Quantitative and Qualitative Disclosures About Market Risk.
−Removed: Market risk refers to the risk to the Company’s financial position resulting from a change in market factors, including interest rates, foreign exchange rates, equity, and commodity prices.
−Removed: The fair values of certain assets and liabilities are sensitive to changes in market interest rates.
−Removed: The impact of changes in interest rates would be reduced by the fact that increases (decreases) in fair values of assets would be partially offset by corresponding changes in fair values of liabilities.
−Removed: The estimated impact of an immediate and sustained 100 basis point (“bps”) increase or decrease in interest rates on the fair values of our interest rate-sensitive financial instruments is shown below.
−Removed: This change would not materially impact our operations due to the composition of our balance sheet, including largely fixed-rate loans along with the tenor and fixed-rate nature of our debt.
+Added: Market risk refers to the risk to the Company’s operations or financial position resulting from a change in market factors, including interest rates, foreign exchange rates, equity, and commodity prices.
+Added: The composition of our balance sheet, including largely fixed-rate loans along with the tenor and fixed-rate nature of our debt, considerably mitigates our interest rate risk.
Our long liquidity runway and staggered debt maturities further reduce any immediate impacts of changes in market interest rates.
1 unchanged sentence
of this report.
−Removed: We derived the changes in fair values by modeling estimated cash flows of certain assets and liabilities.
−Removed: The estimated increases (decreases) in fair values of interest rate-sensitive financial instruments were as follows:
+Added: Sensitivity Analysis
+Added: To better reflect the impact of rate changes on financial performance, we have transitioned our sensitivity analysis from a fair-value based approach to an earnings-based approach.
+Added: This revised approach estimates net interest income sensitivity to parallel interest rate changes based on current and projected funding levels, providing a view of how interest rate changes may affect earnings.
+Added: To measure the sensitivity of net interest income to interest rate changes, we projected net interest income over the following 12 months, including forecasted business growth, anticipated funding needs, and expected interest rates.
+Added: We assumed that interest-rate-sensitive assets and liabilities described below were subject to a hypothetical, immediate 100 basis point (“bps”) increase or decrease in interest rates relative to the forecast.
+Added: Our exposure to interest rate risk is primarily through our funding activities.
+Added: Our finance receivables consist of fixed-rate consumer loans and credit cards, and are not viewed to be interest rate sensitive.
+Added: As such, we have excluded interest income from this analysis.
+Added: Additionally, the majority of our debt is fixed-rate and therefore not subject to significant interest rate risk.
+Added: This analysis focuses on our interest-rate-sensitive liabilities, which include variable-rate funding and fixed-rate liabilities maturing and are assumed to be replaced with a market-based rate in the next 12 months.
+Added: The sensitivity analysis also assumes parallel yield curve shifts, funding needs based on forecasts, and no significant changes in our balance sheet composition or risk strategies.
+Added: The following table presents the approximate net interest income impacts forecasted over the next 12 months from an immediate and parallel change in interest rates:
December 31, 2024 2023
(dollars in millions) +100 bps -100 bps +100 bps -100 bps
−Removed: Net finance receivables, less allowance for finance receivable losses (a)
−Removed: $ (277) $ 285 $ (212) $ 217
−Removed: Fixed-maturity investment securities (b)
−Removed: (64) 67 (70) 75
−Removed: Long-term debt (b)
+Added: Net interest income
$ (35) $ 35 $ (32) $ 32
−Removed: (a) We did not adjust the estimated cash flows for any future credit originations.
−Removed: (b) We adjusted the estimated cash flows to reflect expected prepayment and calls, but did not consider any new investment purchases or debt issuances.
We did not enter into interest rate-sensitive financial instruments for trading or speculative purposes.
+Added: Change from Prior Methodology:
+Added: Previously we disclosed the potential changes in the fair values of receivables, investments and debt resulting from hypothetical interest rate changes.
+Added: While this approach provided insight into balance sheet valuation impacts, it did not reflect the earnings exposure to interest rate risk, which is through changes in funding costs and the effects to earnings.
+Added: The earnings-based analysis focuses on net interest income, a key component of our business performance.
+Added: This change provides readers more meaningful insight into how interest rates could impact our results of operations, highlights the strength of our balance sheet and funding program, and provides relevant and useful disclosures.
+Added: This revised approach enhances transparency, aligns with industry practices, and offers a clearer understanding of our exposure to interest rate risk and its potential impact on financial performance.
Readers should exercise care in drawing conclusions based on the above analysis.
−Removed: While these changes in fair values provide a measure of interest rate sensitivity, they do not represent our expectations about the impact of interest rate changes on our financial results.
−Removed: This analysis is also based on our exposure at a particular point in time and incorporates numerous assumptions and estimates.
+Added: While these changes in net interest income provide a measure of interest rate sensitivity, they do not represent our expectations about the impact of interest rate changes on our financial results.
+Added: This analysis is based on our corporate forecast and incorporates numerous assumptions and estimates as described above.
It also assumes an immediate change in interest rates, without regard to the impact of certain business decisions or initiatives that we would likely undertake to mitigate or eliminate some or all of the adverse effects of the modeled scenarios.
+Added: Additionally, the analysis does not reflect the potential impacts of macroeconomic changes or variations in the competitive environment.
+Added: We have limited exposure to other market risks, including foreign exchange rates, equity prices, and commodity prices.
+Added: These risks are not considered material to our operations or financial position and are therefore not included in this analysis.
+Added: Should such exposures become material, we will disclose their potential impacts in future filings.
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.