What changed in this filing

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2022-11-09 compared with 2022-08-09 · 27 added, 40 removed, 47 unchanged (59% of the section changed)

8 unchanged sentences

United’s Asset/Liability Management Committee (“ALCO”), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk to maintain an acceptable level of change to net interest income as a result of changes in interest rates.

Policy established for interest rate risk is stated in terms of the change in net interest income over a one-year

horizon given an immediate and sustained increase or decrease in interest rates.

Policy established for interest rate risk is stated in terms of the change in net interest income over a one-year and two-year horizon given an immediate and sustained increase or decrease in interest rates.

The current limits approved by the Board of Directors are structured on a staged basis with each stage requiring specific actions.

1 unchanged sentence

One such technique utilizes an earnings simulation model to analyze the sensitivity of net interest income to movements in interest rates.

The model is based on actual cash flows and repricing characteristics for on and off-balance

sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities.

The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities.

The model also includes executive management projections for activity levels in product lines offered by United.

7 unchanged sentences

Moreover, earnings-simulation analysis considers the relative sensitivities of these balance sheet items and projects their behavior over an extended period of time.

United closely monitors the sensitivity of its assets and liabilities on an on-going

basis and projects the effect of various interest rate changes on its net interest margin.

The following table shows United’s estimated earnings sensitivity profile as of June 30, 2022 and December 31, 2021:

United closely monitors the sensitivity of its assets and liabilities on an on-going basis and projects the effect of various interest rate changes on its net interest margin.

The following table shows United’s estimated earnings sensitivity profile as of September 30, 2022 and December 31, 2021:

Change in Interest Rates

1 unchanged sentence

Percentage Change in Net Interest Income

June 30, 2022

September 30, 2022

December 31, 2021

At June 30, 2022, given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to increase by 0.21% over one year as compared to an increase by 2.70% at December 31, 2021.

A 200 basis point immediate, sustained upward shock in the yield curve would decrease net interest income by an estimated 0.91% over one year as of June 30, 2022, as compared to an increase of 4.61% as of December 31, 2021.

A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 0.75% over one year as of June 30, 2022 as compared to a decrease of 0.98%, over one year as of December 31, 2021.

A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 6.92% over one year as of June 30, 2022 as compared to a decrease of 2.42% over one year as of December 31, 2021.

In addition to the one year earnings sensitivity analysis, a two-year

analysis is also performed.

At September 30, 2022, given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to decrease by 0.50% over one year as compared to an increase by 2.70% at December 31, 2021.

A 200 basis point immediate, sustained upward shock in the yield curve would decrease net interest income by an estimated 3.97% over one year as of September 30, 2022, as compared to an increase of 4.61% as of December 31, 2021.

A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 0.08% over one year as of September 30, 2022 as compared to a decrease of 0.98%, over one year as of December 31, 2021.

A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 1.93% over one year as of September 30, 2022 as compared to a decrease of 2.42% over one year as of December 31, 2021.

In addition to the one year earnings sensitivity analysis, a two-year analysis is also performed.

Compared to the one year analysis, United is projected to show improved performance in year two within the upward rate shock scenarios.

Given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to increase by 3.05% in year two as of June 30, 2022.

A 200 basis point immediate, sustained upward shock in the yield curve would increase net interest income by an estimated 4.40% in year two as of June 30, 2022.

A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 5.35% in year two as of June 30, 2022.

A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 15.92% in year two as of June 30, 2022.

Given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to increase by 1.65% in year two as of September 30, 2022.

A 200 basis point immediate, sustained upward shock in the yield curve would decrease net interest income by an estimated 0.06% in year two as of September 30, 2022.

A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 3.18% in year two as of September 30, 2022.

A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 7.41% in year two as of September 30, 2022.

This analysis does not include the potential increased refinancing activities, which should lessen the negative impact on net income from falling rates.

14 unchanged sentences

Like other fixed-income securities, when interest rates rise, the value of mortgage- related securities generally declines.

The rate of prepayments on underlying mortgages will affect the price and volatility of mortgage-related securities and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase.

prepayments on underlying mortgages will affect the price and volatility of mortgage-related securities and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase.

If interest rates rise, United’s holdings of mortgage-related securities may experience reduced returns if the borrowers of the underlying mortgages pay off their mortgages later than anticipated.

This is generally referred to as extension risk.

