Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Company primarily uses earnings simulation models to analyze net interest income sensitivity to movement in interest rates. The Company performs monthly simulations that model interest rate movements and risk in accordance with changes to its balance sheet composition. For further discussion of the Company’s market risk, see the Interest Rate Sensitivity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2024 Annual Report on Form 10-K.
The table below shows the effects of gradual shifts in interest rates over a twelve month period on the Company’s net interest income versus the Company's net interest income in a flat rate scenario. The simulation presents three rising rate scenarios and three falling rate scenarios, and in these scenarios, rates are assumed to change evenly over 12 months, while the balance sheet remains flat.
The Company utilizes this simulation both for monitoring interest rate risk and for liquidity planning purposes. While the future effects of rising and falling rates on deposit balances cannot be known, the Company maintains a practice of running multiple rate scenarios, when relevant, to better understand interest rate risk and its effect on the Company’s performance.
June 30, 2025 March 31, 2025
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
300 basis points rising $ 34.5 3.11 % $ 18.4 1.68 %
200 basis points rising 27.8 2.51 21.2 1.94
100 basis points rising 17.9 1.62 23.2 2.12
100 basis points falling $ (23.4) (2.11) % $ (20.7) (1.89) %
200 basis points falling (43.3) (3.90) (37.7) (3.45)
300 basis points falling (55.6) (5.02) (47.1) (4.31)
Under the simulation, in the three rising rate scenarios and three falling rate scenarios, interest rate risk is more asset sensitive when compared to the scenarios in the previous quarter. This change was primarily due to fluctuations in average interest earning cash balances at the Federal Reserve and lower premium money market deposit account promotional rates, partly offset by growth in those deposit account balances.
The comparison above provides insight into potential effects of changes in rates on net interest income. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of interest rate risk.
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