Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 1 - Accounting Policies
The accompanying unaudited
condensed consolidated financial statements include the accounts of Horizon Bancorp (Horizon or the Company) and its wholly-owned subsidiaries, including Horizon Bank, N.A. (Horizon Bank or the Bank).
All inter-company balances and transactions have been eliminated. The results of operations for the periods ended March 31, 2017 and March 31, 2016 are not necessarily indicative of the operating results for the full year of 2017 or 2016.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of Horizons management, necessary to fairly present the financial position, results of operations and cash flows of Horizon
for the periods presented. Those adjustments consist only of normal recurring adjustments.
Certain information and note disclosures normally included in
Horizons annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto included in Horizons Annual Report on Form
10-K
for 2016 filed with the Securities and Exchange Commission on February 28,
2017. The condensed consolidated balance sheet of Horizon as of December 31, 2016 has been derived from the audited balance sheet as of that date.
On October 18, 2016, the Board of Directors of the Company approved a
three-for-two
stock split of the Companys authorized common stock, no par value. All share and per share amounts in the condensed consolidated financial statements
and notes thereto have been retroactively adjusted, where necessary, to reflect this
three-for-two
stock split. The effect of the
three-for-two
stock split on the outstanding common shares is that shareholders of record as of the close of business on October 31, 2016, the record date, received an additional half share of common
stock held, with shareholders receiving cash in lieu of any fractional shares. The additional shares issued in the stock split were issued on November 14, 2016, and the common shares began trading on a split-adjusted basis on or about
November 15, 2016.
Basic earnings per share is computed by dividing net income available to common shareholders (net income less dividend
requirements for preferred stock and accretion of preferred stock discount) by the weighted-average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
8
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table shows computation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,224
|
|
|
$
|
5,381
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
8,224
|
|
|
$
|
5,339
|
|
|
|
|
Weighted average common shares
outstanding
(1)
|
|
|
22,175,526
|
|
|
|
17,924,124
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.37
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
8,224
|
|
|
$
|
5,339
|
|
|
|
|
Weighted average common shares
outstanding
(1)
|
|
|
22,175,526
|
|
|
|
17,924,124
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
36,336
|
|
|
|
31,550
|
|
Stock options
|
|
|
114,209
|
|
|
|
57,053
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
22,326,071
|
|
|
|
18,012,726
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.37
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjusted for 3:2 stock split on November 14, 2016
|
There were zero shares for the three months ended
March 31, 2017 and 2016 which were not included in the computation of diluted earnings per share because they were
non-dilutive.
Horizon has share-based employee compensation plans, which are described in the notes to the financial statements included in the December 31, 2016
Annual Report on Form
10-K.
Reclassifications
Certain reclassifications have been made to the 2016 condensed consolidated financial statements to be comparable to 2017. These reclassifications had no
effect on net income.
Note 2 Acquisitions
Kosciusko Financial, Inc.
On June 1, 2016,
Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (Kosciusko) and Horizon Banks acquisition of Farmers State Bank, a state-chartered bank and wholly owned subsidiary of Kosciusko, through
mergers effective June 1, 2016. Under the terms of the Merger Agreement, shareholders of Kosciusko had the option to receive $81.75 per share in cash or 4.5183 shares of Horizon common stock for each share of Kosciuskos common stock,
subject to allocation provisions to assure that in aggregate, Kosciusko shareholders received total consideration that consisted of 65% stock and 35% cash. Kosciusko shareholders owning fewer than 100 shares of common stock received $81.75 in
cash for each common share. As a result of Kosciusko stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 873,430 shares of its common stock in the merger. Based upon the June 1,
2016 closing price of $16.57 per share of Horizon common stock, the
9
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
transaction has an implied valuation of approximately $23.0 million. The Company has had approximately $1.6 million in costs related to the acquisition. These expenses are
classified in the
non-interest
expense section of the income statement and primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the
acquisition, the Company was able to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.
Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair
values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the purchase price for the
Kosciusko acquisition is detailed in the following table. The final valuation numbers were received in September 2016 which changed the goodwill estimate from $6.9 million to $6.4 million.
|
|
|
|
|
ASSETS
|
|
|
|
|
Cash and due from banks
|
|
$
|
38,950
|
|
Investment securities, available for sale
|
|
|
1,191
|
|
|
|
Commercial
|
|
|
70,006
|
|
Residential mortgage
|
|
|
26,244
|
|
Consumer
|
|
|
6,319
|
|
|
|
|
|
|
Total loans
|
|
|
102,569
|
|
|
|
Premises and equipment, net
|
|
|
1,466
|
|
FRB and FHLB stock
|
|
|
582
|
|
Goodwill
|
|
|
6,443
|
|
Core deposit intangible
|
|
|
526
|
|
Interest receivable
|
|
|
636
|
|
Cash value of life insurance
|
|
|
2,745
|
|
Other assets
|
|
|
765
|
|
|
|
|
|
|
Total assets purchased
|
|
$
|
155,873
|
|
|
|
|
|
|
|
|
Common shares issued
|
|
$
|
14,470
|
|
Cash paid
|
|
|
8,513
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
22,983
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Deposits
|
|
|
|
|
Non-interest
bearing
|
|
$
|
27,871
|
|
NOW accounts
|
|
|
35,213
|
|
Savings and money market
|
|
|
26,953
|
|
Certificates of deposits
|
|
|
32,771
|
|
|
|
|
|
|
Total deposits
|
|
|
122,808
|
|
|
|
Borrowings
|
|
|
9,038
|
|
Interest payable
|
|
|
55
|
|
Other liabilities
|
|
|
989
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
132,890
|
|
|
|
|
|
|
Of the total estimated purchase price of
$23.0 million, $526,000 has been allocated to core deposit intangible. Additionally, $6.4 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over ten years on
a straight line basis.
The Company acquired loans in the acquisition and the transferred loans had evidence of deterioration of credit quality since
origination and it was probable, at acquisition, that all contractually required payments would not be collected.
Loans purchased with evidence of credit
deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include
information such as
past-due
and
non-accrual
status, borrower credit scores and recent
loan-to-value
percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated
credit quality (ASC
310-30)
and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses
related to these loans is not
10
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of
current key assumptions, such as default rates, severity and prepayment speeds.
Loans with specific credit-related deterioration, since origination, are
recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected.
The following table details the acquired loans that are accounted for in accordance with ASC
310-30
as of June 1,
2016.
|
|
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
2,682
|
|
Contractual cash flows not expected to be collected (nonaccretable differences)
|
|
|
25
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
2,657
|
|
Interest component of expected cash flows (accretable discount)
|
|
|
634
|
|
|
|
|
|
|
Fair value of acquired loans accounted for under ASC
310-30
|
|
$
|
2,023
|
|
|
|
|
|
|
Final estimates of certain loans, those for which specific credit-related deterioration, since origination, are recorded at
fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected.
LaPorte Bancorp, Inc.
On July 18, 2016, Horizon completed the acquisition of LaPorte Bancorp, Inc., a Maryland corporation (LaPorte
Bancorp) and Horizon Banks acquisition of The LaPorte Savings Bank, a state-chartered savings bank and wholly owned subsidiary of LaPorte Bancorp, through mergers effective July 18, 2016. Under the terms of the Merger Agreement,
shareholders of LaPorte Bancorp had the option to receive $17.50 per share in cash or 0.9435 shares of Horizon common stock for each share of LaPorte Bancorps common stock, subject to allocation provisions to assure that in aggregate, LaPorte
Bancorp shareholders received total consideration that consisted of 65% stock and 35% cash. As a result of LaPorte Bancorp stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 3,421,488
shares of its common stock in the merger. Based upon the July 18, 2016 closing price of $18.36 per share of Horizon common stock, less the consideration used to pay off LaPortes ESOP loan receivable, the transaction has an implied
valuation of approximately $98.6 million. The Company has had approximately $4.0 million in costs related to the acquisition. These expenses are classified in the
non-interest
expense section of the
income statement and primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company was able to increase its deposit base and reduce transaction costs. The
Company also expects to reduce costs through economies of scale.
11
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Under the acquisition method of accounting, the total purchase price is allocated to net tangible and
intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that
are subject to change, the purchase price for the LaPorte Bancorp acquisition is detailed in the following table.
|
|
|
|
|
ASSETS
|
|
|
|
|
Cash and due from banks
|
|
$
|
154,849
|
|
Investment securities, available for sale
|
|
|
23,779
|
|
|
|
Commercial
|
|
|
153,750
|
|
Residential mortgage
|
|
|
42,603
|
|
Consumer
|
|
|
16,801
|
|
Mortgage Warehousing
|
|
|
99,752
|
|
|
|
|
|
|
Total loans
|
|
|
312,906
|
|
|
|
Premises and equipment, net
|
|
|
6,022
|
|
FHLB stock
|
|
|
4,029
|
|
Goodwill
|
|
|
20,993
|
|
Core deposit intangible
|
|
|
2,514
|
|
Interest receivable
|
|
|
844
|
|
Cash value of life insurance
|
|
|
15,267
|
|
Other assets
|
|
|
8,334
|
|
|
|
|
|
|
Total assets purchased
|
|
$
|
549,537
|
|
|
|
|
|
|
|
|
Common shares issued
|
|
$
|
60,306
|
|
Cash paid
|
|
|
38,328
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
98,634
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Deposits
|
|
|
|
|
Non-interest
bearing
|
|
$
|
66,733
|
|
NOW accounts
|
|
|
99,346
|
|
Savings and money market
|
|
|
117,688
|
|
Certificates of deposits
|
|
|
87,605
|
|
|
|
|
|
|
Total deposits
|
|
|
371,372
|
|
|
|
Borrowings
|
|
|
64,793
|
|
Interest payable
|
|
|
178
|
|
Subordinated debt
|
|
|
4,504
|
|
Other liabilities
|
|
|
10,056
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
450,903
|
|
|
|
|
|
|
Of the total estimated purchase price of
$98.6 million, $2.5 million has been allocated to core deposit intangible. Additionally, $21.0 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over ten
years on a straight line basis.
The Company acquired loans in the acquisition and the transferred loans had evidence of deterioration of credit quality
since origination and it was probable, at acquisition, that all contractually required payments would not be collected.
Loans purchased with evidence of
credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include
information such as
past-due
and
non-accrual
status, borrower credit scores and recent
loan-to-value
percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated
credit quality (ASC
310-30)
and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses
related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions,
such as default rates, severity and prepayment speeds.
Loans with specific credit-related deterioration, since origination, are recorded at fair value,
reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected.
12
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table details an estimate of the acquired loans that are accounted for in accordance with ASC
310-30
as of July 18, 2016.
|
|
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
12,545
|
|
Contractual cash flows not expected to be collected (nonaccretable differences)
|
|
|
4,492
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
8,053
|
|
Interest component of expected cash flows (accretable discount)
|
|
|
1,258
|
|
|
|
|
|
|
Fair value of acquired loans accounted for under ASC
310-30
|
|
$
|
6,795
|
|
|
|
|
|
|
Final estimates of certain loans, those for which specific credit-related deterioration, since origination, are recorded at
fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Goodwill was increased by $703,000 as
of March 31, 2017 due to measurement period adjustments.
