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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________to
Commission file number 0-10792
HORIZON BANCORP, INC.
(Exact name of registrant as specified in its charter) | | | | | |
Indiana | 35-1562417 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
515 Franklin Street, Michigan City, Indiana 46360
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (219) 879-0211
Former name, former address and former fiscal year, if changed since last report: N/A
____________________________
Securities 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, no par value | | HBNC | | The NASDAQ Stock Market, LLC |
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | |
Large Accelerated Filer | ☐ | Accelerated Filer | ☒ |
Non-accelerated Filer | ☐ | 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 43,572,796 shares of Common Stock, no par value, at May 4, 2022.
HORIZON BANCORP, INC.
FORM 10–Q
INDEX
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
HORIZON BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollar Amounts in Thousands) | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (Unaudited) | | |
Assets | | | |
Cash and due from banks | $ | 120,954 | | | $ | 593,508 | |
Interest earning time deposits | 4,046 | | | 4,782 | |
Investment securities, available for sale | 1,112,512 | | | 1,160,812 | |
Investment securities, held to maturity (fair value of $1,827,845 and $1,559,991) | 2,006,129 | | | 1,552,443 | |
Loans held for sale | 3,781 | | | 12,579 | |
Loans, net of allowance for credit losses of $52,508 and $54,286 | 3,659,209 | | | 3,590,331 | |
Premises and equipment, net | 93,075 | | | 93,441 | |
Federal Home Loan Bank stock | 24,242 | | | 24,440 | |
Goodwill | 154,572 | | | 154,572 | |
Other intangible assets | 20,016 | | | 20,941 | |
Interest receivable | 27,476 | | | 26,137 | |
Cash value of life insurance | 97,660 | | | 97,150 | |
Other assets | 96,656 | | | 80,753 | |
Total assets | $ | 7,420,328 | | | $ | 7,411,889 | |
Liabilities | | | |
Deposits | | | |
Non–interest bearing | $ | 1,325,570 | | | $ | 1,360,338 | |
Interest bearing | 4,525,927 | | | 4,442,653 | |
Total deposits | 5,851,497 | | | 5,802,991 | |
Borrowings | 728,664 | | | 712,739 | |
Subordinated notes | 58,786 | | | 58,750 | |
Junior subordinated debentures issued to capital trusts | 56,850 | | | 56,785 | |
Interest payable | 1,420 | | | 2,235 | |
Other liabilities | 45,661 | | | 55,180 | |
Total liabilities | 6,742,878 | | | 6,688,680 | |
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 43,874,763 and 43,766,931 shares, Outstanding 43,572,796 and 43,547,942 shares | — | | | — | |
Additional paid-in capital | 351,522 | | | 352,122 | |
Retained earnings | 380,700 | | | 363,742 | |
Accumulated other comprehensive income (loss) | (54,772) | | | 7,345 | |
Total stockholders’ equity | 677,450 | | | 723,209 | |
Total liabilities and stockholders’ equity | $ | 7,420,328 | | | $ | 7,411,889 | |
See notes to condensed consolidated financial statements
HORIZON BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Dollar Amounts in Thousands, Except Per Share Data)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
Interest Income | | | | | | | |
Loans receivable | $ | 37,879 | | | $ | 40,818 | | | | | |
Investment securities – taxable | 7,506 | | | 1,548 | | | | | |
Investment securities – tax exempt | 6,697 | | | 5,223 | | | | | |
Total interest income | 52,082 | | | 47,589 | | | | | |
Interest Expense | | | | | | | |
Deposits | 1,496 | | | 2,343 | | | | | |
Borrowed funds | 1,080 | | | 1,269 | | | | | |
Subordinated notes | 880 | | | 880 | | | | | |
Junior subordinated debentures issued to capital trusts | 455 | | | 559 | | | | | |
Total interest expense | 3,911 | | | 5,051 | | | | | |
Net Interest Income | 48,171 | | | 42,538 | | | | | |
Credit loss expense (recovery) | (1,386) | | | 367 | | | | | |
Net Interest Income after Credit Loss Expense (Recovery) | 49,557 | | | 42,171 | | | | | |
Non–interest Income | | | | | | | |
Service charges on deposit accounts | 2,795 | | | 2,234 | | | | | |
Wire transfer fees | 159 | | | 255 | | | | | |
Interchange fees | 2,780 | | | 2,340 | | | | | |
Fiduciary activities | 1,503 | | | 1,743 | | | | | |
Gains on sale of investment securities (includes $0 and $914 for the three months ended March 31, 2022 and 2021, respectively, related to accumulated other comprehensive earnings reclassifications) | — | | | 914 | | | | | |
