UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended ~~June~~September 30, 2022


☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from to

Commission file number 001-34657

TEXAS CAPITAL BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Delaware						75-2679109
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

2000 McKinney Avenue

Suite 700

Dallas

USA

75201

(Address of principal executive offices)

(Zip Code)

(214) 932-6600

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TCBI

Nasdaq Stock Market

5.75% Non-Cumulative Perpetual Preferred Stock Series B, par value $0.01 per share

TCBIO

Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

On ~~July 20,~~October 19, 2022, the number of shares set forth below was outstanding with respect to each of the issuer's classes of common stock:

Common Stock, par value $0.01 per share ~~49,884,477~~49,899,211

Texas Capital Bancshares, Inc.

Form 10-Q

Quarter Ended ~~June~~September 30, 2022

Index

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS - UNAUDITED


(in thousands except share data)	(in thousands except share data)	June 30, 2022		December 31, 2021		(in thousands except share data)	September 30, 2022		December 31, 2021
		(Unaudited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	242,425	$	180,663	Cash and due from banks	$	240,609	$	180,663
Interest-bearing cash and cash equivalents		4,032,931		7,765,996
Interest bearing cash and cash equivalents						Interest bearing cash and cash equivalents	3,399,638		7,765,996

Available-for-sale debt securities	Available-for-sale debt securities	2,535,646		3,538,201		Available-for-sale debt securities	2,380,774		3,538,201
Held-to-maturity debt securities	Held-to-maturity debt securities	980,935		—		Held-to-maturity debt securities	955,875		—
Equity securities	Equity securities	36,118		45,607		Equity securities	32,973		45,607
Investment securities	Investment securities	3,552,699		3,583,808		Investment securities	3,369,622		3,583,808
Loans held for sale	Loans held for sale	4,266		8,123		Loans held for sale	3,142,178		8,123

Loans held for investment, mortgage finance	Loans held for investment, mortgage finance	6,549,507		7,475,497		Loans held for investment, mortgage finance	4,908,822		7,475,497
Loans held for investment	Loans held for investment	17,517,866		15,331,457		Loans held for investment	14,878,959		15,331,457
Less: Allowance for credit losses on loans	Less: Allowance for credit losses on loans	229,013		211,866		Less: Allowance for credit losses on loans	234,613		211,866
Loans held for investment, net	Loans held for investment, net	23,838,360		22,595,088		Loans held for investment, net	19,553,168		22,595,088

Premises and equipment, net	Premises and equipment, net	28,722		20,901		Premises and equipment, net	27,180		20,901
Accrued interest receivable and other assets	Accrued interest receivable and other assets	622,501		559,897		Accrued interest receivable and other assets	648,172		559,897
Other assets held for sale						Other assets held for sale	26,450		—
Goodwill and intangible assets, net	Goodwill and intangible assets, net	17,059		17,262		Goodwill and intangible assets, net	1,496		17,262
Total assets	Total assets	$	32,338,963	$	34,731,738	Total assets	$	30,408,513	$	34,731,738

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Liabilities:	Liabilities:					Liabilities:
Non-interest bearing deposits	Non-interest bearing deposits	$	12,555,367	$	13,390,370	Non-interest bearing deposits	$	11,494,685	$	13,390,370
Interest bearing deposits	Interest bearing deposits	12,884,654		14,718,995		Interest bearing deposits	13,003,878		14,718,995

Total deposits	Total deposits	25,440,021		28,109,365		Total deposits	24,498,563		28,109,365
Accrued interest payable	Accrued interest payable	8,928		7,699		Accrued interest payable	18,465		7,699

Other liabilities	Other liabilities	314,548		273,488		Other liabilities	297,900		273,488
Other liabilities held for sale						Other liabilities held for sale	75,564		—
Short-term borrowings	Short-term borrowings	2,651,536		2,202,832		Short-term borrowings	1,701,480		2,202,832
Long-term debt	Long-term debt	917,098		928,738		Long-term debt	930,766		928,738

Total liabilities	Total liabilities	29,332,131		31,522,122		Total liabilities	27,522,738		31,522,122

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation value:	Preferred stock, $0.01 par value, $1,000 liquidation value:					Preferred stock, $0.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000	Authorized shares - 10,000,000					Authorized shares - 10,000,000
Issued shares - 300,000 shares issued at June 30, 2022 and December 31, 2021		300,000		300,000
Issued shares - 300,000 shares issued at September 30, 2022 and December 31, 2021						Issued shares - 300,000 shares issued at September 30, 2022 and December 31, 2021	300,000		300,000
Common stock, $0.01 par value:	Common stock, $0.01 par value:					Common stock, $0.01 par value:
Authorized shares - 100,000,000	Authorized shares - 100,000,000					Authorized shares - 100,000,000
Issued shares - 50,820,337 and 50,618,911 at June 30, 2022 and December 31, 2021, respectively		508		506
Issued shares - 50,840,022 and 50,618,911 at September 30, 2022 and December 31, 2021, respectively						Issued shares - 50,840,022 and 50,618,911 at September 30, 2022 and December 31, 2021, respectively	509		506
Additional paid-in capital	Additional paid-in capital	1,015,105		1,008,559		Additional paid-in capital	1,020,153		1,008,559
Retained earnings	Retained earnings	2,013,458		1,948,274		Retained earnings	2,050,563		1,948,274
Treasury stock - 942,296 and 417 shares at cost at June 30, 2022 and December 31, 2021, respectively		(50,031)		(8)
Treasury stock - 942,296 and 417 shares at cost at September 30, 2022 and December 31, 2021, respectively						Treasury stock - 942,296 and 417 shares at cost at September 30, 2022 and December 31, 2021, respectively	(50,031)		(8)
Accumulated other comprehensive loss, net of taxes	Accumulated other comprehensive loss, net of taxes	(272,208)		(47,715)		Accumulated other comprehensive loss, net of taxes	(435,419)		(47,715)
Total stockholders’ equity	Total stockholders’ equity	3,006,832		3,209,616		Total stockholders’ equity	2,885,775		3,209,616
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	32,338,963	$	34,731,738	Total liabilities and stockholders’ equity	$	30,408,513	$	34,731,738

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
(in thousands except per share data)	(in thousands except per share data)	2022		2021		2022		2021		(in thousands except per share data)	2022		2021		2022		2021
Interest income	Interest income									Interest income
Interest and fees on loans	Interest and fees on loans	$	218,290	$	203,074	$	405,947	$	413,405	Interest and fees on loans	$	282,473	$	202,748	$	688,420	$	616,153
Investment securities	Investment securities	14,665		10,918		31,967		20,805		Investment securities	15,002		10,235		46,969		31,040

Interest-bearing cash and cash equivalents		9,394		2,961		12,965		5,894
Interest bearing cash and cash equivalents										Interest bearing cash and cash equivalents	24,596		3,606		37,561		9,500
Total interest income	Total interest income	242,349		216,953		450,879		440,104		Total interest income	322,071		216,589		772,950		656,693
Interest expense	Interest expense									Interest expense
Deposits	Deposits	20,566		16,271		34,196		36,275		Deposits	60,317		14,719		94,513		50,994

Short-term borrowings	Short-term borrowings	4,859		502		5,617		3,094		Short-term borrowings	10,011		748		15,628		3,842
Long-term debt	Long-term debt	11,393		10,723		21,988		16,466		Long-term debt	12,663		10,586		34,651		27,052

Total interest expense	Total interest expense	36,818		27,496		61,801		55,835		Total interest expense	82,991		26,053		144,792		81,888
Net interest income	Net interest income	205,531		189,457		389,078		384,269		Net interest income	239,080		190,536		628,158		574,805
Provision for credit losses	Provision for credit losses	22,000		(19,000)		20,000		(25,000)		Provision for credit losses	12,000		5,000		32,000		(20,000)
Net interest income after provision for credit losses	Net interest income after provision for credit losses	183,531		208,457		369,078		409,269		Net interest income after provision for credit losses	227,080		185,536		596,158		594,805
Non-interest income	Non-interest income									Non-interest income
Service charges on deposit accounts	Service charges on deposit accounts	6,003		4,634		12,025		9,350		Service charges on deposit accounts	5,701		4,622		17,726		13,972
Wealth management and trust fee income	Wealth management and trust fee income	4,051		3,143		7,963		5,998		Wealth management and trust fee income	3,631		3,382		11,594		9,380

Brokered loan fees	Brokered loan fees	4,133		6,933		8,103		16,244		Brokered loan fees	3,401		6,032		11,504		22,276
Servicing income	Servicing income	228		5,935		465		14,944		Servicing income	212		292		677		15,236
Investment banking and trading income	Investment banking and trading income	11,126		8,071		15,305		13,858		Investment banking and trading income	7,812		4,127		23,117		17,985
Net gain/(loss) on sale of loans held for sale	Net gain/(loss) on sale of loans held for sale	—		(3,070)		—		2,502		Net gain/(loss) on sale of loans held for sale	—		(1,185)		—		1,317
Other	Other	701		11,993		2,663		19,096		Other	4,576		7,509		7,239		26,605
Total non-interest income	Total non-interest income	26,242		37,639		46,524		81,992		Total non-interest income	25,333		24,779		71,857		106,771
Non-interest expense	Non-interest expense									Non-interest expense
Salaries and benefits	Salaries and benefits	103,885		86,830		203,983		174,352		Salaries and benefits	129,336		87,503		333,319		261,855
Occupancy expense	Occupancy expense	8,874		7,865		17,759		16,139		Occupancy expense	9,433		8,324		27,192		24,463
Marketing	Marketing	8,506		1,900		13,483		3,597		Marketing	8,282		2,123		21,765		5,720
Legal and professional	Legal and professional	11,288		9,147		21,590		17,424		Legal and professional	16,775		11,055		38,365		28,479
Communications and technology	Communications and technology	15,649		14,352		30,349		30,321		Communications and technology	18,470		28,374		48,819		58,695
Federal Deposit Insurance Corporation (“FDIC”) insurance assessment	Federal Deposit Insurance Corporation (“FDIC”) insurance assessment	3,318		5,226		7,299		11,839		Federal Deposit Insurance Corporation (“FDIC”) insurance assessment	3,953		4,500		11,252		16,339
Servicing-related expenses	Servicing-related expenses	—		12,355		—		25,344		Servicing-related expenses	—		2,396		—		27,740

Other	Other	12,783		11,385		22,932		20,360		Other	10,798		8,712		33,730		29,072
Total non-interest expense	Total non-interest expense	164,303		149,060		317,395		299,376		Total non-interest expense	197,047		152,987		514,442		452,363
Income before income taxes	Income before income taxes	45,470		97,036		98,207		191,885		Income before income taxes	55,366		57,328		153,573		249,213
Income tax expense	Income tax expense	11,311		23,555		24,398		46,466		Income tax expense	13,948		13,938		38,346		60,404
Net income	Net income	34,159		73,481		73,809		145,419		Net income	41,418		43,390		115,227		188,809
Preferred stock dividends	Preferred stock dividends	4,312		6,317		8,625		10,096		Preferred stock dividends	4,313		4,312		12,938		14,408
Net income available to common stockholders	Net income available to common stockholders	$	29,847	$	67,164	$	65,184	$	135,323	Net income available to common stockholders	$	37,105	$	39,078	$	102,289	$	174,401
Other comprehensive income/(loss):	Other comprehensive income/(loss):									Other comprehensive income/(loss):
Change in unrealized gain/(loss)	Change in unrealized gain/(loss)	$	(86,438)	$	38,037	$	(287,057)	$	(53,370)	Change in unrealized gain/(loss)	$	(207,204)	$	(18,131)	$	(494,261)	$	(71,501)
Amounts reclassified into net income	Amounts reclassified into net income	1,903		—		2,889		—		Amounts reclassified into net income	609		—		3,498		—
Other comprehensive income/(loss)	Other comprehensive income/(loss)	(84,535)		38,037		(284,168)		(53,370)		Other comprehensive income/(loss)	(206,595)		(18,131)		(490,763)		(71,501)
Income tax expense/(benefit)	Income tax expense/(benefit)	(17,752)		7,989		(59,675)		(11,207)		Income tax expense/(benefit)	(43,384)		(3,808)		(103,059)		(15,015)
Other comprehensive income/(loss), net of tax	Other comprehensive income/(loss), net of tax	(66,783)		30,048		(224,493)		(42,163)		Other comprehensive income/(loss), net of tax	(163,211)		(14,323)		(387,704)		(56,486)
Comprehensive income/(loss)	Comprehensive income/(loss)	$	(32,624)	$	103,529	$	(150,684)	$	103,256	Comprehensive income/(loss)	$	(121,793)	$	29,067	$	(272,477)	$	132,323
Basic earnings per common share	Basic earnings per common share	$	0.59	$	1.33	$	1.29	$	2.68	Basic earnings per common share	$	0.74	$	0.77	$	2.03	$	3.45
Diluted earnings per common share	Diluted earnings per common share	$	0.59	$	1.31	$	1.28	$	2.65	Diluted earnings per common share	$	0.74	$	0.76	$	2.00	$	3.41

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED


		Preferred Stock			Common Stock			Additional				Treasury Stock			Accumulated Other					Preferred Stock			Common Stock			Additional				Treasury Stock			Accumulated Other
								Paid-in		Retained					Comprehensive											Paid-in		Retained					Comprehensive
(in thousands except share data)	(in thousands except share data)	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Total		(in thousands except share data)	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Total
Balance at March 31, 2021		6,300,000	$	450,000	50,558,184	$	505	$	984,207	$	1,781,215	(417)	$	(8)	$	(56,437)	$	3,159,482
Balance at June 30, 2021																			Balance at June 30, 2021	300,000	$	300,000	50,592,618	$	506	$	992,469	$	1,848,379	(417)	$	(8)	$	(26,389)	$	3,114,957

Comprehensive income:	Comprehensive income:																		Comprehensive income:
Net income	Net income	—	—		—	—		—		73,481		—	—		—		73,481		Net income	—	—		—	—		—		43,390		—	—		—		43,390
Change in other comprehensive income/(loss), net of taxes	Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		30,048		30,048		Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(14,323)		(14,323)
Total comprehensive income	Total comprehensive income																103,529		Total comprehensive income																29,067

Stock-based compensation expense recognized in earnings	Stock-based compensation expense recognized in earnings	—	—		—	—		8,315		—		—	—		—		8,315		Stock-based compensation expense recognized in earnings	—	—		—	—		8,324		—		—	—		—		8,324

Preferred stock dividend	Preferred stock dividend	—	—		—	—		—		(6,317)		—	—		—		(6,317)		Preferred stock dividend	—	—		—	—		—		(4,312)		—	—		—		(4,312)
Issuance of stock related to stock-based awards	Issuance of stock related to stock-based awards	—	—		34,434	1		(53)		—		—	—		—		(52)		Issuance of stock related to stock-based awards	—	—		13,425	—		(284)		—		—	—		—		(284)
Redemption of preferred stock		(6,000,000)	(150,000)		—	—		—		—		—	—		—		(150,000)

Balance at June 30, 2021		300,000	$	300,000	50,592,618	$	506	$	992,469	$	1,848,379	(417)	$	(8)	$	(26,389)	$	3,114,957

Balance at March 31, 2022		300,000	$	300,000	50,710,858	$	507	$	1,011,353	$	1,983,611	(417)	$	(8)	$	(205,425)	$	3,090,038
Balance at September 30, 2021																			Balance at September 30, 2021	300,000	$	300,000	50,606,043	$	506	$	1,000,509	$	1,887,457	(417)	$	(8)	$	(40,712)	$	3,147,752

Balance at June 30, 2022																			Balance at June 30, 2022	300,000	$	300,000	50,820,337	$	508	$	1,015,105	$	2,013,458	(942,296)	$	(50,031)	$	(272,208)	$	3,006,832

Comprehensive income:	Comprehensive income:																		Comprehensive income:
Net income	Net income	—	—		—	—		—		34,159		—	—		—		34,159		Net income	—	—		—	—		—		41,418		—	—		—		41,418
Change in other comprehensive income/(loss), net of taxes	Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(66,783)		(66,783)		Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(163,211)		(163,211)
Total comprehensive loss	Total comprehensive loss																(32,624)		Total comprehensive loss																(121,793)

Stock-based compensation expense recognized in earnings	Stock-based compensation expense recognized in earnings	—	—		—	—		5,022		—		—	—		—		5,022		Stock-based compensation expense recognized in earnings	—	—		—	—		5,376		—		—	—		—		5,376
Preferred stock dividend	Preferred stock dividend	—	—		—	—		—		(4,312)		—	—		—		(4,312)		Preferred stock dividend	—	—		—	—		—		(4,313)		—	—		—		(4,313)
Issuance of stock related to stock-based awards	Issuance of stock related to stock-based awards	—	—		109,479	1		(1,270)		—		—	—		—		(1,269)		Issuance of stock related to stock-based awards	—	—		19,685	1		(328)		—		—	—		—		(327)
Repurchase of common stock		—	—		—	—		—		—		(941,879)	(50,023)		—		(50,023)

Balance at June 30, 2022		300,000	$	300,000	50,820,337	$	508	$	1,015,105	$	2,013,458	(942,296)	$	(50,031)	$	(272,208)	$	3,006,832

Balance at September 30, 2022																			Balance at September 30, 2022	300,000	$	300,000	50,840,022	$	509	$	1,020,153	$	2,050,563	(942,296)	$	(50,031)	$	(435,419)	$	2,885,775

See accompanying notes to consolidated financial statements.