CNB Bancorp
On November 7, 2016, Horizon completed the acquisition of CNB Bancorp, an Indiana corporation headquartered in Attica, Indiana (CNB) and the
Banks acquisition of The Central National Bank and Trust Company (Central National Bank & Trust), through mergers effective November 7, 2016. Under terms of the acquisition, shareholders of CNB received merger
consideration in the form of cash. The total value of the consideration for the acquisition was $5.3 million.
Under the acquisition method of
accounting, the total estimated purchase price is allocated to CNBs net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on managements preliminary valuation of the fair
value of the tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the CNB acquisition is allocated as follows:
|
|
|
|
|
ASSETS
|
|
|
|
|
Cash and due from banks
|
|
$
|
27,860
|
|
Investment securities, available for sale
|
|
|
16,393
|
|
|
|
Commercial
|
|
|
2,267
|
|
Residential mortgage
|
|
|
6,624
|
|
Consumer
|
|
|
1,579
|
|
|
|
|
|
|
Total loans
|
|
|
10,470
|
|
|
|
Premises and equipment, net
|
|
|
444
|
|
FHLB stock
|
|
|
50
|
|
Goodwill
|
|
|
609
|
|
Core deposit intangible
|
|
|
190
|
|
Interest receivable
|
|
|
154
|
|
Other assets
|
|
|
49
|
|
|
|
|
|
|
Total assets purchased
|
|
$
|
56,219
|
|
|
|
|
|
|
|
|
Cash paid
|
|
|
5,311
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
5,311
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Deposits
|
|
|
|
|
Non-interest
bearing
|
|
$
|
24,079
|
|
NOW accounts
|
|
|
9,038
|
|
Savings and money market
|
|
|
13,829
|
|
Certificates of deposits
|
|
|
3,342
|
|
|
|
|
|
|
Total deposits
|
|
|
50,288
|
|
|
|
Borrowings
|
|
|
459
|
|
Interest payable
|
|
|
7
|
|
Other liabilities
|
|
|
154
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
50,908
|
|
|
|
|
|
|
13
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Of the total purchase price of $5.3 million, $190,000 has been allocated to core deposit intangible.
Additionally, $609,000 has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over 10 years on a straight line basis.
The Company acquired the $10.8 million performing loan portfolio with an estimated fair value of $10.5 million. No loans were purchased with
evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired.
The results of operations of CNB, LaPorte Bancorp and Kosciusko have been included in the Companys consolidated financial statements since the
acquisition dates. The following schedule includes
pro-forma
results for the three months ended March 31, 2017 and 2016 as if the CNB, LaPorte Bancorp and Kosciusko acquisitions had occurred as of the
beginning of the comparable prior reporting periods.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
|
|
2017
|
|
|
2016
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
25,568
|
|
|
$
|
25,497
|
|
Provision for Loan Losses
|
|
|
330
|
|
|
|
532
|
|
|
|
|
Net Interest Income after Provision for Loan Losses
|
|
|
25,238
|
|
|
$
|
24,965
|
|
Non-interest
Income
|
|
|
7,559
|
|
|
|
8,473
|
|
Non-Interest
Expense
|
|
|
21,521
|
|
|
|
24,908
|
|
|
|
|
Income before Income Taxes
|
|
|
11,276
|
|
|
|
8,530
|
|
Income Tax Expense
|
|
|
3,052
|
|
|
|
2,385
|
|
|
|
|
Net Income
|
|
|
8,224
|
|
|
|
6,145
|
|
Net Income Available to Common Shareholders
|
|
$
|
8,224
|
|
|
$
|
6,103
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
$
|
0.37
|
|
|
$
|
0.34
|
|
Diluted Earnings Per Share
|
|
$
|
0.37
|
|
|
$
|
0.34
|
|
The
pro-forma
information includes adjustments for interest income on loans,
amortization of intangibles arising from the transaction, interest expense on deposits acquired, premises expense for the banking centers acquired and the related income tax effects.
The
pro-forma
financial information is presented for information purposes only and is not indicative of the results of
operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.
Bargersville Branch Purchase
On February 3,
2017, Horizon completed the purchase and assumption of certain assets and liabilities of a single branch of First Farmers Bank & Trust Company, in Bargersville, Indiana. Net cash of $10.9 million was received in the transaction,
representing the deposit balances assumed at closing, net of amounts paid for loans acquired in the transaction of $3.4 million and a 3.0% premium on deposits. Customer deposit balances were recorded at $14.8 million and a core deposit
intangible of $463,000 was recorded in the transaction, which will be amortized over ten years on a straight line basis. There was no goodwill generated in the transaction.
14
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 3 Securities
The fair value of securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
13,546
|
|
|
$
|
2
|
|
|
$
|
(68
|
)
|
|
$
|
13,480
|
|
State and municipal
|
|
|
127,108
|
|
|
|
656
|
|
|
|
(659
|
)
|
|
|
127,105
|
|
Federal agency collateralized mortgage obligations
|
|
|
137,815
|
|
|
|
241
|
|
|
|
(1,867
|
)
|
|
|
136,189
|
|
Federal agency mortgage-backed pools
|
|
|
196,064
|
|
|
|
1,194
|
|
|
|
(3,547
|
)
|
|
|
193,711
|
|
Private labeled mortgage-backed pools
|
|
|
1,901
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
1,882
|
|
Corporate notes
|
|
|
1,236
|
|
|
|
619
|
|
|
|
|
|
|
|
1,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale investment securities
|
|
$
|
477,670
|
|
|
$
|
2,712
|
|
|
$
|
(6,160
|
)
|
|
$
|
474,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
176,631
|
|
|
$
|
3,317
|
|
|
$
|
(1,948
|
)
|
|
$
|
178,000
|
|
Federal agency collateralized mortgage obligations
|
|
|
6,297
|
|
|
|
30
|
|
|
|
(65
|
)
|
|
|
6,262
|
|
Federal agency mortgage-backed pools
|
|
|
15,940
|
|
|
|
449
|
|
|
|
(169
|
)
|
|
|
16,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity investment securities
|
|
$
|
198,868
|
|
|
$
|
3,796
|
|
|
$
|
(2,182
|
)
|
|
$
|
200,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
8,051
|
|
|
$
|
2
|
|
|
$
|
(64
|
)
|
|
$
|
7,989
|
|
State and municipal
|
|
|
117,327
|
|
|
|
324
|
|
|
|
(1,059
|
)
|
|
|
116,592
|
|
Federal agency collateralized mortgage obligations
|
|
|
139,040
|
|
|
|
254
|
|
|
|
(2,099
|
)
|
|
|
137,195
|
|
Federal agency mortgage-backed pools
|
|
|
180,183
|
|
|
|
251
|
|
|
|
(3,707
|
)
|
|
|
176,726
|
|
Corporate notes
|
|
|
1,238
|
|
|
|
91
|
|
|
|
|
|
|
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale investment securities
|
|
$
|
445,839
|
|
|
$
|
922
|
|
|
$
|
(6,929
|
)
|
|
$
|
439,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State and municipal
|
|
|
165,607
|
|
|
|
2,700
|
|
|
|
(2,485
|
)
|
|
|
165,822
|
|
Federal agency collateralized mortgage obligations
|
|
|
6,530
|
|
|
|
31
|
|
|
|
(71
|
)
|
|
|
6,490
|
|
Federal agency mortgage-backed pools
|
|
|
21,057
|
|
|
|
897
|
|
|
|
(180
|
)
|
|
|
21,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity investment securities
|
|
$
|
193,194
|
|
|
$
|
3,628
|
|
|
$
|
(2,736
|
)
|
|
$
|
194,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. While these securities are held in the available for sale portfolio and
held-to-maturity,
Horizon intends, and has the ability, to hold them until the earlier of a recovery in fair value or maturity.
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. At March 31, 2017, no individual investment security had an unrealized loss that was determined to be other-than-temporary.
The unrealized losses on the Companys investments in securities of state and municipal governmental agencies, U.S. Treasury and federal agencies,
federal agency collateralized mortgage obligations, and federal agency mortgage-backed pools were caused by interest rate volatility and not a decline in credit quality. The contractual terms of those investments do not permit the issuer to settle
the securities at a price less than the amortized cost basis of the investments. The Company expects to recover the amortized cost basis over the term of the securities. Because the Company does not intend to sell the investments and it is not
likely that
15
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider those investments to be
other-than-temporarily impaired at March 31, 2017.
