24 unchanged sentences
Qualitative Disclosure about Market Risk
−Removed: At June 30, 2020, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $857.3 million, or 8.97% of total assets, compared to $508.6 million, or 5.43% of total assets, at March 31, 2020.
−Removed: The increase in the one-year gap amount was due primarily to a higher balance of cash and a lower balance of borrowings as of June 30, 2020 compared to March 31, 2020
+Added: At December 31, 2020, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $86.8 million, or 0.90% of total assets, compared to $436.4 million, or 4.6% of total assets, at September 30, 2020.
+Added: The decrease in the one-year gap amount was due primarily to an increase in non-maturity deposits during the quarter.
+Added: In the Bank's interest rate risk model, short-term increases in non-maturity deposits are assumed to be unstable and thus are not considered to be long-term core deposits.
+Added: As a result, these deposits are assumed to mature or reprice in the short term.
+Added: At December 31, 2020, the amount of the Bank's non-maturity deposits projected to reprice in the first month was $829.5 million, which is $274.7 million higher than at September 30, 2020.
+Added: This resulted in an increase in the amount of liabilities repricing in the one-year horizon.
+Added: Additionally, interest rates were higher at December 31, 2020 compared to September 30, 2020, resulting in a decrease in the prepayment projections of mortgage-related assets compared to the previous quarter.
The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder.
The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates, but did increase this quarter, because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty.
−Removed: If interest rates were to increase 200 basis points, as of June 30, 2020, the Bank's one-year gap is projected to be $53.6 million, or 0.56% of total assets.
+Added: If interest rates were to increase 200 basis points, as of December 31, 2020, the Bank's one-year gap is projected to be $(995.3) million, or (10.36)% of total assets.
The decrease in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment.
−Removed: This compares to a one-year gap of $(312.8) million, or (3.34)% of total assets, if interest rates were to have increased 200 basis points as of March 31, 2020.
+Added: This compares to a one-year gap of $(609.6) million, or (6.43)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2020.
During the current quarter, loan repayments totaled $664.1 million and cash flows from the securities portfolio totaled $152.4 million.
The majority of these cash flows were reinvested into new loans and securities at current market interest rates.
−Removed: Total cash flows from term liabilities that matured and/or repriced into current market interest rates during the current quarter were $768.9 million, including
−Removed: $200.0 million in FHLB borrowings.
+Added: Total cash flows from term liabilities that matured and/or repriced into current market interest rates during the current quarter were $465.6 million, including $53.0 million in term borrowings.
These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.
2 unchanged sentences
These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period.
−Removed: The WAL of the Bank's term borrowings as of June 30, 2020 was 1.8 years.
−Removed: However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of June 30, 2020 was 2.9 years.
+Added: The WAL of the Bank's term borrowings as of December 31, 2020 was 2.0 years.
+Added: However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of December 31, 2020 was 3.0 years.
The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.
−Removed: The Bank may renew the upcoming advances to lower costing term advances based upon our assessment of deposit flows, lending opportunities and our liquidity position at that time.
−Removed: The Bank uses the securities portfolio to shorten the average life of the Bank's assets.
−Removed: Security purchases over the past few years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS.
−Removed: These securities have a shorter average life and provide a steady source of cash flow that can be reinvested in higher-yielding assets as interest rates rise.
−Removed: In addition to these wholesale strategies, the Bank has sought to increase non-maturity deposits.
−Removed: Non-maturity deposits are expected to reduce the risk of higher interest rates because their interest rates are not expected to increase significantly as market interest rates rise.
−Removed: Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles.
+Added: In addition to these wholesale strategies, the Bank has benefited from an increase in non-maturity deposits.
+Added: As market interest rates rise, rates paid on non-maturity deposits are not expected to increase as quickly.
+Added: Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout previous interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles.
The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities.
1 unchanged sentence
Additionally, as we expand the commercial banking business, we expect to have the ability to obtain lower-costing commercial deposits, which could be used to reduce the cost of funds by replacing FHLB borrowings and wholesale deposits.
−Removed: With the significant decrease in interest rates during the current year, the Bank has decreased the rates on certificates of deposit and money market accounts on pace with competitors in its market areas.
+Added: With the significant decrease in interest rates during calendar year 2020, the Bank has decreased the rates on certificates of deposit and money market accounts on pace with competitors in its market areas.
The Bank will continue to adjust rates as market conditions allow.
34 unchanged sentences
liabilities as a percent of total Bank assets at:
−Removed: June 30, 2020 8.97 % 10.94 % 12.27 % 8.11 %
+Added: December 31, 2020 0.90 % 7.66 % 6.80 % 8.13 %
September 30, 2020 4.58
Cumulative one-year gap - interest rates +200 bps at:
−Removed: June 30, 2020 0.56
+Added: December 31, 2020 (10.36)
September 30, 2020 (6.44)
3 unchanged sentences
(2) MBS reflect projected prepayments at amortized cost.
−Removed: Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of June 30, 2020, at amortized cost.
+Added: Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of December 31, 2020, at amortized cost.
(3) Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities.
14 unchanged sentences
Change Net Interest Income At
−Removed: (in Basis Points) June 30, 2020 September 30, 2019
+Added: (in Basis Points) December 31, 2020 September 30, 2020
in Interest Rates (1)
6 unchanged sentences
(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
−Removed: The net interest income projection was relatively unchanged in the base case scenario at June 30, 2020 compared to September 30, 2019.