		Preferred Stock			Common Stock			Additional				Treasury Stock			Accumulated Other					Preferred Stock			Common Stock			Additional				Treasury Stock			Accumulated Other
								Paid-in		Retained					Comprehensive											Paid-in		Retained					Comprehensive
(in thousands except share data)	(in thousands except share data)	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Total		(in thousands except share data)	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Total
Balance at December 31, 2020 (audited)	Balance at December 31, 2020 (audited)	6,000,000	$	150,000	50,470,867	$	504	$	991,898	$	1,713,056	(417)	$	(8)	$	15,774	$	2,871,224	Balance at December 31, 2020 (audited)	6,000,000	$	150,000	50,470,867	$	504	$	991,898	$	1,713,056	(417)	$	(8)	$	15,774	$	2,871,224

Comprehensive income:	Comprehensive income:																		Comprehensive income:
Net income	Net income	—	—		—	—		—		145,419		—	—		—		145,419		Net income	—	—		—	—		—		188,809		—	—		—		188,809
Change in other comprehensive income/(loss), net of taxes	Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(42,163)		(42,163)		Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(56,486)		(56,486)
Total comprehensive income	Total comprehensive income																103,256		Total comprehensive income																132,323

Stock-based compensation expense recognized in earnings	Stock-based compensation expense recognized in earnings	—	—		—	—		13,776		—		—	—		—		13,776		Stock-based compensation expense recognized in earnings	—	—		—	—		22,100		—		—	—		—		22,100
Issuance of preferred stock	Issuance of preferred stock	300,000	300,000		—	—		(10,277)		—		—	—		—		289,723		Issuance of preferred stock	300,000	300,000		—	—		(10,277)		—		—	—		—		289,723
Preferred stock dividend	Preferred stock dividend	—	—		—	—		—		(10,096)		—	—		—		(10,096)		Preferred stock dividend	—	—		—	—		—		(14,408)		—	—		—		(14,408)
Issuance of stock related to stock-based awards	Issuance of stock related to stock-based awards	—	—		121,751	2		(2,928)		—		—	—		—		(2,926)		Issuance of stock related to stock-based awards	—	—		135,176	2		(3,212)		—		—	—		—		(3,210)
Redemption of preferred stock	Redemption of preferred stock	(6,000,000)	(150,000)		—	—		—		—		—	—		—		(150,000)		Redemption of preferred stock	(6,000,000)	(150,000)		—	—		—		—		—	—		—		(150,000)

Balance at June 30, 2021		300,000	$	300,000	50,592,618	$	506	$	992,469	$	1,848,379	(417)	$	(8)	$	(26,389)	$	3,114,957
Balance at September 30, 2021																			Balance at September 30, 2021	300,000	$	300,000	50,606,043	$	506	$	1,000,509	$	1,887,457	(417)	$	(8)	$	(40,712)	$	3,147,752

Balance at December 31, 2021 (audited)	Balance at December 31, 2021 (audited)	300,000	$	300,000	50,618,911	$	506	$	1,008,559	$	1,948,274	(417)	$	(8)	$	(47,715)	$	3,209,616	Balance at December 31, 2021 (audited)	300,000	$	300,000	50,618,911	$	506	$	1,008,559	$	1,948,274	(417)	$	(8)	$	(47,715)	$	3,209,616

Comprehensive income:	Comprehensive income:																		Comprehensive income:
Net income	Net income	—	—		—	—		—		73,809		—	—		—		73,809		Net income	—	—		—	—		—		115,227		—	—		—		115,227
Change in other comprehensive income/(loss), net of taxes	Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(224,493)		(224,493)		Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(387,704)		(387,704)
Total comprehensive loss	Total comprehensive loss																(150,684)		Total comprehensive loss																(272,477)

Stock-based compensation expense recognized in earnings	Stock-based compensation expense recognized in earnings	—	—		—	—		10,429		—		—	—		—		10,429		Stock-based compensation expense recognized in earnings	—	—		—	—		15,805		—		—	—		—		15,805

Preferred stock dividend	Preferred stock dividend	—	—		—	—		—		(8,625)		—	—		—		(8,625)		Preferred stock dividend	—	—		—	—		—		(12,938)		—	—		—		(12,938)
Issuance of stock related to stock-based awards	Issuance of stock related to stock-based awards	—	—		201,426	2		(3,883)		—		—	—		—		(3,881)		Issuance of stock related to stock-based awards	—	—		221,111	3		(4,211)		—		—	—		—		(4,208)
Repurchase of common stock	Repurchase of common stock	—	—		—	—		—		—		(941,879)	(50,023)		—		(50,023)		Repurchase of common stock	—	—		—	—		—		—		(941,879)	(50,023)		—		(50,023)

Balance at June 30, 2022		300,000	$	300,000	50,820,337	$	508	$	1,015,105	$	2,013,458	(942,296)	$	(50,031)	$	(272,208)	$	3,006,832
Balance at September 30, 2022																			Balance at September 30, 2022	300,000	$	300,000	50,840,022	$	509	$	1,020,153	$	2,050,563	(942,296)	$	(50,031)	$	(435,419)	$	2,885,775

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED


		Six months ended June 30,					Nine months ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	73,809	$	145,419	Net income	$	115,227	$	188,809
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision/(benefit) for credit losses	Provision/(benefit) for credit losses	20,000		(25,000)		Provision/(benefit) for credit losses	32,000		(20,000)

Depreciation and amortization expense	Depreciation and amortization expense	24,081		47,531		Depreciation and amortization expense	35,360		65,943
Net (gain)/loss on sale of loans held for sale	Net (gain)/loss on sale of loans held for sale	—		(2,502)		Net (gain)/loss on sale of loans held for sale	—		(1,317)
Decrease in valuation allowance on mortgage servicing rights	Decrease in valuation allowance on mortgage servicing rights	—		(16,448)		Decrease in valuation allowance on mortgage servicing rights	—		(16,448)

Stock-based compensation expense	Stock-based compensation expense	10,612		14,804		Stock-based compensation expense	15,991		23,192

Purchases and originations of loans held for sale	Purchases and originations of loans held for sale	(1,072)		(1,409,716)		Purchases and originations of loans held for sale	(1,642)		(1,413,899)
Proceeds from sales and repayments of loans held for sale	Proceeds from sales and repayments of loans held for sale	4,600		1,618,331		Proceeds from sales and repayments of loans held for sale	5,050		1,675,246

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accrued interest receivable and other assets	Accrued interest receivable and other assets	(10,753)		85,388		Accrued interest receivable and other assets	(2,152)		86,707
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	25,259		(19,164)		Accrued interest payable and other liabilities	14,266		(41,920)
Net cash provided by operating activities	Net cash provided by operating activities	146,536		438,643		Net cash provided by operating activities	214,100		546,313
Investing activities	Investing activities					Investing activities
Purchases of available-for-sale debt securities	Purchases of available-for-sale debt securities	(637,803)		(903,395)		Purchases of available-for-sale debt securities	(665,388)		(952,982)
Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities	Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities	333,811		240,891		Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities	388,223		400,429

Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities	Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities	40,224		—		Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities	66,500		—
Sales/(purchases) of equity securities, net	Sales/(purchases) of equity securities, net	855		—		Sales/(purchases) of equity securities, net	3,421		—
Originations of loans held for investment, mortgage finance	Originations of loans held for investment, mortgage finance	(54,492,183)		(88,516,423)		Originations of loans held for investment, mortgage finance	(77,518,608)		(128,503,055)
Proceeds from pay-offs of loans held for investment, mortgage finance	Proceeds from pay-offs of loans held for investment, mortgage finance	55,418,173		88,823,033		Proceeds from pay-offs of loans held for investment, mortgage finance	80,085,283		129,054,151
Proceeds from sale of mortgage servicing rights	Proceeds from sale of mortgage servicing rights	—		108,646		Proceeds from sale of mortgage servicing rights	—		108,925
Net (increase)/decrease in loans held for investment, excluding mortgage finance	Net (increase)/decrease in loans held for investment, excluding mortgage finance	(2,188,546)		174,095		Net (increase)/decrease in loans held for investment, excluding mortgage finance	(2,690,164)		118,166
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(9,201)		(1,516)		Purchases of premises and equipment, net	(10,456)		(2,619)

Net cash used in investing activities		(1,534,670)		(74,669)
Net cash provided by/(used in) investing activities						Net cash provided by/(used in) investing activities	(341,189)		223,015
Financing activities	Financing activities					Financing activities
Net decrease in deposits	Net decrease in deposits	(2,669,344)		(2,157,026)		Net decrease in deposits	(3,610,802)		(1,182,921)
Issuance of stock related to stock-based awards	Issuance of stock related to stock-based awards	(3,881)		(2,926)		Issuance of stock related to stock-based awards	(4,208)		(3,210)

Net proceeds from issuance of preferred stock	Net proceeds from issuance of preferred stock	—		289,723		Net proceeds from issuance of preferred stock	—		289,723
Redemption of preferred stock	Redemption of preferred stock	—		(150,000)		Redemption of preferred stock	—		(150,000)
Preferred stock dividends paid	Preferred stock dividends paid	(8,625)		(10,096)		Preferred stock dividends paid	(12,938)		(14,408)
Repurchase of common stock	Repurchase of common stock	(50,023)		—		Repurchase of common stock	(50,023)		—
Net increase/(decrease) in short-term borrowings		448,704		(1,097,270)
Net decrease in short-term borrowings						Net decrease in short-term borrowings	(501,352)		(908,281)

Net proceeds from issuance of long-term debt	Net proceeds from issuance of long-term debt	—		639,440		Net proceeds from issuance of long-term debt	—		639,440
Redemption of long-term debt	Redemption of long-term debt	—		(111,000)		Redemption of long-term debt	—		(111,000)

Net cash used in financing activities	Net cash used in financing activities	(2,283,169)		(2,599,155)		Net cash used in financing activities	(4,179,323)		(1,440,657)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(3,671,303)		(2,235,181)		Net decrease in cash and cash equivalents	(4,306,412)		(671,329)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	7,946,659		9,206,380		Cash and cash equivalents at beginning of period	7,946,659		9,206,380
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	4,275,356	$	6,971,199	Cash and cash equivalents at end of period	$	3,640,247	$	8,535,051
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during the period for interest	Cash paid during the period for interest	$	60,572	$	58,869	Cash paid during the period for interest	$	134,026	$	84,118
Cash paid during the period for income taxes	Cash paid during the period for income taxes	29,350		36,701		Cash paid during the period for income taxes	48,569		99,915
Transfers of loans from held for investment to held for sale						Transfers of loans from held for investment to held for sale	3,137,792		—
Transfers of debt securities from available-for-sale to held-to-maturity	Transfers of debt securities from available-for-sale to held-to-maturity	1,019,365		—		Transfers of debt securities from available-for-sale to held-to-maturity	1,019,365		—

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(1) Operations and Summary of Significant Accounting Policies

Organization and Nature of Business

Texas Capital Bancshares, Inc. (“we,” “us”, or the “Company”), a Delaware corporation, was incorporated in November 1996 and commenced banking operations in December 1998. The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Texas Capital Bank (the “Bank”).

We serve the needs of commercial businesses and professionals and entrepreneurs located in Texas as well as operate several lines of business serving a regional or national clientele of commercial borrowers. We are primarily a secured lender, with the majority of our loans held for investment, excluding mortgage finance loans and other national lines of business, being made to businesses headquartered in or with operations in Texas. Our national lines of business provide specialized lending products to businesses throughout the United States.

On September 6, 2022, we announced the sale of BankDirect Capital Finance (“BDCF” or “disposal group”), our insurance premium finance subsidiary, to AFCO Credit Corporation, an indirect wholly-owned subsidiary of Truist Financial Corp. The sale of BDCF includes its business operations and loan portfolio of approximately $3.1 billion as of September 30, 2022. The sale is an all-cash transaction for a purchase price of approximately $3.4 billion, representing an 8.5% asset premium compared to the value of the purchased loan portfolio as of September 30, 2022.

The transaction resulted in the recognition of a disposal group that is classified as held for sale but does not meet the criteria for discontinued operations reporting. As such, the loans, assets and liabilities related to the disposal group were transferred at the lower of cost or fair value to loans held for sale, other assets held for sale and other liabilities held for sale, respectively, on the consolidated balance sheet as of September 30, 2022. The pre-tax net income for the disposal group for the three months ended September 30, 2022 and 2021 was $11.9 million and $17.4 million, respectively, and was $49.5 million and $48.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The sale is expected to close in the fourth quarter of 2022, subject to various customary closing conditions.

Basis of Presentation

Our accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”) and to generally accepted practices within the banking industry. Certain prior period balances have been reclassified to conform to the current period presentation.

The consolidated interim financial statements are unaudited, and certain information and disclosures in the notes to consolidated unaudited financial statements that are presented in accordance with GAAP have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made present a fair presentation of our financial position and results of operations. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, the financial statements and the notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements do not include all of the information and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for credit losses, the fair value of financial instruments and the status of contingencies are particularly susceptible to significant change.

(2) Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
(in thousands except share and per share data)	(in thousands except share and per share data)	2022		2021		2022		2021		(in thousands except share and per share data)	2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income	Net income	$	34,159	$	73,481	$	73,809	$	145,419	Net income	$	41,418	$	43,390	$	115,227	$	188,809
Preferred stock dividends	Preferred stock dividends	4,312		6,317		8,625		10,096		Preferred stock dividends	4,313		4,312		12,938		14,408
Net income available to common stockholders	Net income available to common stockholders	$	29,847	$	67,164	$	65,184	$	135,323	Net income available to common stockholders	$	37,105	$	39,078	$	102,289	$	174,401
Denominator:	Denominator:									Denominator:
Denominator for basic earnings per common share—weighted average common shares	Denominator for basic earnings per common share—weighted average common shares	50,258,681		50,580,184		50,462,735		50,549,236		Denominator for basic earnings per common share—weighted average common shares	49,891,727		50,600,732		50,506,364		50,568,439
Effect of dilutive outstanding stock-settled awards	Effect of dilutive outstanding stock-settled awards	542,947		513,476		607,034		553,851		Effect of dilutive outstanding stock-settled awards	526,157		538,823		584,151		555,836

Denominator for dilutive earnings per common share—weighted average diluted common shares	Denominator for dilutive earnings per common share—weighted average diluted common shares	50,801,628		51,093,660		51,069,769		51,103,087		Denominator for dilutive earnings per common share—weighted average diluted common shares	50,417,884		51,139,555		51,090,515		51,124,275

Basic earnings per common share	Basic earnings per common share	$	0.59	$	1.33	$	1.29	$	2.68	Basic earnings per common share	$	0.74	$	0.77	$	2.03	$	3.45
Diluted earnings per common share	Diluted earnings per common share	$	0.59	$	1.31	$	1.28	$	2.65	Diluted earnings per common share	$	0.74	$	0.76	$	2.00	$	3.41

Anti-dilutive outstanding stock-settled awards	Anti-dilutive outstanding stock-settled awards	430,224		153,232		301,842		98,079		Anti-dilutive outstanding stock-settled awards	174,706		208,813		315,499		104,174

(3) Investment Securities

The following is a summary of our investment securities:


(in thousands)	(in thousands)	Amortized Cost(1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		(in thousands)	Amortized Cost(1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2022
September 30, 2022										September 30, 2022
Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
U.S. Treasury securities	U.S. Treasury securities	$	638,427	$	974	$	(13,598)	$	625,803	U.S. Treasury securities	$	668,093	$	—	$	(30,812)	$	637,281
U.S. government agency securities	U.S. government agency securities	125,000		—		(16,382)		108,618		U.S. government agency securities	125,000		—		(23,310)		101,690
Residential mortgage-backed securities	Residential mortgage-backed securities	2,036,101		21		(246,567)		1,789,555		Residential mortgage-backed securities	1,980,590		7		(350,496)		1,630,101

Credit risk transfer (“CRT”) securities	Credit risk transfer (“CRT”) securities	14,713		—		(3,043)		11,670		Credit risk transfer (“CRT”) securities	14,713		—		(3,011)		11,702
Total available-for-sale debt securities	Total available-for-sale debt securities	2,814,241		995		(279,590)		2,535,646		Total available-for-sale debt securities	2,788,396		7		(407,629)		2,380,774
Held-to-maturity debt securities:	Held-to-maturity debt securities:									Held-to-maturity debt securities:
Residential mortgage-backed securities	Residential mortgage-backed securities	980,935		—		(81,688)		899,247		Residential mortgage-backed securities	955,875		—		(136,174)		819,701
Total held-to-maturity debt securities	Total held-to-maturity debt securities	980,935		—		(81,688)		899,247		Total held-to-maturity debt securities	955,875		—		(136,174)		819,701
Equity securities	Equity securities							36,118		Equity securities							32,973
Total investment securities(2)	Total investment securities(2)							$	3,552,699	Total investment securities(2)							$	3,369,622

December 31, 2021	December 31, 2021									December 31, 2021
Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
U.S. government agency securities	U.S. government agency securities	$	125,000	$	—	$	(4,056)	$	120,944	U.S. government agency securities	$	125,000	$	—	$	(4,056)	$	120,944
Residential mortgage-backed securities	Residential mortgage-backed securities	3,288,261		156		(63,039)		3,225,378		Residential mortgage-backed securities	3,288,261		156		(63,039)		3,225,378
Tax-exempt asset-backed securities	Tax-exempt asset-backed securities	170,626		9,407		—		180,033		Tax-exempt asset-backed securities	170,626		9,407		—		180,033
CRT securities	CRT securities	14,713		—		(2,867)		11,846		CRT securities	14,713		—		(2,867)		11,846
Total available-for-sale debt securities	Total available-for-sale debt securities	3,598,600		9,563		(69,962)		3,538,201		Total available-for-sale debt securities	3,598,600		9,563		(69,962)		3,538,201
Equity securities	Equity securities							45,607		Equity securities							45,607
Total investment securities(2)	Total investment securities(2)							$	3,583,808	Total investment securities(2)							$	3,583,808

(1)Excludes accrued interest receivable of ~~$5.2~~$4.2 million and $6.6 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, and ~~$1.6~~$1.5 million at ~~June~~September 30, 2022 related to held-to-maturity debt securities that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(2)Includes available-for-sale debt securities and equity securities at estimated fair value and held-to-maturity debt securities at amortized cost.

Debt Securities

In the first quarter of 2022, we transferred $1.0 billion of available-for-sale debt securities to held-to-maturity at fair value. The transfer was the result of deliberate actions taken to execute on our asset-liability management strategies in response to rising

interest rates. Management determined that it has both the positive intent and ability to hold these securities to maturity. On the date of transfer, the difference between the carrying value and fair value of these securities, which was recorded, net of tax, as a loss in accumulated other comprehensive income/(loss) (“AOCI”), resulted in the securities transferring at a discount of $69.2 million. The discount and unrealized loss, net of tax, in AOCI will be amortized to interest income over the remaining life of the securities using the interest method. There were no gains or losses recognized as a result of this transfer.

In the second quarter of 2022, our tax-exempt asset-backed securities were redeemed at par. The outstanding certificates were cancelled and related trusts were terminated. Unrealized gains and losses previously recorded, net of tax, in AOCI were reversed and no additional gains or losses were recognized as a result of the redemption.

The amortized cost and estimated fair value as of ~~June~~September 30, 2022, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity. Actual maturities may differ from contractual maturities of mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

Available-for-sale Held-to-maturity
(in thousands) Amortized Cost Fair Value Amortized Cost Fair Value
Due within one year $ 83 $ 86 $ — $ —
Due after one year through five years 638,427 625,803 — —
Due after five years through ten years 156,370 134,783 — —
Due after ten years 2,019,361 1,774,974 980,935 899,247
Total $ 2,814,241 $ 2,535,646 $ 980,935 $ 899,247


	Available-for-Sale				Held-to-Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	41	$	41	$	—	$	—
Due after one year through five years	668,093		637,281		—		—
Due after five years through ten years	156,587		127,368		—		—
Due after ten years	1,963,675		1,616,084		955,875		819,701
Total	$	2,788,396	$	2,380,774	$	955,875	$	819,701

The following table discloses our available-for-sale debt securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months:


		Less Than 12 Months				12 Months or Longer				Total					Less Than 12 Months				12 Months or Longer				Total
(in thousands)	(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
June 30, 2022
September 30, 2022														September 30, 2022
U.S. treasury securities	U.S. treasury securities	$	429,037	$	(13,598)	$	—	$	—	$	429,037	$	(13,598)	U.S. treasury securities	$	637,281	$	(30,812)	$	—	$	—	$	637,281	$	(30,812)
U.S. government agency securities	U.S. government agency securities	—		—		108,618		(16,382)		108,618		(16,382)		U.S. government agency securities	—		—		101,690		(23,310)		101,690		(23,310)
Residential mortgage-backed securities	Residential mortgage-backed securities	893,351		(117,057)		895,346		(129,510)		1,788,697		(246,567)		Residential mortgage-backed securities	310,838		(67,167)		1,318,654		(283,329)		1,629,492		(350,496)

CRT securities	CRT securities	—		—		11,670		(3,043)		11,670		(3,043)		CRT securities	—		—		11,702		(3,011)		11,702		(3,011)
Total	Total	$	1,322,388	$	(130,655)	$	1,015,634	$	(148,935)	$	2,338,022	$	(279,590)	Total	$	948,119	$	(97,979)	$	1,432,046	$	(309,650)	$	2,380,165	$	(407,629)
December 31, 2021	December 31, 2021													December 31, 2021
U.S. government agency securities	U.S. government agency securities	$	24,085	$	(915)	$	96,859	$	(3,141)	$	120,944	$	(4,056)	U.S. government agency securities	$	24,085	$	(915)	$	96,859	$	(3,141)	$	120,944	$	(4,056)
Residential mortgage-backed securities	Residential mortgage-backed securities	2,871,052		(50,721)		303,491		(12,318)		3,174,543		(63,039)		Residential mortgage-backed securities	2,871,052		(50,721)		303,491		(12,318)		3,174,543		(63,039)
CRT securities	CRT securities	—		—		11,846		(2,867)		11,846		(2,867)		CRT securities	—		—		11,846		(2,867)		11,846		(2,867)
Total	Total	$	2,895,137	$	(51,636)	$	412,196	$	(18,326)	$	3,307,333	$	(69,962)	Total	$	2,895,137	$	(51,636)	$	412,196	$	(18,326)	$	3,307,333	$	(69,962)

At ~~June~~September 30, 2022, we had 8898 available-for-sale debt securities in an unrealized loss position, comprised of 7twelve U.S. treasury securities, 5five U.S. government agency securities, 7479 residential mortgage-backed securities, and 2two CRT securities. The unrealized losses on the available-for-sale debt securities were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. We do not intend to sell and it is not more likely than not that we will be required to sell these available-for-sale debt securities before recovery of the amortized cost of ~~the available-for-sale debt~~such securities in an unrealized loss position and have, therefore, recorded the unrealized losses related to this portfolio in AOCI. Held-to-maturity debt securities consist of government guaranteed securities for which no loss is expected. At ~~June~~September 30, 2022 and December 31, 2021, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.

