAXES -- Horizon files annual consolidated income tax returns with its subsidiaries. Income tax in the consolidated statement of income includes deferred income tax provisions or benefits for all significant temporary differences in recognizing income and expenses for financial reporting and income tax purposes. TRUST ASSETS AND INCOME -- Property, other than cash deposits, held in a fiduciary or agency capacity is not included in the consolidated balance sheet since such property is not owned by Horizon. 26 HORIZON BANCORP & SUBSIDIARIES 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) EARNINGS PER COMMON SHARE AND DIVIDENDS DECLARED PER COMMON SHARE -- Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Horizon has no potential dilutive instruments. The outstanding stock options are not included in the computation of diluted EPS because the contracts may be settled in common stock or in cash at the election of the option holder. Historically, all contracts have been settled in cash and it is anticipated that the exercise of future contracts will also be settled in cash. The number of shares used in the computation of basic earnings per share is 682,883 for 2000, 655,391 for 1999, and 686,804 for 1998. DIVIDEND RESTRICTIONS -- Regulations of the Comptroller of the Currency limit the amount of dividends that may be paid by a national bank to its parent holding company without prior approval of the Comptroller of the Currency. According to these regulations, as of December 31, 2000, $2,998,000 of additional dividends may be paid by the Bank to Horizon without prior approval of the Comptroller of the Currency. Additionally, the Federal Reserve Board limits the amount of dividends that may be paid by Horizon to its stockholders under its capital adequacy guidelines. CONSOLIDATED STATEMENT OF CASH FLOWS -- For purposes of reporting cash flows, cash and cash equivalents are defined to include cash and due from banks, money market investments, and federal funds sold with maturities of one day or less. Horizon reports net cash flows for customer loan transactions, deposit transactions, short-term investments, and short-term borrowings. RECLASSIFICATIONS -- Certain reclassifications have been made to the 1999 and 1998 financial statements to be comparable to 2000. NOTE 2 FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair value amounts were determined using available market information, current pricing information applicable to Horizon and various valuation methodologies. Where market quotations were not available, considerable management judgement was involved in the determination of estimated fair values. Therefore, the estimated fair value of financial instruments shown below may not be representative of the amounts at which they could be exchanged in a current or future transaction. Due to the inherent uncertainties of expected cash flows of financial instruments, the use of alternate valuation assumptions and methods could have a significant effect on the derived estimated fair value amounts. The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or market value of Horizon taken as a whole. The disclosed fair value estimates are limited to Horizon's significant financial instruments at December 31, 2000 and 1999. These include financial instruments recognized as assets and liabilities on the consolidated balance sheet as well as certain off-balance sheet financial instruments. The estimated fair values shown below do not include any valuation of assets and liabilities which are not financial instruments as defined by SFAS No. 107 Disclosures about Fair Value of Financial Instruments, such as the value of real property, the value of core deposit intangibles, the value of mortgage servicing rights, nor the value of anticipated future business. HORIZON BANCORP & SUBSIDIARIES 27 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) The following methods and assumptions were used to estimate the fair value of each class of financial instrument: CASH AND CASH EQUIVALENTS -- The carrying amounts approximate fair value. INTEREST-BEARING DEPOSITS -- The carrying amounts approximate fair value. INVESTMENT SECURITIES -- For debt and marketable equity securities available for sale and held to maturity, fair values are based on quoted market prices or dealer quotes. For those securities where a quoted market price is not available, carrying amount is a reasonable estimate of fair value based upon comparison with similar securities. NET LOANS -- The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. INTEREST RECEIVABLE/PAYABLE -- The carrying amounts approximate fair value. FHLB AND FRB STOCK -- Fair value of FHLB and FRB stock is based on the price at which it may be resold to the FHLB and FRB. DEPOSITS -- The fair value of demand deposits, savings accounts, interest-bearing checking accounts, and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturity. SHORT-TERM BORROWINGS -- The carrying amounts approximate fair value. FEDERAL HOME LOAN BANK ADVANCES -- Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate fair value of existing advances. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTER OF CREDIT -- The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. Due to the short-term nature of these agreements, carrying amounts approximate fair value. 28 HORIZON BANCORP & SUBSIDIARIES 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) The estimated fair values of Horizon's financial instruments are as follows:
2000 1999 --------------------------------------------------------- CARRYING FAIR CARRYING FAIR DECEMBER 31 AMOUNT VALUE AMOUNT VALUE - -------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 35,051 $ 35,051 $ 34,844 $ 34,844 Interest-bearing deposits 238 238 232 232 Investment securities available for sale 71,375 71,375 67,880 67,880 Loans including loans held for sale, net 392,951 401,903 391,084 389,260 Interest receivable 3,301 3,301 2,780 2,780 Stock in FHLB and FRB 6,239 6,239 5,897 5,897 LIABILITIES Noninterest-bearing deposits 30,044 30,044 44,890 44,890 Interest-bearing deposits 356,304 356,700 318,778 318,191 Short-term borrowings 34,148 34,148 24,500 24,500 Federal Home Loan Bank advances 75,320 76,123 105,000 104,696 Interest payable 1,015 1,015 920 920
