Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Business
The consolidated financial statements of Horizon Bancorp (Horizon) and its wholly owned subsidiaries, Horizon Bank
(Bank) and Horizon Risk Management, Inc., together referred to as Horizon conform to accounting principles generally accepted in the United States of America and reporting practices followed by the banking industry. Horizon
Risk Management, Inc. is a captive insurance company incorporated in Nevada and was formed as a wholly owned subsidiary of Horizon.
The Bank is a
full-service commercial bank offering a broad range of commercial and retail banking and other services incident to banking along with a trust department that offers corporate and individual trust and agency services and investment management
services. The Bank maintains 62 full service offices. The Bank has wholly owned direct and indirect subsidiaries: Horizon Investments, Inc. (Horizon Investments), Horizon Properties, Inc. (Horizon Properties), Horizon
Insurance Services, Inc. (Horizon Insurance) and Horizon Grantor Trust. Horizon Investments manages the investment portfolio of the Bank. Horizon Properties manages the real estate investment trust. Horizon Insurance is used by the
Companys Wealth Management to sell certain insurance products. Horizon Grantor Trust holds title to certain company owned life insurance policies. Horizon conducts no business except that incident to its ownership of the subsidiaries.
Horizon formed Horizon Bancorp Capital Trust II in 2004 (Trust II) and Horizon Bancorp Capital Trust III in 2006 (Trust III) for the
purpose of participating in pooled trust preferred securities offerings. The Company assumed additional debentures as the result of the following acquisitions: Alliance Financial Corporation in 2005, which formed Alliance Financial Statutory Trust I
(Alliance Trust); American Trust & Savings Bank in 2010, which formed Am Tru Statutory Trust I (Am Tru Trust); Heartland Bancshares, Inc. in 2013, which formed Heartland (IN) Statutory Trust II (Heartland
Trust); and LaPorte Bancorp, Inc. in 2016, which acquired City Savings Statutory Trust I (City Savings Trust) in 2007. See Note 15 of the Consolidated Financial Statements for further discussion regarding these previously
consolidated entities that are now reported separately. The business of Horizon is not seasonal to any material degree.
Basis of Reporting
The consolidated financial statements include the accounts of Horizon and subsidiaries. All material inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for loan losses, valuation of other real estate owned, goodwill and intangible assets, mortgage servicing rights, other-than-temporary impairments and fair values of financial
instruments.
Fair Value Measurements
Horizon uses fair value measurements to record fair value adjustments, to certain assets, and
liabilities and to determine fair value disclosures. Horizon has adopted Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures for all applicable financial and nonfinancial assets and liabilities. This accounting
guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance applies only when other guidance requires or permits assets or liabilities to be measured at fair
value; it does not expand the use of fair value in any new circumstances.
As defined in codification, fair value is the price to sell an asset or
transfer a liability in an orderly transaction between market participants. It represents an exit price at the measurement date. Market participants are buyers and sellers, who are independent, knowledgeable, and willing and able to transact in the
principal (or most advantageous) market for the asset or liability being measured. Current market conditions, including imbalances between supply and demand, are considered in determining fair value. Horizon values its assets and liabilities in the
principal market where it sells the particular asset or
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Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
transfers the liability with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market for the asset or liability
(i.e., the market where the asset could be sold or the liability transferred at a price that maximizes the amount to be received for the asset or minimizes the amount to be paid to transfer the liability).
In measuring the fair value of an asset, Horizon assumes the highest and best use of the asset by a market participant to maximize the value of the asset, and
does not consider the intended use of the asset.
When measuring the fair value of a liability, Horizon assumes that the nonperformance risk associated
with the liability is the same before and after the transfer. Nonperformance risk is the risk that an obligation will not be satisfied and encompasses not only Horizons own credit risk (i.e., the risk that Horizon will fail to meet its
obligation), but also other risks such as settlement risk. Horizon considers the effect of its own credit risk on the fair value for any period in which fair value is measured.
There are three acceptable valuation techniques that can be used to measure fair value: the market approach, the income approach and the cost approach.
Selection of the appropriate technique for valuing a particular asset or liability takes into consideration the exit market, the nature of the asset or liability being valued, and how a market participant would value the same asset or liability.
Ultimately, determination of the appropriate valuation method requires significant judgment, and sufficient knowledge and expertise are required to apply the valuation techniques.
Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability using one of the three valuation techniques.
Inputs can be observable or unobservable. Observable inputs are those assumptions which market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from a source independent of
Horizon. Unobservable inputs are assumptions based on Horizons own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information
available on the measurement date. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy which gives the highest ranking to quoted prices (unadjusted) in active markets for identical assets
or liabilities (Level 1) and the lowest ranking to unobservable inputs (Level 3). Fair values for assets or liabilities classified as Level 2 are based on one or a combination of the following factors: (i) quoted prices for
similar assets; (ii) observable inputs for the asset or liability, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data. The level in the fair value hierarchy within
which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company considers an input to be significant if it drives 10% or more of the
total fair value of a particular asset or liability.
Assets and liabilities are considered to be fair valued on a recurring basis if fair value is
measured regularly (i.e., daily, weekly, monthly or quarterly). Recurring valuation occurs at a minimum on the measurement date. Assets and liabilities are considered to be fair valued on a nonrecurring basis if the fair value measurement of the
instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed
for impairment or recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer
considered to be realized or unrealized gains or losses.
Investment Securities Available for Sale
Horizon designates the majority of its
investment portfolio as available for sale based on managements plans to use such securities for asset and liability management, liquidity and not to hold such securities as long-term investments. Management repositions the portfolio to take
advantage of future expected interest rate trends when Horizons long-term profitability can be enhanced. Investment securities available for sale and marketable equity securities are carried at estimated fair value and any net unrealized
gains/losses (after tax) on these securities are included in accumulated other comprehensive income. Amortization of premiums and accretion of discounts are recorded as interest income from securities. Gains/losses on the disposition of securities
available for sale are recognized at the time of the transaction and are determined by the specific identification method.
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Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Investment Securities Held to Maturity
Includes any security for which Horizon has the positive
intent and ability to hold until maturity. These securities are carried at amortized cost.
Loans Held for Sale
Mortgage loans originated
and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses
on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.
Interest and Fees on Loans
Interest on commercial, mortgage and installment loans is recognized over the term of the loans based on the
principal amount outstanding. When principal or interest is past due 90 days or more, and the loan is not well secured or in the process of collection, or when serious doubt exists as to the collectability of a loan, the accrual of interest is
discontinued. Loan origination fees, net of direct loan origination costs, are deferred and recognized over the life of the loan as a yield adjustment. Discounts and premiums on purchased loans are amortized to income using the interest method over
the remaining period to contractual maturity, adjusted for anticipated prepayments.
Concentrations of Credit Risk
The Bank grants
commercial, real estate, and consumer loans to customers located primarily in the Northern and Central regions of Indiana and the Southern, Central and Great Lakes Bay regions of Michigan and provides mortgage warehouse lines to mortgage companies
in the United States. Commercial loans make up approximately 57% of the loan portfolio and are secured by both real estate and business assets. These loans are expected to be repaid from cash flows from operations of the businesses. The Bank does
not have a concentration in speculative commercial real estate loans. Residential real estate loans make up approximately 21% of the loan portfolio and are secured by residential real estate. Installment loans make up approximately 18% of the loan
portfolio and are primarily secured by consumer assets. Mortgage warehouse loans make up approximately 3% of the loan portfolio and are secured by residential real estate.
Mortgage Warehouse Loans
Horizons mortgage warehousing has specific mortgage companies as customers of the Bank. Individual mortgage loans
originated by these mortgage companies are funded as a secured borrowing with pledge of collateral under Horizons agreement with the mortgage company. Each individual mortgage 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.
The transaction does not qualify as a sale under ASC 860, Transfers and
Servicing and therefore is accounted for as a secured borrowing with 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 sales 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.
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Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Allowance for Loan Losses
An allowance for loan losses is maintained to absorb probable
incurred losses inherent in the loan portfolio. The allowance is based on ongoing quarterly assessments of the probable incurred losses inherent in the loan portfolio. The allowance is increased by the provision for credit losses, which is charged
against current period operating results and decreased by the amount of charge offs, net of recoveries. Horizons methodology for assessing the appropriateness of the allowance consists of several key elements, which include the general
allowance, specific allowances for identified problem loans and the qualitative allowance.
The general allowance is calculated by applying loss factors
to pools of outstanding loans. Loss factors are based on historical loss experience and may be adjusted for significant factors that, in managements judgment, affect the collectability of the portfolio as of the evaluation date.
Specific allowances are established in cases where management has identified conditions or circumstances related to a credit that management believes indicate
the probability that a loss will be incurred in excess of the amount determined by the application of the formula allowance.
The qualitative allowance is
based upon managements evaluation of various conditions, the effects of which are not directly measured in the determination of the general and specific allowances. The evaluation of the inherent loss with respect to these conditions is
subject to a higher degree of uncertainty because they are not identified with specific credits. The conditions evaluated in connection with the qualitative allowance may include factors such as local, regional and national economic conditions and
forecasts, concentrations of credit and changes in the composition of the portfolio.
Loan Impairment
When analysis determines a
borrowers operating results and financial condition are not adequate to meet debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are
generally placed on
non-accrual
status when 90 days or more past due. These loans are also often considered impaired. Impaired loans or portions thereof, are
charged-off
when deemed uncollectible. This typically occurs when the loan is 90 or more days past due.
Loans are considered impaired if the borrower does not
exhibit the ability to pay or the full principal or interest payments are not expected or made in accordance with the original terms of the loan. Impaired loans are measured and carried at the lower of cost or the present value of expected future
cash flows discounted at the loans effective interest rate, at the loans observable market price or at the fair value of the collateral if the loan is collateral dependent.
Smaller balance homogenous loans are evaluated for impairment in the aggregate. Such loans include residential first mortgage loans secured by one to four
family residences, residential construction loans and automobile, home equity and second mortgages. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment.
Loans Acquired in Business Combinations
Loans acquired in business combinations 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 purchase dates may include information such as
past-due
and nonaccrual status, borrower credit scores and recent loans to value percentages. Acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities
acquired with deteriorated credit quality (FASB ASC
310-30)
and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Accordingly,
allowances for credit losses related to these loans are not carried over and recorded at the acquisition dates. As a result, related discounts are recognized subsequently through accretion based on the expected cash flows of the acquired loans. For
purposes of applying FASB ASC
310-30,
loans acquired in business combinations are aggregated into pools of loans with common risk characteristics.
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Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The expected cash flows of the acquired loan pools in excess of the fair values recorded is referred to as
the accretable yield and is recognized in interest income over the remaining estimated lives of the loan pools. The Company continues to evaluate the fair value of the loans including cash flows expected to be collected. Increases in the
Companys cash flow expectation are recognized as increases to the accretable yield while decreases are recognized as impairments through the allowance for loan losses.
Performing loans acquired (FASB ASC
310-20)
with credit impairment subsequent to the acquisition date are evaluated
individually and charged down to the fair value of the underlying collateral in the period the uncollectible loss is reasonably determined.
Premises
and Equipment
Buildings and major improvements are capitalized and depreciated using primarily the straight-line method with useful lives ranging from 3 to 40 years. Furniture and equipment are capitalized and depreciated using primarily
the straight-line method with useful lives ranging from 2 to 20 years. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on disposition are included in current operations.
Federal Reserve and Federal Home Loan Bank of Indianapolis (FHLBI) Stock
The stock is a required investment for institutions that are members of
the Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) systems. The required investment in the common stock is based on a predetermined formula.
Mortgage Servicing Rights
Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of
financial assets. Under the servicing assets and liabilities accounting guidance
(ASC 860-50),
servicing rights resulting from the sale or securitization of loans originated by the Company are
initially measured at fair value at the date of transfer. Amortized mortgage servicing rights include commercial mortgage servicing rights. Under the amortization method, servicing rights are amortized in proportion to and over the period
of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date.
Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate,
the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse
impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.
Each class of separately recognized servicing
assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and
investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted
to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances are reported with mortgage servicing income net of impairment on the income statement. Fair value in excess of
the carrying amount of servicing assets for that stratum is not recognized.
Servicing fee income is recorded for fees earned for servicing
loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee
income.
Intangible Assets
Goodwill is tested annually for impairment. At December 31, 2017, Horizon had core deposit intangibles of
$12.4 million subject to amortization and $119.9 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the
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Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
business acquired. Horizons goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking
services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated
and goodwill is written down to its implied fair value. Goodwill totaled $119.9 million at December 31, 2017 and $76.9 million at December 31, 2016. A large majority of the goodwill relates to the acquisitions of Heartland,
Summit, Peoples, Kosciusko, LaPorte, Lafayette and Wolverine.
Bank Owned Life Insurance (BOLI)
BOLI has been purchased on certain employees
and directors of the Company. The Company records the life insurance at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are
probable at settlement.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740,
Income Taxes
). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the
enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax
effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets
and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon
examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the
more-likely-than-not
recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a
taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the
more-likely-than-not
recognition threshold considers the facts,
circumstances and information available at the reporting date and is subject to managements judgment.
The Company recognizes interest and penalties
on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiaries.
Trust Assets and Income
Property, other than cash deposits, held in a fiduciary or agency capacity is not included in the consolidated balance
sheets since such property is not owned by Horizon.
