SECURITIES AND EXCHANGE COMMISSION
FORM10-K(Mark One)
| | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31,
20172023
Commission file number
0-10792 0000-10792
(Exact name of registrant as specified in its charter) | | | | | | | | |
| Indiana | | 35-1562417 |
Indiana | | 35-1562417 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| |
515 Franklin Street, Michigan City | | 46360 |
(Address of principal executive officers) | | (Zip Code) |
515 Franklin Street, Michigan City, Indiana 46360
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:
219-879-0211Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock,stock, no par value | | HBNC | | The NASDAQ Stock Market, LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-knownwell–known seasoned issuer, as defined in Rule 405 of the Securities ActYes
☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange ActYes
☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T S–T (§232.405 of this chapter) during the preceding12preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to the Form10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-acceleratednon–accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company”company,” and “emerging growth company” in Rule
12b-212b–2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large Accelerated Filer | ☐ | | ☐ | Accelerated Filer | | ☒ |
| | | |
| Non-Accelerated Filer | ☐ | | ☐ (Do not check if a smaller reporting company) | Smaller Reporting Company | | ☐ |
| | | |
| Emerging Growth Company | ☐ | | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes–Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the registrant’s common stock held by
non-affiliates non–affiliates of the registrant, based on the
average bidlast sale price of such stock as of June 30,
2017,2023, the last
business day of the registrant’s most recently completed second fiscal quarter, was approximately
$554.7$441.4 million.
As of
February 27, 2018,March 14, 2024, the registrant had
25,560,81944,111,174 shares of common stock outstanding.
Documents Incorporated by Reference | | | | | | | | |
| Document | | Part of Form10-K 10–K into which portion of document is incorporated |
Portions of the Registrant’s Proxy Statement to be filed for its May 3, 20182, 2024 annual meeting of shareholders | | Part III |
HORIZON BANCORP
2017HORIZON BANCORP, INC.
2023 Annual Report on Form
10-KTable of Contents
10–K
TABLE OF CONTENTS | | | | | | | | |
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PART I | | | | |
Item 1
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Item 1A | | | | | 21 | |
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Item 2 1C | | | | | 32 | |
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| | | | | 139 | |
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| | | | | 139 | |
PART IIIItem 9C | | | | | | |
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| | | | | 140 | |
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| | | | | 141 | |
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HORIZON BANCORP, INC.
2023 Annual Report on
10-KFORWARD-LOOKING Form 10–K
FORWARD–LOOKING STATEMENTS
A cautionary note about forward-looking statements:In addition to historical information, information included and incorporated by reference in this Annual Report on Form10-K 10–K contains certain “forward-looking“forward–looking statements” within the meaning of the federal securities laws. Horizon Bancorp, Inc. (“Horizon”) intends such forward-lookingforward–looking statements to be covered by the safe harbor provisions for forward-lookingforward–looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of invoking those safe-harborsafe–harbor provisions. Forward-lookingForward–looking statements can include statements about estimated cost savings, plans and objectives for future operations and expectations about Horizon’s financial and business performance as well as economic and market conditions. They often can be identified by the use of words such as “expect,” “may,” “likely,” “could,” “should,” “will,” “intend,” “project,” “estimate,” “believe,” “anticipate,” “seek,” “plan,” “goals,” “strategy,” “future” and variations of such words and similar expressions. Horizon may include forward-looking statements in filings it makes with the Securities and Exchange Commission (“SEC”), such as this Form
10-K, 10–K, in other written materials, and in oral statements made by senior management to analysts, investors, representatives of the media and others. Horizon intends that these
forward-lookingforward–looking statements speak only as of the date they are made, and Horizon undertakes no obligation to update any
forward-lookingforward–looking statement to reflect events or circumstances after the date on which the
forward-lookingforward–looking statement is made or to reflect the occurrence of unanticipated events.
Although management believes that the expectations reflected in
forward-lookingforward–looking statements are reasonable, actual results may differ materially, whether adversely or positively, from the expectations of Horizon that are expressed or implied by any
forward-lookingforward–looking statement. Risks, uncertainties, and factors that could cause Horizon’s actual results to vary materially from those expressed or implied by any
forward-lookingforward–looking statement include but are not limited to the following:
economic•current financial conditions within the banking industry, including the effects of failures of other financial institutions, liquidity levels, and their impact on Horizonresponses by the Federal Reserve, Department of the Treasury, and its customers;the Federal Deposit Insurance Corporation to address these issues;
•any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry;
•changes in the level and volatility of interest rates, spreads on earning assets and interest-bearinginterest bearing liabilities, and interest rate sensitivity;
rising•the ability of the Company to remediate its material weaknesses in its internal control over financial reporting;
•continuing increases in inflation;
•loss of key Horizon personnel;
•economic conditions and their impact on Horizon and its customers, including local and global economic recovery from the pandemic;
•the increasing use of Bitcoin and other crypto currencies and/or stable coin and the possible impact these alternative currencies may have on deposit disintermediation and income derived from payment systems;
•the effect of interest rates on net interest rate margin and their impact on mortgage loan volumes and the outflow of deposits;
loss of key Horizon personnel;
•increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks;banks, which may have been accelerated by the COVID–19 pandemic;
•potential loss of fee income, including interchange fees, as new and emerging alternative payment platforms (e.g., Apple Pay or Bitcoin) take a greater market share of the payment systems;
•estimates of fair value of certain of Horizon’s assets and liabilities;
•volatility and disruption in financial markets;
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
•prepayment speeds, loan originations, credit losses and market values, collateral securing loans and other assets;
•sources of liquidity;
•potential risk of environmental liability related to lending and acquisition activities;
•changes in the competitive environment in Horizon’s market areas and among other financial service providers;
•legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its subsidiaries in particular, including the effects resulting from the reforms enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the adoption of regulations by regulatory bodies under the Dodd-Frank Act;particular;
the impact of whole or partial dismantling of provisions of the Dodd-Frank Act under the current federal administration;
the impact of the Basel III capital rules;
•changes in regulatory supervision and oversight, including monetary policy and capital requirements;
•changes in accounting policies or procedures as may be adopted and required by regulatory agencies;
HORIZON BANCORP
•litigation, regulatory enforcement, tax, and legal compliance risk and costs, as applicable generally and specifically to the financial and fiduciary (generally and as an ESOP fiduciary) environment, especially if materially different from the amount we expect to incur or have accrued for, and any disruptions caused by the same;
•the effects and costs of governmental investigations or related actions by third parties;
•rapid technological developments and changes;
•the risks presented by cyber terrorism and data security breaches;
•the rising costs of effective cybersecurity;
•containing costs and expenses;
the slowing or failure of economic recovery;
•the ability of the U.S. federal government to manage federal debt limits;
•the potential influence on the U.S. financial markets and economy from the effects of climate change and social justice initiatives;
•the potential influence on the U.S. financial markets and economy from material changes outside the U.S. or in overseas relations, including changes in U.S. trade relations related to imposition of tariffs, Brexit, and the phase out of the London Interbank Offered Rate (“LIBOR”) according to regulatory guidance;
•the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with acquired loans, difficulty integrating acquired operations and material differences in the actual financial results of such transactions compared with Horizon’s initial expectations, including the full realization of anticipated cost savings.savings; and
•acts of terrorism, war and global conflicts, such as the ongoing conflicts between Russia and Ukraine and Israel and Hamas, and the potential impact they may have on supply chains, the availability of commodities, commodity prices, inflationary pressure and the overall U.S. and global financial markets.
You are cautioned that actual results may differ materially from those contained in the
forward-lookingforward–looking statements. The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form
10-K 10–K lists some of the factors that could cause Horizon’s actual results to vary materially from those expressed in or implied by any
forward-lookingforward–looking statements. We direct your attention to this discussion.
Other risks and uncertainties that could affect Horizon’s future performance are set forth below in Item 1A, “Risk Factors.”
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
ITEM1. BUSINESS
The disclosures in this Item 1 are qualified by the disclosures below in Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other cautionary statements set forth elsewhere in this Annual Report on Form
10-K. 10–K.
Horizon Bancorp, Inc. (“Horizon” or the “Company”) is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in the Northernnorthern and Central regions ofcentral Indiana and the Southern, Centralsouthern and Great Lakes Bay regions ofcentral Michigan through its bank subsidiary, Horizon Bank (“Horizon Bank” or the “Bank”) and other affiliated entities and Horizon Risk Management, Inc.entities. Horizon operates as a single segment, which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. Horizon Bank (formerly known as “Horizon Bank, N.A.”) was founded in 1873 as a national association, and it remained a national association until its conversion to an Indiana commercial bank effective June 23, 2017. Prior to that date, Horizon was chartered as a national banking association founded in 1873. The Bank is a full-servicefull–service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services and other services incident to banking.
Over the last 20 years, Horizon
Risk Management, Inc. ishas expanded its geographic reach and experienced financial growth through a
captive insurance company incorporated in Nevadacombination of both organic expansion and
was formed as a wholly owned subsidiary of Horizon.On October 17, 2017, Horizon completed the acquisition of Wolverine Bancorp, Inc., a Maryland corporation (“Wolverine”)mergers and Horizon Bank’s 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 Bancorp’s ESOP loan receivable, the transaction has an implied valuation of approximately $93.8 million. As a result of the acquisition,acquisitions. Horizon’s initial operations focused on northwest Indiana, but since then, the Company was able to increase its deposit basehas developed a presence in new markets in southern and reduce transaction costs.central Michigan and northeastern and central Indiana. The Company also expects to reduce costsmost recent material expansions through economies of scale.
acquisitions are described below.
On September
1, 2017,17, 2021, Horizon
completed the acquisition of Lafayette Community Bancorp, an Indiana corporation (“Lafayette”) and the Bank’s 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,HORIZON BANCORP
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. 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 and to increase revenue in this vibrant growth market.
On February 3, 2017, Horizon completed the purchase and assumption of certain assets and liabilities of a single branch of First Farmers14 former TCF National Bank & Trust Company,(“TCF”) branches in Bargersville, Indiana.11 Michigan counties. Net cash of $11.0$618.2 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$212.0 million, fixed assets of $6.9 million, cash of $4.0 million and a 3.0%1.75% premium on deposits. Customer deposit balances were recorded at $14.8$846.4 million and a core deposit intangible of $452,000$1.6 million was recorded in the transaction, which will be amortized over ten10 years on a straight line basis. ThereGoodwill of $4.0 million was no goodwill generated in the transaction.
On November 7, 2016, Horizon completed the acquisition of CNB Bancorp, an Indiana corporation headquartered in Attica, Indiana (“CNB”) and the Bank’s 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. 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.
On July 18, 2016, Horizon completed the acquisition of LaPorte Bancorp, Inc., a Maryland corporation (“LaPorte Bancorp”) and the Bank’s 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 Bancorp’s common stock, subject to allocation provisions to assure that in aggregate, LaPorte Bancorp shareholders received total consideration that consisted of 65% stock and 35% cash. As a result of LaPorte Bancorp stockholder stock and cash elections and the related proration provisions of the merger agreement, Horizon issued 3,421,488 shares of its common stock in the merger. Based upon the July 18, 2016 closing price of $18.36 per share of Horizon common stock, less the consideration used to pay off LaPorte Bancorp’s ESOP loan receivable, the transaction had an implied valuation of approximately $98.6 million. 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.
On June 1, 2016, Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (“Kosciusko”) and the Bank’s 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 Kosciusko’s common stock, subject to allocation provisions to assure that in aggregate, Kosciusko shareholders received total consideration that consisted of 65% stock and 35% cash. Kosciusko shareholders owning fewer than 100 shares of common stock received $81.75 in cash for each common share. As a result of Kosciusko stockholder stock and cash elections and the related proration provisions of the merger agreement, Horizon issued 873,430 shares of its common stock in the merger. Based upon the June 1, 2016 closing price of $16.57 per share of Horizon common stock, the transaction had an implied valuation of approximately $23.0 million. 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.
On July 1, 2015, Horizon completed the acquisition of Peoples Bancorp, an Indiana corporation (“Peoples”) and the Bank’s 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
HORIZON BANCORP
shares of Horizon common stock issued to Peoples shareholders totaled 3,288,303. Horizon’s 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. 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.
On April 3, 2014 Horizon completed its acquisition of SCB Bancorp, Inc. (“Summit”) and the Bank’s acquisition of Summit Community Bank, through mergers effective as of that date. Under the final terms of the acquisition, the exchange ratio was 0.7356 shares of Horizon’s common stock and $5.15 in cash for each share of Summit common stock outstanding. Summit shares outstanding at the closing were 1,164,442, and the shares of Horizon common stock issued to Summit shareholders totaled 856,230. Horizon’s stock price was $14.82 per share at the close of business on April 3, 2014. Based upon these numbers, the total value of the consideration for the acquisition was $18.9 million (not including the retirement of Summit debt). 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.
The Bank maintains 6271 full service offices and 4 loan and deposit production offices. At December 31, 2017,2023, the Bank had total assets of $3.96$7.9 billion and total deposits of $2.88$5.7 billion. The Bank has wholly-ownedwholly–owned direct and indirect subsidiaries: Horizon Investments, Inc. (“Horizon Investments”), Horizon Properties, Inc. (“Horizon Properties”), Horizon Insurance Services, Inc. (“Horizon Insurance”), Horizon Grantor Trust The Loan Store, Inc. and Wolverine Commercial Holdings, LLC. Horizon Investments manages the investment portfolio of the Bank. Horizon Properties manages the real estate investment trust. Horizon Insurance is used by the Company’s Wealth Management to sell certain life insurance products.products through a third party. Horizon Grantor Trust holds title to certain company owned life insurance policies. The Loan Store, Inc. does not presently engage in any business activities. Wolverine Commercial Holdings, LLC currently holds one piece of property but does not otherwise engage in significant business activities. 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 acquisition of Alliance Financial Corporation in 2005, which formed Alliance Financial Statutory Trust I (“Alliance Trust”). The Company also assumed additional debentures as the result of the acquisition of American Trust & Savings Bank (“American”) in 2010, which formed Am Tru Statutory Trust I (“Am Tru Trust”). The Company also assumed additional debentures as the result of the Heartland transaction, which formed Heartland (IN) Statutory Trust II (“Heartland Trust”). In 2016, the Company also assumed additional debentures as the result of the LaPorte Bancorp transaction. LaPorte Bancorp acquired City Savings Financial Corporation in 2007. City Savings Financial Corporation issued the debentures and formed City Savings Statutory Trust I (“City Savings”) in 2003.
The Company also assumed additional debentures as the result of the Salin transaction, which formed Salin Statutory Trust I (“Salin Trust”) in 2003. See Note
1513 of the Consolidated Financial Statements included at Item 8 for further discussion regarding these previously consolidated entities that are now reported separately.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The business of Horizon is not seasonal to any material degree. No material part of Horizon’s business is dependent upon a single or small group of customers, the loss of any one or more of which would have a materially adverse effect on the business of Horizon. In
2017,2023, revenues from loans accounted for
69.5%75.4% of the total consolidated revenue, and revenues from investment securities accounted for
10.0%19.4% of total consolidated revenue.
The Company’s Internet address is www.horizonbank.com.
Information on or accessible through our website is not deemed to be incorporated into this Annual Report on Form 10–K. Website references in this Annual Report are merely textual references. The Company makes available, free of charge through the “About Us
-– Investor Relations – Documents
-– SEC Filings” section of its Internet website, copies of the Company’s Annual Report on Form
10-K, 10–K, Quarterly Reports on Form
10-Q, 10–Q, Current Reports on Form
8-K 8–K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as soon as reasonably practicable after those reports are filed with or furnished to the SEC.
Employees
The Companycontents of our website are not incorporated by reference into this Annual Report on Form 10–K or in any other report or document we file with the SEC, and its subsidiaries employed approximately 701 fullany references to our website are intended to be inactive textual references only.
Employees and part-timeHuman Capital Resources
We believe that the foundation of our success in the banking business lies with the quality of our employees,
asthe development of our employees' skills and career goals, and our ability to provide a comprehensive rewarding experience and work environment. We encourage and support the development of our employees and, wherever possible, strive to fill positions from within the organization. As of December 31,
2017.HORIZON BANCORP
2023, the Company employed 818 full–time and 58 part–time employees across all locations.
Horizon faces a high degree of competition in all of its primary markets. The Bank’s primary market consists of areas throughout the northern
northwestern, northeastern and central regions of the state of Indiana along with the southern
central and
Great Lakes Baycentral regions of the state of Michigan. The Bank’s primary market is further defined by the Indiana
counties of La Porte, Lake, Porter, St. Joseph, Elkhart, Kosciusko, LaGrange, DeKalb, Noble, Whitley, Allen, Fountain, Tippecanoe, Hamilton, Marion and
Johnson, as well as the Michigan counties
of Berrien, Cass, St. Joseph, Kalamazoo, Ingham, Midland, Saginaw and Oakland.identified below. The Bank competes with other commercial banks, savings and loan associations, consumer finance companies, credit unions and other
non-bank non–bank and digital financial service providers.
In addition, Financial Technology, or FinTech, start–ups are emerging in key banking areas. To a more moderate extent, the Bank competes with Chicago money center banks, mortgage banking companies, insurance companies, brokerage houses, other institutions engaged in money market financial services and certain government agencies.
Many non–financial institution competitors face fewer regulatory restrictions.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The following table estimates the number of financial institution competitors in Horizon’s primary market areas, along with Horizon’s competitive position in these areas, based on the June 30, 2023 Federal Deposit Insurance Corporation (“FDIC”) Deposit Market Share Report (available at www.fdic.gov ):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| INDIANA | | MICHIGAN |
| County | | Number of
Institutions | | Horizon
Market
Share | | County | | Number of
Institutions | | Horizon
Market
Share |
| Allen | | 20 | | 1.69 | % | | Arenac | | 4 | | 29.36 | % |
| Bartholomew | | 9 | | 5.84 | % | | Berrien | | 8 | | 12.15 | % |
| Carroll | | 6 | | 30.01 | % | | Charlevoix | | 4 | | 3.15 | % |
| Cass | | 6 | | 15.80 | % | | Crawford | | 2 | | 23.29 | % |
| DeKalb | | 11 | | 11.52 | % | | Ingham | | 18 | | 1.34 | % |
| Elkhart | | 16 | | 0.69 | % | | Kalamazoo | | 14 | | 2.12 | % |
| Fountain | | 4 | | 9.71 | % | | Kent | | 24 | | 0.49 | % |
| Grant | | 7 | | 8.01 | % | | Mecosta | | 8 | | 11.76 | % |
| Hamilton | | 27 | | 0.28 | % | | Midland | | 7 | | 18.90 | % |
| Howard | | 8 | | 4.37 | % | | Missaukee | | 2 | | 50.58 | % |
| Johnson | | 21 | | 10.61 | % | | Newaygo | | 6 | | 6.65 | % |
| Kosciusko | | 10 | | 4.56 | % | | Oakland | | 29 | | 0.20 | % |
| LaGrange | | 4 | | 3.42 | % | | Otsego | | 5 | | 17.34 | % |
| Lake | | 16 | | 1.78 | % | | Ottawa | | 15 | | 0.90 | % |
| LaPorte | | 8 | | 58.56 | % | | Roscommon | | 4 | | 12.78 | % |
| Marion | | 25 | | 0.77 | % | | Shiawassee | | 6 | | 15.40 | % |
| Noble | | 6 | | 4.95 | % | | St. Joseph | | 9 | | 4.68 | % |
| Porter | | 11 | | 8.55 | % | | Wexford | | 5 | | 24.04 | % |
| St. Joseph | | 14 | | 0.36 | % | | | | | | |
| Tippecanoe | | 16 | | 6.55 | % | | | | | | |
| Whitley | | 7 | | 6.38 | % | | | | | | |
At the time of the FDIC Deposit Market Share Report, Horizon was the largest of the eight bank and thrift institutions in La PorteLaPorte County, with a 54.31% market share, as of June 30, 2017. In July 2016, Horizon completed its acquisition of The LaPorte Savings Bank adding its market share and a net of four branches located in La Porte County. In Porter County, Horizon was the fifth largest of 13 institutions with a market share of 11.26%. As of June 30, 2017, Horizon held 1.53% of the market share in Lake County. Horizon entered Kosciusko County in June 2016 through its acquisition of Farmers State Bank. As of June 30, 2017, Horizon held a market share of 7.84% and was ranked fourth out of 10 institutions in Kosciusko County. Horizon entered the Indiana counties of Allen, DeKalb, LaGrange, Noble and Whitley in 2015 through its acquisition of Peoples FSB. As of June 30, 2017, Horizon was the largest of the six institutions in Carroll County, the third largest of the 21 institutions in Johnson County, the fourth largest of the 11 bank and thrift institutions in DeKalb County, with a market sharethe third largest of 23.09%, followed by market shares of 8.53%the six institutions in Whitley County; 7.48% in Noble County; 5.44% in LaGrange County; and less than 1% in Allen County. Horizon’s market share inCass County, the counties of St. Joseph and Elkhart were less than 1% at June 30, 2017. At June 30, 2017, Horizon held a 10.38% market share in Fountain County, which it entered in late 2016 through the acquisition of Central National Bank and Trust. On September 1, 2017, Horizon acquired Lafayette Community Bank and entered Tippecanoe County. Lafayette Community Bank was ranked fifth largest of the 16 institutions in Tippecanoe County, with a 5.69% market share. In 2012, Horizon entered Johnson County through its acquisition of Heartland Bank and ranked thirdthe fifth largest of the 1911 institutions with a market sharein Porter County.
In Michigan, Horizon was the second largest of
11.55%, as of June 30, 2017. Horizon’s market share of deposits was less than 1% eachthe seven bank and thrift institutions in
HamiltonMidland County and
Marion Counties.Horizon was the fourth largest of the 11eight bank and thrift institutions in Berrien County with an 8.46% market share, as of June 30, 2017. The branches acquired from Peoples FSB in Michigan are located in Cass, St. Joseph and Kalamazoo Counties where Horizon held market share of 6.02%, 5.25% and 1.38%, respectively, as of June 30, 2017. Horizon entered Ingham County through its acquisition of Summit Community Bank in 2014 and held 2.37% market share as of June 30, 2017. On October 17, 2017, Horizon acquired Wolverine Bank and entered Midland and Saginaw counties. At June 30, 2017, Wolverine Bank was second largest of seven institutions in Midland County with an 11.51% market share. Wolverine Bank also held a market share of 1.64% in Saginaw County. As of June 30, 2017, Horizon held less than 1% market share in Kent County, Michigan. (Source: FDIC Summary of Deposits Market Share Reports, available at www.fdic.gov.)
Regulation and Supervision
As a bank holding company and a financial holding company, the Company is subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “Federal Reserve”) as its primary federal regulator under the Bank Holding Company Act of 1956, as amended (“BHC Act”). The Company is required to file annual reports with the Federal Reserve and provide other information that the Federal Reserve may require. The Federal Reserve may also make examinations and inspections of the Company.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The Bank, as an
Indiana-charteredIndiana–state chartered bank, is subject to extensive regulation, supervision and examination by the Indiana Department of Financial Institutions (“DFI”) as its primary state regulator. Also, as to certain matters, the Bank is under the supervision of, and subject to examination by, the Federal Deposit Insurance Corporation (“FDIC”) because the FDIC provides deposit insurance to the Bank and is the Bank’s primary federal regulator.
HORIZON BANCORP
The supervision, regulation and examination of Horizon and the Bank by the bank regulatory agencies are intended primarily for the protection of depositors rather than for the benefit of Horizon’s shareholders.
Horizon is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act,
of 1934, as amended, as administered by the SEC. Horizon’s common stock is listed on the NASDAQ Global Select Market under the trading symbol “HBNC,” and Horizon is subject to the NASDAQ rules applicable to listed companies.
Included below is a brief summary of significant aspects of the laws, regulations and policies applicable to Horizon and the Bank. This summary is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are referenced and is not intended to be an exhaustive description of the statutes, regulations and policies applicable to the business of Horizon and the Bank. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and by federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to Horizon and the Bank could have a material effect on Horizon’s business, financial condition and results of operations.
Bank Holding Company Regulation
The Bank Holding Company
ActThe BHC(“BHC”) Act generally limits the business in which a bank holding company and its subsidiaries may engage to banking or managing or controlling banks and those activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. Those closely related activities currently can include such activities as consumer finance, mortgage banking and securities brokerage. Certain well-managedwell–managed and well-capitalizedwell–capitalized bank holding companies may elect to be treated as a “financial holding company” and, as a result, will be permitted to engage in a broader range of activities that are financial in nature and in activities that are determined to be incidental or complementary to activities that are financial in nature. Horizon has both qualified as, and elected to be, a financial holding company. Activities that are considered financial in nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments.
To commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the Community Reinvestment Act. The Federal Reserve Board has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve Board has reasonable grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.
Federal Reserve Board policy has historically required bank holding companies to act as a source of financial and managerial strength for their subsidiary banks. The
Dodd-FrankDodd–Frank Wall Street Reform and Consumer Protection Act
(the “Dodd–Frank Act”), which was signed into law on July 21, 2010, codified this policy. Under this requirement, Horizon is required to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances in which Horizon might not otherwise do so. For this purpose, “source of financial strength” means Horizon’s ability to provide financial assistance to the Bank in the event of the Bank’s financial distress.
The BHC Act, the Bank Merger Act (which is the popular name for Section 18(c) of the Federal Deposit Insurance Act) and other federal and state statutes regulate acquisitions of banks and bank holding companies. The BHC Act requires the prior approval of the Federal Reserve before a bank holding company may acquire more than a 5% voting interest or substantially all the assets of any bank or bank holding company. Banks must also seek prior approval from their primary state and federal regulators for any such acquisitions. In reviewing applications seeking approval for mergers and other acquisition transactions, the bank regulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
under the Community Reinvestment Act and the effectiveness of the subject organizations in combating money laundering activities.
HORIZON BANCORP
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” (as defined in FDICIA), with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency.
Bank holding companies, such as Horizon, and their insured depository institutions, such as the Bank, are subject to various regulatory capital requirements administered by the federal and state regulators. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-basedRisk–based capital ratios are determined by allocating assets and specifiedoff-balance off–balance sheet commitments to four risk weighted categories, with higher levels of capital being required for the categories perceived as representing greater risk. In 2019, the Federal bank regulatory agencies, working jointly, adopted final regulations designed to simplify capital requirements for community banks, allowing qualifying community banks to adopt a simple community bank leverage ratio. For an additional discussion of the Company’s regulatory capital ratios and regulatory requirements as of December 31, 2017,2023, please refer to the subsection titled“Capital Regulation”in this “Regulation and Supervision” section.
Branching and Acquisitions
Indiana law, the BHC Act and the Bank Merger Act restrict certain types of expansion by the Company and the Bank. The Company and the Bank may be required to apply for prior approval from (or give prior notice and an opportunity for review to) the Federal Reserve, the DFI and the FDIC, and or other regulatory agencies as a condition to the acquisition or establishment of new offices, or the acquisition by merger, purchase or otherwise of the stock, business or assets of other banks or companies.
Under current law, Indiana chartered banks may establish branches throughout the state and in other states, subject to certain limitations. Indiana law also authorizes an Indiana bank to establish one or more branches in states other than Indiana through interstate merger transactions and to establish one or more interstate branches through de novo branching or the acquisition of a branch. The
Dodd-FrankDodd–Frank Act permits the establishment of de novo branches in states where such branches could be opened by a state bank chartered by that state. The consent of the state in which the new branch will be opened is no longer required.
Deposit Insurance and Assessments
The Bank’s deposits are insured to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC. Generally, deposits are insured up to the statutory limit of
$250,000.$250,000 per separately insured depositor. Banks are subject to deposit insurance premiums and assessments to maintain the DIF.
A bank’s deposit insurance premium assessment rate depends on the capital category and supervisory category to which it is assigned. The FDIC has authority to raise or lower assessment rates on insured banks in order to achieve statutorily required reserve ratios in the DIF and to impose special additional assessments.
The
Dodd-FrankDodd–Frank Act resulted in significant changes to the FDIC’s deposit insurance system. Under the
Dodd-FrankDodd–Frank Act, the FDIC is authorized to set the reserve ratio for the DIF at no less than 1.35%
, and must achieve the 1.35% designated reserve ratio by September 30, 2020.. The FDIC must offset the effect of the increase in the minimum designated reserve ratio from 1.15% to 1.35% on insured depository institutions of less than $10 billion and may declare dividends to depository institutions when the reserve ratio at the end of a calendar quarter is at least
1.5%1.50%, although the FDIC has the authority to suspend or limit such permitted dividend declarations. The FDIC has set the long term goal for the designated reserve ratio of the deposit insurance fund at 2% of estimated insured deposits.
The FDIC adopted a plan to restore the DIF to the 1.35% ratio by September 30, 2028.
Also
as a consequence ofunder the
Dodd-FrankDodd–Frank Act, the assessment base for deposit insurance premiums
was changed in 2011 from adjusted domestic deposits tois the institution's average consolidated total assets minus average tangible equity. Tangible equity for this purpose means Tier 1 capital.
Effective April 1, 2011, theThe initial base assessment rates
were as follows:ranged from 5 to 35 basis points. For small Risk Category I banks, such as Horizon Bank, the rates range from5-9 basis points.
The rates for small institutions in Risk Categories II, III and IV are 14, 23 and 35 basis points, respectively.
For large institutions and large, highly complex institutions, the rate schedule rangesranged from 5 to 359 basis points.
HORIZON BANCORP
Adjustments are made to the initial assessment rates based on long-termlong–term unsecured debt, depository institution debt, and brokered deposits.
However, effective as
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Assessment rates
ranging(inclusive of possible adjustments) currently range from
32.5 to
3032 basis points
instead of
5 to 35 basis points.an institution's total assets minus average tangible equity. Assessment rates for all established smaller banks will be determined using financial measures and supervisory ratings derived from a statistical model estimating the probability of failure over three years. The
new pricing system eliminates risk categories, but establishes minimum and maximum assessment rates for established small banks based on a bank’s CAMELS composite ratings (i.e., capital adequacy, asset quality, management, earnings, liquidity and sensitivity).Horizon’s FDIC deposit insurance expense decreased $513,000 during 2017 compared to 2016 as a result ofmay increase or decrease the new assessment rate schedule effective July 1, 2016.
scale uniformly, except that no adjustment can deviate more than two basis points from the base rate without notice and comment rulemaking.
The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe and unsound condition to continue operations or has violated any applicable law, regulation, order or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital.
FDIC-insured institutions are also subject to the requirement to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the insolvent Federal Savings and Loan Insurance Corporation, an early predecessor of the DIF. These assessments will continue until the FICO bonds are repaid between 2017 and 2019. The FICO assessment rate was 0.56 basis points for each $100 of insured deposits for the first quarter of 2017 and reduced to 0.54 basis points for the remaining three quarters of 2017. The assessment rate for the first quarter of 2018 was further reduced to 0.46 basis points for each $100 of insured deposits.
Transactions with Affiliates and Insiders
Horizon and the Bank are subject to the Federal Reserve Act, which restricts financial transactions between banks, affiliated companies and their executive officers, including limits on credit transactions between these parties. The statute prescribes terms and conditions in order for bank affiliate transactions to be deemed to be consistent with safe and sound banking practices, and it also restricts the types of collateral security permitted in connection with a bank’s extension of credit to an affiliate. In general, extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, and subject to credit underwriting procedures that are at least as stringent as those prevailing at the time for comparable transactions with
non-affiliates, non–affiliates, and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.
The federal bank regulatory authorities have adopted
risk-basedrisk–based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and account for
off-balance off–balance sheet items. Generally, to satisfy the capital requirements, the Company must maintain capital sufficient to meet both
risk-basedrisk–based asset ratio tests and a leverage ratio test on a consolidated basis.
Risk-basedRisk–based capital ratios are determined by allocating assets and specified
off-balance off–balance sheet commitments into various
risk-weightedrisk–weighted categories, with higher weighting assigned to categories perceived as representing greater risk. A
risk-basedrisk–based ratio represents the applicable measure of capital divided by total
risk-weightedrisk–weighted assets. The leverage ratio is a measure of the Company’s core capital divided by total assets adjusted as specified in the guidelines.
The
Federal regulations require FDIC insured depository institutions to meet several minimum capital guidelines dividestandards; (i) a bank holding company’s or bank’s capital into two tiers. The first tier (“Tier I”) includes common equity Tier 1 capital to risk–based assets ratio of 4.5%; (ii) a Tier 1 capital to risk–based assets ratio of 6.0%; (iii) a total capital to risk–based assets ratio of 8%; and (iv) a 4% Tier 1 capital to total assets leverage ratio.
Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain
non-cumulative noncumulative perpetual preferred stock
and related surplus and minority interests in equity accounts of consolidated
subsidiaries, less goodwillsubsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and
certain other intangible assets (except mortgage servicing rightsTier 2 capital. Tier 2 capital is comprised of capital instruments and
purchased credit card relationships, subject to certain limitations). Supplementary capital (“Tier II”) includes, among other items,related surplus meeting specified requirements, and may include cumulative
perpetualpreferred stock and long-term
limited-lifeperpetual preferred stock, mandatory convertible securities,
certain hybridintermediate preferred stock, and subordinated debt. Also included in Tier 2 capital
instruments, term subordinated debt andis the allowance for loan and lease losses
subjectlimited to
certain limitations, less required deductions. The regulations also requirea maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the
maintenancetreatment of
a leverage ratio designedAccumulated Other Comprehensive Income (“AOCI”), up to
supplement45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the
risk-based capital guidelines.HORIZON BANCORP
This ratio is computed by dividing Tier I capital, net of all intangibles, by the quarterly average of total assets. Pursuant to the regulations, banks must maintain capital levels commensurate with the level of risk, including the volume and severity of problem loans to which they are exposed.
Effective January 1, 2015 (subject to certainphase-in provisions through January 1, 2019), the Company became subject to new federal banking rules implementing changes arising from Dodd-Frank and the U.S. Basel Committee on Banking Supervision, providing a capital framework for all U.S. banks and bank holding companies (“Basel III”). Basel III increased the minimum requirements for both the quantity and quality of capital held by Horizon and the Bank. The rules include a newAOCI opt-out have AOCI incorporated into common equity Tier 1 capital ratio(including unrealized gains and losses on available-for-sale-securities). Calculation of 4.5%all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, and residual interests) are multiplied by a minimum Tier 1risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital ratioare required for asset categories believed to present greater risk. For example, a risk
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
weight of 0% is assigned to cash and U.S. government securities, a total capital ratiorisk weight of 8.0% (unchanged from prior rules)50% is generally assigned to prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the minimum leverage ratioregulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 4.0%. The final rules also require a2.5% of common equity Tier 1 capital conservation buffer of 2.5% ofto risk-weighted assets which is in additionabove the amount necessary to the othermeet its minimum risk-based capital standardsrequirements.
The Federal Reserve and FDIC have authority to establish individual minimum capital requirements in
appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the
rule. Institutions that do not maintain the required capital conservation buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividendsparticular risks or
used for stock repurchases and on the payment of certain bonuses to senior executive management. The capital conservation buffer requirement is being phased in over three years beginning in 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5% and the total capital ratio to 10.5% on a fullyphased-in basis.Basel III also introduced other changes, including an increase in the capital required for certain categories of assets, including higher-risk construction real estate loans and certain exposures related to securitizations. Banking organizations with less than $15 billion in assets ascircumstances. As of December 31, 2010, such as2023, Horizon are permitted to retainnon-qualifying Tier 1 capital trust preferred securities issued prior to May 19, 2010, subject generally to a limit of 25% of Tier 1 capital.
Horizon’s management believes that, as of December 31, 2017, Horizon and the Bank would meetmet all applicable capital adequacy requirements under the Basel III capital rules on a fullyphased-in basis, as if all such requirements were currently in effect.
The following is a summary of Horizon’s and the Bank’s regulatory capital andrequirements.
Bank holding companies are generally subject to consolidated capital requirements
at December 31, 2017. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Required For Capital1 | | | | | | | |
| | | | | | | | | Required For Capital1 | | | Adequacy Purposes | | | Well Capitalized Under Prompt1 | |
| | | Actual | | | Adequacy Purposes | | | with Capital Buffer | | | Corrective Action Provisions | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
As of December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total capital1 (torisk-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 capital1 (torisk-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 capital1 (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 capital1 (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 | % |
1 | As defined by regulatory agencies |
established by the Federal Reserve. The Dodd-Frank Act also requiresrequired the Federal Reserve to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository subsidiaries, exceptsubsidiaries.
Section 201 of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “Economic Growth Act”) directed federal banking agencies to draft regulations establishing a new optional Community Bank Leverage Ratio (“CBLR”). The Economic Growth Act provides that the CBLR will apply to a “qualifying community bank” which the Economic Growth Act defines as a bank holding companies with consolidated assets of less than $1$10 billion and satisfying additional criteria designed to disqualify institutions with a higher risk profile. Under the Economic Growth Act, qualifying community banks that meet or exceed the CBLR and elect to follow the alternative regulatory capital structure will be deemed to have satisfied all generally applicable leverage capital and risk-based capital requirements and will be considered “well capitalized” under the FDIC prompt corrective action provisions. The Economic Growth Act directed the FRB, the FDIC, and the Office of the Comptroller of the Currency (“OCC”) to jointly determine a community bank leverage ratio percentage, not less than 8% nor more than 10%, that must be maintained to be deemed to have satisfied all generally applicable leverage capital and risk-based capital requirements and be considered well capitalized. The Economic Growth Act also directed agencies to establish procedures for dealing with a qualifying bank that subsequently falls below the new ratio.
The final regulation implementing Section 201 became effective on January 1, 2021 (the “Final Rule”). Under the Final Rule, to be eligible to use the CBLR framework, a banking organization must not be an advanced approaches organization and must have (i) a leverage ratio of greater than 9%; (ii) total consolidated assets of less than $10 billion; (iii) total off-balance sheet exposures of 25% or less of total consolidated assets; and (iv) total trading assets plus trading liabilities of 5% or less of total consolidated assets. A qualifying institution may opt in
assets are exempt from theseand out of the CBLR framework on its quarterly call report. An institution that ceases to meet any qualifying criteria is provided with a two-quarter grace period to either comply with the CBLR requirements or comply with the general capital regulations, including the risk-based capital requirements.
HORIZON BANCORP
Horizon’s management believes that, as of December 31, 2023, Horizon and the Bank met all applicable regulatory capital requirements currently in effect.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The following is a summary of Horizon’s and the Bank’s regulatory capital and capital requirements at December 31, 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Required for Capital Adequacy Purposes(1) | | Required For Capital Adequacy Purposes with Capital Buffer(1) | | Well Capitalized Under Prompt Corrective Action Provisions(1) |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
Total capital (to risk-weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | $ | 786,436 | | | 14.11 | % | | $ | 446,000 | | | 8.00 | % | | $ | 585,374 | | | 10.50 | % | | N/A | | N/A |
| Bank | 714,402 | | | 12.87 | % | | 444,147 | | | 8.00 | % | | 582,943 | | | 10.50 | % | | $ | 555,184 | | | 10.00 | % |
Tier 1 capital (to risk-weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 735,792 | | | 13.20 | % | | 334,500 | | | 6.00 | % | | 473,874 | | | 8.50 | % | | N/A | | N/A |
| Bank | 663,758 | | | 11.96 | % | | 333,111 | | | 6.00 | % | | 471,907 | | | 8.50 | % | | 444,147 | | | 8.00 | % |
Common equity tier 1 capital (to risk-weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 619,153 | | | 11.11 | % | | 250,875 | | | 4.50 | % | | 390,250 | | | 7.00 | % | | N/A | | N/A |
| Bank | 663,758 | | | 11.96 | % | | 249,833 | | | 4.50 | % | | 388,629 | | | 7.00 | % | | 360,870 | | | 6.50 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 735,792 | | | 9.36 | % | | 314,306 | | | 4.00 | % | | 314,306 | | | 4.00 | % | | N/A | | N/A |
| Bank | 663,758 | | | 8.41 | % | | 315,550 | | | 4.00 | % | | 315,550 | | | 4.00 | % | | 394,438 | | | 5.00 | % |
| | | | | | | | | | | | | | | |
(1) As defined by regulatory agencies |
Horizon is a legal entity separate and distinct from the Bank. The primary source of Horizon’s cash flow, including cash flow to pay dividends on its common stock, is the payment of dividends to Horizon by the Bank. Under Indiana law, the Bank may pay dividends of so much of its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered appropriate by the Bank’s Board of Directors. However, the Bank must obtain the approval of the DFI for the payment of a dividend if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income” means net income as calculated for call report purposes, less all dividends declared for the applicable period. The Bank is generally exempt from this DFI
pre-approval pre–approval process for dividends if (i) the Bank has been assigned a composite uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; (ii) the proposed dividend will not result in a Tier 1 leverage ratio below 7.5%; and (iii) the Bank is not subject to any corrective action, supervisory order, supervisory agreement or board approved operating agreement.
The FDIC has the authority to prohibit the Bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of the Bank.
In addition, under Federal Reserve supervisory policy, a bank holding company generally should not maintain its existing rate of cash dividends on common shares unless (i) the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends and (ii) the prospective rate of earnings retention appears consistent with the organization’s capital needs, assets, quality and overall financial condition. The Federal Reserve issued a letter dated February 24, 2009, to bank holding companies informing them that it expects bank holding companies to consult with it in advance of declaring dividends that could raise safety and soundness concerns (i.e., such as when the dividend is not supported by earnings or involves a material increase in the dividend rate) and in advance of repurchasing shares of common stock or preferred stock. Although the effect of this letter was revised in December 2015 to become inapplicable to certain large U.S. bank holding companies (generally, those with at least $50 billion in average total consolidated assets), the guidance remains effective for bank holding companies like Horizon.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Prompt Corrective Regulatory Action
Under FDICIA, federal banking regulatory authorities are required to take regulatory enforcement actions known as “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. The extent of the regulators’ powers depends on whether the institution in question is categorized as “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” as defined by regulation.
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0%, or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the submission of a capital restoration plan; (ii) placing limits on asset growth and restrictions on activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions with affiliates; (v) restricting the interest rate the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, for critically undercapitalized institutions, appointing a receiver for the institution.
New prompt corrective action requirements that became effective January 1, 2015, increased the capital level requirements necessary to qualify as “well capitalized.”
At December 31,
2017,2023, the Bank was categorized as “well capitalized,” meaning that the Bank’s total
risk-basedrisk–based capital ratio exceeded 10%, the Bank’s Tier 1
risk-basedrisk–based capital ratio exceeded 8%, the Bank’s common equity Tier 1
risk-basedrisk–based capital ratio exceeded 6.5%, the Bank’s leverage ratio exceeded 5%, and the Bank was not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure.
HORIZON BANCORP
Banking regulators may change these capital requirements from time to time, depending on the economic outlook generally and the outlook for the banking industry. The Company is unable to predict whether and when any such further capital requirements would be imposed and, if so, to what levels and on what schedule.
Anti-Money
Anti–Money Laundering
–— The USA Patriot Act and the Bank Secrecy Act
Horizon is subject to the provisions of the USA PATRIOT Act of 2001, which contains
anti-moneyanti–money laundering and financial transparency laws and requires financial institutions to implement additional policies and procedures to address money laundering, suspicious activities and currency transaction reporting, and currency crimes. The regulations promulgated under the USA PATRIOT Act of 2001 require financial institutions such as the Bank to adopt controls to detect, prevent and report money laundering and terrorist financing and to verify the identities of their customers.
The Bank Secrecy Act of 1970, which was amended to incorporate certain provisions of the USA PATRIOT Act of 2001, also focuses on combating money laundering and terrorist financing and requires financial institutions to develop policies, procedures and practices to prevent, detect and deter these activities, including customer identification programs and procedures for filing suspicious activity reports.
Banks have until May 2018 at the latest to update their policies with respect to new customer due diligence regulations adopted by the U.S. Department of the Treasury under the Bank Secrecy Act. Horizon Bank has created a project team led by the Bank’s compliance officer to work on and implement the Fifth Pillar of the Bank Secrecy Act (“BSA”) which focuses on identifying beneficial ownership. The BSA officer is working on policies and procedures with a target date for full implementation on, or before, May 11, 2018. To prepare for the implementation of this enhanced due diligence, the BSA Officer and BSA Analysts have attendedin-person training sessions and webinars. The implementation of the new policy and procedures will include training of all Bank personnel.Failure to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations relating thereto, could have serious legal and reputational consequences for Horizon and the Bank.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Federal Securities Law and NASDAQ
The shares of common stock of Horizon have been registered with the SEC under the
Securities Exchange
Act (the “1934 Act”).Act. Horizon is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the
1934Exchange Act and the rules of the SEC promulgated thereunder.
Shares of common stock held by persons who are affiliates of Horizon may not be resold without registration unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of
1933.1933, as amended. If Horizon meets the current public information requirements under Rule 144, each affiliate of Horizon who complies with the other conditions of Rule 144 (including those that require the affiliate’s sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) 1% of the outstanding shares of Horizon or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks.
Under the
Dodd-FrankDodd–Frank Act, Horizon is required to provide its shareholders an opportunity to vote on the executive compensation payable to its named executive officers and on golden parachute payments in connection with mergers and acquisitions. These votes are
non-binding and advisory. At least once every six years, Horizon must also permit shareholders to determine, on an advisory basis, whether such votes on executive compensation (called “say on pay” votes) should be held every one, two, or three years. In
both 2012
and 2018, Horizon’s shareholders voted in favor of presenting the executive compensation “say on pay” question every
year, and so the question has been included and voted on every year since then. Because it has been six years since the last vote deciding the frequency of the “say on pay” question, Horizon will ask shareholders to vote on frequency at the annual meeting to be held in 2018.year.
Shares of common stock of Horizon are listed on The NASDAQ Global Select Market under the trading symbol “HBNC,” and Horizon is subject to the rules of NASDAQ for listed companies.
HORIZON BANCORP
Sarbanes-Oxley
Sarbanes–Oxley Act of 2002
Horizon is subject to the
Sarbanes-OxleySarbanes–Oxley Act of 2002 (the
“Sarbanes-Oxley“Sarbanes–Oxley Act”), which revised the laws affecting corporate governance, accounting obligations and corporate reporting. The
Sarbanes-OxleySarbanes–Oxley Act applies to all companies with equity or debt securities registered under the 1934 Act. In particular, the
Sarbanes-OxleySarbanes–Oxley Act established: (i) new requirements for audit committees, including independence, expertise and responsibilities;
(ii)(i) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company;
(iii)(ii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased civil and criminal penalties for violation of the securities laws.
Pursuant to the final rules adopted by the SEC to implement Section 404 of the
Sarbanes-OxleySarbanes–Oxley Act, Horizon is required to include in each Form
10-K 10–K it files a report of management on Horizon’s internal control over financial reporting. The internal control report must include a statement of management’s responsibility for establishing and maintaining adequate control over financial reporting of Horizon, identify the framework used by management to evaluate the effectiveness of Horizon’s internal control over financial reporting and provide management’s assessment of the effectiveness of Horizon’s internal control over financial reporting. This Annual Report on Form
10-K 10–K also includes an attestation report issued by Horizon’s registered public accounting firm on Horizon’s internal control over financial reporting.
For fiscal years prior to the year ended December 31, 2012, Horizon was not an “accelerated filer” and, therefore, Horizon was exempt from the attestation report requirements.
Financial System Reform
–— The
Dodd-FrankDodd–Frank Act,
the CFPB and the
CFPB2018 Regulatory Relief Act
The
Dodd-FrankDodd–Frank Act, which was signed into law in 2010, significantly changed the regulation of financial institutions and the financial services industry. The
Dodd-FrankDodd–Frank Act includes provisions affecting large and small financial institutions alike, including several provisions that have profoundly affected how community banks, thrifts, and small bank and thrift holding companies are regulated. Among other things, these provisions eliminated the Office of Thrift Supervision and transferred its functions to the other federal banking agencies, relaxed rules regarding interstate branching, allowed financial institutions to pay interest on business checking accounts, changed the scope of federal deposit insurance coverage and imposed new capital requirements on bank and thrift holding companies.
The Dodd-FrankDodd–Frank Act created the Consumer Financial Protection Bureau (“CFPB”) as an independent bureau within the Federal Reserve System with broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the Consumer Financial
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Privacy provisions of the
Gramm-Leach-BlileyGramm–Leach–Bliley Act and certain other statutes. In July 2011, many of the consumer financial protection functions formerly assigned to the federal banking and other designated agencies were transferred to the CFBP. The CFBP has a large budget and staff, and has the authority to implement regulations under federal consumer protection laws and enforce those laws against financial institutions. The CFPB has examination and primary enforcement authority over depository institutions with $10 billion or more in assets. Smaller institutions
(like Horizon) are subject to rules promulgated by the CFPB but continue to be examined and supervised by the federal banking regulators for consumer compliance purposes. The CFPB also has authority to prevent unfair, deceptive or abusive practices in connection with offering consumer financial products. Additionally, the CFPB is authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities.
The CFPB has indicated that mortgage lending is an area of supervisory
focus and that it will concentrate its examination and rulemaking efforts on the variety of mortgage-related topics required under the Dodd-Frank Act, including minimum standards for the origination of residential mortgages.focus. The CFPB has published several final regulations impacting the mortgage industry, including rules related to
ability-to-repay, ability–to–repay, mortgage servicing, escrow accounts, and mortgage loan originator compensation. The
ability-to-repay ability–to–repay rule makes lenders liable if they fail to assess a borrower’s ability to repay under a prescribed test, but also creates a safe harbor for so called “qualified mortgages.” Failure to comply with the
ability-to-repay ability–to–repay rule may result in possible CFPB enforcement action and special statutory damages plus actual, class action, and attorneys’ fees damages, all of which a borrower may claim in defense of a foreclosure action at any time.
HORIZON BANCORP
The CFPB also amended Regulation C to implement amendments to the Home Mortgage Disclosure Act made by the
Dodd-FrankDodd–Frank Act. The amendment added a significant number of new information collecting and reporting requirements for financial institutions, most of which became effective as of January 1, 2018.
The Dodd-FrankDodd–Frank Act contains numerous other provisions affecting financial institutions of all types, many of which may have an impact on the operating environment of Horizon in substantial and unpredictable ways. Horizon has incurred higher operating costs in complying with the Dodd-FrankDodd–Frank Act, and expects these higher costs to continue for the foreseeable future.
Rules promulgated in 2019 pursuant to the Regulatory Relief Act have simplified the regulatory capital calculation and have established a “Community Bank Leverage Ratio” to replace the leverage and risk–based regulatory capital ratios for those banks choosing to adopt it. In addition, the Regulatory Relief Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high–risk commercial real estate loans.
Horizon’s management
continueswill continue to review the status of the rules and regulations adopted pursuant to the
Dodd-FrankDodd–Frank Act and
the Regulatory Relief Act, particularly the Community Bank Leverage Ratio framework, and to assess their probable impact on the business, financial condition and results of operations of Horizon.
Horizon’s management will also continue At this point, Horizon Bank has not elected to monitor Congressional action to pursue President Trump’s announced plans to repeal or modifyopt into the Dodd-Frank Act. In 2017, the House of Representatives successfully passed a bill to dismantle the Dodd-Frank Act, but no Senate action resulted other than action to repeal a controversial arbitration rule under the Dodd-Frank Act.
Community Bank Leverage Ratio framework.
Federal Home Loan Bank (“FHLB”) System
The Bank is a member of the FHLB of Indianapolis, which is one of twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. The FHLB is funded primarily from funds deposited by banks and savings associations and proceeds derived from the sale of consolidated obligations of the FHLB system. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB. All FHLB advances must be fully secured by sufficient collateral as determined by the FHLB. The Federal Housing Finance Board (“FHFB”), an independent agency, controls the FHLB System, including the FHLB of Indianapolis. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral to 30% of a member’s capital and limiting total advances to a member. Interest rates charged for advances vary depending upon maturity, the cost of funds to the FHLB of Indianapolis and the purpose of the borrowing.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low and moderate income housing projects.
As a member of the FHLB, the Bank is required to purchase and maintain stock in the FHLB of Indianapolis in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts, or similar obligations at the beginning of each year. At December 31,
2017,2023, the Bank’s investment in stock of the FHLB of Indianapolis was
$18.0 million.$34.5 million which exceeds the required stock purchase minimum for Horizon. For the year ended December 31,
2017,2023, dividends paid by the FHLB of Indianapolis to the Bank on the FHLB stock totaled approximately
$668,000,$2.3 million, for an annualized rate paid in dividends of
4.3%6.5%.
Limitations on Rates Paid for Deposits; Restrictions on Brokered Deposits
FDIC regulations restrict the interest rates that less than
well-capitalizedwell–capitalized insured depository institutions may pay on deposits and also restrict the ability of such institutions to accept brokered deposits. These regulations permit a “well capitalized” depository institution to accept, renew or roll over brokered deposits without restriction, and an “adequately capitalized” depository institution to accept, renew or roll over brokered deposits with a waiver from the FDIC (subject to certain restrictions on payments of rates). The regulations prohibit an “undercapitalized” depository institution from accepting, renewing or rolling over brokered deposits. These regulations contemplate that the definitions of “well capitalized,” “adequately capitalized” and “undercapitalized” will be the same as the definitions adopted by the agencies to implement the prompt corrective action provisions of FDICIA. The Bank is a
well-capitalizedwell–capitalized institution, and management does not believe that these regulations have a materially adverse effect on the Bank’s current operations.
HORIZON BANCORP
Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”), the Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC in connection with its examination of the Bank, to assess its record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by the Bank. For example, the regulations specify that a bank’s CRA performance will be considered in its expansion proposals (e.g., branching and acquisitions of other financial institutions) and may be the basis for approving, denying or conditioning the approval of an application. As of the date of its most recent regulatory examination, the Bank was rated “satisfactory” with respect to its CRA compliance.
Gramm-Leach-Bliley
Gramm–Leach–Bliley Act,
Financial Privacy
The
Gramm-Leach-BlileyGramm–Leach–Bliley Act adopted in 1999 (“
Gramm-Leach”Gramm–Leach”) was intended to modernize the banking industry by removing barriers to affiliation among banks, insurance companies, the securities industry and other financial service providers.
Gramm-LeachGramm–Leach was responsible for establishing a distinct type of bank holding company, known as a financial holding company, which is allowed to engage in an expanded range of financial services, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. As previously discussed, Horizon has qualified as, and elected to become, a financial holding company under the
Gramm-LeachGramm–Leach amendments to the BHC Act.
Under
Gramm-Leach,Gramm–Leach, federal banking regulators adopted rules limiting the ability of banks and other financial institutions to disclose
non-public non–public information about consumers to
non-affiliated non–affiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to
non-affiliated non–affiliated third parties. The privacy provisions of
Gramm-LeachGramm–Leach affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
As a financial institution, the Bank handles a significant amount of sensitive data, including personal information. The Company does not disclose any
non-public non–public information about any current or former customers to anyone except as permitted by law and subject to contractual confidentiality provisions which restrict the release and use of such information.
We are also subject to guidance from the Federal Financial Institutions Examination Council (“FFIEC”), an interagency body for five federal banking regulators, with respect to such matters as data privacy, disaster recovery and cybersecurity.
Horizon continues to monitor existing and new privacy and data security laws for their impact on Horizon’s business operations and its customers, including the applicability and effect of laws such as the European Union’s comprehensive 2018 General Data Privacy Regulation and the California Consumer Privacy Act that went into effect on January 1, 2020.
Interchange Fees for Debit Cards
Under the
Dodd-FrankDodd–Frank Act, interchange fees for bank card transactions must be reasonable and proportional to the issuer’s incremental cost incurred with respect to the transaction plus certain fraud related costs. Interchange fees are transaction fees between banks for each bank card transaction, designed to reimburse the card-issuing bank for the costs of handling and credit risk inherent in a bank credit or debit card transaction. Although institutions with total assets of less than $10 billion, like the Bank, are exempt from this requirement,
competitiveregulatory pressures
are likely tomay, over time, require smaller depository institutions to reduce fees with respect to these bank card transactions.
In addition to the matters discussed above, the Bank is subject to additional regulation of its activities, including a variety of consumer protection regulations affecting its lending, deposit and debt collection activities and regulations affecting secondary mortgage market activities. Both federal and state law extensively regulate various aspects of the banking business, such as reserve requirements,
truth-in-lending and
truth-in-savings disclosures, equal credit opportunity, fair credit reporting, trading in securities and other aspects of banking operations.
HORIZON BANCORP
Effect of Governmental Monetary Policies
The Bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.
Additional legislative and administrative actions affecting the banking industry may be considered by the United States Congress, state legislatures and various regulatory
agencies, including those referred to above such as the potential dismantling of the Dodd-Frank Act.agencies. Horizon cannot predict with certainty whether such legislative or administrative action will be enacted or the extent to which the banking industry in general or Horizon and its affiliates in particular will be affected.
BANK HOLDING COMPANY STATISTICAL DISCLOSURES
I. | DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL |
Information required by this section of Securities Act Industry Guide 3 is presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as set forth in Item 7 below, herein incorporated by reference.
A. | The following is a schedule of the amortized cost and fair value of investment securities available for sale and held to maturity. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | | December 31, 2016 | | | December 31, 2015 | |
| | | Amortized | | | Fair | | | Amortized | | | Fair | | | Amortized | | | Fair | |
| (dollars in thousands) | | Cost | | | Value | | | Cost | | | Value | | | Cost | | | Value | |
Available for sale | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury and federal agencies | | $ | 19,277 | | | $ | 19,052 | | | $ | 8,051 | | | $ | 7,989 | | | $ | 5,940 | | | $ | 5,926 | |
State and municipal | | | 148,045 | | | | 149,564 | | | | 117,327 | | | | 116,592 | | | | 73,829 | | | | 75,095 | |
Federal agency collateralized mtg. obligations | | | 132,871 | | | | 130,365 | | | | 139,040 | | | | 137,195 | | | | 157,291 | | | | 156,203 | |
Federal agency mortgage-backed pools | | | 211,487 | | | | 208,657 | | | | 180,183 | | | | 176,726 | | | | 206,970 | | | | 207,704 | |
Private labeled mortgage-backed pools | | | 1,650 | | | | 1,642 | | | | — | | | | — | | | | — | | | | — | |
Corporate notes | | | 272 | | | | 385 | | | | 1,238 | | | | 1,329 | | | | 32 | | | | 54 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total available for sale | | | 513,602 | | | | 509,665 | | | | 445,839 | | | | 439,831 | | | | 444,062 | | | | 444,982 | |
Total held to maturity | | | 200,448 | | | | 201,085 | | | | 193,194 | | | | 194,086 | | | | 187,629 | | | | 193,703 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total investment securities | | $ | 714,050 | | | $ | 710,750 | | | $ | 639,033 | | | $ | 633,917 | | | $ | 631,691 | | | $ | 638,685 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
HORIZON BANCORP
B. | The following is a schedule of maturities of each category of available for sale andheld-to-maturity debt securities and the related weighted-average yield of such securities as of December 31, 2017: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | After One Year | | | After Five Years | | | | | | | |
| | | One Year or Less | | | Through Five Years | | | Through Ten Years | | | After Ten Years | |
| (dollars in thousands) | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | |
Available for sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury and federal agencies(1) | | $ | 1,492 | | | | 1.21 | % | | $ | 17,560 | | | | 1.88 | % | | $ | — | | | | 0.00 | % | | $ | — | | | | 0.00 | % |
State and municipal | | | 11,834 | | | | 2.67 | % | | | 22,633 | | | | 3.04 | % | | | 51,156 | | | | 4.14 | % | | | 63,941 | | | | 4.11 | % |
Federal agency collateralized mtg. obligations(2) | | | 65 | | | | 3.99 | % | | | 6,277 | | | | 2.96 | % | | | 38,417 | | | | 2.69 | % | | | 85,606 | | | | 2.70 | % |
Federal agency mortgage-backed pools(2) | | | 30 | | | | 4.43 | % | | | 8,851 | | | | 2.74 | % | | | 44,203 | | | | 2.53 | % | | | 155,573 | | | | 2.67 | % |
Private labeled mortgage-backed pools(2) | | | — | | | | 0.00 | % | | | — | | | | 0.00 | % | | | 1,642 | | | | 2.53 | % | | | — | | | | 0.00 | % |
Corporate notes | | | — | | | | 0.00 | % | | | — | | | | 0.00 | % | | | — | | | | 0.00 | % | | | 385 | | | | 0.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total available for sale | | $ | 13,421 | | | | 2.52 | % | | $ | 55,321 | | | | 2.61 | % | | $ | 135,418 | | | | 3.15 | % | | $ | 305,505 | | | | 2.98 | % |
Total held to maturity | | $ | 1,934 | | | | 1.86 | % | | $ | 50,936 | | | | 3.59 | % | | $ | 93,279 | | | | 3.86 | % | | $ | 54,936 | | | | 3.87 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment securities | | $ | 15,355 | | | | 2.43 | % | | $ | 106,257 | | | | 3.08 | % | | $ | 228,697 | | | | 3.44 | % | | $ | 360,441 | | | | 3.11 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Fair value is based on contractual maturity or call date where a call option exists |
(2) | Maturity based upon final maturity date |
The weighted-average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount. Yields are not presented on atax-equivalent basis.
Excluding those holdings of the investment portfolio in Treasury securities and other agencies and corporations of the U.S. Government, there were no investments in securities of any one issuer that exceeded 10% of the consolidated stockholders’ equity of Horizon at December 31, 2017.
