Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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. 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. For further discussion on the impact of market factors, see “Risk Factors” in Part I - Item 1A. in this report.
Sensitivity Analysis
Using an earnings-based approach to provide a view of how interest rate changes may affect earnings, we estimate net interest income sensitivity to parallel interest rate changes based on current and projected funding levels. 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. 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.
Our exposure to interest rate risk is primarily through our funding activities. Our finance receivables consist of fixed-rate consumer loans and credit cards, and are not viewed to be interest rate sensitive. As such, we have excluded interest income from this analysis. Additionally, the majority of our debt is fixed-rate and therefore not subject to significant interest rate risk. 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. 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.
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, 2025 2024
(dollars in millions) +100 bps -100 bps +100 bps -100 bps
Net interest income
$ (35) $ 35 $ (35) $ 35
We did not enter into interest rate-sensitive financial instruments for trading or speculative purposes.
Readers should exercise care in drawing conclusions based on the above analysis. 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. 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. Additionally, the analysis does not reflect the potential impacts of macroeconomic changes or variations in the competitive environment.
We have limited exposure to other market risks, including foreign exchange rates, equity prices, and commodity prices. These risks are not considered material to our operations or financial position and are therefore not included in this analysis. Should such exposures become material, we will disclose their potential impacts in future filings.
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