The amortized cost and fair value of securities available for sale and held to maturity at
March 31, 2017 and December 31, 2016, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
8,277
|
|
|
$
|
8,311
|
|
|
$
|
7,455
|
|
|
$
|
7,480
|
|
One to five years
|
|
|
40,343
|
|
|
|
40,404
|
|
|
|
37,483
|
|
|
|
37,479
|
|
Five to ten years
|
|
|
28,390
|
|
|
|
28,380
|
|
|
|
21,112
|
|
|
|
20,984
|
|
After ten years
|
|
|
64,880
|
|
|
|
65,345
|
|
|
|
60,566
|
|
|
|
59,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,890
|
|
|
|
142,440
|
|
|
|
126,616
|
|
|
|
125,910
|
|
Federal agency collateralized mortgage obligations
|
|
|
137,815
|
|
|
|
136,189
|
|
|
|
139,040
|
|
|
|
137,195
|
|
Federal agency mortgage-backed pools
|
|
|
196,064
|
|
|
|
193,711
|
|
|
|
180,183
|
|
|
|
176,726
|
|
Private labeled mortgage-backed pools
|
|
|
1,901
|
|
|
|
1,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale investment securities
|
|
$
|
477,670
|
|
|
$
|
474,222
|
|
|
$
|
445,839
|
|
|
$
|
439,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
9,941
|
|
|
$
|
9,941
|
|
|
$
|
|
|
|
$
|
|
|
One to five years
|
|
|
30,869
|
|
|
|
31,892
|
|
|
|
24,594
|
|
|
|
25,271
|
|
Five to ten years
|
|
|
86,470
|
|
|
|
87,885
|
|
|
|
87,645
|
|
|
|
88,805
|
|
After ten years
|
|
|
49,351
|
|
|
|
48,282
|
|
|
|
53,368
|
|
|
|
51,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,631
|
|
|
|
178,000
|
|
|
|
165,607
|
|
|
|
165,822
|
|
Federal agency collateralized mortgage obligations
|
|
|
6,297
|
|
|
|
6,262
|
|
|
|
6,530
|
|
|
|
6,490
|
|
Federal agency mortgage-backed pools
|
|
|
15,940
|
|
|
|
16,220
|
|
|
|
21,057
|
|
|
|
21,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity investment securities
|
|
$
|
198,868
|
|
|
$
|
200,482
|
|
|
$
|
193,194
|
|
|
$
|
194,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the gross unrealized losses and the fair value of the Companys investments, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
March 31, 2017
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
13,158
|
|
|
$
|
(68
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,158
|
|
|
$
|
(68
|
)
|
State and municipal
|
|
|
107,096
|
|
|
|
(2,607
|
)
|
|
|
|
|
|
|
|
|
|
|
107,096
|
|
|
|
(2,607
|
)
|
Federal agency collateralized mortgage obligations
|
|
|
105,289
|
|
|
|
(1,700
|
)
|
|
|
9,626
|
|
|
|
(232
|
)
|
|
|
114,916
|
|
|
|
(1,932
|
)
|
Federal agency mortgage-backed pools
|
|
|
162,271
|
|
|
|
(3,716
|
)
|
|
|
|
|
|
|
|
|
|
|
162,271
|
|
|
|
(3,716
|
)
|
Private labeled mortgage-backed pools
|
|
|
1,882
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
389,696
|
|
|
$
|
(8,110
|
)
|
|
$
|
9,626
|
|
|
$
|
(232
|
)
|
|
$
|
399,323
|
|
|
$
|
(8,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
December 31, 2016
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
6,987
|
|
|
$
|
(64
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,987
|
|
|
$
|
(64
|
)
|
State and municipal
|
|
|
142,466
|
|
|
|
(3,544
|
)
|
|
|
|
|
|
|
|
|
|
|
142,466
|
|
|
|
(3,544
|
)
|
Federal agency collateralized mortgage obligations
|
|
|
112,414
|
|
|
|
(1,918
|
)
|
|
|
10,199
|
|
|
|
(252
|
)
|
|
|
122,613
|
|
|
|
(2,170
|
)
|
Federal agency mortgage-backed pools
|
|
|
163,768
|
|
|
|
(3,887
|
)
|
|
|
|
|
|
|
|
|
|
|
163,768
|
|
|
|
(3,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
425,635
|
|
|
$
|
(9,413
|
)
|
|
$
|
10,199
|
|
|
$
|
(252
|
)
|
|
$
|
435,834
|
|
|
$
|
(9,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2017
|
|
|
2016
|
|
Sales of securities available for sale
(Unaudited)
|
|
|
|
|
|
|
|
|
Proceeds
|
|
$
|
2,090
|
|
|
$
|
7,297
|
|
Gross gains
|
|
|
35
|
|
|
|
108
|
|
Gross losses
|
|
|
|
|
|
|
|
|
Note 4 Loans
|
|
|
|
|
|
|
|
|
|
|
March 31
2017
|
|
|
December 31
2016
|
|
Commercial
|
|
|
|
|
|
|
|
|
Working capital and equipment
|
|
$
|
559,733
|
|
|
$
|
539,403
|
|
Real estate, including agriculture
|
|
|
499,009
|
|
|
|
485,620
|
|
Tax exempt
|
|
|
16,399
|
|
|
|
15,486
|
|
Other
|
|
|
31,330
|
|
|
|
29,447
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,106,471
|
|
|
|
1,069,956
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
14 family
|
|
|
527,994
|
|
|
|
526,024
|
|
Other
|
|
|
5,652
|
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
533,646
|
|
|
|
531,874
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Auto
|
|
|
188,601
|
|
|
|
174,773
|
|
Recreation
|
|
|
7,264
|
|
|
|
5,669
|
|
Real estate/home improvement
|
|
|
54,414
|
|
|
|
53,898
|
|
Home equity
|
|
|
147,528
|
|
|
|
144,508
|
|
Unsecured
|
|
|
3,536
|
|
|
|
3,875
|
|
Other
|
|
|
16,133
|
|
|
|
15,706
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
417,476
|
|
|
|
398,429
|
|
|
|
|
Mortgage warehouse
|
|
|
89,360
|
|
|
|
135,727
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,146,953
|
|
|
|
2,135,986
|
|
Allowance for loan losses
|
|
|
(15,054
|
)
|
|
|
(14,837
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,131,899
|
|
|
$
|
2,121,149
|
|
|
|
|
|
|
|
|
|
|
Commercial
Commercial
loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may
fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured
basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically
involves larger loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans
may be more adversely
17
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
affected by conditions in the real estate markets, the general economy or fluctuations in interest rates. The properties securing the Companys commercial real estate portfolio are diverse
in terms of property type, and are monitored for concentrations of credit. Management monitors and evaluates commercial real estate loans based on collateral, cash flow and risk grade criteria. As a general rule, the Company avoids financing single
purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus
non-owner
occupied loans.
Real Estate and Consumer
With respect to
residential loans that are secured by
1-4
family residences and are generally owner occupied, the Company generally establishes a maximum
loan-to-value
ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in
1-4
family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit.
Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on
residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
Mortgage Warehousing
Horizons mortgage warehouse
lending has specific mortgage companies as customers of Horizon Bank. Individual mortgage loans originated by these mortgage companies are funded as a secured borrowing with a pledge of collateral under Horizons agreement with the mortgage
company. Each individual mortgage and the related mortgagee are underwritten by Horizon to the end investor guidelines and is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. In addition, Horizon takes
possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan. At the time a loan is transferred to the secondary market, the mortgage company reacquires the loan under its option within the
agreement. Due to the reacquire feature contained in the agreement, the transaction does not qualify as a sale and therefore is accounted for as a secured borrowing with a pledge of collateral pursuant to the agreement with the mortgage company.
When the individual loan is sold to the end investor by the mortgage company, the proceeds from the sale of the loan are received by Horizon and used to pay off the loan balance with Horizon along with any accrued interest and any related fees. The
remaining balance from the sale is forwarded to the mortgage company. These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected
at the time each loan is sold. Fee income for each loan sold is collected when the loan is sold, and no costs are deferred due to the term between each loan funding and related payoff, which is typically less than 30 days.
Based on the agreements with each mortgage company, at any time a mortgage company can reacquire from Horizon its outstanding loan balance on an individual
mortgage and regain possession of the original note. Horizon also has the option to request that the mortgage company reacquire an individual mortgage. Should this occur, Horizon would return the original note and reassign the assignment of the
mortgage to the mortgage company. Also, in the event that the end investor would not be able to honor the purchase commitment and the mortgage company would not be able to reacquire its loan on an individual mortgage, Horizon would be able to
exercise its rights under the agreement.
18
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table shows the recorded investment of individual loan categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Loan
Balance
|
|
|
Interest Due
|
|
|
Deferred
Fees / (Costs)
|
|
|
Recorded
Investment
|
|
Owner occupied real estate
|
|
$
|
339,341
|
|
|
$
|
813
|
|
|
$
|
951
|
|
|
$
|
341,105
|
|
Non owner occupied real estate
|
|
|
475,766
|
|
|
|
596
|
|
|
|
2,340
|
|
|
|
478,702
|
|
Residential spec homes
|
|
|
6,437
|
|
|
|
15
|
|
|
|
|
|
|
|
6,452
|
|
Development & spec land loans
|
|
|
35,395
|
|
|
|
58
|
|
|
|
114
|
|
|
|
35,567
|
|
Commercial and industrial
|
|
|
245,702
|
|
|
|
1,732
|
|
|
|
425
|
|
|
|
247,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,102,641
|
|
|
|
3,214
|
|
|
|
3,830
|
|
|
|
1,109,685
|
|
|
|
|
|
|
Residential mortgage
|
|
|
508,645
|
|
|
|
1,461
|
|
|
|
3,058
|
|
|
|
513,164
|
|
Residential construction
|
|
|
21,943
|
|
|
|
43
|
|
|
|
|
|
|
|
21,986
|
|
Mortgage warehouse
|
|
|
89,360
|
|
|
|
480
|
|
|
|
|
|
|
|
89,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
619,948
|
|
|
|
1,984
|
|
|
|
3,058
|
|
|
|
624,990
|
|
|
|
|
|
|
Direct installment
|
|
|
74,195
|
|
|
|
201
|
|
|
|
(423
|
)
|
|
|
73,973
|
|
Direct installment purchased
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Indirect installment
|
|
|
166,802
|
|
|
|
355
|
|
|
|
182
|
|
|
|
167,339
|
|
Home equity
|
|
|
177,551
|
|
|
|
691
|
|
|
|
(930
|
)
|
|
|
177,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
418,647
|
|
|
|
1,247
|
|
|
|
(1,171
|
)
|
|
|
418,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,141,236
|
|
|
|
6,445
|
|
|
|
5,717
|
|
|
|
2,153,398
|
|
Allowance for loan losses
|
|
|
(15,054
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
2,126,182
|
|
|
$
|
6,445
|
|
|
$
|
5,717
|
|
|
$
|
2,138,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Loan
Balance
|
|
|
Interest Due
|
|
|
Deferred
Fees / (Costs)
|
|
|
Recorded
Investment
|
|
Owner occupied real estate
|
|
$
|
337,548
|
|
|
$
|
899
|
|
|
$
|
1,022
|
|
|
$
|
339,469
|
|
Non owner occupied real estate
|
|
|
461,897
|
|
|
|
624
|
|
|
|
2,176
|
|
|
|
464,697
|
|
Residential spec homes
|
|
|
5,006
|
|
|
|
8
|
|
|
|
(2
|
)
|
|
|
5,012
|
|
Development & spec land loans
|
|
|
31,228
|
|
|
|
56
|
|
|
|
119
|
|
|
|
31,403
|
|
Commercial and industrial
|
|
|
230,520
|
|
|
|
1,906
|
|
|
|
442
|
|
|
|
232,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,066,199
|
|
|
|
3,493
|
|
|
|
3,757
|
|
|
|
1,073,449
|
|
Residential mortgage
|
|
|
508,233
|
|
|
|
1,492
|
|
|
|
3,030
|
|
|
|
512,755
|
|
Residential construction
|
|
|
20,611
|
|
|
|
33
|
|
|
|
|
|
|
|
20,644
|
|
Mortgage warehouse
|
|
|
135,727
|
|
|
|
480
|
|
|
|
|
|
|
|
136,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
664,571
|
|
|
|
2,005
|
|
|
|
3,030
|
|
|
|
669,606
|
|
Direct installment
|
|
|
71,150
|
|
|
|
199
|
|
|
|
(385
|
)
|
|
|
70,964
|
|
Direct installment purchased
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Indirect installment
|
|
|
153,204
|
|
|
|
345
|
|
|
|
|
|
|
|
153,549
|
|
Home equity
|
|
|
175,126
|
|
|
|
703
|
|
|
|
(785
|
)
|
|
|
175,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
399,599
|
|
|
|
1,247
|
|
|
|
(1,170
|
)
|
|
|
399,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,130,369
|
|
|
|
6,745
|
|
|
|
5,617
|
|
|
|
2,142,731
|
|
Allowance for loan losses
|
|
|
(14,837
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
2,115,532
|
|
|
$
|
6,745
|
|
|
$
|
5,617
|
|
|
$
|
2,127,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 5 Accounting for Certain Loans Acquired in a Transfer
The Company acquired loans in acquisitions and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at
acquisition, that all contractually required payments would not be collected.
