TEXAS CAPITAL BANCSHARES INC/TX - Quarter Report: 2023 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, 2023


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

For the transition period from to

Commission file number 001-34657

TEXAS CAPITAL BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)


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

2000 McKinney Avenue

Suite 700

Dallas

USA

75201

(Address of principal executive offices)

(Zip Code)

214/932-6600

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TCBI

Nasdaq Stock Market

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

TCBIO

Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ ☐ 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. (Check one):

Large Accelerated Filer

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

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

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

On April 19, 2023, 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 47,869,688

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Texas Capital Bancshares, Inc.

Form 10-Q

Quarter Ended March 31, 2023

Index


Part I.—Financial Information
	Item 1.	Financial Statements - Unaudited	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Income and Other Comprehensive Income/(Loss)	4
		Consolidated Statements of Stockholders' Equity	5
		Consolidated Statements of Cash Flows	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	34

Part II.—Other Information
	Item 1.	Legal Proceedings	35
	Item 1A.	Risk Factors	35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 6.	Exhibits	37

Signatures			38

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS - UNAUDITED



(in thousands except share data)	March 31, 2023		December 31, 2022
Assets
Cash and due from banks	$	264,211	$	233,637
Interest bearing cash and cash equivalents	3,385,494		4,778,623
Available-for-sale debt securities	3,394,293		2,615,644
Held-to-maturity debt securities	918,962		935,514
Equity securities	32,714		33,956
Investment securities	4,345,969		3,585,114
Loans held for sale	27,608		36,357
Loans held for investment, mortgage finance	4,060,570		4,090,033
Loans held for investment	16,014,497		15,197,307
Less: Allowance for credit losses on loans	260,928		253,469
Loans held for investment, net	19,814,139		19,033,871

Premises and equipment, net	25,268		26,382
Accrued interest receivable and other assets	732,468		719,162
Goodwill and intangibles, net	1,496		1,496
Total assets	$	28,596,653	$	28,414,642
Liabilities and Stockholders’ Equity
Liabilities:
Non-interest bearing deposits	$	9,500,583	$	9,618,081
Interest bearing deposits	12,679,114		13,238,799
Total deposits	22,179,697		22,856,880
Accrued interest payable	31,198		24,000
Other liabilities	273,665		345,827
Short-term borrowings	2,100,000		1,201,142
Long-term debt	932,119		931,442
Total liabilities	25,516,679		25,359,291
Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 300,000 at March 31, 2023 and December 31, 2022	300,000		300,000
Common stock, $0.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,947,306 and 50,867,298 at March 31, 2023 and December 31, 2022, respectively	509		509
Additional paid-in capital	1,031,905		1,025,593
Retained earnings	2,297,850		2,263,502
Treasury stock - 3,095,444 and 2,083,535 shares at cost at March 31, 2023 and December 31, 2022, respectively	(175,528)		(115,310)
Accumulated other comprehensive loss, net of taxes	(374,762)		(418,943)
Total stockholders’ equity	3,079,974		3,055,351
Total liabilities and stockholders’ equity	$	28,596,653	$	28,414,642

See accompanying notes to consolidated financial statements.

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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)		2023		2022
Interest income
Interest and fees on loans		$	297,438	$	187,656
Investment securities		25,292		17,302
Interest bearing cash and cash equivalents		62,436		3,571
Total interest income		385,166		208,529
Interest expense
Deposits		120,094		13,630
Short-term borrowings		14,744		758
Long-term debt		14,983		10,595

Total interest expense		149,821		24,983
Net interest income		235,345		183,546
Provision for credit losses		28,000		(2,000)
Net interest income after provision for credit losses		207,345		185,546
Non-interest income
Service charges on deposit accounts		5,022		6,115
Wealth management and trust fee income		3,429		3,912
Brokered loan fees		1,895		3,970

Investment banking and trading income		18,768		4,179


Other		8,289		2,107
Total non-interest income		37,403		20,283
Non-interest expense
Salaries and benefits		128,670		99,859
Occupancy expense		9,619		8,885
Marketing		9,044		4,977
Legal and professional		14,514		10,302
Communications and technology		17,523		14,700
Federal Deposit Insurance Corporation insurance assessment		2,170		3,981


Other		12,487		10,388
Total non-interest expense		194,027		153,092
Income before income taxes		50,721		52,737
Income tax expense		12,060		13,087
Net income		38,661		39,650
Preferred stock dividends		4,313		4,313
Net income available to common stockholders		$	34,348	$	35,337
Other comprehensive income/(loss):
Change in unrealized gain/(loss)		$	42,953	$	(200,619)
Amounts reclassified into net income		12,973		986
Other comprehensive income/(loss)		55,926		(199,633)
Income tax expense/(benefit)		11,745		(41,923)
Other comprehensive income/(loss), net of tax		44,181		(157,710)
Comprehensive income/(loss)		$	82,842	$	(118,060)
Basic earnings per common share		$	0.71	$	0.70
Diluted earnings per common share		$	0.70	$	0.69

See accompanying notes to consolidated financial statements.

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TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED


	Preferred Stock			Common Stock			Additional				Treasury Stock			Accumulated Other
							Paid-in		Retained					Comprehensive
(in thousands except share data)	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Total
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 other comprehensive income/(loss), 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	1		(2,613)		—		—	—		—		(2,612)



Balance at March 31, 2022	300,000	$	300,000	50,710,858	$	507	$	1,011,353	$	1,983,611	(417)	$	(8)	$	(205,425)	$	3,090,038

Balance at December 31, 2022 (audited)	300,000	$	300,000	50,867,298	$	509	$	1,025,593	$	2,263,502	(2,083,535)	$	(115,310)	$	(418,943)	$	3,055,351

Comprehensive income/(loss):
Net income	—	—		—	—		—		38,661		—	—		—		38,661
Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		44,181		44,181
Total comprehensive income																82,842

Stock-based compensation expense recognized in earnings	—	—		—	—		8,438		—		—	—		—		8,438

Preferred stock dividend	—	—		—	—		—		(4,313)		—	—		—		(4,313)
Issuance of stock related to stock-based awards	—	—		80,008	—		(2,126)		—		—	—		—		(2,126)
Repurchase of common stock	—	—		—	—		—		—		(1,011,909)	(60,218)		—		(60,218)



Balance at March 31, 2023	300,000	$	300,000	50,947,306	$	509	$	1,031,905	$	2,297,850	(3,095,444)	$	(175,528)	$	(374,762)	$	3,079,974

See accompanying notes to consolidated financial statements.

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TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED



	Three Months Ended March 31,
(in thousands)	2023		2022
Operating activities
Net income	$	38,661	$	39,650
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses	28,000		(2,000)

Depreciation and amortization	8,683		10,604

Net gain recognized on investment securities	(1,734)		—



Stock-based compensation expense	8,438		5,588


Proceeds from sales and repayments of loans held for sale	8,749		571



Changes in operating assets and liabilities:
Accrued interest receivable and other assets	(28,286)		43,200
Accrued interest payable and other liabilities	(44,308)		(24,691)
Net cash provided by operating activities	18,203		72,922
Investing activities
Purchases of available-for-sale securities	(849,391)		(376,415)
Proceeds from sales of available-for-sale debt securities	56,923		—
Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities	45,716		104,338
Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities	17,489		9,882
Sales/(purchases) of equity securities, net	2,487		940
Originations of loans held for investment, mortgage finance	(14,897,110)		(26,902,960)
Proceeds from pay-offs of loans held for investment, mortgage finance	14,926,573		28,550,492

Net increase in loans held for investment, excluding mortgage finance loans	(837,100)		(517,465)

Purchase of premises and equipment, net	(1,363)		(2,709)


Net cash provided by/(used in) investing activities	(1,535,776)		866,103
Financing activities
Net decrease in deposits	(677,183)		(2,731,427)
Issuance of stock related to stock-based awards	(2,126)		(2,612)



Preferred dividends paid	(4,313)		(4,313)
Repurchase of common stock	(60,218)		—
Net increase (decrease) in short-term borrowings	898,858		(775,799)




Net cash provided by/(used in) financing activities	155,018		(3,514,151)
Net decrease in cash and cash equivalents	(1,362,555)		(2,575,126)
Cash and cash equivalents at beginning of period	5,012,260		7,946,659
Cash and cash equivalents at end of period	$	3,649,705	$	5,371,533
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	142,623	$	24,122
Cash paid during the period for income taxes	451		302

Transfers of debt securities from available-for-sale to held-to-maturity	—		1,019,365

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(1) Operations and Summary of Significant Accounting Policies

Organization and Nature of Business

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

The Company serves the needs of commercial businesses, entrepreneurs and professionals located in Texas through a custom array of financial products and services with high-quality personal service.

