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TEXAS CAPITAL BANCSHARES INC/TX - Quarter Report: 2022 June (Form 10-Q)


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 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
DallasTXUSA75201
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareTCBINasdaq Stock Market
5.75% Non-Cumulative Perpetual Preferred Stock Series B, par value $0.01 per shareTCBIONasdaq 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 FilerxAccelerated Filer
Non-Accelerated FilerSmaller 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, 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



Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended June 30, 2022

Index
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.






PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands except share data)June 30, 2022December 31, 2021
(Unaudited)
Assets
Cash and due from banks$242,425 $180,663 
Interest-bearing cash and cash equivalents4,032,931 7,765,996 
Available-for-sale debt securities2,535,646 3,538,201 
Held-to-maturity debt securities980,935 — 
Equity securities36,118 45,607 
Investment securities3,552,699 3,583,808 
Loans held for sale4,266 8,123 
Loans held for investment, mortgage finance6,549,507 7,475,497 
Loans held for investment17,517,866 15,331,457 
Less: Allowance for credit losses on loans229,013 211,866 
Loans held for investment, net23,838,360 22,595,088 
Premises and equipment, net28,722 20,901 
Accrued interest receivable and other assets622,501 559,897 
Goodwill and intangible assets, net17,059 17,262 
Total assets$32,338,963 $34,731,738 
Liabilities and Stockholders’ Equity
Liabilities:
Non-interest bearing deposits$12,555,367 $13,390,370 
Interest bearing deposits12,884,654 14,718,995 
Total deposits25,440,021 28,109,365 
Accrued interest payable8,928 7,699 
Other liabilities314,548 273,488 
Short-term borrowings2,651,536 2,202,832 
Long-term debt917,098 928,738 
Total liabilities29,332,131 31,522,122 
Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 300,000 shares issued at June 30, 2022 and December 31, 2021
300,000 300,000 
Common stock, $0.01 par value:
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 
Additional paid-in capital1,015,105 1,008,559 
Retained earnings2,013,458 1,948,274 
Treasury stock - 942,296 and 417 shares at cost at June 30, 2022 and December 31, 2021, respectively
(50,031)(8)
Accumulated other comprehensive loss, net of taxes(272,208)(47,715)
Total stockholders’ equity3,006,832 3,209,616 
Total liabilities and stockholders’ equity$32,338,963 $34,731,738 
See accompanying notes to consolidated financial statements.
3


TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER
COMPREHENSIVE INCOME/(LOSS) - UNAUDITED
 Three months ended June 30,Six months ended June 30,
(in thousands except per share data)2022202120222021
Interest income
Interest and fees on loans$218,290 $203,074 $405,947 $413,405 
Investment securities14,665 10,918 31,967 20,805 
Interest-bearing cash and cash equivalents9,394 2,961 12,965 5,894 
Total interest income242,349 216,953 450,879 440,104 
Interest expense
Deposits20,566 16,271 34,196 36,275 
Short-term borrowings4,859 502 5,617 3,094 
Long-term debt11,393 10,723 21,988 16,466 
Total interest expense36,818 27,496 61,801 55,835 
Net interest income205,531 189,457 389,078 384,269 
Provision for credit losses22,000 (19,000)20,000 (25,000)
Net interest income after provision for credit losses183,531 208,457 369,078 409,269 
Non-interest income
Service charges on deposit accounts6,003 4,634 12,025 9,350 
Wealth management and trust fee income4,051 3,143 7,963 5,998 
Brokered loan fees4,133 6,933 8,103 16,244 
Servicing income228 5,935 465 14,944 
Investment banking and trading income11,126 8,071 15,305 13,858 
Net gain/(loss) on sale of loans held for sale— (3,070)— 2,502 
Other701 11,993 2,663 19,096 
Total non-interest income26,242 37,639 46,524 81,992 
Non-interest expense
Salaries and benefits103,885 86,830 203,983 174,352 
Occupancy expense8,874 7,865 17,759 16,139 
Marketing8,506 1,900 13,483 3,597 
Legal and professional11,288 9,147 21,590 17,424 
Communications and technology15,649 14,352 30,349 30,321 
Federal Deposit Insurance Corporation (“FDIC”) insurance assessment3,318 5,226 7,299 11,839 
Servicing-related expenses— 12,355 — 25,344 
Other12,783 11,385 22,932 20,360 
Total non-interest expense164,303 149,060 317,395 299,376 
Income before income taxes45,470 97,036 98,207 191,885 
Income tax expense11,311 23,555 24,398 46,466 
Net income34,159 73,481 73,809 145,419 
Preferred stock dividends4,312 6,317 8,625 10,096 
Net income available to common stockholders$29,847 $67,164 $65,184 $135,323 
Other comprehensive income/(loss):
Change in unrealized gain/(loss)$(86,438)$38,037 $(287,057)$(53,370)
Amounts reclassified into net income1,903 — 2,889 — 
Other comprehensive income/(loss)(84,535)38,037 (284,168)(53,370)
Income tax expense/(benefit)(17,752)7,989 (59,675)(11,207)
Other comprehensive income/(loss), net of tax(66,783)30,048 (224,493)(42,163)
Comprehensive income/(loss)$(32,624)$103,529 $(150,684)$103,256 
Basic earnings per common share$0.59 $1.33 $1.29 $2.68 
Diluted earnings per common share$0.59 $1.31 $1.28 $2.65 
See accompanying notes to consolidated financial statements.
4



TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Preferred StockCommon StockAdditional Treasury StockAccumulated Other 
 Paid-inRetainedComprehensive 
(in thousands except share data)SharesAmountSharesAmountCapitalEarningsSharesAmountIncome/(Loss)Total
Balance at March 31, 20216,300,000 $450,000 50,558,184 $505 $984,207 $1,781,215 (417)$(8)$(56,437)$3,159,482 
Comprehensive income:
Net income— — — — — 73,481 — — — 73,481 
Change in other comprehensive income/(loss), net of taxes— — — — — — — — 30,048 30,048 
Total comprehensive income103,529 
Stock-based compensation expense recognized in earnings
— — — — 8,315 — — — — 8,315 
Preferred stock dividend — — — — — (6,317)— — — (6,317)
Issuance of stock related to stock-based awards
— — 34,434 (53)— — — — (52)
Redemption of preferred stock(6,000,000)(150,000)— — — — — — — (150,000)
Balance at June 30, 2021300,000 $300,000 50,592,618 $506 $992,469 $1,848,379 (417)$(8)$(26,389)$3,114,957 
Balance at March 31, 2022300,000 $300,000 50,710,858 $507 $1,011,353 $1,983,611 (417)$(8)$(205,425)$3,090,038 
Comprehensive income:
Net income— — — — — 34,159 — — — 34,159 
Change in other comprehensive income/(loss), net of taxes— — — — — — — — (66,783)(66,783)
Total comprehensive loss(32,624)
Stock-based compensation expense recognized in earnings
— — — — 5,022 — — — — 5,022 
Preferred stock dividend— — — — — (4,312)— — — (4,312)
Issuance of stock related to stock-based awards
— — 109,479 (1,270)— — — — (1,269)
Repurchase of common stock— — — — — — (941,879)(50,023)— (50,023)
Balance at June 30, 2022300,000 $300,000 50,820,337 $508 $1,015,105 $2,013,458 (942,296)$(50,031)$(272,208)$3,006,832 


