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(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.
−Removed: Due to increases in market interest rates on new loans and a significant increase in the Company’s loan balances during the third quarter of 2022, the base case NII projection increased significantly between the second quarter income simulation and the third quarter 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 NII sensitivity as compared to the base case scenario over the subsequent twelve months based on:
−Removed: ● Balance sheet levels using September 30, 2022 as a starting point.
−Removed: ● The model assumes the Company’s average deposit balances will increase approximately 2.4% over the next twelve months.
−Removed: ● The model assumes the Company’s average earning asset balances will increase approximately 1.4% over the next twelve months.
+Added: The direction of interest rates, the slope of the yield curve, the modeled changes in deposit balances and the cost of funds, including, the Company’s deposit and funding betas are not easily predicted in the current market environment, and therefore, a wide variety of strategic balance sheet and treasury yield curve scenarios are modeled on an ongoing basis.
+Added: 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, 2023 as a starting point.
+Added: ● The model assumes the Company’s average deposit balances will decrease approximately 2.1% over the next twelve months.
+Added: ● The model assumes the Company’s average earning asset balances will decrease approximately 3.3% over the next twelve months, largely due to the maturities of certain U.S.
+Added: Treasury debt securities.
● 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: All loan balances are generally projected to increase modestly throughout the forecast period.
● The model assumes no additional investment security purchases over the next twelve months.
Investment cash flows will be used to pay down overnight borrowings and fund loan growth.
−Removed: ● 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).
−Removed: 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 rates are dropped one hundred basis points each, and the treasury curve assumes the same slope as the rising rate scenarios, with all points normalizing off of the three month treasury rate, which is lowered by one hundred basis points from the flat rate scenario.
−Removed: The same method is applied for the -200 and -300 basis point scenarios, with the rate moves being down 200 and 300 basis points for prime, federal funds, and the three month treasury rate.
+Added: ● In the rising rates scenarios, the prime rate, federal funds, and treasury curve rates are assumed to move up/down in a parallel manner by the amounts listed below over a 12-month period.
+Added: Deposit balance and mix changes and the resultant deposit and funding betas are assumed to move in a manner that reflects the Company’s (i) long-term historical relationship between the Company’s deposit rate movement and changes in the federal funds rate, (ii) recent interest rate cycle experience, (iii) significant management judgment and (iv) other factors, including recent market behaviors of customers and competitors.
Net Interest Income Sensitivity Model
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(decrease) in projected net interest
−Removed: income at September 30, 2022
−Removed: income at September 30, 2022
+Added: income at March 31, 2023
+Added: income at March 31, 2023
Interest rate scenario
4 unchanged sentences
-200 basis points
−Removed: -200 basis points
−Removed: -300 basis points
−Removed: Projected NII over the 12-month forecast period decreases in the rising rate environments largely due to deposits and overnight borrowings repricing higher in year 1, which are only partially offset by loans repricing higher.
+Added: Projected NII over the 12-month forecast period decreases in the up 200 rate environment largely due to deposits and overnight borrowings repricing higher in year 1, which are only partially offset by loans repricing higher.
+Added: Projected NII is fairly neutral in the up 100 rate environment.
Over the longer time period, the growth in NII begins to improve in all 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.
−Removed: In the falling rate scenarios, the Company shows interest rate risk exposure to lower rates on all terms.
−Removed: During the first twelve months, net interest income declines largely due to lower assumed rates on loan originations, and certain adjustable and variable rate loans.
−Removed: Modestly lower funding costs associated with deposits and borrowings only partially offset the decrease in interest income.
+Added: Projected NII increases in the down 100 and down 200 rate environments due to lower funding costs which are partially offset by lower income on loans.
The analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results.
4 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.