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HORIZON BANCORP
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
450 5th Street N.W.
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
Commission file number 0-10792
HORIZON BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1562417
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(State or other jurisdiction of incorporation or organization) (I.R. S. Employer Identification No.)
515 FRANKLIN SQUARE, MICHIGAN CITY, INDIANA 46360
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(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:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
1,982,700 at APRIL 30, 2003
--------- ---------------
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands)
MARCH 31, DECEMBER 31,
2003 2002
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 24,669 $ 23,568
Interest-bearing demand deposits 188 124
Federal funds sold - 12,000
--------------------------------------
Cash and cash equivalents 24,857 35,692
Interest-bearing deposits 486 321
Investment securities, available for sale 145,335 109,453
Loans held for sale 3,841 12,620
Loans, net of allowance for loan losses of $6,491 and $6,255 491,573 529,538
Premises and equipment 15,757 15,794
Federal Reserve and Federal Home Loan Bank stock 8,329 8,329
Interest receivable 3,441 3,510
Other assets 4,062 4,873
--------------------------------------
Total assets $697,681 $720,130
======================================
LIABILITIES
Deposits
Noninterest bearing $ 59,713 $ 51,134
Interest bearing 418,892 438,125
--------------------------------------
Total deposits 478,605 489,259
Short-term borrowings 23,273 24,409
Federal Home Loan Bank advances 135,712 147,112
Guaranteed preferred beneficial interests in Horizon Bancorp's
subordinated debentures 12,000 12,000
Interest payable 735 857
Other liabilities 4,704 5,083
--------------------------------------
Total liabilities 655,029 678,720
--------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $.33 1/3 stated value
Authorized, 15,000,000 shares
Issued, 3,115,284 shares 1,038 1,038
Additional paid-in capital 20,808 20,808
Retained earnings 33,825 32,418
Accumulated other comprehensive income 2,506 2,671
Less treasury stock, at cost, 1,129,587 shares (15,525) (15,525)
--------------------------------------
Total stockholders' equity 42,652 41,410
--------------------------------------
Total liabilities and stockholders' equity $697,681 $720,130
======================================
See notes to consolidated financial statements
2
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
THREE MONTHS ENDED MARCH 31
----------------------------------------
2003 2002
(UNAUDITED) (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans receivable $ 8,511 $ 8,262
Investment securities:
Taxable 1,276 888
Tax exempt 388 126
----------------------------------------
Total interest income 10,175 9,276
----------------------------------------
INTEREST EXPENSE
Deposits 2,584 2,750
Federal funds purchased and short-term borrowings 73 16
Federal Home Loan Bank advances 1,483 1,244
Subordinated debentures 150 11
----------------------------------------
Total interest expense 4,290 4,021
----------------------------------------
NET INTEREST INCOME 5,885 5,255
Provision for loan losses 375 375
----------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,510 4,880
----------------------------------------
OTHER INCOME
Service charges on deposit accounts 724 661
Fiduciary activities 556 553
Commission income from insurance agency 57 176
Income from reinsurance company 14 20
Gain on sale of loans 1,021 525
Other income 417 297
----------------------------------------
Total other income 2,789 2,232
----------------------------------------
OTHER EXPENSES
Salaries and employee benefits 3,249 2,928
Net occupancy expenses 440 443
Data processing and equipment expenses 488 558
Other expenses 1,625 1,334
----------------------------------------
Total other expenses 5,802 5,263
----------------------------------------
INCOME BEFORE INCOME TAX AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR GOODWILL 2,497 1,849
Income tax expense 773 647
----------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR GOODWILL 1,724 1,202
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR GOODWILL (NET OF
INCOME TAXES $63) - (97)
----------------------------------------
NET INCOME $ 1,724 $ 1,105
========================================
BASIC EARNINGS PER SHARE
Before Cumulative Effect of a Change in Accounting for Goodwill $.87 $.61
Cumulative Effect of a Change in Accounting for Goodwill - (.05)
----------------------------------------
$.87 $.56
========================================
DILUTED EARNINGS PER SHARE
Before Cumulative Effect of a Change in Accounting for Goodwill $.84 $.61
Cumulative Effect of a Change in Accounting for Goodwill - (.05)
----------------------------------------
$.84 $.56
========================================
See notes to consolidated financial statements.
