Forward-looking Information Safe Harbor Statement This quarterly report on Form 10-Q and other reports filed byHMN Financial, Inc (HMN or the Company) with theSecurities and Exchange Commission (SEC), may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as "anticipate," "continue," "could," "estimate," "expect," "future," "may," "project" and "will," or similar statements or variations of such terms and include, but are not limited to, those relating to: enacted and expected changes to the federal funds rate; the anticipated impacts of inflation and rising interest rates on the general economy, the Bank's clients, and the allowance for credit losses; anticipated future levels of the provision for credit losses; and the payment of dividends by HMN. A number of factors, many of which may be amplified by the deterioration in economic conditions, could cause actual results to differ materially from the Company's assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers, including management's estimates of variable affecting valuation and appraisals of collateral; federal and state regulation and enforcement; possible legislative and regulatory changes, including changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of theOffice of the Comptroller of the Currency and theFederal Reserve Bank of Minneapolis in the event of non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company's loan and investment portfolios; changes in costs associated with traditional and alternate funding sources, including changes in collateral advance rates and policies of theFederal Home Loan Bank and theFederal Reserve Bank ; technological, computer-related or operational difficulties including those from any third party cyberattack; reduced demand for financial services and loan products; adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; domestic and international economic developments; the Company's access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; the Company's ability to attract and retain employees; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company's assumptions and expectations include those set forth in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 . All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. All statements in this quarterly report on Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q.
General
HMN is the stock savings bank holding company for the Bank, which operates community banking and loan production offices inMinnesota ,Iowa andWisconsin . The earnings of the Company are primarily dependent on the Bank's net interest income, which is the difference between interest earned on loans and investments, and the interest paid on interest-bearing liabilities such as deposits and other borrowings. The difference between the average rate of interest earned on assets and the average rate paid on liabilities is the interest rate spread. Net interest income is produced when interest-earning assets equal or exceed interest-bearing liabilities and there is a positive interest rate spread. Net interest income and net interest rate spread are affected by changes in interest rates, the volume and composition of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. The Company's net earnings are also affected by the generation of non-interest income, which consists primarily of gains from the sale of loans, fees for servicing loans, commissions on the sale of uninsured investment products, and service charges on deposit accounts. The Bank incurs expenses in addition to interest expense in the form of compensation and benefits, occupancy and equipment expenses, provisions for credit losses, data processing costs, professional services, deposit insurance, amortization expense on mortgage servicing assets, advertising expenses, and income taxes. The earnings of financial institutions, such as the Bank, are also significantly affected by prevailing economic and competitive conditions, particularly changes in interest rates, government monetary and fiscal policies, and regulations of various regulatory authorities. Lending activities are influenced by the demand for and supply of business credit, single family and commercial properties, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of deposits are influenced by prevailing market rates of interest on competing investments, account maturities and the levels of personal income and savings. 25
--------------------------------------------------------------------------------
Table of Contents Critical Accounting Estimates While our significant accounting policies are described in the notes to our consolidated financial statements, we believe the following discussion addresses our most critical accounting estimates, which are those estimates made in accordance withU.S. generally accepted accounting principles (GAAP) that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. The Company has identified the following critical accounting estimates that management believes involve the most difficult, subjective, and/or complex judgments that are inherently uncertain. Therefore, actual financial results could differ significantly depending upon the estimates, assumptions and other factors used.
