e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
Commission file number 0-10792
Horizon Bancorp
(Exact name of registrant as specified in its charter)
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Indiana
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35-1562417 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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515 Franklin Square, Michigan City
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46360 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: 219-879-0211
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
Common Stock, no par value |
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The NASDAQ Stock Market, LLC |
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section
15(d) of the Exchange Act Yes o No þ
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 þ No o
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 registrants 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 þ
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definitions of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one)
Large accelerated filer o Accelerated filer o Non-Accelerated Filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants common stock held by nonaffiliates of the registrant, based on
the average bid price of such stock as of June 30, 2005, the last day of the registrants most recently
completed second fiscal quarter, was approximately $60,671,760.
As of March 15, 2007, the registrant had 3,228,382 shares of Common Stock outstanding.
Documents Incorporated by Reference
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Part of Form 10-K into which |
Document |
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portion of document is incorporated |
Portions of the Registrants Proxy
Statement to be filed for its May 3,
2007 annual meeting of shareholders
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III |
Horizon Bancorp
2006 Annual Report on Form 10-K
Table of Contents
2
PART I
ITEM 1. BUSINESS
General
Horizon Bancorp (Horizon or the Company) is a registered bank holding company incorporated in
Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking
services in Northwestern Indiana and Southwestern Michigan through its bank subsidiary, Horizon
Bank, N.A. (the Bank) and other affiliated entities. Horizon operates as a single segment which
is commercial banking. Horizons Common Stock is traded on the Nasdaq Global Market under the
symbol HBNC. The Bank was chartered as a national banking association in 1873 and has operated
continuously since that time. The Bank is a full-service commercial bank offering commercial and
retail banking services, corporate and individual trust and agency services and other services
incident to banking.
On June 10, 2005, Horizon acquired Alliance Financial Corporation and its wholly owned bank
subsidiary, Alliance Banking Company (collectively referred to as Alliance). Alliance had three
offices in southwest Michigan, and one office in Michigan City, Indiana, $141 million of assets and
$117 million of deposits at the date of the acquisition. See Note 2 of the Consolidated Financial
Statements for further discussion regarding the acquisition.
On June 1, 2006, the Bank opened a full service branch in Elkhart, Indiana. The Bank maintains
thirteen other full service facilities in Northwest Indiana and Southwest Michigan. The Bank also
maintains a loan production office in Lake County Indiana. At December 31, 2006, the Bank had
total assets of $1,222 million and total deposits of $914 million. The Bank has three wholly-owned
subsidiaries: Horizon Trust & Investment Management, N.A. (Horizon Trust), Horizon Investments,
Inc. (Horizon Investments) and Horizon Insurance Services, Inc. (Horizon Insurance). Horizon
Trust offers corporate and individual trust and agency services and investment management services.
Horizon Investments manages the investment portfolio of the Bank. Horizon Insurance offered a full
line of personal insurance products until March 2005, at which time the majority of its assets were
sold to a third party.
Horizon formed Horizon Statutory Trust I in 2002 (Trust I), Horizon Bancorp Capital Trust II in
2004 (Trust II) and Horizon Bancorp Capital Trust III in 2006 (Trust III) for the purpose of
participating in pooled trust preferred securities offerings. The Company assumed additional
debentures as the result of the acquisition of Alliance in 2005 which formed Alliance Financial
Statutory Trust I (Alliance Trust) . See Note 11 of the Consolidated Financial
Statements for further discussion regarding these previously consolidated entities that are now
reported separately. The business of Horizon is not seasonal to any material degree.
No material part of Horizons business is dependent upon a single or small group of customers, the
loss of any one or more of whom would have a materially adverse effect on the business of Horizon.
In 2006, revenues from loans accounted for 73% of the total consolidated revenue and revenues from
investment securities accounted for 14% of total consolidated revenue.
Employees
The Bank, Horizon Trust and Horizon Investments employed approximately 277 full and part-time
people as of December 31, 2006. Horizon does not have any employees.
Competition
A high degree of competition exists in all major areas where Horizon engages in business. The
Banks primary market consists of Porter, LaPorte St. Joseph and Elkhart Counties, Indiana, and
Berrien County, Michigan. The Bank competes with commercial banks located in LaPorte County and
contiguous counties in Indiana and Michigan, as well as with savings and loan associations,
consumer finance companies, and credit unions. To a more moderate extent, the 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.
3
Based on deposits as of June 30, 2006, Horizon was the largest of the 11 bank and thrift
institutions in LaPorte County with a 39.12% market share and the fifth largest of the 15 such
institutions in Porter County with a 7.50% market share. In Berrien County, Michigan, Horizon was
the fourth largest of the 10 bank and thrift institutions with a 7.38% market share. In 2005,
Horizon opened new offices in St. Joseph and Elkhart Counties, Indiana. Horizons market share of
deposits was less than 1.00% in each of these counties. (Source: FDIC Summary of Deposits Market
Share Reports, available at www.fdic.gov).
Supervision and Regulation
Horizon 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 Horizons
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 (the 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 Reserves risk-based capital
guidelines. The Federal Deposit Insurance Corporation (the FDIC) and the Office of the
Comptroller of the Currency (the 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. As a condition of approval for the Alliance acquisition, the OCC required the Bank to
maintain regulatory capital ratios at 100 basis points above the well capitalized minimums. The
Bank exceeded the risk-based capital requirements of the FDIC and OCC as of December 31, 2006. For
Horizons regulatory capital ratios and regulatory requirements as of December 31, 2006, see the
information in Managements Discussion and Analysis of Financial Condition and Results of Operation
in Item 7 below, which is incorporated herein by reference.
The 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.
The Banks deposits are insured to applicable limits by the Federal Deposit Insurance Corporation
(FDIC). The Federal Deposit Insurance Reform Act of 2005 (the Reform Act), which was signed
into law in February 2006, has resulted in significant changes to the federal deposit insurance
program:
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Effective March 31, 2006, the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF) were merged to create a new fund, called the Deposit Insurance Fund
(DIF) |
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The current $100,000 deposit insurance coverage is subject to adjustment for inflation
beginning in 2010 and every succeeding five years |
4
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Deposit insurance coverage for individual retirement accounts and certain other
retirement accounts has been increased from $100,000 to $250,000 and also will subject to
adjustment for inflation |
Pursuant to the Reform Act, the FDIC is authorized to set the reserve ratio for the DIF annually at
between 1.15% and 1.5% of estimated insured deposits and the FDIC has been given discretion to set
assessment rates according to risk regardless of the level of the fund reserve ratio. On November
2, 2006, the FDIC adopted final regulations that set the designated reserve ratio for the DIF at
1.25% beginning January 1, 2007.
Insured depository institutions that were in existence on December 31, 1996, and paid assessments
prior to that date (or their successors) are entitled to a one-time credit against future
assessments based on their past contributions to the BIF or SAIF. In 2006, the Bank received a
one-time credit of $458,184 against future assessments.
Also on November 2, 2006, the FDIC adopted final regulations that establish a new risk-based
premium system. Under the new system, the FDIC will evaluate each institutions risk based on
three primary sources of information: supervisory ratings for all insured institutions, financial
ratios for most institutions, and long-term debt issuer ratings for large institutions that have
such ratings. An institutions assessments will be based on the insured institutions ranking in
one of four risk categories. Effective January 1, 2007, well-capitalized institutions with the
CAMELS ratings of 1 or 2 are grouped in Risk Category I and will be assessed for deposit insurance
at an annual rate of between five and seven cents for every $100 of domestic deposits.
Institutions in Risk Categories II, III and IV will be assessed at annual rates of 10, 28 and 43
cents, respectively. An increase in assessments could have a material adverse effect on the
Companys earnings.
FDIC-insured institutions remain subject to the requirement to pay assessments to the FDIC to fund
interest payments on bonds issued by the Financing Corporation (FICO), an agency of the Federal
government established to recapitalize the predecessor to the SAIF. These assessments will
continue until the FICO bonds mature in 2017. For the quarter ended December 31, 2006, the FICO
assessment rate was equal to 1.24 cents for each $100 in domestic deposits maintained at an
institution.
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 Bank is subject to the jurisdiction and requires notice to or the prior approval of the OCC.
Horizon and the 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 banks
extension of credit to an affiliate.
The FDICIA accomplished a number of sweeping changes in the regulation of depository institutions
and their holding companies. The FDICIA requires, among other things, federal bank regulatory
authorities to take prompt corrective action with respect to banks that do not meet minimum
capital requirements. The 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
publicly traded shares and such other standards as the agency deems appropriate.
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
5
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, Horizon may underwrite and sell securities and
insurance. It may acquire, or be acquired by, brokerage firms and insurance underwriters. Horizon
does not anticipate significant changes in its products or services as a result of the GLBA.
The USA PATRIOT Act of 2001 (the PATRIOT Act) is intended to strengthen the ability of U.S. Law
Enforcement to combat terrorism on a variety of fronts. The PATRIOT Act contains sweeping
anti-money laundering and financial transparency laws and requires financial institutions to
implement additional policies and procedures with respect to, or additional measures designed to
address, any or all the following matters, among others: money laundering, suspicious activities
and currency transaction reporting, and currency crimes. Many of the provisions in the PATRIOT Act
were to have expired December 31, 2005, but the U.S. Congress authorized renewals that extended the
provisions until March 10, 2006. In early March 2006, the U.S. Congress approved the USA PATRIOT
Improvement and Reauthorization Act of 2005 (the Reauthorization Act) and the USA PATRIOT Act
Additional Reauthorizing Amendments Act of 2006 (the PATRIOT Act Amendments), and they were
signed into law by President Bush on March 9, 2006. The Reauthorization Act makes permanent all
but two of the provisions that had been set to expire and provides that the remaining two
provisions, which relate to surveillance and the production of business records under the Foreign
Intelligence Surveillance Act, will expire in three years. The PATRIOT Act Amendments include
provisions allowing recipients of certain subpoenas to obtain judicial review of nondisclosure
orders and clarifying the use of certain subpoenas to obtain information from libraries. Horizon
does not anticipate that these changes will materially affect its operations.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act). The Sarbanes-Oxley Act represents a comprehensive revision of laws
affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley
Act is applicable to all companies with equity or debt securities registered under the Securities
Exchange Act of 1934 (the 1934 Act). In particular, the Sarbanes-Oxley Act establishes: (i) new
requirements for audit committees, including independence, expertise and responsibilities; (ii)
additional responsibilities regarding financial statements for the Chief Executive Officer and
Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation
of audits; (iv) increased disclosure and reporting obligations for the reporting company and their
directors and executive officers; and (v) new and increased civil and criminal penalties for
violation of the securities laws. Management expects that significant additional efforts and
expense will continue to be required to comply with the provisions of the Sarbanes-Oxley Act.
The Fair and Accurate Credit Transactions Act of 2003 (the FACT Act) amended the Fair Credit
Reporting Act and made permanent certain federal preemptions that form the basis for a national
credit reporting system. The FACT Act was also intended to (i) address identity theft, (ii)
increase access to credit information, (iii) enhance the accuracy of credit reporting, (iv)
facilitate the opt-out by consumers from certain marketing solicitations, (v) protect medical
information, and (vi) promote financial literacy. The statute applies to credit reporting agencies
(commonly referred to as credit bureaus), financial institutions, other users of credit reports
and those who furnish information to credit bureaus.
In addition to the matters discussed above, Horizon 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
Horizon and its affiliates will be affected.
6
BANK HOLDING COMPANY STATISTICAL DISCLOSURES
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I. |
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DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL |
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Information required by this section of Securities Act Industry Guide 3 is presented in
Managements Discussion and Analysis as set forth in Item 7 below, herein incorporated by
reference. |
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II. |
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INVESTMENT PORTFOLIO |
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A. |
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The following is a schedule of the amortized cost and fair value of
investment securities available for sale at December 31, 2006, 2005 and 2004: |
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2006 |
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2005 |
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2004 |
(In thousands) |
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Cost |
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Fair Value |
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Cost |
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Fair Value |
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Cost |
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Fair Value |
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Available for Sale |
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U.S. Treasury and U.S.
Government agencies and corporations |
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$ |
58,595 |
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$ |
58,445 |
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$ |
72,153 |
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$ |
70,367 |
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$ |
86,348 |
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$ |
85,626 |
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State and municipal |
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81,363 |
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|
81,800 |
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64,608 |
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65,972 |
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54,881 |
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57,327 |
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Mortgage-backed securities |
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93,591 |
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91,174 |
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119,392 |
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116,020 |
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124,666 |
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124,308 |
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Collateralized mortgage obligations |
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11,215 |
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11,010 |
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22,781 |
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22,153 |
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13,380 |
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13,338 |
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Corporate notes |
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632 |
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649 |
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632 |
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665 |
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632 |
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683 |
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Total investment securities |
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$ |
245,396 |
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$ |
243,078 |
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$ |
279,566 |
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$ |
275,177 |
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$ |
279,907 |
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$ |
281,282 |
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B. |
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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, 2006: |
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After One Year |
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After Five Years |
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One Year or |
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Through Five |
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Through Ten |
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Less |
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Years |
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Years |
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After Ten Years |
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(In Thousands) |
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Amount |
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Yield |
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Amount |
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Yield |
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Amount |
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Yield |
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Amount |
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Yield |
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Available for Sale |
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U.S. Treasury and U.S.
Government agency securities (1) |
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$ |
14,979 |
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4.64 |
% |
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$ |
9,504 |
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4.31 |
% |
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$ |
10,250 |
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5.01 |
% |
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$ |
23,712 |
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5.91 |
% |
Obligations of states and political
subdivisions |
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1,086 |
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4.04 |
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5,126 |
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4.65 |
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19,000 |
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4.27 |
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56,588 |
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4.24 |
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Mortgage-backed securities (2) |
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1 |
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7.50 |
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26,301 |
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|
|
3.96 |
|
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|
15,169 |
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|
4.42 |
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|
49,703 |
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|
|
4.70 |
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Collateralized mortgage obligations (2) |
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|
|
|
|
|
|
|
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|
1,782 |
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|
|
4.75 |
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|
716 |
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4.50 |
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8,512 |
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|
|
4.68 |
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Other securities |
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|
|
|
|
|
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|
|
649 |
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7.58 |
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Total |
|
$ |
16,066 |
|
|
|
4.60 |
|
|
$ |
42,713 |
|
|
|
4.16 |
|
|
$ |
45,135 |
|
|
|
4.49 |
|
|
$ |
139,164 |
|
|
|
4.73 |
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(1) |
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Fair value is based on contractual maturity or call date where a call
option exists |
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(2) |
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Maturity based upon final maturity date |
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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. |
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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 Horizon at
December 31, 2006. |
7
A. |
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Types of Loans Total loans on the balance sheet are comprised of the
following classifications at December 31 for the years indicated. |
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(In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
Commercial,
financial, agricultural
and commercial tax-exempt
loans |
|
$ |
271,457 |
|
|
$ |
273,310 |
|
|
$ |
203,966 |
|
|
$ |
152,362 |
|
|
$ |
111,897 |
|
Mortgage warehouse loans |
|
|
112,267 |
|
|
|
97,729 |
|
|
|
127,992 |
|
|
|
126,056 |
|
|
|
268,452 |
|
Real estate mortgage loans |
|
|
222,235 |
|
|
|
159,312 |
|
|
|
89,139 |
|
|
|
67,428 |
|
|
|
73,910 |
|
Installment loans |
|
|
237,875 |
|
|
|
202,383 |
|
|
|
142,945 |
|
|
|
101,872 |
|
|
|
81,534 |
|
|
|
|
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Total loans |
|
$ |
843,834 |
|
|
$ |
732,734 |
|
|
$ |
564,042 |
|
|
$ |
447,718 |
|
|
$ |
535,793 |
|
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B. |
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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, 2006: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One |
|
|
|
|
Maturing or repricing |
|
One Year or |
|
Through |
|
After Five |
|
|
(In thousands) |
|
Less |
|
Five Years |
|
Years |
|
Total |
|
|
|
Commercial,
financial,
agricultural and
commercial
tax-exempt loans |
|
$ |
158,013 |
|
|
$ |
110,053 |
|
|
$ |
3,391 |
|
|
$ |
271,457 |
|
|
|
|
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.) |
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
Variable |
(In thousands) |
|
Rate |
|
Rate |
|
|
|
Total commercial, financial, agricultural and
commercial tax-exempt loans due after one year |
|
$ |
63,174 |
|
|
$ |
50,270 |
|
|
1. |
|
Nonaccrual, Past Due and Restructured Loans The following schedule summarizes
nonaccrual, past due and restructured loans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
a. Loans
accounted for on a
nonaccrual basis |
|
$ |
2,481 |
|
|
$ |
1,822 |
|
|
$ |
1,358 |
|
|
$ |
1,707 |
|
|
$ |
1,217 |
|
b. Accruing loans
which are
contractually past
due 90 days or more
as to interest and
principal payments |
|
|
144 |
|
|
|
251 |
|
|
|
|
|
|
|
176 |
|
|
|
76 |
|
c. Loans not
included in (a) or
(b) which are
Troubled Debt
Restructurings as
defined by SFAS No.
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
2,625 |
|
|
$ |
2,073 |
|
|
$ |
1,358 |
|
|
$ |
1,883 |
|
|
$ |
1,293 |
|
|
|
|
8
LOAN PORTFOLIO (continued)
The increase in nonaccrual loans in 2006 is primarily due to an increase in
commercial real estate loans of $761 thousand. This increase was partially offset by
a decrease in mortgage loans and consumer loans of $67 thousand and $36 thousand,
respectively. The increase in nonaccrual loans in 2005 is primarily due to nonaccrual
loans acquired from Alliance of $389 thousand, an increase in consumer and commercial
loans of $44 thousand and $189 thousand, respectively. The decrease in nonaccrual
loans in 2004 is primarily due to decreases in consumer loans of $125 thousand and
mortgage loans of $337 thousand partially offset by an increase in commercial loans
of $112 thousand. The increase in nonaccrual loans in 2003 is primarily due to
increases in consumer loans of $89 thousand, mortgage loans of $254 thousand and
commercial loans of $146 thousand. The decrease in nonaccrual loans in 2002 is
primarily due to a decrease in commercial loans of $868 thousand partially offset by
an increase in mortgage loans of $340 thousand.
|
|
|
|
|
(In thousands) |
|
|
|
|
Gross interest income that would have been recorded on
nonaccrual loans outstanding as of December 31, 2006, 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. |
|
$ |
194 |
|
Interest income actually recorded on nonaccrual loans
outstanding as of December 31, 2006, and included in net
income for the period. |
|
|
117 |
|
|
|
|
|
Interest income not recognized during the period on
nonaccrual loans outstanding as of December 31, 2006. |
|
$ |
77 |
|
|
|
|
|
Discussion of Nonaccrual Policy
|
1. |
|
From time to time, the Bank obtains information, which may lead
management to believe that the collection of payments may be doubtful on a
particular loan. In recognition of such, it is managements policy to convert
the loan from an earning asset to a nonaccruing loan. Further, it is
managements 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 $1,768,000 and $583,000 at December 31,
2006 and 2005, respectively. The allowance for impaired loans, included in the
Banks allowance for loan losses totaled $406,000 and $492,000 at those respective
dates. The average balance of impaired loans during 2006 and 2005 was $942,000
and $150,000, respectively. |
|
|
3. |
|
Foreign outstandings |
|
|
|
|
None |
|
|
4. |
|
Loan Concentrations |
|
|
|
|
As of December 31, 2006, there are no significant concentrations of loans
exceeding 10% of total loans. See Item III A above for a listing of the types of
loans by concentration. |
D. Other Interest-Bearing Assets
There are no other interest-bearing assets as of December 31, 2006, which would be
required to be disclosed under Item III C.1 or 2 if such assets were loans.
9
IV. SUMMARY OF LOAN LOSS EXPERIENCE
|
A. |
|
The following is an analysis of the activity in the allowance for loan losses
account: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding
at the end of the
period (1) |
|
$ |
843,834 |
|
|
$ |
732,734 |
|
|
$ |
564,042 |
|
|
$ |
447,718 |
|
|
$ |
535,793 |
|
Average loans
outstanding during
the period (1) |
|
|
780,555 |
|
|
|
640,758 |
|
|
|
514,916 |
|
|
|
512,441 |
|
|
|
478,311 |
|
|
|
|
(1) |
|
Net of unearned income and deferred loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE FOR LOAN LOSSES |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
Balance at beginning of the period |
|
$ |
8,368 |
|
|
$ |
7,193 |
|
|
$ |
6,909 |
|
|
$ |
6,255 |
|
|
$ |
5,410 |
|
|
|
|
Loans charged-off |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural loans |
|
|
(23 |
) |
|
|
(305 |
) |
|
|
(161 |
) |
|
|
|
|
|
|
(244 |
) |
Real estate mortgage loans |
|
|
|
|
|
|
(29 |
) |
|
|
(41 |
) |
|
|
(226 |
) |
|
|
(112 |
) |
Installment loans |
|
|
(1,120 |
) |
|
|
(1,096 |
) |
|
|
(863 |
) |
|
|
(758 |
) |
|
|
(841 |
) |
|
|
|
Total loans charged-off |
|
|
(1,143 |
) |
|
|
(1,430 |
) |
|
|
(1,065 |
) |
|
|
(984 |
) |
|
|
(1,197 |
) |
|
|
|
Recoveries of loans previously charged-off |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural loans |
|
|
201 |
|
|
|
161 |
|
|
|
79 |
|
|
|
20 |
|
|
|
90 |
|
Real estate mortgage loans |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
23 |
|
|
|
24 |
|
Installment loans |
|
|
407 |
|
|
|
364 |
|
|
|
278 |
|
|
|
245 |
|
|
|
303 |
|
|
|
|
Total loan recoveries |
|
|
608 |
|
|
|
527 |
|
|
|
359 |
|
|
|
288 |
|
|
|
417 |
|
|
|
|
Net loans charged-off |
|
|
(535 |
) |
|
|
(903 |
) |
|
|
(706 |
) |
|
|
(696 |
) |
|
|
(780 |
) |
Provision charged to operating expense |
|
|
905 |
|
|
|
1,521 |
|
|
|
990 |
|
|
|
1,350 |
|
|
|
1,625 |
|
Acquired through acquisition |
|
|
|
|
|
|
557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
|
$ |
8,738 |
|
|
$ |
8,368 |
|
|
$ |
7,193 |
|
|
$ |
6,909 |
|
|
$ |
6,255 |
|
|
|
|
Ratio of net charge-offs to average loans
outstanding for the period |
|
|
(.07 |
)% |
|
|
(.14 |
)% |
|
|
(.14 |
)% |
|
|
(.14 |
)% |
|
|
(.16 |
)% |
|
|
|
|
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
|
Loans |
|
|
|
|
|
Loans to |
|
|
|
|
|
Loans |
|
|
|
|
|
Loans to |
|
|
|
|
|
Loans to |
|
|
Allowance |
|
to Total |
|
Allowance |
|
Total |
|
Allowance |
|
to Total |
|
Allowance |
|
Total |
|
Allowance |
|
Total |
|
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
Amount |
|
Loan |
|
Amount |
|
Loans |
|
|
|
Commercial,
financial and
agricultural |
|
$ |
2,987 |
|
|
|
32 |
% |
|
$ |
2,733 |
|
|
|
37 |
% |
|
$ |
2,469 |
|
|
|
36 |
% |
|
$ |
1,829 |
|
|
|
28 |
% |
|
$ |
1,732 |
|
|
|
21 |
% |
Real estate mortgage |
|
|
768 |
|
|
|
27 |
|
|
|
585 |
|
|
|
22 |
|
|
|
808 |
|
|
|
16 |
|
|
|
834 |
|
|
|
12 |
|
|
|
712 |
|
|
|
14 |
|
Mortgage warehousing |
|
|
1,762 |
|
|
|
13 |
|
|
|
1,958 |
|
|
|
13 |
|
|
|
2,029 |
|
|
|
23 |
|
|
|
2,445 |
|
|
|
37 |
|
|
|
2,007 |
|
|
|
50 |
|
Installment |
|
|
3,181 |
|
|
|
28 |
|
|
|
2,958 |
|
|
|
28 |
|
|
|
1,860 |
|
|
|
25 |
|
|
|
1,524 |
|
|
|
23 |
|
|
|
1,574 |
|
|
|
15 |
|
Unallocated |
|
|
40 |
|
|
|
|
|
|
|
134 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
277 |
|
|
|
|
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,738 |
|
|
|
100 |
% |
|
$ |
8,368 |
|
|
|
100 |
% |
|
$ |
7,193 |
|
|
|
100 |
% |
|
$ |
6,909 |
|
|
|
100 |
% |
|
$ |
6,255 |
|
|
|
100 |
% |
|
|
|
|
|
|
In 1999, Horizon began a mortgage warehousing program. This program is described in
Managements Discussion and Analysis of Financial Condition and Results of Operation in
Item 7 below and in the Notes to the Financial Statements in Item 8 below, which are
incorporated herein by reference. The greatest risk related to these loans is
transaction and fraud risk. During 2006, Horizon processed over $2.3 billion in mortgage
warehouse loans.
|
10
|
V. |
|
DEPOSITS |
|
|
|
|
Information required by this section is found in Managements Discussion and Analysis of
Financial Condition and Results of Operation in Item 7 below and in the Consolidated
Financial Statements and related notes in Item 8 below, which are incorporated herein by
reference. |
|
|
VI. |
|
RETURN ON EQUITY AND ASSETS |
|
|
|
|
Information required by this section is found in Managements Discussion and Analysis of
Financial Condition and Results of Operation in Item 7 below and in the Consolidated
Financial Statements and related notes in Item 8 below, which are incorporated herein by
reference. |
|
|
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 stockholders equity at the end of the period. |
|
|
|
|
|
|
|
|
|
December 31 (thousands) |
|
2006 |
|
2005 |
|
|
|
Outstanding at year end |
|
$ |
38,642 |
|
|
$ |
35,824 |
|
Approximate weighted-average interest rate at year-end |
|
|
3.09 |
% |
|
|
2.54 |
% |
Highest amount outstanding as of any month-end during
the year |
|
$ |
40,179 |
|
|
$ |
35,868 |
|
Approximate average outstanding during the year |
|
$ |
35,334 |
|
|
$ |
26,430 |
|
Approximate weighted-average interest during the year |
|
|
2.91 |
% |
|
|
1.97 |
% |
11
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
A cautionary note about forward-looking statements: In its oral and written statements, Horizon
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 Horizons
financial and business performance as well as economic and market conditions. They often can be
identified by the use of words like expect, may, could, intend, project, estimate,
believe or anticipate.
Horizon may include forward-looking statements in filings with the Securities and Exchange
Commission (SEC), 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 Horizon
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. You are cautioned that actual results may differ materially from
those contained in the forward-looking statement. The discussion in Managements Discussion and
Analysis of Financial Condition and Results of Operation in Item 7 of this Form 10-K lists some of
the factors that could cause Horizons actual results to vary materially from those expressed in or
implied by any forward-looking statements. Your attention is directed to this discussion.
Other risks and uncertainties that could affect Horizons future performance are set forth
immediately below in Item 1A Risk Factors
ITEM 1A. RISK FACTORS
As a financial institution, we are subject to a number of types of risks. Although we undertake a
variety of efforts to manage and control those risks, many of the risks are outside of our control.
Among the risks we face are the following:
|
|
|
credit risk: the risk that loan customers or other parties will be unable to
perform their contractual obligations; |
|
|
|
|
market risk: the risk that changes in market rates and prices will adversely
affect our financial condition or results of operation; |
|
|
|
|
liquidity risk: the risk that Horizon or the Bank will have insufficient cash or
access to cash to meet its operating needs; and |
|
|
|
|
operational risk: the risk of loss resulting from inadequate or failed internal
processes, people and systems, or external events. |
Investors should consider carefully these risks and the other risks and uncertainties described
below. Any of the following risks could materially adversely affect our business, financial
condition or operating results which could cause our stock price to decline. The risks and
uncertainties described below are not, however, the only ones that we may face. Additional risks
and uncertainties not currently known to us, or that we currently believe are not material, could
also materially adversely affect our business, financial condition or operating results.
Our financial performance may be adversely impacted if we are unable to continue to grow our
commercial and consumer loan portfolios, obtain low-cost funds and compete with other providers of
financial services.
Our ability to maintain our history of record earnings year after year will depend, in large part,
on our ability to continue to grow our commercial and consumer loan portfolios and obtain low-cost
funds. During 2005 and 2006, we focused on increasing consumer loans, and we intend to continue to
emphasize and grow consumer, as well as commercial types of loans in the foreseeable future. This
represented a shift in our emphasis from 2002 and 2003 when we focused on mortgage banking
services, which generated a large portion of our income during those years.
12
We have also funded our growth with low-cost consumer deposits, and our ability to sustain our
growth will depend in part on our continued success in attracting such deposits or finding other
sources of low-cost funds.
Another factor in maintaining our history of record earnings will be our ability to expand our
scope of available financial services to our customers in an increasingly competitive environment.
In addition to other banks, our competitors include credit unions, securities dealers, brokers,
mortgage bankers, investment advisors, and finance and insurance companies. Competition is intense
in most of our markets. We compete on price and service with our competitors. Competition could
intensify in the future as a result of industry consolidation, the increasing availability of
products and services from nonbanks, greater technological developments in the industry, and
banking reform.
Our commercial and consumer loans expose us to increased credit risks.
We have a large percentage of commercial and consumer loans. Commercial loans generally have
greater credit risk than residential mortgage loans because repayment of these loans often depends
on the successful business operations of the borrowers. These loans also typically have much
larger loan balances than residential mortgage loans. Consumer loans generally involve greater
risk than residential mortgage loans because they are unsecured or secured by assets that
depreciate in value. Although we undertake a variety of underwriting, monitoring and reserving
protections with respect to these types of loans, there can be no guarantee that we will not suffer
unexpected losses.
Changes in market interest rates could adversely affect our financial condition and results of
operations.
Our financial condition and results of operations are significantly affected by changes in market
interest rates. Our results of operations depend substantially on our net interest income, which
is the difference between the interest income that we earn on our interest-earning assets and the
interest expense that we pay on our interest-bearing liabilities. Our profitability depends on our
ability to manage our assets and liabilities during periods of changing market interest rates. If
rates increase rapidly as a result of an improving economy, we may have to increase the rates paid
on our deposits and borrowed funds more quickly than loans and investments reprice, resulting in a
negative impact on interest spreads and net interest income. The impact of rising rates could be
compounded if deposit customers move funds from savings accounts to higher rate certificate of
deposit accounts. Conversely, should market interest rates fall below current levels, our net
interest margin could also be negatively affected, as competitive pressures could keep us from
further reducing rates on our deposits, and prepayments and curtailments on assets may continue.
Such movements may cause a decrease in our interest rate spread and net interest margin, and
therefore, decrease our profitability.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in
interest rates may affect the average life of loans and mortgage-related securities. Increases in
interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay
adjustable rate loans. Decreases in interest rates often result in increased prepayments of loans
and mortgage-related securities, as borrowers refinance their loans to reduce borrowing costs.
Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to
reinvest the cash received from such prepayments in loans or other investments that have interest
rates that are comparable to the interest rates on existing loans and securities.
An economic slowdown in Northwestern Indiana and Southwestern Michigan could affect our business.
Our primary market area for deposits and loans consists of LaPorte and Porter Counties in
Northwestern Indiana and Berrien County in Southwestern Michigan. An economic slowdown in these
areas could hurt our business. Possible consequences of such a downturn could include the
following:
|
|
|
increases in loan delinquencies and foreclosures; |
|
|
|
|
declines in the value of real estate and other collateral for loans; and |
|
|
|
|
a decline in the demand for our products and services. |
13
We are subject to increased regulatory capital requirements.
As a condition to the approval of our acquisition of Alliance Financial Corporation in 2005, the
OCC, our primary regulator, required us to maintain regulatory capital ratios at 100 basis points
above the well capitalized minimums. This could affect our ability to compete with other financial
institutions not required to maintain these higher capital levels by limiting our ability to grow
assets. The OCC has not told us when these increased capital requirements will be lifted, but as
of December 31, 2006, we exceeded these heightened capital requirements.
If we are required to change the classification of our mortgage warehouse loans for capital
purposes, this could restrict the capital we have available for further growth.
We purchase home mortgages from mortgage companies under warehouse agreements whereby the mortgage
company has the right to repurchase the loan. We have historically classified these loans as home
mortgage loans for call report and regulatory capital purposes as opposed to treating them as
other loans. During the course of a routine, periodic examination by bank regulatory authorities
commenced in February 2003, the examination personnel raised the issue of whether our mortgage
warehouse loans should be treated as other loans for call report purposes. We submitted a
position statement to the regulators in 2003 substantiating our classification of these loans and
had various follow-up conversations with them thereafter. The regulatory authorities have never
required us to change the classification of these loans, and we believe the matter is resolved;
although the regulatory authorities have never told us this matter is settled and recently informed
us that they are still considering the issue. If we are required to change our treatment of these
loans, it will change our calculations for risk-based capital and reduce our risk-based capital
ratios which may restrict our ability to grow our assets.
Because our stock is thinly traded, it may be more difficult for you to sell your shares or buy
additional shares when you desire to do so and the price may be volatile.
Although our common stock has been listed on the NASDAQ Capital Market since December 2001 and
since February 1, 2007, has been listed on NASDAQ Global Market, our common stock is thinly traded.
Average daily trading volume during 2006 was only 3,476 shares. The prices of thinly traded
stocks, such as ours, are typically more volatile than stocks traded in a large, active public
market and can be more easily impacted by sales or purchases of large blocks of stock. Thinly
traded stocks are also less liquid, and because of the low volume of trades, you may be unable to
sell your shares when you desire to do so.
The preparation of our financial statements requires the use of estimates that may vary from actual
results.
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make significant
estimates that affect the financial statements. One of our most critical estimates is the level of
the allowance for loan losses. Due to the inherent nature of these estimates, we cannot provide
absolute assurance that we will not have to increase the allowance for loan losses and/or sustain
loan losses that are significantly higher than the provided allowance.
Our mortgage warehouse and indirect lending operations are subject to a higher fraud risk than our
other lending operations.
We buy loans originated by mortgage bankers and automobile dealers. Because we must rely on the
mortgage bankers and automobile dealers in making and documenting these loans, there is an
increased risk of fraud to us on the part of the third-party originators and the underlying
borrowers. In order to guard against this increased risk, we perform investigations on the loan
originators we do business with, and we review the loan files and loan documents we purchase to
attempt to detect any irregularities or legal noncompliance. However, there is no guarantee that
our procedures will detect all cases of fraud or legal noncompliance.
14
We are subject to extensive regulation and changes in laws, regulations and policies could
adversely affect our business.
Our operations are subject to extensive regulation by federal agencies. See Supervision and
Regulation in the description of our Business in Item 1 above for detailed information on the laws
and regulations to which we are subject. Changes in applicable laws, regulations or regulator
policies could materially affect our business. The likelihood of any major changes in the future
and their effects are impossible to determine.
Our inability to continue to accurately process large volumes of transactions could adversely
impact our business and financial results.
In the normal course of business, we process large volumes of transactions. If systems of internal
control should fail to work as expected, if systems are used in an unauthorized manner, or if
employees subvert the system of internal controls, significant losses could result.
We process large volumes of transactions on a daily basis and are exposed to numerous types of
operational risk. Operational risk resulting from inadequate or failed internal processes, people
and systems includes the risk of fraud by persons inside or outside the company, the execution of
unauthorized transactions by employees, errors relating to transaction processing and systems, and
breaches of the internal control system and compliance requirements. This risk of loss also
includes the potential legal actions that could arise as a result of the operational deficiency or
as a result of noncompliance with applicable regulatory standards.
We establish and maintain systems of internal operational controls that provide us with timely and
accurate information about our level of operational risk. While not foolproof, these systems have
been designed to manage operational risk at appropriate, cost-effective levels. Procedures exist
that are designed to ensure that policies relating to conduct, ethics, and business practices are
followed. From time to time, losses from operational risk may occur, including the effects of
operational errors.
While we continually monitor and improve the system of internal controls, data processing systems,
and corporate-wide processes and procedures, there can be no assurance that future losses will not
occur.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The main office of Horizon and the Bank is located at 515 Franklin Square, Michigan City, Indiana.
The building located across the street from the main office of Horizon and the Bank, at 502
Franklin Square, houses the credit administration, operations, facilities and purchasing and
information technology departments of the Bank. In addition to these principal facilities, the
Bank has 14 sales offices located at:
3631 South Franklin Street, Michigan City, Indiana
113 W. First St., Wanatah, Indiana
1500 W. Lincolnway, LaPorte, Indiana
423 South Roosevelt Street, Chesterton, Indiana
4208 N. Calumet, Valparaiso, Indiana
2650 Willowcreek Road, Portage, Indiana
233 East 84th Drive, Merrillville, Indiana
811 Ship Street, St. Joseph, Michigan
2608 Niles Road, St. Joseph, Michigan
233 South Main Street, South Bend, Indiana
1909 East Bristol Street, Elkhart, Indiana
15
500 West Buffalo Street, New Buffalo, Michigan
13696 Redarrow Highway, Harbert, Michigan
6801 West U.S. 12 Three Oaks, Michigan
Horizon owns all of the facilities, except for the South Bend and Merrillville, Indiana offices,
which are leased from third parties.
ITEM 3. LEGAL PROCEEDINGS
No material pending legal proceedings, other than ordinary routine litigation incidental to
the business to which Horizon 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 Horizons stockholders during the fourth quarter of the
2006 fiscal year.
16
SPECIAL ITEM: EXECUTIVE OFFICERS OF REGISTRANT
|
|
|
|
|
|
|
Robert C. Dabagia
|
|
|
68 |
|
|
Chairman of Horizon since 1998; Chief
Executive Officer of Horizon and the Bank
until July 1, 2001. |
|
|
|
|
|
|
|
Craig M. Dwight
|
|
|
50 |
|
|
Chairman and Chief Executive Officer of the
Bank since January 2003; President and Chief
Executive Officer of Horizon and the Bank
since July 1, 2001; President and Chief
Administrative Officer of Horizon and
President of the Bank since 1998. |
|
|
|
|
|
|
|
Thomas H. Edwards
|
|
|
54 |
|
|
President and Chief Operating Officer of the
Bank since January 2003; Executive Vice
President and Senior Lender of Horizon and the
Bank since 1999. |
|
|
|
|
|
|
|
James H. Foglesong
|
|
|
61 |
|
|
Chief Financial Officer of Horizon and the
Bank since January 2001; Executive Vice
President and Chief Financial Officer,
Security Financial Bancorp since 1995. |
|
|
|
|
|
|
|
James D. Neff
|
|
|
47 |
|
|
Executive Vice President-Mortgage Banking of
Horizon Bank since January 2004; Senior Vice
President, Horizon Bank since October 1999. |
17
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There were no purchases by the Company of its common stock during the fourth quarter.
The Securities and Exchange Commission requires Horizon to include a line graph comparing Horizons
cumulative five-year total shareholder returns on the Common Shares with market and industry
returns over the past five years. SNL Financial LC prepared the following graph. The return
represented in the graph assumes the investment of $100 on January 1, 2002, and further assumes
reinvestment of all dividends. The Common Shares began trading on the NASDAQ Global Market
February 1, 2007. Prior to that date, the Common Shares were traded on the NASDAQ Capital Market.
Horizon Bancorp
Total Return Performance
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending |
|
|
Index |
|
|
12/31/01 |
|
|
12/31/02 |
|
|
12/31/03 |
|
|
12/31/04 |
|
|
12/30/05 |
|
|
12/31/06 |
|
|
Horizon Bancorp |
|
|
|
100.00 |
|
|
|
|
118.43 |
|
|
|
|
188.36 |
|
|
|
|
187.86 |
|
|
|
|
186.27 |
|
|
|
|
198.01 |
|
|
|
Russell 2000 |
|
|
|
100.00 |
|
|
|
|
79.52 |
|
|
|
|
117.09 |
|
|
|
|
138.55 |
|
|
|
|
144.86 |
|
|
|
|
171.47 |
|
|
|
SNL Bank $1B-$5B |
|
|
|
100.00 |
|
|
|
|
115.44 |
|
|
|
|
156.98 |
|
|
|
|
193.74 |
|
|
|
|
190.43 |
|
|
|
|
220.36 |
|
|
|
The SNL $500 million to $1 billion index was dropped this year as Horizon no longer falls within
this size range. The index value for this index at December 31, 2006 was 247.44.
The other information regarding Horizons common stock is included under the caption Horizons
Common Stock and Related Stockholders Matters in Item 8 below, which is incorporated by
reference.
18
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 in Item 8 of this Form 10-K.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Horizon Bancorp and Subsidiaries
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Table Dollar Amounts in Thousands)
Overview
Throughout 2006, Horizons net interest margin declined as the cost of funds increased faster than
the yield on earning assets. Cost of funds was impacted by competitive rate pressure for deposits
and certificates of deposit renewing at higher rates. The yield on earning assets was hampered by
a lack of commercial loan growth. Commercial loans carry higher yields than mortgage and consumer
loans. Commercial loan growth was negatively impacted by the pay off of approximately $30 million
of loans. The net interest margin declined from 3.27% in 2005 to 3.05% in 2006. This 22 basis point
decline had the impact of reducing net interest income by approximately $2.3 million.
Mortgage loans outstanding grew $63 million and mortgage loans originated and sold totaled $96
million, which is comparable to the prior year. Mortgage activity at Horizon continued strong
despite the general slow down in residential mortgage activity nationwide. Indirect consumer loan
activity continued strong as well, pushing total consumer loans to $238 million, an increase of $36
million from the prior year. Restructuring was completed in the investment portfolio. Throughout
the year $764 thousand of losses were taken and the investment portfolio yield was improved by 60
basis points.
Asset growth was funded by an increase of $58 million in deposits and a $28 million increase in
borrowed funds.
Critical Accounting Policies
Horizon has established various accounting policies, which govern the application of accounting
principles generally accepted in the United States in the preparation the Companys financial
statements. The significant accounting policies of the Company are described in the notes to the
consolidated financial statements included in Part II, Item 8 on Form 10-K. Certain of these
policies are important to the portrayal of the Companys 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 following as critical accounting
policies:
Allowance for Loan Losses
The allowance for loan losses, which is established through the provision for loan losses, is based
on managements evaluation of the level of allowance required in relation to the estimated loss
exposure in the loan portfolio. Management believes the allowance for loan losses is a significant
estimate and therefore evaluates it for adequacy each quarter. Management considers factors such
as previous loss experience, the size and composition of the loan portfolio, current economic and
real estate market conditions, the performance of individual loans in relation to contract terms,
and estimated fair value of collateral that secures the loans. The use of different estimates or
assumptions could produce a different allowance for loan losses. Additional discussion regarding
the allowance for loan losses is included in the commentary on Loans in the following Analysis of
Financial Condition.
19
Goodwill and Intangible Assets
Management believes that the accounting for goodwill and other intangible assets also involves a
higher degree of judgment than most other significant accounting policies. Statement of Financial
Accounting Standard (SFAS) No. 142, Accounting for Goodwill and Other Intangible Assets,
establishes standards for the amortization of acquired intangible assets and impairment assessment
of goodwill. At December 31, 2006, Horizon had core deposit intangibles of $2.412 million subject
to amortization and $5.787 million of goodwill, which was not subject to amortization. Goodwill
arising from business combinations represents the value attributable to unidentifiable intangible
assets in the business acquired. Horizons goodwill relates to the value inherent in the banking
industry and that value is dependent upon the ability of Horizon to provide quality, cost effective
banking services in a competitive marketplace. The goodwill value is supported by revenue that is
in part driven by the volume of business transacted. A decrease in earnings resulting from a
decline in the customer base or the inability to deliver cost effective services over sustained
periods can lead to impairment of goodwill that could adversely impact earnings in future periods.
SFAS No. 142 requires an annual evaluation of goodwill for impairment. The evaluation of goodwill
for impairment requires the use of estimates and assumptions. Horizon has concluded that the
recorded value of goodwill is not impaired.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or
through the sale of financial assets on a servicing-retained basis. Capitalized servicing rights
are amortized into noninterest income in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets. Servicing assets are evaluated
regularly for impairment based upon the fair value of the rights as compared to amortized cost.
Impairment is determined by stratifying servicing rights by predominant characteristics, such as
interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages.
Fair value is determined using prices for similar assets with similar characteristics, when
available, or based upon discounted cash flows using market-based assumptions. When the book value
of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each
individual stratum is carried at the lower of its amortized book value or fair value. In periods
of falling market interest rates, accelerated loan prepayment speeds can adversely impact the fair
value of these mortgage-servicing rights relative to their book value. In the event that the fair
value of these assets was to increase in the future, Horizon can recognize the increased fair value
to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized
book value. Future changes in managements assessment of the impairment of these servicing assets,
as a result of changes in observable market data relating to market interest rates, loan prepayment
speeds, and other factors, could impact Horizons financial condition and results of operations
either positively or adversely.
20
Analysis of Financial Condition
Investment Securities
Horizon maintains a high quality investment portfolio with low credit risk. Investment securities
totaled $243.078 million at December 31, 2006, and consisted of U S. Treasury and Government Agency
securities of $58.445 million (24.0)%; Municipal securities of $81.800 million (33.7)%;
Mortgage-backed securities of $91.174 million (37.5)%; collateralized mortgage obligations of
$11.010 million (4.5)%; and corporate securities of $649 thousand (.3)%.
As indicated above, 42.0% 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 dollar of principal is expected to be
outstanding. As of December 31, 2006, the mortgage-backed securities and collateralized mortgage
obligations in the investment portfolio had an average life of 4.05 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, however, this risk is mitigated by a shorter average life. Management currently
believes that prepayment risk on these securities is nominal.
At December 31, 2006 and 2005, 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 depreciation on these securities totaled $2.318 million, which
resulted in a $1.507 million reduction, net of tax, to stockholders equity at December 31, 2006.
This compared to a $2.853 million, net of tax, addition in stockholders equity at December 31,
2005.
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, 2006, Horizon has investments in the common stock of
the Federal Reserve and Federal Home Loan Bank totaling $12.136 million compared to $12.983 million
at December 31, 2005.
At December 31, 2006, Horizon does not maintain a trading account and is not using any derivative
products for hedging or other purposes.
21
Loans
Total loans, the principal earning asset of the Bank, were $843.834 million at December 31, 2006.
