What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-18 compared with 2024-04-18 · 113 added, 63 removed, 262 unchanged (40% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations for the three months ended March 31, 2024 and 2023 should be read in conjunction with its audited consolidated financial statements and the related notes to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or any future period.

The following discussion and analysis of the Company’s financial condition and results of operations for the six months ended June 30, 2024 and 2023 should be read in conjunction with its audited consolidated financial statements and the related notes to the consolidated financial statements included in 2023 Form 10-K.

Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or any future period.

Forward-Looking Statements

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negative credit quality developments arising from the foregoing or other factors;

TCBI’s ability to effectively manage its liquidity and maintain adequate regulatory capital to support it businesses;

TCBI’s ability to effectively manage its liquidity and maintain adequate regulatory capital to support its businesses;

TCBI’s ability to pursue and execute upon growth plans, whether as a function of capital, liquidity, or other limitations;

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Selected income statement data and key performance indicators are presented in the table below:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands except per share data) 2024 2023 2024 2023

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(1) Non-interest expense divided by the sum of net interest income and non-interest income.

Three months ended March 31, 2024 compared to three months ended March 31, 2023

The Company reported net income of $26.1 million and net income available to common stockholders of $21.8 million for the three months ended March 31, 2024, compared to net income of $38.7 million and net income available to common stockholders of $34.3 million for the same period in 2023.

On a fully diluted basis, earnings per common share were $0.46 for the three months ended March 31, 2024, compared to $0.70 for the same period in 2023.

ROE was 3.03% and ROA was 0.36% for the three months ended March 31, 2024, compared to 5.06% and 0.53%, respectively, for the same period in 2023.

The decrease in net income for the three months ended March 31, 2024 compared to the same period in 2023 resulted primarily from a decrease in net interest income and an increase in non-interest expense, partially offset by a decrease in provision for credit losses and an increase in non-interest income.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

The Company reported net income of $41.7 million and net income available to common stockholders of $37.4 million for the second quarter of 2024, compared to net income of $68.7 million and net income available to common stockholders of $64.3 million for the second quarter of 2023.

On a fully diluted basis, earnings per common share were $0.80 for the second quarter of 2024, compared to $1.33 for the same period in 2023.

ROE was 5.26% and ROA was 0.56% for the second quarter of 2024, compared to 9.17% and 0.95%, respectively, for the same period in 2023.

The decrease in net income for the second quarter of 2024 compared to the second quarter of 2023 resulted primarily from a decrease in net interest income and an increase in provision for credit losses.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

The Company reported net income of $67.8 million and net income available to common stockholders of $59.2 million for the six months ended June 30, 2024, compared to net income of $107.3 million and net income available to common stockholders of $98.7 million for the same period in 2023.

On a fully diluted basis, earnings per common share were $1.25 for the six months ended June 30, 2024, compared to $2.02 for the same period in 2023.

ROE was 4.14% and ROA was 0.46% for the six months ended June 30, 2024, compared to 7.15% and 0.74%, respectively, for the same period in 2023.

The decrease in net income for the six months ended June 30, 2024 compared to the same period in 2023 resulted primarily from a decrease in net interest income and an increase in non-interest expense.

Details of the changes in the various components of net income are discussed below.

Taxable Equivalent Net Interest Income Analysis - Quarterly(1)

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

(in thousands except percentages) Average

Balance Income/

Expense Yield/

Balance Income/

Expense Yield/

Investment securities(2) $ 4,427,023 $ 33,584 2.80 % $ 4,306,881 $ 27,478 2.36 %

Interest-bearing cash and cash equivalents 3,273,069 43,233 5.31 % 3,286,091 41,571 5.07 %

Loans held for sale 28,768 683 9.55 % 28,414 599 8.46 %

Loans held for investment, mortgage finance(4) 4,357,288 42,722 3.94 % 4,376,235 49,425 4.53 %

Loans held for investment(3)(4) 16,750,788 301,910 7.25 % 16,217,314 282,956 7.00 %

Allowance for credit losses on loans 263,145 — — 261,027 — —

Loans held for investment, net 20,844,931 344,632 6.65 % 20,332,522 332,381 6.56 %

Total earning assets 28,573,791 422,132 5.86 % 27,953,908 402,029 5.69 %

Cash and other assets 1,177,061 1,049,145

Total assets $ 29,750,852 $ 29,003,053

Liabilities and Stockholders’ Equity

Transaction deposits $ 2,061,622 $ 16,982 3.31 % $ 1,345,742 $ 9,468 2.82 %

Savings deposits 11,981,668 143,173 4.81 % 10,590,558 114,275 4.33 %

Time deposits 1,658,899 21,125 5.12 % 1,531,922 13,648 3.57 %

Total interest bearing deposits 15,702,189 181,280 4.64 % 13,468,222 137,391 4.09 %

Short-term borrowings 927,253 12,749 5.53 % 1,397,253 18,253 5.24 %

Long-term debt 778,401 11,457 5.92 % 883,871 14,282 6.48 %

Total interest bearing liabilities 17,407,843 205,486 4.75 % 15,749,346 169,926 4.33 %

Non-interest bearing deposits 8,647,594 9,749,105

Other liabilities 537,754 389,155

Stockholders’ equity 3,157,661 3,115,447

Total liabilities and stockholders’ equity $ 29,750,852 $ 29,003,053

Net interest income $ 216,646 $ 232,103

Net interest margin 3.01 % 3.29 %

(1) Taxable equivalent rates used where applicable.

(2) Yields on investment securities are calculated using available-for-sale securities at amortized cost.

(3) Average balances included non-accrual loans.

(4) In the first quarter of 2024, enhancements were made to our methodology for applying relationship pricing credits to mortgage client loans.

To conform to the current period presentation, certain prior period interest income amounts have been reclassified from loans held for investment, mortgage finance to loans held for investment and related yields have been adjusted accordingly.

Taxable Equivalent Net Interest Income Analysis - Year to Date(1)

Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

Six Months Ended June 30, 2024 Six Months Ended June 30, 2023

(dollars in thousands) Average

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The following table presents the changes in taxable equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest bearing liabilities and the changes due to differences in the average interest rate on those assets and liabilities.

Three Months Ended March 31, 2024/2023

Three Months Ended June 30, 2024/2023 Six Months Ended June 30, 2024/2023

Change Change Due To(1) Net

Change Change Due To(1)

(in thousands) Volume Yield/Rate(2)

(in thousands) Volume Yield/Rate(2) Volume Yield/Rate(2)

Interest income

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(1) Yield/rate and volume variances are allocated to yield/rate.

(2) Taxable equivalent rates used where applicable assuming a 21% tax rate.

(2) Taxable equivalent rates used where applicable.

Net Interest Income

Net interest income was $215.0 million for the three months ended March 31, 2024, compared to $235.3 million for the same period in 2023.

The decrease was primarily due to rising funding costs, partially offset by an increase in yields on average earnings assets.

Average earning assets decreased $86.2 million for the three months ended March 31, 2024, compared to the same period in 2023, which included a decrease of $1.5 billion in average interest-bearing cash and cash equivalents, partially offset by increases of $1.2 billion in average total loans and $238.9 million in average investment securities.

Average interest-bearing liabilities increased $1.3 billion for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to an increase of $1.7 billion in average interest-bearing deposits, partially offset by a $330.8 million decrease in average short-term borrowings.

Average non-interest bearing deposits for the three months ended March 31, 2024 decreased to $8.6 billion from $10.3 billion for the same period in 2023.

Net interest margin for the three months ended March 31, 2024 was 3.03%, compared to 3.33% for the same period of 2023.

The decrease was primarily due to the effect of rising interest rates on funding costs and a shift in earning asset composition, partially offset by higher earning asset yields, also as a result of rising interest rates, compared to the same period in 2023.

The yield on total loans held for investment increased to 6.70% for the three months ended March 31, 2024, compared to 6.46% for the same period in 2023, and the yield on earning assets increased to 5.88% for the three months ended March 31, 2024, compared to 5.45% for the same period in 2023.

Total cost of deposits increased to 2.97% for the three months ended March 31, 2024 from 2.06% for the same period in 2023 and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.83% for the three months ended March 31, 2024, compared to 2.10% for the same period in 2023.

Net interest income was $216.6 million for the three months ended June 30, 2024, compared to $232.0 million for the same period in 2023.

The decrease was primarily due to increases in funding costs and average interest bearing deposits, partially offset by increases in yields on average earning assets and average loans held for investment, excluding mortgage finance.

Average earning assets for the three months ended June 30, 2024 increased $619.9 million compared to the same period in 2023, which included increases of $512.4 million in average total loans held for investment and $120.1 million in average investment securities, partially offset by a $13.0 million decrease in average interest-bearing cash and cash equivalents.

Average interest-bearing liabilities increased $1.7 billion for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $2.2 billion increase in average interest-bearing deposits, partially offset by decreases of $470.0 million in average short-term borrowings and $105.5 million in average long-term debt related to the second quarter 2024 redemption in full of the bank-issued senior unsecured credit-linked notes of $275.0 million.

Average non-interest bearing deposits for the three months ended June 30, 2024 decreased to $8.6 billion from $9.7 billion for the same period in 2023.

Net interest margin for the three months ended June 30, 2024 was 3.01%, compared to 3.29% for the same period in 2023.

The decrease in net interest margin was primarily due to an increase in funding costs, partially offset by an increase in yields on average earning assets.

The increases in yields on earnings assets and cost of funds are attributed to the impact of rising interest rates.

The yield on total loans held for investment increased to 6.65% for the three months ended June 30, 2024, compared to 6.56% for the same period in 2023, and the yield on earning assets increased to 5.86% for the three months ended June 30, 2024, compared to 5.69% for the same period in 2023.

Total cost of deposits increased to 2.99% for the three months ended June 30, 2024 from 2.37% for the same period in 2023, and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.83% for the three months ended June 30, 2024, compared to 2.38% for the same period in 2023.

Net interest income was $431.6 million for the six months ended June 30, 2024, compared to $467.3 million for the same period in 2023.

The decrease was primarily due to rising funding costs and an increase in average interest bearing deposits, partially offset by an increase in yields on average earnings assets and an increase in average total earning assets.

Average earning assets increased $267.7 million for the six months ended June 30, 2024, compared to the same period in 2023, which included increases of $830.0 million in average total loans held for investment and $178.8 million in average investment securities, partially offset by a decrease of $745.1 million in average interest-bearing cash and cash equivalents.

interest-bearing liabilities increased $1.5 billion for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to an increase of $2.0 billion in average interest-bearing deposits, partially offset by a $400.8 million decrease in average short-term borrowings.

Average non-interest bearing deposits for the six months ended June 30, 2024 decreased to $8.6 billion from $10.0 billion for the same period in 2023.

Net interest margin for the six months ended June 30, 2024 was 3.02%, compared to 3.31% for the same period of 2023.

The decrease was primarily due to the effect of rising interest rates on funding costs, partially offset by higher earning asset yields, also as a result of rising interest rates, compared to the same period in 2023.

The yield on total loans held for investment increased to 6.68% for the six months ended June 30, 2024, compared to 6.51% for the same period in 2023, and the yield on earning assets increased to 5.87% for the six months ended June 30, 2024, compared to 5.57% for the same period in 2023.

Total cost of deposits increased to 2.98% for the six months ended June 30, 2024 from 2.22% for the same period in 2023 and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.83% for the six months ended June 30, 2024, compared to 2.24% for the same period in 2023.

Non-interest Income

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

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Total non-interest income $ 50,424 $ 46,011 $ 91,743 $ 83,414

Non-interest income increased $3.9 million during the three months ended March 31, 2024 to $41.3 million, compared to $37.4 million for the same period in 2023.

Non-interest income increased $4.4 million during the three months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily due to increases in investment banking and advisory fees, partially offset by a decrease in trading income.

Non-interest income increased $8.3 million during the six months ended June 30, 2024 to $91.7 million, compared to $83.4 million for the same period in 2023.

The increase was primarily due to an increase in investment banking and advisory fees.

Non-interest Expense

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

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Total non-interest expense $ 188,409 $ 181,644 $ 390,802 $ 375,671

Non-interest expense for the three months ended March 31, 2024 increased $8.4 million, compared to the same period in 2023, primarily due to increases in legal and professional expense, communications and technology expense and FDIC insurance assessment resulting from an additional $3.0 million FDIC special assessment recorded in the first quarter of 2024, partially offset by a decrease in marketing expense.

The increase in legal and professional expense in the first quarter of 2024 resulted from a $5.0 million legal settlement expense, partially offset by declines in professional services.

Non-interest expense increased $6.8 million during the three months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily due to increases in salaries and benefits, occupancy expense, communications and technology expense, FDIC insurance assessment and other non-interest expense, partially offset by a decrease in legal and professional expense.

Non-interest expense for the six months ended June 30, 2024 increased $15.1 million, compared to the same period in 2023, primarily due to increases in salaries and benefits, communications and technology expense and FDIC insurance assessment, resulting from an additional $3.5 million FDIC special assessment expense recorded in the first six months of 2024, partially offset by decreases in marketing expense and legal and professional expense.

Analysis of Financial Condition

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See Note 1 - Operations and Summary of Significant Accounting Policies in the 2023 Form 10-K for details of these portfolio segments.

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Commercial $ 10,533,930 $ 10,410,766

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Total loans held for investment $ 21,778,730 $ 20,340,558

Total loans held for investment were $20.8 billion at March 31, 2024, an increase of $490.4 million from December 31, 2023.

The Company experienced loan growth in all loan categories, except for commercial, as it has continued to execute on its long-term strategy.

Mortgage finance loans relate to the mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests that are typically sold within 10 to 20 days and represent 20% and 19% of gross loans held for investment at March 31, 2024 and December 31, 2023, respectively.

Total loans held for investment were $21.8 billion at June 30, 2024, an increase of $1.4 billion from December 31, 2023.

The Company experienced loan growth in all loan categories as it has continued to execute on its long-term strategy.

Mortgage finance loans relate to the mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests that are typically sold within 10 to 20 days and represent 23% and 19% of gross loans held for investment at June 30, 2024 and December 31, 2023, respectively.

Volumes fluctuate based on the level of market demand for the product and the number of days between purchase and sale of the loans, which can be affected by changes in overall market interest rates, and tend to peak at the end of each month.

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The Company also participates in shared national credits, both as a participant and as an agent.

As of March 31, 2024, the Company had $5.2 billion in shared national credits, $1.1 billion of which the Company administered as agent.

All syndicated loans, whether the Company acts as agent or

participant, are underwritten to the same standards as all other loans the Company originates.

As of March 31, 2024, approximately $3.1 million of the Company’s shared national credits were on non-accrual.

As of June 30, 2024, the Company had $5.3 billion in shared national credits, $871.9 million of which the Company administered as agent.

All syndicated loans, whether the Company acts as agent or participant, are underwritten to the same standards as all other loans the Company originates.

As of June 30, 2024, approximately $16.8 million of the Company’s shared national credits were on non-accrual.

Portfolio Concentrations

Although more than 50% of the Company’s total loan exposure is outside of Texas and more than 50% of deposits are sourced outside of Texas, Texas concentration remains significant.

As of March 31, 2024, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas.

As of June 30, 2024, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas.

This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within this state.

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The table below summarizes non-accrual loans by portfolio segment and by type of property securing the credit.

(dollars in thousands) March 31, 2024 December 31, 2023

(dollars in thousands) June 30, 2024 December 31, 2023

Non-accrual loans held for investment

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Unsecured 1,642 79

Other 1,234 79

Highly liquid assets 1,156 —

Total commercial 83,772 69,048

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Hotel/motel — 12,350

Commercial property 265 —

Total commercial real estate 265 12,350

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Loans held for sale past due 90 days and accruing $ 64 $ —

(1) March 31, 2024 includes one non-accrual loan previously reported in loans held for investment that was transferred at fair value to held for sale as of March 31, 2024.

Summary of Credit Loss Experience

The provision for credit losses, comprised of a provision for loans and off-balance sheet credit losses, is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected losses at each balance sheet date.

As discussed in Note 1 - Operations and Summary of Significant Accounting Policies in the 2023 Form 10-K, in the second quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss model which resulted in adjustments being made to the Company’s portfolio segments.

As a result, prior period balances in the tables below have been reclassified to conform to the current period presentation of portfolio segments.

The Company recorded a provision for credit losses of $19.0 million for the three months ended March 31, 2024, compared to a provision of $28.0 million for the three months ended March 31, 2023.

The provision for credit losses for the three months ended March 31, 2024 reflects increases in criticized and non-accrual loans, growth in loans held for investment and $10.8 million in net charge-offs recorded during the three months ended March 31, 2024.

The Company recorded $10.8 million in net charge-offs during the three months ended March 31, 2024, compared to $19.9 million in net charge-offs during the same period in 2023.

Criticized loans totaled $859.5 million at March 31, 2024, compared to $738.2 million at December 31, 2023.

The Company recorded a provision for credit losses of $39.0 million for the six months ended June 30, 2024, compared to a provision of $35.0 million for the six months ended June 30, 2023.

The provision for credit losses for the six months ended June 30, 2024 reflects growth in loans held for investment and $22.7 million in net charge-offs recorded during the six months ended June 30, 2024.

The Company recorded $22.7 million in net charge-offs during the six months ended June 30, 2024, compared to $28.1 million in net charge-offs during the same period in 2023.

Criticized loans totaled $859.7 million at June 30, 2024, compared to $738.2 million at December 31, 2023.

The table below presents key metrics related to the Company’s credit loss experience:

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Allowance for credit losses on loans to total loans held for investment 1.23 % 1.11 %

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Total provision for credit losses to average total loans held for investment(1)(2) 0.20 % 0.36 %

(1) Ratios are calculated using average balance for the three months ended March 31, 2024 and 2023, respectively.

