5 unchanged sentences
INTEREST RATE RISK
−Removed: Business risk arising from changes in interest rates is an inherent factor in operating a bank.
−Removed: A significant portion of the Corporation’s assets are long-term, fixed-rate loans and debt securities.
−Removed: Funding for these assets comes principally from shorter-term deposits and borrowed funds.
−Removed: Accordingly, there is an inherent risk of lower future earnings or decline in fair value of the Corporation’s financial instruments when interest rates change.
The Corporation uses a simulation model to calculate the potential effects of interest rate fluctuations on net interest income and the market value of portfolio equity.
−Removed: For purposes of these calculations, the market value of portfolio equity includes the fair values of financial instruments, such as securities, loans, deposits and borrowed funds, and the book values of nonfinancial assets and liabilities, such as premises and equipment and accrued expenses.
+Added: For purposes of these calculations, the market value of portfolio equity includes the discounted present values of financial instruments, such as securities, loans, deposits and borrowed funds, and the book values of nonfinancial assets and liabilities, such as premises and equipment and accrued expenses.
The model measures and projects the amount of potential changes in net interest income, and calculates the discounted present value of anticipated cash flows of financial instruments, assuming an immediate increase or decrease in interest rates.
Management ordinarily runs a variety of scenarios within a range of plus or minus 100-400 basis points of current rates.
−Removed: The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage-backed securities and call activity on other investment securities.
+Added: The projected results based on the model includes the impact of estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage-backed securities and call activity on other investment securities.
+Added: Further, the projected results are impacted by assumptions regarding the run-off and the extent of sensitivity to interest rate changes of deposits with no stated maturity (checking, savings and money market accounts).
Actual results could vary significantly from these estimates, which could result in significant differences in the calculations of projected changes in net interest income and market value of portfolio equity.
2 unchanged sentences
The policy limits acceptable fluctuations in net interest income from the baseline (flat rates) one-year scenario and variances in the market value of portfolio equity from the baseline values based on current rates.
−Removed: CITIZENS & NORTHERN CORPORATION – FORM 10-Q
−Removed: Table XI, which follows this discussion, is based on the results of calculations performed using the simulation model as of March 31, 2022 and December 31, 2021.
+Added: Table XI, which follows this discussion, is based on the results of calculations performed using the simulation model as of June 30, 2022 and December 31, 2021.
The table shows the Corporation is asset-sensitive, meaning the amounts of net interest income and market value of portfolio equity increase in the upward rate scenarios and decrease in the downward rate scenarios.
The table also shows that as of the respective dates, the changes in net interest income and changes in market value were within the policy limits in all scenarios.
+Added: CITIZENS & NORTHERN CORPORATION – FORM 10-Q
+Added: generally accepted accounting principles, available-for-sale debt securities are carried at fair value as of each balance sheet date.
+Added: The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive income (loss) within stockholders’ equity.
+Added: Increases in interest rates have caused the fair value of the Corporation’s available-for-sale debt securities to decrease, resulting in an accumulated other comprehensive loss of $36.3 million at June 30, 2022.
+Added: In contrast, most of the Corporation’s other financial instruments, including loans receivable (held for investment), deposits and borrowed funds are carried on the balance sheet at historical cost without adjustment for the impact of changes in interest rates.
+Added: As noted above, for purposes of calculations based on the simulation model, the discounted present values of all of the Corporation’s financial instruments are estimated for each interest rate shock scenario.
+Added: As shown in Table XI, the results of the simulation model indicate the market value of portfolio equity would increase in upward rate shock scenarios and decrease in downward rate shock scenarios.
+Added: In the upward rate shock scenarios, although the value of securities and fixed rate loans would decline, the magnitude of the projected economic benefit from changes in the value of nonmaturity deposits would exceed the negative impact related to securities and loans.
+Added: Conversely, in the downward rate shock scenarios, the magnitude of the negative impact to the value of nonmaturity deposits would exceed the amount of appreciation in the value of securities and loans.
TABLE XI – THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
−Removed: March 31, 2022 Data
+Added: June 30, 2022 Data
(In Thousands)
−Removed: Period Ending March 31, 2023
+Added: Period Ending June 30, 2023
Change in Rates
−Removed: Market Value of Portfolio Equity at March 31, 2022
+Added: Market Value of Portfolio Equity at June 30, 2022
Change in Rates
7 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.