Derivative Financial Instruments

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 provided for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counter party at a rate of 2.81% on a notional amount of $50.0 million at December 31, 2022. Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. The Company terminated this interest rate swap agreement on May 23, 2023 and recorded a related gain of $1.5 million as a reduction of interest expense.

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.

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. The Company has also entered into interest rate swap agreements on individual security agreements, converting the fixed rate security to a variable rate. At December 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 and security agreements are recorded as gains or losses in non–interest income. The fair value hedges are considered to be highly effective any 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 December 31, 2023, the Company’s fair values 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
	December 31, 2023				December 31, 2023
	Notional Amount		Fair Value		Notional Amount		Fair Value



Derivatives not designated as hedging instruments
Interest rate contracts – fair value hedges	558,164		26,556		514,881		24,024
Mortgage loan contracts	4,844		33		—		—
Commitments to originate mortgage loans	4,351		125		—		—
Total derivatives not designated as hedging instruments	567,359		26,714		514,881		24,024
Total derivatives	$	567,359	$	26,714	$	514,881	$	24,024


	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 hedge	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 consolidated statement of comprehensive income (loss) for the 12–month periods ended December 31 is as follows:


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative Years Ended December 31
	2023		2022		2021
Derivatives in cash flow hedging relationship
Interest rate contracts	$	(1,561)	$	4,463	$	3,610

The effect of derivatives designated as a hedging instrument on the consolidated statements of income for the 12–month periods ended December 31 is as follows:


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative Years Ended December 31
		2023		2022		2021
Derivative designated as hedging instruments
Interest rate contracts – cash flow hedges	Interest expense – Borrowings	$	1,832	$	(628)	$	(1,901)
Total		$	1,832	$	(628)	$	(1,901)

The effect of derivatives not designated as a hedging instrument on the consolidated statements of income for the 12–month periods ended December 31 is as follows:


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative Years Ended December 31
		2023		2022		2021
Derivative not designated as hedging instruments
Interest rate contracts – fair value hedge	Interest income – loans receivable	$	1,169	$	(39)	$	(372)
Interest rate contracts – fair value hedge	Interest income – investment securities	240		(99)		(267)
Mortgage loan contracts	Non–interest income – Gain on sale of loans	83		188		(238)
Commitments to originate mortgage loans	Non–interest income – Gain on sale of loans	(159)		(753)		(8)
Total		$	1,333	$	(703)	$	(885)