3 unchanged sentences
Management believes that the tax risk of the Company’s municipal investments associated with potential future changes in statutory, judicial and regulatory actions is minimal.
−Removed: Treasury, agency, mortgage-backed and CMO securities issued by government agencies comprise 90.6% of the total portfolio and are currently rated AAA by Moody’s Investor Services and AA+ by Standard & Poor’s.
−Removed: Municipals account for 9.2% of the total portfolio, of which, 94.2% carry a minimum rating of A-.
+Added: Treasury, agency, mortgage-backed and collateralized mortgage obligation securities issued by government agencies comprise 92.0% of the total portfolio and are currently rated AAA by Moody’s Investor Services and AA+ by Standard & Poor’s.
+Added: Obligations of state and political subdivisions account for 7.9% of the total portfolio, of which, 95.4% carry a minimum rating of A-.
The remaining 0.1% of the portfolio is comprised of other investment grade securities.
1 unchanged sentence
Therefore, almost all the market risk in the investment portfolio is related to interest rates.
−Removed: The ongoing monitoring and management of both interest rate risk and liquidity, in the short and long term time horizons is an important component of the Company's asset/liability management process, which is governed by limits established in the policies reviewed and approved annually by the Company’s Board.
+Added: The ongoing monitoring and management of both interest rate risk and liquidity over the short and long term time horizons is an important component of the Company’s asset/liability management process, which is governed by guidelines established in the policies reviewed and approved annually by the Company’s Board.
The Board delegates responsibility for carrying out the policies to the ALCO, which meets each month.
2 unchanged sentences
The primary tool used by the Company in managing interest rate risk is income simulation.
−Removed: While a wide variety of strategic balance sheet and treasury yield curve scenarios are tested on an ongoing basis, the following reflects the Company's estimated net interest income (“NII”) sensitivity over the subsequent twelve months based on:
−Removed: ● Asset and liability levels using September 30, 2021 as a starting point.
+Added: This begins with the development of a base case scenario, which projects net interest income (“NII”) over the next twelve month period.
+Added: The base case scenario NII may increase or decrease significantly from quarter to quarter reflective of changes during the most recent quarter in the Company’s:
+Added: (i) earning assets and liabilities balances, (ii) composition of earning assets and liabilities, (iii) earning asset yields, (iv) cost of funds and (v) model projections, as well as current market interest rates, including the slope of the yield curve and projected changes in the slope of the yield curve over the twelve month period.
+Added: While a wide variety of strategic balance sheet and treasury yield curve scenarios are tested on an ongoing basis, the following reflects the Company’s estimated NII sensitivity as compared to the base case scenario over the subsequent twelve months based on:
+Added: ● Balance sheet levels using March 31, 2022 as a starting point.
● Pending acquisitions are excluded from this model.
2 unchanged sentences
● Cash flows on earning assets are based on contractual maturity, optionality, and amortization schedules along with applicable prepayments derived from internal historical data and external sources.
−Removed: The model assumes that all of the remaining PPP loans originated during 2020 will be forgiven and repayment of the vast majority of the balances would occur over the next 12 months.
−Removed: The majority of the PPP loans originated in 2021 under the “Second Draw” are generally projected to be repaid over the next 9 months.
+Added: The model assumes that all of the remaining first draw PPP loans originated during 2020 will be forgiven and repayment of all of the balances would occur over the next 9 months.
+Added: The majority of the second draw PPP loans originated in 2021 are projected to be forgiven and repaid over the next 9 months.
All other loan balances are generally projected to increase modestly throughout the forecast period.
−Removed: ● As of September 30, 2021, cash equivalents were just under $2.1 billion.
−Removed: The model assumes approximately 44% of the excess cash and cash flows from investment contractual maturities and prepayments, estimated at $1.1 billion, are to be invested in long-term securities over the next twelve months.
−Removed: ● In the rising rates scenarios, the prime rate and federal funds rates are assumed to move up over a 12-month period while moving the long end of the treasury curve to spreads over the three month treasury that are more consistent with historical norms based on the last three years (normalized yield curve).
+Added: ● As of March 31, 2022, cash equivalents were just over $840 million.
+Added: The model assumes approximately 22% of the excess cash and cash flows from investment contractual maturities and prepayments, estimated at $250 million, are to be invested in long-term securities over the next nine months.
+Added: ● In the rising rates scenarios, the prime rate and federal funds rates are assumed to move up by the amounts listed below over a 12-month period while moving the long end of the treasury curve to spreads over the three month treasury that are more consistent with historical norms based on the last three years (normalized yield curve).
Deposit rates are assumed to move in a manner that reflects the historical relationship between deposit rate movement and changes in the federal funds rate.
−Removed: In the -100 basis point model, the prime and federal funds rate are held at current levels and the treasury yield curve is assumed to move to levels experienced during the 3 rd quarter of 2020 as a result of COVID-19.
+Added: In the -100 basis point model, the prime and federal funds rates are dropped 25 basis points each and held at those levels, and the treasury curve assumes the same slope as the rising rate scenarios, with all points normalizing off of the three month treasury rate of 25 basis points.
Net Interest Income Sensitivity Model
−Removed: Calculated annualized increase (decrease)
−Removed: in projected net interest
−Removed: income at September 30, 2021
+Added: Calculated annualized increase
+Added: (decrease) in projected net interest
+Added: income at March 31, 2022
Interest rate scenario
3 unchanged sentences
-100 basis points
−Removed: Projected NII over the 12-month forecast period increases in the rising rate environments largely due to higher rates earned on significant levels of cash equivalents, investment purchases, and assumed higher rates on new loans, including variable and adjustable rate loans.
+Added: Projected NII over the 12-month forecast period increases in the rising rate environments largely due to higher rates earned on significant levels of cash equivalents, investment purchases, and assumed higher rates on new loans and a portion of variable and adjustable rate loans.
These increases are partially offset by anticipated increases in deposit and borrowing costs.
−Removed: Over the longer time period, the growth in NII continues to improve in both rising rate environments as lower yielding assets mature and are replaced at higher rates.
−Removed: In the -100 basis points scenario, the Company shows interest rate risk exposure to lower short term rates.
−Removed: During the first twelve months, net interest income declines largely due to lower assumed rates on investment purchases and new loans, including adjustable and variable rate assets.
−Removed: Modestly lower funding costs associated with deposits and borrowings only partially offset the decrease in interest income.
+Added: Over the longer time period, the growth in NII continues to improve in both rising rate environments as the impact from lower yielding assets maturing and being replaced at higher rates is significantly more material than the increase in funding costs.
+Added: In the -100 basis points scenario, the Company shows interest rate risk exposure to lower rates on all terms.
+Added: During the first twelve months, net interest income declines largely due to lower assumed rates on cash equivalents, investment purchases, and loan originations and certain adjustable and variable rate loans.
+Added: Modestly lower funding costs associated with deposits and borrowings only partially offset a small proportion of the decrease in interest income.
The analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results.
1 unchanged sentence
the nature and timing of interest rate levels (including yield curve shape), prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and other factors.
−Removed: While the assumptions are developed based upon reasonable economic and local market conditions, the Company cannot make any assurances as to the predictive efficacy of these assumptions, including how customer preferences or competitor influences might change.
−Removed: Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates.
+Added: While the assumptions are developed based upon a reasonable outlook for national and local economic and market conditions, the Company cannot make any assurances as to the predictive efficacy of these assumptions, including how customer preferences or competitor influences might change.
+Added: Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates and other developments.
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.