Gain on sale of mortgage loans | 2,027 | | | 5,296 | | | | | |
Mortgage servicing income net of impairment or recovery | 3,489 | | | 213 | | | | | |
Increase in cash value of bank owned life insurance | 510 | | | 511 | | | | | |
| | | | | | | |
Other income | 892 | | | 367 | | | | | |
Total non–interest income | 14,155 | | | 13,873 | | | | | |
Non–interest Expense | | | | | | | |
Salaries and employee benefits | 19,735 | | | 16,871 | | | | | |
Net occupancy expenses | 3,561 | | | 3,318 | | | | | |
Data processing | 2,537 | | | 2,376 | | | | | |
Professional fees | 314 | | | 544 | | | | | |
Outside services and consultants | 2,525 | | | 1,702 | | | | | |
Loan expense | 2,545 | | | 2,822 | | | | | |
FDIC insurance expense | 725 | | | 800 | | | | | |
Other losses | 168 | | | 283 | | | | | |
Other expense | 4,500 | | | 3,456 | | | | | |
Total non–interest expense | 36,610 | | | 32,172 | | | | | |
Income Before Income Taxes | 27,102 | | | 23,872 | | | | | |
Income tax expense (includes $0 and $192 for the three months ended March 31, 2022 and 2021, respectively, related to income tax expense from reclassification items) | 3,539 | | | 3,450 | | | | | |
Net Income | $ | 23,563 | | | $ | 20,422 | | | | | |
Basic Earnings Per Share | $ | 0.54 | | | $ | 0.46 | | | | | |
Diluted Earnings Per Share | 0.54 | | | 0.46 | | | | | |
See notes to condensed consolidated financial statements
HORIZON BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollar Amounts in Thousands)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31 | | |
| 2022 | | 2021 | | | | |
Net Income | $ | 23,563 | | | $ | 20,422 | | | | | |
Other Comprehensive Income (Loss) | | | | | | | |
Change in fair value of derivative instruments: | | | | | | | |
Change in fair value of derivative instruments for the period | 2,746 | | | 3,053 | | | | | |
Income tax effect | (577) | | | (641) | | | | | |
Changes from derivative instruments | 2,169 | | | 2,412 | | | | | |
Change in securities: | | | | | | | |
Unrealized depreciation for the period on AFS securities | (80,824) | | | (23,885) | | | | | |
Accretion (amortization) from transfer of securities from available for sale to held to maturity securities | (551) | | | 17 | | | | | |
Reclassification adjustment for securities gains realized in income | — | | | (914) | | | | | |
Income tax effect | 17,089 | | | 5,204 | | | | | |
Unrealized losses on securities | (64,286) | | | (19,578) | | | | | |
Other Comprehensive Loss, Net of Tax | (62,117) | | | (17,166) | | | | | |
Comprehensive Income (Loss) | $ | (38,554) | | | $ | 3,256 | | | | | |
See notes to condensed consolidated financial statements
HORIZON BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(Dollar Amounts in Thousands, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total |
Balances, January 1, 2021 | $ | — | | | $ | — | | | $ | 362,945 | | | $ | 301,419 | | | $ | 27,852 | | | $ | 692,216 | |
Net income | — | | | — | | | — | | | 20,422 | | | — | | | 20,422 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (17,166) | | | (17,166) | |
Amortization of unearned compensation | — | | | — | | | 335 | | | — | | | — | | | 335 | |
Exercise of stock options | — | | | — | | | 653 | | | — | | | — | | | 653 | |
Stock option expense | — | | | — | | | 27 | | | — | | | — | | | 27 | |
Net settlement of share awards | — | | | — | | | (1,347) | | | — | | | — | | | (1,347) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Cash dividends on common stock ($0.13 per share) | — | | | — | | | — | | | (5,761) | | | — | | | (5,761) | |
Balances, March 31, 2021 | $ | — | | | $ | — | | | $ | 362,613 | | | $ | 316,080 | | | $ | 10,686 | | | $ | 689,379 | |
| | | | | | | | | | | |
Balances, January 1, 2022 | $ | — | | | $ | — | | | $ | 352,122 | | | $ | 363,742 | | | $ | 7,345 | | | $ | 723,209 | |
Net income | — | | | — | | | — | | | 23,563 | | | — | | | 23,563 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (62,117) | | | (62,117) | |
| | | | | | | | | | | |
Amortization of unearned compensation | — | | | — | | | 516 | | | — | | | — | | | 516 | |
Exercise of stock options | — | | | — | | | 94 | | | — | | | — | | | 94 | |
Stock option expense | — | | | — | | | 13 | | | — | | | — | | | 13 | |
Net settlement of share awards | — | | | — | | | (1,671) | | | — | | | — | | | (1,671) | |
