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As such ALCO sets basic direction for the Corporation’s sources and uses of funds, establishes numerical ranges for primary and secondary objectives, monitors risk and the delivery of services, establishes subs to manage specific ALM activities, and monitors the counterparties engaged in ALM activities.
−Removed: Our ALM policy is reviewed by at least annually, which includes an evaluation of the ALM policy limits and guidelines in light of our risk profile, business strategies, regulatory guidelines and overall market conditions.
+Added: Our ALM policy is reviewed by ALCO and the board of directors at least annually, which includes an evaluation of the ALM policy limits and guidelines in light of our risk profile, business strategies, regulatory guidelines and overall market conditions.
As part of our management of interest rate risk, we utilize the following modeling techniques that simulate the effects of variations in interest rates:
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Time deposits
−Removed: FHLB advances
Other Liabilities
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Total liabilities and stockholders' equity
−Removed: Repricing gap-positive
+Added: Repricing gap:
Positive (negative)
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(1) Loans include portfolio loans and loans held-for-sale
−Removed: Under the repricing gap analysis, we are modestly (1%) asset-sensitive for maturity/repricing 2 years or less.
−Removed: This reflects a shift in deposit maturities as customers show preference for shorter term products.
−Removed: The gap results presented could vary substantially if different assumptions are used or if actual experience differs from the assumptions used in the preparation of the gap analysis.
−Removed: Furthermore, the gap analysis provides a static view of interest rate risk exposure at a specific point in time and offers only an approximate estimate of the relative sensitivity of our interest-earning assets and interest-bearing liabilities to changes in market interest rates.
−Removed: In addition, the impact of certain optionality is embedded in our balance sheet such as contractual caps and floors, and trends in asset and liability growth.
−Removed: Accordingly, we combine the use of gap analysis with the use of an earnings simulation model that provides a dynamic assessment of interest rate sensitivity.
+Added: Under the static repricing gap analysis for the fiscal year ended December 31, 2021, we model as slightly liability-sensitive through two years.
+Added: This result is mainly due to core-deposit growth from our strategy of increasing the concentration of relationship-based transaction accounts through the efforts of our business developers.
+Added: Core customer preference, in the current economic environment, is for short term or liquid deposits.
+Added: In addition, excess cash from PPP loan forgiveness and sale of loans held for sale were used to pay down borrowings at the end of the year to manage the margin.
Simulations of net interest income.
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● Overall growth rates and product mix of interest-earning assets and interest-bearing liabilities.
−Removed: Because of the limitations inherent in any approach used to measure interest rate risk, simulated results are not intended to be used as a forecast of the actual effect of a change in market interest rates on our results, but rather as a means to better plan and execute appropriate ALM strategies.
+Added: Because of the limitations inherent in any approach used to measure interest rate risk, simulated results are not intended to be used as a forecast of the actual effect of a change in market interest rates on our results, but rather as a means to better plan and execute appropriate Asset / Liability Management (“ALM”) strategies.
Potential changes to our net interest income between a flat interest rate scenario and hypothetical rising and declining interest rate scenarios, measured over a one-year period as of December 31, 2021 and 2020 are presented in the following table.
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-200 basis points over next 12 months
−Removed: The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of December 31, 2020 and December 31, 2019, which will improve net interest income in a rising rate environment.
−Removed: The simulation projects a decrease in net interest income in a falling rate scenario.
+Added: The above interest rate simulation suggests that the Corporation’s balance sheet is narrowly liability sensitive as of December 31, 2021.
+Added: In its current position, the table indicates that a 100 or 200 basis point increase in interest rates would have a modestly negative impact from rising rates on net interest income over the next 12 months and a modestly positive impact in a 300 basis point increase.
+Added: The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines.
+Added: The results continue to drive our funding strategy of increasing relationship-based accounts (core deposits).
Simulation of economic value of equity .
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Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios, measured as of December 31, 2021 and 2020, are presented in the following table.
−Removed: The projections assume shifts ramp upward and downward of the yield curve of 100, 200 and 300 basis points occurring immediately.
−Removed: We would note that in a downward parallel shift of the yield curve, interest rates at the short-end of the yield curve are not modeled to decline any further than to 0%.
+Added: The projections assume shifts upward and downward in the yield curve of 100, 200 and 300 basis points occurring immediately.
+Added: We would note that starting in the first quarter of 2020 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are allowed to decline below 0%.
+Added: Management has and continues to employ strategies to mitigate risk in these scenarios.
+Added: Strategies include actively lowering deposit and funding rates as well as adding and maintaining the use of interest rate floors on floating rate loans.
Estimated increase (decrease) in Net
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-200 basis points
−Removed: This economic value of equity profile at December 31, 2020 suggests that we would experience a positive effect from an increase in rates, and that the impact would become greater as rates continue to rise due to the duration of our interest-earning assets and conversely we would experience a negative effect from a decrease in rates.
+Added: This economic value of equity profile at December 31, 2021 suggests that we would experience a positive effect from an increase in rates, and that the impact would become greater as rates continue to rise due to the duration of our interest-earning assets.
+Added: Conversely, we would experience a negative effect from a decrease in rates.
While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, we believe that a gradual shift in interest rates would have a much more modest impact.
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For example, if the timing and magnitude of interest rate changes differ from that projected, our net interest income might vary significantly.
−Removed: yield curve shifts or changes in interest rate spreads would also cause our net interest income to be different from that projected.
+Added: Non-parallel yield curve shifts or changes in interest rate spreads would also cause our net interest income to be different from that projected.
An increasing interest rate environment could reduce projected net interest income if deposits and other short-term interest-bearing liabilities reprice faster than expected or faster than our interest-earning assets.
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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.