1 HORIZON BANCORP FORM 10-Q SECURITIES AND EXCHANGE COMMISSION 450 5th Street N.W. Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended JUNE 30, 1999 commission file number 0-10792 ------------- ------- HORIZON BANCORP --------------- (Exact name of registrant as specified in its charter) INDIANA 35-1562417 ------- ---------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 515 FRANKLIN SQUARE, MICHIGAN CITY, INDIANA 46360 - ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (219) 879-0211 ---------------- Securities registered pursuant to Section 12(b) of the Act: NONE ---- Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE -------------------------- (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 645,997 at JULY 31, 1999 -------- -------------
2 <TABLE> <CAPTION> HORIZON BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollar Amounts in Thousands) JUNE 30, DECEMBER 31, 1999 1998 -------------------------------- <S> <C> <C> ASSETS Cash and due from banks $ 20,377 $ 12,771 Federal funds sold 13,200 18,500 Interest-bearing demand deposits 212 598 ------------------------------- Cash and cash equivalents 33,789 31,869 Interest-bearing deposits 228 225 Investment securities Available for sale 71,939 54,612 Held to maturity (fair value of $12,090) 11,746 ------------------------------- Total investment securities 71,939 66,358 Loans held for sale Loans, net of allowance for loan losses of $2,746 and $2,787 301,998 287,559 Premises and equipment 18,877 18,393 Federal Reserve and Federal Home Loan Bank stock 3,973 3,973 Interest receivable 2,580 2,249 Other assets 4,686 5,528 ------------------------------- Total assets $ 438,070 $ 416,154 =============================== LIABILITIES Deposits Noninterest bearing $ 46,518 $ 58,658 Interest bearing 296,096 263,743 ------------------------------- Total deposits 342,614 322,401 Short-term borrowings 3,400 4,000 Federal Home Loan Bank advances 54,000 54,000 Interest payable 786 817 Other liabilities 7,813 3,050 ------------------------------- Total liabilities 408,613 384,268 ------------------------------- COMMITMENTS AND CONTINGENCIES EQUITY RECEIVED FROM CONTRIBUTIONS AND DIVIDENDS TO THE ESOP 4,463 4,418 ------------------------------- STOCKHOLDERS' EQUITY Common stock, $1 stated value Authorized -- 5,000,000 shares Issued -- 1,038,428 shares, less ESOP shares of 278,045 and 292,960 760 741 Additional paid-in capital 9,073 8,834 Retained earnings 24,611 24,201 Accumulated other comprehensive income (493) 336 Less treasury stock, at cost, 230,243 and 183,048 shares (8,957) (6,644) ------------------------------- Total stockholders' equity 24,994 27,468 ------------------------------- Total liabilities and stockholders' equity $ 438,070 $ 416,154 =============================== </TABLE> See notes to consolidated financial statements
3 <TABLE> <CAPTION> HORIZON BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Dollar Amounts in Thousands, Except Per Share Data) THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 1999 1998 1999 1998 ------------------------------------------------------------ <S> <C> <C> <C> <C> INTEREST INCOME Loans receivable $ 6,156 $ 5,779 $12,117 $11,581 Investment securities Taxable 1,357 1,002 2,576 1,935 Tax exempt 60 109 161 219 ------------------------------------------------------- Total interest income 7,573 6,890 14,854 13,735 ------------------------------------------------------- INTEREST EXPENSE Deposits 3,149 2,568 6,124 5,043 Federal funds purchased and short-term borrowings 72 3 117 Federal Home Loan Bank advances 730 554 1,451 1,105 ------------------------------------------------------- Total interest expense 3,879 3,194 7,578 6,265 ------------------------------------------------------- NET INTEREST INCOME 3,694 3,696 7,276 7,470 Provision for loan losses 179 180 344 475 ------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,515 3,516 6,932 6,995 ------------------------------------------------------- OTHER INCOME Service charges on deposit accounts 525 534 1,014 1,130 Fiduciary activities 537 599 1,018 1,129 Commission income from insurance agency 180 52 415 52 Income from reinsurance company 27 81 81 162 Gain on sale of securities 176 176 Other income 92 14 204 101 ------------------------------------------------------- Total other income 1,537 1,280 2,908 2,574 ------------------------------------------------------- OTHER EXPENSES Salaries and employee benefits 2,232 2,023 4,385 4,062 Net occupancy expenses 388 311 794 586 Data processing and equipment expenses 509 529 1,028 1,086 Other expenses 1,026 1,056 2,014 2,141 ------------------------------------------------------- Total other expenses 4,155 3,919 8,221 7,875 ------------------------------------------------------- Income Before Income Tax 897 877 1,619 1,694 Income tax expense 267 250 502 485 ------------------------------------------------------- NET INCOME FROM CONTINUING OPERATIONS 630 627 1,117 1,209 </TABLE>