NOTE 3 INVESTMENT SECURITIES
2000 --------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31 COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------------------------------- AVAILABLE FOR SALE U. S. Treasury and federal agencies $ 26,171 $ 35 $ (204) $ 26,002 State and municipal 5,564 134 (2) 5,696 FHLMC mortgage-backed securities 5,598 63 (16) 5,645 FNMA mortgage-backed securities 13,252 57 (20) 13,289 GNMA collateralized mortgage obligations 8,026 (238) 7,788 FHLMC collateralized mortgage obligation 7,725 227 7,952 FNMA collateralized mortgage obligations 4,707 55 4,762 Marketable equity securities 315 (74) 241 -------------------------------------------------------- Total investment securities $ 71,358 $ 571 $ (554) $ 71,375 ========================================================
HORIZON BANCORP & SUBSIDIARIES 29 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands)
1999 ---------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------- Available for sale U. S. Treasury and federal agencies $ 30,428 $ 18 $ (866) $ 29,580 State and municipal 4,230 (130) 4,100 FHLMC mortgage-backed securities 6,722 14 (127) 6,609 FNMA mortgage-backed securities 16,843 40 (267) 16,616 GNMA collateralized mortgage obligations 8,051 (582) 7,469 FHLMC collateralized mortgage obligation 964 (19) 945 FNMA collateralized mortgage obligations 2,307 (32) 2,275 Marketable equity securities 315 (29) 286 ---------------------------------------------------- Total investment securities $ 69,860 $ 72 $ (2,052) $ 67,880 ====================================================
The amortized cost and fair value of securities available for sale at December 31, 2000, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
AMORTIZED FAIR COST VALUE - ------------------------------------------------------------------------------------------------------ Within one year $ 9,029 $ 8,997 One to five years 10,540 10,565 Five to ten years 8,874 8,926 After ten years 3,292 3,210 ----------------------- 31,735 31,698 Mortgage-backed securities 18,850 18,934 Collateralized mortgage obligations 20,458 20,502 Marketable equity securities 315 241 ----------------------- Totals $ 71,358 $ 71,375 =======================
Securities with a carrying value of $20,174,000 and $3,243,000 were pledged at December 31, 2000 and 1999 to secure certain public and trust deposits and securities sold under agreements to repurchase. There were no sales of securities available for sale during 2000 and 1998. Proceeds from sales of securities available for sale during 1999 were $11,738,000. Gross gains of $217,000 and gross losses of $40,000 were realized on these sales. During the second quarter of 1999, debt securities with an amortized cost of $10,050,000 were transferred from held to maturity to available for sale so the Bank could minimize the tax consequences of holding tax-exempt securities. The securities had an unrealized gain of approximately $350,000. There were no transfers between classifications during 2000. There were no sales of securities held to maturity during 2000, 1999, or 1998. 30 HORIZON BANCORP & SUBSIDIARIES 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 4 LOANS AND ALLOWANCE
DECEMBER 31 2000 1999 - --------------------------------------------------------------------------------------- Commercial loans $ 88,421 $ 89,361 Mortgage warehouse loans 102,884 85,542 Real estate loans 125,431 154,717 Installment loans 76,842 64,737 ---------------------- 393,578 394,357 Allowance for loan losses (4,803) (3,273) ---------------------- Total loans $ 388,775 $ 391,084 ======================
DECEMBER 31 2000 1999 1998 - --------------------------------------------------------------------------------------- Allowance for loan losses Balances, January 1 $ 3,273 $ 2,787 $ 2,702 Provision for losses 2,010 1,100 820 Provision for losses, discontinued operations 250 180 Recoveries on loans 334 363 401 Loans charged off (814) (1,227) (1,316) ----------------------------------- Balances, December 31 $ 4,803 $ 3,273 $ 2,787 ===================================
Impaired loans for which the discounted cash flows or collateral value exceeded the carrying value of the loan totaled $609,000 at December 31, 2000 and the allowance for impaired loans, included in the Bank's allowance for loan losses totaled $40,000 at that date. The average balance of impaired loans during 2000 was $600,000 and no interest income was recorded or received during the year. There were no loans classified as impaired during 1999. At December 31, 2000 and 1999, loans past due more than 90 days and still accruing interest totaled approximately $699,000 and $401,000. Loans on which the recognition of interest has been discontinued or reduced totaled approximately $2,487,000, $1,173,000, and $64,000 at December 31, 2000, 1999, and 1998. Interest income not recognized on these loans totaled approximately $241,000, $62,000, and $7,000 in 2000, 1999, and 1998. Loans to directors and executive officers of Horizon and the Bank, including associates of such persons, amounted to $5,434,000 and $4,277,000, as of December 31, 2000 and 1999. During 2000, new loans or advances were $4,347,000 and loan payments were $3,190,000. HORIZON BANCORP & SUBSIDIARIES 31 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 5 PREMISES AND EQUIPMENT
DECEMBER 31 2000 1999 - -------------------------------------------------------------------------------- Land $ 3,206 $ 3,236 Buildings and improvements 16,680 16,461 Furniture and equipment 8,323 8,319 ------------------------ Total cost 28,209 28,016 Accumulated depreciation (10,928) (9,882) ------------------------ Net $ 17,281 $ 18,134 ========================
