What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-10 compared with 2025-02-11 · 135 added, 53 removed, 421 unchanged (31% of the section changed)

2 unchanged sentences

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

For the Year Ended December 31,

Year Ended December 31,

(dollars in thousands except per share data) 2025 2024 2023

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ROE was 9.59% and ROA was 1.04% for the year ended December 31, 2025, compared to 2.04% and 0.25%, respectively, for the same period in 2024.

The decrease in net income for the year ended December 31, 2024 compared to the same period in 2023 resulted primarily from a decrease in non-interest income, primarily as a result of the $179.6 million loss on sale of available-for-sale debt securities recognized during the third quarter of 2024 in connection with strategic balance sheet repositioning undertaken by the Company.

The increase in net income for the year ended December 31, 2025 compared to the same period in 2024 resulted primarily from increases in net interest income and non-interest income.

The increase in non-interest income was primarily the result of a $179.6 million loss on sale of available-for-sale debt securities recognized in 2024 in connection with a strategic balance sheet repositioning undertaken by the Company.

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

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Loans held for sale(3)

95 2 2.60 % 25,855 2,432 9.41 % 33,166 2,856 8.61 %

Loans held for investment, mortgage finance(4)

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Loans held for investment(3)(4)

17,996,607 1,229,207 6.83 % 16,746,912 1,196,673 7.15 % 16,076,646 1,126,843 7.01 %

Allowance for credit losses on loans 276,641 — — % 263,279 — — % 249,180 — —

49 unchanged sentences

Net Interest Income

Net interest income was $901.3 million for the year ended December 31, 2024 compared to $914.1 million for 2023.

The decrease was primarily due to increases in average interest bearing liabilities and deposit costs, partially offset by increases in average earning assets and yields on average earning assets.

Net interest income was $1.0 billion for the year ended December 31, 2025 compared to $901.3 million for 2024.

The increase was primarily due to an increase in average earning assets and a decrease in funding costs, partially offset by a decrease in earning asset yields and an increase in average interest bearing liabilities.

Average earning assets for the year ended December 31, 2025 increased $1.2 billion compared to the same period in 2024, which included increases of $1.8 billion in average total loans and $189.5 million in average investment securities, partially offset by a $737.0 million decrease in average interest bearing cash and cash equivalents.

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Net interest margin for the year ended December 31, 2025 was 3.35% compared to 3.03% for 2024.

The decrease was primarily due to an increase in interest bearing deposit yields, partially offset by higher yields on investment securities compared to the same period in 2023.

The yield on total loans held for investment, net, of 6.52% for the year ended December 31, 2024 was unchanged compared to the same period in 2023 and the yield on earning assets increased to 5.82% for the year ended December 31, 2024 compared to 5.65% for the same period in 2023.

The average cost of total deposits increased to 2.93% for 2024 from 2.47% for the same period in 2023 and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to 2.75% for 2024 compared to 2.46% for the same period 2023.

The increase was primarily due to a decrease in funding costs.

The yield on total loans held for investment, net, decreased to 6.32% for the year ended December 31, 2025 compared to 6.52% for the same period in 2024 and the yield on earning assets decreased to 5.76% for the year ended December 31, 2025 compared to 5.82% for the same period in 2024.

The average cost of total deposits decreased to 2.60% for 2025 from 2.93% for the same period in 2024 and total funding costs, including all deposits, long-term debt and stockholders' equity, decreased to 2.37% for 2025 compared to 2.75% for the same period 2024.

Non-interest Income

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Trading income 27,093 21,635 22,512

Gain on disposal of subsidiary — — 248,526

Available-for-sale debt securities gains/(losses), net

(179,581) 489 —

Available-for-sale debt securities losses (1,886) (179,581) 489

Other 39,672 34,205 31,001

Total non-interest income $ 227,142 $ 31,046 $ 161,419

Non-interest income was $31.0 million for the year ended December 31, 2024, a $130.4 million decrease as compared to the same period in 2023, primarily due to the $179.6 million loss on sale of available-for-sale debt securities recognized during the third quarter of 2024, partially offset by an increase in investment banking and advisory fees.

Non-interest income was $227.1 million for the year ended December 31, 2025, a $196.1 million increase as compared to the same period in 2024, primarily due to the inclusion of a $179.6 million loss on sale of available-for-sale debt securities recognized during the third quarter of 2024, as well as increases in service charges on deposit accounts, trading income and other non-interest income.

Non-interest Expense

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Total non-interest expense $ 768,069 $ 758,285 $ 756,947

Non-interest expense was $758.3 million for the year ended December 31, 2024, an increase of $1.3 million as compared to the same period in 2023, primarily due to increases in salaries and benefits, occupancy expense and communications and technology expense, partially offset by decreases in legal and professional expense and FDIC insurance assessment.

Non-interest expense for the year ended December 31, 2024 included restructuring expenses of $4.4 million recorded in salaries and benefits, $476,000 recorded in occupancy expense and $3.1 million recorded in communications and technology expense.

The decrease in legal and professional expense for the year ended December 31, 2024 resulted primarily from declines in professional services, partially offset by a $5.0 million legal settlement expense recognized in the first quarter of 2024.

FDIC insurance assessment included a $2.8 million special assessment expense in 2024, as compared to a $19.9 million special assessment expense in 2023.

Non-interest expense was $768.1 million for the year ended December 31, 2025, an increase of $9.8 million as compared to the same period in 2024, primarily due to increases in salaries and benefits and communications and technology expense, partially offset by decreases in marketing expense and FDIC insurance assessment.

FDIC insurance assessment for 2025 included a release of $2.2 million in special assessment accruals upon determination by the FDIC that the extended collection period was no longer necessary, while FDIC insurance assessment for 2024 included an additional $2.8 million FDIC special assessment accrual.

Analysis of Financial Condition

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Total loans held for investment $ 24,040,202 $ 22,450,066

Total loans held for investment were $22.5 billion at December 31, 2024, an increase of $2.1 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.

Commercial loan growth includes the impact of the acquisition of a $332.0 million loan portfolio completed during the third

quarter of 2024.

Total loans held for investment were $24.0 billion at December 31, 2025, an increase of $1.6 billion from December 31, 2024, as increases in commercial and mortgage finance loans were partially offset by decreases in commercial real estate and consumer loans.

Mortgage finance loans include legal ownership interests in mortgage loans that the Company purchases from unaffiliated mortgage originators, either directly or through a special purpose entity structure, that are typically sold within 10 to 20 days and represent 25% and 23% of gross loans held for investment at December 31, 2025 and December 31, 2024, 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.

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.

The Company originates a substantial majority of all loans held for investment.

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As of December 31, 2025, 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.

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

The risks created by this concentration have been considered by management in determining the appropriateness of the allowance for credit losses.

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Financials (excluding banks) $ 3,764,023 15.5 %

Energy 1,226,290 5.4 %

Oil & gas and pipelines 1,841,479 7.5 %

Technology, telecom and media 1,393,835 5.8 %

Real estate related services (not secured by real estate) 960,319 4.3 %

Healthcare and pharmaceuticals 842,902 3.5 %

Real estate related services (not secured by real estate) 737,390 3.1 %

Commercial services 595,923 2.5 %

Retail 388,120 1.7 %

Machinery, equipment and parts manufacturing 455,561 1.9 %

Entertainment and recreation 283,499 1.3 %

Retail 403,580 1.7 %

Government and education 375,036 1.6 %

Entertainment and recreation 257,256 1.1 %

Utilities 231,023 1.0 %

Transportation services 206,192 0.9 %

Food and beverage manufacturing and wholesale 198,066 0.8 %

Materials and commodities 192,376 0.8 %

Transportation services 172,949 0.8 %

Consumer services 170,039 0.7 %

Utilities 77,780 0.3 %

Diversified or miscellaneous 588,124 2.4 %

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This category also includes loans to companies involved in investment management and securities and commodities trading.

The majority of the loans in this category plus the mortgage finance loan category make up the majority of the Company’s loans to non-depository financial institutions, as defined in the regulatory guidance for the Company’s consolidated financial report for bank holding companies.