4 <TABLE> <CAPTION> HORIZON BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME - CONTINUED (Dollar Amounts in Thousands, Except Per Share Data) THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 1999 1998 1999 1998 -------------------------------------------------------------------- <S> <C> <C> <C> <C> DISCONTINUED OPERATIONS Loss from operation of discontinued subsidiary (less tax benefit of $55 in 1999 and $67 in 1998) $ (39) $ (34) $ (81) $ (65) Loss on disposal of subsidiary, including provision of $81 for operating losses during phase-out period (less tax benefit of $31 in 1999) (50) (50) -------------------------------------------------------------------- Total loss from discontinued operations (89) (34) (131) (65) -------------------------------------------------------------------- NET INCOME $541 $593 $986 $1,144 ==================================================================== Basic and Diluted Earnings per Share from continued operations $0.96 $0.90 $1.68 $1.74 Basic and Diluted Earnings per Share from loss on discontinued operations (0.14) (0.05) (0.20) (0.09) -------------------------------------------------------------------- BASIC AND DILUTED EARNINGS PER SHARE $0.82 $0.85 $1.48 $1.65 ==================================================================== </TABLE> See notes to consolidated financial statements.
5 <TABLE> <CAPTION> HORIZON BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDER' EQUITY (Table Dollar Amounts in Thousands) Accumulated Additional Other Paid-in Comprehensive Retained Comprehensive Treasury Common Stock Capital Income Earnings Income Stock Total ------------- ----------- ---------------- ---------- --------------- ----------- ------------ <S> <C> <C> <C> <C> <C> <C> BALANCES, DECEMBER 31, 1998 $741 $8,834 $24,201 $336 $(6,644) $27,468 Net income $986 986 986 Other comprehensive income, net of tax Unrealized losses on securities, net of reclassification adjustment (829) (829) (829) ---------------- Comprehensive income $157 ================ Cash dividends ($.90 per share) (576) (576) Issuance of 4,000 shares of common stock for purchase of investment management entity 4 196 200 Purchase of 47,195 shares of treasury stock (2,313) (2,313) Net purchases and distributions with ESOP 15 43 58 ------------------------- --------------------------------------------------- BALANCES, JUNE 30, 1999 $760 $9,073 $24,611 $(493) $(8,957) $24,994 ========================= =================================================== </TABLE>
6 <TABLE> <CAPTION> HORIZON BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Dollar Amounts in Thousands) Six Months Ended June 1999 1998 ----------------------------------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 986 $ 1,144 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 540 550 Additional paid-in capital from release of ESOP shares 98 101 Depreciation and amortization 655 557 Deferred income tax (23) (427) Investment securities amortization, net 109 112 Gain on sale of investment securities (176) Loss on disposal of fixed assets 21 4 Loss on other real estate owned 30 Deferred loan fees (44) (46) Unearned income 292 4 Net change in: Interest receivable (331) (17) Interest payable (31) (52) Other assets 1,581 (152) Other liabilities 4,763 (1,186) ------------------------------ Net cash provided by operating activities 8,440 622 ------------------------------ INVESTING ACTIVITIES Net change in interest-bearing deposits (3) (2) Purchases of securities available for sale (30,644) (15,078) Proceeds from maturities, calls, and principal repayments of securities available for sale 13,533 8,269 Proceeds from sales of securities available for sale 8,257 Purchases of securities held to maturity (1,338) Proceeds from maturities, calls, and principal repayments of securities held to maturity 2,000 1,046 Net change in loans (15,398) (7,771) Proceeds from sales of loans 2,246 Recoveries on loans previously charged-off 171 232 Purchases of premises and equipment (1,160) (874) ------------------------------ Net cash used by investing activities (23,244) (13,270) ------------------------------ FINANCING ACTIVITIES Net change in Deposits 20,213 36,182 Short-term borrowings (600) (13,000) Federal Home Loan Bank advance (1,000) Dividends paid (576) (623) Purchase of treasury stock (2,313) (585) ------------------------------ Net cash provided by financing activities 16,724 20,974 ------------------------------ NET CHANGE IN CASH AND CASH EQUIVALENT 1,920 8,326 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,869 20,358 ------------------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,789 $ 28,684 ============================== ADDITIONAL CASH FLOWS INFORMATION Interest paid $ 7,767 $ 6,309 Income tax paid 150 590 </TABLE> See notes to consolidated financial statements.
