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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2026-02-06 compared with 2025-08-08 · 70 added, 49 removed, 134 unchanged (47% of the section changed)

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The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments.

The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those alternative interest rate environments.

Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and one with management strategies considered.

Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and with management strategies considered.

The MVPE and net interest income analyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis.

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This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.

General assumptions used by management to evaluate the sensitivity of our financial performance to changes in interest rates presented in the tables below are utilized in, and set forth under, the gap table and related notes.

Although management finds these assumptions reasonable, the interest rate sensitivity of our assets and liabilities and the estimated effects of changes in interest rates on our net interest income and MVPE indicated in the below tables could vary substantially if different assumptions were used or actual experience differs from the assumptions.

To illustrate this point, the projected cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities within the next 12 months as a percentage of total assets ("one-year gap") is also provided for up/down 200 basis point scenarios, as of December 31, 2025.

Qualitative Disclosure about Market Risk

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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 of assets and liabilities may lag behind changes in market interest rates.

Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset.

Certain assets, such as adjustable-rate loans, often have features that restrict changes in interest rates on a short-term basis and over the life of the asset.

In the event of a change in interest rates, prepayment rates would likely deviate significantly from those assumed in calculating the gap table below.

A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests that in a rising rate environment, earnings should increase.

A negative gap generally means more cash flows from liabilities are expected to reprice than cash flows from assets and suggests, in a rising rate environment, that earnings should decrease.

A negative gap generally means more cash flows from liabilities are expected to reprice than cash flows from assets and suggests, in a rising rate environment, earnings should decrease.

For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.

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liabilities as a percent of total Bank assets at:

June 30, 2025 (9.9) % (19.0) % (9.5) % 5.5 %

March 31, 2025 (11.4)

December 31, 2025 (12.6 %) (15.6 %) (6.0 %) 5.5 %

September 30, 2025 (10.1)

Cumulative one-year gap - interest rates +200 bps at:

June 30, 2025 (11.9)

March 31, 2025 (13.7)

December 31, 2025 (14.9)

September 30, 2025 (12.2)

Cumulative one-year gap - interest rates -200 bps at:

June 30, 2025 (5.5)

March 31, 2025 (7.1)

December 31, 2025 (8.4)

September 30, 2025 (5.8)

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(2) MBS reflect projected prepayments at amortized cost.

All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of June 30, 2025, at amortized cost.

All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of December 31, 2025, at amortized cost.

(3) Although the Bank's non-maturity deposits are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities.

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(4) Borrowings exclude deferred prepayment penalty costs.

Included in this line item are $200.0 million of FHLB adjustable-rate advances tied to interest rate swaps.

The repricing of these liabilities is projected to occur at the maturity date of each interest rate swap.

At June 30, 2025, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(963.3) million, or (9.9)% of total assets, compared to $(1.51) billion, or (15.8)% of total assets, at September 30, 2024.

The change in the one-year gap amount was due primarily to an increase in the amount of projected asset cash flows coming due in one year, as of June 30, 2025, compared to September 30, 2024, as well as to a decrease in the amount of projected liability cash flows.

The increase in projected asset cash flows was due primarily to an increase in the balances of adjustable-rate loans as the Bank continues to shift its loan portfolio from one- to four-family loans to commercial loans, which tend to have adjustable-rate features.

The increase in projected asset cash flows, which was primarily driven by an increased balance of commercial loans, was

partially offset by a decrease in the amount of fixed-rate mortgage-related asset cash flows as a result of a general decrease in balances as well as to a decrease in projected prepayment speeds, from September 30, 2024, as a result of an increase in intermediate and long-term interest and mortgage rates.

The decrease in projected liability cash flows was primarily related to the Bank prepaying and replacing $200.0 million of fixed-rate FHLB advances during the current quarter that went from a weighted average reaming term of 0.6 years to 2.5 years, as well as to a decrease in the amount of certificates of deposit maturing within one year.

Included in this line item are $100.0 million of FHLB adjustable-rate advances tied to an interest rate swap.

The repricing of these liabilities is projected to occur at the maturity date of the interest rate swap.

At December 31, 2025, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.23) billion, or (12.6%) of total assets, compared to $(983.6) million, or (10.1%) of total assets, at September 30, 2025.

The change in the one-year gap amount was due primarily to an increase in the amount of projected liability cash flows coming due in one year, as of December 31, 2025, compared to September 30, 2025, partially offset by an increase in the amount of comparable asset cash flows.