| | | | | | | | | | | |
Stock retirement plans | — | | | — | | | 448 | | | — | | | — | | | 448 | |
Cash dividends on common stock ($0.15 per share) | — | | | — | | | — | | | (6,605) | | | — | | | (6,605) | |
Balances, March 31, 2022 | $ | — | | | $ | — | | | $ | 351,522 | | | $ | 380,700 | | | $ | (54,772) | | | $ | 677,450 | |
See notes to condensed consolidated financial statements
HORIZON BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollar Amounts in Thousands)
| | | | | | | | | | | |
| Three Months Ended |
| March 31 |
| 2022 | | 2021 |
Operating Activities | | | |
Net income | $ | 23,563 | | | $ | 20,422 | |
Items not requiring (providing) cash | | | |
Provision for (recovery of) credit losses | (1,386) | | | 367 | |
Depreciation and amortization | 2,641 | | | 2,322 | |
Share based compensation | 529 | | | 362 | |
Amortization of mortgage servicing rights | 750 | | | 962 | |
Mortgage servicing rights net impairment | (2,594) | | | (236) | |
Premium amortization on securities, net | 3,068 | | | 2,224 | |
Gain on sale of investment securities | — | | | (914) | |
Gain on sale of mortgage loans | (2,027) | | | (5,296) | |
Proceeds from sales of loans | 92,161 | | | 137,060 | |
Loans originated for sale | (81,336) | | | (126,024) | |
Change in cash value life insurance | (510) | | | (511) | |
Gain on sale of other real estate owned | (411) | | | — | |
Net change in: | | | |
Interest receivable | (1,339) | | | 445 | |
Interest payable | (815) | | | (940) | |
Other assets | 4,730 | | | 8,284 | |
Other liabilities | (9,969) | | | (5,156) | |
Net cash provided by operating activities | 27,055 | | | 33,371 | |
Investing Activities | | | |
Purchases of securities available for sale | (180,260) | | | (230,708) | |
Proceeds from sales, maturities, calls and principal repayments of securities available for sale | 23,089 | | | 76,869 | |
Purchases of securities held to maturity | (345,794) | | | — | |
Proceeds from maturities of securities held to maturity | 13,136 | | | 6,623 | |
Net change in interest earning time deposits | 736 | | | 982 | |
Change in FHLB stock | 198 | | | — | |
Net change in loans | (67,592) | | | 199,428 | |
Proceeds on the sale of OREO and repossessed assets | 1,606 | | | 507 | |
Premises and equipment expenditures | (1,078) | | | (1,118) | |
| | | |
| | | |
| | | |
| | | |
Net cash used in investing activities | (555,959) | | | 52,583 | |
Financing Activities | | | |
Net change in deposits | 48,506 | | | 190,683 | |
Proceeds from borrowings | 228,597 | | | 2,909 | |
Repayment of borrowings | (225,000) | | | (107) | |
Net change in repurchase agreements | 12,429 | | | 6,641 | |
Net settlement of share awards | (1,671) | | | (1,347) | |
Exercise of stock options | 94 | | | 653 | |
| | | |
Dividends paid on common stock | (6,605) | | | (5,761) | |
Net cash provided by financing activities | 56,350 | | | 193,671 | |
Net Change in Cash and Cash Equivalents | (472,554) | | | 279,625 | |
Cash and Cash Equivalents, Beginning of Period | 593,508 | | | 249,711 | |
Cash and Cash Equivalents, End of Period | $ | 120,954 | | | $ | 529,336 | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollar Amounts in Thousands)
| | | | | | | | | | | |
Additional Supplemental Information | | | |
Interest paid | $ | 4,726 | | | $ | 5,991 | |
Income taxes paid | — | | | — | |
Transfer of loans to other real estate and repossessed assets | 100 | | | 449 | |
| | | |
| | | |
See notes to condensed consolidated financial statements
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 1 - Accounting Policies
The accompanying unaudited condensed consolidated financial statements include the accounts of Horizon Bancorp, Inc. (“Horizon” or the “Company”) and its wholly-owned subsidiaries, including Horizon Bank (“Horizon Bank” or the “Bank”), which is an Indiana commercial bank. All inter–company balances and transactions have been eliminated. The results of operations for the periods ended March 31, 2022 and March 31, 2021 are not necessarily indicative of the operating results for the full year of 2022 or 2021. The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of Horizon’s management, necessary to fairly present the financial position, results of operations and cash flows of Horizon for the periods presented. Those adjustments consist only of normal recurring adjustments.