Loans purchased with evidence of credit deterioration since origination and
for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as
past-due
and
non-accrual
status, borrower credit scores and recent
loan-to-value
percentages.
Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC
310-30)
and initially measured at fair value, which
includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash
flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.
The carrying amounts of those loans included in the balance sheet amounts of loans receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
2017
Heartland
|
|
|
March 31
2017
Summit
|
|
|
March 31
2017
Peoples
|
|
|
March 31
2017
Kosciusko
|
|
|
March 31
2017
LaPorte
|
|
|
March 31
2017
Total
|
|
Commercial
|
|
$
|
724
|
|
|
$
|
4,900
|
|
|
$
|
624
|
|
|
$
|
1,632
|
|
|
$
|
2,401
|
|
|
$
|
10,281
|
|
Real estate
|
|
|
433
|
|
|
|
946
|
|
|
|
155
|
|
|
|
447
|
|
|
|
1,102
|
|
|
|
3,083
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance
|
|
$
|
1,157
|
|
|
$
|
5,846
|
|
|
$
|
779
|
|
|
$
|
2,079
|
|
|
$
|
3,541
|
|
|
$
|
13,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance of $71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
2016
Heartland
|
|
|
December 31
2016
Summit
|
|
|
December 31
2016
Peoples
|
|
|
December 31
2016
Kosciusko
|
|
|
December 31
2016
LaPorte
|
|
|
December 31
2016
Total
|
|
Commercial
|
|
$
|
774
|
|
|
$
|
5,245
|
|
|
$
|
692
|
|
|
$
|
1,652
|
|
|
$
|
3,200
|
|
|
$
|
11,563
|
|
Real estate
|
|
|
534
|
|
|
|
967
|
|
|
|
165
|
|
|
|
457
|
|
|
|
1,114
|
|
|
|
3,237
|
|
Consumer
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance
|
|
$
|
1,310
|
|
|
$
|
6,213
|
|
|
$
|
856
|
|
|
$
|
2,109
|
|
|
$
|
4,355
|
|
|
$
|
14,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretable yield, or income expected to be collected for the three months ended March 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
Heartland
|
|
|
Summit
|
|
|
Peoples
|
|
|
Kosciusko
|
|
|
LaPorte
|
|
|
Total
|
|
Balance at January 1
|
|
$
|
557
|
|
|
$
|
502
|
|
|
$
|
389
|
|
|
$
|
530
|
|
|
$
|
1,479
|
|
|
$
|
3,457
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
|
|
(34
|
)
|
|
|
(93
|
)
|
|
|
(194
|
)
|
|
|
(31
|
)
|
|
|
(81
|
)
|
|
|
(433
|
)
|
Reclassification from nonaccretable difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(110
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31
|
|
$
|
517
|
|
|
$
|
407
|
|
|
$
|
194
|
|
|
$
|
499
|
|
|
$
|
1,288
|
|
|
$
|
2,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
|
|
Heartland
|
|
|
Summit
|
|
|
Peoples
|
|
|
Kosciusko
|
|
|
LaPorte
|
|
|
Total
|
|
Balance at January 1
|
|
$
|
795
|
|
|
$
|
708
|
|
|
$
|
555
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,058
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
|
|
(36
|
)
|
|
|
(55
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
(133
|
)
|
Reclassification from nonaccretable difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31
|
|
$
|
749
|
|
|
$
|
649
|
|
|
$
|
483
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2017, the Company increased the allowance for loan losses on purchased loans by a
charge to the income statement of $71,000. During the three months ended March 31, 2016, the Company decreased the allowance for loans losses on purchased loans by a recovery to the income statement of $63,000.
20
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 6 Allowance for Loan Losses
The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior one to five
years. Management believes the five-year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed. The actual allowance for loan
loss activity is provided below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Balance at beginning of the period
|
|
$
|
14,837
|
|
|
$
|
14,534
|
|
Loans
charged-off:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
|
|
|
|
147
|
|
Non owner occupied real estate
|
|
|
|
|
|
|
299
|
|
Residential development
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
|
|
|
|
485
|
|
Real estate
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
51
|
|
|
|
115
|
|
Residential construction
|
|
|
|
|
|
|
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
51
|
|
|
|
115
|
|
Consumer
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
25
|
|
|
|
58
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
Indirect Installment
|
|
|
285
|
|
|
|
276
|
|
Home Equity
|
|
|
50
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
360
|
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
Total loans
charged-off
|
|
|
411
|
|
|
|
1,109
|
|
|
|
|
Recoveries of loans previously
charged-off:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
|
|
|
|
25
|
|
Non owner occupied real estate
|
|
|
22
|
|
|
|
23
|
|
Residential development
|
|
|
2
|
|
|
|
2
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
110
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
134
|
|
|
|
82
|
|
Real estate
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
13
|
|
|
|
32
|
|
Residential construction
|
|
|
|
|
|
|
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
13
|
|
|
|
32
|
|
Consumer
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
17
|
|
|
|
16
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
Indirect Installment
|
|
|
113
|
|
|
|
94
|
|
Home Equity
|
|
|
21
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
151
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
Total loan recoveries
|
|
|
298
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
Net loans
charged-off
(recovered)
|
|
|
113
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
Provision charged to operating expense
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
887
|
|
|
|
(332
|
)
|
Real estate
|
|
|
(567
|
)
|
|
|
(592
|
)
|
Consumer
|
|
|
10
|
|
|
|
1,456
|
|
|
|
|
|
|
|
|
|
|
Total provision charged to operating expense
|
|
|
330
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
15,054
|
|
|
$
|
14,236
|
|
|
|
|
|
|
|
|
|
|
21
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Certain loans are individually evaluated for impairment, and the Companys general practice is to
proactively charge down impaired loans to the fair value, which is the appraised value less estimated selling costs, of the underlying collateral.
Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The
Companys policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.
For all loan portfolio
segments except
1-4
family residential properties and consumer, the Company promptly
charges-off
loans, or portions thereof, when available information confirms that
specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy,
that impairs the borrowers ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial
charge-off
is recorded when a loss has been
confirmed by an updated appraisal or other appropriate valuation of the collateral.
The Company
charges-off
1-4
family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which
provides for the charge-down or specific allocation of
1-4
family first and junior lien mortgages to the net realizable value less costs to sell when the value is known but no later than when a loan is 180
days past due. Pursuant to such guidelines, the Company also
charges-off
unsecured
open-end
loans when the loan is 90 days past due, and charges down to the net
realizable value other secured loans when they are 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that
collection in full will occur regardless of delinquency status, are not charged off.
22
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table presents the balance in the allowance for loan losses and the recorded investment in
loans by portfolio segment and based on impairment analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Commercial
|
|
|
Real Estate
|
|
|
Mortgage
Warehousing
|
|
|
Consumer
|
|
|
Total
|
|
Allowance For Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Collectively evaluated for impairment
|
|
|
7,600
|
|
|
|
1,697
|
|
|
|
1,042
|
|
|
|
4,715
|
|
|
|
15,054
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
7,600
|
|
|
$
|
1,697
|
|
|
$
|
1,042
|
|
|
$
|
4,715
|
|
|
$
|
15,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,379
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,379
|
|
Collectively evaluated for impairment
|
|
|
1,108,306
|
|
|
|
535,150
|
|
|
|
89,840
|
|
|
|
418,723
|
|
|
|
2,152,019
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
1,109,685
|
|
|
$
|
535,150
|
|
|
$
|
89,840
|
|
|
$
|
418,723
|
|
|
$
|
2,153,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Commercial
|
|
|
Real Estate
|
|
|
Mortgage
Warehousing
|
|
|
Consumer
|
|
|
Total
|
|
Allowance For Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
Collectively evaluated for impairment
|
|
|
6,575
|
|
|
|
2,090
|
|
|
|
1,254
|
|
|
|
4,914
|
|
|
|
14,833
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
6,579
|
|
|
$
|
2,090
|
|
|
$
|
1,254
|
|
|
$
|
4,914
|
|
|
$
|
14,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
2,250
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,250
|
|
Collectively evaluated for impairment
|
|
|
1,071,199
|
|
|
|
533,399
|
|
|
|
136,207
|
|
|
|
399,676
|
|
|
|
2,140,481
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
1,073,449
|
|
|
$
|
533,399
|
|
|
$
|
136,207
|
|
|
$
|
399,676
|
|
|
$
|
2,142,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 7
Non-performing
Loans and Impaired Loans
The following table presents the
non-accrual,
loans past due over 90 days still on accrual, and troubled debt
restructured (TDRs) by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Non-accrual
|
|
|
Loans Past
Due Over 90
Days Still
Accruing
|
|
|
Non-
Performing
TDRs
|
|
|
Performing
TDRs
|
|
|
Total Non-
Performing
Loans
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
760
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
760
|
|
Non owner occupied real estate
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
Commercial and industrial
|
|
|
121
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,380
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
2,904
|
|
|
|
|
|
|
|
567
|
|
|
|
1,356
|
|
|
|
4,827
|
|
Residential construction
|
|
|
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
2,904
|
|
|
|
|
|
|
|
797
|
|
|
|
1,356
|
|
|
|
5,057
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Installment
|
|
|
690
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
759
|
|
Home Equity
|
|
|
1,481
|
|
|
|
26
|
|
|
|
201
|
|
|
|
291
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
2,660
|
|
|
|
95
|
|
|
|
201
|
|
|
|
291
|
|
|
|
3,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,944
|
|
|
$
|
245
|
|
|
$
|
998
|
|
|
$
|
1,647
|
|
|
$
|
9,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Non-accrual
|
|
|
Loans Past
Due Over 90
Days Still
Accruing
|
|
|
Non-
Performing
TDRs
|
|
|
Performing
TDRs
|
|
|
Total Non-
Performing
Loans
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
1,532
|
|
|
$
|
183
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,715
|
|
Non owner occupied real estate
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Commercial and industrial
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
2,249
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
2,432
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
2,959
|
|
|
|
|
|
|
|
576
|
|
|
|
1,254
|
|
|
|
4,789
|
|
Residential construction
|
|
|
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
233
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
2,959
|
|
|
|
|
|
|
|
809
|
|
|
|
1,254
|
|
|
|
5,022
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Installment
|
|
|
659
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
708
|
|
Home Equity
|
|
|
1,557
|
|
|
|
9
|
|
|
|
205
|
|
|
|
238
|
|
|
|
2,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
2,728
|
|
|
|
58
|
|
|
|
205
|
|
|
|
238
|
|
|
|
3,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,936
|
|
|
$
|
241
|
|
|
$
|
1,014
|
|
|
$
|
1,492
|
|
|
$
|
10,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Included in the $6.9 million of
non-accrual
loans and the
$998,000 of
non-performing
TDRs at March 31, 2017 were $2.2 million and $17,000, respectively, of loans acquired for which accretable yield was recognized.
From time to time, the Bank obtains information that may lead management to believe that the collection of payments may be doubtful on a particular loan. In
recognition of this, it is managements policy to convert the loan from an earning asset to a
non-accruing
loan. The entire balance of a loan is considered delinquent if the minimum payment
contractually required to be made is not received by the specified due date. Further, it is managements policy to generally place a loan on a
non-accrual
status when the payment is delinquent in excess
of 90 days or the loan has had the accrual of interest discontinued by management. The officer responsible for the loan and the Chief Credit Officer and/or the Chief Operations Officer must review all loans placed on
non-accrual
status. Subsequent payments on
non-accrual
loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is
reasonably assured.
Non-accrual
loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the
timely collection of interest or principal in accordance with the loan terms. The Company requires a period of satisfactory performance of not less than six months before returning a
non-accrual
loan to
accrual status.
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 for its collateral, 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. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.
Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by 14 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
non-accrual
status when they are 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions
thereof, are charged off when deemed uncollectible.
Loans for which it is probable that the Company will not collect all principal and interest due
according to contractual terms, including TDRs, are measured for impairment. Allowable methods for determining the amount of impairment include the three methods described above.
The Companys TDRs are considered impaired loans and included in the allowance methodology using the guidance for impaired loans. At March 31, 2017,
the type of concessions the Company has made on restructured loans has been temporary rate reductions and/or reductions in monthly payments and there have been no restructured loans with modified recorded balances. Any modification to a loan that is
a concession and is not in the normal course of lending is considered a restructured loan. A restructured loan is returned to accruing status after six consecutive payments but is still reported as TDR unless the loan bears interest at a market
rate. As of March 31, 2017, the Company had $2.6 million in TDRs and $1.6 million were performing according to the restructured terms and zero TDRs were returned to accrual status during the first three months of 2017. There were zero
specific reserves allocated to TDRs at March 31, 2017 based on the discounted cash flows or when appropriate the fair value of the collateral.
25
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table presents commercial loans individually evaluated for impairment by class of loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending
|
|
March 31, 2017
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance For
Loan Loss
Allocated
|
|
|
Average
Balance in
Impaired
Loans
|
|
|
Cash/ Accrual
Interest
Income
Recognized
|
|
With no recorded allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
759
|
|
|
$
|
759
|
|
|
$
|
|
|
|
$
|
1,021
|
|
|
$
|
|
|
Non owner occupied real estate
|
|
|
387
|
|
|
|
387
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
112
|
|
|
|
112
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
Commercial and industrial
|
|
|
121
|
|
|
|
121
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,379
|
|
|
|
1,379
|
|
|
|
|
|
|
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner occupied real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,379
|
|
|
$
|
1,379
|
|
|
$
|
|
|
|
$
|
2,002
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending
|
|
March 31, 2016
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance For
Loan Loss
Allocated
|
|
|
Average
Balance in
Impaired
Loans
|
|
|
Cash/ Accrual
Interest
Income
Recognized
|
|
With no recorded allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
1,089
|
|
|
$
|
1,089
|
|
|
$
|
|
|
|
$
|
1,106
|
|
|
$
|
|
|
Non owner occupied real estate
|
|
|
1,851
|
|
|
|
1,856
|
|
|
|
|
|
|
|
2,063
|
|
|
|
1
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
76
|
|
|
|
76
|
|
|
|
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
3,016
|
|
|
|
3,021
|
|
|
|
|
|
|
|
3,499
|
|
|
|
1
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner occupied real estate
|
|
|
2,757
|
|
|
|
2,767
|
|
|
|
900
|
|
|
|
2,767
|
|
|
|
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
2,757
|
|
|
|
2,767
|
|
|
|
900
|
|
|
|
2,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,773
|
|
|
$
|
5,788
|
|
|
$
|
900
|
|
|
$
|
6,266
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table presents the payment status by class of loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
30 - 59 Days
Past Due
|
|
|
60 - 89 Days
Past Due
|
|
|
90 Days or
Greater Past Due
|
|
|
Total Past Due
|
|
|
Loans Not Past
Due
|
|
|
Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
1,523
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,523
|
|
|
$
|
337,818
|
|
|
$
|
339,341
|
|
Non owner occupied real estate
|
|
|
103
|
|
|
|
92
|
|
|
|
|
|
|
|
195
|
|
|
|
475,571
|
|
|
|
475,766
|
|
Residential development
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
5,959
|
|
|
|
6,437
|
|
Development & Spec Land Loans
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
35,310
|
|
|
|
35,395
|
|
Commercial and industrial
|
|
|
415
|
|
|
|
|
|
|
|
150
|
|
|
|
565
|
|
|
|
245,137
|
|
|
|
245,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
2,604
|
|
|
|
92
|
|
|
|
150
|
|
|
|
2,846
|
|
|
|
1,099,795
|
|
|
|
1,102,641
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
1,072
|
|
|
|
247
|
|
|
|
|
|
|
|
1,319
|
|
|
|
507,326
|
|
|
|
508,645
|
|
Residential construction
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
21,760
|
|
|
|
21,943
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,360
|
|
|
|
89,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
1,255
|
|
|
|
247
|
|
|
|
|
|
|
|
1,502
|
|
|
|
618,446
|
|
|
|
619,948
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
26
|
|
|
|
2
|
|
|
|
|
|
|
|
28
|
|
|
|
74,167
|
|
|
|
74,195
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
99
|
|
Indirect Installment
|
|
|
707
|
|
|
|
193
|
|
|
|
69
|
|
|
|
969
|
|
|
|
165,833
|
|
|
|
166,802
|
|
Home Equity
|
|
|
326
|
|
|
|
40
|
|
|
|
26
|
|
|
|
392
|
|
|
|
177,159
|
|
|
|
177,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
1,059
|
|
|
|
235
|
|
|
|
95
|
|
|
|
1,389
|
|
|
|
417,258
|
|
|
|
418,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,918
|
|
|
$
|
574
|
|
|
$
|
245
|
|
|
$
|
5,737
|
|
|
$
|
2,135,499
|
|
|
$
|
2,141,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
0.23
|
%
|
|
|
0.03
|
%
|
|
|
0.01
|
%
|
|
|
0.27
|
%
|
|
|
99.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
30 - 59 Days
Past Due
|
|
|
60 - 89 Days
Past Due
|
|
|
90 Days or
Greater Past Due
|
|
|
Total Past Due
|
|
|
Loans Not Past
Due
|
|
|
Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
1,068
|
|
|
$
|
|
|
|
$
|
183
|
|
|
$
|
1,251
|
|
|
$
|
336,297
|
|
|
$
|
337,548
|
|
Non owner occupied real estate
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
357
|
|
|
|
461,540
|
|
|
|
461,897
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,006
|
|
|
|
5,006
|
|
Development & Spec Land Loans
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
31,227
|
|
|
|
31,228
|
|
Commercial and industrial
|
|
|
982
|
|
|
|
|
|
|
|
|
|
|
|
982
|
|
|
|
229,538
|
|
|
|
230,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
2,408
|
|
|
|
|
|
|
|
183
|
|
|
|
2,591
|
|
|
|
1,063,608
|
|
|
|
1,066,199
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
886
|
|
|
|
123
|
|
|
|
|
|
|
|
1,009
|
|
|
|
507,224
|
|
|
|
508,233
|
|
Residential construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,611
|
|
|
|
20,611
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,727
|
|
|
|
135,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
886
|
|
|
|
123
|
|
|
|
|
|
|
|
1,009
|
|
|
|
663,562
|
|
|
|
664,571
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
139
|
|
|
|
4
|
|
|
|
|
|
|
|
143
|
|
|
|
71,007
|
|
|
|
71,150
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
119
|
|
Indirect Installment
|
|
|
1,339
|
|
|
|
237
|
|
|
|
49
|
|
|
|
1,625
|
|
|
|
151,579
|
|
|
|
153,204
|
|
Home Equity
|
|
|
912
|
|
|
|
267
|
|
|
|
9
|
|
|
|
1,188
|
|
|
|
173,938
|
|
|
|
175,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
2,390
|
|
|
|
508
|
|
|
|
58
|
|
|
|
2,956
|
|
|
|
396,643
|
|
|
|
399,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,684
|
|
|
$
|
631
|
|
|
$
|
241
|
|
|
$
|
6,556
|
|
|
$
|
2,123,813
|
|
|
$
|
2,130,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
0.27
|
%
|
|
|
0.03
|
%
|
|
|
0.01
|
%
|
|
|
0.31
|
%
|
|
|
99.69
|
%
|
|
|
|
|
The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received
by the specified due date.
27
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Horizon Banks processes for determining credit quality differ slightly depending on whether a new loan
or a renewed loan is being underwritten, or whether an existing loan is being
re-evaluated
for credit quality. The latter usually occurs upon receipt of current financial information or other pertinent data
that would trigger a change in the loan grade.
|
|
For new and renewed commercial loans, the Banks Credit Department, which acts independently of the loan officer, assigns the credit quality grade to the loan. Loan grades for loans with an aggregate credit
exposure that exceeds the authorities in the respective markets (ranging from $1,000,000 to $2,500,000) are validated by the Loan Committee, which is chaired by the Chief Credit Officer (CCO).
|
|
|
Commercial loan officers are responsible for reviewing their loan portfolios and report any adverse material change to the CCO or Loan Committee. When circumstances warrant a change in the credit quality grade, loan
officers are required to notify the CCO and the Credit Department of the change in the loan grade. Downgrades are accepted immediately by the CCO, however, lenders must present their factual information to either the Loan Committee or the CCO when
recommending an upgrade.
|
|
|
The CCO, or his designee, meets weekly with loan officers to discuss the status of
past-due
loans and classified loans. These meetings are also designed to give the loan officers
an opportunity to identify an existing loan that should be downgraded to a classified grade.
|
|
|
Monthly, senior management meets with the Watch Committee, which reviews all of the past due, classified, and impaired loans and the relative trends of these assets. This committee also reviews the actions taken by
management regarding foreclosure mitigation, loan extensions, troubled debt restructures, other real estate owned and personal property repossessions. The information reviewed in this meeting acts as a precursor for developing managements
analysis of the adequacy of the Allowance for Loan and Lease Losses.
|
For residential real estate and consumer loans, Horizon uses a grading
system based on delinquency. Loans that are 90 days or more past due, on
non-accrual,
or are classified as a TDR are graded Substandard. After being 90 to 120 days delinquent a loan is charged off
unless it is well secured and in the process of collection. If the latter case exists, the loan is placed on
non-accrual.
Occasionally a mortgage loan may be graded as Special Mention. When this
situation arises, it is because the characteristics of the loan and the borrower fit the definition of a Risk Grade 5 described below, which is normally used for grading commercial loans. Loans not graded Substandard are considered Pass.
