Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Horizon’s primary market risk exposure is interest rate risk. Interest rate risk (“IRR”) is the risk that Horizon’s earnings and capital will be adversely affected by changes in interest rates. The primary approach to IRR management is one that focuses on adjustments to the asset/liability mix in order to limit the magnitude of IRR.
Horizon’s exposure to interest rate risk arises from repricing or mismatch risk, embedded options risk, and yield curve risk. Repricing risk is the risk of adverse consequence from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect Horizon’s assets and liabilities. Basis risk is the risk that the spread, or rate difference, between instruments of similar maturities will change. Options risk arises whenever products give the customer the right, but not the obligation, to alter the quantity or timing of cash flows. Yield curve risk is the risk that changes in prevailing interest rates will affect instruments of different maturities by different amounts. Horizon’s objective is to remain reasonably neutral with respect to IRR. Horizon utilizes a variety of strategies to maintain this position, including the sale of mortgage loans on the secondary market, hedging certain balance sheet items using derivatives, varying maturities of FHLB advances, certificates of deposit funding and investment securities.
The table which follows provides information about Horizon’s financial instruments that were sensitive to changes in interest rates as of December 31, 2021. The table incorporates Horizon’s internal system generated data related to the maturity and repayment/withdrawal of interest earning assets and interest bearing liabilities. For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and related weighted–average interest rates by contractual maturities as well as the historical experience of Horizon related to the impact of interest rate fluctuations on the prepayment of residential loans and mortgage–backed securities. From a risk management perspective, Horizon believes that repricing dates are more relevant than contractual maturity dates
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when analyzing the value of financial instruments. For deposits with no contractual maturity dates, the table presents principal cash flows and weighted average rate, as applicable, based upon Horizon’s experience and management’s judgment concerning the most likely withdrawal behaviors.
2022 2023 2024 2025 2026 2027 & Beyond Total Fair Value December 31,
2021
Rate–sensitive assets
Fixed interest rate loans $ 654,091 $ 400,578 $ 253,109 $ 161,789 $ 91,266 $ 155,886 $ 1,716,719 $ 1,614,745
Average interest rate 4.30 % 4.19 % 4.09 % 3.96 % 4.00 % 3.90 % 4.16 %
Variable interest rate loans 1,518,934 131,702 90,190 70,758 79,486 12,421 1,903,491 1,860,277
Average interest rate 3.86 % 4.18 % 4.19 % 4.10 % 3.95 % 3.63 % 3.91 %
Total loans 2,173,025 532,280 343,299 232,547 170,752 168,307 3,620,210 3,475,022
Average interest rate 3.99 % 4.19 % 4.12 % 4.00 % 3.98 % 3.88 % 4.03 %
Securities, including FHLB stock 304,672 151,386 170,267 202,569 214,353 1,694,448 2,737,695 2,737,695
Average interest rate 1.98 % 2.15 % 2.04 % 2.14 % 2.66 % 2.57 % 2.42 %
Other interest earning assets 506,017 — — — — — 506,017 506,017
Average interest rate 0.19 % — % — % — % — % — % 0.19 %
Total earning assets $ 2,983,714 $ 683,666 $ 513,566 $ 435,116 $ 385,105 $ 1,862,755 $ 6,863,922 $ 6,718,734
Average interest rate 3.14 % 3.74 % 3.43 % 3.13 % 3.25 % 2.68 % 3.10 %
Rate–sensitive liabilities
Non–interest bearing deposits $ 128,688 $ 116,514 $ 105,492 $ 95,512 $ 86,477 $ 827,655 $ 1,360,338 $ 1,360,338
NOW accounts 143,312 124,595 108,323 94,176 81,876 545,048 1,097,330 1,090,742
Average interest rate 0.04 % 0.04 % 0.04 % 0.04 % 0.04 % 0.04 % 0.04 %
Savings and money market accounts 378,495 324,785 276,905 236,171 201,506 1,196,575 2,614,437 2,550,692
Average interest rate 0.09 % 0.09 % 0%.09 0.09 % 0.09 % 0.08 % 0.09 %
Certificates of deposit 511,724 149,471 43,875 13,344 12,269 203 730,886 727,577
Average interest rate 0.35 % 0.68 % 1.09 % 0.85 % 0.44 % 0.07 % 0.47 %
Total deposits 1,162,219 715,365 534,595 439,203 382,128 2,569,481 5,802,991 5,729,349
Average interest rate 0.19 % 0.19 % 0.14 % 0.08 % 0.07 % 0.05 % 0.11 %
Fixed interest rate borrowings 335,283 63,852 137,161 10,682 59,394 69,380 675,752 547,835
Average interest rate 0.15 % 0.37 % 1.33 % 0.12 % 2.28 % 0.11 % 0.59 %
Variable interest rate borrowings 115,536 — — — — — 115,536 234,779
Average interest rate 4.67 % — % — % — % — % — % 4.67 %
Total funds $ 1,613,038 $ 779,217 $ 671,756 $ 449,885 $ 441,522 $ 2,638,861 $ 6,594,279 $ 6,511,963
Average interest rate 0.50 % 0.20 % 0.39 % 0.08 % 0.37 % 0.05 % 0.24 %
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