Debt securities with carrying values of approximately ~~$18.0~~$18.6 million and ~~$1.6~~$1.4 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at ~~June~~September 30, 2022. The comparative amounts at December 31, 2021 were $22.0 million and $2.0 million, respectively.

Equity Securities

Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan. The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income on the consolidated statements of income and other comprehensive income/(loss):


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2022		2021		2022		2021
Net gains/(losses) recognized during the period	Net gains/(losses) recognized during the period	$	(4,996)	$	3,268	$	(8,636)	$	3,646	Net gains/(losses) recognized during the period	$	(1,165)	$	850	$	(9,801)	$	4,496
Less: Realized net gains/(losses) recognized on securities sold	Less: Realized net gains/(losses) recognized on securities sold	(204)		351		(2)		749		Less: Realized net gains/(losses) recognized on securities sold	(587)		347		(589)		1,096
Unrealized net gains/(losses) recognized on securities held	Unrealized net gains/(losses) recognized on securities held	$	(4,792)	$	2,917	$	(8,634)	$	2,897	Unrealized net gains/(losses) recognized on securities held	$	(578)	$	503	$	(9,212)	$	3,400

(4) Loans and Allowance for Credit Losses on Loans

Loans are summarized by portfolio segment as follows:


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Loans held for investment(1):	Loans held for investment(1):					Loans held for investment(1):
Commercial	Commercial	$	11,511,532	$	9,897,561	Commercial	$	8,813,614	$	9,897,561
Energy	Energy	962,239		721,373		Energy	1,106,097		721,373
Mortgage finance	Mortgage finance	6,549,507		7,475,497		Mortgage finance	4,908,822		7,475,497
Real estate	Real estate	5,118,849		4,777,530		Real estate	5,015,704		4,777,530
Gross loans held for investment	Gross loans held for investment	24,142,127		22,871,961		Gross loans held for investment	19,844,237		22,871,961
Unearned income (net of direct origination costs)	Unearned income (net of direct origination costs)	(74,754)		(65,007)		Unearned income (net of direct origination costs)	(56,456)		(65,007)
Total loans held for investment	Total loans held for investment	24,067,373		22,806,954		Total loans held for investment	19,787,781		22,806,954
Allowance for credit losses on loans	Allowance for credit losses on loans	(229,013)		(211,866)		Allowance for credit losses on loans	(234,613)		(211,866)
Total loans held for investment, net	Total loans held for investment, net	$	23,838,360	$	22,595,088	Total loans held for investment, net	$	19,553,168	$	22,595,088

Loans held for sale:	Loans held for sale:					Loans held for sale:
Insurance premium finance loans, at lower of cost or fair value(2)						Insurance premium finance loans, at lower of cost or fair value(2)	$	3,137,791	$	—
Mortgage loans, at fair value	Mortgage loans, at fair value	$	4,266	$	8,123	Mortgage loans, at fair value	4,387		8,123

Total loans held for sale	Total loans held for sale	$	4,266	$	8,123	Total loans held for sale	$	3,142,178	$	8,123

(1) Excludes accrued interest receivable of ~~$57.6~~$71.8 million and $50.9 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(2) September 30, 2022 includes $1.3 million in non-accrual loans and $3.1 million in loans past due 90 days and still accruing that were transferred from loans held for investment to loans held for sale as of September 30, 2022.

The following tables summarize our gross loans held for investment by year of origination and internally assigned credit grades:


(in thousands)	(in thousands)	2022		2021		2020		2019		2018		2017 and prior		Revolving lines of credit		Revolving lines of credit converted to term loans		Total		(in thousands)	2022		2021		2020		2019		2018		2017 and prior		Revolving lines of credit		Revolving lines of credit converted to term loans		Total
June 30, 2022
September 30, 2022																				September 30, 2022
Commercial	Commercial																			Commercial
(1-7) Pass	(1-7) Pass	$	853,390	$	4,017,274	$	293,544	$	434,095	$	295,347	$	379,247	$	4,971,573	$	35,847	$	11,280,317	(1-7) Pass	$	1,530,588	$	776,714	$	252,321	$	366,245	$	225,307	$	316,001	$	5,004,072	$	27,344	$	8,498,592
(8) Special mention	(8) Special mention	9,384		3,360		7,696		843		—		7,344		39,201		3,150		70,978		(8) Special mention	28,302		38,477		6,398		37,809		7,526		5,769		35,967		3,820		164,068
(9) Substandard - accruing	(9) Substandard - accruing	7,860		4,539		503		69,257		23,026		6,837		23,445		4,397		139,864		(9) Substandard - accruing	—		42,148		315		30,647		15,133		6,365		28,378		—		122,986
(9+) Non-accrual	(9+) Non-accrual	—		1,718		—		40		10,111		5,420		1,961		1,123		20,373		(9+) Non-accrual	7,622		602		—		36		9,947		6,875		2,886		—		27,968
Total commercial	Total commercial	$	870,634	$	4,026,891	$	301,743	$	504,235	$	328,484	$	398,848	$	5,036,180	$	44,517	$	11,511,532	Total commercial	$	1,566,512	$	857,941	$	259,034	$	434,737	$	257,913	$	335,010	$	5,071,303	$	31,164	$	8,813,614
Energy	Energy																			Energy
(1-7) Pass	(1-7) Pass	$	89,871	$	18,750	$	—	$	—	$	—	$	1,298	$	827,944	$	—	$	937,863	(1-7) Pass	$	129,764	$	23,517	$	—	$	—	$	20,000	$	5,743	$	912,936	$	—	$	1,091,960
(8) Special mention	(8) Special mention	—		—		—		—		—		6,804		—		—		6,804		(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	(9) Substandard - accruing	—		—		—		—		—		—		—		—		—		(9) Substandard - accruing	—		—		—		—		—		—		7,637		—		7,637
(9+) Non-accrual	(9+) Non-accrual	—		8,029		—		—		—		—		9,543		—		17,572		(9+) Non-accrual	—		—		—		—		—		—		6,500		—		6,500
Total energy	Total energy	$	89,871	$	26,779	$	—	$	—	$	—	$	8,102	$	837,487	$	—	$	962,239	Total energy	$	129,764	$	23,517	$	—	$	—	$	20,000	$	5,743	$	927,073	$	—	$	1,106,097
Mortgage finance	Mortgage finance																			Mortgage finance
(1-7) Pass	(1-7) Pass	$	44,918	$	584,253	$	291,404	$	650,170	$	972,308	$	3,861,831	$	—	$	—	$	6,404,884	(1-7) Pass	$	7,913	$	457,792	$	196,598	$	393,675	$	555,480	$	3,292,412	$	—	$	—	$	4,903,870
(8) Special mention	(8) Special mention	—		—		—		—		—		—		—		—		—		(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	(9) Substandard - accruing	—		—		—		—		—		144,623		—		—		144,623		(9) Substandard - accruing	—		—		—		—		1,464		3,488		—		—		4,952
(9+) Non-accrual	(9+) Non-accrual	—		—		—		—		—		—		—		—		—		(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Total mortgage finance	Total mortgage finance	$	44,918	$	584,253	$	291,404	$	650,170	$	972,308	$	4,006,454	$	—	$	—	$	6,549,507	Total mortgage finance	$	7,913	$	457,792	$	196,598	$	393,675	$	556,944	$	3,295,900	$	—	$	—	$	4,908,822
Real estate	Real estate																			Real estate
CRE	CRE																			CRE
(1-7) Pass	(1-7) Pass	$	621,736	$	572,504	$	656,808	$	511,457	$	245,343	$	463,050	$	73,715	$	23,102	$	3,167,715	(1-7) Pass	$	800,519	$	611,459	$	657,829	$	487,368	$	183,225	$	366,644	$	60,672	$	15,969	$	3,183,685
(8) Special mention	(8) Special mention	2,218		10,905		46		4,800		14,072		9,494		—		446		41,981		(8) Special mention	2,396		7,249		7,940		5,297		33,454		22,063		—		—		78,399
(9) Substandard - accruing	(9) Substandard - accruing	—		17,850		—		—		26,317		68,767		—		—		112,934		(9) Substandard - accruing	—		17,850		—		—		11,522		18,629		—		—		48,001
(9+) Non-accrual	(9+) Non-accrual	—		—		—		—		—		190		—		—		190		(9+) Non-accrual	—		—		—		—		—		187		—		—		187
RBF	RBF																			RBF
(1-7) Pass	(1-7) Pass	47,888		117,866		23,022		13,735		7,648		2,471		394,540		—		607,170		(1-7) Pass	82,515		85,477		19,560		13,915		7,462		1,162		390,476		—		600,567
(8) Special mention	(8) Special mention	—		623		—		—		—		—		2,300		—		2,923		(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	(9) Substandard - accruing	—		—		—		—		—		—		—		—		—		(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	(9+) Non-accrual	—		—		—		—		—		—		—		—		—		(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Other	Other																			Other
(1-7) Pass	(1-7) Pass	134,821		162,251		127,499		77,889		83,726		179,466		38,245		27,185		831,082		(1-7) Pass	129,406		137,275		103,917		79,637		79,984		170,709		39,074		27,316		767,318
(8) Special mention	(8) Special mention	—		—		12,972		—		—		17,534		—		—		30,506		(8) Special mention	—		—		10,711		—		—		10,099		—		—		20,810
(9) Substandard - accruing	(9) Substandard - accruing	—		—		—		—		—		1,080		—		—		1,080		(9) Substandard - accruing	—		—		—		—		—		1,058		—		—		1,058
(9+) Non-accrual	(9+) Non-accrual	—		—		—		—		—		—		—		12,210		12,210		(9+) Non-accrual	—		—		1,081		—		—		—		—		—		1,081
Secured by 1-4 family	Secured by 1-4 family																			Secured by 1-4 family
(1-7) Pass	(1-7) Pass	31,759		93,841		56,568		27,956		19,911		75,462		4,057		—		309,554		(1-7) Pass	45,887		90,434		55,261		26,854		19,439		72,329		4,056		—		314,260
(8) Special mention	(8) Special mention	—		—		—		—		—		1,156		—		—		1,156		(8) Special mention	—		—		—		—		—		44		—		—		44
(9) Substandard - accruing	(9) Substandard - accruing	—		—		—		—		—		167		—		—		167		(9) Substandard - accruing	—		—		—		—		—		166		—		—		166
(9+) Non-accrual	(9+) Non-accrual	—		—		—		—		—		181		—		—		181		(9+) Non-accrual	—		—		—		—		—		128		—		—		128
Total real estate	Total real estate	$	838,422	$	975,840	$	876,915	$	635,837	$	397,017	$	819,018	$	512,857	$	62,943	$	5,118,849	Total real estate	$	1,060,723	$	949,744	$	856,299	$	613,071	$	335,086	$	663,218	$	494,278	$	43,285	$	5,015,704
Total	Total	$	1,843,845	$	5,613,763	$	1,470,062	$	1,790,242	$	1,697,809	$	5,232,422	$	6,386,524	$	107,460	$	24,142,127	Total	$	2,764,912	$	2,288,994	$	1,311,931	$	1,441,483	$	1,169,943	$	4,299,871	$	6,492,654	$	74,449	$	19,844,237


(in thousands)	2021		2020		2019		2018		2017		2016 and prior		Revolving lines of credit		Revolving lines of credit converted to term loans		Total
December 31, 2021
Commercial
(1-7) Pass	$	1,133,013	$	3,157,150	$	546,520	$	319,246	$	200,478	$	289,795	$	3,960,706	$	41,377	$	9,648,285
(8) Special mention	2,650		5,277		23,129		8,697		39		5,322		5,120		7,883		58,117
(9) Substandard - accruing	—		7,705		102,619		25,010		6,202		6,962		14,742		2,007		165,247
(9+) Non-accrual	736		1,191		49		12,955		1,166		6,196		3,619		—		25,912
Total commercial	$	1,136,399	$	3,171,323	$	672,317	$	365,908	$	207,885	$	308,275	$	3,984,187	$	51,267	$	9,897,561
Energy
(1-7) Pass	$	71,750	$	—	$	—	$	3	$	—	$	7,188	$	577,988	$	—	$	656,929
(8) Special mention	—		—		—		—		—		—		27,421		—		27,421
(9) Substandard - accruing	—		—		—		—		—		8,643		—		—		8,643
(9+) Non-accrual	—		—		—		—		—		—		28,380		—		28,380
Total energy	$	71,750	$	—	$	—	$	3	$	—	$	15,831	$	633,789	$	—	$	721,373
Mortgage finance
(1-7) Pass	$	289,042	$	590,616	$	656,445	$	754,507	$	332,001	$	4,852,886	$	—	$	—	$	7,475,497
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Total mortgage finance	$	289,042	$	590,616	$	656,445	$	754,507	$	332,001	$	4,852,886	$	—	$	—	$	7,475,497
Real estate
CRE
(1-7) Pass	$	497,462	$	576,344	$	600,005	$	294,005	$	155,252	$	451,042	$	73,988	$	25,970	$	2,674,068
(8) Special mention	—		—		291		8,827		20,089		26,344		—		—		55,551
(9) Substandard - accruing	17,850		—		—		40,900		37,393		38,188		—		2,308		136,639
(9+) Non-accrual	—		—		—		—		—		198		—		—		198
RBF
(1-7) Pass	155,595		44,362		9,693		8,565		—		12,732		460,888		—		691,835
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Other
(1-7) Pass	166,202		148,811		119,017		106,343		61,723		139,723		47,653		29,595		819,067
(8) Special mention	—		7,365		—		—		845		4,982		—		—		13,192
(9) Substandard - accruing	—		6,424		—		—		16,922		20,184		—		—		43,530
(9+) Non-accrual	—		—		—		—		2,641		1,450		—		13,741		17,832
Secured by 1-4 family
(1-7) Pass	96,899		60,659		40,586		22,976		31,826		65,910		4,535		—		323,391
(8) Special mention	—		553		—		—		—		291		—		—		844
(9) Substandard - accruing	—		—		—		—		—		1,203		—		—		1,203
(9+) Non-accrual	—		—		—		—		—		180		—		—		180
Total real estate	$	934,008	$	844,518	$	769,592	$	481,616	$	326,691	$	762,427	$	587,064	$	71,614	$	4,777,530
Total	$	2,431,199	$	4,606,457	$	2,098,354	$	1,602,034	$	866,577	$	5,939,419	$	5,205,040	$	122,881	$	22,871,961

The following table details activity in the allowance for credit losses on loans. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


(in thousands)	(in thousands)	Commercial		Energy		Mortgage Finance		Real Estate		Total		(in thousands)	Commercial		Energy		Mortgage Finance		Real Estate		Total
Six months ended June 30, 2022
Nine months ended September 30, 2022												Nine months ended September 30, 2022
Beginning balance	Beginning balance	$	102,202	$	52,568	$	6,083	$	51,013	$	211,866	Beginning balance	$	102,202	$	52,568	$	6,083	$	51,013	$	211,866

Provision for credit losses on loans	Provision for credit losses on loans	16,343		(26,500)		12,975		16,466		19,284		Provision for credit losses on loans	31,257		(18,636)		4,073		10,923		27,617
Charge-offs	Charge-offs	2,978		—		—		350		3,328		Charge-offs	3,210		2,903		—		350		6,463
Recoveries	Recoveries	436		755		—		—		1,191		Recoveries	549		1,044		—		—		1,593
Net charge-offs (recoveries)	Net charge-offs (recoveries)	2,542		(755)		—		350		2,137		Net charge-offs (recoveries)	2,661		1,859		—		350		4,870
Ending balance	Ending balance	$	116,003	$	26,823	$	19,058	$	67,129	$	229,013	Ending balance	$	130,798	$	32,073	$	10,156	$	61,586	$	234,613

Six months ended June 30, 2021
Nine months ended September 30, 2021												Nine months ended September 30, 2021
Beginning balance	Beginning balance	$	73,061	$	84,064	$	4,699	$	92,791	$	254,615	Beginning balance	$	73,061	$	84,064	$	4,699	$	92,791	$	254,615

Provision for credit losses on loans	Provision for credit losses on loans	12,035		(23,768)		352		(12,932)		(24,313)		Provision for credit losses on loans	26,549		(24,730)		1,729		(24,325)		(20,777)
Charge-offs	Charge-offs	3,863		6,418		—		1,192		11,473		Charge-offs	8,211		6,418		—		1,192		15,821
Recoveries	Recoveries	1,358		1,324		—		—		2,682		Recoveries	2,462		1,366		—		112		3,940
Net charge-offs (recoveries)	Net charge-offs (recoveries)	2,505		5,094		—		1,192		8,791		Net charge-offs (recoveries)	5,749		5,052		—		1,080		11,881
Ending balance	Ending balance	$	82,591	$	55,202	$	5,051	$	78,667	$	221,511	Ending balance	$	93,861	$	54,282	$	6,428	$	67,386	$	221,957

We recorded a ~~$20.0~~$32.0 million provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to a negative provision of ~~$25.0~~$20.0 million for the same period in 2021. The ~~$20.0~~$32.0 million provision for credit losses resulted primarily from ~~an increase~~updated views on the downside risks to the economic forecast, partially offset by a decline in ~~total loans held for investment.~~criticized loans. We recorded ~~$2.1~~$4.9 million in net charge-offs during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to net charge-offs of ~~$8.8~~$11.9 million during the same period in 2021. Criticized loans totaled ~~$603.5~~$484.0 million at ~~June~~September 30, 2022, compared to $582.9 million and ~~$891.6~~$728.9 million at December 31, 2021 and ~~June~~September 30, 2021, respectively. The ~~increase~~decrease in criticized loans as compared to ~~March 31,~~June 30, 2022 was primarily due to the resolution of one mortgage finance credit ~~which is adequately reserved for as~~that was downgraded in the second quarter of ~~June 30,~~ 2022 and ~~is expected to be~~ resolved in the third quarter of ~~2022.~~2022 with no losses recorded.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. At ~~June~~September 30, 2022, we had ~~$12.2 million in~~no collateral-dependent ~~real estate loans, collateralized by real property and business assets.~~loans.

The table below provides an age analysis of our gross loans held for investment:


(in thousands)	(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Non-Accrual Loans(2)		Current		Total		Non-Accrual With No Allowance		(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Non-Accrual Loans(1)		Current		Total		Non-Accrual With No Allowance
June 30, 2022
September 30, 2022																		September 30, 2022
Commercial	Commercial	$	13,625	$	6,395	$	3,144	$	23,164	$	20,373	$	11,467,995	$	11,511,532	$	12,675	Commercial	$	10,405	$	151	$	30,602	$	41,158	$	27,968	$	8,744,488	$	8,813,614	$	3,637

Energy	Energy	—		—		—		—		17,572		944,667		962,239		8,029		Energy	—		—		—		—		6,500		1,099,597		1,106,097		—
Mortgage finance	Mortgage finance	—		—		—		—		—		6,549,507		6,549,507		—		Mortgage finance	—		—		—		—		—		4,908,822		4,908,822		—

Real estate:	Real estate:																	Real estate:
CRE	CRE	29,852		4,139		—		33,991		190		3,288,639		3,322,820		—		CRE	52		—		—		52		187		3,310,033		3,310,272		—
RBF	RBF	—		3,000		—		3,000		—		607,093		610,093		—		RBF	—		—		—		—		—		600,567		600,567		—
Other	Other	—		—		—		—		12,210		862,668		874,878		12,210		Other	700		2,453		—		3,153		1,081		786,033		790,267		—

Secured by 1-4 family	Secured by 1-4 family	—		—		62		62		181		310,815		311,058		—		Secured by 1-4 family	—		—		62		62		128		314,408		314,598		—

Total	Total	$	43,477	$	13,534	$	3,206	$	60,217	$	50,526	$	24,031,384	$	24,142,127	$	32,914	Total	$	11,157	$	2,604	$	30,664	$	44,425	$	35,864	$	19,763,948	$	19,844,237	$	3,637

~~(1)~~Loans past due 90 days and still accruing includes premium finance loans of $3.1 million. These loans are generally secured by obligations of insurance carriers to refund premiums on canceled insurance policies. The receipt of the refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.

~~(2)~~(3)As of ~~June~~September 30, 2022 and December 31, 2021, ~~none~~$1.8 million of our non-accrual loans were earning interest income on a cash basis. Additionally, no$801,000 in interest income was recognized on non-accrual loans for the ~~six~~nine months ended ~~June~~September 30, 2022. Accrued interest of ~~$4,000~~$100,000 was reversed during the ~~six~~nine months ended ~~June~~September 30, 2022.

As of ~~June~~September 30, 2022 and December 31, 2021, we did not have any loans considered restructured that were not on non-accrual. Of the non-accrual loans at ~~June~~September 30, 2022 and December 31, 2021, ~~$17.3~~$2.2 million and $19.4 million, respectively, met the criteria for restructured. These loans had no unfunded commitments at their respective balance sheet dates.

The following table details the recorded investment of loans restructured during the nine months ended September 30, 2022:


	Extended Maturity			Adjusted Payment Schedule			Total
(in thousands, except number of contracts)	Number of Contracts	Balance at Period End		Number of Contracts	Balance at Period End		Number of Contracts	Balance at Period End
Nine months ended September 30, 2022
Commercial loans	—	$	—	1	$	604	1	$	604

Total	—	$	—	1	$	604	1	$	604

We did not have any loans that were restructured during the ~~six~~nine months ended ~~June~~September 30, 2021.

The restructuring of the loans did not have a significant impact on our allowance for credit losses at September 30, 2022. As of September 30, 2022 ~~or 2021.~~and 2021, we did not have any loans that were restructured within the last 12 months that subsequently defaulted.

(5) Short-term Borrowings and Long-term Debt

The table below presents a summary of short-term borrowings:


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021

Customer repurchase agreements	Customer repurchase agreements	$	1,536	$	2,832	Customer repurchase agreements	$	1,480	$	2,832
Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	2,650,000		2,200,000		Federal Home Loan Bank borrowings	1,700,000		2,200,000
Total short-term borrowings	Total short-term borrowings	$	2,651,536	$	2,202,832	Total short-term borrowings	$	1,701,480	$	2,202,832

The table below presents a summary of long-term debt:


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Bank-issued floating rate senior unsecured credit-linked notes due 2024	Bank-issued floating rate senior unsecured credit-linked notes due 2024	$	258,497	$	270,487	Bank-issued floating rate senior unsecured credit-linked notes due 2024	$	271,991	$	270,487
Bank-issued 5.75% fixed rate subordinated notes due 2026		174,066		173,935
Bank-issued 5.25% fixed rate subordinated notes due 2026						Bank-issued 5.25% fixed rate subordinated notes due 2026	174,131		173,935
Company-issued 4.00% fixed rate subordinated notes due 2031	Company-issued 4.00% fixed rate subordinated notes due 2031	371,129		370,910		Company-issued 4.00% fixed rate subordinated notes due 2031	371,238		370,910
Trust preferred floating rate subordinated debentures due 2032 to 2036	Trust preferred floating rate subordinated debentures due 2032 to 2036	113,406		113,406		Trust preferred floating rate subordinated debentures due 2032 to 2036	113,406		113,406
Total long-term debt	Total long-term debt	$	917,098	$	928,738	Total long-term debt	$	930,766	$	928,738

(6) Financial Instruments with Off-Balance Sheet Risk

The table below presents our financial instruments with off-balance sheet risk as well as the activity in the allowance for off-balance sheet credit losses related to those financial instruments. This allowance is recorded in other liabilities on the consolidated balance sheets.


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2022		2021		2022		2021
Beginning balance of allowance for off-balance sheet credit losses	Beginning balance of allowance for off-balance sheet credit losses	$	16,492	$	17,147	$	17,265	$	17,434	Beginning balance of allowance for off-balance sheet credit losses	$	17,981	$	16,747	$	17,265	$	17,434

Provision for off-balance sheet credit losses	Provision for off-balance sheet credit losses	1,489		(400)		716		(687)		Provision for off-balance sheet credit losses	3,667		1,464		4,383		777
Ending balance of allowance for off-balance sheet credit losses	Ending balance of allowance for off-balance sheet credit losses	$	17,981	$	16,747	$	17,981	$	16,747	Ending balance of allowance for off-balance sheet credit losses	$	21,648	$	18,211	$	21,648	$	18,211

(in thousands)	(in thousands)					June 30, 2022		December 31, 2021		(in thousands)					September 30, 2022		December 31, 2021
Commitments to extend credit - period end balance	Commitments to extend credit - period end balance					$	10,194,949	$	9,445,763	Commitments to extend credit - period end balance					$	9,182,739	$	9,445,763
Standby letters of credit - period end balance	Standby letters of credit - period end balance					378,217		357,672		Standby letters of credit - period end balance					419,828		357,672

(7) Regulatory Ratios and Capital

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1

capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

Additionally, the Basel III Capital Rules require that we maintain a 2.5% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers. No dividends were declared or paid on our common stock during the ~~six~~nine months ended ~~June~~September 30, 2022 or during the year ended December 31, 2021. On April 19, 2022, our board of directors authorized a share repurchase program under which we may repurchase up to $150.0 million in shares of our outstanding common stock. During the ~~second~~

~~quarter of~~nine months ended September 30, 2022, the Company repurchased 941,879 shares of its common stock for an aggregate price of $50.0 million, at a weighted average price of $53.11 per share.

In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected credit losses on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). We adopted CECL on January 1, 2020 and have elected to utilize the five-year transition option.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations. Management believes, as of ~~June~~September 30, 2022, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Financial institutions are categorized as well capitalized based on total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company’s and the Bank’s capital ratios exceeded the regulatory definition of well capitalized as of ~~June~~September 30, 2022 and December 31, 2021. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company and the Bank to changes in capital ratios. Any such change could reduce one or more capital ratios below well capitalized status. In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material effect on our financial condition and results of operations.

Because our Bank had less than $15.0 billion in total consolidated assets as of December 31, 2009, we are allowed to continue to classify our trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.

The table below summarizes our actual and required capital ratios under the Basel III Capital Rules. The ratios presented below include the effects of our election to utilize the five-year CECL transition described above.


		Actual				Minimum Capital Required(2)					Capital Required to be Well Capitalized					Actual					Minimum Capital Required(2)			Capital Required to be Well Capitalized
(dollars in thousands)	(dollars in thousands)	Capital Amount		Ratio			Capital Amount		Ratio			Capital Amount	Ratio		(dollars in thousands)		Capital Amount		Ratio			Capital Amount		Ratio		Capital Amount	Ratio
June 30, 2022
September 30, 2022															September 30, 2022
CET1	CET1														CET1
Company	Company	$	2,969,107	10.46	%		$	1,986,272	7.00	%		N/A			Company		$	3,011,505	11.08	%		$	1,902,047	7.00	%	N/A
Bank	Bank	3,139,566		11.07	%		1,985,129		7.00	%		1,843,334	6.50	%	Bank		3,175,750		11.70	%		1,899,579		7.00	%	1,763,895	6.50	%
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)														Total capital (to risk-weighted assets)
Company	Company	4,091,380		14.42	%		2,979,408		10.50	%		2,837,531	10.00	%	Company		4,143,219		15.25	%		2,853,071		10.50	%	2,717,210	10.00	%
Bank	Bank	3,690,710		13.01	%		2,977,694		10.50	%		2,835,899	10.00	%	Bank		3,736,226		13.77	%		2,849,369		10.50	%	2,713,685	10.00	%
Tier 1 capital (to risk-weighted assets)	Tier 1 capital (to risk-weighted assets)														Tier 1 capital (to risk-weighted assets)
Company	Company	3,379,107		11.91	%		2,411,901		8.50	%		1,702,519	6.00	%	Company		3,421,505		12.59	%		2,309,629		8.50	%	1,630,326	6.00	%
Bank	Bank	3,299,566		11.63	%		2,410,514		8.50	%		2,268,719	8.00	%	Bank		3,335,750		12.29	%		2,306,632		8.50	%	2,170,948	8.00	%
Tier 1 capital (to average assets)(1)	Tier 1 capital (to average assets)(1)														Tier 1 capital (to average assets)(1)
Company	Company	3,379,107		10.67	%		1,266,734		4.00	%		N/A			Company		3,421,505		10.67	%		1,282,691		4.00	%	N/A
Bank	Bank	3,299,566		10.42	%		1,266,412		4.00	%		1,583,014	5.00	%	Bank		3,335,750		10.41	%		1,281,909		4.00	%	1,602,386	5.00	%
December 31, 2021	December 31, 2021														December 31, 2021
CET1	CET1														CET1
Company	Company	$	2,949,785	11.06	%		$	1,866,444	7.00	%		N/A			Company		$	2,949,785	11.06	%		$	1,866,444	7.00	%	N/A
Bank	Bank	3,013,170		11.30	%		1,866,303		7.00	%		1,732,996	6.50	%	Bank		3,013,170		11.30	%		1,866,303		7.00	%	1,732,996	6.50	%
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)														Total capital (to risk-weighted assets)
Company	Company	4,085,540		15.32	%		2,799,666		10.50	%		2,666,348	10.00	%	Company		4,085,540		15.32	%		2,799,666		10.50	%	2,666,348	10.00	%
Bank	Bank	3,578,014		13.42	%		2,799,455		10.50	%		2,666,148	10.00	%	Bank		3,578,014		13.42	%		2,799,455		10.50	%	2,666,148	10.00	%
Tier 1 capital (to risk-weighted assets)	Tier 1 capital (to risk-weighted assets)														Tier 1 capital (to risk-weighted assets)
Company	Company	3,359,785		12.60	%		2,266,396		8.50	%		1,599,809	6.00	%	Company		3,359,785		12.60	%		2,266,396		8.50	%	1,599,809	6.00	%
Bank	Bank	3,173,170		11.90	%		2,266,225		8.50	%		2,132,918	8.00	%	Bank		3,173,170		11.90	%		2,266,225		8.50	%	2,132,918	8.00	%
Tier 1 capital (to average assets)(1)	Tier 1 capital (to average assets)(1)														Tier 1 capital (to average assets)(1)
Company	Company	3,359,785		9.01	%		1,490,902		4.00	%		N/A			Company		3,359,785		9.01	%		1,490,902		4.00	%	N/A
Bank	Bank	3,173,170		8.51	%		1,490,677		4.00	%		1,863,346	5.00	%	Bank		3,173,170		8.51	%		1,490,677		4.00	%	1,863,346	5.00	%

(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board and the FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.

(2) Percentages represent the minimum capital ratios plus the fully phased-in 2.5% CET1 capital buffer under the Basel III Capital Rules.

(8) Stock-based Compensation

We have long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the Company’s board of directors or its designated committee. Grants are subject to vesting requirements and may include, among other things, nonqualified stock options, stock appreciation rights, ~~(“SARs”),~~ restricted stock units (“RSUs”), restricted stock and performance units, or any combination thereof. On April 19, 2022, the Company’s stockholders approved the Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan, which provides for the issuance of 1,124,880 shares of common stock for compensation to the Company’s key employees and non-employee directors.

The table below summarizes our stock-based compensation expense:


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2022		2021		2022		2021
Stock-settled awards:	Stock-settled awards:									Stock-settled awards:

RSUs	RSUs	$	5,022	$	8,315	$	10,429	$	13,775	RSUs	$	5,376	$	8,324	$	15,805	$	22,099
Restricted stock	Restricted stock	—		—		—		1		Restricted stock	—		—		—		1
Cash-settled units	Cash-settled units	2		121		183		1,028		Cash-settled units	3		64		186		1,092
Total	Total	$	5,024	$	8,436	$	10,612	$	14,804	Total	$	5,379	$	8,388	$	15,991	$	23,192


(in thousands except period data)	~~June~~September 30, 2022
Unrecognized compensation expense related to unvested stock-settled awards	$	~~42,688~~37,492
Weighted average period over which expense is expected to be recognized, in years	~~2.5~~2.4

(9) Fair Value Disclosures

We determine the fair market values of our assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in the Accounting Standards Codification (“ASC”) 820, Fair Value Measurement. See Note 1 - Operations and Summary of Significant Accounting Policies in our 2021 Form 10-K for information regarding the fair value hierarchy and a description of the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments.

Assets and liabilities measured at fair value are as follows:


		Fair Value Measurements Using							Fair Value Measurements Using
(in thousands)	(in thousands)	Level 1		Level 2		Level 3		(in thousands)	Level 1		Level 2		Level 3
June 30, 2022
September 30, 2022								September 30, 2022
Available-for-sale debt securities:(1)	Available-for-sale debt securities:(1)							Available-for-sale debt securities:(1)
U.S. Treasury securities	U.S. Treasury securities	$	625,803	$	—	$	—	U.S. Treasury securities	$	637,281	$	—	$	—
U.S. government agency securities	U.S. government agency securities	—		108,618		—		U.S. government agency securities	—		101,690		—
Residential mortgage-backed securities	Residential mortgage-backed securities	—		1,789,555		—		Residential mortgage-backed securities	—		1,630,101		—

CRT securities	CRT securities	—		—		11,670		CRT securities	—		—		11,702
Equity securities(1)(2)	Equity securities(1)(2)	24,724		11,394		—		Equity securities(1)(2)	21,932		11,041		—
Loans held for sale(3)		—		—		4,266
Mortgage loans held for sale(3)								Mortgage loans held for sale(3)	—		—		4,387

Derivative assets(4)	Derivative assets(4)	—		11,049		—		Derivative assets(4)	—		24,093		—
Derivative liabilities(4)	Derivative liabilities(4)	—		46,215		—		Derivative liabilities(4)	—		108,608		—
Non-qualified deferred compensation plan liabilities(5)	Non-qualified deferred compensation plan liabilities(5)	22,938		—		—		Non-qualified deferred compensation plan liabilities(5)	20,028		—		—

December 31, 2021	December 31, 2021							December 31, 2021
Available-for-sale debt securities:(1)	Available-for-sale debt securities:(1)							Available-for-sale debt securities:(1)
U.S. government agency securities	U.S. government agency securities	$	—	$	120,944	$	—	U.S. government agency securities	$	—	$	120,944	$	—
Residential mortgage-backed securities	Residential mortgage-backed securities	—		3,225,378		—		Residential mortgage-backed securities	—		3,225,378		—
Tax-exempt asset-backed securities	Tax-exempt asset-backed securities	—		—		180,033		Tax-exempt asset-backed securities	—		—		180,033
CRT securities	CRT securities	—		—		11,846		CRT securities	—		—		11,846
Equity securities(1)(2)	Equity securities(1)(2)	33,589		12,018		—		Equity securities(1)(2)	33,589		12,018		—
Loans held for sale(3)		—		465		7,658
Mortgage loans held for sale(3)								Mortgage loans held for sale(3)	—		465		7,658

Derivative assets(4)	Derivative assets(4)	—		37,788		—		Derivative assets(4)	—		37,788		—
Derivative liabilities(4)	Derivative liabilities(4)	—		37,788		—		Derivative liabilities(4)	—		37,788		—
Non-qualified deferred compensation plan liabilities(5)	Non-qualified deferred compensation plan liabilities(5)	29,695		—		—		Non-qualified deferred compensation plan liabilities(5)	29,695		—		—

(1)Investment securities are measured at fair value on a recurring basis, generally monthly, except for tax-exempt asset-backed securities and CRT securities, which are measured quarterly.

(2)Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan.

(3)Mortgage loans held for sale are measured at fair value on a recurring basis, generally monthly.

(4)Derivative assets and liabilities are measured at fair value on a recurring basis, generally quarterly.

(5)Non-qualified deferred compensation plan liabilities represent the fair value of the obligation to the employee, which generally corresponds to the fair value of the invested assets, and are measured at fair value on a recurring basis, generally monthly.

Level 3 Valuations

The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis:


								Net Gains (Losses)													Net Gains (Losses)
(in thousands)	(in thousands)	Balance at Beginning of Period		Purchases / Additions		Sales / Reductions		Realized		Unrealized		Balance at End of Period		(in thousands)	Balance at Beginning of Period		Purchases / Additions		Sales / Reductions		Realized		Unrealized		Balance at End of Period
Three months ended June 30, 2022
Three months ended September 30, 2022														Three months ended September 30, 2022
Available-for-sale debt securities:(1)	Available-for-sale debt securities:(1)													Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities		$	165,845	$	—	$	(166,890)	$	—	$	1,045	$	—

CRT securities	CRT securities	11,901		—		—		—		(231)		11,670		CRT securities	$	11,670	$	—	$	—	$	—	$	32	$	11,702
Loans held for sale(2)	Loans held for sale(2)	8,085		—		(4,029)		—		210		4,266		Loans held for sale(2)	4,266		571		(450)		—		—		4,387
Three months ended June 30, 2021
Three months ended September 30, 2021														Three months ended September 30, 2021
Available-for-sale debt securities:(1)	Available-for-sale debt securities:(1)													Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities	Tax-exempt asset-backed securities	$	181,566	$	—	$	(142)	$	—	$	4,530	$	185,954	Tax-exempt asset-backed securities	$	185,954	$	—	$	(2,270)	$	—	$	1,136	$	184,820
CRT securities	CRT securities	11,465		—		—		—		248		11,713		CRT securities	11,713		—		—		—		91		11,804
Loans held for sale(2)	Loans held for sale(2)	7,275		1,148		(246)		—		50		8,227		Loans held for sale(2)	8,227		440		(870)		—		(96)		7,701

Six months ended June 30, 2022
Nine months ended September 30, 2022														Nine months ended September 30, 2022
Available-for-sale debt securities:(1)	Available-for-sale debt securities:(1)													Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities	Tax-exempt asset-backed securities	$	180,033	$	—	$	(170,626)	$	—	$	(9,407)	$	—	Tax-exempt asset-backed securities	$	180,033	$	—	$	(170,626)	$	—	$	(9,407)	$	—
CRT securities	CRT securities	11,846		—		—		—		(176)		11,670		CRT securities	11,846		—		—		—		(144)		11,702
Loans held for sale(2)	Loans held for sale(2)	7,658		1,327		(4,600)		—		(119)		4,266		Loans held for sale(2)	7,658		1,898		(5,050)		—		(119)		4,387
Six months ended June 30, 2021
Nine months ended September 30, 2021														Nine months ended September 30, 2021
Available-for-sale debt securities:(1)	Available-for-sale debt securities:(1)													Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities	Tax-exempt asset-backed securities	$	199,176	$	—	$	(11,513)	$	—	$	(1,709)	$	185,954	Tax-exempt asset-backed securities	$	199,176	$	—	$	(13,783)	$	—	$	(573)	$	184,820
CRT securities	CRT securities	11,417		—		—		—		296		11,713		CRT securities	11,417		—		—		—		387		11,804
Loans held for sale(2)	Loans held for sale(2)	6,933		1,685		(525)		5		129		8,227		Loans held for sale(2)	6,933		2,125		(1,395)		5		33		7,701

(1)Unrealized gains/(losses) on available-for-sale debt securities are recorded in AOCI. Realized gains/(losses) are recorded in other non-interest income on the consolidated statements of income and other comprehensive income/(loss).

(2)Realized and unrealized gains/(losses) on loans held for sale are recorded in net gain/(loss) on sale of loans held for sale on the consolidated statements of income and other comprehensive income/(loss).

Tax-exempt asset-backed securities

The fair value of tax-exempt asset-backed securities is based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs, the most significant of which were a discount rate and a weighted-average life. The securities were redeemed in full prior to ~~June~~September 30, 2022. At December 31, 2021, the combined weighted-average discount rate and weighted-average life utilized were 2.60% and 4.61 years, respectively.

CRT securities

The fair value of CRT securities is based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs, the most significant of which were a discount rate and a weighted-average life. At ~~June~~September 30, 2022, the discount rates utilized ranged from ~~5.88%~~6.97% to ~~10.66%~~11.52% and the weighted-average life ranged from ~~5.35~~5.23 years to ~~9.15~~8.93 years. On a combined amortized cost weighted-average basis, a discount rate of ~~7.47%~~8.49% and a weighted-average life of ~~6.62~~6.46 years were utilized to determine the fair value of these securities at ~~June~~September 30, 2022. At December 31, 2021, the combined weighted-average discount rate and combined weighted-average life utilized were 4.97% and 6.35 years, respectively.

~~Loans~~Mortgage loans held for sale

The fair value of mortgage loans held for sale using Level 3 inputs include loans that cannot be sold through normal sale channels and thus require significant management judgment or estimation when determining the fair value. The fair value of such loans is generally based upon quoted prices of comparable loans with a liquidity discount applied. At ~~June~~September 30, 2022, the fair value of these loans was calculated using a weighted-average discounted price of ~~90.2%~~90.4%, compared to 97.8% at December 31, 2021.

Fair Value of Financial Instruments

A summary of the carrying amounts and estimated fair values of financial instruments is as follows:


				Estimated Fair Value											Estimated Fair Value
(in thousands)	(in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3		(in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
June 30, 2022
September 30, 2022												September 30, 2022
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	4,275,356	$	4,275,356	$	4,275,356	$	—	$	—	Cash and cash equivalents	$	3,640,247	$	3,640,247	$	3,640,247	$	—	$	—
Available-for-sale debt securities	Available-for-sale debt securities	2,535,646		2,535,646		625,803		1,898,173		11,670		Available-for-sale debt securities	2,380,774		2,380,774		637,281		1,731,791		11,702
Held-to-maturity debt securities	Held-to-maturity debt securities	980,935		899,247		—		899,247		—		Held-to-maturity debt securities	955,875		819,701		—		819,701		—
Equity securities	Equity securities	36,118		36,118		24,724		11,394		—		Equity securities	32,973		32,973		21,932		11,041		—
Loans held for sale	Loans held for sale	4,266		4,266		—		—		4,266		Loans held for sale	3,142,178		3,113,806		—		—		3,113,806

Loans held for investment, net	Loans held for investment, net	23,838,360		23,741,360		—		—		23,741,360		Loans held for investment, net	19,553,168		19,472,586		—		—		19,472,586
Derivative assets	Derivative assets	11,049		11,049		—		11,049		—		Derivative assets	24,093		24,093		—		24,093		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Total deposits	Total deposits	25,440,021		25,439,069		—		—		25,439,069		Total deposits	24,498,563		24,502,640		—		—		24,502,640
Short-term borrowings	Short-term borrowings	2,651,536		2,651,536		—		2,651,536		—		Short-term borrowings	1,701,480		1,701,480		—		1,701,480		—
Long-term debt	Long-term debt	917,098		882,258		—		882,258		—		Long-term debt	930,766		873,342		—		873,342		—
Derivative liabilities	Derivative liabilities	46,215		46,215		—		46,215		—		Derivative liabilities	108,608		108,608		—		108,608		—

December 31, 2021	December 31, 2021											December 31, 2021
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	7,946,659	$	7,946,659	$	7,946,659	$	—	$	—	Cash and cash equivalents	$	7,946,659	$	7,946,659	$	7,946,659	$	—	$	—
Available-for-sale debt securities	Available-for-sale debt securities	3,538,201		3,538,201		—		3,346,322		191,879		Available-for-sale debt securities	3,538,201		3,538,201		—		3,346,322		191,879

Equity securities	Equity securities	45,607		45,607		33,589		12,018		—		Equity securities	45,607		45,607		33,589		12,018		—
Loans held for sale	Loans held for sale	8,123		8,123		—		465		7,658		Loans held for sale	8,123		8,123		—		465		7,658

Loans held for investment, net	Loans held for investment, net	22,595,088		22,631,252		—		—		22,631,252		Loans held for investment, net	22,595,088		22,631,252		—		—		22,631,252
Derivative assets	Derivative assets	37,788		37,788		—		37,788		—		Derivative assets	37,788		37,788		—		37,788		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Total deposits	Total deposits	28,109,365		28,109,762		—		—		28,109,762		Total deposits	28,109,365		28,109,762		—		—		28,109,762
Short-term borrowings	Short-term borrowings	2,202,832		2,202,832		—		2,202,832		—		Short-term borrowings	2,202,832		2,202,832		—		2,202,832		—
Long-term debt	Long-term debt	928,738		952,404		—		952,404		—		Long-term debt	928,738		952,404		—		952,404		—
Derivative liabilities	Derivative liabilities	37,788		37,788		—		37,788		—		Derivative liabilities	37,788		37,788		—		37,788		—

(10) Derivative Financial Instruments

The notional amounts and estimated fair values of derivative positions outstanding are presented in the following table.


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
				Estimated Fair Value						Estimated Fair Value							Estimated Fair Value						Estimated Fair Value
(in thousands)	(in thousands)	Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative		(in thousands)	Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative
Derivatives designated as hedges	Derivatives designated as hedges													Derivatives designated as hedges
Cash flow hedges:	Cash flow hedges:													Cash flow hedges:
Interest rate contracts:	Interest rate contracts:													Interest rate contracts:
Swaps hedging loans	Swaps hedging loans	$	750,000	$	1,103	$	1,180	$	—	$	—	$	—	Swaps hedging loans	$	3,000,000	$	357	$	80,135	$	—	$	—	$	—
Non-hedging derivatives	Non-hedging derivatives													Non-hedging derivatives
Customer-initiated and other derivatives:	Customer-initiated and other derivatives:													Customer-initiated and other derivatives:
Interest rate contracts:	Interest rate contracts:													Interest rate contracts:
Swaps	Swaps	3,563,862		48,096		48,096		3,536,090		40,922		40,922		Swaps	3,989,586		86,138		86,138		3,536,090		40,922		40,922
Caps and floors written	Caps and floors written	122,810		—		1,197		191,291		94		—		Caps and floors written	130,415		—		1,489		191,291		94		—
Caps and floors purchased	Caps and floors purchased	122,810		1,197		—		191,291		—		94		Caps and floors purchased	130,415		1,489		—		191,291		—		94
Forward contracts	Forward contracts	395,239		1,227		1,147		—		—		—		Forward contracts	1,025,581		12,536		12,429		—		—		—

Gross derivatives	Gross derivatives			51,623		51,620				41,016		41,016		Gross derivatives			100,520		180,191				41,016		41,016
Netting adjustment - offsetting derivative assets/liabilities	Netting adjustment - offsetting derivative assets/liabilities			(4,980)		(4,980)				(3,228)		(3,228)		Netting adjustment - offsetting derivative assets/liabilities			(2,476)		(2,476)				(3,228)		(3,228)
Netting adjustment - cash collateral received/posted	Netting adjustment - cash collateral received/posted			(35,594)		(425)				—		—		Netting adjustment - cash collateral received/posted			(73,951)		(69,107)				—		—
Net derivatives included on the consolidated balance sheets	Net derivatives included on the consolidated balance sheets			$	11,049	$	46,215			$	37,788	$	37,788	Net derivatives included on the consolidated balance sheets			$	24,093	$	108,608			$	37,788	$	37,788

Our credit exposure on derivative instruments is limited to the net favorable value and interest payments by each counterparty. In some cases collateral may be required from the counterparties involved if the net value of the derivative instruments exceeds a nominal amount. Our credit exposure associated with these instruments, net of any collateral pledged, was approximately ~~$11.0~~$24.1 million at ~~June~~September 30, 2022, and approximately $37.8 million at December 31, 2021. Collateral levels are monitored and adjusted on a regular basis for changes in the value of derivative instruments. At ~~June~~September 30, 2022, we had ~~$4.8~~$73.0 million in cash collateral pledged to counterparties included in interest-bearing cash and cash equivalents on the consolidated balance sheet and ~~$42.0~~$74.0 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet. The comparative amounts at December 31, 2021, were $40.3 million in cash collateral pledged to counterparties and no cash collateral received from counterparties.

We also enter into credit risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are either a participant or a lead bank. The risk participation agreements entered into by us as a participant bank provide credit protection to the financial institution counterparty should the borrower fail to perform on its interest rate derivative contract with that financial institution. We are party to 1218 risk participation agreements where we are a participant bank with a notional amount of ~~$125.0~~$343.3 million at ~~June~~September 30, 2022, compared to 7seven risk participation agreements ~~having~~with a notional amount of $79.2 million at December 31, 2021. The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately ~~$78,000~~$10.4 million at ~~June~~September 30, 2022 and $2.3 million at December 31, 2021. The fair value of these exposures was insignificant to the consolidated financial statements at both ~~June~~September 30, 2022 and December 31, 2021. Risk participation agreements entered into by us as the lead bank provide credit protection to us should the borrower fail to perform on its interest rate derivative contract with us. We are party to 17 risk participation agreements where we are the lead bank ~~having~~with a notional amount of ~~$199.5~~$201.1 million at ~~June~~September 30, 2022, compared to 15 agreements ~~having~~with a notional amount of $156.1 million at December 31, 2021.

Derivatives Designated as Cash Flow Hedges

During the ~~second quarter of~~nine months ended September 30, 2022, we entered into interest rate derivative contracts that were designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate. To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge if a cash flow hedge. At inception a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in AOCI is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and other liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax. Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or

liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability.

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, we recorded ~~$304,000~~$78.2 million and $77.9 million, respectively, in unrealized ~~gains~~losses to adjust our cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified ~~$704,000~~$1.8 million and $2.5 million, respectively, from AOCI into interest income on loans. Based on current market conditions, we estimate that during the next 12 months, an additional ~~$621,000~~$31.7 million will be reclassified from AOCI as a decrease to interest income. As of ~~June~~September 30, 2022, the maximum length of time over which forecasted transactions are hedged is ~~2.95~~4.00 years.

(11) Accumulated Other Comprehensive Income

The following table provides the change in AOCI by component:


(in thousands)	(in thousands)	Cash Flow Hedges		AFS Securities		HTM Securities		Total		(in thousands)	Cash Flow Hedges		Available-for-Sale Securities		Held-to-Maturity Securities		Total
Three months ended June 30, 2022
Three months ended September 30, 2022										Three months ended September 30, 2022
Beginning balance	Beginning balance	$	—	$	(151,564)	$	(53,861)	$	(205,425)	Beginning balance	$	(316)	$	(220,090)	$	(51,802)	$	(272,208)
Change in unrealized gain/(loss)	Change in unrealized gain/(loss)	304		(86,742)		—		(86,438)		Change in unrealized gain/(loss)	(78,177)		(129,027)		—		(207,204)
Amounts reclassified into net income	Amounts reclassified into net income	(704)		—		2,607		1,903		Amounts reclassified into net income	(1,760)		—		2,369		609
Total OCI		(400)		(86,742)		2,607		(84,535)
Total other comprehensive income/(loss)										Total other comprehensive income/(loss)	(79,937)		(129,027)		2,369		(206,595)
Income tax expense/(benefit)	Income tax expense/(benefit)	(84)		(18,216)		548		(17,752)		Income tax expense/(benefit)	(16,786)		(27,095)		497		(43,384)
Total OCI, net of tax		(316)		(68,526)		2,059		(66,783)
Total other comprehensive income/(loss), net of tax										Total other comprehensive income/(loss), net of tax	(63,151)		(101,932)		1,872		(163,211)
Ending balance	Ending balance	$	(316)	$	(220,090)	$	(51,802)	$	(272,208)	Ending balance	$	(63,467)	$	(322,022)	$	(49,930)	$	(435,419)
Three months ended June 30, 2021
Three months ended September 30, 2021										Three months ended September 30, 2021
Beginning balance	Beginning balance	$	—	$	(56,437)	$	—	$	(56,437)	Beginning balance	$	—	$	(26,389)	$	—	$	(26,389)
Change in unrealized gain/(loss)	Change in unrealized gain/(loss)	—		38,037		—		38,037		Change in unrealized gain/(loss)	—		(18,131)		—		(18,131)
Amounts reclassified into net income	Amounts reclassified into net income	—		—		—		—		Amounts reclassified into net income	—		—		—		—
Total OCI		—		38,037		—		38,037
Total other comprehensive income/(loss)										Total other comprehensive income/(loss)	—		(18,131)		—		(18,131)
Income tax expense/(benefit)	Income tax expense/(benefit)	—		7,989		—		7,989		Income tax expense/(benefit)	—		(3,808)		—		(3,808)
Total OCI, net of tax		—		30,048		—		30,048
Total other comprehensive income/(loss), net of tax										Total other comprehensive income/(loss), net of tax	—		(14,323)		—		(14,323)
Ending balance	Ending balance	$	—	$	(26,389)	$	—	$	(26,389)	Ending balance	$	—	$	(40,712)	$	—	$	(40,712)

Six months ended June 30, 2022
Nine months ended September 30, 2022										Nine months ended September 30, 2022
Beginning balance	Beginning balance	$	—	$	(47,715)	$	—	$	(47,715)	Beginning balance	$	—	$	(47,715)	$	—	$	(47,715)
Change in unrealized gain/(loss)	Change in unrealized gain/(loss)	304		(218,196)		(69,165)		(287,057)		Change in unrealized gain/(loss)	(77,873)		(347,223)		(69,165)		(494,261)
Amounts reclassified into net income	Amounts reclassified into net income	(704)		—		3,593		2,889		Amounts reclassified into net income	(2,464)		—		5,962		3,498
Total OCI		(400)		(218,196)		(65,572)		(284,168)
Total other comprehensive income/(loss)										Total other comprehensive income/(loss)	(80,337)		(347,223)		(63,203)		(490,763)
Income tax expense/(benefit)	Income tax expense/(benefit)	(84)		(45,821)		(13,770)		(59,675)		Income tax expense/(benefit)	(16,870)		(72,916)		(13,273)		(103,059)
Total OCI, net of tax		(316)		(172,375)		(51,802)		(224,493)
Total other comprehensive income/(loss), net of tax										Total other comprehensive income/(loss), net of tax	(63,467)		(274,307)		(49,930)		(387,704)
Ending balance	Ending balance	$	(316)	$	(220,090)	$	(51,802)	$	(272,208)	Ending balance	$	(63,467)	$	(322,022)	$	(49,930)	$	(435,419)
Six months ended June 30, 2021
Nine months ended September 30, 2021										Nine months ended September 30, 2021
Beginning balance	Beginning balance	$	—	$	15,774	$	—	$	15,774	Beginning balance	$	—	$	15,774	$	—	$	15,774
Change in unrealized gain/(loss)	Change in unrealized gain/(loss)	—		(53,370)		—		(53,370)		Change in unrealized gain/(loss)	—		(71,501)		—		(71,501)
Amounts reclassified into net income	Amounts reclassified into net income	—		—		—		—		Amounts reclassified into net income	—		—		—		—
Total OCI		—		(53,370)		—		(53,370)
Total other comprehensive income/(loss)										Total other comprehensive income/(loss)	—		(71,501)		—		(71,501)
Income tax expense/(benefit)	Income tax expense/(benefit)	—		(11,207)		—		(11,207)		Income tax expense/(benefit)	—		(15,015)		—		(15,015)
Total OCI, net of tax		—		(42,163)		—		(42,163)
Total other comprehensive income/(loss), net of tax										Total other comprehensive income/(loss), net of tax	—		(56,486)		—		(56,486)
Ending balance	Ending balance	$	—	$	(26,389)	$	—	$	(26,389)	Ending balance	$	—	$	(40,712)	$	—	$	(40,712)

(12) New Accounting Standards

~~Accounting Standard Update (“ASU”~~ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2022-02”) ~~2022-03, “Fair Value Measurement (Topic 820)”~~ ~~(“ASU 2022-03”) clarifies~~eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in ~~ASC 820 when measuring~~a new loan or a continuation of the ~~fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. This update~~existing loan. ASU 2022-02 also requires ~~specific disclosures related to these types~~that entities disclose current-period gross charge-offs by year of ~~securities.~~origination for loans and leases. ASU ~~2022-03~~2022-02 is effective January 1, 2023 and will have an impact on our financial statement disclosures.

Accounting Standard Update 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50)” (“ASU 2022-04”) enhances the transparency of supplier finance programs and the related financial statement disclosures. The amendments require that a buyer in a supplier finance program disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period and a description of where in the financial statements outstanding amounts are presented. ASU 2022-04 is effective January 1, 2023, except for the disclosure of rollforward information, which is effective January 1, 2024, and is not expected to have ~~a significant~~an impact on our consolidated financial statements.

2324

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 should be read in conjunction with our audited consolidated financial statements and the related notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or any future period.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information available to us at the time such statements are made. Forward-looking statements may often be identified by the use of words such as “expects,” “estimates,” “anticipates,” “plans,” “goals,” “objectives,” “intends,” “seeks,” “likely,” “should,” “may” “could” and other similar expressions. These forward-looking statements are based of the historical performance of the Company or on the Company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations so contemplated will be achieved, and should not be the primary basis upon which investors evaluate an investment in our securities. Certain risks, uncertainties and other factors, including those set forth under “Risk Factors” in Part I, Item 1A of the 2021 Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis and may include factors such as, but not limited to, credit quality and risk, the COVID-19 pandemic, industry and technological changes, uncertainties related to our sale of BankDirect Capital Finance, LLC, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic conditions, including inflation, ~~and~~recession, the threat of recession, ~~as well as~~and market conditions in Texas, the United States or ~~internationally as well as~~globally, including governmental and consumer responses to those economic and market conditions, fund availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, ratings or interpretations, business strategy execution, key personnel, competition, mortgage markets, fraud, environmental liability and severe weather, natural disasters, acts of war, or terrorism, global conflict or other external events. The Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Overview of Our Business Operations

Results of Operations

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


		Three months ended June 30,			Six months ended June 30,						Three months ended September 30,								Nine months ended September 30,
(dollars in thousands except per share data)	(dollars in thousands except per share data)	2022			2021			2022				2021			(dollars in thousands except per share data)	2022				2021			2022			2021
Net interest income	Net interest income	$	205,531		$	189,457		$	389,078			$	384,269		Net interest income	$	239,080			$	190,536		$	628,158		$	574,805
Provision for credit losses	Provision for credit losses	22,000			(19,000)			20,000				(25,000)			Provision for credit losses	12,000				5,000			32,000			(20,000)
Non-interest income	Non-interest income	26,242			37,639			46,524				81,992			Non-interest income	25,333				24,779			71,857			106,771
Non-interest expense	Non-interest expense	164,303			149,060			317,395				299,376			Non-interest expense	197,047				152,987			514,442			452,363
Income before income taxes	Income before income taxes	45,470			97,036			98,207				191,885			Income before income taxes	55,366				57,328			153,573			249,213
Income tax expense	Income tax expense	11,311			23,555			24,398				46,466			Income tax expense	13,948				13,938			38,346			60,404
Net income	Net income	34,159			73,481			73,809				145,419			Net income	41,418				43,390			115,227			188,809
Preferred stock dividends	Preferred stock dividends	4,312			6,317			8,625				10,096			Preferred stock dividends	4,313				4,312			12,938			14,408
Net income available to common stockholders	Net income available to common stockholders	$	29,847		$	67,164		$	65,184			$	135,323		Net income available to common stockholders	$	37,105			$	39,078		$	102,289		$	174,401
Basic earnings per common share	Basic earnings per common share	$	0.59		$	1.33		$	1.29			$	2.68		Basic earnings per common share	$	0.74			$	0.77		$	2.03		$	3.45
Diluted earnings per common share	Diluted earnings per common share	$	0.59		$	1.31		$	1.28			$	2.65		Diluted earnings per common share	$	0.74			$	0.76		$	2.00		$	3.41
Net interest margin	Net interest margin	2.68		%	2.02		%	2.45		%		2.03		%	Net interest margin	3.05		%		2.11		%	2.64		%	2.06		%
Return on average assets		0.44		%	0.76		%	0.45		%		0.75		%
Return on average common equity		4.35		%	9.74		%	4.67		%		9.91		%
Return on average assets (“ROA”)															Return on average assets (“ROA”)	0.52		%		0.47		%	0.47		%	0.66		%
Return on average common equity (“ROE”)															Return on average common equity (“ROE”)	5.36		%		5.41		%	4.90		%	8.35		%
Non-interest income to average earning assets	Non-interest income to average earning assets	0.34		%	0.40		%	0.29		%		0.43		%	Non-interest income to average earning assets	0.33		%		0.27		%	0.30		%	0.38		%
Efficiency ratio(1)	Efficiency ratio(1)	70.9		%	65.6		%	72.9		%		64.2		%	Efficiency ratio(1)	74.5		%		71.1		%	73.5		%	66.4		%
Non-interest expense to average earning assets	Non-interest expense to average earning assets	2.16		%	1.59		%	2.00		%		1.58		%	Non-interest expense to average earning assets	2.53		%		1.69		%	2.18		%	1.61		%

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

Three months ended ~~June~~September 30, 2022 compared to three months ended ~~June~~September 30, 2021

We reported net income of ~~$34.2~~$41.4 million and net income available to common stockholders of ~~$29.8~~$37.1 million for the ~~second~~third quarter of 2022, compared to net income of ~~$73.5~~$43.4 million and net income available to common stockholders of ~~$67.2~~$39.1 million for the ~~second~~third quarter of 2021. On a fully diluted basis, earnings per common share were ~~$0.59~~$0.74 for the ~~second~~third quarter of 2022, compared to ~~$1.31~~$0.76 for the ~~second~~third quarter of 2021. ~~Return on average common equity (“ROE”)~~ROE was ~~4.35%~~5.36% and ~~return on average assets (“ROA”)~~ROA was ~~0.44%~~0.52% for the ~~second~~third quarter of 2022, compared to ~~9.74%~~5.41% and ~~0.76%~~0.47%, respectively, for the ~~second~~third quarter of 2021. The decrease in net income for the ~~second~~third quarter of 2022 compared to the ~~second~~third quarter of 2021 resulted primarily from ~~an increase~~increases in provision for credit ~~losses.~~losses and non-interest expense, partially offset by an increase in net interest income.

~~Six~~Nine months ended ~~June~~September 30, 2022 compared to ~~six~~nine months ended ~~June~~September 30, 2021

We reported net income of ~~$73.8~~$115.2 million and net income available to common stockholders of ~~$65.2~~$102.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to net income of ~~$145.4~~$188.8 million and net income available to common stockholders of ~~$135.3~~$174.4 million for the same period in 2021. On a fully diluted basis, earnings per common share were ~~$1.28~~$2.00 for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$2.65~~$3.41 for the same period in 2021. ROE was ~~4.67%~~4.90% and ROA was ~~0.45%~~0.47% for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~9.91%~~8.35% and ~~0.75%~~0.66%, respectively, for the same period in 2021. The decrease in net income for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021 resulted primarily from a decrease in non-interest income coupled with increases in provision for credit losses and non-interest ~~expense.~~expense, partially offset by an increase in net interest income.

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

2526

Taxable Equivalent Net Interest Income Analysis - Quarterly(1)


		Three months ended June 30, 2022						Three months ended June 30, 2021			Three months ended September 30, 2022										Three months ended September 30, 2021
(in thousands except percentages)	(in thousands except percentages)	Average Balance		Income/ Expense		Yield/ Rate			Average Balance			Income/ Expense		Yield/ Rate		(in thousands except percentages)	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets	Assets															Assets
Investment securities(2)	Investment securities(2)	$	3,543,576	$	15,065	1.60	%		$	3,543,270		$	11,369	1.29	%	Investment securities(2)	$	3,509,044	$	15,002	1.58	%	$	3,775,812	$	10,684	1.12	%
Interest-bearing cash and cash equivalents	Interest-bearing cash and cash equivalents	4,747,377		9,394		0.79	%		11,583,759			2,961		0.10	%	Interest-bearing cash and cash equivalents	4,453,806		24,596		2.19	%	9,046,095		3,606		0.16	%
Loans held for sale	Loans held for sale	8,123		62		3.07	%		93,164			781		3.36	%	Loans held for sale	1,029,983		11,316		4.36	%	18,791		54		1.14	%
Loans held for investment, mortgage finance	Loans held for investment, mortgage finance	5,858,599		49,914		3.42	%		7,462,223			57,401		3.09	%	Loans held for investment, mortgage finance	5,287,531		52,756		3.96	%	7,987,521		58,913		2.93	%
Loans held for investment(3)	Loans held for investment(3)	16,616,234		168,407		4.07	%		15,242,975			144,978		3.81	%	Loans held for investment(3)	16,843,922		218,512		5.15	%	15,266,167		143,864		3.74	%
Less: Allowance for credit losses on loans	Less: Allowance for credit losses on loans	211,385		—		—			241,676			—		—		Less: Allowance for credit losses on loans	229,005		—		—		220,984		—		—
Loans held for investment, net	Loans held for investment, net	22,263,448		218,321		3.93	%		22,463,522			202,379		3.61	%	Loans held for investment, net	21,902,448		271,268		4.91	%	23,032,704		202,777		3.49	%
Total earning assets	Total earning assets	30,562,524		242,842		3.16	%		37,683,715			217,490		2.31	%	Total earning assets	30,895,281		322,182		4.10	%	35,873,402		217,121		2.40	%
Cash and other assets	Cash and other assets	870,396							996,946							Cash and other assets	918,630						855,555
Total assets	Total assets	$	31,432,920						$	38,680,661						Total assets	$	31,813,911					$	36,728,957
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity															Liabilities and Stockholders’ Equity
Transaction deposits	Transaction deposits	$	1,671,729	$	3,920	0.94	%		$	3,795,152		$	5,395	0.57	%	Transaction deposits	$	1,444,964	$	5,239	1.44	%	$	3,012,547	$	4,737	0.62	%
Savings deposits	Savings deposits	8,696,819		15,462		0.71	%		11,296,382			8,990		0.32	%	Savings deposits	10,249,387		46,555		1.80	%	10,044,995		8,262		0.33	%
Time deposits	Time deposits	877,399		1,184		0.54	%		1,755,993			1,886		0.43	%	Time deposits	1,701,238		8,523		1.99	%	1,640,562		1,720		0.42	%
Total interest bearing deposits	Total interest bearing deposits	11,245,947		20,566		0.73	%		16,847,527			16,271		0.39	%	Total interest bearing deposits	13,395,589		60,317		1.79	%	14,698,104		14,719		0.40	%
Short-term borrowings	Short-term borrowings	2,232,119		4,859		0.87	%		2,349,718			502		0.09	%	Short-term borrowings	1,931,537		10,011		2.06	%	2,299,692		748		0.13	%
Long-term debt	Long-term debt	929,616		11,393		4.92	%		881,309			10,723		4.88	%	Long-term debt	921,707		12,663		5.45	%	927,626		10,586		4.53	%

Total interest bearing liabilities	Total interest bearing liabilities	14,407,682		36,818		1.02	%		20,078,554			27,496		0.55	%	Total interest bearing liabilities	16,248,833		82,991		2.03	%	17,925,422		26,053		0.58	%
Non-interest bearing deposits	Non-interest bearing deposits	13,747,876							15,139,546							Non-interest bearing deposits	12,214,531						15,363,568
Other liabilities	Other liabilities	227,701							274,401							Other liabilities	305,554						275,317
Stockholders’ equity	Stockholders’ equity	3,049,661							3,188,160							Stockholders’ equity	3,044,993						3,164,650
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	31,432,920						$	38,680,661						Total liabilities and stockholders’ equity	$	31,813,911					$	36,728,957
Net interest income	Net interest income			$	206,024							$	189,994			Net interest income			$	239,191					$	191,068
Net interest margin	Net interest margin					2.68	%							2.02	%	Net interest margin					3.05	%					2.11	%
Net interest spread	Net interest spread					2.14	%							1.76	%	Net interest spread					2.07	%					1.82	%

(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.

2627

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


		Six months ended June 30, 2022						Six months ended June 30, 2021						Nine months ended September 30, 2022				Nine months ended September 30, 2021
(in thousands except percentages)	(in thousands except percentages)	Average Balance		Revenue/ Expense		Yield/ Rate		Average Balance		Revenue/ Expense		Yield/ Rate			(in thousands except percentages)	Average Balance		Revenue/ Expense		Yield/ Rate		Average Balance		Revenue/ Expense		Yield/ Rate
Assets	Assets														Assets
Investment securities(2)	Investment securities(2)	$	3,606,069	$	32,809	1.75	%	$	3,483,254	$	21,728	1.25	%		Investment securities(2)	$	3,573,372	$	47,811	1.69	%	$	3,581,845	$	32,412	1.20	%
Interest-bearing cash and cash equivalents	Interest-bearing cash and cash equivalents	6,639,327		12,965		0.39	%	11,713,931		5,894		0.10	%		Interest-bearing cash and cash equivalents	5,902,815		37,561		0.85	%	10,814,879		9,500		0.12	%
Loans held for sale	Loans held for sale	7,880		175		4.49	%	167,830		2,376		2.85	%		Loans held for sale	352,325		11,491		4.36	%	117,604		2,430		2.76	%
Loans held for investment, mortgage finance	Loans held for investment, mortgage finance	5,796,097		93,379		3.25	%	7,818,014		122,343		3.16	%		Loans held for investment, mortgage finance	5,624,712		146,135		3.47	%	7,875,138		181,256		3.08	%
Loans held for investment(3)	Loans held for investment(3)	16,153,845		312,542		3.90	%	15,349,838		288,913		3.80	%		Loans held for investment(3)	16,386,399		531,054		4.33	%	15,321,641		432,777		3.78	%
Less: Allowance for credit losses on loans	Less: Allowance for credit losses on loans	211,995		—		—		248,151		—		—			Less: Allowance for credit losses on loans	217,728		—		—		238,996		—		—
Loans held for investment, net	Loans held for investment, net	21,737,947		405,921		3.77	%	22,919,701		411,256		3.62	%		Loans held for investment, net	21,793,383		677,189		4.15	%	22,957,783		614,033		3.58	%
Total earning assets	Total earning assets	31,991,223		451,870		2.83	%	38,284,716		441,254		2.32	%		Total earning assets	31,621,895		774,052		3.25	%	37,472,111		658,375		2.35	%
Cash and other assets	Cash and other assets	845,082						1,030,625							Cash and other assets	869,867						971,628
Total assets	Total assets	$	32,836,305					$	39,315,341						Total assets	$	32,491,762					$	38,443,739
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity														Liabilities and Stockholders’ Equity
Transaction deposits	Transaction deposits	$	2,050,106	$	7,883	0.78	%	$	3,893,015	$	11,256	0.58	%		Transaction deposits	$	1,846,175	$	13,122	0.95	%	$	3,596,301	$	15,993	0.59	%
Savings deposits	Savings deposits	9,553,920		24,044		0.51	%	12,088,776		19,778		0.33	%		Savings deposits	9,788,290		70,599		0.96	%	11,400,029		28,040		0.33	%
Time deposits	Time deposits	957,615		2,269		0.48	%	1,978,879		5,241		0.53	%		Time deposits	1,208,213		10,792		1.19	%	1,864,867		6,961		0.50	%
Total interest-bearing deposits	Total interest-bearing deposits	12,561,641		34,196		0.55	%	17,960,670		36,275		0.41	%		Total interest-bearing deposits	12,842,678		94,513		0.98	%	16,861,197		50,994		0.40	%
Short-term borrowings	Short-term borrowings	2,002,724		5,617		0.57	%	2,517,128		3,094		0.25	%		Short-term borrowings	1,978,735		15,628		1.06	%	2,443,853		3,842		0.21	%
Long-term debt	Long-term debt	929,312		21,988		4.77	%	674,171		16,466		4.93	%		Long-term debt	926,749		34,651		5.00	%	759,584		27,052		4.76	%

Total interest-bearing liabilities	Total interest-bearing liabilities	15,493,677		61,801		0.80	%	21,151,969		55,835		0.53	%		Total interest-bearing liabilities	15,748,162		144,792		1.23	%	20,064,634		81,888		0.55	%
Non-interest bearing deposits	Non-interest bearing deposits	13,990,465						14,782,509							Non-interest bearing deposits	13,391,981						14,978,324
Other liabilities	Other liabilities	235,378						291,925							Other liabilities	259,028						286,328
Stockholders’ equity	Stockholders’ equity	3,116,785						3,088,938							Stockholders’ equity	3,092,591						3,114,453
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	32,836,305					$	39,315,341						Total liabilities and stockholders’ equity	$	32,491,762					$	38,443,739
Net interest income	Net interest income			$	390,069					$	385,419				Net interest income			$	629,260					$	576,487
Net interest margin	Net interest margin					2.45	%					2.03	%		Net interest margin					2.64	%					2.06	%
Net interest spread	Net interest spread					2.03	%					1.79	%		Net interest spread					2.02	%					1.80	%

~~(1)~~(4)Taxable equivalent rates used where applicable.

~~(2)~~(5)Yields on investment securities are calculated using available-for-sale securities at amortized cost.

~~(3)~~(6)Average balances include non-accrual ~~loans.~~

loans

2728

Volume/Rate Analysis

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 June 30, 2022/2021						Six months ended June 30, 2022/2021							Three months ended September 30, 2022/2021						Nine months ended September 30, 2022/2021
		Net Change		Change due to(1)				Net Change		Change Due To(1)					Net Change		Change due to(1)				Net Change		Change Due To(1)
(in thousands)	(in thousands)			Volume		Yield/Rate(2)				Volume		Yield/Rate(2)		(in thousands)			Volume		Yield/Rate(2)				Volume		Yield/Rate(2)
Interest income:	Interest income:													Interest income:
Investment securities	Investment securities	$	3,696	$	1	$	3,695	$	11,081	$	749	$	10,332	Investment securities	$	4,318	$	(753)	$	5,071	$	15,399	$	(4)	$	15,403
Interest bearing cash and cash equivalents	Interest bearing cash and cash equivalents	6,433		(1,705)		8,138		7,071		(2,516)		9,587		Interest bearing cash and cash equivalents	20,990		(1,852)		22,842		28,061		(4,368)		32,429
Loans held for sale	Loans held for sale	(719)		(712)		(7)		(2,201)		(2,258)		57		Loans held for sale	11,262		2,906		8,356		9,061		648		8,413
Loans held for investment, mortgage finance loans	Loans held for investment, mortgage finance loans	(7,487)		(12,354)		4,867		(28,964)		(31,766)		2,802		Loans held for investment, mortgage finance loans	(6,157)		(19,940)		13,783		(35,121)		(51,706)		16,585
Loans held for investment	Loans held for investment	23,429		13,044		10,385		23,629		15,173		8,456		Loans held for investment	74,648		14,873		59,775		98,277		30,046		68,231

Total	Total	25,352		(1,726)		27,078		10,616		(20,618)		31,234		Total	105,061		(4,766)		109,827		115,677		(25,384)		141,061
Interest expense:	Interest expense:													Interest expense:
Transaction deposits	Transaction deposits	(1,475)		(3,018)		1,543		(3,373)		(5,325)		1,952		Transaction deposits	502		(2,450)		2,952		(2,871)		(7,775)		4,904
Savings deposits	Savings deposits	6,472		(2,074)		8,546		4,266		(4,144)		8,410		Savings deposits	38,293		170		38,123		42,559		(3,974)		46,533
Time deposits	Time deposits	(702)		(942)		240		(2,972)		(2,724)		(248)		Time deposits	6,803		64		6,739		3,831		(2,660)		6,491
Short-term borrowings	Short-term borrowings	4,357		(26)		4,383		2,523		(906)		3,429		Short-term borrowings	9,263		(121)		9,384		11,786		(1,027)		12,813
Long-term debt	Long-term debt	670		588		82		5,522		6,323		(801)		Long-term debt	2,077		(68)		2,145		7,599		6,255		1,344
Total	Total	9,322		(5,472)		14,794		5,966		(6,776)		12,742		Total	56,938		(2,405)		59,343		62,904		(9,181)		72,085
Net interest income	Net interest income	$	16,030	$	3,746	$	12,284	$	4,650	$	(13,842)	$	18,492	Net interest income	$	48,123	$	(2,361)	$	50,484	$	52,773	$	(16,203)	$	68,976

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

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

Net Interest Income

Net interest income was ~~$205.5~~$239.1 million for the three months ended ~~June~~September 30, 2022, compared to ~~$189.5~~$190.5 million for the same period in 2021. The increase was primarily due to an increase in yields on ~~total~~ average earning assets, partially offset by an increase in funding ~~costs, both attributed to the impact of rising interest rates.~~costs.

Average earning assets for the three months ended ~~June~~September 30, 2022 decreased ~~$7.1~~$5.0 billion compared to the same period in 2021, ~~and~~which included a ~~$6.8~~$4.6 billion decrease in average interest-bearing cash and cash equivalents. The decrease in average interest bearing cash and cash equivalents resulted primarily from our proactive exit of certain high-cost indexed deposit products beginning in the second half of 2021. Average interest-bearing liabilities for the three months ended ~~June~~September 30, 2022 decreased ~~$5.7~~$1.7 billion compared to the same period in 2021, primarily due to a ~~$5.6~~$1.3 billion decrease in average interest-bearing deposits. Average demand deposits for the three months ended ~~June~~September 30, 2022 decreased ~~$1.4~~$3.1 billion compared to the same period in 2021.

Net interest margin for the three months ended ~~June~~September 30, 2022 was ~~2.68%~~3.05%, compared to ~~2.02%~~2.11% for the same period in 2021. The increase in net interest margin was primarily due to ~~a shift in the composition of earning assets coupled with~~ an increase in yields on average earnings assets and a shift in earning asset composition, partially offset by an increase in funding costs. 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 ~~3.93%~~4.91% for the three months ended ~~June~~September 30, 2022, compared to ~~3.61%~~3.49% for the same period in 2021, and the yield on earning assets increased to ~~3.16%~~4.10% for the three months ended ~~June~~September 30, 2022, compared to ~~2.31%~~2.40% for the same period in 2021. Total cost of deposits increased to ~~0.33%~~0.93% for the three months ended ~~June~~September 30, 2022 from ~~0.20%~~0.19% for the same period in 2021, and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to ~~0.47%~~1.04% for the three months ended ~~June~~September 30, 2022, compared to ~~0.29%~~0.28% for the same period in 2021.

Net interest income was ~~$389.1~~$628.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$384.3~~$574.8 million for the same period in 2021. The increase was primarily due to an increase in yields on earnings assets, partially offset by ~~a decrease in average total loans and~~ rising ~~cost of funds. The increases in yields on earning assets and cost of funds are attributable to the impact of rising interest rates.~~funding costs.

Average earning assets decreased ~~$6.3~~$5.9 billion for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021, ~~and~~which included a ~~$5.1~~$4.9 billion decrease in average interest-bearing cash and cash equivalents. Average interest-bearing liabilities decreased ~~$5.7~~$4.3 billion for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021, primarily due to a ~~$5.4~~$4.0 billion decrease in average interest-bearing deposits. Average demand deposits for the ~~six~~nine months ended ~~June~~September 30, 2022 decreased to ~~$14.0~~$13.4 billion from ~~$14.8~~$15.0 billion for the same period in 2021.

Net interest margin for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~2.45%~~2.64%, compared to ~~2.03%~~2.06% for the same period of 2021. The increase was primarily due to the effect of rising interest rates on earning asset yields and a shift in earning asset composition, partially offset by higher funding costs, also as a result of rising interest rates, compared to the same period in 2021.

The yield on total loans held for investment increased to ~~3.77%~~4.15% for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~3.62%~~3.58% for the same period in 2021, and the yield on earning assets increased to ~~2.83%~~3.25% for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~2.32%~~2.35% for the same period in 2021. Total cost of deposits increased to ~~0.26%~~0.48% for the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~0.22%~~0.21% for the same period in 2021 and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to ~~0.38%~~0.60% for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to 0.29% for the same period in 2021.

Non-interest Income


		Three months ended June 30,		Six months ended June 30,				Three months ended September 30,						Nine months ended September 30,
(in thousands)	(in thousands)	2022		2021		2022			2021		(in thousands)	2022			2021		2022		2021
Service charges on deposit accounts	Service charges on deposit accounts	$	6,003	$	4,634	$	12,025		$	9,350	Service charges on deposit accounts	$	5,701		$	4,622	$	17,726	$	13,972
Wealth management and trust fee income	Wealth management and trust fee income	4,051		3,143		7,963			5,998		Wealth management and trust fee income	3,631			3,382		11,594		9,380
Brokered loan fees	Brokered loan fees	4,133		6,933		8,103			16,244		Brokered loan fees	3,401			6,032		11,504		22,276
Servicing income	Servicing income	228		5,935		465			14,944		Servicing income	212			292		677		15,236
Investment banking and trading income	Investment banking and trading income	11,126		8,071		15,305			13,858		Investment banking and trading income	7,812			4,127		23,117		17,985
Net gain/(loss) on sale of loans held for sale	Net gain/(loss) on sale of loans held for sale	—		(3,070)		—			2,502		Net gain/(loss) on sale of loans held for sale	—			(1,185)		—		1,317
Other	Other	701		11,993		2,663			19,096		Other	4,576			7,509		7,239		26,605
Total non-interest income	Total non-interest income	$	26,242	$	37,639	$	46,524		$	81,992	Total non-interest income	$	25,333		$	24,779	$	71,857	$	106,771

Non-interest income ~~decreased $11.4 million~~increased $554,000 during the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. The ~~decrease~~increase was primarily due to ~~decreases~~increases in ~~servicing fee income, as a result of the sale of our mortgage servicing rights portfolio in 2021,~~service charges on deposit accounts and ~~other non-interest income, partially offset by an increase in~~ investment banking and trading income, ~~and~~as well as the elimination of net losses recorded in the prior year on the sale of loans held for ~~sale.~~sale, partially offset by decreases in brokered loan fees and other non-interest income.

Non-interest income decreased ~~$35.5~~$34.9 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021. The decrease was primarily due to decreases in brokered loan fees, servicing fee income and net gain/(loss) on sale of loans held for sale all as a result of the sale of our mortgage servicing rights portfolio and transition of the mortgage correspondent aggregation program in 2021, as well as a decrease in other non-interest income.

Non-interest Expense


		Three months ended June 30,		Six months ended June 30,				Three months ended September 30,						Nine months ended September 30,
(in thousands)	(in thousands)	2022		2021		2022			2021		(in thousands)	2022			2021		2022		2021
Salaries and benefits	Salaries and benefits	$	103,885	$	86,830	$	203,983		$	174,352	Salaries and benefits	$	129,336		$	87,503	$	333,319	$	261,855
Occupancy expense	Occupancy expense	8,874		7,865		17,759			16,139		Occupancy expense	9,433			8,324		27,192		24,463
Marketing	Marketing	8,506		1,900		13,483			3,597		Marketing	8,282			2,123		21,765		5,720
Legal and professional	Legal and professional	11,288		9,147		21,590			17,424		Legal and professional	16,775			11,055		38,365		28,479
Communications and technology	Communications and technology	15,649		14,352		30,349			30,321		Communications and technology	18,470			28,374		48,819		58,695
FDIC insurance assessment	FDIC insurance assessment	3,318		5,226		7,299			11,839		FDIC insurance assessment	3,953			4,500		11,252		16,339
Servicing-related expenses	Servicing-related expenses	—		12,355		—			25,344		Servicing-related expenses	—			2,396		—		27,740
Other	Other	12,783		11,385		22,932			20,360		Other	10,798			8,712		33,730		29,072
Total non-interest expense	Total non-interest expense	$	164,303	$	149,060	$	317,395		$	299,376	Total non-interest expense	$	197,047		$	152,987	$	514,442	$	452,363

Non-interest expense for the three months ended ~~June~~September 30, 2022 increased ~~$15.2~~$44.1 million compared to the same period in 2021. The third quarter of 2022 included $13.7 million in salaries and benefits expense and $3.0 million in legal and professional expense related to the sale of our insurance premium finance subsidiary. Also contributing to the increase ~~was primarily due to an increase~~in non-interest expense were increases in salaries and benefits expense, resulting ~~primarily~~ from an increase in headcount, ~~as well as an increase in~~and marketing expense, partially offset by a decrease in ~~servicing-related expenses~~communications and technology expense related to the ~~sale~~elimination of ~~our mortgage servicing rights portfolio~~write-offs of certain software assets recorded in ~~2021.~~the prior year.

Non-interest expense increased by ~~$18.0~~$62.1 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021. Year-to-date 2022 expenses included $13.7 million in salaries and benefits expense and $3.0 million in legal and professional expense related to the sale of our insurance premium finance subsidiary. The increase ~~was primarily due to~~in non-interest expense also included increases in salaries and benefits expense, ~~resulting primarily from~~driven by an increase in headcount, and marketing expense, partially offset by a decrease in servicing-related expenses resulting from the sale of our mortgage servicing rights portfolio in 2021.

Analysis of Financial Condition

Loans Held for Investment

The following table summarizes our loans held for investment by portfolio segment:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
(in thousands)	(in thousands)					(in thousands)
Commercial	Commercial	$	11,511,532	$	9,897,561	Commercial	$	8,813,614	$	9,897,561
Energy	Energy	962,239		721,373		Energy	1,106,097		721,373
Mortgage finance	Mortgage finance	6,549,507		7,475,497		Mortgage finance	4,908,822		7,475,497

Real estate	Real estate	5,118,849		4,777,530		Real estate	5,015,704		4,777,530

Gross loans held for investment	Gross loans held for investment	$	24,142,127	$	22,871,961	Gross loans held for investment	$	19,844,237	$	22,871,961
Deferred income (net of direct origination costs)	Deferred income (net of direct origination costs)	(74,754)		(65,007)		Deferred income (net of direct origination costs)	(56,456)		(65,007)
Total loans held for investment	Total loans held for investment	24,067,373		22,806,954		Total loans held for investment	19,787,781		22,806,954
Allowance for credit losses on loans	Allowance for credit losses on loans	(229,013)		(211,866)		Allowance for credit losses on loans	(234,613)		(211,866)
Total loans held for investment, net	Total loans held for investment, net	$	23,838,360	$	22,595,088	Total loans held for investment, net	$	19,553,168	$	22,595,088

Total loans held for investment ~~were $24.1~~of $19.8 billion at ~~June~~September 30, 2022 ~~an increase of $1.3~~decreased $3.0 billion from December 31, ~~2021. We~~2021, primarily as a result of a $3.1 billion reclassification of our insurance premium finance subsidiary loans from loans held for investment to loans held for sale as of September 30, 2022. Excluding the reclassification of loans held for investment to loans held for sale, we experienced loan growth across all loan categories, except for mortgage finance loans, as we executed on our long-term strategy. Mortgage finance loans relate to our mortgage warehouse lending operations in which we purchase mortgage loan ownership interests that are typically sold within 10 to 20 days and represent ~~27%~~25% of total loans held for investment at ~~June~~September 30, 2022, compared to 33% at December 31, 2021. 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. Mortgage finance ~~loans experienced seasonal growth of 12% during the second quarter of 2022~~loan balances have declined as compared to ~~the first quarter of 2022, however overall balances are lower than at~~ December 31, 2021 as interest rates have continued to ~~rise.~~rise during 2022.

We originate a substantial majority of all loans held for investment. We also participate in syndicated loan relationships, both as a participant and as an agent. As of ~~June~~September 30, 2022, we had ~~$3.2~~$3.6 billion in syndicated loans, ~~$721.6~~$804.9 million of which we administer as agent. All syndicated loans, whether we act as agent or participant, are underwritten to the same standards as all other loans we originate. As of ~~June~~September 30, 2022, none of our syndicated loans were on non-accrual.

Portfolio Concentrations

Although more than 50% of our total loan exposure is outside of Texas and more than 50% of our deposits are sourced outside of Texas, our Texas concentration remains significant. As of ~~June~~September 30, 2022, a majority of our loans held for investment, excluding mortgage finance loans and other national lines of business, were to businesses with headquarters or operations in Texas. This geographic concentration subjects the loan portfolio to the general economic conditions within this state. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses.

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Non-performing Assets

Non-performing assets include non-accrual loans and leases and repossessed assets. The table below summarizes our non-performing assets by type and by type of property securing the credit.


(in thousands)	(in thousands)	June 30, 2022			December 31, 2021			(in thousands)	September 30, 2022			December 31, 2021
Non-accrual loans held for investment(1):	Non-accrual loans held for investment(1):							Non-accrual loans held for investment(1):
Commercial:	Commercial:							Commercial:

Assets of the borrowers	Assets of the borrowers	$	14,454		$	18,366		Assets of the borrowers	$	23,561		$	18,366
Accounts receivable and inventory	Accounts receivable and inventory	4,136			5,501			Accounts receivable and inventory	3,337			5,501

Other	Other	1,783			2,045			Other	1,070			2,045
Total commercial	Total commercial	20,373			25,912			Total commercial	27,968			25,912

Energy:	Energy:							Energy:
Oil and gas properties	Oil and gas properties	17,572			28,380			Oil and gas properties	6,500			28,380
Total energy	Total energy	17,572			28,380			Total energy	6,500			28,380
Real estate:	Real estate:							Real estate:
Assets of the borrowers	Assets of the borrowers	12,210			13,741			Assets of the borrowers	—			13,741
Commercial property	Commercial property	190			2,840			Commercial property	1,268			2,840

Single family residences	Single family residences	181			1,629			Single family residences	128			1,629

Total real estate	Total real estate	12,581			18,210			Total real estate	1,396			18,210

Total non-accrual loans held for investment	Total non-accrual loans held for investment	50,526			72,502			Total non-accrual loans held for investment	35,864			72,502
Non-accrual loans held for sale(2)	Non-accrual loans held for sale(2)	—			—			Non-accrual loans held for sale(2)	1,340			—
Other real estate owned	Other real estate owned	—			—			Other real estate owned	—			—
Total non-performing assets	Total non-performing assets	$	50,526		$	72,502		Total non-performing assets	$	37,204		$	72,502

Non-accrual loans held for investment to total loans held for investment	Non-accrual loans held for investment to total loans held for investment	0.21		%	0.32		%	Non-accrual loans held for investment to total loans held for investment	0.18		%	0.32		%
Total non-performing assets to total assets								Total non-performing assets to total assets	0.12		%	0.21		%
Allowance for credit losses on loans to non-accrual loans held for investment	Allowance for credit losses on loans to non-accrual loans held for investment	4.5x			2.9x			Allowance for credit losses on loans to non-accrual loans held for investment	6.5x			2.9x

Loans held for investment past due 90 days and still accruing(2)		$	3,206		$	3,467
Loans held for investment past due 90 days and still accruing								Loans held for investment past due 90 days and still accruing	$	30,664		$	3,467
Loans held for investment past due 90 days to total loans held for investment	Loans held for investment past due 90 days to total loans held for investment	0.01		%	0.02		%	Loans held for investment past due 90 days to total loans held for investment	0.15		%	0.02		%
Loans held for sale past due 90 days and still accruing(3)		$	1,602		$	3,986
Loans held for sale past due 90 days and still accruing(2)(3)								Loans held for sale past due 90 days and still accruing(2)(3)	$	4,877		$	3,986

(1)As of ~~June~~September 30, 2022 and December 31, 2021, non-accrual loans include ~~$17.3~~$2.2 million and $19.4 million, respectively, in loans that met the criteria for restructured.

(2)~~At June 30, 2022~~Includes $1.3 million in non-accrual loans and ~~December 31, 2021,~~$3.1 million in loans past due 90 days and still accruing ~~includes~~associated to our insurance premium finance ~~loans of $3.1 million and $3.3 million, respectively.~~subsidiary.

(3)Includes loans guaranteed by U.S. government agencies that were repurchased out of Ginnie Mae securities. Loans are recorded as loans held for sale and carried at fair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government.

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.

We recorded a ~~$20.0~~$32.0 million provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to a negative provision of ~~$25.0~~$20.0 million for the same period in 2021. The ~~$20.0~~$32.0 million provision for credit losses resulted from ~~an increase~~updated views on the downside risks to the economic forecast, partially offset by a decline in ~~total loans held for investment.~~criticized loans. We recorded ~~$2.1~~$4.9 million in net charge-offs during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to net charge-offs of ~~$8.8~~$11.9 million during the ~~six~~nine months ended ~~June~~September 30, 2021. Criticized loans totaled ~~$603.5~~$484.0 million at ~~June~~September 30, 2022, compared to $582.9 million and ~~$891.6~~$728.9 million at December 31, 2021 and ~~June~~September 30, 2021, respectively. The ~~increase~~decrease in criticized loans as compared to ~~March 31,~~June 30, 2022 was primarily due to the resolution of one mortgage finance credit ~~which is adequately reserved for as~~that was downgraded in the second quarter of ~~June 30,~~ 2022 and ~~is expected to be~~ resolved in the third quarter of ~~2022.~~2022 with no losses recorded.

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The table below presents key metrics related to our credit loss experience:


		June 30, 2022		June 30, 2021			September 30, 2022		September 30, 2021
Allowance for credit losses on loans to total loans held for investment	Allowance for credit losses on loans to total loans held for investment	0.95	%	0.93	%	Allowance for credit losses on loans to total loans held for investment	1.19	%	0.93	%
Allowance for credit losses on loans to total average loans held for investment(1)		1.04	%	0.96	%
Allowance for credit losses on loans to average total loans held for investment(1)						Allowance for credit losses on loans to average total loans held for investment(1)	1.07	%	0.96	%
Total provision for credit losses to average total loans held for investment(1)(2)	Total provision for credit losses to average total loans held for investment(1)(2)	0.18	%	(0.22)	%	Total provision for credit losses to average total loans held for investment(1)(2)	0.19	%	(0.12)	%
Total allowance for credit losses to total loans held for investment	Total allowance for credit losses to total loans held for investment	1.03	%	1.00	%	Total allowance for credit losses to total loans held for investment	1.30	%	1.01	%

(1) Ratios are calculated using average balance for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

(2) Ratios are annualized utilizing provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

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


		Six months ended June 30,									Nine months ended September 30,
			2022	2021									2022	2021
						Net Charge-offs				Net Charge-offs							Net Charge-offs				Net Charge-offs
				Net		to Average		Net		to Average					Net		to Average		Net		to Average
				Charge-offs		Loans(1)		Charge-offs		Loans(1)					Charge-offs		Loans(1)		Charge-offs		Loans(1)
Commercial	Commercial			$	2,542	0.05	%	$	2,505	0.06	%	Commercial			$	2,661	0.03	%	$	5,749	0.08	%
Energy	Energy			(755)		(0.05)	%	5,094		1.57	%	Energy			1,859		0.28	%	5,052		1.01	%
Mortgage finance	Mortgage finance			—		—	%	—		—	%	Mortgage finance			—		—	%	—		—	%
Real estate	Real estate			350		0.01	%	1,192		0.04	%	Real estate			350		0.01	%	1,080		0.03	%
Total	Total			$	2,137	0.02	%	$	8,791	0.08	%	Total			$	4,870	0.03	%	$	11,881	0.07	%

(1) Interim period ratios are annualized.

Liquidity and Capital Resources

Liquidity

In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objectives in managing our liquidity are to maintain our ability to meet loan commitments, repurchase investment securities and repay deposits and other liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies, formulated and monitored by our senior management and our Asset and Liability Management Committee (“ALCO”), which take into account the demonstrated marketability of our assets, the sources and stability of our funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. Our principal source of funding is customer deposits, supplemented by short-term borrowings, primarily federal funds purchased and Federal Home Loan Banks (“FHLB”) borrowings, which are generally used to fund mortgage finance assets ~~as well as~~and long-term debt. We also rely on the availability of the mortgage secondary market provided by Ginnie Mae and the government-sponsored enterprises to support the liquidity of our mortgage finance assets.

During 2020 and into the first half of 2021, we significantly increased our interest-bearing cash and cash equivalents to ensure that we had the balance sheet strength to serve our clients during the COVID-19 pandemic. In the second half of 2021 and continuing into the first ~~six~~nine months of 2022, these balances have run off as we have purchased investment securities and proactively exited certain high-cost indexed deposit products. The following table summarizes these balances:


(in thousands except percentage data)	(in thousands except percentage data)	June 30, 2022			December 31, 2021			June 30, 2021			(in thousands except percentage data)	September 30, 2022			December 31, 2021			September 30, 2021

Interest-bearing cash and cash equivalents		$	4,032,931		$	7,765,996		$	6,768,650
Interest-bearing cash and cash equivalents as a percent of:
Interest bearing cash and cash equivalents											Interest bearing cash and cash equivalents	$	3,399,638		$	7,765,996		$	8,317,926
Interest bearing cash and cash equivalents as a percent of:											Interest bearing cash and cash equivalents as a percent of:
Total loans held for investment	Total loans held for investment	16.8		%	34.1		%	28.3		%	Total loans held for investment	17.2		%	34.1		%	35.0		%
Total earning assets	Total earning assets	12.8		%	22.9		%	19.7		%	Total earning assets	11.5		%	22.9		%	23.4		%
Total deposits	Total deposits	15.9		%	27.6		%	23.5		%	Total deposits	13.9		%	27.6		%	27.9		%

Our liquidity ~~needs to support~~supports growth in loans held for investment ~~which have~~and has been fulfilled primarily through growth in our core customer deposits. Our goal is to obtain as much of our funding for loans held for investment and other earning assets as possible from deposits of these core customers. These deposits are generated principally through development of long-term customer relationships, with a significant focus on treasury management products. In addition to deposits from our core customers, we also have access to deposits through brokered customer relationships.

3233

We also have access to incremental deposits through brokered retail certificates of deposit, or CDs. These traditional brokered deposits are generally of short maturities and are used to fund temporary differences in the growth in loan balances as compared to customer deposits. The following table summarizes our period-end and average core customer deposits, relationship brokered deposits and traditional brokered deposits:


(in thousands)	(in thousands)	June 30, 2022			December 31, 2021			June 30, 2021			(in thousands)	September 30, 2022			December 31, 2021			September 30, 2021
Deposits from core customers	Deposits from core customers	$	24,176,479		$	25,409,180		$	26,309,504		Deposits from core customers	$	23,209,196		$	25,409,180		$	27,339,071
Deposits from core customers as a percent of total deposits	Deposits from core customers as a percent of total deposits	95.1		%	90.4		%	91.2		%	Deposits from core customers as a percent of total deposits	94.7		%	90.4		%	91.7		%
Relationship brokered deposits	Relationship brokered deposits	$	113,142		$	1,855,892		$	1,373,763		Relationship brokered deposits	$	21,799		$	1,855,892		$	1,488,066
Relationship brokered deposits as a percent of average total deposits	Relationship brokered deposits as a percent of average total deposits	0.4		%	6.6		%	4.8		%	Relationship brokered deposits as a percent of average total deposits	0.1		%	6.6		%	5.0		%
Traditional brokered deposits	Traditional brokered deposits	$	1,150,400		$	844,293		$	1,156,296		Traditional brokered deposits	$	1,267,568		$	844,293		$	986,531
Traditional brokered deposits as a percent of total deposits	Traditional brokered deposits as a percent of total deposits	4.5		%	3.0		%	4.0		%	Traditional brokered deposits as a percent of total deposits	5.2		%	3.0		%	3.3		%
Average deposits from core customers(1)	Average deposits from core customers(1)	$	24,993,505		$	28,734,460		$	29,545,933		Average deposits from core customers(1)	$	24,705,297		$	28,734,460		$	28,930,264
Average deposits from core customers as a percent of average total deposits	Average deposits from core customers as a percent of average total deposits	94.2		%	91.1		%	90.2		%	Average deposits from core customers as a percent of average total deposits	94.1		%	91.1		%	90.8		%
Average relationship brokered deposits(1)	Average relationship brokered deposits(1)	$	909,565		$	1,608,587		$	1,804,015		Average relationship brokered deposits(1)	$	617,273		$	1,608,587		$	1,516,026
Average relationship brokered deposits as a percent of average total deposits	Average relationship brokered deposits as a percent of average total deposits	3.4		%	5.1		%	5.5		%	Average relationship brokered deposits as a percent of average total deposits	2.4		%	5.1		%	4.8		%
Average traditional brokered deposits(1)	Average traditional brokered deposits(1)	$	649,036		$	1,188,544		$	1,393,231		Average traditional brokered deposits(1)	$	912,089		$	1,188,544		$	1,393,231
Average traditional brokered deposits as a percent of average total deposits	Average traditional brokered deposits as a percent of average total deposits	2.4		%	3.8		%	4.3		%	Average traditional brokered deposits as a percent of average total deposits	3.5		%	3.8		%	4.4		%

(1) Annual averages presented for December 31, 2021.

We have access to sources of traditional brokered deposits that we estimate to be $7.5 billion. Based on our internal guidelines, we have currently chosen to limit our use of these sources to a lesser amount.

We have short-term borrowing sources available to supplement deposits and meet our funding needs. Such borrowings are generally used to fund our mortgage finance loans, due to their liquidity, short duration and interest spreads available. These borrowing sources include federal funds purchased from our downstream correspondent bank relationships (which consist of banks that are smaller than our Bank) and from our upstream correspondent bank relationships (which consist of banks that are larger than our Bank), customer repurchase agreements and advances from the FHLB and the Federal Reserve. The following table summarizes the outstanding balance of our short-term borrowings, all of which mature within one year:


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021	(in thousands)	September 30, 2022		December 31, 2021

Repurchase agreements	Repurchase agreements	$	1,536	2,832	Repurchase agreements	$	1,480	2,832
FHLB borrowings	FHLB borrowings	2,650,000		2,200,000	FHLB borrowings	1,700,000		2,200,000

Total short-term borrowings	Total short-term borrowings	$	2,651,536	2,202,832	Total short-term borrowings	$	1,701,480	2,202,832

The following table summarizes our short-term borrowing capacities net of balances outstanding.


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
FHLB borrowing capacity relating to loans	FHLB borrowing capacity relating to loans	$	3,019,254	$	5,190,703	FHLB borrowing capacity relating to loans	$	3,078,457	$	5,190,703
FHLB borrowing capacity relating to securities	FHLB borrowing capacity relating to securities	3,416,759		3,352,111		FHLB borrowing capacity relating to securities	3,324,946		3,352,111
Total FHLB borrowing capacity(1)	Total FHLB borrowing capacity(1)	$	6,436,013	$	8,542,814	Total FHLB borrowing capacity(1)	$	6,403,403	$	8,542,814
Unused federal funds lines available from commercial banks	Unused federal funds lines available from commercial banks	$	1,456,000	$	892,000	Unused federal funds lines available from commercial banks	$	1,456,000	$	892,000
Unused Federal Reserve borrowings capacity	Unused Federal Reserve borrowings capacity	$	3,479,343	$	2,414,702	Unused Federal Reserve borrowings capacity	$	3,572,804	$	2,414,702
Unused revolving line of credit(2)	Unused revolving line of credit(2)	$	75,000	$	75,000	Unused revolving line of credit(2)	$	75,000	$	75,000

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

(2) Unsecured revolving, non-amortizing line of credit with maturity date of February 8, 2023. Proceeds may be used for general corporate purposes, including funding regulatory capital infusions into the Bank. The loan agreement contains customary financial covenants and restrictions. No borrowings were made against this line of credit during the ~~six~~nine months ended ~~June~~September 30, 2022.

We also have long-term debt outstanding of ~~$917.1~~$930.8 million as of ~~June~~September 30, 2022, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036. The Company may consider raising additional capital, if needed, in public or private offerings of debt or equity securities to supplement deposits and meet our long-term funding needs.

For additional information regarding our borrowings see Note 5 - Short-term Borrowings and Long-term Debt in the accompanying notes to the consolidated unaudited financial statements included elsewhere in this report.

As the Company is a holding company and is a separate operating entity from the Bank, our primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. See Note 7 - Regulatory Ratios and Capital in the accompanying notes to the consolidated unaudited financial statements included elsewhere in this report for additional information regarding dividend restrictions.

3334

Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and the terms of our existing indebtedness, we or the Bank may repay, repurchase, exchange or redeem outstanding indebtedness, or otherwise enter into transactions regarding our debt or capital structure. For example, we and the Bank periodically evaluate and may engage in liability management transactions, including repurchases or redemptions of outstanding subordinated notes, which may be funded by the issuance of, or exchanges of, newly issued unsecured borrowings, as we seek to actively manage our debt maturity profile and interest cost.

As of ~~June~~September 30, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.

Capital Resources

Average total equity was $3.1 billion for the ~~six~~nine months ended ~~June~~September 30, 2022. We have not paid any cash dividends on our common stock since we commenced operations and have no plans to do so in the foreseeable future.

On April 19, 2022, our board of directors authorized a new share repurchase program under which we may repurchase up to $150.0 million in shares of our outstanding common stock. Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which we repurchase shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. During the ~~three~~nine months ended ~~June~~September 30, 2022, the Company repurchased 941,879 shares of its common stock for an aggregate purchase price of $50.0 million, at a weighted average price of $53.11 per share. These repurchases were all made during the second quarter of 2022.

See Note 7 - Regulatory Ratios and Capital in the accompanying notes to the consolidated unaudited financial statements included elsewhere in this report for additional information regarding capital.

Critical Accounting Estimates

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. Certain significant policies are summarized in Note 1 - Operations and Summary of Significant Accounting Policies in the notes to the consolidated unaudited financial statements included elsewhere in this report and in our 2021 Form 10-K. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to be highly dependent on estimates, assumptions and judgments that meet the SEC’s definition of a critical accounting estimate.

Allowance for Credit Losses

Management considers the policies related to the allowance for credit losses as the most critical to the financial statement presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with ASC 326, Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in our portfolio. The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. For purposes of determining the allowance for credit losses, the loan portfolio is segregated by product types in order to recognize differing risk profiles among categories and then further segregated by credit grades. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level Qualitative Factor (“SLQF”). The PLQF and SLQF are utilized to address factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative process. A reserve is recorded upon origination or purchase of a loan.

Management considers a range of macroeconomic scenarios in connection with the allowance estimation process. Within the various economic scenarios considered as of ~~June~~September 30, 2022, the quantitative estimate of the allowance for credit loss would increase by approximately ~~$107~~$73.0 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.

See “Summary of Credit Loss Experience” above and Note 4 – Loans and Allowance for Credit Losses on Loans in the accompanying notes to the consolidated unaudited financial statements included elsewhere in this report for further discussion of the risk factors considered by management in establishing the allowance for credit losses.

3536

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices or equity prices. The financial instruments subject to market risk can be classified either as held for trading purposes or held for purposes other than trading.

We are subject to market risk primarily through the effect of changes in interest rates on our portfolio of assets held for purposes other than trading. Additionally, we have some market risk relative to commodity prices through our energy lending activities. Declines and volatility in commodity prices negatively impacted our energy clients' ability to perform on their loan obligations in recent years, and further uncertainty and volatility could have a negative impact on our customers and our loan portfolio in future periods. Foreign exchange rates, commodity prices (other than energy) and equity prices are not expected to pose significant market risk to us.

The responsibility for managing market risk rests with the Asset and Liability Management Committee (“ALCO”), which operates under policy guidelines and risk appetite established by ~~our~~the Company’s board of directors. ~~The acceptable negative variation in net interest revenue due to a 100 basis point increase or decrease in interest rates is generally limited by these guidelines to plus or minus 10-12%.~~ Oversight of our compliance with these guidelines is the ongoing responsibility of the ALCO, with exceptions reported to the Executive Risk Committee and to our Board of Directors, if necessary, on a quarterly basis. Additionally, the Credit Policy Committee (“CPC”) specifically manages risk relative to commodity price market risks. The CPC establishes maximum portfolio concentration levels for energy loans as well as maximum advance rates for energy collateral.

Interest Rate Risk Management

Our interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions as of ~~June~~September 30, 2022 and is not necessarily indicative of positions on other dates. 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. To reflect anticipated prepayments, certain asset and liability categories are shown in the table using estimated cash flows rather than contractual cash flows. The Company employs interest rate floors in certain variable rate loans to enhance the 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.

3637

Interest Rate Sensitivity Gap Analysis

~~June~~September 30, 2022


(in thousands)	(in thousands)	0-3 month Balance		4-12 month Balance		1-3 year Balance		3+ year Balance		Total Balance		(in thousands)	0-3 month Balance		4-12 month Balance		1-3 year Balance		3+ year Balance		Total Balance
Assets:	Assets:											Assets:
Interest-bearing cash and cash equivalents		$	4,032,931	$	—	$	—	$	—	$	4,032,931
Interest bearing cash and cash equivalents												Interest bearing cash and cash equivalents	$	3,399,638	$	—	$	—	$	—	$	3,399,638
Investment securities(1)	Investment securities(1)	48,182		1,533		243,532		3,259,452		3,552,699		Investment securities(1)	46,054		434		321,649		3,001,485		3,369,622
Variable loans	Variable loans	20,857,027		104,330		47,163		268,883		21,277,403		Variable loans	19,513,046		241,729		58,513		279,547		20,092,835
Fixed loans	Fixed loans	208,705		1,521,491		210,961		927,833		2,868,990		Fixed loans	190,709		1,602,641		194,994		905,236		2,893,580
Total loans(2)	Total loans(2)	21,065,732		1,625,821		258,124		1,196,716		24,146,393		Total loans(2)	19,703,755		1,844,370		253,507		1,184,783		22,986,415
Total interest sensitive assets	Total interest sensitive assets	$	25,146,845	$	1,627,354	$	501,656	$	4,456,168	$	31,732,023	Total interest sensitive assets	$	23,149,447	$	1,844,804	$	575,156	$	4,186,268	$	29,755,675
Liabilities:	Liabilities:											Liabilities:
Interest bearing customer deposits	Interest bearing customer deposits	$	11,483,607	$	—	$	—	$	—	$	11,483,607	Interest bearing customer deposits	$	11,416,366	$	—	$	—	$	—	$	11,416,366
CDs & IRAs	CDs & IRAs	146,417		86,025		17,605		600		250,647		CDs & IRAs	101,728		181,908		36,129		179		319,944
Traditional brokered deposits	Traditional brokered deposits	613,424		536,976		—		—		1,150,400		Traditional brokered deposits	169,956		1,097,612		—		—		1,267,568
Total interest bearing deposits	Total interest bearing deposits	12,243,448		623,001		17,605		600		12,884,654		Total interest bearing deposits	11,688,050		1,279,520		36,129		179		13,003,878
Short-term borrowings	Short-term borrowings	2,651,536		—		—		—		2,651,536		Short-term borrowings	1,701,480		—		—		—		1,701,480
Long-term debt	Long-term debt	258,497		—		—		658,601		917,098		Long-term debt	385,397		—		—		545,369		930,766
Total interest sensitive liabilities	Total interest sensitive liabilities	$	15,153,481	$	623,001	$	17,605	$	659,201	$	16,453,288	Total interest sensitive liabilities	$	13,774,927	$	1,279,520	$	36,129	$	545,548	$	15,636,124
GAP	GAP	$	9,993,364	$	1,004,353	$	484,051	$	3,796,967	$	—	GAP	$	9,374,520	$	565,284	$	539,027	$	3,640,720	$	—
Cumulative GAP	Cumulative GAP	$	9,993,364	$	10,997,717	$	11,481,768	$	15,278,735	$	15,278,735	Cumulative GAP	$	9,374,520	$	9,939,804	$	10,478,831	$	14,119,551	$	14,119,551

Non-interest bearing deposits	Non-interest bearing deposits									12,555,367		Non-interest bearing deposits									11,494,685
Stockholders’ equity	Stockholders’ equity									3,006,832		Stockholders’ equity									2,885,775
Total	Total									$	15,562,199	Total									$	14,380,460

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

(2)Total loans include gross loans held for investments and loans held for sale at fair value.

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 demand deposits and stockholders’ equity. We perform a sensitivity analysis to identify interest rate risk exposure on net interest income. We quantify and measure 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 three interest rate scenarios. These are a static rate scenario and two “shock test” scenarios.

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, Secured Overnight Financing Rate, Bloomberg Short Term Yield Index, ~~(“BSBY”),~~ LIBOR and other alternative indexes are the basis for most of our 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 our primary interest rate exposures. Interest rate derivative contracts may be used to manage our exposure to adverse fluctuations in these primary interest rate exposures. See Note 10 - Derivative Financial Instruments for more information on interest rate derivative contracts.

For modeling purposes, the “shock test” scenarios as of ~~June~~September 30, 2022 assume immediate, sustained 100 and 200 basis point increases in interest rates as well as a 100 basis point decrease in interest rates. As of ~~June~~September 30, 2021, the scenarios assumed a sustained 100 and 200 basis point increase in interest rates. As short-term rates remained low through 2021, we did not believe that analysis of an assumed decrease in interest rates would provide meaningful results. We will continue to evaluate these scenarios as interest rates change.

3738

Our interest rate risk exposure model incorporates assumptions regarding the level of interest rate on indeterminable maturity deposits (demand deposits, interest-bearing transaction accounts and savings accounts) for a given level of market rate change. In the current environment of increasing 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, 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. This modeling indicated interest rate sensitivity as follows:


		Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario										Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario
		June 30, 2022						June 30, 2021				September 30, 2022						September 30, 2021
(in thousands)	(in thousands)	100 bps Increase		200 bps Increase		100 bps Decrease		100 bps Increase		200 bps Increase			(in thousands)	100 bps Increase		200 bps Increase		100 bps Decrease		100 bps Increase		200 bps Increase
Change in net interest income	Change in net interest income	$	91,461	$	163,136	$	(114,831)	$	24,267	$	79,342		Change in net interest income	$	76,688	$	134,859	$	(103,564)	$	42,678	$	104,513

The simulations used to manage market 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.

In 2017, the U.K. Financial Conduct Authority announced that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021. The administrator of LIBOR proposed to extend publication of the most commonly used U.S. dollar LIBOR settings to June 30, 2023 and to cease publishing other LIBOR settings on December 31, 2021. The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. We have significant exposure to financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value, some of which mature after December 31, 2021. We have established a working group, consisting of key stakeholders from throughout the Company, to monitor developments relating to LIBOR changes and to guide the Bank’s response. This team is continuing to work to ensure that our technology systems are prepared for the transition, our loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders are apprised of the transition. Based on our transition progress to date, we ceased originating LIBOR-based products and began originating ~~BSBY based loans~~alternative indexed products in December 2021. ~~We are also prepared with other alternative benchmarks to support the transition from LIBOR.~~ Over the next 129 months, we will continue to transition all remaining LIBOR-based products to an alternative benchmark. We will also continue to evaluate the transition process and align our trajectory with regulatory guidelines regarding the cessation of LIBOR as well as monitor new developments for transitioning to alternative reference rates.

3839

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, we have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company's management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to various claims and legal actions that may arise in the ordinary course of conducting its business. Management does not expect the disposition of any of these matters to have a material adverse impact on the Company’s financial statements or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in the 2021 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company repurchased shares of its common stock in the open market during the ~~six~~nine months ended ~~June~~September 30, 2022 as follows:


					Total Number of	Approximate Dollar Value						Total Number of	Approximate Dollar Value
					Shares Purchased as Part	of Shares That May Yet						Shares Purchased as Part	of Shares That May Yet
		Total Number of	Average Price Paid		of Publicly Announced	Be Purchased Under the			Total Number of	Average Price Paid		of Publicly Announced	Be Purchased Under the
		Shares Purchased	per Share		Plans or Programs(1)	Plans or Programs(1)			Shares Purchased	per Share		Plans or Programs(1)	Plans or Programs(1)
May 1 through May 31, 2022	May 1 through May 31, 2022	902,418	$	53.22	902,418	$	101,975,648	May 1 through May 31, 2022	902,418	$	53.22	902,418	$	101,975,648
June 1 through June 30, 2022	June 1 through June 30, 2022	39,461	$	50.66	39,461	$	99,976,436	June 1 through June 30, 2022	39,461	$	50.66	39,461	$	99,976,436
July 1 through July 31, 2022								July 1 through July 31, 2022	—	$	—	—	$	99,976,436
August 1 through August 31, 2022								August 1 through August 31, 2022	—	$	—	—	$	99,976,436
September 1 through September 30, 2022								September 1 through September 30, 2022	—	$	—	—	$	99,976,436
Total	Total	941,879	$	53.11	941,879	$	99,976,436	Total	941,879	$	53.11	941,879	$	99,976,436

(1) On April 19, 2022, our board of directors authorized a new share repurchase program under which we may repurchase up to $150.0 million in shares of our outstanding common stock. Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which we repurchase shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.

3940

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Exhibits





~~10.1~~2.1			~~Amended Key Executive Severance Policy~~+*
~~10.2~~			Purchase Agreement, dated as of September 5, 2022 by and between AFCO Credit Corporation and Texas Capital ~~Bancshares, Inc. 2022 Long-Term Incentive Plan,~~Bank, which is incorporated by reference to Exhibit ~~10.1~~2.1 to our Current Report on Form 8-K, dated ~~April 19,~~September 8, 2022+
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange ~~Act~~Act**
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange ~~Act~~Act**
32.1			Section 1350 Certification of Chief Executive ~~Officer~~Officer****
32.2			Section 1350 Certification of Chief Financial ~~Officer~~Officer****
101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			XBRL Taxonomy Extension Schema Document*
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB			XBRL Taxonomy Extension Label Linkbase Document*
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document*
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

** Furnished herewith

+ Management contract or compensatory plan arrangement

4041

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TEXAS CAPITAL BANCSHARES, INC.

Date: ~~July 21,~~October 20, 2022


/s/ J. Matthew Scurlock
J. Matthew Scurlock
Chief Financial Officer
(Duly authorized officer and principal financial officer)

4142


Part I.—Financial Information
	Item 1.	Financial Statements - Unaudited	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Income and Other Comprehensive Income/(Loss)	4
		Consolidated Statements of Stockholders' Equity	5
		Consolidated Statements of Cash Flows	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2425
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3637
	Item 4.	Controls and Procedures	3940

Part II.—Other Information
	Item 1.	Legal Proceedings	3940
	Item 1A.	Risk Factors	3940
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3940
	Item 6.	Exhibits	4041

Signatures			4142