A. | Types of Loans - Total loans on the balance sheet are comprised of the following classifications for the years indicated. |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | |
| (dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Commercial | | $ | 1,617,870 | | | $ | 1,069,956 | | | $ | 804,995 | | | $ | 674,314 | | | $ | 505,189 | |
Real estate | | | 606,760 | | | | 531,874 | | | | 437,144 | | | | 254,625 | | | | 185,958 | |
Mortgage warehouse | | | 94,508 | | | | 135,727 | | | | 144,692 | | | | 129,156 | | | | 98,156 | |
Consumer | | | 512,857 | | | | 398,429 | | | | 362,300 | | | | 320,459 | | | | 279,525 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2,831,995 | | | | 2,135,986 | | | | 1,749,131 | | | | 1,378,554 | | | | 1,068,828 | |
Allowance for loan losses | | | (16,394 | ) | | | (14,837 | ) | | | (14,534 | ) | | | (16,501 | ) | | | (15,992 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 2,815,601 | | | $ | 2,121,149 | | | $ | 1,734,597 | | | $ | 1,362,053 | | | $ | 1,052,836 | |
| | | | | | | | | | | | | | | | | | | | |
B. | Maturities and Sensitivities of Loans to Changes in Interest Rates - The following is a schedule of maturities and sensitivities of loans to changes in interest rates, excluding real estate mortgage, mortgage warehouse and consumer loans, as of December 31, 2017: |
| | | | | | | | | | | | | | | | |
| (dollars in thousands) | | One Year | | | One Through | | | After Five | | | | |
| Maturing or repricing | | or Less | | | Five Years | | | Years | | | Total | |
Commercial, financial, agricultural and commercialtax-exempt loans | | $ | 995,899 | | | $ | 574,467 | | | $ | 47,504 | | | $ | 1,617,870 | |
HORIZON BANCORP
The following is a schedule of fixed-rate and variable-rate commercial, financial, agricultural and commercialtax-exempt loans due after one year. (Variable-rate loans are those loans with floating or adjustable interest rates.)
| | | | | | | | |
| | | Fixed | | | Variable | |
| (dollars in thousands) | | Rate | | | Rate | |
Total commercial, financial, agricultural and commercialtax-exempt loans due after one year | | $ | 415,854 | | | $ | 206,117 | |
Non-accrual, Past Due and Restructured Loans - The following schedule summarizesnon-accrual, past due and restructured loans.
| | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | |
| (dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Non-performing loans | | | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | |
More than 90 days past due | | $ | — | | | $ | 183 | | | $ | — | | | $ | — | | | $ | 45 | |
Non-accrual | | | 6,689 | | | | 2,249 | | | | 5,030 | | | | 10,024 | | | | 4,014 | |
Trouble debt restructuring - accruing | | | 1 | | | | — | | | | 60 | | | | 610 | | | | 1,296 | |
Trouble debt restructuring -non-accrual | | | 451 | | | | — | | | | 1,915 | | | | 1,221 | | | | 2,116 | |
Real estate | | | | | | | | | | | | | | | | | | | | |
More than 90 days past due | | | — | | | | — | | | | 1 | | | | 40 | | | | 2 | |
Non-accrual | | | 3,693 | | | | 2,959 | | | | 4,354 | | | | 2,297 | | | | 2,459 | |
Trouble debt restructuring - accruing | | | 1,672 | | | | 1,254 | | | | 808 | | | | 2,526 | | | | 2,686 | |
Trouble debt restructuring -non-accrual | | | 351 | | | | 809 | | | | 1,074 | | | | 1,031 | | | | 999 | |
Mortgage warehouse | | | | | | | | | | | | | | | | | | | | |
More than 90 days past due | | | — | | | | — | | | | — | | | | — | | | | — | |
Non-accrual | | | — | | | | — | | | | — | | | | — | | | | — | |
Trouble debt restructuring - accruing | | | — | | | | — | | | | — | | | | — | | | | — | |
Trouble debt restructuring -non-accrual | | | — | | | | — | | | | — | | | | — | | | | — | |
Consumer | | | | | | | | | | | | | | | | | | | | |
More than 90 days past due | | | 167 | | | | 58 | | | | 27 | | | | 75 | | | | 2 | |
Non-accrual | | | 2,894 | | | | 2,728 | | | | 2,878 | | | | 2,991 | | | | 3,275 | |
Trouble debt restructuring - accruing | | | 285 | | | | 238 | | | | 350 | | | | 1,236 | | | | 1,072 | |
Trouble debt restructuring -non-accrual | | | 211 | | | | 205 | | | | 183 | | | | 391 | | | | 311 | |
| | | | | | | | | | | | | | | | | | | | |
Totalnon-performing loans | | | 16,414 | | | | 10,683 | | | | 16,680 | | | | 22,442 | | | | 18,277 | |
| | | | | | | | | | | | | | | | | | | | |
Other real estate owned and repossessed collateral | | | | | | | | | | | | | | | | | |
Commercial | | | 578 | | | | 542 | | | | 161 | | | | 411 | | | | 830 | |
Real estate | | | 200 | | | | 2,648 | | | | 3,046 | | | | 636 | | | | 1,277 | |
Mortgage warehouse | | | — | | | | — | | | | — | | | | — | | | | — | |
Consumer | | | 60 | | | | 26 | | | | — | | | | 154 | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | |
Total other real estate owned and repossessed collateral | | | 838 | | | | 3,216 | | | | 3,207 | | | | 1,201 | | | | 2,121 | |
| | | | | | | | | | | | | | | | | | | | |
Totalnon-performing assets | | $ | 17,252 | | | $ | 13,899 | | | $ | 19,887 | | | $ | 23,643 | | | $ | 20,398 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| (dollars in thousands) | | | |
Gross interest income that would have been recorded onnon-accrual loans outstanding as of December 31, 2017, in the period if the loans had been current, in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period. | | $ | 870 | |
Interest income actually recorded onnon-accrual loans outstanding as of December 31, 2017, and included in net income for the period. | | | 238 | |
| | | | |
Interest income not recognized during the period onnon-accrual loans outstanding as of December 31, 2017. | | $ | 632 | |
| | | | |
HORIZON BANCORP
Discussion ofNon-Accrual Policy
| 1. | From time to time, the Bank obtains information which may lead management to believe that the collection of payments may be doubtful on a particular loan. In recognition of such, it is management’s policy to convert the loan from an “earning asset” to anon-accruing loan. Further, it is management’s policy to place a commercial loan on anon-accrual status when delinquent in excess of 90 days or it has had the accrual of interest discontinued by management. The officer responsible for the loan, the Chief Credit Officer and the senior commercial loan workout officer must review all loans placed onnon-accrual status. |
| 2. | Potential Problem Loans: |
Impaired andnon-accrual loans for which the discounted cash flows or collateral value exceeded the carrying value of the loan totaled $16.4 million and $10.7 million at December 31, 2017 and 2016. The allowance for impaired andnon-accrual loans included in the Bank’s allowance for loan losses totaled $184,000 and $4,000 at those respective dates. The average balance of impaired loans during 2017 and 2016 was $3.8 million and $2.9 million.
None.
As of December 31, 2017, there are no significant concentrations of loans exceeding 10% of total loans. See Item III A above for a listing of the types of loans by concentration.
D. | Other Interest-Bearing Assets |
There are no other interest-bearing assets as of December 31, 2017, which would be required to be disclosed under Item III C.1 or 2 if such assets were loans.
IV. | SUMMARY OF LOAN LOSS EXPERIENCE |
A. | The following is an analysis of the activity in the allowance for loan losses account: |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | |
| (dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Loans outstanding at the end of the period(1) | | $ | 2,831,995 | | | $ | 2,135,986 | | | $ | 1,749,131 | | | $ | 1,378,554 | | | $ | 1,068,828 | |
Average loans outstanding during the period (1) | | | 2,335,126 | | | | 1,948,580 | | | | 1,593,790 | | | | 1,247,510 | | | | 1,092,662 | |
(1) | Net of unearned income and deferred loan fees |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | |
| (dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Balance at beginning of the period | | $ | 14,837 | | | $ | 14,534 | | | $ | 16,501 | | | $ | 15,992 | | | $ | 18,270 | |
Loanscharged-off: | | | | | | | | | | | | | | | | | | | | |
Commercial | | | 377 | | | | 758 | | | | 3,437 | | | | 1,802 | | | | 2,532 | |
Real estate | | | 89 | | | | 213 | | | | 288 | | | | 328 | | | | 1,055 | |
Consumer | | | 1,787 | | | | 1,689 | | | | 2,374 | | | | 1,999 | | | | 2,663 | |
| | | | | | | | | | | | | | | | | | | | |
Total loanscharged-off | | | 2,253 | | | | 2,660 | | | | 6,099 | | | | 4,129 | | | | 6,250 | |
Recoveries of loans previouslycharged-off: | | | | | | | | | | | | | | | | | | | | |
Commercial | | | 268 | | | | 210 | | | | 192 | | | | 773 | | | | 668 | |
Real estate | | | 44 | | | | 97 | | | | 69 | | | | 21 | | | | 114 | |
Consumer | | | 1,028 | | | | 814 | | | | 709 | | | | 786 | | | | 1,270 | |
| | | | | | | | | | | | | | | | | | | | |
Total loan recoveries | | | 1,340 | | | | 1,121 | | | | 970 | | | | 1,580 | | | | 2,052 | |
| | | | | | | | | | | | | | | | | | | | |
Net loanscharged-off | | | 913 | | | | 1,539 | | | | 5,129 | | | | 2,549 | | | | 4,198 | |
Provision charged to operating expense | | | 2,470 | | | | 1,842 | | | | 3,162 | | | | 3,058 | | | | 1,920 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at the end of the period | | $ | 16,394 | | | $ | 14,837 | | | $ | 14,534 | | | $ | 16,501 | | | $ | 15,992 | |
| | | | | | | | | | | | | | | | | | | | |
Percent of net charge-offs to average loans outstanding for the period | | | 0.04 | % | | | 0.08 | % | | | 0.32 | % | | | 0.20 | % | | | 0.38 | % |
HORIZON BANCORP
B. | The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and the percentage of loans in each category to total loans. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| (dollars in thousands) | | Allowance
Amount | | | % of Loans to
Total Loans | | | Allowance
Amount | | | % of Loans to
Total Loans | | | Allowance
Amount | | | % of Loans to
Total Loans | | | Allowance
Amount | | | % of Loans to
Total Loans | | | Allowance
Amount | | | % of Loans to
Total Loans | |
Commercial, financial and agricultural | | $ | 8,634 | | | | 57 | % | | $ | 6,579 | | | | 50 | % | | $ | 7,195 | | | | 46 | % | | $ | 7,910 | | | | 50 | % | | $ | 6,663 | | | | 48 | % |
Real estate | | | 2,188 | | | | 22 | % | | | 2,090 | | | | 25 | % | | | 2,476 | | | | 25 | % | | | 2,508 | | | | 18 | % | | | 3,462 | | | | 17 | % |
Mortgage warehousing | | | 1,030 | | | | 3 | % | | | 1,254 | | | | 6 | % | | | 1,007 | | | | 8 | % | | | 1,132 | | | | 9 | % | | | 1,638 | | | | 9 | % |
Consumer | | | 4,542 | | | | 18 | % | | | 4,914 | | | | 19 | % | | | 3,856 | | | | 21 | % | | | 4,951 | | | | 23 | % | | | 4,229 | | | | 26 | % |
Unallocated | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 16,394 | | | | 100 | % | | $ | 14,837 | | | | 100 | % | | $ | 14,534 | | | | 100 | % | | $ | 16,501 | | | | 100 | % | | $ | 15,992 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In 1999, Horizon began a mortgage warehousing program. This program is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 below and in the Notes to the Consolidated Financial Statements in Item 8 below, which are incorporated herein by reference. The greatest risk related to these loans is transaction and fraud risk. During 2017, Horizon processed approximately $2.645 billion in mortgage warehouse loans.
Information required by this section is found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 below and in the Consolidated Financial Statements and related Notes in Item 8 below, which are incorporated herein by reference.
VI. | RETURN ON EQUITY AND ASSETS |
Information required by this section is found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 below and in the Consolidated Financial Statements and related Notes in Item 8 below, which are incorporated herein by reference.
VII. | SHORT TERM BORROWINGS |
The following is a schedule of statistical information relative to securities sold under agreements to repurchase which are secured by Treasury and U.S. Government agency securities and mature within one year. There were no other categories of short-term borrowings for which the average balance outstanding during the period was 30% or more of stockholders’ equity at the end of the period.
| | | | | | | | |
| | | December 31 | | | December 31 | |
| (dollars in thousands) | | 2017 | | | 2016 | |
Outstanding at year end | | $ | 61,097 | | | $ | 57,144 | |
Approximate weighted-average interest rate atyear-end | | | 0.25 | % | | | 0.18 | % |
Highest amount outstanding as of anymonth-end during the year | | $ | 63,081 | | | $ | 62,703 | |
Approximate average outstanding during the year | | $ | 55,206 | | | $ | 54,737 | |
Approximate weighted-average interest during the year | | | 0.21 | % | | | 0.17 | % |
ITEM 1A. RISK FACTORS
An investment in Horizon’s securities is subject to numerous risks inherentand uncertainties related to our business. The material risks and uncertainties that management believes currently affect Horizon are described below. Beforebelow, categorized as risks related to our business, risks related to the banking industry generally, and risks related to our common stock. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair Horizon's business operations and its financial results. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition and results
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
of operations could be materially and adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment. As a result, before making an investment decision, you should carefully consider these risks as well as information we include or incorporate by reference in this report and other filings we make with the SEC.
The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may affect our business operations.HORIZON BANCORP
If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, our results could differ materially from the forward-looking statements. All forward-looking
Some statements in
the following risk factors constitute forward–looking statements. Please refer to "Forward–Looking Statements" beginning on page 3 of this
report are current only as of the dateAnnual Report on
which the statements were made. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.Form 10–K.
Risks Related to Our Business
As a financial institution, we are subject to a number of risks relating to our daily business. Although we undertake a variety of efforts to manage and control those risks, many of the risks are outside of our control. Among the risks we face are the following:
•Credit risk:Risk – the risk that loan customers or other parties will be unable to perform their contractual obligations;
•Market risk:Risk – the risk that changes in market rates and prices will adversely affect our financial condition or results of operation;
•Liquidity risk:Risk – the risk that Horizon or the Bank will have insufficient cash or access to cash to meet its operating needs;
•Operational risk:Risk – the risk of financial and reputational loss resulting from fraud, inadequate or failed internal processes, cyber-securitycyber–security breaches, people and systems, or external events;
•Economic risk:Risk – the risk that the economy in our markets could decline further resulting in increased unemployment, decreased real estate values and increased loan charge-offs; andcharge–offs;
•Compliance risk:Risk – the risk of additional action by our regulators or additional regulation that could hinder our ability to do business profitably.profitably;
The current economic environment poses significant challenges for us•Legal/Regulatory Risk – the risk presented by the need to comply with all laws, rules and could adversely affect our financial condition and resultsregulations from multiple regulatory agencies, including but not limited to the FDIC, CFPB, Indiana Department of operations.We are operating in a challenging and uncertain economic environment, including generally uncertain world, national and local conditions in our markets. The capital and credit markets have been experiencing volatility and disruption since 2008. This presents financial institutions with unprecedented circumstances and challenges that in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans. Our financial statements have been prepared using values and information currently available to us, but given this volatility, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset valuesFinancial Institutions, Federal Reserve Bank and the allowance for loan losses, which could negatively impact our ability to meet regulatory capital requirements and maintain sufficient liquidity. The risks associated with our business become more acute in periodsBoard of a slowing economy or slow growth such as we began experiencing in the latter halfGovernors of 2008 and which continued through 2016. The economy experienced more growth in 2017, with increasing exports, jobs and manufacturing production, but if tighter financial conditions emerge, along with additional rate hikes by the Federal Reserve, there can be no assurance thatand the economy will not enter another recession. Although forecasters predict residential investmentDepartment of Labor; and
•Fiduciary Risk – the risk of failing to improveact in 2018, financial institutions continue to be affected by sluggish real estate markets and constrained financial markets. While we continue to take steps to decrease and limit our exposure to residential construction and land development loans and home equity loans, we nonetheless retain direct exposure tofiduciary capacity in the residential and commercial real estate markets, and we are affected by these events.Continued declines in real estate values, home sales volumes and financial stress on borrowers as a resultbest interests of the uncertain economic environment, including job loss, could have an adverse effect on our borrowers or their customers, which could adversely affect our financial conditiongrantors and resultsbeneficiaries of operations. Deterioration of local economic conditions in our markets could drive losses beyond that which is provided for in our allowance for loan lossestrust accounts and result in the following other consequences: increases in loan delinquencies, problem assets and foreclosures; demand for our products and services may decline; deposits may decrease, which would adversely impact our liquidity position; and collateral for our loans, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans.
HORIZON BANCORP
We face intense competition in all phases of our business from other banks, financial institutions andnon-banks.
The banking and financial services business in most of our markets is highly competitive. Our competitors include large regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions and othernon-bank financial and digital service providers, many of which have greater financial, marketing and technological resources than us. Many of these competitors are not subject to the same regulatory restrictions that we are and may be able to compete more effectively as a result.
Also, technology and other changes have lowered barriers to entry and made it possible for customers to complete financial transactions usingnon-banks that historically have involved banks at one or both ends of the transaction.Non-banks now offer products and services traditionally provided by banks. The wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. Use of emerging alternative payment platforms, such as Apple Pay or Bitcoin or other cryptocurrencies, can alter consumer credit card behavior and consequently impact our interchange fee income.
The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The effects of disintermediation can also impact the lending business because of the fast growing body of financial technology companies that use software to deliver mortgage lending and other financial services. A related risk is the migration of bank personnel away from the traditional bank environments into financial technology companies and othernon-banks.
Increased competition in our market may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower. Any of these results could have a material adverse effect on our ability to maintain our earnings record, grow our loan portfolios and obtainlow-cost funds. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased competition causes us to relaxour underwriting standards, we could be exposed to higher losses from lending activities. Additionally, many of our competitors are larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than we can offer.
benefit plans.
Credit Risk
Our commercial,
residential mortgage and consumer loans expose us to increased credit risks.
We have a large percentage of commercial,
residential mortgage and consumer loans. Commercial loans generally have greater credit risk than residential mortgage
and consumer loans because repayment of these loans often depends on the successful business operations of the borrowers.
TheseCommercial real estate loans generally have greater risk because repayment of these loans is often dependent upon income being generated in amounts sufficient to cover operating costs and debt service. Both types of commercial loans also typically have much larger loan balances than residential mortgage
and consumer loans. Consumer loans generally involve greater risk than residential mortgage loans because they are unsecured or secured by assets that depreciate in value. Although we undertake a variety of underwriting, monitoring and reserving protections with respect to these types of loans, there can be no guarantee that we will not suffer unexpected losses.
Residential mortgage loans and consumer loans are at risk due to the continuing volatility of unemployment rates and increasing interest rates, which may adversely affect the underlying real estate and other collateral values and the ability of our borrowers to repay their loans on scheduled terms.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Our holdings of construction, land and home equity loans may pose more credit risk than other types of mortgage loans.
Construction loans, loans secured by commercial real estate and home equity loans generally entail more risk than other types of mortgage loans. When real estate values decrease, the developers to whom we lend are likely to
experience a decline in sales of new homes from their projects. Land and construction loans are more likely to become
non-performing non–performing as developers are unable to build and sell homes in volumes large enough for orderly repayment of loans and as other owners of such real estate (including homeowners) are unable to keep up with their payments. We strive to establish what we believe are adequate reserves on our financial statements to cover the credit risk of these loan portfolios. However, there can be no assurance that losses will not exceed our reserves, and ultimately result in a material level of
charge-offs,charge–offs, which
couldwould adversely impact our results of operations, liquidity and capital.
HORIZON BANCORP
The allowance for
loancredit losses
on loans may prove inadequate or be negatively affected by credit risk exposures.
Our business depends on the creditworthiness of our customers. We periodically review the allowance for
loan and leasecredit losses for adequacy considering economic conditions and trends, collateral values, and credit quality indicators, including past
charge-off charge–off experience and levels of past due loans and
non-performing non–performing assets. There is no certainty that the allowance for
loancredit losses will be adequate over time to cover credit losses in the portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets. If the credit quality of
theour customer base materially decreases, if the risk profile of a market, industry or group of customers changes materially, or if the allowance for
loancredit losses is not adequate, our business, financial
condition,conditions, liquidity,
capital;capital, and results of operations could be materially adversely affected.
Market Risk
Changes in
market interest rates could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in
market interest rates. We can neither predict with certainty nor control changes in interest rates. These changes can occur at any time and are affected by many factors, including international, national, regional and local economic conditions, competitive
and inflationary pressures and monetary policies of the Federal Reserve.
Our results of operations depend substantially on our net interest income, which is the difference between the interest income that we earn on our interest-earninginterest earning assets and the interest expense that we pay on our interest-bearinginterest bearing liabilities. Our profitability depends on our ability to manage our assets and liabilities during periods of changing market interest rates. If rates increase rapidly, as a result of an improving economy, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investmentsre-price, re–price, resulting in a negative impact on interest spreads and net interest income. The impact of rising rates could be compounded if deposit customers flow funds away from us into direct investments, such as U.S. Government bonds, corporate securities and other investment vehicles,investments, including mutual funds, which, because of the absence of federal deposit insurance premiums and reserve requirements, generally pay higher rates of return than those offered by financial institutions such as ours. These consequencesinstitutions.
We also expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and
consumer reactions mayliabilities, meaning that either our interest bearing liabilities will be more
likelysensitive to
occur during a future risechanges in
market interest rates
as a result of, and in reaction to, the historically lowthan our interest earning assets, or vice versa. In either event, if market interest rates
should move contrary to our position, this “gap” will negatively impact our earnings. The impact on earnings is more adverse when the slope of the yield curve flattens, that
have persisted for an extended period of time since 2008. In other words, historical consumer behavior may not be a reliable predictor of future consumer behavior in a period of risingis, when short–term interest rates
resulting in a larger outflow of depositsincrease more than long–term interest rates or
a higher level of loan prepaymentswhen long–term interest rates decrease more than
we would expect. In either case, our deposit costs may increase and our loanshort–term interest
income may decline, either or both of which may have an adverse effect on our financial results.rates.
Changes in interest rates also could affect loan volume. For instance, an increase in interest rates could cause a decrease in the demand for mortgage loans (and other loans), which could result in a significant decline in our
revenue stream.revenues. In addition, as market interest rates rise, the value of the Company's investment securities, particularly those that have fixed rates or longer maturities, could decrease. Increasing rates
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
would also increase debt service requirements for some of the Bank's borrowers and may adversely affect those borrowers' ability to pay as contractually obligated and could result in additional delinquencies or charge–offs.
Conversely, should market interest rates fall below current levels, our net interest margin could also be negatively affected, as competitive pressures could keep us from further reducing rates on our deposits, and prepayments
and curtailments on
assetsloans may continue. Such movements may cause a decrease in our interest rate spread and net interest margin, and therefore, decrease our profitability.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-relatedmortgage–related securities. Increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans. loans, which increases the potential for default. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on may also lead to an increase in non–performing assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on non–accrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Decreases in interest rates often result in increased prepayments of loans and
mortgage-relatedmortgage–related securities, as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities.
HORIZON BANCORP
An economic slowdown
We are exposed to intangible asset risk in that our goodwill may become impaired.
As of December 31, 2023, we had $168.8 million of goodwill and other intangible assets. A significant and sustained decline in our primarystock price and market areascapitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, or slower growth rates could result in impairment of goodwill. If we were to conclude that a future write-down of our goodwill is necessary, then we would record the appropriate charge, which could be materially adverse to our operating results and financial position. For further discussion, see Notes 1 and 8, “Nature of Operations and Summary of Significant Accounting Policies” and “Goodwill and Intangible Assets,” to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10–K for the year ended December 31, 2023.
Our mortgage lending profitability could be significantly reduced as changes in interest rates could affect mortgage origination volume and pricing for selling mortgages on the secondary market.
Currently, we sell a substantial portion of the mortgage loans we originate. The profitability of our
business.mortgage banking operations depends in large part upon our ability to originate and sell mortgages to the secondary market at a gain. A higher interest rate environment can negatively affect the volume of loan originations and refinanced loans reducing the dollar amount of loans available to be sold to the secondary market. Higher interest rates can also negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate loans can reduce pricing.
Our primaryability to sell mortgage loans readily is dependent upon the availability of an active secondary market area for depositssingle–family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by Fannie Mae, Freddie Mac and loans consistsGinnie Mae (the “Agencies”) and other institutional and non–institutional investors. These entities account for a substantial portion of Northern and Central Indiana and the Southern, Central and Great Lakes Bay regionssecondary market in residential mortgage loans. Some of Michigan. An economic slowdown could hurt our business and the possible consequenceslargest participants in the secondary market, including the Agencies, are government–sponsored enterprises whose activities are governed by federal law. Any future changes in laws that significantly affect the activity of such government–sponsored enterprises could, in turn, adversely affect our operations.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our operations. Further, the criteria for loans to be accepted under such programs may be changed from time–to–time by the sponsoring entity which could result in a downturn could includelower volume of corresponding loan originations. The profitability of participating in specific programs may vary depending on a number of factors, including our administrative costs of originating and purchasing qualifying loans and our costs of meeting such criteria.
The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell our common stock at times or at prices you find attractive.
Although our common stock is listed on the
following:NASDAQ Global Select Market, our stock price constantly changes, and we expect our stock price to continue to fluctuate in the future. Our stock price is impacted by a variety of factors, some of which are beyond our control.
These factors include:
•variations in our operating results or the quality of our assets;
•operating results that vary from the expectations of management, securities analysts and investors;
•increases in loan delinquencies and foreclosures;
declines in the value of real estate and other collateral securing loans;
an increase in loans charged off;
an increase in the Company’s expense to fund loan loss reserves;
an increase in collection costs;
a decline in the demand for our products and services, and;
an increase innon-accruallosses, non–performing loans and other real estate owned.owned;
The loss
•changes in the U.S. corporate tax rates;
•changes in expectations as to our future financial performance;
•announcements of key membersnew products, strategic developments, new technology, acquisitions and other material events by us or our competitors;
•ability to fund Horizon's assets through core deposits and/or wholesale funding;
•the operating and securities prices performance of other companies that investors believe are comparable to us;
•our inclusion on the Russell 2000 or other indices;
•actual or anticipated sales of our senior management teamequity or equity–related securities;
•our past and future dividend practice;
•our lending teams couldcreditworthiness;
•interest rates;
•the credit, mortgage and housing markets, and the markets for securities relating to mortgage or housing;
•developments with respect to financial institutions generally; and
•economic, financial, geopolitical, regulatory, congressional or judicial events that affect us or the financial markets.
In addition, the stock market in general has experienced price and volume fluctuations. The volatility has had a significant effect on the market price of securities issued by many companies and particularly those in the financial services and banking sector, including for reasons unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results.
Because our stock is moderately traded, it may be more difficult for you to sell your shares or buy additional shares when you desire to do so and the price may be volatile.
Although our common stock has been listed on the NASDAQ stock market since December 2001, our common stock is moderately traded. The prices of moderately traded stocks, such as ours, can be more volatile than stocks traded in a large, active public market and can be more easily impacted by sales or purchases of large blocks of stock. Moderately traded stocks are also less liquid, and because of the low volume of trades, you may be unable to sell your shares when you desire to do so.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Liquidity Risk
We are subject to liquidity risk in our operations, which could adversely affect the ability to
operate effectively.We depend heavilyfund various obligations.
Liquidity risk is the possibility of being unable to meet obligations as they come due, pay deposits when withdrawn, capitalized on the servicesgrowth opportunities as they arise, or pay dividends because of our existing senior management team, particularly our CEO Craig M. Dwight,an inability to carry out our businessliquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances. Liquidity is derived primarily from retail deposit growth and retention, principal and interest payments on loans and investment strategies. As we continuesecurities, net cash provided from operations, and access to grow and expandother funding sources. Liquidity is essential to our business and our locations, products and services, we will increasingly needbusiness. We must maintain sufficient funds to rely on Mr. Dwight’s experience, judgment and expertise as well as that of the other members of our senior management team. We also depend heavily on our experienced and effective lending teams and their respective special market insights, including, for example, our agricultural lending specialists. In additionrespond to the importanceneeds of retaining our lending team, we will also needdepositors and borrowers. An inability to continue to attract and retain qualified banking personnel at all levels. Competition for such personnel is intense in our geographic market areas. If we are unable to attract and retain an effective lending teamraise funds through deposits, borrowings, the sale or pledging as collateral of loans and other talented people, our business could suffer. The loss of the services of any senior management personnel, particularly Mr. Dwight, or the inability to recruit and retain qualified lending and other personnel in the future,assets could have a material adverse effect on our consolidated resultsliquidity.
Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of
operations, financial condition and prospects.Potential acquisitions may disrupt our business and dilute stockholder value.
We periodically evaluate merger and acquisition opportunities and conductactivity due diligence activities related to possible transactions witha market downturn, failures of other financial institutions which reduces overall market confidence in the banking and financial services companies. We generally seek mergerindustry, or acquisition partnersregulatory action that limits or eliminates our access to alternate funding sources. Our ability to borrow could also be impaired by factors that are culturally similar and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:
potential exposurenonspecific to unknown or contingent liabilitiesus, such as severe disruption of the target company;financial markets or negative expectations about the prospects for the financial services industry as a whole, as evidenced by the recent failures of certain depository institutions and the resulting market turmoil and volatility stemming from such failures.
exposure to potential asset quality issues
Unrealized losses in our investment portfolio could adversely affect liquidity.
As market interest rates increased during 2022 and 2023, we have experienced increased unrealized losses within our investment portfolio. Our investment portfolio consists of obligations of the target company;
potential disruptionU.S. Treasury and federal agencies, obligations of state and local municipalities, federal agency mortgage obligations, private labeled mortgage–backed pools and corporate notes. Many of these instruments are particularly sensitive to interest rate fluctuations, especially long–term fixed–income securities. The unrealized losses for available for sale investments is reflected in Accumulated Other Comprehensive Income (“AOCI”) on our business;
potential diversion ofbalance sheet and reduces our management’s timebook capital and attention awaytangible common equity ratio. However, unrealized losses do not affect our regulatory capital ratios.
Management continues to actively monitor the investment portfolio and does not currently anticipate the need to realize material losses fromday-to-day operations;
the possible loss of key employees, businessinvestment portfolio, and customers of the target company;
difficulty in estimating the value of the target company, and;
potential problems in integrating the target company’s systems, customers and employees with ours.
As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving the payment of cash or the issuance of our debt or equity securities may occur at any time. Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. To the extent we were to issue additional common shares in any such transaction, our current shareholdersbelieve it is unlikely we would be diluted and such an issuancerequired to sell the securities before recovery of their amortized cost bases, which may havebe at maturity. However, our access to liquidity sources could be affected by unrealized losses if securities within the effect of decreasing our stock price, perhaps significantly. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographicinvestment portfolio must be sold at a loss or product presence, and/or other projected benefitstangible capital ratios decline from an acquisition could have a material adverse effect on our financial condition and results of operations.
In addition, merger and acquisition costs incurred by Horizon may temporarily increase operating expenses.
HORIZON BANCORP
in unrealized losses or realized credit losses.
We may need to raise additional capital in the future, and such capital may not be available when needed or at all.
We may need to raise additional capital in the future to fund acquisitions and to provide us with sufficient capital resources and liquidity to meet our commitments, regulatory capital requirements and business needs, particularly if our asset quality or earnings were to deteriorate significantly. Although we are currently, and have historically been, “well capitalized” for regulatory purposes, in the past we have been required to maintain increased levels of capital in connection with certain acquisitions. Additionally, we periodically explore acquisition opportunities with other financial institutions, some of which are in distressed financial condition. Any future acquisition, particularly the acquisition of a significantly troubled institution or an institution of comparable size to us, may require us to raise additional capital in order to obtain regulatory approval and/or to remain well capitalized.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. Economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, including
inter-bankinter–bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve.
We cannot guarantee that such capital will be available on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, our depositors or counterparties participating in the capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our
businesses,business, financial condition and results of operations and may restrict our ability to grow.
The preparation
Operational Risk
Our internal controls may be ineffective, circumvented, or fail.Our internal controls may be ineffective, circumvented, or fail
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our
financial statements requires the usecontrols and procedures, failure to implement any necessary improvement of
estimates that may vary from actual results.The preparation of consolidated financial statements in conformitycontrols and procedures, or failure to comply with accounting principles generally accepted in the United States of America requires managementregulations related to make significant estimates that affect the financial statements. One of our most critical estimates is the level of the allowance for loan losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will notcontrols and procedures could have to increase the allowance for loan losses and/or sustain loan losses that are significantly higher than the provided allowance.
Our mortgage warehouse and indirect lending operations are subject to a higher fraud risk than our other lending operations.
We buy loans originated by mortgage bankers and automobile dealers. Because we must rely on the mortgage bankers and automobile dealers in making and documenting these loans, there is an increased risk of fraud to us on the part of the third-party originators and the underlying borrowers. In order to guard against this increased risk, we perform investigations on the mortgage companies with whom we do business, and we review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance. However, there is no guarantee that our procedures will detect all cases of fraud or legal noncompliance.
Our mortgage lending profitability could be significantly reduced if we are not able to resell mortgages or experience other problems with the secondary market process or are unable to retain our mortgage loan sales force due to regulatory changes.
Currently, we sell a substantial portion of the mortgage loans we originate. The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and to sell them in the secondary market at a gain. Thus, we are dependent upon the existence of an active secondary market and our ability to profitably sell loans into that market.
HORIZON BANCORP
Our ability to sell mortgage loans readily is dependent upon the availability of an active secondary market for single-family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by Fannie Mae, Freddie Mac and Ginnie Mae (the “Agencies”) and other institutional andnon-institutional investors. These entities account for a substantial portion of the secondary market in residential mortgage loans. Some of the largest participants in the secondary market, including the Agencies, are government-sponsored enterprises whose activities are governed by federal law. Any future changes in laws that significantly affect the activity of such government-sponsored enterprises could, in turn, adversely affect our operations.
In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the U.S. government. Although to date, the conservatorship has not had a significant ormaterial adverse effect on our operations, and during 2010 and 2012 the Federal Housing Finance Agency indicated that the Treasury Department is committed to fund Fannie Mae and Freddie Mac to levels needed in order to sufficiently meet their funding needs, it is currently unclear whether further changes would significantly and adversely affect our operations. Members of the present federal administration have expressed an intent to seek an end to the conservatorship and to privatize the Agencies, and it is unclear how that might impact us. In addition, our ability to sell mortgage loans readily is dependent upon our ability to remain eligible for the programs offered by the Agencies and other institutional andnon-institutional investors. Our ability to remain eligible may also depend on having an acceptable peer-relative delinquency ratio for the Federal Housing Administration (“FHA”) and maintaining a delinquency rate with respect to Ginnie Mae pools that are below Ginnie Mae guidelines. In the case of Ginnie Mae pools, we have repurchased delinquent loans from them in the past to maintain compliance with the minimum required delinquency ratios. Although these loans are typically insured as to principal by the FHA, such repurchases increase our capital and liquidity needs, and there can be no assurance that we will have sufficient capital or liquidity to continue to purchase such loans out of the Ginnie Mae pools if required to do so.
Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our operations. Further, the criteria for loans to be accepted under such programs may be changed fromtime-to-time by the sponsoring entity which could result in a lower volume of corresponding loan originations. The profitability of participating in specific programs may vary depending on a number of factors, including our administrative costs of originating and purchasing qualifying loans and our costs of meeting such criteria.
Our mortgage lending profitability could be significantly reduced as changes in interest rates could affect mortgage origination volume and pricing for selling mortgages on the secondary market.
Currently, we sell a substantial portion of the mortgage loans we originate. The profitability of our mortgage banking operations depends in large part upon our ability to originate and sell mortgages to the secondary market at a gain.
A higher interest rate environment can negatively affect the volume of loan originations and refinanced loans reducing the dollar amount of loans available to be sold to the secondary market. Higher interest rates can also negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate loans can reduce pricing.
We are exposed to intangible asset risk in that our goodwill may become impaired.
As of December 31, 2017, we had $132.3 million of goodwill and other intangible assets. A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business, climate, or slower growth rates could result in impairment of goodwill. If we were to conclude that a future write-down of our goodwill is necessary, then we would record the appropriate charge, which could be materially adverse to our operating results and financial position. For further discussion, see Notes 1 and 11, “Nature of Operations and Summary of Significant Accounting Policies” and “Goodwill and Intangible Assets,” to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form10-K for the year ended December 31, 2017.
We are subject to extensive regulation and changes in laws and regulatory policies could adversely affect our business.
Our operations are subject to extensive regulation by federal agencies. See “Regulation and Supervision” in the description of our Business in Item 1 of Part I of this report for detailed information on the laws and regulations to which we are subject. Changes in applicable laws, regulations or regulator policies can materially affect our business. The likelihood of any major changes in the future and their effects are impossible to determine. As an example, the Bank could experience higher credit losses because of federal or state legislation or by regulatory or bankruptcy court action that reduces the amount the Bank’s borrowers are otherwise contractually required to pay under existing loan contracts. Also, the Bank could experience higher credit losses because of federal or state legislation or regulatory action that limits its ability to foreclose on property or other collateral or makes foreclosure less economically feasible.
HORIZON BANCORP
We face other risks from recent actions of the U.S. Treasury and the Internal Revenue Service. In November 2016, these agencies issued a Notice making captive insurance company activities “transactions of interest” due to the potential for tax avoidance or evasion. We have a captive insurance company and it is not certain at this point how the Notice may impact us on our operation of the captive insurance company as a risk management tool.
Legislation enacted in recent years, together with additional actions announced by the U.S. Treasury and other regulatory agencies, continue to develop. It is not clear at this time what impact legislation and liquidity and funding initiatives of the U.S. Treasury and other bank regulatory agencies, and additional programs that may be initiated in the future, will have on the financial markets and the financial services industry.
The full impact of the Tax Cuts and Jobs Act on us and our customers is unknown at present, creating uncertainty and risk related to our customers’ future demand for credit and our future results.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “Tax Reform Act”), which introduced broad and complex tax reforms. Among other changes, the Tax Reform Act reduced the corporate tax rate for 2018 and limited the utilization of net operating losses to offset taxable income. As a result, during the fourth quarter of 2017, Horizon recognized an increase in income tax expense because of a $2.4 million adjustment of Horizon’s net deferred tax assets to the new corporate rate. Many aspects of the Tax Reform Act are unclear and may not be clarified for some time. As additional clarification and implementation guidance is issued on the Tax Reform Act, we may need to make further adjustments, which could have an impact on our earnings.
Increased economic activity expected to result from the decrease in tax rates on businesses generally could spur additional economic activity that would encourage additional borrowing. At the same time, some customers may elect to use their additional cash flow from lower taxes to fund their existing levels of activity, decreasing borrowing needs. The elimination of the federal income tax deductibility of business interest expense for a significant number of our customers effectively increases the cost of borrowings and makes equity or hybrid funding relatively more attractive. This could have a long-term negative impact on business customer borrowing. We are anticipating an increase in ourafter-tax net income available to stockholders in 2018 and future years as a result of the decrease in our effective tax rate. Some or all of this benefit could be lost to the extent that the banks and financial services companies we compete with elect to lower interest rates and fees and we are forced to respond in order to remain competitive. There is no assurance that presently anticipated benefits of the Tax Reform Act for the Company will be realized.
In addition, the Tax Reform Act could have an impact on how we compensate our executives due to amendments affecting the deductibility of certain executive compensation, and it could also prompt tax changes at the state level that could impact us.
In short, the Tax Reform Act may have wide-ranging, unexpected and material effects on our business practices, financial condition and results of operations, and wefinancial condition.Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are not ablemet. Any failure or circumvention of our controls and procedures, failure to predict these effects at this time.
Our inabilityimplement any necessary improvement of controls and procedures, or failure to continuecomply with regulations related to accurately process large volumes of transactionscontrols and procedures could adversely impacthave a material adverse effect on our business, results of operations, and financial results.
In the normal course of business, we process large volumes of transactions. If systems of internal control should fail to work as expected, if systems are used in an unauthorized manner, or if employees subvert the system of internal controls, significant losses could result.
We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk. Operational risk resulting from inadequate or failed internal processes, people and systems includes the risk of fraud by persons inside or outside Horizon, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.
HORIZON BANCORP
We establish and maintain systems of internal operational controls that are designed to provide us with timely and accurate information about our level of operational risk. While not foolproof, these systems have been designed to manage operational risk at appropriate, cost-effective levels. Procedures also exist that are designed to ensure that policies relating to conduct, ethics and business practices are followed. From time to time, losses from operational risk may occur, including the consequences of operational errors.
While we continually monitor and improve the system of internal controls, data processing systems and corporate-wide processes and procedures, there can be no assurance that future losses will not occur.
condition.
Our information systems may experience cyber-attackscyber–attacks or an interruption or breach in security. Our cybersecurity systems could be inadequate or fail.
We rely heavily on internal and outsourced technologies, communications, and information systems to conduct our business. Additionally, in the normal course of business, we collect, process and retain sensitive and confidential information regarding our customers. As our reliance on technology has increased, so have the potential risks of a
technology-related operationtechnology–related operational interruption (such as disruptions in our customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of
cyber-attackscyber–attacks (such as unauthorized access to our systems, computer viruses,
ransom ware, or other malicious code). These risks have increased for all financial institutions as new technologies,
includingadvancement consumer applications and the
useincrease adoption of
the Internet and telecommunications technologies (including mobile
devices),devices, have become commonly used to conduct financial and other business transactions, during a time of increased technological sophistication of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to
cyber-attackscyber–attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks,
thatwhich are designed to disrupt key business services, such as
customer-facingcustomer–facing web sites.
WeAlthough we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity, and availability of our systems, business applications and customer information, we are not able to anticipate or implement effective preventive measures against all
cyber–security
breaches of these types,threats, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources, both domestic and foreign.
However, we have analyzed and will continue to analyze security related to device-specific considerations, user access topics, transaction-processing and network integrity.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
We also face risks related to
cyber-attackscyber–attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and our processors. Some of these parties have in the past been the target of security breaches and
cyber-attacks,cyber–attacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or
cyber-attackscyber–attacks affecting any of these third parties could impact us through no fault of our own, and in some cases, we may have exposure and suffer losses for breaches or attacks relating to them. Further
cyber-attackscyber–attacks or other breaches in the future, whether affecting us or others, could intensify consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of which could have a material adverse effect on our business.
To the extent we are involved in any future
cyber-attackscyber–attacks or other breaches, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance we maintain. We could also suffer significant damage to our reputation. Although we are insured against many of these risks, including privacy breach response costs, notification expenses, breach support and credit monitoring expenses, cyber extortion and cyber terrorism, there can be no assurances that such insurance will be sufficient to cover all costs arising from a data or information technology breach and our exposure may exceed our coverage.
We continually encounter technological changes.
Acts of terrorism or war, as well as the threat of terrorism or war, may adversely affect our results of operations, financial condition, and liquidity.
Any act of terror, sustained military campaign, or war (threat of any of the foregoing) may cause general economic decline and instability, volatility and/or weakness of U.S. and global financial markets. Historically, U.S. and global markets have been adversely impacted by political and civil unrest occurring in the Middle East, Eastern Europe, Russia, Venezuela and Asia. The current Russia and Ukraine conflict has raised similar economic and financial services industry is continually undergoing rapid technological change with frequent introductionsmarket concerns causing uncertainty and disruption in financial markets globally and further straining an already struggling global supply chain. Furthermore, such events have the potential to adversely impact the availability of new technology-driven productscommodities, commodity prices, and services. The effective usecreate global inflationary pressures.
As a result of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, uponany such events, the demand for our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands,may be significantly impacted and could influence the recognition of credit losses in our loan portfolio and increase our allowance for credit losses as both businesses and consumers are negatively impacted by such events and the economic uncertainty and volatility related thereto. They may also cause significant decreases in value in our investment portfolio, cause us to have to raise capital, or take other unforeseen actions to offset such effects.
The extent to which such actions may impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of such conflicts and actions taken by governmental authorities and other third parties in response thereto. Even after such conflicts subside, the U.S. and global economies often require some time to create additional efficiencies inrecover, the length of which is unknown.
Any continued or further negative impact on economic conditions and global markets from these developments could adversely affect our operations. Manybusiness, financial condition and liquidity.
Pandemics, other global or regional health crises or disease outbreaks, natural disasters, global climate change, acts of our competitors have substantially greater resources to invest in technological improvements,terrorism and weglobal conflicts may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adversenegative impact on our business.
Pandemics, such as the COVID–19 pandemic, other global or regional health crises or disease outbreaks, natural disasters, global climate change, acts of terrorism, global conflicts or other similar events have in the past, and may in the future have, a negative impact on our business and operations. These events impact us negatively to the extent that they result in turn,reduced capital markets activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or in financial market settlement
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
functions. In addition, these or similar events may impact economic growth negatively, which could have an adverse effect on our business and operations and may have other adverse effects on us in ways that we are unable to predict.
The preparation of our financial conditionstatements requires the use of estimates that may vary from actual results.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the level of the allowance for credit losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not have to increase the allowance for loan losses and/or sustain loan losses that are significantly higher than the provided allowance.
Our mortgage warehouse and resultsindirect lending operations are subject to a higher fraud risk than our other lending operations.
We provide credit facilities for loans originated by mortgage bankers and originate auto loans through automobile dealers. Because we must rely on the mortgage bankers and automobile dealers in making and documenting these loans, there is an increased risk of
operations.HORIZON BANCORP
fraud to us on the part of the third–party originators and the underlying borrowers. In order to guard against this increased risk, we perform investigations on the mortgage companies and other third parties who originate loans we purchase, and we review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance. However, there is no guarantee that our procedures will detect all cases of fraud or legal noncompliance.
We rely on other companies to provide key components of our business infrastructure.
Third-party
Third–party vendors provide key components of our business infrastructure, including Internet connections, mobile and internet banking, statement processing, loan document preparation, network access and transaction and other processing services. Although we have selected these
third-partythird–party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of inadequate or interrupted service or breach of customer information, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. In addition, any breach in customer information could affect our reputation and cause
legal liability and a loss of business. Replacing these
third- third–party vendors also could result in significant delay and expense.
Damage to our reputation could damage our business.
Our business depends upon earning and maintaining the trust and confidence
The loss of key members of our customers, investorssenior management team and employees. Damageour lending teams could affect our ability to operate effectively.
We depend heavily on the services of our reputation could cause significant harmexisting senior management team to carry out our business and investment strategies. As we continue to grow and expand our business and our locations, products and services, we will increasingly need to rely on our senior management team's experience, judgment and expertise. We also depend heavily on our experienced and effective lending teams and their respective special market insights, including, for example, our agricultural lending specialists. In addition to the importance of retaining our lending team, we will also need to continue to attract and retain qualified banking personnel at all levels. Competition for such personnel is intense in our geographic market areas. If we are unable to attract and retain an effective lending team and other talented people, our business could suffer. The loss of the services of any senior management personnel or the inability to recruit and retain qualified lending and other personnel in the future, could have a material adverse effect on our consolidated results of operations, financial condition and prospects. Harm
Our inability to continue to process large volumes of transactions accurately could adversely impact our business and financial results.
We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk. Operational risk resulting from inadequate or failed internal processes, people and systems includes the risk of fraud by persons inside or outside Horizon, the execution of unauthorized transactions
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards. Accordingly, if systems of internal control should fail to work as expected, if systems are used in an unauthorized manner, or if employees subvert the system of internal controls, significant losses could result.
We establish and maintain systems of internal operational controls that are designed to provide us with timely and accurate information about our level of operational risk. While not foolproof, these systems have been designed to manage operational risk at appropriate, cost–effective levels. Procedures also exist that are designed to ensure that policies relating to conduct, ethics and business practices are followed. If these systems fail, significant losses could result.
While we continually monitor and improve the system of internal controls, data processing systems and corporate–wide processes and procedures, there can be no assurance that future losses will not occur.
Potential acquisitions may disrupt our business and dilute stockholder value.
We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial service companies. We generally seek merger or acquisition partners that are culturally similar and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Acquiring other banks, businesses, or branch involves various risks commonly associated with acquisitions, including, among other things:
•potential exposures to unknown or contingent liabilities of the target company;
•exposure to potential asset quality issues of the target company;
•potential disruption to our reputation can arisebusiness;
•potential diversion of our management's time and attention away from numerous sources, including, among others, employee misconduct, compliance failures, litigationday–to–day operations;
•the possible loss of key employees, business and customers of the target company;
•difficulty in estimating the value of the target company; and
•potential problems in integrating the target company's data processing and ancillary systems, customers and employees with ours.
As a result, merger or regulatory outcomesacquisition discussions and, in some cases, negotiations may take place and future mergers or governmental investigations. acquisitions involving the payment of cash or the issuance of our debt or equity securities may occur at any time. Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. To the extent we were to issue additional shares of common stock in any such transaction, our current shareholders would be diluted and such an issuance may have the effect of decreasing our stock price, perhaps significantly. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations.
In addition, merger and acquisition costs incurred by Horizon may temporarily increase operating expenses.
Economic Risk
An economic slowdown in our primary market areas could affect our business.
Our primary market area for deposit and loans consists of northern and central Indiana and southern and central Michigan. An economic slowdown could hurt our business and the possible consequences of such a failuredownturn could include the following:
•increases in loan delinquencies and foreclosures;
•declines in the value of real estate and other collateral securing loans;
•an increase in loans charged off;
•an increase in expense to deliver appropriate standardsfund loan loss reserves;
•an increase in collection costs;
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
•a decline in the demand for our products and quality, services; and
•an increase in non–accrual loans and other real estate owned.
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system and could have a material effect on our operations and/or stock price.
High–profile 2023 bank failures including Silicon Valley Bank, Signature Bank and First Republic Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks. These market developments have negatively impacted customer confidence in the safety and soundness of financial institutions, as well as have caused significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a
failureperiod of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These market developments have caused general uncertainty and concern regarding the liquidity adequacy of the banking industry and in particular, regional banks like Horizon. As a result, customers may choose to maintain deposits with larger financial institutions or
perceived failure to treat customers and clients fairly, can resultinvest in
customer dissatisfaction, litigation, privacy breach and heightened regulatory scrutiny,higher yielding short–term fixed income securities, all of which
could materially adversely impact our liquidity, loan funding capacity, net interest margin, capital and results of operations. In connection with high–profile bank failures, uncertainty and concern has been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can
leadbe moved, as well as the speed and reach of media attention, including social media, and its ability to
lost revenue, higher operating costsdisseminate concerns or rumors, in each case potentially exacerbating liquidity concerns. While the Department of the Treasury, the Federal Reserve, and
harmthe FDIC have made statements ensuring that depositors of these recently failed banks would have access to
our reputation. Adverse publicity about Horizon, whether or not true, may result in harm to our existing business, customer relationships and prospects. Should any events or factors that can undermine our reputation occur,their deposits, including previously uninsured deposit accounts, there is no
assuranceguarantee that
such actions will be successful in restoring customer confidence in regional banks and the
additional costs and expenses that we may need to incur to address the issues giving rise to the reputational harm would not adversely affect our earnings and results of operations.banking system more broadly.
The soundness of other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default by our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.
Risks Related
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition.
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition. The macroeconomic environment in the United States is susceptible to
global events and volatility in financial markets. For example, global demand for products continues to exceed supply during the economic recovery from the COVID–19 pandemic, creating significant inflationary pressures which, in turn, may adversely impact consumer and business confidence and regional and global economic conditions, as well as our
Common StockThefinancial condition and results of operations. In addition, trade negotiations between the U.S. and other nations remain uncertain and could adversely impact economic and market conditions for Horizon and its clients and counterparties.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Legal/Regulatory/Compliance Risk
As a public company, we face the risk of shareholder lawsuits and other related or unrelated litigation, particularly if we experience declines in the price of our common
stock may fluctuate significantly,stock. We have been named as a party to purported class action and
this may make it difficult for you to resell our common stock at times or at prices you find attractive.Although our common stock is listed on the NASDAQ Global Select Market, our stock price constantly changes,derivative lawsuits, and we expect our stock price to continue to fluctuatemay be named in additional litigation, all of which could require significant management time and attention and result in significant legal expenses.
As described in detail below in “Item 3 - Legal Proceedings,” on April 20, 2023, a putative class action was filed against the Company and two of its officers in the future. Our stock price is impacted byU.S. District Court for the Eastern District of New York, which asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a varietyputative class of factors, somepurchasers of our securities from March 9, 2022 and March 10, 2023. Derivative lawsuits have also been filed against the Company, as nominal defendant, and two of our officers and ten of our directors arising from the same events, alleging, among other things, breach of the officers and directors' fiduciary duties. Regardless of the merits, the expense of defending such litigation may have a substantial impact if our insurance carriers fail to cover the full cost of the litigation, and the time required to defend the actions could divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows. An unfavorable outcome in such litigation could have a material adverse effect on our business, financial condition, results of operations and cash flows. The derivative lawsuits have been consolidated and stayed pending resolution of any motion to dismiss in the putative class action. Based on our initial review of these actions, management believes that the Company has strong defenses to the claims and intends to vigorously defend against them.
Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company's expenses and affect the Company's operations.
The Company also anticipates increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which
are beyond our control.These factors include:
variations in our operating resultsmay increase the Company's costs of doing business and reduce its profitability. As primarily a commercial bank, the Bank has a higher percentage of uninsured deposits compared to primarily retail focused banks. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the qualityinvestor community.
We may be exposed to risk of our assets;
operating results that vary from the expectations of management, securities analysts and investors;
increases in loan losses,non-performing loans and other real estate owned;
changes in expectations as to our future financial performance;
announcements of new products, strategic developments, acquisitions and other material events by us or our competitors;
ability to fund Horizon’s assets through core deposits and/or wholesale funding;
the operating and securities price performance of other companies that investors believe are comparable to us;
HORIZON BANCORP
our inclusion on the Russell 3000 or other indices;
actual or anticipated sales of our equity or equity-related securities;
our past and future dividend practice;
our creditworthiness;
interest rates;
the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing;
developmentsenvironmental liabilities with respect to financial institutions generally;real property to which we take title.
In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties (including liabilities for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination), or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property.
economic, financial, geopolitical,
We are subject to extensive regulation and changes in laws and regulatory congressional or judicial events thatpolicies could adversely affect usour business.
Our operations are subject to extensive regulation by federal and state agencies. See “Regulation and Supervision” in the description of our Business in Item 1 of Part I of this report for detailed information on the laws and regulations to which we are subject. Many of these regulations are intended to protect depositors, the public or the financial markets.FDIC insurance funds, not shareholders. Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and many other aspects of our business. Changes in applicable laws, regulations or regulator policies can materially affect our business. The likelihood of any major changes in the future and their effects are impossible to predict. As an example, the Bank could experience higher credit losses because of federal or state legislation or by regulatory or bankruptcy court action that reduces the amount the Bank's borrowers are otherwise contractually required
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
to pay under existing loan contracts. Also, the Bank could experience higher credit losses because of federal or state legislation or regulatory action that limits its ability to foreclose on property or other collateral or makes foreclosure less economically feasible.
We face other risks from recent actions of the U.S. Treasury and the Internal Revenue Service. In additionNovember 2016, these agencies issued a Notice making captive insurance company activities “transactions of interest” due to the stock marketpotential for tax avoidance or evasion. We have a captive insurance company and it is not certain at this point how the Notice may impact us on our operation of the captive insurance company as a risk management tool.
Legislation enacted in general has recently experienced extreme pricerecent years, together with additional actions announced by the U.S. Treasury and volume fluctuations. This volatility has had a significant effectother regulatory agencies, continue to develop. It is not clear at this time what impact legislation and liquidity and funding initiatives of the U.S. Treasury and other bank regulatory agencies, and additional programs that may be initiated in the future, will have on the market price of securities issued by many companiesfinancial markets and particularly those in the financial services industry.
We may also face compliance risks arising from the new and
banking sector, including for reasons unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results.Because our stock is moderately traded, it may be more difficult for you to sell your shares or buy additional shares when you desire to do sogrowing body of privacy and the price may be volatile.
Although our common stock has been listed on the NASDAQ stock market since December 2001, our common stock is moderately traded. The prices of moderately traded stocks,data security laws enacted by foreign governments, such as ours, can be more volatile than stocks traded in a large, active public marketthe European Union's comprehensive 2018 General Data Privacy Regulation, and can be more easily impacted by sales or purchases of large blocks of stock. Moderately traded stocks are also less liquid, and because ofU.S. state governments, such as the low volume of trades, you may be unable to sell your shares when you desire to do so.
California Consumer Privacy Act that went into effect on January 1, 2020.
Provisions in our articles of incorporation, our
by-laws, by–laws, and Indiana law may delay or prevent an acquisition of us by a third party.
Our articles of incorporation and
by-laws by–laws and Indiana law contain provisions that have certain
anti-takeoveranti–takeover effects. While the purpose of these provisions is to strengthen the negotiating position of the board
of directors in the event of a hostile takeover attempt, the overall effects of these provisions may be to render more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a
largerlarge block of our shares, and the removal of incumbent directors and key management.
Our articles of incorporation provide for a staggered board, which means that only
one-third one–third of our board can be replaced by shareholders at any annual meeting. Our articles also provide that our directors may only be removed without cause by shareholders owning 70% or more of our outstanding common stock.
Furthermore, our articles provide that only our board of directors, and not our shareholders, may adopt, alter, amend and repeal ourby-laws.
Our articles also preempt Indiana law with respect to business combinations with a person who acquires 10% or more of our common stock and provide that such transactions are subject to independent and
super-majoritysuper–majority shareholder approval requirements unless certain pricing and board
pre-approval pre–approval requirements are satisfied.
Our
by-laws by–laws do not permit cumulative voting of shareholders in the election of directors, allowing the holders of a majority of our outstanding shares to control the election of all our directors, and our directors are elected by plurality
(not majority) voting.voting; although, under our newly adopted Director Resignation Policy, directors not receiving a majority of the votes cast in an uncontested election are required to submit a resignation, which our Board has the discretion to accept or reject. Our
by-laws by–laws also establish detailed procedures that shareholders must follow if they desire to nominate directors for election or otherwise present issues for consideration at a shareholders’ meeting.
We also have a mandatory retirement age for directors.
These and other provisions of our governing documents and Indiana law are intended to provide the board of directors with the negotiating leverage to achieve a more favorable outcome for our shareholders in the event of an offer for the Company. However, there is no assurance that these same anti-takeoveranti–takeover provisions could not have the effect of delaying, deferring or preventing a transaction or a change in control that shareholders might believe to be in their best interests.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Fiduciary Risk
Our prior role as a trustee for employee stock ownership plans (“ESOPs”) may expose us to increased risk of litigation due to heightened scrutiny of this role by the best interestU.S. Department of Labor and the plaintiffs' bar.
Prior to September 30, 2021, we acted as an independent trustee for corporate ESOP plans throughout the U.S. Over the last several years, the U.S. Department of Labor and the plaintiffs’ bar have been aggressively targeting ESOP trustees and transactions on a variety of fronts, including valuations and the amount that ESOP trustees pay to buy back stock from selling shareholders, as well as the indemnity agreements commonly used by ESOP companies to protect ESOP trustees from undue risk and liability exposure. In December 2021, Horizon reached a mediation settlement with the U.S. Department of Labor concerning ESOP valuations and sale transactions relating to ESOPs for which we acted as trustee. On September 30, 2021, we sold our ESOP trustee business to a third party. Despite exiting this line of business and our settlement with the U.S. Department of Labor with respect to many of our
shareholders.HORIZON BANCORP
ITEM1B. | UNRESOLVED STAFF COMMENTS |
prior engagement, we may still be exposed to an increased risk of litigation from the U.S. Department of Labor and the plaintiffs’ bar for these historical activities.
General Risks
We continually encounter technological changes.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology–driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements, and we may not be able to effectively implement new technology–driven products and services at the same speed at which our competitors do (or not at all) or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
We face intense competition in all phases of our business from other banks, financial institutions and non–banks.
The banking and financial services business in most of our markets is highly competitive. Our competitors include large banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, neo–banks (a digital or mobile–only bank that exists without any physical bank branches), and other non–bank financial and digital service providers, many of which have greater financial, marketing and technological resources than we do. Many of these competitors are not subject to the same regulatory restrictions that we are and may be able to compete more effectively as a result.
Also, technology and other changes have lowered barriers to entry and made it possible for customers to complete financial transactions using neo–banks, non–banks and financial technology (“FinTech”) companies that historically have involved banks at one or both ends of the transaction. These entities now offer products and services traditionally provided by banks and often at lower costs. The wide acceptance of Internet–based commerce has resulted in a number of alternative payment processing systems, and deposit and lending platforms in which banks play only minor roles. For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. Use of emerging alternative payment platforms, such as Apple Pay, Google Pay, and PayPal can alter consumer credit card behavior and consequently impact our interchange fee income.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
The continuing process of eliminating banks as intermediaries, known as “disintermediation,” will likely result in the loss of additional fee income, as well as the loss of customer deposits and the related income generated from those deposits. The effects of disintermediation are also likely to continue to negatively impact the lending activities of traditional banks because of the fast growing number of FinTech companies that use software and technology to deliver mortgage lending and other financial services with fewer employees. A related risk is the migration of bank personnel away from the traditional bank environments into neo–banks, FinTech companies and other non–banks.
Increased competition in our markets may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower. Any of these results could have a material adverse effect on our ability to maintain our earnings record, grow our loan portfolios and obtain low–cost funds. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased competition causes us to change our underwriting standards, we could be exposed to higher losses from lending activities. Additionally, many of our competitors are larger in total assets and capitalization and have greater access to capital markets.
Horizon is also experiencing an increase in competition to acquire other banks, due to the overall strength of financial institutions and their high capital levels. In addition, credit unions, private equity groups, and FinTech companies are now actively pursuing small bank acquisitions. Increased competition for bank acquisitions may slow Horizon’s ability to grow earning assets at comparable historical growth rates.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1C. CYBERSECURITY
The Board established the Cyber Security Committee of the Board in December 2022 to augment the Board's oversight with cybersecurity focus and expertise and to complement the risk framework activities of the Enterprise Risk Management and Credit Policy Committee. The Cyber Security Committee considers risks associated with Horizon's overall cyber security and information technology programs; information technology audits; the security risk insurance that Horizon maintains for information technology, cyber security and privacy risks; Horizon's information security training programs; and compliance with all rules and regulations and risk control policies and procedures relating to information technology and cyber security.
Pursuant to the Cyber Security Committee Charter, the Cyber Security Committee is required to meet at least three times per year and report to the Board annually. The Cyber Security Committee met three times in 2023. In addition, the Cyber Security Committee Charter provides that a majority of the Cyber Security Committee's voting members must qualify as independent directors under SEC rules and NASDAQ listing standards. During 2023, 80% of the Cyber Security Committee's members qualified as independent.
Horizon's senior management briefs the Cyber Security Committee at each Cyber Security Committee meeting (see below for detailed discussion). In 2023, Horizon's information technology/cyber security program was audited by Horizon's internal and external auditors. The Cyber Security Committee Charter is posted on Horizon's website at www.horizonbank.com in the section headed “About Us – Investor Relations – Corporate Information” under the caption “Corporate Governance.”
Through Horizon's enterprise risk management framework and reporting functions, the Board, its Committees and Management assess and manage cybersecurity risks created by cybersecurity threats. Horizon's Vice President, Information Security and Audit Information Security officer (“Information Security Officer”) provides an annual Information Security Program report to the Board and as needed when cybersecurity risk is elevated. Horizon's Senior Vice President, Senior Technology Officer is a member of the Cyber Security Committee and reports on cyber security risks at each meeting a minimum of three times a year. The Senior Vice President, Senior Technology Officer reports to the Executive Vice President, Senior Operations Officer, who also is a member of the Cyber Security Committee. For independence, the Information Security Officer reports to Horizon's Senior Vice President,
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
Senior Auditor and Compliance Officer. Horizon's risk escalation framework requires progressive escalation of cyber security risks to Management and its Committees, then to Board Committees and, ultimately, to the Board.