−Removed: The one-year gap was higher at June 30, 2020 compared to September 30, 2019 due to lower interest rates at June 30, 2020, resulting in a higher amount of assets repricing.
−Removed: In the rising interest rate scenarios, interest income is higher at June 30, 2020 due a higher amount of assets repricing in these scenarios than at September 30, 2019.
−Removed: During the current fiscal year, the Bank also modified $350.0 million of term borrowings into new long-term borrowings with a lower cost.
−Removed: As a result, the cost on the Bank's term borrowings portfolio decreased 12 basis points and they are no longer projected to reprice in the 12-month horizon.
−Removed: The Bank was also able to lower the cost of its deposit portfolio by two basis points due to lower money market rates and a decrease in the interest rates offered on retail/business certificates of deposit.
−Removed: In addition, during the second quarter management changed the way that future certificate of deposit rates are forecasted in the Bank's interest rate risk model.
−Removed: This change was made to more closely align the forecasted rates with the current rates offered, thus lowering the projected interest expense.
−Removed: The net interest income projections increase from the base case in all rising interest rate scenarios at June 30, 2020.
−Removed: The net interest income projection was more adversely impacted in the rising interest rate scenarios at September 30, 2019 compared to June 30, 2020, due primarily to higher interest rates at September 30, 2019.
−Removed: In addition, the modification of $350.0 million of borrowings during the current fiscal year lengthened the Bank's liabilities, thus reducing the risk to higher interest rates.
−Removed: The positive impact of rising interest rates diminished as interest rates increase until turning negative in the +200 basis point and +300 basis point scenarios at September 30, 2019.
−Removed: Higher interest rates decreased the projected cash flows from the Bank's mortgage-related assets, thus increasing the negative impact of rising interest rates.
+Added: The net interest income projection was lower in the base case scenario at December 31, 2020 compared to September 30, 2020 due primarily to a decrease in the balance and yield on the Bank's loans receivable portfolio.
+Added: As a result of the low level of interest rates during the current quarter, the Bank continued to see a decrease in the yield on loans receivable due to refinances and endorsements.
+Added: In addition, the Bank experienced a decrease in the overall balance of the loans receivable portfolio, resulting in these cash flows being deployed into lower yielding securities.
+Added: This was partially offset by a decrease in the cost of the Bank's deposits and borrowings during the current quarter.
+Added: The net interest income projections increase from the base case in all rising interest rate scenarios at December 31, 2020 and September 30, 2020.
+Added: The increase in net interest income projection was smaller at December 31, 2020 compared to September 30, 2020, due primarily to a decrease in the positive gap during the quarter.
+Added: The positive impact of rising interest rates is diminished as interest rates increase.
+Added: Higher interest rates decreased the projected cash flows from the Bank's mortgage-related assets, thus decreasing the positive impact of rising interest rates compared to the base case.
Change in MVPE.
7 unchanged sentences
Change Market Value of Portfolio Equity At
−Removed: (in Basis Points) June 30, 2020 September 30, 2019
+Added: (in Basis Points) December 31, 2020 September 30, 2020
in Interest Rates (1)
6 unchanged sentences
(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
−Removed: The percentage change in the Bank's MVPE at June 30, 2020 was positive in the +100 and +200 basis point scenarios and negative in the +300 basis point scenario.
−Removed: At September 30, 2019 the percentage change in the Bank's MVPE was negative in the +200 and +300 basis point scenarios.
−Removed: This change was due primarily to lower interest rates at June 30, 2020 and the modification of $350.0 million of borrowings during the current fiscal year into long-term liabilities which reduced the Bank's risk to higher interest rates.
+Added: The percentage change in the Bank's MVPE at December 31, 2020 and September 30, 2020 was negative in all scenarios.
+Added: The negative impact to the Bank's MVPE is greater at December 31, 2020 compared to September 30, 2020.
+Added: This change was due primarily to an increase in the duration of the Bank's mortgage-related assets at December 31, 2020 compared to the previous quarter.
+Added: This was due in part to higher interest rates at December 31, 2020.
As interest rates increase, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets.
2 unchanged sentences
The higher expected average lives of these assets, relative to the assumptions in the base case interest rate environment, increases the sensitivity of their market value to changes in interest rates.
−Removed: In the +100 and +200 basis point scenarios, the market value of liabilities decrease at a faster pace than the market value of assets due to having a longer duration in these scenarios.
−Removed: The longer duration makes the market value of these liabilities more sensitive to changes in interest rates.
−Removed: In the +300 basis point scenario, prepayment speeds on mortgage-related assets and call projections on investment securities decrease to a point where the durations of assets are longer, and thus more sensitive to rising interest rates.
−Removed: This results in a larger decrease in the market value of assets than liabilities in this scenario.
−Removed: The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of June 30, 2020.
+Added: In addition, as mortgage loans are refinanced or endorsed to lower interest rates, their average lives also increase as further prepayments are diminished.
+Added: On the liability side of the balance sheet, deposit durations decreased between periods due to the increase in the Bank's non-maturity deposits during the current quarter.
+Added: Short-term increases in non-maturity deposits are not considered to be long-term liabilities in the Bank's interest rate risk model until sufficient time has passed for the model to reasonably assume that they will not leave the Bank in a rapid fashion.
+Added: Both of these changes resulted in an increased risk to rising interest rates at December 31, 2020 compared to September 30, 2020.
+Added: The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of December 31, 2020.
Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield.
32 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.