See accompanying notes to consolidated financial statements.
5


Preferred StockCommon StockAdditional Treasury StockAccumulated Other 
 Paid-inRetainedComprehensive 
(in thousands except share data)SharesAmountSharesAmountCapitalEarningsSharesAmountIncome/(Loss)Total
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:
Net income— — — — — 145,419 — — — 145,419 
Change in other comprehensive income/(loss), net of taxes— — — — — — — — (42,163)(42,163)
Total comprehensive income103,256 
Stock-based compensation expense recognized in earnings
— — — — 13,776 — — — — 13,776 
Issuance of preferred stock300,000 300,000 — — (10,277)— — — — 289,723 
Preferred stock dividend — — — — — (10,096)— — — (10,096)
Issuance of stock related to stock-based awards
— — 121,751 (2,928)— — — — (2,926)
Redemption of preferred stock(6,000,000)(150,000)— — — — — — — (150,000)
Balance at June 30, 2021300,000 $300,000 50,592,618 $506 $992,469 $1,848,379 (417)$(8)$(26,389)$3,114,957 
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:
Net income— — — — — 73,809 — — — 73,809 
Change in other comprehensive income/(loss), net of taxes— — — — — — — — (224,493)(224,493)
Total comprehensive loss(150,684)
Stock-based compensation expense recognized in earnings
— — — — 10,429 — — — — 10,429 
Preferred stock dividend— — — — — (8,625)— — — (8,625)
Issuance of stock related to stock-based awards
— — 201,426 (3,883)— — — — (3,881)
Repurchase of common stock— — — — — — (941,879)(50,023)— (50,023)
Balance at June 30, 2022300,000 $300,000 50,820,337 $508 $1,015,105 $2,013,458 (942,296)$(50,031)$(272,208)$3,006,832 
See accompanying notes to consolidated financial statements.
6


TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
 Six months ended June 30,
(in thousands)20222021
Operating activities
Net income$73,809 $145,419 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision/(benefit) for credit losses20,000 (25,000)
Depreciation and amortization expense24,081 47,531 
Net (gain)/loss on sale of loans held for sale— (2,502)
Decrease in valuation allowance on mortgage servicing rights— (16,448)
Stock-based compensation expense10,612 14,804 
Purchases and originations of loans held for sale(1,072)(1,409,716)
Proceeds from sales and repayments of loans held for sale4,600 1,618,331 
Changes in operating assets and liabilities:
Accrued interest receivable and other assets(10,753)85,388 
Accrued interest payable and other liabilities25,259 (19,164)
Net cash provided by operating activities146,536 438,643 
Investing activities
Purchases of available-for-sale debt securities(637,803)(903,395)
Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities333,811 240,891 
Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities40,224 — 
Sales/(purchases) of equity securities, net855 — 
Originations of loans held for investment, mortgage finance(54,492,183)(88,516,423)
Proceeds from pay-offs of loans held for investment, mortgage finance55,418,173 88,823,033 
Proceeds from sale of mortgage servicing rights— 108,646 
Net (increase)/decrease in loans held for investment, excluding mortgage finance(2,188,546)174,095 
Purchases of premises and equipment, net(9,201)(1,516)
Net cash used in investing activities(1,534,670)(74,669)
Financing activities
Net decrease in deposits(2,669,344)(2,157,026)
Issuance of stock related to stock-based awards(3,881)(2,926)
Net proceeds from issuance of preferred stock— 289,723 
Redemption of preferred stock— (150,000)
Preferred stock dividends paid(8,625)(10,096)
Repurchase of common stock(50,023)— 
Net increase/(decrease) in short-term borrowings448,704 (1,097,270)
Net proceeds from issuance of long-term debt— 639,440 
Redemption of long-term debt— (111,000)
Net cash used in financing activities(2,283,169)(2,599,155)
Net decrease in cash and cash equivalents(3,671,303)(2,235,181)
Cash and cash equivalents at beginning of period7,946,659 9,206,380 
Cash and cash equivalents at end of period$4,275,356 $6,971,199 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$60,572 $58,869 
Cash paid during the period for income taxes29,350 36,701 
Transfers of debt securities from available-for-sale to held-to-maturity1,019,365 — 
See accompanying notes to consolidated financial statements.
7


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.
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,
(in thousands except share and per share data)2022202120222021
Numerator:
Net income$34,159 $73,481 $73,809 $145,419 
Preferred stock dividends4,312 6,317 8,625 10,096 
Net income available to common stockholders$29,847 $67,164 $65,184 $135,323 
Denominator:
Denominator for basic earnings per common share—weighted average common shares50,258,681 50,580,184 50,462,735 50,549,236 
Effect of dilutive outstanding stock-settled awards542,947 513,476 607,034 553,851 
Denominator for dilutive earnings per common share—weighted average diluted common shares50,801,628 51,093,660 51,069,769 51,103,087 
Basic earnings per common share$0.59 $1.33 $1.29 $2.68 
Diluted earnings per common share$0.59 $1.31 $1.28 $2.65 
Anti-dilutive outstanding stock-settled awards430,224 153,232 301,842 98,079 
8


(3) Investment Securities
The following is a summary of our investment securities: 
(in thousands)Amortized
Cost(1)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
June 30, 2022
Available-for-sale debt securities:
U.S. Treasury securities$638,427 $974 $(13,598)$625,803 
U.S. government agency securities125,000 — (16,382)108,618 
Residential mortgage-backed securities2,036,101 21 (246,567)1,789,555 
Credit risk transfer (“CRT”) securities14,713 — (3,043)11,670 
Total available-for-sale debt securities2,814,241 995 (279,590)2,535,646 
Held-to-maturity debt securities:
Residential mortgage-backed securities980,935 — (81,688)899,247 
Total held-to-maturity debt securities980,935 — (81,688)899,247 
Equity securities36,118 
Total investment securities(2)$3,552,699 
December 31, 2021
Available-for-sale debt securities:
U.S. government agency securities$125,000 $— $(4,056)$120,944 
Residential mortgage-backed securities3,288,261 156 (63,039)3,225,378 
Tax-exempt asset-backed securities170,626 9,407 — 180,033 
CRT securities14,713 — (2,867)11,846 
Total available-for-sale debt securities3,598,600 9,563 (69,962)3,538,201 
Equity securities45,607 
Total investment securities(2)$3,583,808 
(1)Excludes accrued interest receivable of $5.2 million and $6.6 million at June 30, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, and $1.6 million at June 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 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-saleHeld-to-maturity
(in thousands)Amortized CostFair ValueAmortized CostFair Value
Due within one year$83 $86 $— $— 
Due after one year through five years638,427 625,803 — — 
Due after five years through ten years156,370 134,783 — — 
Due after ten years2,019,361 1,774,974 980,935 899,247 
Total$2,814,241 $2,535,646 $980,935 $899,247 
9


