2020 Annual Report

downward of the yield curve of 100 basis points and immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points. In the current interest rate environment, a downward shift of the yield curve of 200, 300 and 400 basis points does not provide us with meaningful results and thus is not presented.

December 31, 2020

December 31, 2019

Change (basis points) in Interest Rates

Forecasted Net Percentage Change

Forecasted Net Percentage Change

(12-Month Projection)

Interest Income

from Base

Interest Income

from Base

+400 +300 +200 +100

$

91,046 88,698 86,241 84,195 82,747 81,780

10.03 % $

80,558 78,064 75,591 73,113 70,996 68,685

13.47 %

7.19 4.22 1.75

9.95 6.47 2.98

0

—

—

í 100

(1.17)

(3.26)

The table above indicates that as of December 31, 2020, in the event of an immediate and sustained 400 basis point increase in interest rates, the Company would experience a 10.03% increase in net interest income. In the event of an immediate 100 basis point decrease in interest rates, the Company would experience a 1.17% decrease in net interest income. The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or re-price faster than the Company’s assets. Actual results could differ from those projected if the Company grows assets and liabilities faster or slower than estimated, if the Company experienced a net outflow of deposit liabilities, or if the mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if the Company experienced substantially different repayment speeds in the loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that the Company may undertake in response to potential or actual changes in interest rates, such as changes to the Company’s loan, investment, deposit, or funding strategies. LIBOR is used as an index rate for the Company’s interest rate swaps and caps, a portion of its subordinated debt, various investment securities and approximately 9.0% of the Company’s loans as of December 31, 2020. It is expected that the number of institutions that have been reporting information used to set LIBOR will stop doing so starting after 2021 through June 30, 2023 when their reporting commitment ends. As a result, LIBOR may no longer be available as an index or may be seen as no longer representative of the market. Alternative reference rates are being identified, but existing contracts may not have been written to allow the use of these alternatives. The Company is evaluating the risks related to this transition and its evaluation and mitigation of risks related to the discontinuation of LIBOR may span several reporting periods through 2023. LIBOR Transition

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