12 unchanged sentences
Profitability is affected by fluctuations in interest rates.
−Removed: A sudden and substantial change in interest rates will generally impact our earnings adversely because the interest rates of the underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.
+Added: A sudden and substantial change in interest rates may impact our earnings adversely because the interest rates of the underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.
Interest rate risk is monitored through the use of several complementary modeling tools, primarily earnings simulation modeling, and economic value simulation (net present value estimation).
1 unchanged sentence
While interest rate risk models have limitations, taken together they represent a reasonably comprehensive view of the magnitude of our interest rate risk, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships.
−Removed: Earnings simulation and economic value models are utilized by management on a regular basis as they more effectively measure the cash flow and optionality impacts than does a static gap analysis.
+Added: Earnings simulation and economic
+Added: value models are utilized by management on a regular basis as they more effectively measure the cash flow and optionality impacts than does a static gap analysis.
From the various model results and our expectations regarding future interest rate movements, the national, regional and local economies, and other financial and business risk factors, we quantify the overall magnitude of interest sensitivity risk and then determine appropriate strategies and practices governing asset growth and pricing, funding sources and pricing, and off-balance sheet commitments.
12 unchanged sentences
There has been no significant change in the Company's estimated net interest income sensitivity position from December 31, 2023.
−Removed: 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.
−Removed: Starting in 2022 and continuing through 2023, 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.
−Removed: 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.
−Removed: The Company's current position is now more liability-sensitive which generally implies that net interest income would be expected to rise in a falling rate environment and fall in a rising rate environment.
−Removed: However, the rapid rate increases in 2022 and into 2023 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).
−Removed: 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.
−Removed: 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 (twelve month horizon), we would expect to realize a decline in net interest income.
−Removed: 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.
−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 wholesale funding and short-term borrowings in our funding mix has lead to a narrowing of the interest rate spread in the projection.
+Added: From a net interest income perspective, the Company generally has a fairly neutral interest sensitivity position in the short-term (within a twelve-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes.
+Added: With the current inverted interest rate yield curve, modeling of net interest income in changing rate environments presents particular challenges.
+Added: As of June 30, 2024, the net interest income sensitivity indicates neutral impact in rising rates over a one year period, but a slight asset sensitive position in falling rates over a one year period;
+Added: however, a steepening of the yield curve reduces the impact of a 200 basis point reduction in rates to less than 3% of net interest income.
+Added: The interest rate yield curve remains flat/inverted as of June 30, 2024.
+Added: A flat or inverted interest rate yield 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.
+Added: When these rates converge or invert, the profit spread we realize between loan yields and deposit rates narrows, which pressures our NIM, as was the case in 2022 and 2023.
+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 substantially no change in net interest income.
As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results.
7 unchanged sentences
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
−Removed: 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.
−Removed: As of December 31, 2023, the Company’s economic value of equity ("EVE") was generally liability sensitive in both a rising and falling interest rate environment, which continues to be the case.
−Removed: The decline in EVE under a rising rate environment is driven by the composition of the loans and investment portfolios, primarily related to CRE fixed rate loans and fixed rate mortgage-back securities.
+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, 2023, the Company’s economic value of equity ("EVE") was generally liability sensitive in both a rising and falling interest rate environment, which continues to be the case as of June 30, 2024.
+Added: In the rising rate scenarios, EVE declines and in the falling rate scenarios, EVE improves.
+Added: The decline in EVE under a rising rate environment is driven by the composition of the loans and investment portfolios, primarily related to fixed rate loans and fixed rate mortgage-back securities.
In a rising rate environment, these portfolios tend to extend due to slower prepayments, thus lowering their relative valuation in the EVE calculation.
−Removed: With regard to the falling rate scenario, the non-maturity deposits, generally with lower betas, continue to be at or near floor rates assumed in the model, thus within the -200 shocked interest rate scenario, essentially all of the non-maturity deposits are at or near their floor thus negatively impacting their value in the EVE calculation while variable rate assets continue to price downward in all falling rate scenarios.
+Added: With regard to the falling rate scenario, since non-maturity deposits, generally with lower interest rate betas, continue to be near floor rates assumed in the model, thus within the -200 shocked interest rate scenario, their valuations are negatively impacted in the EVE calculation while variable rate assets continue to price downward in all falling rate scenarios, the falling rate scenarios reflect increasing values of EVE.
Additional discussion concerning our exposure to interest rate risk is presented in Item 7A of the 2023 Annual Report on Form 10-K filed with the SEC.
5 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.