The increase in projected liabilities was primarily in the deposit portfolio as the Bank's non-maturity deposits increased between the two periods and its certificate of deposit portfolio continued to become more seasoned with a WAM of 0.8 years as of December 31, 2025.

Additionally, the amount of borrowings due within one year increased due to the passage of time.

The increase in projected assets was primarily within the Bank's commercial fixed-rate loan portfolio due to the

origination of short-term fixed-rate loans during the current quarter and, to a lesser extent, the seasoning of its existing fixed-rate commercial loan portfolio.

The amount of interest-bearing liabilities expected to reprice in a given period typically is not significantly impacted by changes in interest rates because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty.

If interest rates were to increase 200 basis points, as of June 30, 2025, the Bank's one-year gap would have been projected to be $(1.15) billion, or (11.9)% of total assets.

If interest rates were to decrease 200 basis points, as of June 30, 2025, the Bank's one-year gap would have been projected to be $(528.8) million, or (5.5)% of total assets.

If interest rates were to increase 200 basis points, as of December 31, 2025, the Bank's one-year gap would have been projected to be $(1.46) billion, or (14.9%) of total assets.

If interest rates were to decrease 200 basis points, as of December 31, 2025, the Bank's one-year gap would have been projected to be $(821.4) million, or (8.4%) of total assets.

The changes in the gap amounts compared to when there is no change in rates was due to changes in the anticipated net cash flows primarily as a result of projected prepayments on mortgage-related assets in each rate environment.

In higher rate environments, prepayments on mortgage-related assets are projected to be lower and, in lower rate environments, prepayments are projected to be higher.

This compares to a projected one-year gap of $(1.71) billion, or (17.9)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2024, and a projected one-year gap of $(1.19) billion, or (12.5)% of total assets, if interest rates were to have decreased 200 basis points as of the same date.

This compares to a projected one-year gap of $(1.19) billion, or (12.2%) of total assets, if interest rates were to have increased 200 basis points as of September 30, 2025, and a projected one-year gap of $(570.8) million, or (5.8%) of total assets, if interest rates were to have decreased 200 basis points as of the same date.

Change in Net Interest Income.

The Bank's net interest income projections reflect simulated responses to interest rates of assets and liabilities that are expected to mature or reprice over the next year.

Repricing occurs as a result of cash flows that are received or paid on assets or due on liabilities which would be replaced at then current market interest rates or on adjustable-rate products that reset during the next year.

The Bank's borrowings and certificate of deposit portfolios have stated maturities, and the cash flows related to fixed-rate liabilities do not generally fluctuate as a result of changes in interest rates.

Cash flows from mortgage-related assets and callable agency debentures can vary significantly as a result of changes in interest rates.

As interest rates decrease, borrowers have an economic incentive to lower their cost of debt by refinancing or endorsing their mortgage to a lower interest rate.

Similarly, agency debt issuers are more likely to exercise embedded call options and issue new securities at a lower interest rate.

The Bank did not hold any callable agency debentures as of December 31, 2025 or September 30, 2025.

For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates.

The change in each interest rate environment represents the difference between estimated net interest income in the zero basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates).

Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated customer behavior changes as market rates change.

Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated behavior changes as market rates change.

Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities do not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented.

The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments.

The estimation of net interest income does not include any projected gains or losses related to the sale of assets, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments.

It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period.

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Change Net Interest Income At

(in Basis Points) June 30, 2025 September 30, 2024

(in Basis Points) December 31, 2025 September 30, 2025

in Interest Rates (1)

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In general, increases/(decreases) in the Bank's net interest income projections under the various interest rate scenarios presented are due to the degree in which cash flows are realized and the rates projected to be earned on funds received through loan and securities repayments, in each scenario, are greater/(less) than the rates projected to be paid on deposits and borrowings over the next 12 months.

The net interest income projection was higher in the base case scenario at June 30, 2025 compared to September 30, 2024, due primarily to an increase in the average balance and average rate of the Bank's loan portfolio, as well as to the steepening of the yield curve between the two periods.

As a result, interest income projections associated with the Bank's interest-earning asset cash flows, primarily the loan portfolio, increased by more than the increase in interest expense projections on the Bank's interest-bearing liability cash flows.

As of June 30, 2025, projected net interest income increased in each of the increasing rate scenarios presented and decreased in each of the decreasing rate scenarios presented, which is the opposite of the projections presented as of September 30, 2024.

This change was due primarily to growth in the Bank's commercial loan portfolio between the two periods, as well as to a decrease in the amount of projected interest-bearing liabilities coming due between the two periods, primarily in the certificate of deposit and wholesale borrowings portfolios.

Commercial loans often have adjustable-rate features, which makes the projected

amount of interest income on these assets more sensitive to changes in interest rates.

The average life of the Bank's certificate of deposit and wholesale borrowings portfolios increased marginally between the two periods, which resulted in a decrease in the amount of cash flows projected to reprice over the next 12 months, as of June 30, 2025, as compared to September 30, 2024, effectively making the projected amount of interest expense on these contractual liabilities less sensitive to increases/decreases in interest rates.

The net interest income projection was higher in the base case scenario at December 31, 2025 compared to September 30, 2025, due primarily to an increase in the average balance and average rate of the Bank's loan portfolio.

Projected interest expense on deposits

increased between the two periods as a result of an increase in the overall balance of the portfolio but was offset by a decrease in the balance of borrowings and the continued decrease in the average rate paid on deposits.

As of December 31, 2025, projected net interest income increased more in each of the increasing rate scenarios presented and decreased more in each of the decreasing rate scenarios presented, compared to September 30, 2025.

The marginal increase in net interest income sensitivity is largely a result of continued growth in the Bank's commercial loan portfolio.

Commercial loans often have adjustable-rate features, which makes the projected amount of interest income on these assets more sensitive to changes in interest rates as they reprice on a more frequent basis.

Additionally, commercial loans often have shorter average lives compared to retail mortgage loans, which results in the more frequent repricing of fixed-rate cash flows.

Change in MVPE.

Changes in the estimated market values of our financial assets and liabilities drive changes in estimates of MVPE.

The market value of an asset or liability reflects the present value of all the projected cash flows over its remaining life, discounted at market interest rates.

As interest rates rise, generally the market value for both financial assets and liabilities decrease.

The opposite is generally true as interest rates fall.

The MVPE represents the theoretical market value of capital that is calculated by netting the market value of assets, liabilities, and off-balance sheet instruments.

If the market values of financial assets increase by more than the market values of financial liabilities, or if the market values of financial liabilities decrease by more than the market values of financial assets, the MVPE will increase.

The market value of shorter term-to-maturity and floating/adjustable-rate financial instruments are less sensitive to changes in interest rates than are longer term-to-maturity and fixed-rate financial instruments.

As a result, the market values of our certificates of deposit (which generally have relatively shorter average lives) tend to display less sensitivity to changes in interest rates than do our mortgage-related assets (which generally have relatively longer average lives).

The average life of our mortgage-related assets varies under different interest rate environments because borrowers have the ability to prepay their mortgage loans.

Therefore, as interest rates decrease, the WAL of mortgage-related assets typically decreases as well.

As interest rates increase, the WAL typically increases, which also increases the sensitivity of these assets in higher rate environments.

The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates.

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Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated customer behavior as market rates change.

The estimations of the MVPE used in preparing the table below were based upon the assumption that the total composition of interest-earning assets and interest-bearing liabilities do not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment.

The estimations of the MVPE presented in the table below were based upon the assumption that the total composition of interest-earning assets and interest-bearing liabilities do not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment.

The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment.

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Change Market Value of Portfolio Equity At

(in Basis Points) June 30, 2025 September 30, 2024

(in Basis Points) December 31, 2025 September 30, 2025

in Interest Rates (1)

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(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

The Bank's MVPE remained largely unchanged, increasing from $1.10 billion at September 30, 2024 to $1.11 billion at June 30, 2025.

Compositional changes on the balance sheet, including within the Bank's loan portfolio as it continues to shift from one- to four-family to commercial loans, helped to offset the impact resulting from an increase in market interest rates between the two periods.

Our one- to four-family loans are predominately fixed-rate loans with long maturities and, therefore, are more economically sensitive to changes in market interest rates whereas commercial loans often have shorter average lives and adjustable-rate features resulting in less sensitivity to changes in market interest rates.

In elevated interest rate environments, such as the current environment, the estimated market value of the Bank's one- to four-family loan portfolio is reduced as the average rate of the portfolio is less than current market rates.

Our commercial loans have, predominately, been originated more recently at current market rates, giving them higher estimated values relative to the Bank's one- to four-family loans.

To the extent that the balance of one- to four-family loans, with average rates less than current market rates, continue to decrease and the balance of commercial loans, with average rates closer to current market rates, continue to increase, the estimated market value of the Bank's loan portfolio would be expected to continue to increase.