Transfer of Financial Assets
The transfer of financial assets are accounted for
as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company and put presumptively beyond the reach of the transferor and its
creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not
maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
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Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Earnings per Common Share
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. The following table shows computation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,117
|
|
|
$
|
23,912
|
|
|
$
|
20,549
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
42
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
33,117
|
|
|
$
|
23,870
|
|
|
$
|
20,424
|
|
|
|
|
|
Weighted average common shares
outstanding
(1)
|
|
|
23,035,824
|
|
|
|
19,987,728
|
|
|
|
15,765,444
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.44
|
|
|
$
|
1.19
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
33,117
|
|
|
$
|
23,870
|
|
|
$
|
20,424
|
|
|
|
|
|
Weighted average common shares
outstanding
(1)
|
|
|
23,035,824
|
|
|
|
19,987,728
|
|
|
|
15,765,444
|
|
Effect of dilutive securities:
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|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
330,474
|
|
Restricted stock
|
|
|
31,321
|
|
|
|
26,553
|
|
|
|
48,015
|
|
Stock options
|
|
|
106,481
|
|
|
|
68,129
|
|
|
|
53,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
23,173,626
|
|
|
|
20,082,410
|
|
|
|
16,197,312
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.43
|
|
|
$
|
1.19
|
|
|
$
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjusted for 3:2 stock split on November 14, 2016
|
At December 31, 2017 and 2016, there were zero shares
and at December 31, 2015 there were 3,750 shares that were not included in the computation of diluted earnings per share because they were
non-dilutive.
Dividend Restrictions
Horizons principal source of funds for dividend payments is dividends received from the Bank. Banking regulations
limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current years net profits combined with the
retained net profits of the preceding two years, subject to the capital requirements described in Note 21. At December 31, 2017, the Bank could, without prior approval, declare dividends of approximately $8.5 million to Horizon.
Additionally, the Federal Reserve Board limits the amount of dividends that may be paid by Horizon to its stockholders under its capital adequacy guidelines.
Consolidated Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents are defined to include cash and due from
banks, money market investments and federal funds sold with maturities of one day or less. Horizon reports net cash flows for customer loan transactions, deposit transactions, short-term investments and borrowings.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss), net of applicable income taxes. Other
comprehensive income (loss) includes unrealized appreciation (depreciation) on
available-for-sale
securities, unrealized and realized gains and losses in derivative
financial instruments and amortization of
available-for-sale
securities transferred to
held-to-maturity.
Share-Based Compensation
At
December 31, 2017, Horizon had share-based compensation plans, which are described more fully in Note 22. All share-based payments are to be recognized as expense, based upon their fair values, in the financial statements over the vesting
period of the awards. Horizon has recorded approximately $1.7 million, $608,000, and $643,000 for 2017, 2016 and 2015, in compensation expense relating to vesting of stock options less estimated forfeitures for the
12-month
periods ended December 31, 2017, 2016 and 2015.
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Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Reclassifications
Certain reclassifications have been made to the 2016 and 2015 consolidated
financial statements to be comparable to 2017. These reclassifications had no effect on net income.
Recent Accounting Pronouncements
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2018-02,
Income Statement Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
The FASB has issued ASU No. 2018-02,
Income Statement Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. The amendments in this ASU allow a reclassification from accumulated other comprehensive
income (AOCI) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of
information reported to financial statement users. The amendments in this ASU also require certain disclosures about stranded tax effects. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet
been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each
period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. At December 31, 2017, the Company had approximately $766,000 stranded tax effects included in AOCI.
FASB ASU
No. 2017-12,
Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for
Hedging Activities
The FASB has issued ASU
No. 2017-12,
Derivatives and Hedging (Topic
815), Targeted Improvements to Accounting for Hedging Activities
. The new guidance improves the financial reporting of hedging relationships to better portray the economic results of an entitys risk management activities in its financial
statements. The amendments in this ASU also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. For public entities, the new guidance will be effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early
application is permitted in any interim period after issuance of the ASU. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired,
been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption (that is, the
initial application date). 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 ASU
No. 2017-08,
Receivables Nonrefundable Fees and Other Costs (Subtopic
310-20),
Premium Amortization on Purchased Callable Debt Securities
The FASB has issued 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 ASU
No. 2017-04,
Intangibles
Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment
The FASB has issued 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
77
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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 ASU
No. 2017-01,
Business Combinations (Topic 805), Clarifying the Definition of a
Business
The FASB has issued 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.
FASB
ASU
No. 2016-13,
Financial Instruments Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments
The FASB has issued ASU
No. 2016-13,
Financial Instrument 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 ASU
No. 2016-09,
Compensation Stock Compensation (Topic 718), Improvements to Employee
Share-Based Payment Accounting
The FASB has issued 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 $522,000 for the year ended December 31, 2017.
FASB ASU
No. 2016-02,
Leases (Topic 842)
The FASB has issued ASU
No. 2016-02,
Leases (Topic 842).
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, 2017, we do not expect the new standard to have a material impact on our balance sheet or income statement.
78
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
FASB ASU
No. 2016-01,
Financial Instruments
Overall (Subtopic
825-10),
Recognition and Measurement of Financial Assets and Financial Liabilities
The FASB has issued 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.
FASB ASU
No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
The FASB has issued
ASU
No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or
enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that any entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to
follow to achieve the core
79
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
principle. An entity should disclose sufficient information to enable users of financial statements to
understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after
December 15, 2017. The new standard,and the amendments detailed below, will not result in a material change from our current accounting for revenue, as recognition of interest income and the larger sources of
non-interest
income from Horizons current financial instruments are not impacted by the guidance. Additional disclosures regarding the composition of Horizons revenue sources will be required.
In May 2016, the FASB issued ASU
No. 2016-12,
Revenue from Contracts with Customers (Topic 606), Narrow-Scope
Improvements and Practical Expedients
. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and some practical expedients.
In December 2016, the FASB issued ASU
No. 2016-20,
Revenue from Contracts with Customers (Topic 606),
Technical Corrections and Improvements
. The FASB board decided to issue a separate update for technical corrections and improvements to Topic 606 and other Topics amended by ASU
No. 2014-09
to
increase awareness of the proposals and to expedite improvements to ASU
No. 2014-09.
The amendment affects narrow aspects of the guidance issued in ASU
No. 2014-09.
Note 2 Acquisitions
Wolverine Bancorp, Inc.
On October 17, 2017,
Horizon completed the acquisition of Wolverine Bancorp, Inc., a Maryland corporation (Wolverine) and Horizon Banks acquisition of Wolverine Bank, a federally chartered savings bank and wholly-owned subsidiary of Wolverine, through
mergers effective October 17, 2017. Under the terms of the Merger Agreement, shareholders of Wolverine received 1.0152 shares of Horizon common stock and $14.00 in cash for each outstanding share of Wolverine common stock. Wolverine shares
outstanding at the closing to be exchanged were 2,129,331, and the shares of Horizon common stock issued to Wolverine shareholders totaled 2,160,697. Based upon the October 16, 2017 closing price of $29.06 per share of Horizon common stock
immediately prior to the effectiveness of the merger, less the consideration used to pay off Wolverine Bancorps ESOP loan receivable, the transaction has an implied valuation of approximately $93.8 million. The Company incurred
approximately $1.9 million in costs related to the acquisition as of December 31, 2017. These expenses are classified in the
non-interest
section of the income statement and are primarily located in
the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to
reduce costs through economies of scale.
80
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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 estimates and
assumptions that are subject to change, the final purchase price for the Wolverine acquisition is allocated as follows:
|
|
|
|
|
ASSETS
|
|
|
|
|
Cash and due from banks
|
|
$
|
44,450
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
276,167
|
|
Residential mortgage
|
|
|
30,603
|
|
|
|
|
|
|
Consumer
|
|
|
3,897
|
|
|
|
|
|
|
Total loans
|
|
|
310,667
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
2,941
|
|
FHLB stock
|
|
|
2,700
|
|
Goodwill
|
|
|
26,827
|
|
Core deposit intangible
|
|
|
2,024
|
|
Interest receivable
|
|
|
584
|
|
Other assets
|
|
|
3,897
|
|
|
|
|
|
|
Total assets purchased
|
|
$
|
394,090
|
|
|
|
|
|
|
Common shares issued
|
|
$
|
62,111
|
|
Cash paid
|
|
|
31,662
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
93,773
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Deposits
|
|
|
|
|
Non-interest
bearing
|
|
$
|
25,221
|
|
NOW accounts
|
|
|
8,026
|
|
Savings and money market
|
|
|
129,044
|
|
Certificates of deposits
|
|
|
94,688
|
|
|
|
|
|
|
Total deposits
|
|
|
256,979
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
36,970
|
|
Interest payable
|
|
|
214
|
|
Other liabilities
|
|
|
6,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
300,317
|
|
|
|
|
|
|
Of the total purchase price of $93.8 million, $2.0 million has been allocated to core deposit
intangible. Additionally, $26.8 million 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 various loans in the acquisition that 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 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.
81
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table details the acquired loans that are accounted for in accordance with ASC
310-30
as of October 17, 2017.
|
|
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
21,912
|
|
Contractual cash flows not expected to be collected (nonaccretable differences)
|
|
|
1,832
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
20,080
|
|
Interest component of expected cash flows (accretable discount)
|
|
|
2,267
|
|
|
|
|
|
|
Fair value of acquired loans accounted for under ASC
310-30
|
|
$
|
17,813
|
|
|
|
|
|
|
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.
Lafayette Community Bancorp
On September 1,
2017, Horizon completed the acquisition of Lafayette Community Bancorp, an Indiana corporation (Lafayette) and Horizon Banks acquisition of Lafayette Community Bank, a state-chartered bank and wholly-owned subsidiary of Lafayette,
through mergers effective September 1, 2017. Under the terms of the Merger Agreement, shareholders of Lafayette received 0.5878 shares of Horizon common stock and $1.73 in cash for each outstanding share of Lafayette common stock. Lafayette
shareholders owning fewer than 100 shares of common stock received $17.25 in cash for each common share. Lafayette shares outstanding at the closing to be exchanged were 1,856,679, and the shares of Horizon common stock issued to Lafayette
shareholders totaled 1,091,259. Based upon the August 31, 2017 closing price of $26.17 per share of Horizon common stock immediately prior to the effectiveness of the merger, the transaction has an implied valuation of approximately
$34.5 million. The Company has had approximately $1.7 million in costs related to the acquisition as of December 31, 2017. These expenses are classified in the
non-interest
expense section of
the income statement and are primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce
transaction costs. The Company also expects to reduce cost through economies of scale.
Horizon held 5% ownership in Lafayette immediately preceding the
merger date. In accordance with ASC
805-10
Business Combinations, Horizon was required to remeasure the equity interest in Lafayettes common stock and recognize the resulting gain or loss, if any,
in earnings. Since Lafayette was traded in the OTC market, the remeasurement was based on the closing price of Lafayettes common stock immediately prior to the acquisition announcement and immediately prior to Horizon taking control of
Lafayette. This remeasurement resulted in a gain of $530,000.
82
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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 Lafayette acquisition is detailed in the following table.
|
|
|
|
|
ASSETS
|
|
|
|
|
Cash and due from banks
|
|
$
|
24,846
|
|
Investment securities, available for sale
|
|
|
6
|
|
|
|
|
|
|
Commercial
|
|
|
116,258
|
|
Residential mortgage
|
|
|
12,761
|
|
|
|
|
|
|
Consumer
|
|
|
5,280
|
|
|
|
|
|
|
Total loans
|
|
|
134,299
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
7,818
|
|
FHLB stock
|
|
|
395
|
|
Goodwill
|
|
|
15,408
|
|
Core deposit intangible
|
|
|
2,085
|
|
Interest receivable
|
|
|
338
|
|
Other assets
|
|
|
1,649
|
|
|
|
|
|
|
Total assets purchased
|
|
$
|
186,844
|
|
|
|
|
|
|
Common shares issued
|
|
$
|
30,044
|
(1)
|
Cash paid
|
|
|
4,421
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
34,465
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Deposits
|
|
|
|
|
Non-interest
bearing
|
|
$
|
34,990
|
|
NOW accounts
|
|
|
30,174
|
|
Savings and money market
|
|
|
53,663
|
|
Certificates of deposits
|
|
|
32,520
|
|
|
|
|
|
|
Total deposits
|
|
|
151,347
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
|
|
Interest payable
|
|
|
42
|
|
Other liabilities
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
152,379
|
|
|
|
|
|
|
(1)
|
This includes $955,000 of common shares previously held by Horizon.
|
Of the total estimated purchase price of
$34.5 million, $2.1 million has been allocated to core deposit intangible. Additionally, $15.4 million 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 various loans in the acquisition that 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.
83
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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 September 1, 2017.
|
|
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
6,128
|
|
Contractual cash flows not expected to be collected (nonaccretable differences)
|
|
|
1,326
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
4,802
|
|
Interest component of expected cash flows (accretable discount)
|
|
|
933
|
|
|
|
|
|
|
Fair value of acquired loans accounted for under ASC
310-30
|
|
$
|
3,869
|
|
|
|
|
|
|
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.
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 $11.0 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 $452,000 was recorded in the transaction, which will be amortized over 10 years on a straight line basis. There was no goodwill generated in the transaction.
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. The Company had
approximately $779,000 in costs related to the acquisition as of December 31, 2016. 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.
84
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Under the purchase 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 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
|
|
|
|
|
|
|
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 or which are considered to be credit impaired.
LaPorte Bancorp, Inc.
On July 18, 2016,
Horizon completed the acquisition of LaPorte Bancorp, Inc., a Maryland corporation (LaPorte Bancorp) and the 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 shareholder 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 LaPorte Bancorps ESOP loan receivable, the transaction has an implied valuation of approximately $98.6 million. The Company had approximately $4.0 million in costs related to the acquisition as of
December 31, 2016. 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.
85
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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 10
years on a straight line basis.
The Company acquired various loans in the acquisition that 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.
86
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table details 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.
Kosciusko Financial, Inc.
On June 1, 2016,
Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (Kosciusko) and the 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 shareholder 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 transaction has an implied valuation of approximately $23.0 million. The Company had approximately $2.0 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.
87
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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 Kosciusko acquisition is detailed in the following table.
|
|
|
|
|
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 10 years on a
straight line basis.