Depreciation expense for the years ended December 31, 2000, 1999, and 1998 totaled $1,445,000, $1,409,000, and $1,135,000. NOTE 6 LEASES Horizon has several operating leases for premises and equipment that expire through 2005. These leases generally contain renewal options and require Horizon to pay all executory costs such as taxes, maintenance, and insurance. Rental expense for these leases amounted to $168,000, $299,000, and $291,000 for the years ended December 31, 2000, 1999, and 1998. Future minimum lease payments under operating leases are: YEARS ENDING DECEMBER 31 - ---------------------------------------------------------------- 2001 $150 2002 48 2003 40 2004 32 2005 13 ---- Total minimum lease payments $283 ==== NOTE 7 DEPOSITS
DECEMBER 31 2000 1999 - -------------------------------------------------------------------------------- Noninterest bearing demand deposits $ 30,044 $ 44,890 Interest bearing demand deposits 93,432 60,127 Money market (variable rate) 2,124 3,955 Savings deposits 32,196 38,356 Certificates of deposit of $100,000 or more 68,914 71,377 Other certificates and time deposits 159,638 144,963 ------------------------ Total deposits $ 386,348 $ 363,668 ========================
32 HORIZON BANCORP & SUBSIDIARIES 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) Interest expense on time certificates of $100,000 or more was approximately $6,557,000, $4,067,000, and $2,937,000 for 2000, 1999, and 1998, respectively. Certificates and other time deposits maturing in years ending December 31 are as follows: 2001 $176,769 2002 41,995 2003 5,569 2004 4,050 2005 169 -------- $228,552 ======== Certificates of deposit of $100,000 or more by remaining maturity as of December 31, 2000 are as follows: Due in three months or less $33,566 Due after three months through six months 17,524 Due after six months through one year 10,111 Due after one year 7,713 ------- $68,914 ======= NOTE 8 SHORT-TERM BORROWINGS
DECEMBER 31 2000 1999 - -------------------------------------------------------------------------------- Federal funds purchased $14,700 $22,000 Securities sold under agreements to repurchase 16,698 Notes payable, unsecured 2,750 2,500 ------- ------- Total short-term borrowings $34,148 $24,500 ======= =======
Securities sold under agreements to repurchase consist of obligations of the Bank to other parties. The obligations are secured by U. S. agency and mortgage-backed securities and such collateral is held in safekeeping by third parties. The maximum amount of outstanding agreements at any month end during 2000 totaled $16,698,000 and the daily average of such agreements totaled $2,590,000. The agreements at December 31, 2000, are due on demand. Horizon Bancorp has an unsecured $5,000,000 line of credit, of which $2,750,000 was outstanding at December 31, 2000. The loan is from an unrelated financial institution with interest payable monthly at LIBOR plus 2.20%. The note matures within one year. At December 31, 2000, the Bank has available approximately $29,000,000 in credit lines with various money center banks. HORIZON BANCORP & SUBSIDIARIES 33 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 9 FHLB ADVANCES
DECEMBER 31 2000 1999 - ---------------------------------------------------------------------------------------- Federal Home Loan Bank advances, variable and fixed rates, due at various dates through May 15, 2020 $75,320 $105,000 ====================
The Federal Home Loan Bank advances are secured by first-mortgage loans and investment securities totaling approximately $273,955,000. Advances are subject to restrictions or penalties in the event of prepayment. Contractual maturities in years ending December 31 2001 $40,027 2002 10,029 2003 10,032 2004 15,034 2005 37 Thereafter 161 -------- $ 75,320 ======== NOTE 10 LOAN SERVICING Loans serviced for others are not included in the accompanying consolidated balance sheet. The unpaid principal balances of loans serviced for others totaled approximately $53,169,000 and $29,480,000 at December 31, 2000 and 1999. The aggregate fair value of capitalized mortgage servicing rights at December 31, 2000 totaled approximately $454,000. There were no mortgage servicing rights capitalized prior to 2000. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type, and interest rates, were used to stratify the originated mortgage servicing rights.
DECEMBER 31 2000 - --------------------------------------------------------------------------- Mortgage Servicing Rights Balance, January 1 $ 0 Servicing rights capitalized 333 Amortization of servicing rights (17) ------ Balance, December 31 $ 316 ======
NOTE 11 EMPLOYEE STOCK BONUS PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN Horizon maintains an employee stock bonus plan (Stock Bonus Plan) that currently covers substantially all employees. The Stock Bonus Plan is noncontributory and each eligible employee is vested according to a schedule based upon years of service. Prior to the establishment of the Stock Bonus Plan, Horizon maintained an employee stock ownership plan (ESOP). 34 HORIZON BANCORP & SUBSIDIARIES 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the termination of the Horizon Bancorp Employee Stock Ownership Plan (ESOP). On December 31, 1999 the debt owed by the ESOP was repaid with the proceeds from the sale of a portion of the unallocated shares to Horizon Bancorp. The remaining shares for all active participants were allocated to participants. The expense related to the termination of the ESOP totaled $2.073 million for the year ended December 31, 1999. The retirement plans of Horizon Bancorp own approximately 24% of the outstanding shares at December 31, 1999. The remaining shares in the ESOP plan were transferred to the Stock Bonus Plan. Total cash contributions and expense recorded during the year 2000 for the Stock Bonus Plan was $200,000. There were no contributions to the Stock Bonus Plan made for 1999 or 1998. Transactions affecting ESOP expense and cash contributions to the ESOP are as follows:
