4 unchanged sentences
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short-term to maturity.
−Removed: Interest rate risk is the potential of economic losses due to future interest rate changes.
+Added: Interest rate risk is the potential for economic losses due to future interest rate changes.
These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values.
−Removed: The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
−Removed: We manage exposure to interest rates by structuring the balance sheet in the ordinary course of business.
+Added: The objective is to measure the effect on net interest income and to adjust the consolidated balance sheets to minimize the inherent risk while at the same time maximizing income.
+Added: We manage exposure to interest rates by structuring the consolidated balance sheets in the ordinary course of business.
Additionally, from time to time, we enter into derivatives and futures contracts to mitigate interest rate risk from specific transactions.
−Removed: Based upon the nature of operations, we are not subject to foreign exchange or commodity price risk.
+Added: Based on the nature of operations, we are not subject to foreign exchange or commodity price risk.
We have entered into interest rate swaps to mitigate interest rate risk in limited circumstances, but it is not our policy to enter into such transactions on a regular basis.
10 unchanged sentences
Actual results will differ from the model's simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
−Removed: On a quarterly basis, we run various simulation models including a static balance sheet and dynamic growth balance sheet.
+Added: On a quarterly basis, we run various simulation models, including a static balance sheet and a dynamic growth balance sheet.
These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios.
1 unchanged sentence
Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario.
−Removed: Additionally, we run non-parallel simulation involving analysis of interest income and expense under various changes in the shape of the yield curve.
+Added: Additionally, we run a non-parallel simulation involving analysis of interest income and expense under various changes in the shape of the yield curve.
Internal policy regarding interest rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 8.0% for a 100 basis point shift, 15.0% for a 200 basis point shift, 20.0% for a 300 basis point shift, and 25.0% for a 400 basis point shift.
−Removed: We are marginally modeling outside of policy in most negative basis point rate scenarios, and we continue to monitor our asset sensitivity and evaluate strategies to prevent being significantly impacted by future changes in interest rates.
+Added: We continue to monitor our asset sensitivity and evaluate strategies to prevent being significantly impacted by future changes in interest rates.
The following table summarizes the impact of an instantaneous, sustained simulated change in net interest income and fair value of equity over a 12-month horizon at the date indicated:
8 unchanged sentences
-100 (2.3) 0.4
+Added: -200 (6.7) (1.5)
+Added: -300 (15.5) (7.2)
We have found that, historically, interest rates on deposits change more slowly than changes in the discount and federal funds rates.
2 unchanged sentences
Actual results will differ from the model's simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and the application and timing of various strategies.
+Added: Economic conditions and growth prospects are currently impacted by record inflation and recessionary concerns.
+Added: Increasing interest rates and rising building costs have caused some slowing in the single family housing market.
+Added: Furthermore, worker shortages especially in the restaurant, hospitality and retail industries, combined with supply chain disruptions impacting numerous industries, and inflationary conditions has had some impact on the level of economic growth.
+Added: Ongoing higher inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers.
+Added: The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the loan and deposit rates offered by financial institutions and the fair value of our available for sale securities.
+Added: During 2022, the Federal Reserve increased the federal funds target rate range seven times from 25 to 450 basis points, which is the primary reason for the other comprehensive loss we have experienced during the year ended December 31, 2022.
Impact of Inflation
Our financial statements included herein have been prepared in accordance with U.S.
−Removed: GAAP presently requires us to measure financial position and operating results primarily in terms of historic dollars.
+Added: GAAP, which presently requires us to measure the majority of our financial position and operating results primarily in terms of historic dollars.
Changes in the relative value of money due to inflation or recession are generally not considered.
−Removed: The primary effect of inflation on our operations is reflected in increased operating costs.
+Added: Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.
+Added: As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation.
+Added: However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items.
+Added: Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and stockholders’ equity.
In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate.
2 unchanged sentences
Regulators expect banks to transition away from the use of the London Interbank Offered Rate ("LIBOR") as a reference rate.
−Removed: It is expected that the transition away from the widespread use of LIBOR to alternative rates will continue to occur over the course of the next eighteen months, ahead of the FCA's announced cessation of the remaining LIBOR settings by June 30, 2023.
+Added: It is expected that the transition away from the widespread use of LIBOR to alternative rates will continue to occur over the course of the next several months, ahead of the FCA's announced cessation of the remaining LIBOR settings by June 30, 2023.
Please see " Item 1A Risk Factors - Risks Related to Our Business" included in this report for further information.
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.