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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

Note 9 – 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 June 30, 2015 and December 31, 2014. 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 June 30, 2015, 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 June 30, 2015, 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 $111.7 million at June 30, 2015 and $102.7 million at December 31, 2014.

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 June 30, 2015, 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:

 

     Asset Derivative
        June 30, 2015        		      Liability Derivatives
June 30, 2015		  
Derivatives designated as hedging instruments (Unaudited)    Balance Sheet
Location		    Fair Value      Balance Sheet
Location		    Fair Value  

Interest rate contracts

    Loans    $ —         Other liabilities    $ 1,022   

Interest rate contracts

    Other Assets      1,022       Other liabilities      3,155   
     

 

 

        

 

 

  

Total derivatives designated as hedging instruments

         1,022            4,177   
     

 

 

        

 

 

  

Derivatives not designated as hedging instruments

            

Mortgage loan contracts

    Other assets      751       Other liabilities      32   
     

 

 

        

 

 

  

Total derivatives not designated as hedging instruments

         751            32   
     

 

 

        

 

 

  

Total derivatives

       $ 1,773          $ 4,209   
     

 

 

        

 

 

  

 

     Asset Derivative
December 31, 2014		      Liability Derivatives
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   
     

 

 

        

 

 

  

 

The effect of the derivative instruments on the condensed consolidated statement of income for the three and six-month periods ending June 30 is as follows:

 

     Comprehensive Income on Derivative
(Effective Portion)		      Comprehensive Income on Derivative
(Effective Portion)		  
     Three Months Ended June 30      Six Months Ended June 30  

Derivative in cash flow hedging relationship

    2015
(Unaudited)		      2014
(Unaudited)		      2015
(Unaudited)		      2014
(Unaudited)		  

Interest rate contracts

    $ 332       $ (206 )     $ 118       $ (352 ) 

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     Amount of Gain (Loss) Recognized on Derivative  
        Three Months Ended June 30     Six Months Ended June 30  

Derivative in fair value
hedging relationship

  

Location of gain (loss)
recognized on derivative

   2015
(Unaudited)		     2014
(Unaudited)		     2015
(Unaudited)		     2014
(Unaudited)		  

Interest rate contracts

  

Interest income - loans

   $ (1,186 )    $ 544      $ (186 )    $ 751   

Interest rate contracts

  

Interest income - loans

     1,186        (544 )      186        (751 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

     $ —        $ —        $ —        $ —     
   

 

 

    

 

 

    

 

 

    

 

 

  

 

        Amount of Gain (Loss) Recognized on Derivative     Amount of Gain (Loss) Recognized on Derivative  
        Three Months Ended June 30     Six Months Ended June 30  

Derivative not designated as
hedging relationship

  

Location of gain (loss)
recognized on derivative

   2015
(Unaudited)		     2014
(Unaudited)		     2015
(Unaudited)		     2014
(Unaudited)		  

Mortgage contracts

  

Other income - gain on sale of loans

   $       83      $  210      $  272      $  450