The Company acquired various loans in the acquisition that 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.
88
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.
Peoples Bancorp
On July 1, 2015, Horizon
completed the acquisition of Peoples Bancorp, an Indiana corporation (Peoples) and the Banks acquisition of Peoples Federal Savings Bank of DeKalb County (Peoples FSB), through mergers effective July 1, 2015. Under
the terms of the acquisition, the exchange ratio was 1.425 shares of Horizon common stock and $9.75 in cash for each outstanding share of Peoples common stock. Peoples shareholders owning fewer than 100 shares of common stock received $33.14 in cash
for each common share. Peoples shares outstanding at the closing were 2,311,858, and the shares of Horizon common stock issued to Peoples shareholders totaled 3,288,303. Horizons stock price was $16.88 per share at the close of business on
July 1, 2015. Based upon these numbers, the total value of the consideration for the acquisition was $78.1 million. The Company had approximately $4.9 million in costs related to the acquisition as of December 31, 2015. 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 experienced, and expects to continue to experience, increases in its deposit base, reductions in transaction costs and reduced costs through economies of scale.
89
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Under the purchase method of accounting, the total estimated purchase price is allocated to Peoples 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 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 Peoples acquisition is allocated as follows:
|
|
|
|
|
ASSETS
|
|
|
|
|
Cash and due from banks
|
|
$
|
205,054
|
|
Investment securities, available for sale
|
|
|
2,038
|
|
|
|
|
|
|
Commercial
|
|
|
67,435
|
|
Residential mortgage
|
|
|
137,331
|
|
|
|
|
|
|
Consumer
|
|
|
19,593
|
|
|
|
|
|
|
Total loans
|
|
|
224,359
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
5,524
|
|
FRB and FHLB stock
|
|
|
2,743
|
|
Goodwill
|
|
|
21,424
|
|
Core deposit intangible
|
|
|
4,394
|
|
Interest receivable
|
|
|
1,279
|
|
Cash value of life insurance
|
|
|
13,898
|
|
Other assets
|
|
|
4,364
|
|
|
|
|
|
|
Total assets purchased
|
|
$
|
485,077
|
|
|
|
|
|
|
Common shares issued
|
|
$
|
55,506
|
|
Cash paid
|
|
|
22,641
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
78,147
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Deposits
|
|
|
|
|
Non-interest
bearing
|
|
$
|
28,251
|
|
NOW accounts
|
|
|
65,771
|
|
Savings and money market
|
|
|
125,176
|
|
Certificates of deposits
|
|
|
131,889
|
|
|
|
|
|
|
Total deposits
|
|
|
351,087
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
48,884
|
|
Interest payable
|
|
|
21
|
|
Other liabilities
|
|
|
6,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
406,930
|
|
|
|
|
|
|
Of the total purchase price of
$78.1 million, $4.4 million has been allocated to core deposit intangible. Additionally, $21.4 million 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 $228.6 million loan portfolio at a fair value discount of $4.8 million. The performing
portion of the portfolio, $223.4 million, had an estimated fair value of $220.0 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives
of the loans in accordance with ASC
310-20.
The Company acquired various loans in the acquisition that had
evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.
The 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.
90
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Loan 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 July 1,
2015.
|
|
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
5,730
|
|
Contractual cash flows not expected to be collected (nonaccretable differences)
|
|
|
715
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
5,015
|
|
Interest component of expected cash flows (accretable discount)
|
|
|
647
|
|
|
|
|
|
|
Fair value of acquired loans accounted for under ASC
310-30
|
|
$
|
4,368
|
|
|
|
|
|
|
The results of operations of Wolverine, Lafayette, CNB, LaPorte Bancorp, Kosciusko and Peoples have been included in the
Companys consolidated financial statements since the acquisition dates. The following schedule includes
pro-forma
results for the periods ended December 31, 2017, 2016 and 2015 as if the Wolverine,
Lafayette, CNB, LaPorte Bancorp, Kosciusko and Peoples acquisitions had occurred as of the beginning of the comparable prior reporting periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
125,442
|
|
|
$
|
115,860
|
|
|
|
119,732
|
|
Provision for loan losses
|
|
|
(12
|
)
|
|
|
1,082
|
|
|
|
4,027
|
|
|
|
|
|
Net Interest Income after Provision for Loan Losses
|
|
|
125,454
|
|
|
|
114,778
|
|
|
|
115,705
|
|
Non-interest
Income
|
|
|
33,959
|
|
|
|
43,330
|
|
|
|
37,976
|
|
Non-interest
Expense
|
|
|
109,605
|
|
|
|
119,522
|
|
|
|
112,309
|
|
|
|
|
|
Income before Income Taxes
|
|
|
49,808
|
|
|
|
38,586
|
|
|
|
41,372
|
|
Income Tax Expense
|
|
|
16,204
|
|
|
|
12,072
|
|
|
|
10,764
|
|
|
|
|
|
Net Income
|
|
|
33,604
|
|
|
|
26,514
|
|
|
|
30,608
|
|
Net Income Available to Common Shareholders
|
|
$
|
33,604
|
|
|
$
|
26,472
|
|
|
|
30,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
$
|
1.46
|
|
|
$
|
1.32
|
|
|
$
|
1.93
|
|
Diluted Earnings Per Share
|
|
$
|
1.45
|
|
|
$
|
1.32
|
|
|
$
|
1.88
|
|
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
information
for the year ended 2017 includes $2.6 million, net of tax, of operating revenue from Lafayette and Wolverine since acquisitions and approximately $2.7 million, net of tax, of
non-recurring
expenses
directly attributable to the Lafayette and Wolverine acquisitions. The
pro-forma
information for the year ended 2016 includes $4.3 million, net of tax, of operating revenue from CNB, LaPorte Bancorp and
Kosciusko since acquisition and approximately $4.8 million, net of tax, of
non-recurring
expenses directly attributable to the acquisitions. The
pro-forma
information for the year ended 2015 includes $2.3 million, net of tax, of operating revenue from Peoples since the acquisition and approximately $3.3 million, net of tax, of
non-recurring
expenses
directly attributable to the Peoples acquisition.
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.
91
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 3 Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2017 and 2016,
cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit.
At December 31, 2017, the Companys
cash accounts exceeded federally insured limits by approximately $12.5 million.
Note 4 Securities
The fair value of securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
December 31, 2017
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
19,277
|
|
|
$
|
|
|
|
$
|
(225
|
)
|
|
$
|
19,052
|
|
State and municipal
|
|
|
148,045
|
|
|
|
2,189
|
|
|
|
(670
|
)
|
|
|
149,564
|
|
Federal agency collateralized mortgage obligations
|
|
|
132,871
|
|
|
|
45
|
|
|
|
(2,551
|
)
|
|
|
130,365
|
|
Federal agency mortgage-backed pools
|
|
|
211,487
|
|
|
|
155
|
|
|
|
(2,985
|
)
|
|
|
208,657
|
|
Private labeled mortgage-backed pools
|
|
|
1,650
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
1,642
|
|
Corporate notes
|
|
|
272
|
|
|
|
113
|
|
|
|
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale investment securities
|
|
$
|
513,602
|
|
|
$
|
2,502
|
|
|
$
|
(6,439
|
)
|
|
$
|
509,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
179,836
|
|
|
$
|
3,493
|
|
|
$
|
(2,932
|
)
|
|
$
|
180,397
|
|
Federal agency collateralized mortgage obligations
|
|
|
5,734
|
|
|
|
17
|
|
|
|
(69
|
)
|
|
|
5,682
|
|
Federal agency mortgage-backed pools
|
|
|
14,878
|
|
|
|
216
|
|
|
|
(88
|
)
|
|
|
15,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity investment securities
|
|
$
|
200,448
|
|
|
$
|
3,726
|
|
|
$
|
(3,089
|
)
|
|
$
|
201,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
December 31, 2016
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2017, no individual investment security had an unrealized loss that was determined to be other-than-temporary.
92
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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 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 December 31, 2017.
The Company elected to transfer 319
available-for-sale
(AFS) securities with an aggregate fair value of $167.1 million to a classification of
held-to-maturity
(HTM) on April 1, 2014. In accordance with FASB ASC
320-10-55-24,
the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer. The net unrealized holding gain of $1.3 million, net of tax, at the
date of transfer was retained in accumulated other comprehensive income (loss), with the associated
pre-tax
amount retained in the carrying value of the HTM securities. Such amounts will be amortized to
comprehensive income over the remaining life of the securities. The fair value of the transferred AFS securities became the book value of the HTM securities at April 1, 2014, with no unrealized gain or loss at this date. Future reporting
periods, with potential changes in market value for these securities, would likely record an unrealized gain or loss for disclosure purposes.
The
amortized cost and fair value of securities available for sale and
held-to-maturity
at December 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
13,347
|
|
|
$
|
13,326
|
|
|
$
|
7,455
|
|
|
$
|
7,480
|
|
One to five years
|
|
|
40,468
|
|
|
|
40,193
|
|
|
|
37,483
|
|
|
|
37,479
|
|
Five to ten years
|
|
|
50,473
|
|
|
|
51,156
|
|
|
|
21,112
|
|
|
|
20,984
|
|
After ten years
|
|
|
63,306
|
|
|
|
64,326
|
|
|
|
60,566
|
|
|
|
59,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,594
|
|
|
|
169,001
|
|
|
|
126,616
|
|
|
|
125,910
|
|
Federal agency collateralized mortgage obligations
|
|
|
132,871
|
|
|
|
130,365
|
|
|
|
139,040
|
|
|
|
137,195
|
|
Federal agency mortgage-backed pools
|
|
|
211,487
|
|
|
|
208,657
|
|
|
|
180,183
|
|
|
|
176,726
|
|
Private labeled mortgage-backed pools
|
|
|
1,650
|
|
|
|
1,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale investment securities
|
|
$
|
513,602
|
|
|
$
|
509,665
|
|
|
$
|
445,839
|
|
|
$
|
439,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
1,948
|
|
|
$
|
1,934
|
|
|
$
|
|
|
|
$
|
|
|
One to five years
|
|
|
40,603
|
|
|
|
41,531
|
|
|
|
24,594
|
|
|
|
25,271
|
|
Five to ten years
|
|
|
89,801
|
|
|
|
91,249
|
|
|
|
87,645
|
|
|
|
88,805
|
|
After ten years
|
|
|
47,484
|
|
|
|
45,683
|
|
|
|
53,368
|
|
|
|
51,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,836
|
|
|
|
180,397
|
|
|
|
165,607
|
|
|
|
165,822
|
|
Federal agency collateralized mortgage obligations
|
|
|
5,734
|
|
|
|
5,682
|
|
|
|
6,530
|
|
|
|
6,490
|
|
Federal agency mortgage-backed pools
|
|
|
14,878
|
|
|
|
15,006
|
|
|
|
21,057
|
|
|
|
21,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity investment securities
|
|
$
|
200,448
|
|
|
$
|
201,085
|
|
|
$
|
193,194
|
|
|
$
|
194,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
December 31, 2017
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
U.S. Treasury and federal agencies
|
|
$
|
15,882
|
|
|
$
|
(180
|
)
|
|
$
|
2,870
|
|
|
$
|
(45
|
)
|
|
$
|
18,752
|
|
|
$
|
(225
|
)
|
State and municipal
|
|
|
54,312
|
|
|
|
(2,758
|
)
|
|
|
30,691
|
|
|
|
(844
|
)
|
|
|
85,003
|
|
|
|
(3,602
|
)
|
Federal agency collateralized mortgage obligations
|
|
|
54,006
|
|
|
|
(589
|
)
|
|
|
73,462
|
|
|
|
(2,031
|
)
|
|
|
127,468
|
|
|
|
(2,620
|
)
|
Federal agency mortgage-backed pools
|
|
|
103,926
|
|
|
|
(1,019
|
)
|
|
|
86,846
|
|
|
|
(2,054
|
)
|
|
|
190,772
|
|
|
|
(3,073
|
)
|
Private labeled mortgage-backed pools
|
|
|
1,642
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
1,642
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
229,768
|
|
|
$
|
(4,554
|
)
|
|
$
|
193,869
|
|
|
$
|
(4,974
|
)
|
|
$
|
423,637
|
|
|
$
|
(9,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
December 31, 2016
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, federal agency, state and municipal
The unrealized losses on the Companys investments in U.S. Treasury, federal agency and state and municipals were caused by interest rate changes. The
contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not
the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2017.
Federal agency mortgage-backed pools and collateralized mortgage obligations
The unrealized losses on the Companys investment in federal agency mortgage backed pools and collateralized mortgage obligations securities were caused
by interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does
not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2017.
Information regarding security proceeds, gross gains and gross losses are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Sales of securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
|
|
$
|
5,490
|
|
|
$
|
182,549
|
|
|
$
|
43,051
|
|
Gross gains
|
|
|
151
|
|
|
|
2,646
|
|
|
|
254
|
|
Gross losses
|
|
|
(113
|
)
|
|
|
(810
|
)
|
|
|
(65
|
)
|
The tax effect of the proceeds from the sale of securities available for sale was $13,000, $643,000 and $66,000 for the years
ended December 31, 2017, 2016 and 2015, respectively.
The Company pledges securities to secure retail and corporate repurchase agreements to the
Federal Reserve for borrowing availability and as settlements for the fair value of swap agreements. At December 31, 2017, the Company had pledged $74.0 million of fair value or $75.6 million of amortized cost, in securities as
collateral for $61.1 million in repurchase agreements, $94.6 million of fair value or $93.1 million of amortized cost, in securities as collateral for borrowing availability at the Federal Reserve with $11.0 million current
outstanding borrowings and $13.1 million of fair value or $13.1 million of amortized cost, in securities as collateral for $917,000 in settlements on the fair value of swap agreements.