(2) Ratios are annualized utilizing provision for credit losses for the three months ended March 31, 2024 and 2023, respectively.

(1) Ratios are calculated using average balance for the six months ended June 30, 2024 and 2023, respectively.

(2) Ratios are annualized utilizing provision for credit losses for the six months ended June 30, 2024 and 2023, respectively.

The table below details net charge-offs/(recoveries) as a percentage of average total loans by portfolio segment:

Three Months Ended March 31,

Six Months Ended June 30,

(dollars in thousands) Net

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Total $ 22,719 0.22 % $ 28,149 0.29 %

(1) Ratios are calculated using net charge-offs for the three months ended March 31, 2024 and 2023, respectively.

(1) Ratios are calculated using net charge-offs for the six months ended June 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

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The following table summarizes the Company’s interest bearing cash and cash equivalents:

(dollars in thousands) March 31, 2024 December 31, 2023

(dollars in thousands) June 30, 2024 December 31, 2023

Interest bearing cash and cash equivalents $ 2,691,352 $ 3,042,357

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Total deposits 11.3 % 13.6 %

The Company’s goal is to obtain as much of its funding for loans held for investment and other earning assets as possible from customer deposits, which are generated principally through development of long-term customer relationships, with a significant

focus on treasury management products.

In addition, the Company also has access to deposits through brokered channels.

The following table summarizes period-end total deposits:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

(dollars in thousands) Balance % of Total Balance % of Total

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Total deposits $ 23,818,327 100.0 % $ 22,371,839 100.0 %

Estimated uninsured assessable deposits, including accrued interest, were 42% of total deposits at March 31, 2024 ,compared to 43% of total deposits at December 31, 2023.

Estimated uninsured assessable deposits, including accrued interest, were 40% of total deposits at June 30, 2024, compared to 43% of total deposits at December 31, 2023.

The uninsured amounts are estimated based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

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The following table summarizes short-term borrowings, all of which mature within one year:

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Repurchase agreements $ — $ —

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The following table summarizes the Company’s short-term borrowing capacities net of balances outstanding:

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

FHLB borrowing capacity relating to loans and pledged securities $ 3,981,302 $ 2,602,092

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The loan agreement contains customary financial covenants and restrictions.

No borrowings were made against this line of credit during the three months ended March 31, 2024 or 2023.

The Company has long-term debt outstanding of $859.8 million as of March 31, 2024, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036.

No borrowings were made against this line of credit during the six months ended June 30, 2024 or 2023.

The Company has long-term debt outstanding of $660.0 million as of June 30, 2024, comprised of trust preferred securities and subordinated notes with maturity dates ranging from January 2026 to December 2036.

See Note 5 - Short-Term Borrowings and Long-Term Debt in the accompanying notes to the consolidated financial statements included elsewhere in this report for additional information.

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Capital Resources

The Company’s equity capital averaged $3.2 billion for the three months ended March 31, 2024 compared to $3.1 billion for the same period in 2023.

The Company’s equity capital averaged $3.2 billion for the six months ended June 30, 2024 compared to $3.1 billion for the same period in 2023.

The Company has not paid any cash dividends on common stock since operations commenced and has no plans to do so in the foreseeable future.

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The share repurchase program is set to expire on January 31, 2025, and the program may be suspended or discontinued at any time.

During the three months ended March 31, 2024, the Company repurchased 529,338 shares of its common stock for an aggregate purchase price, including excise tax expense, of $31.5 million, at a weighted average price of $59.27 per share.

For additional information on the Company’s capital and stockholders’ equity, see Note 7 - Regulatory Ratios and Capital, in the accompanying notes to the consolidated financial statements included elsewhere in this report.

During the six months ended June 30, 2024, the Company repurchased 1,381,436 shares of its common stock for an aggregate purchase price, including excise tax expense, of $81.5 million, at a weighted average price of $58.57 per share.

Critical Accounting Estimates

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Management considers a range of macroeconomic scenarios in connection with the allowance estimation process.

Within the various economic scenarios considered as of March 31, 2024, the quantitative estimate of the allowance for credit loss would increase by approximately $135.1 million under sole consideration of the most severe downside scenario.

Within the various economic scenarios considered as of June 30, 2024, the quantitative estimate of the allowance for credit loss would increase by approximately $151.7 million under sole consideration of the most severe downside scenario.

The quoted sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.

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 2. Management’s Discussion and Analysis