DECEMBER 31 1999 1998 - ------------------------------------------------------------------------------------------------------------ Dividends paid on unallocated ESOP shares $ 200 $ 329 Market value increase of shares released 1,807 360 Other contributions 793 139 ----------------------- Total ESOP expense included in ESOP termination expense and salaries and benefits $ 2,800 $ 828 ======================= Total cash contributions made to ESOP during the year $ 793 $ 139 =======================
Below are the transactions affecting the ESOP equity accounts:
ADDITIONAL UNALLOCATED COMMON PAID-IN ESOP STOCK CAPITAL SHARES TOTAL ------------------------------------------------------- Balance, January 1, 1998 $ 307 $ 10,161 $ (6,420) $ 4,048 Market value increase in ESOP shares released 360 360 Loan repayments 651 651 Net ESOP share purchases and distributions (14) (627) (641) ----------------------------------------------------- Balance, December 31, 1998 293 9,894 (5,769) 4,418 Market value increase in ESOP shares released 1,807 1,807 Loan repayments 5,769 5,769 Sale of stock, at cost (108) (3,749) (3,857) Net ESOP share purchases and distributions (20) (309) (329) ----------------------------------------------------- Balance, December 31, 1999 165 7,643 7,808 Net ESOP share purchases and distributions (34) (1,098) (1,132) ----------------------------------------------------- Balance, December 31, 2000 $ 131 $ 6,545 $ 0 $ 6,676 =====================================================
HORIZON BANCORP & SUBSIDIARIES 35 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 12 EMPLOYEE THRIFT PLAN The Employee Thrift Plan (Plan) provides that all employees of the Bank with the requisite hours of service are eligible for the Plan. The Bank fully matches the first 2% and 50% of the subsequent 4% of individual employee contributions. Employee voluntary contributions are vested at all times and the Bank contributions are fully vested after six years. The Bank's 2000, 1999, and 1998 expense related to the thrift plan totaled $201,000, $196,000, and $184,000. NOTE 13 OTHER EXPENSES YEAR ENDED DECEMBER 31 2000 1999 1998 - -------------------------------------------------------------------------------- Supplies and printing $ 289 $ 311 $ 338 Advertising 511 454 480 Communication 628 622 611 Professional fees 826 746 740 Training 107 87 105 Outside services and consultants 776 632 645 Reinsurance company 69 95 104 Loan expenses 350 275 204 Goodwill amortization 90 87 45 Directors fees 191 207 258 Insurance expense 212 197 211 Other 895 633 1,069 ----------------------------- Total other expenses $ 4,944 $ 4,346 $ 4,810 ============================= NOTE 14 INCOME TAX YEAR ENDED DECEMBER 31 2000 1999 1998 - -------------------------------------------------------------------------------- Income tax expense Currently payable Federal $ 1,526 $ 552 $ 53 State 443 221 15 Deferred (157) (98) 392 ------------------------------ Total income tax expense $ 1,812 $ 675 $ 460 ============================== Reconciliation of federal statutory to actual tax expense Federal statutory income tax at 34% $ 1,902 $ 165 $ 583 Tax exempt interest (150) (220) (358) Nondeductible and other (32) (28) 25 Nondeductible ESOP expense 612 Effect of state income taxes 292 146 10 Increase (decrease) in valuation allowance (200) 200 ----------------------------- Actual tax expense $ 1,812 $ 675 $ 460 ============================= 36 HORIZON BANCORP & SUBSIDIARIES 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) A cumulative net deferred tax asset is included in other assets. The components of the asset are as follows:
DECEMBER 31 2000 1999 - ---------------------------------------------------------------------------------------- ASSETS Allowance for loan losses $ 1,033 $ 383 Accrued operating expenses 69 152 Loan fees 58 84 Alternative minimum tax carryforward 329 Unrealized loss on securities available for sale 781 Other 310 416 ------------------ Total assets 1,470 2,145 ------------------ LIABILITIES Depreciation (744) (590) Accretion of investment discounts (5) Unrealized gain on securities available for sale (8) ------------------ Total liabilities (752) (595) ------------------ VALUATION ALLOWANCE (200) ------------------ Net deferred tax asset $ 718 $ 1,350 ==================
The valuation allowance at December 31,1999 was $200,000. The valuation allowance decreased $200,000 during 2000 resulting in no valuation allowance at December 31, 2000. The decrease in the valuation allowance was a result of Horizon generating taxable income in 2000 that utilized the alternative minimum tax (ATM) credit carryforward. NOTE 15 OTHER COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31 2000 1999 1998 - ---------------------------------------------------------------------------------------- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year $1,984 $(2,343) $ (106) Less: reclassification adjustment for gains (losses) realized in net income 177 --------------------------- Net unrealized gains (losses) 1,984 (2,520) (106) Tax (expense) benefit (774) 983 42 --------------------------- Other comprehensive income (loss) $1,210 $(1,537) $ (64) ===========================
HORIZON BANCORP & SUBSIDIARIES 37 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 16 COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES Because of the nature of its activities, Horizon is subject to pending and threatened legal actions that arise in the normal course of business. In management's opinion, after consultation with counsel, none of the litigation to which Horizon or any of its subsidiaries is a party will have a material effect on the consolidated financial position or results of operations of Horizon. The Bank was required to have approximately $8,216,000 of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing balance requirements at December 31, 2000. These balances are included in cash and cash equivalents and do not earn interest. The Bank is a party to financial instruments with off-balance sheet risk in the ordinary course of business to meet financing needs of its customers. These financial instruments include commitments to make loans and standby letters of credit. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank follows the same credit policy to make such commitments as is followed for those loans recorded in the financial statements. At December 31, 2000 and 1999, commitments to make loans amounted to approximately $59,789,000 and $56,914,000 and commitments under outstanding standby letters of credit amounted to approximately $1,186,000 and $1,164,000. Since many commitments to make loans and standby letters of credit expire without being used, the amount does not necessarily represent future cash advances. No losses are anticipated as a result of these transactions. Collateral obtained upon exercise of the commitment is determined using management's credit evaluation. NOTE 17 REGULATORY CAPITAL Horizon and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category. The assigned capital category is largely determined by three ratios that are calculated according to the regulations: total risk adjusted capital, Tier I capital, and Tier I leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity. The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios. There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations. At December 31, 2000 and 1999, Horizon and the Bank are categorized as well capitalized and met all subject capital adequacy requirements. There are no conditions or events since December 31, 2000 that management believes have changed Horizon's or the Bank's classification. 38 HORIZON BANCORP & SUBSIDIARIES 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) Horizon's and Bank's actual and required capital amounts (in millions) and ratios are as follows:
MINIMUM REQUIRED TO BE WELL REQUIRED FOR CAPITALIZED(1)UNDER CAPITAL(1) ADEQUACY ACTION ACTUAL PURPOSES REQUIREMENTS ---------------------------------------------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO - ---------------------------------------------------------------------------------------------------------------- AS OF DECEMBER 31, 2000 Total capital (1) (to risk-weighted assets) Consolidated $34.4 10.69% $25.8 8.00% N/A N/A Bank 34.9 10.88 25.7 8.00 $32.1 10.00% Tier I capital (1) (to risk-weighted assets) Consolidated 30.4 9.43 12.9 4.00 N/A N/A Bank 30.9 9.63 12.8 4.00 19.2 6.00 Tier I capital (1) (to average assets) Consolidated 30.4 5.47 22.2 4.00 N/A N/A Bank 30.9 5.91 20.9 4.00 26.1 5.00 AS OF DECEMBER 31, 1999 Total capital (1) (to risk-weighted assets) Consolidated $32.3 10.12% $25.5 8.00% N/A N/A Bank 32.7 10.39 25.2 8.00 $31.5 10.00% Tier I capital (1) (to risk-weighted assets) Consolidated 29.0 9.09 12.8 4.00 N/A N/A Bank 29.5 9.38 12.6 4.00 18.9 6.00 Tier I capital (1) (to average assets) Consolidated 29.0 6.40 18.1 4.00 N/A N/A Bank 29.5 6.55 18.0 4.00 22.5 5.00
(1) As defined by regulatory agencies NOTE 18 STOCK OPTIONS Horizon maintains the 1987 Nonqualified Stock Option and Stock Appreciation Right Plan (1987 Plan) under which options and stock appreciation rights (SARs) were granted to certain officers and employees. SARs entitle eligible employees to receive cash, stock or a combination of cash and stock totaling the excess, on the date of exercise, of the fair market value of the shares of common stock covered by the option over the option exercise price. The underlying stock options are deemed to have been exercised upon exercise of the SARs. No options were available for grant at December 31, 2000, 1999, and 1998, however, outstanding options may be exercised until their expiration. Horizon recognizes compensation expense related to the 1987 Plan on a periodic basis based on the difference between the excess of the fair market value of the shares of common stock over the exercise price for SARs and those options exercised during the year. Horizon recorded a reduction in compensation expense related to the 1987 Plan of $206,000 and $103,000 in 2000 and 1999. No expense was recorded in 1998. HORIZON BANCORP & SUBSIDIARIES 39 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) A summary of transactions for the plan follows:
SHARES ------------------------- WEIGHTED- AVAILABLE FOR OPTIONS AVERAGE GRANT OUTSTANDING EXERCISE PRICE ------------------------------------------- Balance, January 1, 1998 0 51,800 $27.98 Exercised (34,700) 28.77 ---------------------- Balance, December 31, 1998 and 1999 0 17,100 26.37 Exercised (300) 29.19 ---------------------- Balance, December 31, 2000 0 16,800 26.60 ======================
As of December 31, 2000, the 16,800 options outstanding have exercise prices ranging from $13.50 to $31.50 and a weighted-average remaining contractual life of 7.4 years. The options granted under the 1987 Plan are fully vested. Under Horizon's 1997 Stock Option and Stock Appreciation Right Plan (1997 Plan), which is accounted for in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations, Horizon may grant certain officers and employees stock option awards or stock appreciation rights which vest and become fully exercisable at the end of five years of continued employment. SARs entitle eligible employees to receive cash, stock or a combination of cash and stock totaling the excess, on the date of exercise, of the fair market value of the shares of common stock covered by the option over the option exercise price. The underlying stock options are deemed to have been exercised upon exercise of the SARs. During 2000, Horizon authorized the grant of options and SARs for 47,800 shares of common stock. There is no compensation expense related to the 1997 plan in 2000, 1999, or 1998. A summary of transactions for the plan follows:
SHARES ----------------------------- WEIGHTED- AVAILABLE FOR OPTIONS AVERAGE GRANT OUTSTANDING EXERCISE PRICE -------------------------------------------- Balance, January 1, 1998 90,000 Granted (22,000) 22,000 $60.00 Forfeitures 10,000 (10,000) 60.00 ------------------------ Balance, January 1, 1999 78,000 12,000 60.00 Granted (27,200) 27,200 49.28 Forfeitures ------------------------ Balance, January 1, 2000 50,800 39,200 52.00 Granted (47,800) 47,800 35.09 Forfeitures 15,600 (15,600) 45.37 ------------------------ Balance, December 31, 2000 18,600 71,400 41.76 =======================