94
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 5 Loans
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Commercial
|
|
|
|
|
|
|
|
|
Working capital and equipment
|
|
$
|
696,612
|
|
|
$
|
539,403
|
|
Real estate, including agriculture
|
|
|
854,003
|
|
|
|
485,620
|
|
Tax exempt
|
|
|
36,324
|
|
|
|
15,486
|
|
Other
|
|
|
30,931
|
|
|
|
29,447
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,617,870
|
|
|
|
1,069,956
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
14 family
|
|
|
599,217
|
|
|
|
526,024
|
|
Other
|
|
|
7,543
|
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
606,760
|
|
|
|
531,874
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Auto
|
|
|
251,020
|
|
|
|
174,773
|
|
Recreation
|
|
|
8,752
|
|
|
|
5,669
|
|
Real estate/home improvement
|
|
|
63,811
|
|
|
|
53,898
|
|
Home equity
|
|
|
165,240
|
|
|
|
144,508
|
|
Unsecured
|
|
|
3,743
|
|
|
|
3,875
|
|
Other
|
|
|
20,291
|
|
|
|
15,706
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
512,857
|
|
|
|
398,429
|
|
|
|
|
Mortgage warehouse
|
|
|
94,508
|
|
|
|
135,727
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,831,995
|
|
|
|
2,135,986
|
|
Allowance for loan losses
|
|
|
(16,394
|
)
|
|
|
(14,837
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,815,601
|
|
|
$
|
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 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.
95
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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 mortgage loan funded by Horizon undergoes an underwriting review 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.
96
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table shows the recorded investment of individual loan categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
Deferred
|
|
|
Recorded
|
|
December 31, 2017
|
|
Balance
|
|
|
Interest Due
|
|
|
Fees / (Costs)
|
|
|
Investment
|
|
Owner occupied real estate
|
|
$
|
547,596
|
|
|
$
|
1,441
|
|
|
$
|
1,917
|
|
|
$
|
550,954
|
|
Non owner occupied real estate
|
|
|
664,281
|
|
|
|
1,100
|
|
|
|
2,478
|
|
|
|
667,859
|
|
Residential spec homes
|
|
|
16,431
|
|
|
|
63
|
|
|
|
80
|
|
|
|
16,574
|
|
Development & spec land loans
|
|
|
48,674
|
|
|
|
116
|
|
|
|
579
|
|
|
|
49,369
|
|
Commercial and industrial
|
|
|
335,227
|
|
|
|
2,524
|
|
|
|
607
|
|
|
|
338,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,612,209
|
|
|
|
5,244
|
|
|
|
5,661
|
|
|
|
1,623,114
|
|
|
|
|
|
|
Residential mortgage
|
|
|
588,358
|
|
|
|
1,776
|
|
|
|
2,375
|
|
|
|
592,509
|
|
Residential construction
|
|
|
16,027
|
|
|
|
39
|
|
|
|
|
|
|
|
16,066
|
|
Mortgage warehouse
|
|
|
94,508
|
|
|
|
480
|
|
|
|
|
|
|
|
94,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
698,893
|
|
|
|
2,295
|
|
|
|
2,375
|
|
|
|
703,563
|
|
|
|
|
|
|
Direct installment
|
|
|
89,617
|
|
|
|
270
|
|
|
|
(552
|
)
|
|
|
89,335
|
|
Direct installment purchased
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Indirect installment
|
|
|
227,323
|
|
|
|
528
|
|
|
|
168
|
|
|
|
228,019
|
|
Home equity
|
|
|
197,578
|
|
|
|
889
|
|
|
|
(1,359
|
)
|
|
|
197,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
514,600
|
|
|
|
1,687
|
|
|
|
(1,743
|
)
|
|
|
514,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,825,702
|
|
|
|
9,226
|
|
|
|
6,293
|
|
|
|
2,841,221
|
|
Allowance for loan losses
|
|
|
(16,394
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
2,809,308
|
|
|
$
|
9,226
|
|
|
$
|
6,293
|
|
|
$
|
2,824,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
Deferred
|
|
|
Recorded
|
|
December 31, 2016
|
|
Balance
|
|
|
Interest Due
|
|
|
Fees / (Costs)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 6 Accounting for Certain Loans Acquired in a Transfer
The Company acquired loans in acquisitions with 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
|
Heartland
|
|
|
Summit
|
|
|
Peoples
|
|
|
Kosciusko
|
|
|
LaPorte
|
|
|
Lafayette
|
|
|
Wolverine
|
|
|
Total
|
|
Commercial
|
|
$
|
390
|
|
|
$
|
3,653
|
|
|
$
|
315
|
|
|
$
|
838
|
|
|
$
|
1,034
|
|
|
$
|
4,271
|
|
|
$
|
16,697
|
|
|
$
|
27,198
|
|
Real estate
|
|
|
229
|
|
|
|
870
|
|
|
|
126
|
|
|
|
403
|
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
|
|
2,632
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance
|
|
$
|
619
|
|
|
$
|
4,523
|
|
|
$
|
441
|
|
|
$
|
1,241
|
|
|
$
|
2,071
|
|
|
$
|
4,271
|
|
|
$
|
16,697
|
|
|
$
|
29,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
|
Heartland
|
|
|
Summit
|
|
|
Peoples
|
|
|
Kosciusko
|
|
|
LaPorte
|
|
|
Lafayette
|
|
|
Wolverine
|
|
|
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 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2017
|
|
|
|
Heartland
|
|
|
Summit
|
|
|
Peoples
|
|
|
Kosciusko
|
|
|
LaPorte
|
|
|
Lafayette
|
|
|
Wolverine
|
|
|
Total
|
|
Balance at January 1
|
|
$
|
557
|
|
|
$
|
502
|
|
|
$
|
389
|
|
|
$
|
530
|
|
|
$
|
1,479
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,457
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
933
|
|
|
|
2,267
|
|
|
|
3,200
|
|
Accretion
|
|
|
(99
|
)
|
|
|
(353
|
)
|
|
|
(388
|
)
|
|
|
(101
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,176
|
)
|
Reclassification from nonaccretable difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(43
|
)
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
(316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
452
|
|
|
$
|
147
|
|
|
$
|
|
|
|
$
|
386
|
|
|
$
|
980
|
|
|
$
|
933
|
|
|
$
|
2,267
|
|
|
$
|
5,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2016
|
|
|
|
Heartland
|
|
|
Summit
|
|
|
Peoples
|
|
|
Kosciusko
|
|
|
LaPorte
|
|
|
Lafayette
|
|
|
Wolverine
|
|
|
Total
|
|
Balance at January 1
|
|
$
|
795
|
|
|
$
|
708
|
|
|
$
|
555
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,058
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
634
|
|
|
|
1,636
|
|
|
|
|
|
|
|
|
|
|
|
2,270
|
|
Accretion
|
|
|
(164
|
)
|
|
|
(171
|
)
|
|
|
(106
|
)
|
|
|
(72
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
(660
|
)
|
Reclassification from nonaccretable difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(74
|
)
|
|
|
(35
|
)
|
|
|
(60
|
)
|
|
|
(32
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
557
|
|
|
$
|
502
|
|
|
$
|
389
|
|
|
$
|
530
|
|
|
$
|
1,479
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2017 and 2016, the Company increased the allowance for loan losses by a charge to the
income statement of $0 and $71,000, respectively. $71,000 and $0 of allowances for loan losses were reversed for the years ended December 31, 2017 and 2016, respectively.
98
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 7 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 using the highest of the one, two or five-year historical loss experience is an appropriate methodology 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of the period
|
|
$
|
14,837
|
|
|
$
|
14,534
|
|
|
$
|
16,501
|
|
Loans
charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
68
|
|
|
|
181
|
|
|
|
2,208
|
|
Non owner occupied real estate
|
|
|
20
|
|
|
|
471
|
|
|
|
556
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
288
|
|
|
|
106
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
377
|
|
|
|
758
|
|
|
|
3,437
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
89
|
|
|
|
213
|
|
|
|
288
|
|
Residential construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
89
|
|
|
|
213
|
|
|
|
288
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
389
|
|
|
|
329
|
|
|
|
367
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Installment
|
|
|
1,193
|
|
|
|
1,051
|
|
|
|
1,081
|
|
Home Equity
|
|
|
205
|
|
|
|
309
|
|
|
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
1,787
|
|
|
|
1,689
|
|
|
|
2,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
charged-off
|
|
|
2,253
|
|
|
|
2,660
|
|
|
|
6,099
|
|
|
|
|
|
Recoveries of loans previously
charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
9
|
|
|
|
31
|
|
|
|
104
|
|
Non owner occupied real estate
|
|
|
32
|
|
|
|
55
|
|
|
|
1
|
|
Residential development
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Commercial and industrial
|
|
|
219
|
|
|
|
116
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
268
|
|
|
|
210
|
|
|
|
192
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
44
|
|
|
|
97
|
|
|
|
69
|
|
Residential construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
44
|
|
|
|
97
|
|
|
|
69
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
531
|
|
|
|
81
|
|
|
|
106
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Installment
|
|
|
497
|
|
|
|
529
|
|
|
|
489
|
|
Home Equity
|
|
|
|
|
|
|
204
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
1,028
|
|
|
|
814
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan recoveries
|
|
|
1,340
|
|
|
|
1,121
|
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
charged-off
|
|
|
913
|
|
|
|
1,539
|
|
|
|
5,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2,164
|
|
|
|
(68
|
)
|
|
|
2,531
|
|
Real estate
|
|
|
(81
|
)
|
|
|
(23
|
)
|
|
|
62
|
|
Consumer
|
|
|
387
|
|
|
|
1,933
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision charged to operating expense
|
|
|
2,470
|
|
|
|
1,842
|
|
|
|
3,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
16,394
|
|
|
$
|
14,837
|
|
|
$
|
14,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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 contractually 90 days past due, and charges down to
the net realizable value other secured loans when they are contractually 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Commercial
|
|
|
Real Estate
|
|
|
Warehousing
|
|
|
Consumer
|
|
|
Total
|
|
Allowance For Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
184
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
184
|
|
Collectively evaluated for impairment
|
|
|
8,450
|
|
|
|
2,188
|
|
|
|
1,030
|
|
|
|
4,542
|
|
|
|
16,210
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
8,634
|
|
|
$
|
2,188
|
|
|
$
|
1,030
|
|
|
$
|
4,542
|
|
|
$
|
16,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
7,187
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,187
|
|
Collectively evaluated for impairment
|
|
|
1,615,927
|
|
|
|
608,575
|
|
|
|
94,988
|
|
|
|
514,544
|
|
|
|
2,834,034
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
1,623,114
|
|
|
$
|
608,575
|
|
|
$
|
94,988
|
|
|
$
|
514,544
|
|
|
$
|
2,841,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Commercial
|
|
|
Real Estate
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 8
Non-performing
Assets and Impaired Loans
The following table presents the nonaccrual, loans past due over 90 days still on accrual, and troubled debt restructured (TDRs) by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Over 90
|
|
|
Non-
|
|
|
|
|
|
Total Non-
|
|
|
|
|
|
|
Days Still
|
|
|
Performing
|
|
|
Performing
|
|
|
Performing
|
|
December 31, 2017
|
|
Non-accrual
|
|
|
Accruing
|
|
|
TDRs
|
|
|
TDRs
|
|
|
Loans
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
4,742
|
|
|
$
|
|
|
|
$
|
11
|
|
|
$
|
1
|
|
|
$
|
4,754
|
|
Non owner occupied real estate
|
|
|
115
|
|
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
555
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
Commercial and industrial
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
6,689
|
|
|
|
|
|
|
|
451
|
|
|
|
1
|
|
|
|
7,141
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
3,693
|
|
|
|
|
|
|
|
351
|
|
|
|
1,450
|
|
|
|
5,494
|
|
Residential construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222
|
|
|
|
222
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
3,693
|
|
|
|
|
|
|
|
351
|
|
|
|
1,672
|
|
|
|
5,716
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Installment
|
|
|
1,041
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
1,208
|
|
Home Equity
|
|
|
1,480
|
|
|
|
|
|
|
|
211
|
|
|
|
285
|
|
|
|
1,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
2,894
|
|
|
|
167
|
|
|
|
211
|
|
|
|
285
|
|
|
|
3,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,276
|
|
|
$
|
167
|
|
|
$
|
1,013
|
|
|
$
|
1,958
|
|
|
$
|
16,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Over 90
|
|
|
Non-
|
|
|
|
|
|
Total Non-
|
|
|
|
|
|
|
Days Still
|
|
|
Performing
|
|
|
Performing
|
|
|
Performing
|
|
December 31, 2016
|
|
Non-accrual
|
|
|
Accruing
|
|
|
TDRs
|
|
|
TDRs
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Included in the $13.3 million of
non-accrual
loans and the
$1.0 million of
non-performing
TDRs at December 31, 2017 were $3.9 million and $467,000, respectively, of loans acquired for which there were accretable yields 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 December 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 December 31, 2017, the Company had $3.0 million in TDRs and $2.0 million were performing according to the restructured terms and two TDRs were returned to accrual status during 2017. There was $50,000 of specific
reserves allocated to TDRs at December 31, 2017 based on the collateral deficiencies.
102
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table presents commercial loans individually evaluated for impairment by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Cash/Accrual
|
|
|
|
Unpaid
|
|
|
|
|
|
Allowance For
|
|
|
Balance in
|
|
|
Interest
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Loan Loss
|
|
|
Impaired
|
|
|
Income
|
|
December 31, 2017
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Loans
|
|
|
Recognized
|
|
With no recorded allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
3,824
|
|
|
$
|
3,849
|
|
|
$
|
|
|
|
$
|
1,673
|
|
|
$
|
11
|
|
Non owner occupied real estate
|
|
|
554
|
|
|
|
570
|
|
|
|
|
|
|
|
345
|
|
|
|
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
176
|
|
|
|
174
|
|
|
|
|
|
|
|
233
|
|
|
|
4
|
|
Commercial and industrial
|
|
|
1,656
|
|
|
|
1,663
|
|
|
|
|
|
|
|
1,445
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
6,210
|
|
|
|
6,256
|
|
|
|
|
|
|
|
3,696
|
|
|
|
40
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
931
|
|
|
|
931
|
|
|
|
184
|
|
|
|
78
|
|
|
|
46
|
|
Non owner occupied real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
931
|
|
|
|
931
|
|
|
|
184
|
|
|
|
78
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,141
|
|
|
$
|
7,187
|
|
|
$
|
184
|
|
|
$
|
3,774
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Cash/Accrual
|
|
|
|
Unpaid
|
|
|
|
|
|
Allowance For
|
|
|
Balance in
|
|
|
Interest
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Loan Loss
|
|
|
Impaired
|
|
|
Income
|
|
December 31, 2016
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Loans
|
|
|
Recognized
|
|
With no recorded allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
1,533
|
|
|
$
|
1,533
|
|
|
$
|
|
|
|
$
|
1,619
|
|
|
$
|
58
|
|
Non owner occupied real estate
|
|
|
440
|
|
|
|
440
|
|
|
|
|
|
|
|
871
|
|
|
|
18
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
118
|
|
|
|
118
|
|
|
|
|
|
|
|
61
|
|
|
|
16
|
|
Commercial and industrial
|
|
|
128
|
|
|
|
127
|
|
|
|
|
|
|
|
349
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
2,219
|
|
|
|
2,218
|
|
|
|
|
|
|
|
2,900
|
|
|
|
93
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner occupied real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
31
|
|
|
|
32
|
|
|
|
4
|
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
31
|
|
|
|
32
|
|
|
|
4
|
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,250
|
|
|
$
|
2,250
|
|
|
$
|
4
|
|
|
$
|
2,905
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Cash/Accrual
|
|
|
|
Unpaid
|
|
|
|
|
|
Allowance For
|
|
|
Balance in
|
|
|
Interest
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Loan Loss
|
|
|
Impaired
|
|
|
Income
|
|
December 31, 2015
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Loans
|
|
|
Recognized
|
|
With no recorded allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
1,340
|
|
|
$
|
1,339
|
|
|
$
|
|
|
|
$
|
1,001
|
|
|
$
|
22
|
|
Non owner occupied real estate
|
|
|
4,938
|
|
|
|
4,953
|
|
|
|
|
|
|
|
5,417
|
|
|
|
8
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
71
|
|
|
|
71
|
|
|
|
|
|
|
|
6
|
|
|
|
3
|
|
Commercial and industrial
|
|
|
79
|
|
|
|
79
|
|
|
|
|
|
|
|
275
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
6,428
|
|
|
|
6,442
|
|
|
|
|
|
|
|
6,699
|
|
|
|
37
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
|
410
|
|
|
|
410
|
|
|
|
105
|
|
|
|
243
|
|
|
|
8
|
|
Non owner occupied real estate
|
|
|
70
|
|
|
|
70
|
|
|
|
32
|
|
|
|
6
|
|
|
|
13
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Spec Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
97
|
|
|
|
97
|
|
|
|
65
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
577
|
|
|
|
577
|
|
|
|
202
|
|
|
|
411
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,005
|
|
|
$
|
7,019
|
|
|
$
|
202
|
|
|
$
|
7,110
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the payment status by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 - 59 Days
|
|
|
60 - 89 Days
|
|
|
90 Days or
|
|
|
|
|
|
Loans Not Past
|
|
|
|
|
December 31, 2017
|
|
Past Due
|
|
|
Past Due
|
|
|
Greater Past Due
|
|
|
Total Past Due
|
|
|
Due
|
|
|
Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
1,613
|
|
|
$
|
1,950
|
|
|
$
|
|
|
|
$
|
3,563
|
|
|
$
|
544,033
|
|
|
$
|
547,596
|
|
Non owner occupied real estate
|
|
|
512
|
|
|
|
122
|
|
|
|
|
|
|
|
634
|
|
|
|
663,647
|
|
|
|
664,281
|
|
Residential development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,431
|
|
|
|
16,431
|
|
Development & Spec Land Loans
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
48,643
|
|
|
|
48,674
|
|
Commercial and industrial
|
|
|
520
|
|
|
|
1
|
|
|
|
|
|
|
|
521
|
|
|
|
334,706
|
|
|
|
335,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
2,676
|
|
|
|
2,073
|
|
|
|
|
|
|
|
4,749
|
|
|
|
1,607,460
|
|
|
|
1,612,209
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
1,248
|
|
|
|
49
|
|
|
|
|
|
|
|
1,297
|
|
|
|
587,061
|
|
|
|
588,358
|
|
Residential construction
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
15,964
|
|
|
|
16,027
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,508
|
|
|
|
94,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
1,311
|
|
|
|
49
|
|
|
|
|
|
|
|
1,360
|
|
|
|
697,533
|
|
|
|
698,893
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
78
|
|
|
|
10
|
|
|
|
|
|
|
|
88
|
|
|
|
89,529
|
|
|
|
89,617
|
|
Direct Installment Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
82
|
|
Indirect Installment
|
|
|
1,859
|
|
|
|
244
|
|
|
|
167
|
|
|
|
2,270
|
|
|
|
225,053
|
|
|
|
227,323
|
|
Home Equity
|
|
|
502
|
|
|
|
527
|
|
|
|
|
|
|
|
1,029
|
|
|
|
196,549
|
|
|
|
197,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
2,439
|
|
|
|
781
|
|
|
|
167
|
|
|
|
3,387
|
|
|
|
511,213
|
|
|
|
514,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,426
|
|
|
$
|
2,903
|
|
|
$
|
167
|
|
|
$
|
9,496
|
|
|
$
|
2,816,206
|
|
|
$
|
2,825,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
0.23
|
%
|
|
|
0.10
|
%
|
|
|
0.01
|
%
|
|
|
0.34
|
%
|
|
|
99.66
|
%
|
|
|
|
|
104
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 - 59 Days
|
|
|
60 - 89 Days
|
|
|
90 Days or
|
|
|
|
|
|
Loans Not Past
|
|
|
|
|
December 31, 2016
|
|
Past Due
|
|
|
Past Due
|
|
|
Greater Past Due
|
|
|
Total Past Due
|
|
|
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.
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 $3,500,000) 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.
105
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.
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.
106
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.
|
|
|
|
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.
107
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table presents loans by credit grades.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied real estate
|
|
$
|
520,907
|
|
|
$
|
8,622
|
|
|
$
|
18,067
|
|
|
$
|
|
|
|
$
|
547,596
|
|
Non owner occupied real estate
|
|
|
655,410
|
|
|
|
3,864
|
|
|
|
5,007
|
|
|
|
|
|
|
|
664,281
|
|
Residential development
|
|
|
16,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,431
|
|
Development & Spec Land Loans
|
|
|
47,562
|
|
|
|
886
|
|
|
|
226
|
|
|
|
|
|
|
|
48,674
|
|
Commercial and industrial
|
|
|
314,190
|
|
|
|
7,448
|
|
|
|
13,589
|
|
|
|
|
|
|
|
335,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,554,500
|
|
|
|
20,820
|
|
|
|
36,889
|
|
|
|
|
|
|
|
1,612,209
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
582,864
|
|
|
|
|
|
|
|
5,494
|
|
|
|
|
|
|
|
588,358
|
|
Residential construction
|
|
|
15,805
|
|
|
|
|
|
|
|
222
|
|
|
|
|
|
|
|
16,027
|
|
Mortgage warehouse
|
|
|
94,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
693,177
|
|
|
|
|
|
|
|
5,716
|
|
|
|
|
|
|
|
698,893
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Installment
|
|
|
89,244
|
|
|
|
|
|
|
|
373
|
|
|
|
|
|
|
|
89,617
|
|
Direct Installment Purchased
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Indirect Installment
|
|
|
226,115
|
|
|
|
|
|
|
|
1,208
|
|
|
|
|
|
|
|
227,323
|
|
Home Equity
|
|
|
195,602
|
|
|
|
|
|
|
|
1,976
|
|
|
|
|
|
|
|
197,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
511,043
|
|
|
|
|
|
|
|
3,557
|
|
|
|
|
|
|
|
514,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,758,720
|
|
|
$
|
20,820
|
|
|
$
|
46,162
|
|
|
$
|
|
|
|
$
|
2,825,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
97.63
|
%
|
|
|
0.74
|
%
|
|
|
1.63
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Pass
|
|
|
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
|
%
|
|
|
|
|
108
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 9 Premises and Equipment
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Land
|
|
$
|
21,633
|
|
|
$
|
20,032
|
|
Buildings and improvements
|
|
|
68,447
|
|
|
|
59,607
|
|
Furniture and equipment
|
|
|
22,288
|
|
|
|
19,965
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
112,368
|
|
|
|
99,604
|
|
Accumulated depreciation
|
|
|
(36,839
|
)
|
|
|
(33,247
|
)
|
|
|
|
|
|
|
|
|
|
Net premise and equipment
|
|
$
|
75,529
|
|
|
$
|
66,357
|
|
|
|
|
|
|
|
|
|
|
Note 10 Loan Servicing
Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled
approximately $1.310 billion and $1.301 billion at December 31, 2017 and 2016.
The aggregate fair value of capitalized mortgage servicing
rights was approximately $12.8 million, $12.1 million, and $10.8 million at December 31, 2017, 2016 and 2015, compared to the carrying values of $11.6 million, $11.1 million and $8.9 million, respectively. The fair
value of capitalized mortgage servicing rights was approximately $7.6 million on January 1, 2015. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For
purposes of measuring impairment, risk characteristics including product type, investor type and interest rates, were used to stratify the originated mortgage servicing rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1
|
|
$
|
11,681
|
|
|
$
|
9,271
|
|
|
$
|
7,980
|
|
Servicing rights capitalized
|
|
|
2,109
|
|
|
|
3,426
|
|
|
|
2,974
|
|
Amortization of servicing rights
|
|
|
(1,601
|
)
|
|
|
(1,016
|
)
|
|
|
(1,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31
|
|
|
12,189
|
|
|
|
11,681
|
|
|
|
9,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1
|
|
|
(507
|
)
|
|
|
(397
|
)
|
|
|
(338
|
)
|
Additions
|
|
|
(85
|
)
|
|
|
(236
|
)
|
|
|
(130
|
)
|
Reductions
|
|
|
5
|
|
|
|
126
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31
|
|
|
(587
|
)
|
|
|
(507
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights, net
|
|
$
|
11,602
|
|
|
$
|
11,174
|
|
|
$
|
8,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2017, 2016 and 2015, the Bank recorded additional impairment of approximately $80,000, $110,000 and $59,000,
respectively.
Note 11 Goodwill and Intangible Assets
On October 17, 2017, the Wolverine acquisition resulted in goodwill of $26.8 million. On September 1, 2017, the Lafayette acquisition resulted
in goodwill of $15.4 million. On November 7, 2016, the CNB acquisition resulted in goodwill of $609,000. On July 18, 2016, the LaPorte acquisition resulted in goodwill of $21.0 million. On June 1, 2016, the Kosciusko
acquisition resulted in goodwill of $6.4 million. Additionally, on July 1, 2015, the Peoples acquisition resulted in goodwill of $21.4 million.
109
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
No impairment loss was recorded in 2017 or 2016. The Company tested goodwill for impairment during 2017 and
2016. In both valuations, the fair value exceeded the Companys carrying value, therefore, it was concluded goodwill is not impaired. For additional details related to impairment testing, see the Goodwill and Intangible Assets
section of Managements Discussion and Analysis of Financial Condition and Results of Operations included as Item 7 of this Annual Report on Form 10K.
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Balance, January 1
|
|
$
|
76,941
|
|
|
$
|
49,600
|
|
Goodwill acquired
|
|
|
42,939
|
|
|
|
27,341
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
119,880
|
|
|
$
|
76,941
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired in 2017 includes a $704,000 measurement period adjustment related to the 2016 acquisition of LaPorte.