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 Months12 Months or LongerTotal
(in thousands)Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
June 30, 2022
U.S. treasury securities$429,037 $(13,598)$— $— $429,037 $(13,598)
U.S. government agency securities— — 108,618 (16,382)108,618 (16,382)
Residential mortgage-backed securities893,351 (117,057)895,346 (129,510)1,788,697 (246,567)
CRT securities— — 11,670 (3,043)11,670 (3,043)
Total$1,322,388 $(130,655)$1,015,634 $(148,935)$2,338,022 $(279,590)
December 31, 2021
U.S. government agency securities$24,085 $(915)$96,859 $(3,141)$120,944 $(4,056)
Residential mortgage-backed securities2,871,052 (50,721)303,491 (12,318)3,174,543 (63,039)
CRT securities— — 11,846 (2,867)11,846 (2,867)
Total$2,895,137 $(51,636)$412,196 $(18,326)$3,307,333 $(69,962)
At June 30, 2022, we had 88 available-for-sale debt securities in an unrealized loss position, comprised of seven U.S. treasury securities, five U.S. government agency securities, 74 residential mortgage-backed securities, and two 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 before recovery of the amortized cost of the available-for-sale debt 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 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 million and $1.6 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at June 30, 2022. The comparative amounts at December 31, 2021 were $22.0 million and $2.0 million, respectively.
Equity Securities
Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan. The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income on the consolidated statements of income and other comprehensive income/(loss):
Three months ended June 30,Six months ended June 30,
(in thousands)2022202120222021
Net gains/(losses) recognized during the period$(4,996)$3,268 $(8,636)$3,646 
Less: Realized net gains/(losses) recognized on securities sold(204)351 (2)749 
Unrealized net gains/(losses) recognized on securities held$(4,792)$2,917 $(8,634)$2,897 
10


(4) Loans and Allowance for Credit Losses on Loans
Loans are summarized by portfolio segment as follows:
(in thousands)June 30, 2022December 31, 2021
Loans held for investment(1):
Commercial$11,511,532 $9,897,561 
Energy962,239 721,373 
Mortgage finance6,549,507 7,475,497 
Real estate5,118,849 4,777,530 
Gross loans held for investment24,142,127 22,871,961 
Unearned income (net of direct origination costs)(74,754)(65,007)
Total loans held for investment24,067,373 22,806,954 
Allowance for credit losses on loans(229,013)(211,866)
Total loans held for investment, net$23,838,360 $22,595,088 
Loans held for sale:
Mortgage loans, at fair value$4,266 $8,123 
Total loans held for sale$4,266 $8,123 
(1)    Excludes accrued interest receivable of $57.6 million and $50.9 million at June 30, 2022 and December 31, 2021, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
11


The following tables summarize our gross loans held for investment by year of origination and internally assigned credit grades:
(in thousands)202220212020201920182017 and priorRevolving lines of creditRevolving lines of credit converted to term loansTotal
June 30, 2022
Commercial
(1-7) Pass$853,390 $4,017,274 $293,544 $434,095 $295,347 $379,247 $4,971,573 $35,847 $11,280,317 
(8) Special mention9,384 3,360 7,696 843 — 7,344 39,201 3,150 70,978 
(9) Substandard - accruing7,860 4,539 503 69,257 23,026 6,837 23,445 4,397 139,864 
(9+) Non-accrual— 1,718 — 40 10,111 5,420 1,961 1,123 20,373 
Total commercial$870,634 $4,026,891 $301,743 $504,235 $328,484 $398,848 $5,036,180 $44,517 $11,511,532 
Energy
(1-7) Pass$89,871 $18,750 $— $— $— $1,298 $827,944 $— $937,863 
(8) Special mention— — — — — 6,804 — — 6,804 
(9) Substandard - accruing— — — — — — — — — 
(9+) Non-accrual— 8,029 — — — — 9,543 — 17,572 
Total energy$89,871 $26,779 $— $— $— $8,102 $837,487 $— $962,239 
Mortgage finance
(1-7) Pass$44,918 $584,253 $291,404 $650,170 $972,308 $3,861,831 $— $— $6,404,884 
(8) Special mention— — — — — — — — — 
(9) Substandard - accruing— — — — — 144,623 — — 144,623 
(9+) Non-accrual— — — — — — — — — 
Total mortgage finance$44,918 $584,253 $291,404 $650,170 $972,308 $4,006,454 $— $— $6,549,507 
Real estate
CRE
(1-7) Pass$621,736 $572,504 $656,808 $511,457 $245,343 $463,050 $73,715 $23,102 $3,167,715 
(8) Special mention2,218 10,905 46 4,800 14,072 9,494 — 446 41,981 
(9) Substandard - accruing— 17,850 — — 26,317 68,767 — — 112,934 
(9+) Non-accrual— — — — — 190 — — 190 
RBF
(1-7) Pass47,888 117,866 23,022 13,735 7,648 2,471 394,540 — 607,170 
(8) Special mention— 623 — — — — 2,300 — 2,923 
(9) Substandard - accruing— — — — — — — — — 
(9+) Non-accrual— — — — — — — — — 
Other
(1-7) Pass134,821 162,251 127,499 77,889 83,726 179,466 38,245 27,185 831,082 
(8) Special mention— — 12,972 — — 17,534 — — 30,506 
(9) Substandard - accruing— — — — — 1,080 — — 1,080 
(9+) Non-accrual— — — — — — — 12,210 12,210 
Secured by 1-4 family
(1-7) Pass31,759 93,841 56,568 27,956 19,911 75,462 4,057 — 309,554 
(8) Special mention— — — — — 1,156 — — 1,156 
(9) Substandard - accruing— — — — — 167 — — 167 
(9+) Non-accrual— — — — — 181 — — 181 
Total real estate$838,422 $975,840 $876,915 $635,837 $397,017 $819,018 $512,857 $62,943 $5,118,849 
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 
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(in thousands)202120202019201820172016 and priorRevolving lines of creditRevolving lines of credit converted to term loansTotal
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 mention2,650 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-accrual736 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 $— $— $$— $7,188 $577,988 $— $656,929 
(8) Special mention— — — — — — 27,421 — 27,421 
(9) Substandard - accruing— — — — — 8,643 — — 8,643 
(9+) Non-accrual— — — — — — 28,380 — 28,380 
Total energy$71,750 $— $— $$— $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 - accruing17,850 — — 40,900 37,393 38,188 — 2,308 136,639 
(9+) Non-accrual— — — — — 198 — — 198 
RBF
(1-7) Pass155,595 44,362 9,693 8,565 — 12,732 460,888 — 691,835 
(8) Special mention— — — — — — — — — 
(9) Substandard - accruing— — — — — — — — — 
(9+) Non-accrual— — — — — — — — — 
Other
(1-7) Pass166,202 148,811 119,017 106,343 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) Pass96,899 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 

