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TEXAS CAPITAL BANCSHARES INC/TX - Quarter Report: 2022 March (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 March 31, 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 April 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 50,723,232



Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended March 31, 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)March 31, 2022December 31, 2021
(Unaudited)
Assets
Cash and due from banks$234,853 $180,663 
Interest-bearing cash and cash equivalents5,136,680 7,765,996 
Available-for-sale debt securities2,591,218 3,538,201 
Held-to-maturity debt securities1,009,972 — 
Equity securities40,825 45,607 
Investment securities3,642,015 3,583,808 
Loans held for sale8,085 8,123 
Loans held for investment, mortgage finance5,827,965 7,475,497 
Loans held for investment15,849,434 15,331,457 
Less: Allowance for credit losses on loans211,151 211,866 
Loans held for investment, net21,466,248 22,595,088 
Premises and equipment, net24,181 20,901 
Accrued interest receivable and other assets556,154 559,897 
Goodwill and intangible assets, net17,161 17,262 
Total assets$31,085,377 $34,731,738 
Liabilities and Stockholders’ Equity
Liabilities:
Non-interest bearing$13,434,723 $13,390,370 
Interest bearing11,943,215 14,718,995 
Total deposits25,377,938 28,109,365 
Accrued interest payable8,560 7,699 
Other liabilities252,394 273,488 
Short-term borrowings1,427,033 2,202,832 
Long-term debt929,414 928,738 
Total liabilities27,995,339 31,522,122 
Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 300,000 at March 31, 2022 and December 31, 2021
300,000 300,000 
Common stock, $0.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,710,858 and 50,618,911 at March 31, 2022 and December 31, 2021, respectively
507 506 
Additional paid-in capital1,011,353 1,008,559 
Retained earnings1,983,611 1,948,274 
Treasury stock - 417 shares at cost at March 31, 2022 and December 31, 2021
(8)(8)
Accumulated other comprehensive income/(loss), net of taxes(205,425)(47,715)
Total stockholders’ equity3,090,038 3,209,616 
Total liabilities and stockholders’ equity$31,085,377 $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 March 31,
(in thousands except per share data)20222021
Interest income
Interest and fees on loans$187,657 $210,331 
Investment securities17,302 9,887 
Interest-bearing cash and cash equivalents3,571 2,933 
Total interest income208,530 223,151 
Interest expense
Deposits13,630 20,004 
Short-term borrowings758 2,592 
Long-term debt10,595 5,743 
Total interest expense24,983 28,339 
Net interest income183,547 194,812 
Provision for credit losses(2,000)(6,000)
Net interest income after provision for credit losses185,547 200,812 
Non-interest income
Service charges on deposit accounts6,022 4,716 
Wealth management and trust fee income3,912 2,855 
Brokered loan fees3,970 9,311 
Servicing income237 9,009 
Investment banking and trading income4,179 5,787 
Net gain/(loss) on sale of loans held for sale— 5,572 
Other1,962 7,103 
Total non-interest income20,282 44,353 
Non-interest expense
Salaries and benefits100,098 87,522 
Occupancy expense8,885 8,274 
Marketing4,977 1,697 
Legal and professional10,302 8,277 
Communications and technology14,700 15,969 
Federal Deposit Insurance Corporation (“FDIC”) insurance assessment3,981 6,613 
Servicing-related expenses— 12,989 
Other10,149 8,975 
Total non-interest expense153,092 150,316 
Income before income taxes52,737 94,849 
Income tax expense13,087 22,911 
Net income39,650 71,938 
Preferred stock dividends4,313 3,779 
Net income available to common stockholders$35,337 $68,159 
Other comprehensive income/(loss):
Change in unrealized gain/(loss) on available-for-sale debt securities, before tax$(199,633)$(91,407)
Income tax benefit(41,923)(19,196)
Other comprehensive loss, net of tax(157,710)(72,211)
Comprehensive loss$(118,060)$(273)
Basic earnings per common share$0.70 $1.35 
Diluted earnings per common share$0.69 $1.33 
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 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/(loss):
Net income— — — — — 71,938 — — — 71,938 
Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes— — — — — — — — (72,211)(72,211)
Total comprehensive loss(273)
Stock-based compensation expense recognized in earnings
— — — — 5,461 — — — — 5,461 
Issuance of preferred stock300,000 300,000 — — (10,277)— — — — 289,723 
Preferred stock dividend — — — — — (3,779)— — — (3,779)
Issuance of stock related to stock-based awards
— — 87,317 (2,875)— — — — (2,874)
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 
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/(loss):
Net income— — — — — 39,650 — — — 39,650 
Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes— — — — — — — — (157,710)(157,710)
Total comprehensive loss(118,060)
Stock-based compensation expense recognized in earnings
— — — — 5,407 — — — — 5,407 
Preferred stock dividend— — — — — (4,313)— — — (4,313)
Issuance of stock related to stock-based awards
— — 91,947 (2,613)— — — — (2,612)
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 
See accompanying notes to consolidated financial statements.
5


TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
 Three months ended March 31,
(in thousands)20222021
Operating activities
Net income$39,650 $71,938 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision/(benefit) for credit losses(2,000)(6,000)
Depreciation and amortization expense10,604 26,067 
Net (gain)/loss on sale of loans held for sale— (5,572)
Decrease in valuation allowance on mortgage servicing rights— (16,448)
Stock-based compensation expense5,588 6,368 
Purchases and originations of loans held for sale— (1,133,239)
Proceeds from sales and repayments of loans held for sale571 1,233,725 
Changes in operating assets and liabilities:
Accrued interest receivable and other assets43,200 48,927 
Accrued interest payable and other liabilities(24,691)(27,335)
Net cash provided by operating activities72,922 198,431 
Investing activities
Purchases of available-for-sale debt securities(376,415)(460,793)
Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities104,338 118,316 
Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities9,882 — 
Sales/(purchases) of equity securities, net940 (588)
Originations of loans held for investment, mortgage finance(26,902,960)(48,097,222)
Proceeds from pay-offs of loans held for investment, mortgage finance28,550,492 48,167,550 
Net (increase)/decrease in loans held for investment, excluding mortgage finance(517,465)(54,141)
Purchases of premises and equipment, net(2,709)(924)
Net cash provided by/(used in) investing activities866,103 (327,802)
Financing activities
Net increase/(decrease) in deposits(2,731,427)2,395,381 
Issuance of stock related to stock-based awards(2,612)(2,874)
Net proceeds from issuance of preferred stock— 289,723 
Preferred stock dividends paid(4,313)(3,779)
Net decrease in short-term borrowings(775,799)(596,164)
Net proceeds from issuance of long-term debt— 268,815 
Net cash provided by/(used in) financing activities(3,514,151)2,351,102 
Net increase/(decrease) in cash and cash equivalents(2,575,126)2,221,731 
Cash and cash equivalents at beginning of period7,946,659 9,206,380 
Cash and cash equivalents at end of period$5,371,533 $11,428,111 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$24,122 $33,860 
Cash paid during the period for income taxes302 440 
Transfers of debt securities from available-for-sale to held-to-maturity1,019,365 — 
See accompanying notes to consolidated financial statements.
6


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”, “TCBI” 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 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 are adequate to make the interim financial information not misleading. 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 do not include all of the information and notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements 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 March 31,
(in thousands except share and per share data)20222021
Numerator:
Net income$39,650 $71,938 
Preferred stock dividends4,313 3,779 
Net income available to common stockholders$35,337 $68,159 
Denominator:
Denominator for basic earnings per common share—weighted average common shares50,667,090 50,513,277 
Effect of dilutive outstanding stock-settled awards656,937 556,234 
Denominator for dilutive earnings per common share—weighted average diluted common shares51,324,027 51,069,511 
Basic earnings per common share$0.70 $1.35 
Diluted earnings per common share$0.69 $1.33 
Anti-dilutive outstanding stock-settled awards229,488 80,263 

7


(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
March 31, 2022
Available-for-sale debt securities:
U.S. Treasury securities$376,569 $— $(8,715)$367,854 
U.S. government agency securities125,000 — (11,484)113,516 
Residential mortgage-backed securities2,099,900 46 (167,844)1,932,102 
Tax-exempt asset-backed securities166,889 926 (1,970)165,845 
Credit risk transfer (“CRT”) securities14,713 — (2,812)11,901 
Total available-for-sale debt securities2,783,071 972 (192,825)2,591,218 
Held-to-maturity debt securities:
Residential mortgage-backed securities1,009,972 — (36,381)973,591 
Total held-to-maturity debt securities1,009,972 — (36,381)973,591 
Equity securities40,825 
Total investment securities(2)$3,642,015 
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 $5.5 million and $6.6 million at March 31, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, and $1.6 million at March 31, 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.
The amortized cost and estimated fair value as of March 31, 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$95 $101 $— $— 
Due after one year through five years376,612 367,899 — — 
Due after five years through ten years156,492 140,462 — — 
Due after ten years2,249,872 2,082,756 1,009,972 973,591 
Total$2,783,071 $2,591,218 $1,009,972 $973,591 
8


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
March 31, 2022
U.S. treasury securities$367,854 $(8,715)$— $— $367,854 $(8,715)
U.S. government agency securities— — 113,516 (11,484)113,516 (11,484)
Residential mortgage-backed securities962,312 (77,250)967,491 (90,594)1,929,803 (167,844)
Tax-exempt asset-backed securities70,464 (1,970)— — 70,464 (1,970)
CRT securities— — 11,901 (2,812)11,901 (2,812)
Total$1,400,630 $(87,935)$1,092,908 $(104,890)$2,493,538 $(192,825)
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 March 31, 2022, we had 81 available-for-sale debt securities in an unrealized loss position, comprised of five U.S. treasury securities, five U.S. government agency securities, 68 residential mortgage-backed securities, one tax-exempt asset-backed security 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 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 March 31, 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 $19.5 million and $1.9 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at March 31, 2022. The comparative amounts at December 31, 2021 were $22.0 million and $2.0 million, respectively.
Equity Securities
Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan. The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income on the consolidated statements of income and other comprehensive income/(loss):
Three months ended March 31,
(in thousands)20222021
Net gains/(losses) recognized during the period$(3,640)$378 
Less: Realized net gains/(losses) recognized on securities sold202 398 
Unrealized net gains/(losses) recognized on securities held$(3,842)$(20)
9


(4) Loans and Allowance for Credit Losses on Loans
Loans are summarized by portfolio segment as follows:
(in thousands)March 31, 2022December 31, 2021
Loans held for investment:
Commercial$10,175,668 $9,897,561 
Energy797,191 721,373 
Mortgage finance5,827,965 7,475,497 
Real estate4,943,195 4,777,530 
Gross loans held for investment(1)21,744,019 22,871,961 
Unearned income (net of direct origination costs)(66,620)(65,007)
Total loans held for investment(1)21,677,399 22,806,954 
Allowance for credit losses on loans(211,151)(211,866)
Total loans held for investment, net(1)$21,466,248 $22,595,088 
Loans held for sale:
Mortgage loans, at fair value$8,085 $8,123 
Total loans held for sale$8,085 $8,123 
(1)    Excludes accrued interest receivable of $49.7 million and $50.3 million at March 31, 2022 and December 31, 2021, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
10


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
March 31, 2022
Commercial
(1-7) Pass$234,841 $3,863,274 $330,939 $453,566 $305,767 $430,483 $4,264,331 $34,280 $9,917,481 
(8) Special mention3,118 26,848 4,077 26,776 — 5,043 28,622 3,907 98,391 
(9) Substandard - accruing— 666 3,410 77,915 24,366 16,847 9,458 1,664 134,326 
(9+) Non-accrual— 2,003 — 44 12,898 6,918 3,607 — 25,470 
Total commercial$237,959 $3,892,791 $338,426 $558,301 $343,031 $459,291 $4,306,018 $39,851 $10,175,668 
Energy
(1-7) Pass$34,710 $61,000 $— $— $— $1,581 $673,649 $— $770,940 
(8) Special mention— — — — — — — — — 
(9) Substandard - accruing— — — — — 7,984 — — 7,984 
(9+) Non-accrual— 8,584 — — — — 9,683 — 18,267 
Total energy$34,710 $69,584 $— $— $— $9,565 $683,332 $— $797,191 
Mortgage finance
(1-7) Pass$— $385,449 $599,899 $512,708 $550,246 $3,779,663 $— $— $5,827,965 
(8) Special mention— — — — — — — — — 
(9) Substandard - accruing— — — — — — — — — 
(9+) Non-accrual— — — — — — — — — 
Total mortgage finance$— $385,449 $599,899 $512,708 $550,246 $3,779,663 $— $— $5,827,965 
Real estate
CRE
(1-7) Pass$152,474 $548,881 $640,761 $602,864 $277,042 $552,259 $100,734 $25,101 $2,900,116 
(8) Special mention— — — — — 39,697 — 451 40,148 
(9) Substandard - accruing— 17,850 — — 40,658 40,292 — 411 99,211 
(9+) Non-accrual— — — — — 194 — — 194 
RBF
(1-7) Pass23,129 138,381 27,533 13,382 10,434 9,080 471,488 — 693,427 
(8) Special mention— — — — — — — — — 
(9) Substandard - accruing— — — — — — — — — 
(9+) Non-accrual— — — — — — — — — 
Other
(1-7) Pass61,121 167,638 146,058 112,818 89,998 197,678 37,600 29,107 842,018 
(8) Special mention— — 6,698 — — 16,217 — — 22,915 
(9) Substandard - accruing— — 6,373 — — 4,816 — — 11,189 
(9+) Non-accrual— — — — — 2,544 — 12,666 15,210 
Secured by 1-4 family
(1-7) Pass21,493 95,823 58,845 29,654 21,551 84,616 4,035 — 316,017 
(8) Special mention— 1,084 — — — 289 — — 1,373 
(9) Substandard - accruing— — — — — 1,191 — — 1,191 
(9+) Non-accrual— — — — — 186 — — 186 
Total real estate$258,217 $969,657 $886,268 $758,718 $439,683 $949,059 $613,857 $67,736 $4,943,195 
Total$530,886 $5,317,481 $1,824,593 $1,829,727 $1,332,960 $5,197,578 $5,603,207 $107,587 $21,744,019 
11



(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 

12


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
Three months ended March 31, 2022
Beginning balance$102,202 $52,568 $6,083 $51,013 $211,866 
Provision for credit losses on loans5,437 (24,522)4,159 13,699 (1,227)
Charge-offs110 — — 350 460 
Recoveries217 755 — — 972 
Net charge-offs (recoveries)(107)(755)— 350 (512)
Ending balance$107,746 $28,801 $10,242 $64,362 $211,151 
Three months ended March 31, 2021
Beginning balance$73,061 $84,064 $4,699 $92,791 $254,615 
Provision for credit losses on loans(1,001)(5,852)211 929 (5,713)
Charge-offs2,451 5,732 — — 8,183 
Recoveries1,050 715 — — 1,765 
Net charge-offs (recoveries)1,401 5,017 — — 6,418 
Ending balance$70,659 $73,195 $4,910 $93,720 $242,484 
We recorded a negative $2.0 million provision for credit losses for the three months ended March 31, 2022, compared to a negative provision of $6.0 million for the same period in 2021, resulting from a decline in criticized loans, partially offset by an increase in loans held for investment, excluding mortgage finance. We recorded $512,000 in net recoveries during the three months ended March 31, 2022, compared to net charge-offs of $6.4 million during the same period in 2021. Criticized loans totaled $476.1 million at March 31, 2022, compared to $945.1 million at March 31, 2021.
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 March 31, 2021, we had $12.7 million in collateral-dependent real estate loans, collateralized by real estate property.
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
March 31, 2022
Commercial$13,349 $2,142 $3,808 $19,299 $25,470 $10,130,899 $10,175,668 $4,277 
Energy— — — — 18,267 778,924 797,191 8,584 
Mortgage finance— — — — — 5,827,965 5,827,965 — 
Real estate:
CRE
187 194 1,986 2,367 194 3,037,108 3,039,669 — 
RBF
— — — — — 693,427 693,427 — 
Other
— — — — 15,210 876,122 891,332 15,210 
Secured by 1-4 family
— — 237 237 186 318,344 318,767 — 
Total$13,536 $2,336 $6,031 $21,903 $59,327 $21,662,789 $21,744,019 $28,071 
(1)Loans past due 90 days and still accruing includes premium finance loans of $3.2 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 March 31, 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 three months ended March 31, 2022. Accrued interest of $4,000 was reversed during the three months ended March 31, 2022.
As of March 31, 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 March 31, 2022 and December 31, 2021, $18.0 million and $19.4 million, respectively, met the criteria for restructured. These loans had no unfunded commitments at their respective balance sheet dates.
We did not have any loans that were restructured during the three months ended March 31, 2022 or 2021.
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(5) Short-term Borrowings and Long-term Debt
The table below presents a summary of short-term borrowings:
(in thousands)March 31, 2022December 31, 2021
Customer repurchase agreements$2,033 $2,832 
Federal Home Loan Bank borrowings1,425,000 2,200,000 
Total short-term borrowings$1,427,033 $2,202,832 
The table below presents a summary of long-term debt:
(in thousands)March 31, 2022December 31, 2021
Bank-issued floating rate senior unsecured credit-linked notes due 2024$270,988 $270,487 
Bank-issued 5.75% fixed rate subordinated notes due 2026
174,000 173,935 
Company-issued 4.00% fixed rate subordinated notes due 2031
371,020 370,910 
Trust preferred floating rate subordinated debentures due 2032 to 2036113,406 113,406 
Total long-term debt$929,414 $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 March 31,
(in thousands)20222021
Beginning balance of allowance for off-balance sheet credit losses
$17,265 $17,434 
Provision for off-balance sheet credit losses
(773)(287)
Ending balance of allowance for off-balance sheet credit losses
$16,492 $17,147 
(in thousands)March 31, 2022December 31, 2021
Commitments to extend credit - period end balance$9,917,556 $9,445,763 
Standby letters of credit - period end balance364,765 357,672 
(7) Regulatory Restrictions
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.
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
14


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 March 31, 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 March 31, 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.
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
March 31, 2022
CET1
Company$2,987,142 11.46 %$1,824,684 7.00 %N/A N/A
Bank3,059,948 11.74 %1,824,675 7.00 %1,694,341 6.50 %
Total capital (to risk-weighted assets)
Company4,087,685 15.68 %2,737,026 10.50 %2,606,691 10.00 %
Bank3,589,472 13.77 %2,737,013 10.50 %2,606,679 10.00 %
Tier 1 capital (to risk-weighted assets)
Company3,397,142 13.03 %2,215,688 8.50 %1,564,015 6.00 %
Bank3,219,948 12.35 %2,215,677 8.50 %2,085,343 8.00 %
Tier 1 capital (to average assets)(1)
Company3,397,142 9.89 %1,373,788 4.00 %N/AN/A
Bank3,219,948 9.38 %1,373,632 4.00 %1,717,040 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, as applicable, the fully phased-in 2.5% CET1 capital buffer under the Basel III Capital Rules.
Dividends that may be paid by banks are routinely restricted by various regulatory authorities, including federal banking law requirements concerning the payment of dividends. The Basel III Capital Rules further limit the amount of dividends that may
15


be paid by us or our Bank. No dividends were declared or paid on our common stock during the three months ended March 31, 2022, or during the year ended December 31, 2021.
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.
(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 March 31,
(in thousands)20222021
Stock-settled awards:
RSUs$5,407 $5,460 
Restricted stock— 
Cash-settled units181 907 
Total$5,588 $6,368 
 
(in thousands except period data)March 31, 2022
Unrecognized compensation expense related to unvested stock-settled awards$46,901 
Weighted average period over which expense is expected to be recognized, in years2.7

16


(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
March 31, 2022
Available-for-sale debt securities:(1)
U.S. Treasury securities$367,854 $— $— 
U.S. government agency securities— 113,516 — 
Residential mortgage-backed securities— 1,932,102 — 
Tax-exempt asset-backed securities— — 165,845 
CRT securities— — 11,901 
Equity securities(1)(2)29,154 11,671 — 
Loans held for sale(3)— — 8,085 
Derivative assets(4)— 30,238 — 
Derivative liabilities(4)— 30,238 — 
Non-qualified deferred compensation plan liabilities(5)26,474 — — 
December 31, 2021
Available-for-sale debt securities:(1)
U.S. government agency securities$— $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.

