−Removed: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
−Removed: Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital.
−Removed: For financial institutions, market risk primarily reflects exposures to changes in interest rates.
−Removed: Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels.
−Removed: Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change.
−Removed: Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value.
−Removed: However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity and solvency.
−Removed: Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.
−Removed: The ALCO utilizes an asset liability model (“ALM”) to monitor and manage market risk through net interest income simulation for various rate shock scenarios and economic value of equity (“EVE”), simulation for various rate shock scenarios.
−Removed: The rate shock scenarios used in the ALM span over multiple time horizons and yield curve shapes and include parallel and non-parallel shifts to ensure the ALCO can mitigate future earnings and market value fluctuations due to changes in market interest rates.
−Removed: Within the context of the ALM, net interest income rate shock simulations explicitly measure the exposure to earnings from changes in market rates of interest over a defined time horizon.
−Removed: These robust simulations include assumptions of how the balance sheet will react in different rate environments including loan pre-payment speeds, average life of non-maturing deposits, and how sensitive each interest-earning asset and interest-bearing liability is to changes in market rates (betas).
−Removed: Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios.
−Removed: Reviewing these various measures provides us with a more comprehensive view of our interest rate risk profile.
−Removed: Net interest income rate shock simulation results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 months and 24 months of pretax net interest income.
−Removed: The base case and rate shock analyses are performed on a static and growth balance sheet.
−Removed: A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread.
+Added: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)
+Added: repricing cash flows are reinvested in the same product at the existing product spread.
Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality.
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We have also temporarily suspended the EVE -100, -200, -300 and -400 basis point scenarios in 2020 and 2021 due to the low interest rate environment.
−Removed: CARTER BANKSHARES, INC.
−Removed: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)
The following tables reflect the net interest income rate shock analyses and EVE analyses results for the periods presented utilizing a forecasted static balance sheet over the next twelve months.
All percentage changes presented are within prescribed ranges set by management.
−Removed: June 30, 2021 December 31, 2020
+Added: September 30, 2021 December 31, 2020
Change in Interest Rate ( basis points )
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.