13


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)CommercialEnergyMortgage
Finance
Real
Estate
Total
Six months ended June 30, 2022
Beginning balance$102,202 $52,568 $6,083 $51,013 $211,866 
Provision for credit losses on loans16,343 (26,500)12,975 16,466 19,284 
Charge-offs2,978 — — 350 3,328 
Recoveries436 755 — — 1,191 
Net charge-offs (recoveries)2,542 (755)— 350 2,137 
Ending balance$116,003 $26,823 $19,058 $67,129 $229,013 
Six months ended June 30, 2021
Beginning balance$73,061 $84,064 $4,699 $92,791 $254,615 
Provision for credit losses on loans12,035 (23,768)352 (12,932)(24,313)
Charge-offs3,863 6,418 — 1,192 11,473 
Recoveries1,358 1,324 — — 2,682 
Net charge-offs (recoveries)2,505 5,094 — 1,192 8,791 
Ending balance$82,591 $55,202 $5,051 $78,667 $221,511 
We recorded a $20.0 million provision for credit losses for the six months ended June 30, 2022, compared to a negative provision of $25.0 million for the same period in 2021. The $20.0 million provision for credit losses resulted primarily from an increase in total loans held for investment. We recorded $2.1 million in net charge-offs during the six months ended June 30, 2022, compared to net charge-offs of $8.8 million during the same period in 2021. Criticized loans totaled $603.5 million at June 30, 2022, compared to $582.9 million and $891.6 million at December 31, 2021 and June 30, 2021, respectively. The increase in criticized loans as compared to March 31, 2022 was primarily due to one mortgage finance credit which is adequately reserved for as of June 30, 2022, and is expected to be resolved in the third quarter of 2022.
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 30, 2022, we had $12.2 million in collateral-dependent real estate loans, collateralized by real property and business assets.
The table below provides an age analysis of our gross loans held for investment:
(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)CurrentTotalNon-Accrual With No Allowance
June 30, 2022
Commercial$13,625 $6,395 $3,144 $23,164 $20,373 $11,467,995 $11,511,532 $12,675 
Energy— — — — 17,572 944,667 962,239 8,029 
Mortgage finance— — — — — 6,549,507 6,549,507 — 
Real estate:
CRE
29,852 4,139 — 33,991 190 3,288,639 3,322,820 — 
RBF
— 3,000 — 3,000 — 607,093 610,093 — 
Other
— — — — 12,210 862,668 874,878 12,210 
Secured by 1-4 family
— — 62 62 181 310,815 311,058 — 
Total$43,477 $13,534 $3,206 $60,217 $50,526 $24,031,384 $24,142,127 $32,914 
(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)As of June 30, 2022 and December 31, 2021, none of our non-accrual loans were earning interest income on a cash basis. Additionally, no interest income was recognized on non-accrual loans for the six months ended June 30, 2022. Accrued interest of $4,000 was reversed during the six months ended June 30, 2022.
As of June 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 30, 2022 and December 31, 2021, $17.3 million and $19.4 million, respectively, met the criteria for restructured. These loans had no unfunded commitments at their respective balance sheet dates.
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We did not have any loans that were restructured during the six months ended June 30, 2022 or 2021.
(5) Short-term Borrowings and Long-term Debt
The table below presents a summary of short-term borrowings:
(in thousands)June 30, 2022December 31, 2021
Customer repurchase agreements$1,536 $2,832 
Federal Home Loan Bank borrowings2,650,000 2,200,000 
Total short-term borrowings$2,651,536 $2,202,832 
The table below presents a summary of long-term debt:
(in thousands)June 30, 2022December 31, 2021
Bank-issued floating rate senior unsecured credit-linked notes due 2024$258,497 $270,487 
Bank-issued 5.75% fixed rate subordinated notes due 2026
174,066 173,935 
Company-issued 4.00% fixed rate subordinated notes due 2031
371,129 370,910 
Trust preferred floating rate subordinated debentures due 2032 to 2036113,406 113,406 
Total long-term debt$917,098 $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,
(in thousands)2022202120222021
Beginning balance of allowance for off-balance sheet credit losses
$16,492 $17,147 $17,265 $17,434 
Provision for off-balance sheet credit losses
1,489 (400)716 (687)
Ending balance of allowance for off-balance sheet credit losses
$17,981 $16,747 $17,981 $16,747 
(in thousands)June 30, 2022December 31, 2021
Commitments to extend credit - period end balance$10,194,949 $9,445,763 
Standby letters of credit - period end balance378,217 357,672 
(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 months ended June 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
15


quarter of 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 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 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 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.
16


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.
ActualMinimum Capital Required(2)Capital Required to be Well Capitalized
(dollars in thousands)Capital AmountRatioCapital AmountRatioCapital AmountRatio
June 30, 2022
CET1
Company$2,969,107 10.46 %$1,986,272 7.00 %N/A N/A
Bank3,139,566 11.07 %1,985,129 7.00 %1,843,334 6.50 %
Total capital (to risk-weighted assets)
Company4,091,380 14.42 %2,979,408 10.50 %2,837,531 10.00 %
Bank3,690,710 13.01 %2,977,694 10.50 %2,835,899 10.00 %
Tier 1 capital (to risk-weighted assets)
Company3,379,107 11.91 %2,411,901 8.50 %1,702,519 6.00 %
Bank3,299,566 11.63 %2,410,514 8.50 %2,268,719 8.00 %
Tier 1 capital (to average assets)(1)
Company3,379,107 10.67 %1,266,734 4.00 %N/AN/A
Bank3,299,566 10.42 %1,266,412 4.00 %1,583,014 5.00 %
December 31, 2021
CET1
Company$2,949,785 11.06 %$1,866,444 7.00 %N/AN/A
Bank3,013,170 11.30 %1,866,303 7.00 %1,732,996 6.50 %
Total capital (to risk-weighted assets)
Company4,085,540 15.32 %2,799,666 10.50 %2,666,348 10.00 %
Bank3,578,014 13.42 %2,799,455 10.50 %2,666,148 10.00 %
Tier 1 capital (to risk-weighted assets)
Company3,359,785 12.60 %2,266,396 8.50 %1,599,809 6.00 %
Bank3,173,170 11.90 %2,266,225 8.50 %2,132,918 8.00 %
Tier 1 capital (to average assets)(1)
Company3,359,785 9.01 %1,490,902 4.00 %N/AN/A
Bank3,173,170 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.

17


(8) Stock-based Compensation
We have long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the 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,
(in thousands)2022202120222021
Stock-settled awards:
RSUs$5,022 $8,315 $10,429 $13,775 
Restricted stock— — — 
Cash-settled units121 183 1,028 
Total$5,024 $8,436 $10,612 $14,804 
 
(in thousands except period data)June 30, 2022
Unrecognized compensation expense related to unvested stock-settled awards$42,688 
Weighted average period over which expense is expected to be recognized, in years2.5


18


(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
(in thousands)Level 1Level 2Level 3
June 30, 2022
Available-for-sale debt securities:(1)
U.S. Treasury securities$625,803 $— $— 
U.S. government agency securities— 108,618 — 
Residential mortgage-backed securities— 1,789,555 — 
CRT securities— — 11,670 
Equity securities(1)(2)24,724 11,394 — 
Loans held for sale(3)— — 4,266 
Derivative assets(4)— 11,049 — 
Derivative liabilities(4)— 46,215 — 
Non-qualified deferred compensation plan liabilities(5)22,938 — — 
December 31, 2021
Available-for-sale debt securities:(1)
U.S. government agency securities$— $120,944 $— 
Residential mortgage-backed securities— 3,225,378 — 
Tax-exempt asset-backed securities— — 180,033 
CRT securities— — 11,846 
Equity securities(1)(2)33,589 12,018 — 
Loans held for sale(3)— 465 7,658 
Derivative assets(4)— 37,788 — 
Derivative liabilities(4)— 37,788 — 
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.

