1 unchanged sentence
Many assumptions are used to calculate the impact of interest rate fluctuations on our net interest income, such as asset prepayments, non-maturity deposit price sensitivity and decay rates, and key rate drivers.
−Removed: Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely will, differ from our static earnings at risk (“EAR”) results.
+Added: Because of the inherent use of these estimates and assumptions in the model, our actual results may, and very likely will, differ from our static EAR results.
In addition, static EAR results do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates or client behavior.
2 unchanged sentences
IMPACT ON NET INTEREST INCOME UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK
−Removed: Earnings at Risk -200 bps -100 bps Flat +100 bps +200 bps +300 bps
+Added: Earnings at Risk -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps
December 31, 2022 (4.8) % (3.3) % (1.6) % 0.0 % 2.3 % 5.5 % 8.8 %
1 unchanged sentence
This measures the difference between the economic value of our assets and the economic value of our liabilities, which is a proxy for our liquidation value.
−Removed: While this provides some value as a risk measurement tool, management believes EAR is more appropriate to the application of the going concern principle.
+Added: While this provides some value as a risk measurement tool, management believes EAR is more appropriate in accordance with the going concern principle.
The following table illustrates the results of our EVE analysis as of December 31, 2022.
ECONOMIC VALUE OF EQUITY ANALYSIS UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK
−Removed: Economic Value of Equity -200 bps -100 bps Flat +100 bps +200 bps +300 bps
+Added: Economic Value of Equity -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps
December 31, 2022 (7.0) % (3.3) % (1.1) % 0.0 % (0.2) % (0.9) % (0.9) %
Interest Rate Sensitivity and Market Risk
−Removed: A fundamental risk in banking is exposure to market risk, since a bank’s net income is largely dependent on net interest income.
−Removed: The Bank’s ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and the full Board of Directors and through review of detailed reports discussed quarterly.
−Removed: In its consideration of risk limits, the ALCO considers the impact on earnings and capital, the level and direction of interest rates, liquidity, local economic conditions, outside threats and other factors.
−Removed: Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows and to provide net interest income growth consistent with the Company’s profit objectives.
−Removed: Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest earning assets and interest bearing liabilities, other than those that have a short term to maturity.
+Added: As a financial institution, our primary component of market risk is interest rate volatility.
+Added: Our asset liability and funds management policy provides management with the guidelines for funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position .
+Added: We endeavor to manage our sensitivity position within our established guidelines.
+Added: Fluctuations in interest rates will ultimately impact both the level of income and the market value of all interest earning assets and interest-bearing liabilities, other than those that have a short term to maturity.
Interest rate risk is the potential of economic losses due to future interest rate changes.
These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values.
−Removed: The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time optimizing income.
−Removed: We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business.
−Removed: We do not enter into instruments such as leveraged derivatives, financial options or financial future contracts for the purpose of reducing interest rate risk.
−Removed: We do hedge the interest rate risks of our available for sale mortgage pipeline by using mortgage-backed securities short positions, and of our subordinated debentures by utilizing an interest rate swap.
+Added: The objective is to measure the effect on net interest income and to adjust the balance sheet to mitigate the inherent risk while at the same time maximizing income.
+Added: We endeavor to manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business.
+Added: We do not enter into instruments such as leveraged derivatives, financial options or financial futures contracts for the purpose of reducing interest rate risk.
+Added: We endeavor to hedge the interest rate risks of our available for sale mortgage pipeline by using mortgage-backed securities, and short positions.
Based on the nature of our operations, we are not subject to foreign exchange or commodity price risk.
We do not own any trading assets.
−Removed: The ALCO committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings.
+Added: Our exposure to interest rate risk is managed by the Bank’s Asset/Liability Management Committee (“ALCO”) in accordance with policies approved by our board of directors.
+Added: The committee formulates strategies based on perceived levels of interest rate risk.
+Added: In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook for interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors.
+Added: The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings.
Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity.
9 unchanged sentences
Interest-bearing deposits at other financial institutions 39,764 — — 39,764 19,963 59,727
−Removed: 136,824 — — 136,824 — 136,824
Federal funds sold
4 unchanged sentences
Interest-bearing deposits $ 11,755 $ 23,510 $ 105,797 $ 141,062 $ 649,282 $ 790,344
−Removed: $ 11,630 $ 23,262 $ 104,677 $ 139,569 $ 692,268 $ 831,837
Time deposits
1 unchanged sentence
Total Interest-bearing deposits 15,746 60,336 246,434 322,516 761,243 1,083,759
−Removed: 22,917 44,486 239,604 307,007 702,480 1,009,487
FHLB Advances
4 unchanged sentences
$ 417,513 $ 243,676 $ 61,121 $ 722,310 $ 126,913 $ 849,223
−Removed: $ 500,890 $ 148,449 $ 197,947 $ 847,286 $ 82,357 $ 929,643
Cumulative gap $ 417,513 $ 661,189 $ 722,310 $ 722,310 $ 849,223
3 unchanged sentences
(1) Includes loans held for sale.
−Removed: We use EAR simulations to assess the impact of changing interest rates on our earnings under a variety of scenarios and time horizons.
+Added: We use quarterly Earnings at Risk (“EAR”) simulations to assess the impact of changing interest rates on our earnings under a variety of scenarios and time horizons.
These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as non-parallel changes such as changing slopes and twists of the yield curve.
Static simulation models are based on current exposures and assume a constant balance sheet with no new growth.
−Removed: Dynamic simulation models are also utilized that rely on detailed assumptions regarding changes in existing lines of business, new business, and changes in management and client behavior.
+Added: Dynamic simulation models are also utilized that rely on assumptions regarding changes in existing lines of business, new business, and changes in management and client behavior.
We also use economic value-based methodologies to measure the degree to which the economic values of the Bank’s positions change under different interest rate scenarios.
3 unchanged sentences
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.