Allowance for Credit Losses and Related Provision
The Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments onJanuary 1, 2023 . Under ASU 2016-13, the allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are also not included in the collective evaluations. The collective reserve amount is assessed based on size and risk characteristics of the various portfolio segments, past loss history and other adjustments determined to have a potential impact on future credit losses. The Company has a standardized process to determine the appropriateness of the credit loss allowance for the commercial real estate, commercial business, single family, and consumer loan portfolios. The determination of the allowance for each of these portfolios is calculated on a pooled basis with individual determination of the allowance for all non-performing loans. The determination of the quantitative pooled loan reserves for the commercial real estate and commercial business loan portfolios involves analyzing prior year losses by their assigned standardized risk ratings and applying these historic loss factors to the loans in the current portfolio with similar risk rating. This process is referred to as a Vintage Loss Analysis. The determination of the quantitative pooled loan reserves for the single family and consumer loan portfolios involves analyzing prior year losses based on certain loan and borrower risk characteristics when the loans were originated and applying these historic loss factors to the loans in the current portfolio with similar risk characteristics. Qualitative reserves are also established and reflect management's overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The determination of the qualitative reserves for all of the loan categories involves an analysis and consideration of certain factors that are anticipated to have an impact on future credit losses including, but not limited to: actual and anticipated changes in the size, composition, and concentrations of the loan portfolios; national, regional, and local economic conditions including inflation and unemployment data; loan delinquencies; the scope and results of loan quality reviews; level of non-accrual loans, and risk rating trends; lending policies, procedures, and staffing; and the demand for single family homes, commercial real estate, and building lots. The appropriateness of the allowance for credit losses on individually reviewed collateral dependent loans is dependent upon management's estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations, and cash flows may be subject to adjustments due to changing economic prospects of borrowers or properties. The fair market value of collateral dependent loans is typically based on the appraised value of the property less estimated selling costs. The estimates are reviewed periodically, and any adjustments are recorded in the provision for credit losses in the periods in which the adjustments become known and loans are charged off to the extent they are deemed to be uncollectible. Because of the size of some loans, changes in estimates can have a significant impact on the credit loss provision. The Company increases its allowance for credit losses by charging the provision for credit losses against income and by receiving recoveries of previously charged off loans. The Company decreases its allowance by crediting the provision for credit losses and recording loan charge-offs. The methodology for establishing the allowance for credit losses takes into consideration probable losses that have been identified in connection with the loans individually reviewed as well as the expected losses in each identified pool of loans that have not been individually reviewed. Although management believes that based on current conditions the allowance for credit losses is maintained at an appropriate amount to provide for the expected loan losses in the portfolio as of the balance sheet dates, future conditions may differ substantially from those anticipated in determining the allowance for credit losses and adjustments may be required in the future. See "Note 3 - New Accounting Pronouncements" in the Notes to Consolidated Financial Statements for further information on the impact to the Company's financial statements when ASU 2016-13 was adopted onJanuary 1, 2023 . 26
--------------------------------------------------------------------------------
Table of Contents Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities. The Company maintains significant net deferred tax assets for deductible temporary differences, the two largest relating to the net unrealized loss on securities available for sale and the allowance for credit losses. For tax purposes, the net unrealized losses on securities available for sale are not recognized unless the securities are sold and the loss becomes realized. For book purposes, the unrealized losses, net of income taxes, are reported as a separate component of stockholders' equity until realized. For the allowance for credit losses, only the net charge-offs are deductible while the entire provision for credit losses is used to determine book income. A deferred tax asset for both of these items is created because of the timing difference of when the expense is recognized for book and tax purposes. Under GAAP, a valuation allowance is required to be recognized if it is "more likely than not" that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon management's judgment and evaluation of both positive and negative evidence, including the forecasts of future income, tax planning strategies, and assessments of the current and future economic and business conditions. The positive evidence considered includes the Company's cumulative net income in the prior three-year period, the ability to implement tax planning strategies to accelerate taxable income recognition, and the probability that taxable income will be generated in future periods. The Company could not currently identify any negative evidence. It is possible that future conditions may differ substantially from those anticipated in determining that no valuation allowance was required on deferred tax assets and adjustments may be required in the future. Determining the ultimate settlement of any tax position requires significant estimates and judgments in arriving at the amount of tax benefits to be recognized in the financial statements. It is possible that the tax benefits realized upon the ultimate resolution of a tax position may result in tax benefits that are significantly different from those estimated.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED
Net Income
Net income was$1.6 million for the first quarter of 2023, an increase of$0.1 million compared to net income of$1.5 million for the first quarter of 2022. Diluted earnings per share for the first quarter of 2023 was$0.37 , an increase of$0.03 from diluted earnings per share of$0.34 for the first quarter of 2022. The increase in net income between the periods was primarily because of a$0.8 million increase in net interest income due to an increase in interest earning assets and higher yields earned on those assets and a$0.3 million decrease in the provision for credit losses. These increases in net income were partially offset by a$0.6 million decrease in the gain on sales of loans because of a decrease in mortgage loan originations and sales due primarily to an increase in mortgage interest rates between the periods. Total non-interest expenses also increased$0.4 million between the periods primarily because of an increase in compensation and benefits expenses. 27
--------------------------------------------------------------------------------
Table of Contents Net Interest Income Net interest income was$8.1 million for the first quarter of 2023, an increase of$0.8 million , or 10.7%, compared to$7.3 million for the first quarter of 2022. Interest income was$9.9 million for the first quarter of 2023, an increase of$2.3 million , or 31.0%, from$7.6 million for the first quarter of 2022. Interest income increased because of the$54.6 million increase in the average interest-earning assets between the periods and also because of the increase in the average yield earned on interest-earning assets between the periods. The average yield earned on interest-earning assets was 3.80% for the first quarter of 2023, an increase of 74 basis points from 3.06% for the first quarter of 2022. The increase in the average yield is primarily related to the increase in market interest rates as a result of the 4.50% increase in the prime interest rate between the periods. Interest expense was$1.9 million for the first quarter of 2023, an increase of$1.6 million , or 553.7%, compared to$0.3 million for the first quarter of 2022. Interest expense increased primarily because of the increase in the average interest rate paid on interest-bearing liabilities between the periods. Interest expense also increased because of the$47.6 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was 0.77% for the first quarter of 2023, an increase of 64 basis points from 0.13% for the first quarter of 2022. The increase in the average rate paid is primarily related to the increase in market interest rates as a result of the 4.50% increase in the federal funds rate between the periods. Net interest margin (net interest income divided by average interest-earning assets) for the first quarter of 2023 was 3.09%, an increase of 15 basis points, compared to 2.94% for the first quarter of 2022. The increase in the net interest margin is primarily because the increase in the average yield earned on interest-earning assets as a result of the increase in the prime rate was higher than the increase in the average rate paid on interest-bearing liabilities and non-interest bearing deposits between the periods.
A summary of the Company's net interest margin for the three-month periods ended
For the three-month period ended March 31, 2023 March 31, 2022 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ (Dollars in thousands) Balance Paid Rate Balance Paid Rate Interest-earning assets: Securities available for sale$ 268,684 795 1.20 %$ 295,370 788 1.08 % Loans held for sale 1,216 18 6.04 3,967 34 3.52 Single family loans, net 208,127 1,951 3.80 170,047 1,437 3.43 Commercial loans, net 522,921 6,373 4.94 449,279 4,809 4.34 Consumer loans, net 45,784 661 5.85 40,727 471 4.69 Other 10,814 115 4.31 43,593 26 0.24 Total interest-earning assets 1,057,546 9,913 3.80 1,002,983 7,565 3.06 Interest-bearing liabilities: Checking accounts 161,708 188 0.47 160,315 41 0.10 Savings accounts 120,741 26 0.09 121,033 18 0.06 Money market accounts 258,768 655 1.03 250,745 132 0.21 Certificate accounts 136,986 934 2.77 84,343 92 0.44 Customer escrows 6,393 32 2.00 0 0 0.00 Advances and other borrowings 1,219 15 4.86 0 0 0.00 Total interest-bearing liabilities 685,815 616,436 Non-interest checking 282,136 303,697 Other non-interest bearing liabilities 2,423 2,636 Total interest-bearing liabilities and non-interest bearing deposits$ 970,374 1,850 0.77$ 922,769 283 0.13 Net interest income$ 8,063 $ 7,282 Net interest rate spread 3.03 % 2.93 % Net interest margin 3.09 % 2.94 %
-------------------------------------------------------------------------------- 28
--------------------------------------------------------------------------------
Table of Contents Provision for Credit Losses There was a small recapture in the provision for credit losses in the first quarter of 2023, a decrease of$0.3 million compared to$0.3 million for the first quarter of 2022. The provision for credit losses decreased primarily because of a decrease in the loan growth that was experienced between the periods. The small recapture in the provision recorded in the first quarter of 2023 is because of a decrease in the required collective reserves as a result of updating our projected losses associated with our historical loss calculation. This decrease was partially offset by an increase in the provision related to loan growth. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are also not included in the collective evaluations. The collective reserve amount is assessed based on size and risk characteristics of the various portfolio segments, past loss history and other adjustments determined to have a potential impact on future credit losses. The collective reserve amount decreased from theJanuary 1, 2023 adoption amount based on projected losses associated with the quantitative historical loss calculation and this decrease was partially offset by growth in the loan portfolio. The Company's qualitative reserve adjustments did not materially change during the quarter due to management's perception that economic conditions had not materially changed, including those related to the elevated inflation rate, and enacted and expected increases in the federal funds rate.