19


Level 3 Valuations
The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis:
Net Gains (Losses)
(in thousands)Balance at Beginning of PeriodPurchases / AdditionsSales / ReductionsRealizedUnrealizedBalance at End of Period
Three months ended June 30, 2022
Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities$165,845 $— $(166,890)$— $1,045 $— 
CRT securities11,901 — — — (231)11,670 
Loans held for sale(2)8,085 — (4,029)— 210 4,266 
Three months ended June 30, 2021
Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities$181,566 $— $(142)$— $4,530 $185,954 
CRT securities11,465 — — — 248 11,713 
Loans held for sale(2)7,275 1,148 (246)— 50 8,227 
Six months ended June 30, 2022
Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities$180,033 $— $(170,626)$— $(9,407)$— 
CRT securities11,846 — — — (176)11,670 
Loans held for sale(2)7,658 1,327 (4,600)— (119)4,266 
Six months ended June 30, 2021
Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities$199,176 $— $(11,513)$— $(1,709)$185,954 
CRT securities11,417 — — — 296 11,713 
Loans held for sale(2)6,933 1,685 (525)129 8,227 
(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 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 30, 2022, the discount rates utilized ranged from 5.88% to 10.66% and the weighted-average life ranged from 5.35 years to 9.15 years. On a combined amortized cost weighted-average basis a discount rate of 7.47% and a weighted-average life of 6.62 years were utilized to determine the fair value of these securities at June 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 held for sale
The fair value of 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 30, 2022, the fair value of these loans was calculated using a weighted-average discounted price of 90.2% compared to 97.8% at December 31, 2021.
20


Fair Value of Financial Instruments
A summary of the carrying amounts and estimated fair values of financial instruments is as follows:
Estimated Fair Value
(in thousands)Carrying
Amount
TotalLevel 1Level 2Level 3
June 30, 2022
Financial assets:
Cash and cash equivalents$4,275,356 $4,275,356 $4,275,356 $— $— 
Available-for-sale debt securities2,535,646 2,535,646 625,803 1,898,173 11,670 
Held-to-maturity debt securities980,935 899,247 — 899,247 — 
Equity securities36,118 36,118 24,724 11,394 — 
Loans held for sale4,266 4,266 — — 4,266 
Loans held for investment, net23,838,360 23,741,360 — — 23,741,360 
Derivative assets11,049 11,049 — 11,049 — 
Financial liabilities:
Total deposits25,440,021 25,439,069 — — 25,439,069 
Short-term borrowings2,651,536 2,651,536 — 2,651,536 — 
Long-term debt917,098 882,258 — 882,258 — 
Derivative liabilities46,215 46,215 — 46,215 — 
December 31, 2021
Financial assets:
Cash and cash equivalents$7,946,659 $7,946,659 $7,946,659 $— $— 
Available-for-sale debt securities3,538,201 3,538,201 — 3,346,322 191,879 
Equity securities45,607 45,607 33,589 12,018 — 
Loans held for sale8,123 8,123 — 465 7,658 
Loans held for investment, net22,595,088 22,631,252 — — 22,631,252 
Derivative assets37,788 37,788 — 37,788 — 
Financial liabilities:
Total deposits28,109,365 28,109,762 — — 28,109,762 
Short-term borrowings2,202,832 2,202,832 — 2,202,832 — 
Long-term debt928,738 952,404 — 952,404 — 
Derivative liabilities37,788 37,788 — 37,788 — 
21


(10) Derivative Financial Instruments
The notional amounts and estimated fair values of derivative positions outstanding are presented in the following table.
 June 30, 2022December 31, 2021
Estimated Fair ValueEstimated Fair Value
(in thousands)Notional
Amount
Asset DerivativeLiability DerivativeNotional
Amount
Asset DerivativeLiability Derivative
Derivatives designated as hedges
Cash flow hedges:
Interest rate contracts:
Swaps hedging loans$750,000 $1,103 $1,180 $— $— $— 
Non-hedging derivatives
Customer-initiated and other derivatives:
Interest rate contracts:
Swaps3,563,862 48,096 48,096 3,536,090 40,922 40,922 
Caps and floors written122,810 — 1,197 191,291 94 — 
Caps and floors purchased122,810 1,197 — 191,291 — 94 
Forward contracts395,239 1,227 1,147 — — — 
Gross derivatives51,623 51,620 41,016 41,016 
Netting adjustment - offsetting derivative assets/liabilities(4,980)(4,980)(3,228)(3,228)
Netting adjustment - cash collateral received/posted(35,594)(425)— — 
Net derivatives included on the consolidated balance sheets$11,049 $46,215 $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 million at June 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 30, 2022, we had $4.8 million in cash collateral pledged to counterparties included in interest-bearing cash and cash equivalents on the consolidated balance sheet and $42.0 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 12 risk participation agreements where we are a participant bank with a notional amount of $125.0 million at June 30, 2022, compared to seven risk participation agreements having 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 at June 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 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 a notional amount of $199.5 million at June 30, 2022, compared to 15 agreements having a notional amount of $156.1 million at December 31, 2021.
Derivatives Designated as Cash Flow Hedges
During the second quarter of 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.
22


During the three and six months ended June 30, 2022, we recorded $304,000 in unrealized gains to adjust our cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $704,000 from AOCI into interest income on loans. Based on current market conditions, we estimate that during the next 12 months, an additional $621,000 will be reclassified from AOCI as a decrease to interest income. As of June 30, 2022, the maximum length of time over which forecasted transactions are hedged is 2.95 years.
(11) Accumulated Other Comprehensive Income
The following table provides the change in AOCI by component:
(in thousands)Cash Flow HedgesAFS SecuritiesHTM SecuritiesTotal
Three months ended June 30, 2022
Beginning balance$— $(151,564)$(53,861)$(205,425)
Change in unrealized gain/(loss)304 (86,742)— (86,438)
Amounts reclassified into net income(704)— 2,607 1,903 
Total OCI(400)(86,742)2,607 (84,535)
Income tax expense/(benefit)(84)(18,216)548 (17,752)
Total OCI, net of tax(316)(68,526)2,059 (66,783)
Ending balance$(316)$(220,090)$(51,802)$(272,208)
Three months ended June 30, 2021
Beginning balance$— $(56,437)$— $(56,437)
Change in unrealized gain/(loss)— 38,037 — 38,037 
Amounts reclassified into net income— — — — 
Total OCI— 38,037 — 38,037 
Income tax expense/(benefit)— 7,989 — 7,989 
Total OCI, net of tax— 30,048 — 30,048 
Ending balance$— $(26,389)$— $(26,389)
Six months ended June 30, 2022
Beginning balance$— $(47,715)$— $(47,715)
Change in unrealized gain/(loss)304 (218,196)(69,165)(287,057)
Amounts reclassified into net income(704)— 3,593 2,889 
Total OCI(400)(218,196)(65,572)(284,168)
Income tax expense/(benefit)(84)(45,821)(13,770)(59,675)
Total OCI, net of tax(316)(172,375)(51,802)(224,493)
Ending balance$(316)$(220,090)$(51,802)$(272,208)
Six months ended June 30, 2021
Beginning balance$— $15,774 $— $15,774 
Change in unrealized gain/(loss)— (53,370)— (53,370)
Amounts reclassified into net income— — — — 
Total OCI— (53,370)— (53,370)
Income tax expense/(benefit)— (11,207)— (11,207)
Total OCI, net of tax— (42,163)— (42,163)
Ending balance$— $(26,389)$— $(26,389)
(12) New Accounting Standards
Accounting Standard Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820)” (“ASU 2022-03”) clarifies the guidance in ASC 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. This update also requires specific disclosures related to these types of securities. ASU 2022-03 is effective January 1, 2023 and is not expected to have a significant impact on our consolidated financial statements.
23


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 months ended June 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 months ended June 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, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic conditions, including inflation and the threat of recession, as well as market conditions in Texas, the United States or internationally as well as 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, business strategy execution, key personnel, competition, mortgage markets, fraud, environmental liability and severe weather, natural disasters, acts of war or terrorism 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.
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,
(dollars in thousands except per share data)2022202120222021
Net interest income$205,531 $189,457 $389,078 $384,269 
Provision for credit losses22,000 (19,000)20,000 (25,000)
Non-interest income26,242 37,639 46,524 81,992 
Non-interest expense164,303 149,060 317,395 299,376 
Income before income taxes45,470 97,036 98,207 191,885 
Income tax expense11,311 23,555 24,398 46,466 
Net income34,159 73,481 73,809 145,419 
Preferred stock dividends4,312 6,317 8,625 10,096 
Net income available to common stockholders$29,847 $67,164 $65,184 $135,323 
Basic earnings per common share$0.59 $1.33 $1.29 $2.68 
Diluted earnings per common share$0.59 $1.31 $1.28 $2.65 
Net interest margin2.68 %2.02 %2.45 %2.03 %
Return on average assets0.44 %0.76 %0.45 %0.75 %
Return on average common equity4.35 %9.74 %4.67 %9.91 %
Non-interest income to average earning assets0.34 %0.40 %0.29 %0.43 %
Efficiency ratio(1)70.9 %65.6 %72.9 %64.2 %
Non-interest expense to average earning assets2.16 %1.59 %2.00 %1.58 %
(1)    Non-interest expense divided by the sum of net interest income and non-interest income.
24


Three months ended June 30, 2022 compared to three months ended June 30, 2021
We reported net income of $34.2 million and net income available to common stockholders of $29.8 million for the second quarter of 2022, compared to net income of $73.5 million and net income available to common stockholders of $67.2 million for the second quarter of 2021. On a fully diluted basis, earnings per common share were $0.59 for the second quarter of 2022, compared to $1.31 for the second quarter of 2021. Return on average common equity (“ROE”) was 4.35% and return on average assets (“ROA”) was 0.44% for the second quarter of 2022, compared to 9.74% and 0.76%, respectively, for the second quarter of 2021. The decrease in net income for the second quarter of 2022 compared to the second quarter of 2021 resulted primarily from an increase in provision for credit losses.
Six months ended June 30, 2022 compared to six months ended June 30, 2021
We reported net income of $73.8 million and net income available to common stockholders of $65.2 million for the six months ended June 30, 2022, compared to net income of $145.4 million and net income available to common stockholders of $135.3 million for the same period in 2021. On a fully diluted basis, earnings per common share were $1.28 for the six months ended June 30, 2022, compared to $2.65 for the same period in 2021. ROE was 4.67% and ROA was 0.45% for the six months ended June 30, 2022, compared to 9.91% and 0.75%, respectively, for the same period in 2021. The decrease in net income for the six months ended June 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.
Details of the changes in the various components of net income are discussed below.
25


Taxable Equivalent Net Interest Income Analysis - Quarterly(1)

Three months ended June 30, 2022Three months ended June 30, 2021
(in thousands except percentages)Average
Balance
Income/
Expense
Yield/
Rate
Average
Balance
Income/
Expense
Yield/
Rate
Assets
Investment securities(2)$3,543,576 $15,065 1.60 %$3,543,270 $11,369 1.29 %
Interest-bearing cash and cash equivalents4,747,377 9,394 0.79 %11,583,759 2,961 0.10 %
Loans held for sale8,123 62 3.07 %93,164 781 3.36 %
Loans held for investment, mortgage finance5,858,599 49,914 3.42 %7,462,223 57,401 3.09 %
Loans held for investment(3)16,616,234 168,407 4.07 %15,242,975 144,978 3.81 %
Less: Allowance for credit losses on loans211,385 — — 241,676 — — 
Loans held for investment, net22,263,448 218,321 3.93 %22,463,522 202,379 3.61 %
Total earning assets30,562,524 242,842 3.16 %37,683,715 217,490 2.31 %
Cash and other assets870,396 996,946 
Total assets$31,432,920 $38,680,661 
Liabilities and Stockholders’ Equity
Transaction deposits$1,671,729 $3,920 0.94 %$3,795,152 $5,395 0.57 %
Savings deposits8,696,819 15,462 0.71 %11,296,382 8,990 0.32 %
Time deposits877,399 1,184 0.54 %1,755,993 1,886 0.43 %
Total interest bearing deposits11,245,947 20,566 0.73 %16,847,527 16,271 0.39 %
Short-term borrowings2,232,119 4,859 0.87 %2,349,718 502 0.09 %
Long-term debt929,616 11,393 4.92 %881,309 10,723 4.88 %
Total interest bearing liabilities14,407,682 36,818 1.02 %20,078,554 27,496 0.55 %
Non-interest bearing deposits13,747,876 15,139,546 
Other liabilities227,701 274,401 
Stockholders’ equity3,049,661 3,188,160 
Total liabilities and stockholders’ equity$31,432,920 $38,680,661 
Net interest income$206,024 $189,994 
Net interest margin2.68 %2.02 %
Net interest spread2.14 %1.76 %
 
(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.

26


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

Six months ended June 30, 2022Six months ended June 30, 2021
(in thousands except percentages)Average
Balance
Revenue/
Expense
Yield/
Rate
Average
Balance
Revenue/
Expense
Yield/
Rate
Assets
Investment securities(2)$3,606,069 $32,809 1.75 %$3,483,254 $21,728 1.25 %
Interest-bearing cash and cash equivalents6,639,327 12,965 0.39 %11,713,931 5,894 0.10 %
Loans held for sale7,880 175 4.49 %167,830 2,376 2.85 %
Loans held for investment, mortgage finance5,796,097 93,379 3.25 %7,818,014 122,343 3.16 %
Loans held for investment(3)16,153,845 312,542 3.90 %15,349,838 288,913 3.80 %
Less: Allowance for credit losses on loans211,995 — — 248,151 — — 
Loans held for investment, net21,737,947 405,921 3.77 %22,919,701 411,256 3.62 %
Total earning assets31,991,223 451,870 2.83 %38,284,716 441,254 2.32 %
Cash and other assets845,082 1,030,625 
Total assets$32,836,305 $39,315,341 
Liabilities and Stockholders’ Equity
Transaction deposits$2,050,106 $7,883 0.78 %$3,893,015 $11,256 0.58 %
Savings deposits9,553,920 24,044 0.51 %12,088,776 19,778 0.33 %
Time deposits957,615 2,269 0.48 %1,978,879 5,241 0.53 %
Total interest-bearing deposits12,561,641 34,196 0.55 %17,960,670 36,275 0.41 %
Short-term borrowings2,002,724 5,617 0.57 %2,517,128 3,094 0.25 %
Long-term debt929,312 21,988 4.77 %674,171 16,466 4.93 %
Total interest-bearing liabilities15,493,677 61,801 0.80 %21,151,969 55,835 0.53 %
Non-interest bearing deposits13,990,465 14,782,509 
Other liabilities235,378 291,925 
Stockholders’ equity3,116,785 3,088,938 
Total liabilities and stockholders’ equity$32,836,305 $39,315,341 
Net interest income$390,069 $385,419 
Net interest margin2.45 %2.03 %
Net interest spread2.03 %1.79 %

(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 include non-accrual loans.