Management's Operations Committee meets monthly and provides oversight and governance of the technology and cyber security programs. The Senior Vice President, Senior Technology Officer and Information Security Officer are members of this committee and report monthly on the technology and cyber security programs. The Senior Vice President, Senior Technology Officer also is a member of Management's Enterprise Risk & Disclosure Committee, which meets a minimum of four times a year, to report on the technology and cyber security programs.
Horizon engages in regular assessments of its infrastructure, software systems, and network architecture, using internal cybersecurity experts and third–party specialists. It also maintains a third–party risk management program designed to identify, assess, and manage risk, including cybersecurity risks, associated with external service providers and our supply chain.
The Executive Vice President, Senior Operations Officer has 34 years of experience in operations and technology with an educational background in Business Administration. In the role of Senior Bank Operations Officer and Executive for the past 23 years, she oversees and works closely with Horizon's technology and security teams to develop and implement robust security measures to protect the Bank's systems, networks, and customer data. The Senior Bank Operations Officer stays current on the latest industry trends and emerging cyber threats through publications, webinars, seminars and banking association training around cyber security. She also collaborates with external agencies, such as law enforcement and regulatory bodies, to address cyber threats and ensure compliance with industry best practices.
The Senior Vice President, Senior Technology Officer has 27 years of experience in information technology, with the last 12 as the information technology leader for the Bank. He holds a Bachelor's Degree in Computer Science. He is an active member of FS–ISAC's Mergers an Acquisition Working Group, and a named author of their 2023 “Cybersecurity Best Practices in Mergers, Acquisitions and Divestiture Deals” publication. He also serves as an advisory member of the Indiana Governor's Executive Council on Cybersecurity. He attends numerous industry training sessions including those put on by the SANS Institute, PaloAlto, Cisco, Microsoft, the Cybersecurity and Infrastructure Security Agency (CISA), and FS–ISAC.
The Vice President, Information Security and Audit Information Security Officer has 27 years as an IT Professional, with the last 8 as the cybersecurity leader for Horizon Bank with an education background in Technology. He has achieved numerous certifications throughout his career including the Microsoft Certified Systems Engineer (MCSE) and Certified Novell Engineering (CNE 5/6), and has demonstrated a continued commitment to excellence and has attained certification as a Certified Information Systems Security Professional (CISSP) issued by ISC2 in 2022. Through continuous learning and professional development, the Information Security Officer has honed his expertise in cybersecurity frameworks, threat detection, incident response, and risk management. He also serves as a member of the Indiana Bankers Association (IBA) Cyber Security Committee and attends numerous industry training sessions including those put on by Microsoft, FS–ISAC, SANS Institute.
Notwithstanding our defensive measures and processes, the threat posed by cyber–attacks is severe. Our internal systems, processes, and controls are designed to mitigate loss from cyberattacks and, while we have experienced cybersecurity incidents in the past, to date, risks from cybersecurity threats have not materially affected our Company. See Item 1A. Risk Factors for further discussion of risks related to cyber security in Horizon's 2023 Annual Report on Form 10–K filed with the Securities and Exchange Commission.
HORIZON BANCORP, INC.
2023 Annual Report on Form 10–K
ITEM 2. PROPERTIES
The main office and full service branch of Horizon and the Bank is located at 515 Franklin Street, Michigan City, Indiana. The building located across the street from the main office of Horizon and the Bank, at 502 Franklin Street, houses the credit administration, operations,
facilities and purchasing, and information technology departments of the Bank. In addition to these principal facilities, the Bank has
6170 sales offices located
at: | | | | |
113 West First Street | | Wanatah | | Indiana |
3631 Franklin Street | | Michigan City | | Indiana |
1500 West Lincolnway | | La Porte | | Indiana |
423 South Roosevelt Street | | Chesterton | | Indiana |
4208 North Calumet Avenue | | Valparaiso | | Indiana |
2650 Willowcreek Road | | Portage | | Indiana |
8590 Broadway | | Merrillville | | Indiana |
1909 East Bristol Street | | Elkhart | | Indiana |
902 East Lincolnway | | Valparaiso | | Indiana |
10429 Calumet Avenue | | Munster | | Indiana |
17400 State Road 23 | | South Bend | | Indiana |
455 Morthland Drive | | Valparaiso | | Indiana |
302 North Alabama Street | | Indianapolis | | Indiana |
1216 West Carmel Drive | | Carmel | | Indiana |
1321 119th Street | | Whiting | | Indiana |
1349 Calumet Avenue | | Hammond | | Indiana |
1300 North Main Street | | Crown Point | | Indiana |
420 North Morton Street | | Franklin | | Indiana |
151 Marlin Drive | | Greenwood | | Indiana |
507 Three Notch Lane | | Bargersville | | Indiana |
942 South US 31 | | Greenwood | | Indiana |
105 North Main Street | | Avilla | | Indiana |
116 West Mitchell Street | | Kendallville | | Indiana |
212 West 7th Street | | Auburn | | Indiana |
1212 South Randolph Street | | Garrett | | Indiana |
114 South Detroit Street | | Lagrange | | Indiana |
123-129 South Main Street | | Columbia City | | Indiana |
303 Defiance Street | | Howe | | Indiana |
625 South Wayne Street | | Waterloo | | Indiana |
210 West Lake Street | | Topeka | | Indiana |
22730 Main Street | | Woodburn | | Indiana |
102 East Main Street | | Mentone | | Indiana |
433 Anchorage Road | | Warsaw | | Indiana |
2102 East Center Street | | Warsaw | | Indiana |
200 Main Street | | Leesburg | | Indiana |
411 South Huntington Street | | Syracuse | | Indiana |
710 Indiana Avenue | | La Porte | | Indiana |
6959 West Johnson Road | | La Porte | | Indiana |
301 Boyd Boulevard | | La Porte | | Indiana |
HORIZON BANCORP
| | | | |
1 Parkman Drive | | Westville | | Indiana |
2 South Perry Street | | Attica | | Indiana |
307 East Jackson Street | | Attica | | Indiana |
301 South Street | | Lafayette | | Indiana |
1980 Northwestern Avenue | | West Lafayette | | Indiana |
3602 Cougill Lane | | Lafayette | | Indiana |
2134 Greenbush Street | | Lafayette | | Indiana |
811 Ship Street | | St. Joseph | | Michigan |
2608 Niles Road | | St. Joseph | | Michigan |
1041 East Napier Avenue | | Benton Harbor | | Michigan |
3250 West Centre Avenue | | Portage | | Michigan |
250 Pearl Street NW | | Grand Rapids | | Michigan |
500 West Buffalo Street | | New Buffalo | | Michigan |
6801 US Highway 12 | | Three Oaks | | Michigan |
1600 Abbott Road | | East Lansing | | Michigan |
2151 West Grand River Avenue | | Okemos | | Michigan |
15534 US 12 | | Union | | Michigan |
500 North Grand Street | | Schoolcraft | | Michigan |
1213 West Michigan Avenue | | Three Rivers | | Michigan |
5710 Eastman Avenue | | Midland | | Michigan |
118 Ashman Street | | Midland | | Michigan |
464 North Main Street | | Frankenmuth | | Michigan |
in various cities and towns in northern and central Indiana and southern and central Michigan. Horizon maintains such branches and offices as it believes are necessary for the convenience of its customers and the community, and Horizon frequently assesses the suitability of all its business locations.
Horizon owns all of theseits facilities except for a leased office in Grand Rapids, Michigan.
ITEM 3. LEGAL PROCEEDINGS
As of April 20, 2023, a putative class action lawsuit entitled Chad Key, et al. v. Horizon Bancorp, Inc., et al., Case No. 1:23-cv-02961 (”Securities Action”) was filed against the East Lansing, Michigan office located at 1600 Abbot RoadCompany and two of its officers in the U.S. District Court for the Eastern District of New York. The Securities Action asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 9, 2022 and March 10, 2023.
As of (1) August 28, 2023, a lawsuit related to the Securities Action was filed by Sally Hundley, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors and (2) August 31, 2023, a lawsuit also related to the Securities Action was filed by Aziz Chowdhury, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors (the “Derivatives Actions”) in the U.S. District Court for the Eastern District of New York. The Derivative Actions allege, among other things, breach of the officers and directors' fiduciary duties. The Derivative Actions have been consolidated and stayed pending resolution of any motion to dismiss in the Securities Action.
Based on our initial review of these actions, management believes that the Company has strong defenses to the claims and intends to vigorously defend against them. As of December 31, 2023, no liabilities related to the above matters were recorded because we have concluded such liabilities are not probable and the
Grand Rapids, Michigan office located at 250 Pearl Street NW, whichamounts of such liabilities are
leased. The Bank also has 4 loan production offices which are all leased located at: | | | | |
10020 Auburn Park Drive | | Fort Wayne | | Indiana |
200 South Rangeline Road | | Carmel | | Indiana |
3330 Grand Ridge Drive NE | | Grand Rapids | | Michigan |
200 East Big Beaver Road | | Troy | | Michigan |
not reasonably estimable.
In addition to the matters described above, from time to time, Horizon and its subsidiaries are involved in various legal proceedings incidental to the conduct of their business. Management does not expect that the outcome of any such proceedings will have a material adverse effect on our consolidated financial position or results of operations.
ITEM4. | MINE SAFETY DISCLOSURES |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
HORIZON BANCORP
SPECIAL ITEM: INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF REGISTRANT | | | | | | | | |
CraigThomas M. DwightPrame | 54 | 61 | | Chairman of Horizon since July 2014; Chairman and Chief Executive Officer of the Bank since January 2003; Chief Executive Officer of Horizon and the Bank since July 2001; President of the Bank from 1998 to January 2003. |
| | |
James D. Neff | | 58 | | President of Horizon and the Bank since January 2018;August 15, 2022; Executive Vice President – Consumerat First Midwest Bancorp from May 2012 to March 2022. As previously disclosed, on January 17, 2023, the Board approved the appointment of Thomas M. Prame to serve as the Chief Executive Officer of both Horizon and Mortgage Banking of the Bank, from 2016 to January 2018; Executive Vice President – Mortgage Bankingeffective as of the Bank from January 2004 to 2016; Senior Vice President of the Bank from October 1999 to January 2004; Corporate Secretary of Horizon from 2007 to 2017.June 1, 2023. |
| | |
| Mark E. Secor | 57 | 51 | | Executive Vice President of Horizon since January 2014;2014; Chief Financial Officer and Executive Vice President of Horizon and the Bank since January 2009; Vice President, Chief Investment and Asset Liability Manager from June 2007 to January 2009; Chief Financial Officer of St. Joseph Capital Corp., Mishawaka, Indiana from 2004 to 2007. On November 7, 2023, Horizon announced a succession plan for its Chief Financial Officer. Horizon and Mark E. Secor have agreed that he will transition from his role as Executive Vice President and Chief Financial Officer (“CFO”) of Horizon and the Bank. Mr. Secor will continue in the role of Executive Vice President and Chief Financial Officer until a successor is appointed and support the transition process through April 30, 2024. Horizon has initiated a search process to identify Horizon's next CFO. |
| | |
| Kathie A. DeRuiter | 62 | 56 | | Executive Vice President of Horizon and Senior Bank Operations Officer since January 2014; Senior Vice President, Senior Bank Operations Officer from January 2003 to January 2014; Vice President, Senior Bank Operations Officer from January 2000 to January 2003. |
| | |
| Todd A. Etzler | 57 | Executive Vice President and General Counsel since January 2021; Senior Vice President and General Counsel from July 2018 to December 2020; Vice President and General Counsel from March 2017 to July 2018; Corporate Secretary since January 2018. General Counsel of Family Express Corporation from July 2011 to March 2017. |
| Dennis J. Kuhn | |
| Lynn M. Kerber | 55 | 58 | | Executive Vice President and Senior Commercial Credit Officer since January 2021; Senior Vice President and Senior Commercial Credit Officer from May 2018 to December 2020; Executive Vice President and Chief Commercial BankingRisk Officer, since OctoberChemical Financial Corporation June 2015 to August 2017; Regional Market President for Michigan and Northeast Indiana since February 2014; Chair of the Regional Loan Committee; Market President for Kalamazoo, Michigan since May 2010.Chemical Bank Foundation 2013 to 2017. |
All officers are appointed annually by the Board of Directors of Horizon and the Bank, as applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES Common Stock and Related Stockholder Matters
Horizon common stock is traded on the NASDAQ Global Select Market under the symbol “HBNC.”
The approximate number of holders of record of Horizon’s outstanding common stock as of March 14, 2024 was 1,383.
The Equity Compensation Plan Information table appears under the caption “Equity Compensation Plan Information” in Item 12 below and is incorporated herein by reference.
Repurchases of Securities
There were no purchases by the Company of its common stock during the fourth quarter of
2017.HORIZON BANCORP
2023.
The SEC requires Horizon to include a line graph comparing Horizon’s cumulative
five-yearfive–year total shareholder returns on the common shares with market and industry returns over the past five years.
SNL Financial LCS&P Global Market Intelligence prepared the following graph. The return represented in the graph assumes the investment of $100 on December 31,
2012,2018, and further assumes reinvestment of all dividends. The Company’s common stock began trading on the NASDAQ Global Market on February 1, 2007, and on the NASDAQ Global Select Market on January 2, 2014. Prior to that date, the common stock was traded on the NASDAQ Capital Market.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Period Ending | |
| | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | |
| Index | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
Horizon Bancorp | | | 100.00 | | | | 131.38 | | | | 138.55 | | | | 150.85 | | | | 231.79 | | | | 234.25 | |
Russell 2000 | | | 100.00 | | | | 138.82 | | | | 145.62 | | | | 139.19 | | | | 168.85 | | | | 193.58 | |
SNL Bank$1B-$5B | | | 100.00 | | | | 145.41 | | | | 152.04 | | | | 170.20 | | | | 244.85 | | | | 261.04 | |
SNL Micro Cap Bank | | | 100.00 | | | | 129.02 | | | | 146.32 | | | | 162.71 | | | | 200.04 | | | | 244.72 | |
Source :
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31 | | December 31 | | December 31 | | December 31 | | December 31 | | December 31 |
| Index | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Horizon Bancorp, Inc. | 100.00 | | | 123.69 | | | 107.78 | | | 145.97 | | | 109.09 | | | 109.56 | |
| Russell 2000 Index | 100.00 | | | 125.53 | | | 150.58 | | | 172.90 | | | 137.56 | | | 160.85 | |
| S&P U.S. SmallCap Banks Index | 100.00 | | | 125.46 | | | 113.94 | | | 158.62 | | | 139.85 | | | 140.55 | |
Source: S&P Global Market Intelligence
Copyright 2017
HORIZON BANCORP
© 2023
The following chart compares the change in market price of Horizon’s common stock since December 31,
20122018 to that of publicly traded banks in Indiana and Michigan with assets greater than $500 million, excluding the reinvestment of dividends.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Period Ending | |
| | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | | | December 31 | |
| Index | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
Horizon Bancorp | | | 100.00 | | | | 128.93 | | | | 133.05 | | | | 142.29 | | | | 213.74 | | | | 212.21 | |
Indiana Banks(1) | | | 100.00 | | | | 131.09 | | | | 141.28 | | | | 158.90 | | | | 231.81 | | | | 278.42 | |
Michigan Banks(1) | | | 100.00 | | | | 118.70 | | | | 128.85 | | | | 142.90 | | | | 171.55 | | | | 183.68 | |
(1) | excludes merger targets |
Source :
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31 | | December 31 | | December 31 | | December 31 | | December 31 | | December 31 |
| Index | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Horizon Bancorp, Inc. | 100.00 | | | 120.41 | | | 100.51 | | | 132.13 | | | 95.56 | | | 90.68 | |
Indiana Banks (1) | 100.00 | | | 114.06 | | | 104.26 | | | 130.42 | | | 116.22 | | | 111.53 | |
Michigan Banks (1) | 100.00 | | | 112.31 | | | 107.02 | | | 143.18 | | | 120.22 | | | 117.48 | |
| | | | | | | | | | | |
(1) Excludes merger targets |
Source: S&P Global Market Intelligence
Copyright 2017
Other Information
The information regarding Horizon’s common stock, including the approximate number
© 2023
ITEM 6. RESERVED
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in Northernnorthern and Centralcentral Indiana and Southern, Centralsouthern and the Great Lakes Bay regions ofcentral Michigan through its bank subsidiary.subsidiary, Horizon Bank. Horizon operates as a single segment, which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. The Bank was charteredfounded in 1873 as a national banking association, in 1873,and it remained a national association until its conversion to an Indiana commercial bank effective June 23, 2017, and has operated continuously since that time.2017. The Bank is a full-servicefull–service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services, and other services incident to banking. All share data included below has been adjusted
Fourth Quarter and Full Year 2023 Highlights
•Commercial loan growth totaled $85.7 million, increasing by 13.1% annualized during the quarter and 8.4% since December 31, 2022. Total loans were $4.42 billion at period end, increasing by 5.2% annualized during the quarter and 6.1% since December 31, 2022.
•Deposits remained resilient, totaling $5.7 billion at period end, compared to reflect Horizon’sthree-for-two stock split paid$5.7 billion on November 14, 2016.Following are some highlightsSeptember 30, 2023 and decreased 3.3% since December 31, 2022.
•Net interest margin increased to 2.43% compared to 2.41% in the linked quarter. Interest income was $42.3 million compared to $42.1 million in the linked quarter.
•Cash totaled $526.5 million at period end, providing significant flexibility to drive future net interest margin growth through deployment into higher yielding assets throughout 2024.
•Excellent asset quality with net charge–offs representing 0.05% of Horizon’s financial performance during 2017:Net incomeaverage loans for the year, ended December 31, 2017 was $33.1 million, or $1.43 diluted earnings per share, compared to $23.9 million, or $1.19 diluted earnings per share, for the year ended December 31, 2016.
Net income, excluding acquisition-related expenses, gain on saledelinquent loans representing 0.38% of investment securities, prepayment penalties on borrowings, gain on the accounting for Horizon’s equity interest in Lafayette Community Bancorp, tax reform bill impacttotal loans at period end and purchase accounting adjustments (“core net income”), for the year ended December 31, 2017 increased 21.4% to $35.5 million, or $1.53 diluted earnings per share, compared to $29.2 million, or $1.45 diluted earnings per share for the year ended December 31, 2016.
Return on average assets was 0.97% for the year ended December 31, 2017 compared to 0.81% for the year ended December 31, 2016.
Return on average assets, excluding acquisition-related expenses, gain on salenon–performing loans representing 0.44% of investment securities, prepayment penalties on borrowings, gain on the accounting for Horizon’s equity interest in Lafayette Community Bancorp, tax reform bill impact and purchase accounting adjustments (“core return on average assets”), for the year ended December 31, 2017 was 1.04% compared to 0.99% for the year ended December 31, 2016.
Horizon surpassed $3.9 billion in total assets during 2017.
Total loans increased by a rate of 32.2%, or $691.0 million, during 2017. Total loans, excluding acquired loans, increased by a rate of 11.3%, or $242.7 million, during 2017.
Commercial loans increased by a rate of 51.2%, or $547.9 million, during 2017. Commercial loans, excluding acquired commercial loans, increased by a rate of 14.3%, or $152.7 million, during 2017.
Consumer loans increased by a rate of 28.7%, or $114.4 million, during 2017. Consumer loans, excluding acquired consumer loans, increased by a rate of 26.3%, or $104.7 million, during 2017.
Net interest income increased $26.1 million, or 30.4%, to $112.1 million for the year ended December 31, 2017 compared to $86.0 million for the year ended December 31, 2016.
Net interest margin was 3.75% for the year ended December 31, 2017 compared to 3.29% for the year ended December 31, 2016. The improvement in net interest margin from the prior year was due to Horizon executing a strategy to reduce expensive funding costs in the fourth quarter of 2016, an increase in average interest-earning assets, an increase in loan yields andat period end, with the increase in interest ratesprovision during 2017.the year primarily attributable to loan growth.
Net interest margin, excluding
•In December, the Company announced a balance sheet repositioning that included the sale of $382.7 million in lower-yielding securities and the surrender of $113.9 million of bank owned life insurance (“BOLI”) policies. For the quarter, the Company recorded a net loss of $25.2 million, or $0.58 per diluted share. Excluding the $38.7 million after-tax impact of prepayment penalties on borrowingsthe balance sheet repositioning and purchase accounting adjustments (“coreapproximately $705,000 in extraordinary expenses associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities, adjusted net interest margin”),income was 3.64% for$14.1 million, or $0.33 per diluted share, in the year ended December 31, 2017quarter. (See the “Non–GAAP Reconciliation of Net Income” table below.) This compared to 3.38% forthird quarter 2023 net income of $16.2 million, or $0.37 per diluted share.
•Horizon continues to maintain cash at the year ended December 31, 2016.
Horizon’s tangible book value per share increased following the acquisitionsholding company level representing approximately eight quarters of Lafayette Community Bancorpdividend payments and Wolverine Bancorp, Inc. to $12.72 at December 31, 2017, compared to $11.48 at December 31, 2016.fixed costs.
Horizon consolidated branch locations in Three Rivers, Michigan and Columbia City, Indiana, reducing the aggregate number of branches from four to two and lowering related non-interest expenses.
On February 3, 2018, Horizon closed its Columbus, Ohio loan production office to reallocate its resources to growth markets in Indiana and Michigan.
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Critical Accounting Policies
The Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form
10-K 10–K for
20172023 contain a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management has identified the allowance for
loancredit losses, goodwill and intangible assets, mortgage servicing rights, derivative instruments and valuation measurements as critical accounting policies.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Allowance for
LoanCredit Losses
An
The allowance for loancredit losses is maintained to absorb probable incurred loan losses inherent in the loan portfolio. The determination ofon loans and leases (“ACL”) replaces the allowance for loan losses is a critical accounting policy that involves management’s ongoing quarterly assessments of the probable incurred losses inherent in the loan portfolio. The identification of loans that have probable incurred losses is subjective; therefore, a general reserve is maintained to cover all probable losses within the entire loan portfolio. Horizon utilizes a loan grading system that helps identify, monitor and address asset quality problems in an adequate and timely manner. Each quarter, various factors affecting the quality of the loan portfolio are reviewed. Large credits are reviewed on an individual basis for loss potential. Other loans are reviewedlease losses as a group based upon previous trendscredit accounting estimate, as of loss experience. Horizon also reviewsJanuary 1, 2020 with the current and anticipated economic conditionsadoption of its lending market as well as transaction risk to determine the effect they may haveASU 2016–13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on the loss experience of the loan portfolio.Acquired credit-impaired loans are accountedFinancial Instruments.
The allowance for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (FASB ASC310-30) and initially measured at fair value, which includes estimated future credit losses represents management’s best estimate of current expected to be incurredcredit losses over the life of the loans. Accordingly, allowancesportfolio of loans and leases. Estimating credit losses requires judgment in determining loan specific attributes impacting the borrower’s ability to repay contractual obligations. Other factors such as economic forecasts used to determine a reasonable and supportable forecast, prepayment assumptions, the value of underlying collateral, and changes in size composition and risks within the portfolio are also considered.
The allowance for credit losses relatedis assessed at each balance sheet date and adjustments are recorded in the provision for credit losses. The allowance is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast. Loan losses are estimated using the fair value of collateral for collateral–dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan is expected to these loansbe made through the operation or sale of the collateral. Loan balances considered uncollectible are not carried over and recordedcharged–off against the ACL. Assets purchased with credit deterioration (“PCD”) represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition dates. Loans acquireddate. At acquisition, the allowance for credit losses on PCD assets is booked directly to the ACL. Any subsequent changes in the ACL on PCD assets is recorded through business combinationsthe provision for credit losses. Management believes that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans and leases as of the balance sheet date. Actual losses incurred may differ materially from our estimates.
Allowance for Credit Losses on Off–Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The Company determines the estimated amount of expected credit extensions based on historical usage to calculate the amount of exposure for a loss estimate and has recorded an allowance.
Allowance for Credit Losses on Available for Sale Securities
For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the specificaforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of FASB ASC310-30, butthe security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for which a discountthe credit loss, limited by the amount that the fair value is attributable,less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recorded in other comprehensive income.
Changes in the ACL are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Allowance for Credit Losses on Held to Maturity Securities
For held to maturity securities, the Company conducts an assessment of its held to maturity securities at the time of purchase and on at least
an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to perform satisfactorily in
partfulfilling its obligations. The Company considers, among other factors, the nature of the securities and credit ratings or financial condition of the issuer. If available, the Company obtains a credit rating for issuers from the Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration. If this assessment indicates that a material credit loss exists, the present value of cash flows expected to be collected from the security are compared to the
credit quality, are also accounted for under this guidance. As a result, related discounts are recognized subsequently through accretion based onamortized cost basis of the
expectedsecurity. If the present value of cash flows
ofexpected to be collected is less than the
acquired loans. For purposes of applying FASB ASC310-30, loans acquired in business combinations are aggregated into pools of loans with common risk characteristics.amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss.
Goodwill and Intangible Assets
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. FASB ASC350-10 350–10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At December 31, 2017,2023, Horizon had core deposit intangibles of $12.4$13.6 million subject to amortization and $119.9$155.2 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely affect earnings in future periods. FASB ASC350-10 350–10 requires an annual evaluation of goodwill for impairment. The evaluation
At each reporting date between annual goodwill impairment tests, Horizon considers potential indicators of impairment. Impairment indicators considered comprised the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of the Company's stock and other relevant events. Horizon further considered the amount by which fair value exceeded book value in the most recent quantitative analysis and stress testing performed. At the conclusion of the assessment, the Company determined that as of December 31, 2023, it was more likely than not that the fair value exceeded its carrying value. Horizon will continue to monitor overall economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill
for impairment requiresin the
use of estimates and assumptions. Market price at the close of business on December 29, 2017 was $27.80 per share compared to a tangible book value of $12.72 per common share. Horizon’s return on average assets was 97 basis points for the year ending December 31, 2017.HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
future.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets on a
servicing-retainedservicing–retained basis. Capitalized servicing rights are amortized into
non-interest non–interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using
market-basedmarket–based assumptions. When the book value of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value. In periods of falling market interest rates, accelerated loan prepayment can adversely affect the fair value of these
mortgage-servicingmortgage–servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or negatively.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, Horizon utilizes a
third-partythird–party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis. In addition, on a quarterly basis Horizon engages a third party to independently test the value of its servicing asset.
As part of the Company’s asset/liability management program, Horizon utilizes, from
time-to-time, time–to–time, interest rate floors, caps or swaps to reduce the Company’s sensitivity to interest rate fluctuations. These are derivative instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair values of derivatives are reported in the consolidated income statements or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.
Horizon’s accounting policies related to derivatives reflect the guidance in FASB ASC
815-10. 815–10. Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized firm commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). For fair value hedges, the cumulative change in fair value of both the hedge instruments and the underlying loans is recorded in
non-interest non–interest income. For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in OCI are reflected in the consolidated income statement in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, Horizon establishes the method it uses for
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of income. Horizon excludes the time value expiration of the hedge when measuring ineffectiveness.
Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities
residential mortgage loans held for sale and derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other
post-retirementpost–retirement benefit obligations. To determine the values of these assets and liabilities, as well as the
extent;extent to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Analysis of Financial Condition
Horizon’s total assets were
$3.964$7.9 billion as of December 31,
2017,2023, an increase of
$823.1$68.0 million from December 31,
2016.2022. The increase was primarily in cash and due from banks of $403.0 million and in net loans of $260.1 million, offset by decreases in investment securities of $527.4 million and cash value of life insurance of $110.0 million.
Investment securities
carrying values totaled
$710.1 million$2.5 billion at December 31,
2017,2023, and consisted of Treasury and federal agency securities of
$19.1$351.6 million
(2.7%(14.1%); state and municipal securities of
$329.4 million (46.3%$1.4 billion (55.8%); federal agency
mortgage-backedmortgage–backed pools of
$223.5$460.9 million
and federal agency collateralized mortgage obligations of
$136.1$54.9 million
and(20.7%); private labeled
mortgage-backedmortgage–backed pools of
$1.6$32.3 million
(50.9%(1.3%); and corporate securities of
$385,000 (0.1%$200.7 million (8.1%).
As indicated above, 50.9%20.7% of the investment portfolio consists of mortgage-backedmortgage–backed securities and collateralized mortgage obligations. These instruments are secured by residential mortgages of varying maturities. Principal and interest payments are received monthly as the underlying mortgages are repaid. These payments also include prepayments of mortgage balances as borrowers either sell their homes or refinance their mortgages. Therefore, mortgage-backedmortgage–backed securities and collateralized mortgage obligations have maturities that are stated in terms of average life. The average life is the average amount of time that each dollar of principal is expected to be outstanding. As of December 31, 2017,2023, the mortgage-backedmortgage–backed securities and collateralized mortgage obligations in the investment portfolio had an average duration of 3.85just under 7 years. Securities that have interest rates above current market rates are purchased at a premium. Management monitors these investments periodically
Available for
other than temporary impairment by obtaining and reviewing the underlying collateral details and has concluded at December 31, 2017, any unrealized loss is temporary and that the Company has the intent and ability to hold these investments to maturity.Available-for-salesale municipal securities are priced by a third party using a pricing grid which estimates prices based on recent sales of similar securities. All municipal securities are investment grade or localnon-rated issues and management does not believe there is other than temporary deterioration in market value. non–rated issues. A credit review is performed annually on the municipal securities portfolio.
At December 31,
2017, 71.8%2023 and
at December 31, 2016, 69.5%2022, 22.0% and 33.0%, respectively, of investment securities were classified as available for sale. Securities classified as available for sale are carried at their fair value, with both unrealized gains and losses recorded, net of tax, directly to stockholders’ equity. Net depreciation on these securities totaled
$3.9$87.4 million, which resulted in a balance of
$3.1$69.0 million, net of tax, included in stockholders’ equity at December 31,
2017.2023. This compared to
$3.9net depreciation on securities which totaled $110.7 million, net of tax, included in stockholders’ equity at December 31,
2016.HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
2022.
Fair value is defined 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. A fair value hierarchy is also established which requires an entity to maximize the use of observable and minimize the use of unobservable inputs. 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. |
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.
When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There are no Level 1 securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Treasury and Federal agency securities, State and municipal securities, Federal agency collateralized mortgage obligations, Federal agency mortgage-backed pools and corporate notes. For Level 2 securities, Horizon uses a third party service to determine fair value. In performing the valuations, the pricing service relies on models that consider security-specificsecurity–specific details as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities and
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
certain prepayment assumptions. To verify the reasonableness of the fair value determination by the service, Horizon has a portion of the Level 2 securities priced by an independent securities
broker-dealer.broker–dealer.
Unrealized gains and losses onavailable-for-sale available for sale securities, deemed temporary, are recorded, net of income tax, in a separate component of accumulated other comprehensive income on the balance sheet. No unrealized losses
The following is a schedule of maturities of each categories of available for sale and held to maturity debt securities and the related weighted–average yield of such securities as of December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One Year
or Less | | After One Year
Through Five Years | | After Five Years
Through Ten Years | | After Ten Years |
| (dollars in thousands) | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| Available for sale | | | | | | | | | | | | | | | |
U.S. Treasury and federal agencies(1) | $ | 3,764 | | | 0.82 | % | | $ | 38,921 | | | 1.44 | % | | $ | 19,983 | | | 2.17 | % | | $ | 1,709 | | | 1.81 | % |
| State and municipal | 195 | | | 0.51 | % | | 32,334 | | | 1.90 | % | | 104,704 | | | 2.30 | % | | 166,797 | | | 3.10 | % |
Federal agency collateralized mortgage obligations(2) | — | | | — | % | | 921 | | | 3.04 | % | | — | | | — | % | | 2,659 | | | 3.61 | % |
Federal agency mortgage-backed pools(2) | — | | | — | % | | 11,661 | | | 3.38 | % | | 5,825 | | | 2.61 | % | | 119,811 | | | 2.05 | % |
Private labeled mortgage-backed pools(2) | — | | | — | % | | — | | | — | % | | — | | | — | % | | — | | | — | % |
| Corporate notes | 1,448 | | | 3.45 | % | | 18,396 | | | 2.69 | % | | 16,516 | | | 4.29 | % | | 1,607 | | | — | % |
| Total available for sale | 5,407 | | | 1.52 | % | | 102,233 | | | 2.05 | % | | 147,028 | | | 2.52 | % | | 292,583 | | | 2.65 | % |
| Held to maturity | | | | | | | | | | | | | | | |
U.S. Treasury and federal agencies(1) | 8,054 | | | 2.10 | % | | 95,481 | | | 1.68 | % | | 84,004 | | | 2.45 | % | | 58,421 | | | 2.93 | % |
| State and municipal | 25,115 | | | 3.01 | % | | 116,905 | | | 3.40 | % | | 86,835 | | | 3.37 | % | | 710,506 | | | 3.04 | % |
Federal agency collateralized mortgage obligations(2) | — | | | — | % | | — | | | — | % | | — | | | — | % | | 43,479 | | | 2.40 | % |
Federal agency mortgage-backed pools(2) | — | | | — | % | | 3,886 | | | 2.80 | % | | 124,040 | | | 2.36 | % | | 147,102 | | | 2.20 | % |
Private labeled mortgage-backed pools(2) | — | | | — | % | | — | | | — | % | | — | | | — | % | | 27,734 | | | 2.91 | % |
| Corporate notes | — | | | — | % | | 3,969 | | | 3.15 | % | | 133,227 | | | 4.45 | % | | — | | | — | % |
| Total held to maturity | 33,169 | | | 2.79 | % | | 220,241 | | | 2.64 | % | | 428,106 | | | 3.23 | % | | 987,242 | | | 2.88 | % |
| Total investment securities | $ | 38,576 | | | 2.61 | % | | $ | 322,474 | | | 2.45 | % | | $ | 575,134 | | | 3.05 | % | | $ | 1,279,825 | | | 2.82 | % |
| | | | | | | | | | | | | | | |
(1) Fair value is based on contractual maturity or call date where a call option exists |
(2) Maturity based upon final maturity date |
The weighted–average interest rates are based on coupon rates for securities purchased at par value an on effective interest rates considering amortization or accretion if the securities were
deemed to be “other-than-temporary.”purchased at a premium or discount. Yields are not presented on a tax–equivalent basis.
As a member of the Federal Home Loan Bank system, Horizon is required to maintain an investment in the common stock of the Federal Home Loan Bank. The investment in common stock is based on a predetermined formula. At December 31,
2017,2023 and 2022, Horizon had investments in the common stock of the Federal Home Loan Bank totaling
$18.1$34.5 million and
$14.9$26.7 million,
at December 31, 2016.respectively.
At December 31,
2017,2023, Horizon did not maintain a trading account.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
For more information about securities, see Note
4 —3 – Securities to the Consolidated Financial Statements at Item 8.
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Total loans, net of deferred fees/costs, the principal earning asset of the Bank, were
$2.832$4.4 billion at December 31,
2017.2023. The current level of total loans increased
32.6%6.3% from the December 31,
2016,2022, level of
$2.136 billion.$4.1 billion primarily due to an increase in commercial, consumer and residential mortgage loans, offset by a decrease in residential construction and mortgage warehouse loans during the year. The table below provides comparative detail on the loan categories.
| | | | | | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | Dollar | | | Percent | |
| | | 2017 | | | 2016 | | | Change | | | Change | |
Commercial | | | | | | | | | | | | | | | | |
Working capital and equipment | | $ | 696,612 | | | $ | 539,403 | | | $ | 157,209 | | | | 29.1 | % |
Real estate, including agriculture | | | 854,003 | | | | 485,620 | | | | 368,383 | | | | 75.9 | % |
Tax exempt | | | 36,324 | | | | 15,486 | | | | 20,838 | | | | 134.6 | % |
Other | | | 30,931 | | | | 29,447 | | | | 1,484 | | | | 5.0 | % |
| | | | | | | | | | | | | | | | |
Total | | | 1,617,870 | | | | 1,069,956 | | | | 547,914 | | | | 51.2 | % |
Real estate | | | | | | | | | | | | | | | | |
1–4 family | | | 599,217 | | | | 526,024 | | | | 73,193 | | | | 13.9 | % |
Other | | | 7,543 | | | | 5,850 | | | | 1,693 | | | | 28.9 | % |
| | | | | | | | | | | | | | | | |
Total | | | 606,760 | | | | 531,874 | | | | 74,886 | | | | 14.1 | % |
| | | | |
Consumer | | | | | | | | | | | | | | | | |
Auto | | | 251,020 | | | | 174,773 | | | | 76,247 | | | | 43.6 | % |
Recreation | | | 8,752 | | | | 5,669 | | | | 3,083 | | | | 54.4 | % |
Real estate/home improvement | | | 63,811 | | | | 53,898 | | | | 9,913 | | | | 18.4 | % |
Home equity | | | 165,240 | | | | 144,508 | | | | 20,732 | | | | 14.3 | % |
Unsecured | | | 3,743 | | | | 3,875 | | | | (132 | ) | | | -3.4 | % |
Other | | | 20,291 | | | | 15,706 | | | | 4,585 | | | | 29.2 | % |
| | | | | | | | | | | | | | | | |
Total | | | 512,857 | | | | 398,429 | | | | 114,428 | | | | 28.7 | % |
| | | | |
Mortgage warehouse | | | 94,508 | | | | 135,727 | | | | (41,219 | ) | | | -30.4 | % |
| | | | | | | | | | | | | | | | |
Total loans | | | 2,831,995 | | | | 2,135,986 | | | | 696,009 | | | | 32.6 | % |
Allowance for loan losses | | | (16,394 | ) | | | (14,837 | ) | | | (1,557 | ) | | | | |
| | | | | | | | | | | | | | | | |
Loans, net | | $ | 2,815,601 | | | $ | 2,121,149 | | | $ | 694,452 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | December 31, | | Dollar | | Percent |
| 2023 | | 2022 | | Change | | Change |
| Commercial | | | | | | | |
| Owner occupied real estate | $ | 640,731 | | | $ | 594,562 | | | $ | 46,169 | | | 7.8 | % |
| Non–owner occupied real estate | 1,273,838 | | | 1,187,077 | | | 86,761 | | | 7.3 | % |
| Residential spec homes | 13,489 | | | 10,838 | | | 2,651 | | | 24.5 | % |
| Development & spec land | 34,039 | | | 27,358 | | | 6,681 | | | 24.4 | % |
| Commercial and industrial | 712,863 | | | 647,587 | | | 65,276 | | | 10.1 | % |
| Total commercial | 2,674,960 | | | 2,467,422 | | | 207,538 | | | 8.4 | % |
| Real estate | | | | | | | |
| Residential mortgage | 654,295 | | | 612,551 | | | 41,744 | | | 6.8 | % |
| Residential construction | 26,841 | | | 40,741 | | | (13,900) | | | (34.1) | % |
| Mortgage warehouse | 45,078 | | | 69,529 | | | (24,451) | | | (35.2) | % |
| Total real estate | 726,214 | | | 722,821 | | | 3,393 | | | 0.5 | % |
| Consumer | | | | | | | |
| Direct installment | 52,366 | | | 56,614 | | | (4,248) | | | (7.5) | % |
| Indirect installment | 399,946 | | | 500,549 | | | (100,603) | | | (20.1) | % |
| Home equity | 564,144 | | | 410,592 | | | 153,552 | | | 37.4 | % |
| Total consumer | 1,016,456 | | | 967,755 | | | 48,701 | | | 5.0 | % |
| Total loans | 4,417,630 | | | 4,157,998 | | | 259,632 | | | 6.2 | % |
| Allowance for loan losses | (50,029) | | | (50,464) | | | 435 | | | (0.9) | % |
| Loans, net | $ | 4,367,601 | | | $ | 4,107,534 | | | $ | 260,067 | | | 6.3 | % |
The acceptance and management of credit risk is an integral part of the Bank’s business as a financial intermediary. The Bank has established underwriting standards including a policy that monitors the lending function through strict administrative and reporting requirements as well as an internal loan review of
consumercommercial, residential real estate and
small businessconsumer loans. The Bank also uses an independent
third-partythird–party loan review function that regularly reviews asset quality.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Changes in the mix of the loan portfolio averages are shown in the following table.
| | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Commercial | | $ | 1,227,698 | | | $ | 918,844 | | | $ | 743,175 | |
Real estate | | | 567,581 | | | | 497,337 | | | | 368,653 | |
Mortgage warehouse | | | 89,212 | | | | 159,588 | | | | 138,137 | |
Consumer | | | 450,635 | | | | 372,811 | | | | 343,825 | |
| | | | | | | | | | | | |
Total average loans | | $ | 2,335,126 | | | $ | 1,948,580 | | | $ | 1,593,790 | |
| | | | | | | | | | | | |
HORIZON BANCORP
| | | | | | | | | | | | | | | | | |
| December 31, | | December 31, | | December 31, |
| 2023 | | 2022 | | 2021 |
| Commercial | $ | 2,498,453 | | | $ | 2,280,553 | | | $ | 2,155,018 | |
| Real estate | 675,520 | | | 621,163 | | | 591,395 | |
| Mortgage warehouse | 54,798 | | | 89,409 | | | 206,932 | |
| Consumer | 1,011,166 | | | 850,667 | | | 679,712 | |
| Total average loans | $ | 4,239,937 | | | $ | 3,841,792 | | | $ | 3,633,057 | |
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table presents the maturity distribution of our loan portfolio as December 31, 2023. The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Due in
One Year
or Less | | After One,
but Within
Five Years | | After Five,
but Within
Fifteen Years | | After
Fifteen Years | | Total |
| Commercial | $ | 403,193 | | | $ | 1,108,871 | | | $ | 1,039,478 | | | $ | 123,418 | | | $ | 2,674,960 | |
| Real estate | 1,252 | | | 10,979 | | | 53,770 | | | 615,135 | | | 681,136 | |
| Mortgage warehouse | 45,078 | | | — | | | — | | | — | | | 45,078 | |
| Consumer | 13,191 | | | 300,139 | | | 219,307 | | | 483,819 | | | 1,016,456 | |
| Total | $ | 462,714 | | | $ | 1,419,989 | | | $ | 1,312,555 | | | $ | 1,222,372 | | | $ | 4,417,630 | |
| Loans with fixed interest rates: | | | | | | | | | |
| Commercial | $ | 140,081 | | | $ | 740,362 | | | $ | 365,557 | | | $ | 56,826 | | | $ | 1,302,826 | |
| Real estate | 1,235 | | | 10,356 | | | 31,516 | | | 358,388 | | | 401,495 | |
| Mortgage warehouse | — | | | — | | | — | | | — | | | — | |
| Consumer | 9,324 | | | 281,406 | | | 204,320 | | | 22,228 | | | 517,278 | |
| Total | $ | 150,640 | | | $ | 1,032,124 | | | $ | 601,393 | | | $ | 437,442 | | | $ | 2,221,599 | |
| Loans with variable interest rates: | | | | | | | | | |
| Commercial | $ | 263,112 | | | $ | 368,509 | | | $ | 673,921 | | | $ | 66,592 | | | $ | 1,372,134 | |
| Real estate | 17 | | | 623 | | | 22,254 | | | 256,747 | | | 279,641 | |
| Mortgage warehouse | 45,078 | | | — | | | — | | | — | | | 45,078 | |
| Consumer | 3,867 | | | 18,733 | | | 14,987 | | | 461,591 | | | 499,178 | |
| Total | $ | 312,074 | | | $ | 387,865 | | | $ | 711,162 | | | $ | 784,930 | | | $ | 2,196,031 | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Commercial loans totaled
$1.618$2.67 billion, or
57.1%60.6% of total loans as of December 31,
2017,2023, compared to
$1.070$2.47 billion, or
50.1%59.3% as of December 31,
2016.2022. The increase during
20172023 was
primarily relateddue to
the $395.2 milliongrowth in all types of commercial
loans acquired in the Bargersville branch purchase and the Lafayette and Wolverine acquisitions along with organic growth of $152.7 million net of principal reductions from payments.loans.
Commercial loans consisted of the following types of loans at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | | December 31, 2016 | |
| | | | | | | | | Percent of | | | | | | | | | Percent of | |
| | | Number | | | Amount | | | Portfolio | | | Number | | | Amount | | | Portfolio | |
SBA guaranteed loans | | | 356 | | | $ | 69,345 | | | | 4.3 | % | | | 295 | | | $ | 61,503 | | | | 5.7 | % |
Municipal government | | | 3 | | | | 11,838 | | | | 0.7 | % | | | 1 | | | | 344 | | | | 0.0 | % |
Lines of credit | | | 1,294 | | | | 304,855 | | | | 18.8 | % | | | 1,106 | | | | 192,178 | | | | 18.0 | % |
Real estate and equipment term loans | | | 3,339 | | | | 1,231,832 | | | | 76.2 | % | | | 2,559 | | | | 815,931 | | | | 76.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 4,992 | | | $ | 1,617,870 | | | | 100.0 | % | | | 3,961 | | | $ | 1,069,956 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate term loans with a book value of $154.6 million and a fair value of $153.8 million have been swapped to a variable rate using derivative instruments. The loans are carried at fair value in the financial statements and the related swap is carried at fair value and is included with other liabilities in the balance sheet. The recognition of the loan and swap fair values are recorded in the income statement and for 2017 equally offset each other. Fair values are determined by the counter party using a proprietary model that uses live market inputs to value interest rate swaps. The model is subject to daily market tests as current and future positions are priced and valued. These are Level 3 inputs under the fair value hierarchy as described above.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Number | | Amount | | Percent of
Portfolio | | Number | | Amount | | Percent of
Portfolio |
| SBA guaranteed | 258 | | | $ | 54,806 | | | 2.0 | % | | 268 | | | $ | 56,650 | | | 2.3 | % |
| Municipal government | 69 | | | 101,676 | | | 3.8 | % | | 73 | | | 85,520 | | | 3.5 | % |
| Lines of credit | 1,467 | | | 590,943 | | | 22.1 | % | | 1,507 | | | 561,995 | | | 22.8 | % |
| Real estate and equipment | 5,313 | | | 1,927,535 | | | 72.1 | % | | 5,261 | | | 1,763,257 | | | 71.4 | % |
| Total | 7,107 | | | $ | 2,674,960 | | | 100.0 | % | | 7,109 | | | $ | 2,467,422 | | | 100.0 | % |
At December 31,
2017,2023, the commercial loan portfolio held
$192.1$270.2 million of adjustable rate loans that had interest rate floors in the terms of the note. Of the commercial loans with interest rate floors, loans totaling
$124.3$52.3 million were at their floor at December 31,
2017.2023.
The Bank's commercial loan portfolio consists generally of approximately 27% commercial and industrial loans and approximately 73% commercial real estate loans. Commercial loans are originated in the primary geographic markets of Indiana and Michigan.
Commercial and industrial loans typically are comprised of loans to finance working capital, equipment and titled vehicles. The top five segments with the commercial and industrial portfolio as of December 31, 2023 as a percentage of total commercial loans were finance and insurance; individuals and other services; manufacturing; health care and education; and real estate rental and leasing, with the highest concentration in finance and insurance at approximately 5% of total commercial loans.
Owner occupied real estate loans are comprised of loans secured by the real estate for the business operator's facilities such as their office, warehouse, manufacturing facility or medical offices. The top five segments within the owner occupied real estate portfolio as of December 31, 2023 as a percentage of total commercial loans were health care and education; individuals and other services; real estate rental and leasing; retail trade; and manufacturing with the highest concentration in health care and education at approximately 6% of total commercial loans.
Non–owner occupied real estate loans are categorized as loans reliant on the leasing and/or operation of the underlying real estate for repayment. The top five segments within the non–owner occupied real estate portfolio as of December 31, 2023 as a percentage of total commercial loans were lessor's of mutli–family; warehouse and industrial; retail; hospitality; and non–medical offices with the highest concentration in lessor's of mutli–family at approximately 10% of total commercial loans.
Management actively monitors commercial and industrial loans and commercial real estate loans by NAICS code, geography and real estate sector. Commercial real estate loans are managed to internal portfolio limits for certain real estate categories, as well as regulatory concentration limits based on Tier 1 capital plus allowance for credit losses, percent of portfolio and comparison to peer data. The Bank also utilizes external data sources to monitor commercial real estate segment and market trends.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Residential Real Estate Loans
Residential real estate loans totaled
$606.8$681.1 million, or
21.4%15.4% of total loans as of December 31,
2017,2023, compared to
$531.9$653.3 million, or
24.9%15.7% of total loans as of December 31,
2016.2022. This category consists of home mortgages that generally require a loan to value of no more than 80%. Some special guaranteed or insured real estate loan programs do permit a higher loan to collateral value ratio. The increase during
20172023 was primarily
relateddue to
jumbo fixed rate loan growth that are held on the
$43.4 million of real estatebalance sheet, as variable rate loans
acquired inremained flat during the
Lafayette and Wolverine acquisitions along with organic growth of $31.5 million net of principal reductions from payments.year.
In addition to the customary real estate loans described above, the Bank also had outstanding on December 31,
2017, $165.22023, $478.7 million in home equity lines of credit compared to
$144.5$346.8 million at December 31,
2016.2022. Credit lines normally limit the loan to collateral value to no more than 89%. Home equity credit lines are primarily not combined with a first mortgage and are therefore evaluated in the allowance for loan losses as a separate pool. These loans are classified as consumer loans in the Loans table above and in Note
54 of the Consolidated Financial Statements at Item 8.
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Residential real estate lending is a highly competitive business. As of December 31,
2017,2023, the real estate loan portfolio reflected a wide range of interest rates and repayment patterns, but could generally be categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | | December 31, 2016 | |
| | | | | | Percent of | | | | | | | | | Percent of | | | | |
| | | Amount | | | Portfolio | | | Yield | | | Amount | | | Portfolio | | | Yield | |
Fixed rate | | | | | | | | | | | | | | | | | | | | | | | | |
Monthly payment | | $ | 140,115 | | | | 23.1 | % | | | 4.35 | % | | $ | 136,292 | | | | 25.6 | % | | | 4.25 | % |
Biweekly payment | | | 6 | | | | 0.0 | % | | | 7.13 | % | | | 104 | | | | 0.0 | % | | | 6.27 | % |
Adjustable rate | | | | | | | | | | | | | | | | | | | | | | | | |
Monthly payment | | | 466,639 | | | | 76.9 | % | | | 3.76 | % | | | 395,478 | | | | 74.4 | % | | | 3.77 | % |
Biweekly payment | | | — | | | | 0.0 | % | | | 0.00 | % | | | — | | | | 0.0 | % | | | 0.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Sub total | | | 606,760 | | | | 100.0 | % | | | 3.90 | % | | | 531,874 | | | | 100.0 | % | | | 3.89 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | | | 3,094 | | | | | | | | | | | | 8,087 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total real estate loans | | $ | 609,854 | | | | | | | | | | | $ | 539,961 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The increase in fixed and adjustable rate residential mortgage loans during 2017 was primarily due to the real estate loans acquired in the Lafayette and Wolverine acquisitions as well as organic growth.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Amount | | Percent of
Portfolio | | Yield | | Amount | | Percent of
Portfolio | | Yield |
| Fixed rate | | | | | | | | | | | |
| Monthly payment | $ | 402,038 | | | 59.0 | % | | 4.06 | % | | $ | 375,185 | | | 57.4 | % | | 3.76 | % |
| | | | | | | | | | | |
| Adjustable rate | | | | | | | | | | | |
| Monthly payment | 279,098 | | | 41.0 | % | | 4.98 | % | | 278,107 | | | 42.6 | % | | 4.21 | % |
| | | | | | | | | | | |
| Subtotal | 681,136 | | | 100.0 | % | | 4.44 | % | | 653,292 | | | 100.0 | % | | 3.95 | % |
| Loans held for sale | 1,418 | | | | | | | 5,807 | | | | | |
| Total real estate loans | $ | 682,554 | | | | | | | $ | 659,099 | | | | | |
In addition to the real estate loan portfolio, the Bank originates and sells real estate loans and retains the servicing rights. During
20172023 and
2016,2022, approximately
$218.5$142.8 million and
$316.9$221.9 million, respectively, of residential mortgages were sold into the secondary market. Loans serviced for others are not included in the consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled approximately
$1.310$1.5 billion and
$1.301$1.5 billion at December 31,
20172023 and
2016.2022.
The aggregate fair value of capitalized mortgage servicing rights at December 31,
2017,2023, totaled approximately
$12.8$19.9 million compared to the carrying value of
$11.6$18.8 million. 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 | |
| | | | | | | | | | | | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
| | | | | | | | | | | | | | | | | |
| December 31, | | December 31, | | December 31, |
| 2023 | | 2022 | | 2021 |
| Mortgage servicing rights | | | | | |
| Balances, January 1 | $ | 18,619 | | | $ | 17,780 | | | $ | 17,644 | |
| Servicing rights capitalized | 1,220 | | | 3,184 | | | 4,209 | |
| Amortization of servicing rights | (1,032) | | | (2,345) | | | (4,073) | |
| Balances, December 31 | 18,807 | | | 18,619 | | | 17,780 | |
| Impairment allowance | | | | | |
| Balances, January 1 | — | | | (2,594) | | | (5,172) | |
| Additions | — | | | — | | | — | |
| Reductions | — | | | 2,594 | | | 2,578 | |
| Balances, December 31 | — | | | — | | | (2,594) | |
| Mortgage servicing rights, net | $ | 18,807 | | | $ | 18,619 | | | $ | 15,186 | |
Horizon’s mortgage warehousing 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 Horizon’s 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
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
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.
The greatest risk related to these loans is transaction and fraud risk. During 2023, Horizon processed approximately $1.4 billion in mortgage warehouse loans.
At December 31,
2017,2023, the mortgage warehouse loan balance was
$94.5$45.1 million compared to
$135.7$69.5 million as of December 31,
2016. The decrease in mortgage warehouse loans reflected an increase in long-term interest rates in 2017 and the lower refinance volume.2022.
Consumer loans totaled $512.9 million,$1.0 billion, or 18.1%23.0% of total loans as of December 31, 2017,2023, compared to $398.4$967.8 million, or 18.7%23.3% as of December 31, 2016.2022. The increase during 20172023 was due to growth in home equity lines of credit primarily relatedattributable to the $9.7approximately $124.9 million of consumer loans acquiredpurchased home equity lines of credit as the indirect loan portfolio declined $100.6 million.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in
the Lafayette and Wolverine acquisitions along with organic growth of $104.7 million net of principal reductions from payments.thousands except per share data)
Allowance and Provision for
Loan Losses/Critical Accounting PolicyCredit Losses
The table below provides an allocation of the year–end allowance for credit losses on loans by loan portfolio segment; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| Amount of Allowance Allocated | | Percent of Loans in Each Category to Total Loans | | Total Loans | | Ratio of Allowance Allocated to Loans in Each Category |
| December 31, 2023 | | | | | | | |
| Commercial | $ | 29,736 | | | 60.6 | % | | $ | 2,674,960 | | | 1.11 | % |
| Real estate | 2,503 | | | 15.4 | % | | 681,136 | | | 0.37 | % |
| Mortgage warehouse | 481 | | | 1.0 | % | | 45,078 | | | 1.07 | % |
| Consumer | 17,309 | | | 23.0 | % | | 1,016,456 | | | 1.70 | % |
| Total | $ | 50,029 | | | 100.0 | % | | $ | 4,417,630 | | | 1.13 | % |
| Excluding PPP loans | $ | 50,029 | | | | | $ | 4,417,535 | | | 1.13 | % |
| December 31, 2022 | | | | | | | |
| Commercial | $ | 32,445 | | | 59.3 | % | | $ | 2,467,422 | | | 1.31 | % |
| Real estate | 5,577 | | | 15.7 | % | | 653,292 | | | 0.85 | % |
| Mortgage warehouse | 1,020 | | | 1.7 | % | | 69,529 | | | 1.47 | % |
| Consumer | 11,422 | | | 23.3 | % | | 967,755 | | | 1.18 | % |
| Total | $ | 50,464 | | | 100.0 | % | | $ | 4,157,998 | | | 1.21 | % |
| Excluding PPP loans | $ | 50,464 | | | | | $ | 4,157,781 | | | 1.21 | % |
At December 31,
2017,2023, the allowance for
loancredit losses was
$16.4$50.0 million, or
0.58%1.13% of total loans outstanding, compared to
$14.8$50.5 million, or
0.69%1.21%, at December 31,
2016. The decrease in the ratio was primarily due to an increase in total loans from organic growth, the Bargersville branch purchase, and the Lafayette and Wolverine acquisitions.2022. During
2017, the expense for2023, a provision for
loancredit losses
totaled $2.5on loans was recorded totaling $2.1 million compared to
$1.8a release of provision for credit losses totaling $2.2 million in
2016. Horizon’s loan loss reserve ratio, excluding loans with credit-related purchase accounting adjustments, was 0.81% as of December 31, 2017.2022.
Horizon assesses the adequacy of its Allowance for
Loan and LeaseCredit Losses
(ALLL)(“ACL”) by regularly reviewing the performance of all of its loan portfolios. As a result of its quarterly reviews, a provision for
loancredit losses is determined to bring the total
ALLLACL to a level called for by the analysis.
Horizon's reserve includes allocations for potential future loan losses related to economic factors and the nature and characteristics of its loan portfolios.
No assurance can be given that Horizon will not, in any particular period, sustain loan losses that are significant in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of factors then prevailing, including economic conditions and management’s ongoing quarterly assessments of the portfolio, will not require increases in the allowance for
loancredit losses. Horizon considers the allowance for
loancredit losses to be adequate to cover losses inherent in the loan portfolio as of December 31,
2017.HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non-performing2023.
Non–performing Loans
Non-performing
Non–performing loans are defined as loans that are greater than 90 days delinquent or have had the accrual of interest discontinued by management. From time to time, the Bank obtains information which may lead management to believe that the collection of payments may be doubtful on a particular loan. In recognition of such, it is management's policy to convert the loan from an “earning asset” to a non–accruing loan. Further, it is management's policy to place a commercial loan on non–accrual status when delinquent in excess of 90 days or management has determined that the borrower's ability to continue to make payments is in doubt. The officer responsible for the loan, Executive Vice President and Chief Commercial Banking Officer, Senior Vice President Commercial Credit Officer and the Vice President Senior Commercial Workout Manager review all loans placed on non–accrual status. Management continues to work diligently toward returningnon-performing non–performing loans to an earning asset basis.Non-performing
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–performing loans for the previous three years ending December 31 are as follows:
| | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Non-performing loans | | $ | 16,414 | | | $ | 10,683 | | | $ | 16,680 | |
Non-performing
| | | | | | | | | | | | | | | | | | | | | |
| December 31, | | December 31, | | December 31, | | | | |
| (dollars in thousands) | 2023 | | 2022 | | 2021 | | | | |
| Non–performing loans | | | | | | | | | |
| Commercial | | | | | | | | | |
| More than 90 days past due | $ | — | | | $ | — | | | $ | — | | | | | |
| Non–accrual | 7,362 | | | 8,493 | | | 6,621 | | | | | |
| Trouble debt restructuring – accruing | — | | | 837 | | | 603 | | | | | |
| Trouble debt restructuring – non–accrual | — | | | — | | | 285 | | | | | |
| Real estate | | | | | | | | | |
| More than 90 days past due | — | | | 43 | | | 66 | | | | | |
| Non–accrual | 8,058 | | | 5,479 | | | 5,626 | | | | | |
| Trouble debt restructuring – accruing | — | | | 1,391 | | | 1,421 | | | | | |
| Trouble debt restructuring – non–accrual | — | | | 1,210 | | | 892 | | | | | |
| Mortgage warehouse | | | | | | | | | |
| More than 90 days past due | — | | | — | | | — | | | | | |
| Non–accrual | — | | | — | | | — | | | | | |
| Trouble debt restructuring – accruing | — | | | — | | | — | | | | | |
| Trouble debt restructuring – non–accrual | — | | | — | | | — | | | | | |
| Consumer | | | | | | | | | |
| More than 90 days past due | 559 | | | 49 | | | 79 | | | | | |
| Non–accrual | 4,290 | | | 3,658 | | | 2,715 | | | | | |
| Trouble debt restructuring – accruing | — | | | 342 | | | 367 | | | | | |
| Trouble debt restructuring – non–accrual | — | | | 338 | | | 344 | | | | | |
| Total non–performing loans | 20,269 | | | 21,840 | | | 19,019 | | | | | |
| Other real estate owned and repossessed collateral | | | | | | | | | |
| Commercial | 1,124 | | | 1,881 | | | 2,861 | | | | | |
| Real estate | 182 | | | 107 | | | 695 | | | | | |
| Mortgage warehouse | — | | | — | | | — | | | | | |
| Consumer | 205 | | | 152 | | | 5 | | | | | |
| Total other real estate owned and repossessed collateral | 1,511 | | | 2,140 | | | 3,561 | | | | | |
| Total non–performing assets | $ | 21,780 | | | $ | 23,980 | | | $ | 22,580 | | | | | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–performing loans total 100.1%totaled 39.2%, 72.0%40.2% and 114.8%47.0% of the allowance for loancredit losses at December 31, 2017, 20162023, 2022 and 2015,2021, respectively.Non-performing Non–performing loans at December 31, 20172023 totaled $16.4$20.3 million, a decrease from a balance of $21.8 million as of December 31, 2022 and an increase from a balance of $10.7$19.0 million as of December 31, 2016 and a decrease from the balance2021. The level of $16.7 million as of December 31, 2015.Non-performingnon–performing loans in 2023 remained consistent when compared to prior years.
Non–performing loans as a percentage of total loans was
0.58%0.46% as of December 31,
2017, an increase2023, a decrease from
0.50%0.53% as of December 31,
20162022 and
a decrease from 0.95% as of December 31,
2015. The increase innon-performing loans was driven primarily by loans acquired from Lafayette Community Bank and Wolverine Bank.A loan becomes impaired when, based on current information, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is classified as impaired, the degree of impairment must be recognized by estimating future cash flows from the debtor. The present value of these cash flows is computed at a discount rate based on the interest rate contained in the loan agreement. However, if a particular loan has a determinable market value, the creditor may use that value. Also, if the loan is secured and considered collateral dependent, the creditor may use the fair value of the collateral. (See Note 8 of the Consolidated Financial Statements at Item 8 for further discussion of impaired loans.)
Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by 1 – 4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicate that underlying cash flows of a borrower’s 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 tonon-accrual status when 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
2021.
| | | | | | | | | | | | | | | | | |
| Non–Performing Loans | | Percent of Non–Performing Loans in Each Category to Total Loans | | Total Loans |
| December 31, 2023 | | | | | |
| Commercial | $ | 7,362 | | | 0.28 | % | | $ | 2,674,960 | |
| Real estate | 8,058 | | | 1.18 | % | | 681,136 | |
| Mortgage warehouse | — | | | 0.00 | % | | 45,078 | |
| Consumer | 4,849 | | | 0.48 | % | | 1,016,456 | |
| Total | $ | 20,269 | | | 0.46 | % | | $ | 4,417,630 | |
| Excluding PPP loans | $ | 20,269 | | | 0.46 | % | | $ | 4,417,535 | |
| Allowance for credit losses on loans | $ | 50,029 | | | | | |
| Ratio of allowance for credit losses on loans to non–performing loans | 246.83 | % | | | | |
| December 31, 2022 | | | | | |
| Commercial | $ | 9,330 | | | 0.38 | % | | $ | 2,467,422 | |
| Real estate | 8,123 | | | 1.24 | % | | 653,292 | |
| Mortgage warehouse | — | | | 0.00 | % | | 69,529 | |
| Consumer | 4,387 | | | 0.45 | % | | 967,755 | |
| Total | $ | 21,840 | | | 0.53 | % | | $ | 4,157,998 | |
| Excluding PPP loans | $ | 21,840 | | | 0.53 | % | | $ | 4,157,781 | |
| Allowance for credit losses on loans | $ | 50,464 | | | | | |
| Ratio of allowance for credit losses on loans to non–performing loans | 231.06 | % | | | | |
Other Real Estate Owned
(OREO) net of any related allowance for OREO losses for the previous three years ending December 31 were as follows: | | | | | | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Other real estate owned | | $ | 778 | | | $ | 3,190 | | | $ | 3,207 | |
OREO(“OREO”) totaled $778,000$1.2 million on December 31, 2017,2023, a decrease of $759,000 from December 31, 2022 and a decrease of $2.4 million from both December 31, 2016 and December 31, 2015.2021. On December 31, 2017,2023, OREO was comprised of 8 properties. Ofsix properties, three of these properties 4 totaling $578,000 were commercial real estatebank owned properties from branch closures and 4 totaling $200,000three properties were residential real estate.
residential.
No mortgage warehouse loans were
non-performing non–performing or OREO as of December 31,
2017, 20162023, 2022 or
2015.HORIZON BANCORP2021.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Horizon had a net deferred tax asset totaling
$4.7 million and $7.4$33.5 million as of December 31,
20172023 and
a net deferred tax asset of $40.3 million as of December 31,
2016, respectively.2022. The following table shows the major components of deferred tax:
| | | | | | | | |
| | | 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 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31, | | December 31, |
| 2023 | | 2022 |
| Assets | | | |
| Allowance for credit losses | $ | 12,546 | | | $ | 12,762 | |
| Net operating loss and tax credits | 9,592 | | | 9,313 | |
| Director and employee benefits | 2,471 | | | 2,019 | |
| Unrealized loss on AFS securities and cash flow hedge | 17,706 | | | 28,230 | |
| | | |
| | | |
| | | |
| Basis in partnership equity investments | 1,322 | | | — | |
| Capital loss carryover | 5,201 | | | — | |
| Other | 2,856 | | | 555 | |
| Total assets | 51,694 | | | 52,879 | |
| Liabilities | | | |
| Depreciation | (4,512) | | | (4,599) | |
| State tax | (253) | | | (262) | |
| Federal Home Loan Bank stock dividends | (365) | | | (368) | |
| Difference in basis of intangible assets | (4,545) | | | (4,440) | |
| Fair value adjustment on acquisitions | (2,142) | | | (2,807) | |
| | | |
| Other | (1,131) | | | (68) | |
| Total liabilities | (12,948) | | | (12,544) | |
| Valuation allowance | (5,201) | | | — | |
| Net deferred tax asset/(liability) | $ | 33,545 | | | $ | 40,335 | |
The primary source of funds for the Bank comes from the acceptance of demand and time deposits. However, at times the Bank will use its ability to borrow funds from the Federal Home Loan Bank and other sources when it can do so at interest rates and terms that are more favorable than those required for deposited funds or loan demand is greater than the ability to grow deposits. Total deposits were $2.881$5.7 billion at December 31, 2017,2023, compared to $2.471$5.9 billion at December 31, 2016. 2022.
Average deposits and rates by category for the three years ended December 31 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Average Balance Outstanding for the | | | Average Rate Paid for the | |
| | | Year Ending December 31 | | | Year Ending December 31 | |
| | | 2017 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2015 | |
Noninterest-bearing demand deposits | | $ | 533,852 | | | $ | 417,900 | | | $ | 314,840 | | | | | | | | | | | | | |
Interest-bearing demand deposits | | | 831,292 | | | | 732,117 | | | | 671,493 | | | | 0.14 | % | | | 0.12 | % | | | 0.12 | % |
Savings deposits | | | 388,953 | | | | 303,229 | | | | 191,593 | | | | 0.07 | % | | | 0.06 | % | | | 0.05 | % |
Money market | | | 310,310 | | | | 254,453 | | | | 205,119 | | | | 0.35 | % | | | 0.26 | % | | | 0.24 | % |
Time deposits | | | 515,341 | | | | 462,527 | | | | 344,464 | | | | 1.04 | % | | | 1.06 | % | | | 1.21 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total deposits | | $ | 2,579,748 | | | $ | 2,170,226 | | | $ | 1,727,509 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
HORIZON BANCORP
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average Balance Outstanding for the | | Average Rate Paid for the |
| Years Ended December 31 | | Years Ended December 31 |
| 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Non–interest bearing demand deposits | $ | 1,181,233 | | | $ | 1,332,937 | | | $ | 1,188,275 | | | | | | | |
| Interest bearing demand deposits | 1,749,674 | | | 1,971,567 | | | 1,651,060 | | | 1.26 | % | | 0.28 | % | | 0.09 | % |
| Savings deposits | 841,644 | | | 940,499 | | | 779,325 | | | 0.61 | % | | 0.13 | % | | 0.05 | % |
| Money market | 756,092 | | | 810,083 | | | 815,081 | | | 2.52 | % | | 0.45 | % | | 0.15 | % |
| Time deposits | 1,151,178 | | | 791,519 | | | 652,284 | | | 3.44 | % | | 0.95 | % | | 0.75 | % |
| Total deposits | $ | 5,679,821 | | | $ | 5,846,605 | | | $ | 5,086,025 | | | | | | | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
The
$409.5$166.8 million
increasedecrease in average deposits during
20172023 was
the result of an increase in the depositor baseprimarily due to the
Bargersville branch acquisition andincrease in rates during 2023 creating a competitive deposit environment, in addition to deposits leaving the
Lafayette and Wolverine acquisitions.banking system for alternative investment options. The transactional accounts average balances, as the lower cost funding sources,
increased $215.1decreased $526.4 million and the average balances for higher cost time deposits increased
$52.8$359.7 million. Horizon continually enhances its
interest-bearinginterest bearing consumer and commercial demand deposit products based on local market conditions and its need for funding to support various types of assets.
As of December 31, 2023 and 2022, approximately $2.6 billion and $2.4 billion, respectively, or our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for Horizon Bank's regulatory reporting requirements.
Certificates and other time deposits for both retail and brokered maturing in years ending December 31 are as follows:
| | | | | | | | | | | | | | | | | |
| Retail | | Brokered | | Total |
| 2024 | $ | 961,848 | | | $ | 151,636 | | | $ | 1,113,484 | |
| 2025 | 34,614 | | | 9,224 | | | 43,838 | |
| 2026 | 12,004 | | | — | | | 12,004 | |
| 2027 | 7,286 | | | — | | | 7,286 | |
| 2028 | 3,070 | | | — | | | 3,070 | |
| Thereafter | 57 | | | — | | | 57 | |
| $ | 1,018,879 | | | $ | 160,860 | | | $ | 1,179,739 | |
Certificates of deposit of $250,000 or more, which are considered to be rate sensitive and are not considered a part of core deposits, mature as follows as of December 31,
2017: | | | | |
Due in three months or less | | $ | 25,654 | |
Due after three months through six months | | | 24,825 | |
Due after six months through one year | | | 35,810 | |
Due after one year | | | 44,296 | |
| | | | |
| | $ | 130,585 | |
| | | | |
Interest expense on time certificates of $100,000 or more was approximately $3.2 million, $2.1 million, and $2.3 million for 2017, 2016 and 2015. 2023:
| | | | | |
| Due in three months or less | $ | 220,003 | |
| Due after three months through six months | 148,487 | |
| Due after six months through one year | 238,954 | |
| Due after one year | 25,402 | |
| $ | 632,846 | |
Interest expense on time certificates of $250,000 or more was approximately
$1.2$16.7 million,
$753,000$4.2 million and
$990,000$1.4 million for
2017, 20162023, 2022 and
2015.Off-Balance2021.
Off–Balance Sheet Arrangements
As of December 31,
2017,2023, Horizon did not have any
off-balance off–balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term
“off-balance “off–balance sheet arrangement” generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party and under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Contractual Obligations
The following tables summarize Horizon’s contractual obligations and other
Capital Resources
Horizon has no material commitments
to make paymentsfor capital expenditures as of December 31,
2017: | | | | | | | | | | | | | | | | | | | | |
| | | | | | Within | | | One to | | | Three to | | | After Five | |
| | | Total | | | One Year | | | Three Years | | | Five Years | | | Years | |
Certificates of Deposit | | $ | 566,952 | | | $ | 277,498 | | | $ | 228,481 | | | $ | 38,172 | | | $ | 22,801 | |
Borrowings (1) | | | 564,157 | | | | 434,094 | | | | 97,206 | | | | 22,833 | | | | 10,024 | |
Subordinated debentures(2) | | | 37,653 | | | | — | | | | — | | | | — | | | | 37,653 | |
(1) | Includes debt obligations to the Federal Home Loan Bank and term repurchase agreements with maturities beyond one year borrowed by Horizon’s banking subsidiary. See Note 13 in Horizon’s Consolidated Financial Statements at Item 8. |
(2) | Includes Trust Preferred Capital Securities issued by Horizon Statutory Trusts II and III and those assumed in the acquisitions of Alliance Bank in 2005, American Trust in 2009, Heartland in 2012 and City Savings in 2016. See Note 15 in Horizon’s Consolidated Financial Statements at Item 8. |
| | | | | | | | |
| | | Expiration by Period | |
| | | | | | Greater | |
| | | Within One | | | Than | |
| | | Year | | | One Year | |
Letters of credit | | $ | 889 | | | $ | 2,494 | |
Unfunded loan commitments | | | 214,249 | | | | 588,700 | |
HORIZON BANCORP2023. Horizon’s sources of funds and liquidity are discussed below in the section captioned “Liquidity” in this Item 7.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Capital Resources
The capital resources of Horizon and the Bank exceed regulatory capital ratios for “well capitalized” banks at December 31, 2017. Stockholders’ equity totaled $457.1 million as of December 31, 2017, compared to $340.9 million as of December 31, 2016. Atyear-end 2017, the ratio of stockholders’ equity to assets was 11.53%, compared to 10.85% for 2016. Tangible equity to tangible assets was 8.48% at December 31, 2017, compared to 8.33% at December 31, 2016. Book value per common share at December 31, 2017 increased to $17.90, compared to $15.37 at December 31, 2016. Horizon’s capital increased during 2017 as a result of earnings and common stock issued in acquisitions, partially offset by a decrease in other comprehensive income and dividends declared.
In 2008, in connection with the issuance of preferred stock that was subsequently redeemed, Horizon issued a warrant to the Treasury to purchase shares of Horizon’s common stock. The Treasury sold the warrant to a third party, and at December 31, 2015, the warrant covered 481,510 shares with an exercise price of $7.79 per share. These warrants were exercised during 2015.
On August 25, 2011, the Company sold 12,500 shares of Series B Preferred Stock for aggregate consideration of $12.5 million, to the Treasury pursuant to the Small Business Lending Fund program. Concurrently with this transaction, Horizon redeemed all 18,750 shares of our Series A Preferred Stock that remained outstanding under the Treasury’s Capital Purchase Program. The redemption of the Series A Preferred Stock was funded by the $12.5 million in proceeds from the sale of the Series B Preferred Stock together with other available funds. On February 1, 2016, the Company redeemed all 12,500 shares of Series B Preferred Stock for $12.5 million along with the final dividend payment of $10,417.
Horizon declared dividends in the amount of $0.50 per share in 2017, $0.41 per share in 2016, and $0.39 per share in 2015. The dividend payout ratio (dividends as a percent of net income) was 34.8% for 2017, 34.3% for 2016, and 29.9% for 2015. For additional information regarding dividend conditions, see Note 1 of the Notes to the Consolidated Financial Statements at Item 8.
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 junior 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 of90-day LIBOR plus 1.95% (3.40% at December 31, 2017) and mature on October 21, 2034, and securities may be called at any quarterly interest payment date at par.
In December of 2006, Horizon formed Horizon Bancorp Capital Trust III (“Trust III”), a 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 junior 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 of90-day LIBOR plus 1.65% (3.03% at December 31, 2017) and mature on January 30, 2037, and securities may be called at any quarterly interest payment date at par.
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 junior 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 of90-day LIBOR plus 2.65% (4.25% at December 31, 2017) and mature in June 2034, and securities may be called at any quarterly interest payment date at par.
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and
Results of Operations
(Table dollars in thousands except 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 junior 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 of90-day LIBOR plus 2.85% (4.45% 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 2013. 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 junior 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 of90-day LIBOR plus 1.67% (3.26% 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 of90-day LIBOR plus 3.10% (4.77% 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.
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Results of Operations
Consolidated net income was
$33.1$28.0 million, or
$1.43$0.64 per diluted share, in
2017, $23.92023, $93.4 million or
$1.19$2.14 per diluted share in
2016,2022, and
$20.5$87.1 million or
$1.26$1.98 per diluted share in
2015.2021. The
increasedecrease in net income from the previous year reflects
an increasea decrease in net interest income of
$26.1$23.8 million,
partiallya decrease in non–interest income of $35.5 million, an increase in non–interest expense of $3.1 million and an increase in credit loss expense of $4.3 million, offset by a decrease in
non-interest income
tax expense of
$2.3 million, an increase innon-interest expenses of $7.9 million, income taxes of $6.0 million and provision for loan losses of $628,000.$1.2 million. The
increasedecrease in diluted earnings per share compared to the previous year reflects
an increasea decrease in net income
partially offset byand an increase in diluted
shares due to the Lafayette and Wolverine acquisitions. Excluding acquisition-related expenses, gain on sale of investment securities, prepayment penalties on borrowings, gain on accounting for Horizon’s equity interest in Lafayette, tax reform bill impact and purchase accounting adjustments,shares. Adjusted net income for the year ended December 31,
20172023 was
$35.5$66.5 million, or
$1.53$1.54 diluted earnings per share, compared to
$29.2$92.8 million, or
$1.45$2.13 diluted earnings per share, for the year ended December 31,
2016.2022. (See the “Non–GAAP Reconciliation of Net Income and Diluted
earningsEarnings per
share were also reduced by $0.00Share” table under the heading “Use of Non–GAAP Financial Measures” below for the
twelve months ending December 31, 2017, $0.00 for the twelve months ending December 31, 2016 and $0.01 for the twelve months ending December 31, 2015 resulting from the paymentdefinition of
preferred stock dividends.adjusted net income.)
The largest component of
net income is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on deposits and borrowings. Changes in the net interest income are the result of changes in volume and the net interest spread which affects the net interest margin. Volume refers to the average dollar levels of
interest-earninginterest earning assets and
interest-bearinginterest bearing liabilities. Net interest spread refers to the difference between the average yield on
interest-earninginterest earning assets and the average cost of
interest-bearinginterest bearing liabilities. Net interest margin refers to net interest income divided by average
interest-earninginterest earning assets and is influenced by the level and relative mix of
interest-earninginterest earning assets and
interest-bearinginterest bearing liabilities.
Net interest income during 20172023 was $112.1$175.7 million, an increasea decrease of $26.1$23.8 million, or 30.4%11.9%, overcompared to the $86.0$199.5 million earned in 2016.2022. Yields on the Company’s interest-earninginterest earning assets increased by 2494 basis points to 4.29%4.44% during 20172023 from 4.05%3.50% in 2016.2022. Interest income increased $22.0$76.3 million to $128.5$312.3 million for 20172023 from $106.5$236.0 million in 2016.2022. This increase was due to increased volumethe overall increase in interest-earning assets, aninterest rates during 2023 and the increase in the recognitionaverage balance of interest income from the acquisition-related purchase accounting adjustmentsearning assets of approximately $1.2$258.0 million.
Interest expense increased $100.0 million from
$2.3$36.5 million in
20162022 to
$3.5$136.6 million in
2017 and an2023. This increase
in overall interest rates in 2017.Rates paid on interest-bearing liabilities decreased by 26 basis points during the same periodwas due to the prepayment penalties on borrowings of $4.8 millionoverall increase in 2016. Interest expense decreased $4.2 million from $20.5 million in 2016 to $16.4 million in 2017. This decrease was due to Horizon executing a strategy to reduce expensive funding costs ininterest rates during 2023 and the fourth quarter of 2016 and related prepayment penalties on borrowings of $4.8 million, partially offset by an increase in average interest-bearingbalance of interest bearing liabilities and theof $439.3 million. The increase in rates paid on subordinated debentures. Theinterest bearing liabilities of 164 basis points was greater than the increase in the yield on the Company’s interest-earningof interest earning assets and the decrease in rates paid on interest-bearing liabilitiesof 94 basis points that resulted in an increasea decrease in the net interest margin of 4643 basis points from 3.29%2.98% for 20162022 to 3.75%2.55% in 2017.2023. Excluding the interest expense recognized from the prepayment penalties on borrowings and the interest income recognized from the acquisition-relatedacquisition–related purchase accounting adjustments and a swap termination fee, the margin would have been 3.64%2.51% for 20172023 compared to 3.38%2.93% for 2016.2022. Management believes that the current level of interest rates is driven by external factors and therefore impacts the results of the Company’s net interest margin.
Net interest income during 2016 was $86.0 million, an increase
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Rates paid
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related weighted average yields and rates on interest-bearing liabilities decreased by 15 basis points during the same period due to the prepayment penalties on borrowings of $4.8 million in 2016. Interest expense increased $6.7 million from $13.9 million in 2015 to $20.5 million in 2016. In addition to the prepayment penalties on FHLB borrowings, this increase was due to increased volume of interest-bearing liabilities, partially offset by lower rates being paid. Due to the decrease in the yield on the Company’s interest-earningour interest earning assets and interest bearing liabilities for the prepayment penalties paid on borrowings, the net interest margin decreased 27 basis points from 3.56% for 2015 to 3.29% in 2016. Excluding the interest expense recognized form the prepayment penalties on borrowings and the interest income recognized from the acquisition-related purchase accounting adjustments, the margin would have been 3.38% for 2016 compared to 3.42% for 2015. Management believes that the current levelperiods indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended | | Twelve Months Ended | | Twelve Months Ended |
| December 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| Average
Balance | | Interest | | Average
Rate | | Average
Balance | | Interest | | Average
Rate | | Average
Balance | | Interest | | Average
Rate |
| Assets | | | | | | | | | | | | | | | | | |
| Interest earning assets | | | | | | | | | | | | | | | | | |
| Federal funds sold | $ | 82,865 | | | $ | 4,442 | | | 5.36 | % | | $ | 62,211 | | | $ | 165 | | | 0.27 | % | | $ | 398,528 | | | $ | 535 | | | 0.13 | % |
| Interest earning deposits | 12,930 | | | 525 | | | 4.06 | % | | 13,596 | | | 141 | | | 1.04 | % | | 25,993 | | | 160 | | | 0.62 | % |
| Investment securities – taxable | 1,658,160 | | | 34,410 | | | 2.08 | % | | 1,700,418 | | | 33,202 | | | 1.95 | % | | 884,244 | | | 14,437 | | | 1.63 | % |
Investment securities – non–taxable(1) | 1,236,607 | | | 28,384 | | | 2.91 | % | | 1,356,045 | | | 29,025 | | | 2.71 | % | | 1,086,942 | | | 23,246 | | | 2.71 | % |
Loans receivable(2)(3)(4) | 4,244,893 | | | 244,544 | | | 5.79 | % | | 3,845,137 | | | 173,500 | | | 4.53 | % | | 3,639,454 | | | 155,732 | | | 4.30 | % |
Total interest earning assets(1) | 7,235,455 | | | 312,305 | | | 4.44 | % | | 6,977,407 | | | 236,033 | | | 3.50 | % | | 6,035,161 | | | 194,110 | | | 3.33 | % |
| Non–interest earning assets | | | | | | | | | | | | | | | | | |
| Cash and due from banks | 102,535 | | | | | | | 99,885 | | | | | | | 89,993 | | | | | |
| Allowance for loan losses | (49,774) | | | | | | | (52,606) | | | | | | | (56,798) | | | | | |
| Other assets | 581,412 | | | | | | | 509,229 | | | | | | | 445,895 | | | | | |
| Total average assets | $ | 7,869,628 | | | | | | | $ | 7,533,915 | | | | | | | $ | 6,514,251 | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities | | | | | | | | | | | | | | | | | |
| Interest bearing deposits | $ | 4,498,588 | | | $ | 85,857 | | | 1.91 | % | | $ | 4,513,668 | | | $ | 17,809 | | | 0.39 | % | | $ | 3,897,750 | | | $ | 7,867 | | | 0.20 | % |
| Borrowings | 1,154,714 | | | 39,514 | | | 3.42 | % | | 696,584 | | | 11,938 | | | 1.71 | % | | 425,214 | | | 4,546 | | | 1.07 | % |
| Repurchase agreements | 137,153 | | | 2,964 | | | 2.16 | % | | 141,048 | | | 527 | | | 0.37 | % | | 123,675 | | | 155 | | | 0.13 | % |
| Subordinated notes | 58,764 | | | 3,511 | | | 5.97 | % | | 58,819 | | | 3,522 | | | 5.99 | % | | 58,672 | | | 3,522 | | | 6.00 | % |
| Junior subordinated debentures issued to capital trusts | 57,137 | | | 4,715 | | | 8.25 | % | | 56,899 | | | 2,719 | | | 4.78 | % | | 56,657 | | | 2,215 | | | 3.91 | % |
| Total interest bearing liabilities | 5,906,356 | | | 136,561 | | | 2.31 | % | | 5,467,018 | | | 36,515 | | | 0.67 | % | | 4,561,968 | | | 18,305 | | | 0.40 | % |
| Non–interest bearing liabilities | | | | | | | | | | | | | | | | | |
| Demand deposits | 1,181,233 | | | | | | | 1,332,937 | | | | | | | 1,188,275 | | | | | |
| Accrued interest payable and other liabilities | 75,765 | | | | | | | 50,330 | | | | | | | 51,886 | | | | | |
| Stockholders’ equity | 706,274 | | | | | | | 683,630 | | | | | | | 712,122 | | | | | |
| Total average liabilities and stockholders’ equity | $ | 7,869,628 | | | | | | | $ | 7,533,915 | | | | | | | $ | 6,514,251 | | | | | |
| Net interest income/spread | | | $ | 175,744 | | | 2.13 | % | | | | $ | 199,518 | | | 2.83 | % | | | | $ | 175,805 | | | 2.93 | % |
Net interest income as a percent of average interest earning assets(1) | | | | | 2.55 | % | | | | | | 2.98 | % | | | | | | 3.03 | % |
| | | | | | | | | | | | | | | | | |
(1) Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations. Horizon's subsidiary bank had no funds invested in Eurodollar Certificates of Deposit at December 31, 2023. |
(2) Yields are presented on a tax–equivalent basis. |
(3) Non–accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. |
(4) Net loan fees included in interest on loans aggregated $7.9 million, $11.0 million and $19.8 million in 2023, 2022 and 2021, respectively. |
Table of interest rates is driven by external factors and therefore impacts the results of the Company’s net interest margin. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended | | | Twelve Months Ended | | | Twelve Months Ended | |
| | | December 31, 2017 | | | December 31, 2016 | | | December 31, 2015 | |
| | | Average | | | | | | Average | | | Average | | | | | | Average | | | Average | | | | | | Average | |
| | | Balance | | | Interest | | | Rate | | | Balance | | | Interest | | | Rate | | | Balance | | | Interest | | | Rate | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Federal funds sold | | $ | 5,450 | | | $ | 80 | | | | 1.47 | % | | $ | 17,142 | | | $ | 95 | | | | 0.55 | % | | $ | 10,264 | | | $ | 11 | | | | 0.11 | % |
Interest-earning deposits | | | 23,865 | | | | 301 | | | | 1.26 | % | | | 34,506 | | | | 278 | | | | 0.81 | % | | | 14,045 | | | | 10 | | | | 0.07 | % |
Investment securities - taxable | | | 417,993 | | | | 8,705 | | | | 2.08 | % | | | 490,274 | | | | 9,666 | | | | 1.97 | % | | | 394,976 | | | | 8,700 | | | | 2.20 | % |
Investment securities -non-taxable (1) | | | 292,030 | | | | 7,068 | | | | 3.39 | % | | | 192,881 | | | | 4,921 | | | | 3.59 | % | | | 152,931 | | | | 4,494 | | | | 4.32 | % |
Loans receivable (2)(3)(4) | | | 2,335,126 | | | | 112,329 | | | | 4.83 | % | | | 1,948,580 | | | | 91,569 | | | | 4.71 | % | | | 1,593,790 | | | | 75,373 | | | | 4.74 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets (1) | | | 3,074,464 | | | | 128,483 | | | | 4.29 | % | | | 2,683,383 | | | | 106,529 | | | | 4.05 | % | | | 2,166,006 | | | | 88,588 | | | | 4.20 | % |
Non-interest-earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | | | 42,578 | | | | | | | | | | | | 37,549 | | | | | | | | | | | | 31,692 | | | | | | | | | |
Allowance for loan losses | | | (15,226 | ) | | | | | | | | | | | (14,439 | ) | | | | | | | | | | | (16,351 | ) | | | | | | | | |
Other assets | | | 295,057 | | | | | | | | | | | | 255,129 | | | | | | | | | | | | 179,138 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 3,396,873 | | | | | | | | | | | $ | 2,961,622 | | | | | | | | | | | $ | 2,360,485 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 2,045,896 | | | $ | 7,901 | | | | 0.39 | % | | $ | 1,752,326 | | | $ | 6,616 | | | | 0.38 | % | | $ | 1,438,026 | | | $ | 5,559 | | | | 0.39 | % |
Borrowings | | | 381,488 | | | | 6,178 | | | | 1.62 | % | | | 425,444 | | | | 11,807 | | | | 2.78 | % | | | 336,618 | | | | 6,286 | | | | 1.87 | % |
Subordinated debentures | | | 36,362 | | | | 2,304 | | | | 6.34 | % | | | 49,834 | | | | 2,114 | | | | 4.24 | % | | | 32,717 | | | | 2,009 | | | | 6.14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | | | 2,463,746 | | | | 16,383 | | | | 0.66 | % | | | 2,227,604 | | | | 20,537 | | | | 0.92 | % | | | 1,807,361 | | | | 13,854 | | | | 0.77 | % |
Non-interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits | | | 533,852 | | | | | | | | | | | | 417,900 | | | | | | | | | | | | 317,246 | | | | | | | | | |
Accrued interest payable and other liabilities | | | 20,566 | | | | | | | | | | | | 13,574 | | | | | | | | | | | | 16,364 | | | | | | | | | |
Stockholders’ equity | | | 378,709 | | | | | | | | | | | | 302,544 | | | | | | | | | | | | 219,514 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 3,396,873 | | | | | | | | | | | $ | 2,961,622 | | | | | | | | | | | $ | 2,360,485 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income/spread | | | | | | $ | 112,100 | | | | 3.63 | % | | | | | | $ | 85,992 | | | | 3.13 | % | | | | | | $ | 74,734 | | | | 3.43 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income as a percent of average interest earning assets (1) | | | | | | | | | | | 3.75 | % | | | | | | | | | | | 3.29 | % | | | | | | | | | | | 3.56 | % |
(1) | Horizon has no foreign office and, accordingly, no assets or liabilities to foreign operations. Horizon’s subsidiary bank had no funds invested in Eurodollar Certificates of Deposit at December 31, 2017. |
(2) | Yields are presented on atax-equivalent basis. |
(3) | Non-accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loans fees. |
(4) | Loan fees and late fees included in interest on loans aggregated $7.1 million, $5.5 million, and $4.9 million in 2017, 2016 and 2015. |
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017-2016 | | | 2016-2015 | |
| | | | | | Change | | | Change | | | | | | Change | | | Change | |
| | | Total | | | Due To | | | Due To | | | Total | | | Due To | | | Due To | |
| | | Change | | | Volume | | | Rate | | | Change | | | Volume | | | Rate | |
Interest Income | | | | | | | | | | | | | | | | | | | | | | | | |
Federal funds sold | | $ | (15 | ) | | $ | (95 | ) | | $ | 80 | | | $ | 84 | | | $ | 12 | | | $ | 72 | |
Interest-earning deposits | | | 23 | | | | (103 | ) | | | 126 | | | | 268 | | | | 33 | | | | 235 | |
Investment securities - taxable | | | (961 | ) | | | (1,483 | ) | | | 522 | | | | 966 | | | | 1,946 | | | | (980 | ) |
Investment securities -non-taxable | | | 2,147 | | | | 3,384 | | | | (1,237 | ) | | | 427 | | | | 1,550 | | | | (1,123 | ) |
Loans receivable | | | 20,760 | | | | 18,613 | | | | 2,147 | | | | 16,196 | | | | 16,711 | | | | (515 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest income | | | 21,954 | | | | 20,316 | | | | 1,638 | | | | 17,941 | | | | 20,252 | | | | (2,311 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest Expense | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | | 1,285 | | | | 1,132 | | | | 153 | | | | 1,057 | | | | 1,189 | | | | (132 | ) |
Borrowings | | | (5,629 | ) | | | (1,121 | ) | | | (4,508 | ) | | | 5,521 | | | | 1,942 | | | | 3,579 | |
Subordinated debentures | | | 190 | | | | (671 | ) | | | 861 | | | | 105 | | | | 847 | | | | (742 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest expense | | | (4,154 | ) | | | (660 | ) | | | (3,494 | ) | | | 6,683 | | | | 3,978 | | | | 2,705 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 26,108 | | | $ | 20,976 | | | $ | 5,132 | | | $ | 11,258 | | | $ | 16,274 | | | $ | (5,016 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Provision
Net interest income during 2022 was $199.5 million, an increase of $23.7 million, or 13.5%, over the $175.8 million earned in 2021. Yields on the Company’s interest earning assets increased by 17 basis points to 3.50% during 2022 from 3.33% in 2021. Interest income increased $41.9 million to $236.0 million for
Loan Losses2022 from $194.1 million in 2021. This increase was due to the overall increase in interest rates during 2022 and the increase in the average balance of interest earning assets of $942.2 million.
Interest expense increased $18.2 million from $18.3 million in 2021 to $36.5 million in 2022. This increase was due to the overall increase in interest rates during 2022 and the increase in the average balance of interest bearing liabilities of $905.1 million. The increase in rates paid on interest bearing liabilities of 27 basis points was greater than the increase in the yield of interest earning assets of 17 basis points that resulted in a decrease in the net interest margin of 5 basis points from 3.03% for 2021 to 2.98% in 2022. Excluding interest income recognized from acquisition–related purchase accounting adjustments and prepayment penalties on borrowings, the margin would have been 2.93% for 2022 compared to 2.96% for 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 - 2022 | | 2022 - 2021 |
| Total
Change | | Change
Due To
Volume | | Change
Due To
Rate | | Total
Change | | Change
Due To
Volume | | Change
Due To
Rate |
| Interest Income | | | | | | | | | | | |
| Federal funds sold | $ | 4,277 | | | $ | 73 | | | $ | 4,204 | | | $ | (370) | | | $ | (655) | | | $ | 285 | |
| Interest earning deposits | 384 | | | (7) | | | 391 | | | (19) | | | (97) | | | 78 | |
| Investment securities – taxable | 1,208 | | | (840) | | | 2,048 | | | 18,765 | | | 15,480 | | | 3,285 | |
| Investment securities – non–taxable | (641) | | | (3,364) | | | 2,723 | | | 5,779 | | | 7,291 | | | (1,512) | |
| Loans receivable | 71,044 | | | 19,478 | | | 51,566 | | | 17,768 | | | 9,087 | | | 8,681 | |
| Total interest income | 76,272 | | | 15,340 | | | 60,932 | | | 41,923 | | | 31,106 | | | 10,817 | |
| Interest Expense | | | | | | | | | | | |
| Interest bearing deposits | 68,048 | | | (59) | | | 68,107 | | | 9,942 | | | 1,412 | | | 8,530 | |
| Borrowings | 27,576 | | | 10,962 | | | 16,614 | | | 7,392 | | | 3,800 | | | 3,592 | |
| Repurchase agreements | 2,437 | | | (15) | | | 2,452 | | | 372 | | | 25 | | | 347 | |
| Subordinated notes | (11) | | | (3) | | | (8) | | | — | | | 9 | | | (9) | |
| Junior subordinated debentures issued to capital trusts | 1,996 | | | 11 | | | 1,985 | | | 504 | | | 9 | | | 495 | |
| Total interest expense | 100,046 | | | 10,896 | | | 89,150 | | | 18,210 | | | 5,255 | | | 12,955 | |
| Net interest income | $ | (23,774) | | | $ | 4,444 | | | $ | (28,218) | | | $ | 23,713 | | | $ | 25,851 | | | $ | (2,138) | |
Credit Loss Expense
Horizon assesses the adequacy of its
Allowance for Loan and Lease Losses (ALLL)ACL by regularly reviewing the performance of its loan portfolios.
The provision for loan lossesCredit loss expense totaled $2.5 million in
20172023 compared to
a recovery of $1.8 million in
2016. The higher provision for loan losses in 2017 compared to the previous year was due to additional allocations for loan growth in new markets and an increase in allocation for agricultural economic factors.2022. Total loan net
charge-offscharge–offs were
$913,000,$2.2 million, which included commercial loan net
charge-offs were $109,000,charge–offs of $580,000, residential mortgage loan net
charge-offs were $45,000recoveries of $34,000 and consumer loan net
charge-offs were $759,000charge–offs of $1.6 million for the year ending December 31,
2017.During 2016,2023. The recovery of the provision for loan lossesACL in 2022 was the result of allocations related to the impact of COVID–19 being reduced and/or eliminated during the year and partially reallocated to current economic factors and also required some release from the ACL.
Credit loss expense totaled
a recovery of $1.8 million
in 2022 compared to
$3.2a recovery of $2.1 million in
2015. The lower provision for loan losses in 2016 compared to 2015 was due to continued improvement innon-performing loans and lower charged off loans.2021. Total loan net
charge-offscharge–offs were
$1.5 million,$843,000, which included commercial loan net
charge-offs were $548,000,recoveries of $80,000, residential mortgage loan net
charge-offs were $116,000recoveries of $53,000 and consumer loan net
charge-offs were $875,000charge–offs of $976,000 for the year ending December 31,
2016.Non-interest Income
2022. The following is a summaryrecovery of changesthe ACL innon-interest income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended | | | | | | | | | | | | 2015 - 2016 | |
| | | December 31 | | | December 31 | | | Amount | | | Percent | | | December 31 | | | Amount | | | Percent | |
| | | 2017 | | | 2016 | | | Change | | | Change | | | 2015 | | | Change | | | Change | |
Non-interest Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 6,383 | | | $ | 5,762 | | | $ | 621 | | | | 10.8 | % | | $ | 4,807 | | | $ | 955 | | | | 19.9 | % |
Wire transfer fees | | | 658 | | | | 806 | | | | (148 | ) | | | -18.4 | % | | | 633 | | | | 173 | | | | 27.3 | % |
Interchange fees | | | 5,104 | | | | 4,165 | | | | 939 | | | | 22.5 | % | | | 3,623 | | | | 542 | | | | 15.0 | % |
Fiduciary activities | | | 7,894 | | | | 6,621 | | | | 1,273 | | | | 19.2 | % | | | 5,637 | | | | 984 | | | | 17.5 | % |
Gain on sale of investment securities | | | 38 | | | | 1,836 | | | | (1,798 | ) | | | -97.9 | % | | | 189 | | | | 1,647 | | | | 871.4 | % |
Gain on sale of mortgage loans | | | 7,906 | | | | 11,675 | | | | (3,769 | ) | | | -32.3 | % | | | 10,055 | | | | 1,620 | | | | 16.1 | % |
Mortgage servicing net of impairment | | | 1,583 | | | | 1,908 | | | | (325 | ) | | | -17.0 | % | | | 993 | | | | 915 | | | | 92.1 | % |
Increase in cash surrender value of bank owned life insurance | | | 1,797 | | | | 1,643 | | | | 154 | | | | 9.4 | % | | | 1,249 | | | | 394 | | | | 31.5 | % |
Death benefit on officer life insurance | | | — | | | | — | | | | — | | | | 0.0 | % | | | 145 | | | | (145 | ) | | | -100.0 | % |
Other income | | | 1,773 | | | | 1,039 | | | | 734 | | | | 70.6 | % | | | 1,103 | | | | (64 | ) | | | -5.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Totalnon-interest income | | $ | 33,136 | | | $ | 35,455 | | | $ | (2,319 | ) | | | -6.5 | % | | $ | 28,434 | | | $ | 7,021 | | | | 24.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
HORIZON BANCORP 2022 was the result of allocations related to the impact of COVID–19 being reduced and/or eliminated during the year and partially reallocated to current economic factors and also required some release from the ACL.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Additional information related to credit loss expense (recovery) and net charge–offs (recoveries) is presented in the table below. Also see Note 5 – Allowance for Credit and Loan Losses in the accompanying notes to consolidated financial statements included elsewhere in this report.
| | | | | | | | | | | | | | | | | | | | | | | |
| Credit Loss Expense (Recovery) | | Net (Charge–Offs) Recoveries | | Average Loans | | Ratio of Net (Charge–Offs) Recoveries to Average Loans |
| Twelve Months Ended December 31, 2023 | | | | | | | |
| Commercial | $ | (1,765) | | | $ | (580) | | | $ | 2,498,453 | | | (0.02) | % |
| Real estate | (3,107) | | | 33 | | | 675,520 | | | 0.00 | % |
| Mortgage warehouse | (539) | | | — | | | 54,798 | | | 0.00 | % |
| Consumer | 7,501 | | | (1,614) | | | 1,011,166 | | | (0.16) | % |
| Total | 2,090 | | | (2,161) | | | 4,239,937 | | | (0.05) | % |
| | | | | | | |
| Twelve Months Ended December 31, 2022 | | | | | | | |
| Commercial | $ | (7,650) | | | $ | 80 | | | $ | 2,280,553 | | | 0.00 | % |
| Real estate | 1,668 | | | 53 | | | 621,163 | | | 0.01 | % |
| Mortgage warehouse | (39) | | | — | | | 89,409 | | | 0.00 | % |
| Consumer | 3,802 | | | (976) | | | 850,667 | | | (0.11) | % |
| Total | (2,219) | | | (843) | | | 3,841,792 | | | (0.02) | % |
| | | | | | | |
| Twelve Months Ended December 31, 2021 | | | | | | | |
| Commercial | $ | (1,320) | | | $ | (1,099) | | | $ | 2,155,018 | | | (0.05) | % |
| Real estate | (755) | | | (9) | | | 591,395 | | | 0.00 | % |
| Mortgage warehouse | (208) | | | — | | | 206,932 | | | 0.00 | % |
| Consumer | 199 | | | (533) | | | 679,712 | | | (0.08) | % |
| Total | (2,084) | | | (1,641) | | | 3,633,057 | | | (0.05) | % |
| | | | | | | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–interest Income
The following is a summary of changes in non–interest income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended
December 31 | | 2022 - 2023 | | Twelve Months Ended
December 31 | | 2021 - 2022 |
| Non–interest Income | 2023 | | 2022 | | Amount Change | | Percent Change | | 2022 | | 2021 | | Amount Change | | Percent Change |
| Service charges on deposit accounts | $ | 12,227 | | | $ | 11,598 | | | $ | 629 | | | 5.4 | % | | $ | 11,598 | | | $ | 9,192 | | | $ | 2,406 | | | 26.2 | % |
| Wire transfer fees | 448 | | | 595 | | | (147) | | | (24.7) | % | | 595 | | | 892 | | | (297) | | | (33.3) | % |
| Interchange fees | 12,861 | | | 12,402 | | | 459 | | | 3.7 | % | | 12,402 | | | 10,901 | | | 1,501 | | | 13.8 | % |
| Fiduciary activities | 5,080 | | | 5,381 | | | (301) | | | (5.6) | % | | 5,381 | | | 7,419 | | | (2,038) | | | (27.5) | % |
| Gain (loss) on sale of investment securities | (32,052) | | | — | | | (32,052) | | | (100.0) | % | | — | | | 914 | | | (914) | | | (100.0) | % |
| Gain on sale of mortgage loans | 4,323 | | | 7,165 | | | (2,842) | | | (39.7) | % | | 7,165 | | | 19,163 | | | (11,998) | | | (62.6) | % |
| Mortgage servicing net of impairment | 2,708 | | | 4,800 | | | (2,092) | | | (43.6) | % | | 4,800 | | | 2,352 | | | 2,448 | | | 104.1 | % |
| Increase in cash surrender value of bank owned life insurance | 3,709 | | | 2,594 | | | 1,115 | | | 43.0 | % | | 2,594 | | | 2,094 | | | 500 | | | 23.9 | % |
| Death benefit on officer life insurance | — | | | 644 | | | (644) | | | (100.0) | % | | 644 | | | 783 | | | (139) | | | (17.8) | % |
| Other income | 2,694 | | | 2,272 | | | 422 | | | 18.6 | % | | 2,272 | | | 4,242 | | | (1,970) | | | (46.4) | % |
| Total non–interest income | $ | 11,998 | | | $ | 47,451 | | | $ | (35,453) | | | (74.7) | % | | $ | 47,451 | | | $ | 57,952 | | | $ | (10,501) | | | (18.1) | % |
During 2017,2023, the Company originated approximately $218.5$142.8 million of mortgage loans to be sold on the secondary market, compared to $316.9$221.9 million in 2016.2022 as long–term interest rates increased during 2023. This decrease in volume, offset by an increasein addition to a decrease in the percentage earned on the sale of mortgage loans, resulted in a decrease in the overall gain on sale of mortgage loans of $3.8$2.8 million compared to the prior year. Gain (loss) on the sale of investment securities decreased $32.1 million in 2023 as there were no sales in 2022 and the Company executed a balance sheet restructure in the fourth quarter of 2023 resulting in a $31.6 million loss on the sale of investment securities. Mortgage servicing net of impairment decreased by $2.1 million during 2023 compared to 2022 primarily due to the recovery net impairment charges of $2.6 million recorded during 2022. The increase in bank owned life insurance income in 2023 was due to additional purchases of bank owned life insurance in 2022.
During 2022, the Company originated approximately $221.9 million of mortgage loans to be sold on the secondary market, compared to $438.1 million in 2021 as long–term interest rates began to increase during 2022. This decrease in volume, in addition to a decrease in the percentage earned on the sale of mortgage loans, resulted in a decrease in the overall gain on sale of mortgage loans of $12.0 million compared to the prior year. Gain on the sale of investment securities decreased $1.8$914,000 in 2022 as there were no sales in 2022. Fiduciary activities income decreased $2.0 million in 2017 as analysis in 2016 determined market conditions providedduring 2022 primarily due to the opportunity to add gains to capital without negatively impacting long-term earnings, in addition to helping offsetsale of ESOP trustee accounts which was completed during the penalties incurred on the repaymentthird quarter of debt as part of a balance sheet restructuring.2021. Mortgage servicing net of impairment decreasedincreased by $325,000$2.4 million during 20172022 compared to 2016.2021 primarily due to the recovery net impairment charges of $2.6 million recorded during 2022. Other income decreased $2.0 million during 2022 primarily due to the gain on sale of ESOP trustee accounts of $2.3 million recorded in 2021. The increase in service charges on deposit accounts and interchange fee income in 20172022 compared to 20162021 was the result of the branch acquisition in September 2021 and organic growth in transactional deposit accounts and volume during 2017. Fiduciary activities income increased $1.3 million during 2017 as a result2022.
Table of an increase in assets under management. Other income increased $734,000 in 2017 compared to 2016 reflecting the finalized entries of the Lafayette acquisition which resulted in a gain on the accounting for Horizon’s previous equity interest of Lafayette totaling $530,000.The increase in service charges on deposit accounts and interchange fee income in 2016 compared to 2015 was the result of growth in transactional deposit accounts and volume during 2016. Fiduciary activities income increased $984,000 during 2016 as a result of an increase in assets under management. During 2016, the Company originated approximately $316.9 million of mortgage loans to be sold on the secondary market, compared to $302.4 million in 2015. This increase in volume and increase in the percentage earned on the sale of mortgage loans; increased the overall gain on sale of mortgage loans by $1.6 million compared to the prior year. Mortgage servicing net of impairment increased by $915,000 during 2016 compared to 2015 due to a larger portfolio of mortgage loans serviced during 2016. The cash surrender value of bank owned life insurance increased by $394,000 in 2016 due to an increase in the number of policies outstanding as a result of the Kosciusko and LaPorte acquisitions. Gain on sale of investment securities increased $1.6 million in 2016 due to security gains used to help offset the penalties paid on the repayment of debt as part of a balance sheet restructuring and the result of an analysis that determined market conditions provided the opportunity to add gains to capital without negatively impacting long-term earnings. The death benefit on Bank owned life insurance decreased by $145,000 in 2016 due to a payment realized on one of the policies in 2015. These increases were partially offset by a decrease in other income of $64,000 in 2016.
Non-interest Expense
The following is a summary of changes innon-interest expense:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended | | | | | | | | | | | | 2015 - 2016 | |
| | | December 31 | | | December 31 | | | Amount | | | Percent | | | December 31 | | | Amount | | | Percent | |
| | | 2017 | | | 2016 | | | Change | | | Change | | | 2015 | | | Change | | | Change | |
Non-interest Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Salaries | | $ | 36,503 | | | $ | 30,445 | | | $ | 6,058 | | | | 19.9 | % | | $ | 25,284 | | | $ | 5,161 | | | | 20.4 | % |
Commission and bonuses | | | 6,225 | | | | 6,484 | | | | (259 | ) | | | -4.0 | % | | | 6,008 | | | | 476 | | | | 7.9 | % |
Employee benefits | | | 8,647 | | | | 7,084 | | | | 1,563 | | | | 22.1 | % | | | 6,420 | | | | 664 | | | | 10.3 | % |
Net occupancy expenses | | | 9,535 | | | | 8,322 | | | | 1,213 | | | | 14.6 | % | | | 6,400 | | | | 1,922 | | | | 30.0 | % |
Data processing | | | 5,914 | | | | 5,367 | | | | 547 | | | | 10.2 | % | | | 4,251 | | | | 1,116 | | | | 26.3 | % |
Professional fees | | | 2,490 | | | | 2,752 | | | | (262 | ) | | | -9.5 | % | | | 2,070 | | | | 682 | | | | 32.9 | % |
Outside services and consultants | | | 7,018 | | | | 7,863 | | | | (845 | ) | | | -10.7 | % | | | 5,735 | | | | 2,128 | | | | 37.1 | % |
Loan expense | | | 4,970 | | | | 5,582 | | | | (612 | ) | | | -11.0 | % | | | 5,379 | | | | 203 | | | | 3.8 | % |
FDIC deposit insurance | | | 1,046 | | | | 1,559 | | | | (513 | ) | | | -32.9 | % | | | 1,499 | | | | 60 | | | | 4.0 | % |
Other losses | | | 368 | | | | 684 | | | | (316 | ) | | | -46.2 | % | | | 432 | | | | 252 | | | | 58.3 | % |
Other expense | | | 12,097 | | | | 10,750 | | | | 1,347 | | | | 12.5 | % | | | 8,747 | | | | 2,003 | | | | 22.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Totalnon-interest expense | | $ | 94,813 | | | $ | 86,892 | | | $ | 7,921 | | | | 9.1 | % | | $ | 72,225 | | | $ | 14,667 | | | | 20.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non–interest Expense
The following is a summary of changes in non–interest expense:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended
December 31 | | 2022 - 2023 | | Twelve Months Ended
December 31 | | 2021 - 2022 |
| Non–interest Expense | 2023 | | 2022 | | Amount
Change | | Percent
Change | | 2022 | | 2021 | | Amount
Change | | Percent
Change |
| Salaries | $ | 56,165 | | | $ | 55,422 | | | $ | 743 | | | 1.3 | % | | $ | 55,422 | | | $ | 49,463 | | | $ | 5,959 | | | 12.0 | % |
| Commission and bonuses | 6,021 | | | 8,442 | | | (2,421) | | | (28.7) | % | | 8,442 | | | 11,089 | | | (2,647) | | | (23.9) | % |
| Employee benefits | 18,623 | | | 16,419 | | | 2,204 | | | 13.4 | % | | 16,419 | | | 13,499 | | | 2,920 | | | 21.6 | % |
| Net occupancy expenses | 13,355 | | | 13,323 | | | 32 | | | 0.2 | % | | 13,323 | | | 12,541 | | | 782 | | | 6.2 | % |
| Data processing | 11,626 | | | 10,567 | | | 1,059 | | | 10.0 | % | | 10,567 | | | 9,962 | | | 605 | | | 6.1 | % |
| Professional fees | 2,645 | | | 1,843 | | | 802 | | | 43.5 | % | | 1,843 | | | 2,216 | | | (373) | | | (16.8) | % |
| Outside services and consultants | 9,942 | | | 10,850 | | | (908) | | | (8.4) | % | | 10,850 | | | 8,449 | | | 2,401 | | | 28.4 | % |
| Loan expense | 4,980 | | | 5,411 | | | (431) | | | (8.0) | % | | 5,411 | | | 5,492 | | | (81) | | | (1.5) | % |
| FDIC deposit insurance | 3,880 | | | 2,558 | | | 1,322 | | | 51.7 | % | | 2,558 | | | 2,377 | | | 181 | | | 7.6 | % |
| Core deposit intangible amortization | 3,612 | | | 3,702 | | | (90) | | | (2.4) | % | | 3,702 | | | 3,644 | | | 58 | | | 1.6 | % |
| Other losses | 1,051 | | | 1,046 | | | 5 | | | 0.5 | % | | 1,046 | | | 2,283 | | | (1,237) | | | (54.2) | % |
| Other expenses | 14,384 | | | 13,618 | | | 766 | | | 5.6 | % | | 13,618 | | | 12,379 | | | 1,239 | | | 10.0 | % |
| Total non–interest expense | $ | 146,284 | | | $ | 143,201 | | | $ | 3,083 | | | 2.2 | % | | $ | 143,201 | | | $ | 133,394 | | | $ | 9,807 | | | 7.4 | % |
For the twelve months ended December 31,
2017, salary expense,2023, employee benefits increased
by $6.1$2.2 million
and $1.6 million, respectively, reflecting additional compensation expense related to performance-based incentive plans, overall company growth and the Lafayette and Wolverine acquisitions. Net occupancy, data processing and other expense increased during 2017 primarily due to
overall company growth, market expansionsthe increase in health care costs and
recent acquisitions. Outside servicesvariable costs in certain deferred compensation plans. FDIC deposit insurance increased $1.3 million as the FDIC's plan to replenish the Deposit Insurance Fund increased the rates paid during 2023. Commission and
consultants expense and professional feesbonuses decreased
primarily due to a lower amount of acquisition-related expenses in 2017 compared to 2016. The decrease in loan expense reflects a decrease in loan collection expenses when comparing 2017 to 2016. The reduced assessment rate schedule implemented by the FDIC in the fourth quarter of 2016 resulted in the decrease of FDIC insurance expense in 2017. Other losses decreased$2.4 million primarily due to lower
debit card fraud-related expensesmortgage volume in
2017.2023 and lower bonus expense accruals due to the results of certain performance measurements.
For the twelve months ended December 31, 2016, salary expense, commission2022, salaries increased $6.0 million reflecting annual merit increases and bonuses, employee benefits, net occupancy expense and other expense increased by $5.2 million, $476,000, $664,000, $1.9 million and $2.0 million, respectively, due to the Kosciusko, LaPorte and CNB mergers, Horizon’s investments in growth markets and overall growth. Data processing and various other expenses increased during 2016additional employees from the costbranch acquisition completed during the third quarter of continued growth and expansion and the Kosciusko, LaPorte and CNB mergers.2021. Outside services and consultants and other expenses each increased by $2.4 million from additional consulting services performed during the year. Other losses decreased $1.2 million primarily due to $1.9 million in ESOP settlement expenses recorded during the fourth quarter of 2021.
Income Taxes
Income tax expense totaled $11.0 million for the year ended December 31, 2023, a decrease of $1.2 million when compared to the year ended December 31, 2022. The decrease was primarily due to a decrease in income before taxes of $66.6 million, offset by a tax valuation reserve of $5.2 million recorded related to the sale of investment securities and tax expense and excise tax of $8.6 million related to the redemption of bank owned life insurance policies in 2023.
Income tax expense totaled $12.2 million for the year ended December 31, 2022, an decrease of $3.2 million when compared to the year ended December 31, 2021. The decrease was primarily due to the
fees associated with the Kosciusko, LaPorte and CNB acquisitions. Loan expense increasedadditional benefit related to investments that generate tax credits, an increase in
2016 compared to 2015 due to company growth and collection costs. Other losses increased in 2016 compared to 2015 due to the recovery of a previously recorded loss contingency in 2014 and higherone-time losses in 2015.Income Taxes
Income tax expense increased $6.0 million in 2017 totaling $14.8 million, compared to $8.8 million in 2016. The majority of the increase was due toexempt investments, offset slightly by an increase in income before taxes of $15.2$3.1 million in 2017. Also included2022.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in this increase is an adjustment to Horizon’s net deferred tax assetthousands except per share data)
Use of
$2.4 million ($1.7 million of net deferred tax assets and $766,000 of net deferred tax assets related to accumulated other comprehensive income) to reflect the new corporate tax rate signed into law at the end of 2017.Use ofNon-GAAPNon–GAAP Financial Measures
Certain information set forth in this report on Form
10-K 10–K refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included
non-GAAP non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin,
total loans and loan growth, the allowance for
loan and leasecredit losses, tangible stockholders’ equity, tangible book value per share,
and the return on average assets,
andthe return on average common
equity.equity and pre–tax pre–provision net income. In each case, we have identified special circumstances that we consider to be
non-recurring adjustments and have excluded them, in order to show the impact of such
mattersevents as
acquisition-relatedacquisition–related purchase accounting adjustments, prepayment penalties on borrowings and the Tax Cuts and Jobs Act, among other matters we have identified in our reconciliations. Horizon believes these
non-GAAP non–GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and
one-time costs of acquisitions andnon-core items. other adjustments. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the following tables for reconciliations of the
non-GAAP non–GAAP measures identified in this Form
10-K 10–K to their most comparable GAAP measures.
HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non-GAAP Reconciliation
| | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Net Income |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Net income as reported | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Acquisition expenses | — | | | — | | | 1,925 | |
| Tax effect | — | | | — | | | (401) | |
| Net income excluding acquisition expenses | 27,981 | | | 93,408 | | | 88,615 | |
| Swap termination fee | (1,453) | | | — | | | — | |
| Tax effect | 305 | | | — | | | — | |
| Net income excluding swap termination fee | 26,833 | | | 93,408 | | | 88,615 | |
| Credit loss expense on acquired loans | — | | | — | | | 2,034 | |
| Tax effect | — | | | — | | | (427) | |
| Net income excluding credit loss expense on acquired loans | 26,833 | | | 93,408 | | | 90,222 | |
| Gain on sale of ESOP trustee accounts | — | | | — | | | (2,329) | |
| Tax effect | — | | | — | | | 489 | |
| Net income excluding gain on sale of ESOP trustee accounts | 26,833 | | | 93,408 | | | 88,382 | |
| ESOP settlement expenses | — | | | — | | | 1,900 | |
| Tax effect | — | | | — | | | (315) | |
| Net income excluding ESOP settlement expenses | 26,833 | | | 93,408 | | | 89,967 | |
| (Gain) / loss on sale of investment securities | 32,052 | | | — | | | (914) | |
| Tax effect | (6,731) | | | — | | | 192 | |
| Tax valuation reserve | 5,201 | | | — | | | — | |
| Net income excluding (gain) / loss on sale of investment securities | 57,355 | | | 93,408 | | | 89,245 | |
| Death benefit on bank owned life insurance (“BOLI”) | — | | | (644) | | | (783) | |
| Net income excluding death benefit on BOLI | 57,355 | | | 92,764 | | | 88,462 | |
Extraordinary expenses (1) | 705 | | | — | | | — | |
| Tax effect | (148) | | | — | | | — | |
| Net income excluding extraordinary expenses | 57,912 | | | 92,764 | | | 88,462 | |
| Prepayment penalties on borrowings | — | | | — | | | 125 | |
| Tax effect | — | | | — | | | (26) | |
| Net income excluding prepayment penalties on borrowings | 57,912 | | | 92,764 | | | 88,561 | |
| BOLI tax expense and excise tax | 8,597 | | | — | | | — | |
| Net income excluding BOLI tax expense and excise tax | 66,509 | | | 92,764 | | | 88,561 | |
| Adjusted net income | $ | 66,509 | | | $ | 92,764 | | | $ | 88,561 | |
| | | | | |
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. |
Table of Net Interest Margin(Dollars in Thousands, Unaudited)
| | | | | | | | | | | | |
| | | Twelve Months Ended | |
| | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Net Interest Margin As Reported | | | | | | | | | | | | |
Net interest income | | $ | 112,100 | | | $ | 85,992 | | | $ | 74,734 | |
Average interest-earning assets | | | 3,074,464 | | | | 2,683,383 | | | | 2,166,006 | |
Net interest income as a percent of average interest-earning assets (“Net Interest Margin”) | | | 3.75 | % | | | 3.29 | % | | | 3.56 | % |
| | | |
Impact of Prepayment Penalties on Borrowings | | | | | | | | | | | | |
Interest expense from prepayment penalties on borrowings | | $ | — | | | $ | 4,839 | | | $ | — | |
| | | |
Impact of Acquisitions | | | | | | | | | | | | |
Interest income from acquisition-related purchase accounting adjustments | | $ | (3,484 | ) | | $ | (2,304 | ) | | $ | (2,977 | ) |
| | | |
Excluding Impact of Prepayment Penalties and Acquisitions | | | | | | | | | | | | |
Net interest income | | $ | 108,616 | | | $ | 88,527 | | | $ | 71,757 | |
Average interest-earning assets | | | 3,074,464 | | | | 2,683,383 | | | | 2,166,006 | |
Core Net Interest Margin | | | 3.64 | % | | | 3.38 | % | | | 3.42 | % |
Loan Growth by Type, Excluding Acquired Loans
Twelve Months Ended December 31, 2017
(Dollars in Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Excluding Acquired Loans | |
| | | December 31 | | | December 31 | | | Amount | | | Acquired | | | Amount | | | Percent | |
| | | 2017 | | | 2016 | | | Change | | | Loans | | | Change | | | Change | |
Commercial loans | | $ | 1,617,870 | | | $ | 1,069,956 | | | $ | 547,914 | | | $ | (395,167 | ) | | $ | 152,747 | | | | 14.3 | % |
Residential mortgage loans | | | 606,760 | | | | 531,874 | | | | 74,886 | | | | (43,423 | ) | | | 31,463 | | | | 5.9 | % |
Consumer loans | | | 512,857 | | | | 398,429 | | | | 114,428 | | | | (9,739 | ) | | | 104,689 | | | | 26.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 2,737,487 | | | | 2,000,259 | | | | 737,228 | | | | (448,329 | ) | | | 288,899 | | | | 14.4 | % |
Held for sale loans | | | 3,094 | | | | 8,087 | | | | (4,993 | ) | | | — | | | | (4,993 | ) | | | -61.7 | % |
Mortgage warehouse loans | | | 94,508 | | | | 135,727 | | | | (41,219 | ) | | | — | | | | (41,219 | ) | | | -30.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 2,835,089 | | | $ | 2,144,073 | | | $ | 691,016 | | | $ | (448,329 | ) | | $ | 242,687 | | | | 11.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands Except per Share Data, Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | September 30 | | | June 30 | | | March 31 | | | December 31 | |
| | | 2017 | | | 2017 | | | 2017 | | | 2017 | | | 2016 | |
Total stockholders’ equity | | $ | 457,078 | | | $ | 392,055 | | | $ | 357,259 | | | $ | 348,575 | | | $ | 340,855 | |
Less: Intangible assets | | | 132,282 | | | | 103,244 | | | | 86,726 | | | | 87,094 | | | | 86,307 | |
| | | | | | | | | | | | | | | | | | | | |
Total tangible stockholders’ equity | | $ | 324,796 | | | $ | 288,811 | | | $ | 270,533 | | | $ | 261,481 | | | $ | 254,548 | |
| | | | | | | | | | | | | | | | | | | | |
Common shares outstanding | | | 25,529,819 | | | | 23,325,459 | | | | 22,176,465 | | | | 22,176,465 | | | | 22,171,596 | |
Tangible book value per common share | | $ | 12.72 | | | $ | 12.38 | | | $ | 12.20 | | | $ | 11.79 | | | $ | 11.48 | |
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non-GAAP Reconciliation
| | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Diluted Earnings per Share |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Diluted earnings per share (“EPS”) as reported | $ | 0.64 | | | $ | 2.14 | | | $ | 1.98 | |
| Acquisition expenses | — | | | — | | | 0.04 | |
| Tax effect | — | | | — | | | — | |
| Diluted EPS excluding acquisition expenses | 0.64 | | | 2.14 | | | 2.02 | |
| Swap termination fee | (0.03) | | | — | | | — | |
| Tax effect | 0.01 | | | — | | | — | |
| Diluted EPS excluding swap termination fee | 0.62 | | | 2.14 | | | 2.02 | |
| Credit loss expense on acquired loans | — | | | — | | | 0.05 | |
| Tax effect | — | | | — | | | (0.01) | |
| Diluted EPS excluding credit loss expense on acquired loans | 0.62 | | | 2.14 | | | 2.06 | |
| Gain on sale of ESOP trustee accounts | — | | | — | | | (0.05) | |
| Tax effect | — | | | — | | | 0.01 | |
| Diluted EPS excluding gain on sale of ESOP trustee accounts | 0.62 | | | 2.14 | | | 2.02 | |
| ESOP settlement expenses | — | | | — | | | 0.04 | |
| Tax effect | — | | | — | | | (0.01) | |
| Diluted EPS excluding ESOP settlement expenses | 0.62 | | | 2.14 | | | 2.05 | |
| (Gain) / loss on sale of investment securities | 0.73 | | | — | | | (0.02) | |
| Tax effect | (0.15) | | | — | | | — | |
| Tax valuation reserve | 0.12 | | | — | | | — | |
| Diluted EPS excluding (gain) / loss on sale of investment securities | 1.32 | | | 2.14 | | | 2.03 | |
| Death benefit on bank owned life insurance (“BOLI”) | — | | | (0.01) | | | (0.03) | |
| Diluted EPS excluding death benefit on BOLI | 1.32 | | | 2.13 | | | 2.00 | |
Extraordinary expenses (1) | 0.02 | | | — | | | — | |
| Tax effect | — | | | — | | | — | |
| Diluted EPS excluding extraordinary expenses | 1.34 | | | 2.13 | | | 2.00 | |
| Prepayment penalties on borrowings | — | | | — | | | — | |
| Tax effect | — | | | — | | | — | |
| Diluted EPS excluding prepayment penalties on borrowings | 1.34 | | | 2.13 | | | 2.00 | |
| BOLI tax expense and excise tax | 0.20 | | | — | | | — | |
| Net income excluding BOLI tax expense and excise tax | 1.54 | | | 2.13 | | | 2.00 | |
| Adjusted diluted EPS | $ | 1.54 | | | $ | 2.13 | | | $ | 2.00 | |
| | | | | |
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. |
Table of Net Income and Diluted Earnings per Share(Dollars in Thousands Except per Share Data)
| | | | | | | | | | | | |
| | | Twelve Months Ended | |
| | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Non-GAAP Reconciliation of Net Income | | | | | | | | | | | | |
Net income as reported | | $ | 33,117 | | | $ | 23,912 | | | $ | 20,549 | |
Merger expenses | | | 3,656 | | | | 6,827 | | | | 4,889 | |
Tax effect | | | (1,003 | ) | | | (1,998 | ) | | | (1,585 | ) |
| | | | | | | | | | | | |
Net income excluding merger expenses | | | 35,770 | | | | 28,741 | | | | 23,853 | |
Gain on sale of investment securities | | | (38 | ) | | | (1,836 | ) | | | (189 | ) |
Tax effect | | | 13 | | | | 643 | | | | 66 | |
| | | | | | | | | | | | |
Net income excluding gain on sale of investment securities | | | 35,745 | | | | 27,548 | | | | 23,730 | |
Death benefit on bank owned life insurance (“BOLI”) | | | — | | | | — | | | | (145 | ) |
Tax effect | | | — | | | | — | | | | 51 | |
| | | | | | | | | | | | |
Net income excluding death benefit on BOLI | | | 35,745 | | | | 27,548 | | | | 23,636 | |
Prepayment penalties on borrowings | | | — | | | | 4,839 | | | | — | |
Tax effect | | | — | | | | (1,694 | ) | | | — | |
| | | | | | | | | | | | |
Net income excluding prepayment penalties on borrowings | | | 35,745 | | | | 30,693 | | | | 23,636 | |
Gain on remeasurement of equity interest in Lafayette | | | (530 | ) | | | — | | | | — | |
Tax effect | | | 78 | | | | — | | | | — | |
| | | | | | | | | | | | |
Net income excluding gain on remeasurement of equity interest in Lafayette | | | 35,293 | | | | 30,693 | | | | 23,636 | |
Tax reform bill impact | | | 2,426 | | | | — | | | | — | |
| | | | | | | | | | | | |
Net income excluding tax reform bill impact | | | 37,719 | | | | 30,693 | | | | 23,636 | |
Acquisition-related purchase accounting adjustments (“PAUs”) | | | (3,484 | ) | | | (2,304 | ) | | | (2,977 | ) |
Tax effect | | | 1,219 | | | | 807 | | | | 1,042 | |
| | | | | | | | | | | | |
Core Net Income | | $ | 35,454 | | | $ | 29,196 | | | $ | 21,701 | |
| | | | | | | | | | | | |
Non-GAAP Reconciliation of Diluted Earnings per Share | | | | | | | | | | | | |
Diluted earnings per share as reported | | $ | 1.43 | | | $ | 1.19 | | | $ | 1.26 | |
Merger expenses | | | 0.16 | | | | 0.34 | | | | 0.30 | |
Tax effect | | | (0.04 | ) | | | (0.10 | ) | | | (0.10 | ) |
| | | | | | | | | | | | |
Diluted earnings per share excluding merger expenses | | | 1.55 | | | | 1.43 | | | | 1.46 | |
Gain on sale of investment securities | | | — | | | | (0.09 | ) | | | (0.01 | ) |
Tax effect | | | — | | | | 0.03 | | | | 0.01 | |
| | | | | | | | | | | | |
Diluted earnings per share excluding gain on sale of investment securities | | | 1.55 | | | | 1.37 | | | | 1.46 | |
Death benefit on BOLI | | | — | | | | — | | | | (0.01 | ) |
Tax effect | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Net income excluding death benefit on BOLI | | | 1.55 | | | | 1.37 | | | | 1.45 | |
Prepayment penalties on borrowings | | | — | | | | 0.24 | | | | — | |
Tax effect | | | — | | | | (0.08 | ) | | | — | |
| | | | | | | | | | | | |
Diluted earnings per share excluding prepayment penalties on borrowings | | | 1.55 | | | | 1.53 | | | | 1.45 | |
Gain on remeasurement of equity interest in Lafayette | | | (0.02 | ) | | | — | | | | — | |
Tax effect | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Diluted earnings per share excluding gain on remeasurement of equity interest in Lafayette | | | 1.53 | | | | 1.53 | | | | 1.45 | |
Tax reform bill impact | | | 0.10 | | | | — | | | | — | |
| | | | | | | | | | | | |
Diluted earnings per share excluding tax reform bill impact | | | 1.64 | | | | 1.53 | | | | 1.45 | |
Acquisition-related PAUs | | | (0.15 | ) | | | (0.11 | ) | | | (0.18 | ) |
Tax effect | | | 0.05 | | | | 0.03 | | | | 0.06 | |
| | | | | | | | | | | | |
Diluted earnings per share excluding PAUs | | $ | 1.53 | | | $ | 1.45 | | | $ | 1.33 | |
| | | | | | | | | | | | |
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non-GAAP Reconciliation
| | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Income |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Pre–tax income | $ | 38,999 | | | $ | 105,584 | | | $ | 102,447 | |
| Credit loss expense | 2,459 | | | (1,816) | | | (2,084) | |
| Pre–tax, pre–provision income | $ | 41,458 | | | $ | 103,768 | | | $ | 100,363 | |
| | | | | |
| Pre–tax, pre–provision income | $ | 41,458 | | | $ | 103,768 | | | $ | 100,363 | |
| Acquisition expenses | — | | | — | | | 1,925 | |
| Swap termination fee | (1,453) | | | — | | | — | |
| Gain on sale of ESOP trustee accounts | — | | | — | | | (2,329) | |
| ESOP settlement expenses | — | | | — | | | 1,900 | |
| (Gain) / loss on sale of investment securities | 32,052 | | | — | | | (914) | |
| Death benefit on bank owned life insurance | — | | | (644) | | | (783) | |
Extraordinary expenses (1) | 705 | | | — | | | — | |
| Prepayment penalties on borrowings | — | | | — | | | 125 | |
| Adjusted pre–tax, pre–provision income | $ | 72,762 | | | $ | 103,124 | | | $ | 100,287 | |
| | | | | |
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. |
| | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Net Interest Margin |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Net interest income as reported | $ | 175,744 | | | $ | 199,518 | | | $ | 175,805 | |
| Average interest earning assets | 7,235,455 | | | 6,977,407 | | | 6,035,161 | |
Net interest income as a percentage of average interest earning assets
(“Net Interest Margin”) | 2.55 | % | | 2.98 | % | | 3.03 | % |
| | | | | |
| Net interest income as reported | $ | 175,744 | | | $ | 199,518 | | | $ | 175,805 | |
| Acquisition–related purchase accounting adjustments (“PAUs”) | (1,628) | | | (3,476) | | | (4,503) | |
| Swap termination fee | (1,453) | | | — | | | — | |
| Prepayment penalties on borrowings | — | | | — | | | 125 | |
| Adjusted net interest income | $ | 172,663 | | | $ | 196,042 | | | $ | 171,427 | |
| Adjusted net interest margin | 2.51 | % | | 2.93 | % | | 2.96 | % |
Table of Return on Average Assets and Average Common Equity(Dollars in Thousands, Unaudited)
| | | | | | | | | | | | |
| | | Twelve Months Ended | |
| | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Non-GAAP Reconciliation of Return on Average Assets | | | | | | | | | | | | |
Average Assets | | $ | 3,396,873 | | | $ | 2,961,622 | | | $ | 2,360,485 | |
Net income as reported | | | 0.97 | % | | | 0.81 | % | | | 0.87 | % |
Merger expenses | | | 0.11 | % | | | 0.23 | % | | | 0.21 | % |
Tax effect | | | -0.03 | % | | | -0.07 | % | | | -0.07 | % |
| | | | | | | | | | | | |
Net income excluding merger expenses | | | 1.05 | % | | | 0.97 | % | | | 1.01 | % |
Gain on sale of investment securities | | | 0.00 | % | | | -0.06 | % | | | -0.01 | % |
Tax effect | | | 0.00 | % | | | 0.02 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Net income excluding gain on sale of investment securities | | | 1.05 | % | | | 0.93 | % | | | 1.00 | % |
Death benefit on BOLI | | | 0.00 | % | | | 0.00 | % | | | -0.01 | % |
Tax effect | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Net income excluding death benefit on BOLI | | | 1.05 | % | | | 0.93 | % | | | 0.99 | % |
Prepayment penalties on borrowings | | | 0.00 | % | | | 0.17 | % | | | 0.00 | % |
Tax effect | | | 0.00 | % | | | -0.06 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Net income excluding prepayment penalties on borrowings | | | 1.05 | % | | | 1.04 | % | | | 0.99 | % |
Gain on remeasurement of equity interest in Lafayette | | | -0.02 | % | | | 0.00 | % | | | 0.00 | % |
Tax effect | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Net income excluding gain on remeasurement of equity interest in Lafayette | | | 1.03 | % | | | 1.04 | % | | | 0.99 | % |
Tax reform bill impact | | | 0.07 | % | | | 0.00 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Net income excluding tax reform bill impact | | | 1.10 | % | | | 1.04 | % | | | 0.99 | % |
Acquisition-related purchase accounting adjustments (“PAUs”) | | | -0.10 | % | | | -0.08 | % | | | -0.13 | % |
Tax effect | | | 0.04 | % | | | 0.03 | % | | | 0.04 | % |
| | | | | | | | | | | | |
Net income excluding PAUs | | | 1.04 | % | | | 0.99 | % | | | 0.90 | % |
| | | | | | | | | | | | |
Non-GAAP Reconciliation of Return on Average Common Equity | | | | | | | | | | | | |
Average Common Equity | | $ | 378,709 | | | $ | 301,485 | | | $ | 207,014 | |
Return on average common equity as reported | | | 8.74 | % | | | 7.93 | % | | | 9.93 | % |
Merger expenses | | | 0.97 | % | | | 2.26 | % | | | 2.36 | % |
Tax effect | | | -0.26 | % | | | -0.66 | % | | | -0.77 | % |
| | | | | | | | | | | | |
Return on average assets excluding merger expenses | | | 9.45 | % | | | 9.53 | % | | | 11.52 | % |
Gain on sale of investment securities | | | -0.01 | % | | | -0.61 | % | | | -0.09 | % |
Tax effect | | | 0.00 | % | | | 0.21 | % | | | 0.03 | % |
| | | | | | | | | | | | |
Return on average assets excluding gain on sale of investment securities | | | 9.44 | % | | | 9.13 | % | | | 11.46 | % |
Death benefit on BOLI | | | 0.00 | % | | | 0.00 | % | | | -0.07 | % |
Tax effect | | | 0.00 | % | | | 0.00 | % | | | 0.02 | % |
| | | | | | | | | | | | |
Return on average assets excluding death benefit on BOLI | | | 9.44 | % | | | 9.13 | % | | | 11.41 | % |
Prepayment penalties on borrowings | | | 0.00 | % | | | 1.61 | % | | | 0.00 | % |
Tax effect | | | 0.00 | % | | | -0.56 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Return on average assets excluding prepayment penalties on borrowings | | | 9.44 | % | | | 10.18 | % | | | 11.41 | % |
Gain on remeasurement of equity interest in Lafayette | | | -0.14 | % | | | 0.00 | % | | | 0.00 | % |
Tax effect | | | 0.02 | % | | | 0.00 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Return on average assets excluding gain on remeasurement of equity interest in Lafayette | | | 9.32 | % | | | 10.18 | % | | | 11.41 | % |
Tax reform bill impact | | | 0.64 | % | | | 0.00 | % | | | 0.00 | % |
| | | | | | | | | | | | |
Return on average assets excluding tax reform bill impact | | | 9.96 | % | | | 10.18 | % | | | 11.41 | % |
Acquisition-related PAUs | | | -0.92 | % | | | -0.76 | % | | | -1.44 | % |
Tax effect | | | 0.32 | % | | | 0.27 | % | | | 0.50 | % |
| | | | | | | | | | | | |
Return on average assets excluding PAUs | | | 9.36 | % | | | 9.69 | % | | | 10.47 | % |
| | | | | | | | | | | | |
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Non- GAAP Allowance for Loan
| | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Return on Average Assets |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Average assets | $ | 7,869,628 | | | $ | 7,533,915 | | | $ | 6,514,251 | |
| Return on average assets (“ROAA”) as reported | 0.36 | % | | 1.24 | % | | 1.34 | % |
| Acquisition expenses | — | % | | — | % | | 0.03 | % |
| Tax effect | — | % | | — | % | | (0.01) | % |
| ROAA excluding acquisition expenses | 0.36 | % | | 1.24 | % | | 1.36 | % |
| Swap termination fee | (0.02) | % | | — | % | | — | % |
| Tax effect | — | % | | — | % | | — | % |
| ROAA excluding swap termination fee | 0.34 | % | | 1.24 | % | | 1.36 | % |
| Credit loss expense on acquired loans | — | % | | — | % | | 0.03 | % |
| Tax effect | — | % | | — | % | | (0.01) | % |
| ROAA excluding credit loss expense on acquired loans | 0.34 | % | | 1.24 | % | | 1.38 | % |
| Gain on sale of ESOP trustee accounts | — | % | | — | % | | (0.04) | % |
| Tax effect | — | % | | — | % | | 0.01 | % |
| ROAA excluding gain on sale of ESOP trustee accounts | 0.34 | % | | 1.24 | % | | 1.35 | % |
| ESOP settlement expenses | — | % | | — | % | | 0.03 | % |
| Tax effect | — | % | | — | % | | — | % |
| ROAA excluding ESOP settlement expenses | 0.34 | % | | 1.24 | % | | 1.38 | % |
| (Gain) / loss on sale of investment securities | 0.41 | % | | — | % | | (0.01) | % |
| Tax effect | (0.09) | % | | — | % | | — | % |
| Tax valuation reserve | 0.07 | % | | — | % | | — | % |
| ROAA excluding (gain) / loss on sale of investment securities | 0.73 | % | | 1.24 | % | | 1.37 | % |
| Death benefit on bank owned life insurance | — | % | | (0.01) | % | | (0.01) | % |
| ROAA excluding death benefit on bank owned life insurance | 0.73 | % | | 1.23 | % | | 1.36 | % |
Extraordinary expenses (1) | 0.01 | % | | — | % | | — | % |
| Tax effect | — | % | | — | % | | — | % |
| ROAA excluding extraordinary expenses | 0.74 | % | | 1.23 | % | | 1.36 | % |
| Prepayment penalties on borrowings | — | % | | — | % | | — | % |
| Tax effect | — | % | | — | % | | — | % |
| ROAA excluding prepayment penalties on borrowings | 0.74 | % | | 1.23 | % | | 1.36 | % |
| BOLI tax expense and excise tax | 0.11 | % | | — | % | | — | % |
| ROAA excluding BOLI tax expense and excise tax | 0.85 | % | | 1.23 | % | | 1.36 | % |
| Adjusted ROAA | 0.85 | % | | 1.23 | % | | 1.36 | % |
| | | | | |
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and
Lease Loss DetailAsAnalysis of December 31, 2017
Financial Condition and Results of Operations
(
DollarsTable dollars in
Thousands, Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Horizon | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Legacy | | | Heartland | | | Summit | | | Peoples | | | Kosciusko | | | LaPorte | | | CNB | | | Lafayette | | | Wolverine | | | Total | |
Pre-discount loan balance | | $ | 2,019,194 | | | $ | 11,646 | | | $ | 40,995 | | | $ | 113,171 | | | $ | 60,497 | | | $ | 142,824 | | | $ | 6,583 | | | $ | 144,444 | | | $ | 311,313 | | | $ | 2,850,667 | |
Allowance for loan losses (ALLL) | | | 16,394 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 16,394 | |
Loan discount | | | N/A | | | | 800 | | | | 2,241 | | | | 2,754 | | | | 758 | | | | 3,796 | | | | 167 | | | | 3,226 | | | | 4,930 | | | | 18,672 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ALLL+loan discount | | | 16,394 | | | | 800 | | | | 2,241 | | | | 2,754 | | | | 758 | | | | 3,796 | | | | 167 | | | | 3,226 | | | | 4,930 | | | | 35,066 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, net | | $ | 2,002,800 | | | $ | 10,846 | | | $ | 38,754 | | | $ | 110,417 | | | $ | 59,739 | | | $ | 139,028 | | | $ | 6,416 | | | $ | 141,218 | | | $ | 306,383 | | | $ | 2,815,601 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ALLL/pre-discount loan balance | | | 0.81 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.58 | % |
Loan discount/pre-discount loan balance | | | N/A | | | | 6.87 | % | | | 5.47 | % | | | 2.43 | % | | | 1.25 | % | | | 2.66 | % | | | 2.54 | % | | | 2.23 | % | | | 1.58 | % | | | 0.66 | % |
ALLL+loan discount/pre-discount loan balance | | | 0.81 | % | | | 6.87 | % | | | 5.47 | % | | | 2.43 | % | | | 1.25 | % | | | 2.66 | % | | | 2.54 | % | | | 2.23 | % | | | 1.58 | % | | | 1.23 | % |
thousands except per share data)
| | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Return on Average Common Equity |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Average common equity | $ | 706,274 | | | $ | 683,630 | | | $ | 712,122 | |
| Return on average common equity (“ROACE”) as reported | 3.96 | % | | 13.66 | % | | 12.23 | % |
| Acquisition expenses | — | % | | — | % | | 0.27 | % |
| Tax effect | — | % | | — | % | | (0.06) | % |
| ROACE excluding acquisition expenses | 3.96 | % | | 13.66 | % | | 12.44 | % |
| Swap termination fee | (0.21) | % | | — | % | | — | % |
| Tax effect | 0.04 | % | | — | % | | — | % |
| ROACE excluding swap termination fee | 3.79 | % | | 13.66 | % | | 12.44 | % |
| Credit loss expense on acquired loans | — | % | | — | % | | 0.29 | % |
| Tax effect | — | % | | — | % | | (0.06) | % |
| ROACE excluding credit loss expense on acquired loans | 3.79 | % | | 13.66 | % | | 12.67 | % |
| Gain on sale of ESOP trustee accounts | — | % | | — | % | | (0.33) | % |
| Tax effect | — | % | | — | % | | 0.07 | % |
| ROACE excluding gain on sale of ESOP trustee accounts | 3.79 | % | | 13.66 | % | | 12.41 | % |
| ESOP settlement expenses | — | % | | — | % | | 0.27 | % |
| Tax effect | — | % | | — | % | | (0.04) | % |
| ROACE excluding ESOP settlement expenses | 3.79 | % | | 13.66 | % | | 12.64 | % |
| (Gain) / loss on sale of investment securities | 4.54 | % | | — | % | | (0.13) | % |
| Tax effect | (0.95) | % | | — | % | | 0.03 | % |
| Tax valuation reserve | 0.74 | % | | — | % | | — | % |
| ROACE excluding (gain) / loss on sale of investment securities | 8.12 | % | | 13.66 | % | | 12.54 | % |
| Death benefit on bank owned life insurance | — | % | | (0.09) | % | | (0.11) | % |
| ROACE excluding death benefit on bank owned life insurance | 8.12 | % | | 13.57 | % | | 12.43 | % |
Extraordinary expenses (1) | 0.10 | % | | — | % | | — | % |
| Tax effect | (0.02) | % | | — | % | | — | % |
| ROACE excluding extraordinary expenses | 8.20 | % | | 13.57 | % | | 12.43 | % |
| Prepayment penalties on borrowings | — | % | | — | % | | 0.02 | % |
| Tax effect | — | % | | — | % | | — | % |
| ROACE excluding prepayment penalties on borrowings | 8.20 | % | | 13.57 | % | | 12.45 | % |
| BOLI tax expense and excise tax | 1.22 | % | | — | % | | — | % |
| ROACE excluding BOLI tax expense and excise tax | 9.42 | % | | 13.57 | % | | 12.45 | % |
| Adjusted ROACE | 9.42 | % | | 13.57 | % | | 12.45 | % |
| | | | | |
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
| | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Return on Average Tangible Equity |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Average common equity | $ | 706,274 | | | $ | 683,630 | | | $ | 712,122 | |
| Less: Average intangible assets | 170,745 | | | 174,003 | | | 175,811 | |
| Average tangible equity | $ | 535,529 | | | $ | 509,627 | | | $ | 536,311 | |
| Return on average tangible equity (“ROATE”) as reported | 5.22 | % | | 18.33 | % | | 16.24 | % |
| Acquisition expenses | — | % | | — | % | | 0.36 | % |
| Tax effect | — | % | | — | % | | (0.08) | % |
| ROATE excluding acquisition expenses | 5.22 | % | | 18.33 | % | | 16.52 | % |
| Swap termination fee | (0.27) | % | | — | % | | — | % |
| Tax effect | 0.06 | % | | — | % | | — | % |
| ROATE excluding swap termination fee | 5.01 | % | | 18.33 | % | | 16.52 | % |
| Credit loss expense on acquired loans | — | % | | — | % | | 0.38 | % |
| Tax effect | — | % | | — | % | | (0.08) | % |
| ROATE excluding credit loss expense on acquired loans | 5.01 | % | | 18.33 | % | | 16.82 | % |
| Gain on sale of ESOP trustee accounts | — | % | | — | % | | (0.43) | % |
| Tax effect | — | % | | — | % | | 0.10 | % |
| ROATE excluding gain on sale of ESOP trustee accounts | 5.01 | % | | 18.33 | % | | 16.49 | % |
| ESOP settlement expenses | — | % | | — | % | | 0.35 | % |
| Tax effect | — | % | | — | % | | (0.06) | % |
| ROATE excluding ESOP settlement expenses | 5.01 | % | | 18.33 | % | | 16.78 | % |
| (Gain) / loss on sale of investment securities | 5.99 | % | | — | % | | (0.17) | % |
| Tax effect | (1.26) | % | | — | % | | 0.04 | % |
| Tax valuation reserve | 0.97 | % | | — | % | | — | % |
| ROATE excluding (gain) / loss on sale of investment securities | 10.71 | % | | 18.33 | % | | 16.65 | % |
| Death benefit on bank owned life insurance | — | % | | (0.13) | % | | (0.15) | % |
| ROATE excluding death benefit on bank owned life insurance | 10.71 | % | | 18.20 | % | | 16.50 | % |
Extraordinary expenses (1) | 0.13 | % | | — | % | | — | % |
| Tax effect | (0.03) | % | | — | % | | — | % |
| ROATE excluding extraordinary expenses | 10.81 | % | | 18.20 | % | | 16.50 | % |
| Prepayment penalties on borrowings | — | % | | — | % | | 0.02 | % |
| Tax effect | — | % | | — | % | | (0.01) | % |
| ROATE excluding prepayment penalties on borrowings | 10.81 | % | | 18.20 | % | | 16.51 | % |
| BOLI tax expense and excise tax | 1.61 | % | | — | % | | — | % |
| ROATE excluding BOLI tax expense and excise tax | 12.42 | % | | 18.20 | % | | 16.51 | % |
| Adjusted ROATE | 12.42 | % | | 18.20 | % | | 16.51 | % |
| | | | | |
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share |
| (Dollars in Thousands Except per Share Data, Unaudited) |
| |
| December 31, | | September 30, | | June 30, | | March 31, | | December 31, |
| 2023 | | 2023 | | 2023 | | 2023 | | 2022 |
| Total stockholders’ equity | $ | 718,812 | | | $ | 693,369 | | | $ | 709,243 | | | $ | 702,559 | | | $ | 677,375 | |
| Less: Intangible assets | 168,837 | | | 169,741 | | | 170,644 | | | 171,547 | | | 172,450 | |
| Total tangible stockholders’ equity | $ | 549,975 | | | $ | 523,628 | | | $ | 538,599 | | | $ | 531,012 | | | $ | 504,925 | |
| | | | | | | | | |
| Common shares outstanding | 43,652,063 | | | 43,648,501 | | | 43,645,216 | | | 43,621,422 | | | 43,574,151 | |
| | | | | | | | | |
| Book value per common share | $ | 16.47 | | | $ | 15.89 | | | $ | 16.25 | | | $ | 16.11 | | | $ | 15.55 | |
| Tangible book value per common share | $ | 12.60 | | | $ | 12.00 | | | $ | 12.34 | | | $ | 12.17 | | | $ | 11.59 | |
| | | | | | | | | | | | | | | | | |
| Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio |
| (Dollars in Thousands, Unaudited) |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Non–interest expense as reported | $ | 146,284 | | | $ | 143,201 | | | $ | 133,394 | |
| Net interest income as reported | 175,744 | | | 199,518 | | | 175,805 | |
| Non–interest income as reported | $ | 11,998 | | | $ | 47,451 | | | $ | 57,952 | |
| | | | | |
Non–interest expense / (Net interest income + Non–interest income)
(“Efficiency Ratio”) | 77.92 | % | | 57.98 | % | | 57.07 | % |
| | | | | |
| Non–interest expense as reported | $ | 146,284 | | | $ | 143,201 | | | $ | 133,394 | |
| Acquisition expenses | — | | | — | | | (1,925) | |
| ESOP settlement expenses | — | | | — | | | (1,900) | |
| Extraordinary expenses (1) | (705) | | | — | | | — | |
| Non–interest expense excluding acquisition expenses and ESOP settlement expenses | 145,579 | | | 143,201 | | | 129,569 | |
| Net interest income as reported | 175,744 | | | 199,518 | | | 175,805 | |
| Swap termination fee | (1,453) | | | — | | | — | |
| Prepayment penalties on borrowings | — | | | — | | | 125 | |
| Net interest income excluding prepayment penalties on borrowings | 174,291 | | | 199,518 | | | 175,930 | |
| Non–interest income as reported | 11,998 | | | 47,451 | | | 57,952 | |
| Gain on sale of ESOP trustee accounts | — | | | — | | | (2,329) | |
| (Gain) / loss on sale of investment securities | 32,052 | | | — | | | (914) | |
| Death benefit on bank owned life insurance | — | | | (644) | | | (783) | |
| Non–interest income excluding gain on sale of ESOP trustee accounts, (gain) / loss on sale of investment securities and death benefit on bank owned life insurance | $ | 44,050 | | | $ | 46,807 | | | $ | 53,926 | |
| | | | | |
| Adjusted efficiency ratio | 66.68 | % | | 58.13 | % | | 56.37 | % |
| | | | | |
(1) Extraordinary expenses include costs associated with previously disclosed staffing changes, the launch of Horizon Equipment Finance and the expansion of the Bank's treasury management capabilities. |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Liquidity and Rate Sensitivity Management
Management and the Board of Directors meet regularly to review both the liquidity and rate sensitivity position of Horizon. Effective asset and liability management ensures Horizon’s ability to monitor the cash flow requirements of depositors along with the demands of borrowers and to measure and manage interest rate risk. Horizon utilizes an interest rate risk assessment model designed to highlight sources of existing interest rate risk and consider the effect of these risks on strategic planning. Management maintains (within certain parameters) an essentially balanced ratio of interest sensitive assets to liabilities in order to protect against the effects of wide interest rate fluctuations.
The Bank maintains a stable base of core deposits provided by long standing relationships with consumers and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayments, investment security sales,
cash flows and maturities, sale of real estate loans and borrowing relationships with correspondent banks, including the FHLB and the Federal Reserve Bank (“FRB”). At December 31,
2017,2023, Horizon had available approximately
$127.2 million$1.4 billion in available credit from
the FHLB, FRB Discount Window and various money center
banks, including the FHLB and the FRB Discount Window. Factors whichbanks. The following factors could impact Horizon’s funding needs in the
future include:future:◦Horizon had outstanding borrowings of over $336.3approximately $750.3 million with the FHLB and total borrowing capacity with the FHLB of $368.9$926.2 million. Generally, the loan terms from the FHLB are better than the terms Horizon can receive from other sources, making it less expensive to borrow money from the FHLB. Financial difficulties at the FHLB could reduce or eliminate Horizon’s additional borrowing capacity with the FHLB or the FHLB could change collateral requirements, which could lower the Company’s borrowing availability.
◦If residential mortgage loan rates remain low,move lower, Horizon’s mortgage warehouse loans could create an additional need for funding.
◦Horizon had a total of $16.7$190.0 million of unused Federal Fund lines from various money center banks. These are uncommitted lines and could be withdrawn at any time by the correspondent banks.
◦Horizon had a total of $91.8 million$1.5 billion of available collateral at the FRB secured by municipal securities. These securities may mature, call, or be sold, which would reduce the available collateral.
◦Horizon had approximately $601.7 million of unpledged investment securities at December 31, 2023.
◦A downgrade in Horizon’s ability to obtain credit due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition.acquisition could impact the availability of funding sources.
◦An act of terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund, hedge fund or a government agency.agency could affect the cost and availability of funding sources.
◦Market speculation or rumors about Horizon or the banking industry in general may adversely affect the cost and availability of normal funding sources.
If any of these events occur, they could force Horizon to borrow money from other sources including negotiable certificates of deposit. Such other monies may only be available at higher interest rates and on less advantageous terms, which will impact our net income and could impact our ability to grow. Management believes Horizon has adequate funding sources to meet short and long term needs.
HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
Horizon maintains a liquidity contingency plan that outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for effectively managing liquidity through a problem period.
During
2017,2023, cash flows were generated primarily from
the proceeds from borrowings totaling $866.1 million, the sales, maturities, and prepayments of investment securities of
$99.0 million, an increase in borrowings of $259.9 million and cash received from acquisitions totaling $43.6$548.9 million. Cash flows were
primarily used to purchase investments totaling
$181.2$11.7 million, to
fundpurchase loans totaling $124.9 million, an increase in
net loans of
$251.8$140.5 million,
and a decrease in deposits of
$13.4$192.9 million and the repayment of borrowings totaling $654.2 million. The net cash and cash equivalent position increased by
$5.6$403.0 million during
2017.The following table sets forth contractual obligations and other2023.
At December 31, 2023, the Bank had $1.6 billion in commitments
representing required and potential cash outflows asto extend credit outstanding, excluding interest rate lock commitments for residential mortgage loans intended for sale in the secondary market that meet the definition of a derivative. Time deposits due within one year of December 31,
2017. Interest2023 totaled $1.1 billion, or 94.4% of time deposits. We believe the large percentage of time deposits that mature within one year reflects the outlook of the market for declining interest rates in future periods. The balance also includes $151.6 million in brokered time deposits at December 31, 2023. If these maturing time deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on
subordinated debentures and long-term borrowed funds is calculatedmarket conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits due on or before December 31, 2023. We believe, however, based on
current contractualpast experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest
rates. | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | After one | | | After three | | | After | |
| | | | | | Within | | | but within | | | but within | | | five | |
| | | Total | | | one year | | | three years | | | five years | | | years | |
Remaining contractual maturities of time deposits | | $ | 566,952 | | | $ | 277,498 | | | $ | 228,481 | | | $ | 38,172 | | | $ | 22,801 | |
Borrowings | | | 564,157 | | | | 430,078 | | | | 106,724 | | | | 17,196 | | | | 10,159 | |
Subordinated debentures | | | 37,653 | | | | — | | | | — | | | | — | | | | 37,653 | |
Loan Commitments | | | 802,949 | | | | 214,249 | | | | 588,700 | | | | — | | | | — | |
Letters of credit | | | 3,383 | | | | 889 | | | | 2,494 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,975,094 | | | $ | 922,714 | | | $ | 926,399 | | | $ | 55,368 | | | $ | 70,613 | |
| | | | | | | | | | | | | | | | | | | | |
rates offered.
Interest Rate Sensitivity
The degree by which net interest income may fluctuate due to changes in interest rates is monitored by Horizon using computer simulation models, incorporating not only the current GAP position but the effect of expected repricing of specific financial assets and liabilities. When repricing opportunities are not properly aligned, net interest income may be affected when interest rates change. Forecasting results of the possible outcomes determines the exposure to interest rate risk inherent in Horizon’s balance sheet. The goal is to manage imbalanced positions that arise when the total amount of assets that reprice or mature in a given time period differs significantly from liabilities that reprice or mature in the same time period. The theory behind managing the difference between repricing assets and liabilities is to have more assets repricing in a rising rate environment and more liabilities repricing in a declining rate environment.
Based on
aour interest rate model
thatwhich assumes a lag in repricing
at December 31, 2017, the amount of assets that reprice within one year was
191%approximately 95% of liabilities that reprice within one
year.year at December 31, 2023. At December 31,
2016,2022, this same model reported that the amount of assets that reprice within one year was approximately
218%95% of the amount of liabilities that reprice within the same time period.
TheDuring the year
2017 was2023, the decrease in the yield of interest–earning assets outpaced the decrease in the cost of funding resulting in a
stable rate environment and the yields on assets continued to reprice at lower rates due to current asset pricing and a more competitive environment. However, the impact of slightly lower funding costs and a balance sheet restructuring that repaid higher cost long term debt during 2017 positively impacted thedecrease in net interest margin.
HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
| | | | | | | | | | | | | | | | | | | | |
| | | Rate Sensitivity | |
| | | | | | > 3 Months | | | | | | Greater | | | | |
| | | 3 Months | | | & </= 6 | | | > 6 Months | | | Than 1 | | | | |
| | | or Less | | | Months | | | & </= 1 Year | | | Year | | | Total | |
Loans | | $ | 1,048,841 | | | $ | 206,877 | | | $ | 304,267 | | | $ | 1,275,104 | | | $ | 2,835,089 | |
Federal Funds Sold | | | 590 | | | | — | | | | — | | | | — | | | | 590 | |
Interest-Bearing balances with Banks | | | 18,371 | | | | — | | | | — | | | | — | | | | 18,371 | |
Investment securities and FRB and FHLB stock | | | 50,011 | | | | 30,507 | | | | 55,247 | | | | 592,453 | | | | 728,218 | |
Other assets | | | — | | | | — | | | | — | | | | 382,035 | | | | 382,035 | |
| | | | | | | | | | | �� | | | | | | | | | |
Total Assets | | $ | 1,117,813 | | | $ | 237,384 | | | $ | 359,514 | | | $ | 2,249,592 | | | $ | 3,964,303 | |
| | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 16,143 | | | $ | 16,143 | | | $ | 32,287 | | | $ | 537,232 | | | $ | 601,805 | |
Interest-bearing deposits | | | 126,308 | | | | 110,910 | | | | 213,225 | | | | 1,828,755 | | | | 2,279,198 | |
Borrowed Funds | | | 345,619 | | | | 21,926 | | | | 13,229 | | | | 221,036 | | | | 601,810 | |
Other Liabilities | | | — | | | | — | | | | — | | | | 24,412 | | | | 24,412 | |
Stockholders’ equity | | | — | | | | — | | | | — | | | | 457,078 | | | | 457,078 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholder’s equity | | $ | 488,070 | | | $ | 148,979 | | | $ | 258,741 | | | $ | 3,068,513 | | | $ | 3,964,303 | |
| | | | | | | | | | | | | | | | | | | | |
GAP | | $ | 629,743 | | | $ | 88,405 | | | $ | 100,773 | | | $ | (818,921 | ) | | | | |
Cumulative GAP | | $ | 629,743 | | | $ | 718,148 | | | $ | 818,921 | | | | | | | | | |
Quantitative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 3 Months
or Less | | > 3 Months
&
</= 6 Months | | > 6 Months
&
</= 1 Year | | Greater
Than
1 Year | | Total |
| Loans | $ | 1,605,338 | | | $ | 206,825 | | | $ | 390,409 | | | $ | 2,216,476 | | | $ | 4,419,048 | |
| Federal funds sold | — | | | — | | | — | | | — | | | — | |
| Interest earning balances with banks | 415,948 | | | — | | | — | | | — | | | 415,948 | |
| Investment securities and FHLB stock | 82,887 | | | 22,072 | | | 41,420 | | | 2,381,019 | | | 2,527,398 | |
| Other assets | — | | | — | | | — | | | 578,091 | | | 578,091 | |
| Total assets | $ | 2,104,173 | | | $ | 228,897 | | | $ | 431,829 | | | $ | 5,175,586 | | | $ | 7,940,485 | |
| | | | | | | | | |
| Non–interest bearing deposits | $ | 48,493 | | | $ | 46,324 | | | $ | 86,537 | | | $ | 934,651 | | | $ | 1,116,005 | |
| Interest bearing deposits | 407,410 | | | 483,046 | | | 637,260 | | | 3,021,172 | | | 4,548,888 | |
| Borrowed funds | 1,101,589 | | | 57,562 | | | 50,059 | | | 256,641 | | | 1,465,851 | |
| Other liabilities | — | | | — | | | — | | | 90,929 | | | 90,929 | |
| Stockholders’ equity | — | | | — | | | — | | | 718,812 | | | 718,812 | |
| Total liabilities and stockholders’ equity | $ | 1,557,492 | | | $ | 586,932 | | | $ | 773,856 | | | $ | 5,022,205 | | | $ | 7,940,485 | |
| GAP | $ | 546,681 | | | $ | (358,035) | | | $ | (342,027) | | | $ | 153,381 | | | |
| Cumulative GAP | $ | 546,681 | | | $ | 188,646 | | | $ | (153,381) | | | | | |
The Company was liability sensitive as of December 31, 2023, resulting from longer term fixed rate assets on the balance sheet not repricing as quickly as deposits pricing based on expected deposit repricing betas. Based on parallel rate shocks to the balance sheet, at a 100 basis point shock and
Qualitative Disclosures about Market Risk200 basis point shock up, net interest income decreases approximately $6.8 million and $13.8 million, respectively. At a 100 basis point shock and 200 basis point shock down, net interest income increases approximately $7.3 million and $2.7 million, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Horizon’s primary market risk exposure is interest rate risk. Interest rate risk (“IRR”) is the risk that Horizon’s earnings and capital will be adversely affected by changes in interest rates. The primary approach to IRR management is one that focuses on adjustments to the asset/liability mix in order to limit the magnitude of IRR.
Horizon’s exposure to interest rate risk arises from repricing or mismatch risk, embedded options risk, and yield curve risk. Repricing risk is the risk of adverse consequence from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect Horizon’s assets and liabilities. Basis risk is the risk that the spread, or rate difference, between instruments of similar maturities will change. Options risk arises whenever products give the customer the right, but not the obligation, to alter the quantity or timing of cash flows. Yield curve risk is the risk that changes in prevailing interest rates will affect instruments of different maturities by different amounts. Horizon’s objective is to remain reasonably neutral with respect to IRR. Horizon utilizes a variety of strategies to maintain this position, including the sale of mortgage loans on the secondary market, hedging certain balance sheet items using derivatives, varying maturities of FHLB advances, certificates of deposit funding and investment securities.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
The table which follows provides information about Horizon’s financial instruments that were sensitive to changes in interest rates as of December 31,
2017.2023. The table incorporates Horizon’s internal system generated data related to the maturity and repayment/withdrawal of
interest-earninginterest earning assets and
interest-bearinginterest bearing liabilities. For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and related
weighted-averageweighted–average interest rates by contractual maturities as well as the historical experience of Horizon related to the impact of interest rate fluctuations on the prepayment of residential loans and
mortgage-backedmortgage–backed securities. From a risk management perspective, Horizon believes that repricing dates are more relevant than contractual maturity dates when analyzing the value of financial instruments. For deposits with no contractual maturity dates, the table presents principal cash flows and weighted average rate, as applicable, based upon Horizon’s experience and management’s judgment concerning the most likely withdrawal behaviors.
HORIZON BANCORPAND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Table dollars in thousands except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Fair Value | |
| | | | | | | | | | | | | | | | | | 2023 | | | | | | December 31 | |
| | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | & Beyond | | | Total | | | 2017 | |
Rate-sensitive assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed interest rate loans | | $ | 610,499 | | | $ | 297,692 | | | $ | 183,718 | | | $ | 107,903 | | | $ | 53,235 | | | $ | 71,918 | | | $ | 1,324,965 | | | $ | 1,221,263 | |
Average interest rate | | | 4.55 | % | | | 4.53 | % | | | 4.51 | % | | | 4.51 | % | | | 4.59 | % | | | 4.63 | % | | | 4.55 | % | | | | |
Variable interest rate loans | | | 950,032 | | | | 123,165 | | | | 97,866 | | | | 83,942 | | | | 76,662 | | | | 178,457 | | | | 1,510,124 | | | | 1,522,286 | |
Average interest rate | | | 4.25 | % | | | 4.11 | % | | | 4.27 | % | | | 4.16 | % | | | 4.42 | % | | | 3.67 | % | | | 4.17 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | 1,560,531 | | | | 420,857 | | | | 281,584 | | | | 191,845 | | | | 129,897 | | | | 250,375 | | | | 2,835,089 | | | | 2,743,549 | |
Average interest rate | | | 4.37 | % | | | 4.41 | % | | | 4.43 | % | | | 4.35 | % | | | 4.49 | % | | | 3.94 | % | | | 4.35 | % | | | | |
Securities, including FHLB stock | | | 135,766 | | | | 83,908 | | | | 71,389 | | | | 60,484 | | | | 58,347 | | | | 318,324 | | | | 728,218 | | | | 728,855 | |
Average interest rate | | | 2.27 | % | | | 2.55 | % | | | 2.73 | % | | | 3.00 | % | | | 3.16 | % | | | 3.71 | % | | | 3.11 | % | | | | |
Other interest-bearing assets | | | 18,961 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18,961 | | | | 18,961 | |
Average interest rate | | | 2.15 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 2.15 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total earnings assets | | $ | 1,715,258 | | | $ | 504,765 | | | $ | 352,973 | | | $ | 252,329 | | | $ | 188,244 | | | $ | 568,699 | | | $ | 3,582,268 | | | $ | 3,491,365 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average interest rate | | | 4.18 | % | | | 4.10 | % | | | 4.08 | % | | | 4.03 | % | | | 4.10 | % | | | 3.81 | % | | | 4.08 | % | | | | |
Rate-sensitive liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 64,576 | | | $ | 57,645 | | | $ | 51,460 | | | $ | 45,938 | | | $ | 41,009 | | | $ | 341,177 | | | $ | 601,805 | | | $ | 601,805 | |
NOW accounts | | | 49,916 | | | | 45,059 | | | | 40,675 | | | | 36,717 | | | | 33,145 | | | | 307,498 | | | | 513,010 | | | | 480,615 | |
Average interest rate | | | 0.14 | % | | | 0.14 | % | | | 0.14 | % | | | 0.14 | % | | | 0.14 | % | | | 0.14 | % | | | 0.14 | % | | | | |
Savings and money market accounts | | | 122,618 | | | | 110,044 | | | | 98,764 | | | | 88,643 | | | | 79,563 | | | | 699,604 | | | | 1,199,236 | | | | 1,118,315 | |
Average interest rate | | | 0.28 | % | | | 0.28 | % | | | 0.28 | % | | | 0.28 | % | | | 0.27 | % | | | 0.27 | % | | | 0.27 | % | | | | |
Certificates of deposit | | | 277,909 | | | | 164,040 | | | | 63,819 | | | | 19,443 | | | | 18,638 | | | | 23,103 | | | | 566,952 | | | | 559,181 | |
Average interest rate | | | 0.93 | % | | | 1.30 | % | | | 1.40 | % | | | 1.54 | % | | | 1.57 | % | | | 1.68 | % | | | 1.16 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total deposits | | | 515,019 | | | | 376,788 | | | | 254,718 | | | | 190,741 | | | | 172,355 | | | | 1,371,382 | | | | 2,881,003 | | | | 2,759,916 | |
Average interest rate | | | 0.58 | % | | | 0.66 | % | | | 0.48 | % | | | 0.31 | % | | | 0.32 | % | | | 0.20 | % | | | 0.37 | % | | | | |
Fixed interest rate borrowings | | | 360,497 | | | | 60,854 | | | | 36,353 | | | | 9,304 | | | | 13,529 | | | | 10,024 | | | | 490,561 | | | | 492,504 | |
Average interest rate | | | 1.21 | % | | | 1.60 | % | | | 1.96 | % | | | 2.40 | % | | | 3.89 | % | | | 2.22 | % | | | 1.43 | % | | | | |
Variable interest rate borrowings | | | 111,249 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 111,249 | | | | 109,683 | |
Average interest rate | | | 2.53 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 2.53 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total funds | | $ | 986,765 | | | $ | 437,642 | | | $ | 291,071 | | | $ | 200,045 | | | $ | 185,884 | | | $ | 1,381,406 | | | $ | 3,482,813 | | | $ | 3,362,103 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average interest rate | | | 1.03 | % | | | 0.79 | % | | | 0.66 | % | | | 0.41 | % | | | 0.58 | % | | | 0.21 | % | | | 0.59 | % | | | | |
ITEM7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information required under this item is incorporated by reference to the information appearing in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2024 | | 2025 | | 2026 | | 2026
&
2027 | | 2029 & Beyond | | Total | | Fair Value December 31,
2023 |
| Rate–sensitive assets |
| Fixed interest rate loans | $ | 617,287 | | | $ | 421,897 | | | $ | 331,905 | | | $ | 480,834 | | | $ | 431,672 | | | $ | 2,283,595 | | | $ | 2,035,552 | |
| Average interest rate | 5.12 | % | | 4.81 | % | | 4.77 | % | | 5.16 | % | | 4.43 | % | | 4.89 | % | | |
| Variable interest rate loans | 1,585,285 | | | 175,392 | | | 144,219 | | | 188,114 | | | 42,443 | | | 2,135,453 | | | 2,038,434 | |
| Average interest rate | 7.87 | % | | 4.98 | % | | 4.61 | % | | 5.37 | % | | 5.40 | % | | 7.14 | % | | |
| Total loans | 2,202,572 | | | 597,289 | | | 476,124 | | | 668,948 | | | 474,115 | | | 4,419,048 | | | 4,073,986 | |
| Average interest rate | 7.10 | % | | 4.86 | % | | 4.72 | % | | 5.22 | % | | 4.51 | % | | 5.98 | % | | |
| Securities, including FHLB stock | 146,379 | | | 112,747 | | | 121,505 | | | 285,933 | | | 1,860,834 | | | 2,527,398 | | | 2,250,518 | |
| Average interest rate | 3.06 | % | | 2.17 | % | | 2.67 | % | | 2.02 | % | | 2.42 | % | | 2.41 | % | | |
| Other interest earning assets | 415,948 | | | — | | | — | | | — | | | — | | | 415,948 | | | 415,933 | |
| Average interest rate | 5.15 | % | | — | % | | — | % | | — | % | | — | % | | 5.15 | % | | |
| Total earning assets | $ | 2,764,899 | | | $ | 710,036 | | | $ | 597,629 | | | $ | 954,881 | | | $ | 2,334,949 | | | $ | 7,362,394 | | | $ | 6,740,437 | |
| Average interest rate | 6.59 | % | | 4.43 | % | | 4.30 | % | | 4.26 | % | | 2.84 | % | | 4.71 | % | | |
| Rate–sensitive liabilities |
| Non–interest bearing deposits | $ | 181,354 | | | $ | 151,151 | | | $ | 126,119 | | | $ | 205,024 | | | $ | 452,357 | | | $ | 1,116,005 | | | $ | 1,116,005 | |
| NOW accounts | 168,688 | | | 151,643 | | | 136,343 | | | 232,876 | | | 999,436 | | | 1,688,986 | | | 1,688,986 | |
| Average interest rate | 1.96 | % | | 1.97 | % | | 1.99 | % | | 2.01 | % | | 2.15 | % | | 2.08 | % | | |
| Savings and money market accounts | 248,025 | | | 207,640 | | | 177,397 | | | 281,134 | | | 765,967 | | | 1,680,163 | | | 1,680,163 | |
| Average interest rate | 1.71 | % | | 1.74 | % | | 1.74 | % | | 1.74 | % | | 1.74 | % | | 1.73 | % | | |
| Certificates of deposit | 1,111,003 | | | 43,375 | | | 11,628 | | | 9,442 | | | 4,291 | | | 1,179,739 | | | 1,171,452 | |
| Average interest rate | 4.10 | % | | 2.90 | % | | 0.66 | % | | 0.87 | % | | 0.11 | % | | 3.98 | % | | |
| Total deposits | 1,709,070 | | | 553,809 | | | 451,487 | | | 728,476 | | | 2,222,051 | | | 5,664,893 | | | 5,656,606 | |
| Average interest rate | 3.11 | % | | 1.42 | % | | 1.30 | % | | 1.32 | % | | 1.57 | % | | 1.96 | % | | |
| Fixed interest rate borrowings | 1,015,922 | | | 200,080 | | | 65 | | | 56,496 | | | — | | | 1,272,563 | | | 1,086,325 | |
| Average interest rate | 3.49 | % | | 4.01 | % | | 2.63 | % | | 5.74 | % | | — | % | | 3.67 | % | | |
| Variable interest rate borrowings | 193,288 | | | — | | | — | | | — | | | — | | | 193,288 | | | 161,424 | |
| Average interest rate | 4.33 | % | | — | % | | — | % | | — | % | | — | % | | 4.33 | % | | |
| Total funds | $ | 2,918,280 | | | $ | 753,889 | | | $ | 451,552 | | | $ | 784,972 | | | $ | 2,222,051 | | | $ | 7,130,744 | | | $ | 6,904,355 | |
| Average interest rate | 3.32 | % | | 2.11 | % | | 1.30 | % | | 1.64 | % | | 1.57 | % | | 2.33 | % | | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Horizon Bancorp and Subsidiaries
HORIZON BANCORP, INC. AND SUBSIDIARIES
Consolidated Financial Statements
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Consolidated Balance Sheets
(Dollar Amounts in Thousands) | | | | | | | | |
| | | December 31 | | | December 31 | |
| | | 2017 | | | 2016 | |
Assets | | | | | | | | |
Cash and due from banks | | $ | 76,441 | | | $ | 70,832 | |
Investment securities, available for sale | | | 509,665 | | | | 439,831 | |
Investment securities, held to maturity (fair value of $201,085 and $194,086) | | | 200,448 | | | | 193,194 | |
Loans held for sale | | | 3,094 | | | | 8,087 | |
Loans, net of allowance for loan losses of $16,394 and $14,837 | | | 2,815,601 | | | | 2,121,149 | |
Premises and equipment, net | | | 75,529 | | | | 66,357 | |
Federal Reserve and Federal Home Loan Bank stock | | | 18,105 | | | | 23,932 | |
Goodwill | | | 119,880 | | | | 76,941 | |
Other intangible assets | | | 12,402 | | | | 9,366 | |
Interest receivable | | | 16,244 | | | | 12,713 | |
Cash value of life insurance | | | 75,931 | | | | 74,134 | |
Other assets | | | 40,963 | | | | 44,620 | |
| | | | | | | | |
Total assets | | $ | 3,964,303 | | | $ | 3,141,156 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Deposits | | | | | | | | |
Non-interest bearing | | $ | 601,805 | | | $ | 496,248 | |
Interest bearing | | | 2,279,198 | | | | 1,974,962 | |
| | | | | | | | |
Total deposits | | | 2,881,003 | | | | 2,471,210 | |
Borrowings | | | 564,157 | | | | 267,489 | |
Subordinated debentures | | | 37,653 | | | | 37,456 | |
Interest payable | | | 886 | | | | 472 | |
Other liabilities | | | 23,526 | | | | 23,674 | |
| | | | | | | | |
Total liabilities | | | 3,507,225 | | | | 2,800,301 | |
| | | | | | | | |
Commitments and contingent liabilities | | | | | | | | |
Stockholders’ Equity | | | | | | | | |
Preferred stock, Authorized, 1,000,000 shares Issued 0 and 0 shares | | | — | | | | — | |
Common stock, no par value Authorized 66,000,000 shares(1) Issued, 25,549,069 and 22,192,530 shares(1) Outstanding, 25,529,819 and 22,171,596 shares(1) | | | — | | | | — | |
Additionalpaid-in capital | | | 275,059 | | | | 182,326 | |
Retained earnings | | | 185,570 | | | | 164,173 | |
Accumulated other comprehensive loss | | | (3,551 | ) | | | (5,644 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 457,078 | | | | 340,855 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 3,964,303 | | | $ | 3,141,156 | |
| | | | | | | | |
(1) | Adjusted for 3:2 stock split on November 14, 2016 |
| | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Assets | | | |
| Cash and due from banks | $ | 526,515 | | | $ | 123,505 | |
| Interest-earning time deposits | 2,205 | | | 2,812 | |
| Investment securities, available for sale | 547,251 | | | 997,558 | |
| Investment securities, held to maturity (fair value of $1,668,758 and $1,681,309) | 1,945,638 | | | 2,022,748 | |
| Loans held for sale | 1,418 | | | 5,807 | |
| Loans, net of allowance for credit losses of $50,029 and $50,464 | 4,367,601 | | | 4,107,534 | |
| Premises and equipment, net | 94,583 | | | 92,677 | |
| Federal Home Loan Bank stock | 34,509 | | | 26,677 | |
| Goodwill | 155,211 | | | 155,211 | |
| Other intangible assets | 13,626 | | | 17,239 | |
| Interest receivable | 38,710 | | | 35,294 | |
| Cash value of life insurance | 36,157 | | | 146,175 | |
| Other assets | 177,061 | | | 139,281 | |
| Total assets | $ | 7,940,485 | | | $ | 7,872,518 | |
| Liabilities | | | |
| Deposits | | | |
| Non–interest bearing | $ | 1,116,005 | | | $ | 1,277,768 | |
| Interest bearing | 4,548,888 | | | 4,580,006 | |
| Total deposits | 5,664,893 | | | 5,857,774 | |
| Borrowings | 1,353,050 | | | 1,142,949 | |
| Subordinated notes | 55,543 | | | 58,896 | |
| Junior subordinated debentures issued to capital trusts | 57,258 | | | 57,027 | |
| Interest payable | 22,249 | | | 5,380 | |
| Other liabilities | 68,680 | | | 73,117 | |
| Total liabilities | 7,221,673 | | | 7,195,143 | |
| Commitments and contingent liabilities | | | |
| Stockholders’ Equity | | | |
| Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares | — | | | — | |
| Common stock, no par value, Authorized 99,000,000 shares | | | |
| Issued and Outstanding 44,106,174 and 43,937,889 shares | — | | | — | |
| Additional paid-in capital | 356,400 | | | 354,188 | |
| Retained earnings | 429,021 | | | 429,385 | |
| Accumulated other comprehensive income (loss) | (66,609) | | | (106,198) | |
| Total stockholders’ equity | 718,812 | | | 677,375 | |
| Total liabilities and stockholders’ equity | $ | 7,940,485 | | | $ | 7,872,518 | |
See notes to consolidated financial statements
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data) | | | | | | | | | | | | |
| | | Years Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Interest Income | | | | | | | | | | | | |
Loans receivable | | $ | 112,329 | | | $ | 91,569 | | | $ | 75,373 | |
Investment securities | | | | | | | | | | | | |
Taxable | | | 9,086 | | | | 10,039 | | | | 8,721 | |
Tax exempt | | | 7,068 | | | | 4,921 | | | | 4,494 | |
| | | | | | | | | | | | |
Total interest income | | | 128,483 | | | | 106,529 | | | | 88,588 | |
| | | | | | | | | | | | |
Interest Expense | | | | | | | | | | | | |
Deposits | | | 7,901 | | | | 6,616 | | | | 5,559 | |
Borrowed funds | | | 6,178 | | | | 11,807 | | | | 6,286 | |
Subordinated debentures | | | 2,304 | | | | 2,114 | | | | 2,009 | |
| | | | | | | | | | | | |
Total interest expense | | | 16,383 | | | | 20,537 | | | | 13,854 | |
| | | | | | | | | | | | |
Net Interest Income | | | 112,100 | | | | 85,992 | | | | 74,734 | |
Provision for loan losses | | | 2,470 | | | | 1,842 | | | | 3,162 | |
| | | | | | | | | | | | |
Net Interest Income after Provision for Loan Losses | | | 109,630 | | | | 84,150 | | | | 71,572 | |
| | | | | | | | | | | | |
Non-interest Income | | | | | | | | | | | | |
Service charges on deposit accounts | | | 6,383 | | | | 5,762 | | | | 4,807 | |
Wire transfer fees | | | 658 | | | | 806 | | | | 633 | |
Interchange fees | | | 5,104 | | | | 4,165 | | | | 3,623 | |
Fiduciary activities | | | 7,894 | | | | 6,621 | | | | 5,637 | |
Gain on sale of investment securities (includes $38, $1,836 and $189 for the years ended December 31, 2017, 2016 and 2015 related to accumulated other comprehensive earnings reclassifications) | | | 38 | | | | 1,836 | | | | 189 | |
Gain on sale of mortgage loans | | | 7,906 | | | | 11,675 | | | | 10,055 | |
Mortgage servicing income net of impairment | | | 1,583 | | | | 1,908 | | | | 993 | |
Increase in cash value of bank owned life insurance | | | 1,797 | | | | 1,643 | | | | 1,249 | |
Death benefit on bank owned life insurance | | | — | | | | — | | | | 145 | |
Other income | | | 1,773 | | | | 1,039 | | | | 1,103 | |
| | | | | | | | | | | | |
Totalnon-interest income | | | 33,136 | | | | 35,455 | | | | 28,434 | |
| | | | | | | | | | | | |
Non-interest Expense | | | | | | | | | | | | |
Salaries and employee benefits | | | 51,375 | | | | 44,013 | | | | 37,712 | |
Net occupancy expenses | | | 9,535 | | | | 8,322 | | | | 6,400 | |
Data processing | | | 5,914 | | | | 5,367 | | | | 4,251 | |
Professional fees | | | 2,490 | | | | 2,752 | | | | 2,070 | |
Outside services and consultants | | | 7,018 | | | | 7,863 | | | | 5,735 | |
Loan expense | | | 4,970 | | | | 5,582 | | | | 5,379 | |
FDIC insurance expense | | | 1,046 | | | | 1,559 | | | | 1,499 | |
Other losses | | | 368 | | | | 684 | | | | 432 | |
Other expense | | | 12,097 | | | | 10,750 | | | | 8,747 | |
| | | | | | | | | | | | |
Totalnon-interest expense | | | 94,813 | | | | 86,892 | | | | 72,225 | |
| | | | | | | | | | | | |
Income Before Income Tax | | | 47,953 | | | | 32,713 | | | | 27,781 | |
Income tax expense (includes $13, $643 and $66 for the years ended December 31, 2017, 2016 and 2015 related to income tax expense from reclassification items) | | | 14,836 | | | | 8,801 | | | | 7,232 | |
| | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | |
Basic Earnings Per Share(1) | | $ | 1.44 | | | $ | 1.19 | | | $ | 1.30 | |
Diluted Earnings Per Share(1) | | | 1.43 | | | | 1.19 | | | | 1.26 | |
(1) | Adjusted for 3:2 stock split on November 14, 2016 |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Interest Income | | | | | |
| Loans receivable | $ | 244,544 | | | $ | 173,500 | | | $ | 155,732 | |
| Investment securities – taxable | 34,410 | | | 33,202 | | | 14,437 | |
| Investment securities – tax exempt | 28,384 | | | 29,025 | | | 23,246 | |
| Other | 4,967 | | | 306 | | | 695 | |
| Total interest income | 312,305 | | | 236,033 | | | 194,110 | |
| Interest Expense | | | | | |
| Deposits | 85,857 | | | 17,809 | | | 7,867 | |
| Borrowed funds | 42,478 | | | 12,465 | | | 4,701 | |
| Subordinated notes | 3,511 | | | 3,522 | | | 3,522 | |
| Junior subordinated debentures issued to capital trusts | 4,715 | | | 2,719 | | | 2,215 | |
| Total interest expense | 136,561 | | | 36,515 | | | 18,305 | |
| Net Interest Income | 175,744 | | | 199,518 | | | 175,805 | |
| Credit loss expense (recovery) | 2,459 | | | (1,816) | | | (2,084) | |
| Net Interest Income after Credit Loss Expense (Recovery) | 173,285 | | | 201,334 | | | 177,889 | |
| Non–interest Income | | | | | |
| Service charges on deposit accounts | 12,227 | | | 11,598 | | | 9,192 | |
| Wire transfer fees | 448 | | | 595 | | | 892 | |
| Interchange fees | 12,861 | | | 12,402 | | | 10,901 | |
| Fiduciary activities | 5,080 | | | 5,381 | | | 7,419 | |
| Gains (losses) on sale of investment securities | (32,052) | | | — | | | 914 | |
| Gain on sale of mortgage loans | 4,323 | | | 7,165 | | | 19,163 | |
| Mortgage servicing income net of impairment | 2,708 | | | 4,800 | | | 2,352 | |
| Increase in cash value of bank owned life insurance | 3,709 | | | 2,594 | | | 2,094 | |
| Death benefit on bank owned life insurance | — | | | 644 | | | 783 | |
| Other income | 2,694 | | | 2,272 | | | 4,242 | |
| Total non–interest income | 11,998 | | | 47,451 | | | 57,952 | |
| Non–interest Expense | | | | | |
| Salaries and employee benefits | 80,809 | | | 80,283 | | | 74,051 | |
| Net occupancy expenses | 13,355 | | | 13,323 | | | 12,541 | |
| Data processing | 11,626 | | | 10,567 | | | 9,962 | |
| Professional fees | 2,645 | | | 1,843 | | | 2,216 | |
| Outside services and consultants | 9,942 | | | 10,850 | | | 8,449 | |
| Loan expense | 4,980 | | | 5,411 | | | 5,492 | |
| FDIC insurance expense | 3,880 | | | 2,558 | | | 2,377 | |
| Core deposit intangible amortization | 3,612 | | | 3,702 | | | 3,644 | |
| Other losses | 1,051 | | | 1,046 | | | 2,283 | |
| Other expense | 14,384 | | | 13,618 | | | 12,379 | |
| Total non–interest expense | 146,284 | | | 143,201 | | | 133,394 | |
| Income Before Income Taxes | 38,999 | | | 105,584 | | | 102,447 | |
| Income tax expense | 11,018 | | | 12,176 | | | 15,356 | |
| Net Income Available to Common Shareholders | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Basic Earnings Per Share | $ | 0.64 | | | $ | 2.14 | | | $ | 1.99 | |
| Diluted Earnings Per Share | 0.64 | | | 2.14 | | | 1.98 | |
See notes to consolidated financial statements
Horizon Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Loss)
(Dollar Amounts in Thousands) | | | | | | | | | | | | |
| | | 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: | | | | | | | | | | | | |
Change in fair value of derivative instruments for the period | | | 1,404 | | | | 9 | | | | 195 | |
Income tax effect | | | (491 | ) | | | (3 | ) | | | (68 | ) |
| | | | | | | | | | | | |
Changes from derivative instruments | | | 913 | | | | 6 | | | | 127 | |
| | | | | | | | | | | | |
Change in securities: | | | | | | | | | | | | |
Unrealized appreciation (depreciation) for the period on AFS securities | | | 2,110 | | | | (5,091 | ) | | | (2,910 | ) |
Amortization from transfer of securities from available for sale to held to maturity securities | | | (256 | ) | | | (653 | ) | | | (549 | ) |
Reclassification adjustment for securities (gains) losses realized in income | | | (38 | ) | | | (1,836 | ) | | | (189 | ) |
Income tax effect | | | (636 | ) | | | 2,653 | | | | 1,277 | |
| | | | | | | | | | | | |
Unrealized gains (losses) on securities | | | 1,180 | | | | (4,927 | ) | | | (2,371 | ) |
| | | | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Tax | | | 2,093 | | | | (4,921 | ) | | | (2,244 | ) |
| | | | | | | | | | | | |
Comprehensive Income | | $ | 35,210 | | | $ | 18,991 | | | $ | 18,305 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Net Income | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Other Comprehensive Income (Loss) | | | | | |
| Change in fair value of derivative instruments: | | | | | |
| Change in fair value of derivative instruments for the period | (523) | | | 5,649 | | | 4,570 | |
| Reclassification adjustment for swap termination gain realized in income | (1,453) | | | — | | | — | |
| Income tax effect | 415 | | | (1,186) | | | (960) | |
| Changes from derivative instruments | (1,561) | | | 4,463 | | | 3,610 | |
| Change in securities: | | | | | |
| Unrealized gain (loss) for the period on available for sale securities | 20,728 | | | (147,345) | | | (35,547) | |
| Reclassification of gain (loss) from available for sale securities to held to maturity securities | — | | | (794) | | | 5,869 | |
| Amortization (accretion) from transfer of securities from available for sale to held to maturity securities | (691) | | | (1,236) | | | 66 | |
| Reclassification adjustment for securities (gains) losses realized in income | 32,052 | | | — | | | (914) | |
| Income tax effect | (10,939) | | | 31,369 | | | 6,409 | |
| Unrealized gains (losses) on securities | 41,150 | | | (118,006) | | | (24,117) | |
| Other Comprehensive Income (Loss), Net of Tax | 39,589 | | | (113,543) | | | (20,507) | |
| Comprehensive Income (Loss) | $ | 67,570 | | | $ | (20,135) | | | $ | 66,584 | |
See notes to consolidated financial statements
Horizon Bancorp, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(Dollar Amounts in Thousands, Except Per Share Data) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | |
| | | | | | Additional | | | | | | Other | | | | |
| | | Preferred | | | Paid-in | | | Retained | | | Comprehensive | | | | |
| | | Stock | | | Capital | | | Earnings | | | Income (Loss) | | | Total | |
Balances, January 1, 2015 | | $ | 12,500 | | | $ | 45,916 | | | $ | 134,477 | | | $ | 1,521 | | | $ | 194,414 | |
Net income | | | | | | | | | | | 20,549 | | | | | | | | 20,549 | |
Other comprehensive loss, net of tax | | | | | | | | | | | | | | | (2,244 | ) | | | (2,244 | ) |
Amortization of unearned compensation | | | | | | | 355 | | | | | | | | | | | | 355 | |
Stock issued stock plans | | | | | | | 554 | | | | | | | | | | | | 554 | |
Exercise of stock warrants | | | | | | | 3,751 | | | | | | | | | | | | 3,751 | |
Stock option expense | | | | | | | 288 | | | | | | | | | | | | 288 | |
Stock issued from acquisition | | | | | | | 55,506 | | | | | | | | | | | | 55,506 | |
Cash dividends on preferred stock (1.00%) | | | | | | | | | | | (125 | ) | | | | | | | (125 | ) |
Cash dividends on common stock ($0.39 per share) | | | | | | | | | | | (6,216 | ) | | | | | | | (6,216 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2015 | | $ | 12,500 | | | $ | 106,370 | | | $ | 148,685 | | | $ | (723 | ) | | $ | 266,832 | |
Net income | | | | | | | | | | | 23,912 | | | | | | | | 23,912 | |
Other comprehensive income, net of tax | | | | | | | | | | | | | | | (4,921 | ) | | | (4,921 | ) |
Redemption of preferred stock | | | (12,500 | ) | | | | | | | | | | | | | | | (12,500 | ) |
Amortization of unearned compensation | | | | | | | 284 | | | | | | | | | | | | 284 | |
Stock option expense | | | | | | | 324 | | | | | | | | | | | | 324 | |
