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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2026-02-27 compared with 2025-02-28 · 56 added, 56 removed, 120 unchanged (48% of the section changed)

6 unchanged sentences

First, changes in rates have an impact on the Corporation's liquidity position and could affect its ability to meet obligations and continue to grow.

Second, movements in interest rates can create fluctuations in the Corporation's net interest income and changes in its economic value of its equity.

Second, movements in interest rates can create fluctuations in the Corporation's net interest income and changes in the economic value of its equity.

The Corporation employs various management techniques to minimize its exposure to interest rate risk.

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The Corporation uses two complementary methods to measure and manage interest rate risk:

They are a simulation of net interest income and estimates of economic value of equity.

simulation of net interest income and estimates of economic value of equity.

Using these measurements in tandem provides a reasonably comprehensive summary of the magnitude of the Corporation's interest rate risk, level of risk as time evolves, and exposure to changes in interest rates.

Simulation of net interest income is performed for the next 12-month period.

A variety of interest rate scenarios are used to measure the effects of sudden and gradual movements upward and downward in the yield curve.

These results are compared to the results obtained in a flat or unchanged interest rate scenario.

Simulation of net interest income is used primarily to measure the Corporation's short-term earnings exposure to rate movements.

The Corporation's policy limits the potential exposure of net interest income, in a non-parallel instantaneous shock, to 10% of the base case net interest income for a 100 bps shock in interest rates, 15% for a 200 bps shock, 20% for a 300 bps shock and 25% for a 400 bps shock .

Net interest income simulation is performed for the following 12-month period using various interest rate scenarios.

These scenarios measure the effects of sudden and gradual parallel movements upward and downward in the yield curve and are compared to results under a flat or unchanged interest rate scenario.

Simulation of net interest income is used primarily to assess the Corporation's short-term earnings exposure to rate movements.

During the first quarter of 2025, the Corporation revised its policy to measure its interest rate risk profile using parallel instantaneous shocks, rather than non-parallel instantaneous shocks.

Under the revised policy, the potential exposure of net interest income, under a parallel instantaneous shock, is limited to:

• 10% of base-case net interest income for a 100 bps shock,

• 15% for a 200 bps shock,

• 20% for a 300 bps shock, and

• 25% for a 400 bps shock.

A "shock" is an immediate upward or downward movement of interest rates.

The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor does it take into account the potential effects of competition on the pricing of deposits and loans over the forward 12-month period.

Contractual maturities and repricing opportunities of loans are incorporated in the simulation model as are prepayment assumptions, maturity data and call options within the investment portfolio.

Assumptions based on past experience are incorporated into the model for non-maturity deposit accounts.

The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.

These shocks do not incorporate potential changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor do they consider the potential effects of competition on the pricing of deposits and loans over the forward 12-month period.

Rate shocks resulting in negative interest rates that have been deemed impractical are omitted from presentation.

The simulation model incorporates contractual maturities and repricing opportunities for loans as well as prepayment assumptions, maturity data and call options embedded in the investment portfolio.

Assumptions for non-maturity deposit accounts based on historical experience are incorporated into the model.

The assumptions used are inherently uncertain and, as a result, the model cannot precisely predict future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.

Actual results will differ from the model's simulated results due to timing, amount and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

The following table summarizes the expected impact of interest rate changes in rate-ramp scenarios over a 12-month period, that is, a gradual non-parallel shift, on net interest income as of December 31, 2024:

The following table summarizes the expected impact of interest rate changes in rate-ramp scenarios over a 12-month period, that is, a gradual parallel shift, on net interest income as of December 31, 2025:

Rate Ramp (1)

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–300 bp - $14.9 million - 1.3%

–400 bp - $29.0 million -2.6%

(1) These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.

The following table summarizes the expected impact of abrupt interest rate changes, i.e.

a non-parallel instantaneous shock, on net interest income as of December 31, 2024:

(1) Results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.

The following table summarizes the expected impact of abrupt interest rate changes, that is a parallel instantaneous shock, on net interest income as of December 31, 2025:

Rate Shock (1)

8 unchanged sentences

-300 bp - $46.3 million - 4.1%

-400 bp - $66.4 million -6.0%

(1) These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.

Economic value of equity estimates the discounted present value of asset and liability cash flows.

Discount rates are based upon market prices for like assets and liabilities.

Abrupt changes or "shocks" in interest rates, both upward and downward, are used to determine the comparative effect of such interest rate movements relative to the unchanged environment.

This measurement tool is used primarily to evaluate the longer-term repricing risks and options in the Corporation's balance sheet.

The Corporation's policy limits the economic value of equity that may be at risk, in a non-parallel instantaneous shock, to 10% of the base case economic value of equity for a 100 bps shock in interest rates, 20% for a 200 bps shock, 30% for a 300 bps shock and 40% for a 400 bps shock.

As of December 31, 2024, the Corporation was within economic value of equity policy limits for every 100 bps shock.

(1) Results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.