The current level of loans is an increase of 15.2% from the December 31, 2005, level of $732.734
million. As the table below indicates, the increase is related to growth in all lending areas
except for commercial loans, which declined during 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar |
|
Percent |
December 31 |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
Real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 4 family |
|
$ |
214,031 |
|
|
$ |
152,818 |
|
|
$ |
61,213 |
|
|
|
40.06 |
% |
Other |
|
|
8,204 |
|
|
|
6,494 |
|
|
|
1,710 |
|
|
|
26.33 |
|
|
|
|
|
|
|
|
Total |
|
|
222,235 |
|
|
|
159,312 |
|
|
|
62,923 |
|
|
|
39.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital and equipment |
|
|
128,500 |
|
|
|
130,410 |
|
|
|
(1,910 |
) |
|
|
(1.46 |
) |
Real estate, including agriculture |
|
|
131,103 |
|
|
|
128,240 |
|
|
|
2,863 |
|
|
|
2.23 |
|
Tax exempt |
|
|
3,861 |
|
|
|
2,529 |
|
|
|
1,332 |
|
|
|
52.67 |
|
Other |
|
|
7,993 |
|
|
|
12,131 |
|
|
|
(4,138 |
) |
|
|
(34.11 |
) |
|
|
|
|
|
|
|
Total |
|
|
271,457 |
|
|
|
273,310 |
|
|
|
(1,853 |
) |
|
|
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto |
|
|
125,542 |
|
|
|
96,421 |
|
|
|
29,121 |
|
|
|
30.20 |
|
Recreation |
|
|
8,862 |
|
|
|
7,708 |
|
|
|
1,154 |
|
|
|
14.97 |
|
Real estate/home improvement |
|
|
43,590 |
|
|
|
40,968 |
|
|
|
2,622 |
|
|
|
6.40 |
|
Home equity |
|
|
54,527 |
|
|
|
52,129 |
|
|
|
2,398 |
|
|
|
4.60 |
|
Unsecured |
|
|
1,979 |
|
|
|
1,918 |
|
|
|
61 |
|
|
|
3.18 |
|
Other |
|
|
3,375 |
|
|
|
3,239 |
|
|
|
136 |
|
|
|
4.20 |
|
|
|
|
|
|
|
|
Total |
|
|
237,875 |
|
|
|
202,383 |
|
|
|
35,492 |
|
|
|
17.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage warehouse loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
53,547 |
|
|
|
48,571 |
|
|
|
9,460 |
|
|
|
19.48 |
|
Sub-Prime |
|
|
58,720 |
|
|
|
49,158 |
|
|
|
5,078 |
|
|
|
10.33 |
|
|
|
|
|
|
|
|
Total |
|
|
112,267 |
|
|
|
97,729 |
|
|
|
14,538 |
|
|
|
14.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand total |
|
$ |
843,834 |
|
|
$ |
732,734 |
|
|
$ |
111,100 |
|
|
|
15.16 |
% |
|
|
|
|
|
|
|
The acceptance and management of credit risk is an integral part of the Banks business as a
financial intermediary. The Bank has established underwriting standards including a policy that
monitors the lending function through strict administrative and reporting requirements as well as
an internal loan review of consumer and small business loans. The Bank also uses an independent
third-party loan review function that regularly reviews asset quality.
Real Estate Loans
Real estate loans totaled $222.235 million or 26.3% of total loans as of December 31, 2006,
compared to $159.312 million or 21.7% of total loans as of December 31, 2005. This category
consists of home mortgages that generally require a loan to value of no more than 80%. Some
special guaranteed or insured real estate loan programs do permit a higher loan to collateral value
ratio.
22
In addition to the customary real estate loans described above, the Bank also has outstanding on
December 31, 2006, $54.527 million in home equity lines of credit compared to $52.129 million at
December 31, 2005. 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 of the consolidated
financial statements.
Residential real estate lending is a highly competitive business. As of December 31, 2006, the
real estate loan portfolio reflected a wide range of interest rates and repayment patterns, but
could generally be categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
Amount |
|
Portfolio |
|
Yield |
|
Amount |
|
Portfolio |
|
Yield |
|
|
|
Fixed rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly payment |
|
$ |
46,301 |
|
|
|
20.84 |
% |
|
|
6.35 |
% |
|
$ |
43,752 |
|
|
|
27.46 |
% |
|
|
6.13 |
% |
Biweekly payment |
|
|
3,047 |
|
|
|
1.37 |
|
|
|
6.45 |
|
|
|
3,275 |
|
|
|
2.06 |
|
|
|
6.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly payment |
|
|
172,860 |
|
|
|
77.78 |
|
|
|
5.72 |
|
|
|
112,240 |
|
|
|
70.45 |
|
|
|
5.29 |
|
Biweekly payment |
|
|
27 |
|
|
|
.01 |
|
|
|
7.5 |
|
|
|
45 |
|
|
|
.03 |
|
|
|
6.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
222,235 |
|
|
|
100.00 |
% |
|
|
5.88 |
% |
|
$ |
159,312 |
|
|
|
100.00 |
% |
|
|
5.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006 and 2005, approximately $96 million and $98 million, respectively, of residential
mortgages were sold into the secondary market.
In addition to the real estate loan portfolio, the Bank sells real estate loans and retains the
servicing rights. Loans serviced for others are not included in the consolidated balance sheets.
During 2006 Horizon sold a large portion of its mortgage servicing business. The unpaid principal
balances and number of loans serviced for others totaled approximately $23,988,000 and 279 and
$164,885,000 and 1,971 at December 31, 2006 and 2005, respectively.
The Bank began capitalizing mortgage servicing rights during 2000 and the aggregate fair value of
capitalized mortgage servicing rights at December 31, 2006, totaled approximately $245,000.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
Mortgage Servicing Rights |
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1 |
|
$ |
1,278 |
|
|
$ |
1,473 |
|
|
$ |
1,429 |
|
Servicing rights capitalized |
|
|
83 |
|
|
|
239 |
|
|
|
482 |
|
Amortization of servicing rights |
|
|
(251 |
) |
|
|
(434 |
) |
|
|
(438 |
) |
Servicing rights sold |
|
|
(862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248 |
|
|
|
1,278 |
|
|
|
1,473 |
|
Impairment allowance |
|
|
(3 |
) |
|
|
(44 |
) |
|
|
(141 |
) |
|
|
|
|
Balances, December 31 |
|
$ |
245 |
|
|
$ |
1,234 |
|
|
$ |
1,332 |
|
|
|
|
23
Commercial Loans
Commercial loans totaled $271.457 million, or 32.1% of total loans as of December 31, 2006,
compared to $273.310 million, or 36.2% as of December 31, 2005. During the course of the year,
Horizon had $30.944 million in commercial real estate and $500 thousand of agricultural loans pay
off prematurely. Of this dollar amount, approximately 14% were loans that were acquired by Horizon
in the Alliance Bank acquisition that had credit issues. Another 43% were commercial real estate
loans that either refinanced elsewhere for more favorable terms or the properties were sold. New
loan production essentially offset the losses in commercial loan balances arising from the
aforementioned early payoffs.
Commercial loans consisted of the following types of loans at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
|
|
Percent of |
|
|
Number |
|
Amount |
|
Portfolio |
|
Number |
|
Amount |
|
Portfolio |
|
|
|
SBA guaranteed loans |
|
|
20 |
|
|
$ |
4,321 |
|
|
|
1.60 |
% |
|
|
26 |
|
|
$ |
4,782 |
|
|
|
1.75 |
% |
Municipal government |
|
|
42 |
|
|
|
3,861 |
|
|
|
1.42 |
|
|
|
44 |
|
|
|
2,529 |
|
|
|
.93 |
|
Lines of credit |
|
|
395 |
|
|
|
49,549 |
|
|
|
18.25 |
|
|
|
406 |
|
|
|
46,999 |
|
|
|
17.20 |
|
Real estate and
equipment term
loans |
|
|
997 |
|
|
|
213,726 |
|
|
|
78.73 |
|
|
|
998 |
|
|
|
219,000 |
|
|
|
80.12 |
|
|
|
|
|
Total |
|
|
1,454 |
|
|
$ |
271,457 |
|
|
|
100.00 |
% |
|
|
1,474 |
|
|
$ |
273,310 |
|
|
|
100.00 |
% |
|
|
|
Consumer Loans
Consumer loans totaled $237.875 million, or 28.2% of total loans as of December 31, 2006, compared
to $202.383 million, or 27.6% as of December 31, 2005. The total consumer loan portfolio increased
17.5% in 2006. The growth in consumer loans came from the indirect automobile segment of the
portfolio as Horizon expanded its dealer network in southwest Michigan and north central Indiana.
Direct consumer loans, mostly consisting of home equity term and revolving loans, were relatively
stable in 2006.
Mortgage Warehouse Loans
In November 1999, Horizon began 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
made to individuals and reviewed, prior to purchase, for evidence that the loans are of secondary
market quality and meet Horizons 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/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
managements ongoing quarterly assessments of the probable estimated losses inherent in the loan
portfolio. The identification of loans that may have potential losses is 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, in an adequate and timely manner. Each quarter, various factors affecting the quality of
the loan portfolio are reviewed.
24
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 as well
as transaction risk to determine the effect they may have on the loss experience of the loan
portfolio.
At December 31, 2006, the allowance for loan losses was $8.738 million, or 1.03% of total loans
outstanding, compared to $8.368 million, or 1.14% at December 31, 2005. During 2006, the provision
for loan losses totaled $905 thousand compared to $1.521 million in 2005. The allowance as a
percent of total loans decreased due to strong credit quality and loan loss ratios that are better
than those of Horizons peers. In addition, the lack of growth in commercial and mortgage
warehouse loans resulted in no appreciable increase to reserve allocations for these portfolios.
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
managements ongoing quarterly assessments of the portfolio, will not require increases in the
allowance for loan losses. Horizon considers the allowance for loan losses to be adequate to cover
losses inherent in the loan portfolio as of December 31, 2006.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
Nonperforming loans |
|
$ |
2,625 |
|
|
$ |
1,822 |
|
|
$ |
1,358 |
|
Nonperforming loans total 30% of the allowance for loan losses at December 31, 2006, compared to
22% and 19% of the allowance for loan losses on December 31, 2005 and 2004, respectively.
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 borrowers 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) net of any related allowance for OREO losses for the previous three
years ending December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
Other real estate owned |
|
$ |
75 |
|
|
$ |
23 |
|
|
$ |
276 |
|
25
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 and
other sources when it can do so at interest rates and terms that are superior to those required for
deposited funds. Total deposits were $913.973 million at December 31, 2006, compared to $855.566
million at December 31, 2005, or an increase of 6.8%. Average deposits and rates by category for
the pervious three years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Outstanding for the |
|
Average Rate Paid for the Year |
|
|
Year Ended December 31 |
|
Ended December 31 |
|
|
2006 |
|
2005 |
|
2004 |
|
2006 |
|
2005 |
|
2004 |
|
Noninterest-bearing
demand deposits |
|
$ |
78,654 |
|
|
$ |
73,501 |
|
|
$ |
62,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
deposits |
|
|
178,773 |
|
|
|
165,767 |
|
|
|
104,909 |
|
|
|
2.43 |
% |
|
|
1.44 |
% |
|
|
.46 |
% |
Savings deposits |
|
|
34,637 |
|
|
|
38,231 |
|
|
|
36,265 |
|
|
|
.28 |
|
|
|
.36 |
|
|
|
.20 |
|
Money market |
|
|
139,177 |
|
|
|
143,652 |
|
|
|
123,013 |
|
|
|
3.28 |
|
|
|
2.37 |
|
|
|
1.27 |
|
Time deposits |
|
|
387,365 |
|
|
|
320,014 |
|
|
|
266,201 |
|
|
|
4.37 |
|
|
|
3.42 |
|
|
|
3.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
818,606 |
|
|
$ |
741,165 |
|
|
$ |
593,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon continually revises and enhances its interest-bearing consumer and commercial demand
deposit products based on local market conditions and its need for funding to support various types
of assets. These product changes caused the changes in the average balances and rates paid as
displayed in the table above.
Certificates of deposit of $100,000 or more, which are considered to be rate sensitive and are not
considered a part of core deposits, mature as follows as of December 31, 2006:
|
|
|
|
|
Due in three months or less |
|
$ |
53,053 |
|
Due after three months through six months |
|
|
5,984 |
|
Due after six months through one year |
|
|
7,772 |
|
Due after one year |
|
|
987 |
|
Interest expense on time certificates of $100,000 or more was approximately $5.533 million, $2.059
million and $1.762 million for 2006, 2005 and 2004, respectively.
Off-Balance Sheet Arrangements
As of December 31, 2006, Horizon does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Companys financial condition, change
in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors. The term off-balance sheet
arrangement generally means any transaction, agreement, or other contractual arrangement to which
an entity unconsolidated with the Company is a party under which the Company has (i) any obligation
arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained
or contingent interest in assets transferred to such entity or similar arrangement that serves as
credit, liquidity or market risk support for such assets.
26
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within One |
|
One to Three |
|
Three to |
|
After Five |
|
|
Year |
|
Years |
|
Five Years |
|
Years |
|
|
Deposits |
|
$ |
867,754 |
|
|
$ |
45,435 |
|
|
$ |
276 |
|
|
$ |
508 |
|
Long-term debt obligations (1) |
|
|
23,195 |
|
|
|
15,411 |
|
|
|
30,275 |
|
|
|
47,070 |
|
Subordinated debentures (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,209 |
|
|
|
|
(1) |
|
Includes debt obligations to the Federal Home Loan Bank and term repurchase agreements with
maturities beyond one year borrowed by Horizons banking subsidiary. See Note 10 in Horizons
Consolidated Financial Statements. |
|
(2) |
|
Includes Trust Preferred Capital Securities issued by Horizon Statutory Trusts I, II and III
and those assumed in the acquisition of Alliance. See Note 11 in Horizons Consolidated
Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
Expiration by Period |
|
|
|
|
|
|
Greater |
|
|
Within |
|
Than One |
|
|
One Year |
|
Year |
|
|
|
Letters of credit |
|
$ |
1,744 |
|
|
$ |
1,256 |
|
Unfunded loan commitments |
|
|
94,140 |
|
|
|
60,546 |
|
Shareholder Value Plan
During 2001, Horizon initiated a Shareholder Value Plan. The Plan is a comprehensive strategic
plan to broaden and improve the market for Horizons common stock with local community investors
who have a long-term, personal interest in helping Horizon remain an independent community bank.
It includes improved communications with stockholders and customers as well as efforts to improve
the marketability of its common stock. During the fourth quarter of 2001, two important components
of the Shareholder Value Plan were completed. These included a 3-for-1 stock split and the listing
of Horizons stock on the NASDAQ Capital Market (formerly named the NASDAQ SmallCap Market) and
effective February 1, 2007, Horizon is listed on Nasdaq Global Market. Before this, Horizons
stock was traded on the Bulletin Board. A dividend reinvestment plan was implemented in early 2002
and the quarterly per share dividend was increased to $.10 2/3 in the fourth quarter of
2002. In October of 2003, Horizons Board of Directors declared a 3-for-2 stock split and in
December of 2003 increased the dividend to $.12. In December 2004, the Board of Directors
increased the quarterly dividend to $.13 per share and in December 2005, the Board of Directors
increased the quarterly dividend to $.14 per share.
Capital Resources
The capital resources of Horizon and the Bank exceed regulatory capital ratios for well
capitalized banks at December 31, 2006. Stockholders equity totaled $61.877 million as of
December 31, 2006, compared to $53.530 million as of December 31, 2005. At year-end 2006, the
ratio of stockholders equity to assets was 5.06% compared to 4.75% for 2005. Horizons capital
increased during the year 2006 as a result of increased earnings, net of dividends declared,
exercise of stock options and net of tax, decrease in unrealized gain (loss) on securities
available for sale and the amortization of unearned compensation. Due to the acquisition of
Alliance for cash, the percentage growth in assets was greater than the percentage growth in
equity, causing the equity to asset ratio from 2004 to 2005 to decrease.
Horizon declared dividends in the amount of $.56 per share in 2006, and $.53 per share in 2005 and
$.49 per share in 2004. The dividend payout ratio (dividends as a percent of net income) was 24%
during 2006, 23% during 2005 and 21% during 2004. For additional information regarding dividend
conditions, see Note 1 of the Notes to the Consolidated Financial Statements.
27
In March 2002, Horizon formed Horizon Statutory Trust I (Trust I), a statutory business trust.
Trust I issued $12 million of Trust Preferred Capital Securities as a participant in a pooled trust
preferred securities offering. Horizon issued subordinated debentures aggregating $12 million to
Trust I. The junior subordinated debentures are the sole assets of Trust I. The junior
subordinated debentures and the trust preferred securities pay interest and dividends,
respectively, on a quarterly basis. The junior subordinated debentures and the securities bear
interest at a rate of 90 day LIBOR plus 3.60% and mature on March 26, 2032, and are noncallable for
five years. After that period, the securities may be called at any quarterly interest payment date
at par. These securities have been called and will be redeemed on March 26, 2007. Costs associated
with the issuance of the securities totaling $362 thousand were capitalized and are being amortized
to the first call date of the securities.
In October of 2004, Horizon formed Horizon Bancorp Capital Trust II (Trust II), a statutory
business trust. Trust II issued $10 million of Trust Preferred Capital Securities as a participant
in a pooled trust preferred securities offering. Horizon issued junior subordinated debentures
aggregating $10 million to Trust II. The junior subordinated debentures are the sole assets of
Trust II. The junior subordinated debentures and the trust preferred securities pay interest and
dividends, respectively, on a quarterly basis. The junior subordinated debentures and the
securities bear interest at a rate of 90 day LIBOR plus 1.95% and mature on October 21, 2034, and
are noncallable for five years. After that period, the securities may be called at any quarterly
interest payment date at par. Costs associated with the issuance of the securities totaling
$17,500 were capitalized and are being amortized to the first call date of the securities.
The Company assumed additional debentures as the result of the acquisition of Alliance in 2005. In
June 2004, Alliance formed Alliance Financial Statutory Trust I (Alliance Trust) to issue the $5
million in trust preferred securities. Alliance had issued junior subordinated debentures
aggregating $5 million to Alliance Trust. The junior subordinated debentures are the sole assets
of Alliance Trust. The junior subordinated debentures and the trust preferred securities pay
interest and dividends, respectively, on a quarterly basis. The junior subordinated debentures and
the securities bear interest at a rate of 90 day LIBOR plus 2.65%, mature in June 2034, and are
noncallable for five years. After that period, the securities may be called at any quarterly
interest payment date at par.
In December of 2006, Horizon formed Horizon Bancorp Capital Trust III (Trust III), a statutory
business trust. Trust III issued $12 million of Trust Preferred Capital Securities as a
participant in a pooled trust preferred securities offering. Horizon issued junior subordinated
debentures aggregating $12 million to Trust III. The junior subordinated debentures are the sole
assets of Trust III. The junior subordinated debentures and the trust preferred securities pay
interest and dividends, respectively, on a quarterly basis. The junior subordinated debentures and
the securities bear interest at a rate of 90 day LIBOR plus 1.65% and mature on January 30, 2037,
and are noncallable for five years. After that period, the securities may be called at any
quarterly interest payment date at par. Costs associated with the issuance of the securities
totaling $12,647 were capitalized and are being amortized to the first call date of the securities.
The proceeds of this issue will be used to redeem the securities issued by Trust I on March 26,
2007.
The Trust Preferred Capital Securities, subject to certain limitations, are included in Tier 1
Capital for regulatory purposes. At December 31, 2006, $20.605 million of the $39 million in
securities were not included in Tier 1 Capital for regulatory purposes. Dividends on the Trust
Preferred Capital Securities are recorded as interest expense.
The Bank purchases home mortgages from mortgage companies under warehouse agreements whereby the
mortgage company has the right to repurchase the loan. Because these transactions are sales of the
loans to the Bank and the Bank is the owner of the purchased loans, the Bank has historically
treated these loans as home mortgage loans for call report and regulatory capital
purposes. During the course of the routine, periodic examination by bank regulatory authorities
commenced in February 2003, the examination personnel raised the issue of whether the Banks
mortgage warehouse loans should be treated as other loans rather than as home mortgage loans for
call report purposes. If these mortgage loans were treated as other loans, it would change the
calculations for risk-based capital and reduce the Banks risk-based capital ratios. The following
table shows, for year-ends in
28
2006, 2005 and 2004 the amount of the Banks risk-based and Tier 1
capital ratios as reported and as they would be under this alternative treatment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Bank and |
|
|
|
|
|
Alternative |
|
Minimum Required To |
Horizon Bancorp as of: |
|
Reported |
|
Treatment |
|
Be Well Capitalized |
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
12.92 |
% |
|
|
12.06 |
% |
|
|
N/A |
|
Bank |
|
|
11.26 |
% |
|
|
10.52 |
% |
|
|
10.00 |
% |
Tier 1 Capital (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
9.23 |
% |
|
|
8.62 |
% |
|
|
N/A |
|
Bank |
|
|
10.16 |
% |
|
|
9.49 |
% |
|
|
6.00 |
% |
Tier 1 Capital (to
average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
N/A |
|
Bank |
|
|
6.89 |
% |
|
|
6.89 |
% |
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
11.54 |
% |
|
|
10.81 |
% |
|
|
N/A |
|
Bank |
|
|
11.82 |
% |
|
|
11.06 |
% |
|
|
10.00 |
% |
Tier 1 Capital (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
8.84 |
% |
|
|
8.28 |
% |
|
|
N/A |
|
Bank |
|
|
10.66 |
% |
|
|
9.97 |
% |
|
|
6.00 |
% |
Tier 1 Capital (to
average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
5.83 |
% |
|
|
5.83 |
% |
|
|
N/A |
|
Bank |
|
|
7.02 |
% |
|
|
7.03 |
% |
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
13.95 |
% |
|
|
12.52 |
% |
|
|
N/A |
|
Bank |
|
|
13.62 |
% |
|
|
12.11 |
% |
|
|
10.00 |
% |
Tier 1 Capital (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
11.71 |
% |
|
|
10.51 |
% |
|
|
N/A |
|
Bank |
|
|
12.37 |
% |
|
|
10.97 |
% |
|
|
6.00 |
% |
Tier 1 Capital (to
average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
7.37 |
% |
|
|
7.37 |
% |
|
|
N/A |
|
Bank |
|
|
7.78 |
% |
|
|
7.78 |
% |
|
|
5.00 |
% |
If the Bank is required to reclassify such loans, the Bank still meets the regulatory well
capitalized standards for all of 2006, 2005 and 2004. Bank regulators have not issued a final
opinion on this matter but management continues to believe that these loans are properly
characterized for risk-based capital purposes. However, there is no assurance that the regulators
will concur with that determination. If required to treat mortgage warehouse loans as commercial
loans, the Bank will consider increasing the amount of its capital through the issuance of
subordinated debt, trust
preferred securities or equity securities; or consider other alternatives.
As a condition of approval for the Alliance acquisition, the OCC required Horizon Bank to
maintain regulatory capital ratios at 100 basis points above the well capitalized minimums shown
above.
29
As of December 31, 2006, management is not aware of any other recommendations by banking
regulatory authorities, which, if they were to be implemented, would have or are reasonably likely
to have a material effect on Horizons liquidity, capital resources or operations.
Results of Operations
Net Income
Consolidated net income was $7.484 million or $2.33 per diluted share in 2006, $7.091 million or
$2.24 per diluted share in 2005 and $6.935 million or $2.22 per share in 2004.