Certain information and note disclosures normally included in Horizon’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Horizon’s Annual Report on Form 10–K for 2021 filed with the Securities and Exchange Commission on March 9, 2022. The condensed consolidated balance sheet of Horizon as of December 31, 2021 has been derived from the audited balance sheet as of that date.
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 March 31, 2022, Horizon had repurchased a total of 803,349 shares at an average price per share of $16.89.
Basic earnings per share is computed by dividing net income available to common shareholders (net income less dividend requirements for preferred stock and accretion of preferred stock discount) by the weighted–average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
The following table shows computation of basic and diluted earnings per share.
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31 | | |
| 2022 | | 2021 | | | | |
Basic earnings per share | | | | | | | |
Net income | $ | 23,563 | | | $ | 20,422 | | | | | |
Weighted average common shares outstanding | 43,554,713 | | | 43,919,549 | | | | | |
Basic earnings per share | $ | 0.54 | | | $ | 0.46 | | | | | |
| | | | | | | |
Diluted earnings per share | | | | | | | |
Net income | $ | 23,563 | | | $ | 20,422 | | | | | |
Weighted average common shares outstanding | 43,554,713 | | | 43,919,549 | | | | | |
Effect of dilutive securities: | | | | | | | |
Restricted stock | 129,793 | | | 102,048 | | | | | |
Stock options | 50,050 | | | 50,984 | | | | | |
Weighted average common shares outstanding | 43,734,556 | | | 44,072,581 | | | | | |
Diluted earnings per share | $ | 0.54 | | | $ | 0.46 | | | | | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands, Except Per Share Data)
There were 1,000 shares for the three months ended March 31, 2022, which were not included in the computation of diluted earnings per share because they were non–dilutive. There were 138,010 shares for the three months ended March 31, 2021, which were not included in the computation of diluted earnings per share because they were non–dilutive.
Horizon has share–based employee compensation plans, which are described in the notes to the financial statements included in the December 31, 2021 Annual Report on Form 10–K. Also, the Company's shareholders approved the 2021 Omnibus Equity Incentive Plan at its Annual Meeting on May 6, 2021, adding 1.4 million additional shares to the plan and with no other significant changes from the Company's previous plan.
Revision of Previously Issued Financial Statements
We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10–Q related to immaterial errors. The errors relate to sold commercial loan participation balances which do not qualify under accounting guidance as sales transaction under Accounting Standards Codification Topic 860 – Transfers and Servicing. The correction of this error resulted in an increase in loans, net of allowance for credit losses and borrowings on the Company's consolidated condensed balance sheet.
We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our Annual Reports on Form 10–K for the year ended December 31, 2021, or for any quarterly periods included therein.
The following tables present the revisions to the line items of our previously issued financial statements to reflect the correction of the errors:
| | | | | | | | | | | | | | | | | |
Consolidated Balance Sheet | | | | | |
As of December 31, 2021 | As Reported | | Adjustment | | As Revised |
Loans, net of allowance for credit losses | $ | 3,553,345 | | | $ | 36,986 | | | $ | 3,590,331 | |
Total assets | 7,374,903 | | | 36,986 | | | 7,411,889 | |
Borrowings | 675,753 | | | 36,986 | | | 712,739 | |
Total liabilities | 6,651,694 | | | 36,986 | | | 6,688,680 | |
Total liabilities and stockholders' equity | 7,374,903 | | | 36,986 | | | 7,411,889 | |
| | | | | | | | | | | | | | | | | |
Consolidated Statements of Cash Flows | | | | | |
Three Months Ended March 31, 2021 | As Reported | | Adjustment | | As Revised |
Net change in loans | $ | 202,290 | | | $ | (2,862) | | | $ | 199,428 | |
Net cash provided by investing activities | 55,445 | | | (2,862) | | | 52,583 | |
Proceeds from borrowings | 47 | | | 2,862 | | | 2,909 | |
| | | | | |
| | | | | |
Net cash provided by financing activities | 190,809 | | | 2,862 | | | 193,671 | |
Net Change in Cash and Cash Equivalents | 279,625 | | | — | | | 279,625 | |
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands, Except Per Share Data)
Accounting Guidance Issued But Not Yet Adopted
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 2022–02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, in March 2022. These amendments eliminate the 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 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 scope of Subtopic 326–20. The guidance is 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 early adopt ASU 2022–02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is assessing ASU 2022–02 and its impact on its accounting and disclosures.