7 HORIZON BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table Dollar Amounts in Thousands) NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Horizon Bancorp (Horizon) and its wholly-owned subsidiaries, Horizon Bank, N.A. (Bank), HBC Insurance Group, Inc. (Insurance Company) and The Loan Store, Inc. All intercompany balances and transactions have been eliminated. The results of operations for the period ended June 30, 1999 and June 30, 1998 are not necessarily indicative of the operating results for the full year of 1999 or 1998. These interim financial statements are prepared without audit and reflect all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the consolidated position of Horizon Bancorp at June 30, 1999 and its results of operations and cash flows for the periods presented. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosure required by generally accepted accounting principals that might otherwise be necessary in the circumstances and should be read in conjunction with the 1998 Horizon Bancorp consolidated financial statements and related notes thereto included in its Annual Report for the year ended December 31, 1998. NOTE 2 - INVESTMENT SECURITIES <TABLE> <CAPTION> 1999 Gross Gross Amortized Unrealized Unrealized Fair June 30 Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Available for sale U.S. Treasury and federal agencies $30,082 $ 77 $ (500) $29,659 State and municipal 4,245 2 (9) 4,238 GNMA mortgage-backed securities 3,669 64 (9) 3,724 FHLMC mortgage-backed securities 7,663 91 (30) 7,724 FNMA mortgage-backed securities 15,207 51 (73) 15,185 GNMA collateralized mortgage obligation 8,064 (432) 7,632 FHLMC collateralized mortgage obligation 963 963 FNMA collateralized mortgage obligation 2,542 2,542 Marketable equity securities 315 (43) 272 ------------------------------------------------------------------- Total available for sale $72,750 $ 285 $(1,096) $71,939 =================================================================== </TABLE>
8 <TABLE> <CAPTION> HORIZON BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Table Dollar Amounts in Thousands) NOTE 2 - INVESTMENT SECURITIES 1998 Gross Gross Amortized Unrealized Unrealized Fair December 31 Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Available for sale U.S. Treasury and federal agencies $12,568 $ 93 (16) $12,645 GNMA mortgage-backed securities 12,321 72 (79) 12,314 FHLMC mortgage-backed securities 9,117 220 (4) 9,333 FNMA mortgage-backed securities 19,729 217 (3) 19,943 Marketable equity securities 316 61 377 -------------------------------------------------------------------- Total available for sale 54,051 663 (102) 54,612 -------------------------------------------------------------------- Held to maturity Federal agencies 1,630 62 1,692 State and municipal 10,116 287 (5) 10,398 -------------------------------------------------------------------- Total held to maturity 11,746 349 (5) 12,090 -------------------------------------------------------------------- Total investment securities $65,797 $ 1,012 $ (107) $66,702 ==================================================================== </TABLE> The amortized cost and fair value of securities available for sale at June 30, 1999, 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. <TABLE> <CAPTION> Available for Sale Amortized Fair Cost Value -------------------------------- <S> <C> <C> Within one year $ 5,136 $ 5,134 One to five years 16,641 16,491 Five to ten years 9,055 8,907 After ten years 3,495 3,366 ---------------------------- 34,327 33,898 Mortgage-backed securities 26,539 26,632 Collateralized mortgage obligations 11,569 11,137 Marketable equity securities 315 272 ---------------------------- $72,750 $71,939 ============================ </TABLE> Proceeds from sales of securities available for sale during the six months ending June 30, 1999 were $8.257 million. Gross gains of $191 thousand and gross losses of $15 thousand were realized on those sales. There were no sales of securities available for sale during the six months ending June 30, 1998.