The impact of the increase in market interest rates between periods did not negatively impact the estimated MVPE in the base case because of the shift in the loan portfolio, described above, having a greater positive impact than the change realized on the Bank's liabilities.

As interest rates increase, borrowers generally have less economic incentive to prepay or to refinance their mortgages, and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets.

As interest rates increase in the rising interest rate scenarios, prepayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other major events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average lives of those mortgage-related assets.

The Bank's estimated MVPE remained largely unchanged, increasing from $1.16 billion at September 30, 2025 to $1.20 billion at December 31, 2025.

Compositional changes on the balance sheet, including within the Bank's loan portfolio as it continues to shift from one- to four-family to commercial loans, coupled with decreases (or tightening) in discount spreads applied to its mortgage-related assets drove the marginal increase in MVPE.

This increase was partially offset by decreases in benchmark interest rates along the short-end of the yield curve as the Federal Open Market Committee ("FOMC") resumed cutting the Fed Funds target rate and the Bank generally has more interest-bearing liability cash flows tied to the short-end of the yield curve than it does interest-earning asset cash flows.

Our one- to four-family loans are predominately fixed-rate loans with long maturities and, therefore, are more economically sensitive to changes in market interest rates whereas commercial loans often have shorter average lives and floating/adjustable-rate features, which results in less sensitivity to changes in market interest rates.

Between the two periods, the balance of

the Bank's one- to four-family loans decreased $98.6 million, net, and the balance of its commercial loans increased $162.6 million, net.

In elevated interest rate environments, such as the current environment, the estimated market value of the Bank's fixed-rate one- to four-family loan portfolio in the base case scenario is reduced as the average rate of that portfolio is less than current market rates.

The Bank's commercial loans have, predominately, been originated more recently at current market rates, giving them higher estimated values in the base case compared to the Bank's one- to four-family loans.

To the extent that the balance of the Bank's one- to four-family loan portfolio, with overall average rates less than current market rates, continues to decrease and the balance of commercial loans, with average rates closer to or above current market rates, continues to increase, the estimated market value of the Bank's overall loan portfolio, in the base case scenario, is expected to continue to increase.

Changes to the slope and/or relative levels of benchmark interest rates could also have a material impact on the estimated market value of the Bank’s loan portfolio.

As interest rates increase, fixed- rate borrowers generally have less economic incentive to prepay or to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets.

As interest rates increase in the rising interest rate scenarios, prepayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other major events as there is less economic incentive for them to prepay their debt, resulting in an increase in the estimated average lives of those mortgage-related assets.

Similarly, call projections for callable agency debentures decrease as interest rates rise, which results in cash flows related to those assets moving closer to their contractual maturity dates.

The longer expected average lives of those assets increase the sensitivity of their market value to changes in interest rates.

Conversely, as interest rates decrease, borrowers who obtained credit in a higher interest rate environment have more economic incentive to prepay or to refinance their mortgages, and agency debt issuers have more economic incentive and opportunity to exercise their call options in order to re-issue debt at lower interest rates, resulting in higher projected cash flows on these assets.

The then shorter expected average lives of those assets decrease the sensitivity of their market value to changes in interest rates.

Conversely, as interest rates decrease, borrowers who obtained fixed-rate credit in a higher interest rate environment have more economic incentive to prepay or to refinance their mortgages, and agency debt issuers have more economic incentive and opportunity to exercise their call options in order to re-issue debt at lower interest rates, resulting in increased projected cash flows from these assets.

The resulting shorter expected average lives of the assets result in a decrease in the sensitivity of their market value to changes in interest rates.

In the increasing interest rate scenarios, the sensitivity reflects the negative impacts of rates on the market value of the Bank's loan and securities portfolios more so than on its deposit and borrowing portfolios.

In the decreasing interest rate scenarios, the Bank's MVPE increases due to a larger increase in the estimated market value of the Bank's assets than its liabilities.

This is because the Bank's mortgage-related assets continue to have longer duration in these rate scenarios, which equates to greater market value sensitivity as interest rates change.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of June 30, 2025.

This is because the Bank's mortgage-related assets continue to have a longer duration in these rate scenarios, which equates to greater sensitivity as interest rates change.

Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield.

The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The WAL presented for term borrowings includes the effect of interest rate swaps.

The interest rate presented for term borrowings is the effective rate, which includes the impact of the interest rate swap and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The WAL presented for term borrowings includes the effect of the interest rate swap.

Amount Yield/Rate WAL % of Category % of Total

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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.

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk