Loans

12 Months Ended

Dec. 31, 2011

Loans [Abstract]

Loans

Note 4 — Loans

	December 31 2011			December 31 2010
Commercial
Working capital and equipment	$	170,325		$	151,414
Real estate, including agriculture		172,910			167,785
Tax exempt		3,818			2,925
Other		5,323			7,894
Total		352,376			330,018
Real estate
1—4 family		153,039			157,478
Other		4,102			4,957
Total		157,141			162,435
Consumer
Auto		134,686			136,014
Recreation		4,737			6,086
Real estate/home improvement		27,729			29,184
Home equity		92,249			90,580
Unsecured		3,183			3,091
Other		2,793			1,726
Total		265,377			266,681
Mortgage warehouse		208,299			123,743
Total		208,299			123,743
Total loans		983,193			882,877
Allowance for loan losses		(18,882	)		(19,064	)
Loans, net	$	964,311		$	863,813

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of property type, which are monitored for concentrations of credit. Management monitors and evaluates commercial real estate loans based on collateral, cash flow and risk grade criteria. As a general rule, the Company avoids financing single purpose projects, such as churches, schools, restaurants, and golf courses unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Real Estate and Consumer

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Mortgage Warehousing

Horizon’s mortgage warehouse lending has specific mortgage companies as customers of Horizon Bank. Individual mortgage loans originated by these mortgage companies are funded as a secured borrowing with pledge of collateral under Horizon’s agreement with the mortgage company. Each individual mortgage is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. In addition, Horizon takes possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan. At the time a loan is transferred to the secondary market, the mortgage company repurchases the loan under its option within the agreement. Due to the repurchase feature contained in the agreement, the transaction does not qualify as a sale and therefore is accounted for as a secured borrowing with pledge of collateral pursuant to the agreement with the mortgage company. When the individual loan is sold to the end investor by the mortgage company the proceeds from the sale of the loan are received by Horizon and used to pay off the loan balance with Horizon along with any accrued interest and any related fees. The remaining balance from the sale is forwarded to the mortgage company. These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected at the time each loan is sold. Fee income for each loan sold is collected when the loan is sold and no costs are deferred due to the term between each loan funding and related payoff is typically less than 30 days.

Based on the agreements with each mortgage company, at any time a mortgage company can repurchase from Horizon their outstanding loan balance on an individual mortgage and regain possession of the original note. Horizon also has the option to request that the mortgage company repurchase an individual mortgage. Should this occur, Horizon would return the original note and reassign the assignment of the mortgage to the mortgage company. Also, in the event that the end investor would not be able to honor the sales commitment and the mortgage company would not be able to repurchase its loan on an individual mortgage, Horizon would be able to exercise its rights under the agreement.

The following table shows the recorded investment of individual loan categories.

December 31, 2011	Loan Balance			Interest Due		Deferred Fees/(Costs)			Recorded Investment
Owner occupied real estate	$	131,893		$	383	$	30		$	132,306
Non owner occupied real estate		142,269			360		94			142,723
Residential spec homes		3,574			6		—			3,580
Development & spec land loans		8,739			16		—			8,755
Commercial and industrial		65,774			169		3			65,946
Total commercial		352,249			934		127			353,310
Residential mortgage		150,893			513		68			151,474
Residential construction		6,181			8		—			6,189
Mortgage warehouse		208,299			427		—			208,726
Total real estate		365,373			948		68			366,389
Direct installment		24,252			94		(360	)		23,986
Direct installment purchased		981			—		—			981
Indirect installment		127,751			420		(56	)		128,115
Home equity		113,561			559		(752	)		113,368
Total consumer		266,545			1,073		(1,168	)		266,450
Total loans		984,167			2,955		(973	)		986,149
Allowance for loan losses		(18,882	)		—		—			(18,882	)
Net loans	$	965,285		$	2,955	$	(973	)	$	967,267

December 31, 2010	Loan Balance			Interest Due		Deferred Fees/(Costs)			Recorded Investment
Owner occupied real estate	$	125,883		$	442	$	26		$	126,351
Non owner occupied real estate		136,986			364		87			137,437
Residential spec homes		2,257			4		(2	)		2,259
Development & spec land loans		6,439			14		—			6,453
Commercial and industrial		58,336			234		6			58,576
Total commercial		329,901			1,058		117			331,076
Residential mortgage		154,891			592		76			155,559
Residential construction		7,467			13		1			7,481
Mortgage warehouse		123,743			332		—			124,075
Total real estate		286,101			937		77			287,115
Direct installment		23,527			97		(338	)		23,286
Direct installment purchased		1,869			—		—			1,869
Indirect installment		128,122			491		7			128,620
Home equity		114,202			563		(708	)		114,057
Total consumer		267,720			1,151		(1,039	)		267,832
Total loans		883,722			3,146		(845	)		886,023
Allowance for loan losses		(19,064	)		—		—			(19,064	)
Net loans	$	864,658		$	3,146	$	(845	)	$	866,959