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 earning assets. Horizons earning assets consist of loans, investment
securities and interest-bearing balances in banks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing assets
Loans total (1) (3) |
|
$ |
785,448 |
|
|
$ |
57,282 |
|
|
|
7.29 |
% |
|
$ |
640,758 |
|
|
$ |
44,749 |
|
|
|
6.98 |
% |
|
$ |
514,916 |
|
|
$ |
33,386 |
|
|
|
6.48 |
% |
Taxable investment
securities, including FRB
and FHLB stock |
|
|
190,670 |
|
|
|
8,348 |
|
|
|
4.38 |
|
|
|
244,495 |
|
|
|
9,610 |
|
|
|
3.93 |
|
|
|
192,419 |
|
|
|
7,211 |
|
|
|
3.75 |
|
Nontaxable investment
securities (2) |
|
|
65,773 |
|
|
|
2,796 |
|
|
|
4.25 |
|
|
|
54,806 |
|
|
|
2,372 |
|
|
|
4.32 |
|
|
|
52,722 |
|
|
|
2,264 |
|
|
|
4.29 |
|
Interest-bearing balances
and money market investments
(4) |
|
|
4,469 |
|
|
|
153 |
|
|
|
3.42 |
|
|
|
1,177 |
|
|
|
38 |
|
|
|
3.23 |
|
|
|
4,924 |
|
|
|
69 |
|
|
|
1.40 |
|
Federal funds sold |
|
|
1,890 |
|
|
|
101 |
|
|
|
5.34 |
|
|
|
755 |
|
|
|
24 |
|
|
|
3.18 |
|
|
|
4,560 |
|
|
|
58 |
|
|
|
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets |
|
|
1,048,250 |
|
|
|
68,680 |
|
|
|
6.55 |
|
|
|
941,991 |
|
|
|
56,793 |
|
|
|
6.03 |
|
|
|
769,541 |
|
|
|
42,988 |
|
|
|
5.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
Cash and due from banks |
|
|
21,525 |
|
|
|
|
|
|
|
|
|
|
|
19,610 |
|
|
|
|
|
|
|
|
|
|
|
16,822 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(8,723 |
) |
|
|
|
|
|
|
|
|
|
|
(7,615 |
) |
|
|
|
|
|
|
|
|
|
|
(6,985 |
) |
|
|
|
|
|
|
|
|
Other assets |
|
|
57,053 |
|
|
|
|
|
|
|
|
|
|
|
46,127 |
|
|
|
|
|
|
|
|
|
|
|
39,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,118,105 |
|
|
|
|
|
|
|
|
|
|
$ |
1,000,113 |
|
|
|
|
|
|
|
|
|
|
$ |
818,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
Savings deposits |
|
$ |
34,637 |
|
|
|
96 |
|
|
|
.28 |
% |
|
$ |
38,231 |
|
|
|
139 |
|
|
|
.36 |
|
|
$ |
36,265 |
|
|
|
74 |
|
|
|
.20 |
|
Money market |
|
|
139,177 |
|
|
|
4,559 |
|
|
|
3.28 |
|
|
|
143,652 |
|
|
|
3,414 |
|
|
|
2.37 |
|
|
|
123,013 |
|
|
|
1,558 |
|
|
|
1.27 |
|
Interest-bearing demand
deposits |
|
|
178,773 |
|
|
|
4,164 |
|
|
|
2.33 |
|
|
|
165,767 |
|
|
|
2,385 |
|
|
|
1.44 |
|
|
|
104,909 |
|
|
|
482 |
|
|
|
.46 |
|
Time deposits |
|
|
387,365 |
|
|
|
16,915 |
|
|
|
4.37 |
|
|
|
320,014 |
|
|
|
10,934 |
|
|
|
3.42 |
|
|
|
266,200 |
|
|
|
8,579 |
|
|
|
3.22 |
|
Short-term borrowings |
|
|
78,747 |
|
|
|
2,035 |
|
|
|
2.58 |
|
|
|
45,517 |
|
|
|
1,573 |
|
|
|
3.46 |
|
|
|
37,205 |
|
|
|
600 |
|
|
|
1.61 |
|
Long-term debt |
|
|
157,179 |
|
|
|
9,366 |
|
|
|
5.95 |
|
|
|
155,393 |
|
|
|
7,475 |
|
|
|
4.81 |
|
|
|
135,362 |
|
|
|
6,273 |
|
|
|
4.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities |
|
|
975,878 |
|
|
|
37,135 |
|
|
|
3.81 |
|
|
|
868,574 |
|
|
|
25,920 |
|
|
|
2.98 |
|
|
|
702,954 |
|
|
|
17,566 |
|
|
|
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities
Demand deposits |
|
|
78,654 |
|
|
|
|
|
|
|
|
|
|
|
73,501 |
|
|
|
|
|
|
|
|
|
|
|
62,634 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
6,138 |
|
|
|
|
|
|
|
|
|
|
|
6,153 |
|
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
57,435 |
|
|
|
|
|
|
|
|
|
|
|
51,885 |
|
|
|
|
|
|
|
|
|
|
|
48,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
1,118,105 |
|
|
|
|
|
|
|
|
|
|
$ |
1,000,113 |
|
|
|
|
|
|
|
|
|
|
$ |
818,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
31,545 |
|
|
|
|
|
|
|
|
|
|
$ |
30,873 |
|
|
|
|
|
|
|
|
|
|
$ |
25,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income as a percent
of interest earning assets |
|
|
|
|
|
|
|
|
|
|
3.01 |
% |
|
|
|
|
|
|
|
|
|
|
3.28 |
% |
|
|
|
|
|
|
|
|
|
|
3.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
(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 $3,470,000,
$3,246,000 and $3,129,000 in 2006, 2005 and 2004 respectively. |
|
(4) |
|
Horizon has no foreign office and, accordingly, no assets or liabilities to foreign
operations. Horizons subsidiary bank had no funds invested in Eurodollar Certificates of
Deposit at December 31, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 2005 |
|
|
2005 2004 |
|
|
|
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 |
|
$ |
12,533 |
|
|
$ |
10,479 |
|
|
$ |
2,054 |
|
|
$ |
11,363 |
|
|
$ |
8,638 |
|
|
$ |
2,725 |
|
Taxable investment securities |
|
|
(1,310 |
) |
|
|
(2,281 |
) |
|
|
971 |
|
|
|
2,447 |
|
|
|
2,051 |
|
|
|
396 |
|
Nontaxable investment securities |
|
|
424 |
|
|
|
467 |
|
|
|
(43 |
) |
|
|
108 |
|
|
|
90 |
|
|
|
18 |
|
Interest-bearing balances and
money market investments |
|
|
115 |
|
|
|
113 |
|
|
|
2 |
|
|
|
(31 |
) |
|
|
(78 |
) |
|
|
47 |
|
Federal funds sold |
|
|
77 |
|
|
|
53 |
|
|
|
24 |
|
|
|
(34 |
) |
|
|
(75 |
) |
|
|
41 |
|
|
|
|
Total interest income |
|
|
11,839 |
|
|
|
8,831 |
|
|
|
3,008 |
|
|
|
13,853 |
|
|
|
10,626 |
|
|
|
3,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
|
(43 |
) |
|
|
(12 |
) |
|
|
(31 |
) |
|
|
65 |
|
|
|
4 |
|
|
|
61 |
|
Money market |
|
|
1,145 |
|
|
|
(109 |
) |
|
|
1,254 |
|
|
|
1,856 |
|
|
|
298 |
|
|
|
1,558 |
|
Interest-bearing demand deposits |
|
|
1,779 |
|
|
|
200 |
|
|
|
1,579 |
|
|
|
1,903 |
|
|
|
407 |
|
|
|
1,496 |
|
Time deposits |
|
|
5,981 |
|
|
|
2,577 |
|
|
|
3,404 |
|
|
|
2,355 |
|
|
|
1,815 |
|
|
|
540 |
|
Short-term borrowings |
|
|
462 |
|
|
|
933 |
|
|
|
(471 |
) |
|
|
973 |
|
|
|
159 |
|
|
|
814 |
|
Long-term debt |
|
|
1,843 |
|
|
|
87 |
|
|
|
1,756 |
|
|
|
1,250 |
|
|
|
979 |
|
|
|
271 |
|
|
|
|
Total interest expense |
|
|
11,167 |
|
|
|
3,676 |
|
|
|
7,491 |
|
|
|
8,402 |
|
|
|
3,662 |
|
|
|
4,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Earnings |
|
$ |
672 |
|
|
$ |
5,155 |
|
|
$ |
(4,483 |
) |
|
$ |
5,451 |
|
|
$ |
6,964 |
|
|
$ |
(1,513 |
) |
|
|
|
Horizons average earning assets were $1,048.250 million in 2006 compared to $941.991 million in
2005 and $769.541 million in 2004. The net interest margin for 2006 was 3.01% compared to 3.28%
and 3.31% in 2005 and 2004, respectively. Short-term interest rates began to increase in the third
quarter of 2004 and continued through 2005 until June of 2006. Short-term interest rates have
remained relatively stable since then.
Horizon began to experience slightly higher loan yields due to the increase in short-term rates
throughout 2006. This is due in part to new loans and loan renewals coming in at higher rates than
those maturing or paying off and rates on loans with variable rates rising with short-term rates.
Average loans outstanding during 2006 showed significant growth from 2005 due to a full year of the
Alliance acquisition and concerted effort in new business. The mix of the loan portfolio also
showed significant change as shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Commercial loans |
|
$ |
267,263 |
|
|
$ |
234,971 |
|
|
$ |
174,391 |
|
Mortgage warehouse loans |
|
|
96,334 |
|
|
|
108,298 |
|
|
|
134,063 |
|
Real estate loans |
|
|
201,756 |
|
|
|
123,815 |
|
|
|
85,314 |
|
Installment loans |
|
|
220,095 |
|
|
|
173,674 |
|
|
|
121,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans outstanding |
|
$ |
785,448 |
|
|
$ |
640,758 |
|
|
$ |
514,916 |
|
|
|
|
31
Average commercial loans grew nearly 14%, consumer loans increased by over 27% and residential real
estate loans increased by over 63%. Commercial loans grew on average due a full years impact of
the growth achieved in 2005 through the Alliance acquisition and additional lenders. The southwest
Michigan market, in which Horizon increased market share through the acquisition of Alliance in
2005, continued to have a strong growth pattern. Average consumer loans grew as a result of
expansion of indirect lending into southwest Michigan and north central Indiana. The continued
decrease in mortgage refinancing caused mortgage warehouse loans to decrease by over 11%.
To help fund the loan growth, investment portfolio was allowed to decrease through normal
maturities and securitiy sales. Restructuring of the investment portfolio occurred by selling low
yielding investment ssecurities and reinvesting the proceeds in higher yielding securities. The
loss taken on the sale will be recovered within one year through improved yield on the new
securities.
Average interest-bearing deposits increased by over 11% during 2006. Short-term deposit rates
increased throughout the year. The overall cost of time deposits increased as maturing
certificates of deposit renewed at higher rates.
The increase in net interest income during 2006 and 2005 is primarily the result of increased
earning assets, particularly investment securities in 2005 and the loan portfolio in 2005 and 2006.
The increase in net interest income resulting from increased earning assets was partially offset
by declines in the net interest margin.
Noninterest Income
The major components of noninterest income consist of service charges on deposit accounts, gain on
sale of loans 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 Banks markets. Service charges on deposits were $3.102 million, $2.966 million and
$3.088 million, for 2006, 2005 and 2004, respectively.
Gain on sale of loans was $1.681 million for 2006, $1.756 million for 2005 and $2.126 million in
2004. Horizon has sold between 50% and 60% of its residential mortgage loan production in 2004
through 2006. The loans retained are predominantly adjustable rate mortgage loans. During 2006,
Horizon sold $96 million of current production of residential mortgage loans into the secondary
market compared to $98 million in 2005 and $106 million in 2004. The 2004 gain includes
approximately $394 thousand from the sale of portfolio loans. Portfolio mortgage loans were sold
to reduce the interest rate risk related to long-term fixed rate assets and to provide funding for
the growth in other loan areas. Horizon anticipates that the volume of mortgage loan activity will
remain fairly constant in 2007 however, it is anticipated that a higher percentage of production
will be sold into the secondary market. Overall mortgage activity is anticipated to decline,
however, as Horizon enters new markets, originations in these markets should offset the overall
decline.
Fiduciary fees were $3.100 million in 2006 compared to $2.748 million in 2005 and $2.694 million in
2004. The fluctuations are primarily due to changes in the market value of assets under
administration and an increase in one time Employee Stock Ownership Plan fees.
Noninterest Expense
Noninterest expense totaled $30.455 million in 2006 compared to $29.129 million in 2005 and
$25.672 million in 2004.
Salaries and benefits decreased .6% during 2006 compared to an increase of 11.9% during 2005. The
decrease in 2006 related to a decline in incentive compensation and staff reduction through
attrition resulting from an efficiency study conducted during the fourth quarter of 2004, partially
offset by the cost of additional staff for the newly created wholesale mortgage lending division
created during the third quarter of 2006. The increase for 2005 related to the cost of expansion
into new markets,
32
including the acquisition of Alliance, partially offset by declines in incentive compensation and commissions
paid to mortgage originators.
Total other expenses, excluding salaries and benefits, increased 11.2% in 2006 and 15.6% in 2005.
During 2006 and 2005 other expenses were impacted by costs related to the acquisition of Alliance
as well as ongoing expenses relative to the operation of the additional branches, including the
amortization of the core deposit intangible acquired in the acquisition. 2006 was also impacted by
an increase in the deferred loan fees being amortized over the life of the loan.
Income Taxes
Income tax expense totaled $2.838 million in 2006 compared to $2.945 million in 2005 and $2.494
million in 2004. The effective tax rate was 27.5%, 29.3% and 26.45% for 2006, 2005 and 2004,
respectively. The decrease in the effective tax rate in 2006 was due to an increase in the
percentage of tax-exempt income to pre-tax income. The increase in the effective rate in 2005 was
due to a decline in the percentage of tax exempt income to pre-tax income.
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 Horizons
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 (within certain parameters) 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 repayments, investment security sales
and maturities, sale of real estate loans and borrowing relationships with correspondent banks,
including the Federal Home Loan Bank (FHLB). At December 31, 2006, Horizon has available
approximately $197.693 million in available credit from various money center banks, including the
FHLB. During 2006, cash flows were generated primarily from proceeds from borrowings of $33.8
million, increase in deposits of $58.4 million and sales, maturities, and prepayments of investment
securities of $125.0 million. Cash flows were used to purchase investments totaling $91.8 million
and increase loans $112.2 million. The net cash and cash equivalent position increased by $13.1
million during 2006.
Interest Sensitivity
The degree by which net interest income may fluctuate due to changes in interest rates is monitored
by Horizon using computer simulation models, 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 determines the exposure to interest rate risk
inherent in Horizons balance sheet. The goal is to manage imbalanced positions that arise when
the total amount of assets that reprice or maturing in a given time period differs significantly
from liabilities that reprice or mature in the same time period. The theory behind managing the
difference between repricing assets and liabilities is to have more assets repricing in a rising
rate environment and more liabilities repricing in a declining rate environment. At December 31,
2006, the amount of assets that reprice within one year were 96% of liabilities that reprice within
one year. At December 31, 2005, the amount of assets that reprice within one year were
approximately 109% of the amount of liabilities that reprice within the same time period.
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Sensitivity |
|
|
|
|
|
|
|
> 3 Months and |
|
|
> 6 Months and |
|
|
|
|
|
|
|
|
|
3 Months or Less |
|
|
< 6 Months |
|
|
< 1 Year |
|
|
Greater Than 1 Year |
|
|
Total |
|
|
|
|
Loans |
|
$ |
282,092 |
|
|
$ |
67,725 |
|
|
$ |
102,589 |
|
|
$ |
404,531 |
|
|
$ |
856,937 |
|
Federal funds sold |
|
|
6,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500 |
|
Interest-bearing balances with Banks |
|
|
898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
898 |
|
Investment securities and FRB and
FHLB stock |
|
|
29,576 |
|
|
|
11,107 |
|
|
|
13,077 |
|
|
|
201,454 |
|
|
|
255,214 |
|
Other assets |
|
|
13,209 |
|
|
|
|
|
|
|
|
|
|
|
89,672 |
|
|
|
102,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
332,275 |
|
|
$ |
78,832 |
|
|
$ |
115,666 |
|
|
$ |
695,657 |
|
|
$ |
1,222,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Sensitivity |
|
|
|
|
|
|
|
> 3 Months and |
|
|
> 6 Months and |
|
|
|
|
|
|
|
|
|
3 Months or Less |
|
|
< 6 Months |
|
|
< 1 Year |
|
|
Greater Than 1 Year |
|
|
Total |
|
|
|
|
Noninterest-bearing deposits |
|
$ |
6,781 |
|
|
$ |
6,781 |
|
|
$ |
11,318 |
|
|
$ |
57,069 |
|
|
$ |
81,949 |
|
Interest-bearing deposits |
|
|
273,759 |
|
|
|
92,562 |
|
|
|
144,389 |
|
|
|
321,314 |
|
|
|
832,024 |
|
Borrowed funds |
|
|
67,161 |
|
|
|
21,674 |
|
|
|
18,438 |
|
|
|
132,729 |
|
|
|
240,002 |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,578 |
|
|
|
6,578 |
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,877 |
|
|
|
61,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and
stockholders
equity |
|
$ |
347,701 |
|
|
$ |
121,017 |
|
|
$ |
174,145 |
|
|
$ |
579,567 |
|
|
$ |
1,222,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAP |
|
$ |
(15,426 |
) |
|
$ |
(42,185 |
) |
|
$ |
(58,479 |
) |
|
$ |
116,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative GAP |
|
$ |
(15,426 |
) |
|
$ |
(57,611 |
) |
|
$ |
(116,090 |
) |
|
|
|
|
|
|
|
|
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 59% 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.
Quantitative and Qualitative Disclosures About Market Risk
Horizons primary market risk exposure is interest rate risk. Interest rate risk (IRR) is the risk
that Horizons 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.
Horizons 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 Horizons 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. Horizons
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.
34
The table, which follows, provides information about Horizons financial instruments that are
sensitive to changes in interest rates as of December 31, 2006. The table incorporates Horizons
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 Horizons experience and managements judgment concerning the most likely
withdrawal behaviors.
Horizon had no derivative financial instruments or trading portfolio as of December 31, 2006.
