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Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 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 an interest rate swap agreement for a portion of its floating rate debt on July 20, 2018. The agreement provides for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a fixed rate of 2.81% on a notional amount of $50.0 million at March 31, 2023 and December 31, 2022. Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. This interest rate swap agreement matures on July 19, 2026. 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 March 31, 2023, 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 March 31, 2023, 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 non–interest income. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. 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 March 31, 2023, 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 Derivatives |  | Liability Derivatives
| March 31, 2023 |  | March 31, 2023
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – cash flow hedges | $ | 50,000 |  |  | $ | 1,418 |  |  | $ | — |  |  | $ | — |
Total derivatives designated as hedging instruments | 50,000 |  |  | 1,418 |  |  | — |  |  | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – fair value hedges | 530,858 |  |  | 33,446 |  |  | 530,858 |  |  | 33,446 |
Mortgage loan contracts | 11,907 |  |  | 37 |  |  | — |  |  | — |
Commitments to originate mortgage loans | 8,775 |  |  | 219 |  |  | — |  |  | — |
Total derivatives not designated as hedging instruments | 551,540 |  |  | 33,702 |  |  | 530,858 |  |  | 33,446 |
Total derivatives | $ | 601,540 |  |  | $ | 35,120 |  |  | $ | 530,858 |  |  | $ | 33,446 |
| Asset Derivatives |  | Liability Derivatives
| December 31, 2022 |  | December 31, 2022
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – cash flow hedges | $ | 50,000 |  |  | $ | 1,976 |  |  | $ | — |  |  | $ | — |
Total derivatives designated as hedging instruments | 50,000 |  |  | 1,976 |  |  | — |  |  | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – fair value hedges | 514,551 |  |  | 42,619 |  |  | 514,551 |  |  | 42,619 |
Mortgage loan contracts | — |  |  | — |  |  | 13,800 |  |  | 50 |
Commitments to originate mortgage loans | 12,179 |  |  | 284 |  |  | — |  |  | — |
Total derivatives not designated as hedging instruments | 526,730 |  |  | 42,903 |  |  | 528,351 |  |  | 42,669 |
Total derivatives | $ | 576,730 |  |  | $ | 44,879 |  |  | $ | 528,351 |  |  | $ | 42,669 |
The effect of the derivative instruments on the condensed consolidated statements of comprehensive income for the three–month periods ended March 31 is as follows:
|  |  |  |  | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative
|  |  | Three Months Ended
|  |  |  |  | March 31, 2023 |  | March 31, 2022
Derivatives in cash flow hedging relationship |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  | $ | (442) |  |  | $ | 2,169 |
The effect of the derivative designated as a hedging instrument on the condensed consolidated statements of income for the three–month periods ended March 31 is as follows:
| Location of gain (loss) recognized on derivative |  |  |  |  |  | Amount of Gain (Loss) Recognized on Derivative
|  | Three Months Ended
|  |  |  |  | March 31, 2023 |  | March 31, 2022
Derivative designated as hedging instruments |  |  |  |  |  |  |  |  |
Interest rate contracts – cash flow hedges | Interest expense – Borrowings |  |  |  |  |  | $ | 209 |  |  | $ | (340) |
Total |  |  |  |  |  |  | $ | 209 |  |  | $ | (340) |
The effect of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three–month periods ended March 31 is as follows:
| Location of gain (loss) recognized on derivative |  |  |  |  |  | Amount of Gain (Loss) Recognized on Derivative
|  | Three Months Ended
|  |  |  |  | March 31, 2023 |  | March 31, 2022
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |
Interest rate contracts – fair value hedge | Interest income – loans receivable |  |  |  |  |  | $ | 120 |  |  | $ | (112) |
Interest rate contracts – fair value hedge | Interest income – investment securities |  |  |  |  |  | 49 |  |  | (65) |
Mortgage loan contracts | Non–interest income – Gain on sale of loans |  |  |  |  |  | 87 |  |  | (348) |
Commitments to originate mortgage loans | Non–interest income – Gain on sale of loans |  |  |  |  |  | (65) |  |  | (675) |
Total |  |  |  |  |  |  | $ | 191 |  |  | $ | (1,200) |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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