As a result of the acquisition of Alliance Bank Corporation in 2005; American Trust & Savings Bank in 2010; Heartland in 2012; Summit in 2014;
Peoples in 2015; Kosciusko, LaPorte and CNB in 2016; and Lafayette and Wolverine in 2017; the Company has recorded certain amortizable intangible assets related to core deposit intangibles. These core deposit intangibles are being amortized over
seven to ten years using an accelerated method. Amortizable intangible assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible
|
|
$
|
20,711
|
|
|
$
|
(8,309
|
)
|
|
$
|
16,151
|
|
|
$
|
(6,785
|
)
|
Amortization expense for intangible assets totaled $1.5 million, $1.2 million, and $988,000 for the years ended
December 31, 2017, 2016 and 2015. Estimated amortization for the years ending December 31 is as follows:
|
|
|
|
|
2018
|
|
$
|
2,012
|
|
2019
|
|
|
1,787
|
|
2020
|
|
|
1,481
|
|
2021
|
|
|
1,394
|
|
2022
|
|
|
1,375
|
|
Thereafter
|
|
|
4,353
|
|
|
|
|
|
|
|
|
$
|
12,402
|
|
|
|
|
|
|
Note 12 Deposits
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Noninterest-bearing demand deposits
|
|
$
|
601,805
|
|
|
$
|
496,248
|
|
Interest-bearing demand deposits
|
|
|
909,638
|
|
|
|
850,641
|
|
Money market (variable rate)
|
|
|
378,108
|
|
|
|
290,896
|
|
Savings deposits
|
|
|
424,500
|
|
|
|
357,582
|
|
Certificates of deposit of $250,000 or more
|
|
|
130,585
|
|
|
|
105,361
|
|
Other certificates and time deposits
|
|
|
436,367
|
|
|
|
370,482
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,881,003
|
|
|
$
|
2,471,210
|
|
|
|
|
|
|
|
|
|
|
110
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Certificates and other time deposits for both retail and brokered maturing in years ending December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
Brokered
|
|
|
Total
|
|
2018
|
|
$
|
258,488
|
|
|
$
|
19,010
|
|
|
$
|
277,498
|
|
2019
|
|
|
152,027
|
|
|
|
12,558
|
|
|
|
164,585
|
|
2020
|
|
|
56,838
|
|
|
|
7,058
|
|
|
|
63,896
|
|
2021
|
|
|
16,128
|
|
|
|
3,386
|
|
|
|
19,514
|
|
2022
|
|
|
16,758
|
|
|
|
1,900
|
|
|
|
18,658
|
|
Thereafter
|
|
|
22,222
|
|
|
|
579
|
|
|
|
22,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
522,461
|
|
|
$
|
44,491
|
|
|
$
|
566,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13 Borrowings
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Federal Home Loan Bank advances, variable and fixed rates ranging from 0.93% to 7.53%, due at
various dates through November 15, 2024
|
|
$
|
336,308
|
|
|
$
|
124,034
|
|
Securities sold under agreements to repurchase
|
|
|
61,097
|
|
|
|
57,144
|
|
Federal Reserve Bank discount window
|
|
|
11,000
|
|
|
|
|
|
Federal funds purchased
|
|
|
143,252
|
|
|
|
66,811
|
|
Notes payable,variable rate of 2.75%, due at various dates through July 13, 2019
|
|
|
12,500
|
|
|
|
19,500
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
564,157
|
|
|
$
|
267,489
|
|
|
|
|
|
|
|
|
|
|
The Federal Home Loan Bank advances are secured by first and second mortgage loans and mortgage warehouse loans totaling
approximately $503.8 million. Advances are subject to restrictions or penalties in the event of prepayment.
At December 31, 2017, the Bank had
available approximately $127.2 million in credit lines with various money center banks, including the FHLB.
Contractual maturities in years ending
December 31 are as follows:
|
|
|
|
|
2018
|
|
$
|
430,078
|
|
2019
|
|
|
69,252
|
|
2020
|
|
|
37,472
|
|
2021
|
|
|
5,042
|
|
2022
|
|
|
12,154
|
|
Thereafter
|
|
|
10,159
|
|
|
|
|
|
|
|
|
$
|
564,157
|
|
|
|
|
|
|
Note 14 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 remain under the Banks control. Securities sold
under agreements to repurchase are secured by federal agency collateralized mortgage obligations and mortgage-backed pools.
111
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table shows repurchase agreements accounted for as secured borrowings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Contractual Maturity of the Agreements
|
|
December 31, 2017
|
|
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
|
|
$
|
61,097
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
61,097
|
|
Securities pledged for Repurchase Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agency collateralized mortgage obligations
|
|
|
38,421
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,421
|
|
Federal agency mortgage-backed pools
|
|
|
35,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,998
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase consist of obligations of the Bank to other parties. The obligations are
secured by federal agency collateralized mortgage obligations and federal agency mortgage-backed pools and such collateral is held in safekeeping by third parties. The maximum amount of outstanding agreements at any month end during 2017 and 2016
totaled $63.1 million and $157.7 million and the daily average of such agreements totaled $55.2 million and $134.2 million. The agreements at December 31, 2017, are overnight agreements.
Note 15 Subordinated Debentures
In October of
2004, Horizon formed Horizon Statutory Trust II (Trust II), a wholly owned statutory business trust. Trust II sold $10.3 million of Trust Preferred Capital Securities as a participant in a pooled trust preferred securities offering.
The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Horizon. The junior subordinated debentures are the sole assets of Trust II and are fully and
unconditionally guaranteed by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends on a quarterly basis. The junior subordinated debentures and the securities bear interest at a rate of
90-day
LIBOR plus 1.95% (3.64% at December 31, 2017) and mature on October 21, 2034, and securities may be called at any quarterly interest payment date at par. Costs associated with the issuance of the
securities totaling $17,500 were capitalized and were amortized to October 31, 2009, the first call date of the securities.
In December of 2006,
Horizon formed Horizon Bancorp Capital Trust III (Trust III), a wholly owned statutory business trust. Trust III sold $12.4 million of Trust Preferred Capital Securities as a participant in a pooled trust preferred securities
offering. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Horizon. The junior subordinated debentures are the sole assets of Trust III and are fully
and unconditionally guaranteed by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends on a quarterly basis. The junior subordinated debentures and the securities bear interest at a rate of
90-day
LIBOR plus 1.65% (3.34% at December 31, 2017) and mature on January 30, 2037, and securities may be called at any quarterly interest payment date at par. Costs associated with the issuance of the
securities totaling $12,647 were capitalized and are being amortized to the first call date of the securities.
The Company assumed additional debentures
as the result of the acquisition of Alliance Bank Corporation in 2005. In June 2004, Alliance formed Alliance Financial Statutory Trust I a wholly owned business trust (Alliance Trust), to sell $5.2 million in trust preferred
securities. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Alliance. The junior subordinated debentures are the sole assets of Alliance Trust and
are fully and unconditionally guaranteed by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends on a quarterly basis. The junior subordinated debentures and the securities bear interest at a rate
of
90-day
LIBOR plus 2.65% (4.34% at December 31, 2017) and mature in June 2034, and securities may be called at any quarterly interest payment date at par.
112
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The Company assumed additional debentures as the result of the American Trust & Savings Bank
purchase and assumption in 2010. In March 2004, Am Tru Inc., the holding company for American Trust & Savings Bank, formed Am Tru Statutory Trust I a wholly owned business trust (Am Tru Trust), to sell $3.5 million in trust
preferred securities. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Am Tru Inc. The junior subordinated debentures are the sole assets of Am Tru
Trust and are fully and unconditionally guaranteed by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends on a quarterly basis. The junior subordinated debentures and the securities bear interest
at a rate of
90-day
LIBOR plus 2.85% (4.54% at December 31, 2017) and mature in March 2034, and securities may be called at any quarterly interest payment date at par. The carrying value was
$3.3 million, net of the remaining purchase discount, at December 31, 2017.
The Company assumed additional debentures as the result of the
Heartland merger in July 2012. In December 2006, Heartland formed Heartland (IN) Statutory Trust II a wholly owned business trust (Heartland Trust), to sell $3.0 million in trust preferred securities. The proceeds from the sale of
the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from Heartland. The junior subordinated debentures are the sole assets of Heartland Trust and are fully and unconditionally guaranteed
by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends on a quarterly basis. The junior subordinated debentures and the securities bear interest at a rate of
90-day
LIBOR plus 1.67% (3.36% at December 31, 2017) and mature in December 2036, and securities may be called at any quarterly interest payment date at par. The carrying value was $1.8 million, net
of the remaining purchase discount, at December 31, 2017.
The Company assumed additional debentures as the result of the LaPorte merger in July
2016. In October 2007, LaPorte assumed debentures as the result of its acquisition of City Savings Financial Corporation (City Savings). In June 2003, City Savings formed City Savings Statutory Trust I a wholly owned business trust
(City Savings Trust), to sell $5.0 million in trust preferred securities. The proceeds from the sale of the trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from City
Savings. The junior subordinated debentures are the sole assets of City Savings Trust and are fully and unconditionally guaranteed by Horizon. The junior subordinated debentures and the trust preferred securities pay interest and dividends on a
quarterly basis. The junior subordinated debentures and the securities bear interest at a rate of
90-day
LIBOR plus 3.10% (4.79% at December 31, 2017) and mature in June 2033, and securities may be called
at any quarterly interest payment date at par. The carrying value was $4.4 million, net of the remaining purchase discount, at December 31, 2017.
The Trust Preferred Capital Securities, subject to certain limitations, are included in Tier 1 Capital for regulatory purposes. Dividends on the Trust
Preferred Capital Securities are recorded as interest expense.
Note 16 Employee Stock Ownership Plan
Effective January 1, 2007, Horizon converted its stock bonus plan to an employee stock ownership plan (ESOP). Prior to that date, Horizon
maintained an employee stock bonus plan that covered substantially all employees. The stock bonus plan was noncontributory, and Horizon made matching contributions of amounts contributed by the employees to the Employee Thrift Plan and discretionary
contributions. Prior to the establishment of the employee stock bonus plan, Horizon maintained an ESOP that was terminated in 1999. The prior ESOP accounts of active employees and the discretionary accounts of active employees remain in the new
ESOP. The Matching contribution accounts under the stock bonus plan were transferred to the Employees Thrift Plan.
The ESOP exists for the benefit of
substantially all employees. Contributions to the ESOP are by Horizon and are determined by the Board of Directors at its discretion. The contributions may be made in the form of cash or common stock. Shares are allocated among participants each
December 31 on the basis of each participants eligible compensation to total eligible compensation. Eligible compensation is limited to $265,000 for each participant. Dividends on shares held by the plan, at the discretion of each
participant, may be distributed to an individual participant or left in the plan to purchase additional shares.
113
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Total cash contributions and expense recorded for the ESOP was $600,000 in 2017, $550,000 in 2016 and
$450,000 in 2015.
The ESOP, which is not leveraged, owns a total of 963,628 shares of Horizons stock or 3.8% of the outstanding shares.
Note 17 Employee Thrift and Defined Benefit Plan
The Employee Thrift Plan (Plan) provides that all employees of Horizon with the requisite hours of service are eligible for the Plan. The Plan
permits voluntary employee contributions and Horizon may make discretionary matching and profit sharing contributions. Each eligible employee is vested according to a schedule based upon years of service. Employee voluntary contributions are vested
at all times. The Banks expense related to the Plan totaled approximately $942,000 in 2017, $785,000 in 2016 and $848,000 in 2015.
The Plan owns a
total of 497,948 shares of Horizons stock or 1.9% of the outstanding shares.
The Company acquired a pension fund known as the Pentegra Defined
Benefit Plan (Pentegra Plan) in the Peoples acquisition. Prior to August 1, 2007, Peoples provided pension benefits for substantially all of its employees through its participation in the Pentegra Plan. Peoples chose to freeze the
Pentegra Plan effective August 1, 2007. The trustees of the Financial Institutions Retirement Fund administer the Pentegra Plan, employer identification number
13-5645888
and plan number 333. This plan
operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require
contributions to the Pentegra Plan. The Pentegra Plan is a single plan under Internal Revenue Code 413(c) and, as a result, all of the assets stand behind all of the liabilities.
The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
|
|
|
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
|
|
|
|
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
|
|
|
If the Company chooses to stop participating in the multiemployer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
|
There was no expense to the Company in 2017 and 2016 for this Pentegra Plan. The Company intends on terminating this Pentegra Plan during
2018 and has recorded a $3.4 million withdrawal liability for the termination of the Pentegra Plan.
114
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 18 Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Currently payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
12,079
|
|
|
$
|
7,467
|
|
|
$
|
5,511
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
331
|
|
|
|
1,334
|
|
|
|
1,721
|
|
Revaluation of deferred tax assets
|
|
|
2,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
14,836
|
|
|
$
|
8,801
|
|
|
$
|
7,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of federal statutory to actual tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory income tax at 35%
|
|
$
|
16,783
|
|
|
$
|
11,450
|
|
|
$
|
9,724
|
|
Tax exempt interest
|
|
|
(2,699
|
)
|
|
|
(1,882
|
)
|
|
|
(1,708
|
)
|
Tax exempt income
|
|
|
(638
|
)
|
|
|
(575
|
)
|
|
|
(488
|
)
|
Stock compensation
|
|
|
(546
|
)
|
|
|
|
|
|
|
|
|
Revaluation of deferred tax assets
|
|
|
2,426
|
|
|
|
|
|
|
|
|
|
Other tax exempt income
|
|
|
(456
|
)
|
|
|
(608
|
)
|
|
|
(199
|
)
|
Nondeductible and other
|
|
|
(34
|
)
|
|
|
416
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense
|
|
$
|
14,836
|
|
|
$
|
8,801
|
|
|
$
|
7,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
3,396
|
|
|
$
|
5,581
|
|
Net operating loss (from acquisitions)
|
|
|
1,658
|
|
|
|
2,368
|
|
Director and employee benefits
|
|
|
2,276
|
|
|
|
3,124
|
|
Unrealized loss on AFS securities and fair value hedge
|
|
|
1,147
|
|
|
|
937
|
|
Accrued Pension
|
|
|
852
|
|
|
|
1,323
|
|
Fair value adjustment on acquistions
|
|
|
1,087
|
|
|
|
2,340
|
|
Other
|
|
|
1,083
|
|
|
|
1,593
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
11,499
|
|
|
|
17,266
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(1,680
|
)
|
|
|
(1,916
|
)
|
State tax
|
|
|
(210
|
)
|
|
|
(341
|
)
|
Federal Home Loan Bank stock dividends
|
|
|
(339
|
)
|
|
|
(474
|
)
|
Difference in basis of intangible assets
|
|
|
(2,831
|
)
|
|
|
(4,654
|
)
|
Other
|
|
|
(125
|
)
|
|
|
(431
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(5,185
|
)
|
|
|
(7,816
|
)
|
Valuation allowance
|
|
|
(1,613
|
)
|
|
|
(2,018
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
4,701
|
|
|
$
|
7,432
|
|
|
|
|
|
|
|
|
|
|
The Tax Cuts and Jobs Act (the Act) was enacted in December 2017. The Act reduces the U.S. federal corporate tax
rate from 35 percent to 21 percent. As of December 31, 2017, we have substantially completed our accounting for the tax effects of enactment of the Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing
deferred tax balances. We do not believe the actual results will vary materially from those estimates. The effect of the Tax Cuts and Jobs Act listed above reflects the revaluation of our net deferred tax asset based on a U.S. federal tax rate of 21
percent.