Horizon Bank employs a nine-grade rating system to determine the credit quality of commercial loans. The first five grades represent acceptable quality, and
the last four grades mirror the criticized and classified grades used by the bank regulatory agencies (special mention, substandard, doubtful, and loss). The loan grade definitions are detailed below.
Risk Grade 1: Excellent (Pass)
Loans
secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency
thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.
Risk
Grade 2: Good (Pass)
Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and
at least three consecutive years of profits; loans supported by unaudited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income
statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets and unblemished credit history; or loans
to publicly held companies with current long-term debt ratings of Baa or better.
28
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Risk Grade 3: Satisfactory (Pass)
Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency
or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse
factors are encountered. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:
|
|
|
At inception, the loan was properly underwritten, did
not
possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory;
|
|
|
|
At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.
|
|
|
|
The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.
|
|
|
|
During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or
the borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.
|
Risk Grade 4 Satisfactory/Monitored:
Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than Satisfactory loans. Borrower
displays acceptable liquidity, leverage, and earnings performance within the Banks minimum underwriting guidelines. The level of risk is acceptable but conditioned on the proper level of loan officer supervision. Loans that normally fall into
this grade include acquisition, construction and development loans and income producing properties that have not reached stabilization.
Risk Grade 4W
Management Watch:
Loans in this category are considered to be of acceptable quality, but with above normal risk. Borrower displays
potential indicators of weakness in the primary source of repayment resulting in a higher reliance on secondary sources of repayment. Balance sheet may exhibit weak liquidity and/or high leverage. There is inconsistent earnings performance without
the ability to sustain adverse economic conditions. Borrower may be operating in a declining industry or the property type, as for a commercial real estate loan, may be high risk or in decline. These loans require an increased level of loan officer
supervision and monitoring to assure that any deterioration is addressed in a timely fashion.
Risk Grade 5: Special Mention
Loans which possess some credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk
that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and
(2) weaknesses are considered potential, not defined, impairments to the primary source of repayment. These loans may be to borrowers with adverse trends in financial performance, collateral value and/or marketability,
or balance sheet strength.
Risk Grade 6: Substandard
One or more of the following characteristics may be exhibited in loans classified Substandard:
|
|
|
Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to
ensure that the loan is collected without loss.
|
29
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
|
|
|
Loans are inadequately protected by the current net worth and paying capacity of the obligor.
|
|
|
|
The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.
|
|
|
|
Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.
|
|
|
|
Unusual courses of action are needed to maintain a high probability of repayment.
|
|
|
|
The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.
|
|
|
|
The lender is forced into a subordinated or unsecured position due to flaws in documentation.
|
|
|
|
Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.
|
|
|
|
The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.
|
|
|
|
There is a significant deterioration in market conditions to which the borrower is highly vulnerable.
|
Risk
Grade 7: Doubtful
One or more of the following characteristics may be present in loans classified Doubtful:
|
|
|
Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.
|
|
|
|
The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.
|
|
|
|
The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.
|
Risk Grade 8: Loss
Loans are considered
uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless
asset, even though partial recovery may be possible at some time in the future.
30
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table presents loans by credit grades.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
324,596
|
|
|
$
|
4,311
|
|
|
$
|
10,434
|
|
|
$
|
|
|
|
$
|
339,341
|
|
Non owner occupied real estate
|
|
|
469,602
|
|
|
|
338
|
|
|
|
5,826
|
|
|
|
|
|
|
|
475,766
|
|
Residential development
|
|
|
6,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,437
|
|
Development & Spec Land Loans
|
|
|
35,213
|
|
|
|
|
|
|
|
182
|
|
|
|
|
|
|
|
35,395
|
|
Commercial and industrial
|
|
|
233,988
|
|
|
|
4,916
|
|
|
|
6,798
|
|
|
|
|
|
|
|
245,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,069,836
|
|
|
|
9,565
|
|
|
|
23,240
|
|
|
|
|
|
|
|
1,102,641
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
503,818
|
|
|
|
|
|
|
|
4,827
|
|
|
|
|
|
|
|
508,645
|
|
Residential construction
|
|
|
21,713
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
21,943
|
|
Mortgage warehouse
|
|
|
89,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
614,891
|
|
|
|
|
|
|
|
5,057
|
|
|
|
|
|
|
|
619,948
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
73,706
|
|
|
|
|
|
|
|
489
|
|
|
|
|
|
|
|
74,195
|
|
Direct Installment Purchased
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Indirect Installment
|
|
|
166,043
|
|
|
|
|
|
|
|
759
|
|
|
|
|
|
|
|
166,802
|
|
Home Equity
|
|
|
175,552
|
|
|
|
|
|
|
|
1,999
|
|
|
|
|
|
|
|
177,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
415,400
|
|
|
|
|
|
|
|
3,247
|
|
|
|
|
|
|
|
418,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,100,127
|
|
|
$
|
9,565
|
|
|
$
|
31,544
|
|
|
$
|
|
|
|
$
|
2,141,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
98.08
|
%
|
|
|
0.45
|
%
|
|
|
1.47
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
322,924
|
|
|
$
|
4,960
|
|
|
$
|
9,664
|
|
|
$
|
|
|
|
$
|
337,548
|
|
Non owner occupied real estate
|
|
|
455,648
|
|
|
|
341
|
|
|
|
5,908
|
|
|
|
|
|
|
|
461,897
|
|
Residential development
|
|
|
5,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,006
|
|
Development & Spec Land Loans
|
|
|
31,057
|
|
|
|
|
|
|
|
171
|
|
|
|
|
|
|
|
31,228
|
|
Commercial and industrial
|
|
|
220,424
|
|
|
|
3,728
|
|
|
|
6,368
|
|
|
|
|
|
|
|
230,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,035,059
|
|
|
|
9,029
|
|
|
|
22,111
|
|
|
|
|
|
|
|
1,066,199
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
503,444
|
|
|
|
|
|
|
|
4,789
|
|
|
|
|
|
|
|
508,233
|
|
Residential construction
|
|
|
20,378
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
20,611
|
|
Mortgage warehouse
|
|
|
135,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
659,549
|
|
|
|
|
|
|
|
5,022
|
|
|
|
|
|
|
|
664,571
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
70,638
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
71,150
|
|
Direct Installment Purchased
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Indirect Installment
|
|
|
152,496
|
|
|
|
|
|
|
|
708
|
|
|
|
|
|
|
|
153,204
|
|
Home Equity
|
|
|
173,117
|
|
|
|
|
|
|
|
2,009
|
|
|
|
|
|
|
|
175,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
396,370
|
|
|
|
|
|
|
|
3,229
|
|
|
|
|
|
|
|
399,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,090,978
|
|
|
$
|
9,029
|
|
|
$
|
30,362
|
|
|
$
|
|
|
|
$
|
2,130,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
98.15
|
%
|
|
|
0.42
|
%
|
|
|
1.43
|
%
|
|
|
0.00
|
%
|
|
|
|
|
31
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 8 Repurchase Agreements
The Company transfers various securities to customers in exchange for cash at the end of each business day and agrees to acquire the securities at the end of
the next business day for the cash exchanged plus interest. The process is repeated at the end of each business day until the agreement is terminated. The securities underlying the agreement remained under the Banks control.
The following table shows repurchase agreements accounted for as secured borrowings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Remaining Contractual Maturity of the Agreements
|
|
|
|
Overnight and
Continuous
|
|
|
Up to one
year
|
|
|
One to three
years
|
|
|
Three to
five years
|
|
|
Five to ten
years
|
|
|
Beyond ten
years
|
|
|
Total
|
|
Repurchase Agreements and
repurchase-to-maturity
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements
|
|
$
|
54,149
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
54,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities pledged for Repurchase Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agency collateralized mortgage obligations
|
|
|
45,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,034
|
|
Federal agency mortgage-backed pools
|
|
|
14,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,360
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Derivative Financial Instruments
Cash Flow Hedges
As a strategy to maintain
acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into interest rate swap agreements for a portion of its floating rate debt. The agreements provide for the Company to
receive interest from the counterparty at three month LIBOR and to pay interest to the counterparty at a weighted average fixed rate of 6.14% on a notional amount of $30.5 million at March 31, 2017 and December 31, 2016. Under the
agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.
The Company assumed
additional interest rate swap agreements as the result of the LaPorte acquisition in July 2016. The agreements provide for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a weighted
average fixed rate of 2.31% on a notional amount of $30.0 million at March 31, 2017 and December 31, 2016. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in
interest expense.
Management has designated the interest rate swap agreement as a cash flow hedging instrument. For derivative instruments that are
designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. At March 31, 2017, the
Companys cash flow hedge was effective and is not expected to have a significant impact on the Companys net income over the next 12 months.
Fair Value Hedges
Fair value hedges are intended
to reduce the interest rate risk associated with the underlying hedged item. The Company enters into fixed rate loan agreements as part of its lending policy. To mitigate the risk of changes in fair value based on fluctuations in interest rates, the
Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as
well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. At March 31, 2017, the Companys fair value hedges were effective and are not expected to have a significant impact on
the Companys net income over the next 12 months.
32
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The change in fair value of both the hedge instruments and the underlying loan agreements are recorded as
gains or losses in interest income. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. The notional amounts of the loan agreements being hedged were $137.2 million at
March 31, 2017 and $122.4 million at December 31, 2016.
Other Derivative Instruments
The Company enters into
non-hedging
derivatives in the form of mortgage loan forward sale commitments with investors
and commitments to originate mortgage loans as part of its mortgage banking business. At March 31, 2017, the Companys fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact
on the Companys net income.
The change in fair value of both the forward sale commitments and commitments to originate mortgage loans were recorded
and the net gains or losses included in the Companys gain on sale of loans.
