Quantitative and Qualitative Disclosures about Market Risk
−Removed: Based on the changes in interest rates occurring subsequent to December 31, 2020, the following update of the Company’s assessment of market risk as of September 30, 2021 is being provided.
+Added: Based on the changes in interest rates occurring subsequent to December 31, 2021, the following update of the Company’s assessment of market risk as of March 31, 2022 is being provided.
These updates and changes should be read in conjunction with the additional quantitative and qualitative disclosures in our Annual Report on Form 10-K for the year ended December 31, 2021.
−Removed: During the quarter ended September 30, 2021, market interest rates, including many rates that serve as reference indices for variable rate loans, showed signs of upward improvement during April and May before ultimately retreating in June of 2021.
−Removed: This prolonged retraction in rates continues to apply downward pressure on the portfolio.
−Removed: Furthermore, management believes that excess liquidity, which when combined with the federal government's continued balance sheet growth and purchase of mortgage-backed agency securities, continues to create limited opportunities for financial institutions to acquire earning assets at yields that are considered neutral or favorable to historical levels of net interest margin.
−Removed: While inflationary pressures and commentary provided by the Federal Reserve lead to some steepening of longer term rates as of September 30, 2021, those increase have not lead to improvement in spread, the difference between treasury rates and the rates associated with the universe of available investment options with similar durations.
−Removed: As of September 30, 2021, the Company's loan portfolio consisted of approximately $4.91 billion in outstanding principal with a weighted average coupon rate of 4.28%, inclusive of the PPP program loans.
−Removed: Excluding PPP loans, the Company's loan portfolio has approximately $4.76 billion outstanding with a weighted average coupon rate of 4.38% as of September 30, 2021.
−Removed: Included in the September 30, 2021 loan total, exclusive of PPP loans, are variable rate loans totaling $3.06 billion of which 88.9% or $2.71 billion were at their floor rate.
−Removed: The remaining variable rate loans totaling $351.0 million, which carried a weighted average coupon rate of 4.78% as of September 30, 2021, are subject to further rate adjustment.
−Removed: Under the presumption that rates are rising, management estimates that more than two 25 basis point rate increases would be needed in order increase rates on 61.2% of the $2.71 billion in loans that are at floors with the remaining 38.8% of loans at floors requiring at least one rate increase of 25 basis points.
+Added: During the quarter ended March 31, 2022, market interest rates, including many rates that serve as reference indices for variable rate loans, increased modestly.
+Added: However, the loan portfolio yield continues to have a downward bias due to the repricing of loans at lower rates and increased market competition stemming from loan to deposit ratios being at historic lows.
+Added: As of March 31, 2022, the Company's loan portfolio consisted of approximately $5.9 billion in outstanding principal with a weighted average coupon rate of 4.24%, inclusive of the PPP program loans.
+Added: Excluding PPP loans, the Company's loan portfolio has approximately $5.8 billion outstanding with a weighted average coupon rate of 4.27% as of March 31, 2022.
+Added: Included in the March 31, 2022 loan total, exclusive of PPP loans, are variable rate loans totaling $3.4 billion, of which, $800,000,000 are considered floating based on the Wall Street Prime index and an additional $2,550,000 of variable rate loans which are generally tied to the 5-year US Treasury rate and are generally subject to reprice quarterly subsequent to the expiration of a fixed rate period of three months to five years.
Management funds the acquisition of nearly all of its earning assets through its core deposit gathering activities.
−Removed: As of September 30, 2021, non-interest bearing deposits represented 40.7% of total deposits.
−Removed: Further, during the quarter ended September 30, 2021, the cost of interest bearing deposits were 0.08% and the cost of total deposits were 0.05%.
−Removed: Under the assumption that the Company will not introduce a negative rate environment to its customer base and that rates will not increase, management anticipates that future decreases in loan yields are more likely than not to decline more rapidly than decreases in deposit costs and thus continue to put downward pressures on net interest margin.
+Added: As of March 31, 2022, non-interest bearing deposits represented 41.1% of total deposits.
+Added: Further, during the quarter ended March 31, 2022, the cost of interest bearing deposits were 0.06% and the cost of total deposits were 0.04%.
With the intent of stabilizing or increasing net interest income, management intends to continue to deploy its excess liquidity and seek to migrate certain earning assets into higher yielding categories (from investment securities and into loans, for example).
−Removed: As of September 30, 2021 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was less than 1.00%.
+Added: As of March 31, 2022 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was less than 1.00%.
Based on the historical nature of these rates in the United States not falling below zero, management believes that a shock scenario that reduces interest rates below zero would not provide meaningful results and therefore, have not been modeled.
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The simulation results shown below assume no changes in the structure of the Company’s balance sheet over the twelve months being measured.
−Removed: The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as measured against a flat rate (no interest rate change) instantaneous shock scenario over a twelve month period utilizing the Company's specific mix of interest earning assets and interest bearing liabilities as of September 30, 2021.
+Added: The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as measured against a flat rate (no interest rate change) instantaneous shock scenario over a twelve month period utilizing the Company's specific mix of interest earning assets and interest bearing liabilities as of March 31, 2022.
Interest Rate Risk Simulations:
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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.