7 unchanged sentences
Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings.
−Removed: When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.
+Added: When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because
+Added: of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
6 unchanged sentences
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
−Removed: 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 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.
9 unchanged sentences
Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates in both a "shocked" instantaneous move and a "ramped" move of rates.
−Removed: Interest rates on different asset and liability accounts move differently when the prime rate changes and such assumptions are reflected in the different rate scenarios.
+Added: Interest rates on different asset and liability accounts move differently when the Federal Reserve changes rates and such assumptions are reflected in the different rate scenarios.
The model does not take into account any future actions that management may take to mitigate the impact of interest rate changes, and it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk.
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 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: 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 to 200 basis points) of interest rate changes.
With the current inverted interest rate yield curve, modeling of net interest income in changing rate environments presents particular challenges.
−Removed: 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;
−Removed: 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.
−Removed: The interest rate yield curve remains flat/inverted as of June 30, 2024.
+Added: As of September 30, 2024, the net interest income sensitivity indicates a slight asset sensitive position in both rising and 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 2% of net interest income over a one year period and less than a 1% reduction over a two year period.
+Added: The interest rate yield curve remains flat/inverted as of September 30, 2024.
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.
−Removed: 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.
−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 substantially no change in net interest income.
+Added: When these rates converge or
+Added: 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 of 200 basis points in market rates we would expect to realize an increase in net interest income of approximately 3% over both a one-year and two-year horizon.
As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results.
−Removed: The current indication is that the market rates may begin to stabilize.
−Removed: However, the consensus is that the Federal Reserve will not start to reduce rates until late 2024 or into 2025.
−Removed: 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.
+Added: Subsequent to September 30, 2024 market indications indicate that the yield curve may begin to normalize and steepen.
+Added: In addition to the 50 basis points reduction in September 2024, the market consensus is that the Federal Reserve will continue to reduce short-term rates through late 2024 and into 2025.
+Added: With reductions by the Federal Reserve, we are actively managing the cost of funds.
+Added: Further, variable rate interest-earning assets will likely reprice to lower rates.
+Added: Our ability to reduce cost of funds may be impacted by market competition for deposits.
Economic Value Simulation
4 unchanged sentences
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.
−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 as of June 30, 2024.
+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 September 30, 2024.
In the rising rate scenarios, EVE declines and in the falling rate scenarios, EVE improves.
−Removed: 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.
−Removed: 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, 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.
+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-backed securities as compared to a higher proportion of deposits having variable rates.
+Added: In a rising rate environment, the fixed rate loan and securities portfolios tend to extend due to slower prepayments, thus lowering their relative valuation in the EVE calculation.
+Added: In declining rate environments, these same loan and securities portfolios tend to prepay.
+Added: As of September 30, 2024, the impact of increasing rates on EVE are less severe than at December 31, 2023.
+Added: Further, at the same date, the benefit from declining rates on EVE remains positive in most declining rate scenarios, but at a lower level than at December 31, 2023.
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.