The economic value of equity analysis estimates the discounted present value of asset and liability cash flows, using discount rates derived from market pricing for like assets and liabilities.

Abrupt changes or "shocks" in interest rates, both upward and downward, are applied to evaluate the comparative effect of such interest rate movements relative to the unchanged environment.

This measurement tool is used primarily to evaluate the longer-term repricing risks and options in the Corporation's Consolidated Balance Sheets.

The Corporation's policy limits the economic value of equity that may be at risk, in a parallel instantaneous shock, to:

• 10% of the base-case economic value of equity for a 100 bps shock,

• 20% for a 200 bps shock,

• 30% for a 300 bps shock, and

• 40% for a 400 bps shock.

As of December 31, 2025, the Corporation was within economic value of equity policy limits for every 100 bps parallel instantaneous shock presented.

Interest Rate Derivatives

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The Corporation's objectives in using interest rate derivatives are to reduce volatility in net interest income and net interest expense and to manage its exposure to interest rate movements.

To accomplish this objective, the Corporation primarily uses interest rate derivatives as part of its interest rate risk management strategy.

The Corporation enters into interest rate derivatives designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans and borrowings.

To accomplish this objective, the Corporation primarily uses

interest rate derivatives as part of its interest rate risk management strategy.

The Corporation enters into interest rate derivatives designated as cash flow hedges to hedge cash flows associated with existing loans and borrowings.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income or interest expense in the same period during which the hedged transaction affects earnings.

Amounts reported in AOCI related to derivatives will be reclassified to interest income or interest expense as interest payments are made on the Corporation's loans or borrowings.

On October 10, 2024, the Corporation terminated interest rate derivatives designated as cash flow hedges with a combined notional amount of $250 million.

As the hedged transaction continues to be probable, the unrealized losses will be recorded in AOCI and will be recognized as an increase to interest expense when the previously forecasted hedged items affects earnings in future periods.

During the year ended December 31, 2024, $0.2 million of these unrealized losses have been reclassified as an increase to interest expense on borrowings, on the consolidated statements of income.

In January 2023, the Corporation terminated interest rate derivatives designated as cash flow hedges with a combined notional amount of $1.0 billion.

As the hedged transaction continues to be probable, the unrealized losses that have been recorded in AOCI will be recognized as reduction to interest income, including fees, when the previously forecasted hedged item affects earnings in future periods.

During the years ended December 31, 2024 and 2023, $27.9 million and $22.1 million, respectively, of these unrealized losses have been reclassified as a reduction of interest income on loans, including fees, on the consolidated statements of income.

In the fourth quarter of 2024, the Corporation executed $900.0 million of receive fixed, pay floating interest rate derivatives that qualify as cash flow hedges of interest rate risk to manage the Corporation's exposure to interest rate movements.

As the hedged transaction continues to be probable, the unrealized losses that have been recorded in AOCI are recognized as reduction to interest income, including fees, when the previously forecasted hedged item affects earnings in future periods.

During the years ended December 31, 2025, 2024 and 2023, $13.0 million, $27.9 million and $22.1 million, respectively, of these unrealized losses have been reclassified as a reduction of interest income on loans, including fees, on the Consolidated Statements of Income.

The Corporation must maintain a sufficient level of liquid assets to meet the cash needs of its customers, who, as depositors, may want to withdraw funds or who, as borrowers, need credit availability.

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Advances from the FHLB, when utilized, are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets.

As of December 31, 2024, the Corporation had aggregate federal funds lines borrowing capacity of $2.6 billion with no amounts outstanding against that amount.

As of December 31, 2024, the Corporation had $3.1 billion of collateralized borrowing capacity at the FRB discount window with no amounts outstanding and had no borrowings drawn against the Bank Term Funding Program facility, which expired March 11, 2024.

As of December 31, 2025, the Corporation had aggregate federal funds lines borrowing capacity of $2.6 billion with no amount outstanding against that amount.

As of December 31, 2025, the Corporation had $3.9 billion of collateralized borrowing capacity at the FRB discount window with no amount outstanding against this amount.

A combination of commercial real estate loans, commercial loans, consumer loans and securities are pledged to the FRB of Philadelphia to provide access to FRB discount window borrowings.

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As of December 31, 2025, the balance of commitments to extend credit was $8.7 billion and total letters of credit were $0.3 billion.

Liquidity must also be managed at the Parent Company level.

For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from subsidiary banks to the parent company in the form of loans and dividends.

Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income.

Liquidity must also be managed at the Parent Company.

For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from a subsidiary bank to its parent company in the form of loans and dividends.

Generally, these limitations are based on the subsidiary bank's regulatory capital levels and its net income.

Management continues to monitor the liquidity and capital needs of the Parent Company including monitoring the granularity of the deposit portfolio and level of uninsured deposits.

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The Corporation's operating activities during 2025 generated $304.5 million of cash, mainly due to net income of $391.6 million.

Cash provided in investing activities was $1.6 billion, primarily due to $1.0 billion of net cash received for acquisitions in the Republic First Transaction.