35
Quantitative Disclosure of Market Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 and |
|
|
|
|
|
|
Fair Value |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Beyond |
|
|
Total |
|
|
12/31/06 |
|
|
|
|
Rate-sensitive assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate loans |
|
$ |
158,555 |
|
|
$ |
86,256 |
|
|
$ |
54,960 |
|
|
$ |
33,637 |
|
|
$ |
18,418 |
|
|
$ |
23,676 |
|
|
$ |
375,502 |
|
|
$ |
377,240 |
|
Average interest rate |
|
|
6.83 |
% |
|
|
6.91 |
% |
|
|
7.08 |
% |
|
|
7.31 |
% |
|
|
6.70 |
% |
|
|
7.13 |
% |
|
|
6.98 |
% |
|
|
|
|
|
Variable interest rate loans |
|
|
293,852 |
|
|
|
53,116 |
|
|
|
48,727 |
|
|
|
38,703 |
|
|
|
32,213 |
|
|
|
14,824 |
|
|
|
481,435 |
|
|
|
486,968 |
|
Average interest rate |
|
|
8.07 |
% |
|
|
6.17 |
% |
|
|
6.00 |
% |
|
|
6.01 |
% |
|
|
6.22 |
% |
|
|
6.75 |
% |
|
|
7.32 |
% |
|
|
|
|
|
Total loans |
|
|
452,407 |
|
|
|
139,372 |
|
|
|
103,687 |
|
|
|
72,340 |
|
|
|
50,631 |
|
|
|
38,500 |
|
|
|
856,937 |
|
|
|
864,208 |
|
Average interest rate |
|
|
7.64 |
% |
|
|
6.63 |
% |
|
|
6.57 |
% |
|
|
6.61 |
% |
|
|
6.70 |
% |
|
|
6.98 |
% |
|
|
7.17 |
% |
|
|
|
|
|
Securities, including FRB and
FHLB stock |
|
|
53,760 |
|
|
|
26,838 |
|
|
|
20,705 |
|
|
|
21,677 |
|
|
|
17,689 |
|
|
|
114,545 |
|
|
|
255,214 |
|
|
|
255,214 |
|
Average interest rate |
|
|
4.83 |
% |
|
|
4.56 |
% |
|
|
4.71 |
% |
|
|
5.09 |
% |
|
|
5.16 |
% |
|
|
4.46 |
% |
|
|
4.67 |
% |
|
|
|
|
|
Other interest-bearing assets |
|
|
20,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,607 |
|
|
|
20,607 |
|
Average interest rate |
|
|
6.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.92 |
% |
|
|
|
|
|
Total earnings assets |
|
|
526,774 |
|
|
|
166,210 |
|
|
|
124,392 |
|
|
|
94,017 |
|
|
|
68,320 |
|
|
|
153,045 |
|
|
|
1,132,758 |
|
|
|
1,140,029 |
|
Average interest rate |
|
|
7.32 |
% |
|
|
6.29 |
% |
|
|
6.26 |
% |
|
|
6.26 |
% |
|
|
6.30 |
% |
|
|
5.09 |
% |
|
|
6.60 |
% |
|
|
|
|
Rate-sensitive liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
$ |
24,880 |
|
|
$ |
17,326 |
|
|
$ |
12,066 |
|
|
$ |
8,403 |
|
|
$ |
5,852 |
|
|
$ |
13,422 |
|
|
$ |
81,949 |
|
|
$ |
81,949 |
|
NOW accounts |
|
|
54,494 |
|
|
|
48,043 |
|
|
|
39,817 |
|
|
|
31,856 |
|
|
|
25,488 |
|
|
|
107,449 |
|
|
|
307,147 |
|
|
|
304,258 |
|
Average interest rate |
|
|
3.14 |
% |
|
|
3.35 |
% |
|
|
3.42 |
% |
|
|
3.49 |
% |
|
|
3.53 |
% |
|
|
3.67 |
% |
|
|
3.46 |
% |
|
|
|
|
Savings and money market accounts |
|
|
139,035 |
|
|
|
6,359 |
|
|
|
4,528 |
|
|
|
3,226 |
|
|
|
2,304 |
|
|
|
6,024 |
|
|
|
161,476 |
|
|
|
155,874 |
|
Average interest rate |
|
|
3.224 |
% |
|
|
.28 |
% |
|
|
.28 |
% |
|
|
.28 |
% |
|
|
.28 |
% |
|
|
.28 |
% |
|
|
2.81 |
% |
|
|
|
|
Certificates of deposit |
|
|
317,182 |
|
|
|
36,115 |
|
|
|
7,374 |
|
|
|
1,946 |
|
|
|
276 |
|
|
|
508 |
|
|
|
363,401 |
|
|
|
304,188 |
|
Average interest rate |
|
|
4.74 |
% |
|
|
3.76 |
% |
|
|
3.58 |
% |
|
|
3.88 |
% |
|
|
4.29 |
% |
|
|
1.00 |
% |
|
|
4.61 |
% |
|
|
|
|
Total deposits |
|
|
535,591 |
|
|
|
107,843 |
|
|
|
63,785 |
|
|
|
45,431 |
|
|
|
33,920 |
|
|
|
127,403 |
|
|
|
913,973 |
|
|
|
903,649 |
|
Average interest rate |
|
|
3.96 |
% |
|
|
2.77 |
% |
|
|
2.57 |
% |
|
|
2.63 |
% |
|
|
2.71 |
% |
|
|
3.11 |
% |
|
|
3.49 |
% |
|
|
|
|
Fixed interest rate borrowings |
|
|
43,729 |
|
|
|
5,458 |
|
|
|
10,377 |
|
|
|
348 |
|
|
|
75,519 |
|
|
|
485 |
|
|
|
135,916 |
|
|
|
151,995 |
|
Average interest rate |
|
|
4.62 |
% |
|
|
3.59 |
% |
|
|
4.13 |
% |
|
|
4.78 |
% |
|
|
4.74 |
% |
|
|
5.01 |
% |
|
|
4.61 |
% |
|
|
|
|
Variable interest rate borrowings |
|
|
104,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,051 |
|
|
|
104,466 |
|
Average interest rate |
|
|
5.52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.52 |
% |
|
|
|
|
|
Total funds |
|
|
683,371 |
|
|
|
113,301 |
|
|
|
74,162 |
|
|
|
45,779 |
|
|
|
109,439 |
|
|
|
127,888 |
|
|
|
1,153,940 |
|
|
|
1,160,110 |
|
Average interest rate |
|
|
4.24 |
% |
|
|
2.81 |
% |
|
|
2.79 |
% |
|
|
2.65 |
% |
|
|
4.11 |
% |
|
|
3.12 |
% |
|
|
3.81 |
% |
|
|
|
|
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this item is incorporated by reference to the information appearing
in Managements Discussion and Analysis of Financial Condition and Results of Operation included in
Item 7.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Horizon Bancorp
Consolidated Financial Statements
Table of Contents
37
Horizon Bancorp and Subsidiaries
Consolidated Balance Sheets
(Dollar Amounts in Thousands)
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
52,311 |
|
|
$ |
39,163 |
|
Interest-bearing demand deposits |
|
|
1 |
|
|
|
87 |
|
Federal funds sold |
|
|
6,500 |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
58,812 |
|
|
|
39,250 |
|
Interest-bearing deposits |
|
|
898 |
|
|
|
15,735 |
|
Investment securities, available for sale |
|
|
243,078 |
|
|
|
275,177 |
|
Loans held for sale |
|
|
13,103 |
|
|
|
2,440 |
|
Loans, net of allowance for loan losses of $8,738 and $8,368 |
|
|
835,096 |
|
|
|
724,366 |
|
Premises and equipment |
|
|
23,394 |
|
|
|
21,425 |
|
Federal Reserve and Federal Home Loan Bank stock |
|
|
12,136 |
|
|
|
12,983 |
|
Goodwill |
|
|
5,787 |
|
|
|
5,787 |
|
Other intangible assets |
|
|
2,412 |
|
|
|
2,780 |
|
Interest receivable |
|
|
6,094 |
|
|
|
5,813 |
|
Other assets |
|
|
21,620 |
|
|
|
22,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,222,430 |
|
|
$ |
1,127,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
Noninterest bearing |
|
$ |
81,949 |
|
|
$ |
148,127 |
|
Interest bearing |
|
|
832,024 |
|
|
|
707,439 |
|
|
|
|
Total deposits |
|
|
913,973 |
|
|
|
855,566 |
|
Short-term borrowings |
|
|
83,842 |
|
|
|
50,024 |
|
Long-term borrowings |
|
|
115,951 |
|
|
|
133,609 |
|
Subordinated debentures |
|
|
40,209 |
|
|
|
27,837 |
|
Interest payable |
|
|
1,771 |
|
|
|
1,663 |
|
Other liabilities |
|
|
4,807 |
|
|
|
5,646 |
|
|
|
|
Total liabilities |
|
|
1,160,553 |
|
|
|
1,074,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value |
|
|
|
|
|
|
|
|
Authorized, 1,000,000 shares |
|
|
|
|
|
|
|
|
No shares issued |
|
|
|
|
|
|
|
|
Common stock, $.2222 stated value |
|
|
|
|
|
|
|
|
Authorized, 22,500,000 shares |
|
|
|
|
|
|
|
|
Issued, 4,998,106 and 4,911,741 shares |
|
|
1,111 |
|
|
|
1,092 |
|
Additional paid-in capital |
|
|
25,229 |
|
|
|
24,552 |
|
Retained earnings |
|
|
54,196 |
|
|
|
48,523 |
|
Restricted stock, unearned compensation |
|
|
|
|
|
|
(760 |
) |
Accumulated other comprehensive loss |
|
|
(1,507 |
) |
|
|
(2,853 |
) |
Less treasury stock, at cost, 1,759,424 and 1,755,158 shares |
|
|
(17,152 |
) |
|
|
(17,024 |
) |
|
|
|
Total stockholders equity |
|
|
61,877 |
|
|
|
53,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,222,430 |
|
|
$ |
1,127,875 |
|
|
|
|
See notes to consolidated financial statements
38
Horizon Bancorp
Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
57,282 |
|
|
$ |
44,749 |
|
|
$ |
33,386 |
|
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
8,602 |
|
|
|
9,720 |
|
|
|
7,338 |
|
Tax exempt |
|
|
2,796 |
|
|
|
2,372 |
|
|
|
2,264 |
|
|
|
|
Total interest income |
|
|
68,680 |
|
|
|
56,841 |
|
|
|
42,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
25,734 |
|
|
|
16,374 |
|
|
|
10,693 |
|
Federal funds purchased and short-term borrowings |
|
|
2,035 |
|
|
|
1,210 |
|
|
|
600 |
|
Long-term borrowings |
|
|
7,100 |
|
|
|
6,789 |
|
|
|
5,554 |
|
Subordinated debentures |
|
|
2,266 |
|
|
|
1,595 |
|
|
|
719 |
|
|
|
|
Total interest expense |
|
|
37,135 |
|
|
|
25,968 |
|
|
|
17,566 |
|
|
|
|
Net Interest Income |
|
|
31,545 |
|
|
|
30,873 |
|
|
|
25,422 |
|
Provision for loan losses |
|
|
905 |
|
|
|
1,521 |
|
|
|
990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses |
|
|
30,640 |
|
|
|
29,352 |
|
|
|
24,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
3,102 |
|
|
|
2,966 |
|
|
|
3,088 |
|
Wire-transfer fee income |
|
|
396 |
|
|
|
438 |
|
|
|
522 |
|
Fiduciary activities |
|
|
3,100 |
|
|
|
2,748 |
|
|
|
2,694 |
|
Commission income from insurance agency |
|
|
|
|
|
|
46 |
|
|
|
254 |
|
Gain on sale of loans |
|
|
1,681 |
|
|
|
1,756 |
|
|
|
2,126 |
|
Gain on sale of mortgage servicing rights |
|
|
656 |
|
|
|
|
|
|
|
|
|
Increase in cash surrender value of life insurance |
|
|
470 |
|
|
|
487 |
|
|
|
544 |
|
Gain (loss) on sale of securities available for sale |
|
|
(764 |
) |
|
|
4 |
|
|
|
|
|
Other income |
|
|
1,496 |
|
|
|
1,368 |
|
|
|
1,441 |
|
|
|
|
Total other income |
|
|
10,137 |
|
|
|
9,813 |
|
|
|
10,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
16,433 |
|
|
|
16,518 |
|
|
|
14,767 |
|
Net occupancy expenses |
|
|
2,338 |
|
|
|
2,217 |
|
|
|
1,832 |
|
Data processing and equipment expenses |
|
|
2,560 |
|
|
|
2,342 |
|
|
|
1,997 |
|
Professional fees |
|
|
1,386 |
|
|
|
1,225 |
|
|
|
1,219 |
|
Outside services and consultants |
|
|
1,100 |
|
|
|
1,064 |
|
|
|
978 |
|
Loan expenses |
|
|
1,952 |
|
|
|
1,427 |
|
|
|
1,222 |
|
Other expenses |
|
|
4,686 |
|
|
|
4,336 |
|
|
|
3,657 |
|
|
|
|
Total other expenses |
|
|
30,455 |
|
|
|
29,129 |
|
|
|
25,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax |
|
|
10,322 |
|
|
|
10,036 |
|
|
|
9,429 |
|
Income tax expense |
|
|
2,838 |
|
|
|
2,945 |
|
|
|
2,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
7,484 |
|
|
$ |
7,091 |
|
|
$ |
6,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
|
$ |
2.36 |
|
|
$ |
2.31 |
|
|
$ |
2.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
|
$ |
2.33 |
|
|
$ |
2.24 |
|
|
$ |
2.22 |
|
See notes to consolidated financial statements.
39
Horizon Bancorp
Consolidated Statements of Stockholders Equity
(Dollar Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Stock, |
|
Other |
|
|
|
|
|
|
Common |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
Unearned |
|
Comprehensive |
|
Treasury |
|
|
|
|
Stock |
|
Capital |
|
Income |
|
Earnings |
|
Compensation |
|
Income (Loss) |
|
Stock |
|
Total |
|
Balances, January 1, 2004 |
|
$ |
1,041 |
|
|
$ |
20,994 |
|
|
|
|
|
|
$ |
37,638 |
|
|
|
|
|
|
$ |
2,075 |
|
|
$ |
(15,525 |
) |
|
$ |
46,223 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
$6,935 |
|
|
|
6,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,935 |
|
Other comprehensive loss,
net of tax, unrealized
losses on securities |
|
|
|
|
|
|
|
|
|
|
(1,181 |
) |
|
|
|
|
|
|
|
|
|
|
(1,181 |
) |
|
|
|
|
|
|
(1,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
$5,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($.49 per
share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,481 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,481 |
) |
Exercise of stock options |
|
|
11 |
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
445 |
|
Tax benefit related to
stock options |
|
|
|
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251 |
|
Purchase treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(848 |
) |
|
|
(848 |
) |
Issuance of restricted stock |
|
|
10 |
|
|
|
1,050 |
|
|
|
|
|
|
|
|
|
|
$ |
(1,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004 |
|
|
1,062 |
|
|
|
22,729 |
|
|
|
|
|
|
|
43,092 |
|
|
|
(972 |
) |
|
|
894 |
|
|
|
(16,373 |
) |
|
|
50,432 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
$7,091 |
|
|
|
7,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,091 |
|
Other comprehensive loss,
net of tax, unrealized
losses on securities, net
of reclassification
adjustment |
|
|
|
|
|
|
|
|
|
|
(3,747 |
) |
|
|
|
|
|
|
|
|
|
|
(3,747 |
) |
|
|
|
|
|
|
(3,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
$3,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($.53 per
share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,660 |
) |
Exercise of stock options |
|
|
30 |
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
946 |
|
Tax benefit related to
stock options |
|
|
|
|
|
|
907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
907 |
|
Purchase treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(651 |
) |
|
|
(651 |
) |
Issuance of restricted stock
Amortization of unearned
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005 |
|
|
1,092 |
|
|
|
24,552 |
|
|
|
|
|
|
|
48,523 |
|
|
|
(760 |
) |
|
|
(2,853 |
) |
|
|
(17,024 |
) |
|
|
53,530 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
$7,484 |
|
|
|
7,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,484 |
|
Other comprehensive income,
net of tax, unrealized
gains on securities, net of
reclassification adjustment |
|
|
|
|
|
|
|
|
|
|
1,346 |
|
|
|
|
|
|
|
|
|
|
|
1,346 |
|
|
|
|
|
|
|
1,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
$8,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($.56 per
share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,811 |
) |
Reclassification of
restricted stock, unearned
compensation to paid-in
capital upon adoption of
SFAS 123 (R) |
|
|
|
|
|
|
(760 |
) |
|
|
|
|
|
|
|
|
|
|
760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
19 |
|
|
|
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735 |
|
Tax benefit related to
stock options |
|
|
|
|
|
|
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469 |
|
Stock option expense |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Purchase treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128 |
) |
|
|
(128 |
) |
Amortization of unearned
compensation |
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006 |
|
$ |
1,111 |
|
|
$ |
25,229 |
|
|
|
|
|
|
$ |
54,196 |
|
|
$ |
0 |
|
|
$ |
(1,507 |
) |
|
$ |
(17,152 |
) |
|
$ |
61,877 |
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
40
Horizon Bancorp
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,484 |
|
|
$ |
7,091 |
|
|
$ |
6,935 |
|
Items not requiring (providing) cash |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
905 |
|
|
|
1,521 |
|
|
|
990 |
|
Depreciation and amortization |
|
|
2,471 |
|
|
|
2,281 |
|
|
|
1,606 |
|
Share based compensation |
|
|
40 |
|
|
|
|
|
|
|
|
|
Premium amortization on securities available for sale |
|
|
240 |
|
|
|
764 |
|
|
|
582 |
|
Mortgage servicing rights impairment (recovery) |
|
|
(41 |
) |
|
|
(97 |
) |
|
|
(155 |
) |
Deferred income tax |
|
|
(78 |
) |
|
|
174 |
|
|
|
(458 |
) |
(Gain) loss on sales of securities available for sale |
|
|
764 |
|
|
|
(4 |
) |
|
|
|
|
Gain on sale of mortgage servicing rights |
|
|
(656 |
) |
|
|
|
|
|
|
|
|
Gain on sale of loans |
|
|
(1,681 |
) |
|
|
(1,756 |
) |
|
|
(2,126 |
) |
Proceeds from sales of loans |
|
|
115,608 |
|
|
|
98,150 |
|
|
|
114,499 |
|
Loans originated for sale |
|
|
(124,590 |
) |
|
|
(94,998 |
) |
|
|
(107,996 |
) |
(Gain) loss on sale of other real estate owned |
|
|
4 |
|
|
|
(38 |
) |
|
|
(17 |
) |
(Gain) loss on sale of premises and equipment |
|
|
16 |
|
|
|
(22 |
) |
|
|
11 |
|
FHLB stock dividends |
|
|
|
|
|
|
|
|
|
|
(458 |
) |
Tax benefit of options exercised |
|
|
(469 |
) |
|
|
(907 |
) |
|
|
(251 |
) |
Increase in cash surrender value of life insurance |
|
|
(470 |
) |
|
|
(487 |
) |
|
|
(544 |
) |
Net change in |
|
|
|
|
|
|
|
|
|
|
|
|
Interest receivable |
|
|
(281 |
) |
|
|
(596 |
) |
|
|
(919 |
) |
Interest payable |
|
|
108 |
|
|
|
497 |
|
|
|
273 |
|
Other assets |
|
|
496 |
|
|
|
912 |
|
|
|
2,572 |
|
Other liabilities |
|
|
(879 |
) |
|
|
(1,269 |
) |
|
|
(226 |
) |
|
|
|
Net cash provided by (used in) operating activities |
|
|
(1,009 |
) |
|
|
11,216 |
|
|
|
14,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in interest-bearing deposits |
|
|
14,837 |
|
|
|
(10,048 |
) |
|
|
8,150 |
|
Purchases of securities available for sale |
|
|
(91,791 |
) |
|
|
(38,417 |
) |
|
|
(171,180 |
) |
Proceeds from maturities, calls and principal repayments of securities available for sale |
|
|
33,695 |
|
|
|
54,071 |
|
|
|
103,227 |
|
Proceeds from sales of securities available for sale |
|
|
91,265 |
|
|
|
7,150 |
|
|
|
|
|
Purchase of FRB and FHLB stock |
|
|
(81 |
) |
|
|
(712 |
) |
|
|
|
|
Proceeds from sale of mortgage servicing rights |
|
|
1,273 |
|
|
|
|
|
|
|
|
|
Proceeds from sale of Federal Home loan Bank Stock |
|
|
928 |
|
|
|
|
|
|
|
|
|
Net change in loans |
|
|
(112,203 |
) |
|
|
(83,118 |
) |
|
|
(117,830 |
) |
Proceeds from sale of fixed assets |
|
|
1 |
|
|
|
723 |
|
|
|
51 |
|
Recoveries on loans previously charged-off |
|
|
608 |
|
|
|
527 |
|
|
|
359 |
|
Proceeds from sale of other real estate owned |
|
|
44 |
|
|
|
409 |
|
|
|
165 |
|
Purchases of premises and equipment |
|
|
(3,877 |
) |
|
|
(1,421 |
) |
|
|
(2,659 |
) |
Purchase of trust preferred securities |
|
|
(372 |
) |
|
|
|
|
|
|
(310 |
) |
Purchase of bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
(12,000 |
) |
Acquisition, net of cash acquired |
|
|
|
|
|
|
(2,901 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(65,673 |
) |
|
|
(73,737 |
) |
|
|
(192,027 |
) |
|
|
|
41
Horizon Bancorp
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
(Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
Deposits |
|
$ |
58,407 |
|
|
$ |
126,213 |
|
|
$ |
66,049 |
|
Short-term borrowings |
|
|
33,818 |
|
|
|
(34,142 |
) |
|
|
62,040 |
|
Proceeds from long-term borrowings |
|
|
|
|
|
|
107,000 |
|
|
|
89,850 |
|
Repayment of long-term borrowings |
|
|
(17,658 |
) |
|
|
(115,096 |
) |
|
|
(76,117 |
) |
Proceeds from issuance of trust preferred securities |
|
|
12,372 |
|
|
|
|
|
|
|
10,310 |
|
Dividends paid |
|
|
(1,811 |
) |
|
|
(1,660 |
) |
|
|
(1,481 |
) |
Issuance of stock |
|
|
775 |
|
|
|
946 |
|
|
|
445 |
|
Tax benefit of options exercised |
|
|
469 |
|
|
|
907 |
|
|
|
251 |
|
Purchase of treasury stock |
|
|
(128 |
) |
|
|
(651 |
) |
|
|
(848 |
) |
|
|
|
Net cash provided by financing activities |
|
|
86,244 |
|
|
|
83,517 |
|
|
|
150,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
19,562 |
|
|
|
20,996 |
|
|
|
(27,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Year |
|
|
39,250 |
|
|
|
18,254 |
|
|
|
45,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year |
|
$ |
58,812 |
|
|
$ |
39,250 |
|
|
$ |
18,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Cash Flows Information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
36,960 |
|
|
$ |
25,281 |
|
|
$ |
17,293 |
|
Income tax paid |
|
|
1,530 |
|
|
|
1,870 |
|
|
|
1,072 |
|
See notes to consolidated financial statements.
42
Horizon Bancorp
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 subsidiary, Horizon Bank, N.A. (Bank) conform to accounting principles generally
accepted in the United States of America 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 active wholly owned subsidiaries: Horizon
Trust & Investment Management, Inc. (HTIM) and Horizon Investments, Inc. (Investment Company).
HTIM offers corporate and individual trust and agency services and investment management services.
Horizon Investments, Inc. manages the investment portfolio of the Bank. The Bank maintains
fourteen full service facilities in Northwest Indiana and Southwest Michigan. The Bank also
maintains a loan production office in Lake County Indiana. The Bank also wholly owns Horizon
Insurance Services, Inc. (Insurance Agency) which is inactive, but previously offered a full line
of personal insurance products. The net income generated from the insurance operations was not
significant to the overall operations of Horizon and the majority of the insurance agency assets
were sold during 2005. Horizon conducts no business except that incident to its ownership of the
subsidiaries.
Horizon formed Horizon Statutory Trust I in 2002, Horizon Statutory Trust II in 2004 and Horizon
Bancorp Capital Trust III in 2006 for the purpose of participating in Pooled Trust Preferred Stock
offerings. The Company assumed additional debentures as the result of the acquisition of Alliance
in 2005 which formed Alliance Financial Statutory Trust I (Alliance Trust). See Note 11 for
further discussion regarding these previously consolidated entities that are now reported
separately.
Horizon formed one nonbank subsidiary, HBC Insurance Group, Inc. (Insurance Company). The
Insurance Company previously offered credit life and accident and health insurance and was
dissolved during 2004. The net income generated from the Insurance Company was not significant to
the overall operations of Horizon.
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 accounting principles
generally accepted in the United States of America 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 designates its investment portfolio as available
for sale based on managements 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 Horizons 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.
43
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
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 or 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 loans to
customers located primarily in Northwest Indiana and southwest Michigan and provides mortgage
warehouse lines to mortgage companies in the United States. Commercial loans make up approximately
32% of the loan portfolio and are secured by both real estate and business assets. These loans are
expected to be repaid from cash flows from operations of the businesses. Residential real estate
loans make up approximately 27% of the loan portfolio and are secured by residential real estate.
Installment loans make up approximately 28% of the loan portfolio and are primarily secured by
consumer assets. Mortgage warehouse loans make up approximately 13% 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 32 approved mortgage companies at
December 31, 2006. 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. Horizons 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 pools of outstanding loans. Loss
factors are based on a historical loss experience and may be adjusted for significant factors that,
in managements judgment, affect the collectibility of the portfolio as of the evaluation date.
Specific allowances are established in cases where management has identified conditions or
circumstances related to a credit that management believes indicate the probability that a loss
will be incurred in excess of the amount determined by the application of the formula allowance.
44
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The unallocated allowance is based upon managements 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, concentrations of credit and changes in the composition of the
portfolio.
Loan Impairment When analysis determines a borrowers operating results and financial 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
placed on 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 loans effective interest
rate, at the loans 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 2 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 Bank (FRB) and Federal Home Loan Bank (FHLB)
systems. The required investment in the common stock is based on a predetermined formula.
Mortgage Servicing Rights Mortgage servicing rights on originated loans that have been sold are
capitalized by allocating the total cost of the mortgage loans between the mortgage servicing
rights and the loans based on their relative fair values. Capitalized servicing rights are
amortized in proportion to and over the period of estimated servicing revenue. Impairment of
mortgage-servicing rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate. For purposes of
measuring impairment, the rights are stratified based on the predominant risk characteristics of
the underlying loans. The predominant characteristic currently used for stratification is type of
loan. The amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed their fair value. Amortization expense and charges related
to an impairment write-down are included in other income.
Goodwill Goodwill is tested annually for impairment. If the implied fair value of goodwill is
lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to
its implied fair value. Subsequent increases in goodwill value are not recognized in the financial
statements. As of December 31, 2004, and for the year then ended, goodwill totaled $158 thousand.
During 2005, $5.629 million of goodwill was acquired as a result of the Alliance Financial
Corporation acquisition resulting in a total of $5.787 million of goodwill as of December 31, 2005
and 2006.
45
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Income Taxes Horizon files annual consolidated income tax returns with its subsidiaries. Income
tax in the consolidated statements 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 sheets since such property is not owned by
Horizon.
Earnings 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. In August 2002, substantially all of the participants in Horizons 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 $14.67 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 Horizons stock price exceeds $14.67 per share, therefore, the option
becomes potentially dilutive at $14.67 per share or higher. The number of shares used in the
computation of basic earnings per share is 3,177,272 for 2006, 3,067,632 for 2005 and 2,993,696 for
2004. The number of shares used in the computation of diluted earnings per share is 3,217,050 for
2006, 3,162,950 for 2005 and 3,123,325 for 2004. For 2006 there were 5,000 shares excluded from
diluted earnings per share as they were anti-dilutive. There were no anti-dilutive shares for 2005
or 2004.
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. At December 31, 2006, $4.921 million was available for payment
of dividends from the Bank to Horizon. 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 Statements 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.
Share-Based Compensation At December 31, 2006, Horizon has stock option plans, which are
described more fully in Note 19. Effective January 1, 2006, Horizon adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) addresses all
forms of share-based payment awards, including shares under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. SFAS 123(R) requires all share-based
payments to be recognized as expense, based upon their fair values, in the financial statements
over the vesting period of the awards. Horizon has elected the modified prospective application
and, as a result, has recorded approximately $40 thousand in compensation expense relating to
vesting of stock options less estimated forfeitures for the 12 month period ended December 31,
2006. Prior to adoption of SFAS 123(R), unearned compensation related to restricted stock awards
was classified as a separate component of stockholders equity. Upon the adoption of SFAS 123(R)
on January 1, 2006, the balance in unearned compensation was reclassified to additional paid-in
capital.