3
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(Table Dollar Amounts in Thousands)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL INCOME EARNINGS INCOME STOCK TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 2002 $1,038 $20,808 $32,418 $2,671 $(15,525) $41,410
Net income $1,724 1,724 1,724
Other comprehensive
income, net of tax,
unrealized losses on
securities (165) (165) (165)
--------------------
Comprehensive income $1,559
====================
Cash dividends ($.16 per
share) (317) (317)
------------------------- -------------------------------------------------------
BALANCES, MARCH 31, 2003 $1,038 $20,808 $33,825 $2,506 $(15,525) $42,652
========================= =======================================================
See notes to consolidated financial statements.
4
HORIZON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
THREE MONTHS
ENDED MARCH 31
----------------------------------
2003 2002
(UNAUDITED) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $1,724 $ 1,105
Items not requiring (providing) cash
Provision for loan losses 375 375
Depreciation and amortization 363 377
Goodwill impairment - 160
Deferred income tax 445 576
Investment securities amortization, net 129 35
Gain on sale of loans (1,021) (526)
Proceeds from sales of loans 76,806 34,880
Loans originated for sale (67,006) (31,434)
Loss on sale of other real estate owned - 3
Deferred loan fees (3) 4
Unearned income (102) (74)
Loss on sale of fixed assets 5
Net change in
Interest receivable 69 227
Interest payable (122) 54
Other assets 487 (44)
Other liabilities (379) (480)
----------------------------------
Net cash provided by operating activities 11,770 5,238
----------------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (165) (2)
Purchases of securities available for sale (45,653) (17,932)
Proceeds from maturities, calls, and principal repayments
of securities available for sale 9,356 4,830
Net change in loans 37,618 46,297
Recoveries on loans previously charged-off 77 186
Purchases of premises and equipment 88
Purchase of Federal Reserve and Federal Home Loan Bank stock (331) (240)
----------------------------------
Net cash provided by investing activities 902 33,227
----------------------------------
FINANCING ACTIVITIES
Net change in
Deposits (10,654) (22,875)
Short-term borrowings (1,136) (4,487)
Federal Home Loan Bank advance 15,200 49,800
Repayment of Federal Home Loan Bank advance (26,600) (30,000)
Proceeds from issuance of trust preferred securities - 12,000
Dividends paid (317) (298)
----------------------------------
Net cash provided (used) by financing activities (23,507) 4,140
----------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENT (10,835) 42,605
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,692 18,628
----------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $24,857 $61,233
==================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $4,412 $ 3,967
Income tax paid 535 90
See notes to consolidated financial statements.
5
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1 -- ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Horizon Bancorp (Horizon) and its wholly-owned subsidiaries, Horizon Bank, N.A.
(Bank), HBC Insurance Group, Inc. (Insurance Company) and Horizon Statutory
Trust I (Trust). All intercompany balances and transactions have been
eliminated. The results of operations for the periods ended March 31, 2003 and
March 31, 2002 are not necessarily indicative of the operating results for the
full year of 2003 or 2002. The accompanying unaudited consolidated financial
statements reflect all adjustments that are, in the opinion of Horizon's
management, necessary to fairly present the financial position, results of
operations and cash flows of Horizon for the periods presented. Those
adjustments consist only of normal recurring adjustments.
Certain information and note disclosures normally included in Horizon's annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in Horizon's Form
10-K annual report for 2002 filed with the Securities and Exchange Commission.
The consolidated balance sheet of Horizon as of December 31, 2002 has been
derived from the audited balance sheet of Horizon as of that date.
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding. 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. For the first
quarter of 2002, the outstanding stock options were not included in the
computation of diluted EPS because the contracts could be settled in common
stock or in cash at the election of the option holder. Historically, all
contracts had been settled in cash and it was anticipated that the exercise of
future contracts would also be settled in cash. In August 2002, substantially
all of the participants in Horizon's Stock Option and Stock Appreciation Rights
Plans voluntarily entered into an agreement with Horizon to cap the value of
their stock appreciation rights (SARS) at $22 per share and cease any future
vesting of the SARS. These agreements with option holders make it more
advantageous to exercise an option rather than a SAR whenever Horizon's stock
price exceeds $22 per share, therefore the option becomes potentially dilutive
at $22 per share or higher. The number of shares used in the computation of
basic earnings per share is 1,982,700 and 1,985,700 for the three-month period
ended March 31, 2003 and 2002. The number of shares used in the computation of
diluted earnings per share for the three-month period ended March 31,2003 is
2,045,960. There were no dilutive securities outstanding during the three-month
period ended March 31, 2002.