Basis of Presentation

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

The consolidated interim financial statements are unaudited, and certain information and disclosures in the notes to consolidated unaudited financial statements that are presented in accordance with GAAP have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made present a fair presentation of our financial position and results of operations. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, the financial statements and the notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements do not include all of the information and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2022, included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 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)		2023		2022
Numerator:
Net income		$	38,661	$	39,650
Preferred stock dividends		4,313		4,313
Net income available to common stockholders		$	34,348	$	35,337
Denominator:
Denominator for basic earnings per common share—weighted average common shares		48,264,121		50,667,090
Effect of dilutive outstanding stock-settled awards		616,604		656,937
Denominator for dilutive earnings per common share—weighted average diluted common shares		48,880,725		51,324,027
Basic earnings per common share		$	0.71	$	0.70
Diluted earnings per common share		$	0.70	$	0.69
Anti-dilutive outstanding stock-settled awards		252,308		229,488

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(3) Investment Securities

The following is a summary of the Company’s investment securities:


(in thousands)	Amortized Cost(1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2023
Available-for-sale debt securities:
U.S. Treasury securities	$	644,697	$	—	$	(21,385)	$	623,312
U.S. government agency securities	125,000		—		(20,883)		104,117
Residential mortgage-backed securities	2,965,866		1,077		(312,007)		2,654,936


CRT securities	14,507		—		(2,579)		11,928
Total available-for-sale debt securities	3,750,070		1,077		(356,854)		3,394,293
Held-to-maturity debt securities:
Residential mortgage-backed securities	918,962		—		(107,431)		811,531
Total held-to-maturity debt securities	918,962		—		(107,431)		811,531
Equity securities							32,714
Total investment securities(2)							$	4,345,969
December 31, 2022
Available-for-sale debt securities:
U.S. Treasury securities	$	698,769	$	—	$	(28,187)	$	670,582
U.S. government agency securities	125,000		—		(22,846)		102,154
Residential mortgage-backed securities	2,162,364		3		(331,320)		1,831,047


CRT securities	14,713		—		(2,852)		11,861
Total available-for-sale debt securities	3,000,846		3		(385,205)		2,615,644
Held-to-maturity securities:
Residential mortgage-backed securities	935,514		—		(118,600)		816,914
Total held-to-maturity securities	935,514		—		(118,600)		816,914
Equity securities							33,956
Total investment securities(2)							$	3,585,114

(1) Excludes accrued interest receivable of $8.4 million and $6.6 million at March 31, 2023 and December 31, 2022, respectively, related to available-for-sale debt securities and $1.5 million and $1.5 million at March 31, 2023 and December 31, 2022, respectively, 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 2023, the Company sold U.S. Treasury securities with an amortized cost of $56.4 million and realized a gain of $489,000.

The amortized cost and estimated fair value as of March 31, 2023, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity. Actual maturities may differ from contractual maturities of mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.


	Available-for-sale				Held-to-maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due within one year	$	250,900	$	243,554	$	—	$	—
Due after one year through five years	443,798		422,944		—		—
Due after five years through ten years	106,319		87,120		—		—
Due after ten years	2,949,053		2,640,675		918,962		811,531
Total	$	3,750,070	$	3,394,293	$	918,962	$	811,531

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


	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
March 31, 2023
U.S. Treasury securities	$	261,821	$	(5,170)	$	361,491	$	(16,215)	$	623,312	$	(21,385)
U.S. government agency securities	—		—		104,117		(20,883)		104,117		(20,883)
Residential mortgage-backed securities	947,217		(10,451)		1,593,098		(301,556)		2,540,315		(312,007)
CRT securities	—		—		11,928		(2,579)		11,928		(2,579)
Total	$	1,209,038	$	(15,621)	$	2,070,634	$	(341,233)	$	3,279,672	$	(356,854)
December 31, 2022
U.S. Treasury securities	$	670,582	$	(28,187)	$	—	$	—	$	670,582	$	(28,187)
U.S. government agency securities	—		—		102,154		(22,846)		102,154		(22,846)
Residential mortgage-backed securities	261,502		(9,481)		1,569,107		(321,839)		1,830,609		(331,320)
CRT securities	—		—		11,861		(2,852)		11,861		(2,852)
Total	$	932,084	$	(37,668)	$	1,683,122	$	(347,537)	$	2,615,206	$	(385,205)

At March 31, 2023, the Company had 109 available-for-sale debt securities in an unrealized loss position, comprised of 11 U.S. Treasury securities, five U.S. government agency securities, 91 residential mortgage-backed securities and two CRT securities. The unrealized losses on the available-for-sale debt securities were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. The Company does not currently intend to sell and based on current conditions it does not believe it is likely that the Company will be required to sell these available-for-sale debt securities before recovery of the amortized cost of such securities in an unrealized loss position and has, therefore recorded the unrealized losses related to this portfolio in AOCI. Held-to-maturity securities consist of government guaranteed securities for which no loss is expected. At March 31, 2023 and December 31, 2022, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.

Debt securities with carrying values of approximately $1.6 billion and $1.7 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at March 31, 2023. The comparative amounts at December 31, 2022 were $16.1 million and $1.4 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 the Company’s 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:


	Three Months Ended March 31,
(in thousands)		2023		2022
Net gains/(losses) recognized during the period		$	1,245	$	(3,640)
Less: Realized net gains/(losses) recognized on securities sold		(596)		202
Unrealized net gains/(losses) recognized on securities still held		$	1,841	$	(3,842)

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(4) Loans and Allowance for Credit Losses on Loans

Loans are summarized by portfolio segment as follows:



(in thousands)	March 31, 2023		December 31, 2022

Loans held for investment(1):
Commercial	$	9,514,781	$	8,902,948
Energy	1,294,671		1,159,296
Mortgage finance	4,060,570		4,090,033
Real estate	5,272,443		5,198,643



Gross loans held for investment	20,142,465		19,350,920
Unearned income (net of direct origination costs)	(67,398)		(63,580)
Total loans held for investment	20,075,067		19,287,340
Allowance for credit losses on loans	(260,928)		(253,469)
Total loans held for investment, net	$	19,814,139	$	19,033,871
Loans held for sale:

Non-mortgage loans, at lower of cost or fair value	27,608		36,357
Total loans held for sale	$	27,608	$	36,357

(1) Excludes accrued interest receivable of $100.0 million and $100.4 million at March 31, 2023 and December 31, 2022, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

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


(in thousands)	2023		2022		2021		2020		2019		2018 and prior		Revolving lines of credit		Revolving lines of credit converted to term loans		Total
March 31, 2023
Commercial
(1-7) Pass	$	668,265	$	1,913,280	$	594,666	$	192,154	$	186,922	$	440,995	$	5,079,665	$	19,786	$	9,095,733
(8) Special mention	95		47,169		18,690		1,399		61,187		12,025		67,354		1,860		209,779
(9) Substandard - accruing	—		18,298		39,079		1,649		3,295		24,755		34,358		895		122,329
(9+) Non-accrual	—		42,328		3,104		2,229		31,319		7,046		—		914		86,940
Total commercial	$	668,360	$	2,021,075	$	655,539	$	197,431	$	282,723	$	484,821	$	5,181,377	$	23,455	$	9,514,781
Energy
(1-7) Pass	$	55,167	$	114,845	$	—	$	—	$	—	$	—	$	1,114,145	$	—	$	1,284,157
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	—		—		—		—		—		—		7,037		—		7,037
(9+) Non-accrual	—		—		—		—		—		—		—		3,477		3,477
Total energy	$	55,167	$	114,845	$	—	$	—	$	—	$	—	$	1,121,182	$	3,477	$	1,294,671
Mortgage finance
(1-7) Pass	$	110,532	$	29,682	$	486,327	$	261,183	$	288,589	$	2,884,257	$	—	$	—	$	4,060,570
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Total mortgage finance	$	110,532	$	29,682	$	486,327	$	261,183	$	288,589	$	2,884,257	$	—	$	—	$	4,060,570
Real estate
CRE
(1-7) Pass	$	156,825	$	1,199,143	$	807,286	$	492,723	$	369,393	$	450,333	$	97,541	$	10,924	$	3,584,168
(8) Special mention	—		2,650		5,847		29,802		—		24,926		—		—		63,225
(9) Substandard - accruing	—		—		17,850		—		—		29,860		—		—		47,710
(9+) Non-accrual	—		—		—		—		—		179		—		—		179
RBF
(1-7) Pass	17,975		88,017		52,541		10,180		1,636		4,966		281,514		—		456,829
(8) Special mention	—		8,352		—		—		—		—		—		—		8,352
(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Other
(1-7) Pass	8,741		182,857		145,691		92,562		61,954		222,495		39,401		25,465		779,166
(8) Special mention	—		720		—		6,161		—		376		—		—		7,257
(9) Substandard - accruing	—		—		—		—		—		442		—		—		442
(9+) Non-accrual	—		—		—		3,355		—		—		—		—		3,355
Secured by 1-4 family
(1-7) Pass	7,781		64,081		89,336		52,460		17,746		84,837		4,519		—		320,760
(8) Special mention	—		—		—		—		—		1,000		—		—		1,000
(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Total real estate	$	191,322	$	1,545,820	$	1,118,551	$	687,243	$	450,729	$	819,414	$	422,975	$	36,389	$	5,272,443
Total	$	1,025,381	$	3,711,422	$	2,260,417	$	1,145,857	$	1,022,041	$	4,188,492	$	6,725,534	$	63,321	$	20,142,465
Gross charge-offs	$	—	$	90	$	19,828	$	—	$	262	$	552	$	—	$	—	$	20,732