A reconciliation of the Company's allowance for credit losses for the first quarters of 2023 and 2022 is summarized as follows:
(Dollars in thousands) 2023 2022 Balance at January 1,$ 10,277 9,279 Adoption of ASU 2016-13 1,070 0 Provision (32 ) 296 Charge offs: Consumer 0 (1 ) Recoveries 27 10 Balance at March 31,$ 11,342 9,584 Allocated to: Collective allowance$ 11,139 9,142 Individual allowance 203 442 Total$ 11,342 9,584 OnJanuary 1, 2023 , the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The transition to this ASU resulted in a cumulative-effect adjustment to the allowance for credit losses of$1.1 million , an increase in deferred tax assets of$0.3 million , and a decrease to retained earnings of$0.8 million as of the adoption date. In addition, a liability for$0.1 million was established for projected future losses on unfunded commitments on outstanding lines of credit upon adoption. The projected liability for unfunded commitments increased$24,000 during the first quarter of 2023 and the provision for credit losses was increased to reflect the change.
Non-Interest Income
Non-interest income was$1.9 million for the first quarter of 2023, a decrease of$0.5 million , or 18.8%, from$2.4 million for the first quarter of 2022. Gain on sales of loans decreased$0.6 million between the periods because of a decrease in single family loan originations and sales due primarily to an increase in mortgage interest rates between the periods. This decrease was partially offset by a$0.1 million increase in other non-interest income due primarily to an increase in the gains recognized on equity securities between the periods. Fees and service charges increased slightly between the periods due primarily to an increase in the commitment fees earned on unused commercial lines of credit. Loan servicing fees increased slightly between the periods due to an increase in the aggregate balances of commercial loans that were being serviced for others. 29
--------------------------------------------------------------------------------
Table of Contents Non-Interest Expense Non-interest expense was$7.7 million for the first quarter of 2023, an increase of$0.4 million , or 6.1%, from$7.3 million for the first quarter of 2022. Compensation and benefits expense increased$0.5 million primarily because of annual salary increases and also because of a decrease in the direct loan origination compensation costs that were deferred as a result of the reduced mortgage loan production between the periods. Data processing expenses increased$0.2 million between the periods primarily because of the change to an outsourced data processing relationship at the end of the first quarter of 2022. Other non-interest expense increased$0.2 million between the periods primarily because of an increase in advertising costs and an increase inFDIC insurance costs between the periods due to an increase in rates. These increases in non-interest expense were partially offset by a$0.3 million decrease in professional services expense between the periods primarily because of a decrease in legal expenses relating to a bankruptcy litigation claim that was settled during the first quarter of 2022. Occupancy and equipment expense decreased$0.1 million due primarily to a decrease in noncapitalized software costs between the periods. Income Taxes Income tax expense was$0.7 million for the first quarter of 2023, an increase of$0.1 million from$0.6 million for the first quarter of 2022. The increase in income tax expense between the periods is primarily the result of an increase in pre-tax income. FINANCIAL CONDITION Non-Performing Assets
The following table summarizes the amounts and categories of non-performing assets in the Bank's portfolio and loan delinquency information as of the end of the two most recently completed quarters.
March 31, December 31, (Dollars in thousands) 2023 2022 Nonperforming loans: Single family$ 890 $ 908 Consumer 494 441 Commercial business 474 529 Total nonperforming assets$ 1,858 $ 1,878 Total as a percentage of total assets 0.17 % 0.17 % Total as a percentage of total loans receivable 0.23 % 0.24 % Allowance for credit losses to non-performing loans 610.45 % 547.24 % Delinquency data: Delinquencies (1) 30+ days$ 271 $ 1,405 90+ days 0 0 Delinquencies as a percentage of loan portfolio (1) 30+ days 0.03 % 0.18 % 90+ days 0.00 % 0.00 %
(1) Excludes non-accrual loans.