As of December 31, 2000, the 71,400 options outstanding have an exercise price ranging from $29.18 to $60.00 and a weighted average remaining contractual life of 18.8 years. The options granted under the 1997 plan vest at a rate of 20% per year. 40 HORIZON BANCORP & SUBSIDIARIES 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 19 CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) Presented below is condensed financial information as to financial position, results of operations and cash flows of Horizon Bancorp: CONDENSED BALANCE SHEET
DECEMBER 31 2000 1999 - --------------------------------------------------------------------------------------------------- ASSETS Total cash and cash equivalents $ 903 $ 462 Investment in Bank 32,094 29,574 Investment in Insurance Company 406 351 Investment in The Loan Store 337 323 Investment securities, net 241 286 Accrued interest receivable 12 12 Dividends receivable from Bank 300 Other assets 1,139 1,135 ----------------------- Total assets $ 35,132 $ 32,443 ======================= LIABILITIES Short-term borrowings $ 2,750 $ 2,500 Other liabilities 758 944 EQUITY RECEIVABLE FROM CONTRIBUTIONS AND DIVIDENDS TO ESOP 6,676 7,808 STOCKHOLDERS' EQUITY 24,948 21,191 ----------------------- Total liabilities and stockholders' equity $ 35,132 $ 32,443 =======================
CONDENSED STATEMENT OF INCOME YEAR ENDED DECEMBER 31 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- OPERATING INCOME (EXPENSE) Dividend income from Bank $2,750 $ 1,150 $ 3,000 Investment income 39 115 47 Other income 44 16 15 Interest expense (224) Employee benefit expense (200) (2,819) (749) Other expense (85) (102) (158) ----------------------------------- INCOME (LOSS) BEFORE DISTRIBUTED INCOME OF SUBSIDIARIES 2,324 (1,640) 2,155 UNDISTRIBUTED INCOME (LOSS) OF SUBSIDIARIES 1,290 820 (1,372) ----------------------------------- INCOME (LOSS) BEFORE TAX 3,614 (820) 783 INCOME TAX BENEFIT 169 466 300 ----------------------------------- NET INCOME (LOSS) $3,783 $ (354) $ 1,083 ===================================
HORIZON BANCORP & SUBSIDIARIES 41 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ 3,783 $ (354) $ 1,083 Adjustments to reconcile net income (loss) to net cash provided by operating activities Distributions in excess of (equity in undistributed) net income of Bank (1,221) (912) 1,255 Distributions in excess of (equity in undistributed) net income of Insurance Company (55) (71) (54) Distributions in excess of (equity in undistributed) net income of The Loan Store (14) 163 171 Additional paid-in capital from release of ESOP shares 1,807 360 Change in Income taxes receivable 364 744 (133) Interest receivable (12) Dividends receivable from Bank 300 250 (50) Other assets (412) 5,538 3,508 Other liabilities (186) 127 (1,633) ------------------------------------ Net cash provided by operating activities 2,559 7,292 4,495 INVESTING ACTIVITY Investment in Bank (2,500) ------------------------------------ FINANCING ACTIVITIES Dividends paid (1,228) (1,218) (1,237) Proceeds from short-term borrowings 250 2,500 Reissuance of treasury stock 60 Purchase of treasury stock (1,200) (7,619) (2,115) ------------------------------------ Net cash used by financing activities (2,118) (6,337) (3,352) ------------------------------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 441 (1,545) 1,143 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 462 2,007 864 ------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 903 $ 462 $ 2,007 ====================================
42 HORIZON BANCORP & SUBSIDIARIES 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 20 SEGMENT INFORMATION Horizon's reportable segments are determined by the products and services offered, primarily distinguished between banking and trust and investment management operations. Loans, investments, and deposits provide the revenue in the banking operation, and fees provide the revenue in the trust and investment management operation. All operations are domestic. The accounting policies used are the same as those described in the summary of significant accounting policies. Occupancy expenses and indirect expenses are not allocated. Income taxes are allocated to each entity based on pretax income. Transactions among segments are recorded at fair value. Segments are evaluated based upon net income. Information reported internally for performance assessment follows:
2000 ----------------------------------------------------------- TRUST AND INVESTMENT SEGMENT BANKING MANAGEMENT OTHER TOTALS ----------------------------------------------------------- Net interest income $ 18,750 $ 52 $ (148) $ 18,654 Provision for loan losses 2,010 2,010 Trust and investment management fees 2,728 2,728 Other income 3,126 1,002 4,128 Total other expenses 14,994 1,820 1,091 17,905 Income tax expense (benefit) 1,542 372 (102) 1,812 Segment profit (loss) 3,330 588 (135) 3,783 Segment assets 527,234 1,271 36,593 565,098
1999 ----------------------------------------------------------- TRUST AND INVESTMENT SEGMENT BANKING MANAGEMENT OTHER TOTALS ----------------------------------------------------------- Net interest income $ 15,026 $ 54 $ 52 $ 15,132 Provision for loan losses 1,100 1,100 Trust and investment management fees 2,113 2,113 Other income 2,694 1,075 3,769 Total other expenses 13,994 1,624 3,812 19,430 Income tax expense (benefit) 930 183 (438) 675 Segment profit (loss) 1,696 360 (2,247) (191) Segment loss, discontinued operations (163) (163) Segment assets 521,768 1,276 35,527 558,571
1998 ----------------------------------------------------------- TRUST AND INVESTMENT SEGMENT BANKING MANAGEMENT OTHER TOTALS ----------------------------------------------------------- Net interest income $ 14,421 $ 64 $ 32 $ 14,517 Provision for loan losses 820 820 Trust and investment management fees 2,141 2,141 Other income 2,646 666 3,312 Total other expenses 14,410 1,397 1,629 17,436 Income tax expense (benefit) 478 316 (334) 460 Segment profit (loss) 1,359 492 (597) 1,254 Segment loss, discontinued operations (171) (171) Segment assets 406,836 1,000 36,530 444,366