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(in thousands)	2022		2021		2020		2019		2018		2017 and prior		Revolving lines of credit		Revolving lines of credit converted to term loans		Total
December 31, 2022
Commercial
(1-7) Pass	$	1,903,529	$	671,459	$	244,568	$	255,444	$	325,201	$	244,373	$	4,877,753	$	21,063	$	8,543,390
(8) Special mention	9,141		7,740		3,628		37,794		11,998		4,975		95,310		2,250		172,836
(9) Substandard - accruing	18,670		71,147		514		1,666		14,933		6,305		30,070		—		143,305
(9+) Non-accrual	376		512		751		30,425		6,226		2,520		2,607		—		43,417
Total commercial	$	1,931,716	$	750,858	$	249,461	$	325,329	$	358,358	$	258,173	$	5,005,740	$	23,313	$	8,902,948
Energy
(1-7) Pass	$	124,691	$	12,517	$	—	$	—	$	—	$	3,317	$	1,007,776	$	—	$	1,148,301
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	—		—		—		—		—		—		7,337		—		7,337
(9+) Non-accrual	—		—		—		—		—		—		3,658		—		3,658
Total energy	$	124,691	$	12,517	$	—	$	—	$	—	$	3,317	$	1,018,771	$	—	$	1,159,296
Mortgage finance
(1-7) Pass	$	30,485	$	482,477	$	197,045	$	267,758	$	464,753	$	2,647,515	$	—	$	—	$	4,090,033
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Total mortgage finance	$	30,485	$	482,477	$	197,045	$	267,758	$	464,753	$	2,647,515	$	—	$	—	$	4,090,033
Real estate
CRE
(1-7) Pass	$	1,085,254	$	756,180	$	563,341	$	447,346	$	183,634	$	284,698	$	97,337	$	11,944	$	3,429,734
(8) Special mention	2,765		6,524		37,791		5,295		19,350		3,652		—		—		75,377
(9) Substandard - accruing	—		17,850		—		—		11,458		17,698		—		—		47,006
(9+) Non-accrual	—		—		—		—		—		182		—		—		182
RBF
(1-7) Pass	94,066		70,951		12,161		6,106		2,655		—		326,164		—		512,103
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	7,840		—		—		—		—		—		—		—		7,840
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Other
(1-7) Pass	182,840		131,538		94,611		67,518		76,951		163,838		42,333		31,293		790,922
(8) Special mention	729		—		8,721		—		—		386		—		—		9,836
(9) Substandard - accruing	—		—		—		247		—		1,035		—		—		1,282
(9+) Non-accrual	—		—		1,081		—		—		—		—		—		1,081
Secured by 1-4 family
(1-7) Pass	64,050		89,967		53,003		24,314		16,953		70,082		4,911		—		323,280
(8) Special mention	—		—		—		—		—		—		—		—		—
(9) Substandard - accruing	—		—		—		—		—		—		—		—		—
(9+) Non-accrual	—		—		—		—		—		—		—		—		—
Total real estate	$	1,437,544	$	1,073,010	$	770,709	$	550,826	$	311,001	$	541,571	$	470,745	$	43,237	$	5,198,643
Total	$	3,524,436	$	2,318,862	$	1,217,215	$	1,143,913	$	1,134,112	$	3,450,576	$	6,495,256	$	66,550	$	19,350,920

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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)	Commercial		Energy		Mortgage Finance		Real Estate		Total
Three Months Ended March 31, 2023
Beginning balance	$	136,841	$	49,000	$	10,745	$	56,883	$	253,469

Provision for credit losses on loans	32,475		1,930		(3,345)		(3,691)		27,369
Charge-offs	20,732		—		—		—		20,732
Recoveries	816		6		—		—		822
Net charge-offs (recoveries)	19,916		(6)		—		—		19,910
Ending balance	$	149,400	$	50,936	$	7,400	$	53,192	$	260,928
Three Months Ended March 31, 2022
Beginning balance	$	102,202	$	52,568	$	6,083	$	51,013	$	211,866
Provision for credit losses on loans	5,437		(24,522)		4,159		13,699		(1,227)
Charge-offs	110		—		—		350		460
Recoveries	217		755		—		—		972
Net charge-offs (recoveries)	(107)		(755)		—		350		(512)
Ending balance	$	107,746	$	28,801	$	10,242	$	64,362	$	211,151

The Company recorded a $27.4 million provision for credit losses on loans for the three months ended March 31, 2023, compared to a $1.2 million negative provision for the same period of 2022. The $27.4 million provision for credit losses on loans resulted primarily from updated views on the downside risks to the economic forecast and increases in net charge-offs and criticized loans during the three months ended March 31, 2023. Net charge-offs of $19.9 million were recorded during the three months ended March 31, 2023, related primarily to a single commercial loan, compared to net recoveries of $512,000 during the same period of 2022. Criticized loans totaled $561.1 million at March 31, 2023, $513.2 million at December 31, 2022 and $476.1 million at March 31, 2022.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. At March 31, 2023, the Company had $38.7 million in collateral-dependent commercial loans, collateralized by business assets, and $1.1 million in collateral-dependent real estate loans, collateralized by real estate property.

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


(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Non-accrual(1)		Current		Total		Non-accrual With No Allowance
March 31, 2023
Commercial	$	3,185	$	242	$	3,098	$	6,525	$	86,940	$	9,421,316	$	9,514,781	$	71,999
Energy	—		—		—		—		3,477		1,291,194		1,294,671		3,477
Mortgage finance	—		—		—		—		—		4,060,570		4,060,570		—
Real estate
CRE	—		—		—		—		179		3,695,103		3,695,282		—
RBF	—		—		—		—		—		465,181		465,181		—
Other	430		—		—		430		3,355		786,435		790,220		3,355
Secured by 1-4 family	2,388		—		—		2,388		—		319,372		321,760		—
Total	$	6,003	$	242	$	3,098	$	9,343	$	93,951	$	20,039,171	$	20,142,465	$	78,831

(1)As of March 31, 2023, $2.1 million of non-accrual loans were earning interest income on a cash basis compared to $2.2 million as of December 31, 2022. We did not recognize interest income on non-accrual loans for the three months ended March 31, 2023 and March 31, 2022. Accrued interest of $1.5 million and $4,000 was reversed during the three months ended March 31, 2023 and March 31, 2022, respectively.

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

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The table below details the amortized cost of gross loans held for investment made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023:


(in thousands)	Payment Deferral		Term Extension		Payment Deferral and Term Extension		Interest Rate Reduction and Term Extension		Total		Percentage of Total Loans Held for Investment
Commercial	$	31,431	$	1,800	$	—	$	14,933	$	48,164	0.24	%
Energy	—		—		3,477		—		3,477		0.02	%






Total	$	31,431	$	1,800	$	3,477	$	14,933	$	51,641	0.26	%

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023:


	Interest Rate Reduction	Term Extension (in months)	Total Payment Deferrals (in thousands)
Commercial	0.70%	6 to 18	$	3,523
Energy	—	36	1,200

As of March 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2023 that subsequently defaulted. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.

The table below provides an age analysis of gross loans held for investment made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, the date we adopted ASU 2022-02:


(in thousands)	30-89 Days Past Due		90+ Days Past Due		Non-Accrual		Current		Total
March 31, 2023
Commercial	$	161	$	—	$	924	$	47,079	$	48,164
Energy	—		—		3,477		—		3,477






Total	$	161	$	—	$	4,401	$	47,079	$	51,641

Troubled Debt Restructuring Disclosures Prior to the Adoption of ASU 2022-02

The Company did not have any loans that were restructured during the three months ended March 31, 2022.

As of December 31, 2022 and March 31, 2022, the Company did not have any loans considered restructured that were not on non-accrual. Of the non-accrual loans at December 31, 2022 and March 31, 2022, $531,000 and $18.0 million, respectively, met the criteria for restructured. These loans had no unfunded commitments at their respective balance sheet dates.

