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There has been no significant change in the Company's estimated net interest income sensitivity position from December 31, 2022.
−Removed: From a net interest income perspective, the Company has been fairly neutral historically with no significant change in the short-term (within a 12-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes.
−Removed: Starting in 2022, the Company's sensitivity position shifted somewhat such that, in the short-term it is projected that net interest income will likely be essentially flat or fall in both a rising and falling rate environment.
−Removed: This position is due in part to the changing market characteristics of certain loan and deposit products as well as to the shift in the yield curve.
−Removed: The rapid rate increases in 2022 resulted in a steepening of the yield curve on the short end (within one year), while the longer end of the curve has inverted between one and 10 years, meaning that the yield on short-term instruments (less than one year) are higher than longer-term instruments (10 years).
+Added: From a net interest income perspective, the Company has been fairly neutral historically with no significant change in the short-term (within a twelve-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes.
+Added: Starting in 2022, the Company's sensitivity position shifted somewhat such that, in the short-term it is projected that net interest income will likely fall in both a rising and falling rate environment.
+Added: This position is due in part to the changing market characteristics of certain loan and deposit products as well as to the current shape of the yield curve.
+Added: The rapid rate increases in 2022 resulted in a steepening of the yield curve on the short end (within one year), while the longer end of the curve has inverted between one and ten years, meaning that the yield on short-term instruments (less than one year) are higher than longer-term instruments (ten years).
A flat or inverted interest rate curve is an unfavorable interest rate environment for many financial institutions, including the Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing.
When these rates converge or invert, the profit spread we realize between loan yields and deposit rates narrows, which pressures our NIM.
−Removed: With regard to rising rates, with an immediate increase or shock in market rates over the short-term (12-month horizon), we would expect to realize a decline in net interest income, although not to the extent projected in a declining rate environment.
−Removed: This is due in part to the composition of our loan portfolio which is comprised of 20% variable rate loans which could immediately reprice, thus limiting the magnitude of the impact of rate increases given that the majority of our portfolio is at fixed rates.
−Removed: In addition, the model includes an assumption of a quick repricing up of the funding base in a rising rate environment, and our recent shift to higher-cost brokered deposits and short-term borrowings in our funding mix has lead to a narrowing of the interest rate spread in the projection.
+Added: With regard to rising rates, with an immediate increase or shock in market rates over the short-term (twelve month horizon), we would expect to realize a decline in net interest income, although not to the extent projected in a declining rate environment.
+Added: This is due in part to the composition of our loan portfolio which is comprised of approximately 20% variable rate loans which could immediately reprice, thus limiting the magnitude of the impact of rate increases given that the majority of our portfolio is at fixed rates.
+Added: In addition, the model includes an assumption of a quick repricing up of the funding base in a rising rate environment, and our recent shift to higher-cost wholesale funding and short-term borrowings in our funding mix has lead to a narrowing of the interest rate spread in the projection.
As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results.
−Removed: While we believe rates may increase again moderately in 2023, the consensus is that the market rates may begin to stabilize and there is a possibility that the Federal Reserve may start to reduce rates in 2024.
+Added: While we believe rates may increase again moderately in the remainder of 2023, the consensus is that the market rates may begin to stabilize and there is a possibility that the Federal Reserve may start to reduce rates in 2024.
We would expect net interest income to decline somewhat in a decreasing interest rate environment, as interest-earning assets reprice to lower rates and interest-bearing deposits repricing may lag given continued market competition for deposits.
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The net economic
−Removed: value of equity is the economic value of all assets minus the economic value of all liabilities.
+Added: value of equity is the economic value of all assets minus the economic value of all liabilities assuming a liquidation of the current balance sheet.
The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet.
−Removed: The same assumptions are generally used in the economic value simulation as in the earnings simulation.
−Removed: The economic value simulation uses instantaneous rate shocks to the balance sheet.
−Removed: As of December 31, 2022, the Company’s economic value of equity ("EVE") was generally liability sensitive in a rising interest rate environment and there has been no significant change in our EVE position from year end.
+Added: The same assumptions are generally used in the economic value simulation as in the earnings simulation, including immediate and parallel rate shocks and static assumptions for deposit average decay rate and average lives.
+Added: As of December 31, 2022, the Company’s economic value of equity ("EVE") was generally liability sensitive in a rising interest rate environment, such that the value of EVE would decline in rising rates.
+Added: The effect is similar in a falling rate scenario, although to a lower degree.
The increase in EVE exposure to rising rates which occurred starting in 2022 was primarily due to the composition of the consolidated balance sheets combined with the pricing characteristics and assumptions of certain deposits.
−Removed: Specifically, starting in 2022, non-maturity deposits, generally with lower betas, have decreased and were replaced with short-term FHLB advances and short-term brokered deposits.
+Added: Specifically, starting in 2022, non-maturity deposits, generally with lower betas, have decreased and were replaced with short-term FHLB advances.
+Added: There has been no material change to the composition of the balance sheet or our deposits and funding mix since year end as such, no significant change to Company's estimated EVE position.
Additional discussion concerning our exposure to interest rate risk is presented in Item 7A of the 2022 Annual Report on Form 10-K filed with the SEC.
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We review pricing of our products and services, as well as our controllable operating and labor costs in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance to the extent possible.
−Removed: Awards Made To Named Executive Officers
−Removed: During the fiscal year ended December 31, 2022, the Company did not award an option or other right to purchase or acquire its common shares during any period beginning four business days before the filing of a periodic report on Form 10-Q or the filing or furnishing of a report on Form 8-K that disclosed material nonpublic information and ending one business day after the filing or furnishing of such a report to any the Company’s “named executive officers” (as such persons are specified in the Company’s Proxy Statements for its 2022 or 2023 Annual Meeting of Shareholders).
−Removed: Trading Arrangements of Section 16 Reporting Persons.
−Removed: During the quarter ended June 30, 2023, no person who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to holdings of, and transactions in, the Company’s common shares (i.e.
−Removed: directors and certain officers of the Company) maintained, adopted , modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1(c) arrangement”, as those terms are defined in Section 229.408 of the regulations of the SEC.
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.