Total non-performing assets were
Dividends The Company declared a quarterly dividend of6 cents per share of common stock that was paid onMarch 8, 2023 . The declaration and amount of any future cash dividends remains subject to the sole discretion of the Board of Directors and will depend upon many factors, including the Company's results of operations, financial condition, capital requirements, regulatory and contractual restrictions, business strategy and other factors deemed relevant by the Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter endedMarch 31, 2023 , the net cash used by operating activities was$1.0 million . The Company collected$9.0 million in principal repayments on securities, purchased FHLB stock for$1.5 million , and received redemptions on FHLB stock of$1.4 million . The Company had a net decrease in deposit balances of$23.6 million and a decrease of customer escrows of$1.7 million during the quarter. It also obtained$0.1 million in treasury stock for the taxes payable on stock awards, paid dividends to stockholders of$0.3 million , purchased$0.3 million of premises and equipment, received proceeds from borrowings of$37.8 million and repaid borrowings of$35.5 million . Loans receivable also increased$10.4 million during the quarter. 30
--------------------------------------------------------------------------------
Table of Contents
The Company has certificates of deposit with outstanding balances of$75.4 million that come due over the next 12 months. Based upon past experience, management anticipates that the majority of the deposits will renew for another term. The Company believes that cash outflows from deposits that do not renew will be replaced with a combination of other customers' deposits or FHLB advances. FRB borrowings could also be used to fund unanticipated outflows of certificates of deposit. The Company had seven deposit customers each with aggregate deposits greater than$5.0 million as ofMarch 31, 2023 . The$85.9 million in funds held by these customers may be withdrawn at any time, but management anticipates that the majority of these deposits will not be withdrawn from the Bank over the next twelve months. If these deposits were withdrawn, it is anticipated that they would be replaced with deposits from other customers or brokers or with FHLB advances. FRB borrowings could also be used to replace unanticipated outflows of large checking and money market deposits. The Company estimates that approximately 25% of total deposits exceeded theFederal Deposit Insurance limit of$250,000 atMarch 31, 2023 . While these funds may be withdrawn at any time, management anticipates that the majority of these deposits will not be withdrawn from the Bank over the next twelve months. If these deposits were withdrawn, it is anticipated that they would be replaced with deposits from other customers or brokers or with FHLB advances. FRB borrowings could also be used to replace unanticipated outflows of large checking and money market deposits. The Company had the ability to borrow$241.9 million from the FHLB atMarch 31, 2023 based on the collateral value of the loans pledged. The credit policy of the FHLB relating to the collateral value of the loans collateralizing the available line of credit with the FHLB may change such that the current collateral pledged to secure future advances is no longer acceptable or the formulas for determining the excess pledged collateral may change. The FHLB could also reduce the amount of funds it will lend to the Bank. It is not anticipated that the Bank will need to find alternative funding sources in the next twelve months to replace the available borrowings from the FHLB. However, if needed, the Bank could borrow an additional$92.7 million from the FRB atMarch 31, 2023 based on the collateral value of the loans pledged. The Company also has unpledged securities with a fair market value of$193.1 million that could be pledged as collateral to increase the borrowing capacity of the Company. The Company's primary source of cash is dividends from the Bank. AtMarch 31, 2023 , the Company had$15.8 million in cash. The primary use of cash by the Company is the payment of operating expenses, the repurchase of Company stock, and the payment of dividends to stockholders. The Company also serves as a source of capital, liquidity, and financial support to the Bank. Depending upon the operating performance of the Bank and the Company's other liquidity and capital needs, including Company level expenses, the Company may find it prudent, subject to prevailing capital market conditions and other factors, to raise additional capital through issuance of its common stock or other equity securities. Additional capital would also potentially permit the Company to implement a strategy of growing Bank assets. Depending on the circumstances, if it were to raise capital, the Company may deploy it to the Bank for general banking purposes, or may retain some or all of it for use by the Company. If the Company were to raise capital through the issuance of additional shares of common stock or other equity securities, it would dilute the ownership interests of existing stockholders and could result in a change in control of the Company and the Bank. New investors may also have rights, preferences and privileges senior to the Company's current stockholders which may adversely impact the Company's current stockholders. The Company's ability to raise additional capital through the issuance of equity securities, if deemed prudent, will depend on, among other factors, conditions in the capital markets at that time, which are outside of its control. Accordingly, the Company may not be able to raise additional capital, if deemed prudent, on favorable economic terms or other terms acceptable to it. Market Risk Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest rate risk inherent in its investing, lending and deposit taking activities. Management actively monitors and manages its interest rate risk exposure. 31
--------------------------------------------------------------------------------
Table of Contents
The Company's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Company's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the projected changes in net interest income that occur if interest rates were to suddenly change up or down. The Rate Shock Table located in the following Asset/Liability Management section of this Management's Discussion and Analysis discloses the Company's projected changes in net interest income based upon immediate interest rate changes called rate shocks. The Company utilizes a model that uses the discounted cash flows from its interest-earning assets and its interest-bearing liabilities to calculate the current market value of those assets and liabilities. The model also calculates the changes in market value of the interest-earning assets and interest-bearing liabilities under different interest rate changes. The following table discloses the projected changes in the market value of the Company's interest-earning assets and interest-bearing liabilities based upon incremental 100 basis-point changes in interest rates from interest rates in effect onMarch 31, 2023 .
© Edgar Online, source