At June 30, 2022, United’s mortgage related securities portfolio had an amortized cost of $2.2 billion, of which approximately $941.8 million or 42% were fixed rate collateralized mortgage obligations (CMOs).

These fixed rate CMOs consisted primarily of planned amortization class (PACs), sequential-pay

and accretion directed (VADMs) bonds having an average life of approximately 5.9 years and a weighted average yield of 1.95%, under current projected prepayment assumptions.

At September 30, 2022, United’s mortgage related securities portfolio had an amortized cost of $2.2 billion, of which approximately $966.9 million or 44% were fixed rate collateralized mortgage obligations (“CMOs”).

These fixed rate CMOs consisted primarily of planned amortization class (“PACs”), sequential-pay and accretion directed (“VADMs”) bonds having an average life of approximately 5.6 years and a weighted average yield of 2.14%, under current projected prepayment assumptions.

These securities are expected to have moderate extension risk in a rising rate environment.

Current models show that an immediate, sustained upward shock of 300 basis points, the average life of these securities would only extend to 6.7 years.

The projected price decline of the fixed rate CMO portfolio in rates up 300 basis points would be 16%, or less than the price decline of a 7-

year treasury note.

By comparison, the price decline of a 30-year

2.50% coupon mortgage-backed security (MBS) in rates higher by 300 basis points would be approximately 21.1%.

United had approximately $651.7 million in fixed rate Commercial mortgage-backed Securities (CMBS) with a projected yield of 2.07% and a projected average life of 4.9 years on June 30, 2022.

The projected price decline of the fixed rate CMO portfolio in rates up 300 basis points would be 15%, or less than the price decline of a 7- year treasury note.

By comparison, the price decline of a 30-year 2.50% coupon mortgage backed security (“MBS”) in rates higher by 300 basis points would be approximately 21.1%.

United had approximately $628.2 million in fixed rate Commercial mortgage backed Securities (“CMBS”) with a projected yield of 2.07% and a projected average life of 4.9 years on September 30, 2022.

This portfolio consisted primarily of Freddie Mac Multifamily K securities and Fannie Mae Delegated Underwriting and Servicing (“DUS”) securities with a weighted average maturity (“WAM”) of 7.8 years.

United had approximately $30.3 million in 15-year

mortgage-backed securities with a projected yield of 2.03% and a projected average life of 4.9 years as of June 30, 2022.

This portfolio consisted of seasoned 15-year

mortgage paper with a weighted average loan age (WALA) of 3.1 years and a weighted average maturity (WAM) of 12.4 years.

United had approximately $368.8 million in 20-year

mortgage-backed securities with a projected yield of 1.81% and a projected average life of 7.2 years on June 30, 2022.

This portfolio consisted of seasoned 20-year

mortgage paper with a weighted average loan age (WALA) of 1.3 years and a weighted average maturity (WAM) of 18.6 years.

United had approximately $172.9 million in 30-year

mortgage-backed securities with a projected yield of 2.47% and a projected average life of 8.4 years on June 30, 2022.

This portfolio consisted of seasoned 30-year

mortgage paper with a weighted average loan age (WALA) of 3.3 years and a weighted average maturity (WAM) of 25.1 years.

The remaining 3% of the mortgage related securities portfolio on June 30, 2022, included floating rate CMO, CMBS and mortgage-backed securities.

United had approximately $29 million in 15-year mortgage backed securities with a projected yield of 2.02% and a projected average life of 4.9 years as of September 30, 2022.

This portfolio consisted of seasoned 15-year mortgage paper with a weighted average loan age (“WALA”) of 3.1 years and a WAM of 12.2 years.

United had approximately $360.8 million in 20-year mortgage backed securities with a projected yield of 1.81% and a projected average life of 7.3 years on September 30, 2022.

This portfolio consisted of seasoned 20-year mortgage paper with a WALA of 1.5 years and a WAM of 18.3 years.

United had approximately $166.8 million in 30-year mortgage backed securities with a projected yield of 2.45% and a projected average life of 7.8 years on September 30, 2022.

This portfolio consisted of seasoned 30-year mortgage paper with a WALA of 3.3 years and a WAM of 24.8 years.

The remaining 2% of the mortgage related securities portfolio on September 30, 2022, included floating rate CMO, CMBS and mortgage backed securities.

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.

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk