Allowance for Loan Losses

3 Months Ended

Mar. 31, 2020

Note 6 – Allowance for Credit and Loan Losses

The following tables represent, by loan portfolio segment, a summary of changes in the ACL on loans for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31, 2020
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	11,996	$	923	$	1,077	$	3,671	$	17,667
Impact of adopting ASC 326	10,832		4,048		—		4,911		19,791
Initial PCD Allowance	2,786		—		—		—		2,786
Provision for credit losses on loans	6,916		700		(22)		1,006		8,600
Charge-offs	(69)		(26)		—		(618)		(713)
Recoveries	89		9		—		211		309
Balance, end of period	$	32,550	$	5,654	$	1,055	$	9,181	$	48,440


	Three Months Ended March 31, 2019
	Commercial		Real Estate		Mortgage Warehouse		Consumer		Total
Balance, beginning of period	$	10,495	$	1,676	$	1,006	$	4,643	$	17,820
Provision for credit losses on loans	1,122		(115)		8		(651)		364
Charge-offs	(77)		—		—		(584)		(661)
Recoveries	16		27		—		255		298
Balance, end of period	$	11,556	$	1,588	$	1,014	$	3,663	$	17,821

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 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 2012 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.

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 National, Regional and Local Leading Economic Indexes, 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.

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.

The $8.6 million ACL provision included special allocations related to the potential impact on two portfolios, hotels and restaurants, as a result of the COVID-19 measures implemented by the states in which Horizon operates (Indiana and Michigan). Extensive analysis and monitoring of these portfolios has been undertaken and, while no loss has been specifically identified, the risks to certain borrowers are elevated and, therefore, the special allocation was deemed prudent.

The following table presents the balance in the allowance for credit loss and the recorded investment in loans, by portfolio segment, and based on impairment analysis as of December 31, 2019:


	December 31, 2019
	Commercial		Real Estate		Mortgage Warehousing		Consumer		Total
Allowance For Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	541	$	—	$	—	$	—	$	541
Collectively evaluated for impairment	11,455		923		1,077		3,671		17,126
Loans acquired with deteriorated credit quality	—		—		—		—		—
Total ending allowance balance	$	11,996	$	923	$	1,077	$	3,671	$	17,667
Loans:
Individually evaluated for impairment	$	7,347	$	—	$	—	$	—	$	7,347
Collectively evaluated for impairment	2,040,299		770,705		150,293		665,952		3,627,249
Loans acquired with deteriorated credit quality	—		—		—		—		—
Total ending loans balance	$	2,047,646	$	770,705	$	150,293	$	665,952	$	3,634,596