As of December 31, 2017, the Company had approximately $25.2 million of state tax loss carryforward available to offset future
franchise taxable income. Also, at December 31, 2017, the Company had approximately $74,000 of Federal loss carryforward available to offset future federal income tax. The state loss carryforward begins to expire in 2024. The
Federal loss carryforward begins to expire in 2032. Due to these losses being incurred by acquired institutions, prior to the acquisitions by Horizon, the annual losses which can be used are subject to an annual limitation. Management believes
that the Company will be able to utilize the benefits recorded for both state and federal loss carryforwards within the allotted time periods, except for the amount represented by the valuation allowance. The valuation allowance has been recorded
for the possible inability to use a portion of the state net operating loss carryover.
115
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Retained earnings of the Bank include approximately $12.8 million for which no deferred income tax
liability has been recognized. This amount represents an allocation of previously acquired institutions income to bad debt deductions as of December 31, 1987 for tax purposes only. Reductions of amounts so allocated for purposes other than tax
bad debt losses including redemption of bank stock or excess dividends, or loss of bank status would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The unrecorded deferred
income tax liability on the above amount for the Company was approximately $2.7 million at December 31, 2017.
The Company files income tax
returns in the U.S. federal jurisdiction. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or
non-U.S.
income tax examinations by tax authorities for years before 2014.
Note 19 Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss included in capital are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Unrealized loss on securities available for sale
|
|
$
|
(3,937
|
)
|
|
$
|
(6,007
|
)
|
Unamortized gain on securities held to maturity, previously transferred from AFS
|
|
|
200
|
|
|
|
456
|
|
Unrealized loss on derivative instruments
|
|
|
(1,728
|
)
|
|
|
(3,132
|
)
|
Tax effect
|
|
|
1,914
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(3,551
|
)
|
|
$
|
(5,644
|
)
|
|
|
|
|
|
|
|
|
|
Note 20 Commitments,
Off-Balance
Sheet Risk and Contingencies
Because of the nature of its activities, Horizon 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 operations and cash flows of the Company.
The Bank was not required to have any cash on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing balance requirements at
December 31, 2017. These balances would be included in cash and cash equivalents and would not earn interest.
The Bank is a party to financial
instruments with
off-balance
sheet risk in the ordinary course of business to meet financing needs of its customers. These financial instruments include commitments to make loans and standby letters of credit.
The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank
follows the same credit policy to make such commitments as is followed for those loans recorded in the financial statements.
At December 31, 2017
and 2016, commitments to make loans amounted to approximately $802.9 million and $808.3 million and commitments under outstanding standby letters of credit amounted to approximately $3.4 million and $1.0 million. Since many
commitments to make loans and standby letters of credit expire without being used, the amount does not necessarily represent future cash advances. No losses are anticipated as a result of these transactions. Collateral obtained upon exercise of the
commitment is determined using managements credit evaluation.
116
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 21 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 Companys
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Company and 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 Companys and 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
Company and 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
December 31, 2017 and 2016, Basel III rules require the Company and 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.
To be categorized as well capitalized, the Company and Bank must maintain minimum Total risk-based, Tier I risk-based, common equity Tier I risk-based and
Tier I leverage ratios as set forth in the table below. As of December 31, 2017 and December 31, 2016, the Company and Bank met all capital adequacy requirements to be considered well capitalized. There have been no conditions or events
since the year ending December 31, 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 December 31, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required For Capital
1
|
|
|
|
|
|
|
|
|
|
Required For Capital
1
|
|
|
Adequacy Purposes
|
|
|
Well Capitalized Under Prompt
1
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
with Capital Buffer
|
|
|
Corrective Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
1
(to risk-weighted
assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
384,800
|
|
|
|
12.91
|
%
|
|
$
|
238,543
|
|
|
|
8.00
|
%
|
|
$
|
275,816
|
|
|
|
9.25
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
382,788
|
|
|
|
12.85
|
%
|
|
|
238,386
|
|
|
|
8.00
|
%
|
|
|
275,634
|
|
|
|
9.25
|
%
|
|
$
|
297,982
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
1
(to risk-weighted
assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
368,355
|
|
|
|
12.35
|
%
|
|
|
178,907
|
|
|
|
6.00
|
%
|
|
|
216,180
|
|
|
|
7.25
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
366,343
|
|
|
|
12.29
|
%
|
|
|
178,790
|
|
|
|
6.00
|
%
|
|
|
216,038
|
|
|
|
7.25
|
%
|
|
|
238,386
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital
1
(to
risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
329,892
|
|
|
|
11.06
|
%
|
|
|
134,181
|
|
|
|
4.50
|
%
|
|
|
171,454
|
|
|
|
5.75
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
366,343
|
|
|
|
12.29
|
%
|
|
|
134,092
|
|
|
|
4.50
|
%
|
|
|
171,340
|
|
|
|
5.75
|
%
|
|
|
193,689
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
1
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
368,355
|
|
|
|
9.92
|
%
|
|
|
148,503
|
|
|
|
4.00
|
%
|
|
|
148,503
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
366,343
|
|
|
|
9.89
|
%
|
|
|
148,116
|
|
|
|
4.00
|
%
|
|
|
148,116
|
|
|
|
4.00
|
%
|
|
|
185,145
|
|
|
|
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
|
117
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The above minimum capital requirements exclude the capital conservation buffer required to avoid limitations
on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer was 1.25%
at December 31, 2017. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.
Note 22
Share-Based Compensation
On January 21, 2003, the Board of Directors adopted the Horizon Bancorp 2003 Omnibus Equity Incentive Plan
(2003 Plan), which was approved by stockholders on May 8, 2003. Under the 2003 Plan, Horizon could issue up to 506,250 common shares, plus the number of shares that are tendered to or withheld by Horizon in connection with the
exercise of options plus that number of shares that are purchased by Horizon with the cash proceeds received upon option exercises. The 2003 Plan limited the number of shares available to 506,250 for incentive stock options and to 253,125 for the
grant of
non-option
awards. The shares available for issuance under the 2003 Plan could be divided among the various types of awards and among the participants as the Compensation Committee
(Committee) determines. The Committee was authorized to grant any type of award to a participant that was consistent with the provisions of the 2003 Plan. Awards could consist of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, performance units, performance shares or any combination of these awards. The Committee determined the provisions, terms and conditions of each award. The restricted shares vest over a period of time
established by the Committee at the time of each grant. Holders of restricted shares receive dividends and may vote the shares. The restricted shares are recorded at fair market value (on the date granted) as a separate component of
stockholders equity. The cost of these shares is being amortized against earnings using the straight-line method over the vesting period. The options shares granted under the 2003 plan vest at a rate designated per the individual agreements.
The restricted shares granted under the 2003 Plan vest at the end of each grants vesting period. On March 8, 2010, the Board of Directors adopted, and on May 6, 2010, the stockholders approved, an amendment to the 2003 Omnibus Equity
Incentive Plan making an additional 590,625 common shares available for issuance. All share data has been adjusted for the 3:2 stock split on November 14, 2016 (and for three additional stock splits in 2003, 2011 and 2012 after the 2003 Plan
was adopted).
A summary of option activity under the 2003 Plan as of December 31, 2017, and changes during the year then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding, beginning of year
|
|
|
36,635
|
|
|
$
|
7.25
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,185
|
)
|
|
|
6.86
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
27,450
|
|
|
|
7.37
|
|
|
|
2.73
|
|
|
$
|
560,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
27,450
|
|
|
|
7.37
|
|
|
|
2.73
|
|
|
|
560,691
|
|
On June 18, 2013, the Board of Directors adopted the Horizon Bancorp 2013 Omnibus Equity Incentive Plan (2013
Plan), which was approved by the Companys shareholders on May 8, 2014. Under the 2013 Plan, Horizon may issue up to 1,037,550 common shares, plus the number of shares that are tendered to or withheld by Horizon in connection with
the exercise of options plus that number of shares that are purchased by Horizon with the cash proceeds received upon option exercises. The 2013 Plan limits the number of shares available to 150,000 for incentive stock options and to 600,000 for the
grant of
non-option
awards. The shares available for issuance under the 2013 Plan may be divided among the various types of awards and among the participants as the Committee determines. The Committee is
authorized to grant any type of award to a participant that is consistent with the provisions of the 2013 Plan. Awards may consist of incentive
118
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance units, performance shares or any combination of these awards. The Committee determines the
provisions, terms and conditions of each award. All share data has been adjusted for the 3:2 stock split on November 14, 2016.
The restricted shares
can vest over a period of time established by the Committee at the time of each grant, but the restricted shares already granted under the 2013 Plan generally vest at the end of each grants vesting period. Holders of restricted shares receive
dividends and may vote the shares. The restricted shares are recorded at fair market value (on the date granted) as a separate component of stockholders equity. The cost of these shares is being amortized against earnings using the
straight-line method over the vesting period.
The performance shares that are awarded become earned and vested based on the achievement of certain
performance goals during a performance period as established by the Committee at the time of each grant. The performance goals are based on a comparison of the Companys average performance over the performance period for the return on common
equity, compounded annual growth rate of total assets, and return on average assets, all as relative to the average performance for publicly traded banks with total assets between $1 billion and $5 billion on the SNL Bank Index. Holders of
performance share awards receive pass-through dividends but do not have any voting rights before the performance shares are earned and vested.
The
options shares granted under the 2013 Plan vest at a rate designated per the individual agreements.
The fair value of options granted is estimated on the
date of the grant using an option-pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Dividend yields
|
|
|
1.75
|
%
|
|
|
2.34
|
%
|
|
|
2.35
|
%
|
Volatility factors of expected market price of common stock
|
|
|
28.52
|
%
|
|
|
28.60
|
%
|
|
|
28.97
|
%
|
Risk-free interest rates
|
|
|
2.42
|
%
|
|
|
1.83
|
%
|
|
|
2.10
|
%
|
Expected life of options
|
|
|
8 years
|
|
|
|
8 years
|
|
|
|
8 years
|
|
A summary of option activity under the 2013 Plan as of December 31, 2017, and changes during the year then ended, is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding, beginning of year
|
|
|
286,586
|
|
|
$
|
15.08
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
43,502
|
|
|
|
25.14
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(108,434
|
)
|
|
|
14.77
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,871
|
)
|
|
|
15.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
215,783
|
|
|
|
17.25
|
|
|
|
7.69
|
|
|
$
|
2,276,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
88,036
|
|
|
|
14.77
|
|
|
|
6.62
|
|
|
|
1,147,538
|
|
The weighted average grant-date fair value of options granted during the years 2017, 2016 and 2015 was $7.25, $3.89 and $4.09.
119
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
A summary of the status of Horizons
non-vested
restricted and
performance shares as of December 31, 2017 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Non-vested
beginning of year
|
|
|
70,959
|
|
|
$
|
15.59
|
|
Vested
|
|
|
(6,754
|
)
|
|
|
14.80
|
|
Granted
|
|
|
41,786
|
|
|
|
25.49
|
|
Forfeited
|
|
|
(9,461
|
)
|
|
|
15.05
|
|
|
|
|
|
|
|
|
|
|
Non-vested,
end of year
|
|
|
96,530
|
|
|
|
19.98
|
|
|
|
|
|
|
|
|
|
|
Grants vest at the end of three, four or five years of continuous employment.
Total compensation cost recognized in the income statement for option-based payment arrangements during 2017 was $325,000 and the related tax benefit
recognized was approximately $114,000. Total compensation cost recognized in the income statement for option-based payment arrangements during 2016 and 2015 was $324,000 and $288,000 and the related tax benefit recognized was $113,000 and $101,000,
respectively.
Total compensation cost recognized in the income statement for restricted share and performance share based payment arrangements during
2017, 2016 and 2015 was $135,000, $284,000, and $355,000. The recognized tax benefit related thereto was approximately $47,000, $99,000, and $124,000 for the years ended December 31, 2017, 2016 and 2015.
Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2017, 2016 and 2015 was $1.6 million,
$214,000, and $403,000. The actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled $522,000, $158,000, and $151,000, for the years ended December 31, 2017, 2016 and 2015.
As of December 31, 2017, there was $911,000 of total unrecognized compensation cost related to all
non-vested
share-based compensation arrangements granted under all of the plans. That cost is expected to be recognized over a weighted-average period of 1.5 years. Under all plans, forfeitures of share-based compensation grants are recognized as they occur.
On December 19, 2017, the Board of Directors proposed adoption of the Amended and Restated 2013 Omnibus Equity Incentive Plan, primarily to allow
awards of Other Stock Based Awards, which includes awards valued in whole or in part by reference to Horizons common shares. The Amended and Restated 2013 Omnibus Equity Incentive Plan must be approved by the shareholders in order
to become effective, and the shareholders will vote on its adoption at the Annual Meeting to be held on May 3, 2018.
Note 23 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 5.81% on a notional amount of $30.5 million at December 31, 2017 and 2016. Under the
agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.
120
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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
December 31, 2017 and 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 agreements as cash flow hedging instruments. 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 December 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
December 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.
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 $154.6 million at December 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 December 31, 2017, the Companys fair values 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.
121
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following tables summarize the fair value of derivative financial instruments utilized by Horizon:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2017
|
|
|
December 31, 2017
|
|
Derivatives designated as hedging
instruments
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Interest rate contracts
|
|
Loans
|
|
$
|
|
|
|
Other liabilities
|
|
$
|
811
|
|
Interest rate contracts
|
|
Other Assets
|
|
|
811
|
|
|
Other liabilities
|
|
|
1,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
811
|
|
|
|
|
|
2,539
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan contracts
|
|
Other assets
|
|
|
143
|
|
|
Other liabilities
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
143
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
954
|
|
|
|
|
$
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2016
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of the derivative instruments on the consolidated statement of income for the
12-month
periods ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Recognized in Other Comprehensive Income on Derivative (Effective
Portion)
|
|
Derivative in cash flow
|
|
Years Ended December 31
|
|
hedging relationship
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest rate contracts
|
|
$
|
913
|
|
|
$
|
6
|
|
|
$
|
127
|
|
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.