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

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


(in thousands)	March 31, 2023		December 31, 2022

Customer repurchase agreements	$	—	$	1,142
Federal Home Loan Bank borrowings	2,100,000		1,200,000
Total short-term borrowings	$	2,100,000	$	1,201,142

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



(in thousands)	March 31, 2023		December 31, 2022

Bank-issued floating rate senior unsecured credit-linked notes due 2024	$	272,994	$	272,492
Bank-issued 5.25% fixed rate subordinated notes due 2026	174,262		174,196
Company-issued 4.00% fixed rate subordinated notes due 2031	371,457		371,348
Trust preferred floating rate subordinated debentures due 2032 to 2036	113,406		113,406
Total long-term debt	$	932,119	$	931,442

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(6) Financial Instruments with Off-Balance Sheet Risk

The table below presents the Company’s 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:


	Three Months Ended March 31,
(in thousands)	2023		2022
Beginning balance of allowance for off-balance sheet credit losses	$	21,793	$	17,265

Provision for off-balance sheet credit losses	631		(773)
Ending balance of allowance for off-balance sheet credit losses	$	22,424	$	16,492


(in thousands)	March 31, 2023		December 31, 2022

Commitments to extend credit - period end balance	$	10,231,682	$	9,673,082
Standby letters of credit - period end balance	436,057		417,896

(7) Regulatory Ratios and Capital

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

The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

Additionally, the Basel III Capital Rules require that the Company maintains a 2.5% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers. No dividends were declared or paid on the Company’s common stock during the three months ended March 31, 2023 or 2022. In January 2023, the Company completed the full $150.0 million of repurchases authorized by the Company’s board of directors on April 19, 2022. On January 18, 2023, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $150.0 million in shares of its outstanding common stock. During the three months ended March 31, 2023, the Company repurchased 1,011,909 shares of its common stock for an aggregate price of $59.7 million, at a weighted average price of $58.98 per share. The aggregate purchase price and weighted average price per share does not include the effect of excise tax incurred on net stock repurchases.

In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected credit losses on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company 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, 2023, 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 Bank’s capital ratios exceeded the regulatory definition of well capitalized as of March 31, 2023 and December 31, 2022. The regulatory authorities can apply changes in the classification of assets and such changes may retroactively subject the Company and the Bank to changes in capital ratios. Any such change

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could reduce one or more capital ratios below well capitalized status. In addition, a change may result in imposition of additional assessments by the Federal Deposit Insurance Corporation (“FDIC”) or could result in regulatory actions that could have a material effect on the Bank’s condition and results of operations.

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

At the beginning of each of the last five years of the life of the Bank-issued fixed rate subordinated notes due 2026, the amount that is eligible to be included in Tier 2 capital is reduced by 20% of the original amount of the notes (net of redemptions). In 2023, the amount of the notes that qualify as Tier 2 capital has been reduced by 60%.

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


	Actual				Minimum Capital Required(2)				Capital Required to be Well Capitalized
(dollars in thousands)	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount	Ratio
March 31, 2023
CET1
Company	$	3,157,937	12.42	%	$	1,779,755	7.00	%	N/A	N/A
Bank	3,454,486		13.61	%	1,776,757		7.00	%	1,649,845	6.50	%
Total capital (to risk-weighted assets)
Company	4,285,396		16.86	%	2,669,633		10.50	%	2,542,507	10.00	%
Bank	4,010,488		15.80	%	2,665,135		10.50	%	2,538,224	10.00	%
Tier 1 capital (to risk-weighted assets)
Company	3,567,937		14.03	%	2,161,131		8.50	%	1,525,504	6.00	%
Bank	3,614,486		14.24	%	2,157,490		8.50	%	2,030,579	8.00	%
Tier 1 capital (to average assets)(1)
Company	3,567,937		12.03	%	1,186,723		4.00	%	N/A	N/A
Bank	3,614,486		12.20	%	1,185,349		4.00	%	1,481,686	5.00	%
December 31, 2022
CET1
Company	$	3,180,208	13.00	%	$	1,712,608	7.00	%	N/A	N/A
Bank	3,408,178		13.95	%	1,710,056		7.00	%	1,587,909	6.50	%
Total capital (to risk-weighted assets)
Company	4,331,098		17.70	%	2,568,912		10.50	%	2,446,583	10.00	%
Bank	3,987,720		16.32	%	2,565,083		10.50	%	2,442,937	10.00	%
Tier 1 capital (to risk-weighted assets)
Company	3,590,208		14.67	%	2,079,595		8.50	%	1,467,950	6.00	%
Bank	3,568,178		14.61	%	2,076,496		8.50	%	1,954,349	8.00	%
Tier 1 capital (to average assets)(1)
Company	3,590,208		11.54	%	1,244,494		4.00	%	N/A	N/A
Bank	3,568,178		11.48	%	1,243,232		4.00	%	1,554,039	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.

The Company is required to maintain reserve balances in cash and on deposit with the Federal Reserve based on a percentage of transactional deposits; however, the Federal Reserve reduced the reserve requirement ratio to zero effective March 26, 2020, therefore the total requirement was zero at both March 31, 2023 and December 31, 2022.

(8) Stock-Based Compensation

We have long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the Company’s board of directors or its designated committee. Grants are subject to vesting requirements and may include, among other things, nonqualified stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock and performance units, or any combination thereof.

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The table below summarizes our stock-based compensation expense:


	Three Months Ended March 31,
(in thousands)		2023		2022
Stock-settled awards:

RSUs		$	8,438	$	5,407

Cash-settled units		—		181
Total		$	8,438	$	5,588


(in thousands except period data)	March 31, 2023
Unrecognized compensation expense related to unvested stock-settled awards	$	46,870
Weighted average period over which expense is expected to be recognized, in years	2.5

(9) Fair Value Disclosures

The Company determines the fair market values of its assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in ASC 820. See Note 1 - Operations and Summary of Significant Accounting Policies in our 2022 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 statements.

Assets and liabilities measured at fair value are as follows:


	Fair Value Measurements Using
(in thousands)	Level 1		Level 2		Level 3
March 31, 2023
Available-for-sale debt securities:(1)
U.S. Treasury securities	$	623,312	$	—	$	—
U.S. government agency securities	—		104,117		—
Residential mortgage-backed securities	—		2,654,936		—


CRT securities	—		—		11,928
Equity securities(1)(2)	21,548		11,166		—

Loans held for investment(3)	—		—		35,458

Derivative assets(4)	—		19,401		—
Derivative liabilities(4)	—		70,220		—
Non-qualified deferred compensation plan liabilities(4)	19,778		—		—
December 31, 2022
Available-for-sale debt securities:(1)
U.S. Treasury securities	$	670,582	$	—	$	—
U.S. government agency securities	—		102,154		—
Residential mortgage-backed securities	—		1,831,047		—


CRT securities	—		—		11,861
Equity securities(1)(2)	22,879		11,077		—


Derivative assets(4)	—		13,504		—
Derivative liabilities(4)	—		91,758		—
Non-qualified deferred compensation plan liabilities(4)	21,177		—		—

(1)Investment securities are measured at fair value on a recurring basis, generally monthly.

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

(3)Includes certain collateral-dependent loans held for investment for which a specific allocation of the allowance for credit losses is based upon the fair value of the loan’s underlying collateral. These loans held for investment are measured on a nonrecurring basis, generally annually or more often as warranted by market and economic conditions.

(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.

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Level 3 Valuations

The following table presents a reconciliation of the level 3 fair value category measured at fair value on a recurring basis:


							Net Gains/(Losses)
(in thousands)	Balance at Beginning of Period		Purchases / Additions		Sales / Reductions		Realized		Unrealized		Balance at End of Period
Three Months Ended March 31, 2023
Available-for-sale debt securities:(1)

CRT securities	$	11,861	$	—	$	—	$	—	$	67	$	11,928

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 securities	11,846		—		—		—		55		11,901
Loans held for sale(2)	7,658		1,327		(571)		—		(329)		8,085

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

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

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 weighted-average life. At March 31, 2023, the discount rates utilized ranged from 5.43% to 11.37% and the weighted-average life ranged from 4.84 years to 8.42 years. On a combined amortized cost weighted-average basis a discount rate of 7.44% and a weighted-average life of 6.05 years were utilized to determine the fair value of these securities at March 31, 2023. At December 31, 2022, the combined weighted-average discount rate and weighted-average life utilized were 8.24% and 6.26 years, respectively.

Loans held for investment

Certain collateral-dependent loans held for investment are reported at fair value when, based upon an individual evaluation, the specific allocation of the allowance for credit losses that is deducted from the loan's amortized cost is based upon the fair value of the loan's underlying collateral. The $35.5 million fair value of loans held for investment at March 31, 2023 reported above includes impaired loans with a carrying value of $39.8 million that were reduced by specific allowance allocations totaling $4.3 million based on collateral valuations utilizing Level 3 inputs. There were no collateral-dependent loans held for investment reported at fair value at December 31, 2022.

