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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Our hedging policy allows the use of interest rate derivative instruments to manage our exposure to interest rate risk or hedge specified assets and liabilities. All derivative instruments are carried on the balance sheet at their estimated fair value and are recorded in other assets or other liabilities, as appropriate. 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. Under the agreement, the Company paid or received 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. Additionally, the Company entered into fair value hedges for certain of our fixed rate AFS municipal securities. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest 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. The change in fair value of both the hedge instruments and the underlying hedged item are recorded as gains or losses in non–interest income. At September 30, 2024, 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. Other Derivative Instruments From time to time, we may enter into certain interest rate swaps that are not designated as hedging instruments. These interest rate derivative contracts relate to transactions in which we enter into an interest rate swap with a customer while concurrently entering into an offsetting interest rate swap with a third-party financial institution. We agree to pay interest to the customer on a notional amount at a variable rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay a third-party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These interest rate derivative contracts allow our customers to effectively convert a variable rate loan to a fixed rate loan. 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 September 30, 2024, 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 our derivative financial instruments utilized by Horizon on a gross basis for the periods indicated.
| Asset Derivatives |  | Liability Derivatives
| September 30, 2024 |  | September 30, 2024
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – fair value hedges | $ | 40,113 |  |  | $ | 1,797 |  |  | $ | 1,445 |  |  | $ | 4 |
Total derivatives designated as hedging instruments | 40,113 |  |  | 1,797 |  |  | 1,445 |  |  | 4 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – customer accommodation | 524,919 |  |  | 15,427 |  |  | 524,919 |  |  | 15,427 |
Mortgage loan contracts | — |  |  | — |  |  | 14,794 |  |  | 8 |
Commitments to originate mortgage loans | 15,549 |  |  | 451 |  |  | — |  |  | — |
Total derivatives not designated as hedging instruments | 540,468 |  |  | 15,878 |  |  | 539,713 |  |  | 15,435 |
Total derivatives | $ | 580,581 |  |  | $ | 17,675 |  |  | $ | 541,158 |  |  | $ | 15,439 |
Total derivatives subject to enforceable master netting arrangements, gross | $ | 580,581 |  |  | $ | 17,675 |  |  | $ | 541,158 |  |  | $ | 15,439 |
Less: Gross amounts offset | — |  |  | — |  |  | — |  |  | — |
Total derivatives subject to enforceable master netting arrangements, net | $ | 580,581 |  |  | $ | 17,675 |  |  | $ | 541,158 |  |  | $ | 15,439 |
| Asset Derivatives |  | Liability Derivatives
| December 31, 2023 |  | December 31, 2023
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – fair value hedges | $ | 53,468 |  |  | $ | 2,950 |  |  | $ | — |  |  | $ | — |
Total derivatives designated as hedging instruments | 53,468 |  |  | 2,950 |  |  | — |  |  | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts – customer accommodation | 504,696 |  |  | 23,606 |  |  | 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 | 513,891 |  |  | 23,764 |  |  | 514,881 |  |  | 24,024 |
Total derivatives | $ | 567,359 |  |  | $ | 26,714 |  |  | $ | 514,881 |  |  | $ | 24,024 |
Total derivatives subject to enforceable master netting arrangements, gross | $ | 567,359 |  |  | $ | 26,714 |  |  | $ | 514,881 |  |  | $ | 24,024 |
Less: Gross amounts offset | — |  |  | — |  |  | — |  |  | — |
Total derivatives subject to enforceable master netting arrangements, net | $ | 567,359 |  |  | $ | 26,714 |  |  | $ | 514,881 |  |  | $ | 24,024 |
While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company has elected to not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. At September 30, 2024, the Company pledged marketable securities as collateral with a carrying value of $19.0 million. The effect of the derivative instruments on the condensed consolidated statements of comprehensive income (loss) for the three and nine month periods ended September 30 is as follows:
|  |  |  |  | Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative
|  |  | Three Months Ended |  | Nine Months Ended
|  |  |  |  | September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Derivatives in cash flow hedging relationship |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,561) |
The effect of the derivatives in cash flow hedging relationships on the condensed consolidated statements of income for three and nine month periods ended September 30 is as follows:
| Location of gain (loss) recognized |  |  |  |  |  | Amount of Gain (Loss) Recognized
|  | Three Months Ended |  | Nine Months Ended
|  |  |  |  | September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Derivatives in cash flow hedging relationship |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts – cash flow hedges | Interest expense – Borrowings |  |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,832 |
The effect of the derivative and the hedged item in fair value hedging relationships on the condensed consolidated statements of income for three and nine month periods ended September 30 is as follows:
| Location of gain (loss) recognized on derivative and hedged item |  | Amount of Gain (Loss) Recognized on Derivative and Hedged Item
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |
Interest rate contracts - fair value hedge | Interest income - loans receivable |  | $ | 317 |  |  | $ | 340 |  |  | $ | 982 |  |  | $ | 774 |
Hedged item |  | (317) |  |  | (340) |  |  | (982) |  |  | (774) |
Interest rate contracts - fair value hedge | Interest income - investment securities |  | — |  |  | 53 |  |  | — |  |  | 163 |
Hedged item |  | — |  |  | (53) |  |  | — |  |  | (163) |
Total |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The effect of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three and nine month periods ended September 30 is as follows:
| Location of gain (loss) recognized on derivative |  | Amount of Gain (Loss) Recognized on Derivative
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |
Mortgage loan contracts | Non-interest income - Gain on sale of loans |  | $ | (24) |  |  | $ | (6) |  |  | $ | 34 |  |  | $ | 26 |
Commitments to originate mortgage loans | Non-interest income - Gain on sale of loans |  | 378 |  |  | 182 |  |  | 181 |  |  | 118 |
Total |  |  | $ | 354 |  |  | $ | 176 |  |  | $ | 215 |  |  | $ | 144 |
The following tables summarize the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships.
| Amortized Cost of Hedged Items |  | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Items
| September 30, 2024 |  | December 31, 2023 |  | September 30, 2024 |  | December 31, 2023
Loans | $ | 38,787 |  |  | $ | 40,788 |  |  | $ | (1,793) |  |  | $ | (2,532) |

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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