Horizon accounts for these plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the grant date. The
following table illustrates the effect on net income and earnings per share if
the company had applied the fair value provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
6
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
THREE-MONTHS ENDED MARCH 31 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net income, as reported $1,724 $1,105
Less: Total stock-based employee compensation cost
determined under the fair value based method, net of
income taxes (49) --
--------------------------------------------
Pro forma net income $1,675 $1,105
============================================
Earnings per share:
Basic - as reported $.87 $.56
Basic - pro forma $.84 $.56
Diluted - as reported $.84 $.56
Diluted - pro forma $.82 $.56
NOTE 2 -- INVESTMENT SECURITIES
2003
----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Available for sale
U. S. Treasury and federal agencies $22,590 $ 80 $ (2) $22,668
State and municipal 38,175 1,975 (4) 40,146
Federal agency collateralized mortgage
obligations 39,409 639 (72) 39,976
Federal agency mortgage backed pools
41,056 1,250 (11) 42,295
Corporate Notes 250 250
----------------------------------------------------------------------
Total investment securities $141,480 $3,944 $(89) $145,335
======================================================================
2002
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Available for sale
U. S. Treasury and federal agencies $ 5,979 $ 93 $ 6,072
State and Municipal 35,504 1,611 37,115
Federal agency collateralized mortgage
obligations 18,697 828 19,525
Federal agency mortgage backed pools 45,164 1,582 $(5) 46,741
------------------------------------------------------------------------
Total investment securities $105,344 $4,114 $(5) $109,453
========================================================================
7
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities available for sale at March 31,
2003, 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.
AVAILABLE FOR SALE
-----------------------------------
AMORTIZED FAIR
COST VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Within one year $ 1,990 $ 2,045
One to five years 22,735 23,103
Five to ten years 5,890 6,209
After ten years 30,400 31,707
-----------------------------------
61,015 63,064
Federal agency collateral mortgage obligations 39,409 39,976
Federal agency mortgage backed pools 41,056 42,295
-----------------------------------
$141,480 $145,335
===================================
There were no sales of securities available for sale during the three months
ending March 31, 2003.
NOTE 3 -- LOANS
MARCH 31, December 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Commercial loans $113,230 $111,897
Mortgage warehouse loans 236,204 268,452
Real estate loans 64,726 73,910
Installment loans 83,904 81,534
------------------------------------
498,064 535,793
Allowance for loan losses (6,491) (6,255)
------------------------------------
Total loans $491,573 $529,538
====================================
NOTE 4 -- ALLOWANCE FOR LOAN LOSSES
MARCH 31, December 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses
Balances, beginning of period $6,255 $5,410
Provision for losses, operations 375 1,625
Recoveries on loans 77 417
Loans charged off (216) (1,197)
------------------------------------
Balances, end of period $6,491 $6,255
====================================
8
HORIZON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 5 -- NONPERFORMING ASSETS
MARCH 31, December 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans $1,104 $1,293
Other real estate owned 116 0
------------------------------------
Total nonperforming assets $1,220 $1,293
====================================
NOTE 6 -- GOODWILL
The changes in the carrying amount of goodwill for the three months ended March
31, 2003 and 2002, were:
2003 2002
----------------------------------------
Balance as of January 1 $158 $1,032
Impairment loss - (160)
----------------------------------------
Balance as of March 31 $158 $872
========================================
Goodwill impairment testing was performed which compared the fair value of the
Insurance Agency reporting unit to its carrying value. Market value multiples
for comparable agencies, as well as other factors, were used as the basis for
determining the fair value of the Insurance Agency. As a result of this testing,
Horizon recorded an impairment loss on goodwill of $160 thousand ($97 thousand
after-tax) as a cumulative effect of change in accounting method in the first
quarter of 2002.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Horizon intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of Horizon, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. Horizon's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the Horizon's
future activities and operating results include, but are not limited to, changes
in: interest rates, general economic conditions, legislative and regulatory
changes, U.S. monetary and fiscal policies, demand for products and services,
deposit flows, competition and accounting policies, principles and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
INTRODUCTION
The purpose of this discussion is to focus on Horizon's financial condition,
changes in financial condition and the results of operations in order to provide
a better understanding of the consolidated financial statements included
elsewhere herein. This discussion should be read in conjunction with the
consolidated financial statements and the related notes.