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Fair Value of Financial Instruments

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


	Carrying Amount		Estimated Fair Value
(in thousands)			Total		Level 1		Level 2		Level 3
March 31, 2023
Financial assets:
Cash and cash equivalents	$	3,649,705	$	3,649,705	$	3,649,705	$	—	$	—
Available-for-sale debt securities	3,394,293		3,394,293		623,312		2,759,053		11,928
Held-to-maturity debt securities	918,962		811,531		—		811,531		—
Equity securities	32,714		32,714		21,548		11,166		—
Loans held for sale	27,608		27,208		—		27,208		—
Loans held for investment, net	19,814,139		19,755,693		—		—		19,755,693
Derivative assets	19,401		19,401		—		19,401		—
Financial liabilities:
Total deposits	22,179,697		22,184,982		—		—		22,184,982
Short-term borrowings	2,100,000		2,100,000		—		2,100,000		—
Long-term debt	932,119		866,529		—		866,529		—
Derivative liabilities	70,220		70,220		—		70,220		—
December 31, 2022
Financial assets:
Cash and cash equivalents	$	5,012,260	$	5,012,260	$	5,012,260	$	—	$	—
Available-for-sale debt securities	2,615,644		2,615,644		670,582		1,933,201		11,861
Held-to-maturity debt securities	935,514		816,914		—		816,914		—
Equity securities	33,956		33,956		22,879		11,077		—
Loans held for sale	36,357		36,357		—		—		36,357
Loans held for investment, net	19,033,871		18,969,922		—		—		18,969,922
Derivative assets	13,504		13,504		—		13,504		—
Financial liabilities:
Total deposits	22,856,880		22,857,949		—		—		22,857,949
Short-term borrowings	1,201,142		1,201,142		—		1,201,142		—
Long-term debt	931,442		881,716		—		881,716		—
Derivative liabilities	91,758		91,758		—		91,758		—

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(10) Derivative Financial Instruments

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


	March 31, 2023						December 31, 2022
			Estimated Fair Value						Estimated Fair Value
(in thousands)	Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative
Derivatives designated as hedges
Cash flow hedges:
Interest rate contracts:
Swaps hedging loans	$	3,100,000	$	1,658	$	65,090	$	3,000,000	$	—	$	86,378
Non-hedging derivatives
Customer-initiated and other derivatives:
Foreign currency forward contracts	2,682		13		—		—		—		—
Interest rate contracts:
Swaps	4,527,001		70,881		70,881		4,396,367		83,529		83,529
Caps and floors written	168,065		—		2,238		220,142		—		2,583
Caps and floors purchased	168,065		2,238		—		220,142		2,583		—
Forward contracts	4,486,001		12,755		12,167		1,569,326		4,431		4,053
Gross derivatives			87,545		150,376				90,543		176,543
Netting adjustment - offsetting derivative assets/liabilities			(14,038)		(14,038)				(5,164)		(5,164)
Netting adjustment - cash collateral received/posted			(54,106)		(66,118)				(71,875)		(79,621)
Net derivatives included on the consolidated balance sheets			$	19,401	$	70,220			$	13,504	$	91,758

The Company’s 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. The Company’s credit exposure associated with these instruments, net of any collateral pledged, was approximately $19.4 million at March 31, 2023 and approximately $13.5 million at December 31, 2022. Collateral levels are monitored and adjusted on a regular basis for changes in the value of derivative instruments. At March 31, 2023, the Company had $135.6 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet and $57.0 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet. The comparative amounts at December 31, 2022, were $89.2 million in cash collateral pledged to counterparties and $72.5 million cash collateral received from counterparties.

The Company also enters into credit risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which the Company is either a participant or a lead bank. The risk participation agreements entered into by the Company 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. The Company is party to 18 risk participation agreements where it acts as a participant bank with a notional amount of $336.9 million at March 31, 2023, compared to 19 risk participation agreements with a notional amount of $291.2 million at December 31, 2022. The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $6.6 million at March 31, 2023 and $8.9 million at December 31, 2022. The fair value of these exposures was insignificant to the consolidated financial statements at both March 31, 2023 and December 31, 2022. Risk participation agreements entered into by the Company as the lead bank provide credit protection should the borrower fail to perform on its interest rate derivative contract. The Company is party to 9 risk participation agreements where the Company acts as the lead bank having a notional amount of $124.7 million at March 31, 2023, compared to 18 agreements having a notional amount of $222.0 million at December 31, 2022.

Derivatives Designated as Cash Flow Hedges

The Company enters into interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate.

During the three months ended March 31, 2023, the Company recorded $13.5 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $11.1 million from AOCI into interest income on loans. Based on current market conditions, the Company estimates that during the next 12 months, an additional $50.3 million will be reclassified from AOCI as a decrease to interest income. As of March 31, 2023, the maximum length of time over which forecasted transactions are hedged is 3.50 years.

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(11) Accumulated Other Comprehensive Income

The following table provides the change in AOCI by component:


(in thousands)	Cash Flow Hedges		Available-for-Sale Securities		Held-to-Maturity Securities		Total

















Three Months Ended March 31, 2023
Beginning balance	$	(66,394)	$	(304,309)	$	(48,240)	$	(418,943)
Change in unrealized gain/(loss)	13,528		29,425		—		42,953
Amounts reclassified into net income	11,129		—		1,844		12,973
Total other comprehensive income/(loss)	24,657		29,425		1,844		55,926
Income tax expense/(benefit)	5,179		6,179		387		11,745
Total other comprehensive income/(loss), net of tax	19,478		23,246		1,457		44,181
Ending balance	$	(46,916)	$	(281,063)	$	(46,783)	$	(374,762)
Three Months Ended March 31, 2022
Beginning balance	$	—	$	(47,715)	$	—	$	(47,715)
Change in unrealized gain/(loss)	—		(131,454)		(69,165)		(200,619)
Amounts reclassified into net income	—		—		986		986
Total other comprehensive income/(loss)	—		(131,454)		(68,179)		(199,633)
Income tax expense/(benefit)	—		(27,605)		(14,318)		(41,923)
Total other comprehensive income/(loss), net of tax	—		(103,849)		(53,861)		(157,710)
Ending balance	$	—	$	(151,564)	$	(53,861)	$	(205,425)

(12) New Accounting Standards

ASU 2023-01, “Leases (Topic 842) - Common Control Arrangements” (“ASU 2023-01”) requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions). ASU 2023-01 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

ASU 2023-02 “Investments - Equity Method and Join Ventures (Topic 323) - Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” (“ASU 2023-02”) permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

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ITEM 3. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations for the three months ended March 31, 2023 and 2022 should be read in conjunction with its audited consolidated financial statements and the related notes to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or any future period.

Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of and pursuant to the Private Securities Litigation Reform Act of 1995 regarding, among other things, the Company’s financial condition, results of operations, business plans, strategies, future performance and business and industry outlook. These statements are not historical in nature and may often be identified by the use of words such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, trends, guidance, expectations and future plans.

Because forward-looking statements relate to future results and occurrences, they are subject to inherent and various uncertainties, risks, and changes in circumstances that are difficult to predict, may change over time, are based on management’s expectations and assumptions at the time the statements are made and are not guarantees of future results. Numerous risks and other factors, many of which are beyond management’s control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. While there can be no assurance that any list of risks is complete, important risk and other factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to, credit quality and risk, the unpredictability of economic and business conditions that may impact the Company or its customers, recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity and regulatory responses to these developments, the Company’s ability to effective manage its liquidity risk and any growth plans and the availability of capital and funding, the Company’s ability to effectively manage information technology systems, cyber incidents or other failures, disruptions or security breaches, interest rates, including the impact of rising rates on the Company’s securities portfolio and funding costs, commercial and residential real estate values, adverse or unexpected economic conditions, including inflation, recession, the threat of recession, and market conditions in Texas, the United States or globally, including governmental and consumer responses to those economic and market conditions, fund availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, enforcement actions and regulatory examinations and investigations, ratings or interpretations, business strategy execution, the failure to identify, attract and retain key personnel and other employees, increased or expanded competition from banks and other financial service providers in the Company’s markets, the failure to maintain adequate regulatory capital, environmental liability associated with properties related to the Company’s lending activities, and severe weather, natural disasters, acts of war, terrorism, global conflict, a material worsening of the COVID-19 pandemic or other health emergencies or other external events, climate change and related legislative and regulatory initiatives as well as the risks more fully described in the 2022 10-K, including the “Risk Factors” section in Part I, Item 1A of the 2022 10-K, Quarterly Reports on Form 10-Q, including the “Risk Factors” section in Part II, Item 1A of this report, and in its other documents and filings with the SEC. The information contained in this report speaks only as of its date. Except to the extent required by applicable law or regulation, we disclaim any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.

Overview

Recent Industry Developments

During the first quarter of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. The Company’s total deposits decreased by 3% as compared to December 31, 2022, to $22.2 billion at March 31, 2023 as we experienced minimal deposit outflow in the first quarter. The Company also took a number of preemptive actions, which included pro-active outreach to clients and actions to maximize its funding sources in response to these recent developments. Furthermore, the Company’s capital remains at historically high levels with CET1 and Total Capital ratios of 12.4% and 16.9%, respectively, as of March 31, 2023.