9 HORIZON BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Table Dollar Amounts in Thousands) NOTE 2 - INVESTMENT SECURITIES (CONTINUED) During the six month period ending June 30, 1999, debt securities with an amortized cost of $10.050 million were transferred from held to maturity to available for sale so the Bank could minimize the tax consequences of holding tax-exempt securities. The securities had an unrealized gain of approximately $350 thousand. There were no transfers between classifications during 1998. NOTE 3 - LOANS <TABLE> <CAPTION> June 30, December 31, 1999 1998 ----------------------------- <S> <C> <C> Commercial loans $ 84,911 $ 76,682 Real estate loans 157,748 152,390 Installment loans 62,085 61,274 ----------------------------- Total loans $ 304,744 $ 290,346 ============================= <CAPTION> NOTE 4 - ALLOWANCE FOR LOAN LOSSES June 30, December 31, 1999 1998 ----------------------------- <S> <C> <C> Allowance for loan losses Balances, beginning of period $ 2,787 $ 2,702 Provision for losses, operations 344 820 Provision for losses, discontinued operations 196 180 Recoveries on loans 171 401 Loans charged off (752) (1,316) ----------------------------- Balances, end of period $ 2,746 $ 2,787 ============================= <CAPTION> NOTE 5 - NONPERFORMING ASSETS June 30, December 31, 1999 1998 ----------------------------- <S> <C> <C> Nonperforming loans $ 1,478 $ 894 OREO before allowance for OREO losses 98 133 ----------------------------- Total nonperforming assets $ 1,576 $ 1,027 ============================= </TABLE>
10 <TABLE> <CAPTION> HORIZON BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Table Dollar Amounts in Thousands) NOTE 6 - OTHER COMPREHENSIVE INCOME Six Months Ended June 30 1999 1998 ------------------------------------- <S> <C> <C> Unrealized gains (losses) on securities: Unrealized holding losses arising during the period $ (1,182) $(146) Less: reclassification adjustment for gains realized in net income 177 ------------------------------------- Net unrealized losses (1,359) (146) Tax benefit 530 57 ------------------------------------- Other comprehensive income $ (829) $(89) ===================================== </TABLE> NOTE 7 - DISCONTINUED OPERATIONS At their April, 1999 meeting, the Board of Directors of Horizon Bancorp approved discontinuing the operations of The Loan Store, Inc., a wholly owned subsidiary of Horizon Bancorp. At June 30, 1999 the total assets of The Loan Store, Inc. were $3.619 million. It is anticipated that the sale of these assets will be completed in the third quarter of 1999. NOTE 8 - SUBSEQUENT EVENT On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the termination of the Horizon Bancorp Employee Stock Ownership Plan ("ESOP") as of December 31, 1999. The debt currently owed by the ESOP will be repaid with the proceeds from the sale of a portion of the unallocated shares to Horizon Bancorp. All remaining shares will be immediately allocated to participants. The termination of the ESOP will result in an expense of approximately $950,000, net of tax, assuming a stock price of $42.50. The expense recorded will change as the stock price changes. Each $1.00 increase or decrease in stock price will result in an approximate $110,000 increase or decrease in expense. After the termination of the ESOP, the retirement plans of Horizon Bancorp will own approximately 22% of the outstanding shares. It is anticipated that the termination of the ESOP will have no material effect on the regulatory capital ratios of Horizon Bancorp.