Stock issued stock plans | | | | | | | 572 | | | | | | | | | | | | 572 | |
Stock issued in Kosciusko acquisition | | | | | | | 14,470 | | | | | | | | | | | | 14,470 | |
Stock issued in LaPorte acquisition | | | | | | | 60,306 | | | | | | | | | | | | 60,306 | |
Cash dividends on preferred stock (1.00%) | | | | | | | | | | | (42 | ) | | | | | | | (42 | ) |
Cash dividends on common stock ($0.41 per share) | | | | | | | | | | | (8,382 | ) | | | | | | | (8,382 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2016 | | $ | — | | | $ | 182,326 | | | $ | 164,173 | | | $ | (5,644 | ) | | $ | 340,855 | |
Net income | | | | | | | | | | | 33,117 | | | | | | | | 33,117 | |
Other comprehensive income, net of tax | | | | | | | | | | | | | | | 2,093 | | | | 2,093 | |
Amortization of unearned compensation | | | | | | | 135 | | | | | | | | | | | | 135 | |
Exercise of stock options | | | | | | | 1,604 | | | | | | | | | | | | 1,604 | |
Stock option expense | | | | | | | 325 | | | | | | | | | | | | 325 | |
Stock issued in Lafayette acquisition | | | | | | | 28,558 | | | | | | | | | | | | 28,558 | |
Stock issued in Wolverine acquisition | | | | | | | 62,111 | | | | | | | | | | | | 62,111 | |
Cash dividends on common stock ($0.50 per share) | | | | | | | | | | | (11,720 | ) | | | | | | | (11,720 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2017 | | $ | — | | | $ | 275,059 | | | $ | 185,570 | | | $ | (3,551 | ) | | $ | 457,078 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred
Stock | | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| Balances, January 1, 2021 | $ | — | | | $ | — | | | $ | 362,945 | | | $ | 301,419 | | | $ | 27,852 | | | $ | 692,216 | |
| Net income | — | | | — | | | — | | | 87,091 | | | — | | | 87,091 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | (20,507) | | | (20,507) | |
| | | | | | | | | | | |
| Amortization of unearned compensation | — | | | — | | | 1,751 | | | — | | | — | | | 1,751 | |
| Exercise of stock options | — | | | — | | | 1,062 | | | — | | | — | | | 1,062 | |
| Stock option expense | — | | | — | | | 68 | | | — | | | — | | | 68 | |
| | | | | | | | | | | |
| Stock awards vested | — | | | — | | | (1,355) | | | — | | | — | | | (1,355) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Repurchase of outstanding common stock | — | | | — | | | (7,607) | | | — | | | — | | | (7,607) | |
| Stock retirement plans | — | | | — | | | (4,742) | | | — | | | — | | | (4,742) | |
| Cash dividends on common stock ($0.56 per share) | — | | | — | | | — | | | (24,768) | | | — | | | (24,768) | |
| Balances, December 31, 2021 | $ | — | | | $ | — | | | $ | 352,122 | | | $ | 363,742 | | | $ | 7,345 | | | $ | 723,209 | |
| Net income | — | | | — | | | — | | | 93,408 | | | — | | | 93,408 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (113,543) | | | (113,543) | |
| | | | | | | | | | | |
| Amortization of unearned compensation | — | | | — | | | 2,462 | | | — | | | — | | | 2,462 | |
| Exercise of stock options | — | | | — | | | 145 | | | — | | | — | | | 145 | |
| Stock option expense | — | | | — | | | 13 | | | — | | | — | | | 13 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net settlement of share awards | — | | | — | | | (1,824) | | | — | | | — | | | (1,824) | |
| Stock retirement plans | — | | | — | | | 1,270 | | | — | | | — | | | 1,270 | |
| Cash dividends on common stock ($0.63 per share) | — | | | — | | | — | | | (27,765) | | | — | | | (27,765) | |
| Balances, December 31, 2022 | $ | — | | | $ | — | | | $ | 354,188 | | | $ | 429,385 | | | $ | (106,198) | | | $ | 677,375 | |
| Net income | — | | | — | | | — | | | 27,981 | | | — | | | 27,981 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 39,589 | | | 39,589 | |
| | | | | | | | | | | |
| Amortization of unearned compensation | — | | | — | | | 3,586 | | | — | | | — | | | 3,586 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net settlement of share awards | — | | | — | | | (1,221) | | | — | | | — | | | (1,221) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Stock retirement plans | — | | | — | | | (153) | | | — | | | — | | | (153) | |
| Cash dividends on common stock ($0.64 per share) | — | | | — | | | — | | | (28,345) | | | — | | | (28,345) | |
| Balances, December 31, 2023 | $ | — | | | $ | — | | | $ | 356,400 | | | $ | 429,021 | | | $ | (66,609) | | | $ | 718,812 | |
See notes to consolidated financial statements
Horizon Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands) | | | | | | | | | | | | |
| | | Twelve Months Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Operating Activities | | | | | | | | | | | | |
Net income | | $ | 33,117 | | | $ | 23,912 | | | $ | 20,549 | |
Items not requiring (providing) cash | | | | | | | | | | | | |
Provision for loan losses | | | 2,470 | | | | 1,842 | | | | 3,162 | |
Depreciation and amortization | | | 5,936 | | | | 5,275 | | | | 4,152 | |
Share based compensation | | | 325 | | | | 324 | | | | 288 | |
Mortgage servicing rights net impairment | | | 80 | | | | 110 | | | | 59 | |
Premium amortization on securities, net | | | 6,024 | | | | 6,162 | | | | 3,420 | |
Gain on sale of investment securities | | | (38 | ) | | | (1,836 | ) | | | (189 | ) |
Gain on sale of mortgage loans | | | (7,906 | ) | | | (11,675 | ) | | | (10,055 | ) |
Proceeds from sales of loans | | | 231,410 | | | | 328,377 | | | | 310,700 | |
Loans originated for sale | | | (218,511 | ) | | | (316,875 | ) | | | (302,419 | ) |
Change in cash value of life insurance | | | (1,797 | ) | | | (1,618 | ) | | | (1,224 | ) |
Loss (gain) on sale of other real estate owned | | | (4 | ) | | | 261 | | | | (289 | ) |
Net change in | | | | | | | | | | | | |
Interest receivable | | | (2,591 | ) | | | (544 | ) | | | (1,010 | ) |
Interest payable | | | 152 | | | | (275 | ) | | | (11 | ) |
Other assets | | | 6,173 | | | | 489 | | | | 8,569 | |
Other liabilities | | | (5,776 | ) | | | (8,381 | ) | | | (472 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 49,064 | | | | 25,548 | | | | 35,230 | |
| | | | | | | | | | | | |
Investing Activities | | | | | | | | | | | | |
Purchases of securities available for sale | | | (149,376 | ) | | | (225,555 | ) | | | (244,195 | ) |
Proceeds from sales, maturities, calls, and principal repayments of securities available for sale | | | 85,587 | | | | 269,587 | | | | 121,724 | |
Purchases of securities held to maturity | | | (31,794 | ) | | | (45,832 | ) | | | (32,605 | ) |
Proceeds from maturities of securities held to maturity | | | 13,376 | | | | 30,843 | | | | 7,155 | |
Change in Federal Reserve and FHLB stock | | | 8,922 | | | | (5,448 | ) | | | 268 | |
Net change in loans | | | (251,821 | ) | | | 32,099 | | | | (156,340 | ) |
Proceeds on the sale of OREO and repossessed assets | | | 4,238 | | | | 2,572 | | | | 3,014 | |
Change in premises and equipment, net | | | (2,689 | ) | | | (1,383 | ) | | | (5,622 | ) |
Net cash received in acquisition, Peoples | | | — | | | | — | | | | 182,413 | |
Net cash received in acquisition, Kosciusko | | | — | | | | 30,437 | | | | — | |
Net cash received in acquisition, LaPorte | | | — | | | | 116,521 | | | | — | |
Net cash received in acquisition, CNB | | | — | | | | 22,549 | | | | — | |
Net cash received in acquisition of branch | | | 11,000 | | | | — | | | | — | |
Net cash received in acquisition, Lafayette | | | 20,425 | | | | — | | | | — | |
Gain on remeasurement of equity interest in Lafayette | | | (530 | ) | | | — | | | | — | |
Net cash received in acquisition, Wolverine | | | 12,788 | | | | — | | | | — | |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (279,874 | ) | | | 226,390 | | | | (124,188 | ) |
| | | | | | | | | | | | |
Financing Activities | | | | | | | | | | | | |
Net change in | | | | | | | | | | | | |
Deposits | | | (13,360 | ) | | | 46,590 | | | | 46,747 | |
Borrowings | | | 259,895 | | | | (255,994 | ) | | | 49,421 | |
Redemption of preferred stock | | | — | | | | (12,500 | ) | | | — | |
Proceeds from issuance of stock | | | 1,604 | | | | 572 | | | | 4,305 | |
Dividends paid on common shares | | | (11,720 | ) | | | (8,382 | ) | | | (6,216 | ) |
Dividends paid on preferred shares | | | — | | | | (42 | ) | | | (125 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 236,419 | | | | (229,756 | ) | | | 94,132 | |
| | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | 5,609 | | | | 22,182 | | | | 5,174 | |
Cash and Cash Equivalents, Beginning of Period | | | 70,832 | | | | 48,650 | | | | 43,476 | |
| | | | | | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 76,441 | | | $ | 70,832 | | | $ | 48,650 | |
| | | | | | | | | | | | |
Continued
HORIZON BANCORPAND SUBSIDIARIES
Consolidated Statements
| | | | | | | | | | | | | | | | | |
| Year Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Operating Activities | | | | | |
| Net income | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Items not requiring (providing) cash | | | | | |
| Provision for (recovery of) credit losses | 2,459 | | | (1,816) | | | (2,084) | |
| Depreciation and amortization | 10,938 | | | 10,754 | | | 9,802 | |
| Share based compensation | 3,586 | | | 2,475 | | | 1,819 | |
| Amortization of mortgage servicing rights | 1,032 | | | 2,345 | | | 4,073 | |
| Impairment (recovery) of mortgage servicing rights | — | | | (2,594) | | | (2,578) | |
| Premium amortization on securities, net | 10,069 | | | 12,148 | | | 10,289 | |
| Deferred income taxes | (3,322) | | | 2,177 | | | 2,311 | |
| (Gain) loss on sale of investment securities | 32,052 | | | — | | | (914) | |
| Gain on sale of mortgage loans | (4,323) | | | (7,165) | | | (19,163) | |
| Proceeds from sales of loans | 145,922 | | | 225,928 | | | 453,087 | |
| Loans originated for sale | (138,430) | | | (215,174) | | | (437,174) | |
| Gain on cash value life insurance | (3,709) | | | (2,594) | | | (2,094) | |
| Gain on other real estate owned | (300) | | | (722) | | | (85) | |
| Net change in: | | | | | |
| Interest receivable | (3,416) | | | (9,157) | | | (4,222) | |
| Interest payable | 16,869 | | | 3,145 | | | (493) | |
| Other assets | 13,199 | | | (13,964) | | | 9,633 | |
| Other liabilities | (21,671) | | | (4,814) | | | (2,948) | |
| Net cash provided by operating activities | 88,936 | | | 94,380 | | | 106,350 | |
| Investing Activities | | | | | |
| Purchases of securities available for sale | (1,525) | | | (180,198) | | | (837,684) | |
| Proceeds from sales of securities available for sale | 439,285 | | | — | | | 27,514 | |
| Proceeds from maturities, calls and principal repayments of securities available for sale | 29,408 | | | 69,113 | | | 260,200 | |
| Purchases of securities held to maturity | (10,141) | | | (430,457) | | | (931,029) | |
| Proceeds from maturities of securities held to maturity | 80,201 | | | 72,968 | | | 30,544 | |
| Net change in interest earning time deposits | 607 | | | 1,970 | | | 4,183 | |
| Purchase of FHLB stock | (7,832) | | | (2,435) | | | (1,417) | |
| Redemption of FHLB stock | — | | | 198 | | | — | |
| Purchase of loans | (124,946) | | | (55,195) | | | — | |
| Net change in loans | (140,510) | | | (448,284) | | | 480,028 | |
| Proceeds on the sale of OREO and repossessed assets | 2,981 | | | 5,263 | | | 1,286 | |
| Premises and equipment expenditures | (7,775) | | | (6,429) | | | (1,440) | |
| Purchases of bank owned life insurance | — | | | (50,000) | | | — | |
| Proceeds from bank owned life insurance | 69,765 | | | 3,554 | | | 783 | |
| | | | | |
| Net cash received in branch acquisition | — | | | — | | | 622,179 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by (used in) investing activities | 329,518 | | | (1,019,932) | | | (344,853) | |
| Financing Activities | | | | | |
| Net change in: | | | | | |
| Net change in deposits | (192,881) | | | 54,783 | | | 425,449 | |
| Proceeds from borrowings | 866,099 | | | 1,178,746 | | | 244,554 | |
| Repayment of borrowings | (654,157) | | | (755,608) | | | (76,371) | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Net change in repurchase agreements | (1,841) | | | 7,072 | | | 21,336 | |
| Net settlement of share awards | (1,221) | | | (1,824) | | | (1,355) | |
| Exercise of stock options | — | | | 145 | | | 1,062 | |
| Repurchase of outstanding stock | — | | | — | | | (7,607) | |
| | | | | |
| | | | | |
| Repayment of subordinated notes | (3,132) | | | — | | | — | |
| Dividends paid on common stock | (28,311) | | | (27,765) | | | (24,768) | |
| Net cash provided by (used in) financing activities | (15,444) | | | 455,549 | | | 582,300 | |
| Net Change in Cash and Cash Equivalents | 403,010 | | | (470,003) | | | 343,797 | |
| Cash and Cash Equivalents, Beginning of Period | 123,505 | | | 593,508 | | | 249,711 | |
| Cash and Cash Equivalents, End of Period | $ | 526,515 | | | $ | 123,505 | | | $ | 593,508 | |
| Additional Supplemental Information | | | | | |
| Interest paid | $ | 119,692 | | | $ | 33,370 | | | $ | 18,782 | |
| Income taxes paid | 2,137 | | | 802 | | | 1,650 | |
| Transfer of loans to other real estate and repossessed assets | 3,299 | | | 2,009 | | | 1,721 | |
| Transfer of premises to other real estate | — | | | 1,479 | | | 1,753 | |
| Transfer of available for sale securities to held to maturity securities | — | | | 120,881 | | | 490,200 | |
| | | | | |
| Redemption of cash value of life insurance, not settled | 43,962 | | | — | | | — | |
| Cash dividends declared, not paid | 7,156 | | | 7,122 | | | 6,666 | |
| | | | | |
| Qualified affordable housing investments obtained in exchange for funding commitments | 14,491 | | | — | | | — | |
The cash flow statement presented above was revised to conform with the presentation of current year financial statements. As a result, the following changes were made to the 2022 and 2021 statements:
•Proceeds from the sale of securities available for sale are being reported separately from Proceeds from maturities, calls and principal repayments of securities available for sale.
•Proceeds from long–term borrowings, Repayment of long–term borrowings and Net change in short–term borrowings are being reported as Proceeds from borrowings and Repayment of borrowings.
•Cash Flows(Dollar Amounts in Thousands)
| | | | | | | | | | | | |
Additional Supplemental Information | | | | | | | | | | | | |
Interest paid | | $ | 15,969 | | | $ | 20,572 | | | $ | 13,844 | |
Income taxes paid | | | 10,195 | | | | 6,916 | | | | 4,123 | |
Transfer of loans to other real estate owned | | | 2,411 | | | | 3,679 | | | | 5,567 | |
The Company purchased all of the capital stock of Wolverine for $93,773 on October 17, 2017. In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | | | | | | |
Fair value of assets acquired | | | 394,090 | | | | — | | | | — | |
Less: common stock issued | | | 62,111 | | | | — | | | | — | |
Cash paid for the capital stock | | | 31,662 | | | | — | | | | — | |
Liabilities assumed | | | 300,317 | | | | — | | | | — | |
The Company purchased all of the capital stock of Lafayette for $34,465 on September 1, 2017. In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | | | | | | |
Fair value of assets acquired | | | 186,844 | | | | — | | | | — | |
Less: common stock issued | | | 30,044 | | | | — | | | | — | |
Cash paid for the capital stock | | | 4,421 | | | | — | | | | — | |
Liabilities assumed | | | 152,379 | | | | — | | | | — | |
Acquisition of LaPorte, measurement period adjustments | | | 704 | | | | — | | | | — | |
The Company purchased all of the capital stock of CNB Bancorp for $5,311 on November 7, 2016. In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | | | | | | |
Fair value of assets acquired | | | — | | | | 56,219 | | | | — | |
Less: cash paid for the capital stock | | | — | | | | 5,311 | | | | — | |
Liabilities assumed | | | — | | | | 50,908 | | | | — | |
The Company purchased all of the capital stock of LaPorte Bancorp for $98,634 on July 18, 2016. In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | | | | | | |
Fair value of assets acquired | | | — | | | | 546,770 | | | | — | |
Less: common stock issued | | | — | | | | 60,306 | | | | — | |
Cash paid for the capital stock | | | — | | | | 38,328 | | | | — | |
Liabilities assumed | | | — | | | | 448,136 | | | | — | |
The Company purchased all of the capital stock of Kosciusko for $22,983 on June 1, 2016. In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | | | | | | |
Fair value of assets acquired | | | — | | | | 155,873 | | | | — | |
Less: common stock issued | | | — | | | | 14,470 | | | | — | |
Cash paid for the capital stock | | | — | | | | 8,513 | | | | — | |
Liabilities assumed | | | — | | | | 132,890 | | | | — | |
The Company purchased all of the capital stock of Peoples for $78,147 on July 1, 2015. In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | | | | | | |
Fair value of assets acquired | | | — | | | | — | | | | 485,077 | |
Less: common stock issued | | | — | | | | — | | | | 55,506 | |
Cash paid for the capital stock | | | | | | | — | | | | 22,641 | |
Liabilities assumed | | | — | | | | — | | | | 406,930 | |
dividends declared, not paid are reported as Additional Supplemental Information.
See notes to consolidated financial statements
HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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, Inc. (“Horizon”) and its wholly owned subsidiaries,subsidiary, Horizon Bank (“Bank”) and Horizon Risk Management, Inc., together referred to as “Horizon”“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-servicefull–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
6271 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 Company’s 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
had acquired City Savings Statutory Trust I (“City Savings Trust”)
; and Salin Bancshares, Inc. in
2007.2019, which formed Salin Statutory Trust I (“Salin Trust”). See Note
1513 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 The allowance for loancredit losses valuation of other real estate owned, goodwill and intangible assets, mortgage servicing rights, other-than-temporary impairments andthe fair values of financial instruments.
instruments are particularly subject to change.
Business Combinations — Business combinations are accounted for using the acquisition method of accounting. The accounts of an acquired entity are included as of the date of acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill. Horizon typically issues Common Stock and/or pays cash for an acquisition, depending on the terms of the acquisition agreement. The value of Common Stock issued is determined based on the market price of the stock as of the closing of the acquisition. Acquisition costs are expensed when incurred.
Cash and Cash Equivalents — Cash and cash equivalents includes cash, deposits with other financial institutions with original maturities under 90 days, and federal funds sold.
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.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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
HORIZON BANCORPAND SUBSIDIARIES
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 Horizon’s 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 Horizon’s 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.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Investment Securities Available for Sale— Horizon designates the majoritya portion of its investment portfolio as available for sale based on management’s 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 Horizon’s 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.HORIZON BANCORPAND SUBSIDIARIES
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— Loans that management has the intent and ability to hold for Sale — Mortgage loans originatedthe foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and intendeddiscounts, deferred loan fees and costs. Accrued interest receivable totaling $23.7 million and $17.5 million at December 31, 2023 and 2022 was excluded from the Allowance for saleCredit Losses (“ACL”) calculation and was reported in accrued interest receivable on the secondary market are carried atconsolidated balance sheet. Interest income is accrued on the lowerunpaid principal balance. Loan origination fees, net 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, andcertain direct loan origination costs, and fees are deferred at origination of the loan and are recognized in noninterestinterest income upon sale ofusing the loan.Interest and Fees on Loans — effective yield method without anticipating prepayments.
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.
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 management's 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 management's policy to generally place a loan on 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 Commercial Banking 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.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a modified loan will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Consistent with regulatory guidance, charge–offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company's 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 borrower's ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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 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. 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.
A loan is individually evaluated when, based on current information, a creditor may be experiencing financial difficulty and repayment is substantially expected through operation or sale of collateral. For collateral–dependent assets individually evaluated, the Company utilizes, as a practical expedient, the fair value of collateral, adjusted for estimated costs to sell, when determining the allowance for credit losses.
Smaller–balance, homogeneous loans are evaluated in total. Such loans include residential first mortgage loans secured by 1–4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually.
Purchased Credit Deteriorated (“PCD”) Loans — The Company has purchased loans, some of which have experienced credit deterioration since origination. PCD loans are recorded at the amount paid. An ACL on loans is determined using the same methodology as other loans held for investment. The initial ACL on loans determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and ACL on loans becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over the remaining life of the loan. Subsequent changes to the ACL on loans are recorded through credit loss expense.
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 non–interest income. Gains and losses on loan sales are recorded in non–interest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in non–interest income upon sale of the loan.
Concentrations of Credit Risk— The Bank grants commercial, real estate, and consumer loans to customers located primarily in the Northernnorthern and Centralcentral regions of Indiana and the Southern, Centralsouthern and Great Lakes Baycentral regions of Michigan and provides mortgage warehouse lines to mortgage companies in the United States. Commercial loans make up approximately 57%61% 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%15% of the loan portfolio and are secured by residential real estate. Installment loans make up approximately 18%23% of the loan portfolio and are primarily secured by consumer assets. Mortgage warehouse loans make up approximately 3%1% of the loan portfolio and are secured by residential real estate.Mortgage Warehouse
Allowance for Credit Losses (“ACL”) on Loans— Horizon’s mortgage warehousing has specific mortgage companies as customers of the Bank. Individual mortgageThe ACL on loans originated by these mortgage companies are funded asis a secured borrowing with pledge of collateral under Horizon’s agreement with the mortgage company. Each individual mortgagevaluation account that 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 proceedsdeducted from the sale ofloans’ amortized cost basis to present the loannet amount expected to be collected on the loans. Loans are received by Horizon and used to paycharged off against the ACL when management believes the loan balance with Horizon along with any accrued interestis confirmed to be no longer collectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and any related fees. The remainingexpected to be charged off.
Management estimates the ACL balance
using relevant information, from
internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the
sale is forwardedbasis for the estimation of expected credit losses. Adjustments to
the mortgage company. These individual loans typicallyhistorical loss information 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 incomemade for
each loan sold is collected when the loan is sold and no costs are deferred due to thedifferences in current loan–specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or 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 possessionas well as for changes in environmental conditions, changes in economic conditions, or other relevant factors.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Allowance
The Company considers the following when estimating credit losses: 1) available information relevant to assessing the collectibility of cash flows including internal information, external information or a combination of both relating to past events, current conditions and reasonable and supportable forecasts; 2) relevant qualitative and quantitative factors relating to the environment in which the Company operates and factors specific to the borrower; 3) off–balance sheet credit exposures; and credit support.
ACL on loans is measured on a collective basis and reflects impairment in groups of loans aggregated on the basis of similar risk characteristics which may include any one or a combination of the following: internal credit ratings, risk ratings or classification, financial asset type, collateral type, size, industry of the borrower, historical or expected credit loss patterns, and reasonable and supportable forecast periods. The ACL for Loan Losses — An allowancea specific portfolio segment is computed by multiplying the loss rate by the amortized cost balance of the segment with adjustments for loanother qualitative factors as described above. As appropriate, newer credit products or portfolios with limited historical loss may use applicable external data for determining the ACL until experience justifies that sufficient product maturity supports the estimate of expected credit losses.
Pursuant to ASC 326–20–30–9, an entity shall not rely solely on past events to estimate expected credit losses, is maintainedand should consider adjustments to absorb probable incurred losses inherent inhistorical information to reflect the loan portfolio. extent to which management expects current conditions and forecasted conditions to differ from the periods utilized for the historical loss rate calculation. Management has incorporated an adjustment of the historical loss rate calculated within the model to reflect current and forecasted condition and has applied this adjustment on a qualitative factor basis to the aggregate pool loss rate.
The
allowancequalitative adjustment is based on
ongoing quarterly assessmentsa combination 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 resultsexternal econometric data and
decreased by the amount of charge offs, net of recoveries. Horizon’s 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 management’s 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 management’s 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 includeinternal factors such as local, regionalportfolio composition, changes in management, changes in loan policy and nationalother factors. The economic forecast is based in part on economic indexes and quantitative matrices with a twenty–four month forecast. The qualitative adjustment is calculated based on current and forecasted conditions and forecasts, concentrationsevaluated each quarter by management, and therefore is dynamic in nature. The qualitative economic adjustment is then reverted over a twelve month period to the historical base loss rate which is preserved in the calculation of credit“all in” loss rate.
Specific reserves reflect collateral shortfalls on loans identified for evaluation or individually considered non–performing, including troubled debt restructurings and
receivables where the Company has determined foreclosure is probable. These loans no longer have similar risk characteristics to collectively evaluated loans due to changes in
credit risk, borrower circumstances, recognition of write–offs, or cash collections that have been fully applied to principal on the
compositionbasis of
non–accrual policies. At a minimum, the
portfolio.Loan Impairment — When analysis determinespopulation of loans subject to individual evaluation include individual loans and leases where it is probable we will be unable to collect all amounts due, according to the original contractual terms. These include commercial impaired loans, jumbo residential mortgages (as defined), and jumbo home equity loans with a borrower’s operating resultsbalance exceeding $250,000, and financial conditionother loans as determined by management. ACL for residential and consumer loans are, primarily, determined by pools of similar loans and are evaluated on a quarterly basis.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not
adequate to meet debt service requirements,also included in the
loancollective evaluation. When management determines that foreclosure is
evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loansprobable, expected credit losses are
generally placedbased on
non-accrual status when 90 days or more past due. These loans are also often considered impaired. Impaired loans or portions thereof, arecharged-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 loan’s effective interest rate, at the loan’s observable market price or at the fair value of the collateral ifat the reporting date, adjusted for selling costs as appropriate.
Modified Loans — The Company adopted ASU 2022–02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, during the first quarter of 2023. These amendments eliminated the troubled debt restructurings (“TDR”) recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan is collateral dependent.Smaller balance homogenousmodifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.
Prior to the adoption of ASU 2022–02, loans
aremodified as TDRs generally consisted of allowing borrowers to defer scheduled principal payments and make interest only payments for a specified period of time at the stated interest rate of the original loan agreement or lower payments due to a modification of the loans' contractual terms. TDRs that continued to accrue interest were individually monitored on a monthly basis and evaluated for impairment
in the aggregate. Such loans include residential first mortgage loans secured by oneannually and transferred 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 whichnon–accrual status when it iswas probable that all contractually required payments will not be collected are considered to be credit impaired. Evidenceany remaining principal and interest
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The expected cash flows
payments due on the loan would not be collected in accordance with the contractual terms of the acquired loan poolsloan. TDRs that subsequently default were individually evaluated for impairment at the time of default.
Allowance for Credit Losses on Off–Balance Sheet (“OBS”) Credit Exposures — The Company estimates expected credit losses over the contractual period in excesswhich the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The Company determines the estimated amount of expected credit extensions based on historical usage to calculate the amount of exposure for a loss estimate.
Allowance for Credit Losses on Available for Sale Securities — For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair values recordedvalue through income. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is referredless than amortized cost, any changes to as the accretable yield and is recognized in interest income over the remaining estimated livesrating of the loan pools. The Company continuessecurity by a rating agency, and adverse conditions specifically related to evaluate the fairsecurity, among other factors. If this assessment indicates that a credit loss exists, the present value of the loans including cash flows expected to be collected. Increases incollected from the Company’s cash flow expectationsecurity are recognized as increasescompared to the accretable yield while decreases are recognized as impairments throughamortized cost basis of the allowancesecurity. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for loan losses.Performing loans acquired (FASB ASC310-20) withthe credit impairment subsequent toloss, limited by the acquisition date are evaluated individually and charged down toamount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recorded in other comprehensive income.
Changes in the ACL are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the available for sale security is confirmed to be uncollectible or when either of the underlying collateralcriteria regarding intent or requirement to sell is met.
Allowance for Credit Losses on Held to Maturity Securities — For held to maturity securities, the Company conducts an assessment of its held to maturity securities at the time of purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to perform satisfactorily in fulfilling its obligations. The Company considers, among other factors, the periodnature of the uncollectiblesecurities and credit ratings or financial condition of the issuer. If available, the Company obtains a credit rating for issuers from the Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration. If this assessment indicates that a material credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is reasonably determined.less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss.
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.
Partnership Investments — The Company invests in partnerships that generate qualified affordable housing and solar tax credits. The Company has elected to account for partnership investments in qualified affordable housing using the proportional amortization method. Under the proportional amortization method, the initial cost of the investment is amortized to income tax expense in proportion to the tax credits and other tax benefits received. This net investment performance is recognized in the income statement as a component of income tax expense. The Company accounts for partnership investments that generate solar tax credits under the deferral method. The investment in the limited partnerships totaling $27.2 million and $4.5 million at December 31, 2023 and 2022, respectively is included in other assets in the consolidated balance sheets. The Company investments in qualified affordable housing tax credits and had funding commitments of $14.5 million at December 31, 2023. There has not
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
been any significant amortization or tax credits recorded related to the qualified affordable housing tax credits at December 31, 2023.
Mortgage Servicing Rights —Mortgage— 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 (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
noninterestnon–interest 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.
Goodwill and Intangible Assets— Goodwill is tested annually for impairment or more frequently should potential triggering events be identified that may indicate potential impairment. At December 31, 2017,2023, Horizon had core deposit intangibles of $12.4$13.6 million subject to amortization and $119.9$155.2 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in theHORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
business acquired. Horizon’s 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, Wolverine and Wolverine.
Salin.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Bank Owned Life Insurance (BOLI)(“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. As of December 31, 2023, Horizon had surrendered $113.9 million of its BOLI, of which, $69.9 million had been received and $44.0 million was carried as a receivable in other assets in the balance sheet. As of December 31, 2023, $6.6 million of the $44.0 million carried as a receivable was surrendered but were still considered as active policies by the carrier. Tax expense of $8.6 million was recorded through the income statement for the recognition of the gains on the policies plus the excise tax.
Securities Purchased Under Agreements to Resell, Securities Sold Under Agreements to Repurchase and Other Secured Borrowings — The Company purchases certain securities, generally U.S. government–sponsored entity and agency securities, under agreements to resell. The amounts advanced under these agreements represent short–term secured loans and are reflected as assets in the accompanying consolidated balance sheets. We also sell certain securities under agreements to repurchase. These agreements are treated as collateralized financing transactions. These and other secured borrowings such as loans sold not qualifying for sale accounting treatment, are reflected as liabilities in the accompanying consolidated balance sheets and are recorded at the amount of cash received in connection with the transaction. Short–term securities sold under agreements to repurchase generally mature within one to four days from the transaction date. Securities, generally U.S. government and federal agency securities, pledged as collateral under these financing arrangements can be re–pledged by the secured party. Additional collateral may be required based on the fair value of the underlying securities.
Income Taxes —The— 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 management’s 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.HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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-averageweighted–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: | | | | | | | | | | | | |
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
| | | | | | | | | | | | | | | | | |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Basic earnings per share | | | | | |
| Net income | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Weighted average common shares outstanding | 43,630,160 | | | 43,568,823 | | | 43,802,733 | |
| Basic earnings per share | $ | 0.64 | | | $ | 2.14 | | | $ | 1.99 | |
| Diluted earnings per share | | | | | |
| Net income available to common shareholders | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Weighted average common shares outstanding | 43,630,160 | | | 43,568,823 | | | 43,802,733 | |
| Effect of dilutive securities: | | | | | |
| Restricted stock | 208,827 | | | 92,381 | | | 107,988 | |
| Stock options | 4,893 | | | 37,911 | | | 44,559 | |
| Weighted average common shares outstanding | 43,843,880 | | | 43,699,115 | | | 43,955,280 | |
| Diluted earnings per share | $ | 0.64 | | | $ | 2.14 | | | $ | 1.98 | |
There were 226,028, 319,760 and 140,955 shares for the twelve months ended December 31,
20172023, 2022 and
2016, there were zero shares and at December 31, 2015 there were 3,750 shares that2021, respectively, which were not included in the computation of diluted earnings per share because they were
non-dilutive.
On July 16, 2019, the Board of Directors of the Company authorized a stock repurchase program for up to 2,250,000 shares of Horizon’s issued and outstanding common stock, no par value. As of December 31, 2023, Horizon had repurchased a total of 803,349 shares at an average price per share of $16.89. In addition to the stock repurchase program, Horizon agreed to repurchase 1,000,000 shares at a price per share of $15.19 from an individual shareholder on March 6, 2020.
Dividend Restrictions— Horizon’s 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 year’s net profits combined with the retained net profits of the preceding two years, subject to the capital requirements described in Note 21.19. At December 31, 2017,2023, the Bank could, without prior approval, declare dividends of approximately $8.5$117.2 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-termshort–term investments and borrowings.
Comprehensive Income (Loss) — Comprehensive income (loss) consists of net income and other comprehensive income (loss), net of applicable income taxes. Other comprehensive income (loss) includes unrealized appreciation (depreciation)gain (loss) onavailable-for-sale available for sale securities, unrealized and realized gains and losses in cash flow derivative financial instruments and amortizationaccretion (amortization) ofavailable-for-sale available for sale securities transferred toheld-to-maturity.Share-Based held to maturity.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Share–Based Compensation— At December 31, 2017,2023, Horizon had share-basedshare–based compensation plans, which are described more fully in Note 22.20. All share-basedshare–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$3.6 million, $608,000,$2.5 million, and $643,000 for 2017, 2016 and 2015,$1.8 million in compensation expense relating to vesting of stock options and restricted stock awards less estimated forfeitures for the12-month 12–month periods ended December 31, 2017, 20162023, 2022 and 2015.HORIZON BANCORPAND SUBSIDIARIES
Notes2021, respectively.
Derivative Financial Instruments — The Company occasionally enters into derivative financial instruments as part of its interest rate risk management strategies. These derivative financial instruments consist primarily of interest rate swaps. All derivative instruments are recorded on the Consolidated Balance Sheets, as either an asset or liability, at their fair value. The accounting for the gain or loss resulting from the change in fair value depends on the intended use of the derivative. For a derivative used to Consolidated Financial Statements(Table dollarshedge changes in thousands except for per share data)
Reclassifications — Certain reclassifications have been madefair value of a recognized asset or liability, or an unrecognized firm commitment, the gain or loss on the derivative will be recognized in earnings together with the offsetting loss or gain on the hedged item. This results in an earnings impact only to the 2016extent that the hedge is ineffective in achieving offsetting changes in fair value. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued and 2015 consolidated financial statementsthe adjustment to fair value of the derivative instrument is recorded in earnings. For a derivative used to hedge changes in cash flows associated with forecasted transactions, the gain or loss of the effective portion of the derivative will 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 fromdeferred, and reported as accumulated other comprehensive income, (AOCI) to retained earnings for stranded tax effects resulting froma component of stockholders’ equity, until such time 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 havehedged transaction affects earnings. For derivative instruments 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 ASUNo. 2017-12,Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities
The FASB has issued ASUNo. 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 entity’s 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 ASUNo. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities
The FASB has issued ASUNo. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20), 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 ASUNo. 2017-04,Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment
The FASB has issued ASUNo. 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 unit’s 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
HORIZON BANCORPAND SUBSIDIARIES
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 ASUNo. 2017-01,Business Combinations (Topic 805), Clarifying the Definition of a Business
The FASB has issued ASUNo. 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 ASUNo. 2016-13,Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments
The FASB has issued ASUNo. 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 organization’s portfolio. In addition, the ASU amends the accounting for credit losses onavailable-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 aone-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 suchone-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
FASB ASUNo. 2016-09,Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
The FASB has issued ASUNo. 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 ASUNo. 2016-02,Leases (Topic 842)
The FASB has issued ASUNo. 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 lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) aright-of-use asset, which is an asset that represents the lessee’s 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.
HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
FASB ASUNo. 2016-01,Financial Instruments – Overall (Subtopic825-10), Recognition and Measurement of Financial Assets and Financial Liabilities
The FASB has issued ASUNo. 2016-01,Financial Instruments – Overall (Subtopic825-10), 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 withas hedges, changes in fair value are 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., securitiesnon–interest income or loans and receivables) on the balance sheet or the accompanying notes to the financial statements;non–interest expense.
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 andnot-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 Company’s consolidated financial statements.
FASB ASUNo. 2014-09,Revenue Recognition — Accounting Standards Codification 606, “Revenue from Contracts with Customers (TopicCustomers” (ASC 606)
The FASB has issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606). The guidance in this update affects any entity provides 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 anyan 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 providesenumerates five steps that entities should follow in achieving this core principle. Revenue generated from financial instruments, including loans and investment securities, are not included in the scope of ASC 606. The adoption of ASC 606 did not result in a change to followthe accounting of any of the Company’s revenue streams that are within the scope of the amendments. Revenue–gathering activities that are within the scope of ASC 606 and that are presented as non-interest income in the Company’s consolidated statements of income include:
•Service charges and fees on deposit accounts – these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer and overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.
•Fiduciary activities – this includes periodic fees due from trust and wealth management customers for managing the customers’ financial assets. Fees are charged based on a standard agreement and are recognized as they are earned.
Segments — Horizon has one principal business segment, commercial banking. While our chief decision makers monitor the revenue streams of various products and services, the identifiable segments' operations are managed and financial performance is evaluated on a company–wide basis. Accordingly, all of the Company's financial service operations are considered to achieve the coreHORIZON BANCORPbe aggregated in one reportable operating segment.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
principle. An entity should disclose sufficient information
Revision of Previously Issued Financial Statements
We corrected an immaterial error related to
enable users ofamounts reported in previously issued financial statements
for the periods presented in the Annual Report on Form 10–K. The error relates to
understand the
nature, amount, timing and uncertaintyincorrect classification of
revenue and cash flows arising from contracts with customers.revolving lines of credit as term loans in the vintage loan disclosure. The
amendmentscorrection of this error resulted in
this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.the classification of certain term loans as lines of credit in the vintage loan disclosure. 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 ofnon-interest income from Horizon’s current financial instruments are not impacted by the guidance. Additional disclosures regarding the composition of Horizon’s revenue sources will be required.In May 2016, the FASB issued ASUNo. 2016-12,Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients. The amendments dorevision did not change the core revenue recognition principletotal amount of loans reported and did not impact the Company's net income.
We evaluated the aggregate effects of this error to our previously issued financial statements in
Topic 606. The amendments provide clarifying guidance in certain narrow areasaccordance with SEC Staff Accounting Bulletins No. 99 and
some practical expedients.In December 2016,No. 108 and, based upon quantitative and qualitative factors, determined that the FASB issued ASUNo. 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 ASUNo. 2014-09 to increase awareness of the proposals and to expedite improvements to ASUNo. 2014-09. The amendment affects narrow aspects of the guidance issued in ASUNo. 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 Bank’s 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 priorerror was not material to the effectiveness ofpreviously issued financial statements and disclosures included in our Annual Report on Form 10–K for the merger, less the consideration used to pay off Wolverine Bancorp’s 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 ofyear ended December 31, 2017. These expenses are classified in thenon-interest section2022.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Under
The following tables present the acquisition method of accounting,revisions to vintage loan disclosure at December 31, 2022 to reflect the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the datecorrection of the acquisition. Based on preliminary valuationserrors:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Reported | | As Revised |
| Term | | Revolving | | Total | | Term | | Revolving
Term | | Revolving | | Total |
| Commercial | | | | | | | | | | | | | |
| Owner occupied real estate | | | | | | | | | | |
| Pass | $ | 490,056 | | | $ | 76,493 | | | $ | 566,549 | | | $ | 484,893 | | | $ | 76,493 | | | $ | 5,163 | | | $ | 566,549 | |
| Special Mention | 9,413 | | | 83 | | | 9,496 | | | 9,413 | | | 83 | | | — | | | 9,496 | |
| Substandard | 15,641 | | | 2,876 | | | 18,517 | | | 15,641 | | | 2,876 | | | — | | | 18,517 | |
| Total owner occupied real estate | $ | 515,110 | | | $ | 79,452 | | | $ | 594,562 | | | $ | 509,947 | | | $ | 79,452 | | | $ | 5,163 | | | $ | 594,562 | |
| | | | | | | | | | | | | |
| Non–owner occupied real estate | | | | | | | | | | |
| Pass | $ | 955,956 | | | $ | 182,681 | | | $ | 1,138,637 | | | $ | 944,105 | | | $ | 182,681 | | | $ | 11,851 | | | $ | 1,138,637 | |
| Special Mention | 42,419 | | | — | | | 42,419 | | | 42,419 | | | — | | | — | | | 42,419 | |
| Substandard | 6,021 | | | — | | | 6,021 | | | 6,021 | | | — | | | — | | | 6,021 | |
| Total non–owner occupied real estate | $ | 1,004,396 | | | $ | 182,681 | | | $ | 1,187,077 | | | $ | 992,545 | | | $ | 182,681 | | | $ | 11,851 | | | $ | 1,187,077 | |
| | | | | | | | | | | | | |
| Residential spec homes | | | | | | | | | | | | | |
| Pass | $ | 6,404 | | | $ | 4,334 | | | $ | 10,738 | | | $ | 779 | | | $ | 4,333 | | | $ | 5,626 | | | $ | 10,738 | |
| Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Substandard | — | | | 100 | | | 100 | | | — | | | 100 | | | — | | | 100 | |
| Total residential spec homes | $ | 6,404 | | | $ | 4,434 | | | $ | 10,838 | | | $ | 779 | | | $ | 4,433 | | | $ | 5,626 | | | $ | 10,838 | |
| | | | | | | | | | | | | |
| Development & spec land | | | | | | | | | | |
| Pass | $ | 13,279 | | | $ | 13,008 | | | $ | 26,287 | | | $ | 13,257 | | | $ | 13,008 | | | $ | 22 | | | $ | 26,287 | |
| Special Mention | 145 | | | — | | | 145 | | | 145 | | | — | | | — | | | 145 | |
| Substandard | 178 | | | 748 | | | 926 | | | 178 | | | 748 | | | — | | | 926 | |
| Total development & spec land | $ | 13,602 | | | $ | 13,756 | | | $ | 27,358 | | | $ | 13,580 | | | $ | 13,756 | | | $ | 22 | | | $ | 27,358 | |
| | | | | | | | | | | | | |
| Commercial & industrial | | | | | | | | | | |
| Pass | $ | 574,972 | | | $ | 49,859 | | | $ | 624,831 | | | $ | 419,702 | | | $ | 49,276 | | | $ | 159,017 | | | $ | 627,995 | |
| Special Mention | 4,636 | | | — | | | 4,636 | | | 3,427 | | | — | | | 1,208 | | | 4,635 | |
| Substandard | 12,603 | | | 5,517 | | | 18,120 | | | 5,468 | | | 2,322 | | | 7,167 | | | 14,957 | |
| Total commercial & industrial | $ | 592,211 | | | $ | 55,376 | | | $ | 647,587 | | | $ | 428,597 | | | $ | 51,598 | | | $ | 167,392 | | | $ | 647,587 | |
Table 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 aspast-due andnon-accrual status, borrower credit scores and recentloan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30) 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.
HORIZON BANCORPAND SUBSIDIARIES
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 ASC310-30 as
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Reported | | As Revised |
| Term | | Revolving | | Total | | Term | | Revolving
Term | | Revolving | | Total |
| Real estate | | | | | | | | | | | | | |
| Residential mortgage | | | | | | | | | | |
| Performing | $ | 603,636 | | | $ | 792 | | | $ | 604,428 | | | $ | 604,428 | | | $ | — | | | $ | — | | | $ | 604,428 | |
| Non–performing | 8,123 | | | — | | | 8,123 | | | 8,123 | | | — | | | — | | | 8,123 | |
| Total residential mortgage | $ | 611,759 | | | $ | 792 | | | $ | 612,551 | | | $ | 612,551 | | | $ | — | | | $ | — | | | $ | 612,551 | |
| | | | | | | | | | | | | |
| Residential construction | | | | | | | | | | |
| Performing | $ | 187 | | | $ | 40,554 | | | $ | 40,741 | | | $ | — | | | $ | 40,741 | | | $ | — | | | $ | 40,741 | |
| Non–performing | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total residential construction | $ | 187 | | | $ | 40,554 | | | $ | 40,741 | | | $ | — | | | $ | 40,741 | | | $ | — | | | $ | 40,741 | |
| | | | | | | | | | | | | |
| Mortgage warehouse | | | | | | | | | | | | | |
| Performing | $ | — | | | $ | 69,529 | | | $ | 69,529 | | | $ | — | | | $ | — | | | $ | 69,529 | | | $ | 69,529 | |
| Non–performing | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total mortgage warehouse | $ | — | | | $ | 69,529 | | | $ | 69,529 | | | $ | — | | | $ | — | | | $ | 69,529 | | | $ | 69,529 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Reported | | As Revised |
| Term | | Revolving | | Total | | Term | | Revolving
Term | | Revolving | | Total |
| Consumer | | | | | | | | | | | | | |
| Direct installment | | | | | | | | | | |
| Performing | $ | 56,441 | | | $ | 9 | | | $ | 56,450 | | | $ | 54,290 | | | $ | 9 | | | $ | 2,151 | | | $ | 56,450 | |
| Non–performing | 164 | | | — | | | 164 | | | 164 | | | — | | | — | | | 164 | |
| Total direct installment | $ | 56,605 | | | $ | 9 | | | $ | 56,614 | | | $ | 54,454 | | | $ | 9 | | | $ | 2,151 | | | $ | 56,614 | |
| | | | | | | | | | | | | |
| Indirect installment | | | | | | | | | | |
| Performing | $ | 499,781 | | | $ | — | | | $ | 499,781 | | | $ | 499,781 | | | $ | — | | | $ | — | | | $ | 499,781 | |
| Non–performing | 768 | | | — | | | 768 | | | 768 | | | — | | | — | | | 768 | |
| Total indirect installment | $ | 500,549 | | | $ | — | | | $ | 500,549 | | | $ | 500,549 | | | $ | — | | | $ | — | | | $ | 500,549 | |
| | | | | | | | | | | | | |
| Home equity | | | | | | | | | | | | | |
| Performing | $ | 400,048 | | | $ | 7,089 | | | $ | 407,137 | | | $ | 53,226 | | | $ | 7,089 | | | $ | 346,822 | | | $ | 407,137 | |
| Non–performing | 1,512 | | | 1,943 | | | 3,455 | | | 1,512 | | | 1,943 | | | — | | | 3,455 | |
| Total home equity | $ | 401,560 | | | $ | 9,032 | | | $ | 410,592 | | | $ | 54,738 | | | $ | 9,032 | | | $ | 346,822 | | | $ | 410,592 | |
Table 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 ASC310-30 | | $ | 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 Bank’s 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 thenon-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 ASC805-10 – Business Combinations, Horizon was required to remeasure the equity interest in Lafayette’s 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 Lafayette’s 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.
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Under
Adoption of New Accounting Standards
Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2022–02, Financial Instruments– Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
The FASB has issued ASU No. 2022–02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, in March 2022. These amendments eliminate the acquisition methodtroubled debt restructurings (“TDR”) recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of accounting,an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, these amendments require that an entity disclose current–period gross write–offs by year of origination for financing receivables and net investment in leases within the total purchase price is allocatedscope of Subtopic 326–20. The guidance was effective for entities that have adopted ASU 2016–13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively. If an entity elects to net tangible and intangible assets based on their current estimated fair values onearly adopt ASU 2022–02 in an interim period, 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 willguidance should 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 deteriorationapplied as of the purchase datebeginning of the fiscal year that includes the interim period. An entity may include information such aspast-dueelect to early adopt the amendments about TDRs andnon-accrual status, borrower credit scores related disclosure enhancements separately from the amendments related to vintage disclosures. The Company adopted this standard during the first quarter of 2023 and recentloan-to-value percentages. Purchased credit-impaired loans areit did not have a material impact on the consolidated financial statements.
FASB ASU No. 2020–04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
The FASB has issued ASU 2020–04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include:
•A change in a contract's reference interest rate would be accounted for underas a continuation of that contract rather than as the creation of a new one for contracts, including loans, debt, leases, and other arrangements, that meet specific criteria.
•When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.
The guidance is applicable only to contracts or hedge accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30) and initially measured at fair value, which includes estimated future credit lossesrelationships that reference LIBOR or another reference rate expected to be incurreddiscontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this ASU are effective March 12, 2020 through December 31, 2022.
ASU 2020–04 permits relief solely for reference rate reform actions and permits different elections over the lifeeffective date for legacy and new activity. Accordingly, the Company is evaluating and reassessing the elections on a quarterly basis. For current elections in effect regarding the assertion of the loan. Accordingly, an allowance for credit lossesprobability of forecasted transactions, the Company elects the expedient to assert the probability of the hedged interest payments and receipts regardless of any expected modification in terms related to these loans is not carried over and recorded atreference rate reform.
With the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimateissuance 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 valueASU 2022–6,
Reference Rate Reform (Topic 848): Deferral of the amounts expectedSunset Date of Topic 848, the sunset date for the adoption of ASU 2020–04 was extended from December 31, 2022 to be collected. Income recognitionDecember 31, 2024. The Company adopted the expedients included in this ASU in 2023 as it transferred its loans and other financial instruments to another reference rate.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Accounting Guidance Issued But Not Yet Adopted
FASB ASU No. 2023–02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
The following table details an estimateFASB has issued ASU 2023–02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This guidance allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the acquired loans that are accounted for in accordance with ASC310-30 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 ASC310-30 | | $ | 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 expectedprogram giving rise 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 Bank’s 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 thenon-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.
HORIZON BANCORPAND SUBSIDIARIES
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 CNB’s net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on management’s 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 Bank’s 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 Bancorp’s 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 Bancorp’s 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 thenon-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.
HORIZON BANCORPAND SUBSIDIARIES
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 aspast-due andnon-accrual status, borrower credit scores and recentloan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30) 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.
HORIZON BANCORPAND SUBSIDIARIES
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 ASC310-30 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 ASC310-30 | | $ | 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 Bank’s 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 Kosciusko’s 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 thenon-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.
HORIZON BANCORPAND SUBSIDIARIES
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 aspast-due andnon-accrual status, borrower credit scores and recentloan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30) 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.
HORIZON BANCORPAND SUBSIDIARIES
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 ASC310-30 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 ASC310-30 | | $ | 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 Bank’s 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. Horizon’s 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 thenon-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.
HORIZON BANCORPAND SUBSIDIARIES
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 management’s 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 ASC310-20.
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 aspast-due andnon-accrual status, borrower credit scores and recentloan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30) 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.
HORIZON BANCORPAND SUBSIDIARIES
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 ASC310-30 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 ASC310-30 | | $ | 4,368 | |
| | | | |
The results of operations of Wolverine, Lafayette, CNB, LaPorte Bancorp, Kosciusko and Peoples have been included in the Company’s consolidated financial statements since the acquisition dates. The following schedule includespro-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 | |
Thepro-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.credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. Thepro-forma information for the year ended 2017 includes $2.6 million, net of tax, of operating revenue from Lafayette Company is assessing ASU 2023–02 and Wolverine since acquisitionsits impact on its accounting and approximately $2.7 million, net of tax, ofnon-recurring expenses directly attributable to the Lafayette and Wolverine acquisitions. Thepro-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, ofnon-recurring expenses directly attributable to the acquisitions. Thepro-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, ofnon-recurring expenses directly attributable to the Peoples acquisition.
Thepro-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.
HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
disclosures. Note
32 – Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31,
20172023 and
2016,2022, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit.
At December 31,
2017,2023, the Company’s cash accounts exceeded federally insured limits by approximately
$12.5$447.7 million.
Approximately $402.6 million of this amount was held by either the Federal Reserve Bank or the Federal Home Loan Bank of Indianapolis, which is not federally insured.
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
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Available for sale | | | | | | | |
| U.S. Treasury and federal agencies | $ | 72,938 | | | — | | | $ | (8,561) | | | $ | 64,377 | |
| State and municipal | 353,299 | | | — | | | (49,269) | | | 304,030 | |
| Federal agency collateralized mortgage obligations | 3,931 | | | — | | | (351) | | | 3,580 | |
| Federal agency mortgage–backed pools | 161,130 | | | — | | | (23,833) | | | 137,297 | |
| | | | | | | |
| Corporate notes | 43,317 | | | 455 | | | (5,805) | | | 37,967 | |
| Total available for sale investment securities | $ | 634,615 | | | $ | 455 | | | $ | (87,819) | | | $ | 547,251 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Table 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 andheld-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.
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The unrealized losses on the Company’s 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Allowance for Credit Losses | | Net
Carrying Amount |
| Held to maturity | | | | | | | | | | | |
| U.S. Treasury and federal agencies | $ | 287,259 | | | $ | — | | | $ | (41,299) | | | $ | 245,960 | | | $ | — | | | $ | 287,259 | |
| State and municipal | 1,088,499 | | | 1,185 | | | (150,323) | | | 939,361 | | | (20) | | | 1,088,479 | |
| Federal agency collateralized mortgage obligations | 51,325 | | | — | | | (7,846) | | | 43,479 | | | — | | | 51,325 | |
| Federal agency mortgage–backed pools | 323,649 | | | — | | | (48,621) | | | 275,028 | | | — | | | 323,649 | |
| Private labeled mortgage–backed pools | 32,329 | | | — | | | (4,595) | | | 27,734 | | | (7) | | | 32,322 | |
| Corporate notes | 162,734 | | | — | | | (25,538) | | | 137,196 | | | (130) | | | 162,604 | |
| Total held to maturity investment securities | $ | 1,945,795 | | | $ | 1,185 | | | $ | (278,222) | | | $ | 1,668,758 | | | $ | (157) | | | $ | 1,945,638 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Available for sale | | | | | | | |
| U.S. Treasury and federal agencies | $ | 294,329 | | | $ | — | | | $ | (27,150) | | | $ | 267,179 | |
| State and municipal | 505,006 | | | 140 | | | (71,602) | | | 433,544 | |
| Federal agency collateralized mortgage obligations | 33,011 | | | — | | | (1,796) | | | 31,215 | |
| Federal agency mortgage–backed pools | 220,963 | | | — | | | (30,307) | | | 190,656 | |
| | | | | | | |
| Corporate notes | 84,393 | | | 195 | | | (9,624) | | | 74,964 | |
| Total available for sale investment securities | $ | 1,137,702 | | | $ | 335 | | | $ | (140,479) | | | $ | 997,558 | |
| Held to maturity | | | | | | | |
| U.S. Treasury and federal agencies | $ | 295,250 | | | $ | — | | | $ | (49,237) | | | $ | 246,013 | |
| State and municipal | 1,127,669 | | | 374 | | | (192,458) | | | 935,585 | |
| Federal agency collateralized mortgage obligations | 56,564 | | | — | | | (8,865) | | | 47,699 | |
| Federal agency mortgage–backed pools | 343,953 | | | — | | | (56,714) | | | 287,239 | |
| Private labeled mortgage–backed pools | 35,466 | | | — | | | (5,493) | | | 29,973 | |
| Corporate notes | 163,846 | | | — | | | (29,046) | | | 134,800 | |
| Total held to maturity investment securities | $ | 2,022,748 | | | $ | 374 | | | $ | (341,813) | | | $ | 1,681,309 | |
The Company elected to transfer 319available-for-sale (“AFS”)793 AFS securities with an aggregate fair value of $167.1$120.9 million to a classification ofheld-to-maturity (“HTM”) HTM on April 1, 2014.March 31, 2022. In accordance with FASB ASC320-10-55-24, 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 loss of $814,000, 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 accreted 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 March 31, 2022.
The Company elected to transfer 475 AFS securities with an aggregate fair value of $490.2 million to a classification of HTM on December 31, 2021. 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$5.9 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associatedpre-tax pre–tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.December 31, 2021.