Table of Contents

Results of Operations

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



	Three Months Ended March 31,
(dollars in thousands except per share data)		2023			2022
Net interest income		$	235,345		$	183,546
Provision for credit losses		28,000			(2,000)
Non-interest income		37,403			20,283
Non-interest expense		194,027			153,092
Income before income taxes		50,721			52,737
Income tax expense		12,060			13,087
Net income		38,661			39,650
Preferred stock dividends		4,313			4,313
Net income available to common stockholders		$	34,348		$	35,337
Basic earnings per common share		$	0.71		$	0.70
Diluted earnings per common share		$	0.70		$	0.69
Net interest margin		3.33		%	2.23		%
Return on average assets (“ROA”)		0.53		%	0.47		%
Return on average common equity (“ROE”)		5.06		%	4.97		%
Non-interest income to average earning assets		0.54		%	0.25		%
Efficiency ratio(1)		71.1		%	75.1		%
Non-interest expense to average earning assets		2.78		%	1.86		%

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

Three months ended March 31, 2023 compared to three months ended March 31, 2022

The Company reported net income of $38.7 million and net income available to common stockholders of $34.3 million for the three months ended March 31, 2023, compared to net income of $39.7 million and net income available to common stockholders of $35.3 million for the same period in 2022. On a fully diluted basis, earnings per common share were $0.70 for the three months ended March 31, 2023, compared to $0.69 for the same period in 2022. ROE was 5.06% and ROA was 0.53% for the three months ended March 31, 2023, compared to 4.97% and 0.47%, respectively, for the same period in 2022. The decrease in net income for the three months ended March 31, 2023 compared to the same period in 2022 resulted primarily from increases in provision for credit losses and non-interest expense, partially offset by increases in net interest income and non-interest income.

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

Table of Contents

Taxable Equivalent Net Interest Income Analysis(1)



	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
(dollars in thousands)	Average Balance		Revenue / Expense		Yield / Rate		Average Balance		Revenue / Expense		Yield / Rate
Assets
Investment securities(2)	$	4,060,456	$	25,292	2.31	%	$	3,669,257	$	17,743	1.91	%
Interest bearing cash and cash equivalents	5,541,341		62,436		4.57	%	8,552,300		3,571		0.17	%
Loans held for sale	43,472		938		8.75	%	7,633		113		6.01	%
Loans held for investment, mortgage finance	3,286,804		28,528		3.52	%	5,732,901		43,466		3.07	%
Loans held for investment(3)	15,598,854		268,131		6.97	%	15,686,319		144,133		3.73	%
Less: Allowance for credit losses on loans	252,727		—		—		212,612		—		—
Loans held for investment, net	18,632,931		296,659		6.46	%	21,206,608		187,599		3.59	%
Total earning assets	28,278,200		385,325		5.45	%	33,435,798		209,026		2.54	%
Cash and other assets	1,041,745						819,486
Total assets	$	29,319,945					$	34,255,284
Liabilities and Stockholders’ Equity
Transaction deposits	$	776,500	$	3,853	2.01	%	$	2,432,687	$	3,962	0.66	%
Savings deposits	11,195,402		105,707		3.83	%	10,420,545		8,583		0.33	%
Time deposits	1,430,657		10,534		2.99	%	1,038,722		1,085		0.42	%

Total interest bearing deposits	13,402,559		120,094		3.63	%	13,891,954		13,630		0.40	%
Short-term borrowings	1,242,881		14,744		4.81	%	1,770,781		758		0.17	%
Long-term debt	931,796		14,983		6.52	%	929,005		10,595		4.63	%
Total interest bearing liabilities	15,577,236		149,821		3.90	%	16,591,740		24,983		0.61	%
Non-interest bearing deposits	10,253,731						14,235,749
Other liabilities	436,621						243,141
Stockholders’ equity	3,052,357						3,184,654
Total liabilities and stockholders’ equity	$	29,319,945					$	34,255,284

Net interest income			$	235,504					$	184,043
Net interest margin					3.33	%					2.23	%
Net interest spread					1.55	%					1.93	%

(1)Taxable equivalent rates used where applicable.

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

(3)Average balances include non-accrual loans.

Table of Contents

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, 2023/2022

	Net Change		Change Due To(1)
(in thousands)			Volume		Yield/Rate(2)
Interest income
Investment securities	$	7,549	$	1,842	$	5,707
Interest bearing cash and cash equivalents	58,865		(1,262)		60,127
Loans held for sale	825		531		294
Loans held for investment, mortgage finance	(14,938)		(18,517)		3,579
Loans held for investment	123,998		(803)		124,801
Total interest income	176,299		(18,209)		194,508
Interest expense
Transaction deposits	(109)		(2,695)		2,586
Savings deposits	97,124		631		96,493
Time deposits	9,449		406		9,043
Short-term borrowings	13,986		(221)		14,207
Long-term debt	4,388		32		4,356
Total interest expense	124,838		(1,847)		126,685
Net interest income	$	51,461	$	(16,362)	$	67,823

(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 $235.3 million for the three months ended March 31, 2023, compared to $183.5 million for the same period in 2022. The increase was primarily due to an increase in yields on average earnings assets, partially offset by rising funding costs and a decrease in total average earning assets.

Average earning assets decreased $5.2 billion for the three months ended March 31, 2023, compared to the same period in 2022, which included decreases of $3.0 billion in average interest-bearing cash and cash equivalents and $2.5 million in loans held for investment, mortgage finance. Average interest-bearing liabilities decreased $1.0 billion for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to decreases of $489.4 million in average interest-bearing deposits and $527.9 million in average short-term borrowings. Average demand deposits for the three months ended March 31, 2023 decreased to $10.3 billion from $14.2 billion for the same period in 2022.

Net interest margin for the three months ended March 31, 2023 was 3.33%, compared to 2.23% for the same period of 2022. The increase was primarily due to the effect of rising interest rates on earning asset yields and a shift in earning asset composition, partially offset by higher funding costs, also as a result of rising interest rates, compared to the same period in 2022.

The yield on total loans held for investment increased to 6.46% for the three months ended March 31, 2023, compared to 3.59% for the same period in 2022, and the yield on earning assets increased to 5.45% for the three months ended March 31, 2023, compared to 2.54% for the same period in 2022. Total cost of deposits increased to 2.06% for the three months ended March 31, 2023 from 0.20% for the same period in 2022 and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to 2.10% for the three months ended March 31, 2023, compared to 0.30% for the same period in 2022.

Table of Contents

Non-interest Income



	Three Months Ended March 31,
(in thousands)		2023		2022
Service charges on deposit accounts		$	5,022	$	6,115
Wealth management and trust fee income		3,429		3,912
Brokered loan fees		1,895		3,970

Investment banking and trading income		18,768		4,179


Other		8,289		2,107
Total non-interest income		$	37,403	$	20,283

Non-interest income increased by $17.1 million during the three months ended March 31, 2023 to $37.4 million, compared to $20.3 million for the same period in 2022. The increase was primarily due to increases in investment banking and trading income and other non-interest income, partially offset by a decrease in brokered loans fees.

Non-interest Expense



	Three Months Ended March 31,
(in thousands)		2023		2022
Salaries and benefits		$	128,670	$	99,859
Occupancy expense		9,619		8,885
Marketing		9,044		4,977
Legal and professional		14,514		10,302
Communications and technology		17,523		14,700
Federal Deposit Insurance Corporation insurance assessment		2,170		3,981


Other		12,487		10,388
Total non-interest expense		$	194,027	$	153,092

Non-interest expense for the three months ended March 31, 2023 increased $40.9 million compared to the same period in 2022, primarily due to an increase in salaries and benefits expense, resulting from an increase in headcount, as well as increases in marketing, legal and professional, and communications and technology expenses.

Analysis of Financial Condition

Loans Held for Investment

The following table summarizes the Company’s loans held for investment on a gross basis by portfolio segment. See Note 1 - Operations and Summary of Significant Accounting Policies included in the 2022 Form 10-K for details of these portfolio segments.



(in thousands)	March 31, 2023		December 31, 2022
Commercial	$	9,514,781	$	8,902,948
Energy	1,294,671		1,159,296
Mortgage finance	4,060,570		4,090,033
Real estate	5,272,443		5,198,643
Gross loans held for investment	$	20,142,465	$	19,350,920

Gross loans held for investment were $20.1 billion at March 31, 2023, an increase of $791.5 million from December 31, 2022. The Company experienced broad-based loan growth across all loan categories, except for mortgage finance loans, as it has continued to execute on its long-term strategy. Mortgage finance loans relate to the mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests that are typically sold within 10 to 20 days and represent 20% of total loans held for investment at March 31, 2023 compared to 21% at December 31, 2022. Volumes fluctuate based on the level of market demand for the product and the number of days between purchase and sale of the loans, which can be affected by changes in overall market interest rates, and tend to peak at the end of each month. Mortgage finance loan balances have declined as compared to December 31, 2022 as interest rates have continued to rise during 2023.