46
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Prior to the adoption of SFAS 123(R), Horizon accounted 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 was reflected in net income, as all
options granted under the plan 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 Horizon had applied the fair value provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2005 |
|
|
2004 |
|
|
Net income, as reported |
|
$ |
7,091 |
|
|
$ |
6,935 |
|
Less: Total stock-based
employee compensation cost
determined under the fair
value based method, net of
income taxes |
|
|
(35 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
7,056 |
|
|
$ |
6,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
2.31 |
|
|
$ |
2.32 |
|
Basic pro forma |
|
$ |
2.30 |
|
|
$ |
2.27 |
|
Diluted as reported |
|
$ |
2.24 |
|
|
$ |
2.22 |
|
Diluted pro forma |
|
$ |
2.23 |
|
|
$ |
2.18 |
|
Reclassifications Certain reclassifications have been made to the 2005 and 2004 consolidated
financial statements to be comparable to 2006. These reclassifications had no effect on net
income.
Recent Accounting Pronouncements
Accounting for Servicing of Financial Assets The FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets (SFAS 156), which amends SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 156
permits an entity to choose either of the following subsequent measurement methods for each class
of separately recognized servicing assets and servicing liabilities:
|
§ |
|
Amortization Method Amortize servicing assets or servicing liabilities in proportion
to and over the period of net servicing income or net servicing loss and assess the servicing
assets or liabilities for impairment or increased obligation based on fair value at each
reporting date. |
|
|
§ |
|
Fair Value Measurement Method Measure servicing assets or servicing liabilities at
fair value at each reporting date and report changes in fair value in earnings in the periods
in which the changes occur. |
Horizon adopted the amortization method on January 1, 2007. The adoption of SFAS 156 did not have
a material impact on Horizons consolidated financial condition or results of operations.
47
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Fair Value Measurements In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157) on fair value measurement. SFAS 157 provides guidance for
using fair value to measure assets and liabilities. SFAS 157 also responds to investors requests
for expanded information about the extent to which companies measure assets and liabilities at fair
value, the information used to measure fair value and the effect of fair value measurements on
earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to
be measured at fair value. SFAS 157 does not expand the use of fair value in any new circumstances.
Over forty current accounting standards within generally accepted accounting principles require (or
permit) entities to measure assets and liabilities at fair value. Prior to SFAS 157, the methods
for measuring fair value were diverse and inconsistent, especially for items that are not actively
traded. In the case of derivatives, the FASB consulted with investors, who generally supported fair
value, even when market data are not available, along with expanded disclosure of the methods used
and the effect on earnings.
Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants in the market in
which the reporting entity transacts such sales or transfers. SFAS 157 clarifies the principle
that fair value should be based on the assumptions market participants would use when pricing an
asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. The fair value hierarchy gives the
highest priority to quoted prices in active markets and the lowest priority to unobservable data,
for example, the reporting entitys own data. Under SFAS 157, fair value measurements would be
separately disclosed by level within the fair value hierarchy.
SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. Early adoption is permitted. Horizon has not
determined the impact that SFAS 157 will have on its consolidated financial condition or results of
operations.
Accounting for Uncertainty in Income Taxes The FASB released the final interpretation of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48), which is effective for fiscal years beginning after December 15, 2006. FIN 48 creates a
single model to address uncertainty in tax positions. FIN 48 clarifies the accounting for income
tax positions by prescribing the minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition.
FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs
when an enterprise concludes that a tax position, based solely on its technical merits, is
more-likely-than-not to be sustained upon examination. Measurement (step two) is only addressed if
step one has been satisfied (i.e., the position is more-likely-than-not to be sustained). Under
step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative
probability basis that is more-likely-than-not to be realized upon ultimate settlement. FIN 48s
use of the term more-likely-than-not in steps one and two is consistent with how that term is
used in SFAS No. 109, Accounting for Income Taxes (i.e., a likelihood of occurrence greater than
50 percent).
48
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Those tax positions failing to qualify for initial recognition are recognized in the first
subsequent interim period in which they meet the more-likely-than-not standard, or are resolved
through negotiation or litigation with the taxing authority, or upon expiration of the statute of
limitations. Derecognition of a tax position that was previously recognized would occur when a
company subsequently determines that a tax position no longer meets the more-likely-than-not
threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a
substitute for derecognition of tax positions.
FIN 48 includes expanded disclosure requirements, including a tabular roll forward of the beginning
and ending aggregate unrecognized tax benefits as well as specific detail related to tax
uncertainties for which it is reasonably possible the amount of unrecognized tax benefit will
significantly increase or decrease within twelve months. These disclosures are required at each
annual reporting period unless a significant change occurs in an interim period. Horizon adopted
FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on Horizons
consolidated financial condition or results of operations.
Note 2 Acquisition
On June 10, 2005, Horizon acquired Alliance Financial Corporation and its wholly owned bank
subsidiary, Alliance Banking Company (collectively referred to as Alliance). Horizon purchased the
outstanding shares of Alliance for $42.50 per share in cash. The cost of the transaction,
including legal, accounting, and investment fees was $13.348 million. The assets and liabilities
of Alliance were recorded on the balance sheet at their fair value as of the acquisition date. The
results of Alliances operations have been included in Horizons consolidated statement of income
from the date of acquisition. The $5,629,000 of goodwill is not deductible for tax purposes.
The following table summarizes the estimated fair values of the net assets acquired as of the June
10, 2005, acquisition date:
|
|
|
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
10,447 |
|
Investment securities |
|
|
28,922 |
|
Loans, net of allowance for loan losses |
|
|
86,447 |
|
Premises and equipment |
|
|
4,983 |
|
Goodwill |
|
|
5,629 |
|
Core deposit intangible |
|
|
2,952 |
|
Other assets |
|
|
1,711 |
|
|
|
|
|
Total assets |
|
|
141,091 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Deposits |
|
|
117,137 |
|
Borrowings |
|
|
9,040 |
|
Other liabilities |
|
|
1,566 |
|
|
|
|
|
Total liabilities |
|
|
127,743 |
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired |
|
$ |
13,348 |
|
|
|
|
|
49
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The following pro forma disclosures, including the effect of the purchase accounting adjustments,
depict the results of operations as though the merger had taken place January 1, 2004:
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
2005 |
|
|
2004 |
|
|
Net interest income |
|
$ |
32,884 |
|
|
$ |
29,948 |
|
Net Income |
|
|
6,111 |
|
|
|
6,890 |
|
|
|
|
|
|
|
|
|
|
Per Share combined
|
|
|
|
|
|
|
|
|
Basic net income |
|
$ |
1.99 |
|
|
$ |
2.30 |
|
Diluted net income |
|
|
1.93 |
|
|
|
2.21 |
|
Note 3 Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
December 31 |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
$ |
58,595 |
|
|
$ |
58 |
|
|
$ |
208 |
|
|
$ |
58,445 |
|
State and municipal |
|
|
81,363 |
|
|
|
806 |
|
|
|
369 |
|
|
|
81,800 |
|
Federal agency collateralized
mortgage obligations |
|
|
11,215 |
|
|
|
19 |
|
|
|
224 |
|
|
|
11,010 |
|
Federal agency mortgage-backed pools |
|
|
93,591 |
|
|
|
54 |
|
|
|
2,471 |
|
|
|
91,174 |
|
Corporate notes |
|
|
632 |
|
|
|
17 |
|
|
|
|
|
|
|
649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
245,396 |
|
|
$ |
954 |
|
|
$ |
3,272 |
|
|
$ |
243,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
December 31 |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
$ |
72,153 |
|
|
$ |
|
|
|
$ |
1,786 |
|
|
$ |
70,367 |
|
State and municipal |
|
|
64,608 |
|
|
|
1,794 |
|
|
|
430 |
|
|
|
65,972 |
|
Federal agency collateralized
mortgage obligations |
|
|
22,781 |
|
|
|
|
|
|
|
628 |
|
|
|
22,153 |
|
Federal agency mortgage-backed pools |
|
|
119,392 |
|
|
|
125 |
|
|
|
3,497 |
|
|
|
116,020 |
|
Corporate notes |
|
|
632 |
|
|
|
33 |
|
|
|
|
|
|
|
665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
279,566 |
|
|
$ |
1,952 |
|
|
$ |
6,341 |
|
|
$ |
275,177 |
|
|
|
|
50
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities available for sale at December 31, 2006, 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 |
|
$ |
16,111 |
|
|
$ |
16,065 |
|
One to five years |
|
|
14,695 |
|
|
|
14,630 |
|
Five to ten years |
|
|
29,223 |
|
|
|
29,250 |
|
After ten years |
|
|
80,561 |
|
|
|
80,949 |
|
|
|
|
|
|
|
140,590 |
|
|
|
140,894 |
|
Federal agency collateralized mortgage obligations |
|
|
11,215 |
|
|
|
11,010 |
|
Federal agency mortgage-backed pools |
|
|
93,591 |
|
|
|
91,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
245,396 |
|
|
$ |
243,078 |
|
|
|
|
Securities with a carrying value of $78,795,000 and $76,183,000 were pledged at December 31, 2006
and 2005, respectively, to secure certain public and trust deposits and securities sold under
agreements to repurchase.
Proceeds from sales of securities available for sale during 2006 were $91,265,000. Gross gains of
$1,247,000 and gross losses of $2,011,000 were recognized on these sales in 2006. Proceeds from
sales of securities available for sale during 2005 were $7,150,000. Gross gains of $37,000 and
gross losses of $33,000 were recognized on these sales. There were no sales of securities
available for sale during 2004. The tax benefit on net realized losses for 2006 was $267,000. The
tax expense on net realized gains for 2005 was $1,400.
Certain investments in debt securities are reported in the financial statements at an amount less
than their historical cost. Total fair value of these investments at December 31, 2006 and 2005,
was $150,402,000 and $226,292,000, respectively, which is approximately 62% and 82% of Horizons
available-for-sale investment portfolio. These declines primarily resulted from increases in
market interest rates.
Based on evaluation of available evidence, including recent changes in market interest rates,
credit rating information and information obtained from regulatory filings, management believes the
declines in fair value for these securities are temporary.
Should the impairment of any of these securities become other than temporary, the cost basis of the
investment will be reduced and the resulting loss recognized in net income in the period the
other-than-temporary impairment is identified.
51
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The following table shows our investments gross unrealized losses and fair value, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position at December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
12 Months or More |
Total |
|
Description of |
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
Securities |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
and federal
agencies |
|
$ |
10,804 |
|
|
$ |
30 |
|
|
$ |
10,899 |
|
|
$ |
178 |
|
|
$ |
21,703 |
|
|
$ |
208 |
|
State and municipal |
|
|
22,354 |
|
|
|
121 |
|
|
|
10,615 |
|
|
|
248 |
|
|
|
32,969 |
|
|
|
369 |
|
Federal agency
collateralized
mortgage
obligations |
|
|
|
|
|
|
|
|
|
|
9,203 |
|
|
|
224 |
|
|
|
9,203 |
|
|
|
224 |
|
Federal agency
mortgage-backed
pools |
|
|
1,742 |
|
|
|
10 |
|
|
|
84,785 |
|
|
|
2,461 |
|
|
|
86,527 |
|
|
|
2,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
temporarily
impaired
securities |
|
$ |
34,900 |
|
|
$ |
161 |
|
|
$ |
115,502 |
|
|
$ |
3,111 |
|
|
$ |
150,402 |
|
|
$ |
3,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
12 Months or More |
Total |
|
Description of |
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
Securities |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
and federal
agencies |
|
$ |
11,957 |
|
|
$ |
243 |
|
|
$ |
57,010 |
|
|
$ |
1,542 |
|
|
$ |
68,967 |
|
|
$ |
1,785 |
|
State and municipal |
|
|
25,335 |
|
|
|
388 |
|
|
|
1,968 |
|
|
|
42 |
|
|
|
27,303 |
|
|
|
430 |
|
Federal agency
collateralized
mortgage
obligations |
|
|
10,313 |
|
|
|
317 |
|
|
|
11,840 |
|
|
|
312 |
|
|
|
22,153 |
|
|
|
629 |
|
Federal agency
mortgage-backed
pools |
|
|
40,983 |
|
|
|
950 |
|
|
|
66,886 |
|
|
|
2,547 |
|
|
|
107,869 |
|
|
|
3,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
temporarily
impaired
securities |
|
$ |
88,588 |
|
|
$ |
1,898 |
|
|
$ |
137,704 |
|
|
$ |
4,443 |
|
|
$ |
226,292 |
|
|
$ |
6,341 |
|
|
|
|
52
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 4 Loans and Allowance
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
Commercial loans |
|
$ |
271,457 |
|
|
$ |
273,310 |
|
Mortgage warehouse loans |
|
|
112,267 |
|
|
|
97,729 |
|
Real estate loans |
|
|
222,235 |
|
|
|
159,312 |
|
Installment loans |
|
|
237,875 |
|
|
|
202,383 |
|
|
|
|
|
|
|
843,834 |
|
|
|
732,734 |
|
Allowance for loan losses |
|
|
(8,738 |
) |
|
|
(8,368 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
835,096 |
|
|
$ |
724,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1 |
|
$ |
8,368 |
|
|
$ |
7,193 |
|
|
$ |
6,909 |
|
Acquired through acquisition |
|
|
|
|
|
|
557 |
|
|
|
|
|
Provision for losses |
|
|
905 |
|
|
|
1,521 |
|
|
|
990 |
|
Recoveries on loans |
|
|
608 |
|
|
|
527 |
|
|
|
359 |
|
Loans charged off |
|
|
(1,143 |
) |
|
|
(1,430 |
) |
|
|
(1,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31 |
|
$ |
8,738 |
|
|
$ |
8,368 |
|
|
$ |
7,193 |
|
|
|
|
Impaired loans for which the carrying value of the loans exceeded the discounted cash flows or
collateral value totaled approximately $1,768,000 and $583,000 at December 31, 2006 and 2005,
respectively. The allowance for impaired loans, included in the Banks allowance for loan losses,
totaled $406,000 and $492,000 at December 31, 2006 and 2005, respectively. The average balance of
impaired loans during 2006 was $942,000 and $150,000 during 2005. There was $117,000, $63,000 and
$22,000 of interest income recorded on the cash and accrual basis during 2006, 2005 and 2004,
respectively, on impaired loans.
At December 31, 2006, loans past due more than 90 days and still accruing interest totaled
approximately $186,000. At December 31, 2005, loans past due more than 90 days and still accruing
interest totaled approximately $251,000. Nonaccruing loans at December 31, 2006, 2005 and 2004,
totaled approximately $2,481,000, $1,822,000 and $1,358,000, respectively. Interest income not
recognized on these loans totaled approximately $77,000, $60,000 and $88,000 in 2006, 2005 and
2004, respectively.
Loans to directors and executive officers of Horizon and the Bank, including associates of such
persons, amounted to $5,834,000 and $5,947,000, as of December 31, 2006 and 2005, respectively.
During 2006, new loans or advances were $2,950,000 and loan payments were $3,063,000.
53
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 5 Premises and Equipment
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
Land |
|
$ |
6,641 |
|
|
$ |
5,088 |
|
Buildings and improvements |
|
|
23,565 |
|
|
|
21,986 |
|
Furniture and equipment |
|
|
9,809 |
|
|
|
9,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost |
|
|
40,015 |
|
|
|
36,959 |
|
Accumulated depreciation |
|
|
(16,621 |
) |
|
|
(15,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
$ |
23,394 |
|
|
$ |
21,425 |
|
|
|
|
Note 6 Loan Servicing
Loans serviced for others are not included in the accompanying consolidated balance sheets. The
unpaid principal balances of loans serviced for others totaled approximately $23,702,000
and$163,356,000 at December 31, 2006 and 2005, respectively.
The aggregate fair value of capitalized mortgage servicing rights at December 31, 2006, totaled
approximately $258,000. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Mortgage Servicing Rights |
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1 |
|
$ |
1,278 |
|
|
$ |
1,473 |
|
|
$ |
1,429 |
|
Servicing rights capitalized |
|
|
83 |
|
|
|
239 |
|
|
|
482 |
|
Servicing rights sold |
|
|
(862 |
) |
|
|
|
|
|
|
|
|
Amortization of servicing rights |
|
|
(251 |
) |
|
|
(434 |
) |
|
|
(438 |
) |
|
|
|
|
|
|
248 |
|
|
|
1,278 |
|
|
|
1,473 |
|
Impairment allowance |
|
|
(3 |
) |
|
|
(44 |
) |
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31 |
|
$ |
245 |
|
|
$ |
1,234 |
|
|
$ |
1,332 |
|
|
|
|
During 2006, the Bank sold mortgage servicing rights with a book value of $862,000. The principal
balance of the loans on which the servicing was sold amounted to $134,465,000. During 2006 and
2005, the Bank recorded a gross recovery of the impairment allowance totaling approximately $41,000
and $97,000, respectively.
54
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 7 Intangible Assets
As a result of the acquisition of Alliance (Note 2) in 2005, the Company has recorded certain
amortizable intangible assets related to core deposit intangibles. The Core deposit intangible is
being amortized over ten years using an accelerated method. Additionally, the Company has a
noncompete agreement being amortized over four years from the acquisition of a mortgage company
in 2003. Amortizable intangible assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
December 31 |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
Amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible |
|
$ |
2,952 |
|
|
$ |
(553 |
) |
|
$ |
2,952 |
|
|
$ |
(208 |
) |
Noncompete agreement |
|
|
90 |
|
|
|
(77 |
) |
|
|
90 |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,042 |
|
|
$ |
(630 |
) |
|
$ |
3,042 |
|
|
$ |
(262 |
) |
|
|
|
Amortization expense for intangible assets totaled $368, $230 and $22 for the years ended December
31, 2006, 2005 and 2004, respectively. Estimated amortization for the years ending December 31 are
as follows:
|
|
|
|
|
2007 |
|
|
$ |
344 |
2008 |
|
|
|
317 |
2009 |
|
|
|
305 |
2010 |
|
|
|
292 |
2011 |
|
|
|
280 |
Thereafter
|
|
|
874 |
|
|
|
|
|
|
|
$ |
2,412 |
|
|
|
|
Note 8 Deposits
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
Noninterest-bearing demand deposits |
|
$ |
81,949 |
|
|
$ |
148,127 |
|
Interest-bearing demand deposits |
|
|
307,147 |
|
|
|
196,016 |
|
Money market (variable rate) |
|
|
129,981 |
|
|
|
167,466 |
|
Savings deposits |
|
|
31,495 |
|
|
|
37,956 |
|
Certificates of deposit of $100,000 or more |
|
|
151,342 |
|
|
|
111,843 |
|
Other certificates and time deposits |
|
|
212,059 |
|
|
|
194,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
913,973 |
|
|
$ |
855,566 |
|
|
|
|
55
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Certificates and other time deposits maturing in years ending December 31 are as follows:
|
|
|
|
2007
|
|
$ |
317,181
|
2008
|
|
|
36,116
|
2009
|
|
|
7,374
|
2010
|
|
|
1,946
|
2011
|
|
|
276 |
Thereafter
|
|
|
508 |
|
|
|
|
|
|
$ |
363,401 |
|
|
|
Note 9 Short-Term Borrowings
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
Federal funds purchased |
|
$ |
|
|
|
$ |
7,000 |
|
Federal Home Loan Bank advances |
|
|
40,000 |
|
|
|
|
|
Securities sold under agreements to repurchase |
|
|
38,642 |
|
|
|
35,824 |
|
Notes payable |
|
|
5,200 |
|
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings |
|
$ |
83,842 |
|
|
$ |
50,024 |
|
|
|
|
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 2006 and 2005 totaled $70,179,000 and $61,825,000 and the daily average of such
agreements totaled $63,098,000 and $57,526,000, respectively. The agreements at December 31, 2006,
mature at various dates through October 27, 2009. Agreements with a maturity of one year or less
are included in short-term borrowings, while those with a maturity of more than one year are
included in long-term debt.
At December 31, 2006, the Bank had one adjustable rate short-term advance with the Federal Home
Loan Bank that matured on January 2, 2007. There were no outstanding adjustable rate short-term
advances at December 31, 2005.
Horizon has an unsecured $12,000,000 line of credit, of which, $5.2 million was outstanding at
December 31, 2006. The line of credit is from an unrelated financial institution with interest
payable quarterly at a rate indexed to LIBOR. The note matures within one year.
At December 31, 2006, the Bank has available approximately $197,693,000 in credit lines with
various money center banks, including the FHLB.
56
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 10 Long-Term Debt
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
Federal Home Loan Bank advances, variable and fixed
rates ranging from 2.86% to 7.53%, due at various
dates through November 15, 2024 |
|
$ |
97,951 |
|
|
$ |
107,609 |
|
Securities sold under repurchase agreements, fixed rate |
|
|
18,000 |
|
|
|
26,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
115,951 |
|
|
$ |
133,609 |
|
|
|
|
The Federal Home Loan Bank advances are secured by first and second mortgage loans totaling
approximately $436,088,000. Advances are subject to restrictions or penalties in the event of
prepayment.
Contractual maturities in years ending December 31
|
|
|
|
|
2007 |
|
|
|
$ 23,168 |
2008 |
|
|
|
5,294 |
2009 |
|
|
|
10,134 |
2010 |
|
|
|
142 |
2011 |
|
|
|
30,143 |
Thereafter
|
|
|
47,070 |
|
|
|
|
|
|
|
|
|
|
$ 115,951 |
|
|
|
|
|
Note 11 Subordinated Debentures
In March of 2002, Horizon formed Horizon Statutory Trust I (Trust I), a statutory business trust.
Trust I issued $12.372 million of Trust Preferred Capital Securities as a participant in a pooled
trust preferred securities offering. Horizon issued junior subordinated debentures aggregating
$12.372 million to Trust I. The junior subordinated debentures are the sole assets of Trust I.
The junior subordinated debentures and the trust preferred securities pay interest and dividends,
respectively, on a quarterly basis. The junior subordinated debentures and the securities bear
interest at a rate of 90-day LIBOR plus 3.60% and mature on March 26, 2032, and are noncallable for
five years. After that period, the securities may be called at any quarterly interest payment date
at par. These securities have been called and will be redeemed on March 26, 2007. Costs associated
with the issuance of the securities totaling $362,000 were capitalized and are being amortized to
the first call date of the securities.
In October of 2004, Horizon formed Horizon Statutory Trust II (Trust II), a statutory business
trust. Trust II issued $10.310 million of Trust Preferred Capital Securities as a participant in a
pooled trust preferred securities offering. Horizon issued junior
subordinated debentures aggregating $10.310 million to Trust II. The junior subordinated
debentures are the sole assets of Trust II. The junior subordinated debentures and the trust
preferred securities pay interest and dividends, respectively, on a quarterly basis. The junior
subordinated debentures and the securities bear interest at a rate of 90 day LIBOR plus 1.95% and
mature on October 21, 2034, and are noncallable for five years. After that period, the securities
may be called at any quarterly interest payment date at par. Costs associated with the issuance of
the securities totaling $17,500 were capitalized and are being amortized to the first call date of
the securities.
57
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
In December of 2006, Horizon formed Horizon Bancorp Capital Trust III (Trust III), a statutory
business trust. Trust III issued $12.372 million of Trust Preferred Capital Securities as a
participant in a pooled trust preferred securities offering. Horizon issued junior subordinated
debentures aggregating $12.372 million to Trust III. The junior subordinated debentures are the
sole assets of Trust III. The junior subordinated debentures and the trust preferred securities
pay interest and dividends, respectively, on a quarterly basis. The junior subordinated debentures
and the securities bear interest at a rate of 90 day LIBOR plus 1.65% and mature on January 30,
2037, and are noncallable for five years. After that period, the securities may be called at any
quarterly interest payment date at par. Costs associated with the issuance of the securities
totaling $12,647 were capitalized and are being amortized to the first call date of the securities.
