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Acquisition | 12 Months Ended
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Dec. 31, 2015
Business Combinations [Abstract] |
Acquisition | Note 2 – Acquisition On July 1, 2015, Horizon completed the acquisition of Peoples Bancorp, an Indiana corporation (“Peoples”) and Horizon Bank N.A.’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 0.95 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 2,192,202. Horizon’s stock price was $25.32 per share at the close of business on July 1, 2015. Based upon these numbers, the total value of the consideration for the acquisition was $78.1 million. The Company had approximately $4.9 million in costs related to the acquisition as of December 31, 2015. These expenses are classified in the other 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 will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce cost through economies of scale. 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, held to maturity |  |  | 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, $21.0 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over seven years on a straight line basis. The Company acquired the $228.6 million loan portfolio at a fair value discount of $4.8 million. The performing portion of the portfolio, $223.4 million, had an estimated fair value of $220.0 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-20. The Company acquired certain loans in the acquisition and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and non-accrual status, borrower credit scores and recent loan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds. Loan with specific credit-related deterioration, since origination, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. The following table details the acquired loans that are accounted for in accordance with ASC 310-30 as of July 1, 2015.
Contractually required principal and interest at acquisition |  | $ | 5,730 |
Contractual cash flows not expected to be collected (nonaccretable differences) |  |  | 715 |
Expected cash flows at acquisition |  |  | 5,015 |
Interest component of expected cash flows (accretable discount) |  |  | 647 |
Fair value of acquired loans accounted for under ASC 310-30 |  | $ | 4,368 |
The results of operations of Peoples and Peoples FSB have been included in the Company’s consolidated financial statements since the acquisition dates. The following schedule includes pro forma results for the periods ended December 31, 2015 and December 31, 2014 as if the Peoples and Peoples FSB acquisitions had occurred as of the beginning of the comparable prior reporting period.
|  | December 31, |  |  | December 31, |
|  | 2015 |  |  | 2014 |
Summary of Operations: |  |  |  |  |  |  |  |
Net Interest Income |  | $ | 80,688 |  |  | $ | 75,442 |
Provision for Loan Losses |  |  | 3,222 |  |  |  | 3,443 |
Net Interest Income after Provision for Loan Losses |  |  | 77,466 |  |  |  | 71,999 |
Non-interest Income |  |  | 32,295 |  |  |  | 29,928 |
Non-Interest Expense |  |  | 80,489 |  |  |  | 74,010 |
Income before Income Taxes |  |  | 29,272 |  |  |  | 27,917 |
Income Tax Expense |  |  | 7,359 |  |  |  | 6,560 |
Net Income |  |  | 21,913 |  |  |  | 21,357 |
Net Income Available to Common Shareholders |  | $ | 21,788 |  |  | $ | 21,372 |
Basic Earnings Per Share |  | $ | 1.90 |  |  | $ | 1.87 |
Diluted Earnings Per Share |  | $ | 1.85 |  |  | $ | 1.81 |
The pro forma information includes adjustments for interest income on loans, amortization of intangibles arising from the transaction, interest expense on deposits acquired, premises expense for the banking centers acquired and the related income tax effects. The pro forma information for the year ended 2015 includes $2.3 million, net of tax, of operating revenue from Peoples since the acquisition and approximately $3.3 million, net of tax, of non-recurring expenses directly attributable to the Peoples acquisition. The pro forma financial information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition consummated as of that time, nor is it intended to be a projection of future results. On April 3, 2014 Horizon closed its acquisition of SCB Bancorp, Inc. (“Summit”) and Horizon Bank N.A.’s acquisition of Summit Community Bank, through mergers effective as of that date. Under the final terms of the acquisition, the exchange ratio was 0.4904 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 570,820. Horizon’s stock price was $22.23 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). For the year ended December 31, 2014, the Company had approximately $1.3 million in costs related to the acquisition. These expenses are classified in the other 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 and reductions in transaction costs. The Company also expects to reduce cost through economies of scale. Under the purchase method of accounting, the total estimated purchase price is allocated to Summit’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 preliminary purchase price for the Summit acquisition is allocated as follows:
ASSETS |  |  |  |
Cash and due from banks |  | $ | 15,161 |
Commercial |  |  | 70,441 |
Residential mortgage |  |  | 43,448 |
Consumer |  |  | 10,192 |
Total loans |  |  | 124,081 |
Premises and equipment, net |  |  | 2,548 |
FRB and FHLB stock |  |  | 2,136 |
Goodwill |  |  | 8,428 |
Core deposit intangible |  |  | 822 |
Interest receivable |  |  | 347 |
Cash value of life insurance |  |  | 2,185 |
Other assets |  |  | 2,877 |
Total assets purchased |  | $ | 158,585 |
LIABILITIES |  |  |  |
Deposits |  |  |  |
Non-interest bearing |  | $ | 27,274 |
NOW accounts |  |  | 16,332 |
Savings and money market |  |  | 35,045 |
Certificates of deposits |  |  | 42,368 |
Total deposits |  |  | 121,019 |
Borrowings |  |  | 16,990 |
Interest payable |  |  | 52 |
Other liabilities |  |  | 599 |
Total liabilities assumed |  | $ | 138,660 |
Of the total estimated purchase price of $19.9 million, $822,000 has been allocated to core deposit intangible. Additionally, $8.4 million has been allocated to goodwill and $4.4 million of the purchase price is deductible and was assigned to the business assets. The core deposit intangible will be amortized over seven years on a straight line basis. The Company acquired loans in the acquisition and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and non-accrual status, borrower credit scores and recent loan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds. The Company acquired the $130.5 million loan portfolio at a fair value discount of $6.4 million. The performing portion of the portfolio, $106.2 million, had an estimated fair value of $104.6 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-20. Final estimates of loans for which specific credit-related deterioration has been identified, since origination, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. The following table details the acquired loans that are accounted for in accordance with ASC 310-30 as of April 3, 2014.
Contractually required principal and interest at acquisition |  | $ | 14,460 |
Contractual cash flows not expected to be collected (nonaccretable differences) |  |  | 3,146 |
Expected cash flows at acquisition |  |  | 11,314 |
Interest component of expected cash flows (accretable discount) |  |  | 1,688 |
Fair value of acquired loans accounted for under ASC 310-30 |  | $ | 9,626 |
Pro-forma statements were not presented due to the materiality of the transaction.

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