Derivative Financial Instruments

12 Months Ended

Dec. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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, and in the net change in each of these financial statement line items in the accompanying consolidated statement of cash flows.

Fair Value Hedges

Fair value hedges are intended to manage interest rate risk associated with the underlying hedged items. The Company utilizes fair value hedges and applies the portfolio layer method to hedge stated amounts within a closed portfolio of certain available-for-sale mortgage-backed debt securities.

To mitigate the impact of interest rate fluctuations on fair value, the Company previously entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. The Company also previously utilized fair value hedges to hedge investment securities, converting the fixed rate security to a variable rate. Changes in fair value of both the hedge instruments and the underlying loan and security agreements are recorded as gains or losses in interest income. During the year ended December 31, 2024, the Company terminated the fair value hedges on loans and securities, recording a deferred gain of $2.3 million on the loan termination that will be accreted into interest income over the remaining life of the underlying loans, and a mark-to-

market adjustment of $0.3 million that was recorded in non-interest income on the termination of the fair value hedges against investment securities. The remaining accretion on the loans was $1.7 million at December 31, 2025.

During the year ended December 31, 2025, the Company entered into interest rate swap agreements designated as fair value hedges of interest rate rate risk associated with certain fixed-rate investment securities. The swaps are intended to hedge changes in fair value attributable to fluctuations in that benchmark rate. Changes to fair value hedges on mortgage-backed securities are recorded as gains or losses in interest income. The hedged items consist of mortgage-backed securities which are located in the 'Investment securities, available for sale' line item on the consolidated balance sheet. The hedge relationship fair value is recorded in the "other liabilities" line item on the consolidated balance sheet. The hedge relationships had stated maturities ranging from March 27, 2040 to March 27, 2042.

The company assesses hedge effectiveness on a monthly basis using regression analysis, the fair value hedges are considered highly effective.

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 December 31, 2025, 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.

Changes 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 the Company on a gross basis for the periods indicated.


	Asset Derivatives				Liability Derivatives
	December 31, 2025				December 31, 2025
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts - fair value hedges	$	121,542	$	307			$	—
Total derivatives designated as hedging instruments	121,542		307				—
Derivatives not designated as hedging instruments
Interest rate contracts -customer accommodation	460,276		13,658		460,276		13,658
Mortgage loan contracts	—		—		11,254		14
Commitments to originate mortgage loans	3,644		94		—		—
Total derivatives not designated as hedging instruments	463,920		13,752		471,530		13,672
Total derivatives	585,462		14,059		471,530		13,672
Total derivatives subject to enforceable master netting arrangements, gross	585,462		14,059		471,530		13,672
Less: Gross amounts offset	—		—		—		—
Total derivatives subject to enforceable master netting arrangements, net	$	585,462	$	14,059	$	471,530	$	13,672


	Asset Derivatives				Liability Derivatives
	December 31, 2024				December 31, 2024
	Notional Amount		Fair Value		Notional Amount		Fair Value



Derivatives designated as hedging instruments
Interest rate contracts - fair value hedges	$	—	$	—	$	—	$	—
Total derivatives designated as hedging instruments	—		—		—		—
Derivatives not designated as hedging instruments
Interest rate contracts - customer accommodation	521,520		28,817		521,520		28,817
Mortgage loan contracts	6,155		27		—		—
Commitments to originate mortgage loans	6,856		202		—		—
Total derivatives not designated as hedging instruments	534,531		29,046		521,520		28,817
Total derivatives	534,531		29,046		521,520		28,817
Total derivatives subject to enforceable master netting arrangements, gross	534,531		29,046		521,520		28,817
Less: Gross amounts offset	—		—		—		—
Total derivatives subject to enforceable master netting arrangements, net	$	534,531	$	29,046	$	521,520	$	28,817

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 December 31, 2025, the Company did not pledge any marketable securities as collateral.

The effect of the derivative and the hedged item in fair value hedging relationships on the consolidated statements of income for the year-ended December 31 is as follows:


	Location of gain (loss) recognized on derivative and Hedge item	Amount of Gain (Loss) Recognized on Derivative and Hedged Item Years Ended December 31
			2025		2024		2023
Derivatives designated as hedging instruments
Interest rate contracts - fair value hedge	Interest income - loans receivable		$	—	$	1,166	$	1,169
Hedged item			—		(1,166)		(1,169)
Interest rate contracts - fair value hedge	Interest income - investment securities		332		(220)		240
Hedged item			(307)		220		(240)
Total			$	25	$	—	$	—

The effect of derivatives not designated as hedging instruments on the consolidated statements of income for the year-ended December 31 is as follows:


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative Years Ended December 31
		2025		2024		2023
Derivative not designated as hedging relationship
Mortgage loan contracts	Non-interest income-gain (loss) on sale of loans	$	(42)	$	68	$	83
Commitments to originate mortgage loans	Non-interest income-gain (loss) on sale of loans	(108)		(67)		(159)
Total		$	(150)	$	1	$	(76)

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
	December 31, 2025		December 31, 2024		December 31, 2025		December 31, 2024
Available for Sale Debt Securities	$	122,442	$	—	$	(307)	$	—

- 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.

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+ Details

HORIZON BANCORP INC /IN/ 10-K