CRITICAL ACCOUNTING POLICIES
The notes to the consolidated financial statements included in Item 8 on Form
10-K contain a summary of the Company's significant accounting policies and are
presented on pages 35-38 of Form 10-K for 2002. Certain of these policies are
important to the portrayal of the Company's financial condition, since they
require management to make difficult, complex or subjective judgments, some of
which may relate to matters that are inherently uncertain. Management has
identified the allowance for loan losses as a critical accounting policy.
An allowance for loan losses is maintained to absorb loan losses inherent in the
loan portfolio. The determination of the allowance for loan losses is a critical
accounting policy that involves management's ongoing quarterly assessments of
the probable estimated losses inherent in the loan portfolio. 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. Loss factors are based on a historical
loss experience and may be adjusted for significant factors that, in
management's judgment, 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.
10
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
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.
Horizon considers the allowance for loan losses of $6.491 million adequate to
cover losses inherent in the loan portfolio as of March 31, 2003. However, no
assurance can be given that Horizon will not, in any particular period, sustain
loan losses that are significant in relation to the amount reserved, or that
subsequent evaluations of the loan portfolio, in light of factors then
prevailing, including economic conditions and management's ongoing quarterly
assessments of the portfolio, will not require increases in the allowance for
loan losses.
FINANCIAL CONDITION
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 the
three months ended March 31, 2003, cash and cash equivalents decreased by
approximately $11 million. These funds along with funds provided by a decline in
loans were used primarily to purchase additional investment securities and pay
down FHLB debt. At March 31, 2003, in addition to liquidity provided from the
normal operating, funding, and investing activities of Horizon, the Bank has
available approximately $90 million in unused credit lines with various money
center banks including the FHLB.
There have been no other material changes in the liquidity of Horizon from
December 31, 2002 to March 31, 2003.
Capital Resources
The capital resources of Horizon and Bank exceed regulatory capital ratios for
"well capitalized" banks at March 31, 2003. Stockholders' equity totaled $42.652
million as of March 31, 2003 compared to $41.410 million as of December 31,
2002. The change in stockholders' equity during the three months ended March 31,
2002 is the result of net income, net of dividends declared, and a decrease in
the market value of investment securities available for sale. At March 31, 2003,
the ratio of stockholders' equity to assets was 6.11% compared to 5.75% at
December 31, 2002.
11
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
During the course of a periodic examination by the Bank's regulators that
commenced in February 2003, the examination personnel raised the issue of
whether the Bank's mortgage warehouse loans should be treated as other loans
rather than home mortgages for call report purposes. If these loans are treated
as other loans for regulatory reporting purposes, it would change the
calculations for risk-based capital and reduce the Bank's risk-based capital
ratios. Management believes that it has properly characterized the loans in its
mortgage warehouse loan portfolio for risk-based capital purposes, but there is
no assurance that the regulators will concur with that determination. Should the
call report classification of the loans be changed, Horizon and the Bank would
still be categorized as well capitalized at March 31, 2003.
There have been no other material changes in Horizon's capital resources from
December 31, 2002 to March 31, 2003.
Material Changes in Financial Condition - March 31, 2003 compared to December
31, 2002
During the first quarter of 2003, loans outstanding declined approximately $38
million. This decline occurred primarily in the mortgage warehouse area and is
related to a general slow down in residential mortgage refinance activity. The
funds generated by the decline in loans were invested in primarily short-term
investment securities. Deposits declined approximately $11 million during the
quarter. The decline came primarily in public funds and other short term
negotiable Certificates of Deposit brought in to fund the fourth quarter growth
in mortgage warehouse loans. FHLB advances were repaid as these funds were no
longer needed to support loan activity. Horizon continues to monitor funding
sources to reduce the cost of funds and maintain adequate liquidity.