The following tables summarize the fair value of derivative financial
instruments utilized by Horizon:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
March 31, 2017
|
|
|
Liability Derivatives
March 31, 2017
|
|
Derivatives designated as hedging instruments (Unaudited)
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Interest rate contracts
|
|
Loans
|
|
$
|
|
|
|
Other liabilities
|
|
$
|
247
|
|
Interest rate contracts
|
|
Other Assets
|
|
|
247
|
|
|
Other liabilities
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
247
|
|
|
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan contracts
|
|
Other assets
|
|
|
521
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
768
|
|
|
|
|
$
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
December 31,
2016
|
|
|
Liability Derivatives
December 31,
2016
|
|
Derivatives designated as hedging instruments
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Interest rate contracts
|
|
Loans
|
|
$
|
|
|
|
Other liabilities
|
|
$
|
6
|
|
Interest rate contracts
|
|
Other Assets
|
|
|
6
|
|
|
Other liabilities
|
|
|
3,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
6
|
|
|
|
|
|
3,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan contracts
|
|
Other assets
|
|
|
602
|
|
|
Other liabilities
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
602
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
608
|
|
|
|
|
$
|
3,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The effect of the derivative instruments on the condensed consolidated statements of income for the
three-month periods ending March 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income on Derivative
(Effective Portion)
Three Months Ended March 31
|
|
Derivative in cash flow hedging relationship
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
Interest rate contracts
|
|
$
|
260
|
|
|
$
|
(365
|
)
|
FASB Accounting Standards Codification (ASC) Topic
820-10-20
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Topic
820-10-55
establishes a fair value hierarchy that emphasizes the use of observable inputs and minimizes the use of unobservable inputs
when measuring fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized on Derivative
Three Months Ended March 31
|
|
Derivative in fair value hedging
relationship
|
|
Location of gain (loss)
recognized on derivative
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
Interest rate contracts
|
|
Interest income - loans
|
|
$
|
253
|
|
|
$
|
1,478
|
|
Interest rate contracts
|
|
Interest income - loans
|
|
|
(253
|
)
|
|
|
(1,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized on Derivative
Three Months Ended March 31
|
|
Derivative not designated as hedging
relationship
|
|
Location of gain (loss)
recognized on derivative
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
Mortgage contracts
|
|
Other income - gain on sale of loans
|
|
$
|
(59
|
)
|
|
$
|
2
|
|
Note 10 Disclosures about Fair Value of Assets and Liabilities
The Fair Value Measurements topic of the FASB ASC defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. There are three levels of inputs that may be used to measure fair value:
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or liabilities
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
34
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Following is a description of the valuation methodologies used for instruments measured at fair value on a
recurring basis and recognized in the accompanying condensed consolidated financial statements, as well as the general classification of such instruments pursuant to the valuation hierarchy. There have been no significant changes in the valuation
techniques during the period ended March 31, 2017. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Available for sale securities
When quoted market
prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with
similar characteristics or discounted cash flows. Level 2 securities include U.S. Treasury and federal agency securities, state and municipal securities, federal agency collateralized mortgage obligations and mortgage-backed pools and corporate
notes. Level 2 securities are valued by a third party pricing service commonly used in the banking industry utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury yield curve,
trade execution data, market consensus prepayment spreads and available credit information and the bonds terms and conditions. The pricing provider utilizes evaluated pricing models that vary based on asset class. These models incorporate
available market information including quoted prices of securities with similar characteristics and, because many fixed-income securities do not trade on a daily basis, apply available information through processes such as benchmark curves,
benchmarking of like securities, sector grouping, and matrix pricing. In addition, model processes, such as an option adjusted spread model, is used to develop prepayment and interest rate scenarios for securities with prepayment features.
Hedged loans
Certain fixed rate loans have been
converted to variable rate loans by entering into interest rate swap agreements. The fair value of those fixed rate loans is based on discounting the estimated cash flows using interest rates determined by the respective interest rate swap
agreement. Loans are classified within Level 2 of the valuation hierarchy based on the unobservable inputs used.
Interest rate swap agreements
The fair value of the Companys interest rate swap agreements is estimated by a third party using inputs that are primarily unobservable
including a yield curve, adjusted for liquidity and credit risk, contracted terms and discounted cash flow analysis, and therefore, are classified within Level 2 of the valuation hierarchy.
35
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table presents the fair value measurements of assets and liabilities recognized in the
accompanying condensed consolidated financial statements measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
13,480
|
|
|
$
|
|
|
|
$
|
13,480
|
|
|
$
|
|
|
State and municipal
|
|
|
127,105
|
|
|
|
|
|
|
|
127,105
|
|
|
|
|
|
Federal agency collateralized mortgage obligations
|
|
|
136,189
|
|
|
|
|
|
|
|
136,189
|
|
|
|
|
|
Federal agency mortgage-backed pools
|
|
|
193,711
|
|
|
|
|
|
|
|
193,711
|
|
|
|
|
|
Private labeled mortgage-backed pools
|
|
|
1,882
|
|
|
|
|
|
|
|
1,882
|
|
|
|
|
|
Corporate notes
|
|
|
1,855
|
|
|
|
|
|
|
|
1,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
474,222
|
|
|
|
|
|
|
|
474,222
|
|
|
|
|
|
|
|
|
|
|
Hedged loans
|
|
|
137,202
|
|
|
|
|
|
|
|
137,202
|
|
|
|
|
|
Forward sale commitments
|
|
|
521
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
(2,485
|
)
|
|
|
|
|
|
|
(2,485
|
)
|
|
|
|
|
Commitments to originate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
7,989
|
|
|
$
|
|
|
|
$
|
7,989
|
|
|
$
|
|
|
State and municipal
|
|
|
116,592
|
|
|
|
|
|
|
|
116,592
|
|
|
|
|
|
Federal agency collateralized mortgage obligations
|
|
|
137,195
|
|
|
|
|
|
|
|
137,195
|
|
|
|
|
|
Federal agency mortgage-backed pools
|
|
|
176,726
|
|
|
|
|
|
|
|
176,726
|
|
|
|
|
|
Corporate notes
|
|
|
1,329
|
|
|
|
|
|
|
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
439,831
|
|
|
|
|
|
|
|
439,831
|
|
|
|
|
|
|
|
|
|
|
Hedged loans
|
|
|
122,345
|
|
|
|
|
|
|
|
122,345
|
|
|
|
|
|
Forward sale commitments
|
|
|
602
|
|
|
|
|
|
|
|
602
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
(3,138
|
)
|
|
|
|
|
|
|
(3,138
|
)
|
|
|
|
|
Commitments to originate loans
|
|
|
(22
|
)
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
Realized gains and losses included in net income for the periods are reported in the condensed consolidated statements of
income as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
Non Interest Income Total gains and losses from:
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
Hedged loans
|
|
$
|
253
|
|
|
$
|
1,478
|
|
Fair value interest rate swap agreements
|
|
|
(253
|
)
|
|
|
(1,478
|
)
|
Derivative loan commitments
|
|
|
(59
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(59
|
)
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
36
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Certain other assets are measured at fair value on a nonrecurring basis in the ordinary course of business
and are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,379
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,379
|
|
Mortgage servicing rights
|
|
|
11,257
|
|
|
|
|
|
|
|
|
|
|
|
11,257
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,246
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,246
|
|
Mortgage servicing rights
|
|
|
11,174
|
|
|
|
|
|
|
|
|
|
|
|
11,174
|
|
Impaired (collateral dependent):
Loans for which it is probable that the Company will not collect all principal
and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method
requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.
Impaired loans that are collateral
dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.
Mortgage Servicing
Rights (MSRs):
MSRs do not trade in an active market with readily observable prices. Accordingly, the fair value of these assets is classified as Level 3. The Company determines the fair value of MSRs using an income approach model based
upon the Companys
month-end
interest rate curve and prepayment assumptions. The model utilizes assumptions to estimate future net servicing income cash flows, including estimates of time decay, payoffs
and changes in valuation inputs and assumptions. The Company reviews the valuation assumptions against this market data for reasonableness and adjusts the assumptions if deemed appropriate. The carrying amount of the MSRs fair value due to
impairment decreased by $6,000 during the first three months of 2017 and decreased by $1,000 during the first three months of 2016.
37
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following table presents qualitative information about unobservable inputs used in recurring and
nonrecurring Level 3 fair value measurements, other than goodwill.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Valuation
|
|
|
|
Range (Weighted
|
|
|
March 31, 2017
|
|
|
Technique
|
|
Unobservable Inputs
|
|
Average)
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,379
|
|
|
Collateral based
measurement
|
|
Discount to reflect current market conditions and ultimate collectability
|
|
11% - 17% (14%)
|
Mortgage servicing rights
|
|
$
|
11,257
|
|
|
Discounted cashflows
|
|
Discount rate, Constant prepayment rate, Probability of default
|
|
11% - 17% (14%),
4% - 8% (5.1%),
1% - 11% (5.0%)
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Valuation
|
|
|
|
Range (Weighted
|
|
|
December 31, 2016
|
|
|
Technique
|
|
Unobservable Inputs
|
|
Average)
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,246
|
|
|
Collateral based
measurement
|
|
Discount to reflect current market conditions and ultimate collectability
|
|
10% - 16% (13%)
|
Mortgage servicing rights
|
|
$
|
11,174
|
|
|
Discounted cashflows
|
|
Discount rate, Constant prepayment rate, Probability of default
|
|
10% - 16% (13%),
4% - 7% (4.6%),
1% - 10% (4.5%)
|
Note 11 Fair Value of Financial Instruments
The estimated fair value amounts of the Companys financial instruments 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 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 March 31, 2017 and December 31,
2016. These include financial instruments recognized as assets and liabilities on the condensed 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 the FASB ASC fair value hierarchy.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and Due from Banks
The carrying amounts approximate fair value.
Held-to-Maturity
Securities
For debt securities 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.
Loans Held for Sale
The carrying amounts approximate fair value.
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.
38
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
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.
Interest Receivable/Payable
The carrying amounts approximate fair value.
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.
Borrowings
Rates currently available to Horizon for debt with similar terms and remaining maturities are used to estimate fair values of
existing borrowings.
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 Letters 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
following table presents estimated fair values of the Companys financial instruments and the level within the fair value hierarchy in which the fair value measurements fall (unaudited).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
60,280
|
|
|
$
|
60,280
|
|
|
$
|
|
|
|
$
|
|
|
Investment securities, held to maturity
|
|
|
198,868
|
|
|
|
|
|
|
|
200,482
|
|
|
|
|
|
Loans held for sale
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
1,789
|
|
Loans excluding loan level hedges, net
|
|
|
1,994,697
|
|
|
|
|
|
|
|
|
|
|
|
1,954,518
|
|
Stock in FHLB and FRB
|
|
|
24,090
|
|
|
|
|
|
|
|
24,090
|
|
|
|
|
|
Interest receivable
|
|
|
12,581
|
|
|
|
|
|
|
|
12,581
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
$
|
502,400
|
|
|
$
|
502,400
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits
|
|
|
1,941,299
|
|
|
|
|
|
|
|
1,830,685
|
|
|
|
|
|
Borrowings
|
|
|
319,993
|
|
|
|
|
|
|
|
314,512
|
|
|
|
|
|
Subordinated debentures
|
|
|
37,516
|
|
|
|
|
|
|
|
36,263
|
|
|
|
|
|
Interest payable
|
|
|
523
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
39
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
70,832
|
|
|
$
|
70,832
|
|
|
$
|
|
|
|
$
|
|
|
Investment securities, held to maturity
|
|
|
193,194
|
|
|
|
|
|
|
|
194,086
|
|
|
|
|
|
Loans held for sale
|
|
|
8,087
|
|
|
|
|
|
|
|
|
|
|
|
8,087
|
|
Loans excluding loan level hedges, net
|
|
|
1,998,804
|
|
|
|
|
|
|
|
|
|
|
|
1,965,928
|
|
Stock in FHLB and FRB
|
|
|
23,932
|
|
|
|
|
|
|
|
23,932
|
|
|
|
|
|
Interest receivable
|
|
|
12,713
|
|
|
|
|
|
|
|
12,713
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
$
|
496,248
|
|
|
$
|
496,248
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits
|
|
|
1,974,962
|
|
|
|
|
|
|
|
1,839,167
|
|
|
|
|
|
Borrowings
|
|
|
267,489
|
|
|
|
|
|
|
|
261,141
|
|
|
|
|
|
Subordinated debentures
|
|
|
37,456
|
|
|
|
|
|
|
|
36,371
|
|
|
|
|
|
Interest payable
|
|
|
472
|
|
|
|
|
|
|
|
472
|
|
|
|
|
|
Note 12 Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
March 31
2017
|
|
|
December 31
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Unrealized gain (loss) on securities available for sale
|
|
$
|
(3,448
|
)
|
|
$
|
(6,007
|
)
|
Unamortized gain on securities held to maturity, previously transferred from AFS
|
|
|
368
|
|
|
|
456
|
|
Unrealized loss on derivative instruments
|
|
|
(2,732
|
)
|
|
|
(3,132
|
)
|
Tax effect
|
|
|
2,035
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(3,777
|
)
|
|
$
|
(5,644
|
)
|
|
|
|
|
|
|
|
|
|
Note 13 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. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the Banks financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Bank must meet specific capital guidelines involving quantitative measures of the Banks assets, liabilities, and certain
off-balance-sheet
items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and
ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined), or leverage ratio. For March 31, 2017, Basel III rules require the Bank
to maintain minimum amounts and ratios of common equity Tier I capital (as defined in the regulation) to risk-weighted assets (as defined). Additionally, under Basel III rules, the decision was made to
opt-out
of including accumulated other comprehensive income in regulatory capital.
