Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary market risk is interest rate fluctuation, and management has procedures in place to evaluate and mitigate this risk. This risk and these procedures are discussed in Part II, Item 7A of the 2025 Annual Report under the caption “Quantitative and Qualitative Disclosures About Market Risk.” Management recognizes that recent changes in interest rates have had an impact on the Company’s market risk. The procedures used to evaluate and mitigate these risks remain unchanged, and we continue to monitor actual and simulated sensitivity positions since December 31, 2025.
The Company prepares a current base case and several alternative simulations at least quarterly. Current interest rates are shocked by +/- 100, 200, 300 and 400 bps. In addition, the Company simulates additional rate curve scenarios. The Company may elect not to use particular scenarios that it determines are impractical in a current rate environment.
The Company’s internal limits for parallel shock scenarios are as follows:
Shock in bps Net Interest Income Economic Value of Equity
+/- 400 - 25% - 40%
+/- 300 - 20% - 30%
+/- 200 - 15% - 20%
+/- 100 - 10% - 10%
It is management’s goal to manage the Bank’s portfolios so that NII at risk over 12 and 24-month periods and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels. As of June 30, 2026 and December 31, 2025, the Company did not exceed any Board-approved limits for the percentage changes in NII or economic value of equity.
Measures of NII at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments.
The following schedule estimates the changes in NII over a 12-month period for parallel rate shocks for up 400, 300, 200 and 100 bps, and down 100, 200 and 300 bps scenarios.
Change in Interest Rates: + 400 bps + 300 bps + 200 bps + 100 bps - 100 bps - 200 bps - 300 bps
Policy limit - 25% - 20% - 15% -10% - 10% - 15% - 20%
June 30, 2026 (9.8) % (7.3) % (4.8) % (2.4) % 2.9 % 5.1 % 4.5 %
December 31, 2025 (10.1) % (7.5) % (5.0) % (2.5) % 1.8 % 1.8 % 0.9 %
Measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities.
The following schedule estimates the changes in the economic value of equity over a 12-month period for parallel shocks for up 400, 300, 200 and 100 bps, and down 100, 200 and 300 bps scenarios.
Change in Interest Rates: + 400 bps + 300 bps + 200 bps + 100 bps - 100 bps - 200 bps - 300 bps
Policy limit - 40% - 30% - 20% - 10% - 10% - 20% - 30%
June 30, 2026 (15.0) % (10.3) % (6.3) % (2.7) % 1.8 % 1.3 % (2.3) %
December 31, 2025 (18.9) % (13.3) % (8.4) % (3.8) % 2.5 % 1.9 % 0.9 %
As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the tables. As of January 1, 2026, the Company adopted a new vendor and updated the model and related assumptions used to calculate NII and economic value of equity. The new model is more reflective of current economic conditions. Accordingly, the economic value of equity as of December 31, 2025 has been restated to conform to the new model and assumptions.
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