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.
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The table which follows provides information about Horizon’s financial instruments that were sensitive to changes in interest rates as of December 31, 2022. 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 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.
2023 2024 2025 2026
&
2027 2028 & Beyond Total Fair Value December 31,
2022
Rate–sensitive assets
Fixed interest rate loans $ 585,893 $ 454,224 $ 355,675 $ 416,951 $ 357,144 $ 2,169,887 $ 1,929,662
Average interest rate 4.59 % 4.38 % 4.31 % 4.28 % 3.80 % 4.31 %
Variable interest rate loans 1,477,403 119,063 120,817 208,755 67,880 1,993,918 1,928,603
Average interest rate 6.12 % 4.40 % 4.43 % 4.49 % 4.18 % 5.68 %
Total loans 2,063,296 573,287 476,492 625,706 425,024 4,163,805 3,858,265
Average interest rate 5.69 % 4.38 % 4.34 % 4.35 % 3.86 % 4.97 %
Securities, including FHLB stock 169,623 96,843 243,309 492,833 2,044,375 3,046,983 2,705,544
Average interest rate 3.10 % 2.32 % 2.22 % 2.27 % 2.49 % 2.46 %
Other interest earning assets 15,045 — — — — 15,045 15,011
Average interest rate 1.95 % — % — % — % — % 1.95 %
Total earning assets $ 2,247,964 $ 670,130 $ 719,801 $ 1,118,539 $ 2,469,399 $ 7,225,833 $ 6,578,820
Average interest rate 5.47 % 4.09 % 3.62 % 3.43 % 2.73 % 3.90 %
Rate–sensitive liabilities
Non–interest bearing deposits $ 127,777 $ 129,468 $ 102,052 $ 174,509 $ 743,962 $ 1,277,768 $ 1,277,768
NOW accounts 190,863 913,455 80,431 137,537 586,342 1,908,628 1,686,790
Average interest rate 0.87 % 1.28 % 0.41 % 0.41 % 0.41 % 0.87 %
Savings and money market accounts 205,077 546,670 100,183 168,226 654,102 1,674,258 1,436,180
Average interest rate 0.60 % 0.92 % 0.39 % 0.39 % 0.40 % 0.59 %
Certificates of deposit 702,579 250,010 18,416 18,516 7,594 997,115 977,184
Average interest rate 2.06 % 3.65 % 1.08 % 0.66 % 0.12 % 2.40 %
Total deposits 1,226,296 1,839,603 301,082 498,788 1,992,000 5,857,769 5,377,922
Average interest rate 1.42 % 1.41 % 0.30 % 0.27 % 0.25 % 0.86 %
Fixed interest rate borrowings 576,077 49,016 79 60,058 — 685,230 690,203
Average interest rate 2.09 % 1.66 % 2.62 % 5.79 % — % 2.38 %
Variable interest rate borrowings 573,642 — — — — 573,642 557,546
Average interest rate 3.93 % — % — % — % — % 3.93 %
Total funds $ 2,376,015 $ 1,888,619 $ 301,161 $ 558,846 $ 1,992,000 $ 7,116,641 $ 6,625,671
Average interest rate 2.19 % 1.41 % 0.30 % 0.86 % 0.25 % 1.26 %
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