11 HORIZON BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 Item 2 - Introduction The purpose of this discussion is to focus on Horizon's financial condition, changes in financial condition and the results of operations in order to provide a better understanding of the consolidated financial statements included elsewhere herein. This discussion should be read in conjunction with the consolidated financial statements and the related notes. Financial Condition - ------------------- Liquidity - --------- The Bank maintains a stable base of core deposits provided by long standing relationships with consumers and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, sale of real estate loans and borrowing relationships with correspondent banks, including the Federal Home Loan Bank (FHLB). During the six months ended June 30, 1999, cash flows were generated from earnings of $986 thousand and a $20 million increase in deposits and proceeds from the sale of debt securities in the amount of $8.257 million. Cash flows were used to purchase $3 million of taxable municipal securities and $3.5 million of federal agency CMO's securities and a $14 million increase in total loans. In addition to liquidity provided from the normal operating, funding, and investing activities of Horizon, at June 30, 1999, Bank has available approximately $73.5 million in unused credit lines with various money center banks. There have been no other material changes in the liquidity of Horizon from December 31, 1998 to June 30, 1999. Capital Resources - ----------------- The capital resources of Horizon and Bank remain strong and exceed regulatory capital ratios for "well capitalized" banks at June 30, 1999. Stockholders' equity totaled $29.557 million ($4.463 million from ESOP) as of June 30, 1999 compared to $31.886 million ($4.418 million from ESOP) as of December 31, 1998. The change in stockholders' equity during the six months ended June 30, 1999 is the result of the decrease in the market value of investment securities available for sale accounted for as an addition / reduction of stockholders' equity, the repurchase of Horizon Bancorp stock and net income, net of dividends paid. At June 30, 1999, the ratio of stockholders' equity to assets was 6.72% compared to 7.66% at December 31, 1998. Horizon has selectively purchased shares that became available in the market from time to time. During the six months ended June 30, 1999, management purchased 47,195 shares at a cost of $2.313 million. The increase in equity received from contributions and dividends to the ESOP and the corresponding decrease in additional paid in capital is related to the accrual of the market value appreciation associated with shares which are anticipated to be allocated to participants accounts in 1999. There have been no other material changes in Horizon's capital resources from December 31, 1998 to June 30, 1999.
12 HORIZON BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 Material Changes in Financial Condition - June 30, 1999 compared to December 31, - -------------------------------------------------------------------------------- 1998 - ---- Because of the nature of its activities, Horizon is subject to pending and threatened legal actions that arise in the normal course of business. In management's opinion, after consultation with counsel, none of the litigation to which Horizon or any of its subsidiaries is a party will have a material effect on the consolidated financial position or results of operations of Horizon. At June 30, 1999 as compared with December 31, 1998 there is a change in the deposit mix in which the noninterest-bearing deposits decreased $12 million and the interest-bearing deposits increased $32.4 million. The two largest contributing factors were the reengineering of the consumer checking account product to include an interest-bearing feature at a nominal interest rate and the introduction of a municipal NOW account for previously off-balance sheet public fund investments. At June 30, 1999 as compared with December 31, 1998 there is an increase in other liabilities of $4.8 million. This increase is associated with the proper recording of the purchase of $4.5 million investment security which had a trade date of June 28, 1999 and a settlement date of July 1, 1999. There have been no other material changes in the financial condition of Horizon from December 31, 1998 to June 30, 1999. Results of Operations - --------------------- Material changes in results of operations - June 30, 1999 compared to June 30, - ------------------------------------------------------------------------------ 1998 - ---- During the six months ended June 30, 1999, earnings totaled $986 thousand or $1.48 per share compared to $1.144 million or $1.65 per share for the same period in 1998. Net interest income was $7.276 million for the six months ended June 30, 1999 compared to $7.470 million for the same period 1998. The decline in net interest income is related primarily to the declining rates earned in the loan and investment portfolios and the change in the mix of the deposit portfolio resulting in a higher concentration of interest bearing products. Total noninterest income for the six months ended June 30, 1999 increased $334 thousand or 13.0% from the same period in 1998. The two largest components of the change was the addition of commission income from the acquisition of an insurance agency that was purchased as of April 1, 1998 and a gain on the sale of investment securities of $176 thousand. Noninterest expense increased $346 thousand or 4.4% to $8.221 million for the six months ended June 30, 1999 compared to the same period in 1998. The two largest components of the change is the increase in salary and benefit expense associated with the insurance agency acquisition as well as increased personnel to achieve the planned asset growth of the Trust Company. The other component is increased occupancy expenses related to capital asset expenditures and leased property rentals.
