Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Qualitative Analysis. Interest rate risk is the exposure of a bank’s current and future earnings and capital to changes in interest rates. The guidelines of the Company’s interest rate risk policy seek to limit the exposure to changes in interest rates that affect the underlying economic value of assets and liabilities, earnings and capital. To minimize interest rate risk, the Company generally sells all 20- and 30-year fixed-rate residential mortgage loans at origination. The Company retains residential fixed rate mortgages with terms of 15 years or less and biweekly payment residential mortgages with a term of 30 years or less. Commercial real estate loans generally have interest rates that reset in five years, and other commercial loans such as construction loans and commercial lines of credit reset with changes in the Prime rate, the Federal Funds rate, LIBOR or SOFR. Investment securities purchases generally have maturities of five years or less, and mortgage-backed securities have weighted average lives between three and five years.
The Asset/Liability Committee meets at least monthly, or more often as needed, to review the impact of interest rate changes on net interest income, net interest margin, net income and the economic value of equity. The Asset/Liability Committee reviews a variety of strategies that project changes in asset or liability mix and the impact of those changes on projected net interest income, net income and the economic value of equity.
The Company’s strategy for liabilities has been to maintain a stable core-funding base by focusing on core deposit account acquisition and increasing products and services per household. Certificate of deposit accounts as a percentage of total deposits were 17.1% as of December 31, 2025, compared to 17.0% as of December 31, 2024. Certificate of deposit accounts are generally short-term. As of December 31, 2025, 96.2% of all certificates of deposit had maturities of one year or less compared to 96.1% as of December 31, 2024. The Company’s ability to retain maturing time deposit accounts is the result of its strategy to remain competitively priced within its marketplace. The Company’s pricing strategy may vary depending upon current funding needs and the ability of the Company to fund operations through alternative sources, primarily by accessing short-term lines of credit with the FHLBNY during periods of pricing dislocation.
Quantitative Analysis. Current and future sensitivity to changes in interest rates are measured through the use of balance sheet and income simulation models. The analysis estimates changes in net interest income using flat rates as a base, a most likely rate forecast and rising and declining interest rate forecasts. Changes in net interest income and net income for the forecast period, generally twelve to twenty-four months, are measured and compared to policy limits for acceptable change. The Company periodically reviews historical deposit re-pricing activity and makes modifications to certain assumptions used in its income simulation model regarding the interest rate sensitivity of deposits without maturity dates. These modifications are made to reflect more closely the most likely results under the various interest rate change scenarios. Since it is inherently difficult to predict the sensitivity of interest bearing deposits to changes in interest rates, the changes in net interest income due to changes in interest rates cannot be precisely predicted. There are a variety of reasons that may cause actual results to vary considerably from the predictions presented below which include, but are not limited to, the timing, magnitude, and frequency of changes in interest rates, interest rate spreads, prepayments, and actions taken in response to such changes. Specific assumptions used in the simulation model include:
• Parallel yield curve shifts for market rates;
• Current asset and liability spreads to market interest rates are fixed;
• Traditional savings and interest-bearing demand accounts move at 10% of the rate ramp in either direction;
• Retail Money Market and Business Money Market accounts move at 25% and 75% of the rate ramp in either direction, respectively; and
• Higher-balance demand deposit tiers and promotional demand accounts move at 50% to 75% of the rate ramp in either direction.
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The following table sets forth the results of the twelve month projected net interest income model as of December 31, 2025.
Change in Interest Rates in Basis Points - (Rate Ramp)
Net Interest Income
Amount Change Percent Change
(Dollars in thousands)
-200 821,694 11,812 1.5
-100 815,429 5,547 0.7
Static 809,882 — —
+100 802,851 (7,031) (0.9)
+200 795,694 (14,188) (1.8)
The interest rate risk position of the Company is relatively neutral. The preceding table indicates that, as of December 31, 2025, in the event of a 200 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, there would be a 1.8% or $14.2 million decrease to net interest income. In the event of a 200 basis point decrease in interest rates, whereby rates ramp down evenly over a twelve-month period, the Company would experience a 1.5%, or $11.8 million increase in net interest income. In this downward rate scenario, rates on deposits have a repricing floor of zero.
Another measure of interest rate sensitivity is to model changes in economic value of equity through the use of immediate and sustained interest rate shocks. The following table illustrates the economic value of equity model results as of December 31, 2025.
Change in Interest Rates in Basis Points
Present Value of Equity Present Value of Equity
as Percent of Present
Value of Assets
Amount
Change
Percent
Change
Present Value
Ratio
Percent
Change
(Dollars in thousands)
-200 3,680,559 (201,638) (5.2) 14.2 (8.6)
-100 3,807,798 (74,399) (1.9) 14.9 (3.7)
Flat 3,882,197 — — 15.5 —
+100 3,895,937 13,740 0.4 15.9 2.3
+200 3,894,659 12,462 0.3 16.2 4.2
The preceding table indicates that as of December 31, 2025, in the event of an immediate and sustained 200 basis point increase in interest rates, the Company would experience a 0.3%, or $12.5 million increase in the present value of equity. If rates were to decrease 200 basis points, the present value of equity would decrease 5.2% or $201.6 million.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the use of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect future loan prepayment and deposit withdrawal activity. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on the Company’s net interest income and will differ from actual results.
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