HORIZON BANCORP & SUBSIDIARIES 43 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) Amounts included in other column are as follows:
2000 1999 1998 --------------------------------------- Net interest income Holding company net interest income $ (148) $ 52 $ 32 ====================================== Other income Holding company noninterest income $ 73 $ 80 $ 55 Nonreportable subsidiaries noninterest income 929 995 611 -------------------------------------- $ 1,002 $ 1,075 $ 666 ====================================== Other expense Holding company noninterest expense $ 285 $ 2,922 $ 1,011 Nonreportable subsidiaries noninterest expense 806 890 618 -------------------------------------- $ 1,091 $ 3,812 $ 1,629 ====================================== Income tax (benefit) expense Holding company benefit $ (169) $ (466) $ (273) Nonreportable subsidiaries (benefit) expense 67 28 (61) -------------------------------------- $ (102) $ (438) $ (334) ====================================== Segment profits (losses) Holding company losses $ (258) $ (2,330) $ (545) Nonreportable subsidiaries profits (losses) 123 83 (52) -------------------------------------- $ (135) $ 2,247 $ (597) ====================================== Segment losses, discontinued operations Nonreportable subsidiaries loss, discontinued operation $ (163) $ (171) ====================================== Segment assets Holding company assets $ 35,132 $ 32,443 $ 30,789 Nonreportable subsidiaries assets 1,461 3,084 5,741 -------------------------------------- $ 36,593 $ 35,527 $ 36,530 ======================================
44 HORIZON BANCORP & SUBSIDIARIES 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) Reportable segment totals are reconciled to the financial statements as follows:
2000 ------------------------------------------------------------ REPORTABLE INTERSEGMENT CONSOLIDATED SEGMENTS OTHER ELIMINATION TOTALS ------------------------------------------------------------ Net interest income $ 18,802 $ (148) $ 18,654 Provision for loan losses 2,010 2,010 Trust and investment management fees 2,728 2,728 Other income 3,126 1,002 4,128 Total other expenses 16,814 1,091 17,905 Income tax expense (benefit) 1,914 (102) 1,812 Segment profit (loss) 3,918 (135) 3,783 Segment assets 528,505 36,593 $ (33,322) 531,776
1999 ------------------------------------------------------------ REPORTABLE INTERSEGMENT CONSOLIDATED SEGMENTS OTHER ELIMINATION TOTALS ------------------------------------------------------------ Net interest income $ 15,080 $ 52 $ 15,132 Provision for loan losses 1,100 1,100 Trust and investment management fees 2,113 2,113 Other income 2,694 1,075 3,769 Total other expenses 15,618 3,812 19,430 Income tax expense (benefit) 1,113 (438) 675 Segment profit (loss) 2,056 (2,247) (191) Segment loss, discontinued operations (163) (163) Segment assets 523,044 35,527 $ (32,575) 525,996
1998 ------------------------------------------------------------ REPORTABLE INTERSEGMENT CONSOLIDATED SEGMENTS OTHER ELIMINATION TOTALS ------------------------------------------------------------ Net interest income $ 14,485 $ 32 $ 14,517 Provision for loan losses 820 820 Trust and investment management fees 2,141 2,141 Other income 2,646 666 3,312 Total other expenses 15,807 1,629 17,436 Income tax expense (benefit) 794 (334) 460 Segment profit (loss) 1,851 (597) 1,254 Segment loss, discontinued operations (171) (171) Segment assets 407,836 36,530 $ (28,212) 416,154
HORIZON BANCORP & SUBSIDIARIES 45 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Table dollar amounts in thousands) NOTE 21 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth certain quarterly results for the years ended December 31, 2000 and 1999:
AVERAGE NET INCOME SHARES (LOSS) PER NET PROVISION NET OUTSTANDING SHARE QUARTER INTEREST INTEREST INTEREST FOR LOAN INCOME (BASIC AND (BASIC AND ENDED INCOME EXPENSE INCOME LOSSES (LOSS) DILUTED) DILUTED) - -------------------------------------------------------------------------------------------------------------------- 03-31-00 $ 9,896 $ 5,442 $ 4,454 $ 503 $ 782 688,975 $1.13 06-30-00 10,287 5,453 4,834 502 1,057 689,422 1.53 09-30-00 10,899 6,174 4,725 503 1,213 685,737 1.77 12-31-00 10,871 6,230 4,641 502 731 667,532 1.11 ---------------------------------------------------------------------- ------ $ 41,953 $ 23,299 $ 18,654 $ 2,010 $ 3,783 682,883 $5.54 ====================================================================== ====== 03-31-99 $ 7,281 $ 3,699 $ 3,582 $ 65 $ 445 675,233 $ .66 06-30-99 7,573 3,879 3,694 179 541 657,897 .82 09-30-99 7,525 3,815 3,710 200 (1,612) 660,656 (2.44) 12-31-99 8,518 4,372 4,146 656 272 643,162 .42 ---------------------------------------------------------------------- ------ $ 30,897 $ 15,765 $ 15,132 $ 1,100 $ (354) 655,391 $(.54) ====================================================================== ======
46 HORIZON BANCORP & SUBSIDIARIES 46 INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors Horizon Bancorp We have audited the consolidated balance sheet of Horizon Bancorp and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of Horizon's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements described above present fairly, in all material respects, the consolidated financial position of Horizon Bancorp and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles. /s/ Olive LLP Fort Wayne, Indiana February 9, 2001 HORIZON BANCORP & SUBSIDIARIES 47 47 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS Management is responsible for the preparation and presentation of the financial statements and related notes on the preceding pages. The statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts that are based on management's best estimates and judgments. Financial information elsewhere in the Annual Report is consistent with that in the financial