40
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
To be categorized as well capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based,
common equity Tier I risk-based (March 31, 2017) and Tier I leverage ratios as set forth in the table below. As of March 31, 2017 and December 31, 2016, the Bank met all capital adequacy requirements to be considered well capitalized.
There have been no conditions or events since the end of the first quarter of 2017 that management believes have changed the Banks classification as well capitalized. There is no threshold for well-capitalized status for bank holding
companies.
Horizon and the Banks actual and required capital ratios as of March 31, 2017 and December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Required For Capital
1
Adequacy Purposes
|
|
|
Required For Capital
1
Adequacy Purposes
with
Capital Buffer
|
|
|
Well Capitalized Under Prompt
1
Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
1
(to risk-weighted
assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
320,710
|
|
|
|
13.87
|
%
|
|
$
|
185,042
|
|
|
|
8.00
|
%
|
|
$
|
199,614
|
|
|
|
8.63
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
320,418
|
|
|
|
13.87
|
%
|
|
$
|
184,771
|
|
|
|
8.00
|
%
|
|
|
199,322
|
|
|
|
8.63
|
%
|
|
$
|
230,964
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
1
(to risk-weighted
assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
305,656
|
|
|
|
13.21
|
%
|
|
$
|
138,781
|
|
|
|
6.00
|
%
|
|
|
153,353
|
|
|
|
6.63
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
305,364
|
|
|
|
13.22
|
%
|
|
$
|
138,578
|
|
|
|
6.00
|
%
|
|
|
153,129
|
|
|
|
6.63
|
%
|
|
|
184,771
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital
1
(to
risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
267,193
|
|
|
|
11.55
|
%
|
|
$
|
104,086
|
|
|
|
4.50
|
%
|
|
|
118,658
|
|
|
|
5.13
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
305,364
|
|
|
|
13.22
|
%
|
|
$
|
103,934
|
|
|
|
4.50
|
%
|
|
|
118,484
|
|
|
|
5.13
|
%
|
|
|
150,126
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
1
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
305,656
|
|
|
|
10.09
|
%
|
|
$
|
121,213
|
|
|
|
4.00
|
%
|
|
|
121,213
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
305,364
|
|
|
|
10.13
|
%
|
|
$
|
120,625
|
|
|
|
4.00
|
%
|
|
|
120,625
|
|
|
|
4.00
|
%
|
|
|
150,781
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
1
(to risk-weighted
assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
316,576
|
|
|
|
13.87
|
%
|
|
$
|
182,596
|
|
|
|
8.00
|
%
|
|
$
|
196,976
|
|
|
|
8.63
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
319,013
|
|
|
|
13.98
|
%
|
|
|
182,541
|
|
|
|
8.00
|
%
|
|
|
196,916
|
|
|
|
8.63
|
%
|
|
$
|
228,176
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
1
(to risk-weighted
assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
301,739
|
|
|
|
13.22
|
%
|
|
|
136,947
|
|
|
|
6.00
|
%
|
|
|
151,326
|
|
|
|
6.63
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
304,176
|
|
|
|
13.33
|
%
|
|
|
136,905
|
|
|
|
6.00
|
%
|
|
|
151,280
|
|
|
|
6.63
|
%
|
|
|
182,540
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital
1
(to
risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
263,313
|
|
|
|
11.50
|
%
|
|
|
103,036
|
|
|
|
4.50
|
%
|
|
|
117,460
|
|
|
|
5.13
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
304,176
|
|
|
|
13.33
|
%
|
|
|
102,679
|
|
|
|
4.50
|
%
|
|
|
117,054
|
|
|
|
5.13
|
%
|
|
|
148,314
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
1
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
301,739
|
|
|
|
10.44
|
%
|
|
|
115,609
|
|
|
|
4.00
|
%
|
|
|
115,609
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
304,176
|
|
|
|
9.93
|
%
|
|
|
122,521
|
|
|
|
4.00
|
%
|
|
|
122,521
|
|
|
|
4.00
|
%
|
|
|
153,151
|
|
|
|
5.00
|
%
|
1
|
As defined by regulatory agencies
|
Note 14 Preferred Stock Redemption
On February 1, 2016, Horizon completed the redemption (the Redemption) of all 12,500 outstanding shares of Senior
Non-Cumulative
Perpetual Preferred Stock, Series B (the SBLF Preferred Stock) which were held by the U.S. Department of Treasury and issued pursuant to its Small Business Lending Fund (SBLF).
The SBLF Preferred Stock was redeemed at its liquidation value of $1,000 per share, plus accrued dividends, for a total Redemption price of $12,510,416.67. Horizon funded the Redemption using cash on hand without borrowing and without a special
dividend from the Bank. Following the Redemption, Horizon does not have any shares of its Senior
Non-Cumulative
Perpetual Preferred Stock, Series B outstanding. The Redemption terminates Horizons
participation in the SBLF.
41
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 15 Future Accounting Matters
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)
No. 2017-08,
Receivables Nonrefundable Fees and Other Costs (Subtopic
310-20),
Premium Amortization on Purchased Callable Debt Securities
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2017-08,
Receivables Nonrefundable Fees and Other Costs (Subtopic
310-20),
Premium Amortization on Purchased Callable Debt Securities.
These amendments shorten the amortization period for certain callable
debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be
amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim
period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a
cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The amendments in this update were adopted on January 1, 2017 and did not have a material impact on the consolidated financial statements.
FASB Accounting Standards Updates
No. 2017-04,
Intangibles Goodwill and Other
(Topic 350):
Simplifying the Test for Goodwill Impairment
The FASB has issued Accounting Standards Update (ASU)
No. 2017-04,
Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
The new guidance is intended to simplify the subsequent measurement of goodwill by
eliminating Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the
amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible
goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to
perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary. The amendments should be applied on a prospective
basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. The amendments in this update should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material
impact.
FASB Accounting Standards Updates
No. 2017-01,
Business Combinations
(Topic
805):
Clarifying the Definition of a Business
The FASB has issued Accounting Standards Update (ASU)
No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
The amendments in this update provide a more robust framework to use in determining when a set of assets and
activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use
of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments in this update become effective for annual periods and
interim periods within those annual periods beginning after December 15, 2017. The amendments in this update became effective on January 1, 2017 and did not have a material impact on the consolidated financial statements.
42
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
FASB Accounting Standards Updates
No. 2016-13,
Financial Instruments Credit Losses
(Topic 326):
Measurement of Credit Losses on Financial Instruments
The FASB has issued Accounting Standards Update (ASU)
No. 2016-13,
Financial Instruments Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments.
The main objective of this amendment is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and
other commitments to extend credit held by a reporting entity at each reporting date. The amendment requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to enhance their credit loss estimates. The amendment requires enhanced disclosures to help investors and
other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organizations portfolio. In addition, the ASU amends the
accounting for credit losses on
available-for-sale
debt securities and purchased financial assets with credit deterioration. The amendments in this update become
effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. Early adoption will be permitted beginning after December 15, 2018. We have formed a cross functional committee that is
assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a
one-time
cumulative effect adjustment to the allowance for loan losses as of the
beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such
one-time
adjustment or the overall impact of the new guidance on the
consolidated financial statements.
FASB Accounting Standards Updates
No. 2016-09,
Compensation
Stock Compensation
(Topic 718):
Improvements to Employee Share-Based Payment Accounting
The FASB has issued
Accounting Standards Update (ASU)
No. 2016-09,
Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
The amendments are intended to improve
the accounting for employee share-based payments and affects all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including the
income tax consequences, the classification of awards as either equity or liabilities and the classification on the statement of cash flows. The amendments in this update became effective on January 1, 2017 and resulted in a tax benefit of
$19,000 for the three months ended March 31, 2017.
FASB Accounting Standards Updates
No. 2016-02,
Leases
(Topic 842)
The FASB has issued Accounting Standards Update
(ASU)
No. 2016-02,
Leases.
Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a
lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a
right-of-use
asset,
which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments in this update become effective for annual
periods and interim periods within those annual periods beginning after December 15, 2018. Based on leases outstanding as of December 31, 2016, we do not expect the new standard to have a material impact on our income statement, but
anticipate an $80 million to $100 million increase in our assets and liabilities. Decisions to repurchase, modify or renew leases prior to the implementation date will impact this level of materiality.
43
HORIZON BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Per Share Data)
FASB Accounting Standards Updates
No. 2016-01,
Financial Instruments Overall
(Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
The FASB has issued Accounting Standards Update (ASU)
No. 2016-01,
Financial Instruments Overall
(Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities.
The new guidance is intended to improve the recognition and measurement of financial instruments. The ASU
affects public and private companies,
not-for-profit
organizations, and employee benefit plans that hold financial assets or owe financial liabilities.
The new guidance makes targeted improvements to existing U.S. GAAP by:
|
|
|
Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized
in net income;
|
|
|
|
Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
|
|
|
|
Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying
notes to the financial statements;
|
|
|
|
Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities;
|
|
|
|
Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost on the balance sheet; and
|
|
|
|
Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk
(also referred to as own credit) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
|
The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years. The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies and
not-for-profit
organizations from having to disclose fair value information about financial instruments measured at amortized cost. Adoption of the ASU is not expected
to have a significant effect on the Companys consolidated financial statements.
Note 16 General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or
ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operation and cash flows of the Company.
44
HORIZON BANCORP AND SUBSIDIARIES