122
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized on Derivative
|
|
Derivative in fair value
|
|
Location of gain (loss)
|
|
Years Ended December 31
|
|
hedging relationship
|
|
recognized on derivative
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest rate contracts
|
|
Interest income - loans
|
|
$
|
(817
|
)
|
|
$
|
(1,776
|
)
|
|
$
|
574
|
|
Interest rate contracts
|
|
Interest income - loans
|
|
|
817
|
|
|
|
1,776
|
|
|
|
(574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized on Derivative
|
|
Derivative not designated
|
|
Location of gain (loss)
|
|
Years Ended December 31
|
|
as hedging relationship
|
|
recognized on derivative
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Mortgage contracts
|
|
Other income - gain on sale of loans
|
|
$
|
(439
|
)
|
|
$
|
(62
|
)
|
|
$
|
195
|
|
Note 24 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
|
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and
recognized in the accompanying 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 December 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 mortgage obligations and mortgage-backed pools, private-label
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.
123
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.
The following table presents the fair value measurements of assets and
liabilities recognized in the accompanying 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
$
|
19,052
|
|
|
$
|
|
|
|
$
|
19,052
|
|
|
$
|
|
|
State and municipal
|
|
|
149,564
|
|
|
|
|
|
|
|
149,564
|
|
|
|
|
|
Federal agency collateralized mortgage obligations
|
|
|
130,365
|
|
|
|
|
|
|
|
130,365
|
|
|
|
|
|
Federal agency mortgage-backed pools
|
|
|
208,657
|
|
|
|
|
|
|
|
208,657
|
|
|
|
|
|
Private labeled mortgage-backed pools
|
|
|
1,642
|
|
|
|
|
|
|
|
1,642
|
|
|
|
|
|
Corporate notes
|
|
|
385
|
|
|
|
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
509,665
|
|
|
|
|
|
|
|
509,665
|
|
|
|
|
|
|
|
|
|
|
Hedged loans
|
|
|
154,575
|
|
|
|
|
|
|
|
154,575
|
|
|
|
|
|
Forward sale commitments
|
|
|
143
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
(917
|
)
|
|
|
|
|
|
|
(917
|
)
|
|
|
|
|
Commitments to originate loans
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
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
|
)
|
|
|
|
|
124
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Realized gains and losses included in net income for the periods are reported in the consolidated statements
of income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Interest Income
|
|
Years Ended December 31
|
|
Total gains and losses from:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Hedged loans
|
|
$
|
(817
|
)
|
|
$
|
(1,776
|
)
|
|
$
|
574
|
|
Fair value interest rate swap agreements
|
|
|
817
|
|
|
|
1,776
|
|
|
|
(574
|
)
|
Derivative loan commitments
|
|
|
(439
|
)
|
|
|
(62
|
)
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(439
|
)
|
|
$
|
(62
|
)
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
6,957
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,957
|
|
Mortgage servicing rights
|
|
|
11,602
|
|
|
|
|
|
|
|
|
|
|
|
11,602
|
|
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 were reduced by $587,000 in
2017 and $507,000 in 2016 for the fair value.
125
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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, at December 31, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Valuation
|
|
|
|
Range (Weighted
|
|
|
|
December 31, 2017
|
|
|
Technique
|
|
Unobservable Inputs
|
|
Average)
|
|
Impaired loans
|
|
$
|
6,957
|
|
|
Collateral based measurement
|
|
Discount to reflect current market
conditions and ultimate collectability
|
|
|
0% - 46.8% (2.6%)
|
|
Mortgage servicing rights
|
|
$
|
11,602
|
|
|
Discounted cashflows
|
|
Discount rate, Constant prepayment rate, Probability of default
|
|
|
9.6% - 10.8% (9.7%),
9.2% - 27.7% (10.5%),
0% - 1.5% (0.2%)
|
|
|
|
|
|
|
|
|
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 25 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 December 31, 2017 and
December 31, 2016. These include financial instruments recognized as assets and liabilities on the consolidated balance sheet as well as certain
off-balance
sheet financial instruments. The estimated fair
values shown below do not include any valuation of assets and liabilities which are not financial instruments as defined by 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.
126
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Amount
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
76,441
|
|
|
$
|
76,441
|
|
|
$
|
|
|
|
$
|
|
|
Investment securities, held to maturity
|
|
|
200,448
|
|
|
|
|
|
|
|
201,085
|
|
|
|
|
|
Loans held for sale
|
|
|
3,094
|
|
|
|
|
|
|
|
|
|
|
|
3,094
|
|
Loans excluding loan level hedges, net
|
|
|
2,661,026
|
|
|
|
|
|
|
|
|
|
|
|
2,585,879
|
|
Stock in FHLB
|
|
|
18,105
|
|
|
|
|
|
|
|
18,105
|
|
|
|
|
|
Interest receivable
|
|
|
16,244
|
|
|
|
|
|
|
|
16,244
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
$
|
601,805
|
|
|
$
|
601,805
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits
|
|
|
2,279,198
|
|
|
|
|
|
|
|
2,156,487
|
|
|
|
|
|
Borrowings
|
|
|
564,157
|
|
|
|
|
|
|
|
560,057
|
|
|
|
|
|
Subordinated debentures
|
|
|
37,653
|
|
|
|
|
|
|
|
35,994
|
|
|
|
|
|
Interest payable
|
|
|
886
|
|
|
|
|
|
|
|
886
|
|
|
|
|
|
127
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for 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 26 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 operations and cash flows of the Company.
Note 27 Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position, results of operations and cash flows of Horizon Bancorp:
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
13,361
|
|
|
$
|
15,736
|
|
Investment in Subsidiaries
|
|
|
497,623
|
|
|
|
386,389
|
|
Other assets
|
|
|
1,318
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
512,302
|
|
|
$
|
404,629
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Borrowings
|
|
$
|
12,500
|
|
|
$
|
19,500
|
|
Subordinated debentures
|
|
|
37,653
|
|
|
|
37,456
|
|
Other liabilities
|
|
|
5,071
|
|
|
|
6,818
|
|
Stockholders Equity
|
|
|
457,078
|
|
|
|
340,855
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
512,302
|
|
|
$
|
404,629
|
|
|
|
|
|
|
|
|
|
|
128
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Operating Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income from Bank
|
|
$
|
27,000
|
|
|
$
|
20,000
|
|
|
$
|
30,470
|
|
Investment income
|
|
|
|
|
|
|
33
|
|
|
|
15
|
|
Other income
|
|
|
540
|
|
|
|
42
|
|
|
|
24
|
|
Interest expense
|
|
|
(2,791
|
)
|
|
|
(2,376
|
)
|
|
|
(2,009
|
)
|
Employee benefit expense
|
|
|
(1,094
|
)
|
|
|
(1,158
|
)
|
|
|
(1,093
|
)
|
Other expense
|
|
|
(326
|
)
|
|
|
1,279
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Undistributed Income of Subsidiaries
|
|
|
23,329
|
|
|
|
17,820
|
|
|
|
28,317
|
|
Undistributed Income of Subsidiaries
|
|
|
8,804
|
|
|
|
5,938
|
|
|
|
(8,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Tax
|
|
|
32,133
|
|
|
|
23,758
|
|
|
|
20,149
|
|
Income Tax Benefit
|
|
|
984
|
|
|
|
154
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
33,117
|
|
|
|
23,912
|
|
|
|
20,549
|
|
Preferred stock dividend
|
|
|
|
|
|
|
(42
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Shareholders
|
|
$
|
33,117
|
|
|
$
|
23,870
|
|
|
$
|
20,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net Income
|
|
$
|
33,117
|
|
|
$
|
23,912
|
|
|
$
|
20,549
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments, net of taxes
|
|
|
913
|
|
|
|
6
|
|
|
|
127
|
|
Unrealized appreciation for the period on
held-to-maturity
securities, net of taxes
|
|
|
(166
|
)
|
|
|
(424
|
)
|
|
|
(357
|
)
|
Unrealized appreciation (depreciation) on
available-for-sale
securities, net of taxes
|
|
|
1,371
|
|
|
|
(3,310
|
)
|
|
|
(1,891
|
)
|
Less: reclassification adjustment for realized gains included in net income, net of taxes
|
|
|
(25
|
)
|
|
|
(1,193
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,093
|
|
|
|
(4,921
|
)
|
|
|
(2,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
35,210
|
|
|
$
|
18,991
|
|
|
$
|
18,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,117
|
|
|
$
|
23,912
|
|
|
$
|
20,549
|
|
Items not requiring (providing) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed net income of subsidiaries
|
|
|
(8,804
|
)
|
|
|
(5,938
|
)
|
|
|
8,168
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
325
|
|
|
|
284
|
|
|
|
288
|
|
Amortization of unearned compensation
|
|
|
135
|
|
|
|
324
|
|
|
|
355
|
|
Other assets
|
|
|
388
|
|
|
|
888
|
|
|
|
(634
|
)
|
Other liabilities
|
|
|
(1,675
|
)
|
|
|
(244
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
23,486
|
|
|
|
19,226
|
|
|
|
28,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Peoples
|
|
|
|
|
|
|
|
|
|
|
(19,365
|
)
|
Acquisition of Kosciusko
|
|
|
|
|
|
|
(6,741
|
)
|
|
|
|
|
Acquisition of LaPorte
|
|
|
|
|
|
|
(17,108
|
)
|
|
|
|
|
Acquisition of CNB
|
|
|
|
|
|
|
(5,296
|
)
|
|
|
|
|
Acquisition of Lafayette
|
|
|
(1,254
|
)
|
|
|
|
|
|
|
|
|
Acquisition of Wolverine
|
|
|
(7,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,942
|
)
|
|
|
(29,145
|
)
|
|
|
(19,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
|
|
|
|
|
|
|
(12,500
|
)
|
|
|
|
|
Net change in borrowings
|
|
|
(6,803
|
)
|
|
|
19,500
|
|
|
|
|
|
Dividends paid on preferred shares
|
|
|
|
|
|
|
(42
|
)
|
|
|
(125
|
)
|
Dividends paid on common shares
|
|
|
(11,720
|
)
|
|
|
(8,382
|
)
|
|
|
(6,216
|
)
|
Exercise of stock options
|
|
|
1,604
|
|
|
|
572
|
|
|
|
4,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(16,919
|
)
|
|
|
(852
|
)
|
|
|
(2,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
(2,375
|
)
|
|
|
(10,771
|
)
|
|
|
7,312
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
15,736
|
|
|
|
26,507
|
|
|
|
19,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
13,361
|
|
|
$
|
15,736
|
|
|
$
|
26,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
H
ORIZON
B
ANCORP
AND
S
UBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 28 Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly consolidated results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2017
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Interest income
|
|
$
|
28,834
|
|
|
$
|
30,805
|
|
|
$
|
32,070
|
|
|
$
|
36,774
|
|
Interest expense
|
|
|
3,266
|
|
|
|
3,607
|
|
|
|
4,191
|
|
|
|
5,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
25,568
|
|
|
|
27,198
|
|
|
|
27,879
|
|
|
|
31,455
|
|
Provision for loan losses
|
|
|
330
|
|
|
|
330
|
|
|
|
710
|
|
|
|
1,100
|
|
Gain on sale of securities
|
|
|
35
|
|
|
|
(3
|
)
|
|
|
6
|
|
|
|
|
|
Net income
|
|
|
8,224
|
|
|
|
9,072
|
|
|
|
8,171
|
|
|
|
7,650
|
|
Net income available to common shareholders
|
|
$
|
8,224
|
|
|
$
|
9,072
|
|
|
$
|
8,171
|
|
|
$
|
7,650
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.41
|
|
|
$
|
0.36
|
|
|
$
|
0.30
|
|
Diluted
|
|
|
0.37
|
|
|
|
0.41
|
|
|
|
0.36
|
|
|
|
0.30
|
|
|
|
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,175,526
|
|
|
|
22,176,465
|
|
|
|
22,580,160
|
|
|
|
25,140,800
|
|
Diluted
|
|
|
22,326,071
|
|
|
|
22,322,390
|
|
|
|
22,715,273
|
|
|
|
25,262,010
|
|
|
|
|
|
|
Three Months Ended 2016
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Interest income
|
|
$
|
23,528
|
|
|
$
|
24,650
|
|
|
$
|
28,962
|
|
|
$
|
29,390
|
|
Interest expense
|
|
|
3,754
|
|
|
|
3,781
|
|
|
|
4,552
|
|
|
|
8,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
19,774
|
|
|
|
20,869
|
|
|
|
24,410
|
|
|
|
20,940
|
|
Provision for loan losses
|
|
|
532
|
|
|
|
232
|
|
|
|
455
|
|
|
|
623
|
|
Gain on sale of securities
|
|
|
108
|
|
|
|
767
|
|
|
|
|
|
|
|
961
|
|
Net income
|
|
|
5,381
|
|
|
|
6,326
|
|
|
|
6,602
|
|
|
|
5,603
|
|
Net income available to common shareholders
|
|
$
|
5,339
|
|
|
$
|
6,326
|
|
|
$
|
6,602
|
|
|
$
|
5,603
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.35
|
|
|
$
|
0.31
|
|
|
$
|
0.25
|
|
Diluted
|
|
|
0.30
|
|
|
|
0.34
|
|
|
|
0.30
|
|
|
|
0.25
|
|
|
|
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,924,124
|
|
|
|
18,268,880
|
|
|
|
21,538,752
|
|
|
|
22,155,549
|
|
Diluted
|
|
|
18,012,726
|
|
|
|
18,364,167
|
|
|
|
21,651,953
|
|
|
|
22,283,722
|
|
131