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 rates 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 as 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 relationships that reference LIBOR or another reference rate expected to be discontinued. 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 effective 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 probability 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 reference rate reform.
The Company conducted monthly meetings to address contracts and hedge accounting relationships that reference LIBOR. All contracts referencing LIBOR as an interest rate have been identified and have been rewritten or refinanced as of March 31, 2022, except for commercial loan interest rate swaps. Hedge accounting relationships referencing LIBOR will be modified by the counter parties. The Company believes the adoption of this guidance on activities subsequent to December 31, 2020 through December 31, 2022 will not have a material impact on the consolidated financial statements.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 2 – Acquisitions
On September 17, 2021, Horizon Bank completed the purchase and assumption of certain assets and liabilities of 14 former TCF National Bank (“TCF”) branches in 11 Michigan counties. Net cash of $618.2 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans of $212.0 million, fixed assets of $6.9 million, cash of $4.0 million and a 1.75% premium on deposits. Customer deposit balances were recorded at $846.4 million and a core deposit intangible of $1.6 million was recorded in the transaction, which will be amortized over 10 years on a straight line basis. Goodwill of $3.3 million was generated in the transaction.
Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the purchase price for the TCF branches 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.
| | | | | | | | | | | | | | | | | | | | |
Assets | | | | Liabilities | | |
Cash and due from banks | | $ | 4,012 | | | Deposits | | |
Loans | | | | Non-interest bearing | | $ | 181,403 | |
Commercial | | 101,327 | | | NOW accounts | | 303,050 | |
Residential mortgage | | 56,499 | | | Savings and money market | | 262,488 | |
Consumer | | 54,212 | | | Certificates of deposit | | 99,468 | |
Total loans | | 212,038 | | | Total deposits | | 846,409 | |
Premises and equipment, net | | 6,901 | | | Interest payable | | 16 | |
Goodwill | | 3,334 | | | Other liabilities | | 1,278 | |
Core deposit intangible | | 1,630 | | | | | |
Interest receivable | | 519 | | | | | |
Other assets | | 1,102 | | | | | |
Total assets purchased | | $ | 229,536 | | | Total liabilities assumed | | $ | 847,703 | |
| | | | | | |
Net cash received | | $ | (618,167) | | | | | |
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. Management continues to complete its evaluation to determine if any loans were purchased with credit deterioration.
HORIZON BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands, Except Per Share Data)
Note 3 – Securities
The fair value of securities is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available for sale | | | | | | | |
U.S. Treasury and federal agencies | $ | 293,914 | | | $ | — | | | $ | (11,394) | | | $ | 282,520 | |
State and municipal | 510,936 | | | 1,687 | | | (43,571) | | | 469,052 | |
Federal agency collateralized mortgage obligations | 50,201 | | | 20 | | | (629) | | | 49,592 | |
Federal agency mortgage-backed pools | 216,411 | | | 138 | | | (14,114) | | | 202,435 | |
Private labeled mortgage-backed pools | 30,239 | | | 84 | | | (1,690) | | | 28,633 | |
Corporate notes | 84,434 | | | 444 | | | (4,598) | | | 80,280 | |
Total available for sale investment securities | $ | 1,186,135 | | | $ | 2,373 | | | $ | (75,996) | | | $ | 1,112,512 | |
Held to maturity | | | | | | | |
U.S. Treasury and federal agencies | $ | 292,459 | | | $ | — | | | $ | (19,962) | | | $ | 272,497 | |
State and municipal | 1,091,037 | | | 2,610 | | | (113,204) | | | 980,443 | |
Federal agency collateralized mortgage obligations | 56,841 | | | — | | | (4,236) | | | 52,605 | |
Federal agency mortgage-backed pools | 302,407 | | | — | | | (23,357) | | | 279,050 | |
Private labeled mortgage-backed pools | 98,719 | | | — | | | (7,959) | | | 90,760 | |
Corporate notes | 164,666 | | | — | | | (12,176) | | | 152,490 | |
Total held to maturity investment securities | $ | 2,006,129 | | | $ | 2,610 | | | $ | (180,894) | | | $ | 1,827,845 | |