The proceeds of this issue will be used to redeem the securities issued by Trust I on March 26,
2007.
The Company assumed additional debentures as the result of the acquisition of Alliance in 2005. In
June 2004, Alliance formed Alliance Financial Statutory Trust I (Alliance Trust) to issue the
$5.155 million in trust preferred securities. Alliance had issued junior subordinated debentures
aggregating $5.155 million to Alliance Trust. The junior subordinated debentures are the sole
assets of Alliance Trust. The junior subordinated debentures and the trust preferred securities
pay interest and dividends, respectively, on a quarterly basis. The junior subordinated debentures
and the securities bear interest at a rate of 90-day LIBOR plus 2.65%, mature in June 2034, and are
noncallable for five years. After that period, the securities may be called at any quarterly
interest payment date at par.
The Trust Preferred Capital Securities, subject to certain limitations, are included in Tier 1
Capital for regulatory purposes. At December 31, 2006, $20.605 million of the $40.209 million in
securities were not included in Tier 1 Capital for regulatory purposes. Dividends on the Trust
Preferred Capital Securities are recorded as interest expense.
Note 12 Employee Stock Bonus Plan
Horizon maintains an employee stock bonus plan (Stock Bonus Plan) that covers substantially all
employees. The Stock Bonus Plan is noncontributory and Horizon may make matching contributions of
amounts contributed by employees to the Employee Thrift Plan and discretionary contributions.
Prior to the establishment of the Stock Bonus Plan, Horizon maintained an employee stock ownership
plan (ESOP) that was terminated. Effective January 1, 2007, the stock bonus plan was converted back
to a new ESOP. The prior ESOP accounts of active employees and the discretionary accounts of
active employees will remain in the new ESOP. The Matching contribution accounts under the Stock
Bonus Plan will be transferred to the Horizon Bancorp Employees Thrift Plan. The retirement plans
of Horizon own approximately 14.7% of the outstanding shares.
Total cash contributions and expense recorded for the Stock Bonus Plan was $200,000 in 2006 and
2005 and $250,000 in 2004.
58
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 13 Employee Thrift Plan
The Employee Thrift Plan (Plan) provides that all employees of Horizon with the requisite hours of
service are eligible for the Plan. The Plan permits voluntary employee contributions and Horizon
may make discretionary matching and profit sharing contributions. Each eligible employee is vested
according to a schedule based upon years of service. Employee voluntary contributions are vested at
all times and Horizons discretionary contributions vest over a six-year period. The Banks
expense related to the thrift plan totaled approximately $332,000 in 2006, $384,000 in 2005 and
$300,000 for 2004.
Note 14 Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Supplies and printing |
|
$ |
466 |
|
|
$ |
452 |
|
|
$ |
403 |
|
Advertising |
|
|
613 |
|
|
|
659 |
|
|
|
553 |
|
Communication |
|
|
479 |
|
|
|
480 |
|
|
|
436 |
|
Directors fees |
|
|
279 |
|
|
|
272 |
|
|
|
274 |
|
Insurance expense |
|
|
466 |
|
|
|
509 |
|
|
|
376 |
|
Postage |
|
|
340 |
|
|
|
301 |
|
|
|
264 |
|
Amortization of intangibles |
|
|
367 |
|
|
|
230 |
|
|
|
22 |
|
Travel and entertainment |
|
|
530 |
|
|
|
527 |
|
|
|
430 |
|
Other |
|
|
1,146 |
|
|
|
906 |
|
|
|
899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
$ |
4,686 |
|
|
$ |
4,336 |
|
|
$ |
3,657 |
|
|
|
|
Note 15 Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Currently payable |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
2,381 |
|
|
$ |
2,226 |
|
|
$ |
2,445 |
|
State |
|
|
535 |
|
|
|
545 |
|
|
|
507 |
|
Deferred |
|
|
(78 |
) |
|
|
174 |
|
|
|
(458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
$ |
2,838 |
|
|
$ |
2,945 |
|
|
$ |
2,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of federal statutory to actual tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory income tax at 34% |
|
$ |
3,510 |
|
|
$ |
3,412 |
|
|
$ |
3,206 |
|
Tax exempt interest |
|
|
(1,009 |
) |
|
|
(841 |
) |
|
|
(882 |
) |
Tax exempt income |
|
|
(170 |
) |
|
|
(175 |
) |
|
|
(185 |
) |
Nondeductible and other |
|
|
154 |
|
|
|
189 |
|
|
|
20 |
|
Effect of state income taxes |
|
|
353 |
|
|
|
360 |
|
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense |
|
$ |
2,838 |
|
|
$ |
2,945 |
|
|
$ |
2,494 |
|
|
|
|
59
Horizon Bancorp
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 |
|
2006 |
|
|
2005 |
|
|
Assets |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
3,757 |
|
|
$ |
4,011 |
|
Accrued operating expenses |
|
|
101 |
|
|
|
233 |
|
Director and employee benefits |
|
|
855 |
|
|
|
738 |
|
Net operating loss carryforward |
|
|
60 |
|
|
|
173 |
|
Tax credit carry forward |
|
|
82 |
|
|
|
253 |
|
Unrealized loss on securities available for sale |
|
|
811 |
|
|
|
1,536 |
|
|
|
|
Total assets |
|
|
5,666 |
|
|
|
6,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(1,062 |
) |
|
|
(1,351 |
) |
Federal Home Loan Bank stock dividends |
|
|
(326 |
) |
|
|
(378 |
) |
Difference in basis of intangible assets |
|
|
(959 |
) |
|
|
(1,166 |
) |
Difference in basis of assets |
|
|
(185 |
) |
|
|
(133 |
) |
Difference in basis of liabilities |
|
|
(5 |
) |
|
|
(126 |
) |
Other |
|
|
(110 |
) |
|
|
(124 |
) |
|
|
|
Total liabilities |
|
|
(2,647 |
) |
|
|
(3,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
3,019 |
|
|
$ |
3,666 |
|
|
|
|
Note 16 Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Unrealized losses on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains
(losses) arising during the
year |
|
$ |
1,307 |
|
|
$ |
(5,765 |
) |
|
$ |
(1,816 |
) |
Less: reclassification
adjustment for gains (losses)
realized in net income |
|
|
(764 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
Net unrealized gains (losses) |
|
|
2,071 |
|
|
|
(5,769 |
) |
|
|
(1,816 |
) |
Tax (expense) benefit |
|
|
(725 |
) |
|
|
2,022 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
1,346 |
|
|
$ |
(3,747 |
) |
|
$ |
(1,181 |
) |
|
|
|
60
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 17 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 managements 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 $1,478,000 of cash on hand or on deposit with the
Federal Reserve Bank to meet regulatory reserve and clearing balance requirements at December 31,
2006. 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 Banks 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, 2006 and 2005, commitments to make loans amounted to approximately $154,686,000 and
$149,429,000 and commitments under outstanding standby letters of credit amounted to approximately
$3,000,000 and $1,995,000. 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 managements credit evaluation.
Note 18 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 entitys
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 banks operations. As a
condition of approval for the Alliance acquisition, the OCC
required Horizon Bank to maintain regulatory capital ratios at 100 basis points above the well
capitalized minimums shown below. At December 31, 2006 and 2005, Horizon and the Bank are
categorized as well capitalized and met all subject capital adequacy requirements including the
requirements imposed with the approval of the Alliance acquisition noted above.
61
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
During the course of a periodic examination by the Banks regulators that commenced in February
2003, the examination personnel raised the issue of whether the Banks 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 Banks 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 December 31, 2006 and 2005.
Horizons and the Banks actual and required capital amounts and ratios are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Required |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
Minimum Required |
|
Capitalized
1 Under |
|
|
|
|
|
|
|
|
|
|
for Capital 1 |
|
Prompt Corrective |
|
|
|
|
|
|
|
|
|
|
Adequacy |
|
Action |
|
|
Actual |
|
Purposes |
|
Requirements |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
As of December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
1 (to
risk-weighted assets)
Consolidated |
|
$ |
102,897 |
|
|
|
12.92 |
% |
|
$ |
63,738 |
|
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Bank |
|
|
89,327 |
|
|
|
11.26 |
|
|
|
63,444 |
|
|
|
8.00 |
|
|
$ |
79,305 |
|
|
|
10.00 |
% |
Tier I capital
1 (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
73,554 |
|
|
|
9.23 |
|
|
|
31,869 |
|
|
|
4.00 |
|
|
|
N/A |
|
|
|
N/A |
|
Bank |
|
|
80,589 |
|
|
|
10.16 |
|
|
|
31,722 |
|
|
|
4.00 |
|
|
|
47,583 |
|
|
|
6.00 |
|
Tier I capital
1 (to
average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
73,554 |
|
|
|
6.25 |
|
|
|
47,040 |
|
|
|
4.00 |
|
|
|
N/A |
|
|
|
N/A |
|
Bank |
|
|
80,589 |
|
|
|
6.89 |
|
|
|
46,760 |
|
|
|
4.00 |
|
|
|
58,449 |
|
|
|
5.00 |
|
|
As of December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
1 (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
83,052 |
|
|
|
11.54 |
% |
|
$ |
57,575 |
|
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Bank |
|
|
84,974 |
|
|
|
11.82 |
|
|
|
57,512 |
|
|
|
8.00 |
|
|
$ |
71,890 |
|
|
|
10.00 |
% |
Tier I capital
1 (to
risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
63,623 |
|
|
|
8.84 |
|
|
|
28,789 |
|
|
|
4.00 |
|
|
|
N/A |
|
|
|
N/A |
|
Bank |
|
|
76,606 |
|
|
|
10.66 |
|
|
|
28,745 |
|
|
|
4.00 |
|
|
|
43,118 |
|
|
|
6.00 |
|
Tier I capital
1 (to
average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
63,623 |
|
|
|
5.83 |
|
|
|
43,652 |
|
|
|
4.00 |
|
|
|
N/A |
|
|
|
N/A |
|
Bank |
|
|
76,607 |
|
|
|
7.02 |
|
|
|
43,650 |
|
|
|
4.00 |
|
|
|
54,563 |
|
|
|
5.00 |
|
1 As
defined by regulatory
agencies
62
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 19 Share Based Compensation
Horizon maintained the 1987 Nonqualified Stock Option and Stock Appreciation Right Plan (1987
Plan). As of December 31, 2006, no options or stock appreciation rights for the 1987 Plan were
outstanding or available for grant. No compensation expense relating to the 1987 Plan was recorded
in 2006 or 2005.
Under Horizons 1997 Stock Option and Stock Appreciation Right Plan (1997 Plan), which is accounted
for in accordance with Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123 (revised 2004) Share-Based Payment (FAS 123R), 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 cancelled upon
exercise of the SARs. In the third quarter of 2002, Horizon entered into agreements with
participants that capped the value of their SARs at $14.67 per share and discontinued any future
vesting. No additional compensation expense is recognized when the fair value of Horizon stock
exceeds $14.67 per share as there is a presumption that participants will exercise their options
rather than the SARs. No compensation expense relating to the SARs was recorded in 2006, 2005 or
2004.
A summary of option activity under the 1997 Plan as of December 31, 2006 and changes during the
year then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term |
|
|
Value |
|
|
Outstanding, beginning of year |
|
|
127,799 |
|
|
$ |
8.73 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(90,279 |
) |
|
|
8.85 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
37,520 |
|
|
$ |
8.43 |
|
|
$ |
4.46 |
|
|
$ |
713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year |
|
|
35,720 |
|
|
$ |
7.95 |
|
|
$ |
4.38 |
|
|
$ |
696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no options granted during the years 2006, 2005 and 2004. The total intrinsic value of
options exercised during the years ended December 31, 2006, 2005 and 2004, was $1,860,528,
$3,321,166 and $835,291, respectively.
63
Horizon Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
On January 21, 2003, the Board of Directors adopted the Horizon Bancorp 2003 Omnibus Equity
Incentive Plan (2003 Plan) which was approved by stockholders on May 8, 2003. Under the 2003 Plan,
Horizon may issue up to 150,000 common shares, plus the number of shares that are tendered to or
withheld by Horizon in connection with the exercise of options plus that number of shares that are
purchased by Horizon with the cash proceeds received upon option exercises. The 2003 Plan limits
the number of shares available to 150,000 for incentive stock options and to 75,000 for the grant
of nonqualified option awards. The shares available for issuance under the 2003 Plan may be
divided among the various types of awards and among the participants as the Compensation Committee
(Committee) determines. The Committee is authorized to grant any type of award to a participant
that is consistent with the provisions of the 2003 Plan. Awards may consist of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted stock, performance
units, performance shares or any combination of these awards. The Committee determines the
provisions, terms and conditions of each award. The restricted shares vest at the end of five
years of continuous employment. Holders of restricted shares receive dividends and may vote the
shares. The restricted shares are recorded at fair market value (on the date granted) as a
separate component of stockholders equity. The cost of these shares are being amortized against
earnings using the straight-line method over five years. The options shares granted under the 2003
plan vest at a rate of 20% per year. The restricted shares granted under the 2003 Plan vest after
five years.
The fair value of options granted is estimated on the date of the grant using an option-pricing
model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
2005 |
|
2004 |
|
Dividend yields |
|
|
2.14 |
% |
|
|
1.87 |
% |
|
|
2.04 |
% |
Volatility factors of
expected market price
of common stock |
|
|
18.10 |
% |
|
|
19.97 |
% |
|
|
23.37 |
% |
Risk-free interest rates |
|
|
5.20 |
% |
|
|
4.37 |
% |
|
|
4.44 |
% |
Expected life of options |
|
9 years |
|
9 years |
|
9 years |
A summary of option activity under the 2003 Plan as of December 31, 2006, and changes during the
year then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term |
|
|
Value |
|
|
Outstanding, beginning of year |
|
|
24,000 |
|
|
$ |
24.43 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
10,000 |
|
|
|
26.04 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(400 |
) |
|
|
23.56 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(600 |
) |
|
|
23.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
33,000 |
|
|
$ |
24.96 |
|
|
$ |
8.34 |
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year |
|
|
8,200 |
|
|
$ |
24.07 |
|
|
$ |
7.73 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
Horizon Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The weighted average grant-date fair value of options granted during the years 2006, 2005 and 2004
was $7.12, $7.66 and $6.97, respectively. The total intrinsic value of options exercised during the
year ended December 31, 2006 was $956. No options granted under the 2003 Plan were exercised in
2005 or 2004.
A summary of the status of Horizons nonvested, restricted shares as of December 31, 2006 and 2005,
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Grant |
|
|
|
|
|
|
Average Grant |
|
|
|
Shares |
|
|
Date Fair Value |
|
|
Shares |
|
|
Date Fair Value |
|
|
|
|
Nonvested, end of year |
|
|
45,000 |
|
|
$ |
23.56 |
|
|
|
45,000 |
|
|
$ |
23.56 |
|
There were no shares granted, vested or forfeited during 2006. These restricted shares all vest on
August 2, 2009.
Total compensation cost recognized in the income statement for option-based payment arrangements
during 2006 was $40,000 and the related tax benefit recognized was $16,000. No cost was recognized
for the years 2005 and 2004.
Total compensation cost recognized in the income statement for restricted share based payment
arrangements during 2006, 2005 and 2004 was $212,000, $212,000 and $88,000, respectively. The
recognized tax benefit related thereto was $84,000, $84,000 and $35,000 for the years ended
December 31, 2006, 2005 and 2004, respectively.
Cash received from option exercise under all share-based payment arrangements for the years ended
December 31, 2006, 2005 and 2004 was $735,000, $946,000 and $445,000, respectively. The actual tax
benefit realized for the tax deductions from option exercise of the share-based payment
arrangements totaled $723,000, $1,139,000 and $308,000, respectively, for the years ended December
31, 2006, 2005 and 2004.
As of December 31, 2006, there was $706,000 of total unrecognized compensation cost related to all
nonvested share-based compensation arrangements granted under all of the plans. That cost is
expected to be recognized over a weighted-average period of 2.8 years.
Note 20 FDIC One-Time Assessment Credit
Effective November 17, 2006, the FDIC implemented a one-time credit of $4.7 billion to eligible
institutions. The purpose of the credit is to recognize contributions made by certain institutions
to capitalize the Bank Insurance Fund and Savings Association
Insurance Fund, which have now been merged into the Deposit Insurance Fund. The Bank is an
eligible institution and has received notice from the FDIC that its share of the credit is
$458,184. This amount is not reflected in the accompanying financial statements as it represents
contingent future credits against future insurance assessment payments. As such, the timing and
ultimate recoverability of the one-time credit may change.
65
Horizon Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 21 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 judgment 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 Horizons significant financial instruments at December 31, 2006 and 2005.
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.
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 portfolio 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. The carrying amounts of loans held for sale
approximate fair value.
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.
Long-Term Borrowings Rates currently available to Horizon for debt with similar terms and
remaining maturities are used to estimate fair values of existing long-term borrowings.
66
Horizon Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Subordinated Debentures Rates currently available for debentures with similar terms and remaining
maturities are used to estimate fair values of existing debentures.
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.
The estimated fair values of Horizons financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
December 31 |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
52,312 |
|
|
$ |
52,312 |
|
|
$ |
39,250 |
|
|
$ |
39,250 |
|
Interest-bearing deposits |
|
|
898 |
|
|
|
898 |
|
|
|
15,735 |
|
|
|
15,735 |
|
Investment securities
available for sale |
|
|
243,078 |
|
|
|
243,078 |
|
|
|
275,177 |
|
|
|
275,177 |
|
Loans including loans held
for sale, net |
|
|
848,199 |
|
|
|
855,468 |
|
|
|
726,806 |
|
|
|
720,747 |
|
Interest receivable |
|
|
6,094 |
|
|
|
6,094 |
|
|
|
5,813 |
|
|
|
5,813 |
|
Stock in FHLB and FRB |
|
|
12,136 |
|
|
|
12,136 |
|
|
|
12,983 |
|
|
|
12,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
|
81,949 |
|
|
|
81,949 |
|
|
|
148,127 |
|
|
|
148,127 |
|
Interest-bearing deposits |
|
|
832,024 |
|
|
|
821,701 |
|
|
|
707,439 |
|
|
|
678,304 |
|
Short-term borrowings |
|
|
83,842 |
|
|
|
83,842 |
|
|
|
50,024 |
|
|
|
50,024 |
|
Long-term debt |
|
|
115,951 |
|
|
|
131,258 |
|
|
|
133,609 |
|
|
|
132,204 |
|
Subordinated debentures |
|
|
40,209 |
|
|
|
44,032 |
|
|
|
27,837 |
|
|
|
27,906 |
|
Interest payable |
|
|
1,771 |
|
|
|
1,771 |
|
|
|
1,663 |
|
|
|
1,663 |
|
67
Horizon Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 22 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 Sheets
|
|
|
|
|
|
|
|
|
December 31 |
|
2006 |
|
|
2005 |
|
|
Assets |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
481 |
|
|
$ |
611 |
|
Investment securities, available for sale |
|
|
12,024 |
|
|
|
|
|
Investment in Bank |
|
|
87,307 |
|
|
|
82,452 |
|
Other assets |
|
|
8,295 |
|
|
|
6,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
108,107 |
|
|
$ |
89,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Short-term borrowings |
|
$ |
5,200 |
|
|
$ |
7,200 |
|
Subordinated debentures |
|
|
40,209 |
|
|
|
27,837 |
|
Other liabilities |
|
|
821 |
|
|
|
672 |
|
Stockholders Equity |
|
|
61,877 |
|
|
|
53,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
108,107 |
|
|
$ |
89,239 |
|
|
|
|
Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Operating Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income from Bank |
|
$ |
5,900 |
|
|
$ |
9,900 |
|
|
$ |
4,800 |
|
Investment income |
|
|
91 |
|
|
|
48 |
|
|
|
19 |
|
Other Income |
|
|
4 |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,675 |
) |
|
|
(1,800 |
) |
|
|
(825 |
) |
Employee benefit expense |
|
|
(433 |
) |
|
|
(412 |
) |
|
|
(338 |
) |
Other expense |
|
|
(155 |
) |
|
|
(153 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Undistributed Income of
Subsidiaries |
|
|
2,732 |
|
|
|
7,583 |
|
|
|
3,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed Income (Loss) of Subsidiaries |
|
|
3,497 |
|
|
|
(1,435 |
) |
|
|
2,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Tax |
|
|
6,229 |
|
|
|
6,148 |
|
|
|
6,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Benefit |
|
|
1,255 |
|
|
|
943 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
7,484 |
|
|
$ |
7,091 |
|
|
$ |
6,935 |
|
|
|
|
68
Horizon Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,484 |
|
|
$ |
7,091 |
|
|
$ |
6,935 |
|
Items not requiring (providing) cash
Distributions in excess (equity in
undistributed) net income of Bank |
|
|
(3,497 |
) |
|
|
1,435 |
|
|
|
(2,860 |
) |
Equity in undistributed net income of
Insurance Company |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes receivable |
|
|
(1,745 |
) |
|
|
|
|
|
|
703 |
|
Dividends receivable from Bank |
|
|
(100 |
) |
|
|
(1,600 |
) |
|
|
|
|
Other assets |
|
|
298 |
|
|
|
(1,348 |
) |
|
|
(1,166 |
) |
Other liabilities |
|
|
149 |
|
|
|
(785 |
) |
|
|
127 |
|
|
|
|
Net cash provided by operating activities |
|
|
2,589 |
|
|
|
4,793 |
|
|
|
3,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
|
(12,024 |
) |
|
|
|
|
|
|
|
|
Investment in Insurance Company |
|
|
|
|
|
|
|
|
|
|
563 |
|
Investment in Bank |
|
|
|
|
|
|
(8,764 |
) |
|
|
(7,500 |
) |
Investment in Statutory Trusts |
|
|
(372 |
) |
|
|
|
|
|
|
(310 |
) |
Acquisition, net of cash acquired |
|
|
|
|
|
|
(2,901 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(12,396 |
) |
|
|
(11,665 |
) |
|
|
(7,247 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(1,811 |
) |
|
|
(1,660 |
) |
|
|
(1,481 |
) |
Change in short-term borrowings |
|
|
(2,000 |
) |
|
|
7,200 |
|
|
|
(5,000 |
) |
Issuance of stock |
|
|
1,244 |
|
|
|
1,853 |
|
|
|
696 |
|
Proceeds from issuance of trust preferred
securities |
|
|
12,372 |
|
|
|
|
|
|
|
10,310 |
|
Purchase of treasury stock |
|
|
(128 |
) |
|
|
(651 |
) |
|
|
(848 |
) |
|
|
|
Net cash provided by financing activities |
|
|
9,677 |
|
|
|
6,742 |
|
|
|
3,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(130 |
) |
|
|
(130 |
) |
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Year |
|
|
611 |
|
|
|
741 |
|
|
|
585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
481 |
|
|
$ |
611 |
|
|
$ |
741 |
|
|
|
|
69
Horizon Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 23 Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly consolidated results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2006 |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
Interest income |
|
$ |
15,663 |
|
|
$ |
16,650 |
|
|
$ |
17,758 |
|
|
$ |
18,609 |
|
Interest expense |
|
|
7,853 |
|
|
|
8,814 |
|
|
|
9,946 |
|
|
|
10,522 |
|
|
|
|
Net interest income |
|
|
7,810 |
|
|
|
7,836 |
|
|
|
7,812 |
|
|
|
8,087 |
|
Loss on sale of securities available for sale |
|
|
158 |
|
|
|
91 |
|
|
|
515 |
|
|
|
|
|
Provision for loan losses |
|
|
380 |
|
|
|
225 |
|
|
|
120 |
|
|
|
180 |
|
Net income |
|
|
1,449 |
|
|
|
1,834 |
|
|
|
1,968 |
|
|
|
2,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.46 |
|
|
$ |
.58 |
|
|
$ |
.62 |
|
|
$ |
.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
.45 |
|
|
$ |
.57 |
|
|
$ |
.61 |
|
|
$ |
.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3,142,219 |
|
|
|
3,183,870 |
|
|
|
3,189,004 |
|
|
|
3,193,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
3,203,206 |
|
|
|
3,209,294 |
|
|
|
3,211,777 |
|
|
|
3,238,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2005 |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
Interest income |
|
$ |
11,795 |
|
|
$ |
13,235 |
|
|
$ |
15,741 |
|
|
$ |
16,022 |
|
Interest expense |
|
|
5,022 |
|
|
|
5,956 |
|
|
|
7,193 |
|
|
|
7,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
6,773 |
|
|
|
7,279 |
|
|
|
8,548 |
|
|
|
8,273 |
|
Provision for loan losses |
|
|
330 |
|
|
|
381 |
|
|
|
360 |
|
|
|
450 |
|
Net income |
|
|
1,303 |
|
|
|
1,680 |
|
|
|
2,028 |
|
|
|
2,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.43 |
|
|
$ |
.55 |
|
|
$ |
.66 |
|
|
$ |
.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
.42 |
|
|
$ |
.53 |
|
|
$ |
.64 |
|
|
$ |
.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3,016,609 |
|
|
|
3,066,512 |
|
|
|
3,074,705 |
|
|
|
3,111,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
3,140,322 |
|
|
|
3,157,731 |
|
|
|
3,165,847 |
|
|
|
3,186,780 |
|
|
|
|
70
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Horizon Bancorp
Michigan City, Indiana
We have audited the accompanying consolidated balance sheets of Horizon Bancorp as of December 31,
2006 and 2005, and the related consolidated statements of income, stockholders equity and cash
flows for each of the three years in the period ended December 31, 2006. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 referred to above present fairly, in all
material respects, the financial position of Horizon Bancorp as of December 31, 2006 and 2005, and
the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted in the United States
of America.
|
|
|
|
|
|
|
|
|
|
|
BKD, llp |
Fort Wayne, Indiana
March 13, 2007
71
Horizon Bancorp
Managements Report on Financial Statements
Management is responsible for the preparation and presentation of the consolidated financial
statements and related notes on the preceding pages. The statements have been prepared in
conformity with accounting principles generally accepted in the United States of America
appropriate in the circumstances and include amounts that are based on managements best estimates
and judgments. Financial information elsewhere in the Annual Report is consistent with that in the
consolidated financial statements.