The Company originates a substantial majority of all loans held for investment. The Company also participates in syndicated loan relationships, both as a participant and as an agent. As of March 31, 2023, the Company had $4.3 billion in syndicated loans, $1.2 billion of which the Company administered as agent. All syndicated loans, whether the Company acts as agent or participant, are underwritten to the same standards as all other loans the Company originates. As of March 31, 2023, $3.2 million of syndicated loans were on non-accrual.

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Portfolio Concentrations

Although more than 50% of the Company’s total loan exposure is outside of Texas and more than 50% of deposits are sourced outside of Texas, Texas concentration remains significant. As of March 31, 2023, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas. This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within this state. 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 non-accrual loans by type and by type of property securing the credit.



(dollars in thousands)	March 31, 2023			December 31, 2022

Non-accrual loans held for investment
Commercial:
Business assets	$	86,020		$	41,448
Accounts receivable and inventory	859			1,405

Other	61			564
Total commercial	86,940			43,417
Energy:
Oil and gas properties	3,477			3,658
Total energy	3,477			3,658
Real estate:
Business assets	—			—
Commercial property	3,534			1,263

Single family residences	—			—

Total real estate	3,534			1,263
Total non-accrual loans held for investment	$	93,951		$	48,338
Non-accrual loans held for sale	—			—
Other real estate owned (“OREO”)	—			—
Total non-performing assets	$	93,951		$	48,338


Non-accrual loans held for investment to total loans held for investment	0.47		%	0.25		%
Total non-performing assets to total assets	0.33		%	0.17		%
Allowance for credit losses on loans to non-accrual loans held for investment	2.8x			5.2x

Loans held for investment past due 90 days and accruing	$	3,098		$	131
Loans held for investment past due 90 days to total loans held for investment	0.02		%	—		%
Loans held for sale past due 90 days and accruing	$	—		$	—

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. Below is a discussion of provision for credit losses on loans. See Note 6 - Financial Instruments with Off-Balance Sheet Risk in the accompanying notes to the consolidated financial statements included elsewhere in this report for presentation of the activity in the allowance for credit losses for off-balance asset credit losses.

The Company recorded a $27.4 million provision for credit losses on loans for the three months ended March 31, 2023 compared to a negative provision of $1.2 million for the three months ended March 31, 2022. The $27.4 million provision for credit losses on loans resulted from updated views on the downside risks to the economic forecast and increases in net charge-offs and criticized loans. The Company recorded $19.9 million in net charge-offs, related primarily to a single commercial loan, during the three months ended March 31, 2023 compared to $512,000 in net recoveries during the same period in 2022. Criticized loans totaled $561.1 million at March 31, 2023, compared to $513.2 million and $476.1 million at December 31, 2022 and March 31, 2022, respectively.

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


	March 31, 2023		March 31, 2022
Allowance for credit losses on loans to total loans held for investment	1.30	%	0.97	%
Allowance for credit losses on loans to average total loans held for investment(1)	1.38	%	0.99	%
Total allowance for credit losses to total loans held for investment	1.41	%	1.05	%
Total provision for credit losses to average total loans held for investment(1)(2)	0.60	%	(0.04)	%

(1) Ratios are calculated using average balance for the three months ended March 31, 2023 and 2022, respectively.

(2) Ratios are annualized utilizing provision for credit losses for the three months ended March 31, 2023 and 2022, respectively.

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


	Three Months Ended March 31,
	2023				2022
	Net Charge-offs		Net Charge-offs to Average Loans(1)		Net Charge-offs		Net Charge-offs to Average Loans(1)
Commercial	$	19,916	0.88	%	$	(107)	—	%
Energy	(6)		—	%	(755)		(0.40)	%
Mortgage finance	—		—	%	—		—	%
Real Estate	—		—	%	350		0.03	%
Total	$	19,910	0.43	%	$	(512)	(0.01)	%

(1)Ratios are annualized utilizing net charge-offs for the three months ended March 31, 2023 and 2022, respectively.

Liquidity and Capital Resources

Liquidity

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

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



(dollars in thousands)	March 31, 2023			December 31, 2022
Interest bearing cash and cash equivalents	$	3,385,494		$	4,778,623
Interest bearing cash and cash equivalents as a percent of:
Total loans held for investment	16.9		%	24.8		%
Total earning assets	12.3		%	17.4		%
Total deposits	15.3		%	20.9		%

Liquidity to support growth in loans held for investment has been fulfilled primarily through growth in customer deposits. The Company’s goal is to obtain as much of its funding for loans held for investment and other earning assets as possible from customer deposits, which are generated principally through development of long-term customer relationships, with a significant focus on treasury management products. As of March 31, 2023, estimated uninsured deposits represented 45% of total deposits. In addition, the Company also has access to deposits through brokered channels. The following table summarizes period-end total deposits:



(dollars in thousands)	March 31, 2023				December 31, 2022

	Balance		% of Total		Balance		% of Total
Customer deposits	$	20,795,335	93.8	%	$	21,247,999	93.0	%
Brokered deposits	1,384,362		6.2	%	1,608,881		7.0	%
Total deposits	$	22,179,697	100.0	%	$	22,856,880	100.0	%

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



(in thousands)	March 31, 2023		December 31, 2022


Repurchase agreements	$	—	$	1,142
FHLB borrowings	2,100,000		1,200,000

Total short-term and other borrowings	$	2,100,000	$	1,201,142

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



(in thousands)	March 31, 2023		December 31, 2022

FHLB borrowing capacity relating to loans and pledged securities	$	3,175,863	$	2,621,218
FHLB borrowing capacity relating to unencumbered securities	2,635,859		3,539,297
Total FHLB borrowing capacity(1)	$	5,811,722	$	6,160,515
Unused federal funds lines available from commercial banks	$	1,471,000	$	1,479,000
Unused Federal Reserve borrowings capacity	$	3,858,755	$	3,574,762
Unused revolving line of credit(2)	$	100,000	$	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, 2024. 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, 2023.

The Company has long-term debt outstanding of $932.1 million as of March 31, 2023, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036. See Note 5 - Short-Term Borrowings and Long-Term Debt in the accompanying notes to the consolidated financial statements included elsewhere in this report for additional information. The Company may consider raising additional capital, if needed, in public or private offerings of debt or equity securities to supplement deposits and meet its long-term funding needs.

As the Company is a holding company and is a separate operating entity from the Bank, the Company’s primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. See Note 7 - Regulatory Ratios and Capital in the accompanying notes to the consolidated financial statements included elsewhere in this report for additional information regarding dividend restrictions and “Liquidity Risks” included in Part I, Item 1A of the 2022 Form 10-K.

Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and the terms of its existing indebtedness, the Company may repay, repurchase, exchange or redeem outstanding indebtedness, or otherwise enter into transactions regarding debt or capital structure. For example, the Company periodically evaluates 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 to actively manage the debt maturity profile and interest cost.

Capital Resources

The Company’s equity capital averaged $3.1 billion for the three months ended March 31, 2023 compared to $3.2 billion for the same period in 2022. The decrease relates to the shares of Company stock that have been repurchased during the previous 12 months. The Company has not paid any cash dividends on common stock since operations commenced and has no plans to do so in the foreseeable future.

In January 2023, the Company completed the full $150,0 million of repurchases authorized by the Company’s board of directors on April 19, 2022. On January 18, 2023, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $150.0 million in shares of outstanding common stock. Any repurchases under the repurchase program have been made in accordance with applicable securities laws in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. During the three months ended March 31, 2023, the Company repurchased 1,011,909 shares of its common stock for an aggregate purchase price of $59.7 million, at a weighted average price

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of $58.98 per share. The aggregate purchase price and weighted average price per share does not include the effect of excise tax expense incurred on net stock repurchases.

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

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.

The Company follows financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 1 - Operations and Summary of Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet the SEC’s definition of a critical accounting policy.

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 Accounting Standards Codification 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 the Company’s 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 the 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 financial statements included elsewhere in this report for further discussion of the risk factors considered by management in establishing the allowance for credit losses.

Management considers a range of macroeconomic scenarios in connection with the allowance estimation process. Within the various economic scenarios considered as of March 31, 2023, the quantitative estimate of the allowance for credit loss would increase by approximately $143.0 million under sole consideration of the most severe downside scenario. The quoted sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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

In addition, the Company has exposure to market risk through its trading desk that engages in fixed income and equity securities, derivatives and foreign exchange transactions to support the investing and hedging activities of customers. The Company uses Value-at-Risk (“VaR”) as a means to measure, monitor, and limit aggregate market risk on the trading portfolio. VaR is a statistical risk measure estimating potential loss at the 95th percentile based on a one-year history of market risk factors associated with the trading portfolio. VaR provides a consistent cross-asset measure for risk profiles and allows for diversification benefit based on historical correlations across market moves. All statistical models involve a degree of uncertainty and VaR is calculated at a statistical confidence interval of the 95th percentile based on one-year daily historic market moves. Larger economic losses are possible, particularly during stressed macroeconomic and market conditions.

