4 unchanged sentences
Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S.
−Removed: Treasuries and London Interbank Offered Rate (“LIBOR”) (basis risk).
+Added: Treasuries and SOFR (basis risk).
The Company’s Board ALCO establishes broad policy limits with respect to interest rate risk.
−Removed: Board ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies.
+Added: The Board ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies.
In general, The Company seeks to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities.
−Removed: Board ALCO meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the Board of Directors’ approved risk limits.
−Removed: As discussed earlier, the Company also has a Management ALCO, which is comprised of senior management team and Chief Executive Officer, to proactively monitor interest rate risk.
+Added: The Board ALCO meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the Board of Directors’ approved risk limits.
+Added: The Company also has a Management ALCO, which is comprised of the senior management team and the Chief Executive Officer, to proactively monitor interest rate risk.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
13 unchanged sentences
The EVE approach provides a comparatively broader scope than the NII at Risk approach since it captures all anticipated cash flows.
+Added: Simulation results are highly dependent on input assumptions.
+Added: To the extent the actual behavior is different from the assumption used in the models, there could be material changes in results.
+Added: The assumptions applied in the model are documented, supported, and periodically back-tested to assess the reasonableness and effectiveness.
+Added: The Company makes appropriate changes to the model as needed and these changes are reviewed by ALCOs.
+Added: The Company also continuously validates the model, methodology and results.
+Added: Scenario results do not reflect strategies that the management could employ to limit the impact of changing interest rate expectations.
+Added: As part of the Company’s continuous evaluation and periodic enhancements to its NII and EVE calculations, the Company updated its model in the third quarter of 2023 to incorporate deposit repricing assumptions impacting both consumer and wholesale deposits, deposit behavior assumption related to its non-maturity deposits, and prepayment assumptions related to its loan portfolio.
+Added: The model change incorporated observed pricing and customer behavior in both rising and falling interest rate environments.
The following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change as of the dates indicated:
3 unchanged sentences
-100 (4.3) % 1.8 % (4.6) % (1.5) %
+Added: (9.4) % — % (10.3) % (5.8) %
+Added: On January 31, 2024, the FOMC kept the upper range of the Fed Funds Target Rate at 5.50% unchanged, a level which the Committee has maintained since July 26, 2023.
+Added: In the accompanying statement, the Committee added that “In considering any adjustments to the target range for the Federal Funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
+Added: The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.” The Federal Reserve noted that it remains highly attentive to inflation risk.
+Added: As of December 31, 2023, the Company’s net interest income sensitivity results exhibit an asset sensitive profile.
+Added: Net interest income is expected to increase when interest rates rise, as the Company has a large proportion of variable rate loans in its loan portfolio, primarily linked to Prime Rate indices, that are sensitive to changes in short-term interest rates.
+Added: The Company’s deposit portfolio is also sensitive to changes in short-term interest rates, even though a large portion of its deposit mix is composed of non-maturity deposits that are not directly tied to short-term interest rate indices.
+Added: The modeled results are highly sensitive to reinvestment yield and deposit beta assumptions.
+Added: Actual results in net interest income during a period of rising interest rates may vary from the Company’s net interest income sensitivity results, as the actual result reflects earnings asset growth and deposit mix changes based on customer preferences relative to the interest rate environment.
+Added: The Company’s EVE sensitivity reflects a slightly liability sensitive profile due to the continuing deposit mix shift from non-maturity deposits to time deposits.
+Added: The model result is highly sensitive to deposit behaviors as well as loan prepayment assumptions.
+Added: Due to the uncertainty of the current economic forecast, and timing and direction of future interest rate movements, actual result may vary from the Company’s EVE sensitivity results.
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.