1 unchanged sentence
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices.
−Removed: The Company’s market risk is composed primarily of interest rate risk inherent in the normal course of lending and deposit-taking activities.
−Removed: We are also exposed to market risk in our investing activities.
+Added: The Company’s market risk is composed primarily of interest rate risk inherent in the normal course of lending, investing and deposit-taking activities.
We do not have any trading assets or activities.
2 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 of the difference between their maturities and repricing characteristics and this 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.
19 unchanged sentences
Because these assumptions are inherently uncertain, actual results may differ from simulated results.
−Removed: 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.
−Removed: 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 is to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk.
+Added: Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates in both a "shocked" instantaneous parallel move and a "steepening" move of rates.
+Added: Interest rates on different asset and liability accounts move differently when the federal funds rate changes and such assumptions are reflected in the different rate scenarios.
+Added: 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.
The following table presents the estimated net interest income sensitivity over a 12-month horizon for the specified rate change levels presented.
This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
+Added: Further, the estimations are based upon the Company's balance sheet as of period end and is not comparing future results to prior results, but rather comparing hypothetical future results under differing rate scenarios.
Percentage change in Net Interest Income (1)
8 unchanged sentences
- 400 (2.3)% (4.3)%
−Removed: (1) - The percentage change represents the projected net interest income for 12 months on a flat balance sheet in a stable rate environment as compared to the projected net interest income in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
−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 and continuing in 2023, the Company's sensitivity position shifted 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 experienced beginning in 2022 through mid-2023 resulted in a steepening of the yield curve on the short end (within one year), while the longer end of the curve 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: In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced, after several periods of historically low federal funds rates and yields on Treasury notes, that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.
−Removed: Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023.
−Removed: As of December 31, 2023, the target range for the federal funds rate had been increased 525 basis points to 5.25% - 5.50%.
−Removed: It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to its target level, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.
−Removed: As demonstrated in the above table, we expect net interest income to decline in a rising interest rate environment, as has been experienced over the last year.
−Removed: This is due in large part to the composition of our loan portfolio which consists of approximately 19% variable rate loans that could immediately reprice, thus limiting the magnitude of the impact of rate increases.
−Removed: In addition, the model includes an assumption of an immediate repricing up of the funding base in a rising rate environment due to the current competitive deposit market, combined with a continued utilization of wholesale funding in the form of short-term borrowings at our current level in order to maintain a similar balance sheet composition which has led to a narrowing of the interest rate spread in the projection.
−Removed: With regard to
−Removed: declining rates, assuming an immediate decrease or shock in market rates over the short-term (12-month horizon), we also expect to realize a decline in net interest income, although not to the extent projected in the prior year.
−Removed: The declining net interest income in a falling rate scenario is related to the repricing of interest-earning assets to lower rates while non-maturity interest-bearing deposits are projected to be at or near their floor within a -200 basis point shock, thus limiting our ability to keep pace with asset rate declines.
−Removed: The improvement in our position in the falling rate scenario as compared to the prior year is related to the actual rate increases experienced in 2023 providing additional repricing opportunity on the liability side of the balance sheet in a declining rate scenario.
−Removed: The model results demonstrated in the above table are based on the immediate shock of each of the various rate scenarios and assume a continued inversion of the yield curve (i.e.
+Added: (1) - The percentage change represents the projected net interest income for 12 months on a static balance sheet in a stable rate environment as compared to the projected net interest income in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
+Added: With the FOMC increasing the target federal funds rate in 2022 and 2023, for December 31, 2023 the Company's sensitivity position was such that in the short-term it was projected that net interest income would likely fall in both a rising and falling rate environment.
+Added: As of December 31, 2024 we expect net interest income to remain relatively stable in a plus 200 basis points or minus 200 basis point interest rate curve parallel shift scenario.
+Added: During the last four months of 2024, the FOMC decreased short term rates 100 basis points with a target federal funds rate of 4.25% - 4.50% at December 31, 2024.
+Added: As evidenced by our results for 2024, the Company has reacted quickly to interest rate cuts by the FOMC and thus reduced the Company's total cost of deposits, thereby increasing net interest income.
+Added: As of December 31, 2024, assuming no change in the shape of the yield curve, the Company is reflecting an asset sensitive position, with relatively smaller changes in the declining scenarios, particularly -100 and -200 basis points.
+Added: The shape of the yield curve also has a significant impact on the earnings of financial institutions, including the Company.
+Added: Generally speaking, when the yield curve is flat or inverted over time, banks experience a decrease in net interest income.
+Added: Conversely, a positively sloping yield curve over time is generally favorable for financial institutions.
+Added: Any additional flattening or inversion of the yield curve could have a material negative impact on the Company.
+Added: The Company continues to actively manage interest rate risk through the addition of variable rate assets and the pricing of interest bearing deposits.
+Added: The model results demonstrated in the above table are based on the immediate shock of each of the various rate scenarios and assume a consistent future slope (or lack thereof) of the yield curve (i.e.
a parallel shift of the yield curve) in both a rising and falling rate scenario.
21 unchanged sentences
(1) - The percentage change represents our economic value of equity in a stable rate environment as compared to the economic value of equity in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
−Removed: As of December 31, 2023, the Company’s economic value of equity continued to be generally liability sensitive in both a rising and falling interest rate environment, similar to its position as of December 31, 2022, while the extent of exposure to rising rates has improved somewhat from the prior year end.
−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.
−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, 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 on 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: As of December 31, 2024, the Company's EVE exposure to rising rates has improved at all levels and exposure to declining rates has depreciated slightly as the short term rates have fallen about 100 basis points during the last four months of 2024.
+Added: The improvement in EVE under a rising rate environment is driven by repositioning of the Company's assets to be less negatively impacted by rising rates, generally through an increase in variable rate assets.
+Added: The decline in EVE under some of the declining rate environments is driven by the actual decline in rates during the year as well as repayment of wholesale borrowings through more stable deposits which are modeled to show more fluctuation in EVE, but which are a preferred funding source.
+Added: Portions of the Company's deposits are also nearing their modeled floor rates and therefore reflect a negative projected change in value.
Refer also to the discussion above under Earnings Simulation Analysis.
6 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.