17


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 March 31, 2022
Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities$180,033 $— $(3,736)$— $(10,452)$165,845 
CRT securities11,846 — — — 55 11,901 
Loans held for sale(2)7,658 933 (41)— (465)8,085 
Three months ended March 31, 2021
Available-for-sale debt securities:(1)
Tax-exempt asset-backed securities$199,176 $— $(11,371)$— $(6,239)$181,566 
CRT securities11,417 — — — 48 11,465 
Loans held for sale(2)6,933 537 (279)79 7,275 
(1)Unrealized gains/(losses) on available-for-sale debt securities are recorded in AOCI and relate to assets that remain outstanding at period end. 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. At March 31, 2022, the discount rates utilized ranged from 4.09% to 4.16% and the weighted-average life ranged from 4.33 years to 4.40 years. On a combined amortized cost weighted-average basis a discount rate of 4.12% and weighted-average life of 4.36 years were utilized to determine the fair value of these securities at March 31, 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 March 31, 2022, the discount rates utilized ranged from 4.57% to 9.54% and the weighted-average life ranged from 4.84 years to 9.38 years. On a combined amortized cost weighted-average basis a discount rate of 6.23% and a weighted-average life of 6.35 years were utilized to determine the fair value of these securities at March 31, 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 March 31, 2022, the fair value of these loans was calculated using a weighted-average discounted price of 92.3% compared to 97.8% at December 31, 2021.
18


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
March 31, 2022
Financial assets:
Cash and cash equivalents$5,371,533 $5,371,533 $5,371,533 $— $— 
Available-for-sale debt securities2,591,218 2,591,218 367,854 2,045,618 177,746 
Held-to-maturity debt securities1,009,972 973,591 — 973,591 — 
Equity securities40,825 40,825 29,154 11,671 — 
Loans held for sale8,085 8,085 — — 8,085 
Loans held for investment, net21,466,248 21,436,263 — — 21,436,263 
Derivative assets30,238 30,238 — 30,238 — 
Financial liabilities:
Total deposits25,377,938 25,378,165 — — 25,378,165 
Short-term borrowings1,427,033 1,427,033 — 1,427,033 — 
Long-term debt929,414 913,678 — 913,678 — 
Derivative liabilities30,238 30,238 — 30,238 — 
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 — 
(10) Derivative Financial Instruments
The notional amounts and estimated fair values of derivative positions outstanding are presented in the following table.
 March 31, 2022December 31, 2021
Estimated Fair ValueEstimated Fair Value
(in thousands)Notional
Amount
Asset DerivativeLiability DerivativeNotional
Amount
Asset DerivativeLiability Derivative
Non-hedging derivatives:
Financial institution counterparties:
Commercial loan/lease interest rate swaps
$1,529,665 $29,161 $8,072 $1,768,045 $3,228 $37,694 
Commercial loan/lease interest rate caps
168,701 713 — 191,291 94 — 
Customer counterparties:
Commercial loan/lease interest rate swaps
1,529,665 8,072 29,161 1,768,045 37,694 3,228 
Commercial loan/lease interest rate caps
168,701 — 713 191,291 — 94 
Gross derivatives37,946 37,946 41,016 41,016 
Offsetting derivative assets/liabilities(7,708)(7,708)(3,228)(3,228)
Net derivatives included on the consolidated balance sheets$30,238 $30,238 $37,788 $37,788 
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The weighted-average received and paid interest rates for interest rate swaps outstanding were as follows:
  March 31, 2022December 31, 2021
  ReceivedPaidReceivedPaid
Non-hedging interest rate swaps - financial institution counterparties1.58 %2.83 %1.15 %2.65 %
Non-hedging interest rate swaps - customer counterparties2.83 %1.58 %2.65 %1.15 %
The weighted-average strike rate for outstanding interest rate caps was 2.47% at March 31, 2022 and 2.54% at December 31, 2021.
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 $30.2 million at March 31, 2022, and approximately $37.8 million at December 31, 2021. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap and cap values, as well as for changes in the value of forward sale commitments. We had $14.3 million and $40.3 million in cash collateral pledged for these derivatives at March 31, 2022 and December 31, 2021, respectively, included in interest-bearing cash and cash equivalents on the consolidated balance sheets.
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 $126.8 million at March 31, 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 $750,000 at March 31, 2022 and $2.3 million at December 31, 2021. The fair value of these exposures was insignificant to the consolidated financial statements at both March 31, 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 $197.8 million at March 31, 2022, compared to 15 agreements having a notional amount of $156.1 million at December 31, 2021.
(11) New Accounting Standards
Accounting Standard Update (“ASU”) ASU 2022-01, “Derivatives and Hedging (Topic 815)” (“ASU 2022-01”) clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023 and is not expected to have a significant impact on our consolidated financial statements.
ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2022-02”) eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. ASU 2022-02 is effective January 1, 2023 and will have an impact on our financial statement disclosures.
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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 months ended March 31, 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 months ended March 31, 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 and market conditions in Texas, the United States or internationally, 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
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Selected income statement data and key performance indicators are presented in the table below:
For the Three Months Ended
(dollars in thousands except per share data)March 31, 2022March 31, 2021
Net interest income$183,547 $194,812 
Provision for credit losses(2,000)(6,000)
Non-interest income20,282 44,353 
Non-interest expense153,092 150,316 
Income before income taxes52,737 94,849 
Income tax expense13,087 22,911 
Net income39,650 71,938 
Preferred stock dividends4,313 3,779 
Net income available to common stockholders$35,337 $68,159 
Earnings per common share - basic$0.70 $1.35 
Earnings per common share - diluted$0.69 $1.33 
Net interest margin2.23 %2.04 %
Return on average assets0.47 %0.73 %
Return on average common equity4.97 %10.08 %
Non-interest income to average earning assets0.25 %0.46 %
Efficiency ratio(1)75.1 %62.9 %
Non-interest expense to average earning assets1.86 %1.57 %
(1)    Non-interest expense divided by the sum of net interest income and non-interest income.
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We reported net income of $39.7 million and net income available to common stockholders of $35.3 million for the first quarter of 2022 compared to net income of $71.9 million and net income available to common stockholders of $68.2 million for the first quarter of 2021. On a fully diluted basis, earnings per common share were $0.69 for the first quarter of 2022, compared to $1.33 for the first quarter of 2021. Return on average common equity (“ROE”) was 4.97% and return on average assets (“ROA”) was 0.47% for the first quarter of 2022, compared to 10.08% and 0.73%, respectively, for the first quarter of 2021. The decrease in net income for the first quarter of 2022 compared to the first quarter of 2021 resulted primarily from decreases in net interest income and non-interest income.
Details of the changes in the various components of net income are discussed below.
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Taxable Equivalent Net Interest Income Analysis

Three months ended March 31, 2022Three months ended March 31, 2021
(in thousands except percentages)Average
Balance
Income/
Expense
Yield/
Rate
Average
Balance
Income/
Expense
Yield/
Rate
Assets
Investment securities(1)$3,669,257 $17,743 1.96 %$3,422,571 $10,359 1.23 %
Interest bearing cash and cash equivalents8,552,300 3,571 0.17 %11,845,547 2,933 0.10 %
Loans held for sale7,633 113 6.01 %243,326 1,595 2.66 %
Loans held for investment, mortgage finance5,732,901 43,466 3.07 %8,177,759 64,942 3.22 %
Loans held for investment(1)(2)15,686,319 144,134 3.73 %15,457,888 143,935 3.78 %
Less: Allowance for credit losses on loans212,612 — — 254,697 — — 
Loans held for investment, net21,206,608 187,600 3.59 %23,380,950 208,877 3.62 %
Total earning assets33,435,798 209,027 2.54 %38,892,394 223,764 2.33 %
Cash and other assets819,486 1,064,679 
Total assets$34,255,284 $39,957,073 
Liabilities and Stockholders’ Equity
Transaction deposits$2,432,687 $3,962 0.66 %$3,991,966 $5,861 0.60 %
Savings deposits10,420,545 8,583 0.33 %12,889,974 10,788 0.34 %
Time deposits1,038,722 1,085 0.42 %2,204,242 3,355 0.62 %
Total interest bearing deposits13,891,954 13,630 0.40 %19,086,182 20,004 0.43 %
Short-term borrowings1,770,781 758 0.17 %2,686,398 2,592 0.39 %
Long-term debt929,005 10,595 4.63 %464,731 5,743 5.01 %
Total interest bearing liabilities16,591,740 24,983 0.61 %22,237,311 28,339 0.52 %
Non-interest bearing deposits14,235,749 14,421,505 
Other liabilities243,141 309,644 
Stockholders’ equity3,184,654 2,988,613 
Total liabilities and stockholders’ equity$34,255,284 $39,957,073 
Net interest income(1)$184,044 $195,425 
Net interest margin2.23 %2.04 %
Net interest spread1.93 %1.81 %
 
(1)Taxable equivalent rates used where applicable.
(2)Average balances include non-accrual loans which are stated net of unearned income.

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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 March 31, 2022/2021
 Net
Change
Change due to(1)
(in thousands)VolumeYield/Rate(2)
Interest income:
Investment securities$7,384 $748 $6,636 
Interest bearing cash and cash equivalents638 (812)1,450 
Loans held for sale(1,482)(1,546)64 
Loans held for investment, mortgage finance loans(21,476)(19,412)(2,064)
Loans held for investment199 2,129 (1,930)
Total(22,759)(18,829)(3,930)
Interest expense:
Transaction deposits(1,899)(2,307)408 
Savings deposits(2,205)(2,070)(135)
Time deposits(2,270)(1,782)(488)
Short-term borrowings(1,834)(880)(954)
Long-term debt4,852 5,735 (883)
Total(3,356)(1,304)(2,052)
Net interest income$(19,403)$(17,525)$(1,878)
(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 $183.5 million for the three months ended March 31, 2022, compared to $194.8 million for the same period in 2021. The decrease was primarily due to a decrease in average loans held for investment, mortgage finance, partially offset by an increase in investment securities yields.
Average earning assets for the three months ended March 31, 2022 decreased $5.5 billion compared to the same period in 2021, and included a $3.3 billion decrease in average interest-bearing cash and cash equivalents and a $2.4 billion decrease in average loans held for investment, mortgage finance. 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. The decrease in average loans held for investment, mortgage finance, was primarily due to reduced volumes as a result of the rising interest rate environment. Average interest-bearing liabilities for the three months ended March 31, 2022 decreased $5.6 billion compared to the same period in 2021, primarily due to a $5.2 billion decrease in average interest-bearing deposits. Average demand deposits for the three months ended March 31, 2022 decreased $185.8 million compared to the same period in 2021.
Net interest margin for the three months ended March 31, 2022 was 2.23% compared to 2.04% for the same period in 2021, primarily due to a shift in the composition of earning assets, primarily declines in interest-bearing cash and cash equivalents and LHI, mortgage finance.
The yield on total loans held for investment decreased to 3.59% for the three months ended March 31, 2022 compared to 3.62% for the same period in 2021, and the yield on earning assets increased to 2.54% for the three months ended March 31, 2022 compared to 2.33% for the same period in 2021. The average cost of total deposits decreased to 0.20% for the three months ended March 31, 2022 from 0.24% for the same period in 2021, and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to 0.30% for the three months ended March 31, 2022 compared to 0.29% for the same period in 2021.
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Non-interest Income 
 Three months ended March 31,
(in thousands)20222021
Service charges on deposit accounts$6,022 $4,716 
Wealth management and trust fee income3,912 2,855 
Brokered loan fees3,970 9,311 
Servicing income237 9,009 
Investment banking and trading income4,179 5,787 
Net gain/(loss) on sale of loans held for sale— 5,572 
Other1,962 7,103 
Total non-interest income$20,282 $44,353 
Non-interest income decreased $24.1 million during the three months ended March 31, 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.
Non-interest Expense 
 Three months ended March 31,
(in thousands)20222021
Salaries and benefits$100,098 $87,522 
Occupancy expense8,885 8,274 
Marketing4,977 1,697 
Legal and professional10,302 8,277 
Communications and technology14,700 15,969 
FDIC insurance assessment3,981 6,613 
Servicing-related expenses— 12,989 
Other10,149 8,975 
Total non-interest expense$153,092 $150,316 
Non-interest expense for the three months ended March 31, 2022 increased $2.8 million compared to the same period in 2021. The increase was primarily due to increases in salaries and benefits, partially offset by a decrease in servicing-related expenses. The increase in salaries and benefits expense was primarily due to an increase in headcount, while the decrease in service-related expenses resulted primarily from the sale of our mortgage servicing rights portfolio in 2021.
Analysis of Financial Condition
Loans Held for Investment
The following table summarizes our loans held for investment by portfolio segment: 
 March 31, 2022December 31, 2021
(in thousands)
Commercial$10,175,668 $9,897,561 
Energy797,191 721,373 
Mortgage finance5,827,965 7,475,497 
Real estate4,943,195 4,777,530 
Gross loans held for investment$21,744,019 $22,871,961 
Deferred income (net of direct origination costs)(66,620)(65,007)
Total loans held for investment21,677,399 22,806,954 
Allowance for credit losses on loans(211,151)(211,866)
Total loans held for investment, net$21,466,248 $22,595,088 
Total loans held for investment were $21.7 billion at March 31, 2022, a decline of $1.1 billion from December 31, 2021. The decline in total loans held for investment was primarily due to a decline in mortgage finance loans, partially offset by increases in commercial and real estate loans. 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 March 31, 2022 compared to 33% at December 31, 2021. Volumes fluctuate based on the level of market
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demand for the product and the number of days between purchase and sale of the loans, which can be affected by changes in overall market interest rates, and tend to peak at the end of each month. The balances of mortgage finance loans have continued to decline in the first quarter of 2022 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 March 31, 2022, we had $2.7 billion in syndicated loans, $649.5 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 March 31, 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 March 31, 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.
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)March 31, 2022December 31, 2021
Non-accrual loans held for investment(1):
Commercial:
Assets of the borrowers$17,927 $18,366 
Accounts receivable and inventory5,450 5,501 
Other2,093 2,045 
Total commercial25,470 25,912 
Energy:
Oil and gas properties18,267 28,380 
Total energy18,267 28,380 
Real estate:
Assets of the borrowers12,666 13,741 
Commercial property2,738 2,840 
Single family residences186 1,629 
Total real estate15,590 18,210 
Total non-accrual loans held for investment59,327 72,502 
Non-accrual loans held for sale— — 
Other real estate owned— — 
Total non-performing assets$59,327 $72,502 
Non-accrual loans held for investment to total loans held for investment0.27 %0.32 %
Allowance for credit losses on loans to non-accrual loans held for investment3.6x2.9x
Loans held for investment past due 90 days and still accruing(2)$6,031 $3,467 
Loans held for investment past due 90 days to total loans held for investment0.03 %0.02 %
Loans held for sale past due 90 days and still accruing(3)$3,865 $3,986 
(1)As of March 31, 2022 and December 31, 2021, non-accrual loans included $18.0 million and 19.4 million, respectively, in loans that met the criteria for restructured.
(2)At March 31, 2022 and December 31, 2021, loans past due 90 days and still accruing includes premium finance loans of $3.2 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.