The responsibility for managing market risk rests with the ALCO, which operates under policy guidelines established by the Company’s board of directors. Oversight of the Company’s compliance with the guidelines is the ongoing responsibility of the ALCO, with exceptions reported to the Executive Risk Committee and the board of directors, if necessary, on a quarterly basis.

Interest Rate Risk Management

The Company’s interest rate sensitivity as of March 31, 2023 is illustrated in the following table. The table reflects rate-sensitive positions as of March 31, 2023 and is not necessarily indicative of positions on other dates. The table does take into account the effect of the Company’s derivatives designated as cash flow hedges. The balances of interest rate sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature and are aggregated to show the interest rate sensitivity gap. The mismatch between repricings or maturities within a time period is commonly referred to as the “gap” for that period. A positive gap (asset sensitive), where interest rate-sensitive assets exceed interest rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin. Certain variable rate loans have embedded floors which limit the decline in yield on those loans at times when market interest rates are extraordinarily low. The degree of asset sensitivity, spreads on loans and net interest margin may be reduced until rates increase by an amount sufficient to eliminate the effects of floors. The adverse effect of floors as market rates increase may also be offset by the positive gap, the extent to which rates on deposits and other funding sources lag increasing market rates for loans and changes in composition of funding.


(in thousands)	0-3 months		4-12 months		1-3 years		3+ years		Total
Assets
Interest bearing cash and cash equivalents	$	3,385,494	$	—	$	—	$	—	$	3,385,494
Investment securities(1)	45,030		244,602		261,821		3,794,516		4,345,969
Variable loans	18,436,757		263,569		31,497		289,861		19,021,684
Fixed loans	22,392		81,532		160,731		883,734		1,148,389
Total loans(2)	18,459,149		345,101		192,228		1,173,595		20,170,073
Total interest sensitive assets	$	21,889,673	$	589,703	$	454,049	$	4,968,111	$	27,901,536
Liabilities
Interest bearing customer deposits	$	11,260,363	$	—	$	—	$	—	$	11,260,363
CDs	520,805		837,973		59,784		189		1,418,751

Total interest bearing deposits	11,781,168		837,973		59,784		189		12,679,114
Short-term borrowings	2,100,000		—		—		—		2,100,000
Long-term debt	386,400		—		174,262		371,457		932,119
Total borrowings	2,486,400		—		174,262		371,457		3,032,119
Total interest sensitive liabilities	$	14,267,568	$	837,973	$	234,046	$	371,646	$	15,711,233
GAP	$	7,622,105	$	(248,270)	$	220,003	$	4,596,465	$	—
Cumulative GAP	$	7,622,105	$	7,373,835	$	7,593,838	$	12,190,303	$	12,190,303
Non-interest bearing deposits									9,500,583
Stockholders’ equity									3,079,974
Total									$	12,580,557

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

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

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While a gap interest table is useful in analyzing interest rate sensitivity, an interest rate sensitivity simulation provides a better illustration of the sensitivity of earnings to changes in interest rates. Earnings are also affected by the effects of changing interest rates on the value of funding derived from non-interest bearing deposits and stockholders’ equity. Management performs a sensitivity analysis to identify interest rate risk exposure on net interest income. Management also quantifies and measures interest rate risk exposure using a model to dynamically simulate the effect of changes in net interest income relative to changes in interest rates over the next twelve months based on 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, SOFR, Bloomberg Short Term Yield Index and other alternative indexes are the basis for most of the variable-rate loan pricing. The 10-year treasury rate is also monitored because of its effect on prepayment speeds for mortgage-backed securities. These are the Company’s primary interest rate exposures. Interest rate derivative contracts may be used to manage exposure to adverse fluctuations in these primary interest rate exposures as is discussed in more detail under the heading Use of Derivatives to Manage Interest Rate and Other Risks below.

For modeling purposes, the “shock test” scenarios as of March 31, 2023 assume immediate, sustained 100 and 200 basis point increases in interest rates as well as 100 and 200 basis point decreases in interest rates. As of March 31, 2022, the scenarios assumed a sustained 100 and 200 basis point increase in interest rates. As short-term rates remained low during the first quarter of 2022, the Company did not believe that analysis of an assumed decrease in interest rates would provide meaningful results. The Company will continue to evaluate these scenarios as interest rates change.

During the first quarter of 2023, the Company’s interest rate risk exposure model incorporated updated assumptions regarding the level of interest rate, including indeterminable maturity deposits (non-interest bearing deposits, interest bearing transaction accounts and savings accounts) and loan and security prepayments behaviors for a given level of market rate change. In the current environment of changing short-term rates, deposit pricing can vary by product and customer. These assumptions have been developed through a combination of historical analysis and projection of future expected pricing behavior. Changes in prepayment behavior of mortgage-backed securities, residential and commercial mortgage loans in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The impact of these changes is factored into the simulation model results for 2023. This modeling indicated interest rate sensitivity as follows:


	Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario
	March 31, 2023								March 31, 2022
	Increase				Decrease				Increase
(in thousands)	100 bps		200 bps		100 bps		200 bps		100 bps		200 bps
Change in net interest income	$	33,709	$	67,032	$	(46,393)	$	(93,297)	$	70,943	$	149,105

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.

Use of Derivatives to Manage Interest Rate and Other Risks

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

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

To manage the sensitivity of earnings and capital to interest rate, prepayment, credit, price and foreign currency fluctuations (asset and liability management positions), the Company may enter into derivative transactions. In addition, the Company enters into interest rate and foreign exchange derivative contracts to support the business requirements of its customers (customer-related positions).

For additional information regarding derivatives, see Note 15 - Derivative Financial Instruments in the accompanying notes to the consolidated financial statements included elsewhere in this report.

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LIBOR Transition

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 extended publication of the most commonly used U.S. dollar LIBOR settings to June 30, 2023 and ceased 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. On March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act, 2022, which provides for a statutory transition to a replacement rate selected by the Federal Reserve based on the SOFR for contracts referencing LIBOR that contain no fallback provisions or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute. On December 16, 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023. The Company has significant but declining 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 June 30, 2023. The Company 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 has worked to successfully ensure that technology systems are prepared for the transition, loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders have been apprised of the transition. Based on the transition progress to date, the Company ceased originating LIBOR-based products and began originating alternative indexed products in December 2021. The Company will continue to transition all remaining LIBOR-based products to an alternative benchmark. The Company will also continue to evaluate the transition process and align its 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.

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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

Other than the risk factors set forth below, there have been no material changes in the risk factors previously disclosed in the 2022 Form 10-K.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system. The recent high-profile bank failures involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

Rising interest rates have decreased the value of the Company’s held-to-maturity securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs. As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity portion of U.S. banks’ securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations. The Company also anticipates increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits. As primarily a commercial bank, the Bank has a high degree of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

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

The Company repurchased shares of its common stock in the open market during the three months ended March 31, 2023 as follows:


				Total Number of	Approximate Dollar Value
				Shares Purchased as Part	of Shares That May Yet
	Total Number of	Average Price Paid		of Publicly Announced	Be Purchased Under the
	Shares Purchased	per Share(2)		Plans or Programs(1)	Plans or Programs(1)
January 2023	564,206	$	61.50	564,206	$	150,000,000
February 2023	—	—		—	150,000,000
March 2023	447,703	55.80		447,703	125,019,420


Total	1,011,909	$	58.98	1,011,909	$	125,019,420

(1) On April 19, 2022, the Company’s board of directors authorized a share repurchase program under which the Company could repurchase up to $150.0 million in shares of its outstanding common stock. In January 2023, the Company completed the full $150.0 million of repurchases authorized under this plan. On January 18, 2023, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $150.0 million in shares of its 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 the Company repurchases shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, the Company’s 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.

(2) The aggregate purchase price and weighted average price per share does not include the effect of excise tax expense incurred on net stock repurchases. For the quarter ended March 31, 2023, excise tax expense totaled $540,000.

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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Exhibits






10.1			Amended and Restated Employment Agreement, dated as of January 23, 2023, between Texas Capital Bancshares, Inc. and Robert C. Holmes, which is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 27, 2023+
10.2			Form of 2023 Time-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan+*
10.3			Form of 2023 Performance-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan+*
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act*
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act*
32.1			Section 1350 Certification of Chief Executive Officer**
32.2			Section 1350 Certification of Chief Financial Officer**
101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			XBRL Taxonomy Extension Schema Document*
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB			XBRL Taxonomy Extension Label Linkbase Document*
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document*
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

** Furnished herewith

+ Management contract or compensatory plan arrangement

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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 20, 2023


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