The Company believes the loans it originates are appropriately collateralized under its credit standards.

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1-4 Family dwellings (other than condominium) 402,550 7.5 %

Office buildings 361,941 6.4 %

Senior housing buildings 337,554 6.3 %

Shopping center/mall buildings 285,257 5.1 %

Office buildings 259,507 4.8 %

Commercial buildings 243,414 4.5 %

Hotel/motel buildings 136,767 2.4 %

Shopping center/mall buildings 222,878 4.1 %

Self-storage buildings 108,387 2.0 %

Student housing 72,695 1.3 %

Hotel/motel buildings 103,403 1.9 %

Hospital/medical office 84,731 1.6 %

Commercial lots 68,252 1.3 %

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Any such required borrower investment is first contributed and invested in the project before any draws are allowed under the Bank's credit commitment.

The Company requires current financial statements of the borrowing entity and guarantors, as well as conduct periodic inspections of the project and analysis of whether the project is on schedule or delayed.

Updated appraisals are ordered when necessary to validate the collateral values to support advances, including reserve interest.

The Company requires current financial statements of the borrowing entity and guarantors, as well as conducts periodic inspections of the project and analyzes whether the project is on schedule or delayed.

Updated appraisals are ordered when necessary to validate the collateral values to support advances, including interest reserves.

Advances of interest reserves are discontinued if collateral values do not support the advances or if the borrower does not comply with other terms and conditions in the loan agreements.

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The Company, however, generally employs lower house limits which vary by assigned risk grade, product and collateral type.

Such house limits, which generally range from $20 million to $60 million, may be exceeded with appropriate authorization for exceptionally strong borrowers and otherwise where business opportunity and assessed credit risk warrant a somewhat larger investment.

The Company considers large credit relationships to be those with commitments equal to or in excess of $20.0 million.

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Business assets $ 92,725 $ 64,481

Oil and gas properties — 2,543

Accounts receivable and inventory 1,177 6,315

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Industrial buildings

19,200 20,637

Commercial building

Office buildings

Hotel/motel buildings

Total commercial real estate 20,734 34,637

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

(1) Non-accrual loans held for sale at December 31, 2025 include non-accrual loans previously reported in loans held for investment that were transferred at fair value to held for sale as of December 31, 2025.

Summary of Credit Loss Experience

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The Company recorded a provision for credit losses of $55.0 million for the year ended December 31, 2025, compared to a provision of $67.0 million for the year ended December 31, 2024.

The provision for credit losses for the year ended December 31, 2024 reflects growth in loans held for investment and $40.9 million in net charge-offs recorded during the year ended December 31, 2024, compared to $50.9 million in net charge-offs during the same period in 2023.

The provision for credit losses for the year ended December 31, 2025 reflects an increase in total loans held for investment and $47.2 million in net charge-offs recorded during the year ended December 31, 2025, partially offset by a decline in criticized loans.

Criticized loans totaled $634.9 million at December 31, 2025, compared to $714.0 million at December 31, 2024.

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Allowance for credit losses on loans to average total loans held for investment

1.17 % 1.27 %

Total allowance for credit losses to total loans held for investment 1.38 % 1.45 %

Total provision for credit losses to average total loans held for investment

0.24 % 0.31 %

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

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See Note 1 - Operations and Summary of Significant Accounting Policies and Note 4 - Loans and Allowance for Credit Losses on Loans in the accompanying notes to the consolidated financial statements included elsewhere in this report for details of the allowance for credit losses on loans.

The Company competes for deposits by offering a full suite of deposit products and services to its customers.

The Company primarily competes for deposits by offering a full suite of deposit products and services to its customers.

While this includes offering competitive interest rates and fees, the primary means of competing for deposits is convenience and service to customers, tailored to the strategy of maintaining a branch-lite network.

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Average non-interest bearing deposits for the year ended December 31, 2025 decreased $792.8 million compared to 2024 and average interest bearing deposits increased $2.5 billion compared to 2024.