The amortized cost and fair value of securities available for sale and
held-to-maturity held to maturity at December 31,
20172023 and December 31,
2016,2022, 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 | |
| | | | | | | | | | | | | | | | |
HORIZON BANCORP
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Amortized
Cost | | Fair
Value | | Amortized
Cost | | Fair
Value |
| Available for sale | | | | | | | |
| Within one year | $ | 5,505 | | | $ | 5,408 | | | $ | 1,535 | | | $ | 1,512 | |
| One to five years | 100,301 | | | 89,650 | | | 340,212 | | | 312,137 | |
| Five to ten years | 167,764 | | | 141,203 | | | 238,045 | | | 204,282 | |
| After ten years | 195,984 | | | 170,113 | | | 303,936 | | | 257,756 | |
| 469,554 | | | 406,374 | | | 883,728 | | | 775,687 | |
| Federal agency collateralized mortgage obligations | 3,931 | | | 3,580 | | | 33,011 | | | 31,215 | |
| Federal agency mortgage–backed pools | 161,130 | | | 137,297 | | | 220,963 | | | 190,656 | |
| | | | | | | |
| Total available for sale investment securities | $ | 634,615 | | | $ | 547,251 | | | $ | 1,137,702 | | | $ | 997,558 | |
| Held to maturity | | | | | | | |
| Within one year | $ | 33,483 | | | $ | 33,169 | | | $ | 32,610 | | | $ | 32,382 | |
| One to five years | 225,957 | | | 216,354 | | | 222,443 | | | 209,854 | |
| Five to ten years | 350,843 | | | 304,067 | | | 324,967 | | | 280,618 | |
| After ten years | 928,209 | | | 768,927 | | | 1,006,745 | | | 793,544 | |
| 1,538,492 | | | 1,322,517 | | | 1,586,765 | | | 1,316,398 | |
| Federal agency collateralized mortgage obligations | 51,325 | | | 43,479 | | | 56,564 | | | 47,699 | |
| Federal agency mortgage–backed pools | 323,649 | | | 275,028 | | | 343,953 | | | 287,239 | |
| Private labeled mortgage–backed pools | 32,329 | | | 27,734 | | | 35,466 | | | 29,973 | |
| Total held to maturity investment securities | $ | 1,945,795 | | | $ | 1,668,758 | | | $ | 2,022,748 | | | $ | 1,681,309 | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 Company’s
available for sale 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
position at December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Less than 12 Months | | 12 Months or More | | Total |
| Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| Investment Securities | | | | | | | | | | | |
| U.S. Treasury and federal agencies | $ | — | | | $ | — | | | $ | 64,377 | | | $ | (8,561) | | | $ | 64,377 | | | $ | (8,561) | |
| State and municipal | 2,387 | | | (236) | | | 301,643 | | | (49,033) | | | 304,030 | | | (49,269) | |
| Federal agency collateralized mortgage obligations | — | | | — | | | 3,580 | | | (351) | | | 3,580 | | | (351) | |
| Federal agency mortgage–backed pools | — | | | — | | | 137,289 | | | (23,833) | | | 137,289 | | | (23,833) | |
| | | | | | | | | | | |
| Corporate notes | — | | | — | | | 36,359 | | | (5,805) | | | 36,359 | | | (5,805) | |
| Total securities | $ | 2,387 | | | $ | (236) | | | $ | 543,248 | | | $ | (87,583) | | | $ | 545,635 | | | $ | (87,819) | |
The following table shows the gross unrealized losses and the fair value of the Company’s available for sale and held to maturity investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Less than 12 Months | | 12 Months or More | | Total |
| Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| Investment Securities | | | | | | | | | | | |
| U.S. Treasury and federal agencies | $ | 217,357 | | | $ | (16,692) | | | $ | 295,585 | | | $ | (59,695) | | | $ | 512,942 | | | $ | (76,387) | |
| State and municipal | 533,871 | | | (45,881) | | | 757,061 | | | (218,179) | | | 1,290,932 | | | (264,060) | |
| Federal agency collateralized mortgage obligations | 40,301 | | | (2,881) | | | 38,613 | | | (7,780) | | | 78,914 | | | (10,661) | |
| Federal agency mortgage–backed pools | 49,633 | | | (3,211) | | | 428,243 | | | (83,810) | | | 477,876 | | | (87,021) | |
| Private labeled mortgage–backed pools | — | | | — | | | 29,973 | | | (5,493) | | | 29,973 | | | (5,493) | |
| Corporate notes | 38,906 | | | (6,787) | | | 169,921 | | | (31,883) | | | 208,827 | | | (38,670) | |
| Total securities | $ | 880,068 | | | $ | (75,452) | | | $ | 1,719,396 | | | $ | (406,840) | | | $ | 2,599,464 | | | $ | (482,292) | |
Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. As of December 31, 2023 and 2022, the Company had 2,290 and 2,828 securities, respectively, with market values below their cost basis. The total fair value of these investments at December 31, 2023 and 2022 was $2.1 billion and $2.6 billion, which is approximately 85% and 86%, respectively, of the Company's available for sale and held to maturity securities portfolio. These declines resulted primarily from fluctuations in market interest rates after purchase. Management believes the declines in fair value for these securities are temporary.
No allowance for credit losses for available for sale debt securities was needed at December 31, 2023 and December 31, 2022.
The allowance for credit losses for held to maturity securities is a contra asset valuation account that is deducted from the carrying amount of held to maturity securities to present the net amount expected to be collected. Held to maturity securities are charged off against the allowance for credit loss when deemed uncollectible. Adjustments to the allowance for credit loss are reported in our Consolidated Statements of Income in credit loss expense. We measure expected credit losses on held to maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury, federalGovernment–sponsored treasuries, agency stateand mortgage–backed securities, all these securities are issued by a U.S. government–sponsored entity
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
and have an implicit or explicit government guarantee; therefore, no allowance for credit losses has been recorded for these securities. With regard to obligations of states and municipal,
The unrealized losses on private label mortgage–backed and corporate note held to maturity securities, we consider (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the Company’s investments in U.S. Treasury, federal agencyfinancial condition of the issuer, and state(4) whether issuers continue to make timely principal and municipals were caused by interest rate changes. Thepayments under the contractual terms of the securities. Historical loss rates associated with securities having similar grades as those investments do not permitin our portfolio have been insignificant. As of December 31, 2023, there were no past due principal and interest payments associated with these securities. An allowance for credit loss of $157,000 recorded on these securities based on applying the issuerlong–term historical rating agency credit loss rate for similarly rated securities.
Accrued interest receivable on available for sale debt securities and held to
settle thematurity securities
at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investmentstotaled $14.7 million 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$17.8 million at December 31,
2017.Federal agency mortgage-backed pools2023 and collateralized mortgage obligations
The unrealized losses on the Company’s 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.
2022, respectively, and is excluded from the estimate of credit losses.
The U.S. government sponsored entities and agencies and mortgage–backed securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses.
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 | ) |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Sales of securities available for sale | | | | | |
| Proceeds | $ | 439,285 | | | $ | — | | | $ | 27,514 | |
| Gross gains | 215 | | | — | | | 914 | |
| Gross losses | (32,267) | | | — | | | — | |
The tax effect of the proceeds from the sale of securities available for sale was
$13,000, $643,000$6.7 million, $0 and
$66,000$192,000 for the years ended December 31,
2017, 20162023, 2022 and
2015,2021, 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,
2017,2023, the Company had pledged
$74.0$145.2 million of fair value or
$75.6$170.3 million of amortized cost, in securities as collateral for
$61.1$136.0 million in repurchase agreements,
$94.6 million$1.4 billion of fair value or
$93.1 million$1.7 billion of amortized cost, in securities as collateral for borrowing availability at the Federal Reserve with
$11.0$430.0 million current outstanding borrowings and
$13.1$20.2 million of fair value or
$13.1$23.0 million of amortized cost, in securities as collateral for
$917,000$26.6 million in settlements on the fair value of swap agreements.
HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note
54 – 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 | | | | | | | | |
1–4 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 | |
| | | | | | | | |
The table below identifies the Company's loan portfolio segments and classes.
| | | | | | | | |
| Portfolio Segment | | Class of Financing Receivable |
| Commercial | | Owner occupied real estate |
| | Non–owner occupied real estate |
| | Residential spec homes |
| | Development & spec land |
| | Commercial & industrial |
| | |
| Real estate | | Residential mortgage |
| | Residential construction |
| | |
| Mortgage warehouse | | Mortgage warehouse |
| | |
| Consumer | | Direct installment |
| | Indirect installment |
| | Home equity |
Portfolio segment is defined as a level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Class of financing receivable is defined as a group of financing receivables determined on the basis of both of the following, 1) risk characteristics of the financing receivable, and 2) an entity’s method for monitoring and assessing credit risk. Generally, the Bank does not move loans from a revolving loan to a term loan other than construction loans. Construction loans are reviewed and rewritten prior to being originated as a term loan.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table presents total loans outstanding by portfolio class, as of December 31, 2023 and 2022.
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Commercial | | | |
| Owner occupied real estate | $ | 640,731 | | | $ | 594,562 | |
| Non–owner occupied real estate | 1,273,838 | | | 1,187,077 | |
| Residential spec homes | 13,489 | | | 10,838 | |
| Development & spec land | 34,039 | | | 27,358 | |
| Commercial & industrial | 712,863 | | | 647,587 | |
| Total commercial | 2,674,960 | | | 2,467,422 | |
| Real estate | | | |
| Residential mortgage | 654,295 | | | 612,551 | |
| Residential construction | 26,841 | | | 40,741 | |
| Mortgage warehouse | 45,078 | | | 69,529 | |
| Total real estate | 726,214 | | | 722,821 | |
| Consumer | | | |
| Direct installment | 52,366 | | | 56,614 | |
| Indirect installment | 399,946 | | | 500,549 | |
| Home equity | 564,144 | | | 410,592 | |
| Total consumer | 1,016,456 | | | 967,755 | |
| Total loans | 4,417,630 | | | 4,157,998 | |
| Allowance for credit losses | (50,029) | | | (50,464) | |
| Net loans | $ | 4,367,601 | | | $ | 4,107,534 | |
Total loans include net deferred loan costs of $21.9 million and $22.7 million at December 31, 2023 and 2022, respectively.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The risk characteristics of each loan portfolio segment are as follows:
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 Company’s 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-occupiedowner occupied commercial real estate loans versus
non-owner occupied loans.
HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.
Horizon’s 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 Horizon’s 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.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.
HORIZON BANCORP
Non–performing Loans
The following table presents non–accrual loans and loans past due over 90 days still on accrual by class of loans at December 31, 2023:
| | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Non–accrual | | Loans Past
Due Over 90
Days Still
Accruing | | | | Non–accruing Loans with no Allowance for Credit Losses |
| Commercial | | | | | | | |
| Owner occupied real estate | $ | 2,636 | | | $ | — | | | | | $ | 1,789 | |
| Non–owner occupied real estate | 3,485 | | | — | | | | | 1,242 | |
| Residential spec homes | — | | | — | | | | | — | |
| Development & spec land | 617 | | | — | | | | | 617 | |
| Commercial and industrial | 624 | | | — | | | | | 20 | |
| Total commercial | 7,362 | | | — | | | | | 3,668 | |
| Real estate | | | | | | | |
| Residential mortgage | 8,058 | | | — | | | | | — | |
| Residential construction | — | | | — | | | | | — | |
| Mortgage warehouse | — | | | — | | | | | — | |
| Total real estate | 8,058 | | | — | | | | | — | |
| Consumer | | | | | | | |
| Direct installment | 88 | | | — | | | | | — | |
| Indirect installment | 899 | | | 299 | | | | | — | |
| Home equity | 3,303 | | | 260 | | | | | — | |
| Total consumer | 4,290 | | | 559 | | | | | — | |
| Total | $ | 19,710 | | | $ | 559 | | | | | $ | 3,668 | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 | |
| | | | | | | | | | | | | | | | |
HORIZON BANCORPAND SUBSIDIARIES
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 aspast-due andnon-accrual status, borrower credit scores and recentloan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30) 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.
HORIZON BANCORPAND SUBSIDIARIES
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 | |
Loanscharged-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 loanscharged-off | | | 2,253 | | | | 2,660 | | | | 6,099 | |
| | | |
Recoveries of loans previouslycharged-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 loanscharged-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 | |
| | | | | | | | | | | | |
HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Certain loans are individually evaluated for impairment, and the Company’s 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 Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.
For all loan portfolio segments except1-4 family residential properties and consumer, the Company promptlycharges-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 borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partialcharge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.
The Companycharges-off1-4 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 of1-4 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 alsocharges-off unsecuredopen-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 innon–accrual 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 | |
| | | | | | | | | | | | | | | | | | | | |
HORIZON BANCORPAND SUBSIDIARIES
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”)loans 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 | |
| | | | | | | | | | | | | | | | | | | | |
HORIZON BANCORPloans at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Non–accrual | | Loans Past
Due Over 90
Days Still
Accruing | | Non–performing
TDRs | | Performing
TDRs | | Total | | Non–performing Loans with no Allowance for Credit Losses |
| Commercial | | | | | | | | | | | |
| Owner occupied real estate | $ | 3,423 | | | $ | — | | | $ | — | | | $ | 568 | | | 3,991 | | | $ | 3,805 | |
| Non–owner occupied real estate | 3,866 | | | — | | | — | | | 269 | | | 4,135 | | | 2,211 | |
| Residential spec homes | 101 | | | — | | | — | | | — | | | 101 | | | 101 | |
| Development & spec land | 815 | | | — | | | — | | | — | | | 815 | | | 65 | |
| Commercial and industrial | 288 | | | — | | | — | | | — | | | 288 | | | 288 | |
| Total commercial | 8,493 | | | — | | | — | | | 837 | | | 9,330 | | | 6,470 | |
| Real estate | | | | | | | | | | | |
| Residential mortgage | 5,479 | | | 43 | | | 1,210 | | | 1,391 | | | 8,123 | | | 8,123 | |
| Residential construction | — | | | — | | | — | | | — | | | — | | | — | |
| Mortgage warehouse | — | | | — | | | — | | | — | | | — | | | — | |
| Total real estate | 5,479 | | | 43 | | | 1,210 | | | 1,391 | | | 8,123 | | | 8,123 | |
| Consumer | | | | | | | | | | | |
| Direct installment | 138 | | | 26 | | | — | | | — | | | 164 | | | 164 | |
| Indirect installment | 745 | | | 23 | | | — | | | — | | | 768 | | | 768 | |
| Home equity | 2,775 | | | — | | | 338 | | | 342 | | | 3,455 | | | 3,455 | |
| Total consumer | 3,658 | | | 49 | | | 338 | | | 342 | | | 4,387 | | | 4,387 | |
| Total | $ | 17,630 | | | $ | 92 | | | $ | 1,548 | | | $ | 2,570 | | | $ | 21,840 | | | $ | 18,980 | |
There was no interest income recognized on non–accrual loans during the twelve months ended December 31, 2023, 2022 and 2021 while the loans were in non–accrual status.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Included in
The following table presents the $13.3 millionpayment status by class ofnon-accrual loans and the $1.0 million ofnon-performing TDRs loan at December 31, 2017 were $3.92023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Current | | 30–59 Days
Past Due | | 60–89 Days
Past Due | | 90 Days or
Greater
Past Due | | Total Past Due | | Total Loans |
| Commercial | | | | | | | | | | | |
| Owner occupied real estate | $ | 638,389 | | | $ | 2,342 | | | — | | | — | | | $ | 2,342 | | | $ | 640,731 | |
| Non–owner occupied real estate | 1,273,791 | | | — | | | — | | | 47 | | | 47 | | | 1,273,838 | |
| Residential spec homes | 13,489 | | | — | | | — | | | — | | | — | | | 13,489 | |
| Development & spec land | 33,036 | | | — | | | 1,003 | | | — | | | 1,003 | | | 34,039 | |
| Commercial and industrial | 710,567 | | | 1,659 | | | 54 | | | 583 | | | 2,296 | | | 712,863 | |
| Total commercial | 2,669,272 | | | 4,001 | | | 1,057 | | | 630 | | | 5,688 | | | 2,674,960 | |
| Real estate | | | | | | | | | | | |
| Residential mortgage | 646,984 | | | 2,823 | | | 2,353 | | | 2,135 | | | 7,311 | | | 654,295 | |
| Residential construction | 26,841 | | | — | | | — | | | — | | | — | | | 26,841 | |
| Mortgage warehouse | 45,078 | | | — | | | — | | | — | | | — | | | 45,078 | |
| Total real estate | 718,903 | | | 2,823 | | | 2,353 | | | 2,135 | | | 7,311 | | | 726,214 | |
| Consumer | | | | | | | | | | | |
| Direct installment | 52,001 | | | 304 | | | 10 | | | 51 | | | 365 | | | 52,366 | |
| Indirect installment | 393,615 | | | 4,958 | | | 736 | | | 637 | | | 6,331 | | | 399,946 | |
| Home equity | 558,062 | | | 3,748 | | | 1,217 | | | 1,117 | | | 6,082 | | | 564,144 | |
| Total consumer | 1,003,678 | | | 9,010 | | | 1,963 | | | 1,805 | | | 12,778 | | | 1,016,456 | |
| Total | $ | 4,391,853 | | | $ | 15,834 | | | $ | 5,373 | | | $ | 4,570 | | | $ | 25,777 | | | $ | 4,417,630 | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table presents the payment status by class of loans, excluding non–accrual loans of $17.6 million and
$467,000, respectively,non–performing TDRs $1.5 million 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 management’s policy to convert the loan from an “earning asset” to anon-accruing loan. at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Current | | 30–59 Days
Past Due | | 60–89 Days
Past Due | | 90 Days or
Greater
Past Due | | | | Total Past Due | | Total |
| Commercial | | | | | | | | | | | | | |
| Owner occupied real estate | $ | 590,870 | | | $ | 269 | | | $ | — | | | $ | — | | | | | $ | 269 | | | $ | 591,139 | |
| Non–owner occupied real estate | 1,183,195 | | | 16 | | | — | | | — | | | | | 16 | | | 1,183,211 | |
| Residential spec homes | 10,737 | | | — | | | — | | | — | | | | | — | | | 10,737 | |
| Development & spec land | 26,513 | | | — | | | 30 | | | — | | | | | 30 | | | 26,543 | |
| Commercial and industrial | 646,792 | | | 507 | | | — | | | — | | | | | 507 | | | 647,299 | |
| Total commercial | 2,458,107 | | | 792 | | | 30 | | | — | | | | | 822 | | | 2,458,929 | |
| Real estate | | | | | | | | | | | | | |
| Residential mortgage | 603,630 | | | 1,980 | | | 209 | | | 43 | | | | | 2,232 | | | 605,862 | |
| Residential construction | 40,741 | | | — | | | — | | | — | | | | | — | | | 40,741 | |
| Mortgage warehouse | 69,529 | | | — | | | — | | | — | | | | | — | | | 69,529 | |
| Total real estate | 713,900 | | | 1,980 | | | 209 | | | 43 | | | | | 2,232 | | | 716,132 | |
| Consumer | | | | | | | | | | | | | |
| Direct installment | 56,266 | | | 168 | | | 16 | | | 26 | | | | | 210 | | | 56,476 | |
| Indirect installment | 494,341 | | | 4,536 | | | 904 | | | 23 | | | | | 5,463 | | | 499,804 | |
| Home equity | 405,405 | | | 1,413 | | | 661 | | | — | | | | | 2,074 | | | 407,479 | |
| Total consumer | 956,012 | | | 6,117 | | | 1,581 | | | 49 | | | | | 7,747 | | | 963,759 | |
| Total | $ | 4,128,019 | | | $ | 8,889 | | | $ | 1,820 | | | $ | 92 | | | | | $ | 10,801 | | | $ | 4,138,820 | |
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 management’s policy
Modified Loans
The Company adopted ASU 2022–02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, during the first quarter of 2023. These amendments eliminated the troubled debt restructured (“TDR”) recognition measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. During the twelve months ended December 31, 2023, the Company did not modify any troubled loans.
Prior to the adoption of ASU 2022–02, loans modified as TDRs generally
placeconsisted of allowing borrowers to defer scheduled principal repayments and make interest only payments for a
specified period of time at the stated interest rate of the original loan
agreement or lower payments due to a modification of the loans' contractual terms. TDRs that continued to accrue interest were individually monitored on a
non-accrual monthly basis and evaluated for impairment annually and transferred to 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 onnon-accrual status. Subsequent payments onnon-accrual loans are recorded as a reduction ofit was probable that any remaining principal and interest
income is recorded only after principal recovery is reasonably assured.Non-accrual loans are returned to accrual status when, inpayments due on 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 principalloan would not be collected in accordance with
the loan terms. The Company requires a period of satisfactory performance of not less than six months before returning anon-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 useloan. TDRs 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 loanssubsequently defaulted were 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 1–4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysisat the time of borrower operating results and financial condition indicate that underlying cash flowsdefault.
Table of a borrower’s 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 tonon-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 Company’s 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.
HORIZON BANCORPContents
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table presents
commercial loans individually evaluated for impairmentTDRs 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 | |
| | | | | | | | | | | | | | | | | | | | |
HORIZON BANCORPloan at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| | | | | | | Non-accrual | | Accruing | | Total |
| Commercial | | | | | | | | | | | |
| Owner occupied real estate | | | | | | | $ | — | | | $ | 568 | | | $ | 568 | |
| Non–owner occupied real estate | | | | | | | — | | | 269 | | | 269 | |
| Residential spec homes | | | | | | | — | | | — | | | — | |
| Development & spec land | | | | | | | — | | | — | | | — | |
| Commercial and industrial | | | | | | | — | | | — | | | — | |
| Total commercial | | | | | | | — | | | 837 | | | 837 | |
| Real estate | | | | | | | | | | | |
| Residential mortgage | | | | | | | 1,210 | | | 1,391 | | | 2,601 | |
| Residential construction | | | | | | | — | | | — | | | — | |
| Mortgage warehouse | | | | | | | — | | | — | | | — | |
| Total real estate | | | | | | | 1,210 | | | 1,391 | | | 2,601 | |
| Consumer | | | | | | | | | | | |
| Direct installment | | | | | | | — | | | — | | | — | |
| Indirect installment | | | | | | | — | | | — | | | — | |
| Home equity | | | | | | | 338 | | | 342 | | | 680 | |
| Total consumer | | | | | | | 338 | | | 342 | | | 680 | |
| Total | | | | | | | $ | 1,548 | | | $ | 2,570 | | | $ | 4,118 | |
Collateral Dependent Financial Assets
A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with the loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan may become collateral dependent.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 presentstables below present 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 | % | | | | |
HORIZON BANCORPAND SUBSIDIARIES
Notesamortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated 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.
determine expected credit losses, at December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Real Estate | | Accounts Receivable/Equipment | | Other | | Total | | ACL Allocation |
| Commercial | | | | | | | | | |
| Owner occupied real estate | $ | 2,636 | | | $ | — | | | $ | — | | | $ | 2,636 | | | $ | 190 | |
| Non–owner occupied real estate | 3,485 | | | — | | | — | | | 3,485 | | | 699 | |
| | | | | | | | | |
| Development & spec land | 617 | | | — | | | — | | | 617 | | | — | |
| Commercial and industrial | 563 | | | 42 | | | 20 | | | 625 | | | 604 | |
| Total commercial | 7,301 | | | 42 | | | 20 | | | 7,363 | | | 1,493 | |
| Total collateral dependent loans | $ | 7,301 | | | $ | 42 | | | $ | 20 | | | $ | 7,363 | | | $ | 1,493 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Real Estate | | Accounts Receivable/Equipment | | Other | | Total | | ACL Allocation |
| Commercial | | | | | | | | | |
| Owner occupied real estate | $ | 3,905 | | | $ | 95 | | | $ | — | | | $ | 4,000 | | | $ | 215 | |
| Non–owner occupied real estate | 4,135 | | | — | | | — | | | 4,135 | | | 988 | |
| Residential spec homes | 101 | | | — | | | — | | | 101 | | | — | |
| Development & spec land | 815 | | | — | | | — | | | 815 | | | 36 | |
| Commercial and industrial | — | | | 248 | | | 31 | | | 279 | | | — | |
| Total commercial | 8,956 | | | 343 | | | 31 | | | 9,330 | | | 1,239 | |
| Total collateral dependent loans | $ | 8,956 | | | $ | 343 | | | $ | 31 | | | $ | 9,330 | | | $ | 1,239 | |
Credit Quality Indicators
Horizon Bank’s 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 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
loancredit quality grade.
• For new and renewed commercial loans, the Bank’s 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 marketsregions (ranging from $1,000,000$3,000,000 to $3,500,000)$6,000,000) are validated by the Loan Committee, which is chaired by the Chief CreditCommercial Banking Officer (CCO)(“CCBO”).
• Commercial loan officers are responsible for reviewing their loan portfolios and reportpromptly assessing any adverse material change toin credit quality and revising the CCO or Loan Committee.risk rating appropriately. 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 loancredit quality grade. Downgrades are accepted immediately, by the CCO, however, lenders must present their factual information to either the Loan Committee or the CCOCredit Department when recommending an upgrade. Downgrades to impaired status require the concurrence of the CCBO and the Senior Workout Loan Manager.
• The CCO,CCBO, or hisa designee, meets weeklyperiodically with loan officers to discuss the status ofpast-due 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.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
• Monthly, senior management meets withas members of 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,loan modifications, other real estate owned and personal property repossessions. The information reviewed in this meeting acts as a precursor for developing management’s analysis of the adequacy of the Allowance for LoanCredit Losses on Loans and Lease Losses.Leases.
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, non–accrual, or are classified as
a TDRmodified loans 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. non–accrual. Occasionally a mortgage loan may be graded as “Special Mention.” When this situation arises, it is because the characteristics of the loan and the borrower fit the definition of a Risk Grade 5 described below, which is normally used for grading commercial loans. Loans not graded Substandard are considered Pass.
HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Horizon Bank employs a
nine-gradenine–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;equivalents or loans to any publicly held company with a current
long-termlong–term debt rating of A or
better.better and meeting defined key financial metric ranges.
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
years consecutive years of profits; loans supported by unaudited financial statements containing strong balance sheets, five
years consecutive years of profits, a
five-yearfive 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
with required margins where there is no impediment to liquidation; loans to individuals backed by liquid personal assets and unblemished credit
history;histories; or loans to publicly held companies with current
long-termlong–term debt ratings of Baa or
better.better and meeting defined key financial metric ranges.
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.encountered and meeting defined key financial metric ranges. 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, didnot 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 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.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Risk Grade
44: Satisfactory/
Monitored:Monitored
Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than Satisfactory
loans.rated loans and meet defined key financial metric ranges. Borrower displays acceptable liquidity, leverage, and earnings performance within the Bank’s 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
4W4W: Management
Watch:Watch
Loans in this category are considered to be of acceptable quality
and meet defined key financial metric ranges, 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.
HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Commercial construction loans are graded as 4W Management Watch until the projects are completed and stabilized.
Risk Grade 5: Special Mention
Loans which possess some
temporary (normally less than one year) 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.strength and must meet defined key financial metric ranges.
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.
• The borrower meets defined key financial metric ranges.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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.
• The borrower meets defined key financial metric ranges.
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.
HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following
table presentstables present 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 | % | | | | |
HORIZON BANCORPgrades and origination year at December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Term
Loans | | Revolving
Loans | | Total |
| Commercial | | | | | | | | | | | | | | | | | | |
| Owner occupied real estate | | | | | | | | | | | | | | |
| Pass | | $ | 66,814 | | | $ | 101,620 | | | $ | 73,199 | | | $ | 44,067 | | | $ | 41,726 | | | $ | 173,913 | | | $ | 93,432 | | | $ | 8,226 | | | $ | 602,997 | |
| Special Mention | | 3,920 | | | 490 | | | 3,777 | | | — | | | 2,038 | | | 8,128 | | | — | | | 452 | | | 18,805 | |
| Substandard | | 1,376 | | | — | | | 6,490 | | | 966 | | | 228 | | | 9,339 | | | 530 | | | — | | | 18,929 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total owner occupied real estate | | $ | 72,110 | | | $ | 102,110 | | | $ | 83,466 | | | $ | 45,033 | | | $ | 43,992 | | | $ | 191,380 | | | $ | 93,962 | | | $ | 8,678 | | | $ | 640,731 | |
| Gross charge–offs during period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 401 | | | $ | — | | | $ | 404 | |
| Non–owner occupied real estate | | | | | | | | | | | | | | |
| Pass | | $ | 116,031 | | | $ | 197,702 | | | $ | 149,540 | | | $ | 104,591 | | | $ | 83,394 | | | $ | 303,191 | | | $ | 246,569 | | | $ | 9,878 | | | $ | 1,210,896 | |
| Special Mention | | 1,366 | | | 16,135 | | | 1,334 | | | 254 | | | 845 | | | 36,590 | | | — | | | — | | | 56,524 | |
| Substandard | | — | | | — | | | — | | | 185 | | | — | | | 6,233 | | | — | | | — | | | 6,418 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total non–owner occupied real estate | | $ | 117,397 | | | $ | 213,837 | | | $ | 150,874 | | | $ | 105,030 | | | $ | 84,239 | | | $ | 346,014 | | | $ | 246,569 | | | $ | 9,878 | | | $ | 1,273,838 | |
| Gross charge–offs during period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 9 | | | $ | — | | | $ | — | | | $ | 9 | |
| Residential spec homes | | | | | | | | | | | | | | |
| Pass | | $ | — | | | $ | — | | | $ | 498 | | | $ | — | | | $ | — | | | $ | — | | | 5,852 | | | $ | 7,139 | | | $ | 13,489 | |
| Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total residential spec homes | | $ | — | | | $ | — | | | $ | 498 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,852 | | | $ | 7,139 | | | $ | 13,489 | |
| Gross charge–offs during period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 29 | | | $ | — | | | $ | 29 | |
| Development & spec land | | | | | | | | | | | | | | |
| Pass | | $ | 5,133 | | | $ | 1,477 | | | $ | 990 | | | $ | 390 | | | $ | 247 | | | $ | 3,146 | | | 20,236 | | | $ | 170 | | | $ | 31,789 | |
| Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | 1,529 | | | — | | | 1,529 | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | 104 | | | 617 | | | — | | | 721 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total development & spec land | | $ | 5,133 | | | $ | 1,477 | | | $ | 990 | | | $ | 390 | | | $ | 247 | | | $ | 3,250 | | | $ | 22,382 | | | $ | 170 | | | $ | 34,039 | |
| Gross charge–offs during period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Commercial & industrial | | | | | | | | | | | | | | |
| Pass | | $ | 121,969 | | | $ | 151,847 | | | $ | 93,709 | | | $ | 12,154 | | | $ | 20,497 | | | $ | 59,041 | | | 60,539 | | | $ | 147,773 | | | $ | 667,529 | |
| Special Mention | | 1,434 | | | 726 | | | 265 | | | 2,137 | | | 119 | | | 1,305 | | | 9,375 | | | 18,836 | | | 34,197 | |
| Substandard | | 1,595 | | | 703 | | | 223 | | | 211 | | | 768 | | | 2,404 | | | 2,863 | | | 2,370 | | | 11,137 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial & industrial | | 124,998 | | | 153,276 | | | 94,197 | | | 14,502 | | | 21,384 | | | 62,750 | | | 72,777 | | | 168,979 | | | 712,863 | |
| Gross charge–offs during period | | $ | — | | | $ | 33 | | | $ | — | | | $ | 123 | | | $ | 25 | | | $ | 72 | | | $ | 344 | | | $ | — | | | $ | 597 | |
| | | | | | | | | | | | | | | | | | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Term
Loans | | Revolving
Loans | | Total |
| Real estate | | | | | | | | | | | | | | | | | | |
| Residential mortgage | | | | | | | | | | | | | | |
| Performing | | $ | 40,920 | | | $ | 154,803 | | | $ | 157,480 | | | $ | 85,159 | | | $ | 30,464 | | | $ | 177,411 | | | $ | — | | | $ | — | | | $ | 646,237 | |
| Non–performing | | 118 | | | 1,591 | | | 748 | | | 259 | | | 647 | | | 4,695 | | | — | | | — | | | 8,058 | |
| Total residential mortgage | | $ | 41,038 | | | $ | 156,394 | | | $ | 158,228 | | | $ | 85,418 | | | $ | 31,111 | | | $ | 182,106 | | | $ | — | | | $ | — | | | $ | 654,295 | |
| Gross charge–offs during period | | $ | — | | | $ | 28 | | | $ | — | | | $ | — | | | $ | — | | | $ | 20 | | | $ | — | | | $ | — | | | $ | 48 | |
| Residential construction | | | | | | | | | | | | | | |
| Performing | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 26,841 | | | $ | — | | | $ | 26,841 | |
| Non–performing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total residential construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 26,841 | | | $ | — | | | $ | 26,841 | |
| Gross charge–offs during period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Mortgage warehouse | | | | | | | | | | | | | | |
| Performing | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | — | | | $ | 45,078 | | | $ | 45,078 | |
| Non–performing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total mortgage warehouse | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 45,078 | | | $ | 45,078 | |
| Gross charge–offs during period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Term
Loans | | Revolving
Loans | | Total |
| Consumer | | | | | | | | | | | | | | | | | | |
| Direct installment | | | | | | | | | | | | | | |
| Performing | | $ | 14,835 | | | $ | 13,447 | | | $ | 7,859 | | | $ | 4,246 | | | $ | 4,449 | | | $ | 5,074 | | | $ | 6 | | | $ | 2,362 | | | $ | 52,278 | |
| Non–performing | | — | | | 44 | | | 10 | | | — | | | 27 | | | 7 | | | — | | | — | | | 88 | |
| Total direct installment | | $ | 14,835 | | | $ | 13,491 | | | $ | 7,869 | | | $ | 4,246 | | | $ | 4,476 | | | $ | 5,081 | | | $ | 6 | | | $ | 2,362 | | | $ | 52,366 | |
| Gross charge–offs during period | | $ | 33 | | | $ | 28 | | | $ | 31 | | | $ | 10 | | | $ | 32 | | | $ | 27 | | | $ | 6 | | | $ | — | | | $ | 167 | |
| Indirect installment | | | | | | | | | | | | | | |
| Performing | | $ | 65,260 | | | $ | 191,871 | | | $ | 80,773 | | | $ | 35,995 | | | $ | 16,690 | | | $ | 8,159 | | | $ | — | | | $ | — | | | $ | 398,748 | |
| Non–performing | | 49 | | | 424 | | | 312 | | | 229 | | | 124 | | | 60 | | | — | | | — | | | 1,198 | |
| Total indirect installment | | $ | 65,309 | | | $ | 192,295 | | | $ | 81,085 | | | $ | 36,224 | | | $ | 16,814 | | | $ | 8,219 | | | $ | — | | | $ | — | | | $ | 399,946 | |
| Gross charge–offs during period | | $ | 86 | | | $ | 1,388 | | | $ | 708 | | | $ | 137 | | | $ | 58 | | | $ | 74 | | | $ | — | | | $ | — | | | $ | 2,451 | |
| Home equity | | | | | | | | | | | | | | |
| Performing | | $ | 26,376 | | | $ | 21,379 | | | $ | 5,121 | | | $ | 2,447 | | | $ | 3,885 | | | $ | 9,987 | | | 12,713 | | | $ | 478,673 | | | $ | 560,581 | |
| Non–performing | | — | | | 212 | | | — | | | 54 | | | 177 | | | 260 | | | 2,860 | | | — | | | 3,563 | |
| Total home equity | | 26,376 | | | 21,591 | | | 5,121 | | | 2,501 | | | 4,062 | | | 10,247 | | | 15,573 | | | 478,673 | | | 564,144 | |
| Gross charge–offs during period | | $ | — | | | $ | 10 | | | $ | — | | | $ | 103 | | | $ | — | | | $ | 91 | | | $ | 13 | | | $ | — | | | $ | 217 | |
| | | | | | | | | | | | | | | | | | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following table presents loans by credit grades and origination year at December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Term
Loans | | Revolving
Loans | | Total |
| Commercial | | | | | | | | | | | | | | | | | | |
| Owner occupied real estate | | | | | | | | | | | | | | |
| Pass | | $ | 101,713 | | | $ | 78,352 | | | $ | 50,363 | | | $ | 49,584 | | | $ | 38,068 | | | $ | 166,813 | | | $ | 76,493 | | | $ | 5,163 | | | $ | 566,549 | |
| Special Mention | | — | | | 6,677 | | | — | | | 7 | | | — | | | 2,729 | | | 83 | | | — | | | 9,496 | |
| Substandard | | 1,016 | | | 253 | | | 983 | | | 834 | | | 3,116 | | | 9,439 | | | 2,876 | | | — | | | 18,517 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total owner occupied real estate | | $ | 102,729 | | | $ | 85,282 | | | $ | 51,346 | | | $ | 50,425 | | | $ | 41,184 | | | $ | 178,981 | | | $ | 79,452 | | | $ | 5,163 | | | $ | 594,562 | |
| | | | | | | | | | | | | | | | | | |
| Non–owner occupied real estate | | | | | | | | | | | | | | |
| Pass | | $ | 183,862 | | | $ | 173,971 | | | $ | 134,394 | | | $ | 91,359 | | | $ | 57,345 | | | $ | 303,174 | | | $ | 182,681 | | | $ | 11,851 | | | $ | 1,138,637 | |
| Special Mention | | — | | | 1,415 | | | 265 | | | 883 | | | 39,239 | | | 617 | | | — | | | — | | | 42,419 | |
| Substandard | | — | | | — | | | 246 | | | — | | | 3,532 | | | 2,243 | | | — | | | — | | | 6,021 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total non–owner occupied real estate | | $ | 183,862 | | | $ | 175,386 | | | $ | 134,905 | | | $ | 92,242 | | | $ | 100,116 | | | $ | 306,034 | | | $ | 182,681 | | | $ | 11,851 | | | $ | 1,187,077 | |
| | | | | | | | | | | | | | | | | | |
| Residential spec homes | | | | | | | | | | | | | | |
| Pass | | $ | — | | | $ | 779 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 4,333 | | | $ | 5,626 | | | $ | 10,738 | |
| Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | 100 | | | — | | | 100 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total residential spec homes | | $ | — | | | $ | 779 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 4,433 | | | $ | 5,626 | | | $ | 10,838 | |
| | | | | | | | | | | | | | | | | | |
| Development & spec land | | | | | | | | | | | | | | |
| Pass | | $ | 1,586 | | | $ | 1,230 | | | $ | 449 | | | $ | 270 | | | $ | 5 | | | $ | 9,717 | | | $ | 13,008 | | | $ | 22 | | | $ | 26,287 | |
| Special Mention | | — | | | — | | | — | | | — | | | — | | | 145 | | | — | | | — | | | 145 | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | 178 | | | 748 | | | — | | | 926 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total development & spec land | | $ | 1,586 | | | $ | 1,230 | | | $ | 449 | | | $ | 270 | | | $ | 5 | | | $ | 10,040 | | | $ | 13,756 | | | $ | 22 | | | $ | 27,358 | |
| | | | | | | | | | | | | | | | | | |
| Commercial & industrial | | | | | | | | | | | | | | |
| Pass | | $ | 174,482 | | | $ | 118,498 | | | $ | 20,939 | | | $ | 28,383 | | | $ | 28,061 | | | $ | 49,339 | | | $ | 49,276 | | | $ | 159,017 | | | $ | 627,995 | |
| Special Mention | | 718 | | | 368 | | | 31 | | | 53 | | | 706 | | | 1,551 | | | — | | | 1,208 | | | 4,635 | |
| Substandard | | — | | | 228 | | | 2,216 | | | 83 | | | 1,293 | | | 1,648 | | | 2,322 | | | 7,167 | | | 14,957 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial & industrial | | 175,200 | | | 119,094 | | | 23,186 | | | 28,519 | | | 30,060 | | | 52,538 | | | $ | 51,598 | | | 167,392 | | | 647,587 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving
Term Loans | | Revolving
Loans | | Total |
| Real estate | | | | | | | | | | | | | | | | | | |
| Residential mortgage | | | | | | | | | | | | | | |
| Performing | | $ | 107,224 | | | $ | 157,387 | | | $ | 91,314 | | | $ | 33,768 | | | $ | 36,147 | | | $ | 178,588 | | | $ | — | | | $ | — | | | $ | 604,428 | |
| Non–performing | | — | | | 493 | | | 285 | | | 623 | | | 631 | | | 6,091 | | | — | | | — | | | 8,123 | |
| Total residential mortgage | | $ | 107,224 | | | $ | 157,880 | | | $ | 91,599 | | | $ | 34,391 | | | $ | 36,778 | | | $ | 184,679 | | | $ | — | | | $ | — | | | $ | 612,551 | |
| | | | | | | | | | | | | | | | | | |
| Residential construction | | | | | | | | | | | | | | |
| Performing | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 40,741 | | | $ | — | | | $ | 40,741 | |
| Non–performing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total residential construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 40,741 | | | $ | — | | | $ | 40,741 | |
| | | | | | | | | | | | | | | | | | |
| Mortgage warehouse | | | | | | | | | | | | | | |
| Performing | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | — | | | $ | 69,529 | | | $ | 69,529 | |
| Non–performing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total mortgage warehouse | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 69,529 | | | 69,529 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Term
Loans | | Revolving
Loans | | Total |
| Consumer | | | | | | | | | | | | | | | | | | |
| Direct installment | | | | | | | | | | | | | | | | | | |
| Performing | | $ | 18,935 | | | $ | 12,233 | | | $ | 7,182 | | | $ | 7,582 | | | $ | 3,939 | | | $ | 4,419 | | | $ | 9 | | | $ | 2,151 | | | $ | 56,450 | |
| Non–performing | | — | | | 50 | | | 13 | | | 65 | | | 25 | | | 11 | | | — | | | — | | | 164 | |
| Total direct installment | | $ | 18,935 | | | $ | 12,283 | | | $ | 7,195 | | | $ | 7,647 | | | $ | 3,964 | | | $ | 4,430 | | | $ | 9 | | | $ | 2,151 | | | $ | 56,614 | |
| | | | | | | | | | | | | | | | | | |
| Indirect installment | | | | | | | | | | | | | | | | | | |
| Performing | | $ | 259,446 | | | $ | 118,961 | | | $ | 60,062 | | | $ | 34,576 | | | $ | 19,062 | | | $ | 7,674 | | | $ | — | | | $ | — | | | $ | 499,781 | |
| Non–performing | | 27 | | | 169 | | | 210 | | | 181 | | | 101 | | | 80 | | | — | | | — | | | 768 | |
| Total indirect installment | | $ | 259,473 | | | $ | 119,130 | | | $ | 60,272 | | | $ | 34,757 | | | $ | 19,163 | | | $ | 7,754 | | | $ | — | | | $ | — | | | $ | 500,549 | |
| | | | | | | | | | | | | | | | | | |
| Home equity | | | | | | | | | | | | | | | | | | |
| Performing | | $ | 26,232 | | | $ | 3,820 | | | $ | 3,355 | | | $ | 4,964 | | | $ | 5,392 | | | $ | 9,463 | | | 7,089 | | | $ | 346,822 | | | $ | 407,137 | |
| Non–performing | | 108 | | | 16 | | | 19 | | | 140 | | | 152 | | | 1,077 | | | 1,943 | | | — | | | 3,455 | |
| Total home equity | | 26,340 | | | 3,836 | | | 3,374 | | | 5,104 | | | 5,544 | | | 10,540 | | | 9,032 | | | 346,822 | | | 410,592 | |
| | | | | | | | | | | | | | | | | | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 95 – Allowance for Credit and Loan Losses
The following table represents, by loan portfolio segment, a summary of changes in the ACL on loans for the twelve months ended December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2023 |
| Commercial | | Real Estate | | Mortgage Warehouse | | Consumer | | Total |
| Balance, beginning of period | $ | 32,445 | | | $ | 5,577 | | | $ | 1,020 | | | $ | 11,422 | | | $ | 50,464 | |
| | | | | | | | | |
| Credit loss expense (recovery) | (1,765) | | | (3,107) | | | (539) | | | 7,501 | | | 2,090 | |
| PCD loans charge–offs | (364) | | | — | | | — | | | — | | | (364) | |
| Charge–offs | (1,039) | | | (48) | | | — | | | (2,835) | | | (3,922) | |
| Recoveries | 459 | | | 81 | | | — | | | 1,221 | | | 1,761 | |
| Balance, end of period | $ | 29,736 | | | $ | 2,503 | | | $ | 481 | | | $ | 17,309 | | | $ | 50,029 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2022 |
| Commercial | | Real Estate | | Mortgage Warehouse | | Consumer | | Total |
| Balance, beginning of period | $ | 40,775 | | | $ | 3,856 | | | $ | 1,059 | | | $ | 8,596 | | | $ | 54,286 | |
| | | | | | | | | |
| | | | | | | | | |
| Credit loss expense (recovery) | (7,650) | | | 1,668 | | | (39) | | | 3,802 | | | (2,219) | |
| PCD loan charge–offs | (760) | | | — | | | — | | | — | | | (760) | |
| Charge–offs | (266) | | | (97) | | | — | | | (2,231) | | | (2,594) | |
| Recoveries | 346 | | | 150 | | | — | | | 1,255 | | | 1,751 | |
| Balance, end of period | $ | 32,445 | | | $ | 5,577 | | | $ | 1,020 | | | $ | 11,422 | | | $ | 50,464 | |
The Company utilized the Cumulative Loss Rate method in determining expected future credit losses. The loss rate method measures the amount of loan charge–offs, net of recoveries, (“loan losses”) recognized over the life of a closed pool and compares those loan losses to the outstanding loan balance of that pool as of a specific point in time (“pool date”).
To estimate a CECL loss rate for the pool, management first identifies the loan losses recognized between the pool date and the reporting date for the pool and determines which loan losses were related to loans outstanding at the pool date. The loss rate method then divides the loan losses recognized on loans outstanding as of the pool date by the outstanding loan balance as of the pool date.
The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look–back period includes January 2009 through the current period, on a monthly basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data. The Company supplemented data for 2009 and 2010 with the use of adjusted Uniform Bank Performance Report peer group data.
Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit–related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible.
The Company’s CECL estimate applies to a forecast that incorporates macroeconomic trends and other environmental factors. Management utilized Moody's economic forecast scenarios including both National and Regional econometrics, as well as management judgment, as the basis for the forecast period. The historical loss rate was utilized as the base rate, and qualitative adjustments were utilized to reflect the forecast and other relevant factors.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The Company segments the loan portfolio into pools based on the following risk characteristics: financial asset type, loan purpose, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of the borrower and concentrations, and historical or expected credit loss patterns.
Note 6 – 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 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Land | $ | 31,310 | | | $ | 30,257 | |
| Buildings and improvements | 89,637 | | | 85,977 | |
| Furniture and equipment | 37,879 | | | 35,044 | |
| Total cost | 158,826 | | | 151,278 | |
| Accumulated depreciation | (64,243) | | | (58,601) | |
| Net premises and equipment | $ | 94,583 | | | $ | 92,677 | |
Note
107 – 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$1.479 billion and
$1.301$1.532 billion at December 31,
20172023 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. 2022.
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 Mortgage servicing rights are included in other assets on the balance sheets as of December 31, 2023 and 2015, the Bank recorded additional impairment2022.
| | | | | | | | | | | | | | | | | |
| December 31
2023 | | December 31
2022 | | December 31
2021 |
| Mortgage servicing rights | | | | | |
| Balances, January 1 | $ | 18,619 | | | $ | 17,780 | | | $ | 17,644 | |
| Servicing rights capitalized | 1,220 | | | 3,184 | | | 4,209 | |
| Amortization of servicing rights | (1,032) | | | (2,345) | | | (4,073) | |
| Balances, December 31 | 18,807 | | | 18,619 | | | 17,780 | |
| Impairment allowance | | | | | |
| Balances, January 1 | — | | | (2,594) | | | (5,172) | |
| Additions | — | | | — | | | — | |
| Reductions | — | | | 2,594 | | | 2,578 | |
| Balances, December 31 | — | | | — | | | (2,594) | |
| Mortgage servicing rights, net | $ | 18,807 | | | $ | 18,619 | | | $ | 15,186 | |
| | | | | |
| Fair value, beginning of period | $ | 19,992 | | | $ | 15,236 | | | $ | 12,356 | |
| Fair value, end of period | $ | 19,891 | | | $ | 19,992 | | | $ | 15,236 | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note
118 – Goodwill and Intangible Assets
On October 17, 2017,
| | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Balance, January 1 | $ | 155,211 | | | $ | 154,572 | |
| Goodwill acquired | — | | | — | |
| Measurement period adjustment | — | | | 639 | |
| Balances, December 31 | $ | 155,211 | | | $ | 155,211 | |
Goodwill is assessed for impairment annually, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the
Wolverine acquisition resulted inestimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill
of $26.8 million. On September 1, 2017, the Lafayette acquisition resulted intest is performed. Alternatively, a quantitative 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.HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
test can be performed without performing a qualitative assessment.
No impairment loss was recorded in
20172023 or
2016.2022. The Company tested goodwill for impairment during
20172023 and
2016. In both valuations,2022. During the third and fourth quarters of 2023, Horizon considered the amount by which fair value exceeded book value by performing a quantitative analysis. The Company engaged a third–party valuation specialist in performing its quantitative impairment analysis, which included a combination of valuation approaches to determine the fair value
exceededof the
Company’s carryingBank reporting unit. These valuation approaches required certain assumptions such as the discount rate, economic conditions impacting interest and growth rates, the control premium, and a relative weighting given to the fair value
therefore,derived by each of the valuation approaches used. At the conclusion of the assessment, the Company determined that as of December 31, 2023, it was
concludedmore likely than not that the fair value of goodwill
is not impaired. For additional details related to impairment testing, see the “Goodwill and Intangible Assets” section of “Management’s 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.
exceeded its carrying value.
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;acquisitions, the Company has recorded certain amortizable intangible assets related to core deposit intangibles. These core deposit intangibles are being amortized over seven
years 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Gross Carrying
Amount | | Accumulated
Amortization | | Gross Carrying
Amount | | Accumulated
Amortization |
| Amortizable intangible assets | | | | | | | |
| Core deposit intangible | $ | 35,190 | | | $ | (21,564) | | | $ | 42,220 | | | $ | (24,981) | |
Amortization expense for intangible assets totaled $1.5$3.6 million $1.2, $3.6 million, and $988,000$3.9 million for the years ended December 31, 2017, 20162023, 2022 and 2015.2021. 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 | |
| | | | | | | | |
HORIZON BANCORP
| | | | | | | | |
| Year | | Amount |
| 2024 | | $ | 3,403 | |
| 2025 | | 3,044 | |
| 2026 | | 2,566 | |
| 2027 | | 2,119 | |
| 2028 | | 1,754 | |
| Thereafter | | 740 | |
| | $ | 13,626 | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 9 – Deposits | | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Non–interest bearing demand deposits | $ | 1,116,005 | | | $ | 1,277,768 | |
| Interest bearing demand deposits | 1,688,986 | | | 1,931,863 | |
| Money market (variable rate) | 897,125 | | | 744,262 | |
| Savings deposits | 783,038 | | | 906,766 | |
| Certificates of deposit of $250,000 or more | 632,846 | | | 551,365 | |
| Other certificates and time deposits | 546,893 | | | 445,750 | |
| Total deposits | $ | 5,664,893 | | | $ | 5,857,774 | |
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 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Retail | | Brokered | | Total |
| 2024 | $ | 961,848 | | | $ | 151,636 | | | $ | 1,113,484 | |
| 2025 | 34,614 | | | 9,224 | | | 43,838 | |
| 2026 | 12,004 | | | — | | | 12,004 | |
| 2027 | 7,286 | | | — | | | 7,286 | |
| 2028 | 3,070 | | | — | | | 3,070 | |
| Thereafter | 57 | | | — | | | 57 | |
| $ | 1,018,879 | | | $ | 160,860 | | | $ | 1,179,739 | |
Note
1310 – 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 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Federal Home Loan Bank advances, variable and fixed rates ranging from 1.62% to 4.90%, due at various dates through November 21, 2033 | $ | 750,264 | | | $ | 575,376 | |
| Securities sold under agreements to repurchase | 136,030 | | | 137,871 | |
| Federal funds purchased | — | | | 134,746 | |
| Federal Reserve Bank - Discount Window | — | | | 244,000 | |
| Federal Reserve Bank - Bank Term Funding Program | 430,000 | | | — | |
| Secured borrowings | 36,756 | | | 50,956 | |
| Total borrowings | $ | 1,353,050 | | | $ | 1,142,949 | |
The Federal Home Loan Bank advances are secured by first and second mortgage loans,
commercial real estate loans and mortgage warehouse loans totaling approximately
$503.8 million.$1.7 billion. Advances are subject to restrictions or penalties in the event of prepayment.
At December 31, 2017,2023, the Bank had a total of $500.0 million in putable advances. The call dates for these advances range from January 19, 2024 to February 21, 2024 even though maturity dates extend beyond those dates. Prior to the issuance of the Company's 2023 financial statements, $400.0 million of these putable advances were called and funded by new putable advances.
At December 31, 2023, the Bank had available approximately
$127.2 million$1.4 billion in credit lines with various money center banks, including the FHLB.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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 | |
| | | | |
| | | | | | | | |
| Year | | Amount |
| 2024 | | $ | 652,902 | |
| 2025 | | 200,073 | |
| 2026 | | 75 | |
| 2027 | | — | |
| 2028 | | — | |
| Thereafter | | 500,000 | |
| | $ | 1,353,050 | |
Note
1411 – 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 Bank’s control. Securities sold under agreements to repurchase are secured by federal agency collateralized mortgage obligations and mortgage-backed pools.
HORIZON BANCORPAND SUBSIDIARIES
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 andrepurchase-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-backedmortgage–backed pools and private labeled mortgage–backed pools and such collateral is held in safekeeping by third parties. The maximum amount of outstanding agreements at any month end during
20172023 and
20162022 totaled
$63.1$143.5 million and
$157.7$148.7 million and the daily average of such agreements totaled
$55.2$137.2 million and
$134.2$141.0 million. The agreements at December 31,
2017,2023 and 2022 are overnight agreements.
The following table shows repurchase agreements accounted for as secured borrowings and the related securities, at fair value, pledged for repurchase agreements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Remaining Contractual Maturity of the Agreements |
| Overnight
and
Continuous | | Up to 30 Days | | 30–90 Days | | Greater Than 90 Days | | Total |
| Repurchase Agreements and repurchase–to–maturity transactions | | | | | | | | | |
| Federal agency collateralized mortgage obligations | $ | 2,245 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,245 | |
| Federal agency mortgage–backed pools | 126,349 | | | — | | | — | | | — | | | 126,349 | |
| Private labeled mortgage–backed pools | 7,436 | | | — | | | — | | | — | | | 7,436 | |
| Total borrowings | $ | 136,030 | | | $ | — | | | $ | — | | | $ | — | | | $ | 136,030 | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Remaining Contractual Maturity of the Agreements |
| Overnight
and
Continuous | | Up to 30 Days | | 30–90 Days | | Greater Than 90 Days | | Total |
| Repurchase Agreements and repurchase–to–maturity transactions | | | | | | | | | |
| Federal agency collateralized mortgage obligations | $ | 12,632 | | | $ | — | | | $ | — | | | $ | — | | | $ | 12,632 | |
| Federal agency mortgage–backed pools | 116,040 | | | — | | | — | | | — | | | 116,040 | |
| Private labeled mortgage–backed pools | 9,199 | | | — | | | — | | | — | | | 9,199 | |
| Total borrowings | $ | 137,871 | | | $ | — | | | $ | — | | | $ | — | | | $ | 137,871 | |
The prior year Repurchase Agreement note was revised to conform with current year financial statements. As a result, the securities pledged as collateral are presented by repurchase agreement rather than in total.
Securities sold under agreements to repurchase are secured by securities with a carrying amount of $145.2 million and $160.5 million at December 31, 2023 and December 31, 2022, respectively.
Note 1512 – Subordinated Notes
On June 24, 2020, Horizon issued $60.0 million in aggregate principal amount, $58.5 million proceeds, net of related issuance costs of $1.5 million, of 5.625% fixed–to–floating rate subordinated notes (the “Notes”). The Notes were offered in denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Notes mature on July 1, 2030 (the “Maturity Date”). From and including the date of original issuance to, but excluding, July 1, 2025 or the date of earlier redemption (the “fixed rate period”), the Notes bear interest at an initial rate of 5.625% per annum, payable semi–annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2021. The last interest payment date for the fixed rate period will be July 1, 2025. From and including July 1, 2025 to, but excluding, the Maturity Date or the date of earlier redemption (the “floating rate period”), the Notes bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three–Month Term SOFR), plus 549 basis points, payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year, commencing on October 1, 2025. Notwithstanding the foregoing, in the event that the Benchmark rate is less than zero, the Benchmark rate shall be deemed to be zero.
Horizon may, at its option, beginning with the interest payment date of July 1, 2025 and on any interest payment date thereafter, redeem the Notes, in whole or in part. The Notes will not otherwise be redeemable by Horizon prior to maturity, unless certain events occur. The redemption price for any redemption is 100% of the principal amount of the Notes, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any early redemption of the Notes will be subject to the receipt of the approval of the Board of Governors of the Federal Reserve System to the extent then required under applicable laws or regulations, including capital regulations.
The Notes are unsecured subordinated obligations, and rank pari passu, or equally, with all of Horizon's future unsecured subordinated debt and are junior to all existing and future senior debt. The Notes are structurally subordinated to all existing and future liabilities of Horizon's subsidiaries, including the deposit liabilities and claims of other creditors of Horizon Bank, and are effectively subordinated to Horizon's existing and future secured indebtedness. There is no sinking fund for the Notes. The Notes are obligations of Horizon only and are not obligations of, and are not guaranteed by, any of Horizon's subsidiaries.
On December 8, 2023, Horizon cancelled $3.5 million of the $60.0 million in Notes at a price of 89.5 recording a gain of $368,000. The balance net of unamortized issuance costs of the Notes was $55.5 million and $58.9 millionat December 31, 2023 and December 31, 2022, respectively.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note 13 – Junior Subordinated Debentures
Issued to Capital Trusts
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 3 Month CME Term SOFR plus
1.95% (3.64%2.21% (7.59% at December 31,
2017)2023) and mature on
October 21,November 23, 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 3 Month CME Term SOFR plus
1.65% (3.34%1.91% (7.30% at December 31,
2017)2023) 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 3 Month CME Term SOFR plus
2.65% (4.34%2.91% (8.29% at December 31,
2017)2023) and mature in June 2034, and securities may be called at any quarterly interest payment date at par.
HORIZON BANCORPAND SUBSIDIARIES
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 3 Month CME Term SOFR plus
2.85% (4.54%3.11% (8.49% at December 31,
2017)2023) and mature in
March 2034,December 2033, 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 3 Month CME Term SOFR plus
1.67% (3.36%1.93% (7.32% at December 31,
2017)2023) and mature in December 2036, and securities may be called at any quarterly interest payment date at par. The carrying value was
$1.8$2.2 million, net of the remaining purchase discount, at December 31,
2017.2023.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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 3 Month CME Term SOFR plus
3.10% (4.79%3.36% (8.72% at December 31,
2017)2023) and mature in June 2033, and securities may be called at any quarterly interest payment date at par. The carrying value was
$4.4$4.6 million, net of the remaining purchase discount, at December 31,
2017. 2023.
The Company assumed additional debentures as the result of the Salin merger in March 2019. In October 2003, Salin Bancshares, Inc. (“Salin”) formed Salin Statutory Trust I (“Salin Trust”), to sell $20.0 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 Salin. The junior subordinated debentures are the sole assets of Salin Trust and are fully and unconditionally guaranteed by Horizon. The junior subordinated debentures and the securities bear interest at a rate of 3 Month CME Term SOFR plus 3.21% (8.54% at December 31, 2023) and mature in October 2033, and securities may be called at any quarterly interest payment date at par. The carrying value was $18.2 million, net of the remaining purchase discount, at December 31, 2023.
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
1614 –
Employee Stock OwnershipSupplemental Executive Retirement Plan
Effective
The Company sponsors a supplemental retirement plan for a select group of management or highly compensated employees of the Company under the 2005 Supplemental Executive Retirement Plan (the “SERP”). This plan was effective January 1, 2007, Horizon converted2005, to replace the SERP originally effective January 1, 1993, which has been frozen. The SERP provides participating officers with supplemental retirement income in addition to the benefits provided under the Company's Employee Thrift Plan.
The SERP is a non-qualified defined contribution type plan under which benefits are derived based on a notional account balance to be funded by the Company for each participating officer. The account balance will be credited each year with a Company matching contribution of $20,000 or $35,000 based on the officer's plan. Plan participants may select from two investment options which include cash or stock units of the Company's stock. Assets of the SERP (i.e. the participants' account balances) will not be physically invested in the investments selected by the participants; rather, they are utilized for the purpose of debiting or crediting additional amounts to each participants' account. The Company informally funds its obligation to plan participants in a rabbi trust, comprised of a money market fund and Company stock bonus planreported at estimated fair value based on quoted market prices. The assets held in the rabbi trust were reported at their estimated fair value of $10.6 million and $10.1 million at December 31, 2023 and December 31, 2022, respectively, and are included in cash and stockholders' equity in the Company's consolidated balance sheets. The related accrued benefit cost (representing the Company's benefit obligation to participants) of $10.6 million and $10.1 million at December 31, 2023 and December 31, 2022, respectively, is recorded in other liabilities in the Company's consolidated balance sheets.
The SERP is accounted for pursuant to FASB ASC section 715-70, “Compensation - Retirement Benefits - Defined Contribution Plans” (“ASC 715-70”). SERP participants are credited with a contribution 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,account and Horizon made matchingwill receive, upon separation, a benefit based upon the vested amount accrued in their account, which includes both the officer's and Company's contributions plus or minus the increase or decrease in the fair market value of amounts contributedthe SERP assets selected by the employeesparticipant. ASC 715-70 requires companies to record, on a periodic basis, that portion of a company's contribution earned during the Employee Thrift Plan and discretionary contributions. Prior toperiod by the establishment ofparticipants (the “Expense”). The Company is accruing the employee stock bonus plan, Horizon maintained an ESOPExpense under the assumption that was terminated in 1999. The prior ESOP accounts of active employees and the discretionary accounts of active employees remainall participants in the new ESOP.SERP will achieve full vesting (five years of service). The Matchingrelated Company matching contribution accounts under the stock bonus plan were transferred to the Employees Thrift Plan.The ESOP existswas $344,000, $404,000 and $375,000 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 eachyears ended December 31, on the basis2023, December 31, 2022 and December 31, 2021, respectively.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 Horizon’s stock or 3.8% of the outstanding shares.
Note
1715 – Employee
Thrift and Defined Benefit
PlanPlans
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 Bank’s expense related to the Plan totaled approximately
$942,000$1.9 million in
2017, $785,0002023, $1.9 million in
20162022 and
$848,000$1.5 million in
2015.2021.
The Plan
ownsowned a total of
497,948723,596 shares of Horizon’s stock or
1.9%1.6% of the outstanding
shares.The Company acquired a pension fund knownshares 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 trusteesDecember 31, 2023.
Note 16 – Income Tax
| | | | | | | | | | | | | | | | | |
| December 31
2023 | | December 31
2022 | | December 31
2021 |
| Income tax expense | | | | | |
| Currently payable | | | | | |
| Federal | $ | 14,980 | | | $ | 9,111 | | | $ | 11,742 | |
| State | (640) | | | 888 | | | 1,303 | |
| Deferred | | | | | |
| Federal | (8,594) | | | 2,208 | | | 2,056 | |
| State | 71 | | | (31) | | | 255 | |
| Revaluation of deferred tax assets | 5,201 | | | — | | | — | |
| Total income tax expense | $ | 11,018 | | | $ | 12,176 | | | $ | 15,356 | |
| Reconciliation of federal statutory to actual tax expense | | | | | |
| Federal statutory income tax at 21% | $ | 8,190 | | | $ | 22,173 | | | $ | 21,514 | |
| Tax exempt interest | (6,777) | | | (6,623) | | | (5,362) | |
| Tax exempt BOLI income | (779) | | | (746) | | | (604) | |
| Stock compensation | (88) | | | (232) | | | (250) | |
| Revaluation of deferred tax assets | 5,201 | | | — | | | — | |
| Other tax exempt income | (371) | | | (454) | | | (404) | |
| State tax | 142 | | | 676 | | | 1,231 | |
| Tax credit investments | (2,976) | | | (2,774) | | | (981) | |
| BOLI redemption ordinary income | 5,316 | | | — | | | — | |
| BOLI redemption excise | 2,532 | | | — | | | — | |
| Nondeductible and other | 628 | | | 156 | | | 212 | |
| Actual tax expense | $ | 11,018 | | | $ | 12,176 | | | $ | 15,356 | |
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.HORIZON BANCORP, INC. AND SUBSIDIARIES
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.