There have been no other material changes in the financial condition of Horizon
from December 31, 2002 to March 31, 2003.
RESULTS OF OPERATIONS
Material Changes in Results of Operations - March 31, 2003 Compared to March 31,
2002
During the three months ended March 31, 2003, net income totaled $1.724 million
or $.84 per diluted share compared to $1.105 million or $.56 per diluted share
for the same period in 2002. Net income before a cumulative effect of a change
in accounting for goodwill was $1.202 million or $.61 per share for the three
months ended March 31, 2002.
Net interest income was $5.885 million for the three months ended March 31,
2003, compared to $5.255 million for the same period 2002. The increase was the
result of an increase in average earning assets over the first quarter of 2002
of approximately $146 million.
The provision for loan losses totaled $375 thousand for the three months ended
March 31, 2003 which is the same as the provision taken in the first quarter of
2002. The allowance for loan losses to total loans is 1.30% at March 31, 2003
compared to 1.33% at December 31, 2002.
Total noninterest income was $2.789 million for the three months ended March 31,
2003 compared to $2.232 million for the same period in 2002. This increase
relates primarily to an increased gain on the sale of loans into the secondary
market. During the first quarter of 2003, the gain on sale of mortgage loans
totaled $1.021 million based on the sale of approximately $51.4 million of
mortgage loans. This compares to a gain of $525 thousand based on the sale of
approximately $30.7 million in the first quarter of 2002.
12
HORIZON BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
Noninterest expense increased $539 thousand or 10.2% for the three months ended
March 31, 2003 compared to the same period in 2002. The increase relates to
commissions paid to mortgage loan originators and additional staffing for new
market expansion. Also professional fees increased due to additional reporting
requirements and revisions to Horizon's Articles of Incorporation.
There have been no other material changes in the results of operations of
Horizon for three months ending March 31, 2003 and 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Horizon currently does not engage in any derivative or hedging activity. Refer
to Horizon's 2002 Form 10-K for analysis of its interest rate sensitivity.
Horizon believes there have been no significant changes in its interest rate
sensitivity since it was reported in its 2002 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation Of Disclosure Controls And Procedures
Based on an evaluation of disclosure controls and procedures within 90 days
prior to the filing of this report, Horizon's Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of Horizon's disclosure
controls (as defined in Exchange Act Rule 13a-14(c)). Based on such evaluation,
such officers have concluded that, as of the evaluation date, Horizon's
disclosure controls and procedures are effective to ensure that the information
required to be disclosed by Horizon in the reports it files under the Exchange
Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and
completeness.
Changes In Internal Controls
Since the evaluation date, there have been no significant changes in Horizon's
internal controls or in other factors that could significantly affect such
controls.
13
HORIZON BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2003
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11. Statement Regarding Computation of Per
Share Earnings
Exhibit 99.1 Certification of Chief Executive and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) No reports on Form 8-K were filed during the three months
ended March 31, 2003.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON BANCORP
May 9, 2003 /s/ Craig M. Dwight
- --------------- ------------------------------------------
Date: BY: Craig M. Dwight
President and Chief Executive Officer
May 9, 2003 /s/ James F. Foglesong
- --------------- ------------------------------------------
Date: BY: James H. Foglesong
Chief Financial Officer
15
CERTIFICATIONS
I, Craig M. Dwight, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Horizon
Bancorp;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
The registrant's other certifying officer and I have indicated in this quarterly
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003
----------------------
/s/ Craig M. Dwight
- -------------------------------------
Craig M. Dwight
President and Chief Executive Officer
16
CERTIFICATIONS
I, James H. Foglesong, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Horizon
Bancorp;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
The registrant's other certifying officer and I have indicated in this quarterly
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003
----------------------
/s/ James H. Foglesong
- ---------------------------
James H. Foglesong
Chief Financial Officer
17
INDEX TO EXHIBITS
The following documents are filed as Exhibits to this Report.
Exhibit
11 Statement Regarding Computation of Per Share Earnings
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
18