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Acquisitions | 6 Months Ended
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Jun. 30, 2016
Business Combinations [Abstract] |
Acquisitions | Note 2 – Acquisitions 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 (the “Exchange Ratio”) 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 were 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 increased its deposit base and reduced 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. Loans with specific credit-related deterioration, since origination, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. The following table details the acquired loans that are accounted for in accordance with ASC 310-30 as of 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 June 30, 2016 and 2015 as if the Peoples and Peoples FSB acquisitions had occurred as of the beginning of the comparable prior reporting period.
|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30 |  |  | June 30 |  |  | June 30 |  |  | June 30 |
|  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Summary of Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net Interest Income |  | $ | 20,869 |  |  | $ | 20,829 |  |  | $ | 40,643 |  |  | $ | 40,690 |
Provision for Loan Losses |  |  | 232 |  |  |  | 1,936 |  |  |  | 764 |  |  |  | 2,580 |
Net Interest Income after Provision for Loan Losses |  |  | 20,637 |  |  |  | 18,893 |  |  |  | 39,879 |  |  |  | 38,110 |
Non-interest Income |  |  | 9,869 |  |  |  | 8,086 |  |  |  | 17,733 |  |  |  | 16,145 |
Non-Interest Expense |  |  | 21,555 |  |  |  | 19,852 |  |  |  | 41,302 |  |  |  | 39,014 |
Income before Income Taxes |  |  | 8,951 |  |  |  | 7,127 |  |  |  | 16,310 |  |  |  | 15,241 |
Income Tax Expense |  |  | 2,625 |  |  |  | 1,779 |  |  |  | 4,603 |  |  |  | 3,791 |
Net Income |  |  | 6,326 |  |  |  | 5,348 |  |  |  | 11,707 |  |  |  | 11,450 |
Net Income Available to Common Shareholders |  | $ | 6,326 |  |  | $ | 5,317 |  |  | $ | 11,665 |  |  | $ | 11,387 |
Basic Earnings Per Share |  | $ | 0.52 |  |  | $ | 0.46 |  |  | $ | 0.97 |  |  | $ | 0.99 |
Diluted Earnings Per Share |  | $ | 0.52 |  |  | $ | 0.45 |  |  | $ | 0.96 |  |  | $ | 0.96 |
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 three and six months ended June 30, 2015 includes $657,000, net of tax, of operating revenue from Peoples and approximately $95,000, net of tax, of non-recurring expenses directly attributable to the Peoples acquisition. The pro forma financial information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results. On June 1, 2016, Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (“Kosciusko”) and Horizon 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 3.0122 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 consists 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 582,287 shares of its common stock in the merger. Based upon the June 1, 2016 closing price of $24.85 per share of Horizon common stock, the transaction has an implied valuation of approximately $23.0 million. The Company has had approximately $1.6 million in costs related to the acquisition. These expenses are classified in the 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 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. Prior to the end of the one year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. If any adjustments are made to the preliminary assumptions (provisional amounts), disclosures will be made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date.
ASSETS |  |  |  |
Cash and due from banks |  | $ | 38,950 |
Investment securities, held to maturity |  |  | 1,191 |
Commercial |  |  | 67,310 |
Residential mortgage |  |  | 26,244 |
Consumer |  |  | 6,319 |
Total loans |  |  | 99,873 |
Premises and equipment, net |  |  | 1,466 |
FRB and FHLB stock |  |  | 582 |
Goodwill |  |  | 6,858 |
Core deposit intangible |  |  | 1,867 |
Interest receivable |  |  | 636 |
Cash value of life insurance |  |  | 2,745 |
Other assets |  |  | 1,245 |
Total assets purchased |  | $ | 155,413 |
Common shares issued |  | $ | 14,068 |
Cash paid |  |  | 8,513 |
Total estimated purchase price |  | $ | 22,581 |
LIABILITIES |  |  |  |
Deposits |  |  |  |
Non-interest bearing |  | $ | 28,549 |
NOW accounts |  |  | 35,213 |
Savings and money market |  |  | 26,953 |
Certificates of deposits |  |  | 32,771 |
Total deposits |  |  | 123,486 |
Borrowings |  |  | 8,303 |
Interest payable |  |  | 55 |
Other liabilities |  |  | 988 |
Total liabilities assumed |  | $ | 132,832 |
Of the total estimated purchase price of $22.6 million, $1.9 million has been allocated to core deposit intangible. Additionally, $6.9 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 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 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. Pro-forma statements were not presented due to the immateriality of the transaction. On July 18, 2016, Horizon completed the acquisition of LaPorte Bancorp, Inc., a Maryland corporation (“LaPorte Bancorp”) and Horizon 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 0.629 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 consists of 65% stock and 35% cash. LaPorte Bancorp shareholders owning fewer than 100 shares of common stock received $17.50 in cash for each common share. As a result of LaPorte stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 2,280,992 shares of its common stock in the merger. Based upon the July 18, 2016 closing price of $27.54 per share of Horizon common stock, the transaction has an implied valuation of approximately $101.7 million. As of July 18, 2016, LaPorte Bancorp had total assets of approximately $536.0 million, total deposits of approximately $370.9 million and total net loans of approximately $316.8 million. Utilizing July 15, 2016 financials for both Horizon and LaPorte Bancorp and an estimate of the fair market value adjustments associated with the merger, Horizon would have total assets of approximately $3.5 billion, total deposits of approximately $2.5 billion and total net loans of approximately $2.2 billion on a pro forma basis. The accounting for the business combination is not yet complete and therefore all required disclosures for a business combination have not been provided.

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