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We recorded a $2.0 million negative provision for credit losses for the three months ended March 31, 2022, compared to a negative provision of $6.0 million for the three months ended March 31, 2021. The $2.0 million negative provision for credit losses resulted from a decline in criticized loans, partially offset by an increase in loans held for investment, excluding mortgage finance. We recorded $512,000 in net recoveries during the three months ended March 31, 2022, compared to net charge-offs of $6.4 million during the three months ended March 31, 2021. Criticized loans totaled $476.1 million at March 31, 2022, compared to $945.1 million at March 31, 2021.
The table below presents key metrics related to our credit loss experience: 
March 31, 2022March 31, 2021
Allowance for credit losses on loans to total loans held for investment0.97 %0.99 %
Allowance for credit losses on loans to total average loans held for investment0.99 %1.03 %
Total provision for credit losses to average total loans held for investment(1)(0.04)%(0.10)%
Total allowance for credit losses to total loans held for investment1.05 %1.06 %
(1)    Interim period ratios are annualized.
The table below details net charge-offs (recoveries) as a percentage of average total loans by loan category:
Three months ended March 31,
20222021
Net Charge-offsNet Charge-offs
Net Charge-offsto Average Loans(1)Net Charge-offsto Average Loans(1)
Commercial$(107)— %$1,401 0.06 %
Energy(755)(0.40)%5,017 2.94 %
Mortgage finance— — %— — %
Real estate350 0.03 %— — %
Total$(512)(0.01)%$6,418 0.11 %
(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 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 three 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)March 31, 2022December 31, 2021March 31, 2021
Interest-bearing cash and cash equivalents$5,136,680 $7,765,996 $11,212,276 
Interest-bearing cash and cash equivalents as a percent of:
Total loans held for investment23.7 %34.1 %45.9 %
Total earning assets17.0 %22.9 %28.8 %
Total deposits20.2 %27.6 %33.6 %
Our liquidity needs to support growth in loans held for investment 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)March 31, 2022December 31, 2021March 31, 2021
Deposits from core customers$24,020,695 $25,409,180 $30,102,156 
Deposits from core customers as a percent of total deposits94.7 %90.4 %90.1 %
Relationship brokered deposits$812,108 $1,855,892 $1,933,376 
Relationship brokered deposits as a percent of average total deposits3.2 %6.6 %5.8 %
Traditional brokered deposits$545,135 $844,293 $1,356,438 
Traditional brokered deposits as a percent of total deposits2.1 %3.0 %4.1 %
Average deposits from core customers(1)$25,906,368 $28,734,460 $29,980,945 
Average deposits from core customers as a percent of average total deposits92.1 %91.1 %89.5 %
Average relationship brokered deposits(1)$1,517,430 $1,608,587 $1,912,099 
Average relationship brokered deposits as a percent of average total deposits5.4 %5.1 %5.7 %
Average traditional brokered deposits(1)$703,905 $1,188,544 $1,614,643 
Average traditional brokered deposits as a percent of average total deposits2.5 %3.8 %4.8 %
(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)March 31, 2022December 31, 2021
Repurchase agreements$2,033 2,832 
FHLB borrowings1,425,000 2,200,000 
Total short-term borrowings$1,427,033 2,202,832 
The following table summarizes our short-term borrowing capacities net of balances outstanding.
(in thousands)March 31, 2022December 31, 2021
FHLB borrowing capacity relating to loans$4,200,346 $5,190,703 
FHLB borrowing capacity relating to securities3,378,391 3,352,111 
Total FHLB borrowing capacity(1)$7,578,737 $8,542,814 
Unused federal funds lines available from commercial banks$1,096,000 $892,000 
Unused Federal Reserve borrowings capacity$2,806,914 $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 three months ended March 31, 2022.
We also have long-term debt outstanding of $929.4 million as of March 31, 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 - Borrowings 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 our subsidiary 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 Restrictions 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 March 31, 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
Our equity capital averaged $3.2 billion for the three months ended March 31, 2022 compared to $3.0 billion for the same period in 2021. 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.
See Note 7 - Regulatory Restrictions in the accompanying notes to the consolidated unaudited financial statements included elsewhere in this report for additional information regarding dividend restrictions.
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. 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. Additionally, the financial instruments subject to market risk can be classified either as held for trading purposes or held for 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 March 31, 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
March 31, 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$5,136,680 $— $— $— $5,136,680 
Investment securities(1)53,362 1,616 262,638 3,324,399 3,642,015 
Total variable loans18,758,901 103,979 27,640 270,758 19,161,278 
Total fixed loans260,346 1,338,040 227,872 764,568 2,590,826 
Total loans(2)19,019,247 1,442,019 255,512 1,035,326 21,752,104 
Total interest sensitive assets$24,209,289 $1,443,635 $518,150 $4,359,725 $30,530,799 
Liabilities:
Interest bearing customer deposits$11,092,017 $— $— $— $11,092,017 
CDs & IRAs54,225 233,417 17,897 524 306,063 
Traditional brokered deposits— 545,135 — — 545,135 
Total interest bearing deposits11,146,242 778,552 17,897 524 11,943,215 
Short-term borrowings1,427,033 — — — 1,427,033 
Long-term debt270,988 — — 658,426 929,414 
Total interest sensitive liabilities$12,844,263 $778,552 $17,897 $658,950 $14,299,662 
GAP$11,365,026 $665,083 $500,253 $3,700,775 $— 
Cumulative GAP$11,365,026 $12,030,109 $12,530,362 $16,231,137 $16,231,137 
Non-interest bearing deposits13,434,723 
Stockholders’ equity3,090,038 
Total$16,524,761 
(1)Available-for-sale debt securities and equity securities based on fair market value.
(2)Total loans includes loans held for investments, stated at gross, and loans held for sale.
While a gap interest table is useful in analyzing interest rate sensitivity, an interest rate sensitivity simulation provides a better illustration of the sensitivity of earnings to changes in interest rates. Earnings are also affected by the effects of changing interest rates on the value of funding derived from 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, 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. We are currently not using derivatives to manage our interest rate exposure, although we may do so in the future if that appears advisable.
For modeling purposes, the “shock test” scenarios as of March 31, 2022 and 2021 assume immediate, sustained 100 and 200 basis point increases in interest rates. Although short-term rates have begun to rise, they still remained low through the first three months of 2021 and 2022, and, as such, we do 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 decreasing 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
  March 31, 2022March 31, 2021
(in thousands)100 bps Increase200 bps Increase100 bps Increase200 bps Increase
Change in net interest income$70,943 $149,105 $38,809 $93,622 
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 has 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 Bloomberg Short Term Yield Index 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
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: April 21, 2022
/s/ J. Matthew Scurlock
J. Matthew Scurlock
Chief Financial Officer
(Duly authorized officer and principal financial officer)

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