27


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, 2022/2021Six months ended June 30, 2022/2021
 Net
Change
Change due to(1)Net
Change
Change Due To(1)
(in thousands)VolumeYield/Rate(2)VolumeYield/Rate(2)
Interest income:
Investment securities$3,696 $$3,695 $11,081 $749 $10,332 
Interest bearing cash and cash equivalents6,433 (1,705)8,138 7,071 (2,516)9,587 
Loans held for sale(719)(712)(7)(2,201)(2,258)57 
Loans held for investment, mortgage finance loans(7,487)(12,354)4,867 (28,964)(31,766)2,802 
Loans held for investment23,429 13,044 10,385 23,629 15,173 8,456 
Total25,352 (1,726)27,078 10,616 (20,618)31,234 
Interest expense:
Transaction deposits(1,475)(3,018)1,543 (3,373)(5,325)1,952 
Savings deposits6,472 (2,074)8,546 4,266 (4,144)8,410 
Time deposits(702)(942)240 (2,972)(2,724)(248)
Short-term borrowings4,357 (26)4,383 2,523 (906)3,429 
Long-term debt670 588 82 5,522 6,323 (801)
Total9,322 (5,472)14,794 5,966 (6,776)12,742 
Net interest income$16,030 $3,746 $12,284 $4,650 $(13,842)$18,492 
(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 million for the three months ended June 30, 2022, compared to $189.5 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.
Average earning assets for the three months ended June 30, 2022 decreased $7.1 billion compared to the same period in 2021 and included a $6.8 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 in the second half of 2021. Average interest-bearing liabilities for the three months ended June 30, 2022 decreased $5.7 billion compared to the same period in 2021, primarily due to a $5.6 billion decrease in average interest-bearing deposits. Average demand deposits for the three months ended June 30, 2022 decreased $1.4 billion compared to the same period in 2021.
Net interest margin for the three months ended June 30, 2022 was 2.68% compared to 2.02% 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, partially offset by an increase in funding costs.
The yield on total loans held for investment increased to 3.93% for the three months ended June 30, 2022 compared to 3.61% for the same period in 2021 and the yield on earning assets increased to 3.16% for the three months ended June 30, 2022 compared to 2.31% for the same period in 2021. Total cost of deposits increased to 0.33% for the three months ended June 30, 2022 from 0.20% for the same period in 2021, and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to 0.47% for the three months ended June 30, 2022 compared to 0.29% for the same period in 2021.
Net interest income was $389.1 million for the six months ended June 30, 2022 compared to $384.3 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.
Average earning assets decreased $6.3 billion for the six months ended June 30, 2022, compared to the same period in 2021 and included a $5.1 billion decrease in average interest-bearing cash and cash equivalents. Average interest-bearing liabilities decreased $5.7 billion for the six months ended June 30, 2022, compared to the same period in 2021, primarily due to a $5.4 billion decrease in average interest-bearing deposits. Average demand deposits for the six months ended June 30, 2022 decreased to $14.0 billion from $14.8 billion for the same period in 2021.
28


Net interest margin for the six months ended June 30, 2022 was 2.45% compared to 2.03% 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 compared to the same period in 2021.
The yield on total loans held for investment increased to 3.77% for the six months ended June 30, 2022, compared to 3.62% for the same period in 2021 and the yield on earning assets increased to 2.83% for the six months ended June 30, 2022, compared to 2.32% for the same period in 2021. Total cost of deposits increased to 0.26% for the six months ended June 30, 2022 from 0.22% for the same period in 2021 and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to 0.38% for the six months ended June 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,
(in thousands)2022202120222021
Service charges on deposit accounts$6,003 $4,634 $12,025 $9,350 
Wealth management and trust fee income4,051 3,143 7,963 5,998 
Brokered loan fees4,133 6,933 8,103 16,244 
Servicing income228 5,935 465 14,944 
Investment banking and trading income11,126 8,071 15,305 13,858 
Net gain/(loss) on sale of loans held for sale— (3,070)— 2,502 
Other701 11,993 2,663 19,096 
Total non-interest income$26,242 $37,639 $46,524 $81,992 
Non-interest income decreased $11.4 million during the three months ended June 30, 2022, compared to the same period in 2021. The decrease was primarily due to decreases in servicing fee income, as a result of the sale of our mortgage servicing rights portfolio in 2021, and other non-interest income, partially offset by an increase in investment banking and trading income and the elimination of net losses recorded in the prior year on the sale of loans held for sale.
Non-interest income decreased $35.5 million during the six months ended June 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,
(in thousands)2022202120222021
Salaries and benefits$103,885 $86,830 $203,983 $174,352 
Occupancy expense8,874 7,865 17,759 16,139 
Marketing8,506 1,900 13,483 3,597 
Legal and professional11,288 9,147 21,590 17,424 
Communications and technology15,649 14,352 30,349 30,321 
FDIC insurance assessment3,318 5,226 7,299 11,839 
Servicing-related expenses— 12,355 — 25,344 
Other12,783 11,385 22,932 20,360 
Total non-interest expense$164,303 $149,060 $317,395 $299,376 
Non-interest expense for the three months ended June 30, 2022 increased $15.2 million compared to the same period in 2021. The increase was primarily due to an increase in salaries and benefits expense, resulting primarily from an increase in headcount, as well as an increase in marketing expense, partially offset by a decrease in servicing-related expenses related to the sale of our mortgage servicing rights portfolio in 2021.
Non-interest expense increased by $18.0 million during the six months ended June 30, 2022, compared to the same period in 2021. The increase was primarily due to increases in salaries and benefits expense, resulting primarily from 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.
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Analysis of Financial Condition
Loans Held for Investment
The following table summarizes our loans held for investment by portfolio segment: 
 June 30, 2022December 31, 2021
(in thousands)
Commercial$11,511,532 $9,897,561 
Energy962,239 721,373 
Mortgage finance6,549,507 7,475,497 
Real estate5,118,849 4,777,530 
Gross loans held for investment$24,142,127 $22,871,961 
Deferred income (net of direct origination costs)(74,754)(65,007)
Total loans held for investment24,067,373 22,806,954 
Allowance for credit losses on loans(229,013)(211,866)
Total loans held for investment, net$23,838,360 $22,595,088 
Total loans held for investment were $24.1 billion at June 30, 2022, an increase of $1.3 billion from December 31, 2021. 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% of total loans held for investment at June 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 compared to the first quarter of 2022, however overall balances are lower than at December 31, 2021 as interest rates have continued to rise.
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 30, 2022, we had $3.2 billion in syndicated loans, $721.6 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 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 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)June 30, 2022December 31, 2021
Non-accrual loans held for investment(1):
Commercial:
Assets of the borrowers$14,454 $18,366 
Accounts receivable and inventory4,136 5,501 
Other1,783 2,045 
Total commercial20,373 25,912 
Energy:
Oil and gas properties17,572 28,380 
Total energy17,572 28,380 
Real estate:
Assets of the borrowers12,210 13,741 
Commercial property190 2,840 
Single family residences181 1,629 
Total real estate12,581 18,210 
Total non-accrual loans held for investment50,526 72,502 
Non-accrual loans held for sale— — 
Other real estate owned— — 
Total non-performing assets$50,526 $72,502 
Non-accrual loans held for investment to total loans held for investment0.21 %0.32 %
Allowance for credit losses on loans to non-accrual loans held for investment4.5x2.9x
Loans held for investment past due 90 days and still accruing(2)$3,206 $3,467 
Loans held for investment past due 90 days to total loans held for investment0.01 %0.02 %
Loans held for sale past due 90 days and still accruing(3)$1,602 $3,986 
(1)As of June 30, 2022 and December 31, 2021, non-accrual loans include $17.3 million and $19.4 million, respectively, in loans that met the criteria for restructured.
(2)At June 30, 2022 and December 31, 2021, loans past due 90 days and still accruing includes premium finance loans of $3.1 million and $3.3 million, respectively.
(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 million provision for credit losses for the six months ended June 30, 2022, compared to a negative provision of $25.0 million for the same period in 2021. The $20.0 million provision for credit losses resulted from an increase in total loans held for investment. We recorded $2.1 million in net charge-offs during the six months ended June 30, 2022, compared to net charge-offs of $8.8 million during the six months ended June 30, 2021. Criticized loans totaled $603.5 million at June 30, 2022, compared to $582.9 million and $891.6 million at December 31, 2021 and June 30, 2021, respectively. The increase in criticized loans as compared to March 31, 2022 was primarily due to one mortgage finance credit which is adequately reserved for as of June 30, 2022, and is expected to be resolved in the third quarter of 2022.
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The table below presents key metrics related to our credit loss experience: 
June 30, 2022June 30, 2021
Allowance for credit losses on loans to total loans held for investment0.95 %0.93 %
Allowance for credit losses on loans to total average loans held for investment(1)1.04 %0.96 %
Total provision for credit losses to average total loans held for investment(1)(2)0.18 %(0.22)%
Total allowance for credit losses to total loans held for investment1.03 %1.00 %
(1)    Ratios are calculated using average balance for the six months ended June 30, 2022 and 2021, respectively.
(2) Ratios are annualized utilizing provision for credit losses for the six months ended June 30, 2022 and 2021, respectively.
The table below details net charge-offs (recoveries) as a percentage of average total loans by loan category:
Six months ended June 30,
20222021
Net Charge-offsNet Charge-offs
Netto AverageNetto Average
Charge-offsLoans(1)Charge-offsLoans(1)
Commercial$2,542 0.05 %$2,505 0.06 %
Energy(755)(0.05)%5,094 1.57 %
Mortgage finance— — %— — %
Real estate350 0.01 %1,192 0.04 %
Total$2,137 0.02 %$8,791 0.08 %
(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 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 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)June 30, 2022December 31, 2021June 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:
Total loans held for investment16.8 %34.1 %28.3 %
Total earning assets12.8 %22.9 %19.7 %
Total deposits15.9 %27.6 %23.5 %
Our liquidity needs to support growth in loans held for investment, which have 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.
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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)June 30, 2022December 31, 2021June 30, 2021
Deposits from core customers$24,176,479 $25,409,180 $26,309,504 
Deposits from core customers as a percent of total deposits95.1 %90.4 %91.2 %
Relationship brokered deposits$113,142 $1,855,892 $1,373,763 
Relationship brokered deposits as a percent of average total deposits0.4 %6.6 %4.8 %
Traditional brokered deposits$1,150,400 $844,293 $1,156,296 
Traditional brokered deposits as a percent of total deposits4.5 %3.0 %4.0 %
Average deposits from core customers(1)$24,993,505 $28,734,460 $29,545,933 
Average deposits from core customers as a percent of average total deposits94.2 %91.1 %90.2 %
Average relationship brokered deposits(1)$909,565 $1,608,587 $1,804,015 
Average relationship brokered deposits as a percent of average total deposits3.4 %5.1 %5.5 %
Average traditional brokered deposits(1)$649,036 $1,188,544 $1,393,231 
Average traditional brokered deposits as a percent of average total deposits2.4 %3.8 %4.3 %
(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)June 30, 2022December 31, 2021
Repurchase agreements$1,536 2,832 
FHLB borrowings2,650,000 2,200,000 
Total short-term borrowings$2,651,536 2,202,832 
The following table summarizes our short-term borrowing capacities net of balances outstanding.
(in thousands)June 30, 2022December 31, 2021
FHLB borrowing capacity relating to loans$3,019,254 $5,190,703 
FHLB borrowing capacity relating to securities3,416,759 3,352,111 
Total FHLB borrowing capacity(1)$6,436,013 $8,542,814 
Unused federal funds lines available from commercial banks$1,456,000 $892,000 
Unused Federal Reserve borrowings capacity$3,479,343 $2,414,702 
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 months ended June 30, 2022.
We also have long-term debt outstanding of $917.1 million as of June 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.
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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 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 months ended June 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 months ended June 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.
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 30, 2022, the quantitative estimate of the allowance for credit loss would increase by approximately $107 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
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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.
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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 established by our 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 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.
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Interest Rate Sensitivity Gap Analysis
June 30, 2022
(in thousands)0-3 month
Balance
4-12 month
Balance
1-3 year
Balance
3+ year
Balance
Total
Balance
Assets:
Interest-bearing cash and cash equivalents$4,032,931 $— $— $— $4,032,931 
Investment securities(1)48,182 1,533 243,532 3,259,452 3,552,699 
Variable loans20,857,027 104,330 47,163 268,883 21,277,403 
Fixed loans208,705 1,521,491 210,961 927,833 2,868,990 
Total loans(2)21,065,732 1,625,821 258,124 1,196,716 24,146,393 
Total interest sensitive assets$25,146,845 $1,627,354 $501,656 $4,456,168 $31,732,023 
Liabilities:
Interest bearing customer deposits$11,483,607 $— $— $— $11,483,607 
CDs & IRAs146,417 86,025 17,605 600 250,647 
Traditional brokered deposits613,424 536,976 — — 1,150,400 
Total interest bearing deposits12,243,448 623,001 17,605 600 12,884,654 
Short-term borrowings2,651,536 — — — 2,651,536 
Long-term debt258,497 — — 658,601 917,098 
Total interest sensitive liabilities$15,153,481 $623,001 $17,605 $659,201 $16,453,288 
GAP$9,993,364 $1,004,353 $484,051 $3,796,967 $— 
Cumulative GAP$9,993,364 $10,997,717 $11,481,768 $15,278,735 $15,278,735 
Non-interest bearing deposits12,555,367 
Stockholders’ equity3,006,832 
Total$15,562,199 
(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, 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 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 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.
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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
  June 30, 2022June 30, 2021
(in thousands)100 bps Increase200 bps Increase100 bps Decrease100 bps Increase200 bps Increase
Change in net interest income$91,461 $163,136 $(114,831)$24,267 $79,342 
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 in December 2021. We are also prepared with other alternative benchmarks to support the transition from LIBOR. Over the next 12 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.
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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 months ended June 30, 2022 as follows:
Total Number ofApproximate Dollar Value
Shares Purchased as Partof Shares That May Yet
Total Number ofAverage Price Paidof Publicly AnnouncedBe Purchased Under the
Shares Purchasedper SharePlans or Programs(1)Plans or Programs(1)
May 1 through May 31, 2022902,418 $53.22 902,418 $101,975,648 
June 1 through June 30, 202239,461 $50.66 39,461 $99,976,436 
Total941,879 $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.
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ITEM 6.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits

10.1
10.2
31.1
31.2
32.1
32.2
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFXBRL Taxonomy Extension Definition Linkbase Document*
101.LABXBRL Taxonomy Extension Label Linkbase Document*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document*
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

*    Filed herewith
**    Furnished herewith
+    Management contract or compensatory plan arrangement

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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, 2022
/s/ J. Matthew Scurlock
J. Matthew Scurlock
Chief Financial Officer
(Duly authorized officer and principal financial officer)

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