Loans

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

Loans

Note 4 – Loans

	March 31 2019			December 31 2018
Commercial
Working capital and equipment	$	924,435		$	804,083
Real estate, including agriculture		1,076,077			834,037
Tax exempt		60,062			48,975
Other		29,005			34,495
Total		2,089,579			1,721,590
Real estate
1-4 family		808,401			659,754
Other		11,423			8,387
Total		819,824			668,141
Consumer
Auto		331,572			327,413
Recreation		14,262			13,975
Real estate/home improvement		40,998			39,587
Home equity		245,940			163,209
Unsecured		4,124			4,043
Other		2,814			1,254
Total		639,710			549,481
Mortgage warehouse		71,944			74,120
Total loans		3,621,057			3,013,332
Allowance for loan losses		(17,821	)		(17,820	)
Loans, net
	$	3,603,236		$	2,995,512

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 larger 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, the general economy or fluctuations in interest rates. The properties securing the Company’s commercial real estate portfolio are diverse in terms of property type, and 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 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 a pledge of collateral under Horizon’s agreement with the mortgage company. Each mortgage loan funded by Horizon undergoes an underwriting review by Horizon to the end investor guidelines and 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 reacquires the loan under its option within the agreement. Due to the reacquire feature contained in the agreement, the transaction does not qualify as a sale and therefore is accounted for as a secured borrowing with a 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, which is typically less than 30 days.

Based on the agreements with each mortgage company, at any time a mortgage company can reacquire from Horizon its 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 reacquire 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 purchase commitment and the mortgage company would not be able to reacquire 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.

	March 31, 2019
	Loan Balance			Interest Due		Deferred Costs/(Fees)			Recorded Investment
Owner occupied real estate	$	676,517		$	975	$	(1,687	)	$	675,805
Non-owner occupied real estate		833,803			1,645		(1,666	)		833,782
Residential spec homes		10,221			27		(3	)		10,245
Development & spec land		75,079			249		(16	)		75,312
Commercial and industrial		497,624			4,291		(293	)		501,622
Total commercial		2,093,244			7,187		(3,665	)		2,096,766
Residential mortgage		797,174			2,346		(1,943	)		797,577
Residential construction		24,593			43		—			24,636
Mortgage warehouse		71,944			480		—			72,424
Total real estate		893,711			2,869		(1,943	)		894,637
Direct installment		37,417			135		560			38,112
Indirect installment		317,629			750		—			318,379
Home equity		282,160			1,504		1,944			285,608
Total consumer		637,206			2,389		2,504			642,099
Total loans		3,624,161			12,445		(3,104	)		3,633,502
Allowance for loan losses		(17,821	)		—		—			(17,821	)
Net loans	$	3,606,340		$	12,445	$	(3,104	)	$	3,615,681

	December 31, 2018
	Loan Balance			Interest Due		Deferred Costs/(Fees)			Recorded Investment
Owner occupied real estate	$	561,463		$	1,240	$	(1,629	)	$	561,074
Non-owner occupied real estate		717,814			1,063		(1,839	)		717,038
Residential spec homes		5,199			13		(2	)		5,210
Development & spec land		46,547			131		(12	)		46,666
Commercial and industrial		394,346			3,149		(297	)		397,198
Total commercial		1,725,369			5,596		(3,779	)		1,727,186
Residential mortgage		646,136			1,861		(2,025	)		645,972
Residential construction		24,030			42		—			24,072
Mortgage warehouse		74,120			480		—			74,600
Total real estate		744,286			2,383		(2,025	)		744,644
Direct installment		38,173			103		566			38,842
Indirect installment		314,177			738		—			314,915
Home equity		194,766			973		1,799			197,538
Total consumer		547,116			1,814		2,365			551,295
Total loans		3,016,771			9,793		(3,439	)		3,023,125
Allowance for loan losses		(17,820	)		—		—			(17,820	)
Net loans	$	2,998,951		$	9,793	$	(3,439	)	$	3,005,305