The average cost of total deposits increased to 2.93% in 2024 from 2.47% in 2023.

The average cost of total deposits decreased to 2.60% in 2025 from 2.93% in 2024.

The following table discloses average deposits and weighted-average cost of deposits by type:

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The Company regularly evaluates all of its various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness.

The Company’s principal source of funding is customer deposits, supplemented by short-term borrowings, primarily from federal funds purchased and Federal Home Loan Bank (“FHLB”) borrowings, which are generally used to fund mortgage finance loans, and long-term debt.

The Company’s principal source of funding is customer deposits, supplemented by short-term borrowings, primarily from federal funds purchased and FHLB borrowings, brokered deposits and long-term debt.

The Company also relies on the availability of the mortgage secondary market provided by Ginnie Mae and government sponsored entities to support the liquidity of mortgage finance loans.

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Total deposits 7.2 % 11.9 %

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 through digital acquisition or as a result of development of long-term customer relationships, with a significant focus on treasury management products.

The Company aims to obtain as much of its funding as possible from customer deposits, which are generated through digital acquisition or as a result of 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.

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Total deposits $ 26,448,767 100.0 % $ 25,238,599 100.0 %

Estimated uninsured deposits, including accrued interest, were 41% of total deposits at December 31, 2024, compared to 43% of total deposits at December 31, 2023.

Estimated uninsured deposits, including accrued interest, were 42% and 41% of total deposits at both December 31, 2025 and December 31, 2024, respectively.

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

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Such borrowings are generally used to fund mortgage finance loans, due to their liquidity, short duration and interest spreads available.

These borrowing sources include federal funds purchased from downstream correspondent bank relationships (which consist of banks that are smaller than the Bank) and from upstream correspondent bank relationships (which consist of banks that are larger than the Bank), customer repurchase agreements and advances from the FHLB and the Federal Reserve.

These borrowing sources include federal funds purchased from downstream correspondent bank relationships (which consist of banks that are smaller than the Bank) and from upstream correspondent bank relationships (which consist of banks that are larger than the Bank) and advances from the FHLB and the Federal Reserve.

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

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

(in thousands)

December 31, 2025 December 31, 2024

Federal funds purchased $ 30,000 $ —

FHLB borrowings 300,000 885,000

Total short-term and other borrowings $ 885,000 $ 1,500,000

Total short-term borrowings

$ 330,000 $ 885,000

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

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Unused revolving line of credit(2)

(1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance loans and certain pledged securities.

$ 75,000 $ 75,000

(1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans and certain pledged securities.

(2) Unsecured revolving, non-amortizing line of credit with maturity date of February 8, 2027.

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The loan agreement contains customary financial covenants and restrictions.

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

No borrowings were made against this line of credit during the year ended December 31, 2025 or 2024.

The Company has long-term debt outstanding of $620.6 million as of December 31, 2025, comprised of trust preferred securities and subordinated notes with maturity dates ranging from January 2026 to December 2036.

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The Company’s equity capital averaged $3.6 billion for the year ended December 31, 2025 compared to $3.3 billion for the same period in 2024.

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.

On January 17, 2024, the Company’s board of directors authorized a share repurchase program under which the Company could repurchase up to $150.0 million in shares of its outstanding common stock, excluding the effect of excise tax expense incurred on net stock repurchases.

Remaining repurchase authorization under the January 18, 2023 share repurchase program was terminated upon authorization of this new program.

The Company has not paid any cash dividends on common stock since operations commenced.

On January 22, 2025, the Company’s board of directors authorized a share repurchase program under which the Company may repurchase up to $200.0 million in shares of its outstanding common stock, excluding the effect of excise tax expense incurred on net stock repurchases.

Effective December 12, 2025, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $200.0 million in shares of its outstanding common stock, excluding the effect of excise tax expense incurred on the net stock repurchases.

The share repurchase program will expire on December 31, 2026, but may be suspended or discontinued at any time.

The remaining repurchase authorization under the January 22, 2025 share repurchase program was terminated upon authorization of this new program.

During the year ended December 31, 2025, the Company repurchased 2,246,265 shares of its common stock for an aggregate purchase price, including excise tax expense, of $185.8 million, at a weighted average price of $82.01 per share.

On January 22, 2025, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $200.0 million in shares of its outstanding common stock, excluding the effect of excise tax expense incurred on net stock repurchases.

The share repurchase program expires on January 31, 2026, but may be suspended or discontinued at any time.

Remaining repurchase authorization under the January 17, 2024 share repurchase program was terminated upon authorization of this new program.

Any repurchases under the Company’s repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions.

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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.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk represents the potential economic loss on trading and non-trading portfolios and financial instruments due to adverse price movements in markets including interest rates, foreign exchange rates, credit spreads, commodity prices and equity and related implied volatility levels.

The Company is subject to market risk primarily through the effect of changes in interest rates on its portfolio of assets held for purposes other than trading and interest rate derivative instruments that are used for managing interest rate risk.

In addition, the Company has exposure to market risk through its trading desks that engage in securities, derivatives and foreign exchange transactions to support the capital raising, investing and hedging activities of customers.

The Company may manage or reduce market risk through the use of hedging, short sale or other similar transactions intended to reduce market risk to be within tolerance levels designated by the Company’s market risk management strategy.

The Company uses Value-at-Risk (“VaR”) as a means to measure, monitor, and limit aggregate market risk on the trading portfolio.

VaR is a statistical risk measure estimating potential loss at the 95th percentile based on a one-year history of market risk factors associated with the trading portfolio.

VaR provides a consistent cross-asset measure for risk profiles and allows for diversification benefit based on historical correlations across market moves.

As of December 31, 2025, the Company’s exposure through its trading desk does not pose a significant market risk to the Company.

All statistical models involve a degree of uncertainty and VaR is calculated at a statistical confidence interval of the 95th percentile based on one-year daily historic market moves.

Larger economic losses are possible, particularly during stressed macroeconomic and market conditions.

The responsibility for managing market risk rests with the ALCO, which operates under policy guidelines established by the Company’s board of directors.

Oversight of the Company’s compliance with the guidelines is the ongoing responsibility of the ALCO, with exceptions reported to the Executive Risk Committee and the board of directors, if necessary, on a quarterly basis.

Interest Rate Risk Management

The Company’s interest rate sensitivity as of December 31, 2025 is illustrated in the following table.

The table reflects rate-sensitive positions as of December 31, 2025 and is not necessarily indicative of positions on other dates.

The table does not take into account the effect of the Company’s derivatives designated as cash flow hedges.

The balances of interest rate sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature and are aggregated to show the interest rate sensitivity gap.

The mismatch between repricings or maturities within a time period is commonly referred to as the “gap” for that period.

A positive gap (asset sensitive), where interest rate sensitive assets exceed interest rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment.

A negative gap (liability sensitive) will generally have the opposite results on the net interest margin.

Certain variable rate loans have embedded floors which limit the decline in yield on those loans at times when market interest rates are extraordinarily low.

The degree of asset sensitivity, spreads on loans and net interest margin may be reduced until rates increase by an amount sufficient to eliminate the effects of floors.

The adverse effect of floors as market rates increase may also be offset by the positive gap, the extent to which rates on deposits and other funding sources lag increasing market rates for loans and changes in composition of funding.

(in thousands) 0-3 months 4-12 months 1-3 years 3+ years Total

Interest bearing cash and cash equivalents $ 1,897,803 $ — $ — $ — $ 1,897,803

Investment securities(1) 56,719 748 20,901 4,644,731 4,723,099

Variable loans 22,439,164 255,576 116,443 231,026 23,042,209

Fixed loans 42,637 102,260 264,148 700,109 1,109,154

Total loans(2) 22,481,801 357,836 380,591 931,135 24,151,363

Total interest sensitive assets $ 24,436,323 $ 358,584 $ 401,492 $ 5,575,866 $ 30,772,265

Interest bearing customer deposits $ 17,372,121 $ — $ — $ — $ 17,372,121

CDs 783,200 1,272,452 58,357 3,540 2,117,549

Total interest bearing deposits 18,155,321 1,272,452 58,357 3,540 19,489,670

Short-term borrowings 330,000 — — — 330,000

Long-term debt 247,915 — — 372,660 620,575

Total borrowings 577,915 — — 372,660 950,575

Total interest sensitive liabilities $ 18,733,236 $ 1,272,452 $ 58,357 $ 376,200 $ 20,440,245

GAP $ 5,703,087 $ (913,868) $ 343,135 $ 5,199,666 $ —

Cumulative GAP $ 5,703,087 $ 4,789,219 $ 5,132,354 $ 10,332,020 $ 10,332,020

Non-interest bearing deposits 6,959,097

Stockholders’ equity 3,631,382

Total $ 10,590,479

(1) Available-for-sale debt securities, equity securities and trading securities based on fair market value.

(2) Total loans include gross loans held for investment and loans held for sale.

While a gap interest table is useful in analyzing interest rate sensitivity, an interest rate sensitivity simulation provides a better illustration of the sensitivity of earnings to changes in interest rates.

Earnings are also affected by the effects of changing interest rates on the value of funding derived from non-interest bearing deposits and stockholders’ equity.

Management performs a sensitivity analysis to identify interest rate risk exposure on net interest income.

Management also quantifies and measures interest rate risk exposure using a model to dynamically simulate the effect of changes in net interest income relative to changes in interest rates over the next twelve months based on different interest rate scenarios.

These are a static rate scenario and “shock test” scenarios, as described below.

These scenarios are based on interest rates as of the last day of a reporting period published by independent sources and incorporate relevant spreads of instruments that are actively traded in the open market.

The Federal Reserve’s federal funds target affects short-term borrowing;

the prime lending rate, SOFR and other alternative indexes are the basis for most of the variable-rate loan pricing.

The 10-year treasury rate is also monitored because of its effect on prepayment speeds for mortgage-backed securities.

These are the Company’s primary interest rate exposures.

Interest rate derivative contracts may be used to manage exposure to adverse fluctuations in these primary interest rate exposures as is discussed in more detail under the heading Use of Derivatives to Manage Interest Rate and Other Risks below.

For modeling purposes, the “shock test” scenarios as of December 31, 2025 and December 31, 2024 assume immediate parallel, sustained 100 and 200 basis point increases in interest rates as well as 100 and 200 basis point decreases in interest rates.

The Company will continue to evaluate these scenarios as interest rates change.

The Company’s interest rate risk exposure model incorporates assumptions regarding the level of interest rate, including indeterminable maturity deposits (non-interest bearing deposits, interest bearing transaction accounts and savings accounts) and loan and security prepayment behaviors for a given level of market rate change.

In the current environment of changing short-term rates, deposit pricing can vary by product and customer.

These assumptions have been developed through a combination of historical analysis and projection of future expected pricing behavior.

Changes in prepayment behavior of mortgage-backed securities and residential and commercial mortgage loans in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio.

The impact of these changes is factored into the simulation model results and indicated interest rate sensitivity as follows:

Annualized Hypothetical Change in Net Interest Income

December 31, 2025 December 31, 2024

+ 200 basis points 6.8 % 6.8 %

+ 100 basis points 3.6 % 3.4 %

- 100 basis points (6.7) % (6.8) %

- 200 basis points (12.9) % (13.7) %

The simulations used to manage interest rate risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior.

These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income.

Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions, customer behavior and management strategies, among other factors.

Use of Derivatives to Manage Interest Rate and Other Risks

In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers.

On the date the Company enters into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, net investment hedge, or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations.

To manage the sensitivity of earnings and capital to interest rate, prepayment, credit, price and foreign currency fluctuations (asset and liability management positions), the Company may enter into derivative transactions.

In addition, the Company enters into interest rate and foreign exchange derivative contracts to support the business requirements of its customers (customer-related positions).

For additional information regarding derivatives, see Note 14 - Derivative Financial Instruments in the accompanying notes to the consolidated financial statements included elsewhere in this report.

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 7. Management’s Discussion and Analysis