3 unchanged sentences
Our primary market risk is interest rate risk, which is the risk of loss of net interest income or net interest margin resulting from changes in market interest rates.
−Removed: Interest rate risk results primarily from the traditional banking activities in which the Bank engages, such as gathering deposits and extending loans.
−Removed: Many factors, including economic and financial conditions, movements in interest rates and consumer preferences, affect the difference between the interest earned on our assets and the interest paid on our liabilities.
−Removed: Management regularly reviews our exposure to changes in interest rates.
−Removed: Among the factors considered are changes in the mix of interest earning assets and interest bearing liabilities, interest rate spreads and repricing periods.
−Removed: The risk committee of the Board of Directors oversees market risk management, including the monitoring of risk measures and limits and policy guidelines, for the amount of interest rate risk and its effect on net interest income and capital.
−Removed: ICE Benchmark Administration, the authorized and regulated administrator of LIBOR, ended publication of the one-week and two-month USD LIBOR tenors on December 31, 2021 and the remaining USD LIBOR tenors will end publication in June 2023.
−Removed: The market transition away from LIBOR to an alternative reference rates is complex and could have a range of adverse effects on our business, consolidated financial condition and consolidated results of operations.
−Removed: To mitigate the uncertainty surrounding the LIBOR transition, the Bank has been utilizing specific contract language in new loan agreements beginning in 2021 that provides for changes in the index used to calculate the loan's interest rate.
−Removed: Additionally, effective January 25, 2021, the Bank agreed to adhere to the Interbank Offered Rate Fallbacks Protocol as published by the International Swaps and Derivatives Association, Inc recommended by the Alternative Reference Rates Committee.
−Removed: For more information, see the risk factor “We will be required to transition from the use of the LIBOR in the future” in Item 1A.
−Removed: Risk Factors--Other Risks Related to Operational Matters.
−Removed: Neither we, nor the Bank, maintain a trading account for any class of financial instrument, nor do we, or the Bank, engage in hedging activities or purchase high risk derivative instruments.
−Removed: Moreover, neither we, nor the Bank, are subject to foreign currency exchange rate risk or commodity price risk.
+Added: Interest rate risk results primarily from the traditional banking activities in which the Company engages, such as gathering deposits and extending loans.
+Added: Many factors, including economic and financial conditions, movements in
+Added: interest rates and consumer preferences, affect the difference between the interest earned on our assets and the interest paid on our liabilities.
+Added: Our Asset/Liability Management Committee is responsible for developing, monitoring and reviewing asset/liability processes, interest rate risk exposures, strategies and tactics and reporting to the Board of Directors' Risk and Technology Committee.
+Added: It is the responsibility of the Board of Directors to establish policies and interest rate limits and approve these policies and interest rate limits annually.
+Added: It is the responsibility of management to execute the approved policies, develop and implement risk management strategies and to report to the Board of Directors on a regular basis.
+Added: We maintain an asset/liability management policy that provides guidelines for controlling exposure to interest rate risk.
+Added: The policy guidelines direct management to assess the impact of changes in interest rates upon both earnings and capital.
+Added: These guidelines establish limits for interest rate risk sensitivity.
Net interest income simulation
−Removed: An income simulation model is the primary tool we use to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates.
+Added: We use an income simulation model as the primary tool to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates.
Modeling the sensitivity of net interest income is highly dependent on numerous assumptions incorporated into the modeling process.
−Removed: Key assumptions in the model include prepayment speeds on loans and investment securities, repricing betas on non-maturity deposits, and pricing on investment securities, loans, and borrowings.
−Removed: In order to measure the interest rate risk sensitivity as of December 31, 2022, this simulation model uses a “no balance sheet growth” assumption and assumes an instantaneous and sustained uniform change in market interest rates at all maturities.
−Removed: These assumptions are inherently uncertain and, as a result, the net interest income projections should be viewed as an estimate of the net interest income sensitivity at the time of the analysis.
−Removed: Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.
−Removed: Based on the results of the simulation model, the following table presents the change in our net interest income as a result of parallel rate shock scenarios for the presented periods after the dates shown:
+Added: Key assumptions in the model include prepayment speeds on loans and investment securities, repricing betas on non-maturity deposits, and repricing on investment securities, loans, and borrowings.
+Added: In order to measure the interest rate risk sensitivity as of December 31, 2023, this simulation model uses a “static balance sheet” assumption, meaning the size and mix of the balance sheet remains the same as maturing cash flows from assets and liabilities are reinvested into the same categories at the current level of interest rates.
+Added: The simulation also assumes an instantaneous and sustained uniform change in market interest rates at all maturities.
+Added: The following table summarizes the estimated effect on net interest income over a 12 month period measured against a flat rate (no interest rate change) scenario for the periods indicated:
December 31, 2023 December 31, 2022
−Removed: Amount % Change in Net Interest Income Amount % Change in Net Interest Income
+Added: $ Change in Net Interest Income
+Added: % Change in Net Interest Income $ Change in Net Interest Income % Change in Net Interest Income
+Added: Change in Interest Rates (Basis Points)
(Dollars in thousands)
−Removed: Modeled increase in market interest rates of 100 basis points
−Removed: Increase in net interest income in Year 1 $ 5,113 2.0 % $ 21,554 11.8 %
−Removed: Increase in net interest income in Year 2 11,147 4.1 28,307 15.9
−Removed: Modeled increase in market interest rates of 200 basis points
−Removed: Increase in net interest income in Year 1 8,181 3.2 40,762 22.4
−Removed: Increase in net interest income in Year 2 19,889 7.3 53,779 30.1
−Removed: Modeled decrease in market interest rates of 100 basis points
−Removed: Decrease in net interest income in Year 1 (5,433) (2.1) (6,445) (3.5)
−Removed: Decrease in net interest income in Year 2 (10,534) (3.9) $ (18,261) (10.2) %
−Removed: Modeled decrease in market interest rates of 200 basis points
−Removed: Decrease in net interest income in Year 1 (16,840) (6.6) N/A (1)
−Removed: Decrease in net interest income in Year 2 $ (29,942) (11.0) % N/A (1)
−Removed: (1) Given the overall level of market interest rates at December 31, 2021, the "Down 200" results did not provide meaningful output and therefore were excluded.
−Removed: These scenarios are based on market interest rates as of the last day of a reporting period published by independent sources that are actively traded in the open market.
−Removed: The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of reprice characteristics, future cash flows and customer behavior.
−Removed: These assumptions are inherently uncertain and actual results will differ, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower net interest income.
+Added: $ 1,438 0.6 % $ 8,181 3.2 %
+Added: 1,644 0.7 5,113 2.0
+Added: 1,861 0.8 (5,433) (2.1)
+Added: 1,549 0.7 (16,840) (6.6)
+Added: The Company’s balance sheet sensitivity to changes in market rates is somewhat neutral, meaning results are similar in the rates up and down scenarios over a twelve month time horizon.
+Added: The Company is less asset sensitive than in the prior year due primarily to a decrease in interest earning deposits that reprice daily.
+Added: The simulation results noted above do not incorporate any management actions that might moderate the negative consequences of interest rate deviations.
+Added: In addition, the simulation results noted above contain various assumptions such as a static balance sheet, and the rate that deposit interest rates change as market interest rates change.
+Added: Therefore, they do not reflect likely actual results, but serve as estimates of interest rate risk.
+Added: As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the preceding table.
+Added: For example, although certain of the Company’s assets and liabilities may have similar maturities or repricing time frames, they may react in different degrees to changes in market interest rates.
+Added: In addition, the interest rates on certain of the Company’s asset and liability categories may precede, or lag behind, changes in market interest rates.
+Added: Also, the actual rates of prepayments on loans and investments could vary significantly from the assumptions utilized in deriving the results as presented in the preceding tables.
+Added: Further, a change in U.S.
+Added: Treasury rates accompanied by a change in the shape of the treasury yield curve could result in different estimations from those presented herein.
+Added: Accordingly, the results in the preceding table should not be relied upon as indicative of actual results in the event of changing market interest rates.
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.