6 unchanged sentences
Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management.
−Removed: On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market rates to assess all pricing strategies.
−Removed: The Bank's pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and competitor pricing for our local and correspondent lending markets.
−Removed: Pricing for commercial loans is generally based on competitor pricing and the credit risk of the borrower with consideration given to the overall relationship of the borrower.
−Removed: Generally, deposit pricing is based upon a survey of competitors in the Bank's market areas, and the need to attract funding and retain maturing deposits.
−Removed: The majority of our loans are fixed-rate products with maturities up to 30 years, while the majority of our retail deposits have stated maturities or repricing dates of less than two years.
The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income to changes in market interest rates.
The Board of Directors and Asset and Liability Management Committee ("ALCO") regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates.
−Removed: In addition to the interest rate environments presented below, management reviews the impact of non-parallel rate shock scenarios on a quarterly basis.
+Added: The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments.
+Added: The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those alternative interest rate environments.
+Added: Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and management strategies considered.
+Added: The MVPE and net interest income analyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis.
+Added: In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis.
+Added: These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank.
This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.
11 unchanged sentences
In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below.
−Removed: A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase.
−Removed: A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease.
+Added: A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests in a rising rate environment, that earnings should increase.
+Added: A negative gap generally means more cash flows from liabilities are expected to reprice than cash flows from assets and suggests, in a rising rate environment, that earnings should decrease.
For additional
20 unchanged sentences
interest-bearing liabilities $ (1,143,835) $ 145,212 $ 391,050 $ 1,402,637 $ 795,064
−Removed: Cumulative excess of interest-earning assets over
+Added: Cumulative excess (deficiency) of interest-earning assets over
interest-bearing liabilities $ (1,143,835) $ (998,623) $ (607,573) $ 795,064
−Removed: Cumulative excess of interest-earning assets over interest-bearing
+Added: Cumulative excess (deficiency) of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
8 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 September 30, 2021, at amortized cost.
+Added: All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of September 30, 2022, 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.
4 unchanged sentences
The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.
−Removed: At September 30, 2021, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(664.1) million, or (6.9)% of total assets, compared to $436.4 million, or 4.6% of total assets, at September 30, 2020.
+Added: At September 30, 2022, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.14) billion, or (11.89)% of total assets, compared to $(664.1) million, or (6.9)% of total assets, at September 30, 2021.
The change in the one-year gap amount was due primarily to a decrease in the amount of assets projected to reprice as higher interest rates resulted in lower prepayment projections on the Bank's mortgage-related assets.
−Removed: In addition, the lower balance of cash at September 30, 2021 compared to September 30, 2020 resulted in a decrease in the assets repricing in the one-year horizon.
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.
1 unchanged sentence
If interest rates were to increase 200 basis points, as of September 30, 2022, the Bank's one-year gap is projected to be $(1.17) billion, or (12.1)% of total assets.
−Removed: The change 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 $(609.6) million, or (6.4)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2020.
+Added: The change 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 interest rate environment.
+Added: This compares to a one-year gap of $(1.29) billion, or (13.4)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2021.
Change in Net Interest Income.
8 unchanged sentences
Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change.
−Removed: For the current year, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.
+Added: At September 30, 2021, multiple yields along the yield curve were less than one percent, so the -100 basis points and -200 basis points scenarios were not applicable.
Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented.
7 unchanged sentences
(Dollars in thousands)
+Added: -200 bp $ 182,458 $ (775) (0.4) % N/A N/A N/A
+Added: -100 bp 183,363 130 0.1 N/A N/A N/A
000 bp 183,233 — — $ 185,285 $ — — %
3 unchanged sentences
(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
−Removed: The net interest income projection was higher in the base case scenario at September 30, 2021 compared to September 30, 2020 due to a larger decrease in the projected interest expense than interest income compared to the prior year.
−Removed: This was caused by the decrease in the cost of the Bank's deposits and borrowings during the year, mostly offset by a decrease in the yield on loans receivable.
−Removed: Despite a negative gap, net interest income increases in all rising interest rate scenarios due to the assumption that the Bank's deposit balances are not expected to reprice to the full extent of the interest rate change.
−Removed: This assumption is based on a historical analysis of the Bank's deposit pricing behavior.
+Added: The net interest income projection was lower in the base case scenario at September 30, 2022 compared to September 30, 2021 due to higher interest expense projections on the Bank's liabilities than interest income projections on the Bank's assets as a result of higher interest rates at September 30, 2022.
+Added: This was driven primarily by a faster increase in the cost of liabilities during fiscal year 2022 compared to the rate of increase in asset yields.
+Added: In the rising interest rate scenarios, the cost of liabilities is projected to continue to increase at a faster pace than asset yields, resulting in a projected decrease in net
+Added: interest income in these interest rate scenarios.
+Added: This was not the case at September 30, 2021, as interest rates were lower than at September 30, 2022, resulting in more mortgage-related cash flows projected to reprice as interest rates increased.
+Added: In the decreasing interest rate scenarios at September 30, 2022, the net interest income projection remained relatively flat as the projected increase in mortgage-related assets repricing to lower interest rates was largely offset by liability cash flows repricing to lower interest rates as well.
Change in MVPE.
13 unchanged sentences
Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior as market rates change.
−Removed: For the current year, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.
+Added: At September 30, 2021, multiple yields along the yield curve were less than one percent, so the -100 basis points and -200 basis points scenarios were not applicable.
The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment.
6 unchanged sentences
(Dollars in thousands)
+Added: -200 bp $ 1,299,340 $ 404,353 45.2 % N/A N/A N/A
+Added: -100 bp 1,024,167 129,180 14.4 N/A N/A N/A
000 bp 894,987 — — $ 1,451,795 $ — — %
3 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 September 30, 2021 and September 30, 2020 was negative in all scenarios.
−Removed: The negative impact to the Bank's MVPE is greater at September 30, 2021 compared to September 30, 2020 due primarily to an increase in the duration of the Bank's mortgage-related assets at September 30, 2021 compared to September 30, 2020, due in part to higher interest rates at September 30, 2021.
−Removed: 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
−Removed: order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets.
−Removed: As interest rates increase in the rising rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets.
+Added: The percentage change in the Bank's MVPE at September 30, 2022 and September 30, 2021 was negative in all rising interest rate scenarios.
+Added: The negative impact to the Bank's MVPE was greater at September 30, 2022 compared to September 30, 2021 due primarily to an increase in the duration of the Bank's mortgage-related assets at September 30, 2022 compared to September 30, 2021.
+Added: This was a result of higher interest rates at September 30, 2022.
+Added: As interest rates increase, borrowers
+Added: 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.
+Added: As interest rates increase in the rising interest rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets.
Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates.
−Removed: 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 addition, as mortgage loans are refinanced or endorsed to lower interest rates, their average lives also increase as further prepayments are expected to be diminished.
+Added: The higher expected average lives of these assets increases the sensitivity of their market value to changes in interest rates.
+Added: In the decreasing interest rate scenarios at September 30, 2022, the Bank's MVPE increased due to a larger increase in the market value of the Bank's assets than the Bank's liabilities.
+Added: This is because the Bank's mortgage-related assets continue to have a higher duration in these interest rate scenarios which results in greater sensitivity in market value as interest rates change.
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 September 30, 2022.
22 unchanged sentences
Public unit certificates of deposit 93,936 1.61 0.5 1.7 1.2
−Removed: Total deposits 6,597,396 0.59 3.9 100.0 % 80.6
+Added: Total interest-bearing deposits 5,603,479 0.70 4.1 100.0 % 72.4
Term borrowings 2,062,500 2.44 2.5 96.5 % 26.6
+Added: Line of credit borrowings 75,000 3.15 — 3.5 1.0
+Added: Total borrowings 2,137,500 2.47 2.4 100.0 % 27.6
Total interest-bearing liabilities $ 7,740,979 1.19 3.7 100.0 %
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.