13 HORIZON BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 Results of Operations (continued) - --------------------------------- At their April, 1999 meeting, the Board of Directors of Horizon Bancorp approved discontinuing the operations of The Loan Store, Inc., a wholly owned subsidiary of Horizon Bancorp. At June 30, 1999 The Loan Store, Inc.'s total assets were $3.619 million and had a loss of $131 thousand for the six month period ending June 30, 1999. It is anticipated that the sale of these assets will be completed in the third quarter of 1999 and no material gain or loss is expected upon the sale of the assets. On July 20, 1999, the Board of Directors of Horizon Bancorp authorized the termination of the Horizon Bancorp Employee Stock Ownership Plan ("ESOP") as of December 31, 1999. The debt currently owed by the ESOP will be repaid with the proceeds from the sale of a portion of the unallocated shares to Horizon Bancorp. All remaining shares will be immediately allocated to participants. The termination of the ESOP will result in an expense of approximately $950,000, net of tax, assuming a stock price of $42.50. The expense recorded will change as the stock price changes. Each $1.00 increase or decrease in stock price will result in an approximate $110,000 increase or decrease in expense. After the termination of the ESOP, the retirement plans of Horizon Bancorp will own approximately 22% of the outstanding shares. It is anticipated that the termination of the ESOP will have no material effect on the regulatory capital ratios of Horizon Bancorp. There have been no other material changes in the results of operations of Horizon for six months ending June 30, 1999 and 1998.
14 HORIZON BANCORP AND SUBSIDIARIES YEAR 2000 Horizon began it's Year 2000 ("Y2K") planning and evaluation process in 1997 and developed a plan to address Y2K compliance. A project team was formed and began meeting in September 1997. The systems within the Company have been reviewed and each system assigned a rating of mission critical or non-mission critical. Eight critical vendors were identified that provide hardware and software in order to operate the core data processing systems utilized by the Company. The core data processing systems of the Bank and The Loan Store, and the machines on which they reside, were brought Y2K compliant and tested during the third quarter of 1998. The Y2K compliant version of the core data processing system of the Bank's wholly owned subsidiary Horizon Trust and Investment Management were installed and tested during the 4th quarter of 1998. The Y2K compliant version of the core data processing system of Horizon Insurance Services, Inc. was received during the 3rd quarter of 1998 and was tested during the 4th quarter of 1998. The Bank also utilizes four outside vendor to interface information into the core data processing systems. Three of these vendors have certified that they are Y2K compliant and one vendor was unable to become compliant on a timely basis. The Bank converted to another vendor for this service as of January 1, 1999. The Bank's large loan customers have been contacted regarding their readiness for the Year 2000 to determine if the Company has significant risk or exposure due to potential problems of customers related to the Year 2000. Information is being gathered on the majority of these customer and evaluated on an ongoing basis. These customer's will be monitored on a consistent basis through the Year 2000. The costs associated with Y2K are anticipated to be approximately $280,000. This does not include upgrades to systems that would have been replaced in the normal upgrade processes. Approximately 90% of these costs have been incurred to date. The major risks of Horizon's Y2K issues are its ability to provide consistent daily processing of customer information and the soundness of Horizon's loan portfolio. Horizon is managing this risk by performing extensive analysis and testing to identify potential problem areas for its systems and throughout its customer base. In order to obtain assistance in this analysis, Horizon hired a consultant to perform an assessment report regarding Horizon's Y2K preparedness and testing strategies. Horizon's contingency plans consist primarily of manual processing of the core data in the event that the core data processing system is not operable during the effected time frames.
15 HORIZON BANCORP AND SUBSIDIARIES PART II - OTHER INFORMATION FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 ITEM 1. LEGAL PROCEEDINGS - ---------------------------- See Management's Discussion and Analysis ITEM 2. CHANGES IN SECURITIES - ------------------------------- Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ----------------------------------------- Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- Not Applicable ITEM 5. OTHER INFORMATION - --------------------------- Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ a. Financial Data Schedule b. No reports on Form 8-K were filed during the three months ended June 30, 1999.
16 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HORIZON BANCORP 8/16/99 /s/ Robert C. Dabagia - ---------------- ----------------------------------------------------- Date: BY: Robert C. Dabagia Chairman and Chief Executive Officer 8/16/99 /s/ Diana E. Taylor - ---------------- ----------------------------------------------------- Date: BY: Diana E. Taylor Senior Vice President and Chief Financial Officer