statements. In meeting its responsibility for the accuracy of the financial statements, management relies on Horizon's system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded to permit the preparation of appropriate financial information. The system of internal controls is supplemented by a program of internal audits to independently evaluate the adequacy and application of financial and operating controls and compliance with Company policies and procedures. The Audit Committee of the Board of Directors meets periodically with management, the independent accountants and the internal auditors to ensure that each is properly discharging its responsibilities with regard to the financial statements and internal accounting controls. The independent accountants have full and free access to the Audit Committee and meet with it to discuss auditing and financial reporting matters. The financial statements in the Annual Report have been audited by Olive LLP, independent public accountants, for 2000, 1999, and 1998. Their audits were conducted in accordance with generally accepted auditing standards and included a consideration of internal accounting controls, tests of accounting records and other audit procedures to the extent necessary to allow them to express their opinion on the fairness of the financial statements in conformity with generally accepted accounting principles. 48 HORIZON BANCORP & SUBSIDIARIES 48 SUMMARY OF SELECTED FINANCIAL DATA (Dollar amounts in thousands, except per share data and ratios)
2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------- EARNINGS Net interest income $ 18,654 $ 15,132 $ 14,517 $ 16,060 $ 16,329 Provision for loan losses 2,010 1,100 820 1,255 Total noninterest income 6,856 5,882 5,453 4,919 5,685 Total noninterest expense 17,905 19,430 17,436 17,063 16,456 Provision for income taxes 1,812 675 460 664 1,669 ----------------------------------------------------------------- Net income (loss) from continuing operations 3,783 (191) 1,254 1,997 3,889 Loss, net of tax, from discontinued operations (163) (171) (276) (65) ----------------------------------------------------------------- Net income (loss) $ 3,783 $ (354) $ 1,083 $ 1,721 $ 3,824 ================================================================= Cash dividend declared $ 1,228 $ 1,218 $ 1,237 $ 1,264 $ 1,031 ================================================================= PER SHARE DATA Net income (loss) $ 5.54 $ (.54) $ 1.58 $ 2.42 $ 5.19 Cash dividends declared 1.80 1.80 1.80 1.80 1.40 Book value at period end 47.71 41.79 46.48 46.79 46.40 Weighted average share outstanding 682,883 655,391 686,804 710,967 736,887 PERIOD END TOTALS Loans, net of deferred loan fees and unearned income $ 393,578 $ 394,357 $ 290,346 $ 258,115 $ 271,476 Allowance for loan losses 4,803 3,273 2,787 2,702 2,435 Total assets 531,776 525,996 416,154 359,751 382,038 Total deposits 386,348 363,668 322,401 264,413 289,180 RATIOS Loan to deposit 101.87% 108.44% 90.06% 97.62% 93.88% Loan to total funding 79.38 84.14 77.14 80.06 79.03 Return on average assets .73 (.08) .29 .46 1.04 Average stockholders' equity to average total assets 5.92 7.01 8.82 9.09 8.91 Return on average stockholders' equity 12.41 (1.13) 3.27 5.06 11.67 Dividend payout ratio (dividends divided by net income) 32.46 (344.07) 114.25 73.45 26.96 Price to book value ratio .59 .96 .97 1.26 1.01 Price to earnings ratio 5.10 N/A 28.48 24.28 9.06
HORIZON BANCORP & SUBSIDIARIES 49 49 HORIZON'S COMMON STOCK AND RELATED STOCKHOLDERS' MATTERS Horizon common stock is traded on the over-the-counter market. ABN AMRO is the principal broker in Horizon stock. The following table sets forth, for the periods indicated, the high and low bid prices per share as reported by ABN AMRO. The bid prices represent dealer prices and do not include retail mark-up, mark-down, or commissions and may not represent actual transactions. Also summarized below are the cash dividends declared by quarter for 2000 and 1999.
2000 -------------------------------------------- COMMON STOCK BID PRICES DIVIDENDS --------------------------- DECLARED HIGH LOW PER SHARE ------------------------------------------ First Quarter $42.00 $31.00 $ .45 Second Quarter 32.00 28.50 .45 Third Quarter 32.00 28.75 .45 Fourth Quarter 31.25 27.50 .45
1999 -------------------------------------------- COMMON STOCK BID PRICES DIVIDENDS --------------------------- DECLARED HIGH LOW PER SHARE ------------------------------------------ First Quarter $50.00 $49.25 $ .45 Second Quarter 49.38 44.00 .45 Third Quarter 44.00 40.00 .45 Fourth Quarter 44.50 40.00 .45
There can be no assurance as to the amount of future dividends on Horizon common stock since future dividends are subject to the discretion of the Board of Directors, cash needs, general business conditions and dividends from the bank subsidiary. The approximate number of holders of outstanding common stock, based upon the number of record holders as of December 31, 2000 is 622. FORM 10-K Horizon will provide without charge to each stockholder upon written request to Mary McColl, Shareholder Relations, Horizon Bancorp, 515 Franklin Square, Michigan City, Indiana 46360, a copy of Horizon's Annual Report on Form 10-K, including the Financial Statements and schedules thereto required to be filed with the Securities and Exchange Commission for Horizon's most recent fiscal year. 50 HORIZON BANCORP & SUBSIDIARIES EX-21 3 l87096aex21.txt EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT
State of Name Under Which Subsidiary Incorporation Business is Done - ---------- ------------- ---------------- Horizon Bank, National Association Indiana Horizon Bank Horizon Trust & Investment Management, National Association (a subsidiary of Horizon Bank) Indiana Horizon Trust & Investment Management Horizon Insurance Services, Inc. Indiana Horizon Insurance Services (a subsidiary of Horizon Bank) HBC Insurance Company, Inc. Arizona HBC Insurance Company The Loan Store, Inc. Indiana The Loan Store
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