Acquisitions

12 Months Ended

Dec. 31, 2020

Salin Bancshares, Inc.

On March 26, 2019, Horizon completed the acquisition of Salin Bancshares, Inc. (“Salin”), an Indiana corporation, and Horizon Bank’s acquisition of Salin Bank and Trust Company (“Salin Bank”), an Indiana commercial bank and wholly–owned subsidiary of Salin, through mergers effective March 26, 2019. Under the terms of the Merger Agreement, shareholders of Salin received 23,907.5 shares of Horizon common stock and $87,417.17 in cash for each outstanding share of Salin common stock. Salin shares outstanding at the closing to be exchanged were 275, and the shares of Horizon common stock issued to Salin shareholders totaled 6,563,697. The Salin shareholders received cash in lieu of fractional shares. Based upon the March 25, 2019 closing price of $15.65 per share of Horizon common stock immediately prior to the effectiveness of the merger the transaction has an implied valuation of approximately $126.7 million. The Company incurred approximately $5.6 million in costs related to the acquisition. These expenses are classified in the non–interest expense section of the income statement and are primarily located in the data processing, professional fees, outside services and consultants and other expense line

items. As a result of the acquisition, the Company was able to increase its loan and deposit base and expects to reduce costs 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 estimates and assumptions that are subject to change, the final purchase price for the Salin 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. The measurement period adjustments will be calculated as if the accounting had been completed as of the acquisition date.


Assets			Liabilities
Cash and due from banks	$	152,745	Deposits
Investment securities, available for sale	54,319		Non–interest bearing	$	188,744
			NOW accounts	207,567
Loans			Savings and money market	274,504
Commercial	352,798		Certificates of deposit	70,529
Residential mortgage	131,008		Total deposits	741,344
Consumer	85,112
Total loans	568,918
			Borrowings	70,495
Premises and equipment, net	20,425		Subordinated debentures	18,376
FRB and FHLB stock	3,571		Interest payable	826
Goodwill	31,358		Other liabilities	8,759
Core deposit intangible	19,818
Interest receivable	2,488
Other assets	112,880
			Total liabilities assumed	$	839,800
Total assets purchased	$	966,522
Common shares issued	$	102,722
Cash paid	24,000
Total purchase price	$	126,722

Of the total purchase price of $126.7 million, $19.8 million has been allocated to core deposit intangible. Additionally, $31.4 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible is being amortized over 10 years on straight line basis.

The Company acquired various loans in the acquisition that had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and non-accrual status, borrower credit scores and recent loan–to–value percentages. Purchased credit–impaired loans are accounted for the under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310–30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current assumptions, such as a default rates, severity and prepayment speeds.

The following table details an estimate of the acquired loans that are accounted for in accordance with ASC 310–30 as of March 26, 2019.


Contractually required principal and interest at acquisition	$	22,672
Contractual cash flows not expected to be collected (nonaccretable differences)	6,694
Expected cash flows at acquisition	15,978
Interest component of expected cash flows (accretable discount)	735
Fair value of acquired loans accounted for under ASC310–30	$	15,243

Estimates of certain loans, those for which specific credit–related deterioration has occurred 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 results of operations of Salin 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, 2019 and 2018 as if the Salin acquisition had occurred as of the beginning of the comparable prior reporting periods.


	Years Ended December 31
	2019		2018
Summary of Operations:
Net Interest Income	$	168,693	$	157,194
Provision for Loan Losses	2,276		3,706
Net Interest Income after Provision for Loan Losses	166,417		153,488
Non-interest Income	43,472		39,918
Non-interest Expense	134,446		124,944
Income before Income Taxes	75,443		68,462
Income Tax Expense	13,246		10,216
Net Income	$	62,197	$	58,246
Basic Earnings per Share	$	1.43	$	1.52
Diluted Earnings per Share	$	1.43	$	1.51

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 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.