HORIZON BANCORPAND SUBSIDIARIES
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,
| | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Assets | | | |
| Allowance for credit losses | $ | 12,546 | | | $ | 12,762 | |
| Net operating loss and tax credits | 9,592 | | | 9,313 | |
| Director and employee benefits | 2,471 | | | 2,019 | |
| Unrealized loss on AFS securities and cash flow hedge | 17,706 | | | 28,230 | |
| | | |
| | | |
| | | |
| Basis in partnership equity investments | 1,322 | | | — | |
| Capital loss carryover | 5,201 | | | — | |
| Other | 2,856 | | | 555 | |
| Total assets | 51,694 | | | 52,879 | |
| Liabilities | | | |
| Depreciation | (4,512) | | | (4,599) | |
| State tax | (253) | | | (262) | |
| Federal Home Loan Bank stock dividends | (365) | | | (368) | |
| Difference in basis of intangible assets | (4,545) | | | (4,440) | |
| Fair value adjustment on acquisitions | (2,142) | | | (2,807) | |
| | | |
| Other | (1,131) | | | (68) | |
| Total liabilities | (12,948) | | | (12,544) | |
| Valuation allowance | (5,201) | | | — | |
| Net deferred tax asset/(liability) | $ | 33,545 | | | $ | 40,335 | |
During 2023, 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 usegenerated a
portion of the state net operating loss
carryover.HORIZON BANCORPAND SUBSIDIARIES
Notesof $6.2 million that may be carried forward for 15 years. The Company has federal general business tax credits of $9.6 million that can be carried forward twenty years and expire beginning in 2042.
During 2023, the Company generated a capital loss of $32.1 million as a result of the sale of investment securities owned by Horizon Investments, Inc. As a result of previously generated capital gains within the last three tax years, $7.3 million of the capital loss can be offset by those capital gains. The remaining $24.8 million is allowed to
Consolidated Financial Statements(Table dollars in thousands exceptbe carried forward for per share data)
a period of five years to offset future capital gains that are recognized. The tax effect of this capital loss carryforward is $5.2 million. Management has concluded that a valuation allowance against this deferred tax attribute was required and will be reevaluated until it is more likely than not that the capital loss carryforward can be realized.
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,
2017.2023.
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 ornon-U.S. income tax examinations by tax authorities for years before 2014.2020.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note
1917 – Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss,
net of tax 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 | ) |
| | | | | | | | |
| | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Unrealized gain (loss) on securities available for sale, net of tax | $ | (69,018) | | | $ | (110,714) | |
| Unamortized gain on securities held to maturity, previously transferred from AFS, net of tax | 2,409 | | | 2,955 | |
| Unrealized gain on derivative instruments, net of tax | — | | | 1,561 | |
| | | |
| Total accumulated other comprehensive income (loss) | $ | (66,609) | | | $ | (106,198) | |
Note
2018 – Commitments,
Off-Balance 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,
2017.2023. 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 Bank’s 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,
20172023 and
2016,2022, commitments to make loans amounted to approximately
$802.9 million$1.6 billion and
$808.3 million$1.5 billion and commitments under outstanding standby letters of credit amounted to approximately
$3.4$16.5 million and
$1.0$17.8 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.
NoThe Company estimates expected credit losses
are anticipatedover the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The Company determines the estimated amount of expected credit extensions based on historical usage to calculate the amount of exposure for a loss estimate. As of December 31, 2023 and 2022, the Company held a non–material reserve, respectively, as a
result ofloss estimate for these
transactions. Collateral obtained upon exercise of the commitment is determined using management’s credit evaluation.HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
exposures.
Note
2119 – 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 Company’s 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 Bank’s assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s 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,
20172023 and
2016,2022, 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).assets. Additionally, under Basel III rules, the decision was made to
opt-out of including accumulated other comprehensive income in regulatory capital.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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, 20172023 and December 31, 2016,2022, 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, 20172023 that management believes have changed the Bank’s classification as well capitalized. There is no threshold for well-capitalized status for bank holding companies.
Horizon and the Bank’s actual and required capital ratios as of December 31,
20172023 and
20162022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Required For Capital1 | | | | |
| | | | | | Required For Capital1 | | | Adequacy Purposes | | | Well Capitalized Under Prompt1 | |
| | | Actual | | | Adequacy Purposes | | | with Capital Buffer | | | Corrective Action Provisions | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
As of December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total capital1 (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 capital1 (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 capital1 (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 capital1 (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 capital1 (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 capital1 (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 capital1 (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 capital1 (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 |
HORIZON BANCORPAND SUBSIDIARIES
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Required for Capital Adequacy Purposes(1) | | Required For Capital Adequacy Purposes with Capital Buffer(1) | | Well Capitalized Under Prompt Corrective Action Provisions(1) |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| December 31, 2023 | | | | | | | | | | | | | | | |
Total capital (to risk–weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | $ | 786,436 | | | 14.11 | % | | $ | 446,000 | | | 8.00 | % | | $ | 585,374 | | | 10.50 | % | | N/A | | N/A |
| Bank | 714,402 | | | 12.87 | % | | 444,147 | | | 8.00 | % | | 582,943 | | | 10.50 | % | | $ | 555,184 | | | 10.00 | % |
Tier 1 capital (to risk–weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 735,792 | | | 13.20 | % | | 334,500 | | | 6.00 | % | | 473,874 | | | 8.50 | % | | N/A | | N/A |
| Bank | 663,758 | | | 11.96 | % | | 333,111 | | | 6.00 | % | | 471,907 | | | 8.50 | % | | 444,147 | | | 8.00 | % |
Common equity tier 1 capital (to risk–weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 619,153 | | | 11.11 | % | | 250,875 | | | 4.50 | % | | 390,250 | | | 7.00 | % | | N/A | | N/A |
| Bank | 663,758 | | | 11.96 | % | | 249,833 | | | 4.50 | % | | 388,629 | | | 7.00 | % | | 360,870 | | | 6.50 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 735,792 | | | 9.36 | % | | 314,306 | | | 4.00 | % | | 314,306 | | | 4.00 | % | | N/A | | N/A |
| Bank | 663,758 | | | 8.41 | % | | 315,550 | | | 4.00 | % | | 315,550 | | | 4.00 | % | | 394,438 | | | 5.00 | % |
| December 31, 2022 | | | | | | | | | | | | | | | |
Total capital (to risk–weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | $ | 776,390 | | | 14.37 | % | | $ | 432,172 | | | 8.00 | % | | $ | 567,226 | | | 10.500 | % | | N/A | | N/A |
| Bank | 726,339 | | | 13.59 | % | | 427,456 | | | 8.00 | % | | 561,036 | | | 10.500 | % | | $ | 534,320 | | | 10.00 | % |
Tier 1 capital (to risk–weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 729,835 | | | 13.51 | % | | 324,129 | | | 6.00 | % | | 459,183 | | | 8.500 | % | | N/A | | N/A |
| Bank | 679,784 | | | 12.72 | % | | 320,592 | | | 6.00 | % | | 454,172 | | | 8.500 | % | | 427,456 | | | 8.00 | % |
Common equity tier 1 capital (to risk–weighted assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 609,630 | | | 11.28 | % | | 243,097 | | | 4.50 | % | | 378,151 | | | 7.500 | % | | N/A | | N/A |
| Bank | 679,784 | | | 12.72 | % | | 240,444 | | | 4.50 | % | | 374,024 | | | 7.500 | % | | 347,308 | | | 6.50 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | | | | |
| Consolidated | 729,835 | | | 10.03 | % | | 291,122 | | | 4.00 | % | | 291,122 | | | 4.000 | % | | N/A | | N/A |
| Bank | 679,784 | | | 8.89 | % | | 305,996 | | | 4.00 | % | | 305,999 | | | 4.000 | % | | 382,495 | | | 5.00 | % |
(1)As defined by regulatory agencies |
The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
Note
2220 –
Share-BasedShare–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 ofnon-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 grant’s 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 Company’s shareholders on May 8, 2014. Under the 2013 Plan, Horizon may issue up to
1,037,5501,556,325 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
150,000225,000 for incentive stock options and to
600,000900,000 for the grant of
non-option 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
HORIZON BANCORPAND SUBSIDIARIES
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. The 2013 Plan was amended on May 3, 2018, upon shareholder approval, primarily to allow grants of other types of stock–based awards, such as awards valued in whole or in part by reference to the value of shares of Horizon common stock. All share data has been adjusted for the 3:2 stock split on June 15, 2018 and 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 grant’s vesting period.three, four or five years of continuous employment. Holders of restricted shares receive dividends and may vote the shares. The restricted shares are recorded at fair market value (on the date granted) as a separate component of stockholders’ equity. The cost of these shares is being amortized against earnings using the
straight-linestraight–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
under the presently–awarded grant agreements are based on a comparison of the Company’s 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-throughpass–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 | |
option–pricing model. There have been no options granted since 2019.
A summary of option activity under the 2013 Plan as of December 31,
2017,2023, 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
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted–
Average
Exercise Price | | Weighted–
Average
Remaining
Contractual
Term | | Aggregate
Intrinsic
Value |
| Outstanding, beginning of year | 168,013 | | | $ | 14.64 | | | | | |
| Granted | — | | | — | | | | | |
| Exercised | (31,178) | | | 9.76 | | | | | |
| Forfeited | (16,155) | | | 17.25 | | | | | |
| Outstanding, end of year | 120,680 | | | 15.54 | | | 3.36 | | $ | 136,560 | |
| Exercisable, end of year | 120,680 | | | 15.54 | | | 3.36 | | 136,560 | |
There have been no options granted during the years
2017, 20162023, 2022 and
2015 was $7.25, $3.89 and $4.09.HORIZON BANCORP2021.
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
A summary
On January 19, 2021, the Board of Directors adopted the Horizon Bancorp 2021 Omnibus Equity Incentive Plan (“2021 Plan”), which was approved by the Company’s shareholders on May 6, 2021. Under the 2021 Plan, Horizon may issue up to 1,787,548 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 Committee is authorized to grant any type of award to a participant that is consistent with the provisions of the
status2021 Plan. Awards may consist of
Horizon’snon-vestedincentive stock options, nonqualified stock options, stock appreciation rights, restricted
andstock, performance units, performance shares
asor any combination 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 | |
| | | | | | | | |
Grantsthese awards. The Committee determines the provisions, terms and conditions of each award.
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 2021 Plan generally vest at the end of three, four or five years of continuous employment.
Total compensation 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 under the presently–awarded grant agreements are based on a comparison of the Company’s 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 $5 billion and $10 billion on the SNL Bank Index. Holders of performance awards receive pass–through dividends but do not have any voting rights before the performance shares are earned and vested.
The option shares granted under the 2021 Plan vest at a rate designated per the individual agreements.
A summary of the status of Horizon’s non–vested restricted and performance shares as of December 31, 2023 are presented below:
| | | | | | | | | | | |
| Shares | | Weighted
Average
Grant Date
Fair Value |
| Non–vested, beginning of year | 520,459 | | | $ | 16.58 | |
| Vested | (163,557) | | | 10.28 | |
| Granted | 327,479 | | | 11.11 | |
| Forfeited | (53,660) | | | 16.63 | |
| Non–vested, end of year | 630,721 | | | 15.36 | |
Compensation expense recognized in the income statement for
option-basedoption–based payment arrangements during
20172023, 2022 and 2021 was
$325,000$0, $13,000 and
the related$68,000. The recognized tax benefit
recognizedrelated thereto was approximately
$114,000. Total compensation cost recognized in$0, $3,000 and $14,000 for the
income statement for option-based payment arrangementsyears ended December 31, 2023, 2022 and 2021. No stock options were granted 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 cost2023 or 2022.
Compensation expense recognized in the income statement for restricted share and performance share based payment arrangements during
2017, 20162023, 2022 and
20152021 was
$135,000, $284,000,$3.6 million, $2.5 million, and
$355,000.$1.8 million. The recognized tax benefit related thereto was approximately
$47,000, $99,000,$753,000, $517,000, and
$124,000$368,000 for the years ended December 31,
2017, 20162023, 2022 and
2015.2021.
Cash received from option exercise under all
share-basedshare–based payment arrangements for the years ended December 31,
2017, 20162023, 2022 and
20152021 was
$1.6 million, $214,000,$0, $145,000, and
$403,000.$1.1 million. The actual tax benefit realized for the tax deductions from option exercise of the
share-basedshare–based payment arrangements totaled
$522,000, $158,000,$58,000, $126,000, and
$151,000,$334,000, for the years ended December 31,
2017, 20162023, 2022 and
2015.2021.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
As of December 31,
2017,2023, there was
$911,000$4.5 million of total unrecognized compensation cost related to all
non-vested share-based non–vested share–based compensation arrangements granted under all of the plans. That cost is expected to be recognized over a
weighted-averageweighted–average period of
1.5 years.11 months. Under all plans, forfeitures of
share-basedshare–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 Horizon’s 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
2321 – Derivative Financial Instruments
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
an interest rate swap
agreementsagreement for a portion of its floating rate
debt.debt on July 20, 2018. 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.HORIZON BANCORPAND SUBSIDIARIES
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 provideagreement provided for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterpartycounter party at a weighted average fixed rate of 2.31%2.81% on a notional amount of $30.0$50.0 million at December 31, 2017 and 2016.2022. Under the agreements,agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.
Management has designated the The Company terminated this interest rate swap agreementsagreement on May 23, 2023 and recorded a related gain of $1.5 million as cash flow hedging instruments. a reduction of interest expense.
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 Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.
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 asThe Company has also entered into interest rate swap agreements on individual security agreements, converting the fixed rate security to 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.variable rate. At December 31,
2017,2023, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.
The change in fair value of both the hedge instruments and the underlying loan
and security agreements are recorded as gains or losses in
non–interest income. The fair value hedges are considered to be highly effective
andany 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 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,
2017,2023, the Company’s fair values of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s 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 Company’s gain on sale of loans.
HORIZON BANCORP
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| December 31, 2023 | | December 31, 2023 |
| Notional
Amount | | Fair
Value | | Notional
Amount | | Fair
Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Derivatives not designated as hedging instruments | | | | | | | |
| Interest rate contracts – fair value hedges | 558,164 | | | 26,556 | | | 514,881 | | | 24,024 | |
| Mortgage loan contracts | 4,844 | | | 33 | | | — | | | — | |
| Commitments to originate mortgage loans | 4,351 | | | 125 | | | — | | | — | |
| Total derivatives not designated as hedging instruments | 567,359 | | | 26,714 | | | 514,881 | | | 24,024 | |
| Total derivatives | $ | 567,359 | | | $ | 26,714 | | | $ | 514,881 | | | $ | 24,024 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| December 31, 2022 | | December 31, 2022 |
| Notional
Amount | | Fair
Value | | Notional
Amount | | Fair
Value |
| Derivatives designated as hedging instruments | | | | | | | |
| Interest rate contracts – cash flow hedges | $ | 50,000 | | | $ | 1,976 | | | $ | — | | | $ | — | |
| Total derivatives designated as hedging instruments | 50,000 | | | 1,976 | | | — | | | — | |
| Derivatives not designated as hedging instruments | | | | | | | |
| Interest rate contracts – fair value hedge | 514,551 | | | 42,619 | | | 514,551 | | | 42,619 | |
| Mortgage loan contracts | — | | | — | | | 13,800 | | | 50 | |
| Commitments to originate mortgage loans | 12,179 | | | 284 | | | — | | | — | |
| Total derivatives not designated as hedging instruments | 526,730 | | | 42,903 | | | 528,351 | | | 42,669 | |
| Total derivatives | $ | 576,730 | | | $ | 44,879 | | | $ | 528,351 | | | $ | 42,669 | |
The effect of the derivative instruments on the consolidated statement of comprehensive income (loss) for the 12–month periods ended December 31 is as follows:
| | | | | | | | | | | | | | | | | |
| Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Derivatives in cash flow hedging relationship | | | | | |
| Interest rate contracts | $ | (1,561) | | | $ | 4,463 | | | $ | 3,610 | |
The effect of derivatives designated as a hedging instrument on the consolidated statements of income for the
12-month 12–month periods ended
December 31 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”) Topic820-10-20 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. Topic820-10-55 establishes a fair value hierarchy that emphasizes the use
| | | | | | | | | | | | | | | | | | | | | | | |
| Location of gain (loss) recognized on derivative | | Amount of Gain (Loss) Recognized on Derivative Years Ended December 31 |
| | 2023 | | 2022 | | 2021 |
| Derivative designated as hedging instruments | | | | | | | |
| Interest rate contracts – cash flow hedges | Interest expense –
Borrowings | | $ | 1,832 | | | $ | (628) | | | $ | (1,901) | |
| Total | | | $ | 1,832 | | | $ | (628) | | | $ | (1,901) | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 | |
The effect of derivatives not designated as a hedging instrument on the consolidated statements of income for the 12–month periods ended December 31 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Location of gain
(loss)
recognized on
derivative | | Amount of Gain (Loss) Recognized on Derivative Years Ended December 31 |
| | 2023 | | 2022 | | 2021 |
| Derivative not designated as hedging instruments | | | | | | | |
| Interest rate contracts – fair value hedge | Interest income – loans receivable | | $ | 1,169 | | | $ | (39) | | | $ | (372) | |
| Interest rate contracts – fair value hedge | Interest income – investment securities | | 240 | | | (99) | | | (267) | |
| Mortgage loan contracts | Non–interest income
– Gain on sale of loans | | 83 | | | 188 | | | (238) | |
| Commitments to originate mortgage loans | Non–interest income
– Gain on sale of loans | | (159) | | | (753) | | | (8) | |
| Total | | | $ | 1,333 | | | $ | (703) | | | $ | (885) | |
Note
2422 – Disclosures about
fair valueFair Value of
assetsAssets and
liabilitiesLiabilities
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 |
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 32023.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to
develop the reported fair value is described below.Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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-backedmortgage–backed pools,
private-label mortgage-backedprivate–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 bond’s 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-incomefixed–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.
HORIZON BANCORPAND SUBSIDIARIES
Notes In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include state and municipal securities, U.S. Government–sponsored mortgage–backed securities and corporate securities. Level 3 fair value for securities was determined using grid pricing that incorporates market estimates based on interest rates, maturity dates, coupon rates and ratings. Level 3 fair value for securities that have little to Consolidated Financial Statements
(Table dollars in thousands exceptno market activity can also be priced at book value for per share data)
lack of another reasonable pricing source or methodology.
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 Company’s 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.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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 | | | | — | |
| | | | | | | | | | | | | | | | |
Totalavailable-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 | | | | — | |
| | | | | | | | | | | | | | | | |
Totalavailable-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 | ) | | | — | |
HORIZON BANCORP
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Available for sale securities | | | | | | | |
| U.S. Treasury and federal agencies | $ | 64,377 | | | $ | — | | | $ | 64,377 | | | $ | — | |
| State and municipal | 304,030 | | | — | | | 304,030 | | | — | |
| Federal agency collateralized mortgage obligations | 3,580 | | | — | | | 3,580 | | | — | |
| Federal agency mortgage–backed pools | 137,297 | | | — | | | 137,297 | | | — | |
| | | | | | | |
| Corporate notes | 37,967 | | | — | | | 37,967 | | | — | |
| Total available for sale securities | 547,251 | | | — | | | 547,251 | | | — | |
| Interest rate swap agreements asset | 26,556 | | | — | | | 26,556 | | | — | |
| Commitments to originate mortgage loans | 125 | | | — | | | 125 | | | — | |
| Mortgage loan contracts | 33 | | | — | | | 33 | | | — | |
| Interest rate swap agreements liability | (24,024) | | | — | | | (24,024) | | | — | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Available for sale securities | | | | | | | |
| U.S. Treasury and federal agencies | $ | 267,179 | | | $ | — | | | $ | 267,179 | | | $ | — | |
| State and municipal | 433,544 | | | — | | | 433,544 | | | — | |
| Federal agency collateralized mortgage obligations | 31,215 | | | — | | | 31,215 | | | — | |
| Federal agency mortgage–backed pools | 190,656 | | | — | | | 190,656 | | | — | |
| Corporate notes | 74,964 | | | — | | | 74,964 | | | — | |
| Total available for sale securities | 997,558 | | | — | | | 997,558 | | | — | |
| Interest rate swap agreements asset | 44,595 | | | — | | | 44,595 | | | — | |
| Commitments to originate mortgage loans | 284 | | | — | | | 284 | | | — | |
| Interest rate swap agreements liability | (42,619) | | | — | | | (42,619) | | | — | |
| Mortgage loan contracts | (50) | | | — | | | (50) | | | — | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair
Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2023 | | | | | | | |
| Collateral dependent loans | $ | 2,918 | | | $ | — | | | $ | — | | | $ | 2,918 | |
| | | | | | | |
| December 31, 2022 | | | | | | | |
| Collateral dependent loans | $ | 8,091 | | | $ | — | | | $ | — | | | $ | 8,091 | |
| | | | | | | |
Collateral Dependent Loans: For loans 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
Collateral dependent 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 Company’smonth-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.
HORIZON BANCORPAND SUBSIDIARIES
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,
20172023 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%) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Fair
Value | | Valuation
Technique | | Unobservable
Inputs | | Range
(Weighted Average) |
| | | | | | | |
| | | | | | | |
| Collateral dependent loans | $ | 2,918 | | | Collateral based measurement | | Discount to reflect current market conditions and ultimate collectability | | 16.9%–34.2% (21.5%) |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Fair
Value | | Valuation
Technique | | Unobservable
Inputs | | Range
(Weighted Average) |
| | | | | | | |
| | | | | | | |
| Collateral dependent loans | $ | 8,091 | | | Collateral based measurement | | Discount to reflect current market conditions and ultimate collectability | | 0.0%–100.0% (13.3%) |
| | | | | | | |
Note
2523 – Fair Value of Financial Instruments
The estimated fair value amounts of the Company’s 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 Horizon’s significant financial instruments at December 31, 20172023 and December 31, 2016.2022. These include financial instruments recognized as assets and liabilities on the consolidated balance sheet as well as certainoff-balance off–balance sheet financial
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
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
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 portfolionet loans isare estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similaron an exit price basis incorporating discounts for credit, ratingsliquidity and for the same remaining maturities. The carrying amounts of loans held for sale approximate fair value.HORIZON BANCORPAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
marketability factors.
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-bearinginterest bearing checking accounts and money market deposits is the amount payable on demand at the reporting date.date and are classified within Level 1. 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.maturity and are classified within Level 2.
Borrowings— Rates currently available to Horizon for debt with similar terms and remaining maturities are used to estimate fair values of existing borrowings.
Subordinated Notes — The fair value of subordinated notes is based on discounted cash flows based on current borrowing rates for similar types of instruments.
Junior Subordinated Debentures to Capital Trusts — 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-ratefixed–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.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table dollars in thousands except for per share data)
The following
table presentstables present estimated fair values of the Company’s 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 | | | | — | |
HORIZON BANCORP
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| 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 | $ | 526,515 | | | $ | 526,515 | | | $ | — | | | $ | — | |
| Interest–earning time deposits | 2,205 | | | — | | | 2,190 | | | — | |
| Investment securities, held to maturity | 1,945,638 | | | — | | | 1,668,601 | | | — | |
| Loans held for sale | 1,418 | | | — | | | — | | | 1,418 | |
| Loans, net | 4,367,601 | | | — | | | — | | | 4,072,568 | |
| Stock in FHLB | 34,509 | | | — | | | 34,509 | | | — | |
| Interest receivable | 38,710 | | | — | | | 38,710 | | | — | |
| | | | | | | |
| Liabilities | | | | | | | |
| Non–interest bearing deposits | $ | 1,116,005 | | | $ | 1,116,005 | | | $ | — | | | $ | — | |
| Interest bearing deposits | 4,548,888 | | | 3,369,149 | | | 1,171,452 | | | — | |
| Borrowings | 1,353,050 | | | — | | | 1,347,129 | | | — | |
| Subordinated notes | 55,543 | | | — | | | 53,283 | | | — | |
| Junior subordinated debentures issued to capital trusts | 57,258 | | | — | | | 50,063 | | | — | |
| Interest payable | 22,249 | | | — | | | 22,249 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 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 | $ | 123,505 | | | $ | 123,505 | | | $ | — | | | $ | — | |
| Interest–earning time deposits | 2,812 | | | — | | | 2,778 | | | — | |
| Investment securities, held to maturity | 2,022,748 | | | — | | | 1,681,309 | | | — | |
| Loans held for sale | 5,807 | | | — | | | — | | | 5,807 | |
| Loans, net | 4,107,534 | | | — | | | — | | | 3,852,458 | |
| Stock in FHLB | 26,677 | | | — | | | 26,677 | | | — | |
| Interest receivable | 35,294 | | | — | | | 35,294 | | | — | |
| Liabilities | | | | | | | |
| Non–interest bearing deposits | $ | 1,277,768 | | | $ | 1,277,768 | | | $ | — | | | $ | — | |
| Interest bearing deposits | 4,580,006 | | | 3,582,891 | | | 980,456 | | | — | |
| Borrowings | 1,142,949 | | | — | | | 1,139,926 | | | — | |
| Subordinated notes | 58,896 | | | — | | | 56,496 | | | — | |
| Junior subordinated debentures issued to capital trusts | 57,027 | | | — | | | 51,327 | | | — | |
| Interest payable | 5,380 | | | — | | | 5,380 | | | — | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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
2624 – General Litigation
As of April 20, 2023, a putative class action lawsuit entitled Chad Key, et al. v. Horizon Bancorp, Inc., et al., Case No. 1:23-cv-02961 (“Securities Action”) was filed against the Company and two of its officers in the U.S. District Court for the Eastern District of New York. The Securities Action asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company is subjectmade materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 9, 2022 and March 10, 2023.
As of (1) August 28, 2023, a lawsuit related to the Securities Action was filed by Sally Hundley, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors and (2) August 31, 2023, a lawsuit also related to the Securities Action was filed by Aziz Chowdhury, derivatively on behalf of the Company, against the Company, as nominal defendant, and 2 of the Company's officers and 10 of its directors (the “Derivatives Actions”) in the U.S. District Court for the Eastern District of New York. The Derivative Actions allege, among other things, breach of the officers and directors' fiduciary duties. The Derivative Actions have been consolidated and stayed pending resolution of any motion to dismiss in the Securities Action.
Based on our initial review of these actions, management believes that the Company has strong defenses to the claims and lawsuits that arise primarilyintends to vigorously defend against them. As of December 31, 2023, no liabilities related to the above matters were recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.
In addition to the matters described above, from time to time, Horizon and its subsidiaries are involved in
various legal proceedings incidental to the
ordinary courseconduct of
their business.
It is the opinion of managementManagement does not expect that the
disposition or ultimate resolutionoutcome of
any such
claims and lawsuitsproceedings will
not have a material adverse effect on
theour consolidated financial position
or results of
operations and cash flows of the Company.operations.
Note
2725 – 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:Bancorp, Inc.:
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 | |
| | | | | | | | |
HORIZON BANCORP
| | | | | | | | | | | |
| December 31
2023 | | December 31
2022 |
| Assets | | | |
| Total cash and cash equivalents | $ | 79,749 | | | $ | 54,097 | |
| Investment in subsidiaries | 765,299 | | | 748,983 | |
| Other assets | 7,008 | | | 10,519 | |
| Total assets | $ | 852,056 | | | $ | 813,599 | |
| Liabilities | | | |
| Subordinated notes | $ | 55,543 | | | $ | 58,896 | |
| Junior subordinated debentures issued to capital trusts | 57,258 | | | 57,027 | |
| Other liabilities | 20,443 | | | 20,301 | |
| Stockholders’ Equity | 718,812 | | | 677,375 | |
| Total liabilities and stockholders’ equity | $ | 852,056 | | | $ | 813,599 | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Operating Income (Expense) | | | | | |
| Dividend income from subsidiaries | $ | 55,500 | | | $ | 34,750 | | | $ | 22,500 | |
| Interest expense | (8,226) | | | (6,258) | | | (5,767) | |
| Other income | 431 | | | 45 | | | 25 | |
| Salaries and employee benefits | (3,502) | | | (2,551) | | | (1,890) | |
| Other expense | (370) | | | (411) | | | (591) | |
| Income Before Undistributed Income (Dividends in Excess) of Subsidiaries | 43,833 | | | 25,575 | | | 14,277 | |
| Undistributed income (dividends in excess) of subsidiaries | (17,838) | | | 66,473 | | | 71,439 | |
| Income Before Tax | 25,995 | | | 92,048 | | | 85,716 | |
| Income tax benefit | 1,986 | | | 1,360 | | | 1,375 | |
| Net Income Available to Common Shareholders | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
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 onheld-to-maturity securities, net of taxes | | | (166 | ) | | | (424 | ) | | | (357 | ) |
Unrealized appreciation (depreciation) onavailable-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 | |
| | | | | | | | | | | | |
HORIZON BANCORP (Loss)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Net Income | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Other Comprehensive Income (Loss) | | | | | |
| Change in fair value of derivative instruments: | | | | | |
| Change in fair value of derivative instruments for the period | (523) | | | 5,649 | | | 4,570 | |
| Reclassification adjustment for swap termination gain realized in income | (1,453) | | | — | | | — | |
| Income tax effect | 415 | | | (1,186) | | | (960) | |
| Changes from derivative instruments | (1,561) | | | 4,463 | | | 3,610 | |
| Change in securities: | | | | | |
| Unrealized gain (loss) for the period on available for sale securities | 20,728 | | | (147,345) | | | (35,547) | |
| Reclassification of gain (loss) from available for sale securities to held to maturity securities | — | | | (794) | | | 5,869 | |
| Amortization (accretion) from transfer of securities from available for sale to held to maturity securities | (691) | | | (1,236) | | | 66 | |
| Reclassification adjustment for securities (gains) losses realized in income | 32,052 | | | — | | | (914) | |
| Income tax effect | (10,939) | | | 31,369 | | | 6,409 | |
| Unrealized gains (losses) on securities | 41,150 | | | (118,006) | | | (24,117) | |
| Other Comprehensive Income (Loss), Net of Tax | 39,589 | | | (113,543) | | | (20,507) | |
| Comprehensive Income (Loss) | $ | 67,570 | | | $ | (20,135) | | | $ | 66,584 | |
HORIZON BANCORP, INC. AND
SUBSIDIARIES SUBSIDIARIES
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 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31 |
| 2023 | | 2022 | | 2021 |
| Operating Activities | | | | | |
| Net income | $ | 27,981 | | | $ | 93,408 | | | $ | 87,091 | |
| Items not requiring (providing) cash | | | | | |
| Dividends in excess (equity in undistributed net income) of subsidiaries | 17,838 | | | (66,473) | | | (71,439) | |
| Change in: | | | | | |
| Share based compensation | 3,586 | | | 2,475 | | | 1,819 | |
| | | | | |
| Other assets | 7,184 | | | (284) | | | 730 | |
| Other liabilities | (413) | | | 120 | | | 946 | |
| Net cash provided by operating activities | 56,176 | | | 29,246 | | | 19,147 | |
| Investing Activities | | | | | |
| | | | | |
| | | | | |
| Capital contribution to subsidiary | — | | | — | | | (60,000) | |
| | | | | |
| Other investing activities | 1,762 | | | — | | | — | |
| Net cash used in investing activities | 1,762 | | | — | | | (60,000) | |
| Financing Activities | | | | | |
| Other change in borrowings | 378 | | | 388 | | | 384 | |
| Repurchase of outstanding stock | — | | | — | | | (7,607) | |
| Dividends paid on common shares | (28,311) | | | (27,765) | | | (24,768) | |
| | | | | |
| Net settlement of share awards | (1,221) | | | (1,824) | | | (1,355) | |
| Stock option exercises | — | | | 145 | | | 1,062 | |
| | | | | |
| Repayment of subordinated notes | (3,132) | | | — | | | — | |
| Net cash used in financing activities | (32,286) | | | (29,056) | | | (32,284) | |
| Net Change in Cash and Cash Equivalents | 25,652 | | | 190 | | | (73,137) | |
| Cash and Cash Equivalents at Beginning of Year | 54,097 | | | 53,907 | | | 127,044 | |
| Cash and Cash Equivalents at End of Year | $ | 79,749 | | | $ | 54,097 | | | $ | 53,907 | |
HORIZON BANCORPAND SUBSIDIARIESNotes 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 | |
Contents
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and
StockholdersShareholders
Opinion on the
Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Horizon Bancorp,
Inc. (the “Company”) as of December 31,
20172023 and
2016,2022, the related consolidated statements of income, comprehensive income
(loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31
2017,2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
20172023 and
2016,2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2017,2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in the Internal Control-IntegratedControl – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 28, 2018,March 15, 2024, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.thereon
.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB and the standards applicable to financial audits contained inGovernment Auditing Standards issued by the Comptroller General of the United States.PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Other Reporting Required
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
Government Auditing StandardsIn accordance withGovernment Auditing Standards, we have also issuedcommunicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses (“ACL”)
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses (“ACL”) was $50.6 million at December 31, 2023. The Company utilized the Cumulative Loss Rate method in determining expected future credit losses. The loss rate method measures the amount of loan charge–offs, net of recoveries, (“loan losses”) recognized over the life of a closed pool and compares those loan losses to the outstanding loan balance of that pool as of a specific point in time (“pool date”). Management utilized Moody's
economic forecast scenarios including both National and Regional econometrics, as well as management judgment, as the basis for the forecast period.
We identified the quantitative component of the ACL as a critical audit matter. The principal considerations for our reports dated February 28, 2018, on our considerationdetermination included the high degree of subjectivity and complexity involved in management’s determination and application of the reasonable and supportable forecasts in cumulative loss rate model, and the significant audit effort required driven by management’s use of internal historical data in the calculation of the loss rate. This required a high degree of effort, specialized skills and knowledge, and significant judgment.
Our audit procedures related to the estimated allowance for credit losses at December 31, 2023 included:
•Obtained an understanding of the Company’s process for establishing the ACL, including:
◦Controls over the completeness and accuracy of inputs into the model, specifically the loss rate calculations, and
◦Controls over management’s review and approval of the ACL, including management’s determination of the reasonable and supportable forecasts.
•Testing the completeness and accuracy of key inputs and assumptions used in the model’s quantitative calculation, such as the regression model and economic forecasts and integrity of loan segments.
•Evaluated management’s reasonable and supportable economic forecast used in the model.
Goodwill Impairment Assessment
The Company has recorded goodwill of $155.2 million as of December 31, 2023. As further described in Notes 1 and 8 to the consolidated financial statements. Goodwill is assessed for impairment annually, or more frequently if events occur or circumstances change that indicate an impairment may exist. The Company engaged a third-party valuation specialist in performing its quantitative impairment analysis, which included a combination of valuation approaches to determine the fair value of the Bank reporting unit. These valuation approaches required certain assumptions such as the discount rate, economic conditions impacting interest and growth rates, the control premium, and a relative weighting given to the fair value derived by each of the valuation approaches used.
We identified the Company’s quantitative goodwill impairment assessment as a critical audit matter. The principal considerations for that determination were the degree of subjectivity and judgment required to audit management’s goodwill impairment assessment. Specifically, the subjectivity and judgment is primarily identified within the evaluation of valuation approaches selected and key assumptions used by management in performing its assessment, including the selection of comparable publicly-traded companies and control premium utilized in the valuation approaches.
The primary procedures we performed to address this critical audit matter included the following:
•We evaluated the design and tested the operating effectiveness of controls related to management’s goodwill impairment assessment including controls over management’s review of the quantitative analysis performed on the reporting unit, including the key assumptions used to determine the fair value of the reporting unit.
•We tested key financial data used within the valuation approaches by agreeing key inputs to internal control over financial reporting and our tests of its complianceexternal sources.
•We evaluated, with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of those reports is to describe the scopeassistance of our testinginternal valuation specialists, appropriateness of internalvaluation approaches selected by management, the selection of a control over financial reportingpremium and complianceof comparable publicly-traded companies, and the resultsoverall reasonableness of that testing, and not to provide an opinion on the internal control over compliance. Those reports are an integral partestimated fair value of an audit performed in accordance withGovernment Auditing Standards and should be considered in assessing the results of our audit.
reporting unit.
/s/ FORVIS, LLP
We have served as the Company’s auditor since
19981998.
Indianapolis, Indiana
February 28, 2018
Name
March 15, 2024
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and
StockholdersShareholders
Opinion on the Internal Control
overOver Financial Reporting
We have audited Horizon Bancorp’sBancorp, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2017,2023 based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in
Internal Control – Integrated Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2023 and 2022, and for each of the three years in the period ended December 31, 2023, and our report dated February 28, 2018,March 15, 2024, expressed an unqualified opinion thereon.on those financial statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Statements. Reporting.Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control
overOver Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
/s/ FORVIS, LLP
Indianapolis, Indiana
February 28, 2018
March 15, 2024
MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS
Management is responsible for the preparation and presentation of the consolidated financial statements and related notes on the preceding pages. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America appropriate in the circumstances and include amounts that are based on management’s best estimates and judgments. Financial information elsewhere in the Annual Report is consistent with that in the consolidated financial statements.
In meeting its responsibility for the accuracy of the consolidated financial statements, management relies on Horizon’s system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded to permit the preparation of appropriate financial information. The system of internal controls is supplemented by a program of internal audits to independently evaluate the adequacy and application of financial and operating controls and compliance with Company policies and procedures.
The Audit Committee of the Board of Directors meets periodically with management, the independent accountants and the internal auditors to ensure that each is properly discharging its responsibilities with regard to the consolidated financial statements and internal accounting controls. The independent accountants have full and free access to the Audit Committee and meet with it to discuss auditing and financial reporting matters.
The consolidated financial statements in the Annual Report have been audited by
BKD,FORVIS, LLP,
an independent registered public accounting firm, for
2017, 20162023, 2022 and
2015.2021. Their audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and included consideration of internal accounting controls, tests of accounting records and other audit procedures to the extent necessary to allow them to express their opinion on the fairness of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.
Horizon BancorpSummaryTable of Selected Financial Data
(Dollars in thousands except for per share data)
| | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Earnings | | | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 112,100 | | | $ | 85,992 | | | $ | 74,734 | | | $ | 62,983 | | | $ | 61,383 | |
Provision for loan losses | | | 2,470 | | | | 1,842 | | | | 3,162 | | | | 3,058 | | | | 1,920 | |
Non-interest income | | | 33,136 | | | | 35,455 | | | | 30,402 | | | | 26,277 | | | | 25,906 | |
Non-interest expenses | | | 94,813 | | | | 86,892 | | | | 74,193 | | | | 61,946 | | | | 58,445 | |
Income tax expense | | | 14,836 | | | | 8,801 | | | | 7,232 | | | | 6,155 | | | | 7,048 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | 33,117 | | | | 23,912 | | | | 20,549 | | | | 18,101 | | | | 19,876 | |
Preferred stock dividend | | | — | | | | (42 | ) | | | (125 | ) | | | (133 | ) | | | (370 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income available to common shareholders | | $ | 33,117 | | | $ | 23,870 | | | $ | 20,424 | | | $ | 17,968 | | | $ | 19,506 | |
| | | | | | | | | | | | | | | | | | | | |
Cash dividend declared | | $ | 11,720 | | | $ | 8,382 | | | $ | 6,216 | | | $ | 4,744 | | | $ | 3,655 | |
| | | | | | | | | | | | | | | | | | | | |
Per Share Data | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share (1) | | $ | 1.44 | | | $ | 1.19 | | | $ | 1.30 | | | $ | 1.32 | | | $ | 1.51 | |
Diluted earnings per share (1) | | | 1.43 | | | | 1.19 | | | | 1.26 | | | | 1.27 | | | | 1.45 | |
Cash dividends declared per common share (1) | | | 0.50 | | | | 0.41 | | | | 0.39 | | | | 0.34 | | | | 0.28 | |
Book value per common share (1) | | | 17.90 | | | | 15.37 | | | | 14.20 | | | | 13.16 | | | | 11.76 | |
Weighted-average shares outstanding | | | | | | | | | | | | | | | | | |
| | | | | |
Basic (1) | | | 23,035,824 | | | | 19,987,728 | | | | 15,765,444 | | | | 13,591,053 | | | | 12,928,995 | |
Diluted (1) | | | 23,173,626 | | | | 20,082,410 | | | | 16,197,312 | | | | 14,181,188 | | | | 13,501,445 | |
Period End Totals | | | | | | | | | | | | | | | | | | | | |
Loans, net of deferred loan fees and unearned income | | $ | 2,831,995 | | | $ | 2,135,986 | | | $ | 1,749,131 | | | $ | 1,378,554 | | | $ | 1,068,828 | |
Allowance for loan losses | | | 16,394 | | | | 14,837 | | | | 14,534 | | | | 16,501 | | | | 15,992 | |
Total assets | | | 3,964,303 | | | | 3,141,156 | | | | 2,652,401 | | | | 2,076,922 | | | | 1,758,276 | |
Total deposits | | | 2,881,003 | | | | 2,471,210 | | | | 1,880,153 | | | | 1,482,319 | | | | 1,291,520 | |
Total borrowings | | | 601,810 | | | | 304,945 | | | | 482,144 | | | | 383,840 | | | | 288,782 | |
Ratios | | | | | | | | | | | | | | | | | | | | |
Loan to deposit | | | 98.30 | % | | | 86.43 | % | | | 93.03 | % | | | 93.00 | % | | | 82.76 | % |
Loan to total funding | | | 81.31 | % | | | 76.94 | % | | | 74.04 | % | | | 73.87 | % | | | 67.63 | % |
Return on average assets | | | 0.97 | % | | | 0.81 | % | | | 0.87 | % | | | 0.93 | % | | | 1.13 | % |
Average stockholders’ equity to average total assets | | | 11.15 | % | | | 10.22 | % | | | 9.30 | % | | | 9.33 | % | | | 9.34 | % |
Return on average stockholders’ equity | | | 8.74 | % | | | 7.92 | % | | | 9.87 | % | | | 10.60 | % | | | 12.86 | % |
Dividend payout ratio (dividends divided by basic earnings per share) | | | 34.78 | % | | | 34.33 | % | | | 29.85 | % | | | 25.72 | % | | | 18.56 | % |
| | | | | |
Price to book value ratio | | | 155.28 | % | | | 182.13 | % | | | 131.26 | % | | | 132.39 | % | | | 143.59 | % |
Price to earnings ratio | | | 19.45 | | | | 23.56 | | | | 14.78 | | | | 13.75 | | | | 11.69 | |
(1) | Adjusted for 3:2 stock split on November 14, 2016. |
ContentsHorizon Bancorp
Horizon’s Common Stock and Related Stockholders Matters
Horizon common stock is traded on the NASDAQ Global Select Market under the symbol “HBNC.” The following table sets forth, for the periods indicated, the high and low prices per share. Also summarized below are the cash dividends declared by quarter for 2017 and 2016.
| | | | | | | | | | | | |
| | | 2017 | |
| | | | | | Dividends | |
| | | Common Stock Prices | | | Declared | |
| | | High | | | Low | | | Per Share | |
First Quarter | | $ | 28.09 | | | $ | 24.91 | | | $ | 0.11 | |
Second Quarter | | | 27.50 | | | | 24.73 | | | | 0.13 | |
Third Quarter | | | 29.17 | | | | 25.30 | | | | 0.13 | |
Fourth Quarter | | | 29.21 | | | | 25.99 | | | | 0.13 | |
| |
| | | 2016 | |
| | | | | | Dividends | |
| | | Common Stock Prices | | | Declared | |
| | | High | | | Low | | | Per Share | |
First Quarter | | $ | 18.59 | | | $ | 15.41 | | | $ | 0.10 | |
Second Quarter | | | 16.76 | | | | 15.87 | | | | 0.10 | |
Third Quarter | | | 20.01 | | | | 16.61 | | | | 0.10 | |
Fourth Quarter | | | 28.41 | | | | 17.84 | | | | 0.11 | |
The approximate number of holders of record of Horizon’s outstanding common stock as of February 27, 2018 was 1,554.
Horizon’s ability to pay dividends to its stockholders is largely dependent upon the dividends it receives from the Bank, and the Bank is subject to regulatory limitations on the amount of cash dividends it may pay. See “Part I. Item 1 Business: Regulation and Supervision – Dividends” for a discussion of the regulatory requirements and limitations.
Horizon Bancorp
HORIZON BANCORP, INC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision of and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, Horizon has evaluated the effectiveness of the design and operation of its disclosure controls (as defined in Rule
13a-15(e) 13a–15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of
the evaluation date,December 31, 2023, Horizon’s disclosure controls and procedures
arewere effective to ensure that the information required to be disclosed by Horizon in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow
for timely decisions regarding disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management of Horizon
Bancorp is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule
13a-15(f) 13a–15(f) under the
Securities Exchange
Act of 1934.Act. Horizon’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Management assessed the effectiveness of Horizon’s internal control over financial reporting as of December 31, 2017.2023. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Commission (COSO).Based on this assessment, management has determinedconcluded that Horizon’s internal control over financial reporting as of December 31, 2017 is2023 was effective based on the specified criteria.
Remediation
As disclosed in Part II, Item 9A of the Company's Annual Report on Form 10–K for the yer ended December 31, 2022, during the first quarter of 2023 management identified material weaknesses with respect to insufficient controls over the reporting, classification, and disclosure of loans, investments and individual cash flow line items and lack of sufficient controls around the financial reporting process to allow for the timely release of financial statements.
Throughout the year ended December 31, 2023, management implemented its previously disclosed remediation plan to update its design and implementation of controls to remediate the aforementioned deficiencies and enhance the Company's internal control environment, which included:
•Hiring additional resources within our accounting and finance department for financial statement preparation and review and providing additional training to implement and monitor our policies and procedures;
•Enhancing controls with additional procedures for the preparation of financial statement disclosures including the design and implementation of new financial preparation tools to allow more detailed review and documentation for review and procedures relating to the reporting, classification and disclosure of loans, investments and individual cash flow line items in the Company’s financial statements and the calculation of public float for purposes of determining SEC filing deadlines; and
•Developing enhanced documentation and review procedures for financial statement preparation and disclosures, including enhancing the financial statement review process by including additional steps in the review process with respect to the reporting, classification and disclosure of loans, investments and individual cash flow line items in its financial statements and the calculation of the Company’s public float for purposes of determining SEC filing deadlines.
Horizon’s management completed testing of the implemented controls during the quarter ended December 31, 2023, and found such controls to be operating effectively.As a result, management has concluded that the foregoing material weaknesses in internal control over financial reporting have been remediated as of December 31, 2023.
Attestation Report of Registered Public Accounting Firm
BKD,
FORVIS, LLP,
an independent registered public accounting firm, has issued an attestation report on
management’s assessmentthe effectiveness of
Horizon’sthe Company’s internal control over financial
reporting. Thisreporting as of December 31, 2023. The report,
appearswhich expresses an unqualified opinion of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, is included in this Annual Report on Form 10–K in Item 8, following
BKD,FORVIS, LLP’s audit report.
Changes in Internal Control Over Financial Reporting
Horizon’s management, including its Chief Executive Officer and Chief Financial Officer, also have concluded that, other than the remediation of the material weaknesses described above, no changes in the Company's internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2017, there were no changes in Horizon’s internal control over financial reporting2023 that havehas materially affected, or areis reasonably likely to materially affect, Horizon’sthe Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
Horizon Bancorp
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Certain information is omitted from this report pursuant to General Instruction G. (3) of Form10-K 10–K as Horizon intends to file with the Commission its definitive Proxy Statement for its 20182024 Annual Meeting of Shareholders (the “Proxy Statement”) pursuant to Regulation 14A of the Securities Exchange Act, of 1934, as amended, not later than 120 days after December 31, 2017.2023.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information relating to Horizon’s directors required by this item is found in the Proxy Statement under “Proposal I — Election of Directors” and is incorporated into this report and item by reference.
The information relating to the Audit Committee of the Board of Directors required by this item is found in the Proxy Statement under “Corporate Governance — Audit Committee” and is incorporated into this report
and item by reference.
The information relating to Horizon’s executive officers required by this item is included in Part I of this Form
10-K 10–K under “Special Item:
Information about our Executive
Officers of Registrant”Officers” and is incorporated into this
Itemitem by reference.
The information relating
Horizon has no delinquent Section 16(a) filings to
certain filing obligations of directors and executive officers required by this item is found in the Proxy Statement under “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated into this report by reference.report.
Horizon’s “Code of Ethics for Executive Officers and Directors” applies to its directors, chief executive officer and chief financial officer. The code is available on Horizon’s website athttp://www.horizonbank.com/ in the section headed “About Us – Investor Relations” under the caption “Corporate Information – Corporate Governance.”
ITEM 11. EXECUTIVE COMPENSATION
The information on executive and director compensation and compensation committee matters required by this item can be found in the Proxy Statement under “Corporate Governance,” “Compensation Committee Report,” “Compensation Discussion and Analysis,” “Executive
Compensation”Compensation Tables” and “Compensation of Directors” and is incorporated into this report
and item by reference.
Horizon Bancorp
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS Equity Compensation Plan Information
The following table presents information regarding grants under all equity compensation plans of Horizon through December 31,
2017. | | | | | | | | | | | | |
Plan Category | | Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights | | | Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights | | | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
the First Column) | |
Equity compensation plans approved by security holders | | | 257,751 | | | $ | 16.07 | | | | 621,526 | |
Equity compensation plans not approved by security holders | | | — | | | $ | — | | | | — | |
| | | | | | | | | | | | |
Total | | | 257,751 | | | $ | 16.07 | | | | 621,526 | |
| | | | | | | | | | | | |
2023.
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted–Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) |
| Equity compensation plans approved by security holders | | 120,680 | | | $ | 15.54 | | | 1,154,228 | |
| Equity compensation plans not approved by security holders | | — | | | $ | — | | | — | |
| | 120,680 | | | $ | 15.54 | | | 1,154,228 | |
The other information required by this item can be found in the Proxy Statement under “Common Share Ownership of Management and Certain Beneficial Owners” and is incorporated by reference into this report.report and item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is found in the Proxy Statement under “Corporate Governance” and “Certain Business Relationships and Transactions” and is incorporated by reference into this report.report and item.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference
into this report and item from the Proxy Statement section captioned “Auditor Fees and Services.”
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Documents Filed As Part of This Annual Report on Form10-K: | 10–K: 1. | Financial Statements |
See the Financial Statements included in
The following financial statements are filed as part of this document under Item
8. | 2. | Financial Statement Schedules |
8:
Consolidated Balance Sheets at December 31, 2023 and 2022
Consolidated Statements of Income, years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income, years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Stockholders’ Equity, years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows, years ended December 31, 2023, 2022 and 2021 Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
Financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the financial statements.
Horizon Bancorp
3. Exhibits
The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are as follows:
| | | | | | | | | | | | | | |
Exhibit
Number
| | Description | | Description
| Incorporated by Reference/Attached |
| | | | |
2.13.1 | | Agreement | | Incorporated by reference to Appendix A to Registrant’s Registration Statement on FormS-4 filed on July 14, 2017 (RegistrationNo. 333-219289) |
| | |
2.2 | | Agreement and Plan of Merger dated June 13, 2017, between Horizon Bancorp and Wolverine Bancorp, Inc. | | Incorporated by reference to Exhibit 2.1 to Registrant’s Form8-K filed June 14, 2017 |
| | |
3.1 | | Restated Articles of Incorporation of Horizon Bancorp, as amended and restatedInc. effective May 16, 2018 | | Incorporated by reference to Exhibit 3.1 to Registrant’s Form8-K 8–K filed October 19, 2016on May 16, 2018 |
| | | | |
| 3.2 | | | | Incorporated by reference to Exhibit 3.2 to Registrant’s Form8-K 8–K filed on December 21, 201720, 2022 |
| | | | |
| 4.1 | | | | Incorporated by reference to Exhibit 4.1 to Registrant's Form 10–K for the year ended December 31, 2020 |
| 4.1 | | | |
| 4.2 | | | | Incorporated by reference to Exhibit 4.1 to Registrant’s Form10-K 10–K for the year ended December 31, 2009 (SEC FileNo. 000-10792, Film No. 10677545) |
| | | | |
4.24.3 | | | | Incorporated by reference to Exhibit 4.2 to Registrant’s Form10-K 10–K for the year ended December 31, 2009 (SEC FileNo. 000-10792, Film No. 10677545) |
| | | | |
4.34.4 | | | | Incorporated by reference to Exhibit 4.1 to Registrant’s Form8-K 8–K filed on December 21, 2006 (SEC FileNo. 000-10792, Film No. 061291739) |
| | | | |
4.44.5 | | | | Incorporated by reference to Exhibit 4.2 to Registrant’s Form8-K 8–K filed on December 21, 2006 (SEC FileNo. 000-10792, Film No. 061291739) |
| | | | |
10.1*4.6 | | | | Incorporated by reference to Appendix AExhibit 4.1 to Registrant’s definitive Proxy Statement for its 2010 Annual Meeting of Shareholders (SEC FileNo. 000-10792, Film No. 10693679)Registrant's Form 8–K filed on June 24, 2020 |
| | | | |
| 4.7 | | | | Incorporated by reference to Exhibit 4.2 to Registrant's Form 8–K filed on June 24, 2020 |
| 10.2* | | | |
Horizon Bancorp
| | | | |
| Exhibit
Number
| | Description
| | Incorporated by Reference/Attached
| 10.3* | | |
10.4* | | | | Incorporated by reference to Appendix A to Registrant’s definitive Proxy Statement for its 2014 Annual Meeting of Shareholders |
| | | | |
10.5*10.4* | | | | Incorporated by reference to Exhibit 10.1 to Registrant’s Form8-K 8–K filed on June 18, 2013 |
| | | | |
10.6*10.5* | | | | Incorporated by reference to Exhibit 10.2 to Registrant’s Form8-K 8–K filed on June 18, 2013 |
| | | | |
10.7*10.6* | | | | Incorporated by reference to Exhibit 10.1 to Registrant’s Form8-K 8–K filed on March 27, 2017 |
| | | | |
10.8*10.7* | | | | Incorporated by reference to Exhibit 10.2 to Registrant’s Form8-K 8–K filed on March 27, 2017 |
| | | | |
10.9*10.8* | | | | AttachedIncorporated by reference to Exhibit 10.9 to Registrant’s Form10–K filed on February 28, 2018 |
| | | | |
10.10*10.9* | | | | AttachedIncorporated by reference to Exhibit 10.10 to Registrant’s Form 10–K filed on February 28, 2018 |
| | | | |
| 10.10* | | | | Incorporated by reference to Appendix A to Registrant's definitive Proxy Statement for its 2021 Annual Meeting of Shareholders |
| | | | |
| 10.11* | | | | Incorporated by reference to Exhibit 10.2 to Registrant's Form 8–K filed on May 11, 2021 |
| | | | |
| 10.12* | | | | Incorporated by reference to Exhibit 10.13 to Registrant's Form 10–K filed on March 9, 2022 |
| | | | |
| 10.13* | | | | Incorporated by reference to Exhibit 10.4 to Registrant's Form 8–K filed on May 11, 2021 |
| | | | |
| 10.14* | | | | Incorporated by reference to Exhibit 10.15 to Registrant's Form 10–K filed on March 9, 2022 |
| | | | |
| 10.15* | | | | Incorporated by reference to Exhibit 10.6 to Registrant's Form 8–K filed on May 11, 2021 |
| | | | |
| 10.16* | | | | Incorporated by reference to Exhibit 4.2 to Registrant’s Registration Statement on FormS-8 S–8 filed on December 28, 2017 (RegistrationNo. 333-222329) |
| | | | |
10.12*10.17* | | | | Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on FormS-8 S–8 filed on December 28, 2017 (RegistrationNo. 333-222329) |
| | | | |
10.13*10.18* | | | | Incorporated by reference to Exhibit 4.2 to Registrant’s Registration Statement on FormS-8 S–8 filed on December 28, 2017 (RegistrationNo. 333-222330) |
| | | | | | | | | | | | | | |
Exhibit
Number | | Description | | Incorporated by Reference/Attached |
| | | | |
10.14*10.19* | | | | Incorporated by reference to Exhibit 4.2 to Registrant’s Registration Statement on FormS-8 S–8 filed on December 28, 2017 (RegistrationNo. 333-222330) |
| | | | |
10.15*10.20* | | | | AttachedIncorporated by reference to Exhibit 10.15 to Registrant's Form 10–K for the year ended December 31, 2020 |
| | | | |
10.16*10.21* | | | | Incorporated by reference to Exhibit 10.1 to Registrant’s Form8-K 8–K filed on December 6, 2006 (SEC FileNo. 000-10792, Film No. 061259453)November 7, 2023 |
| | | | |
| 10.22* | | | | Incorporated by reference to Exhibit 10.3 to Registrant’s Form 8–K filed on January 7, 2020 |
| 10.17* | | | |
| 10.23* | | | | LetterIncorporated by reference to Exhibit 10.4 to Registrant’s Form 8–K filed on January 7, 2020 |
| | | | |
| 10.24* | | | | Incorporated by reference to Exhibit 10.6 to Registrant’s Form 8–K filed on January 7, 2020 |
| | | | |
| 10.25* | | | | Incorporated by reference to Exhibit 10.1 to Registrant's Form 8–K filed on May 18, 2023 |
| | | | |
| 10.26* | | | | Incorporated by reference to Exhibit 10.2 to Registrant’sRegistrant's Form8-K 8–K filed December 6, 2006 (SEC FileNo. 000-10792, Film No. 061259453)on May 18, 2023 |
| | | | |
10.18*10.27* | | | | Incorporated by reference to Exhibit 10.18 to Registrant’s Form10-K for the year ended December 31, 2008 (SEC FileNo. 000-10792, Film No. 09694757) |
Horizon Bancorp
| | | | |
Exhibit
Number
| | Description
| | Incorporated by Reference/Attached
|
| | |
10.19* | | First Amendment of the Agreement between Horizon Bank, N.A. and Mark E. Secor, dated January 1, 2009 | | Incorporated by reference to Exhibit 10.19 to Registrant’s Form10-K for the year ended December 31, 2008 (SEC FileNo. 000-10792, Film No. 09694757) |
| | |
10.20* | | Agreement(Craig M. Dwight), dated September 21, 2016, between Horizon Bank, N.A. and Kathie A. DeRuiter20, 2022 | | Incorporated by reference to Exhibit 10.1 to Registrant’sRegistrant's Form8-K 8–K filed on September 21, 201620, 2022 |
| | | | |
10.21*10.28* | | | | Agreement dated October 2, 2017, between Horizon Bank and Dennis J. Kuhn | Incorporated by reference to Exhibit 10.1 to Registrant’sRegistrant's Form8-K 8–K filed on October 3, 2017December 1, 2022 |
| | | | |
10.22*10.29* | | | | Employment Agreement, dated January 1, 2018, between Horizon Bank, Horizon Bancorp and James D. Neff | Incorporated by reference to Exhibit 10.110.2 to Registrant’sRegistrant's Form8-K 8–K filed on January 3, 2018December 1, 2022 |
| | | | |
| 10.30* | | | | Incorporated by reference to Exhibit 10.33 to Registrant's Form 10–K filed on March 15, 2023 |
| 12 | | | |
| 10.31* | | | | Ratios of EarningsIncorporated by reference to Fixed Charges and Preferred Stock Dividends | | AttachedExhibit 10.34 to Registrant's Form 10–K filed on March 15, 2023 |
| | | | |
| 14 | | | | Incorporated by reference to Exhibit 14 to Registrant’s Form8-K 8–K filed on December 21, 2017 |
| | | | |
| 21 | | | | Attached |
| | | | |
| 23 | | | | Attached |
| | | | |
| 31.1 | | | | Attached |
| | | | |
| 31.2 | | | | Attached |
| | | | |
| 32.1 | | | | Attached |
| | | | |
| 32.2 | | | | Attached |
| | | | |
| | | | | | | | | | | | | | |
Exhibit
Number | | Description | | Incorporated by Reference/Attached |
10197 | | | | Attached |
| | | | |
| 101 | | Inline Interactive Data Files | | Attached |
| | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | AttachedEmbedded Within the Inline XBRL Document |
* | * Indicates exhibits that describe or evidence management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10–K. ITEM 16. FORM 10–K SUMMARY Not included.
SIGNATURES | | | | | | | | | | | | | | | Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be filed as exhibits to this Form10-K. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized
| | | | | | signed on its behalf by the undersigned, thereunto duly authorized | | | | | | Horizon Bancorp, Inc.
Registrant | | | | | | | Date: March 15, 2024 | | By: | | /s/ Thomas M. Prame | | Date: February 28, 2018 | | | By: | | /s/ CraigThomas M. Dwight
| | | | | | | Craig M. Dwight | | | | | | | Chairman and Prame
Chief Executive Officer (Principal
Executive Officer) | | | | | | Date: February 28, 2018March 15, 2024 | | By: | | | By: | | /s/ Mark E. Secor | | | | | | | Mark E. Secor | | | | | | |
Chief Financial Officer (Principal
(Principal Financial Officer and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | |
| Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | | Date | | Signature and Title | | | | | | February 28, 2018March 15, 2024 | | /s/ Craig M. Dwight | | | Craig M. Dwight, Chairman of the Board Chief Executive Officer and Director
| | | | | | | March 15, 2024 | | /s/ Kevin W. Ahern | | February 28, 2018 | /s/ Susan D. Aaron
Kevin W. Ahern, Director | | | | Susan D. Aaron, Director | | | March 15, 2024 | | February 28, 2018 | | /s/ Eric P. Blackhurst | | | Eric P. Blackhurst, Director | | | | | | | March 15, 2024 | | /s/ Lawernce E. Burnell | | February 28, 2018 | /s/ Lawrence E. Burnell
| | | LawrenceLawernce E. Burnell, Director | | | | | | February 28, 2018March 15, 2024 | | /s/ James B. Dworkin | | | James B. Dworkin, Director | | | | | | | March 15, 2024 | | /s/ Julie Scheck Freigang | | February 28, 2018 | /s/ Daniel F. Hopp
Julie Scheck Freigang, Director | | | | | | | March 15, 2024 | | Daniel F. Hopp, Director/s/ Brian W. Maass | | | Brian W. Maass, Director | | February 28, 2018 | | | | | March 15, 2024 | | /s/ Michele M. Magnuson | | | Michele M. Magnuson, Director |
| | | | Date
| | Signature and Title
| | | March 15, 2024 | | February 28, 2018 | | /s/ Larry N. Middleton
| | | Larry N. Middleton, Director | | | February 28, 2018 | | /s/ Peter L. Pairitz
| | | Peter L. Pairitz, Director | | | February 28, 2018 | | /s/ Steven W. Reed | | | Steven W. Reed, Director | | | | | | | March 15, 2024 | | /s/ Vanessa P. Williams | | February 28, 2018 | /s/ Spero W. Valavanis
| | | Spero W. Valavanis,Vanessa P. Williams, Director | | | February 28, 2018 | | /s/ Maurice F. Winkler, III
| | | Maurice F. Winkler, III, Director |
146
|
