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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

Note 22 – Derivative Financial Instruments

Cash Flow Hedges

As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into interest rate swap agreements for a portion of its floating rate debt. The agreements provide for the Company to receive interest from the counterparty at three month LIBOR and to pay interest to the counterparty at a weighted average fixed rate of 6.14% on a notional amount of $30.5 million at December 31, 2014 and $30.5 million at December 31, 2013. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

Management has designated the interest rate swap agreement as a cash flow hedging instrument. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. At December 31, 2014, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

Fair Value Hedges

Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item. The Company enters into fixed rate loan agreements as part of its lending policy. To mitigate the risk of changes in fair value based on fluctuations in interest rates, the Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. At December 31, 2014, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

The change in fair value of both the hedge instruments and the underlying loan agreements are recorded as gains or losses in interest income. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. The notional amounts of the loan agreements being hedged were $102.7 million at December 31, 2014 and $95.3 million at December 31, 2013.

Other Derivative Instruments

The Company enters into non-hedging derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business. At December 31, 2014, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

The change in fair value of both the forward sale commitments and commitments to originate mortgage loans were recorded and the net gains or losses included in the Company’s gain on sale of loans.

 

The following tables summarize the fair value of derivative financial instruments utilized by Horizon Bancorp:

 

     Asset Derivative      Liability Derivatives  
     December 31, 2014      December 31, 2014  
Derivatives designated as hedging instruments (Unaudited)    Balance Sheet
Location		    Fair
Value		      Balance Sheet
Location		    Fair Value  

Interest rate contracts

    Loans    $ —         Other liabilities    $ 1,208   

Interest rate contracts

    Other Assets      1,208       Other liabilities      3,339   
     

 

 

        

 

 

  

Total derivatives designated as hedging instruments

   1,208      4,547   
     

 

 

        

 

 

  

Derivatives not designated as hedging instruments

Mortgage loan contracts

 Other assets   447    Other liabilities   —     
     

 

 

        

 

 

  

Total derivatives not designated as hedging instruments

   447      —     
     

 

 

        

 

 

  

Total derivatives

 $ 1,655    $ 4,547   
     

 

 

        

 

 

  

 

     Asset Derivative      Liability Derivatives  
     December 31, 2013      December 31, 2013  
Derivatives designated as hedging instruments (Unaudited)    Balance Sheet
Location		    Fair Value      Balance Sheet
Location		    Fair Value  

Interest rate contracts

    Loans    $ 7       Other liabilities    $ (53 ) 

Interest rate contracts

    Other Assets      (60 )     Other liabilities      2,826   
     

 

 

        

 

 

  

Total derivatives designated as hedging instruments

   (53 )    2,773   
     

 

 

        

 

 

  

Derivatives not designated as hedging instruments

Mortgage loan contracts

 Other assets   212    Other liabilities   22   
     

 

 

        

 

 

  

Total derivatives not designated as hedging instruments

   212      22   
     

 

 

        

 

 

  

Total derivatives

 $ 159    $ 2,795   
     

 

 

        

 

 

  

The effect of the derivative instruments on the consolidated statement of income for the twelve month periods ended is as follows:

 

     Amount of Loss Recognized in Other Comprehensive
Income on Derivative (Effective Portion)		  
Derivative in cash flow    Years Ended December 31  

hedging relationship

    2014      2013      2012  

Interest rate contracts

    $ (332 )     $ 1,734       $ (376 ) 

FASB Accounting Standards Codification (“ASC”) Topic 820-10-20 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820-10-55 establishes a fair value hierarchy that emphasizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

 

          Amount of Gain (Loss) Recognized on Derivative  
Derivative in fair value    Location of gain (loss)    Years Ended December 31  

hedging relationship

    recognized on derivative    2014      2013      2012  

Interest rate contracts

    Interest income - loans    $ 1,261       $ (2,267 )     $ 28   

Interest rate contracts

    Interest income - loans      (1,261 )       2,267         (28 ) 
     

 

 

     

 

 

     

 

 

  

Total

 $ —      $ —      $ —     
     

 

 

     

 

 

     

 

 

  
          Amount of Gain (Loss) Recognized on Derivative  
Derivative not designated    Location of gain (loss)    Years Ended December 31  

as hedging relationship

    recognized on derivative    2014      2013      2012  

Mortgage contracts

    Other income - gain on sale of loans    $ 256       $ (667 )     $ 196