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, foreign exchange rates and equity prices.
−Removed: The primary source of market risk for the Company is interest rate risk.
−Removed: Interest rate risk is the risk to earnings and the value of the Company’s equity resulting from changes in market interest rates and arises in the normal course of business to the extent that there are timing and volume differences between the amount of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods.
−Removed: The Company seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.
−Removed: The Company monitors its interest rate risk position using income simulation models and economic value of equity (“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure.
+Added: The primary source of market risk for the Company is interest rate risk, which can be defined as the risk to earnings and the value of our equity resulting from changes in market interest rates.
+Added: Interest rate risk arises in the normal course of business to the extent that there are timing and volume differences between the amount of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods.
+Added: We seek to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.
+Added: We monitor its interest rate risk position using income simulation models and economic value of equity (“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure.
Income simulation involves forecasting net interest income (“NII”) under a variety of interest rate scenarios.
−Removed: The Company uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital.
+Added: We use EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital.
EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios.
−Removed: Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process.
−Removed: The Company continually reviews and refines the assumptions used in its interest rate risk modeling.
−Removed: Presented below is the estimated impact on the Company's NII and EVE position as of December 31, 2020, assuming parallel shifts in interest rates:
−Removed: % Change from Base Case for Parallel Changes in Rates
−Removed: -50 Basis Points -25 Basis Points +100 Basis Points +200 Basis Points
−Removed: NII - next twelve months (1.26) % (0.24) % (2.43) % (5.84) %
+Added: Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process, especially those pertaining to non-maturity deposit accounts.
+Added: These assumptions are reviewed and refined on an ongoing basis by the Company.
+Added: We continually model our NII and EVE positions with various interest rate scenarios and assumptions of future balance sheet composition.
+Added: We utilize implied forward rates as its base case scenario which reflects market expectations for rate increases over the next 24 months.
+Added: Presented below is the estimated impact on our NII and EVE position as of December 31, 2021, assuming a static balance sheet and instantaneous parallel shifts in interest rates:
+Added: % Change from Base Case for Instantaneous Parallel Changes in Rates
+Added: Implied Forward Curve -25 Basis Points Base Implied Forward Curve Implied Forward Curve +100 Basis Points Implied Forward Curve +200 Basis Points
+Added: NII - Year 1 1.16 % N/A (1.53) % (4.86) %
NII - Year 2 1.51 % (0.40) % (1.43) % (5.32) %
−Removed: EVE (0.24) % 0.70 % (2.82) % (11.18) %
−Removed: The Company’s objective is to manage the balance sheet with a “risk-neutral” position.
−Removed: A “risk-neutral” position refers to the absence of a strong bias toward either asset or liability sensitivity.
−Removed: An “asset sensitive” position refers to when the characteristics of the balance sheet are expected to generate higher net interest income when interest rates, primarily short-term rates, increase as rates earned on interest-earning assets would reprice upward more quickly or in greater quantities than rates paid on interest-bearing liabilities would reprice.
−Removed: A “liability sensitive” position refers to when the characteristics of the balance sheet are expected to generate lower net interest income when short-term interest rates increase as rates paid on interest-bearing liabilities would reprice upward more quickly or in greater quantities than rates earned on interest-earning assets.
+Added: EVE 1.36 % N/A (4.85) % (11.71) %
+Added: To supplement the instantaneous rate shocks required by regulatory guidance, we also calculate our interest rate risk position assuming a gradual change in market interest rates.
+Added: This gradual change is commonly referred to as a “rate ramp” and evenly allocates a change in interest rates over a specified time period.
+Added: Presented below is the estimated impact on our NII and EVE position as of December 31, 2021, assuming a static balance sheet and gradual parallel shifts in interest rates over a twelve-month period:
+Added: % Change from Base Case for Gradual Parallel Changes in Rates
+Added: Implied Forward Curve -25 Basis Points Base Implied Forward Curve Implied Forward Curve +100 Basis Points Implied Forward Curve +200 Basis Points
+Added: NII - Year 1 0.07 % N/A (0.10) % (1.53) %
+Added: NII - Year 2 0.66 % (0.40) % (1.59) % (5.33) %
+Added: EVE 0.81 % N/A (4.85) % (11.63) %
+Added: The NII and EVE figures presented in both tables above are reflective of a static balance sheet, and do not incorporate either balance sheet growth or strategies to increase net interest income while managing volatility arising from shifts in market interest rates.
+Added: As such, it is likely that actual results will differ from what is presented in the tables above.
+Added: Balance sheet strategies to achieve such objective may include:
+Added: • Increasing the proportion of low-duration or variable-rate loans to total loans, including organic growth in SBA,
+Added: construction or C&I lending
+Added: • Selling longer-term fixed rate loans
+Added: • Increasing the proportion of lower cost non-maturity deposits to total deposits
+Added: • Extending the duration of wholesale funding
+Added: • Executing derivative strategies to synthetically extend liability or shorten asset duration
+Added: • Repositioning the investment portfolio to manage its duration
Financial Statements and Supplementary Data
2 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.