In meeting its responsibility for the accuracy of the consolidated financial statements, management
relies on Horizons 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 consolidated 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 consolidated financial statements in the Annual Report have been audited by BKD,
llp, independent registered public accounting firm, for 2006, 2005 and 2004. Their audits
were conducted in accordance with the standards of the Public Company Accounting Oversight Board
(United States) and included 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 consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America.
72
Horizon Bancorp
Summary of Selected Financial Data
(Dollar Amounts In Thousands Except Per Share Data and Ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
31,545 |
|
|
$ |
30,873 |
|
|
$ |
25,422 |
|
|
$ |
24,151 |
|
|
$ |
23,153 |
|
Provision for loan losses |
|
|
905 |
|
|
|
1,521 |
|
|
|
990 |
|
|
|
1,350 |
|
|
|
1,625 |
|
Total noninterest income |
|
|
10,137 |
|
|
|
9,813 |
|
|
|
10,669 |
|
|
|
11,140 |
|
|
|
10,249 |
|
Total noninterest expense |
|
|
30,455 |
|
|
|
29,129 |
|
|
|
25,672 |
|
|
|
24,771 |
|
|
|
23,403 |
|
Provision for income taxes |
|
|
2,838 |
|
|
|
2,945 |
|
|
|
2,494 |
|
|
|
2,636 |
|
|
|
2,778 |
|
|
|
|
Net income from
continuing operations |
|
|
7,484 |
|
|
|
7,091 |
|
|
|
6,935 |
|
|
|
6,534 |
|
|
|
5,596 |
|
Cumulative effective of
change in accounting for
goodwill, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97 |
) |
|
|
|
|
Net income |
|
$ |
7,484 |
|
|
$ |
7,091 |
|
|
$ |
6,935 |
|
|
$ |
6,534 |
|
|
$ |
5,499 |
|
|
|
|
|
Cash dividend declared |
|
$ |
1,811 |
|
|
$ |
1,660 |
|
|
$ |
1,481 |
|
|
$ |
1,311 |
|
|
$ |
1,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic |
|
$ |
2.36 |
|
|
$ |
2.31 |
|
|
$ |
2.32 |
|
|
$ |
2.19 |
|
|
$ |
1.85 |
|
Net income diluted |
|
|
2.33 |
|
|
|
2.24 |
|
|
|
2.22 |
|
|
|
2.10 |
|
|
|
1.83 |
|
Cash dividends declared |
|
|
.56 |
|
|
|
.53 |
|
|
|
.49 |
|
|
|
.44 |
|
|
|
.41 |
|
Book value at period end |
|
|
19.11 |
|
|
|
17.01 |
|
|
|
16.56 |
|
|
|
15.48 |
|
|
|
13.93 |
|
Weighted average shares
outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3,177,272 |
|
|
|
3,067,632 |
|
|
|
2,993,696 |
|
|
|
2,978,161 |
|
|
|
2,975,394 |
|
Diluted |
|
|
3,217,050 |
|
|
|
3,162,950 |
|
|
|
3,123,325 |
|
|
|
3,108,178 |
|
|
|
3,003,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period End Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred
loan fees and unearned
income |
|
$ |
843,834 |
|
|
$ |
732,734 |
|
|
$ |
564,042 |
|
|
$ |
447,718 |
|
|
$ |
535,793 |
|
Allowance for loan losses |
|
|
8,738 |
|
|
|
8,368 |
|
|
|
7,193 |
|
|
|
6,909 |
|
|
|
6,255 |
|
Total assets |
|
|
1,222,430 |
|
|
|
1,127,875 |
|
|
|
913,831 |
|
|
|
757,443 |
|
|
|
720,502 |
|
Total deposits |
|
|
913,973 |
|
|
|
855,566 |
|
|
|
612,217 |
|
|
|
546,168 |
|
|
|
489,259 |
|
Total borrowings |
|
|
240,002 |
|
|
|
211,470 |
|
|
|
244,668 |
|
|
|
158,585 |
|
|
|
183,893 |
|
73
Horizon Bancorp
Summary of Selected Financial Data
(Dollar Amounts In Thousands Except Per Share Data and Ratios)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan to deposit |
|
|
93.76 |
% |
|
|
85.64 |
% |
|
|
92.76 |
% |
|
|
81.97 |
% |
|
|
109.51 |
% |
Loan to total funding |
|
|
76.73 |
|
|
|
68.67 |
|
|
|
65.67 |
|
|
|
63.53 |
|
|
|
79.59 |
|
Return on average assets |
|
|
.67 |
|
|
|
.71 |
|
|
|
.85 |
|
|
|
.88 |
|
|
|
.86 |
|
Average stockholders
equity to average total
assets |
|
|
5.14 |
|
|
|
5.19 |
|
|
|
5.90 |
|
|
|
6.01 |
|
|
|
6.06 |
|
Return on average
stockholders equity |
|
|
13.03 |
|
|
|
13.67 |
|
|
|
14.38 |
|
|
|
14.65 |
|
|
|
14.21 |
|
Dividend payout ratio
(dividends divided by
net income) |
|
|
24.20 |
|
|
|
21.21 |
|
|
|
21.36 |
|
|
|
20.06 |
|
|
|
22.02 |
|
Price to book value ratio |
|
|
143.53 |
|
|
|
166.42 |
|
|
|
162.74 |
|
|
|
184.40 |
|
|
|
126.85 |
|
Price to earnings ratio |
|
|
11.77 |
|
|
|
12.24 |
|
|
|
12.14 |
|
|
|
13.12 |
|
|
|
9.64 |
|
All share and per share amounts have been adjusted for the 3-for-1 stock split declared October 16,
2001, and the 3-for-2 stock split declared on October 21, 2003.
74
Horizon Bancorp
Horizons Common Stock and Related Stockholders Matters
Horizon common stock is traded on the NASDAQ Global Market under the symbol HBNC. The
following table sets forth, for the periods indicated, the high and low prices per share. Also
summarized below are the cash dividends declared by quarter for 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
Common Stock Prices |
|
Declared |
|
|
High |
|
Low |
|
Per Share |
|
|
|
First Quarter |
|
$ |
32.23 |
|
|
$ |
26.30 |
|
|
$ |
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
31.00 |
|
|
|
25.16 |
|
|
|
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
26.93 |
|
|
|
25.50 |
|
|
|
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
27.89 |
|
|
|
25.92 |
|
|
|
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
Common Stock Prices |
|
Declared |
|
|
High |
|
Low |
|
Per Share |
|
|
|
First Quarter |
|
$ |
31.51 |
|
|
$ |
27.00 |
|
|
$ |
.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
30.00 |
|
|
|
24.20 |
|
|
|
.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
28.26 |
|
|
|
26.55 |
|
|
|
.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
27.93 |
|
|
|
24.95 |
|
|
|
.14 |
|
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, 2006, is 572.
75
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision of and with the participation of its management, including the Chief
Executive Officer and Chief Financial Office, Horizon has evaluated the effectiveness of the design
and operation of its disclosure controls (as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934 (the Exchange Act)) as of the end of the period covered by this report. Based on such
evaluation, such officers have concluded that, as of the evaluation date, Horizons disclosure
controls and procedures are effective to ensure that the information required to be disclosed by
Horizon in the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission
rules and forms and are designed to ensure that information required to be disclosed in those
reports is accumulated and communicated to management as appropriate to allow timely decisions
regarding disclosure.
Internal Control Over Financial Reporting
Horizons management, including its Chief Executive Officer and Chief Financial Officer, also have
concluded that during the fiscal quarter ended December 31, 2006, there were no changes in
Horizons internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect Horizons internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
This information is omitted from this report pursuant to General Instruction G. (3) of Form 10-K as
Horizon intends to file with the Commission its definitive Proxy Statement for its 2007 Annual
Meeting of Shareholders (the Proxy Statement) pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, not later than 120 days after December 31, 2006.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information relating to Horizons directors required by this item is found in the Proxy
Statement under Proposal I Election of Directors and is incorporated into this report by
reference. The information relating to the Audit Committee of the Board of Directors required by
this item is found in the Proxy Statement under Corporate Governance The Audit Committee and is
incorporated into this report by reference.
The information relating to Horizons executive officers required by this item is included in Part
I of this Form 10-K under Special Item: Executive Officers and is incorporated into this item by
reference.
The information relating to certain filing obligations of directors and executive officers required
by this item is found in the Proxy Statement under Section 16(a) Beneficial Ownership Reporting
Compliance and is incorporated into this report by reference.
Horizon has a code of ethics that applies to its directors, chief executive officer and chief
76
financial officer. The code is available on Horizons website at www.accesshorizon.com.
ITEM 11. EXECUTIVE COMPENSATION
The information on executive and director compensation and compensation committee matters required
by this item can be found in the Proxy Statement under Corporate Governance, Compensation
Committee Report, Compensation Discussion and Analysis, Executive Compensation and
Compensation of Directors and is incorporated into this report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Equity Compensation Plan Information
The following table presents information regarding grants under all equity compensation plans
of Horizon through December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
remaining available for |
|
|
|
|
|
|
|
|
future issuance under |
|
|
Number of securities to |
|
Weighted-average |
|
equity compensation |
|
|
be issued upon exercise |
|
exercise price of |
|
plans (excluding |
|
|
of outstanding options, |
|
outstanding options, |
|
securities reflected in |
Plan Category |
|
warrants and rights |
|
warrants and rights |
|
the first column) |
|
Equity compensation plans approved by security holders (1) |
|
68,520 |
|
|
$15.87 |
|
|
144,602 |
|
Equity compensation plans not approved by security holders |
|
0 |
|
|
0 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
68,520 |
|
|
$15.87 |
|
|
144,602 |
|
|
|
|
|
|
|
|
(1) |
|
Represents options granted or available under the 1997 Key Employees Stock Option and Stock
Appreciation Rights Plan of Horizon Bancorp and the Horizon Bancorp 2003 Omnibus Equity
Incentive Plan. |
The remaining information required by this item can be found in the Proxy Statement under
Common Stock Ownership by Directors and Executive Officers and Stock Ownership of Certain
Beneficial Owners and is incorporated by reference into this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE
The information required by this item is found in the Proxy Statement under Corporate Governance
and Certain Business Relationships and Transactions and is incorporated by reference into this
report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the Proxy Statement section
captioned Accountant Fees and Services.
77
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed As Part of This Annual Report on Form 10-K:
|
|
|
|
|
1. Financial Statement |
|
|
|
|
|
See the Financial Statements included in Item 8. |
|
|
|
|
|
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 |
|
|
|
|
|
The exhibits filed as part of this Annual
Report on Form 10-K are identified in the Exhibit Index, which
Exhibit Index specifically identifies those exhibits that
describe or evidence all management contracts and compensation
plans or arrangements required to be filed as exhibits to this
Report. Such Exhibit Index is incorporated herein by reference. |
78
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Registrant |
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Date:
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March 13, 2007
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By:
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/s/ Craig M. Dwight |
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Craig M. Dwight |
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President and Chief Executive Officer (Principal |
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Executive Officer) |
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Date:
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March 13, 2007
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By :
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/s/ James H. Foglesong |
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James H. Foglesong |
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Chief Financial Officer (Principal Financial Officer |
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and Principal Accounting Officer) |
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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.
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Date |
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Signature and Title |
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March 13, 2007
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/s/ Robert C. Dabagia |
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Robert C. Dabagia, Chairman of the Board and |
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Director |
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March 13, 2007
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/s/ Craig M. Dwight |
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Craig M. Dwight, President and Chief |
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Executive Officer and Director |
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March 13, 2007
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/s/ Susan D. Aaron |
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Susan D. Aaron, Director |
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March 13, 2007
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/s/ James B. Dworkin |
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James B. Dworkin, Director |
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March 13, 2007
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/s/ Charley E. Gillispie |
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Charley E. Gillispie, Director |
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March 13, 2007
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/s/ Daniel F. Hopp |
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Daniel F. Hopp, Director |
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79
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Date |
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Signature and Title |
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Robert E. McBride, Director |
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March 13, 2007
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/s/ Peter L. Pairitz |
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Peter L. Pairitz, Director |
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March 13, 2007
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/s/ Larry N. Middleton |
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Larry N. Middleton, Director |
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March 13, 2007
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/s/ Bruce E. Rampage |
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Bruce E. Rampage, Director |
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March 13, 2007
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/s/ Robert E. Swinehart |
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Robert E. Swinehart, Director |
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March 13, 2007
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/s/ Spero W. Valavanis |
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Spero W. Valavanis, Director |
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80
EXHIBIT INDEX
The following exhibits are included in this Form 10-K or are incorporated by reference as noted in
the following table:
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Exhibit |
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Number |
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Description |
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Incorporated by Reference/Attached |
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1.1
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Placement Agreement, dated December 15,
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Incorporated by Reference to Exhibit 1.1 to |
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2006, among Horizon Bancorp, Horizon
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Registrants Form 8-K filed December 21, |
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Capital Trust III and J.P. Morgan Securities
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2006 |
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Inc. |
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2.1
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Agreement of Merger and Plan of
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Incorporated by Reference to Exhibit 2.1 to |
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Reorganization for Horizon Bancorp and
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Registrants Form 8-K filed March 1, 2005 |
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Alliance Financial Corporation |
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2.2
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Amendment to Agreement of Merger and Plan
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Incorporated by Reference to Exhibit 2.1 to |
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of Reorganization for Horizon Bancorp and
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Registrants Form 8-K filed March 24, 2005 |
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Alliance Financial Corporation |
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3.1
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Articles of Incorporation of Horizon Bancorp,
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Incorporated by Reference to Exhibit 3.1 to |
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as amended
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Registrants Form 10-Q for the Quarter |
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Ended September 30, 2003 |
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3.2
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Amended and Restated Bylaws of Horizon
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Incorporated by Reference to Exhibit 3.2 to |
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Bancorp (as adopted January 21, 2003)
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Registrants Form 10-K for the Year Ended |
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December 31, 2002 |
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4.1
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Indenture, dated as of October 21, 2004,
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Incorporated by Reference to Exhibit 4.1 to |
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between Horizon Bancorp and Wilmington
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Registrants Form 8-K filed October 27, |
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Trust Company related to the issuance of
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2004 |
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Trust Preferred Securities |
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4.2
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Amended and Restated Declaration of Trust
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Incorporated by Reference to Exhibit 4.2 to |
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of Horizon Bancorp Capital Trust II, dated as
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Registrants Form 8-K filed October 27, |
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of October 21, 2004, related to the issuance
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2004 |
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of Trust Preferred Securities |
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4.3
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Junior Subordinated Indenture, dated as of
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Incorporated by Reference to Exhibit 4.1 to |
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December 15, 2006, between Horizon
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Registrants Form 8-K filed December 21, |
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Bancorp and Wilmington Trust Company.
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2006 |
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4.4
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Amended and Restated Trust Agreement of
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Incorporated by Reference to Exhibit 4.2 to |
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Horizon Bancorp Capital Trust III, dated as
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Registrants Form 8-K filed December 21, |
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of December 15, 2006
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2006 |
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10.1*
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1987 Stock Option and Stock Appreciation
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Incorporated by Reference to Exhibit 10.1 |
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Rights Plan of Horizon Bancorp, as
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to Registrants Form 10-K for the Year |
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amended
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Ended December 31, 2001. |
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10.2*
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Nonqualified Stock Option and Stock
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Incorporated by Reference to Exhibit 10.2 |
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Appreciation Rights Agreement between
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to Registrants Form 10-K for the Year |
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Horizon Bancorp and Craig M. Dwight
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Ended December 31, 2001 |
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10.3*
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Supplemental Employee Retirement Plan, as
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Incorporated by Reference to Exhibit 10.3 |
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amended
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to Registrants Form 10-K for the Year |
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Ended December 31, 2001 |
81
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Exhibit |
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Number |
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Description |
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Incorporated by Reference/Attached |
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10.4*
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1997 Key Employees Stock Option and
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Incorporated by Reference to Exhibit 10.4 |
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Stock Appreciation Rights Plan
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to Registrants Form 10-K for the Year |
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Ended December 31, 2001 |
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10.5*
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Form of Amendment No. 1 to Horizon Bancorp
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Incorporated by Reference to Exhibit 10.1 |
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Stock Option and Stock Appreciation Rights
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to Registrants Form 10-Q for the Quarter |
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Agreement and Schedule Identifying
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Ended September 30, 2002 |
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Material Details of Individual Amendments |
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10.6*
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Horizon Bancorp 2003 Omnibus Equity
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Incorporated by Reference to Appendix B to |
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Incentive Plan
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the Registrants Proxy Statement for the |
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Annual Meeting of Shareholders Held on |
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May 8, 2003 |
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10.7*
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Agreement dated October 18, 1999, between
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Incorporated by Reference to Exhibit 10.11 |
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Horizon Bank, N.A., and James D. Neff
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to Registrants Form 10-K for the year |
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ended December 31, 2003 |
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10.8*
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Directors Deferred Compensation Plan
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Incorporated by Reference to Exhibit 10.8 |
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to Registrants Form 10-K for the year |
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ended December 31, 2004 |
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10.9*
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Form of Change of Control Agreement for
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Incorporated by Reference to Exhibit 10.9 |
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certain executive officers
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to Registrants Form 10-K for the year |
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ended December 31, 2004 |
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10.10*
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Form of Restricted Stock Award Agreement
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Incorporated by Reference to Exhibit 10.10 |
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under 2003 Omnibus Plan
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to Registrants Form 10-K for the year |
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ended December 31, 2004 |
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10.11*
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Form of Option Grant Agreement under 2003
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Incorporated by Reference to Exhibit 10.11 |
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Omnibus Plan
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to Registrants Form 10-K for the year |
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ended December 31, 2004 |
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10.12*
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Description of Executive Officer Bonus Plan
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Incorporated by Reference to Exhibit 10.12 |
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to Registrants Form 10-K for the year |
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ended December 31, 2004 |
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10.13
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Guarantee Agreement of Horizon Bancorp,
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Incorporated by Reference to Exhibit 10.1 |
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dated as of October 21, 2004, related to
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to Registrants Form 8-K filed October 27, |
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the issuance of Trust Preferred Securities
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2004 |
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10.14*
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Horizon Bancorp 2005 Supplemental
Executive Retirement Plan
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Attached |
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10.15*
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Employment Agreement, dated July 19, 2006,
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Incorporated by Reference to Exhibit 10.1 |
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among Horizon Trust & Management, N.A.,
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to Registrants Form 8-K filed July 21, 2006 |
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Horizon Bank, Horizon Bancorp and Lawrence |
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J. Mazur |
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10.16*
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Amendment to Horizon Bancorp Restricted
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Incorporated by Reference to Exhibit 10.2 |
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Stock Award Agreement, dated July 19, 2006
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to Registrants Form 8-K filed July 21, 2006 |
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10.17*
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Employment Agreement, dated December 1,
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Incorporated by Reference to Exhibit 10.1 |
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2006, among Horizon Bancorp, Horizon
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to Registrants Form 8-K filed December 6, |
82
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Exhibit |
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Number |
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Description |
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Incorporated by Reference/Attached |
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Bank, N.A. and Craig M. Dwight
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2006 |
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10.18*
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Letter Agreement, dated December 1, 2006,
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Incorporated by Reference to Exhibit 10.2 |
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between Horizon Bank, N.A. and Craig M.
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to Registrants Form 8-K filed December 6, |
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Dwight
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2006 |
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10.19*
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Guarantee Agreement of Horizon Bancorp,
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Incorporated by Reference to Exhibit 10.1 |
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dated as of December 15, 2006
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to Registrants Form 8-K filed |
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December 21, 2006 |
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21
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Subsidiaries of Horizon
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Attached |
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23
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Consent of BKD, llp
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Attached |
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31.1
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Certification of Craig M. Dwight pursuant
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Attached |
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to Section 302 of the Sarbanes-Oxley Act |
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of 2002 |
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31.2
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Certification of James H. Foglesong
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Attached |
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pursuant to Section 302 of the |
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Sarbanes-Oxley Act of 2002 |
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32.1
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Certification of Craig M. Dwight Pursuant
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Attached |
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to 18 U.S.C. Section 1350, as adopted |
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pursuant to Section 906 of the |
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Sarbanes-Oxley Act of 2002 |
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32.2
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Certification of James H. Foglesong
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Attached |
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Pursuant to 18 U.S.C. Section 1350, as |
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adopted pursuant to Section 906 of the |
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Sarbanes-Oxley Act of 2002 |
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* |
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Indicates exhibits that describe or evidence management contracts or compensatory plans or
arrangements required to be filed as exhibits to this Form 10-K. |
83