Net cash used by financing activities was $1.5 billion, due largely to $2.1 billion in repayment of borrowings.

The following table presents the expected maturities of government, state and municipal and corporate AFS investment securities, at estimated fair value, as of December 31, 2024 and the weighted average yields on such securities (calculated based on historical cost):

Cash used in investing activities was $82.2 million, primarily due to the net change in loans of $101.8 million.

Net cash used by financing activities was $224.6 million, due largely to $485.0 million in repayment of borrowings and $141.2 million of dividends paid, partially offset by a $460.0 million increase in net deposits.

See "The Consolidated Statement of Cash Flows" in "Item 8.

Financial Statements and Supplementary Data" for details of cash flow activity.

The following table presents the expected maturities of AFS state and municipal and corporate debt securities, at estimated fair value, as of December 31, 2025 and the weighted average yields on such securities (calculated based on historical cost):

Within One Year After One But

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Amount Yield Amount Yield Amount Yield Amount Yield

Available for sale (dollars in thousands)

AFS (dollars in thousands)

State and municipal (1)

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disallowances.

The Corporation's investment portfolio consists mainly of state and municipal securities, commercial mortgage-backed securities, residential mortgage-backed securities, corporate debt securities and collateralized mortgage obligations.

The Corporation's investment portfolio consists of residential mortgage-backed securities, commercial mortgage-backed securities, collateralized mortgage obligations, state and municipal securities and corporate debt securities.

Commercial mortgage-backed securities, residential mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers' ability to prepay obligations.

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(dollars in thousands) (in years)

Available for sale

Residential mortgage-backed securities $ 766,717 4.60 % 4.7

1 unchanged sentence

Collateralized mortgage obligations 1,040,078 5.16 2.7

Held to maturity

Residential mortgage-backed securities $ 573,636 3.51 % 6.5

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Commercial and industrial:

Adjustable and floating rate $ 1,160,844 $ 2,177,388 $ 320,385 $ 5,586 $ 3,664,203

Adjustable and variable rate $ 1,035,923 $ 2,257,921 $ 397,570 $ 9,943 $ 3,701,357

Fixed rate 329,563 433,589 68,186 6,365 837,703

1 unchanged sentence

Real estate - mortgage (1) :

Adjustable and floating rate 2,591,921 5,341,646 2,615,788 277,102 10,826,457

Adjustable and variable rate 3,107,233 5,528,383 2,718,855 368,763 11,723,234

Fixed rate 1,363,846 2,219,499 1,754,679 672,510 6,010,534

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Real estate - construction:

Adjustable and floating rate 480,495 500,384 69,595 1,692 1,052,166

Adjustable and variable rate 284,048 350,086 53,155 2,267 689,556

Fixed rate 242,153 37,837 687 65 280,742

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Consumer, leases and other:

Adjustable and floating rate 12,599 57,746 166 — 70,511

Adjustable and variable rate 26,549 54,907 127 — 81,583

Fixed rate 288,235 474,244 94,292 199 856,970

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Total $ 6,677,550 $ 11,319,671 $ 5,087,551 $ 1,060,112 $ 24,144,884

(1) Includes commercial and residential mortgages and home equity loans.

Contractual maturities of time deposits as of December 31, 2024 were as follows (dollars in thousands):

(1) Includes commercial mortgages, residential mortgages and home equity loans.

The scheduled maturities of time deposits as of December 31, 2025 were as follows (dollars in thousands):

2026 $ 3,528,876

1 unchanged sentence

Total $ 3,995,252

Contractual maturities of the portion of time deposits estimated to be in excess of the FDIC insurance limit as of December 31, 2024 included in the table above, were as follows (dollars in thousands):

The scheduled maturities of the portion of time deposits estimated to be in excess of the FDIC insurance limit as of December 31, 2025 included in the table above, were as follows (dollars in thousands):

Three months or less $ 159,874

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Debt security market price risk is the risk that changes in the values of debt securities, unrelated to interest rate changes, could have a material impact on the financial position or results of operations of the Corporation.

The Corporation's debt security investments consist primarily of U.S.

government-sponsored agency issued mortgage-backed securities and collateralized mortgage obligations, state and municipal securities, and corporate debt securities.

All of the Corporation's investments in mortgage-backed securities and collateralized mortgage obligations have principal payments that are guaranteed by U.S.

government-sponsored agencies.

The Corporation's debt security investments consist primarily of GSEs issued mortgage-backed securities and collateralized mortgage obligations, state and municipal securities, and corporate debt securities.

All of the Corporation's investments in mortgage-backed securities and collateralized mortgage obligations have principal payments that are guaranteed by GSEs.

State and Municipal Securities

As of December 31, 2024, the Corporation owned securities issued by various states and municipalities with a total fair value of $0.8 billion.

As of December 31, 2025, the Corporation owned investment securities issued by various states and municipalities with a total fair value of $826.7 million.

Uncertainty with respect to the financial strength of state and municipal bond insurers places emphasis on the underlying strength of issuers.

5 unchanged sentences

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-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk